-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, J4i3uDtaPunA6xTbGy7albBMVCZR06+KeK7vNtKd2WjyzGLxw5ld61q4n4K1NAcM w+gR+urXrL6KSJG97eHNQg== 0000950103-94-001946.txt : 19940404 0000950103-94-001946.hdr.sgml : 19940404 ACCESSION NUMBER: 0000950103-94-001946 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19931231 FILED AS OF DATE: 19940331 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FREEPORT MCMORAN INC CENTRAL INDEX KEY: 0000351116 STANDARD INDUSTRIAL CLASSIFICATION: 2870 IRS NUMBER: 133051048 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 34 SEC FILE NUMBER: 001-08124 FILM NUMBER: 94519759 BUSINESS ADDRESS: STREET 1: 1615 POYDRAS ST CITY: NEW ORLEANS STATE: LA ZIP: 70112 BUSINESS PHONE: 5045824000 10-K 1 ============================================================================== SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1993 OR [ ] 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 1-8124 FREEPORT-McMoRan INC. Organized in Delaware I.R.S. Employer Identification No. 13-3051048 1615 Poydras Street, New Orleans, Louisiana 70112 Registrant's telephone number, including area code: (504) 582-4000 Securities registered pursuant to Section 12(b) of the Act: Name of Each Exchange on Title of Each Class Which Registered ------------------- ---------------- Common Stock Par Value $1.00 per Share New York Stock Exchange $1.875 Convertible Exchangeable Preferred Stock New York Stock Exchange 10 7/8% Senior Subordinated Debentures due 2001 New York Stock Exchange 6.55% Convertible Subordinated Notes due 2001 New York Stock Exchange Zero Coupon Convertible Subordinated Debentures due 2006 New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ____ --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] The aggregate market value of the voting stock held by non-affiliates of the registrant was approximately $2,678,957,000 on March 10, 1994. On March 10, 1994 there were issued and outstanding 140,158,377 shares of the common stock, par value $1.00 per share, of the registrant, not including treasury shares. Documents Incorporated by Reference Portions of each of the registrant's Annual Report to stockholders for the year ended December 31, 1993 (Parts I, II and IV), the registrant's Proxy Statement dated March 31, 1994, submitted to the registrant's stockholders in connection with its 1994 Annual Meeting to be held on May 3, 1994 (Part III) and the Annual Reports on Form 10-K of Freeport-McMoRan Copper & Gold Inc. and Freeport-McMoRan Resource Partners, Limited Partnership for the year ended December 31, 1993 (Part I). ============================================================================== TABLE OF CONTENTS Page ---- Part I ........................................................... 1 Items 1 and 2. Business and Properties ....................... 1 Introduction ................................................ 1 Metals ...................................................... 1 Agricultural Minerals ....................................... 2 Energy ...................................................... 3 Oil and Natural Gas ...................................... 3 Geothermal ............................................... 4 Research and Development .................................... 4 Environmental Matters ....................................... 5 Employees ................................................... 6 Item 3. Legal Proceedings ..................................... 6 Item 4. Submission of Matters to a Vote of Security Holders ... 6 Executive Officers of the Registrant ........................... 6 Part II .......................................................... 7 Item 5. Market for Registrant's Common Equity and Related Stockholder Matters .......................... 7 Item 6. Selected Financial Data .............................. 7 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations ........ 7 Item 8. Financial Statements and Supplementary Data .......... 7 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure .................. 8 Part III ......................................................... 8 Items 10, 11, 12, and 13. Directors and Executive Officers of the Registrant, Executive Compensation, Security Ownership of Certain Beneficial Owners and Management, and Certain Relationships and Related Transactions ... 8 Part IV .......................................................... 8 Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K........................................... 8 Signatures ....................................................... 9 Index to Financial Statements .................................... F-1 Report of Independent Public Accountants ......................... F-1 Exhibit Index .................................................... E-1 PART I ------ Items 1 and 2. Business and Properties. - ---------------------------------------- INTRODUCTION Freeport-McMoRan Inc. ("FTX" or the "Company"(*)), a Delaware corporation formed in 1981, is a leading and diversified natural resource company currently engaged in the exploration for and mining, production and/or processing of copper, gold, silver, sulphur, phosphate rock, phosphate-based fertilizers, uranium, oil and natural gas, and other natural resources. FTX engages in such activities primarily through the following entities: Freeport-McMoRan Copper & Gold Inc. ("FCX"), a Delaware Corporation in which FTX owns an approximate 69.77% interest; Freeport-McMoRan Resource Partners, Limited Partnership ("FRP"), a Delaware limited partnership in which the Company owns an approximate 51.31% interest; and Freeport-McMoRan Oil & Gas Company ("FMOG"), a division of FTX. The Company's reportable industry segments for 1993 are metals, including copper, gold and silver (FCX); agricultural minerals, including sulphur, phosphate fertilizers and phosphate rock (FRP); and energy, including oil and natural gas (FMOG and FRP). For information with respect to industry segments, including foreign operations, export sales and major customers, see Note 10 to the financial statements of FTX and its consolidated subsidiaries referred to on page F-1 hereof (the "FTX Financial Statements"). - -------------------- (*)The term "Company", as used in this report, shall include FTX, its divisions, and its direct and indirect subsidiaries and affiliates, or any one or more of them, unless the context requires FTX only. METALS The Company's metals segment is conducted by FCX. The principal operating subsidiary of FCX is P.T. Freeport Indonesia Company ("PT-FI"), a limited liability company organized under the laws of Indonesia and domesticated in Delaware. PT-FI engages in the exploration for and development, mining, and processing of copper, gold and silver in Indonesia and in the marketing of concentrates containing such metals worldwide. FCX believes that PT-FI has one of the lowest cost copper producing operations in the world, taking into account customary credits for related gold and silver production. FCX owns approximately 81.28% of the outstanding common stock of PT-FI. Of the remaining 18.72% of the outstanding PT-FI common stock, approximately 9.36% is owned by the Government of the Republic of Indonesia (the "Government") and approximately 9.36% is owned by an Indonesian corporation, P.T. Indocopper Investama Corporation, in which FCX owns a 49% interest. FCX also has a subsidiary, Eastern Mining Company, Inc., ("Eastern Mining") which in April 1993 was granted an exploration permit, giving it exclusive rights for a limited period to explore for minerals on 2.5 million acres adjacent to the 6.5 million acre exploration area covered by PT-FI's Contract of Work. In March 1993, FCX acquired a 65% interest in the capital stock of Rio Tinto Minera, S.A. ("RTM"), a company primarily engaged in the smelting and refining of copper concentrates in Spain. In December 1993, RTM redeemed the remaining 35% interest. For further information with respect to the business and properties of FCX, PT-FI, and RTM, reference is made to the discussion in the FCX Annual Report on Form 10-K for the year ended December 31, 1993, under the heading "Items 1 and 2. Business and Properties.", on pages 1 through 12, inclusive, incorporated herein by reference. As of March 15, 1994, there were issued and outstanding 63,803,313 shares of Class A Common Stock of which 1,547,700 shares were held by FTX and 142,129,602 shares of Class B Common Stock, all of which were held by FTX. FCX also has outstanding (i) 8,976,000 depositary shares owned by public investors, each of which represents 2-16/17 shares of 7% Convertible Exchangeable Special Preference Stock; (ii) 14,000,000 depositary shares owned by public investors, each of which represents 0.05 shares of Step-Up Convertible Preferred Stock; (iii) 6,000,000 depositary shares owned by public investors, each of which represents 0.05 shares of Gold-Denominated Preferred Stock; and (iv) 4,305,580 depositary shares owned by public investors, each of which represents 0.05 shares of its Gold-Denominated Preferred Stock, Series II. FCX's Class A Common Stock and Depositary Shares are traded on the New York Stock Exchange ("NYSE"). PT-FI's operations are located in the rugged highlands of the Sudirman Mountain Range in the province of Irian Jaya, Indonesia, located on the western half of the island of New Guinea. Over the last 25 years, PT-FI has met an extraordinary combination of engineering and construction challenges to develop its mining and milling complex and supporting infrastructure in one of the least explored areas in the world. PT-FI's largest mine, Grasberg, discovered in 1988, contains the largest single gold reserve and one of the three largest open-pit copper reserves of any mine in the world. In order to develop the Grasberg deposit, PT-FI undertook an expansion program in stages, initially from 20,000 metric tons of ore per day ("MTPD") to 57,000 MTPD. Expansion from 57,000 MTPD to 66,000 MTPD was completed in 1993 ahead of schedule and within budget. PT-FI has begun work on a further expansion of its overall mining and milling rate to 115,000 MTPD which is expected to be completed by year-end 1995 and to result in annual production rates approaching 1.1 billion pounds of copper and 1.5 million ounces of gold. PT-FI's proved and probable ore reserves at December 31, 1993, were 26.8 billion recoverable pounds of copper, 39.1 million recoverable ounces of gold and 76.7 million recoverable ounces of silver. For further information concerning FCX's reserves of copper, gold and silver, and production, sales and average realized price information, see Note 11 to the FTX Financial Statements. AGRICULTURAL MINERALS The Company's agricultural minerals segment is conducted through FRP and consists of the production, distribution and sale of phosphate fertilizers, the mining and sale of phosphate rock and the extraction of uranium oxide from phosphoric acid through its interest in IMC-Agrico Company, a Delaware General Partnership ("IMC-Agrico"); and the exploration for and mining, transportation and sale of sulphur. For further information with respect to the businesses and properties of FRP, reference is made to the discussion in the FRP Annual Report on Form 10-K for the year ended December 31, 1993 (the "1993 FRP Form 10-K"), under the heading "Items 1 and 2. Business and Properties.", on pages 1 through 13, inclusive, incorporated herein by reference. As the Administrative Managing General Partner of FRP, FTX exercises all management powers over the business and affairs of FRP. FTX also furnishes general executive, administrative, financial, accounting, legal, environmental, tax, research and development, sales and certain other services to FRP and is reimbursed by FRP for all direct and indirect costs in connection therewith. As of March 10, 1994, FTX owned general and limited partnership interests that constituted an approximate 51.31% interest in FRP, with the remaining interest being publicly owned and traded on the NYSE. The public unitholders are entitled, through the cash distribution for the fourth quarter of 1996, to receive minimum quarterly distributions prior to any distribution on the partnership units held by FTX and FMRP Inc., a Managing General Partner and Special General Partner. Prior to the completion of Main Pass Block 299 ("Main Pass"), FRP pursued a policy of funding the cash distribution to unitholders from asset sales and borrowings, in addition to distributable cash from operations. However, with the completion of the Main Pass development, FRP no longer intends to supplement distributable cash with borrowings. For further information, see Note 2 to the FTX Financial Statements. On July 1, 1993, FRP and IMC Fertilizer, Inc. ("IMC") contributed their respective phosphate fertilizer businesses, including the mining and sale of phosphate rock and the production, distribution and sale of phosphate chemicals, uranium oxide and related products, to IMC-Agrico. At the time, FRP and IMC were among the largest integrated phosphate fertilizer producers in the world and both were among the lowest cost producers. As a result of the formation of IMC-Agrico, FRP expects that it and IMC together will be able to achieve by the middle of 1995 at least $95 million per year of savings in aggregate production costs and selling, administrative and general expenses. FRP has completed development of the Main Pass sulphur and oil reserves which it discovered in 1988 and in which it has a 58.3% interest. Sulphur production at minimal levels began during the second quarter of 1992. Sulphur production achieved full design operating rates of 5,500 long tons per day (approximately 2 million long tons per year) on schedule in December 1993, and has since sustained production at or above that level. For further information concerning FRP's reserves of sulphur and phosphate rock and sales information, see Note 11 to the FTX Financial Statements. ENERGY Oil and Natural Gas - ------------------- The Company engages in the exploration and development of oil and gas(*) properties and the production and sale of oil and gas in the continental United States primarily through FMOG. In the international arena, the Company conducts oil and gas operations through subsidiaries. During 1993, the Company engaged in domestic oil and gas exploration, development and/or production primarily in the Gulf of Mexico, offshore Louisiana and Texas, onshore Louisiana and engaged in international exploration. - -------------------- (*) As used hereinafter, "oil" refers to crude oil, condensate and natural gas liquids, and "gas" refers to natural gas. The principal FTX oil interest is held by FRP, which is engaged in the development and production of oil reserves at Main Pass associated with the same caprock reservoir as the sulphur reserves. The Main Pass property consists of 1,125 gross acres (656 acres net to FRP). FRP currently estimates remaining proved recoverable oil reserves at Main Pass as of December 31, 1993 to be 20.8 million barrels (10 million barrels net to FRP). The development and production of these reserves are being conducted by FMOG on behalf of FRP, as operator of the joint venture, pursuant to a management services agreement. Oil production commenced in the fourth quarter of 1991 and averaged approximately 19,400 barrels per day (9,400 barrels per day net to FRP) during 1993. For further information with respect to Main Pass and FTX's interest in FRP, see the heading "Agricultural Minerals" above. For further information with respect to the businesses and properties of FRP, reference is made to the discussion in the 1993 FRP Form 10-K under the heading "Items 1 and 2. Business and Properties.", on pages 1 through 13, inclusive, incorporated herein by reference. For information relating to estimates of the Company's net interests in proved oil reserves, sales and average realized price, see Note 11 to the FTX Financial Statements. No favorable or adverse event or major discovery has occurred since December 31, 1993, that the Company believes would cause a significant change in estimated proved reserves. The Company's capitalized oil and gas exploration and development expenditures (including those attributable to minority interests) were $40.4 million in 1993. Geothermal - ---------- In April 1993, FRP sold its remaining interests in producing geothermal properties for $63.5 million to Calpine Corporation, consisting of $23 million in cash and interest-bearing notes totaling $40.5 million, recognizing a $31 million charge to expense and recording a $9 million charge for impairment of its undeveloped geothermal properties. These notes provided that the entire principal amount could be repaid at a discount according to a specified schedule. FRP received a prepayment of $36.9 million, including accrued interest, in February 1994, which represented full payment on these notes. In 1993 FRP sold its undeveloped geothermal energy assets located in the Salton Sea area of the Imperial Valley of southern California to Magma Power Company, and certain of its affiliates, for consideration consisting of a current cash payment and the right to future payments based on the development of geothermal projects on its former leases. FRP still retains its undeveloped geothermal energy assets located in the Medicine Lake area of northern California. RESEARCH AND DEVELOPMENT In February 1993, FTX outsourced its corporate engineering, research and development, corporate environmental and corporate safety functions and, to that end, contracted with a new company initially owned and staffed by former employees of FTX, Crescent Technology, Inc. ("Crescent"), that furnishes similar services to the Company. Crescent owns and operates laboratory and pilot plant facilities at Belle Chasse, Louisiana, where mineral analyses, metallurgical work and other research and testing are conducted which contribute to the Company's commercial operations. Additionally, Crescent maintains engineering and mine development groups in New Orleans, Louisiana, which provide the engineering, design and construction supervision activities required to implement new ventures and apply improvements to existing operations. ENVIRONMENTAL MATTERS The Company has a history of commitment to environmental responsibility. Since the 1940s, long before the general public recognized the importance of maintaining environmental quality, the Company has conducted preoperational, bioassay, marine ecological and other environmental surveys to ensure the environmental compatibility of its operations. The Company's Environmental Policy commits its operations to full compliance with applicable laws and regulations, and prescribes the use of periodic environmental audits of all domestic facilities to evaluate compliance status and to communicate that information to management. FTX has contracted with Crescent to develop and implement corporatewide environmental programs and to study and implement methods to reduce discharges and emissions. For information concerning the outsourcing of certain of FTX's functions, see "Research and Development" above. The Company's domestic operations are subject to federal, state and local laws and regulations relating to the protection of the environment. Exploration, mining, development and production of natural resources, and chemical processing operations of the Company, like similar operations of other companies, may affect the environment. Moreover, such operations may involve the extraction, handling, production, processing, treatment, storage, transportation and disposal of materials and waste products which, under certain conditions, may be toxic or hazardous, and expressly regulated under environmental laws. Present and future environmental laws and regulations applicable to Company operations may require substantial capital expenditures or affect the Company's operations in other ways that cannot now be accurately predicted. The Company has made, and continues to make, expenditures with respect to its operations for the protection of the environment. In 1992, at a cost of $35.7 million, FRP completed the replacement of two sulphuric acid production units at an existing fertilizer plant thereby substantially reducing air emissions and increasing plant efficiency. As successor to FRP, IMC-Agrico completed at the end of 1993, at a cost of $27 million, an innovative drainage and cover plan for phosphogypsum storage areas in Louisiana to substantially reduce substances in wastewater discharged from its fertilizer operations, while at the same time increasing the capacity of these storage areas. Future operations of this kind are projected to require additional investments of $30 million between 1994 and 2004. Continued government and public emphasis on environmental issues can be expected to result in increased future investments for environmental controls. On analyzing its operations in relation to current and anticipated environmental requirements, the Company does not expect that these investments will have a significant impact on its future operations or financial condition. For further information with respect to environmental matters, reference is made to the information set forth in Item 7 below. EMPLOYEES As of December 31, 1993, the Company had a total of 7,658 employees, compared with 7,957 employees at year-end 1992. Approximately 40% of PT-FI's Indonesian employees are members of the All Indonesia Workers' Union, which operates under governmental supervision, with which a labor agreement covering PT-FI's hourly-paid Indonesian employees runs until September 30, 1995. There were no work stoppages in 1993, and relations with the unions have generally been good. Approximately 82% of RTM's employees are covered by union contracts. RTM experienced limited work stoppages in 1993, but relations with these unions have generally been good. The management of the Company believes that it has good relations with all other personnel employed in its domestic and international operations. Item 3. Legal Proceedings. - --------------------------- Although the Company may be from time to time involved in various legal proceedings of a character normally incident to the ordinary course of its businesses, the Company believes that potential liability in any such pending or threatened proceedings would not have a material adverse effect on the financial condition or results of operations of the Company. FTX maintains liability insurance to cover some, but not all, potential liabilities normally incident to the ordinary course of its businesses as well as other insurance coverages customary in its businesses, with such coverage limits as management deems prudent. Item 4. Submission of Matters to a Vote of Security Holders. - ------------------------------------------------------------- Not applicable. Executive Officers of the Registrant. - ------------------------------------- Listed below are the names and ages, as of March 15, 1994, of the present executive officers of FTX together with the principal positions and offices with FTX held by each. All officers of FTX serve at the pleasure of the Board of Directors of FTX. Name Age Position or Office ---- --- ------------------ James R. Moffett 55 Chairman of the Board and Chief Executive Officer Rene L. Latiolais 51 President and Chief Operating Officer George A. Mealey 60 Executive Vice President John G. Amato 50 General Counsel Richard C. Adkerson 47 Senior Vice President Richard H. Block 43 Senior Vice President Thomas J. Egan 49 Senior Vice President Charles W. Goodyear 36 Senior Vice President W. Russell King 44 Senior Vice President The individuals listed above, with the exceptions of Messrs. Adkerson, Amato, and Goodyear, have served the Company in various executive capacities for at least the last five years. Until 1989, Mr. Adkerson was a partner in Arthur Andersen & Co., an independent public accounting firm, and Mr. Goodyear was a Vice President of Kidder, Peabody & Co. Incorporated, an investment banking firm. During the past five years, and prior to that period, Mr. Amato has been engaged in the private practice of law and has served as outside counsel to the Company. PART II --------- Item 5. Market for Registrant's Common Equity and Related Stockholder ----------------------------------------------------------------------- Matters. -------- The information set forth under the captions "Common Shares" and "Common Share Dividends", on the inside back cover of FTX's 1993 Annual Report to stockholders, is incorporated herein by reference. As of March 10, 1994, there were 26,596 record holders of FTX's common stock. Item 6. Selected Financial Data. - --------------------------------- The information set forth under the caption "Financial Highlights" on page 1 of FTX's 1993 Annual Report to stockholders, is incorporated herein by reference. FTX's ratio of earnings to fixed charges for each of the years 1989 through 1993, inclusive, was 2.5x, 5.6x, 1.6x, 2.5x and a shortfall of $239.1 million, respectively. For this calculation, earnings are income from continuing operations before income taxes, minority interests and fixed charges. Fixed charges are interest, that portion of rent deemed representative of interest and the preferred stock dividend requirements of majority-owned subsidiaries. Item 7. Management's Discussion and Analysis of Financial Condition and - ------------------------------------------------------------------------ Results of Operations. --------------------- ORE RESERVE ADDITIONS AND ONGOING EXPLORATION PROGRAM Total estimated proved and probable recoverable reserves at P.T. Freeport Indonesia Company (PT-FI), Freeport-McMoRan Copper & Gold Inc.'s (FCX) principal operating unit, have increased since December 31, 1992, by 5.9 billion pounds of copper (a 28 percent increase), 7.0 million ounces of gold (a 22 percent increase), and 32.0 million ounces of silver (a 72 percent increase), bringing PT-FI's total year-end 1993 estimated proved and probable recoverable reserves to 26.8 billion pounds of copper, 39.1 million ounces of gold, and 76.7 million ounces of silver. The increases, net of production during the year, were added primarily at the Grasberg deposit, but also include additions at the underground mine at the DOZ (Deep Ore Zone) deposit and the recently discovered Big Gossan deposit. In addition to continued delineation of the Grasberg deposit and other deposits including Big Gossan, PT-FI is proceeding with its ongoing exploration program for mineralization within the original mining area. During 1993, PT-FI initiated helicopter-supported surface drilling of the Wanagon gold/silver/copper prospect, located 1.5 miles northwest of Big Gossan and 2 miles southwest of Grasberg, where seven holes were drilled. Significant copper mineralization has been encountered below the 2,900 meter elevation. Preliminary exploration of the new contract of work area (New COW Area) has indicated numerous promising targets. Extensive stream sediment sampling within the new acreage has generated analytical results which are being evaluated. This sampling program, when coupled with regional mapping completed on the ground and from aerial photographs, has led to the outlining of over 50 exploration targets. PT-FI has also completed a fixed-wing air-magnetometer survey of the entire New COW Area. Detailed follow-up exploration of these anomalies by additional mapping and sampling and through the use of both aerial and ground magnetic surveys is now in progress. Systematic drilling of these targets has already commenced with significant mineralization being discovered at several prospects. Additional drilling is required to determine if any of these are commercially viable. Initial surface and stream sampling began on an additional 2.5 million acres, just north and west of our existing COW area, on which an affiliate has an exploration permit and a pending COW. 1993 RESULTS OF OPERATIONS COMPARED WITH 1992 1993 1992 -------- -------- (In Millions, Except Per Share Amounts) Revenues $1,610.6 $1,654.9 Operating income (loss) (93.4)(a) 251.9 Net income (loss) applicable to common stock (126.2)(b) 169.1(c) Net income (loss) per primary share (.89)(b) 1.17(c) Earnings by sources:(d) Metals $173.5 $283.6 Agricultural minerals (55.9) 18.0 Energy (39.7) (28.2) Other (37.8) (19.9) -------- -------- Segment earnings $ 40.1 $253.5 ======== ======== a. Includes a pretax charge of $196.4 million related to restructuring the administrative organization, the loss on the sale of the Freeport- McMoRan Resource Partners, Limited Partnership (FRP) producing geothermal assets, the charge to expense for the recoverability of certain assets, and adjustments to general and administrative expenses and production and delivery costs discussed below, net of the gain on the sale of a nonproducing oil and gas property and certain previously mined phosphate rock acreage (Note 4). b. Includes a $37.5 million charge ($.25 per share) related to the items discussed in Note A, net of a gain on the conversion of FCX notes (Note 5). Also includes a $20.7 million charge ($.15 per share), after taxes and minority interests, for the cumulative effect of the changes in accounting principle (Note 1). c. Includes a $134.7 million gain ($.93 per share) on the sale/conversion of FCX securities (Notes 2 and 5). d. Operating income plus other income, less provision for restructuring charges and the gain/loss on valuation and sale of assets from the Statements of Operations. After discussions with the staff of the Securities and Exchange Commission (SEC), Freeport-McMoRan Inc. (FTX or the Company) is reclassifying certain expenses and accruals previously recorded in 1993 as restructuring and valuation of assets. In response to inquiries, the Company advised the SEC staff that $27.4 million originally reported as restructuring and valuation of assets represented the cumulative effect of changes in accounting principle resulting from the adoption of the new accounting policies that the Company considered preferable, as described in Note 1 to the financial statements. The Company also informed the SEC staff of the components of other charges included in the amount originally reported as restructuring and valuation of assets. The Company concluded that the reclassification and the related supplemental disclosures more accurately reflect the nature of these charges to 1993 net income in accordance with generally accepted accounting principles. These reclassifications had no impact on net income or net income per share. FTX incurred a net loss applicable to common stock for 1993 of $126.2 million compared with income of $169.1 million for 1992. Excluding the items footnoted in the table above, 1993 earnings reflected reduced earnings from its metals and agricultural minerals business segments, generally caused by lower product realizations (see operating statistics in Note 11 to the financial statements). The reduction in general and administrative expenses reflects the initial benefits from the restructuring during the first half of 1993. Interest expense increased, as no interest was capitalized on the Main Pass sulphur operations subsequent to it becoming operational for accounting purposes in July 1993. FTX's 1993 effective tax rate for operations (excluding the net credit attributable to the nonrecurring items) rose due to the higher portion of income from FTX's metals operations in Indonesia, where the effective tax rate is higher, and from a $15.7 million loss at Rio Tinto Minera, S.A. (RTM) for which no tax benefit is recorded. Additionally, minority interests' share of net income was impacted by an increase in FCX's preferred stock dividend requirements following the issuance of additional FCX preferred stock during 1993 (Note 2). FTX recognized its proportionate share of FRP's earnings, including the recognition of a portion of the gain deferred by FTX (Note 2), during 1993 and 1992. If in future quarters FTX were to receive no distributions from FRP, the deferred gain would be fully recognized in the third quarter of 1994. Subsequent to the recognition of the balance of the deferred gain, when FRP distributions are not paid to FTX in any quarter, FTX will recognize a smaller share of any FRP net income, or a larger share of any FRP net loss, than that which would be recognized based on FTX's ownership interest in FRP. Restructuring Activities. During the second quarter of 1993, FTX undertook a restructuring of its administrative organization. This restructuring represented a major step by FTX to lower its costs of operating and administering its businesses in response to weak market prices of the commodities produced by its operating units. As part of this restructuring, FTX significantly reduced the number of employees engaged in administrative functions, changed its management information systems (MIS) environment to achieve efficiencies, reduced its needs for office space, outsourced a number of administrative functions, and implemented other actions to lower costs. As a result of this restructuring process, the level of FTX's administrative cost has been reduced substantially over what it would have been otherwise, which benefit will continue in the future. However, the restructuring process entailed incurring certain one-time costs by FTX. FTX's restructuring costs totaled $67.1 million, consisting of the following: $30.3 million for personnel related costs; $15.0 million relating to excess office space and furniture and fixtures resulting from the staff reduction; $8.2 million relating to the cost to downsize its computing and MIS structure; $4.8 million of deferred charges relating to FTX's and PT-FI's credit facilities which were substantially revised in June 1993; and $8.8 million related to costs directly associated with the formation of IMC-Agrico Company, discussed below. As of December 31, 1993, the remaining accrual for these restructuring costs was approximately $7 million. In connection with the restructuring project, FTX changed its accounting systems and undertook a detailed review of its accounting records and valuation of various assets and liabilities. As a result of this process, FTX recorded charges totaling $65.1 million, comprised of the following: (a) $26.2 million of production and delivery costs consisting of $10.4 million for revised estimates of prior year costs; $6.3 million for revised estimates of environmental liabilities; $5.0 for materials and supplies inventory obsolescence; and $4.5 million of adjustments in converting accounting systems, (b) $18.7 million of depreciation and amortization costs consisting of $11.5 million for estimated future abandonment and reclamation costs and $7.2 million for the write-down of miscellaneous properties, (c) $4.4 million of exploration expenses for the write-down of an unproved oil and gas property, and (d) $15.8 million of general and administrative expenses consisting of $9.4 million to downsize FTX's computing and MIS structure and $6.4 million for the write-off of miscellaneous assets. Metals Operations. The Company's metals segment operations are conducted through its affiliate FCX, and FCX's operating units PT-FI and RTM. FCX contributed 1993 earnings of $173.5 million on revenues of $925.9 million compared with earnings of $283.6 million on revenues of $714.3 million for 1992. Significant items impacting the segment earnings are as follows (in millions): Metals earnings - 1992 $283.6 Major increases (decreases) RTM revenues 288.4 Elimination of intercompany sales (47.7) Concentrate: Realizations: Copper (84.7) Gold 14.7 Sales volumes: Copper (5.5) Gold 30.2 Treatment charges 23.6 Adjustments to prior year concentrate sales (13.0) Other 5.6 ------ Revenue variance 211.6 Cost of sales (277.8)* Exploration expenses (21.6) General and administrative and other (22.3)* ------ (110.1) ------ Metals earnings - 1993 $173.5 ====== * Includes $10.0 million in cost of sales and $6.3 million in general and administrative expenses resulting from the restructuring project discussed above. Revenues in 1993 increased as a result of the acquisition of RTM, adding sales of copper cathodes and anodes ($204.9 million), gold bullion ($57.4 million), and other products ($26.1 million). Excluding RTM, revenues declined 4 percent when compared to 1992. Copper price realizations, taking into account PT-FI's $.90 per pound price protection program, were 12 percent lower than in 1992, but gold price realizations were up 6 percent. Although ore production averaged 62,300 metric tons of ore milled per day (MTPD) in 1993 (8 percent higher than in 1992), copper sales volumes decreased slightly from 1992 primarily because of sales from inventory in 1992. Gold sales volumes in 1993 benefited from significantly higher fourth-quarter 1993 gold grades (a 46 percent increase over fourth- quarter 1992 and a 38 percent increase over third-quarter 1993), which are not anticipated to continue in 1994, and an increase in gold recovery rates for the year which improve with higher gold grades. Revenues also benefited from a decline in treatment charges of 3.4 cents per pound from 1992, resulting from a tightening in the concentrate market as the industry's inventories were reduced for much of 1993. Additionally, lower copper prices led to lower treatment charges since these charges vary with the price of copper. Adjustments to prior year concentrate sales include changes in prices on all metals for prior year open sales as well as the related impact on treatment charges. Open copper sales at the beginning of 1993 were recorded at an average price of $1.04 per pound, but subsequently were adjusted downward as copper prices fell during the year, negatively impacting 1993 revenues. As of December 31, 1993, 213.4 million pounds of copper remained to be contractually priced during future quotational periods. As a result of PT-FI's price protection program, discussed below, these pounds are recorded at $.90 per pound. The copper price on the London Metal Exchange (LME) was $.84 per pound on February 1, 1994. In June 1993, two of PT-FI's four mill level ore passes caved, resulting in a blockage of a portion of the ore pass delivery system. The blockage's primary effect was to limit mill throughput to approximately 40,700 MTPD for approximately eight weeks. The impact of the blockage was minimized by using an ore stockpile adjacent to the mill and installing conveyors to alternative ore pass systems. The ore pass blockage has been rectified through the temporary use of alternative delivery systems and by- passes. A permanent delivery system is expected to be in service by mid- 1994. The copper recovery rate for 1993 was adversely affected because the ore milled from the stockpile contained higher than normal oxidized copper, which yields lower copper recoveries. The Company's insurance policies are expected to cover the property damage and business interruption claims relative to the blockage. PT-FI's unit site production and delivery costs, excluding $10.0 million of charges related to the restructuring project, increased slightly from 1992 primarily as a result of costs incurred in connection with the ore pass blockage and an increase in production overhead costs related to expansion activities. Unit cash production costs declined significantly to 31.1 cents per pound in 1993 from 40.7 cents per pound in 1992, benefiting from higher gold and silver credits, lower treatment charges, and reduced royalties primarily due to lower copper prices on which such royalties are based. PT-FI's depreciation rate increased from 7.4 cents per recoverable pound during 1992 to 8.3 cents in 1993, reflecting the increased cost relating to the 66,000 MTPD expansion. As a result of the reserve additions discussed earlier, PT-FI's depreciation rate is expected to decrease to 7.5 cents per recoverable payable pound for 1994, absent any other significant changes in ore reserves. In addition, FCX is amortizing costs in excess of book value ($2.4 million of amortization in 1993) relating to certain capital stock transactions with PT-FI. Amortization of these excess costs is expected to be $3.6 million per year starting in 1994. Exploration expenditures in Irian Jaya totaled $31.7 million in 1993, compared to $12.2 million in 1992 and are projected to be approximately $35 million in 1994. Exploration expenditures in Spain are expected to be approximately $6 million in 1994. FCX's general and administrative expenses increased from $68.5 million in 1992 to $81.4 million in 1993 primarily because of the increased personnel and facilities needed due to the expansion at PT-FI and the acquisition of RTM. Included in the 1993 expense is $5.0 million at RTM (since its acquisition in March 1993) and charges totaling $6.3 million resulting from the restructuring project discussed above. Further increases in general and administrative expenses are anticipated in conjunction with continuing expansion at PT-FI. Metals segment general and administrative expenses, including those of RTM, are currently expected to increase by approximately 25 percent in 1994. PT-FI's copper concentrates, which contain significant amounts of recoverable gold and silver, are sold primarily under long-term sales agreements which accounted for virtually all of PT-FI's 1993 sales. PT-FI has commitments from various parties to purchase virtually all of its estimated 1994 production. Concentrate sales agreements provide for provisional billings based on world metals prices, primarily the LME, generally at the time of loading. As is customary within the industry, sales under these long-term contracts usually "final-price" within a few months of shipment. Certain terms of the long-term contracts, including treatment charges, are negotiated annually on a portion of the tonnage to reflect current market conditions. Treatment charges have declined during 1993 as a result of the tightening in the concentrate market and are expected to remain at or below 1993 levels. RTM has commitments from most of its suppliers for 1994 treatment charge rates in excess of current spot market rates. The increased production at PT-FI has required it to market its concentrate globally. Its principal markets include Japan, Asia, Europe, and North America. PT-FI's mill throughput is currently forecast to be approximately 67,000 MTPD for 1994 as it continues to integrate new mill equipment for the expansion to 115,000 MTPD. Current estimates for 1994 production are approximately 700 million pounds of copper and 780,000 ounces of gold for PT-FI and 165,000 ounces of gold at RTM. RTM, whose smelter can be expanded, was acquired to provide low-cost smelter capacity for a portion of PT-FI's concentrate and to improve PT-FI's competitive position in marketing concentrate to other parties. During 1993, copper prices dropped to their lowest levels since 1987, reflecting lower demand caused by the continuing global recession, but recovered to a level in excess of $.80 per pound. Prices for copper, gold, and silver are influenced by many factors beyond the Company's control and can fluctuate sharply. PT-FI has a price protection program for virtually all of its estimated copper sales to be priced in 1994 at an average floor price of $.90 per pound of copper, while allowing full benefit from prices above this amount. Based on projected 1994 PT-FI copper sales of approximately 720 million pounds, a 1 cent per pound change in the average annual copper price received over $.90 per pound would have an approximately $6 million effect on pretax operating income and cash flow. Based on projected 1994 gold sales of approximately 800,000 ounces by PT- FI, a $10 per ounce change in the average annual gold price received would have an approximately $8 million effect on pretax operating income and cash flow. Agricultural Minerals Operations. FRP and IMC Fertilizer, Inc. (IMC) formed a joint venture (IMC-Agrico Company), effective July 1, 1993, for their respective phosphate fertilizer businesses, including phosphate rock and uranium. IMC-Agrico Company is governed by a policy committee having equal representation from each company and is managed by IMC. Combined annual savings of at least $95 million in production, marketing, and general and administrative costs are expected to result from this transaction, the full effect beginning by the end of the second year of operations. The operating efficiencies achievable by the joint venture should enable it to generate positive cash flow in a low-price environment, such as that experienced in 1993, and to be in a position to earn significant profits if product prices rise to historical levels. As discussed above and in Note 4 to the financial statements, significant restructuring charges were recorded in connection with this transaction. As a result of the joint venture, FRP is engaged in the phosphate rock mining, fertilizer production, and uranium oxide extraction businesses only through IMC-Agrico Company. FRP will continue to operate its sulphur and oil businesses. FRP has varying sharing ratios in IMC-Agrico Company, as discussed in Note 2 to the financial statements, which were based on the projected contributions of FRP and IMC to the cash flow of the joint venture and on an equal sharing of the anticipated savings. FRP transferred the assets it contributed to IMC-Agrico Company at their book carrying cost and proportionately consolidates its interest in IMC-Agrico Company. As a result, FRP's operating results subsequent to the formation of IMC-Agrico Company vary significantly in certain respects from those previously reported. Phosphate fertilizer realizations and unit production costs were fundamentally changed as the majority of the FRP contributed fertilizer production facilities are located on the Mississippi River, whereas the IMC contributed fertilizer production facilities are located in Florida. Fertilizer produced on the Mississippi River commands a higher sales price in the domestic market because of its proximity to markets; however, raw material transportation costs at the Florida facilities are lower for phosphate rock, partially offset by increased sulphur transportation costs. The Company's agricultural minerals segment, which includes FRP's fertilizer, phosphate rock, and sulphur businesses, reported a loss of $55.9 million on revenues of $619.3 million for 1993 compared with earnings of $18.0 million on revenues of $799.0 million for 1992. Significant items impacting the segment earnings are as follows (in millions): Agricultural minerals earnings - 1992 $ 18.0 Major increases (decreases) Sales volumes (67.4) Realizations (103.2) Other (9.1) ------ Revenue variance (179.7) Cost of sales 81.4* General and administrative and other 24.4* ------ (73.9) ------ Agricultural minerals earnings - 1993 $(55.9) ====== * Includes $17.5 million in cost of sales and $7.3 million in general and administrative expenses resulting from the restructuring project discussed above. Weak industrywide demand and changes attributable to FRP's participation in IMC-Agrico Company resulted in FRP's 1993 reported sales volumes for diammonium phosphate (DAP), its principal fertilizer product, declining 17 percent from that of a year-ago. The weakness in the phosphate fertilizer market prompted IMC-Agrico Company to make strategic curtailments in its phosphate fertilizer production. However, late in the year increased export purchases contributed to a rise in market prices, helping to rekindle domestic buying interests which had been unwilling to make purchase commitments. The increased demand, coupled with low industrywide production levels, caused reduced inventory levels. Late in 1993, IMC-Agrico Company increased its production levels in response to the improving markets and projected domestic and international demand for its fertilizer products. Unit production cost, excluding charges related to the restructuring project, declined from 1992 reflecting initial production efficiencies from the joint venture, reduced raw material costs for sulphur, and lower phosphate rock mining expenses, partially offset by increased natural gas costs and lower production volumes. FRP's realization for DAP was lower reflecting the near 20-year low prices realized during 1993 as well as an increase in the lower-priced Florida sales by IMC-Agrico Company. FRP believes that the outlook for 1994 is for improved prices caused by more normal market demand. Spot market prices improved from a low of nearly $100 per short ton of DAP (central Florida) in July 1993 to just over $140 per ton by year end. Industry inventories at year end were below average levels, despite a fourth quarter rebound in industry production. Export demand is expected to remain at more normal levels during the first half of 1994, with China, India, and Pakistan expected to be active purchasers. Additionally, domestic phosphate fertilizer demand is expected to benefit from increased corn acreage planted due to lower government set- asides and to increased fertilizer application rates necessitated by the widespread flooding that caused a depletion of nutrients in a number of midwestern states. FRP's proportionate share of the larger IMC-Agrico Company phosphate rock operation caused 1993 sales volumes to increase from 1992, with IMC- Agrico Company operating its most efficient facilities to minimize costs. Combined sulphur production from the Caminada and Main Pass mines increased compared with 1992; however, sales volumes declined 16 percent, primarily because of reduced purchases by IMC-Agrico Company resulting from its curtailed fertilizer production. Due to the significant decline in the market price of sulphur, FRP recorded a second-quarter 1993 noncash charge to earnings (not included in segment earnings) for the excess of capitalized cost over expected realization of its non-Main Pass sulphur assets, primarily the Caminada sulphur mine (Note 4). Due to significant improvements in Main Pass sulphur production, FRP ceased the marginally profitable Caminada operations in January 1994. The shutdown of Caminada will have no material impact on FTX's reported earnings. Although reduced global demand has forced production cutbacks worldwide, sulphur prices remain depressed. A rebound in price is not expected until demand improves. At Main Pass, sulphur production increased significantly during 1993 and achieved, on schedule, full design operating rates of 5,500 tons per day (approximately 2 million tons per year) in December 1993 and has since sustained production at or above that level. As a result of the production increases, Main Pass sulphur became operational for accounting purposes beginning July 1, 1993. Recognizing Main Pass sulphur operations in income and discontinuing associated capitalized interest did not affect cash flow, but adversely affected reported operating results. Oil and Gas Operations. During the second quarter of 1992, FTX transferred substantially all of its non-Main Pass oil and gas properties to FM Properties Inc. (FMPO), whose shares were distributed to FTX shareholders. Currently, FTX's oil and gas operations (excluding Main Pass oil operations) involve exploring for new reserves. These activities generated a 1993 loss of $38.2 million, including exploration expense of $22.3 million and $11.5 million of charges resulting from the restructuring project, compared with a 1992 loss of $32.8 million, including exploration expense of $18.3 million. In July 1993, FTX sold its interest in the recently discovered undeveloped reserves at East Cameron Blocks 331/332, offshore Louisiana in the Gulf of Mexico, for $95.3 million cash, recognizing a pretax gain of $69.1 million (not included in segment earnings). FTX had drilled seven development wells, then sold the property before setting permanent production facilities. Main Pass oil operations achieved the following: 1993 1992 --------- --------- Sales (barrels) 3,443,000 4,884,000 Average realized price $14.43 $15.91 Earnings (in millions) $(1.5) $4.6 Since completion of development drilling in mid-April 1993, oil production for the Main Pass joint venture (in which FRP owns a 58.3 percent interest) increased significantly, averaging over 20,000 barrels per day for December 1993. Production for 1994 is expected to approximate that of 1993 if water encroachment follows current trends, with the anticipated drilling of additional wells (estimated to cost FRP approximately $4 million) offsetting a production decline in existing wells. Due to the dramatic decline in oil prices at year-end, FRP recorded a $60.0 million charge to earnings (not included in segment earnings) reflecting the excess net book value of its Main Pass oil investment over the estimated future net cash flow to be received. Future price declines, increases in costs, or negative reserve revisions could result in an additional charge to future earnings. CAPITAL RESOURCES AND LIQUIDITY Cash flow from operating activities declined in 1993 to $117.3 million from $339.6 million for 1992, due to lower income from operations partially offset by working capital changes. Net cash used in investing activities was $429.0 million compared with $885.5 million for 1992. Increased metals capital expenditures were incurred associated with PT-FI's expansion whereas lower capital expenditures were incurred at Main Pass and in FRP's agricultural minerals operations, due to completion of development projects in 1992. Asset sales generated proceeds of $145.2 million during 1993, whereas 1992 included a use of $211.9 million for the purchase of an indirect interest in PT-FI. Net cash used in financing activities was $29.5 million, whereas 1992 provided net cash of $837.3 million. The 1993 period includes $561.1 million of proceeds from the FCX preferred stock offerings, whereas 1992 includes $1.3 billion of proceeds from equity security offerings. Increased distributions to minority interest holders of FCX and FRP securities as a result of the equity sales during 1993 and 1992 were offset by reduced FTX common stock purchases. Net long-term debt repayments were $159.5 million in 1993 versus net borrowings of $53.7 million in 1992. Cash flow from operations for 1992 totaled $339.6 million, up from $249.9 million in 1991, as increased income from operations was partially offset by working capital changes. Net cash used in investing activities increased to $885.5 million in 1992 compared with $408.0 million for 1991, primarily due to the purchase of the indirect PT-FI interest partially offset by lower overall capital expenditures, while 1991 included $461.5 million in proceeds from the sale of oil and gas assets. Cash flow from financing activities totaled $837.3 million in 1992 compared with $200.1 million in 1991, reflecting increased issuance of equity securities by FTX and its affiliates, receipt of proceeds from the 1991 sale of PT-FI common shares, and net long-term borrowings, partially offset by increased FTX common stock purchases and cash dividends on FTX stock and distributions to minority interests due to the additional FTX preferred stock and FRP and FCX equity securities issued during 1992. RTM's principal operations currently consist of a copper smelter. The FCX purchase proceeds will be used by RTM for working capital requirements and capital expenditures, including funding a portion of the expansion of its smelter production capacity (expected to cost approximately $50 million) from its current 150,000 metric tons of metal per year to 180,000 metric tons of metal per year by mid-1995. RTM is also studying further expansion of the smelter facilities to as much as 270,000 metric tons of metal production per year and is assessing the opportunity to expand its tankhouse operations from 135,000 metric tons per year to 215,000 metric tons per year. RTM's 1993 cash flow from operations was negative primarily due to cash requirements related to shutdown costs for RTM's gold mine. RTM has relied on short-term credit facilities and the FCX purchase proceeds to fund this shortfall. RTM is currently evaluating financing alternatives to fund its short-term needs and to provide long-term funding for expansion. RTM's future cash flow is dependent on a number of variables including fluctuations in the exchange rate between the United States dollar and the Spanish peseta, future prices and sales volumes of gold, the size and timing of the smelter and tankhouse expansions, and the supply/demand for smelter capacity and its impact on related treatment and refining charges. During 1992, FCX established the Enhanced Infrastructure Project (EIP). The full EIP (currently expected to involve aggregate cost of as much as $500 million to $600 million) includes plans for commercial, residential, educational, retail, medical, recreational, environmental and other infrastructure facilities to be constructed during the next 20 years for PT-FI operations. The EIP will develop and promote the growth of local and other third-party activities and enterprises in Irian Jaya through the creation of certain necessary support facilities. The initial phase of the EIP is under construction and is scheduled for completion in 1995. Additional expenditures for EIP assets beyond the initial phase depend on the long-term growth of PT-FI's operations and would be expected to be funded by third-party financing sources, which may include debt, equity or asset sales. As discussed in Note 9 to the financial statements, certain portions of the EIP and other existing infrastructure assets are expected to be sold in the near future to provide additional funds for the expansion to 115,000 MTPD. Through 1995, FTX's capital expenditures are expected to be greater than cash flow from operations. Upon completion of FCX's previously announced 115,000 MTPD expansion by year-end 1995, annual production is expected to approach 1.1 billion pounds of copper and 1.5 million ounces of gold. Completion of the FCX expansion, along with the additional cash flow generated through savings achieved by IMC-Agrico Company, are expected to enhance FTX's financial flexibility. Subsequently, capital expenditures will be determined by the results of FCX's exploration activities and ongoing capital maintenance programs. Estimated capital expenditures for 1994 and 1995 for the expansion to 115,000 MTPD, the initial phase of the EIP, ongoing capital maintenance expenditures, and the expansion of RTM's smelter to 180,000 metric tons of metal per year are expected to range from $850 million to $950 million and will be funded by operating cash flow, sales of existing and to-be-constructed infrastructure assets and a wide range of financing sources the Company believes are available as a result of the future cash flow from FTX's mineral reserve asset base. These sources include, but are not limited to, FTX's credit facility (Note 5) and the public and private issuances of securities. The new contract of work (New COW) contains provisions for PT-FI to conduct or cause to be conducted a feasibility study relating to the construction of a copper smelting facility in Indonesia and for the eventual construction of such a facility, if it is deemed to be economically viable by PT-FI and the Government of Indonesia. PT-FI has participated in a group assessing the feasibility of constructing a copper smelting facility in Indonesia. The New COW also provides that the Indonesian government will not nationalize the mining operations of PT-FI or expropriate assets of PT-FI. Disputes under the New COW are to be resolved by international arbitration. The 1967 Foreign Capital Investment Law, which expresses Indonesia's foreign investment policy, provides basic guarantees of remittance rights and protection against nationalization, a framework for incentives and some basic rules as to other rights and obligations of foreign investors. FTX is primarily a holding company and the principal sources of its cash flow are dividends and distributions from its ownership in FCX and FRP. FCX currently pays an annual cash dividend of 60 cents per share to FTX and to its public common shareholders. Management anticipates that this dividend will continue at this level through completion of the expansion in 1995, absent significant changes in the prices of copper and gold. FCX's Board of Directors determines its dividend payment on a quarterly basis and at its discretion may change or maintain the dividend payment. Publicly owned FRP units have cumulative rights to receive quarterly distributions of 60 cents per unit through the distribution for the quarter ending December 31, 1996 (the Preference Period) before any distributions may be made to FTX. FRP has announced that it no longer intends to supplement distributable cash with borrowings. Therefore, FRP's future distributions will be dependent on the distributions received from IMC-Agrico Company, which will primarily be determined by prices and sales volumes of its commodities and cost reductions achieved by its combined operations, and the future cash flow of FRP's oil and sulphur operations (including reclamation expenditures related to its non-Main Pass sulphur assets). On January 21, 1994, FRP declared a distribution of 60 cents per publicly held unit ($30.3 million) and 12 cents per FTX-owned unit ($6.2 million), bringing the total unpaid distribution due FTX to $239.2 million. Unpaid distributions will be recoverable from future FRP cash available for quarterly distributions as discussed in Note 2 to the financial statements. The January 1994 distribution included $30.9 million received from IMC- Agrico Company for its fourth-quarter 1993 distribution (including $9.3 million from working capital reductions) and $13.0 million in proceeds from the sale of certain previously mined phosphate rock acreage. In the past, including in 1993, the FTX Board of Directors has decided to borrow funds when the cash received from FCX, FRP, and asset sales was insufficient to pay dividends and cover FTX's other cash requirements for interest, general and administrative expenses, and oil and gas operations. These decisions reflected the Board's analyses of FTX's estimated future cash flow from the Company's large and long-lived mineral reserves, current and expected commodity price levels, its borrowing capacity, and its cash requirements in determining the dividend that the Board considers prudent. FTX's 10 7/8% Senior Subordinated Debentures potentially restrict dividend payments (Note 7); however, management has alternative courses of action that it plans to pursue to eliminate the effect of this restriction. If low commodity prices persist over an extended period, the Board can be expected to change the Company's dividend, in which event there may be a reduced dividend, a lower cash dividend supplemented by a property dividend in the form of securities in its publicly traded subsidiaries or, in an extreme case, an elimination of the dividend. If, however, the Company's cash flow from its mineral reserves increase significantly because of higher commodity prices or increased production levels, the Board is likely to raise future dividends over current levels. Management believes that operating cash flow, existing lines of credit ($425.0 million available as of February 1, 1994), selected asset sales, third-party financing, and discretion with respect to capital, exploration and development spending provides FTX with sufficient financial flexibility and capital resources to meet its anticipated cash requirements. ENVIRONMENTAL FTX has a history of commitment to environmental responsibility. Since the 1940s, long before public attention focused on the importance of maintaining environmental quality, FTX has conducted preoperational, bioassay, marine ecological, and other environmental surveys to ensure the environmental compatibility of its operations. FTX's Environmental Policy commits FTX's operations to full compliance with local, state, and federal laws and regulations, and prescribes the use of periodic environmental audits of all domestic facilities to evaluate compliance status and communicate that information to management. FTX has access to environmental specialists who have developed and implemented corporatewide environmental programs. FTX's operating units continue to study and implement methods to reduce discharges and emissions. Federal legislation (sometimes referred to as "Superfund") requires payments for cleanup of certain abandoned waste disposal sites, even though such waste disposal activities were performed in compliance with regulations applicable at the time of disposal. Under the Superfund legislation, one party may, under certain circumstances, be required to bear more than its proportional share of cleanup costs at a site where it has responsibility pursuant to the legislation, if payments cannot be obtained from other responsible parties. Other legislation mandates cleanup of certain wastes at unabandoned sites. States also have regulatory programs that can mandate waste cleanup. Liability under these laws involves inherent uncertainties. FTX has received notices from governmental agencies that it is one of many potentially responsible parties at certain sites under relevant federal and state environmental laws. Further, FTX is aware of additional sites for which it may receive such notices in the future. Some of these sites involve significant cleanup costs; however, at each of these sites other large and viable companies with equal or larger proportionate shares are among the potentially responsible parties. The ultimate settlement for such sites usually occurs several years subsequent to the receipt of notices identifying potentially responsible parties because of the many complex technical and financial issues associated with site cleanup. FTX believes that the aggregation of any costs associated with these potential liabilities will not exceed amounts accrued and expects that any costs would be incurred over a period of years. The Company maintains insurance coverage in amounts deemed prudent for certain types of damages associated with environmental liabilities which arise from unexpected and unforeseen events and has an indemnification agreement covering certain acquired sites (Note 9). FTX has made, and will continue to make, expenditures at its operations for protection of the environment. Continued government and public emphasis on environmental issues can be expected to result in increased future investments for environmental controls, which will be charged against income from future operations. Present and future environmental laws and regulations applicable to FTX's operations may require substantial capital expenditures and may affect its operations in other ways that cannot now be accurately predicted. 1992 RESULTS OF OPERATIONS COMPARED WITH 1991 1992 1991 -------- -------- (In Millions, Except Per Share Amounts) Revenues $1,654.9 $1,579.2 Operating income 251.9 223.9 Net income applicable to common stock 169.1(a) 40.1(b) Net income per primary share 1.17(a) .29(b) Earnings by sources:(c) Metals $283.6 $181.2 Agricultural minerals 18.0 78.9 Energy (28.2) (6.0) Other (19.9) (6.6) -------- -------- Segment earnings $253.5 $247.5 ======== ======== a. Includes a $134.7 million gain ($.93 per share) from the sale/issuance of FCX Class A common stock. b. Includes a $7.3 million gain ($.05 per share) from an insurance settlement (Note 9). Also includes a $55.7 million charge ($.40 per share) for the cumulative effect of the change in accounting for postretirement benefits other than pensions (Note 8). c. Operating income plus other income, less gain/loss on valuation and sale of assets from the Statements of Operations. Record metals segment earnings were partially offset by reduced agricultural minerals and energy segment earnings and an increase in general and administrative expenses caused by the significant additional effort and support required by FTX's expanding operations and increased community and philanthropic efforts. Earnings for 1992 benefited from lower interest expense reflecting reductions in average debt levels, lower interest rates, and increased capitalized interest associated with the copper mine/mill expansion and Main Pass development. Earnings for 1992 were also impacted by a greater minority interest ownership of FRP, FCX, and PT-FI, reflecting equity sales by those entities, and an increase in preferred stock dividends because of the March 1992 issuance of FTX's $4.375 Convertible Exchangeable Preferred Stock (Note 7). Net income for 1991 benefited from the reversal of deferred tax reserves no longer required. Metals Operations. FCX contributed 1992 earnings of $283.6 million compared with $181.2 million for 1991. Revenues in 1992 totaled $714.3 million compared with $467.5 million in 1991. Significant items impacting the segment earnings are as follows (in millions): Metals earnings - 1991 $181.2 Major increases (decreases) Realizations: Copper 8.8 Gold (7.4) Sales volumes: Copper 218.5 Gold 95.7 Treatment charges (73.0) Adjustments to prior year concentrate sales 12.5 Other (8.3) ------ Revenue variance 246.8 Cost of sales (114.5) Exploration expenses (5.7) General and administrative and other (24.2) ------ 102.4 ------ Metals earnings - 1992 $283.6 ====== The increase in revenues was primarily attributable to a 71 percent and 48 percent increase in gold and copper sales volumes, respectively, reflecting higher production rates due to the mine/mill expansion, higher gold grades, and the sale of all year-end 1991 inventory. Revenues were negatively impacted by a 3.6 cents per pound increase in treatment charges compared with 1991 because of tight market conditions in the smelting industry early in 1992 and increased spot market sales attributable to higher than anticipated production due to the early completion of the 57,000 MTPD expansion program. A $5.7 million upward revenue adjustment was made in 1992 compared with a $6.8 million downward revenue adjustment in 1991 for prior year concentrate sales contractually priced during the year. The amortization of the price protection programs decreased revenues by $8.9 million in 1992 and $6.2 million in 1991. Cost of sales for 1992 were $357.2 million, an increase of 47 percent from 1991 due primarily to the 48 percent increase in copper sales volumes. Unit site production and delivery costs were 47.4 cents in 1992 compared with 46.5 cents in 1991. FCX's depreciation rate declined from an average 8.7 cents per recoverable pound during 1991 to 7.4 cents in 1992 because of the significant increase in ore reserves during 1991. Agricultural Minerals Operations. Revenues and earnings for 1992 totaled $799.0 million and $18.0 million compared with $880.5 million and $78.9 million for 1991, respectively, reflecting weak market prices for phosphate fertilizers and sulphur. However, FRP's 1992 average unit production cost for phosphate fertilizers was lower than during 1991. Significant items impacting the segment earnings are as follows (in millions): Agricultural minerals earnings - 1991 $ 78.9 Major increases (decreases) Sales volumes 27.0 Realizations (107.8) Other (.7) ------ Revenue variance (81.5) Cost of sales 41.9 General and administrative and other (21.3) ------ (60.9) ------ Agricultural minerals earnings - 1992 $ 18.0 ====== Phosphate fertilizer sales volumes were slightly lower during 1992, whereas the average realization was 13 percent lower. Phosphate fertilizer realizations declined steadily throughout 1992 because of curtailed purchases by China, the largest single fertilizer importer, and supply and demand uncertainty in Europe, the former Soviet Union, and India. Also contributing to the decline in prices were lower raw material costs, most notably for sulphur, as producers in the weakening market passed along these cost savings to buyers in an attempt to preserve market share. FRP's phosphate rock and fertilizer facilities operated at or near capacity, with the 1992 phosphate fertilizer unit production cost averaging 7 percent less than during 1991 due to reduced raw material costs for sulphur and lower phosphate rock mining expenses, despite higher natural gas costs. Unit production cost also benefited during the latter part of 1992 as FRP completed a $60.0 million capital program to improve efficiency and lower costs. Sulphur production and sales volumes for 1992 declined 8 percent and 7 percent, respectively, from 1991 as the Garden Island Bay and Grand Isle mines ceased production in 1991. However, production increased at the Caminada mine, which had a significantly lower unit production cost than either Garden Island Bay or Grand Isle had prior to depletion, resulting in an average sulphur unit production cost 7 percent lower than during 1991. FRP's 1992 sulphur realization reflects the price declines which occurred since mid-1991, as world sulphur markets were burdened by the collapse of the Soviet Union as well as by a further decline in demand in Western Europe. During 1992, several Canadian sulphur marketers built inventory rather than accept depressed prices; however, others intensified their efforts to sell into the important Tampa, Florida market. Phosphate rock production and sales benefited from the capacity expansion completed in mid-1992 at one of FRP's two operated phosphate rock mines, and also reflect the output from FRP's central Florida Pebbledale property, where sales began in July 1991 under a mining agreement with IMC. Oil and Gas Operations. FTX's oil and gas operations (excluding the Main Pass oil operation) generated a loss of $32.8 million on revenues of $49.8 million in 1992 compared with a loss of $22.5 million on revenues of $180.0 million for 1991 reflecting the transfer of oil and gas properties to FMPO as well as the sale of a significant portion of its oil and gas properties in 1991. Revenues and earnings from Main Pass, which initiated oil production in late 1991, were $78.0 million and $4.6 million, respectively, on sales net to FRP of 4.9 million barrels at an average realization of $15.91 per barrel. Revenues for 1991 were $4.8 million, generating a $.6 million loss, on net sales of .4 million barrels at an average realization of $13.34 per barrel. Earnings for 1992 benefited from FRP's marketing efforts, which alleviated earlier problems related to its high-sulphur oil, and high average production rates. ____________________________ The results of operations reported and summarized above are not necessarily indicative of future operating results. Item 8. Financial Statements and Supplementary Data. - ----------------------------------------------------- The financial statements of FTX and its consolidated subsidiaries, the notes thereto, the report of management and the report thereon of Arthur Andersen & Co., appearing on pages 33 through 56, inclusive, of FTX's 1993 Annual Report to stockholders, are incorporated herein by reference. Item 9. Changes in and Disagreements with Accountants on Accounting and - ------------------------------------------------------------------------ Financial Disclosure. ---------------------- Not applicable. PART III -------- Items 10, 11, 12, and 13. Directors and Executive Officers of the Registrant, - ------------------------------------------------------------------------------ Executive Compensation, Security Ownership of Certain Beneficial Owners ----------------------------------------------------------------------- and Management, and Certain Relationships and Related Transactions. ------------------------------------------------------------------- The information set forth under the caption "Election of Directors," beginning on page 4 of the Proxy Statement dated March 31, 1994, submitted to the stockholders of FTX in connection with its 1994 Annual Meeting to be held on May 3, 1994, is incorporated herein by reference. PART IV ------- Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K. - -------------------------------------------------------------------------- (a)(1), (a)(2), and (d). Financial Statements. See Index to Financial Statements appearing on page F-1 hereof. (a)(3) and (c). Exhibits. See Exhibit Index beginning on page E-1 hereof. (b). Reports on Form 8-K. No reports on Form 8-K were filed by the registrant during the fourth quarter of 1993. SIGNATURES ---------- Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on March 30, 1994. FREEPORT-McMoRan INC. By: /s/ James R. Moffett ------------------------------- James R. Moffett Chairman of the Board Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on March 30, 1994. /s/ James R. Moffett Chairman of the Board, Chief - --------------------------- Executive Officer and Director James R. Moffett (Principal Executive Officer) Richard C. Adkerson* Senior Vice President and Chief Financial Officer (Principal Financial Officer) John T. Eads* Controller-Financial Reporting (Principal Accounting Officer) Robert W. Bruce III* Director Thomas B. Coleman* Director William H. Cunningham* Director Robert A. Day* Director William B. Harrison, Jr.* Director Henry A. Kissinger* Director Bobby Lee Lackey* Director Rene L. Latiolais* Director Gabrielle K. McDonald* Director W. K. McWilliams, Jr.* Director George Putnam* Director B. M. Rankin, Jr.* Director Benno C. Schmidt* Director J. Taylor Wharton* Director Ward W. Woods, Jr.* Director *By: /s/ James R. Moffett ------------------------------ James R. Moffett Attorney-in-Fact INDEX TO FINANCIAL STATEMENTS ----------------------------- The financial statements of FTX and its consolidated subsidiaries, the notes thereto, and the report thereon of Arthur Andersen & Co., appearing on pages 33 through 56, inclusive, of FTX's 1993 Annual Report to stockholders are incorporated by reference. The financial statement schedules listed below should be read in conjunction with such financial statements contained in FTX's 1993 Annual Report to stockholders. Page ---- Report of Independent Public Accountants . . . . . . . . . . F-1 II-Amounts Receivable from Employees . . . . . . . . . . . . F-2 III-Condensed Financial Information of Registrant . . . . . F-3 V-Property, Plant and Equipment . . . . . . . . . . . . . . F-6 VI-Accumulated Depreciation and Amortization . . . . . . . . F-7 VIII-Valuation and Qualifying Accounts . . . . . . . . . . . F-8 X-Supplementary Income Statement Information . . . . . . . . F-9 Schedules other than those listed above have been omitted, since they are either not required, not applicable or the required information is included in the financial statements or notes thereto. * * * * REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ---------------------------------------- We have audited, in accordance with generally accepted auditing standards, the financial statements as of December 31, 1993 and 1992 and for each of the three years in the period ended December 31, 1993 included in Freeport-McMoRan Inc.'s annual report to stockholders incorporated by reference in this Form 10-K, and have issued our report thereon dated January 25, 1994. Our audits were made for the purpose of forming an opinion on those statements taken as a whole. The schedules listed in the index above are the responsibility of the Company's management and are presented for purposes of complying with the Securities and Exchange Commission's rules and are not part of the basic financial statements. The schedules for the years ended December 31, 1993, 1992 and 1991 have been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly state in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. Arthur Andersen & Co. New Orleans, Louisiana January 25, 1994
FREEPORT-McMoRan INC. AND CONSOLIDATED SUBSIDIARIES SCHEDULE II - AMOUNTS RECEIVABLE FROM EMPLOYEES for the years ended December 31, 1993, 1992, and 1991 Balance at Balance At Amounts End of Period Beginning ------------------------- ------------------------- Employee of Period Additions Collected Written off Current Long-Term - ----------------------- ---------- --------- --------- ----------- -------- ---------- 1993: James R. Moffett(a) $1,350,000 $ - $270,000 $ - $270,000 $ 810,000 Garland C. Robinette(a) 193,974 - 64,658 - 64,658 64,658 Usman S. Pamuntjak(b) 305,910 - 305,910 - - - Hoediatmo Hoed(b) 248,069 - 25,668 - 25,663 196,738 Adrianto Machribie(b) 480,000 200,000 65,500 - 73,200 541,300 1992: James R. Moffett 1,620,000 - 270,000 - 270,000 1,080,000 Milton H. Ward(a) 600,000 - 600,000(c) - - - Garland C. Robinette 258,632 - 64,658 - 64,658 129,316 Usman S. Pamuntjak 339,900 - 33,990 - 33,990 271,920 Hoediatmo Hoed 271,425 256,625 279,981 - 25,663 222,406 Adrianto Machribie - 500,000 20,000 - 60,000 420,000 1991: James R. Moffett 1,890,000 - 270,000 - 270,000 1,350,000 Milton H. Ward 700,000 - 100,000 - 100,000 500,000 Garland C. Robinette 323,290 - 64,658 - 64,658 193,974 Usman S. Pamuntjak 339,900 - - - 33,990 305,910 Hoediatmo Hoed 291,625 - 20,200 - 22,400 249,025 a. In recognition of the services of certain employees, and to enhance the probability that such services will continue in the future, FTX has made non-interest bearing, non-transferable loans to Mr. Moffett ($2,700,000 in 1987), Mr. Ward ($1,000,000 in 1987) and Mr. Robinette ($323,290 in 1990). The loans are repayable on demand and will bear interest on and after demand at a rate equal to the prime commercial lending rate announced from time to time by The Chase Manhattan Bank, N.A. It is contemplated, however, that as long as the borrower remains employed by FTX, demand will not be made. As additional compensation for future services, on each anniversary of the loans, a portion (one-tenth for Messrs. Moffett and Ward, and one-fifth for Mr. Robinette) of the original loan is forgiven, provided such individual was employed by FTX on that date. The loans are secured by a first mortgage on their respective residences in Louisiana. b. Under the PT-FI residential loan policy, Mr. Pamuntjak, President of PT- FI until December 1990, Mr. Hoed, President of PT-FI effective January 1991, and Mr. Machribie, Vice President of PT-FI, borrowed $525,450, $360,000, and $700,000, respectively. Mr. Pamuntjak retired from PT-FI in December 1990 and in January 1991 signed a consulting services agreement with PT-FI. For the performance of his services under this agreement, PT-FI shall forgive, as compensation, 10 percent per year of the indebtedness on the effective date, commencing January 1992. The consulting services agreement with Mr. Pamuntjak was terminated in January 1993, at which time Mr. Pamuntjak repaid the balance of the loan. Effective September 1992, Mr. Hoed executed a new loan in the amount of $256,625 which was used to pay off the remaining balance of the existing loan; 10 percent of the principal amount of the new loan will be forgiven annually. Effective August 1992, Mr. Machribie borrowed $500,000 consisting of one loan for $400,000 (the First Loan) and a second loan for $100,000 (the Second Loan). As long as Mr. Machribie remains in the employ of PT-FI, 10 percent of the principal amount of the First Loan and 20 percent of the principal amount of the Second Loan will be forgiven annually; a pro rata amount of $20,000 was forgiven in 1992. Additionally, effective July 1993, Mr. Machribie borrowed $200,000 which will be repaid over 15 years through monthly salary deductions in the amount of $1,100, which began in August 1993. c. Consists of deferred compensation due Mr. Ward upon retirement which was used to repay the outstanding loan balance. FREEPORT-McMoRan INC. AND CONSOLIDATED SUBSIDIARIES SCHEDULE III - CONDENSED FINANCIAL INFORMATION OF REGISTRANT BALANCE SHEETS December 31, ------------------------- 1993 1992 -------- ---------- ASSETS (In Thousands) Current assets: Cash and short-term investments $ - $ 983 Accounts receivable 15,357 43,873 Prepaid expenses and other 10,527 9,809 -------- --------- Total current assets 25,884 54,665 Property, plant and equipment - net 152,171 187,013 Investment in FCX 267,853 303,942 Investment in FRP 252,341 441,119 Investment in other subsidiaries 17,800 30,541 Long-term note due from FCX 12,270 - Long-term note due from FRP 100,900 239,350 Long-term receivables and other assets 114,101 89,077 -------- ---------- Total assets $943,320 $1,345,707 ======== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable and accrued liabilities - current $100,579 $ 131,144 Long-term debt, less current portion 695,624 668,321 Other liabilities and deferred credits 113,749 105,360 Deferred gain on sale of subsidiary interests 32,719 94,861 Stockholders' equity 649 346,021 -------- ---------- Total liabilities and stockholders' equity $943,320 $1,345,707 ======== ========== The footnotes contained in FTX's 1993 Annual Report to stockholders are an integral part of these statements. FREEPORT-McMoRan INC. AND CONSOLIDATED SUBSIDIARIES SCHEDULE III - CONDENSED FINANCIAL INFORMATION OF REGISTRANT STATEMENT OF OPERATIONS
Years Ended December 31, -------------------------------- 1993 1992 1991 --------- -------- -------- (In Thousands) Revenues $ 6,852 $ 49,773 $179,769 Cost of sales: Production and delivery 6,159 11,905 40,354 Depreciation and amortization 19,347 34,850 104,085 --------- -------- -------- Total cost of sales 25,506 46,755 144,439 Exploration expenses 22,067 17,407 27,170 Provision for restructuring charges 12,403 - - Gain on valuation and sale of assets, net (50,688) - (515) General and administrative expenses 19,785 27,229 40,839 --------- -------- -------- Total costs and expenses 29,073 91,391 211,933 --------- -------- -------- Operating loss (22,221) (41,618) (32,164) Interest expense, net (58,189) (41,909) (82,675) Equity in earnings of subsidiaries (96,931) 106,997 131,213 Gain on sale of FCX shares - 100,934 - Gain on conversion of FCX notes 44,116 33,753 - Other income, net 978 1,525 10,780 --------- -------- -------- Income (loss) before income taxes (132,247) 159,682 27,154 Credit for income taxes 49,129 28,129 69,549 --------- -------- -------- Income (loss) before changes in accounting principle (83,118) 187,811 96,703 Cumulative effect of changes in accounting principle: FTX (5,632) - 9,481 Equity subsidiaries (15,085) - (65,205) --------- -------- -------- Net income (loss) (103,835) 187,811 40,979 Preferred dividends (22,368) (18,677) (889) --------- -------- -------- Net income (loss) applicable to common stock $(126,203) $169,134 $ 40,090 ========= ======== ========
The footnotes contained in FTX's 1993 Annual Report to stockholders are an integral part of these statements. FREEPORT-McMoRan INC. AND CONSOLIDATED SUBSIDIARIES SCHEDULE III - CONDENSED FINANCIAL INFORMATION OF REGISTRANT STATEMENT OF CASH FLOW
Years Ended December 31, ------------------------------ 1993 1992 1991 --------- -------- -------- (In Thousands) Cash flow from operating activities: Net income (loss) $(103,835) $187,811 $ 40,979 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Cumulative effect of changes in accounting principle 20,717 - 55,724 Depreciation and amortization 19,347 34,850 104,085 Noncash restructuring and other charges to income, including net reimbursements from subsidiaries 27,623 - - Oil and gas exploration expenses 26,710 16,704 26,477 Recognition of unearned revenues in income 5,928 (10,977) (12,989) Amortization of debt discount and financing costs 28,771 33,909 17,404 Equity in (earnings) losses of subsidiaries 96,931 (106,997) (131,213) Cash distributions from subsidiaries 85,853 127,124 204,772 Gain on sale of FCX Class A shares - (100,934) - Gain on conversion of FCX notes (44,116) (33,753) - Gain on valuation and sale of assets, net (50,688) - (515) Deferred income taxes (54,731) 925 (53,268) (Increase) decrease in working capital, net of effect of acquisitions and dispositions: Accounts receivable 28,516 (12,632) 28,894 Prepaid expenses and other (719) (8,843) 2,569 Accounts payable and accrued liabilities (30,565) (15,092) 11,176 Payment to Freeport-McMoRan Royalty Trust (2,296) - (28,400) Other 7,757 10,081 (16,801) --------- -------- -------- Net cash provided by operating activities 61,203 122,176 248,894 --------- -------- -------- Cash flow from investing activities: Capital expenditures (57,165) (96,708) (199,433) Contributions to subsidiaries - (30,119) (83,198) Sale of assets 99,983 - 461,543 --------- -------- -------- Net cash provided by (used in) investing activities 42,818 (126,827) 178,912 --------- -------- -------- Cash flow from financing activities: Proceeds from issuance of: Convertible Exchangeable Preferred Stock - 245,700 - Convertible Subordinated Notes - - 290,605 Zero Coupon Convertible Subordinated Debentures - - 194,243 Purchase of Freeport-McMoRan Inc. common shares (22,229) (108,591) (18,880) Purchase of FCX Class A common shares (16,482) - - Distribution to FMPO - (28,019) - Borrowings/(repayments) of debt - net 3,943 330,821 (717,628) (Increase) in long-term note due from FCX (12,270) - - (Increase) decrease in long-term note due from FRP 138,450 (239,350) - Other 1,858 - - Cash dividends paid: Common stock (175,890) (179,677) (173,989) Preferred stock (22,384) (16,882) (1,040) --------- -------- -------- Net cash provided by (used in) financing activities (105,004) 4,002 (426,689) --------- -------- -------- Net increase (decrease) in cash and short-term investments (983) (649) 1,117 Cash and short-term investments at beginning of year 983 1,632 515 --------- -------- -------- Cash and short-term investments at end of year $ - $ 983 $ 1,632 ========= ======== ========
The footnotes contained in FTX's 1993 Annual Report to stockholders are an integral part of these statements. FREEPORT-McMoRan INC. AND CONSOLIDATED SUBSIDIARIES SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT for the years ended December 31, 1993, 1992, and 1991
Col. A Col. B. Col. C Col. D Col. E Col. F - ------------ ------------ ----------- ----------- ----------- ---------- Balance at Retirements Balance at Beginning of Additions Additions Other-Add End Description Period at Cost (a) Sales (Deduct) of Period - ------------ ------------ ----------- ----------- ----------- ---------- (In Thousands) 1993: Sulphur $ 597,662 $ 29,740 $ (2,100) $ (3,080) $ 622,222 Fertilizer 731,106 16,530 (3,384) 206,044 (b) 950,296 Oil & Gas 246,040 40,394 (52,797) (26,721) 206,916 Copper 1,443,939 760,496 (2,882) (29,331) 2,172,222 Other 285,171 27,450 (7,342) (46,360) 258,919 ---------- -------- --------- --------- ---------- $3,303,918 $874,610 $ (68,505) $ 100,552 $4,210,575 ========== ======== ========= ========= ========== 1992: Sulphur $ 501,602 $ 96,269 $ (709) $ 500 $ 597,662 Fertilizer 659,431 73,955 (2,313) 33 731,106 Oil & Gas 915,366 55,580 (396) (724,510)(c) 246,040 Copper 1,012,029 367,848 (5,445) 69,507 (d) 1,443,939 Other 275,649 48,154 (16,004) (22,628) 285,171 ---------- -------- --------- --------- ---------- $3,364,077 $641,806 $ (24,867) $(677,098) $3,303,918 ========== ======== ========= ========= ========== 1991: Sulphur $ 300,218 $224,281 $ (25,174) $ 2,277 $ 501,602 Fertilizer 589,948 70,085 (1,634) 1,032 659,431 Oil & Gas 1,511,681 196,552 (783,444)(e) (9,423) 915,366 Copper 877,989 239,954 (3,729) (102,185)(d) 1,012,029 Other 192,628 70,037 (1,032) 14,016 275,649 ---------- -------- --------- --------- ---------- $3,472,464 $800,909 $(815,013) $ (94,283) $3,364,077 ========== ======== ========= ========= ========== a. Includes capitalized interest of $62.2 million in 1993, $84.7 million in 1992, and $67.3 million in 1991. b. Represents FRP's proportionate share of the IMC-Agrico Company joint venture property, plant and equipment (see Note 2 to the Financial Statements included in the 1993 Annual Report of FTX and consolidated subsidiaries, the "Financial Statements") in excess of the FRP contributed amounts. c. Represents the transfer of substantially all of FTX's domestic oil and gas properties to its shareholders, through ownership of FM Properties Inc. (FMPO), as further discussed in Note 3 to the Financial Statements. d. As further described in Note 2 to the Financial Statements, during 1991, ten percent of PT-FI was sold and FTX eliminated the excess purchase price related to a 1990 FCX purchases. During 1992, FTX purchased an interest in an Indonesian entity which owned ten percent of PT-FI. e. Represents primarily asset sales, as further described in Note 4 to the Financial Statements.
FREEPORT-McMoRan INC. AND CONSOLIDATED SUBSIDIARIES SCHEDULE VI - ACCUMULATED DEPRECIATION AND AMORTIZATION for the years ended December 31, 1993, 1992, and 1991
Col. A Col. B. Col. C Col. D Col. E Col. F - ------------ ------------ ----------- ----------- ---------- ---------- Additions Balance at Charged to Retirements Balance at Beginning of Costs and and Other-Add End Description Period Expenses(a) Sales (Deduct) of Period - ------------ ------------ ----------- ----------- --------- ---------- (In Thousands) 1993: Sulphur $ 108,771 $ 14,277 $ (296) $ 13,269 $ 136,021 Fertilizer 273,744 48,926 (654) 187,890 (b) 509,905 Oil & Gas 90,234 37,000 (26,361) 54,834 (c) 155,707 Copper 450,527 67,906 (2,732) 9,918 525,619 Other 103,785 13,773 (6,075) (1,892) 109,592 ---------- -------- ---------- --------- ---------- $1,027,061 $181,882 $ (36,118) $ 264,019 $1,436,844 ========== ======== ========== ========= ========== 1992: Sulphur $ 99,874 $ 13,659 $ (159) $ (4,603)(d) $ 108,771 Fertilizer 226,547 52,640 (1,914) (3,529)(d) 273,744 Oil & Gas 278,207 79,942 - (267,915)(e) 90,234 Copper 410,354 48,272 (5,438) (2,661) 450,527 Other 95,263 16,663 (5,571) (2,570) 103,785 ---------- -------- -------- --------- ---------- $1,110,245 $211,176 $ (13,082) $(281,278) $1,027,061 ========== ======== ========= ========= ========== 1991: Sulphur $ 118,290 $ 12,058 $ (25,165) $ (5,309)(d) $ 99,874 Fertilizer 189,324 43,376 (578) (5,575)(d) 226,547 Oil & Gas 503,569 103,787 (329,290)(f) 141 278,207 Copper 375,818 38,397 (3,729) (132) 410,354 Other 80,980 14,150 - 133 95,263 ---------- -------- --------- --------- ---------- $1,267,981 $211,768 $(358,762) $ (10,742) $1,110,245 ========== ======== ========= ========= ========== a. Note 1 to the Financial Statements describes FTX's depreciation and amortization methods. b. Represents FRP's proportionate share of the IMC-Agrico Company joint venture accumulated depreciation and amortization (see Note 2 to the Financial Statements) in excess of the FRP contributed amounts. c. Primarily represents the write-down of Main Pass oil costs due to the fourth-quarter decline in oil prices, as discussed in Note 4 to the Financial Statements. d. Primarily represents elimination of depreciation expense charged to reclamation and mine shutdown reserves. e. Includes accumulated depreciation and amortization related to the assets transferred to FMPO, as further discussed in Note 3 to the Financial Statements. f. Includes accumulated depreciation and amortization related to the assets sold, as further described in Note 4 to the Financial Statements.
FREEPORT-McMoRan INC. AND CONSOLIDATED SUBSIDIARIES SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS for the years ended December 31, 1993, 1992, and 1991
Col. A Col. B Col. C Col. D Col. E - --------------------- ------------ ------------------------- ---------- ---------- Additions ------------------------- Balance at Charged to Charged to Balance at Beginning of Costs and Other Other-Add End Description Period Expenses Accounts (Deduct) of Period - -------------------- ------------ ---------- ---------- ---------- ---------- (In Thousands) Reserves and allowances deducted from asset accounts: Reclamation and mine shutdown reserves: 1993: Sulphur $35,200 $27,562 $ - $ (5,475) $ 57,287 Fertilizer 18,543 5,365 - 14,529(a) 38,437 RTM - - - 10,270(b) 10,270 Oil & Gas 8,617 7,995 - (1,649) 14,963 ------- ------- ------- -------- -------- $62,360 $40,922 $ - $ 17,675(c) $120,957 ======= ======= ======= ======== ======== 1992: Sulphur $29,715 $ 4,335 $ - $ 1,150 $35,200 Fertilizer 21,772 7,123 - (10,352) 18,543 Oil & Gas 10,196 4,598 - (6,177) 8,617 ------- ------- ------- -------- ------- $61,683 $16,056 $ - $(15,379)(d) $62,360 ======= ======= ======= ======== ======= 1991: Sulphur $26,636 $ 5,212 $ - $ (2,133) $29,715 Fertilizer 27,297 5,575 - (11,100) 21,772 Oil & Gas 10,221 5,486 - (5,511) 10,196 ------- ------- ------- -------- ------- $64,154 $16,273 $ - $(18,744)(e) $61,683 ======= ======= ======= ======== ======= a. Includes $19.7 million which represents FRP's proportionate share of the IMC-Agrico Company joint venture liabilities (see Note 2 to the Financial Statements) in excess of the FRP contributed amounts. b. Reflects the reserve associated with the acquisition of RTM, as further discussed in Note 2 to the Financial Statements. c. Includes expenditures of $14 million, net of a $1.7 million decrease in short-term payables and the items discussed in Notes a and b. d. Includes expenditures of $21.8 million and $5.6 million transferred to FMPO (as further discussed in Note 3 to the Financial Statements), net of a $12 million decrease in short-term payables. e. Includes expenditures of $25.7 million, net of a $7 million decrease in short-term payables. FREEPORT-McMoRan INC. AND CONSOLIDATED SUBSIDIARIES SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION for the years ended December 31, 1993, 1992, and 1991
Col. A Col.B - -------------------------------------- ----------------------------------------- Charged to Costs and Expenses ------------------------------------------ Item 1993 1992 1991 ------------------------------------ ---------- -------- -------- (In Thousands) Maintenance and repairs $153,667 $186,184 $165,163 ======== ======== ======== Taxes, other than payroll and income taxes: Production $ 22,527 $ 17,847 $ 18,756 Other 8,927 11,304 11,759 -------- -------- -------- $ 31,454 $ 29,151 $ 30,515 ======== ======== ======== Royalties $ 19,125 $ 20,388 $ 24,498 ======== ======== ========
FREEPORT-MCMORAN INC. EXHIBIT INDEX ------------- Sequentially Exhibit Numbered Number Page - ------ ----------- 3.1 Composite copy of the Certificate of Incorporation of FTX, as amended. Incorporated by reference to Exhibit 3.1 to the Quarterly Report on Form 10-Q of FTX for the quarter ended June 30, 1992 (the "FTX 1992 Second Quarter Form 10-Q"). 3.2 By-Laws of FTX, as amended. Incorporated by reference to Exhibit 3.2 to the FTX 1992 Second Quarter Form 10-Q. 4.1 Certificate of Designations of the $1.875 Convertible Exchangeable Preferred Stock of FTX. Incorporated by reference to Exhibit 4.1 to the Quarterly Report on Form 10-Q of FTX for the quarter ended June 30, 1987 (the "FTX 1987 Second Quarter Form 10-Q"). 4.2 Certificate of Designations of the $4.375 Convertible Exchangeable Preferred Stock of FTX. Incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K of FTX dated March 23, 1992. 4.3 Indenture dated as of May 15, 1986 between FTX and Manufacturers Hanover Trust Company ("Manufacturers"), Trustee, relating to $150,000,000 principal amount of 10-7/8% Senior Subordinated Debentures due 2001 of FTX. Incorporated by reference to Exhibit 19.1 to the Quarterly Report on Form 10-Q of FTX for the quarter ended September 30, 1986. 4.4 Subordinated Indenture dated as of November 9, 1990 between FTX and Chemical Bank, Trustee, relating to subordinated indebtedness of FTX. Incorporated by reference to Exhibit 28.2 to the Current Report on Form 8- K of FTX dated February 7, 1991 (the "FTX February 7, 1991 Form 8-K"). 4.5 Supplemental Indenture No. 1 dated as of February 5, 1991 between FTX and Chemical Bank, Trustee, relating to $373,000,000 principal amount of 6.55% Convertible Subordinated Notes due 2001 of FTX. Incorporated by reference to Exhibit 28.3 to the FTX February 7, 1991 Form 8-K. 4.6 Supplemental Indenture No. 2 dated as of August 5, 1991 between FTX and Chemical Bank, Trustee, relating to $750,000,000 face amount of Zero Coupon Convertible Subordinated Debentures due 2006 of FTX. Incorporated by reference to Exhibit (4-a) to the Current Report on Form 8-K of FTX dated August 9, 1991. 4.7 Credit Agreement dated as of June 1, 1993 (the "FTX/FRP Credit Agreement") among FTX, FRP, the several banks which are parties thereto (the "FTX/FRP Banks") and Chemical Bank, as Agent (the "FTX/FRP Bank Agent"). Incorporated by reference to Exhibit 4.8 to the Annual Report on Form 10-K of FRP for the fiscal year ended December 31, 1993 (the "FRP 1993 Form 10-K"). 4.8 First Amendment dated as of February 2, 1994 to the FTX/FRP Credit Agreement among FTX, FRP, the FTX/FRP Banks and the FTX/FRP Bank Agent. Incorporated by reference to Exhibit 4.9 to the FRP 1993 Form 10-K. 4.9 Second Amendment dated as of March 1, 1994 to the FTX/FRP Credit Agreement among FTX, FRP, the FTX/FRP Banks and the FTX/FRP Bank Agent. Incorporated by reference to Exhibit 4.10 to the FRP 1993 Form 10-K. 4.10 Amended and Restated Agreement of Limited Partnership of FRP dated as of May 29, 1987 (the "FRP Partnership Agreement") among FTX, Freeport Phosphate Rock Company and Geysers Geothermal Company, as general partners, and Freeport Minerals Company, as general partner and attorney-in-fact for the limited partners, of FRP. Incorporated by reference to Exhibit B to the Prospectus dated May 29, 1987 included in FRP's Registration Statement on Form S-1, as amended, as filed with the Commission on May 29, 1987 (Registration No. 33-13513). 4.11 Amendment to the FRP Partnership Agreement dated as of April 6, 1990 effected by FTX, as Administrative Managing General Partner of FRP. Incorporated by reference to Exhibit 19.3 to the Quarterly Report on Form 10-Q of FRP for the quarter ended March 31, 1990 (the "FRP 1990 First Quarter Form 10-Q"). 4.12 Amendment to the FRP Partnership Agreement dated as of January 27, 1992 between FTX, as Administrative Managing General Partner, and FMRP Inc., as Managing General Partner of FRP. Incorporated by reference to Exhibit 3.3 to the Annual Report on Form 10-K of FRP for the fiscal year ended December 31, 1991 (the "FRP 1991 Form 10-K"). 4.13 Amendment to the FRP Partnership Agreement dated as of October 14, 1992 between FTX, as Administrative Managing General Partner, and FMRP Inc., as Managing General Partner of FRP. Incorporated by reference to Exhibit 3.4 to the Annual Report on Form 10-K of FRP for the fiscal year ended December 31, 1992 (the "FRP 1992 Form 10-K"). 4.14 Deposit Agreement dated as of June 27, 1986 (the "Deposit Agreement") among FRP, The Chase Manhattan Bank, N.A. ("Chase") and Freeport Minerals Company, as attorney-in-fact of those limited partners and assignees holding depositary receipts for units of limited partnership interests in FRP ("Depositary Receipts"). Incorporated by reference to Exhibit 28.4 to the Current Report on Form 8- K of FTX dated July 11, 1986. 4.15 Resignation dated December 26, 1991 of Chase as Depositary under the Deposit Agreement and appointment dated December 27, 1991 of Mellon Bank, N.A. ("Mellon") as successor Depositary, effective January 1, 1992. Incorporated by reference to Exhibit 4.5 to the FRP 1991 Form 10- K. 4.16 Service Agreement dated as of January 1, 1992 between FRP and Mellon pursuant to which Mellon will serve as Depositary under the Deposit Agreement and Custodian under the Custodial Agreement. Incorporated by reference to Exhibit 4.6 to the FRP 1991 Form 10-K. 4.17 Amendment to the Deposit Agreement dated as of November 18, 1992 between FRP and Mellon. Incorporated by reference to Exhibit 4.4 to the FRP 1992 Form 10-K. 4.18 Form of Depositary Receipt. Incorporated by reference to Exhibit 4.5 to the FRP 1992 Form 10-K. 4.19 Custodial Agreement regarding the FRP Depositary Unit Reinvestment Plan among FTX, FRP and Chase, effective as of April 1, 1987 (the "Custodial Agreement"). Incorporated by reference to Exhibit 19.1 to the FRP 1987 Second Quarter Form 10-Q. 4.20 FRP Depositary Unit Reinvestment Plan. Incorporated by reference to Exhibit 4.4 to the FRP 1991 Form 10- K. 4.21 Composite copy of the Certificate of Incorporation of FCX. Incorporated by reference to Exhibit 3.1 to the Annual Report on Form 10-K of FCX for the fiscal year ended December 31, 1993 (the "FCX 1993 Form 10-K"). 4.22 Credit Agreement dated as of June 1, 1993 (the "PT-FI Credit Agreement") among PT-FI, the several banks which are parties thereto (the "PT-FI Banks"), Morgan Guaranty Trust Company of New York ("Morgan"), as PT-FI Trustee (the "PT-FI Trustee"), and Chemical Bank, as Agent (the "PT- FI Bank Agent"). Incorporated by reference to Exhibit 4.10 to the FCX 1993 Form 10-K. 4.23 First Amendment dated as of February 2, 1994 to the PT-FI Credit Agreement among PT-FI, the PT-FI Banks, the PT- FI Trustee and the PT-FI Bank Agent. Incorporated by reference to Exhibit 4.11 to the FCX 1993 Form 10-K. 4.24 Second Amendment dated as of March 1, 1994 to the PT-FI Credit Agreement among PT-FI, the PT-FI Trustee and the PT-FI Bank Agent. Incorporated by reference to Exhibit 4.12 to the FCX 1993 Form 10-K. 4.25 Automatic Stock Purchase Plan of FTX. Incorporated by reference to Exhibit 4.28 to the Annual Report on Form 10- K of FTX for the fiscal year ended December 31, 1992 (the "FTX 1992 Form 10-K"). 10.1 Overriding Royalty Conveyance dated September 28, 1983, from McMoRan- Freeport Oil Company to McMoRan Oil & Gas Co. Incorporated by reference to Exhibit 2.2 to the Quarterly Report on Form 10-Q of FTX for the quarter ended September 30, 1983 (the "FTX 1983 Third Quarter Form 10-Q"). 10.2 Royalty Trust Indenture dated as of September 30, 1983 between FTX, as Trustor, and First City National Bank of Houston ("First City"), as Trustee. Incorporated by reference to Exhibit 2.3 to the FTX 1983 Third Quarter Form 10-Q. 10.3 First Amended and Restated Articles of General Partnership of Freeport- McMoRan Oil and Gas Royalty Partnership dated as of September 30, 1983 between McMoRan Offshore Management Co. and First City, as Trustee. Incorporated by reference to Exhibit 2.4 to the FTX 1983 Third Quarter Form 10-Q. 10.4 Contract of Work dated December 30, 1991 between The Government of the Republic of Indonesia and PT-FI. Incorporated by reference to Exhibit 10.20 to the Annual Report on Form 10-K of FCX for the fiscal year ended December 31, 1991. 10.5 Contribution Agreement dated as of April 5, 1993 between FRP and IMC (the "FRP-IMC Contribution Agreement"). Incorporated by reference to Exhibit 2.1 to the Quarterly Report on Form 10-Q of FRP for the quarter ended June 30, 1993 (the "FRP 1993 Second Quarter Form 10-Q"). 10.6 First Amendment dated as of July 1, 1993 to the FRP-IMC Contribution Agreement. Incorporated by reference to Exhibit 2.2 to the FRP 1993 Second Quarter Form 10-Q. 10.7 Amended and Restated Partnership Agreement dated as of July 1, 1993 among IMC-Agrico GP Company, Agrico, Limited Partnership and IMC-Agrico MP Inc. Incorporated by reference to Exhibit 2.3 to the FRP 1993 Second Quarter Form 10-Q. 10.8 Parent Agreement dated as of July 1, 1993 among IMC, FRP, FTX and IMC- Agrico. Incorporated by reference to Exhibit 2.4 to the FRP 1993 Second Quarter Form 10-Q. Executive Compensation Plans and Arrangements (Exhibits 10.9 through 10.40) 10.9 FTX Employee Retirement Plan as of January 1, 1986. Incorporated by reference to Exhibit 10.11 to the Annual Report on Form 10-K of Freeport-McMoRan Energy Partners, Ltd. ("FMP") for the fiscal year ended December 31, 1986. 10.10 Amendment No. 1 dated as of January 14, 1987 to the FTX Employee Retirement Plan. Incorporated by reference to Exhibit 10.10 to the FTX 1987 Form 10-K. 10.11 Amendment No. 2 dated as of May 31, 1987 to the FTX Employee Retirement Plan. Incorporated by reference to Exhibit 10.11 to the FTX 1987 Form 10-K. 10.12 Amendments to the FTX Employee Retirement Plan dated August 31, 1988, March 21, 1989 and December 29, 1989. Incorporated by reference to Exhibit 10.7 to the Annual Report on Form 10-K of FMP for the fiscal year ended December 31, 1989 (the "FMP 1989 Form 10-K"). 10.13 Amendment to the FTX Employee Retirement Plan dated March 6, 1990. Incorporated by reference to Exhibit 10.26 to the Annual Report on Form 10-K of FRP for the fiscal year ended December 31, 1989. 10.14 Amendment to the FTX Employee Retirement Plan dated December 20, 1991. Incorporated by reference to Exhibit 10.6 to the FRP 1991 Form 10-K. 10.15 Master Trust Agreement dated as of October 1, 1990 between FTX and Continental Bank, N.A., relating to the FTX Employee Retirement Plan. Incorporated by reference to Exhibit 19.2 to the Quarterly Report on Form 10-Q of FTX for the quarter ended September 30, 1990 (the "FTX 1990 Third Quarter Form 10-Q"). 10.16 Excess Benefits Plan of FTX. Incorporated by reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q of FTX for the quarter ended March 31, 1988. 10.17 Amendments to the Excess Benefits Plan of FTX dated January 17, 1989, December 8, 1989, June 29, 1990 and October 17, 1990. Incorporated by reference to Exhibits 19.3, 19.4, 19.5 and 19.6, respectively, to the FTX 1990 Third Quarter Form 10-Q. 10.18 Amended and Restated FTX Employee Capital Accumulation Program dated September 14, 1990, generally effective as of January 1, 1989. Incorporated by reference to Exhibit 19.1 to the FTX 1990 Third Quarter Form 10-Q. 10.19 FTX Supplemental Executive Capital Accumulation Plan. Incorporated by reference to Exhibit 10.13 to the FTX 1987 Form 10-K. 10.20 Amendments, effective March 1, 1989 and January 1, 1990, to the FTX Supplemental Executive Capital Accumulation Plan. Incorporated by reference to Exhibit 10.20 to the FMP 1989 Form 10-K. 10.21 Amendment, effective May 1, 1991, to the FTX Supplemental Executive Capital Accumulation Plan. Incorporated by reference to Exhibit 19.1 to the FTX 1991 Third Quarter Form 10-Q. 10.22 Annual Incentive Plan of FTX, as amended. Incorporated by reference to Exhibit 10.18 to the FTX 1992 Form 10-K. 10.23 1992 Long-Term Performance Incentive Plan of FTX. Incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q of FTX for the quarter ended June 30, 1992 (the "FCX 1992 Second Quarter Form 10-Q"). 10.24 1987 Long-Term Performance Incentive Plan of FTX, as amended. Incorporated by reference to Exhibit 10.15 to the FRP 1991 Form 10-K. 10.25 FTX Variable Compensation Incentive Program, as amended. Incorporated by reference to Exhibit 19.4 to the FTX 1991 Third Quarter Form 10-Q. 10.26 Incentive Compensation Plan of FTX. Incorporated by reference to Exhibit 20.3 to the Quarterly Report on Form 10-Q of FTX for the Quarter ended June 30, 1981. 10.27 FTX Performance Incentive Awards Program, as amended. Incorporated by reference to Exhibit 19.5 to the FTX 1991 Third Quarter Form 10-Q. 10.28 FTX 1992 Stock Option Plan. Incorporated by reference to Exhibit 10.3 to the FCX 1992 Second Quarter Form 10-Q. 10.29 1982 Stock Option Plan of FTX, as amended. Incorporated by reference to Exhibit 19.6 to the FTX 1991 Third Quarter Form 10-Q. 10.30 FTX 1992 Stock Incentive Unit Plan. Incorporated by reference to Exhibit 10.2 to the FCX 1992 Second Quarter Form 10-Q. 10.31 1988 Stock Option Plan for Non- Employee Directors of FTX, as amended. Incorporated by reference to Exhibit 10.5 to the Quarterly Report on Form 10-Q of FTX for the quarter ended June 30, 1992. 10.32 FTX 1991 Plan for Deferral of Directors' Fees. Incorporated by reference to Exhibit 10.20 to the Annual Report on Form 10-K of FTX for the fiscal year ended December 31, 1991. 10.33 FTX Directors' Charitable Gift Program. Incorporated by reference to Exhibit 10.29 to the FTX 1992 Form 10-K. 10.34 FTX Matching Gifts Program. Incorporated by reference to Exhibit 10.30 to the FTX 1992 Form 10-K. 10.35 Financial Counseling and Tax Return Preparation and Certification Program of FTX. Incorporated by reference to Exhibit 10.31 to the FTX 1992 Form 10-K. 10.36 FTX Executive Universal Life Insurance Plan. Incorporated by reference to Exhibit 10.32 to the FTX 1992 Form 10-K. 10.37 Letter Agreement dated January 2, 1986 between FTX and Benno C. Schmidt. Incorporated by reference to Exhibit 10.13 to the Annual Report on Form 10-K of FTX for the fiscal year ended December 31, 1985. 10.38 Agreement for Consulting Services between FTX and B. M. Rankin, Jr., effective as of January 1, 1990. Incorporated by reference to Exhibit 19.2 to the Quarterly Report on Form 10-Q of FTX for the quarter ended March 31, 1990. 10.39 Consulting Agreement dated as of December 22, 1988, between FTX and Kissinger Associates, Inc. ("Kissinger Associates"). Incorporated by reference to Exhibit 10.35 to the FTX 1992 Form 10-K. 10.40 Letter Agreement dated May 1, 1989, between FTX and Kent Associates, Inc. (predecessor in interest to Kissinger Associates). Incorporated by reference to Exhibit 10.36 to the FTX 1992 Form 10-K. 11.1 FTX and Consolidated Subsidiaries Computation of Net Income Per Common and Common Equivalent Share. 12.1 FTX Computation of Ratio of Earnings to Fixed Charges. 13.1 Those portions of the 1993 Annual Report to stockholders of FTX which are incorporated herein by reference. 18.1 Letter from Arthur Andersen & Co. concerning changes in accounting principles. 21.1 Subsidiaries of FTX. 23.1 Consent of Arthur Andersen & Co. dated March 25, 1994. 24.1 Certified resolution of the Board of Directors of FTX authorizing this report to be signed on behalf of any officer or director pursuant to a Power of Attorney. 24.2 Powers of Attorney pursuant to which this report has been signed on behalf of certain officers and directors of FTX. 99.1 Annual Report on Form 10-K of FRP for the fiscal year ended December 31, 1993. 99.2 Annual report on Form 10-K of FCX for the fiscal year ended December 31, 1993. EX-11.1 2 Exhibit 11.1 FREEPORT-McMoRan INC. AND CONSOLIDATED SUBSIDIARIES COMPUTATION OF NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE
Years Ended December 31, --------------------------------- 1993 1992 1991 --------- -------- -------- (In Thousands, Except Per Share Amounts) Primary: Net income (loss) applicable to common stock $(126,203) $169,134 $ 40,090 ========= ======== ======== Average common shares outstanding 140,818 143,641 138,576 Common stock equivalents: Stock options 777 874 1,050 --------- -------- -------- Average common and common equivalent shares 141,595 144,515 139,626 outstanding ========= ======== ======== Net income (loss) per common and common $(.89) $1.17 $.29 equvalent share ===== ===== ==== Fully Diluted: Net income (loss) applicable to common stock $(126,203) $169,134 $40,090 Plus preferred dividends - 630 - Plus interest, net of tax effect, on convertible subordinated debentures - - - --------- -------- ------- Net income applicable to common stock $(126,203) $169,764 $40,090 ========= ======== ======= Average common shares outstanding 140,818 143,641 138,576 Common stock equivalents: Stock options 1,281 882 1,196 Convertible securities: Convertible subordinated debentures - - - Preferred stock - 734 - --------- -------- ------- Average common and common equivalent shares 142,099 145,257 139,772 outstanding ========= ======== ======= Net income (loss) per common and common $(.89) $1.17 $.29 equivalent share ===== ===== ====
EX-12.1 3 Exhibit 12.1 FREEPORT-McMoRan INC. Computation of Ratio of Earnings to Fixed Charges
Years Ended December 31, ------------------------------------------------- 1989 1990 1991 1992 1993 -------- -------- -------- -------- -------- (In Thousands) Income (loss) from continuing $118,324 $283,523 $ 96,703 $187,811 $(83,118) operations Add: Provision for income taxes 61,197 258,796 2,970 75,597 17,854 Minority interest income 100,601 126,415 67,953 72,987 (61,689) Interest expense 136,795 100,350 98,102 51,788 79,882 Rental expense factor(b) 7,201 5,674 5,873 10,352 14,348 -------- -------- -------- -------- -------- Earnings available for fixed charges $424,118 $774,758 $271,601 $398,535 $(32,723) ======== ======== ======== ======== ======== Interest expense $136,795 $100,350 $ 98,102 $ 51,788 $ 79,882 Capitalized interest 25,722 32,726 67,321 84,683 62,240 Preferred stock of majority-owned subsidiaries (a) - - - 12,112 49,921 Rental expense factor(b) 7,201 5,674 5,873 10,352 14,348 -------- -------- -------- -------- -------- Fixed charges $169,718 $138,750 $171,296 $158,935 $206,391 ======== ======== ======== ======== ======== Ratio of earnings to fixed 2.5x 5.6x 1.6x 2.5x (d) charges(c) ==== ==== ==== ==== a. Includes tax "gross-up" for the preferred stock dividend requirements of majority-owned subsidiaries included in minority interest income. b. Portion of rent deemed representative of an interest factor. c. For purposes of this calculation, earnings are income from continuing operations before income taxes, minority interests and fixed charges. Fixed charges consist of interest, that portion of rent deemed representative of interest, and the preferred stock dividend requirements of majority-owned subsidiaries. d. Earnings were inadequate to cover fixed charges by $239.1 million.
EX-13.1 4 Exhibit 13.1 FREEPORT-McMoRan INC. AND CONSOLIDATED SUBSIDIARIES BALANCE SHEETS December 31, ------------------------------- 1993 1992 ----------- ----------- (In Thousands) ASSETS Current assets: Cash and short-term investments $ 39,785 $ 381,002 Accounts receivable: Customers 174,716 185,460 Other 94,046 75,941 Inventories: Products 158,639 155,182 Materials and supplies 186,694 147,407 Prepaid expenses and other 25,675 38,515 ---------- ---------- Total current assets 679,555 983,507 ---------- ---------- Property, plant and equipment 4,210,575 3,303,918 Less accumulated depreciation 1,436,845 1,027,061 and amortization ---------- ---------- Net property, plant and equipment 2,773,730 2,276,857 ---------- ---------- Long-term receivables 111,222 53,896 Other assets 149,560 232,451 ---------- ---------- Total assets $3,714,067 $3,546,711 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accrued liabilities $ 408,289 $ 321,377 Current portion of long-term debt and short-term borrowings 49,256 80,146 ---------- ---------- Total current liabilities 457,545 401,523 Long-term debt, less current portion 1,282,424 1,430,546 Accrued postretirement benefits 239,134 144,161 and pension costs Reclamation and mine shutdown reserves 120,957 62,360 Other liabilities and deferred credits 178,583 87,382 Deferred income taxes 201,553 196,953 Deferred gain on sale of subsidiary 33,953 94,861 interests Minority interests in consolidated 1,199,269 782,904 subsidiaries Stockholders' equity: Preferred stock, par value $1 - at liquidation value, authorized 50,000,000 shares: $1.875 Convertible Exchangeable 6,286 7,453 $4.375 Convertible Exchangeable 250,000 250,000 Common stock, par value $1, authorized 300,000,000 shares 165,293 164,818 Capital in excess of par value of common stock 21,868 186,032 Retained earnings (deficit) (81,224) 68,532 Cumulative foreign translation adjustment (7,187) - Common stock held in treasury - 25,334,600 and 23,943,000 shares, respectively, at cost (354,387) (330,814) ---------- ---------- 649 346,021 ---------- ---------- Total liabilities and stockholders' equity $3,714,067 $3,546,711 ========== ========== The accompanying notes are an integral part of these financial statements. FREEPORT-McMoRan INC. AND CONSOLIDATED SUBSIDIARIES STATEMENTS OF OPERATIONS
Years Ended December 31, ---------------------------------------------------------- 1993 1992 1991 ---------- ---------- --------- (In Thousands, Except Per Share Amounts) Revenues $1,610,581 $1,654,911 $1,579,196 Cost of sales: Production and delivery 1,146,606 986,274 964,777 Depreciation and amortization 191,938 202,382 204,696 ---------- ---------- ---------- Total cost of sales 1,338,544 1,188,656 1,169,473 Exploration expenses 65,080 37,036 37,073 Provision for restructuring 67,145 - - charges (Gain) loss on valuation and sale of assets, net 64,114 - (515) General and administrative 169,059 177,363 149,272 expenses ---------- ---------- ---------- Total costs and expenses 1,703,942 1,403,055 1,355,303 ---------- ---------- ---------- Operating income (loss) (93,361) 251,856 223,893 Interest expense, net (79,882) (51,788) (98,102) Gain on sale of FCX Class - 100,934 - A shares Gain on conversion of FCX notes 44,116 33,753 - Gain on insurance settlement - - 17,684 Other income, net 2,174 1,640 24,151 ---------- ---------- ---------- Income (loss) before income taxes and minority interests (126,953) 336,395 167,626 Provision for income taxes (17,854) (75,597) (2,970) Minority interests in net (income) loss of consolidated subsidiaries 61,689 (72,987) (67,953) ---------- ---------- ----------- Income (loss) before changes in accounting principle (83,118) 187,811 96,703 Cumulative effect of changes in accounting principle, net of taxes and minority interests (20,717) - (55,724) ---------- ---------- ---------- Net income (loss) (103,835) 187,811 40,979 Preferred dividends (22,368) (18,677) (889) ---------- ---------- ---------- Net income (loss) applicable to common stock $ (126,203) $ 169,134 $ 40,090 ========== ========== =========== Primary and fully diluted net income (loss) per share: Before changes in accounting principle $(.74) $1.17 $.69 Cumulative effect of changes in accounting principle (.15) - (.40) ---------- ---------- ----------- $(.89) $1.17 $.29 ========== ========== =========== Average common and common equivalent shares outstanding: Primary 141,595 144,515 139,626 ========= ========== ========== Fully diluted 142,099 145,257 139,772 ========= ========== ========== Cash dividends per common share $1.25 $1.25 $1.25 ========= ========== ========== The accompanying notes are an integral part of these financial statements.
FREEPORT-McMoRan INC. AND CONSOLIDATED SUBSIDIARIES STATEMENTS OF STOCKHOLDERS' EQUITY Years Ended December 31, ---------------------------------------------------------- 1993 1992 1991 ---------- ---------- ---------- (In Thousands) $1.875 Convertible exchangeable preferred stock: Balance at beginning of year $ 7,453 $ 9,680 $ 39,730 Conversions to common stock (1,167) (2,227) (30,050) ---------- ---------- ---------- Balance at end of year 6,286 7,453 9,680 ---------- ---------- ---------- $4.375 Convertible exchangeable preferred stock: Balance at beginning of year 250,000 - - Issuance of shares - 250,000 - ---------- ---------- ---------- Balance at end of year 250,000 250,000 - Common stock: ---------- ---------- ---------- Balance at beginning of year 164,818 81,796 72,896 Two-for-one stock split - 81,796 - Conversions to common stock and other 475 1,226 8,900 ---------- ---------- ---------- Balance at end of year 165,293 164,818 81,796 ---------- ---------- ---------- Capital in excess of par value of common stock: Balance at beginning of year 186,032 352,705 119,180 Two-for-one stock split - (81,796) - Distribution of FMPO common shares - (92,124) - Dividends on preferred stock (20,499) - - Cash dividends on common stock (131,992) - - Conversions to common stock and other (11,673) 7,247 233,525 ---------- ---------- ---------- Balance at end of year 21,868 186,032 352,705 ---------- ---------- ---------- Retained earnings (deficit): Balance at beginning of year 68,532 163,754 298,101 Net income (loss) (103,835) 187,811 40,979 Distribution of FMPO common shares - (84,464) - Dividends on preferred stock (1,869) (18,677) (889) Cash dividends on common stock (44,052) (179,892) (174,437) ---------- ---------- ---------- Balance at end of year (81,224) 68,532 163,754 ---------- ---------- ---------- Cumulative foreign translation adjustment: Balance at beginning of year - - - Current year adjustment (7,187) - - ---------- ---------- ---------- Balance at end of year (7,187) - - ---------- ---------- ---------- Common stock held in treasury: Balance at beginning of year (330,814) (219,654) (192,496) Purchase of 1,326,200, 5,705,100, and 1,000,000 shares in 1993, 1992, and 1991, respectively (22,229) (108,591) (18,880) Other (1,344) (2,569) (8,278) ---------- ---------- ---------- Balance at end of year (354,387) (330,814) (219,654) ---------- ---------- ---------- Total stockholders' equity $ 649 $346,021 $388,281 ========== ========== ========== The accompanying notes are an integral part of these financial statements.
FREEPORT-McMoRan INC. AND CONSOLIDATED SUBSIDIARIES STATEMENTS OF CASH FLOW Years Ended December 31, ---------------------------------------------------------- 1993 1992 1991 ---------- ---------- --------- (In Thousands) Cash flow from operating activities: Net income (loss) $(103,835) $ 187,811 $ 40,979 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Cumulative effect of changes in accounting principle 20,717 - 55,724 Depreciation and amortization 199,506 211,176 211,768 Other noncash charges to income 33,194 - - Provision for restructuring charges, net of payments 23,890 - - (Gain) loss on valuation and sale of assets, net 64,114 - (515) Oil and gas exploration expenses 26,710 18,333 26,953 Recognition of unearned revenues in income (13,978) (10,977) (12,989) Amortization of debt discount and financing costs 41,166 51,206 26,566 Gain on sale of FCX Class A shares - (100,934) - Gain on conversion of FCX notes (44,116) (33,753) - Gain on insurance settlement - - (17,684) Deferred income taxes (39,035) 53,079 (36,216) Minority interests' share of net income (loss) (61,689) 72,987 67,953 (Increase) decrease in working capital, net of effect of acquisitions and dispositions: Accounts receivable 2,821 (14,672) 16,523 Inventories 4,475 (20,675) (48,049) Prepaid expenses and other (10,873) (23,037) 2,024 Accounts payable and accrued liabilities (24,590) (43,001) (15,193) Reclamation and mine shutdown expenditures (9,980) (18,038) (16,601) Payment of IDC tax settlement to Freeport-McMoRan Royalty Trust - - (28,400) Other 8,792 10,132 (22,968) ---------- ---------- ---------- Net cash provided by operating activities 117,289 339,637 249,875 ---------- ---------- ---------- Cash flow from investing activities: Capital expenditures: Metals (453,122) (367,842) (239,954) Main Pass (37,427) (117,902) (291,993) Agricultural minerals (14,743) (86,815) (81,486) Oil and gas (35,455) (50,493) (141,876) Real estate - (11,396) (74,411) Other (27,450) (48,161) (60,675) Sale of assets: Oil and gas 95,250 - 461,543 Geothermal 23,000 - - Other 26,961 - - Acquisition of RTM, net of cash acquired (10,390) - - Purchase of indirect interest in PT-FI - (211,892) - Other 4,375 8,962 20,851 ---------- ---------- ---------- Net cash used in investing activities $(429,001) $(885,539) $(408,001) ========== ========== ==========
FREEPORT-McMoRan INC. AND CONSOLIDATED SUBSIDIARIES STATEMENTS OF CASH FLOW
Years Ended December 31, ---------------------------------------------------------- 1993 1992 1991 ---------- ---------- --------- (In Thousands) Cash flow from financing activities: Proceeds from issuance of: Convertible Exchangeable Preferred Stock $ - $245,700 $ - Convertible Subordinated Notes - - 290,605 Zero Coupon Convertible Subordinated Debentures - - 194,243 FCX Zero Coupon Convertible Subordinated Notes - - 218,560 FRP depositary units - 425,996 - FCX Class A common shares - 174,142 - FCX Special Preference Stock - 217,867 - FCX Step-Up Preferred Stock 340,700 - - FCX Mandatory Redeemable Gold-Denominated Preferred Stock 220,390 - - Proceeds from sale of PT-FI common shares - 212,485 - Purchase of Freeport-McMoRan Inc. common shares (22,229) (108,591) (18,880) Purchase of FCX Class A common shares (16,482) (15,253) - Distributions paid to minority interests: FCX (74,848) (46,051) (30,945) FRP (121,180) (109,450) (74,269) Distribution to FM Properties Inc. - (28,019) - Net proceeds from infrastructure financing 80,000 - - Proceeds from debt 575,376 851,447 826,119 Repayment of debt (814,920) (797,735) (1,030,690) Cash dividends paid: Common stock (175,890) (179,677) (173,989) Preferred stock (22,384) (16,882) (1,040) Other 1,962 11,322 352 ---------- ---------- ---------- Net cash provided by (used in) financing activities (29,505) 837,301 200,066 ---------- ---------- ---------- Net increase (decrease) in cash and short-term investments (341,217) 291,399 41,940 Cash and short-term investments at beginning of year 381,002 89,603 47,663 ---------- ---------- ---------- Cash and short-term investments at end of year $ 39,785 $ 381,002 $ 89,603 ========== ========== ========== Interest paid $ 94,557 $ 95,787 $ 126,171 ========== ========== ========== Income taxes paid $ 15,925 $ 28,123 $ 64,789 ========== ========== ========== The accompanying notes, which include information in Notes 1, 2, 3, 4, and 5 regarding noncash transactions, are an integral part of these financial statements.
FREEPORT-McMoRan INC. NOTES TO FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation. The consolidated financial statements of Freeport-McMoRan Inc. (FTX or the Company) include all majority-owned subsidiaries and publicly traded partnerships. Investments in joint ventures and partnerships (other than publicly traded entities) are generally reflected using the proportionate consolidation method in accordance with standard industry practice. Reclassifications were made to prior year financial statements to conform to the 1993 presentation. All significant intercompany transactions have been eliminated. Cash and Short-Term Investments. FTX considers highly liquid investments purchased with a maturity of three months or less to be cash equivalents. Each consolidated entity's cash and short-term investments are not available to FTX until a distribution is paid to all owners of an entity's equity securities. Inventories. Inventories are generally stated at the lower of average cost or market and removed at average cost. Property, Plant and Equipment. Property, plant and equipment is carried at cost. Mineral exploration costs are expensed as incurred, except in the year the property is deemed to contain a viable mineral deposit, in which case they are capitalized. Development costs, which include interest incurred during the construction and development period, are capitalized. Expenditures for replacements and improvements are capitalized. Depreciation expense for mining and production assets, including mineral interests, is determined using the unit-of-production method based on estimates of recoverable reserves. Other assets are depreciated on a straight-line basis over estimated useful lives of 15 to 30 years for buildings and 3 to 25 years for machinery and equipment. Oil and Gas Exploration and Development Costs. FTX follows the successful efforts method of accounting for its oil and gas operations. Costs of leases, productive exploratory wells, and development activities are capitalized. Other exploration costs are expensed. Depreciation and amortization is determined on a field-by-field basis using the unit-of- production method. Gain or loss is included in income when properties are sold. Environmental Remediation and Compliance. Environmental expenditures that relate to current operations are expensed or capitalized as appropriate. Expenditures resulting from the remediation of an existing condition caused by past operations, that do not contribute to current or future revenues, are expensed. Liabilities are recognized for remedial activities when the efforts are probable and the cost can be reasonably estimated. FTX accrues estimated future expenditures to restore properties and related facilities to a state required to comply with current environmental and other regulations over the life of the properties. As of December 31, 1993, FTX had accrued $63.6 million for abandonment and restoration of its non-Main Pass sulphur assets ($8.1 million reflected in accounts payable), approximately one-half of which will be reimbursed by third parties, and $43.1 million for reclamation of land relating to phosphate rock mining activities ($4.6 million reflected in accounts payable). Based on current costs, laws, and regulations, FTX estimates that its share of costs relating to the abandonment and restoration of its Main Pass sulphur mine will approximate $35 million, with essentially all costs to be incurred after mine closure in approximately 30 years. These estimates can be expected to be revised over time due to changes in government regulations, operations, technology, and inflation. Hedging. P.T. Freeport Indonesia Company (PT-FI) has a price protection program for virtually all of its estimated copper sales to be priced in 1994 at an average floor price of $.90 per pound, while allowing full benefit from prices above that amount. Based on an average 1994 forward market price of approximately $.82 per pound of copper (December 31, 1993 forward prices per London Metal Exchange, LME), the market value of these contracts is approximately $56 million. The contracts are with a diversified group of financially strong counterparties. Rio Tinto Minera, S.A. (RTM) has forward contracts for approximately 61 percent of its estimated 1994 gold production at $383.80 per ounce and 38 percent of its estimated 1995 gold production at $394.80 per ounce. Based on a market price of $390.65 per ounce of gold (December 31, 1993 price per LME), these contracts are in a loss position of approximately $2 million. Additionally, RTM has a policy of eliminating significant exposure to copper price fluctuations by hedging purchases of concentrate at its smelter through the use of forward contracts. At December 31, 1993, RTM sold forward approximately 4.2 million pounds of its concentrate inventory at approximately $.78 per pound of copper. Concentrate Sales. Revenues associated with PT-FI's sales of metal concentrates are recorded net of royalties, treatment costs, and amortization of the cost of its price protection program. PT-FI's concentrate sales agreements provide for provisional billings based on world metals prices, primarily the LME, with actual settlement generally based on appropriate future metals prices. Revenues, recorded initially using provisional prices, are adjusted using current prices. At December 31, 1993, copper sales totaling 213.4 million pounds remained to be contractually priced at various times in 1994. As a result of PT-FI's price protection program, these pounds are recorded at an average price of $.90 per pound. Gold sales are priced according to individual contract terms. Foreign Translation Adjustment. The functional currency for RTM is the Spanish peseta. RTM's assets and liabilities are translated to U.S. dollars using the exchange rate in effect at the balance sheet date. FTX's share of the cumulative results of the translation adjustment is recorded as a separate component of stockholders' equity. Results of operations are translated using the average exchange rates during the period. Gains and losses resulting from foreign currency transactions, which were not material, are included in net income. Net Income Per Share. Primary net income per share is computed by dividing net income applicable to common stock by the average common and common equivalent shares outstanding during the year. Fully diluted net income per share is computed assuming that all convertible securities, if dilutive, were converted at the beginning of the period or date of issuance, whichever is later. Changes in Accounting Principle. During 1993, the Company adopted the following changes to accounting policies: Periodic Scheduled Maintenance Costs - Costs related to periodic scheduled maintenance (turnarounds) were previously capitalized when incurred and amortized generally over six months to two years. Effective January 1, 1993, the method of accounting was changed to expense these costs when incurred. Deferred Charges - The accounting for deferred charges was changed to provide for deferral of only those costs that directly relate to the acquisition, construction, and development of assets and to the issuance of debt and related instruments. Previously, certain other costs that benefitted future periods were amortized over the periods benefitted. Management Information Systems - Costs of management information systems (MIS) equipment and software that have a material impact on periodic measurement of net income are capitalized and amortized over their estimated productive lives. Other MIS costs, including equipment and purchased software that involve relatively immaterial amounts (currently individual expenditures of less than $.5 million) and short estimated productive lives (currently less than three years) are charged to expense when incurred. Previously, most expenditures for MIS equipment and purchased software were capitalized. The accounting for MIS costs was changed to recognize the rapid rate of technology change in MIS which results in short productive lives of equipment and software and a need for continuing investments. The changes in accounting policy were adopted to improve the measurement of operating results by reporting cash expenditures as expenses when incurred unless they are directly related to long-lived asset additions. In addition, the administrative costs of accounting for assets will be reduced by not capitalizing and amortizing relatively insignificant expenditures that do not have a material effect on measuring periodic net income. If these changes in accounting principle had not been adopted, 1993 income before change in accounting principle would not have been materially different from the amount reported. If the changes in accounting principle had been applied in prior years, 1992 and 1991 net income would not have been materially different from amounts reported. 2. PUBLIC SUBSIDIARIES Freeport-McMoRan Copper & Gold Inc. (FCX). The Company's metals operations are conducted through its publicly traded subsidiary, FCX. FCX's operations are conducted primarily through its subsidiaries, PT-FI which principally operates the Indonesian copper and gold mining facilities and, RTM which operates a copper smelter in Spain. In January 1991, the Government of Indonesia increased its ownership in PT-FI from 8.9 percent to 10 percent by purchasing PT-FI shares owned by FCX for $18.1 million. In December 1991, PT-FI and the Indonesian government signed a new contract of work (New COW) which has a 30-year term with two 10-year extensions permitted. Under the New COW, FCX pays the Indonesian government a royalty of 1.5 percent to 3.5 percent on the value of copper sold, net of delivery costs and treatment and refining charges, and a 1 percent royalty on the sales value of gold and silver ($9.5 million in 1993, $15.7 million in 1992, and $10.5 million in 1991). The New COW required FCX to increase the ownership by Indonesian entities in PT-FI to 20 percent, which was achieved through the sale of 10 percent of PT-FI common stock to an entity owned by Indonesian investors on December 31, 1991. FTX and FCX guaranteed the buyer's financing for this purchase and, consequently, deferred gain on this sale. In December 1992, FCX purchased 49 percent of the capital stock of the publicly traded Indonesian entity which owned the 10 percent of PT-FI sold in 1991 and the deferred gain was offset against the cost of the additional indirect PT-FI interest. In December 1993, PT-FI issued shares of its stock to FCX in exchange for the conversion of certain notes (Note 5). FCX's direct ownership in PT-FI totaled 80.8 percent and 80.0 percent at December 31, 1993 and 1992, respectively. In 1994, PT-FI issued additional shares of its stock to FCX for conversion of the remaining notes, increasing FCX's direct ownership in PT-FI to 81.3 percent. The sale and purchase prices were based on the fair market value of FCX Class A common stock at the time of the agreements. At December 31, 1993, PT-FI's net assets totaled $184.3 million, including $24.6 million of retained earnings. In July 1992, FCX sold publicly 8.6 million shares of its Class A common stock, resulting in an after-tax gain to FTX of $100.9 million, and 9.0 million depositary shares. Each depositary share represents 2 16/17 shares of its 7% Convertible Exchangeable Special Preference Stock, has a cumulative annual cash dividend of $1.75 (payable quarterly) and a $25 liquidation preference, and is convertible at the option of the holder into approximately 1.009 shares of FCX Class A common stock (equivalent to a conversion price of $24.77 per share of FCX Class A common stock). Beginning August 1, 1995, FCX may redeem these depositary shares for cash at $26.225 per share (declining ratably to $25 per share in March 2002) plus accrued and unpaid dividends. In July 1993, FCX sold publicly 14.0 million depositary shares representing its Step-Up Convertible Preferred Stock. Each depositary share has a cumulative annual cash dividend of $1.25 through August 1, 1996 and thereafter $1.75 (payable quarterly) and a $25 liquidation preference, and is convertible at the option of the holder into approximately 0.826 shares of FCX Class A common stock (equivalent to a conversion price of $30.28 per share of FCX Class A common stock). From August 1, 1996 and prior to August 1, 1999, FCX may redeem these depositary shares for approximately 0.826 shares of FCX Class A common stock per depositary share if the market price of FCX Class A common stock exceeds certain specified levels. Thereafter, FCX may redeem these depositary shares at $25 per share (payable in FCX Class A common stock, cash or a combination of both, at FCX's option) plus accrued and unpaid dividends. In August 1993, FCX sold publicly 6.0 million depositary shares representing its Gold-Denominated Preferred Stock. Each depositary share has a cumulative quarterly cash dividend equal to the value of 0.000875 ounces of gold and is subject to mandatory cash redemption in August 2003 for the value of 0.1 ounces of gold. The depositary shares are recorded at their offering price and are being reflected as a hedge of future gold sales for accounting purposes. Based on the December 31, 1993 closing market price, these depositary shares had a market value of $258 million. In January 1994, FCX sold publicly 4.3 million depositary shares representing its Gold-Denominated Preferred Stock, Series II, for net proceeds of $158.5 million. Each depositary share has a cumulative quarterly cash dividend equal to the value of 0.0008125 ounces of gold and is subject to mandatory cash redemption in February 2006 for the value of 0.1 ounces of gold. FTX reflects FCX preferred stock and related dividends as minority interests in its financial statements. FTX's ownership of the FCX Class A and Class B common stock combined as of December 31, 1993 and 1992, was 71.8 percent and 73.2 percent, respectively. In March 1993, FCX acquired a 65 percent interest in RTM, which operates a copper smelter and a gold mine with an estimated remaining life of fewer than four years, by investing approximately $50 million, excluding transaction costs, to be used by RTM for working capital requirements and capital expenditures, including funding a portion of the costs of the expansion of its smelter production capacity from its current 150,000 metric tons of metal per year to 180,000 metric tons of metal per year by mid-1995. In December 1993, RTM redeemed the remaining 35 percent interest for approximately $19 million. Selected balance sheet information reflecting the allocation of the purchase price to the assets and liabilities acquired is as follows (in thousands): Current assets $101,454 Current liabilities (158,445) Property, plant and equipment, net 277,170 Other assets 5,358 Long-term debt (38,941) Accrued postretirement benefits and other liabilities (176,206) -------- Net cash investment $ 10,390 ======== Freeport-McMoRan Resource Partners, Limited Partnership (FRP). The Company's fertilizer and sulphur operations and its Main Pass oil operations are conducted through its publicly traded affiliate, FRP. FTX owned 51.3 percent of the FRP units outstanding at December 31, 1993 and 1992. FRP and IMC Fertilizer, Inc. (IMC) formed a joint venture (IMC-Agrico Company), operated by IMC, effective July 1, 1993, for their respective phosphate fertilizer businesses, including phosphate rock and uranium. FRP's "Current Interest", reflecting cash to be distributed from ongoing operations, initially is 58.6 percent and its "Capital Interest", reflecting the purchase or sale of long-term assets or any required capital contributions to IMC-Agrico Company is 46.5 percent initially. These ownership percentages decline in annual increments ultimately to 40.6 percent for the fiscal year ending June 30, 1998 and remain constant thereafter. FRP proportionately consolidates its interest in IMC-Agrico Company. The assets of IMC-Agrico Company are not available to FRP until distributions are paid by the joint venture. At December 31, 1993, the net assets of IMC-Agrico Company totaled $1.5 billion. In January 1994, IMC-Agrico Company declared a $52.8 million distribution payable in February 1994, of which $30.9 million is due to FRP. Publicly owned FRP units have cumulative rights to receive quarterly distributions of 60 cents per unit through the distribution for the quarter ending December 31, 1996 (the Preference Period) before any distributions may be made to FTX. FRP no longer intends to supplement distributable cash with borrowings. Therefore, FRP's future distributions will be dependent on the distributions received from IMC-Agrico Company and future cash flow from FRP's sulphur and oil operations. On January 21, 1994, FRP declared a distribution of 60 cents per publicly held unit ($30.3 million) and 12 cents per FTX-owned unit ($6.2 million) payable February 15, 1994, bringing the total unpaid distributions due FTX to $239.2 million. During the Preference Period the unpaid FTX distributions will be payable, after a 60 cents per unit quarterly distribution is paid to all unitholders, equal to the lesser of any deficiency or one-half of the amount by which distributable cash exceeds a 60 cents per unit distribution. Remaining distributable cash will be paid to all unitholders in accordance with their percentage interests. After the Preference Period distribution deficiencies on FTX-owned FRP units will be paid in the manner described above after any deficiencies in the cumulative quarterly distribution to the public are paid and a quarterly distribution of 60 cents per unit has been paid to all unitholders. In February 1992, FRP sold publicly 19.5 million new units, resulting in a gain to FTX of $136.6 million, which was deferred because of the FRP public unitholders' distribution priority. FTX recognized a pretax loss of $126.3 million in 1993 and earnings of $10.5 million in 1992, which represents its proportionate share of FRP's earnings. This included recognition of $62.2 million and $41.8 million, respectively, of the gain deferred by FTX. The remaining deferred gain will be recognized in future periods when distributions are not paid to FTX such that its operating results will include its proportionate share of FRP's earnings. Subsequent to the recognition of the balance of the deferred gain, if additional FRP distributions are not paid to FTX in any quarter, FTX will recognize a smaller share of any FRP net income, or a larger share of any FRP net loss, than that which would be recognized based on FTX's ownership interest in FRP. 3. FM PROPERTIES INC. (FMPO) In June 1992, FTX transferred substantially all of its domestic oil and gas properties and real estate held for development by it and certain of its subsidiaries, excluding FRP, to a partnership which is currently 99.8 percent owned by FMPO. FTX holds a minimal general partnership interest in the partnership and serves as its managing general partner. In May 1992, FTX declared a distribution of one FMPO common share for each ten FTX common shares owned. Selected financial information of FMPO is as follows:
Inception Through Year Ended May 31, 1992 December 31, 1992 December 31, 1993 ------------- ----------------- ----------------- (In Thousands) Balance Sheet: Current assets $ 42,103 $ 43,679 $105,539 Current liabilities, excluding current portion of long-term debt 13,302 23,886 40,528 Oil and gas properties, net 444,676 399,825 - Investment in real estate, net 248,647 263,097 286,459 Total assets 741,618 712,166 395,750 Long-term debt (guaranteed by FTX) 493,305 473,763 173,796 Stockholders' equity 176,588 164,474 145,660 Income Statement: Revenues 5,968 24,836 Operating loss (14,319) (18,913) Net loss (12,114) (18,814) Cash Flow: Operations 29,731 100,933 Investing activities (35,180) 199,359 Financing activities 8,157 (300,517)
During 1993, FMPO sold all of its producing oil and gas properties and used the proceeds, a portion of which was received in 1994, to reduce its long-term debt. As of January 21, 1994, FMPO's long-term debt was approximately $123 million and it had approximately $30 million of cash. 4. RESTRUCTURING AND VALUATION CHARGES Restructuring Charges. FTX recognized expense of $67.1 million during 1993 for the restructuring of its administrative organization (including personnel related costs, the cost to downsize its computing and MIS structure, and a write-off of excess facilities and other miscellaneous assets), principally resulting from formation of IMC-Agrico Company (Note 2). See Management's Discussion and Analysis of Financial Condition and Results of Operations for information about a reclassification of restructuring charges from those previously reported resulting from views expressed by the Securities and Exchange Commission staff. Asset Sales/Recoverability. In 1993, FTX sold its ownership interest in a nonproducing oil and gas property recognizing a gain of $69.1 million, and FRP sold assets, primarily certain previously mined phosphate rock acreage recognizing a gain of $11.8 million. FRP also sold its remaining interests in producing geothermal properties for $63.5 million, consisting of $23.0 million in cash and interest-bearing notes totaling $40.5 million (included in other assets), recognizing a $31.0 million charge to expense and recording a $9.0 million charge for impairment of its undeveloped geothermal properties. FTX recognized expense of $105.0 million during 1993 for the recoverability of certain assets, primarily FRP's investments in the non-Main Pass sulphur assets because of persistent weak market conditions and the Main Pass oil investment caused by a fourth-quarter decline in oil prices. 5. LONG-TERM DEBT December 31, ------------------------------ 1993 1992 ----------- ---------- (In Thousands) Notes payable: FTX credit agreement, average rate 4.1% in 1993 and 5.1% in 1992 $ 388,000 $ 660,000 ALatieF Joint Venture bank loan (Note 9) 60,000 - Other, primarily RTM short-term borrowings, average rate 11% 57,709 9,769 ---------- --------- Total notes payable 505,709 669,769 ---------- --------- Publicly traded notes and debentures: 10 7/8% Senior Subordinated Debentures, due 2001 125,358 131,000 6.55% Convertible Subordinated Notes, face amount of $373.0 million, effective rate of 9.825%, due 2001 311,863 309,763 Zero Coupon Convertible Subordinated Debentures, face amount of $749.7 million, effective rate of 9%, due 2006 247,427 226,577 FCX Zero Coupon Exchangeable Subordinated Notes, face amount of $386.1 million in 1993 and $708.7 million in 1992 102,039 173,583 ----------- ----------- Total publicly traded notes and debentures 786,687 840,923 ----------- ----------- RTM gold and silver denominated loans, average rate 1.3% 39,284 - ----------- ----------- 1,331,680 1,510,692 Less current portion and short-term borrowings 49,256 80,146 ---------- ----------- $1,282,424 $1,430,546 ========== =========== Notes Payable. In June 1993, FTX amended its credit agreement (the Credit Agreement) to extend its maturity and to include PT-FI as a borrower. The Credit Agreement is structured as a three year revolving line of credit followed by a 3 1/2 year reducing revolver. The Credit Agreement is part of an $800.0 million committed credit facility subject to a borrowing base, redetermined annually by the banks, which establishes maximum consolidated debt for FTX. As of December 31, 1993, $547.5 million was available under the current borrowing base and $412.0 million of borrowings were unused under the credit facility. FTX guarantees any borrowings under the Credit Agreement and is required to retain control of FRP and PT-FI. Under certain circumstances FTX could be required to pledge a portion of its equity in FCX and FRP. PT-FI also assigned its existing and future sales contracts and pledged its rights under the New COW and its accounts receivable and other assets as security for its borrowings under the Credit Agreement. The Credit Agreement provides for working capital requirements, specified coverage of fixed charges, and restrictions on other borrowings. RTM has several short-term credit facilities with banks. The stated rates of interest on these loans range from 3.7 percent to 13 percent. RTM has pledged certain of its assets as security for these loans. Publicly Traded Notes and Debentures. Beginning in 1996 FTX may redeem its 10 7/8% Senior Subordinated Debentures at principal plus accrued interest. Annual sinking fund payments of $20.4 million, plus accrued interest, begin in 1997. Based on the December 31, 1993 closing market price, this debt had a market value of $132.6 million. In February 1991, FTX issued $373.0 million of 6.55% Convertible Subordinated Notes convertible into 44.64 shares of FTX common stock per $1,000 principal amount (equivalent to a conversion price of $22.40 per FTX share). FTX may redeem these notes for cash at 89.75 percent of principal (increasing ratably to 100 percent over the term of the notes) plus accrued interest. Based on the December 31, 1993 closing market price, this debt had a market value of $344.1 million. In August 1991, FTX sold $750.0 million face amount of Zero Coupon Convertible Subordinated Debentures convertible, at the holder's option, into 13.21 shares of FTX common stock per $1,000 principal amount (subject to adjustment in certain events), with FTX having the right to pay cash in lieu of all or part of such FTX common stock. FTX may redeem these debentures for cash at the issue price plus accrued original issue discount. The debentures have a contingent payment feature (if the market price of FTX common stock exceeds certain specified amounts) payable in FTX common stock, cash or a combination of both, at FTX's option. The debentures contain purchase rights at the holder's option, as of August 5, 1996 or 2001, at the issue price plus accrued original issue discount. Based on the December 31, 1993 closing market price, this debt had a market value of $246.5 million. In July 1991, FCX sold $1.035 billion face amount of Zero Coupon Exchangeable Subordinated Notes. The net proceeds were loaned to PT-FI under similar terms. During 1993 and 1992, $322.6 million and $326.4 million face amount of these notes were exchanged for which FCX issued 4.8 million shares of its Class A common stock in 1993 and 4.5 million shares of its Class A common stock and paid $7.9 million in cash in 1992, with FTX recognizing a pretax gain of $44.1 million in 1993 and $33.8 million in 1992. The remaining $386.0 million face amount of notes were exchanged for 5.8 million shares of FCX Class A common stock in January 1994. As a result of the issuance by FCX of its Class A common stock, PT- FI issued shares of its stock to FCX (Note 2). RTM Gold and Silver Denominated Loans. RTM has loans payable with 107,800 ounces of gold (9,200 ounces payable quarterly) and 953,100 ounces of silver (105,900 ounces payable quarterly) carried at the market price of gold ($331.70 per ounce) and silver ($3.70 per ounce) at the date of FCX's acquisition. The loans are accounted for as a hedge. Interest is calculated on the outstanding ounces at the current prices on the date of payment. Based on the December 31, 1993 LME quotes for gold and silver, this debt had a market value of approximately $47 million. Interest Rate Swaps. FTX has an 8.2 percent interest rate exchange agreement on $150.0 million of financing until April 1996. FTX and FRP also have agreements fixing the interest rate on $77.9 million of financing at an average of 10.2 percent through 1999. PT-FI has an 8.3 percent interest rate exchange agreement on $85.7 million of financing at December 31, 1993, reducing $14.3 million annually through 1999. Based on market conditions at December 31, 1993, unwinding these interest swaps would cost an estimated $34.1 million. Capitalized Interest. Capitalized interest totaled $62.2 million in 1993, $84.7 million in 1992, and $67.3 million in 1991. Minimum Principal Payments. The minimum principal payments for debt scheduled for each of the five succeeding years based on the amounts outstanding at December 31, 1993, assuming the terms of the Credit Agreement are not extended, are $49.3 million in 1994, $19.6 million in 1995, $68.9 million in 1996, $141.0 million in 1997, and $184.6 million in 1998. 6. INCOME TAXES Effective January 1, 1992, FTX adopted Statement of Financial Accounting Standards No. 109, the new accounting standard for income taxes. The cumulative adjustment to taxes and the impact on 1992 earnings from operations were not material. The components of the net deferred tax asset (included in other assets) and liability were as follows:
1993 1992 Consolidated Tax Group Consolidated Tax Group ______________________ ______________________ FTX FCX FTX FCX _________ _________ _________ ________ (In Thousands) Deferred tax assets: Net operating loss carryforwards $ 58,650 $ - $ 15,483 $ - Alternative Minimum Tax credits 43,242 - 59,998 - Other tax carryforwards 41,814 29,465 13,665 16,760 Deferred compensation, postretirement and pension benefits 44,820 - 36,544 - Other 53,149 - 13,233 - Less valuation allowance (41,814) (29,465) (13,665) (16,760) _________ _________ _________ ________ Total deferred tax assets 199,861 - 125,258 - _________ _________ _________ ________ Deferred tax liabilities: Property, plant and equipment (100,499) (199,956) (91,153) (195,760) Other (10,527) (1,597) - (1,193) _________ _________ _________ ________ Total deferred tax liability (111,026) (201,553) (91,153) (196,953) _________ _________ _________ ________ Net deferred tax asset (liability) $ 88,835 $(201,553) $ 34,105 $(196,953) ========= ========= ========= =========
The net deferred tax asset is from FTX's domestic operations whereas the net deferred tax liability relates to PT-FI's operations. Recognition of a deferred tax asset is dependent upon FTX's evaluation that it is more likely than not that it will ultimately be realized from future income generated by its domestic operations. FTX believes that no valuation allowance is needed for its net operating loss (NOL) carryforwards and alternative minimum tax (AMT) credits because historically it has been able to utilize substantially all of its tax benefits and tax-planning strategies are available that would enable it to utilize these deferred tax assets; the NOL carryforwards do not expire until the years 2007 and 2008, and the AMT credits can be carried forward indefinitely. FTX has provided a valuation allowance for the other tax credit and charitable contribution carryforwards as they would be utilized subsequent to the NOL carryforwards and AMT credits and substantially all expire between 1994 and 2000. A valuation allowance has been provided at FCX for all foreign tax and AMT credits, as these would only be utilized should FCX be required to pay regular U.S. tax, which FTX views as unlikely because Indonesian taxes exceed U.S. taxes. In addition, RTM, which is subject to a separate tax jurisdiction (Spain), has NOL carryforwards totaling approximately $108 million ($91 million pre-acquisition) which expire from 1994 to 1998. FTX has provided a valuation allowance for the full amount of these carryforwards as RTM has not generated taxable income in recent years. FTX does not provide deferred taxes for certain financial and income tax reporting differences related to FCX and FRP which are considered permanent in duration. These differences resulted primarily from gains recognized for financial reporting purposes upon the sale of FCX shares and FRP units. As of December 31, 1993, these basis differences were approximately $185 million for FCX and $216 million for FRP. If ownership in these subsidiaries falls below 50 percent, FTX would be required to charge earnings for taxes on the difference between the book and tax basis of its investment. The provision (credit) for income taxes consists of the following: Years Ended December 31, ----------------------------------- 1993 1992 1991 ------- -------- -------- (In Thousands) Current income taxes: Federal $(2,497) $(24,565) $ 7,403 Foreign 54,994 45,996 20,194 State 4,391 1,087 6,582 ------- -------- -------- 56,888 22,518 34,179 ------- -------- -------- Deferred income taxes: Federal (54,730) (10,359) (106,035) Foreign 4,600 63,438 43,446 ------- -------- -------- (50,130) 53,079 (62,589) ------- -------- -------- Total income taxes $ 6,758 $ 75,597 $(28,410) ======= ======== ======== Reconciliations of the differences between income taxes computed at federal statutory tax rates and income taxes recorded are as follows:
Years Ended December 31, --------------------------------------------------------------- 1993 1992 1991 ------------------- ------------------- -------------------- Percent Percent Percent of Income of Income of Income Before Before Before Income Income Income Amount Taxes Amount Taxes Amount Taxes ------- ----- -------- ----- -------- ----- (Dollar Amounts In Thousands) Income taxes computed at the federal statutory income tax rate $(61,193) 35 % $114,374 34% $ 14,466 34 % Increase (decrease) attributable to: FCX dividend 6,456 (3) 5,799 2 - - Statutory depletion (2,016) 1 (5,126) (2) (3,892) (9) Partnership minority interests 45,057 (26) (3,253) (1) (1,575) (4) Sale of subsidiary interests - - (45,794) (14) - - Minimum, state, and foreign taxes 18,462 (11) 13,855 4 20,011 47 Deferred taxes no longer required - - (1,152) - (60,586) (142) Sales of assets and other (8) - (3,106) (1) 3,166 7 ------- --- -------- -- -------- --- Income tax provision (credit) $ 6,758 (4)% $ 75,597 22% $(28,410) (67)% ======= === ======== == ======== ===
Sources of deferred income taxes for 1991 are as follows (in thousands): Mineral exploration and development $ 14,306 Deferred compensation, postretirement and pension benefits (27,280) Intangible oil and gas costs 9,748 Capitalized interest 16,993 Sales of assets (39,723) Settlements of sales contracts 3,404 Accelerated depreciation 28,975 Tax carryovers (30,985) Deferred taxes no longer required (60,586) Price protection program 3,751 Other, net 18,808 -------- $(62,589) ======== 7. STOCKHOLDERS' EQUITY Preferred Stock. FTX's $1.875 Cumulative Convertible Exchangeable Preferred Stock, each with a $25 liquidation value, is convertible at the holder's option into FTX common stock at $10.91 per share. In March 1992, FTX issued 5.0 million shares of $4.375 Convertible Exchangeable Preferred Stock, each with a $50 liquidation value, convertible into FTX common stock at a conversion price of $23.46 per share. Beginning March 1, 1997, FTX may redeem this preferred stock for cash at $52.1875 per share (declining ratably to $50 per share in March 2002) plus accrued and unpaid dividends. Common Stock. FTX has a regular annual cash dividend of $1.25 per share. FTX's 10 7/8% Senior Subordinated Debentures contain a restriction on the payment of cash dividends and capital stock purchases ($108.8 million available as of December 31, 1993). This amount will be increased by future earnings and FTX stock issuances, and will be decreased by future dividend payments, losses, and FTX stock purchases. Stock Options. FTX's stock option plans provide for the issuance of stock options and stock appreciation rights (SARs) at no less than market value at time of grant. The 1992 Stock Option Plan authorizes FTX to grant options to employees to purchase up to 8.0 million shares, including SARs, and under the 1992 Stock Incentive Unit Plan up to 1.5 million stock incentive units (SIUs), which are similar to SARs, may be granted to employees. The 1988 Stock Option Plan for Non-Employee Directors authorizes FTX to grant options to purchase up to 1.5 million shares. Under certain options, FTX will pay cash to the optionee equal to an amount based on the maximum individual federal income tax rate in effect at the time of exercise. Generally, stock options terminate 10 years from the date of grant. A summary of stock options outstanding, including SARs and SIUs, follows: 1993 1992 ---------------------- --------------------- Average Average Number of Option Number of Option Options Price Options Price ---------- ----- ---------- ----- Beginning of year 13,386,365 $17.58 9,277,162 $15.84 Granted 1,358,800 18.37 5,728,209 19.44 Exercised (416,639) 14.35 (1,288,627) 13.75 Expired (585,536) 18.87 (330,379) 18.63 ---------- ---------- End of year 13,742,990 17.69 13,386,365 17.58 ========== ========== At December 31, 1993, stock options representing 8.4 million shares were exercisable at an average option price of $17.23 per share. Options for 2.1 million shares, .8 million shares, and 1.2 million shares were available for new grants under the 1992 and 1988 Stock Option Plans and the 1992 SIU plan, respectively, as of December 31, 1993. 8. PENSION AND OTHER EMPLOYEE BENEFITS The FTX pension plan covers substantially all United States and certain overseas employees, excluding employees covered by collective bargaining agreements and most nonresident aliens, many of whom are covered by other plans. Benefits are based on compensation levels and years of service. FTX funds its pension liability in accordance with Internal Revenue Service guidelines. Additionally, for those participants in the qualified defined benefit plan whose benefits are limited under federal income tax laws, FTX sponsors an unfunded, nonqualified plan. Information on the plans follows: December 31, ----------------------- 1993 1992 --------- --------- (In Thousands) Actuarial present value of benefit obligations (projected unit credit method): Vested $ 93,609 $ 63,329 Nonvested 2,236 2,363 --------- --------- Accumulated benefit obligations $ 95,845 $ 65,692 ========= ========= Projected benefit obligations (projected unit credit method) $(130,585) $(114,991) Less plan assets at fair value 107,917 96,947 --------- --------- Projected benefit obligations in excess of plan assets (22,668) (18,044) Unrecognized net loss from past experience different from that assumed 16,518 10,996 Unrecognized prior service costs 4,833 6,239 Unrecognized net asset at January 1, 1986, being recognized over 19 years (4,142) (4,521) --------- --------- Accrued pension cost $ (5,459) $ (5,330) ========= ========= In determining the present value of benefit obligations for 1993 and 1992, FTX used a 7 percent and 8.5 percent discount rate, a 5 percent rate of increase in future compensation levels, and a 9 percent average expected rate of return on assets, respectively. Net pension cost includes the following: Years Ended December 31, --------------------------- 1993 1992 1991 ------- ------- ------- (In Thousands) Service cost during the period $ 8,573 $ 7,376 $ 7,410 Interest cost on projected benefit obligations 9,739 8,609 7,745 Actual return on plan assets (9,388) (10,220) (10,640) Net amortization and deferral 1,423 3,689 5,712 Termination benefits 26 1,813 531 ------- ------- ------- Net pension cost $10,373 $11,267 $10,758 ======= ======= ======= RTM has a contractual obligation to supplement the amounts paid to retired employees. Based on an assumed discount rate of 8 percent, the liability accrued for such payments totaled $79.4 million at December 31, 1993 ($76.6 million for retirees and $2.8 million for current employees). Since the initial acquisition, RTM has recorded expense of $5.2 million compared with cash payments of $8.0 million. This obligation is unfunded. The operator of IMC-Agrico Company maintains non-contributory pension plans that cover substantially all of its employees who perform services for IMC-Agrico Company. As of July 1, 1993, the actuarial present value of the vested projected benefit obligation was $10.1 million based on a discount rate of 8.5 percent and a 5 percent rate of increase in future compensation levels. As of December 31, 1993, no funding of such plans had occurred. FRP's share of the expense related to these plans totaled $1.5 million for 1993. FTX provides certain health care and life insurance benefits for retired employees. Effective January 1, 1991, FTX adopted Statement of Financial Accounting Standards No. 106 (FAS 106) requiring current accrual for postretirement benefits other than pensions, recording a $125.1 million charge as the cumulative effect of an accounting change. The FAS 106 expense totaled $12.4 million in 1993 ($1.9 million for service cost and $10.5 million in interest for prior period services), $12.5 million in 1992 ($1.6 million for current year service cost and $10.9 million in interest for prior period services), and $12.6 million in 1991 ($2.0 million for current year service cost and $10.6 million in interest for prior period services). Summary information of the plan is as follows: December 31, ----------------------- 1993 1992 --------- --------- (In Thousands) Actuarial present value of accumulated postretirement obligation: Retirees $118,418 $ 93,611 Fully eligible active plan participants 14,066 22,596 Other active plan participants 14,083 21,548 -------- -------- Total accumulated postretirement obligation 146,567 137,755 Unrecognized net loss (14,237) (6,254) -------- -------- Accrued postretirement benefit cost $132,330 $131,501 ======== ======== In determining the FAS 106 amounts, FTX used an initial health care cost trend rate of 11.5 percent for 1993 (12 percent for 1992), decreasing 1/2 percent per year until reaching 6 percent. A 1 percent increase in the trend rate would increase the FAS 106 amounts by approximately 10 percent. The discount rate used was 7 percent in 1993 and 8.5 percent in 1992. FTX has the right to modify or terminate these benefits. The operator of IMC-Agrico Company will provide certain health care benefits for future retired employees. At July 1, 1993, the accumulated postretirement obligation was $16.6 million, which was unfunded, with FRP's share of FAS 106 expense being $.4 million. In determining the FAS 106 amounts, the initial health care trend cost rate used was 15 percent, decreasing gradually to 5.5 percent in 2003 and thereafter, and the discount rate used was 8.5 percent. Employees are not vested and such benefits are subject to change. FTX has an Employee Capital Accumulation Program which permits eligible employees to defer a portion of their pretax earnings. FTX also has an unfunded excess benefits plan for employees to defer amounts in excess of the limitations imposed by the Internal Revenue Code. FTX matches employee deferrals up to 5 percent of basic earnings through an investment in FTX common shares. FTX has other employee benefits plans, certain of which are related to Company performance, which costs are recognized currently in general and administrative expense. The cost of these plans, reflecting the varying level of FTX earnings, totaled $7.6 million in 1993, $15.9 million in 1992, and $11.3 million in 1991. 9. COMMITMENTS AND CONTINGENCIES Litigation. While FTX is a defendant in various lawsuits incurred in the ordinary course of its businesses, management believes the potential liability in such lawsuits is not material or is adequately covered by insurance, third party indemnity agreements or reserves previously established. FTX maintains liability and other insurance customary in its businesses, with coverage limits deemed prudent. Sulphur Tanker. During 1991, one of FRP's sulphur tankers ran aground resulting in a constructive loss and a $17.7 million insurance settlement gain. FRP has an agreement whereby beginning in mid-1994 a third party will provide and operate a replacement sulphur tanker for at least fifteen years for minimum annual payments of $12.8 million. Infrastructure Asset Sales. During 1993, FCX entered into a joint venture agreement with P.T. ALatieF Nusakarya Corporation (ALatieF), an Indonesian investor, which provides for the sale of certain portions of the to-be- constructed infrastructure assets and certain existing assets by PT-FI to a joint venture or ventures (the ALatieF Joint Venture) owned one-third by PT-FI and two-thirds by ALatieF for total consideration of $270.0 million. The acquired assets will be made available to PT-FI and its employees and designees under arrangements which will provide the ALatieF Joint Venture with a guaranteed minimum rate of return on its investment. Funding of the ALatieF Joint Venture is expected to be provided by $90.0 million in equity contributions from the ALatieF Joint Venture partners and $180.0 million in debt financing, which is expected to be guaranteed by PT-FI, FCX or both. The sale of the first group of assets to the ALatieF Joint Venture was completed in December 1993 for a price of $90.0 million. The sale was partially financed with a $60.0 million medium-term loan facility which is guaranteed by PT-FI. The variable rate loan has a 5 percent per year amortization with a balloon payment after five years. The ALatieF Joint Venture is consolidated and no gain or loss was recorded on the sale. The sales which are anticipated for 1994 and later are subject to the execution of definitive agreements and certain Indonesian governmental approvals. In December 1993, PT-FI announced the execution of a Letter of Intent with Duke Energy Corp. (Duke Energy), a wholly owned affiliate of Duke Power Company, and PowerLink Corporation (PowerLink), a subsidiary of Northstar Energy Corporation, pursuant to which PT-FI would sell its existing and to-be-constructed power generation and transmission assets and certain other power-related assets to a joint venture (the Power Joint Venture) whose ownership consists of Duke Energy (30 percent), PowerLink (30 percent), PT-FI (30 percent), and an Indonesian investor (10 percent). The total value of the transaction is estimated at $200 million and is expected to be concluded in two phases. The first sale, representing the existing assets, is expected to exceed $100 million and to occur in mid- 1994. The final sale, representing the to-be-constructed expansion-related assets, is expected to occur during the first half of 1995. Under the agreement, the Power Joint Venture will own these assets and be responsible for providing the electrical power services required by PT-FI at its mining, milling, and support operations in Irian Jaya, Indonesia, including the power services required for the expansion of ore throughput to 115,000 metric tons of ore milled per day. The transaction is subject to the execution of definitive agreements between PT-FI and the Power Joint Venture, financing, and certain Indonesian governmental approvals. PT-FI is proceeding with plans to sell other non-operating assets under terms whereby the purchaser will operate the assets and provide services to PT-FI and its employees and designees. Environmental. FTX has made, and will continue to make, expenditures at its operations for protection of the environment. FTX is subject to contingencies as a result of environmental laws and regulations. The related future cost is indeterminable due to such factors as the unknown timing and extent of the corrective actions that may be required and the application of joint and several liability. However, FTX believes that such costs will not have a material adverse effect on its operations or financial position. As part of FRP's 1987 acquisition of certain fertilizer assets, the seller agreed to indemnify FRP for any environmental costs in excess of an aggregate $5.0 million on certain identified sites. FRP accrued the $5.0 million at the time of acquisition. The seller has assumed control of these sites, and based on management's review of the potential liabilities and the seller's financial condition, FRP concluded that it is remote that FRP would have any additional liability. FTX believes its exposure on other domestic abandoned environmental sites will not exceed amounts accrued and expects that any costs would be incurred over a period of years. FTX believes it is in compliance with all applicable Indonesian environmental laws, rules, and regulations. Based on current Indonesian environmental regulations, eventual mine closure and reclamation costs, at the mine in Irian Jaya, is not expected to be material. RTM's capital expenditures for 1994 are expected to include approximately $18 million to modify its sulphuric acid plants, including expanding their capacity, to comply with certain environmental standards in Spain. Additionally, at December 31, 1993 FCX had an accrual of $10.3 million related to RTM's impending mine closure and the eventual closure of its smelter. Long-Term Contracts and Operating Leases. At December 31, 1993, RTM had purchase commitments totaling $25.6 million related to the expansion of its smelter. In addition, it had commitments to purchase concentrate from third parties (excluding PT-FI) of 305,000 metric tons in 1994, 295,000 metric tons in 1995, 260,000 metric tons in 1996, 140,000 metric tons in 1997, and a total of 580,000 metric tons from 1998-2002, at then market prices. During 1993, PT-FI supplied RTM with approximately 90,000 metric tons of copper concentrate and is expected to supply approximately 150,000 metric tons in 1994, providing for approximately 20 percent and 33 percent, respectively, of RTM's requirements in those years. Beginning in 1996, PT- FI is expected to provide RTM with approximately one-half of its copper concentrate requirements. FTX's minimum annual contractual charges under noncancellable long- term contracts and operating leases which expire during the period 1994 to 2009 totals $378.4 million, with $42.7 million in 1994, $47.9 million in 1995, $32.6 million in 1996, $29.3 million in 1997, and $28.7 million in 1998. Total rental expense under long-term contracts and operating leases amounted to $43.0 million, $31.4 million, and $31.4 million in 1993, 1992, and 1991, respectively. 10. SEGMENT FINANCIAL INFORMATION FTX's business segments consist of the following: Metals, which includes FCX's Indonesian copper/gold operations and the RTM smelting operations in Spain; Agricultural Minerals, which includes FRP's fertilizer and sulphur businesses; and Energy, which includes the oil and gas operations of FTX and FRP, and the uranium operations of FRP. The Company's foreign operations are primarily conducted by FCX.
Year Ended December 31, 1993 -------------------------------------------------------------------- Agricultural Metals Minerals Oil and Gas Other Total ---------- ---------- ----------- --------- ---------- (In Thousands) Revenues $ 925,932(a) $619,332 $ 56,680 $ 8,637 $1,610,581(b) Production and delivery 567,148 552,578 13,014 13,866 1,146,606 Depreciation and amortization 67,906 70,803 42,000 11,229 191,938 Exploration expenses 33,748 2,261 26,708 2,363 65,080 Provision for restructuring charges - - - 67,145 67,145 Loss on valuation and sale of assets, net - - - 64,114 64,114 General and administrative expenses 81,399 58,091 13,169 16,400 169,059 ---------- ---------- -------- --------- ---------- Operating income (loss) $ 175,731 $ (64,401) $(38,211) $(166,480) $ (93,361) ========== ========== ======== ========= ========== Earnings by sources(c) $ 173,515 $ (55,889) $(39,749) $ (37,805) $ 40,072 ========== ========== ======== ========= ========== Capital expenditures $ 453,122 $ 46,270(d) $ 40,394 $ 28,411 $ 568,197 ========== ========== ======== ========= ========== Total assets $2,116,653 $1,194,304 $ 68,062 $ 335,048 $3,714,067 ========== ========== ======== ========= ==========
Year Ended December 31, 1992 -------------------------------------------------------------------- Agricultural Metals Minerals Oil and Gas Other Total ---------- ---------- ----------- --------- ---------- (In Thousands) Revenues $ 714,315 $ 799,032 $127,799 $ 13,765 $1,654,911(b) Production and delivery 308,948 638,503 28,861 9,962 986,274 Depreciation and amortization 48,272 66,299 79,942 7,869 202,382 Exploration expenses 12,185 4,777 18,394 1,680 37,036 General and administrative expenses 68,481 72,828 25,155 10,899 177,363 ---------- ---------- ----------- --------- ---------- Operating income $ 276,429 $ 16,625 $(24,553) $(16,645) $ 251,856 ========== ========== ======== ========= ========== Earnings by sources(c) $ 283,591 $ 17,993 $(28,200) $(19,888) $ 253,496 ========== ========== ======== ========= ========== Capital expenditures $ 367,842 $ 170,224(d) $ 55,580 $ 48,160 $ 641,806 ========== ========== ======== ========= ========== Total assets $1,694,005 $1,233,085 $180,987 $438,634 $3,546,711 ========== ========== ======== ========= ==========
Year Ended December 31, 1991 ---------------------------------------------------------------------------------- Energy ------------------------ Agricultural Metals Minerals Oil and Gas Uranium Other Total ---------- ---------- ----------- ------- -------- ---------- (In Thousands) Revenues $ 467,522 $ 880,452 $184,768 $37,729 $ 8,725 $1,579,196(b) Production and delivery 204,353 691,233 41,815 16,705 10,671 964,777 Depreciation and amortization 38,397 55,434 103,787 2,711 4,367 204,696 Exploration expenses 6,502 1,219 27,322 - 2,030 37,073 Gain on sale of assets, net - - - - (515) (515) General and administrative expenses 40,550 61,645 36,210 1,282 9,585 149,272 ---------- ---------- -------- ------- -------- ---------- Operating income $ 177,720 $ 70,921 $(24,366) $17,031 $(17,413) $ 223,893 ========== ========== ======== ======= ======== ========== Earnings by sources(c) $ 181,197 $ 78,926 $(23,079) $17,070 $ (6,585) $ 247,529 ========== ========== ======== ======= ======== ========== Capital expenditures $ 239,954 $ 294,366(d) $196,552 $ 13 $ 70,024 $ 800,909 ========== ========== ======== ======= ======== ========== Total assets $1,157,615 $1,143,169 $698,038 $17,196 $549,347 $3,565,365 ========== ========== ======== ======= ======== ========== a. Includes the operations of RTM (Note 2) since its acquisition, with revenues of $288.4 million and a net loss of $15.7 million during 1993 and identifiable assets of $335.5 million as of December 31, 1993. b. Export sales to Asia, Australia, Latin America, and Canada approximated 13 percent, 20 percent, and 22 percent of total revenues for 1993, 1992, and 1991, respectively. Sales to Japanese companies by FCX were 19 percent, 15 percent, and 11 percent of total revenues for 1993, 1992, and 1991, respectively. c. Operating income plus other income, less provision for restructuring charges and the gain/loss on valuation and sale of assets from the Statements of Operations. d. Includes development costs ($16.6 million in 1993 and $20.8 million in 1992) and capitalized interest ($11.1 million in 1993, $17.7 million in 1992, and $14.7 million in 1991) associated with the Main Pass sulphur project prior to becoming operational for accounting purposes July 1, 1993.
11. SUPPLEMENTARY MINERAL RESERVE, PRODUCTION, AND SALES INFORMATION (UNAUDITED) Proved and probable mineral reserves, including proved oil reserves, are as follows:
December 31, ------------------------------------------------------- 1993 1992 1991 1990 1989 ------ ------ ------ ------- ------- (In Thousands) Copper-thousands of recoverable pounds(a) 26,800 20,900 21,800 13,900 8,303 Gold-recoverable ounces(a) 39,500(b) 32,100 32,400 19,500 8,100 Silver-recoverable ounces(a) 85,200(b) 44,700 50,000 34,700 27,186 Sulphur-long tons(c) 38,637 41,570 42,780 44,125 45,265 Phosphate rock-short tons(d) 215,156 208,655 206,183 205,752 100,408 Oil-barrels(e) 9,962 13,861 18,496 18,785 - a. Recoverable content reflects an estimated recovery rate of 90 percent for copper, 80 percent for gold, and 70 percent for silver (contained concentrates less normal smelting and refining allowances). Recoverable production and reserves are used synonymously with payable production and reserves. b. Includes .4 million ounces of gold and 8.5 million ounces of silver attributable to RTM. c. Includes 38.6 million tons in 1993, 39.0 million tons in 1992, 39.1 million tons in 1991-1989, net to FRP before royalties, at Main Pass, subject to a 12.5 percent federal royalty based on net mine revenues. d. For 1993 represents FRP's share, based on its current Capital Interest ownership, of the IMC-Agrico Company reserves. Contains an average of 68 percent bone phosphate of lime. Approximately 3.6 tons of phosphate rock are used to produce one ton of phosphoric acid and one pound of uranium oxide. During 1990, FRP entered into exclusive long-term purchase options for properties containing approximately 111 million tons of phosphate rock reserves. e. Reflects only Main Pass reserves. Includes 4.9 million, 6.8 million, 6.8 million, and 7.0 million barrels attributable to FRP minority interests for 1993-1990, respectively.
Production, Internal Consumption, Sales, and Average Realized Prices are as follows.
Production 658,400 619,100 466,700 361,800 317,400 Sales 645,700 651,800 439,700 348,000 317,800 Average realized price(a) $.90(b) $1.03 $1.01 $1.20 $1.24 Gold (recoverable ounces) Production 787 641 421 284 139 Sales 763 679 398 273 140 Average realized price $361.74 $340.11 $358.76 $378.30 $383.28 Silver (recoverable ounces) Production 1,541 1,643 1,568 1,749 1,971 Sales 1,481 1,804 1,621 1,664 1,979 Average realized price $4.15 $3.72 $3.87 $4.61 $5.39 RTM (since acquisition) Smelter operations Concentrate treated (metric tons, MT) 330 - - - - Anode production (MT) 136 - - - - Cathode production (MT) 103 - - - - Gold operations Production (recoverable ounces) 133 - - - - Average realized price $369.06 - - - - AGRICULTURAL MINERALS Sales Phosphate fertilizers (short tons)(c) Diammonium phosphate 2,303 2,760 2,841 2,568 2,563 Monoammonium phosphate Granular 423 509 476 438 359 Powdered 55 - - - - Granular triple superphosphate 565 715 710 717 680 Phosphate rock (short tons)(c) 3,840 3,441 2,247 1,455 1,572 Sulphur (long tons)(d) 1,973 2,346 2,528 2,491 2,557 ENERGY Oil (barrels) Sales 3,443 4,884 351 - - Average realized price $14.43 $15.91 $13.34 - - a. Excludes adjustments for prior year concentrate sales or price protection program costs. b. FCX's price protection program eliminates exposure to declines in copper prices below an average of $.90 per pound for its estimated sales through 1994. Excluding amounts recognized under this program, the realization for 1993 would have been $.82 per pound. c. Beginning July 1, 1993, reflects FRP's 46.5 percent share of the assets of IMC-Agrico Company during the year ended June 30, 1994. d. Includes 1,138,800 tons, 1,654,300 tons, 1,612,400 tons, 1,564,000 tons, and 1,539,000 tons for 1993-1989, respectively, which represent internal consumption and Main Pass start-up sales that are not included in sales for accounting purposes.
12. SUMMARIZED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Net Income (Loss) Net Income Per Common Share (Loss) ----------------- Operating Applicable To Fully Revenues Income (loss) Common Stock Primary Diluted ---------- ------------- ------------ ------- ------- (In Thousands, Except Per Share Amounts) 1993 1st Quarter (a,b) $ 300,821 $ (42,908) $ (55,346) $(.39) $(.39) 2nd Quarter (a,c) 421,818 (162,999) (77,379) (.54) (.54) 3rd Quarter (a,d) 402,353 97,568 26,786 .19 .19 4th Quarter (e) 485,589 14,978 (20,264) (.14) (.14) ---------- --------- --------- $1,610,581 $ (93,361) $(126,203) (.89) (.89) ========== ========= ========= 1992 1st Quarter $ 363,485 $ 28,477 $ 3,698 $ .03 $ .03 2nd Quarter 511,438 110,309 23,102 .16 .16 3rd Quarter (f) 367,340 52,847 123,137 .86 .76 4th Quarter (g) 412,648 60,223 19,197 .14 .14 ---------- --------- --------- $1,654,911 $ 251,856 $ 169,134 1.17 1.17 ========== ========= ========= a. The quarterly results have been restated to reflect the cumulative effect of the changes in accounting principle (Note 1) and the RTM investment on a fully consolidated basis. FCX previously reported this investment using the equity method of accounting because FCX anticipated reducing its interest below 50 percent within one year of the initial investment in RTM. FCX is now considering alternative forms of financing. b. Includes a $47.4 million charge ($18.5 million to net income or $.13 per share) related to administrative restructuring costs and the sale of FRP's producing geothermal assets, and an $8.0 million gain ($5.3 million to net income or $.04 per share) related to the conversion of FCX notes. Also includes a $20.7 million charge ($.15 per share), net of taxes and minority interests, for the cumulative effect of the changes in accounting principle (Note 1). c. Includes a $165.6 million charge ($74.6 million to net income or $.52 per share) related to administrative restructuring costs, the recoverability of certain assets, and other nonrecurring charges. Also includes a $25.3 million gain ($16.7 million to net income or $.12 per share) related to the conversion of FCX notes. d. Includes a $70.2 million gain ($46.1 million to net income or $.32 per share) primarily from the sale of an oil and gas property. e. Includes a $64.3 million charge ($22.8 million to net income or $.16 per share) primarily related to the recoverability of FRP's Main Pass oil investment, a $10.7 million gain ($3.6 million to net income or $.03 per share) from FRP's sale of certain previously mined phosphate rock acreage, and a $13.7 million gain ($8.9 million to net income or $.06 per share) related to the conversion of FCX notes. f. Includes a $100.9 million gain ($.70 per primary and $.56 per fully diluted share) on sale of FCX Class A common stock and a $19.6 million gain ($.14 per primary and $.11 per fully diluted share) related to the conversion of FCX notes. g. Includes a $14.2 million gain ($.10 per share) related to the conversion of FCX notes.
REPORT OF MANAGEMENT Freeport-McMoRan Inc. (the Company) is responsible for the preparation of the financial statements and all other information contained in this Annual Report. The financial statements have been prepared in conformity with generally accepted accounting principles and include amounts that are based on management's informed judgments and estimates. The Company maintains a system of internal accounting controls designed to provide reasonable assurance at reasonable costs that assets are safeguarded against loss or unauthorized use, and that transactions are executed in accordance with management's authorization and recorded and summarized properly. The system is tested and evaluated on a regular basis by the Company's internal auditors. In accordance with generally accepted auditing standards, the Company's independent public accountants have developed an overall understanding of our accounting and financial controls and have conducted other tests as they consider necessary to support their opinion on the financial statements. The Board of Directors, through its Audit Committee composed solely of non-employee directors, is responsible for overseeing the integrity and reliability of the Company's accounting and financial reporting practices and the effectiveness of its system of internal controls. The independent public accountants and internal auditors meet regularly with, and have access to, this committee, with and without management present, to discuss the results of their audit work. James R. Moffett Richard C. Adkerson Chairman of the Board and Senior Vice President and Chief Executive Officer Chief Financial Officer REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS TO THE STOCKHOLDERS AND BOARD OF DIRECTORS OF FREEPORT-McMoRan INC.: We have audited the accompanying balance sheets of Freeport-McMoRan Inc. (the Company), a Delaware Corporation, and consolidated subsidiaries as of December 31, 1993 and 1992, and the related statements of operations, cash flow and stockholders' equity for each of the three years in the period ended December 31, 1993. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of IMC-Agrico Company (the Joint Venture). The Company's share of the Joint Venture constitutes 22 percent of assets and 14 percent of revenues of the Company's totals as of December 31, 1993 and the year then ended, respectively. Those statements were audited by other auditors whose report has been furnished to us and our opinion, insofar as it relates to the amounts included for the Company's interest in the Joint Venture, is based solely on the report of the other auditors. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the report of other auditors provide a reasonable basis for our opinion. In our opinion, based on our audits and the report of other auditors, the financial statements referred to above present fairly, in all material respects, the financial position of Freeport-McMoRan Inc. and consolidated subsidiaries as of December 31, 1993 and 1992 and the results of its operations and its cash flow for each of the three years in the period ended December 31, 1993 in conformity with generally accepted accounting principles. As discussed in Notes 8, 6, and 1 to the consolidated financial statements, effective January 1, 1991, the Company changed its method of accounting for postretirement benefits other than pensions, effective January 1, 1992, changed its method of accounting for income taxes, and effective January 1, 1993, changed its method of accounting for periodic scheduled maintenance costs, deferred charges, and costs of management information systems. Arthur Andersen & Co. New Orleans, Louisiana, January 25, 1994
FINANCIAL HIGHLIGHTS Years Ended December 31, ------------------------------------------------------------ 1993 1992 1991 1990 1989 -------- -------- -------- -------- -------- (In Millions, Except Per Share Amounts) Revenues $1,610.6 $1,654.9 $1,579.2 $1,580.6 $1,958.2 Operating income (loss) $ (93.4) $ 251.9 $ 223.9 $ 731.5 $ 360.3 Net income (loss) from: Operations $ (68.0) $ 34.4 $ 90.8 $ 13.4 $ 72.8 Nonrecurring gains/(losses), net (a) (37.5) 134.7 5.0 257.3 26.3 Changes in accounting principle (20.7) - (55.7) - - -------- -------- -------- -------- -------- Net income (loss) applicable to common stock $ (126.2) $ 169.1 $ 40.1 $ 270.7 $ 99.1 ======== ======== ======== ======== ======== Net income (loss) per primary share from: Operations $ (.48) $ .24 $ .65 $ .12 $ .60 Nonrecurring gains/(losses), net (a) (.26) .93 .04 2.23 .22 Changes in accounting principle (.15) - (.40) - - -------- -------- -------- -------- -------- Net income (loss) applicable to common stock $ (.89) $ 1.17 $ .29 $ 2.35 $ .82 ======== ======== ======== ======== ======== Average common shares outstanding 141.6 144.5 139.6 115.2 120.4 Earnings by sources: Metals Indonesian copper/gold $ 179.7 $ 283.6 $ 181.2 $ 205.7 $ 206.2 Spanish copper smelter/gold (6.2) - - - - North American gold - - - 4.8 16.1 Agricultural minerals (55.9) 18.0 78.9 64.9 123.2 Energy Oil and natural gas(b) (39.7) (28.2) (23.1) (45.6) 6.3 Uranium - - 17.1 13.5 18.5 Geothermal - - - 13.2 29.7 Other (37.8) (19.9) (6.6) 4.5 (8.0) -------- -------- -------- -------- -------- Income from segment operations(c) $ 40.1 $ 253.5 $ 247.5 $ 261.0 $ 392.0 ======== ======== ======== ======== ======== Dividends per common share: Cash $ 1.25 $ 1.250 $ 1.25 $ 1.25 $ 1.25 Share - .175 - - - -------- -------- -------- -------- -------- $ 1.25 $ 1.425 $ 1.25 $ 1.25 $ 1.25 ======== ======== ======== ======== ======== At December 31: Property, plant and equipment, net $2,773.7 $2,276.9 $2,253.8 $2,204.5 $2,290.8 Long-term debt, including current portion and short-term borrowings 1,331.7 1,510.7 1,942.0 1,591.0 1,728.8 Minority interests 1,199.3 782.9 293.6 309.3 508.1 Stockholders' equity .6 346.0 388.3 337.4 138.3 Total assets 3,714.1 3,546.7 3,565.4 3,101.3 3,070.5 a. In 1993, includes the loss on the restructuring activities and the loss on valuation and sale of assets ($66.2 million or $0.46 per share) as discussed further in Management's Discussion and Analysis, net of a gain on the conversion of Freeport-McMoRan Copper & Gold (FCX) securities ($28.7 million or $0.20 per share); in 1992, from the sale and conversion of FCX securities; in 1991, from an insurance settlement gain ($7.3 million or $0.05 per share), net of a loss on the valuation of assets ($2.3 million or $0.02 per share); and in 1990 and 1989, from the sale of assets. b. Excludes $69.1 million gain in 1993, $4.3 million gain in 1991, $14.6 million gain in 1990, and $2.3 million gain in 1989 from the sale of oil and gas properties. c. Operating income plus other income, less provision for restructuring charges and the gain/loss on valuation and sale of assets from the Statements of Operations. COMMON SHARES Our common shares trade on the New York Stock Exchange (NYSE) under the symbol "FTX". The FTX share price is reported daily in the financial press under "FrptMc" in most listings of NYSE securities. At year-end 1993 the number of holders of record of our common stock was 26,885. Common share price ranges on the NYSE composite tape during 1993 and 1992: 1993 1992 ---------------- ---------------- HIGH LOW HIGH LOW ------ ------ ------ ------ FIRST QUARTER $22.63 $17.00 $22.44 $19.50 SECOND QUARTER 22.25 18.13 21.06 19.38 THIRD QUARTER 19.38 17.50 20.50 18.75 FOURTH QUARTER 19.88 15.75 19.38 16.50 COMMON SHARE DIVIDENDS In early 1992 our Board of Directors fixed the amount of the regular quarterly common stock cash dividend, on a post-split basis, at $.3125 per common share, an increase of $.125 per common share in the regular quarterly dividend, and at the same time eliminated the special quarterly common stock cash dividend of $.125 per common share. Cash dividends paid during 1993 and 1992: 1993 - ------------------------------------------- AMOUNT RECORD PAYMENT PER SHARE DATE DATE - --------- ------------- ------------- $.3125 FEB. 15, 1993 MARCH 1, 1993 $.3125 MAY 14, 1993 JUNE 1, 1993 $.3125 AUG. 16, 1993 SEPT. 1, 1993 $.3125 NOV. 15, 1993 DEC. 1, 1993 1992 - ------------------------------------------- AMOUNT RECORD PAYMENT PER SHARE DATE DATE - --------- ------------- ------------- $.3125 FEB. 18, 1992 MARCH 2, 1992 $.3125 MAY 15, 1992 JUNE 1, 1992 $.3125 AUG. 17, 1992 SEPT. 1, 1992 $.3125 NOV. 16, 1992 DEC. 1, 1992
EX-18.1 5 Exhibit 18.1 March 25, 1994 Freeport-McMoRan Inc. 1615 Poydras Street New Orleans, LA 70112 RE: FORM 10-K REPORT FOR THE YEAR ENDED DECEMBER 31, 1993 This letter is written to meet the requirements of Regulation S-K calling for a letter from a registrant's independent accountants whenever there has been a change in accounting principle or practice. We have been informed that, as of January 1, 1993, Freeport-McMoRan Inc. (FTX) changed its methods of accounting for the following items: 1. TURNAROUNDS - the accounting for maintenance turnarounds was changed from the deferral method to the direct expense method. Previously, FTX deferred costs related to periodic scheduled maintenance (turnarounds) when incurred and amortized them on a straight-line basis, generally over six months to two years until the next scheduled turnaround. According to the management of FTX, this change was made to conform FTX's policy with that which is followed by IMC-Agrico Company, a joint venture to which substantially all of FTX's phosphate fertilizer production assets were contributed on July 1, 1993. 2. DEFERRED CHARGES - the accounting for deferred charges was changed to provide for deferral of only those costs that directly relate to the acquisition, construction and development of assets and to the issuance of debt and related instruments. Previously, certain other costs which benefitted future periods were deferred and amortized over the period benefitted. According to FTX management, they believe this change provides a better measure of operating results. In addition, the administrative costs of accounting for assets will be reduced by not deferring any relatively insignificant expenditures that do not have a material effect on measuring periodic net income. 3. MANAGEMENT INFORMATION SYSTEMS (MIS) COSTS - Costs of MIS equipment and software that have a material impact on periodic measurement of net income are capitalized and amortized over their estimated productive lives. Other MIS costs, including equipment and purchased software that involve relatively immaterial amounts (currently individual expenditures of less than $500,000) and short estimated productive lives (currently less than three years) are charged to expense when incurred. Previously, most expenditures for MIS equipment and purchased software were capitalized. The accounting for MIS costs was changed to recognize the rapid rate of change in MIS, which results in short productive lives of equipment and software and a need for continuing investments. Generally within a two-to-three year period, if such hardware has not been replaced, significant upgrades will have been required. Within two years, maintenance costs on existing equipment often equals or exceeds replacement cost. Software is subject to constant modification to meet the needs of the changing hardware environment, as well as the changing business environment. Reasonable business judgement is required in determining appropriate application of accounting principles, including judgement regarding the cost and the materiality of the impact of accounting precision. A complete coordinated set of financial and reporting standards for determining the preferability of accounting principles among acceptable alternative principles has not been established by the accounting profession for the items referred to above. Thus, we cannot make an objective determination of whether the changes in accounting described in the preceding paragraph are to preferable methods. However, we have reviewed the pertinent factors, including those related to financial reporting, in these particular cases on a subjective basis, and our opinion stated below is based on our determination made in this manner. We are of the opinion that FTX's changes in methods of accounting are to acceptable alternative methods of accounting, which, based upon the reasons stated above for the respective changes (including the costs and benefits of alternative principles and the related materiality of the application thereof) and our discussions with you, are also preferable under the circumstances in these particular cases. In arriving at this opinion, we have relied on the business judgement and business planning of your management. Very truly yours, Arthur Andersen & Co. New Orleans, Louisiana January 25, 1994 EX-21.1 6 Exhibit 21.1 List of Subsidiaries of FREEPORT-McMoRan INC. Where Name Under Which Entity Organized It Does Business ------ --------- ---------------- Freeport-McMoRan Copper & Gold Inc. Delaware Same P.T. Freeport Indonesia Company Indonesia and Delaware Same Freeport-McMoRan Resource Partners, Delaware Same Limited Partnership IMC-Agrico Company Delaware Same EX-23.1 7 Exhibit 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation by reference of our reports included herein or incorporated by reference in this Form 10-K, into Freeport-McMoRan Inc.'s previously filed Registration Statements on Forms S-3 (File Nos. 33-37716 and 33-41547) and the Registration Statements on Form S-8 (File Nos. 2-85000, 33-14641, 33-29850, 33-30417 and 33-62170). /s/ Arthur Andersen & Co. New Orleans, Louisiana, March 25, 1994 EX-24.1 8 Exhibit 24.1 FREEPORT-McMoRan INC. Certificate of Secretary I, Michael C. Kilanowski, Jr., Secretary of Freeport-McMoRan Inc. (the "Corporation"), a Delaware corporation, do hereby certify that the following resolution was duly adopted by the Board of Directors of the Corporation at a meeting held on February 29, 1984, and that such resolution has not been amended, modified or rescinded and is in full force and effect: RESOLVED, That any report, registration statement or other form filed on behalf of this corporation pursuant to the Securities Exchange Act of 1934, or any amendment to any such report, registration statement or other form, may be signed on behalf of any director or officer of this corporation pursuant to a power of attorney executed by such director or officer. IN WITNESS WHEREOF, I have hereunto set my hand and the seal of the Corporation this 30th day of March, 1994. /s/ Michael C. Kilanowski, Jr. ------------------------------ (SEAL) Michael C. Kilanowski, Jr. Secretary EX-24.2 9 Exhibit 24.2 POWER OF ATTORNEY BE IT KNOWN: That the undersigned, in his capacity or capacities as an officer and/or a member of the Board of Directors of Freeport-McMoRan Inc., a Delaware corporation ("the Company"), does hereby make, constitute and appoint JAMES R. MOFFETT, RENE L. LATIOLAIS, and RICHARD C. ADKERSON, and each of them acting individually, his true and lawful attorney-in-fact with power to act without the others and with full power of substitution, to execute, deliver and file, for and on behalf of him, in his name and in his capacity or capacities as aforesaid, an Annual Report of the Company on Form 10-K for the year ended December 31, 1993 and any amendment or amendments thereto and any other document in support thereof or supplemental thereto, and the undersigned hereby grants to said attorneys, and each of them, full power and authority to do and perform each and every act and thing whatsoever that said attorney or attorneys may deem necessary or advisable to carry out fully the intent of the foregoing as the undersigned might or could do personally or in the capacity or capacities as aforesaid, hereby ratifying and confirming all acts and things which said attorney or attorneys may do or cause to be done by virtue of this Power of Attorney. EXECUTED this 28th day of February, 1994. /s/ John T. Eads John T. Eads POWER OF ATTORNEY BE IT KNOWN: That the undersigned, in his capacity or capacities as an officer and/or a member of the Board of Directors of Freeport-McMoRan Inc., a Delaware corporation ("the Company"), does hereby make, constitute and appoint JAMES R. MOFFETT, RENE L. LATIOLAIS, and RICHARD C. ADKERSON, and each of them acting individually, his true and lawful attorney-in-fact with power to act without the others and with full power of substitution, to execute, deliver and file, for and on behalf of him, in his name and in his capacity or capacities as aforesaid, an Annual Report of the Company on Form 10-K for the year ended December 31, 1993 and any amendment or amendments thereto and any other document in support thereof or supplemental thereto, and the undersigned hereby grants to said attorneys, and each of them, full power and authority to do and perform each and every act and thing whatsoever that said attorney or attorneys may deem necessary or advisable to carry out fully the intent of the foregoing as the undersigned might or could do personally or in the capacity or capacities as aforesaid, hereby ratifying and confirming all acts and things which said attorney or attorneys may do or cause to be done by virtue of this Power of Attorney. EXECUTED this 28th day of February, 1994. /s/ Robert W. Bruce III Robert W. Bruce III POWER OF ATTORNEY BE IT KNOWN: That the undersigned, in his capacity or capacities as an officer and/or a member of the Board of Directors of Freeport-McMoRan Inc., a Delaware corporation ("the Company"), does hereby make, constitute and appoint JAMES R. MOFFETT, RENE L. LATIOLAIS, and RICHARD C. ADKERSON, and each of them acting individually, his true and lawful attorney-in-fact with power to act without the others and with full power of substitution, to execute, deliver and file, for and on behalf of him, in his name and in his capacity or capacities as aforesaid, an Annual Report of the Company on Form 10-K for the year ended December 31, 1993 and any amendment or amendments thereto and any other document in support thereof or supplemental thereto, and the undersigned hereby grants to said attorneys, and each of them, full power and authority to do and perform each and every act and thing whatsoever that said attorney or attorneys may deem necessary or advisable to carry out fully the intent of the foregoing as the undersigned might or could do personally or in the capacity or capacities as aforesaid, hereby ratifying and confirming all acts and things which said attorney or attorneys may do or cause to be done by virtue of this Power of Attorney. EXECUTED this 28th day of February, 1994. /s/ Thomas B. Coleman Thomas B. Coleman POWER OF ATTORNEY BE IT KNOWN: That the undersigned, in his capacity or capacities as an officer and/or a member of the Board of Directors of Freeport-McMoRan Inc., a Delaware corporation ("the Company"), does hereby make, constitute and appoint JAMES R. MOFFETT, RENE L. LATIOLAIS, and RICHARD C. ADKERSON, and each of them acting individually, his true and lawful attorney-in-fact with power to act without the others and with full power of substitution, to execute, deliver and file, for and on behalf of him, in his name and in his capacity or capacities as aforesaid, an Annual Report of the Company on Form 10-K for the year ended December 31, 1993 and any amendment or amendments thereto and any other document in support thereof or supplemental thereto, and the undersigned hereby grants to said attorneys, and each of them, full power and authority to do and perform each and every act and thing whatsoever that said attorney or attorneys may deem necessary or advisable to carry out fully the intent of the foregoing as the undersigned might or could do personally or in the capacity or capacities as aforesaid, hereby ratifying and confirming all acts and things which said attorney or attorneys may do or cause to be done by virtue of this Power of Attorney. EXECUTED this 28th day of February, 1994. /s/ William H. Cunningham William H. Cunningham POWER OF ATTORNEY BE IT KNOWN: That the undersigned, in his capacity or capacities as an officer and/or a member of the Board of Directors of Freeport-McMoRan Inc., a Delaware corporation ("the Company"), does hereby make, constitute and appoint JAMES R. MOFFETT, RENE L. LATIOLAIS, and RICHARD C. ADKERSON, and each of them acting individually, his true and lawful attorney-in-fact with power to act without the others and with full power of substitution, to execute, deliver and file, for and on behalf of him, in his name and in his capacity or capacities as aforesaid, an Annual Report of the Company on Form 10-K for the year ended December 31, 1993 and any amendment or amendments thereto and any other document in support thereof or supplemental thereto, and the undersigned hereby grants to said attorneys, and each of them, full power and authority to do and perform each and every act and thing whatsoever that said attorney or attorneys may deem necessary or advisable to carry out fully the intent of the foregoing as the undersigned might or could do personally or in the capacity or capacities as aforesaid, hereby ratifying and confirming all acts and things which said attorney or attorneys may do or cause to be done by virtue of this Power of Attorney. EXECUTED this 28th day of February, 1994. /s/ Robert A. Day Robert A. Day POWER OF ATTORNEY BE IT KNOWN: That the undersigned, in his capacity or capacities as an officer and/or a member of the Board of Directors of Freeport-McMoRan Inc., a Delaware corporation ("the Company"), does hereby make, constitute and appoint JAMES R. MOFFETT, RENE L. LATIOLAIS, and RICHARD C. ADKERSON, and each of them acting individually, his true and lawful attorney-in-fact with power to act without the others and with full power of substitution, to execute, deliver and file, for and on behalf of him, in his name and in his capacity or capacities as aforesaid, an Annual Report of the Company on Form 10-K for the year ended December 31, 1993 and any amendment or amendments thereto and any other document in support thereof or supplemental thereto, and the undersigned hereby grants to said attorneys, and each of them, full power and authority to do and perform each and every act and thing whatsoever that said attorney or attorneys may deem necessary or advisable to carry out fully the intent of the foregoing as the undersigned might or could do personally or in the capacity or capacities as aforesaid, hereby ratifying and confirming all acts and things which said attorney or attorneys may do or cause to be done by virtue of this Power of Attorney. EXECUTED this 28th day of February, 1994. /s/ William B. Harrison, Jr. William B. Harrison, Jr. POWER OF ATTORNEY BE IT KNOWN: That the undersigned, in his capacity or capacities as an officer and/or a member of the Board of Directors of Freeport-McMoRan Inc., a Delaware corporation ("the Company"), does hereby make, constitute and appoint JAMES R. MOFFETT, RENE L. LATIOLAIS, and RICHARD C. ADKERSON, and each of them acting individually, his true and lawful attorney-in-fact with power to act without the others and with full power of substitution, to execute, deliver and file, for and on behalf of him, in his name and in his capacity or capacities as aforesaid, an Annual Report of the Company on Form 10-K for the year ended December 31, 1993 and any amendment or amendments thereto and any other document in support thereof or supplemental thereto, and the undersigned hereby grants to said attorneys, and each of them, full power and authority to do and perform each and every act and thing whatsoever that said attorney or attorneys may deem necessary or advisable to carry out fully the intent of the foregoing as the undersigned might or could do personally or in the capacity or capacities as aforesaid, hereby ratifying and confirming all acts and things which said attorney or attorneys may do or cause to be done by virtue of this Power of Attorney. EXECUTED this 28th day of February, 1994. /s/ Henry A. Kissinger Henry A. Kissinger POWER OF ATTORNEY BE IT KNOWN: That the undersigned, in his capacity or capacities as an officer and/or a member of the Board of Directors of Freeport-McMoRan Inc., a Delaware corporation ("the Company"), does hereby make, constitute and appoint JAMES R. MOFFETT, RENE L. LATIOLAIS, and RICHARD C. ADKERSON, and each of them acting individually, his true and lawful attorney-in-fact with power to act without the others and with full power of substitution, to execute, deliver and file, for and on behalf of him, in his name and in his capacity or capacities as aforesaid, an Annual Report of the Company on Form 10-K for the year ended December 31, 1993 and any amendment or amendments thereto and any other document in support thereof or supplemental thereto, and the undersigned hereby grants to said attorneys, and each of them, full power and authority to do and perform each and every act and thing whatsoever that said attorney or attorneys may deem necessary or advisable to carry out fully the intent of the foregoing as the undersigned might or could do personally or in the capacity or capacities as aforesaid, hereby ratifying and confirming all acts and things which said attorney or attorneys may do or cause to be done by virtue of this Power of Attorney. EXECUTED this 28th day of February, 1994. /s/ Bobby Lee Lackey Bobby Lee Lackey POWER OF ATTORNEY BE IT KNOWN: That the undersigned, in his capacity or capacities as an officer and/or a member of the Board of Directors of Freeport-McMoRan Inc., a Delaware corporation ("the Company"), does hereby make, constitute and appoint JAMES R. MOFFETT, RENE L. LATIOLAIS, and RICHARD C. ADKERSON, and each of them acting individually, his true and lawful attorney-in-fact with power to act without the others and with full power of substitution, to execute, deliver and file, for and on behalf of him, in his name and in his capacity or capacities as aforesaid, an Annual Report of the Company on Form 10-K for the year ended December 31, 1993 and any amendment or amendments thereto and any other document in support thereof or supplemental thereto, and the undersigned hereby grants to said attorneys, and each of them, full power and authority to do and perform each and every act and thing whatsoever that said attorney or attorneys may deem necessary or advisable to carry out fully the intent of the foregoing as the undersigned might or could do personally or in the capacity or capacities as aforesaid, hereby ratifying and confirming all acts and things which said attorney or attorneys may do or cause to be done by virtue of this Power of Attorney. EXECUTED this 28th day of February, 1994. /s/ Gabrielle K. McDonald Gabrielle K. McDonald POWER OF ATTORNEY BE IT KNOWN: That the undersigned, in his capacity or capacities as an officer and/or a member of the Board of Directors of Freeport-McMoRan Inc., a Delaware corporation ("the Company"), does hereby make, constitute and appoint JAMES R. MOFFETT, RENE L. LATIOLAIS, and RICHARD C. ADKERSON, and each of them acting individually, his true and lawful attorney-in-fact with power to act without the others and with full power of substitution, to execute, deliver and file, for and on behalf of him, in his name and in his capacity or capacities as aforesaid, an Annual Report of the Company on Form 10-K for the year ended December 31, 1993 and any amendment or amendments thereto and any other document in support thereof or supplemental thereto, and the undersigned hereby grants to said attorneys, and each of them, full power and authority to do and perform each and every act and thing whatsoever that said attorney or attorneys may deem necessary or advisable to carry out fully the intent of the foregoing as the undersigned might or could do personally or in the capacity or capacities as aforesaid, hereby ratifying and confirming all acts and things which said attorney or attorneys may do or cause to be done by virtue of this Power of Attorney. EXECUTED this 28th day of February, 1994. /s/ W. K. McWilliams, Jr. W. K. McWilliams, Jr. POWER OF ATTORNEY BE IT KNOWN: That the undersigned, in his capacity or capacities as an officer and/or a member of the Board of Directors of Freeport-McMoRan Inc., a Delaware corporation ("the Company"), does hereby make, constitute and appoint JAMES R. MOFFETT, RENE L. LATIOLAIS, and RICHARD C. ADKERSON, and each of them acting individually, his true and lawful attorney-in-fact with power to act without the others and with full power of substitution, to execute, deliver and file, for and on behalf of him, in his name and in his capacity or capacities as aforesaid, an Annual Report of the Company on Form 10-K for the year ended December 31, 1993 and any amendment or amendments thereto and any other document in support thereof or supplemental thereto, and the undersigned hereby grants to said attorneys, and each of them, full power and authority to do and perform each and every act and thing whatsoever that said attorney or attorneys may deem necessary or advisable to carry out fully the intent of the foregoing as the undersigned might or could do personally or in the capacity or capacities as aforesaid, hereby ratifying and confirming all acts and things which said attorney or attorneys may do or cause to be done by virtue of this Power of Attorney. EXECUTED this 28th day of February, 1994. /s/ George Putnam George Putnam POWER OF ATTORNEY BE IT KNOWN: That the undersigned, in his capacity or capacities as an officer and/or a member of the Board of Directors of Freeport-McMoRan Inc., a Delaware corporation ("the Company"), does hereby make, constitute and appoint JAMES R. MOFFETT, RENE L. LATIOLAIS, and RICHARD C. ADKERSON, and each of them acting individually, his true and lawful attorney-in-fact with power to act without the others and with full power of substitution, to execute, deliver and file, for and on behalf of him, in his name and in his capacity or capacities as aforesaid, an Annual Report of the Company on Form 10-K for the year ended December 31, 1993 and any amendment or amendments thereto and any other document in support thereof or supplemental thereto, and the undersigned hereby grants to said attorneys, and each of them, full power and authority to do and perform each and every act and thing whatsoever that said attorney or attorneys may deem necessary or advisable to carry out fully the intent of the foregoing as the undersigned might or could do personally or in the capacity or capacities as aforesaid, hereby ratifying and confirming all acts and things which said attorney or attorneys may do or cause to be done by virtue of this Power of Attorney. EXECUTED this 28th day of February, 1994. /s/ B. M. Rankin, Jr. B. M. Rankin, Jr. POWER OF ATTORNEY BE IT KNOWN: That the undersigned, in his capacity or capacities as an officer and/or a member of the Board of Directors of Freeport-McMoRan Inc., a Delaware corporation ("the Company"), does hereby make, constitute and appoint JAMES R. MOFFETT, RENE L. LATIOLAIS, and RICHARD C. ADKERSON, and each of them acting individually, his true and lawful attorney-in-fact with power to act without the others and with full power of substitution, to execute, deliver and file, for and on behalf of him, in his name and in his capacity or capacities as aforesaid, an Annual Report of the Company on Form 10-K for the year ended December 31, 1993 and any amendment or amendments thereto and any other document in support thereof or supplemental thereto, and the undersigned hereby grants to said attorneys, and each of them, full power and authority to do and perform each and every act and thing whatsoever that said attorney or attorneys may deem necessary or advisable to carry out fully the intent of the foregoing as the undersigned might or could do personally or in the capacity or capacities as aforesaid, hereby ratifying and confirming all acts and things which said attorney or attorneys may do or cause to be done by virtue of this Power of Attorney. EXECUTED this 28th day of February, 1994. /s/ Benno C. Schmidt Benno C. Schmidt POWER OF ATTORNEY BE IT KNOWN: That the undersigned, in his capacity or capacities as an officer and/or a member of the Board of Directors of Freeport-McMoRan Inc., a Delaware corporation ("the Company"), does hereby make, constitute and appoint JAMES R. MOFFETT, RENE L. LATIOLAIS, and RICHARD C. ADKERSON, and each of them acting individually, his true and lawful attorney-in-fact with power to act without the others and with full power of substitution, to execute, deliver and file, for and on behalf of him, in his name and in his capacity or capacities as aforesaid, an Annual Report of the Company on Form 10-K for the year ended December 31, 1993 and any amendment or amendments thereto and any other document in support thereof or supplemental thereto, and the undersigned hereby grants to said attorneys, and each of them, full power and authority to do and perform each and every act and thing whatsoever that said attorney or attorneys may deem necessary or advisable to carry out fully the intent of the foregoing as the undersigned might or could do personally or in the capacity or capacities as aforesaid, hereby ratifying and confirming all acts and things which said attorney or attorneys may do or cause to be done by virtue of this Power of Attorney. EXECUTED this 28th day of February, 1994. /s/ J. Taylor Wharton J. Taylor Wharton POWER OF ATTORNEY BE IT KNOWN: That the undersigned, in his capacity or capacities as an officer and/or a member of the Board of Directors of Freeport-McMoRan Inc., a Delaware corporation ("the Company"), does hereby make, constitute and appoint JAMES R. MOFFETT, RENE L. LATIOLAIS, and RICHARD C. ADKERSON, and each of them acting individually, his true and lawful attorney-in-fact with power to act without the others and with full power of substitution, to execute, deliver and file, for and on behalf of him, in his name and in his capacity or capacities as aforesaid, an Annual Report of the Company on Form 10-K for the year ended December 31, 1993 and any amendment or amendments thereto and any other document in support thereof or supplemental thereto, and the undersigned hereby grants to said attorneys, and each of them, full power and authority to do and perform each and every act and thing whatsoever that said attorney or attorneys may deem necessary or advisable to carry out fully the intent of the foregoing as the undersigned might or could do personally or in the capacity or capacities as aforesaid, hereby ratifying and confirming all acts and things which said attorney or attorneys may do or cause to be done by virtue of this Power of Attorney. EXECUTED this 28th day of February, 1994. /s/ Ward W. Woods, Jr. Ward W. Woods, Jr. POWER OF ATTORNEY BE IT KNOWN: That the undersigned, in his capacity or capacities as an officer and/or a member of the Board of Directors of Freeport-McMoRan Inc., a Delaware corporation ("the Company"), does hereby make, constitute and appoint JAMES R. MOFFETT and RICHARD C. ADKERSON, and each of them acting individually, his true and lawful attorney-in-fact with power to act without the others and with full power of substitution, to execute, deliver and file, for and on behalf of him, in his name and in his capacity or capacities as aforesaid, an Annual Report of the Company on Form 10-K for the year ended December 31, 1993 and any amendment or amendments thereto and any other document in support thereof or supplemental thereto, and the undersigned hereby grants to said attorneys, and each of them, full power and authority to do and perform each and every act and thing whatsoever that said attorney or attorneys may deem necessary or advisable to carry out fully the intent of the foregoing as the undersigned might or could do personally or in the capacity or capacities as aforesaid, hereby ratifying and confirming all acts and things which said attorney or attorneys may do or cause to be done by virtue of this Power of Attorney. EXECUTED this 28th day of February, 1994. /s/ Rene L. Latiolais Rene L. Latiolais POWER OF ATTORNEY BE IT KNOWN: That the undersigned, in his capacity or capacities as an officer and/or a member of the Board of Directors of Freeport-McMoRan Inc., a Delaware corporation ("the Company"), does hereby make, constitute and appoint JAMES R. MOFFETT and RENE L. LATIOLAIS and each of them acting individually, his true and lawful attorney- in-fact with power to act without the others and with full power of substitution, to execute, deliver and file, for and on behalf of him, in his name and in his capacity or capacities as aforesaid, an Annual Report of the Company on Form 10-K for the year ended December 31, 1993 and any amendment or amendments thereto and any other document in support thereof or supplemental thereto, and the undersigned hereby grants to said attorneys, and each of them, full power and authority to do and perform each and every act and thing whatsoever that said attorney or attorneys may deem necessary or advisable to carry out fully the intent of the foregoing as the undersigned might or could do personally or in the capacity or capacities as aforesaid, hereby ratifying and confirming all acts and things which said attorney or attorneys may do or cause to be done by virtue of this Power of Attorney. EXECUTED this 28th day of February, 1994. /s/ Richard C. Adkerson Richard C. Adkerson EX-99.1 10 Exhibit 99.1 ANNUAL REPORT ON FORM 10-K OF FRP FOR THE FISCAL YEAR ENDED DECEMBER 31, 1993. ============================================================================== SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1993 OR / / 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 1-9164 FREEPORT-McMoRan RESOURCE PARTNERS, LIMITED PARTNERSHIP Organized in Delaware I.R.S. Employer Identification No. 72-1067072 1615 Poydras Street, New Orleans, Louisiana 70112 Registrant's telephone number, including area code: (504) 582-4000 Securities registered pursuant to Section 12(b) of the Act: Name of Each Exchange on Title of Each Class Which Registered ------------------- ------------------------ Depositary Units New York Stock Exchange 8 3/4% Senior Subordinated Notes due 2004 New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No _____ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. /X/ The aggregate market value of the Depositary Units held by non-affiliates of the registrant was approximately $981,011,000 on March 10, 1994. Documents Incorporated by Reference Portions of the registrant's Annual Report to unitholders for the year ended December 31, 1993 (Parts I, II, III and IV). ============================================================================== TABLE OF CONTENTS ----------------- Page ---- Part I. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 Items 1 and 2. Business and Properties . . . . . . . . . . . . . . . 1 Introduction . . . . . . . . . . . . . . . . . . . . . 1 Management . . . . . . . . . . . . . . . . . . . . . . 2 Agricultural Minerals. . . . . . . . . . . . . . . . . 3 Fertilizer Business . . . . . . . . . . . . . . . . 3 Sulphur Business. . . . . . . . . . . . . . . . . . 7 Oil. . . . . . . . . . . . . . . . . . . . . . . . . . 9 Geothermal . . . . . . . . . . . . . . . . . . . . . . 11 Competition. . . . . . . . . . . . . . . . . . . . . . 11 Research and Development . . . . . . . . . . . . . . . 12 Environmental Matters. . . . . . . . . . . . . . . . . 12 Item 3. Legal Proceedings. . . . . . . . . . . . . . . . . . . 13 Item 4. Submission of Matters to a Vote of Security Holders. . 13 Part II . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Item 5. Market for Registrant's Common Equity and Related Stockholder Matters. . . . . . . . . . . 14 Item 6. Selected Financial Data. . . . . . . . . . . . . . . . 14 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. . . . 14 Item 8. Financial Statements and Supplementary Data. . . . . . 14 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. . . . . . . . . 14 Part III . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Item 10. Directors and Executive Officers of the Registrant . . 15 Item 11. Executive Compensation . . . . . . . . . . . . . . . . 16 Item 12. Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . . . . . . 17 Item 13. Certain Relationships and Related Transactions . . . . 19 Part IV . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K . . . . . . . . . . . . . . 19 Signatures. . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Index to Financial Statements . . . . . . . . . . . . . . . . . F-1 Report of Independent Public Accountants. . . . . . . . . . . . F-1 Exhibit Index . . . . . . . . . . . . . . . . . . . . . . . . . E-1 PART I Items 1 and 2. Business and Properties. ----------------------- INTRODUCTION Freeport-McMoRan Resource Partners, Limited Partnership ("FRP"), a Delaware limited partnership organized in 1986, participates in one of the largest and lowest cost phosphate fertilizer producers in the world through its joint venture interest in IMC-Agrico Company, a Delaware general partnership ("IMC-Agrico"). IMC-Agrico's business includes the mining and sale of phosphate rock, the production, distribution and sale of phosphate fertilizers, and the extraction of uranium oxide from phosphoric acid. FRP's business also includes exploration for and mining, transportation and sale of sulphur, and the development and production of oil reserves at Main Pass Block 299 ("Main Pass"), offshore Louisiana in the Gulf of Mexico. For information with respect to industry segments, including export sales and major customers, reference is made to Note 8 to the financial statements of FRP referred to on page F-1 hereof (the "FRP Financial Statements"). On July 1, 1993, FRP and IMC Fertilizer, Inc. ("IMC") contributed their respective phosphate fertilizer businesses, including the mining and sale of phosphate rock and the production, distribution and sale of phosphate chemicals, uranium oxide and related products, to IMC-Agrico. As a result of the formation of IMC-Agrico, FRP expects that it and IMC together will be able to achieve by the middle of 1995 at least $95 million per year of savings in aggregate production costs and selling, administrative and general expenses. In addition, FRP believes that the location of several of the IMC-Agrico manufacturing and storage facilities on the Mississippi River gives IMC-Agrico a competitive advantage over other fertilizer producers in transporting fertilizers to the U.S. farmbelt. FRP has completed development of the Main Pass sulphur and oil reserves which it discovered in 1988 and in which it has a 58.3% interest. Sulphur production at minimal levels began during the second quarter of 1992. Sulphur production achieved full design operating rates of 5,500 long tons per day (approximately 2 million long tons per year) on schedule in December 1993, and has since sustained production at or above that level. (See "Sulphur Business - Production" under "Agricultural Minerals" below.) Oil production commenced in the fourth quarter of 1991 and averaged approximately 19,400 barrels per day during 1993. (See "Oil" below.) The Managing General Partners and the Special General Partners of FRP are Freeport-McMoRan Inc. ("FTX"*) and FMRP Inc. ("FMRP"), a wholly owned subsidiary of FTX. The current capitalization of FRP consists of an aggregate 1% basic general partnership interest (the "FRP Basic Interest"), units of limited partnership interest ("FRP Units") of which a portion is deposited with Mellon Bank, N.A., as depositary units ("FRP Depositary Units"), and additional units of general partnership interest ("FRP Unit Equivalents"). FRP Depositary Units are listed and publicly traded on the New York Stock Exchange ("NYSE"). Unless otherwise indicated, FRP Units, FRP Depositary Units and FRP Unit Equivalents are sometimes hereinafter referred to, individually and collectively, as "Partnership Units". Including the FRP Basic Interest, FTX and FMRP, as of March 10, 1994, held Partnership Units representing an approximate 51.31% interest in FRP, with the remaining interest being publicly owned and traded on the NYSE. The public unitholders are entitled, through the cash distribution for the fourth quarter of 1996, to receive minimum quarterly distributions prior to any distribution on the partnership units held by FTX and FMRP. Prior to the completion of Main Pass, FRP pursued a policy of funding the cash distribution to unitholders from asset sales and borrowings under its Credit Agreement, in addition to distributable cash from operations. However, with the completion of the Main Pass development, FRP no longer intends to supplement distributable cash with borrowings. For additional information with respect to FRP distributions, reference is made to Note 3 to the FRP Financial Statements. Fertiberia, S.L. ("Fertiberia"), a Spanish corporation, is the successor through bankruptcy - reorganization proceedings to the reorganized phosphate and nitrogen fertilizer businesses of FESA Fertilizantes Espanoles, S.A. ("FESA"), formerly the principal manufacturer of chemical fertilizers in Spain. On September 28, 1993 Freeport-McMoRan Management Services, S.A. ("FMMS"), an affiliate of FRP, entered into a Management Agreement with Fertiberia pursuant to which FMMS agreed to direct the management of all phases of Fertiberia's fertilizer business for a one-year period in return for reimbursement of FMMS's costs. FRP also entered into an Investment Agreement with FESA, whereby if FRP determines during the same one-year period that Fertiberia is financially viable and able to generate an adequate return to shareholders, FRP will make an equity investment in Fertiberia and acquire a controlling interest in Fertiberia. The terms of the investment will be negotiated by FRP and FESA. If FRP determines that Fertiberia is not viable, it will have no further obligation with respect to Fertiberia. MANAGEMENT As provided in the FRP partnership agreement, limited partners may not take part in the management of FRP. FTX, as Administrative Managing General Partner, exercises all management powers over the business and affairs of FRP. FRP does not have directors. Instead, directors and officers of FTX, along with FRP's officers, perform all FRP management functions and carry out the activities of FRP. Such officers of FRP continue to be employees or officers of FTX or its subsidiaries, but, subject to certain exceptions, are employed principally for the operation of FRP's businesses. Pursuant to the FRP partnership agreement, FTX also furnishes general executive, administrative, financial, accounting, legal, environmental, tax, research and development, sales and certain other services to FRP and is reimbursed by FRP for all direct and indirect costs in connection therewith. FTX and FMRP Inc. do not receive any compensation as general partners of FRP. For additional information with respect to management, reference is made to Note 6 to the FRP Financial Statements. AGRICULTURAL MINERALS FRP's agricultural minerals segment consists of FRP's interest in the IMC-Agrico fertilizer business and FRP's sulphur business. Fertilizer Business IMC-Agrico Company On July 1, 1993, FRP and IMC contributed their respective phosphate fertilizer businesses, including the mining and sale of phosphate rock and the production, distribution and sale of phosphate chemicals, uranium oxide and related products, to IMC-Agrico. At the time, FRP and IMC were among the largest integrated phosphate fertilizer producers in the world and both were among the lowest cost producers. As a result of the formation of IMC-Agrico, FRP expects that it and IMC together will be able to achieve by the middle of 1995 at least $95 million per year of savings in aggregate production costs and selling, administrative and general expenses. Under the IMC-Agrico Partnership Agreement (the "Partnership Agreement"), IMC-Agrico will distribute quarterly to the Partners Distributable Cash, as defined in the Partnership Agreement, based on sharing ratios that vary from year to year for the first five fiscal years ending June 30, 1998, and are based on the parties' initial projections of their respective contributions to the cash flow of IMC-Agrico and on an equal sharing of the anticipated synergistic savings. For further information, see Note 2 to the FRP Financial Statements. IMC holds its interest in IMC-Agrico through a special purpose Delaware corporation (the "IMC Partner"), and FRP holds its interest in IMC-Agrico through a special purpose Delaware limited partnership (the "FRP Partner"). The managing partner of IMC-Agrico is a Delaware corporation which is jointly owned by the IMC Partner and the FRP Partner, but as to which the IMC Partner has the right to elect a majority of the directors in the absence of a Material Breach Event, as defined in the Partnership Agreement. IMC-Agrico is governed by a policy committee (the "Policy Committee") with equal representation from the IMC Partner and the FRP Partner, which establishes policies relating to the strategic direction of IMC-Agrico and assures that such policies are implemented. The Policy Committee has the sole authority to make certain Major Decisions, as defined in the Partnership Agreement, including the creation of major indebtedness, major acquisitions and dispositions, and approval of budgets, subject to the authority of the Chief Executive Officers of the FRP Partner and the IMC Partner to resolve disputes. Phosphate Rock IMC-Agrico mines phosphate rock in Florida for both internal production of phosphoric acid at plants in Florida and Louisiana and phosphate rock sales to external customers under long-term contracts and in the spot market. The rock is reacted with sulphuric acid, produced in part from sulphur from Main Pass, to provide phosphoric acid which is then further processed at IMC-Agrico's fertilizer plants. IMC-Agrico's annual phosphate rock capacity is approximately 31.5 million tons per year and accounts for approximately 55% of U.S. phosphate rock capacity and 15% of world capacity. The phosphate rock mines contributed by FRP and IMC to IMC-Agrico produced 22.3 million tons of phosphate rock in fiscal year ended June 30, 1993 compared to a total production by U.S. phosphate mines of 45.1 million tons of phosphate rock. IMC-Agrico's phosphate mining operations and production plants are located in Polk, Hillsborough, Hardee and Manatee Counties in central Florida. Production has been at less than full capacity because of reduced demand and actions to control inventory. IMC-Agrico's Kingsford mine was idled in May 1993 due to weak market conditions. In February 1994, IMC- Agrico restarted Kingsford in order to meet product grade specifications of existing phosphate rock supply contracts. In July 1993, IMC-Agrico had temporarily reduced phosphate rock mining operations at Four Corners, its largest mine, in conjunction with its temporary curtailment of diammonium phosphate ("DAP") production; however, in January 1994, Four Corner mine increased production in conjunction with the restart of IMC-Agrico's Taft plant in December 1993. See "Phosphate Chemicals" below. In October 1993, IMC-Agrico reopened its Clear Springs mine and idled its Payne Creek mine for operational reasons. IMC-Agrico's results of operations will not be materially affected by the idling of the Payne Creek phosphate rock mine because the product previously produced at this mine is being produced at other mines. IMC-Agrico also leases, under a long-term contract, two phosphate rock processing plants from Brewster Phosphates. The annual capacity of these two plants is approximately 5 million tons. Until recently, one of the two plants was operated for screening pebble products, while the second plant remains closed indefinitely subject to improved market conditions. As of December 31, 1993, FRP, through IMC-Agrico, had proved and probable reserves of 215.2 million tons, plus an additional 196.1 million tons of phosphate rock deposits. (Deposits are ore bodies which require additional economic and mining feasibility studies before they can be classified as reserves.) For information with respect to FRP's phosphate rock reserves, reference is made to Note 9 to the FRP Financial Statements. For information concerning FRP's sales of phosphate rock, see "Selected Financial and Operating Data" on page 13 of FRP's 1993 Annual Report to unitholders, which is incorporated herein by reference. On December 31, 1993, FRP concluded the sale of approximately 3,500 acres of phosphate mining land in Polk County, Florida to Tampa Electric Company, a public utility, for an aggregate purchase price of $12.5 million, plus interest from the date of the initial agreement. The buyer will assume FRP's reclamation obligations on the land, resulting in substantial savings to FRP. FRP reported a gain of $10.7 million in 1993 related to this sale. This previously mined land is an example of the conversion of former phosphate mining lands to industrial use. This transaction is not necessarily indicative of values that may be achieved in subsequent transactions. Phosphate Chemicals IMC-Agrico manufactures fertilizer and related products, including sulphuric acid, phosphoric acid, granulated phosphates (principally DAP, monoammonium phosphate ("MAP") and granular triple superphosphate ("GTSP")), anhydrous ammonia and urea. IMC-Agrico's fertilizer operations consist of six plants, three in central Florida and three on the Mississippi River in Louisiana. IMC-Agrico's plants located in Florida consist of New Wales, Nichols and South Pierce. The New Wales plant, located near Mulberry, Florida, has facilities for the production of sulphuric acid, phosphoric acid, DAP, MAP and GTSP. Currently idled, the Nichols facility, located at Nichols, Florida, has facilities for the production of sulphuric acid, phosphoric acid and DAP. Nichols was idled in May 1993 in response to extremely depressed market conditions. However, in March 1994, due to improving market conditions, IMC-Agrico announced that it would resume production at the Nichols facility in May 1994. South Pierce, located at Bartow, Florida, has facilities for the production of sulphuric acid, phosphoric acid, GTSP and technical grade DAP and MAP for industrial uses. IMC-Agrico's Faustina, Uncle Sam and Taft plants are located in Louisiana. The Faustina plant, located at Donaldsonville, Louisiana, has facilities for the production of anhydrous ammonia, urea, sulphuric acid, phosphoric acid, DAP and MAP. The Uncle Sam plant, located at Uncle Sam, Louisiana, has facilities for the production of sulphuric acid and phosphoric acid. The Taft plant, located at Taft, Louisiana, has facilities for the manufacture of DAP and MAP. The Taft plant, idled in July 1993, was restarted in December 1993. IMC-Agrico's plants have an estimated annual sustainable capacity to produce 530,000 tons of anhydrous ammonia, 260,000 tons of urea, approximately 10.4 million tons of sulphuric acid, and approximately 8.2 million tons of granulated phosphates. IMC-Agrico's phosphoric acid capacity is approximately 4.0 million tons of contained P205*, approximately 32% of U.S. production capacity and 11% of world capacity. With significant production curtailments in 1993, IMC-Agrico and the assets contributed to IMC-Agrico by the Company and IMC produced approximately 8.5 million tons of sulphuric acid, 3.3 million tons of phosphoric acid, and 6.4 million tons of granulated phosphates. Phosphate rock, sulphur and ammonia are the three principal raw materials used in the production of phosphate chemicals. Phosphate rock is supplied by IMC-Agrico's Florida mines. FRP and IMC both have interests in a joint venture which began mining sulphur reserves at Main Pass in April 1992. FRP continues to operate the Main Pass joint venture through Freeport Sulphur Company ("FSC"), its sulphur division. FRP and IMC entered into an agreement to supply IMC-Agrico with its sulphur requirements. FRP supplies its share of the requirements through FSC. IMC supplies its share of the requirements through its share of Main Pass production and purchases from third parties. IMC-Agrico's ammonia needs are fulfilled primarily by third party domestic suppliers under long-term contracts and by internal production at its Faustina plant. _____________ * P205 is an industry term indicating a product's phosphate content measured chemically in units of phosphorous pentoxide. Marketing Since July 1, 1993, all fertilizer marketing functions for FRP have been handled by IMC on behalf of IMC-Agrico. IMC-Agrico markets products throughout the eastern two-thirds of the United States in the domestic market and, primarily through the American Phosphate Export Association ("Amphos"), a Webb-Pomerene association, overseas. Phoschem and Phosrock, the primary units of Amphos, market phosphate chemical fertilizers and phosphate rock, respectively, for IMC-Agrico and two U.S. firms. Since the formation of IMC-Agrico, IMC-Agrico had used approximately 54% of its phosphate rock shipments at its plants in Florida and Louisiana, with most of the balance being sold in the domestic market. Approximately 53% of IMC-Agrico's granulated phosphate fertilizer shipments in 1993 were sold in the domestic market, with the balance sold abroad. Although phosphate fertilizer sales are fairly constant from month to month, the largest sales periods occur prior to the fall and spring planting of agricultural crops. Historically, domestic sales taper off after the spring planting season but this drop in domestic sales occurs at a time when major international buyers purchase product for mid-year delivery. World phosphate prices declined to a nearly 20 year low during mid-1993, due to a number of factors, including a significant decline in import demand by China, a sharp increase in U.S. producer held stocks of finished phosphate fertilizers to record levels, intense competition in offshore markets traditionally served by U.S. producers, particularly MAP from the former Soviet Union, unsettled import policies in other key overseas markets such as India and continued lower demand in Europe. As a result, FRP's results in 1992 and 1993 have been adversely affected. FRP believes that the price outlook for phosphate fertilizers has improved substantially based in part on a return by China to the marketplace at more traditional volume levels, a significant reduction in the stocks of finished phosphate materials held by producers (in spite of a moderate improvement in operating rates) and an improved domestic demand outlook for this coming spring season due to last year's poor harvest caused by the widespread flooding in the Midwest. Uranium The phosphate rock used in the production of phosphoric acid contains small amounts of uranium. At its uranium extraction facilities, IMC-Agrico extracts and processes uranium oxide ("yellowcake") as a by- product of phosphoric acid. Production of yellowcake is dependent on the quantity and uranium content of phosphoric acid produced by its host plants. Yellowcake, after further processing, is used as a fuel by electric utilities. Although IMC-Agrico has the capacity to extract uranium oxide at several phosphoric acid plants, production has been suspended at certain of the plants because of the depressed market price of uranium oxide, and, at present, uranium does not significantly contribute to IMC-Agrico's revenues. Operating and Environmental Hazards The production of fertilizers involves the handling of chemicals, some of which may have the potential, if released in sufficient quantities, to expose IMC-Agrico to certain liabilities. However, IMC-Agrico has a program in place to minimize the potential for such releases. FRP, through FTX, and IMC-Agrico carry insurance for certain of these risks, and management believes that the types and limits of such insurance coverages are adequate and consistent with prudent business practices. Sulphur Business FRP, through FSC, is involved in the exploration for and mining, purchase, transportation, terminaling and sale of sulphur. Most of FRP's sulphur assets are located in the Gulf of Mexico offshore Louisiana. Production During 1993, FRP produced sulphur from its Caminada and Main Pass sulphur mines located in federal waters in the Gulf of Mexico. The Caminada and Main Pass mines utilize the Frasch Mining process, which involves the drilling of wells and the injection of superheated water into the underground sulphur deposit to melt the solid sulphur, which is then brought to the surface in liquid form. FRP has been using the Frasch process for over 80 years. FRP has also developed technology which allows it to use sea water in the Frasch process. FRP is not aware of any other company that has developed Frasch sulphur mines using superheated sea water. For additional information with respect to FRP's sales, reference is made to "Selected Financial and Operating Data" appearing on page 13 of FRP's 1993 Annual Report to unitholders, which is incorporated herein by reference. Main Pass, discovered by FRP in 1988, currently has the highest production rate of any sulphur mine in the world and the largest existing Frasch sulphur reserve in North America. The Main Pass offshore complex, more than a mile in length, is one of the largest structures of its type in the world and the largest in the Gulf of Mexico. The Main Pass mine, which began initial production at minimal levels in the second quarter of 1992, is estimated to contain proved recoverable sulphur reserves totaling 66.2 million long tons (38.6 million long tons net to FRP) at December 31, 1993. The mine is owned 58.3% by FRP, 25% by IMC and 16.7% by Homestake Sulphur Company ("Homestake"). The development and production of the Main Pass reserves are being conducted by FTX, through FSC, on behalf of FRP, as operator of the Main Pass joint venture, pursuant to a management services agreement. At Main Pass, sulphur production reached design production capacity of 5,500 long tons per day (approximately 2 million long tons per year) on schedule in December 1993 and has since sustained production at or above that level. Main Pass is subject to a 12.5% federal royalty based on net mine revenues. Because of the significant improvements in Main Pass sulphur production, declining production rates at Caminada and falling sulphur prices, the marginally profitable Caminada operation ceased in January 1994. The shutdown of Caminada will have no significant impact on FRP's reported earnings. The primary fuel source at Main Pass is natural gas. A contract with an initial term of 20 years has been executed for the purchase of natural gas at market based prices. FRP currently supplements its sulphur production by purchasing from third party sources. A significant quantity of this sulphur is purchased from companies which recover sulphur in the production of oil and natural gas and the refining of petroleum products. For information with respect to FRP's sulphur reserves, reference is made to Note 9 to the FRP Financial Statements. Marketing The sulphur produced by FRP is transported by barge to its storage, handling and shipping facilities located at Port Sulphur, Louisiana, where recovered sulphur purchased from others or transported for others may also be received. Sulphur is transported from Port Sulphur by barge to IMC-Agrico and customer plants on the Mississippi River and by tanker to FRP's terminal at Tampa, Florida. Similar facilities at Pensacola, Florida, and Galveston, Texas, are used for storage, handling and shipping of sulphur purchased from others or transported for others. FRP also processes and transports for a fee both IMC's and Homestake's share of Main Pass sulphur and serves as marketing agent for Homestake. FRP's sulphur is used in the manufacture of sulphuric acid, which, in turn, is primarily used to produce phosphoric acid, the basic material for the production of phosphate fertilizers. The phosphate fertilizer industry, including the IMC-Agrico phosphate facilities, accounts for approximately 92% of FRP's total sulphur sales. A small number of companies consume a large portion of the total sulphur consumed in the United States. Substantially all of the sulphur sold by FRP is supplied under contracts having a term of one to three years. FRP also had foreign sales of 12,800 tons and 13,400 tons of sulphur during 1992 and 1993, respectively. FRP has entered into a long-term contract to supply IMC-Agrico Company with sulphur. For additional information with respect to FRP's sales of sulphur, reference is made to "Selected Financial and Operating Data" appearing on page 13 of FRP's 1993 Annual Report to unitholders. Globally, approximately 60% of annual sulphur demand arises from the production of phosphate fertilizers. Many of the same factors which have adversely impacted global fertilizer demand have caused sulphur demand to decline for the past five years. Despite a decline in mined sources of sulphur, global inventories increased in 1993 due to a large increase in vatting in western Canada. The Company believes, however, that sales agreements in place with IMC-Agrico and other customers give it significant insulation against a potential market surplus. Sulphur prices at Tampa, the principal market for the Company's sulphur, fell to under $55 per long ton at the end of 1993 compared to $140 per long ton in early 1991. Exploration Currently, FRP has interests in three other sulphur leases in the Gulf of Mexico which expire in 1998. In 1993, FRP elected not to drill three offshore leases which were subsequently allowed to expire. In addition, FRP has evaluated the results of its exploration efforts in Egypt located in the North Sinai Desert. This location is estimated to contain 10.1 million long tons of sulphur. FRP does not plan to develop this project in the immediate future but will retain its concession by performing minimal maintenance activities. OIL The Main Pass project also contains oil* reserves associated with the same caprock reservoir at Main Pass as the sulphur reserves. The development and production of these Main Pass reserves are being conducted by FTX on behalf of FRP, as operator of the joint venture, pursuant to a management services agreement. As of December 31, 1993, FRP estimates that remaining proved recoverable oil reserves at Main Pass are 20.8 million barrels (10.0 million barrels net to FRP). FRP is engaged in oil operations only at Main Pass and does not currently intend to pursue oil operations that are not related to Main Pass. For information relating to estimates of FRP's net interests in proved oil reserves as of December 31, 1993, and for supplementary information relating to estimates of discounted future net cash flows from proved oil reserves, and changes in such estimates, reference is made to Note 9 to the FRP Financial Statements. No favorable or adverse event or major discovery has occurred since December 31, 1993, that FRP believes would cause a significant change in estimated proved reserves. Production and Marketing Conditions Since completion of development drilling in mid-April 1993, oil production for the Main Pass joint venture has increased significantly and averaged over 20,000 barrels of oil per day ("BOPD") for December 1993. Because of the complexities of producing sour crude in an offshore environment, periodic curtailments down to 5,500 BOPD may be required to perform maintenance repairs. The Company's share of oil production was approximately 3.4 million barrels for 1993. Production in 1994 is expected to approximate that of 1993, with the anticipated drilling of additional wells expected to offset a production decline in existing wells in 1994. Production is expected to decline thereafter. For information concerning FRP's sales during the year ended December 31, 1993, reference is made to "Selected Financial and Operating Data" appearing on page 13 of FRP's 1993 Annual Report to unitholders, incorporated herein by reference. For information concerning the interaction between concurrent oil and sulphur production, see "Sulphur Business" above. _________ * As used in this portion of the report, "oil" refers to crude oil, condensate and natural gas liquids. Oil prices have historically exhibited, and can be expected to continue to exhibit, volatility as a result of such factors as political uncertainty in the Middle East, actions of the Organization of Petroleum Exporting Countries and changes in worldwide weather and economic conditions. Main Pass oil contains sulphur and is generally heavier than other Gulf Coast crude oils. As a result, it sells at a discount relative to Gulf Coast crude oils containing less sulphur and to lighter grade crude oils. Acreage FRP's interest in Main Pass, in federal waters offshore Louisiana, constitutes the only oil property owned by FRP. The property consists of 1,125 gross acres (656 acres net to FRP) and is fully developed within the meaning of governmental reporting requirements. FRP possesses a leasehold interest in its Main Pass oil property which is maintained by production and will remain in effect until production and drilling and development operations cease. FRP believes that the lease terms are sufficient to allow for reasonable development of the reserves. Operating Hazards FRP's oil activities are subject to all of the risks normally incident to the development and production of sour oil, including blowouts, cratering and fires, each of which could result in injury to personnel and/or damage to property. Additionally, offshore operations are subject to marine perils, including hurricanes and other adverse weather conditions. FRP, through FTX, carries insurance for certain of these risks, and management believes that the types and limits of such insurance coverages are adequate and consistent with prudent business practices. Government Regulation Domestic oil operations are subject to extensive state and federal regulation. Compliance is often burdensome, and failure to comply carries substantial penalties. The heavy and increasing regulatory burden on the oil industry increases the cost of doing business and, consequently, affects profitability. Federal laws and regulations impose liability upon the lessee under a federal lease for the cost of cleanup of pollution resulting from a lessee's operations, and such lessee could be subject to liability for pollution damages. A serious incident of pollution may also result in a requirement to suspend or cease operations in the particular area. FRP, through FTX, carries insurance against some, but not all, of these risks. For further information with respect to environmental risks and FRP's responses thereto, see "Environmental Matters" below. GEOTHERMAL In April 1993, FRP sold its remaining interests in producing geothermal properties for $63.5 million to Calpine Corporation, consisting of $23 million in cash and interest-bearing notes totaling $40.5 million, recognizing a $31 million charge to expense and recording a $9 million charge for impairment of its undeveloped geothermal properties. These notes provided that the entire principal amount could be repaid at a discount according to a specified schedule. FRP received a prepayment of $36.9 million including accrued interest, in February 1994, which represented full payment on these notes. In 1993 FRP sold its undeveloped geothermal energy assets located in the Salton Sea area of the Imperial Valley of southern California to Magma Power Company, and certain of its affiliates, for consideration consisting of a current cash payment and the right to future payments based on the development of geothermal projects on its former leases. FRP still retains its undeveloped geothermal energy assets located in the Medicine Lake area of northern California. COMPETITION The fertilizer and phosphate rock mining industries are highly competitive. In this global business, IMC-Agrico faces stiff competition from overseas producers, most of which are state supported, especially those in North Africa, and most recently those in the former Soviet Union. In the United States, IMC-Agrico competes against a number of major phosphate fertilizer producers, including large cooperatives. FRP, through IMC-Agrico, is one of the largest and lowest cost producers of phosphate rock and the largest integrated producer of phosphate fertilizers in the world. FRP's significant phosphate rock and sulphur reserves and production, through IMC-Agrico and FSC, substantially reduce the sensitivity of its phosphate fertilizer costs to changes in raw material prices. The strategic location of fertilizer operations on the Mississippi River system reduces transportation costs for finished products sold in the Midwest farmbelt. FRP believes that its internal production of raw materials, through FSC and IMC-Agrico, and the strategic location of IMC-Agrico's operations provide it with a competitive advantage over other United States based producers. Nevertheless, world phosphate fertilizer prices declined to a nearly 20-year low during mid-1993, due to a number of factors, including a significant decline in import demand by China, a sharp increase in U.S. producer held stocks of finished phosphate fertilizers to record levels, intense competition in offshore markets traditionally served by U.S. producers, particularly MAP from the former Soviet Union, unsettled import policies in other key overseas markets such as India and continued lower demand in Europe. As a result, FRP's results in 1992 and 1993 have been adversely affected. FRP believes that the price outlook for phosphate fertilizers has improved substantially based in part on a return by China to the marketplace at more traditional volume levels, a significant reduction in the stocks of finished phosphate materials held by producers (in spite of a moderate improvement in operating rates) and an improved domestic demand outlook for this coming spring season due to last year's poor harvest caused by the widespread flooding in the Midwest. In 1993, three companies operating domestic Frasch sulphur mines accounted for approximately 18% of total domestic consumption of sulphur in all forms. Domestic recovered sulphur, produced by more than 50 companies at more than 130 refineries and gas treatment plants, supplied approximately 55%, while imported sulphur, primarily from Canada and Mexico, accounted for approximately 15% of domestic sulphur consumption. The remaining 12% of domestic sulphur consumption was met in the form of sulphuric acid produced in metals smelting operations and from imported sulphuric acid. FRP's production of sulphur accounts for approximately 12% of domestic and 4% of world elemental sulphur production for the year ended December 31, 1993. With the achievement of full operations at Main Pass at the end of 1993, FRP became the largest Frasch sulphur producer in the world. A large number of companies and individuals are engaged in the development and production of oil. Many of these companies possess financial resources equal to or greater than those of FRP. RESEARCH AND DEVELOPMENT In February 1993, FTX outsourced its corporate engineering, research and development, corporate environmental and corporate safety functions and, to that end, contracted with a new company initially owned and staffed by former employees of FTX, Crescent Technology, Inc. ("Crescent"), that furnishes similar services to FTX. Crescent owns and operates laboratory and pilot plant facilities at Belle Chasse, Louisiana, where mineral analyses, metallurgical work and other research and testing are conducted which contribute to FTX's commercial operations, including those of FRP. Additionally, Crescent maintains engineering and mine development groups in New Orleans, Louisiana, which provide the engineering, design and construction supervision activities required to implement new ventures and apply improvements to existing operations of FRP. ENVIRONMENTAL MATTERS FTX and FRP have a history of commitment to environmental responsibility. Since the 1940s, long before the general public recognized the importance of maintaining environmental quality, FTX has conducted preoperational, bioassay, marine ecological and other environmental surveys to ensure the environmental compatibility of its operations. FTX's Environmental Policy commits its operations to full compliance with applicable laws and regulations. FTX has contracted with Crescent to develop and implement corporatewide environmental programs that include the activities of FRP and to study and implement methods to reduce discharges and emissions. For information concerning the outsourcing of certain of FTX's functions to Crescent, see "Research and Development" above. FRP's operations are subject to federal, state and local laws and regulations relating to the protection of the environment. Exploration, mining, development and production of natural resources, and the chemical processing operations of IMC-Agrico, like similar operations of other companies, may affect the environment. Moreover, such operations may involve the extraction, handling, production, processing, treatment, storage, transportation and disposal of materials and waste products which, under certain conditions, may be toxic or hazardous and expressly regulated under environmental laws. Present and future environmental laws and regulations applicable to the operations of FRP or IMC-Agrico may require substantial capital expenditures or affect their operations in other ways that cannot now be accurately predicted. FRP has made, and continues to make, expenditures at its operations for protection of the environment. In 1992, at a cost of $35.7 million, FRP completed the replacement of two sulphuric acid production units at an existing fertilizer plant thereby substantially reducing air emissions and increasing plant efficiency. As successor to FRP, IMC-Agrico completed at the end of 1993, at a cost of $27 million, an innovative drainage and cover plan for phosphogypsum storage areas in Louisiana to substantially reduce substances in wastewater discharged from its fertilizer operations. Future operations of this kind are projected to require additional investments of $30 million between 1994 and 2004. Continued government and public emphasis on environmental matters can be expected to result in increased future investments for environmental controls. On analyzing its operations and those of IMC-Agrico in relation to current and anticipated environmental requirements, FRP does not expect that these investments will have a significant impact on its future operations or financial condition. For additional information concerning environmental matters, reference is made to the information set forth in Item 7 below. Item 3. Legal Proceedings. ----------------- Although FRP may be from time to time involved in various legal proceedings of a character normally incident to the ordinary course of its businesses, FRP believes that potential liability in any such pending or threatened proceedings would not have a material adverse effect on the financial condition or results of operations of FRP. FRP, through FTX, maintains liability insurance to cover some, but not all, potential liabilities normally incident to the ordinary course of its businesses as well as other insurance coverages customary in its businesses, with such coverage limits as management deems prudent. Item 4. Submission of Matters to a Vote of Security Holders. --------------------------------------------------- Not applicable. PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters. ------------------------------------------------- The information set forth under the captions "FRP Units" and "Cash Distributions", on the inside back cover of FRP's 1993 Annual Report to unitholders is incorporated herein by reference. As of March 10, 1994, there were approximately 18,606 record holders of FRP Units. Item 6. Selected Financial Data. ----------------------- The information set forth under the caption "Selected Financial and Operating Data" on page 13 of FRP's 1993 Annual Report to unitholders is incorporated herein by reference. FRP's ratio of earnings to fixed charges for each of the years 1989 through 1993, inclusive, was 4.8x, 16.5x, 4.4x, 1.0x and a shortfall of $233.5 million, respectively. For purposes of this calculation, earnings are income from continuing operations before fixed charges. Fixed charges are interest and that portion of rent deemed representative of interest. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations ----------------------------------------------------------- IMC-AGRICO COMPANY Freeport-McMoRan Resource Partners, Limited Partnership (FRP) and IMC Fertilizer, Inc. (IMC) formed a joint venture (IMC-Agrico Company), effective July 1, 1993, for their respective phosphate fertilizer businesses, including phosphate rock and uranium. IMC-Agrico Company is governed by a policy committee having equal representation from each company and is managed by IMC. Combined annual savings of at least $95 million in production, marketing, and general and administrative costs are expected to result from this transaction, the full effect beginning by the end of the second year of operations. The operating efficiencies achievable by the joint venture should enable it to generate positive cash flow in a low-price environment, such as that experienced in 1993, and to be in a position to earn significant profits if product prices rise to historical levels. As discussed below and in Note 4 to the financial statements, significant restructuring charges were recorded in connection with this transaction. As a result of the joint venture, FRP is engaged in the phosphate rock mining, fertilizer production, and uranium oxide extraction businesses only through IMC-Agrico Company. FRP will continue to operate its sulphur and oil businesses. FRP has varying sharing ratios in IMC-Agrico Company, as discussed in Note 2 to the financial statements, which were based on the projected contributions of FRP and IMC to the cash flow of the joint venture and on an equal sharing of the anticipated savings. FRP transferred the assets it contributed to IMC-Agrico Company at their book carrying cost and proportionately consolidates its interest in IMC-Agrico Company. As a result, FRP's operating results subsequent to the formation of IMC-Agrico Company vary significantly in certain respects from those previously reported. Phosphate fertilizer realizations and unit production costs were fundamentally changed as the majority of the FRP contributed fertilizer production facilities are located on the Mississippi River, whereas the IMC contributed fertilizer production facilities are located in Florida. Fertilizer produced on the Mississippi River commands a higher sales price in the domestic market because of its proximity to markets; however, raw material transportation costs at the Florida facilities are lower for phosphate rock, partially offset by increased sulphur transportation costs. 1993 RESULTS OF OPERATIONS COMPARED WITH 1992 After discussions with the staff of the Securities and Exchange Commission (SEC), FRP is reclassifying certain expenses and accruals previously recorded in 1993 as restructuring and valuation of assets. In response to inquiries, FRP advised the SEC staff that $3.2 million originally reported as restructuring and valuation of assets represented the cumulative effect of changes in accounting principle resulting from the adoption of the new accounting policies that FRP considered preferable, as described in Note 1 to the financial statements. FRP also informed the SEC staff of the components of other charges included in the amount originally reported as restructuring and valuation of assets. FRP concluded that the reclassification and the related supplemental disclosures more accurately reflect the nature of these charges to 1993 net income in accordance with generally accepted accounting principles. These reclassifications had no impact on net income or net income per share. FRP incurred a net loss of $246.1 million ($2.37 per unit) for 1993 compared with net income of $20.2 million ($.20 per unit) for 1992. Results for 1993 were adversely impacted by charges totaling $197.3 million ($1.90 per unit) related to (a) restructuring the administrative organization at Freeport-McMoRan Inc. (FTX), the general partner of FRP (Note 4), (b) asset sales/recoverability charges (Note 4), (c) adjustments to general and administrative expenses and production and delivery costs discussed below, and (d) changes in accounting principle, discussed further in Note 1 to the financial statements. Excluding these items, 1993 earnings were lower reflecting significant decreases in phosphate fertilizer, phosphate rock, sulphur, and oil revenues, primarily due to reduced sales volumes and average market prices for these products (see Selected Financial and Operating Data). Depreciation and amortization expense declined primarily because of reduced sales volumes. The reduction in general and administrative expenses reflects the benefits from the 1993 restructuring activities, partially offset by charges resulting from the restructuring project discussed below. Interest expense increased, as no interest was capitalized subsequent to the Main Pass sulphur operations becoming operational for accounting purposes in July 1993. Restructuring Activities. During the second quarter of 1993, FTX undertook a restructuring of its administrative organization. This restructuring represented a major step by FTX to lower its costs of operating and administering its businesses in response to weak market prices of the commodities produced by its operating units. As part of this restructuring, FTX significantly reduced the number of employees engaged in administrative functions, changed its management information system (MIS) environment to achieve efficiencies, reduced its needs for office space, outsourced a number of administrative functions, and implemented other actions to lower costs. As a result of this restructuring process, which included the formation of IMC-Agrico Company, the level of FRP's administrative cost has been reduced substantially over what it would have been otherwise, which benefit will continue in the future. However, the restructuring process entailed incurring certain one-time costs by FTX, a portion of which were allocated to FRP pursuant to its management services agreement with FTX. FRP's restructuring costs totaling $33.9 million, including $22.1 million allocated from FTX based on historical allocations, consisting of the following: $15.5 million for personnel related costs; $7.0 million relating to excess office space and furniture and fixtures resulting from the staff reduction; $1.8 million relating to the cost to downsize its computing and MIS structure; $8.8 million related to costs directly associated with the formation of IMC-Agrico Company; and $.8 million of deferred charges relating to FRP's credit facility which was substantially revised in June 1993. As of December 31, 1993, the remaining accrual for these restructuring costs totaled $3.1 million. In connection with the restructuring project, FRP changed its accounting systems and undertook a detailed review of its accounting records and valuation of various assets and liabilities. As a result of this process, FRP recorded charges totaling $24.9 million, comprised of the following: (a) $10.0 million of production and delivery costs consisting of $6.3 million for revised estimates of environmental liabilities and $3.7 million primarily for adjustments in converting accounting systems, (b) $7.6 million of depreciation and amortization costs consisting of $6.5 million for estimated future abandonment and reclamation costs and $1.1 million for the write-down of miscellaneous properties, and (c) $7.3 million of general and administrative expenses consisting of $4.0 million to downsize FRP's computing and MIS structure and $3.3 million for the write-off of miscellaneous assets. Agricultural Minerals Operations FRP's agricultural minerals segment, which includes its fertilizer, phosphate rock, and sulphur businesses, reported a loss of $55.9 million on revenues of $619.3 million for 1993 compared with earnings of $18.0 million on revenues of $799.0 million for 1992. Significant items impacting the segment earnings are as follows (in millions): Agricultural minerals earnings - 1992 $ 18.0 Major increases (decreases) Sales volumes (67.4) Realizations (103.2) Other (9.1) ------ Revenue variance (179.7) Cost of sales 81.4* General and administrative and other 24.4* (73.9) ------ Agricultural minerals earnings - 1993 $(55.9) ====== - ------- * Includes $17.5 million in cost of sales and $7.3 million in general and administrative expenses resulting from the restructuring project discussed above. Weak industrywide demand and changes attributable to FRP's participation in IMC-Agrico Company resulted in FRP's 1993 reported sales volumes for diammonium phosphate (DAP), its principal fertilizer product, declining 17 percent from that of a year-ago. The weakness in the phosphate fertilizer market prompted IMC-Agrico Company to make strategic curtailments in its phosphate fertilizer production. However, late in the year increased export purchases contributed to a rise in market prices, helping to rekindle domestic buying interests which had been unwilling to make purchase commitments. The increased demand, coupled with low industrywide production levels, caused reduced inventory levels. Late in 1993, IMC-Agrico Company increased its production levels in response to the improving markets and projected domestic and international demand for its fertilizer products. Unit production cost, excluding $17.5 million of changes related to the restructuring project, declined from 1992 reflecting initial production efficiencies from the joint venture, reduced raw material costs for sulphur, and lower phosphate rock mining expenses, partially offset by increased natural gas costs and lower production volumes. FRP's realization for DAP was lower reflecting the near 20-year low prices realized during 1993 as well as an increase in the lower-priced Florida sales by IMC-Agrico Company. FRP believes that the outlook for 1994 is for improved prices caused by more normal market demand. Spot market prices improved from a low of nearly $100 per short ton of DAP (central Florida) in July 1993 to just over $140 per ton by year end. Industry inventories at year end were below average levels, despite a fourth quarter rebound in industry production. Export demand is expected to remain at more normal levels during the first half of 1994, with China, India, and Pakistan expected to be active purchasers. Additionally, domestic phosphate fertilizer demand is expected to benefit from increased corn acreage planted due to lower government set- asides and to increased fertilizer application rates necessitated by the widespread flooding that caused a depletion of nutrients in a number of midwestern states. FRP's proportionate share of the larger IMC-Agrico Company phosphate rock operation caused 1993 sales volumes to increase from 1992, with IMC- Agrico Company operating its most efficient facilities to minimize costs. Combined sulphur production from the Caminada and Main Pass mines increased compared with 1992; however, sales volumes declined 16 percent, primarily because of reduced purchases by IMC-Agrico Company resulting from its curtailed fertilizer production. Due to the significant decline in the market price of sulphur, FRP recorded a second-quarter 1993 noncash charge to earnings (not included in segment earnings) for the excess of capitalized cost over expected realization of its non-Main Pass sulphur assets, primarily the Caminada sulphur mine (Note 4). Due to significant improvements in Main Pass sulphur production, FRP ceased the marginally profitable Caminada operations in January 1994. The shutdown of Caminada will have no material impact on FRP's reported earnings. Although reduced global demand has forced production cutbacks worldwide, sulphur prices remain depressed. A rebound in price is not expected until demand improves. At Main Pass, sulphur production increased significantly during 1993 and achieved, on schedule, full design operating rates of 5,500 tons per day (approximately 2 million tons per year) in December 1993 and has since sustained production at or above that level. As a result of the production increases, Main Pass sulphur became operational for accounting purposes beginning July 1, 1993. Recognizing Main Pass sulphur operations in income and discontinuing associated capitalized interest did not affect cash flow, but adversely affected reported operating results. Oil Operation 1993 1992 ---- ---- Sales (barrels) 3,443,000 4,884,000 Average realized price $14.43 $15.91 Earnings (in millions) $(1.5) $4.6 Since completion of development drilling in mid-April 1993, oil production for the Main Pass joint venture (in which FRP owns a 58.3 percent interest) increased significantly, averaging over 20,000 barrels per day for December 1993. Production for 1994 is expected to approximate that of 1993 if water encroachment follows current trends, with the anticipated drilling of additional wells (estimated to cost FRP approximately $4 million) offsetting a production decline in existing wells. Due to the dramatic decline in oil prices at year-end, FRP recorded a $60.0 million charge to earnings (not included in segment earnings) reflecting the excess net book value of its Main Pass oil investment over the estimated future net cash flow to be received. Future price declines, increases in costs, or negative reserve revisions could result in an additional charge to future earnings. CAPITAL RESOURCES AND LIQUIDITY Net cash used in operating activities during 1993 was $2.9 million compared with $120.1 million net cash provided during 1992, due primarily to lower income from operations. Net cash provided by investing activities was $2.5 million compared with $209.9 million used for 1992, reflecting the reduced level of capital expenditures (following completion of Main Pass development expenditures and the cost efficiency program during 1992) and the proceeds from asset sales. Net cash provided by financing activities during 1993 was $17.8 million reflecting net borrowings of $139.0 million partially offset by lower distributions resulting from unpaid distributions to FTX since early-1992 (discussed below), compared with $93.1 million for 1992 which had a net reduction of borrowings totaling $186.2 million funded by $430.5 million in proceeds from the public sale of FRP units in February 1992. Cash flow from operations for 1992 was $120.1 million compared with $106.5 million for 1991. Net cash used in investing activities declined to $209.9 million from $346.9 million in 1991, due primarily to reduced capital expenditures. Net cash provided by financing activities declined to $93.1 million in 1992 from $243.5 million in 1991, with 1991 including net borrowings of $421.2 million. Publicly owned FRP units have cumulative rights to receive quarterly distributions of 60 cents per unit through the distribution for the quarter ending December 31, 1996 (the Preference Period) before any distributions may be made to FTX. FRP has announced that beginning with the distribution for the fourth quarter of 1993 it no longer intends to supplement distributable cash with borrowings. Therefore, FRP's future distributions will be dependent on the distributions received from IMC-Agrico Company, which will primarily be determined by prices and sales volumes of its commodities and cost reductions achieved by its combined operations, and the future cash flow of FRP's oil and sulphur operations (including reclamation expenditures related to its non-Main Pass sulphur assets). On January 21, 1994, FRP declared a distribution of 60 cents per publicly held unit ($30.3 million) and 12 cents per FTX-owned unit ($6.2 million), payable February 15, 1994, bringing the total unpaid distribution due FTX to $239.2 million. Unpaid distributions due FTX will be recoverable from future FRP cash available for quarterly distributions as discussed in Note 3 to the financial statements. The January 1994 distribution included $30.9 million received from IMC-Agrico Company for its fourth-quarter 1993 distribution (including $9.3 million from working capital reductions) and $13.0 million in proceeds from the sale of certain previously mined phosphate rock acreage. In September 1993, FTX agreed to manage for one year Fertiberia, S.L., the restructured phosphate and nitrogen fertilizer businesses of FESA Fertilizantos Espanoles, a wholly owned subsidiary of ERCROS, S.A., a Spanish conglomerate. FTX has assumed no financial obligations during this period. The goal of the management services agreement is to establish Fertiberia as a financially viable concern. If financial viability can be established, FRP has agreed to negotiate the acquisition of a controlling equity interest in Fertiberia. In June 1993, FTX amended its credit agreement in which FRP participates, extending its maturity (Note 5). As of February 1, 1994, $425.0 million was available under the credit facility. To the extent FTX and its other subsidiaries incur additional debt, the amount available to FRP under the credit facility may be reduced. FRP believes that its short- term cash requirements will be met from internally generated funds and borrowings under its existing credit facility. ENVIRONMENTAL FTX and its affiliates, including FRP, have a history of commitment to environmental responsibility. Since the 1940s, long before public attention focused on the importance of maintaining environmental quality, FTX and its affiliates have conducted preoperational, bioassay, marine ecological, and other environmental surveys to ensure the environmental compatibility of its operations. FTX's Environmental Policy commits FTX and its affiliates' operations to full compliance with local, state, and federal laws and regulations, and prescribes the use of periodic environmental audits of all domestic facilities to evaluate compliance status and communicate that information to management. FTX has access to environmental specialists who have developed and implemented corporatewide environmental programs. FTX's operating units, including FRP, continue to study and implement methods to reduce discharges and emissions. Federal legislation (sometimes referred to as "Superfund") requires payments for cleanup of certain abandoned waste disposal sites, even though such waste disposal activities were performed in compliance with regulations applicable at the time of disposal. Under the Superfund legislation, one party may, under certain circumstances, be required to bear more than its proportional share of cleanup costs at a site where it has responsibility pursuant to the legislation, if payments cannot be obtained from other responsible parties. Other legislation mandates cleanup of certain wastes at unabandoned sites. States also have regulatory programs that can mandate waste cleanup. Liability under these laws involves inherent uncertainties. FRP has received notices from governmental agencies that it is one of many potentially responsible parties at certain sites under relevant federal and state environmental laws. Further, FRP is aware of additional sites for which it may receive such notices in the future. Some of these sites involve significant cleanup costs; however, at each of these sites other large and viable companies with equal or larger proportionate shares are among the potentially responsible parties. The ultimate settlement for such sites usually occurs several years subsequent to the receipt of notices identifying potentially responsible parties because of the many complex technical and financial issues associated with site cleanup. FRP believes that the aggregation of any costs associated with these potential liabilities will not exceed amounts accrued and expects that any costs would be incurred over a period of years. FRP, through FTX, maintains insurance coverage in amounts deemed prudent for certain types of damages associated with environmental liabilities which arise from unexpected and unforeseen events and has an indemnification agreement covering certain acquired sites (Note 7). FRP has made, and will continue to make, expenditures at its operations for protection of the environment. Continued government and public emphasis on environmental issues can be expected to result in increased future investments for environmental controls, which will be charged against income from future operations. Present and future environmental laws and regulations applicable to FRP's operations may require substantial capital expenditures and may affect its operations in other ways that cannot now be accurately predicted. 1992 RESULTS OF OPERATIONS COMPARED WITH 1991 FRP reported 1992 net income of $20.2 million ($.20 per unit) compared with $15.0 million ($.18 per unit) for 1991, which included an insurance settlement gain (Note 7) of $17.7 million ($.21 per unit) and a charge of $96.8 million ($1.16 per unit) to reflect the cumulative effect of the change in accounting principle for postretirement benefits other than pensions (Note 6). Excluding the nonrecurring items, income for 1992 was lower primarily because of reduced agricultural minerals and uranium earnings, partially offset by profitable Main Pass oil operations. Revenues were virtually unchanged from 1991 with increases in oil and phosphate rock revenues partially offsetting a decrease in phosphate fertilizer revenues. Production and delivery costs as a percent of revenues declined due to increased oil production, which has lower production and delivery costs than FRP's other products. Depreciation and amortization expense rose primarily because of higher oil production, and general and administrative expenses increased due to the additional effort and support required by Main Pass. Interest costs of $19.1 million for 1992 and $23.3 million for 1991, associated primarily with Main Pass development, were capitalized. Agricultural Minerals Operations Revenues and earnings for 1992 totaled $799.0 million and $18.0 million compared with $880.5 million and $78.9 million for 1991, respectively, reflecting weak market prices for phosphate fertilizers and sulphur. However, FRP's 1992 average unit production cost for phosphate fertilizers was lower than during 1991. Significant items impacting the segment earnings are as follows (in millions): Agricultural minerals earnings - 1991 $ 78.9 Major increases (decreases) Sales volumes 27.0 Realizations (107.8) Other (.7) ------ Revenue variance (81.5) Cost of sales 41.9 General and administrative and other (21.3) ------ (60.9) ------ Agricultural minerals earnings - 1992 $ 18.0 ====== Phosphate fertilizer sales volumes were slightly lower during 1992, whereas the average realization was 13 percent lower. Phosphate fertilizer realizations declined steadily throughout 1992 because of curtailed purchases by China, the largest single fertilizer importer, and supply and demand uncertainty in Europe, the former Soviet Union, and India. Also contributing to the decline in prices were lower raw material costs, most notably for sulphur, as producers in the weakening market passed along these cost savings to buyers in an attempt to preserve market share. FRP's phosphate rock and fertilizer facilities operated at or near capacity, with the 1992 phosphate fertilizer unit production cost averaging 7 percent less than during 1991 due to reduced raw material costs for sulphur and lower phosphate rock mining expenses, despite higher natural gas costs. Unit production cost also benefited during the latter part of 1992 as FRP completed a $60.0 million capital program to improve efficiency and lower costs. Sulphur production and sales volumes for 1992 declined 8 percent and 7 percent, respectively, from 1991 as the Garden Island Bay and Grand Isle mines ceased production in 1991. However, production increased at the Caminada mine, which had a significantly lower unit production cost than either Garden Island Bay or Grand Isle had prior to depletion, resulting in an average sulphur unit production cost 7 percent lower than during 1991. FRP's 1992 sulphur realization reflects the price declines which occurred since mid-1991, as world sulphur markets were burdened by the collapse of the Soviet Union as well as by a further decline in demand in Western Europe. During 1992, several Canadian sulphur marketers built inventory rather than accept depressed prices; however, others intensified their efforts to sell into the important Tampa, Florida market. Phosphate rock production and sales benefited from the capacity expansion completed in mid-1992 at one of FRP's two operated phosphate rock mines, and also reflect the output from FRP's Central Florida Pebbledale property, where sales began in July 1991 under a mining agreement with IMC. Oil Operation 1992 1991 --------- ------- Sales (barrels) 4,884,000 350,800 Average realized price $15.91 $13.34 Earnings (in millions) $4.6 $(.6) Earnings for Main Pass, which initiated oil production in late 1991, benefited from FRP's marketing efforts, which alleviated earlier problems related to its high-sulphur oil, and high average production rates. ______________________________________ The results of operations reported and summarized above are not necessarily indicative of future operating results. Item 8. Financial Statements and Supplementary Data. ------------------------------------------- The financial statements of FRP, the notes thereto and the report thereon of Arthur Andersen & Co., appearing on pages 20 through 32 inclusive, of FRP's 1993 Annual Report to unitholders, are incorporated herein by reference. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. ----------------------------------------------------------- Not applicable. PART III Item 10. Directors and Executive Officers of the Registrant. -------------------------------------------------- FRP has no directors; instead, the general partners in FRP, FTX and FMRP Inc., perform comparable functions for FRP. In addition to the elected executive officers of FRP (the "Elected FRP Executive Officers"), certain employees of the general partners have management responsibilities with respect to FRP and are thus deemed by FRP to be executive officers of FRP (the "Designated FRP Executive Officers") for purposes of the federal securities laws. The following table shows, as of March 15, 1994, the names, ages, positions with the general partners and principal occupations of the Elected FRP Executive Officers and the Designated FRP Executive Officers (collectively, the "FRP Executive Officers"): Name Age Positions and Principal Occupations ---- --- ----------------------------------- Richard C. Adkerson 47 Senior Vice President of FTX. John G. Amato 50 General Counsel of FRP. General Counsel of FTX. Director of FMRP Inc. Richard H. Block 43 Senior Vice President - Fertilizer Operations of FRP. Senior Vice President of FTX. R. Foster Duncan 40 Senior Vice President of FRP. Thomas J. Egan 49 Senior Vice President of FTX. Robert B. Foster 50 Senior Vice President - Sulphur Operations of FRP. Charles W. Goodyear 36 Senior Vice President - Finance and Accounting and Chief Financial Officer of FRP. Senior Vice President of FTX. Director of FMRP Inc. W. Russell King 44 Senior Vice President of FTX. Rene L. Latiolais 51 President and Chief Executive Officer of FRP. Director, President, and Chief Operating Officer of FTX. Director, Chairman of the Board, and President of FMRP Inc. George A. Mealey 60 Executive Vice President of FTX. Director, President, and Chief Executive Officer of Freeport-McMoRan Copper & Gold Inc., a subsidiary of FTX. James R. Moffett 55 Director, Chairman of the Board, and Chief Executive Officer of FTX. All of the individuals above, with the exceptions of Messrs. Adkerson, Amato, Duncan and Goodyear, have served FTX or FRP in various executive capacities for at least the last five years. Until 1989, Mr. Adkerson was a partner in Arthur Andersen & Co., an independent public accounting firm, Mr. Duncan was First Vice President and Manager-Corporate Finance of Howard Weil Labouisse Friedrichs Incorporated, a brokerage firm, and Mr. Goodyear was a Vice President of Kidder, Peabody & Co. Incorporated, an investment banking firm. During the past five years and prior to that period, Mr. Amato has been engaged in the private practice of law and has served as outside counsel to FTX and FRP. All Elected FRP Executive Officers and all officers of FTX serve at the pleasure of the Board of Directors of FTX. All officers of FMRP Inc. serve at the pleasure of the Board of Directors of FMRP Inc. According to (i) the Forms 3 and 4 and any amendments thereto filed pursuant to Section 16(a) of the Securities Exchange Act of 1934 ("Section 16") and furnished to FRP during 1993 by persons subject to Section 16 at any time during 1993 with respect to securities of FRP ("FRP Section 16 Insiders"), (ii) the Forms 5 with respect to 1993 and any amendments thereto filed pursuant to Section 16 and furnished to FRP by FRP Section 16 Insiders, and (iii) the written representations from certain FRP Section 16 Insiders that no Form 5 with respect to the securities of FRP was required to be filed by such FRP Section 16 Insider, respectively, with respect to 1993, no FRP Section 16 Insider failed to file altogether or timely any Forms 3, 4, or 5 required by Section 16 with respect to the securities of FRP or to disclose on such Forms transactions required to be reported thereon. Item 11. Executive Compensation. ---------------------- FRP does not employ any of the FRP Executive Officers, nor does it compensate them for their services. The FRP Executive Officers are either employed or retained by FTX. The President and Chief Executive Officer of FRP, Rene L. Latiolais, is employed by FTX. The four most highly compensated FRP Executive Officers other than Mr. Latiolais are James R. Moffett, Richard H. Block, Charles W. Goodyear, and W. Russell King; they are also employed by FTX. The determination as to which FRP Executive Officers were the most highly compensated was made by reference to the total annual salary and bonus for 1993 of each of the FRP Executive Officers employed by FTX that was allocated to FRP by FTX pursuant to the FRP partnership agreement on the basis of time devoted to FRP activities. The services of all the FRP Executive Officers and the services of the other officers of FRP are provided to FRP by FTX under the FRP partnership agreement. FRP reimburses FTX at FTX's cost, including allocated overhead, for such services. All the FRP Executive Officers are compensated exclusively by FTX for their services to FRP. All the FRP Executive Officers are eligible to participate in certain FTX benefit plans and programs. The total costs to FTX for the FRP Executive Officers, including the costs borne by FTX with respect to such plans and programs, are allocated to FRP, to the extent practicable, in proportion to the time spent by such FRP Executive Officers on FRP affairs. No other payment is made by FRP to FTX for providing such compensation and benefit plans and programs to the FRP Executive Officers. Reference is made to the information set forth under the caption "Management" above and to the information set forth in Note 6 to the FRP Financial Statements. Item 12. Security Ownership of Certain Beneficial Owners and Management. ----------------------------------------------- According to information furnished by the person known to FRP to be a beneficial owner of more than 5% of Partnership Units, the number of Partnership Units beneficially owned by such person as of December 31, 1993, was as follows: Number of Partnership Units Percent Beneficially of Name and Address of Person Owned Class - -------------------------- ----------------- ------- Freeport-McMoRan Inc. 52,170,192(a) 50.8 1615 Poydras Street New Orleans, Louisiana 70112 _________ (a) These Partnership Units consist of 18,582 FRP Depositary Units and 52,151,610 FRP Unit Equivalents. FTX has sole voting and investment power with respect to such Partnership Units. The other general partner in FRP, FMRP Inc., did not own beneficially any Partnership Units as of December 31, 1993. According to information furnished by each of the Elected FRP Executive Officers and the Designated FRP Executive Officers (collectively, the "FRP Executive Officers"), the number of FRP Depositary Units and shares of FTX common stock ("FTX Shares") beneficially owned by each of them as of December 31, 1993, was as follows: Number of Number of FRP Depositary Units FTX Shares Name of Individual Beneficially Beneficially or Identity of Group Owned(a) Owned(a) - -------------------- -------------------- ------------ Richard H. Block 2,184 70,661(b) Charles W. Goodyear 0 188,597(b)(c) W. Russell King 990 64,119(b) Rene L. Latiolais 539(d) 517,590(b) James R. Moffett 65,439(e) 3,313,162(b)(e) 11 FRP Executive Officers as a group, including those persons named above 76,468(f) 5,033,771(f) - -------- (a) Except as otherwise noted, the individuals referred to have sole voting and investment power with respect to such FRP Depositary Units and FTX Shares. With the exception of Mr. Moffett, who beneficially owns 2.3% of the outstanding FTX Shares, each of the individuals referred to holds less than 1% of the outstanding FRP Depositary Units and FTX Shares, respectively. (b) Includes FTX Shares held by the trustee under the Employee Capital Accumulation Program of FTX, as follows: Mr. Block, 11,765 FTX Shares; Mr. Goodyear, 2,113 FTX Shares; Mr. King, 9,510 FTX Shares; Mr. Latiolais, 15,191 FTX Shares; Mr. Moffett, 21,293 FTX Shares; all FRP Executive Officers as a group (10 persons), 79,188 FTX Shares. Also includes FTX Shares that could be acquired within 60 days after December 31, 1993 upon the exercise of options granted pursuant to the employee stock option plans of FTX, as follows: Mr. Block, 58,896 FTX Shares; Mr. Goodyear, 186,420 FTX Shares; Mr. King, 19,168 FTX Shares; Mr. Latiolais, 332,426 FTX Shares; Mr. Moffett, 1,764,434 FTX Shares; all FRP Executive Officers as a group (11 persons), 3,079,436 FTX Shares. (c) Includes 64 FTX Shares held in a retirement account for the benefit of Mr. Goodyear. (d) Includes 405 FRP Depositary Units held for the benefit of Mr. Latiolais by the custodian under FRP's Depositary Unit Reinvestment Plan. (e) Includes a total of 39,600 FRP Depositary Units and 214,648 FTX Shares held for the benefit of a trust with respect to which Mr. Moffett and an FRP Executive Officer, as co-trustees of such trust, have sole voting and investment power but have no beneficial interest therein. Mr. Moffett and such FRP Executive Officer disclaim beneficial ownership of such FRP Depositary Units and FTX Shares held for the benefit of such trust. Includes a total of 25,839 FRP Depositary Units and 85,140 FTX Shares held for the benefit of two trusts created by Mr. Moffett for the benefit of his two children, who are adults. An FRP Executive Officer and another individual, as co-trustees of the two trusts, have sole voting and investment power with respect to such FRP Depositary Units and FTX Shares held for the benefit of such trusts but have no beneficial interest therein. Mr. Moffett and such FRP Executive Officer disclaim beneficial ownership of such FRP Depositary Units and FTX Shares held for the benefit of such trusts. Includes a total of 88,000 FTX Shares held for the benefit of a trust created by Mr. Moffett for the benefit of an educational fund and his two children, who are adults. An FRP Executive Officer and another individual, as co-trustees of such trust, have sole voting and investment power with respect to such FTX Shares held for the benefit of such trust but have no beneficial interest therein. Mr. Moffett and such FRP Executive Officer disclaim beneficial ownership of such FTX Shares held for the benefit of such trust. (f) See notes (b) through (e) above. Includes 724 FTX Shares that may be acquired upon the conversion of 6.55% Convertible Subordinated Notes due January 15, 2001 of FTX ("FTX Notes") held in trust for the benefit of one of the FRP Executive Officers, 2,682 FTX Shares that may be acquired upon the conversion of Zero Coupon Convertible Subordinated Debentures due 2006 of FTX held in trust for the benefit of such FRP Executive Officer, and 90 FTX Shares that may be acquired upon the conversion of FTX Notes held in trust for the benefit of the spouse of such FRP Executive Officer. Includes 6 FRP Depositary Units and 1,516 FTX Shares held in trust for the benefit of one of the FRP Executive Officers, 92 FTX Shares held in trust for the benefit of the spouse of such FRP Executive Officer as to which beneficial ownership is disclaimed, and 1,000 FTX Shares held by such FRP Executive Officer as custodian as to which beneficial ownership is disclaimed. These total numbers of FRP Depositary Units and FTX Shares represent less than 1% of the outstanding FRP Depositary Units and approximately 3.5% of the outstanding FTX Shares, respectively. Item 13. Certain Relationships and Related Transactions. ---------------------------------------------- Reference is made to the information set forth under the caption "Management" above, to the information set forth in Item 11 above and to the information set forth in Note 6 to the FRP Financial Statements. PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K. --------------------------------------------------------------- (a)(1), (a)(2), and (d). Financial Statements. Reference is made to the Index to Financial Statements appearing on page F-1 hereof. (a)(3) and (c). Exhibits. Reference is made to the Exhibit Index beginning on page E-1 hereof. (b). Reports on Form 8-K. No reports on Form 8-K were filed by the registrant during the fourth quarter of 1993. SIGNATURES Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on March 29, 1994. FREEPORT-McMoRan RESOURCE PARTNERS, LIMITED PARTNERSHIP By: FREEPORT-McMoRan INC., Its Administrative Managing General Partner By: /s/ James R. Moffett ---------------------------- James R. Moffett Chairman of the Board Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on March 29, 1994. /s/ Rene L. Latiolais President and Chief Executive Officer - ----------------------- of Freeport-McMoRan Resource Rene L. Latiolais Partners, Limited Partnership and Director of Freeport-McMoRan Inc. (Principal Executive Officer) /s/ Charles W. Goodyear Senior Vice President and Chief - ----------------------- Financial Officer of Freeport-McMoRan Charles W. Goodyear Resource Partners, Limited Partnership (Principal Financial Officer) /s/ Nancy D. Bonner Vice President and Controller of - ----------------------- Freeport-McMoRan Resource Partners, Nancy D. Bonner Limited Partnership (Principal Accounting Officer) Robert W. Bruce III* Director of Freeport-McMoRan Inc. Thomas B. Coleman* Director of Freeport-McMoRan Inc. William H. Cunningham* Director of Freeport-McMoRan Inc. Robert A. Day* Director of Freeport-McMoRan Inc. William B. Harrison, Jr.* Director of Freeport-McMoRan Inc. Henry A. Kissinger* Director of Freeport-McMoRan Inc. Bobby Lee Lackey* Director of Freeport-McMoRan Inc. Gabrielle K. McDonald* Director of Freeport-McMoRan Inc. W. K. McWilliams, Jr.* Director of Freeport-McMoRan Inc. /s/ James R. Moffett Director, Chairman of the Board - ----------------------- and Chief Executive Officer James R. Moffett of Freeport-McMoRan Inc. George Putnam* Director of Freeport-McMoRan Inc. B. M. Rankin, Jr.* Director of Freeport-McMoRan Inc. Benno C. Schmidt* Director of Freeport-McMoRan Inc. J. Taylor Wharton* Director of Freeport-McMoRan Inc. Ward W. Woods, Jr.* Director of Freeport-McMoRan Inc. *By: /s/ James R. Moffett ----------------------- James R. Moffett Attorney-in-Fact INDEX TO FINANCIAL STATEMENTS The financial statements of FRP, the notes thereto, and the report thereon of Arthur Andersen & Co., appearing on pages 20 through 32, inclusive, of FRP's 1993 Annual Report to unitholders are incorporated by reference. The financial statement schedules listed below should be read in conjunction with such financial statements contained in FRP's 1993 Annual Report to unitholders. Page ---- Report of Independent Public Accountants.........................F-1 III-Condensed Financial Information of Registrant................F-2 V-Property, Plant and Equipment..................................F-5 VI-Accumulated Depreciation and Amortization.....................F-6 VIII-Valuation and Qualifying Accounts...........................F-7 X-Supplementary Income Statement Information.....................F-8 Schedules other than those listed above have been omitted, since they are either not required, not applicable or the required information is included in the financial statements or notes thereof. * * * REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS We have audited, in accordance with generally accepted auditing standards, the financial statements as of December 31, 1993 and 1992 and for each of the three years in the period ended December 31, 1993 included in Freeport-McMoRan Resource Partners, Limited Partnership's annual report to unitholders incorporated by reference in this Form 10-K, and have issued our report thereon dated January 25, 1994. Our audits were made for the purpose of forming an opinion on those statements taken as a whole. The schedules listed in the index above are the responsibility of the Company's management and are presented for purposes of complying with the Securities and Exchange Commission's rules and are not part of the basic financial statements. The schedules for the years ended December 31, 1993, 1992 and 1991 have been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly state in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. /s/ Arthur Andersen & Co. ------------------------- Arthur Andersen & Co. New Orleans, Louisiana, January 25, 1994 FREEPORT-McMoRan RESOURCE PARTNERS, LIMITED PARTNERSHIP SCHEDULE III - CONDENSED FINANCIAL INFORMATION OF REGISTRANT BALANCE SHEETS December 31, ------------------- 1993 1992 ---- ---- (In Thousands) ASSETS Current assets: Cash and short-term investments $ 5,300 $ 7,099 Accounts receivable: Customers 6,193 50,399 Other 12,811 12,175 Inventories: Products 31,458 141,216 Materials and supplies 7,877 29,060 Prepaid expenses and other 273 22,214 ---------- ---------- Total current assets 63,912 262,163 Property, plant and equipment-net 532,927 1,074,332 Investment in IMC-Agrico Company 483,070 - Other assets 100,628 157,012 ---------- ---------- Total assets $1,180,537 $1,493,507 ========== ========== LIABILITIES AND PARTNERS' CAPITAL Current liabilities: Accounts payable and accrued liabilities $ 37,175 $ 102,366 Current portion of long-term debt - 1,575 ---------- ---------- Total current liabilities 37,175 103,941 Long-term debt, less current portion 475,900 356,563 Reclamation and mine shutdown reserves 58,896 55,152 Accrued postretirement benefits and other liabilities 116,162 118,156 Partners' capital 492,404 859,695 ---------- ---------- Total liabilities and partners' capital $1,180,537 $1,493,507 ========== ========== The footnotes contained in FRP's 1993 Annual Report to unitholders are an integral part of these statements. FREEPORT-McMoRan RESOURCE PARTNERS, LIMITED PARTNERSHIP SCHEDULE III - CONDENSED FINANCIAL INFORMATION OF REGISTRANT STATEMENTS OF OPERATIONS
Years Ended December 31, ---------------------------- 1993 1992 1991 ---- ---- ---- (In Thousands) Revenues $ 424,717 $877,058 $885,209 Cost of sales: Production and delivery 352,194 652,169 691,932 Depreciation and amortization 81,521 119,259 59,502 -------- -------- -------- Total cost of sales 433,715 771,428 751,434 Exploration expenses 3,092 5,814 2,895 Provision for restructuring charges 33,947 - - Loss on valuation and sale of assets, net 114,802 - - General and administrative expenses 58,660 79,073 63,684 -------- -------- -------- Total costs and expenses 644,216 856,315 818,013 -------- -------- -------- Operating income (loss) (219,499) 20,743 67,196 Interest expense, net (12,293) (869) (506) Equity in earnings of IMC-Agrico Company 1,037 - - Uranium royalties and fees - - 18,452 Gain on insurance settlement - - 17,684 Other income, net 8,344 337 9,013 -------- -------- -------- Income (loss) before changes in accounting principle (222,411) 20,211 111,839 Cumulative effect of changes in accounting principle (23,700) - (96,793) -------- -------- -------- Net income (loss) $(246,111) $ 20,211 $ 15,046 ========= ======== ========
The footnotes contained in FRP's 1993 Annual Report to unitholders are an integral part of these statements. FREEPORT-McMoRan RESOURCE PARTNERS, LIMITED PARTNERSHIP SCHEDULE III - CONDENSED FINANCIAL INFORMATION OF REGISTRANT STATEMENTS OF CASH FLOW
Years Ended December 31, -------------------------- 1993 1992 1991 ---- ---- ---- (In Thousands) Cash flow from operating activities: Net income (loss) $(246,111) $ 20,211 $ 15,046 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Cumulative effect of changes in accounting principle 23,700 - 96,793 Depreciation and amortization 81,521 119,259 59,502 Other noncash charges to income 7,150 - - Provision for restructuring charges, net of payments 3,143 - - Loss on valuation and sale of assets, net 114,802 - - Equity in (earnings) of IMC-Agrico Company (1,037) - - Gain on insurance settlement - - (17,684) (Increase) decrease in working capital, net of effect of acquisitions and dispositions: Accounts receivable (1,552) 18,317 (2,520) Inventories (4,750) (9,983) 1,758 Prepaid expenses and other 1,933 (9,995) 37 Accounts payable and accrued liabilities 1,561 (3,011) (21,091) Reclamation and mine shutdown expenditures (9,980) (18,038) (16,601) Other 2,935 3,301 (8,732) -------- -------- -------- Net cash provided by (used in) operating activities (26,685) 120,061 106,508 -------- -------- -------- Cash flow from investing activities: Capital expenditures: Main Pass (37,427) (117,902) (291,993) Other (10,152) (86,815) (80,179) Sale of assets 49,961 - - Net insurance settlement proceeds - 2,970 17,800 Other 4,711 (8,189) 7,494 -------- -------- -------- Net cash provided by (used in) investing activities 7,093 (209,936) (346,878) -------- -------- -------- Cash flow from financing activities: Distributions to partners (121,180) (151,210) (200,870) Investments by FTX and affiliates - - 23,169 Proceeds from debt 572,137 639,891 614,650 Repayment of debt (433,164) (826,095) (193,427) Proceeds from sale of partnership units - 430,534 - -------- -------- -------- Net cash provided by financing activities 17,793 93,120 243,522 -------- -------- -------- Net increase (decrease) in cash and short-term investments (1,799) 3,245 3,152 Cash and short-term investments at beginning of year 7,099 3,854 702 -------- -------- -------- Cash and short-term investments at end of year $ 5,300 $ 7,099 $ 3,854 ======== ======== ======== Interest paid $ 22,997 $ 19,818 $ 22,015 ======== ======== ========
The footnotes contained in FRP's 1993 Annual Report to unitholders notes are an integral part of these statements. FREEPORT-McMoRan RESOURCE PARTNERS, LIMITED PARTNERSHIP SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT for the years ended December 31, 1993, 1992, and 1991
Col. A Col. B Col. C Col. D Col. E Col. F ----------- ------------ ---------- ----------- ---------- ---------- Balance at Retirements Balance at Beginning of Additions and Other-Add End Description Period at Cost(a) Sales (Deduct) of Period ----------- ------------ ---------- ----------- ---------- ---------- (In Thousands) 1993: Sulphur $ 597,662 $ 29,740 $ (2,100) $ (3,080) $ 622,222 Fertilizer 731,106 16,530 (3,384) 206,044(b) 950,296 Oil 184,555 4,939 - - 189,494 ---------- -------- -------- -------- ---------- $1,513,323 $ 51,209 $ (5,484) $202,964 $1,762,012 ========== ======== ======== ======== ========== 1992: Sulphur $ 501,602 $ 96,269 $ (709) $ 500 $ 597,662 Fertilizer 659,431 73,955 (2,313) 33 731,106 Oil 179,863 5,088 (396) - 184,555 ---------- -------- -------- -------- ---------- $1,340,896 $175,312 $ (3,418) $ 533 $1,513,323 ========== ======== ======== ======== ========== 1991: Sulphur $ 300,218 $224,281 $(25,174) $ 2,277 $ 501,602 Fertilizer 589,948 70,085 (1,634) 1,032 659,431 Oil 100,751 80,589 (558) (919) 179,863 ---------- -------- -------- -------- ---------- $ 990,917 $374,955 $(27,366) $ 2,390 $1,340,896 ========== ======== ======== ======== ========== a. Includes capitalized interest of $11.1 million in 1993, $19.1 million in 1992, and $23.3 million in 1991. b. Represents FRP's proportionate share of the IMC-Agrico Company joint venture property, plant and equipment (see Note 2 to the Financial Statements included in the 1993 Annual Report of FRP, the "Financial Statements") in excess of the FRP contributed amounts.
FREEPORT-McMoRan RESOURCE PARTNERS, LIMITED PARTNERSHIP SCHEDULE VI - ACCUMULATED DEPRECIATION AND AMORTIZATION for the years ended December 31, 1993, 1992, and 1991
Col. A Col. B Col. C Col. D Col. E Col. F ----------- ----------- ----------- ----------- ----------- ----------- Additions Balance at Charged to Retirements Balance at Beginning of Costs and and Other-Add End Description Period Expenses(a) Sales (Deduct) of Period ----------- ----------- ----------- ----------- ----------- ----------- (In Thousands) 1993: Sulphur $108,771 $ 14,277 $ (296) $ 13,269 $136,021 Fertilizer 273,744 48,926 (654) 187,890(b) 509,905 Oil 56,476 33,883 - 54,767(c) 145,126 -------- -------- -------- -------- -------- $438,991 $ 97,086 $ (950) $255,926 $791,052 ======== ======== ======== ======== ======== 1992: Sulphur $ 99,874 $ 13,659 $ (159) $ (4,603) $108,771 Fertilizer 226,547 52,640 (1,914) (3,529) 273,744 Oil 4,958 52,960 - (1,442) 56,476 -------- -------- -------- -------- -------- $331,379 $119,259 $ (2,073) $ (9,574) $438,991 ======== ======== ======== ======== ======== 1991: Sulphur $118,290 $ 12,058 $(25,165) $ (5,309) $ 99,874 Fertilizer 189,324 43,376 (578) (5,575) 226,547 Oil - 4,068 - 890 4,958 -------- -------- -------- -------- -------- $307,614 $ 59,502 $(25,743) $ (9,994) $331,379 ======== ======== ======== ======== ======== a. Note 1 to the Financial Statements describes FRP's depreciation and amortization methods. b. Represents FRP's proportionate share of the IMC-Agrico Company joint venture accumulated depreciation and amortization (see Note 2 to the Financial Statements) in excess of the FRP contributed amounts. c. Primarily represents the write-down of Main Pass oil costs due to the fourth-quarter decline in oil prices, as discussed in Note 4 to the financial statements.
FREEPORT-McMoRan RESOURCE PARTNERS, LIMITED PARTNERSHIP SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS for the years ended December 31, 1993, 1992, and 1991
Col. A Col. B Col. C Col. D. Col. E - ----------------------- ------------ ------------------------ --------- ---------- Additions --------- Balance at Charged to Charged to Balance at Beginning of Costs and Other Other-Add End Description Period Expenses Accounts (Deduct) of Period - ----------------------- ------------ ------------------------ --------- ---------- (In Thousands) Reserves and allowances deducted from asset accounts: Reclamation and mine shutdown reserves: 1993: Sulphur $35,200 $27,562 $ - $(5,475) $57,287 Fertilizer 18,543 5,365 - 14,529 (a) 38,437 Oil 1,409 1,021 - (821) 1,609 ------- ------- --- ------- ------- $55,152 $33,948 $ - $ 8,233 (b) $97,333 ======= ======= === ======= ======= 1992: Sulphur $29,715 $ 4,335 $ - $ 1,150 $35,200 Fertilizer 21,772 7,123 - (10,352) 18,543 Oil - 1,443 - (34) 1,409 ------- ------- --- ------- ------- $51,487 $12,901 $ - $ (9,236)(c) $55,152 ======= ======= === ======= ======= 1991: Sulphur $26,636 $ 5,212 $ - $ (2,133) $29,715 Fertilizer 27,297 5,575 - (11,100) 21,772 ------- ------- --- ------- ------- $53,933 $10,787 $ - $(13,233)(d) $51,487 ======= ======= === ======= ======= a. Includes $19.7 million which represents FRP's proportionate share of the IMC-Agrico Company joint venture liabilities (see Note 2 to the Financial Statements) in excess of the FRP contributed amounts. b. Includes expenditures of $13.2 million, net of a $1.7 million decrease in short-term payables and the item discussed in Note a. c. Includes expenditures of $21.2 million, net of a $12 million decrease in short-term payables. d. Includes expenditures of $20.2 million, net of a $7 million decrease in short-term payables.
FREEPORT-McMoRan RESOURCE PARTNERS, LIMITED PARTNERSHIP SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION for the years ended December 31, 1993, 1992, and 1991
Col. A Col. B - ----------------------------------------------- --------------------------------- Charged to Costs and Expenses --------------------------------- Item 1993 1992 1991 - ----------------------------------------------- -------- -------- -------- (In Thousands) Maintenance and repairs $75,332 $117,550 $113,035 Taxes, other than payroll and income taxes: Sales and severance $15,054 $ 18,758 $ 16,781 Property 8,927 6,205 6,219 ------- -------- -------- $23,981 $ 24,963 $ 23,000 ======= ======== ======== Royalties $ 9,586 $ 4,680 $ 14,143 ======= ======== ========
Freeport-McMoRan Resource Partners, Limited Partnership Exhibit Index Sequentially Exhibit Numbered Number Page - ------- ---------------- 3.1 Amended and Restated Agreement of Limited Partnership of FRP dated as of May 29, 1987 (the "FRP Partnership Agreement") among FTX, Freeport Phosphate Rock Company and Geysers Geothermal Company, as general partners, and Freeport Minerals Company, as general partner and attorney-in-fact for the limited partners, of FRP. Incorporated by reference to Exhibit B to the Prospectus dated May 29, 1987 included in FRP's Registration Statement on Form S-1, as amended, as filed with the Commission on May 29, 1987 (Registration No. 33-13513). 3.2 Amendment to the FRP Partnership Agreement dated as of April 6, 1990 effected by FTX, as Administrative Managing General Partner of FRP. Incorporated by reference to Exhibit 19.3 to the Quarterly Report on Form 10-Q of FRP for the quarter ended March 31, 1990 (the "FRP 1990 First Quarter Form 10-Q"). 3.3 Amendment to the FRP Partnership Agreement dated as of January 27, 1992 between FTX, as Administrative Managing General Partner, and FMRP Inc., as Managing General Partner, of FRP. Incorporated by reference to Exhibit 3.3 to the Annual Report on Form 10-K of FRP for the fiscal year ended December 31, 1991 (the "FRP 1991 Form 10-K"). 3.4 Amendment to the FRP Partnership Agreement dated as of October 14, 1992 between FTX, as Administrative Managing General Partner, and FMRP Inc., as Managing General Partner, of FRP. Incorporated by reference to Exhibit 3.4 to the Annual Report on Form 10-K of FRP for the fiscal year ended December 31, 1992 (the "FRP 1992 Form 10-K"). 3.5 Amended and Restated Certificate of Limited Partnership of FRP dated June 12, 1986 (the "FRP Partnership Certificate"). Incorporated by reference to Exhibit 3.3 to FRP's Registration Statement on Form S-1, as amended, as filed with the Commission on June 20, 1986 (Registration No. 33-5561). 3.6 Certificate of Amendment to the FRP Partnership Certificate dated as of January 12, 1989. 3.7 Certificate of Amendment to the FRP Partnership Certificate dated as of December 29, 1989. Incorporated by reference to Exhibit 19.1 to the FRP 1990 First Quarter Form 10-Q. 3.8 Certificate of Amendment to the FRP Partnership Certificate dated as of April 12, 1990. Incorporated by reference to Exhibit 19.4 to the FRP 1990 First Quarter Form 10-Q. 4.1 Deposit Agreement dated as of June 27, 1986 (the "Deposit Agreement") among FRP, The Chase Manhattan Bank, N.A. ("Chase") and Freeport Minerals Company ("Freeport Minerals"), as attorney-in-fact of those limited partners and assignees holding depositary receipts for units of limited partnership interests in FRP ("Depositary Receipts"). Incorporated by reference to Exhibit 28.4 to the Current Report on Form 8-K of FTX dated July 11, 1986. 4.2 Resignation dated December 26, 1991 of Chase as Depositary under the Deposit Agreement and appointment dated December 27, 1991 of Mellon Bank, N.A. ("Mellon") as successor Depositary, effective January 1, 1992. Incorporated by reference to Exhibit 4.5 to the FRP 1991 Form 10-K. 4.3 Service Agreement dated as of January 1, 1992 between FRP and Mellon pursuant to which Mellon will serve as Depositary under the Deposit Agreement and Custodian under the Custodial Agreement. Incorporated by reference to Exhibit 4.6 to the FRP 1991 Form 10-K. 4.4 Amendment to the Deposit Agreement dated as of November 18, 1992 between FRP and Mellon. Incorporated by reference to Exhibit 4.4 to the FRP 1992 Form 10-K. 4.5 Form of Depositary Receipt. Incorporated by reference to Exhibit 4.5 to the FRP 1992 Form 10-K. 4.6 Custodial Agreement regarding the FRP Depositary Unit Reinvestment Plan among FTX, FRP and Chase, effective as of April 1, 1987 (the "Custodial Agreement"). Incorporated by refer- ence to Exhibit 19.1 to the Quarterly Report on Form 10-Q of FRP for the quarter ended June 30, 1987. 4.7 FRP Depositary Unit Reinvestment Plan. Incorporated by reference to Exhibit 4.4 to the FRP 1991 Form 10-K. 4.8 Credit Agreement dated as of June 1, 1993 (the "FTX/FRP Credit Agreement") among FTX, FRP, the several banks which are parties thereto (the "FTX/FRP Banks") and Chemical Bank, as Agent (the "FTX/FRP Bank Agent"). 4.9 First Amendment dated as of February 2, 1994 to the FTX/FRP Credit Agreement among FTX, FRP, the FTX/FRP Banks and the FTX/FRP Bank Agent. 4.10 Second Amendment dated as of March 1, 1994 to the FTX/FRP Credit Agreement among FTX, FRP, the FTX/FRP Banks and the FTX/FRP Bank Agent. 4.11 Subordinated Indenture as of October 26, 1990 between FRP and Manufacturers Hanover Trust Company ("MHTC") as the Trustee, relating to $150,000,000 principal amount of 8 3/4% Senior Subordinated Notes due 2004 of FRP (the "Subordinated Indenture"). 4.12 First Supplemental Indenture dated as of February 15, 1994 between FRP and Chemical Bank, as Successor to MHTC, as Trustee, to the Subordinated Indenture. 10.1 Contribution Agreement dated as of April 5, 1993 between FRP and IMC (the "FRP-IMC Contribution Agreement"). Incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K of FRP dated July 15, 1993 (the "FRP July 15, 1993 Form 8-K"). 10.2 First Amendment dated as of July 1, 1993 to the FRP-IMC Contribution Agreement. Incorporated by reference to Exhibit 2.2 to the FRP July 15, 1993 Form 8-K. 10.3 Amended and Restated Partnership Agreement dated as of July 1, 1993 among IMC-Agrico GP Company, Agrico, Limited Partnership and IMC-Agrico MP Inc. Incorporated by reference to Exhibit 2.3 to the FRP July 15, 1993 Form 8-K. 10.4 Parent Agreement dated as of July 1, 1993 among IMC, FRP, FTX and IMC- Agrico. Incorporated by reference to Exhibit 2.4 to the FRP July 15, 1993 Form 8-K. 12.1 FRP Computation of Ratio of Earnings to Fixed Charges. 13.1 Those portions of the 1993 Annual Report to unitholders of FRP which are incorporated herein by reference. 18.1 Letter of Arthur Andersen & Co. concerning changes in accounting principles. 21.1 List of Subsidiaries of Freeport McMoRan Resource Partners, Limited Partnership 23.1 Consent of Arthur Andersen & Co. dated March 25, 1994. 24.1 Powers of Attorney pursuant to which this report has been signed on behalf of certain directors of FTX. EX-99.2 11 Exhibit 99.2 ANNUAL REPORT ON FORM 10-K OF FCX FOR THE FISCAL YEAR ENDED DECEMBER 31, 1993. ============================================================================== SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1993 OR ( ) 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 1-9916 FREEPORT-McMoRan COPPER & GOLD INC. Organized in Delaware I.R.S. Employer Identification No. 74-2480931 First Interstate Bank Building, One East First Street, Suite 1600, Reno, Nevada 89501 Registrant's telephone number, including area code: (702) 688-3000 Securities registered pursuant to Section 12(b) of the Act: Name of Each Exchange Title of Each Class on Which Registered - -------------------- --------------------- Class A Common Stock Par Value $0.10 New York Stock Exchange and per Share Australian Stock Excahnge Depositary Shares Representing 2-16/17 New York Stock Exchange shares of Special Preference Stock Par Value $0.10 per Share Depositary Shares Representing 0.05 New York Stock Exchange shares of Step-Up Convertible Preferred Stock Par Value $0.10 per Share Depositary Shares Representing 0.05 New York Stock Exchange shares of Gold-Denominated Preferred Stock Par Value $0.10 per Share Depositary Shares, Series II, Representing New York Stock Exchange 0.05 shares of Gold-Denominated Preferred Stock, Series II, Par Value $0.10 per Share Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ___ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. (X) The aggregate market value of the voting stock held by non-affiliates of the registrant was approximately $1,607,239,000 on March 15, 1994. On March 15, 1994, there were issued and outstanding 63,803,313 shares of Class A Common Stock, par value $0.10 per share, of which 1,547,700 shares were held by the registrant's parent, Freeport-McMoRan Inc., and 142,129,602 shares of Class B Common Stock, par value $0.10 per share, all of which were held by Freeport-McMoRan Inc. Documents Incorporated by Reference Portions of the registrant's Annual Report to stockholders for the year ended December 31, 1993 (Parts I, II and IV) and portions of the Proxy Statement dated March 31, 1994, submitted to the registrant's stockholders in connection with its 1994 Annual Meeting to be held on May 5, 1994 (Part III) TABLE OF CONTENTS ----------------- Part I................................................................ 1 Items 1 and 2. Business and Properties.............................. 1 Introduction...................................................... 1 P.T. Freeport Indonesia Company................................... 1 Contract of Work.................................................. 2 Ore Reserves...................................................... 2 Mining Operations................................................. 3 Exploration....................................................... 4 Milling, Expansion and Production................................. 6 Transportation and Other Infrastructure........................... 6 Marketing......................................................... 8 Republic of Indonesia............................................. 9 Rio Tinto Minera, S.A............................................. 10 Eastern Mining Company, Inc....................................... 10 Research and Development.......................................... 11 Environmental Matters............................................. 11 Employees......................................................... 12 Competition....................................................... 12 Item 3. Legal Proceedings.......................................... 12 Item 4. Submission of Matters to a Vote of Security Holders........ 13 Executive Officers of the Registrant................................ 13 Part II............................................................... 14 Item 5. Market for Registrant's Common Equity and Related Stockholder Matters....................................... 14 Item 6. Selected Financial Data.................................... 14 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.--.................... 14 Item 8. Financial Statements and Supplementary Data................ 15 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.--.................... 15 Part III.............................................................. 15 Items 10, 11, 12, and 13. Directors and Executive Officers of the Registrant, Executive Compensation, Security Ownership of Certain Beneficial Owners and Management, and Certain Relationships and Related Transactions.............................................. 15 Part IV............................................................... 15 Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K....................................... 15 Signatures............................................................ 16 Index to Financial Statements......................................... F-1 Report of Independent Public Accountants.............................. F-1 Exhibit Index......................................................... E-1 PART I ------ Items 1 and 2. Business and Properties. - ---------------------------------------- INTRODUCTION Freeport-McMoRan Copper & Gold Inc., a Delaware corporation formed in 1987 ("FCX"), is a subsidiary of Freeport-McMoRan Inc. ("FTX"*). FCX's principal operating subsidiary is P.T. Freeport Indonesia Company ("PT-FI"), a limited liability company organized under the laws of the Republic of Indonesia and domesticated in Delaware. PT-FI engages in the exploration for and development, mining, and processing of copper, gold and silver in Indonesia and in the marketing of concentrates containing such metals worldwide. FCX believes that PT-FI has one of the lowest cost copper producing operations in the world, taking into account customary credits for related gold and silver production. FTX owns approximately 69.77% of FCX's common stock. FCX owns approximately 81.28% of the outstanding common stock of PT-FI. Of the remaining 18.72% of the outstanding PT-FI common stock, approximately 9.36% is owned by the Government of the Republic of Indonesia (the "Government") and approximately 9.36% is owned by an Indonesian corporation, P.T. Indocopper Investama Corporation ("PT-II"), in which FCX owns a 49% interest. FCX also has a subsidiary, Eastern Mining Company, Inc., ("Eastern Mining") which on April 29, 1993 was granted an exploration permit, giving it exclusive rights for a limited period to explore for minerals on 2.5 million acres adjacent to the 6.5 million acre exploration area covered by PT-FI's New COW (as defined below). On March 30, 1993, FCX acquired a 65% interest in the capital stock of Rio Tinto Minera, S.A. ("RTM"), a company primarily engaged in the smelting and refining of copper concentrates in Spain. In December 1993, RTM redeemed the remaining 35% interest. - -------------------------- *The term "FTX", as used in this report, means Freeport-McMoRan Inc., its divisions, and its direct and indirect subsidiaries and affiliates other than FCX, or any one or more of them, unless the context requires Freeport- McMoRan Inc. only. In January 1994, FCX redeemed its Zero Coupon Exchangeable Notes due 2011 (the "Notes"). Of the $118.6 million Notes outstanding at the initiation of the call, $118.3 million were exchanged into 6.7 million shares of FCX Class A Common Stock prior to the redemption of the Notes. The balance was redeemed for cash. Also in January 1994, FCX sold 4.3 million depositary shares, each representing 0.05 shares of its Gold-Denominated Preferred Stock, Series II to the public for net proceeds of $158.5 million. In August 1993, FCX sold 6.0 million depositary shares, each representing 0.05 shares of its Gold-Denominated Preferred Stock, to the public for net proceeds of $220.4 million. In July 1993, FCX sold 14.0 million depositary shares, each representing 0.05 shares of its Step-Up Convertible Preferred Stock, to the public for net proceeds of $340.7 million. P.T. FREEPORT INDONESIA COMPANY PT-FI's operations are located in the rugged highlands of the Sudirman Mountain Range in the province of Irian Jaya, Indonesia, located on the western half of the island of New Guinea. Over the last 25 years, PT-FI has met an extraordinary combination of engineering and construction challenges to develop its mining and milling complex and supporting infrastructure in one of the least explored areas in the world. PT-FI's largest mine, Grasberg, discovered in 1988, contains the largest single gold reserve and one of the three largest open-pit copper reserves of any mine in the world. In order to develop the Grasberg deposit, PT-FI undertook an expansion program in stages, initially from 20,000 metric tons of ore per day ("MTPD") to 57,000 MTPD. Expansion from 57,000 MTPD to 66,000 MTPD was completed in 1993 ahead of schedule and within budget. PT-FI has begun work on a further expansion of its overall mining and milling rate to 115,000 MTPD which is expected to be completed by year-end 1995 and to result in annual production rates approaching 1.1 billion pounds of copper and 1.5 million ounces of gold. CONTRACT OF WORK In 1967, PT-FI's predecessor, Freeport Indonesia, Incorporated, a Delaware corporation, ("FII") and the Government entered into a contract of work (the "1967 COW") governing FII's mining activities in Indonesia. From 1967 until the end of 1991, FII operated as the sole contractor for the production and marketing of certain minerals from a 24,700 acre area (the "1967 Mining Area"). On December 30, 1991, FII was merged into PT-FI in Delaware and PT-FI and the Government signed a new contract of work (the "New COW"), which superseded the 1967 COW. The New COW covers both the 1967 Mining Area and a contiguous 6.5 million acre exploration area (the "New COW Area"). The New COW has a 30-year term, with provisions for two 10-year extensions under certain conditions. The New COW contains a provision under which PT-FI must progressively relinquish its rights to the nonprospective parts of the New COW Area in amounts equal to 25% of the 6.5 million acres at the end of each of three specified periods, the first of which is set to expire on December 30, 1994, unless further extended by the Ministry of Mines, and the last of which is set to expire five to seven years after the signing of the New COW. In light of these relinquishment provisions, PT-FI has implemented an active exploration program with a focus on both what it believes to be the most promising exploration opportunities in the New Cow Area as well as identification of areas which appear to hold the least promise. The New COW also contains provisions for PT-FI to conduct or cause to be conducted a feasibility study relating to the construction of a copper smelting facility in Indonesia and for the eventual construction of such a facility by PT-FI, if such facility is deemed to be economically viable by PT-FI and the Government and is not constructed by others. PT-FI is pursuing with other companies the feasibility of constructing a copper smelting facility in Indonesia, in which PT-FI would hold a minority interest and supply approximately one-half of the smelter's currently anticipated copper concentrate requirements. ORE RESERVES Based upon published reports, FCX believes that PT-FI's Grasberg deposit contains the largest single gold reserve and one of the three largest open-pit copper reserves of any mine in the world. Proved and probable ore reserves at December 31, 1993 were approximately 1,074.1 million tons* at an average grade of 1.31% copper, 1.47 grams of gold per ton and 4.04 grams of silver per ton compared with approximately 733.2 million tons of ore with an average grade of 1.47% copper, 1.72 grams of gold per ton and 3.87 grams of silver per ton at December 31, 1992. Primarily as a result of the drilling operations at the Grasberg mine (see "Mines in Production" below), PT-FI's proved and probable copper and gold reserves as of December 31, 1993 have increased, net of production since December 31, 1988 by approximately 319% and 574%, respectively, and from year-end 1992 by 28% and 22%, respectively. - -------------------------- * As used herein, "ton" refers to a metric ton, which is equivalent to 2,204.62 pounds on a dry weight basis. This increase in proved and probable reserves, net of production, reflects the addition of approximately 340.9 million tons of ore since December 31, 1992 (a 46% increase) as the result of a drilling program that includes data obtained from the surface down to approximately the 3,100 meter elevation at the Grasberg ore body. PT-FI's proved and probable reserves at Grasberg do not include reserves below the 3,100 meter level. PT-FI has begun driving an adit (the "Amole adit") from the mill site to a point below the currently delineated Grasberg ore body at the 2,900 meter level. The Amole adit, expected to be completed in 1996, will facilitate further deep exploration to delineate the extent of the Grasberg deposit below the 3,100 meter level. Preliminary drilling from the existing 3,700 meter adit indicates significant additional mineralization below the existing proved and probable reserves. There can be no assurance, however, that PT-FI's exploration programs will result in the delineation of additional reserves in commercial quantities. For further information with respect to the copper, gold and silver content of proved and probable ore reserves of PT-FI, reference is made to Note 11 to the financial statements of FCX referred to on page F-1 hereof (the "FCX Financial Statements"), incorporated herein by reference. MINING OPERATIONS Mines in Production PT-FI currently has two mines in operation: the Ertsberg East and the Grasberg, both within the 1967 Mining Area. PT-FI milled ore at an average rate of approximately 57,600 MTPD in 1992 and 62,300 MTPD in 1993. Open pit mining of the Grasberg ore body commenced in January 1990. In 1993, Grasberg mine output totaled approximately 19.8 million tons of ore, providing approximately 81% of total PT-FI ore production. Production from the Grasberg ore body, averaged approximately 54,100 MTPD during 1993. Ertsberg East is an underground mine which commenced production in 1980. Block caving operations are conducted in two separate zones of the ore body with a common haulage level at 3,530 meters elevation. In 1993, mine output from Ertsberg East totaled approximately 4.4 million tons of ore and provided approximately 18% of total PT-FI ore production. Production from Ertsberg East averaged approximately 12,200 MTPD during 1993. The Ertsberg East mine is expected to be depleted by the second half of 1994 and production primarily from Grasberg, supplemented by production from the Intermediate Ore Zone (the "IOZ") ore body (see "Mines in Development" below), is expected to offset the Ertsberg East production. Mines in Development Three major additions to PT-FI's underground mining operations, which are intended to replace existing underground production areas when they become depleted, have previously been developed: the DOM (from the Dutch word meaning "cathedral") ore body, the Deep Ore Zone (the "DOZ") ore body and the IOZ ore body. The IOZ is located vertically between the Ertsberg East and the DOZ ore bodies. The DOM ore body's initial working level is some 380 meters above the Erstberg East mining operation. The DOM ore body will initially be mined using the block caving method. Pre-production development is complete and the first block cave area has been prepared. All maintenance, warehouse and service facilities are in place. Production at the DOM has been deferred as a result of the continued increase in the Grasberg ore reserves. The mine being developed at the IOZ ore body is situated approximately 350 meters above the 2,900 meter level adit. Delineation drilling and pre- production development began in 1991. The IOZ is being developed to gradually replace production from the Ertsberg East mine beginning in 1994 using the same block caving method. Mining will proceed downward from the IOZ to the DOZ. The DOZ, also an underground mine within the 1967 Mining Area, lies vertically below the IOZ ore body and is currently capable of production. Initial production from the DOZ commenced in 1989. However, at the end of 1991, mine output from the DOZ was temporarily suspended, and it is anticipated that it will resume once the IOZ ore body has been depleted sometime after 1998. EXPLORATION In addition to continued delineation of the Grasberg deposit and other deposits discussed above, PT-FI is continuing its ongoing exploration program for copper and gold mineralization within the 1967 Mining Area. Two anomalous zones in the vicinity of PT-FI's current mining activities are under active exploratory drilling. The Big Gossan and Wanagon mineralizations are located west of the Erstberg open pit, southwest of the Grasberg ore body and anchor the ends of a clearly defined mineralized structure trending roughly east-west for 4.5 kilometers. The Big Gossan mineralization, as drilled to date, extends approximately 1,100 meters from just east of the intersection of the Amole adit. Over 50 holes have been drilled from the Amole adit and from an exploration drift being driven in a westerly direction parallel to the Big Gossan structure, which drilling resulted in the addition of 8.5 million metric tons of ore at an average grade of 2.4% copper and 0.77 grams of gold per metric ton to PT-FI's total proved and probable reserves at December 31, 1993. Earlier surface drilling of the western portion of the Big Gossan anomaly, approximately 300-500 meters west of the underground drilling, established a mineral resource in excess of 6 million metric tons with an average grade of 5% copper and 2.9 grams of gold per metric ton which is not included in PT-FI's total proved and probable reserves at December 31, 1993. Further underground exploration of the resources established by the surface drilling as well as the area between it and the reserves discovered near the Amole adit will be carried out in 1994 from the exploration drift as it is extended. Mine planning for development of the Big Gossan resource has commenced with development estimated to cost approximately $100 million and to begin in late 1994 or early 1995. During the first quarter of 1993, PT-FI initiated helicopter-supported surface drilling of the Wanagon gold/silver/copper prospect. Seven holes were drilled during 1993 at Wanagon, located approximately 2 kilometers northwest of Big Gossan and approximately 3 kilometers southwest of Grasberg. Significant copper values have been encountered below the 2,900 meter elevation. Target evaluation in other parts of the 1967 Mining Area is also continuing. Preliminary exploration of the New COW Area has indicated many promising targets. Extensive stream sediment sampling within the new acreage has generated analytical results which are being evaluated. This sampling program, when coupled with regional mapping completed on the ground and from aerial photographs, has led to the outlining of over 50 exploration targets. PT-FI has also completed a fixed-wing air-magnetometer survey of the entire New COW Area. Detailed follow-up exploration of these anomalies by additional mapping and sampling and through the use of both aerial and ground magnetic surveys is now in progress. Systematic drilling of these targets has already commenced with mineralization being discovered at several prospects. Additional drilling is required to determine if any of these are commercially viable. PT-FI has focused its initial drilling in the New COW Area on two prospects 30 kilometers and 40 kilometers north of Grasberg that display anomalous geochemical and magnetic characteristics. Although these prospects require additional exploratory drilling, initial results indicate a large mineralized district that covers three times the aerial extent or approximately 75,000 acres when compared to the original 24,700-acre district that contained the Ertsberg, Grasberg, Ertsberg East, IOZ, DOZ, Big Gossan and DOM ore bodies. The discovery of widespread igneous activity, including volcanic rocks, in these new areas indicates the potential for Grasberg-type stockwork and porphyry deposits as well as skarn-type copper/gold deposits similar to the Ertsberg, Ertsberg East, IOZ, DOZ and DOM ore bodies. PT-FI has also initiated drilling programs for four other prospects. Drilling results are being interpreted. No assurance can be given that any of these new areas contain commercially exploitable mineral deposits. PT-FI's exploration expenditures were $31.7 million for 1993, compared to $12.2 million for 1992. MILLING, EXPANSION AND PRODUCTION Milling Most of the ore from PT-FI's mines moves by a conveyor system to an ore pass through which it drops to the mill site. At the mill site, which is located approximately 2,900 meters above sea level, the ore is crushed and ground. The powdered ore is then mixed in tanks with chemical reagents and continuously agitated with air. At this stage the copper-bearing concentrate rises to the top of the tanks from which it is removed and thickened. The product leaves the mill site as a thickened concentrate slurry, consisting of approximately 65% solids by weight. During 1993, the recovery rates for the milling facilities averaged approximately 87.0% of the copper content, 76.2% of the gold content and 67.2% of the silver content of the ore processed, compared to 88.2%, 73.7% and 65.5%, respectively, during 1992. Expansion In 1993 PT-FI completed, within budget and ahead of schedule, the expansion of its production facilities increasing its mining and milling capacity from 57,000 MTPD to 66,000 MTPD at its Indonesian complex. During 1993 mill production averaged 62,300 MTPD. PT-FI has begun work on a further expansion of its overall mining and milling rate to 115,000 MTPD at an estimated cost of approximately $685 million, excluding the capital required for the Enhanced Infrastructure Project (the "EIP") and other infrastructure improvements, of which approximately $120 million had been spent through December 31, 1993. This expansion is expected to be completed by or about year end 1995. Funding for this expansion will be obtained from existing cash balances, cash flow from operations and additional financing, if required. Such expansion beyond 66,000 MTPD will also require certain Government approvals. This expansion will further PT-FI's goal of approaching annual copper production of 1.1 billion pounds and annual gold production of approximately 1.5 million ounces. Production In 1993 PT-FI achieved record copper production of 658.4 million recoverable pounds, approximately 6% more than in 1992. Gold production was a record 786,700 recoverable ounces, an increase of approximately 23% over 1992. For a summary of PT-FI's production, sales and average product realizations for 1993 and the previous four years, reference is made to "Selected Financial and Operating Data" appearing on page 17 of FCX's 1993 Annual Report to stockholders, which is incorporated herein by reference. TRANSPORTATION AND OTHER INFRASTRUCTURE Transportation From the mill site, the thickened concentrate is pumped through two 115 kilometer pipelines to the port-site facility at Amamapare. At the port-site the slurry is filtered, dried and stored for shipping. When ships arrive, they are loaded at the dock facilities at the port-site until they draw their maximum water. The ships then normally move to deeper water, where loading is completed from shuttling barges. Other Infrastructure The location of PT-FI's operations in a remote and undeveloped area requires that such operations be virtually self-sufficient. The facilities, in addition to those described above, include an airport, a heliport, a 119 kilometer road with bridges and tunnels, an aerial service tramway to transport personnel, equipment and supplies to the mines, a hospital and two town sites with schools, housing and other required facilities sufficient to support approximately 12,000 persons, including approximately 360 who are located at the port-site. In conjunction with the expansion of the mining and processing facilities to 115,000 MTPD, the first phase of the EIP is being implemented. The EIP is a long term program created (1) to provide certain infrastructure facilities needed for PT-FI's operations, (2) to enhance the quality of conditions for PT-FI's employees and (3) to develop and promote the growth of local and other third party activities and enterprises in Irian Jaya through the construction of certain required physical support facilities. The full EIP includes plans for various commercial, residential, educational, retail, medical, recreational, environmental and other infrastructure facilities to be constructed during the next ten to twenty years. Depending on the long-term growth of PT-FI's operations, the total cost of the EIP could range between $500 million and $600 million. The first phase of the EIP is needed to support the 115,000 MTPD expansion. FCX anticipates that the first phase, which includes various residential, community and commercial facilities and an extension of the principal road which will enable vehicle traffic to travel all the way to the port-site, will be completed by mid-1996. PT-FI has entered into certain agreements with Huarte S.A. ("Huarte"), a Spanish construction and engineering company. These agreements cover the design, engineering and construction of the facilities to be constructed in the first phase of the EIP. Together, the agreements give Huarte responsibility to deliver completed facilities to PT-FI. In March 1993, PT-FI entered into a joint venture agreement with P.T. ALatieF Nusakarya Corporation ("ALatieF"), an Indonesian investor, pursuant to which PT-FI will sell to a joint venture or ventures (the "ALatieF Joint Venture") certain existing infrastructure assets and certain assets to be constructed as part of the EIP for total consideration of $270 million. The ALatieF Joint Venture, which is owned one-third by PT-FI and two-thirds by ALatieF, is expected to purchase approximately $90 million of EIP assets annually over the period 1993-1995, with funding provided by equity contributions from the ALatieF Joint Venture partners ($90 million) and debt financing ($180 million), which is expected to be guaranteed by PT-FI, FCX or both. The sale of the first group of assets to the ALatieF Joint Venture, primarily dormitory-style residential properties and associated food service facilities, was completed in December 1993, for a price of $90 million. The sales which are anticipated for 1994 and later are subject to the execution of definitive agreements and certain Government approvals. The acquired assets will be made available to PT-FI and its employees and designees under arrangements which will provide the ALatieF Joint Venture with a guaranteed minimum rate of return on its investment. Certain existing EIP related contracts with Huarte will be assigned to the ALatieF Joint Venture as appropriate. In December 1993, PT-FI announced the execution of a Letter of Intent with Duke Energy Corp. ("DE") and PowerLink Corporation ("PL"), pursuant to which PT-FI would sell its existing and to be constructed power generation and transmission assets and certain other power-related assets to a joint venture (the "Power Joint Venture") whose ownership would consist of DE (30%), PL (30%), PT-FI (30%) and an Indonesian investor (10%). The total value of the transaction is estimated at $200 million and is expected to be concluded in two phases. The first sale, representing the existing assets, is expected to exceed $100 million and to occur in mid-1994. The final sale, representing the to-be-constructed expansion-related assets, is expected to occur during the first half of 1995. Under the agreement, the Power Joint Venture will own these assets and be responsible for providing the electrical power services required by PT-FI at its mining, milling and support operations in Irian Jaya, Indonesia, including the power services required for the expansion of ore throughput to 115,000 MTPD. PT-FI has also entered into two separate letters of intent with respect to the sale to joint ventures of certain aircraft, airport and related operations (the "Airport Joint Venture") and certain construction equipment, certain port facilities and related marine, logistics and related assets (the "Port Joint Venture"). PT-FI would have a 25% equity interest in the Airport Joint Venture, with certain Indonesian investors controlling the remainder. PT-FI would enter into one or more agreements with the Airport Joint Venture for air transport services for both passengers and cargo. It is expected that the purchase price of the assets transferred to the Airport Joint Venture will be approximately $30 million. The Port Joint Venture is expected to be owned by a multinational shipping concern and three to five Indonesian investors (one of which is expected to be ALatieF). PT-FI is not expected to have an equity interest in the Port Joint Venture. PT-FI would enter into one or more agreements with the Port Joint Venture for use of the transferred assets. It is expected that the purchase price of the assets transferred to the Port Joint Venture will not exceed $100 million. The foregoing letters of intent are not binding and are subject to the execution of definitive agreements, financing, and certain Government approvals. No assurance can be given that any of these transactions will be consummated. MARKETING PT-FI's copper concentrates, which contain significant gold and silver components, are sold primarily under long-term, U. S. dollar-denominated contracts, pursuant to which the selling price is based on world metals prices, generally the London Metal Exchange ("LME") settlement prices for Grade A copper metal, less certain allowances. Under a major long-term contract signed in late 1990, approximately 44% of the concentrates produced by PT-FI in 1993 were sold to a group of Japanese copper smelting companies. PT-FI also supplies copper concentrates to other Asian, European and North American smelters and international trading companies under long-term sales agreements. Virtually all of PT-FI's 1993 production of copper concentrates was sold under prior commitments, and PT-FI has commitments from various parties to purchase virtually all of its estimated 1994 production of copper concentrates. For further detail with respect to sales of concentrates, see Note 8 to the FCX Financial Statements. For average realizations per recoverable pound of copper, see "Selected Financial and Operating Data" on page 17 of FCX's 1993 Annual Report to stockholders. PT-FI has in place a price protection program that eliminates exposure to copper price declines below an average $.90 per recoverable pound for estimated copper sales priced during 1994, while allowing full benefit to PT-FI for prices above that level. The cost of the 1994 price protection program, $6 million, is included in product inventories and is being amortized as an adjustment to revenues as sales are priced during 1994. REPUBLIC OF INDONESIA The economy of Indonesia is based on export commodity agriculture, the extraction of petroleum, natural gas and other mineral resources, wholesale and retail trade and, to an increasing extent, manufacturing. Indonesia has a presidential republic system of government. President Suharto assumed power in 1966 following an attempted communist coup and has been in power since then. The Government has maintained a high degree of stability for the past 26 years. President Suharto was re-elected in March 1993 to serve a sixth consecutive five-year term. The Government has promoted policies designed to help develop Indonesia economically and has encouraged foreign investment in numerous areas where such investment would benefit the Indonesian economy. Indonesia's foreign investment policy is expressed in the 1967 Foreign Capital Investment Law. It provides basic guarantees of remittance rights and protection against nationalization, a framework for incentives and some basic rules as to the other rights and obligations of foreign investors. PT-FI's rights and obligations relating to taxes, exchange controls, repatriation and other matters are governed by the New COW, which was concluded pursuant to the 1967 Foreign Capital Investment Law. PT-FI has had and continues to enjoy a good working relationship with the Government. PT-FI's mining complex was Indonesia's first copper mining project and was the first major foreign investment made in Indonesia following the new economic development program instituted by the Suharto administration in 1967. PT-FI works closely with the various levels of the Government in development efforts in the vicinity of its operations. PT-FI incurs significant costs associated with providing health and educational assistance, job training, employment opportunities, agricultural assistance and other community development services and facilities for the Indonesian people living in the areas of its operations. In 1990 PT-FI established a foundation to provide educational and work opportunities for the benefit of the people of Irian Jaya. Over the next several years, PT-FI will contribute at least $10 million to the foundation for community projects. PT-FI also has in place a long-term business development program to provide financing and support for new and emerging businesses, many of which are expected to be suppliers of goods and services for PT-FI's operations. Over time, PT-FI anticipates investing $25 million in this program. FCX has the benefit of political risk insurance from the Overseas Private Investment Corporation, the Multilateral Investment Guaranty Agency and other insurers, where available, which covers a portion of its interest in PT-FI. The insurance is primarily designed to cover certain breach of contract risks. RIO TINTO MINERA, S.A. In March 1993, FCX acquired a 65% interest in RTM, which is principally engaged in the smelting and refining of copper in Spain, for approximately $50 million, excluding transaction costs. In December 1993, RTM redeemed the remaining 35% interest for approximately $19 million. RTM has announced plans to expand its smelter production capacity from its current 150,000 metric tons of metal per year to approximately 180,000 metric tons of metal per year by 1995 at a cost of approximately $50 million. RTM is studying further expansion to as much as 270,000 metric tons of metal production per year. During 1993, PT-FI supplied RTM with approximately 90,000 metric tons of copper concentrate and is expected to supply approximately 150,000 metric tons in 1994, providing for approximately 20% and 33%, respectively, of RTM's requirements in those years. Beginning in 1996, PT-FI is expected to provide the RTM smelter with approximately one-half of its copper concentrate requirements. For further information concerning RTM, reference is made to the information set forth in Item 7 below. EASTERN MINING COMPANY, INC. FCX's subsidiary Eastern Mining was granted an exploration permit (the "SIPP") in April 1993 which gives exclusive rights for a limited period to explore for minerals on 2.5 million acres (the "SIPP Area") adjacent to the New COW Area. Preliminary exploration of the SIPP Area is under way. A draft of a contract of work ("Eastern Mining Draft") was initialled on January 30, 1993 by the Ministry of Mines and Energy of Indonesia and Eastern Mining which covers the SIPP Area. The Eastern Mining Draft will be submitted to the President of Indonesia, with execution of a definitive contract of work expected in 1994. The Eastern Mining Draft, as initialled, provides for a 30-year term and for two 10-year extensions under certain circumstances. Upon execution, an Indonesian limited liability company will be formed to hold the definitive contract of work which initially is to be owned 80% by Eastern Mining and 10% by each of PT-II and an unrelated Indonesian corporation. RESEARCH AND DEVELOPMENT In February 1993, FTX outsourced its corporate engineering, research and development, corporate environmental and corporate safety functions and, to that end, contracted with a new company initially owned and staffed by former employees of FTX, Crescent Technology, Inc. ("Crescent"), that furnishes services to FTX. Crescent maintains engineering and mine development groups in New Orleans, Louisiana, which provide engineering, design and construction supervision activities required to implement new ventures and apply improvements to existing operations of PT-FI and RTM. ENVIRONMENTAL MATTERS FTX and its affiliates, including FCX, have a history of commitment to environmental responsibility. Since the 1940s, long before the general public recognized the importance of maintaining environmental quality, FTX has conducted, and continues to conduct, preoperational, bioassay, marine ecological and other environmental surveys to determine the environmental compatibility of its operations. FTX's Environmental Policy commits its operations to full compliance with applicable laws and regulations. FTX has contracted with Crescent whose environmental specialists develop and implement environmental programs that include the activities of PT-FI. The management of PT-FI believes that it is in compliance with Indonesian environmental laws, rules and regulations. PT-FI had a team of environmental scientists from a leading Indonesian scientific institution conduct a study to update its 1984 Environmental Evaluation Study, with particular focus on its 66,000 MTPD expansion program, and which addressed the anticipated effect of PT-FI's expansion to 66,000 MTPD on the environment within the study area including water quality, aquatic and terrestrial biology, hydrology, geomorphology, oceanography, sociology and economics. The study was submitted to the Government, and a formal hearing was held on the document. The Government then requested PT-FI to update the document to include future expansion plans. An additional environmental evaluation study was submitted in late 1993 with respect to the proposed expansion of production to 115,000 MTPD, and it was approved in February 1994. PT-FI and RTM, through FTX, maintain insurance coverage in amounts deemed prudent for certain types of damages associated with environmental liabilities which arise from sudden, unexpected and unforeseen events. PT-FI has made, and continues to make, expenditures at its operations for protection of the environment. Government and public emphasis on environmental matters can be expected to require PT-FI to incur additional costs, which will be charged against income from future operations. It is possible that the Government could revise its environmental laws and/or regulations periodically. The impact, if any, of such possible revisions on PT-FI's operations cannot be accurately predicted. However, PT-FI does not anticipate that any investments which might be required will have a significant adverse impact on its future operations, liquidity, capital resources or financial position. EMPLOYEES In order to allow access to the FTX employee benefit plans for United States citizens employed full time in PT-FI's and RTM's businesses, such persons are formally employed by certain United States subsidiaries of FTX. For all operational purposes, however, such individuals are regarded as employees of PT-FI or RTM, respectively, and references herein to PT-FI or RTM employees include such individuals. FCX, PT-FI and FTX are parties to a Management Services Agreement (the "Management Agreement") pursuant to which FTX furnishes general executive, administrative, financial, accounting, legal, environmental, tax, research and development, sales and certain other services to FCX and PT-FI. The term of the Management Agreement is unlimited, subject to termination by any of the parties on December 31 of any year and subject to at least six months' prior written notice. FCX and PT-FI reimburse FTX at FTX's cost, including allocated overhead, for such services on a monthly basis. For further information with respect to the Management Agreement, including costs reimbursed to FTX, reference is made to Note 9 to the FCX Financial Statements. As of December 31, 1993, PT-FI had a total of 6,054 employees (approximately 94% Indonesian), compared with 4,983 employees (approximately 91% Indonesian) at year-end 1992. In addition, as of December 31, 1993, PT-FI had approximately 6,600 contract workers, most of whom were Indonesian. Approximately 40% of PT-FI's Indonesian employees are members of the All Indonesia Workers' Union, which operates under Government supervision, with which a labor agreement covering PT-FI's hourly paid Indonesian employees runs until September 30, 1995. PT-FI experienced no work stoppages in 1993, and relations with the union have generally been good. As of December 31, 1993, RTM had a total of 1,216 employees, of which 1,003 employees are covered by union contracts. RTM experienced limited work stoppages in 1993, but relations with these unions have also generally been good. COMPETITION PT-FI competes with other mining companies in connection with the sale of its mineral concentrates and the recruitment and retention of qualified personnel. Some competing companies possess financial resources equal to or greater than those of PT-FI. The management of FCX believes that PT-FI is one of the lowest cost copper producers in the world, taking into account credits for related gold and silver production. Item 3. Legal Proceedings. - --------------------------- Although FCX may be from time to time involved in various legal proceedings of a character normally incident to the ordinary course of its business, the management of FCX believes that potential liability in any such pending or threatened proceedings would not have a material adverse effect on the financial condition or results of operations of FCX. FCX, through FTX, maintains liability insurance to cover some, but not all, potential liabilities normally incident to the ordinary course of its business as well as other insurance coverages customary in its business, with such coverage limits as management deems prudent. Item 4. Submission of Matters to a Vote of Security Holders. - ------------------------------------------------------------- Not applicable. Executive Officers of the Registrant. - ------------------------------------- In addition to the elected executive officers of FCX (the "Elected FCX Executive Officers"), certain employees of affiliates of FCX are deemed by FCX to be executive officers of FCX (the "Designated FCX Executive Officers") for purposes of the federal securities laws. Listed below are the names and ages, as of March 15, 1994, of each of the Elected FCX Executive Officers and the Designated FCX Executive Officers, together with the principal positions and offices with FCX, FTX, and PT-FI held by each. All officers of FCX, FTX, and PT-FI are elected or appointed for one year terms, subject to death, resignation or removal. Name Age Position or Office ---- --- ------------------ Richard C. Adkerson 47 Senior Vice President of FCX. Senior Vice President of FTX. Commissioner of PT-FI. John G. Amato 50 General Counsel of FCX. General Counsel of FTX. Commissioner of PT-FI. Richard H. Block* 43 Senior Vice President of FTX. Thomas J. Egan* 49 Senior Vice President of FTX. Charles W. Goodyear 36 Senior Vice President of FCX. Senior Vice President of FTX. Commissioner of PT-FI. Hoediatmo Hoed* 54 President Director of PT-FI. W. Russell King* 44 Senior Vice President of FTX. Rene L. Latiolais* 51 Director of FCX. Director, President, and Chief Operating Officer of FTX. Commissioner of PT-FI. George A. Mealey 60 Director, President, and Chief Executive Officer of FCX. Executive Vice President of FTX. Director and Executive Vice President of PT-FI. James R. Moffett 55 Director and Chairman of the Board of FCX. Director, Chairman of the Board, and Chief Executive Officer of FTX. President Commissioner of PT-FI. - -------------------- * This individual is a Designated FCX Executive Officer and not an Elected FCX Executive Officer. He is deemed by FCX to be a Designated FCX Executive Officer solely for purposes of the federal securities laws in view of his position and responsibilities as an officer of FTX or PT- FI, as applicable; he holds no actual position as an officer of FCX. The individuals listed above, with the exceptions of Messrs. Adkerson, Amato, and Goodyear, have served FCX, FTX, or PT-FI in various executive capacities for at least the last five years. Until 1989, Mr. Adkerson was a partner in Arthur Andersen & Co., an independent public accounting firm, and Mr. Goodyear was a Vice President of Kidder, Peabody & Co. Incorporated, an investment banking firm. During the past five years and prior to that period, Mr. Amato has been engaged in the private practice of law and has served as outside counsel to FCX, FTX, and PT-FI. PART II ------- Item 5. Market for Registrant's Common Equity and Related Stockholder - ----------------------------------------------------------------------------- Matters. -------- The information set forth under the caption "FCX Class A Common Shares" and "Class A Common Share Dividends", on the inside back cover of FCX's 1993 Annual Report to stockholders, is incorporated herein by reference. As of March 15, 1994, there were 2,355 record holders of FCX's Class A common stock. Item 6. Selected Financial Data. - --------------------------------- The Information set forth under the caption "Selected Financial and Operating Data", on page 17 of FCX's 1993 Annual Report to stockholders, is incorporated herein by reference. FCX's ratio of earnings to fixed charges for each of the years 1989 through 1993, inclusive, was 27.6x, 9.2x, 4.5x, 6.5x and 3.6x respectively. For this calculation, earnings consist of income from continuing operations before income taxes, minority interest and fixed charges. Fixed charges include interest and that portion of rent deemed representative of interest. Item 7. Management's Discussion and Analysis of Financial - ----------------------------------------------------------------- Condition and Results of Operations. ----------------------------------- ORE RESERVE ADDITIONS AND ONGOING EXPLORATION PROGRAM Total estimated proved and probable recoverable reserves at P.T. Freeport Indonesia Company (PT-FI), Freeport-McMoRan Copper & Gold Inc.'s (FCX or the Company) principal operating unit, have increased since December 31, 1992, by 5.9 billion pounds of copper (a 28 percent increase), 7.0 million ounces of gold (a 22 percent increase), and 32.0 million ounces of silver (a 72 percent increase), bringing PT-FI's total year-end 1993 estimated proved and probable recoverable reserves to 26.8 billion pounds of copper, 39.1 million ounces of gold and 76.7 million ounces of silver. The increases, net of production during the year, were added primarily at the Grasberg deposit, but also include additions at the Company's underground mine at the DOZ (Deep Ore Zone) deposit and the recently discovered Big Gossan deposit. In addition to continued delineation of the Grasberg deposit and other deposits including Big Gossan, PT-FI is proceeding with its ongoing exploration program for mineralization within the original mining area. During 1993, PT-FI initiated helicopter-supported surface drilling of the Wanagon gold/silver/copper prospect, located 1.5 miles northwest of Big Gossan and 2 miles southwest of Grasberg, where seven holes were drilled. Significant copper mineralization has been encountered below the 2,900 meter elevation. Preliminary exploration of the new contract of work area (New COW Area) has indicated numerous promising targets. Extensive stream sediment sampling within the new acreage has generated analytical results which are being evaluated. This sampling program, when coupled with regional mapping completed on the ground and from aerial photographs, has led to the outlining of over 50 exploration targets. PT-FI has also completed a fixed-wing air-magnetometer survey of the entire New COW Area. Detailed follow-up exploration of these anomalies by additional mapping and sampling and through the use of both aerial and ground magnetic surveys is now in progress. Systematic drilling of these targets has already commenced with significant mineralization being discovered at several prospects. Additional drilling is required to determine if any of these are commercially viable. Initial surface and stream sampling began on an additional 2.5 million acres, just north and west of our existing COW area, on which an affiliate has an exploration permit and a pending COW. 1993 RESULTS OF OPERATIONS COMPARED WITH 1992 After discussions with the staff of the Securities and Exchange Commission (SEC), FCX is reclassifying certain expenses and accruals previously recorded in 1993 as restructuring and valuation of assets. In response to inquiries, the Company advised the SEC staff that $15.5 million originally reported as restructuring and valuation of assets represented the cumulative effect of changes in accounting principle resulting from the adoption of the new accounting policies that the Company considered preferable, as described in Note 1 to the financial statements. The Company also informed the SEC staff of the components of other charges included in the amount originally reported as restructuring and valuation of assets. The Company concluded that the reclassification and the related supplemental disclosures more accurately reflect the nature of these charges to 1993 net income in accordance with generally accepted accounting principles. These reclassifications had no impact on net income or net income per share. FCX reported 1993 net income applicable to common stock of $21.9 million ($.11 per share) compared with net income of $122.9 million ($.66 per share) for 1992. The results for 1993 reflect (a) a $15.7 million loss for Rio Tinto Minera, S.A. (RTM) since its acquisition (Note 3) and (b) charges totaling $52.6 million ($30.4 million to net income or $.15 per share), of which $28.3 million was noncash, related to (1) restructuring the administrative organization at Freeport-McMoRan Inc. (FTX), the parent company of FCX, (2) adjustments to general and administrative expenses and site production and delivery costs discussed below, and (3) changes in accounting principle, discussed further in Note 1 to the financial statements. Operating income was lower in 1993 due to a lower gross margin resulting primarily from lower copper realizations; higher exploration expenses; administrative restructuring costs (Note 1); and higher general and administrative costs. Also impacting net income were lower interest expense resulting from reduced debt levels, a higher effective tax rate, and an increase in preferred dividends (Notes 4 and 5). Revenues in 1993 increased as a result of the acquisition of RTM, adding sales of copper cathodes and anodes ($204.9 million), gold bullion ($57.4 million), and other products ($26.1 million). Excluding RTM, revenues declined 4 percent when compared to 1992. Copper price realizations, taking into account PT-FI's $.90 per pound price protection program, were 12 percent lower than in 1992, but gold price realizations were up 6 percent. Although ore production averaged 62,300 metric tons of ore milled per day (MTPD) in 1993 (8 percent higher than in 1992), copper sales volumes decreased slightly from 1992 primarily because of sales from inventory in 1992. Gold sales volumes in 1993 benefited from significantly higher fourth-quarter 1993 gold grades (a 46 percent increase over fourth- quarter 1992 and a 38 percent increase over third-quarter 1993), which are not anticipated to continue in 1994, and an increase in gold recovery rates for the year which improve with higher gold grades. See Selected Financial and Operating Data. A reconciliation of revenues from 1992 to 1993 is presented below (in millions): Revenues - 1992 ........................................... $714.3 RTM revenues ........................................... 288.4 Elimination of intercompany sales.......................... (47.7) Concentrate: Price realizations: Copper ............................................... (84.7) Gold ............................................... 14.7 Sales volumes: Copper ............................................... (5.5) Gold ............................................... 30.2 Treatment charges 23.6 Adjustments to prior year concentrate sales ............. (13.0) Other ............................................... 5.6 ------ Revenues - 1993 $925.9 ====== Revenues also benefited from a decline in treatment charges of 3.4 cents per pound from 1992, resulting from a tightening in the concentrate market, as the industry's inventories were reduced for much of 1993. Additionally, lower copper prices led to lower treatment charges since these charges vary with the price of copper. Adjustments to prior year concentrate sales include changes in prices on all metals for prior year open sales as well as the related impact on treatment charges. Open copper sales at the beginning of 1993 were recorded at an average price of $1.04 per pound, but subsequently were adjusted downward as copper prices fell during the year, negatively impacting 1993 revenues. As of December 31, 1993, 213.4 million pounds of copper remained to be contractually priced during future quotational periods. As a result of PT-FI's price protection program, discussed below, these pounds are recorded at $.90 per pound. The copper price on the London Metal Exchange (LME) was $.84 per pound on February 1, 1994. In June 1993, two of PT-FI's four mill level ore passes caved, resulting in a blockage of a portion of the ore pass delivery system. The blockage's primary effect was to limit mill throughput to approximately 40,700 MTPD for approximately eight weeks. The impact of the blockage was minimized by using an ore stockpile adjacent to the mill and installing conveyors to alternative ore pass systems. The ore pass blockage has been rectified through the temporary use of alternative delivery systems and by- passes. A permanent delivery system is expected to be in service by mid- 1994. The copper recovery rate for 1993 was adversely affected because the ore milled from the stockpile contained higher than normal oxidized copper, which yields lower copper recoveries. The Company's insurance policies are expected to cover the property damage and business interruption claims relative to the blockage. PT-FI's unit site production and delivery costs, excluding the $10.0 million charge discussed below, increased slightly from 1992 primarily as a result of costs incurred in connection with the ore pass blockage and an increase in production overhead costs related to expansion activities. Unit cash production costs declined significantly to 31.1 cents per pound in 1993 from 40.7 cents per pound in 1992, benefiting from higher gold and silver credits, lower treatment charges, and reduced royalties primarily due to lower copper prices on which such royalties are based. PT-FI's depreciation rate increased from 7.4 cents per recoverable pound during 1992 to 8.3 cents in 1993, reflecting the increased cost relating to the 66,000 MTPD expansion. As a result of the reserve additions discussed earlier, PT-FI's depreciation rate is expected to decrease to 7.5 cents per recoverable pound for 1994, absent any other significant changes in ore reserves. In addition, FCX is amortizing costs in excess of book value ($2.4 million of amortization in 1993) relating to certain capital stock transactions with PT-FI. Amortization of these excess costs is expected to be $3.6 million per year starting in 1994. Exploration expenditures in Irian Jaya totaled $31.7 million in 1993, compared to $12.2 million in 1992 and are projected to be approximately $35 million in 1994. Exploration expenditures in Spain are expected to be approximately $6 million in 1994. FCX's general and administrative expenses increased from $68.5 million in 1992 to $81.4 million in 1993 primarily because of the additional personnel and facilities needed due to the expansion at PT-FI and the acquisition of RTM. Included in the 1993 expense is $5.0 million for RTM (since its acquisition in March 1993) and charges of $6.3 million primarily consisting of a write-off of deferred charges incurred in 1992 related to a planned securities offering that was withdrawn ($2.0 million) and costs to downsize FCX's computing and management information systems (MIS) structure ($4.0 million). Further increases in general and administrative expenses by FCX are anticipated in conjunction with continuing expansion at PT-FI. General and administrative expenses, including those of RTM, are currently expected to increase by approximately 25 percent in 1994. During the second quarter of 1993, FTX undertook a restructuring of its administrative organization. This restructuring represented a major step by FTX to lower its costs of operating and administering its businesses in response to weak market prices of the commodities produced by its operating units. As part of this restructuring, FTX significantly reduced the number of employees engaged in administrative functions, changed its MIS environment to achieve efficiencies, reduced its needs for office space, outsourced a number of administrative functions, and implemented other actions to lower costs. As a result of this restructuring process, the level of FCX's administrative cost has been reduced substantially over what it would have been otherwise, which benefit will continue in the future. However, the restructuring process entailed incurring certain one-time costs by FTX, portions of which were allocated to FCX pursuant to its management services agreement with FTX. FCX's restructuring costs totaled $20.8 million, including $10.7 million allocated from FTX based on historical allocations, consisting of the following: $8.3 million for personnel related costs; $3.2 million relating to excess office space and furniture and fixtures resulting from the staff reduction; $6.1 million relating to the cost to downsize its computing and MIS structure; and $3.2 million of deferred charges relating to PT-FI's 1989 credit facility which was substantially revised in June 1993. As of December 31, 1993, the remaining accrual for these restructuring costs totaled $1.5 million relating to excess office space. In connection with the restructuring project, FCX changed its accounting systems and undertook a detailed review of its accounting records. As a result of this process, FCX recorded a $10.0 million charge to site production and delivery costs comprised of the following: $5.0 million for materials and supplies inventory obsolescence; $2.5 million for revised estimates of value added taxes and import duties related to prior years; and $2.5 million of adjustments for various items identified in converting its accounting system. Interest expense was $15.3 million during 1993 compared with $18.9 million in 1992, excluding $24.5 million and $24.0 million of capitalized interest, respectively. The New COW provides a 35 percent corporate income tax rate for PT-FI and a 15 percent withholding tax on interest for debt incurred after the signing of the New COW and on dividends paid to FCX by PT-FI. The additional withholding required on interest and on dividends paid to FCX by PT-FI, and a $15.7 million loss by RTM for which no tax benefit is recorded, results in a 1993 effective tax rate of 52 percent (Note 6). TRENDS AND OUTLOOK - MARKETING PT-FI's copper concentrates, which contain significant amounts of recoverable gold and silver, are sold primarily under long-term sales agreements which accounted for virtually all of PT-FI's 1993 sales. PT-FI has commitments from various parties to purchase virtually all of its estimated 1994 production. Concentrate sales agreements provide for provisional billings based on world metals prices, primarily the LME, generally at the time of loading. As is customary within the industry, sales under these long-term contracts usually "final-price" within a few months of shipment. Certain terms of the long-term contracts, including treatment charges, are negotiated annually on a portion of the tonnage to reflect current market conditions. Treatment charges have declined during 1993 as a result of the tightening in the concentrate market and are expected to remain at or below 1993 levels. RTM has commitments from most of its suppliers for 1994 treatment charge rates in excess of current spot market rates. The increased production at PT-FI has required it to market its concentrate globally. Its principal markets include Japan, Asia, Europe and North America. PT-FI's mill throughput is currently forecast to be approximately 67,000 MTPD for 1994 as it continues to integrate new mill equipment for the expansion to 115,000 MTPD. Current estimates for 1994 production are approximately 700 million pounds of copper and 780,000 ounces of gold for PT-FI and 165,000 ounces of gold at RTM. RTM, whose smelter can be expanded, was acquired to provide low-cost smelter capacity for a portion of PT-FI's concentrate and to improve PT-FI's competitive position in marketing concentrate to other parties. During 1993, copper prices dropped to their lowest levels since 1987, reflecting lower demand caused by the continuing global recession, but recovered to a level in excess of $.80 per pound. Prices for copper, gold, and silver are influenced by many factors beyond the Company's control and can fluctuate sharply. PT-FI has a price protection program for virtually all of its estimated copper sales to be priced in 1994 at an average floor price of $.90 per pound of copper, while allowing full benefit from prices above this amount. Based on projected 1994 PT-FI copper sales of approximately 720 million pounds, a 1 cent per pound change in the average annual copper price received over $.90 per pound would have an approximately $6 million effect on pretax operating income and cash flow. Based on projected 1994 gold sales of approximately 800,000 ounces by PT- FI, a $10 per ounce change in the average annual gold price received would have an approximately $8 million effect on 1994 pretax operating income and cash flow. CAPITAL RESOURCES AND LIQUIDITY Cash flow from operations decreased to $158.5 million during 1993 compared with $252.6 million for 1992, due primarily to lower net income and an increase in inventories. Materials and supplies increased over year-end 1992 as additional explosives, reagents and chemicals, fuel, and spare parts are required for the expanding PT-FI operations. For the year ended December 31, 1993, consolidated working capital decreased by $352.0 million from December 31, 1992, primarily as a result of a $358.0 million decrease in cash and short-term investments, which was used to reduce long- term debt and fund capital expenditures, and the negative working capital position of RTM. Cash flow used in investing activities totaled $463.5 million compared with $579.7 million in 1992. Capital expenditures increased 23 percent in 1993 due to increased expansion activities. During 1992, FCX acquired an indirect interest in PT-FI for $211.9 million. Cash flow used in financing activities totaled $53.1 million compared with $618.2 million provided by financing activities in 1992. FCX issued shares of its Step-Up Preferred Stock and its Gold-Denominated Preferred Stock during 1993 for net proceeds totaling $561.1 million. Net proceeds from the two offerings were used in part to reduce borrowings under the PT- FI amended credit agreement by a net $537.0 million, thereby increasing the facility's availability for general corporate purposes and the continued expansion of mining and milling operations. Also in 1993, the Company received net proceeds of $80.0 million from the sale of a portion of PT- FI's infrastructure assets (Note 10). In 1992, $212.5 million was received from the sale of a 10 percent interest in PT-FI to Indonesian investors in December 1991 and $392.0 million was received from the sale of Class A common stock and Special Preference Stock. Dividend payments rose in 1993 due to increased Class A shares outstanding and dividends paid on the Special Preference and Preferred Stock issued in 1992 and 1993. FCX called its Zero Coupon Exchangeable Notes (Note 7) for redemption in January 1994 (substantially all of which were exchanged for Class A common stock) and completed a public offering of its Gold-Denominated Preferred Stock, Series II (Note 4) which yielded net proceeds of $158.5 million to be used primarily for expansion related activities. Cash flow from operations increased to $252.6 million during 1992 compared with $73.9 million for 1991, due primarily to higher net income. Customer accounts receivable rose by $76.1 million to $130.6 million because of increased sales. Partially offsetting the increase in receivables was an increase in accounts payable and accrued liabilities associated with expansion activities. Cash flow used in investing activities increased to $579.7 million during 1992 compared with $240.0 million for 1991, due to increased capital expenditures for the 57,000 MTPD expansion and the purchase of an indirect interest in PT-FI. Cash flow from financing activities increased $415.8 million in 1992 compared with 1991, primarily due to the sale of Class A common stock, Special Preference Stock, and a 10 percent interest in PT-FI to Indonesian investors. The proceeds from these financing activities were used to purchase an indirect interest in PT-FI and to fund ongoing expansion related expenditures. RTM's principal operations currently consist of a copper smelter. The FCX purchase proceeds will be used by RTM for working capital requirements and capital expenditures, including funding a portion of the expansion of its smelter production capacity (expected to cost approximately $50 million) from its current 150,000 metric tons of metal per year to 180,000 metric tons of metal per year by mid-1995. RTM is also studying further expansion of the smelter facilities to as much as 270,000 metric tons of metal production per year and is assessing the opportunity to expand its tankhouse operations from 135,000 metric tons per year to 215,000 metric tons per year. RTM's 1993 cash flow from operations was negative ($5.9 million) primarily due to cash requirements related to shut-down costs for RTM's gold mine. RTM has relied on short-term credit facilities and the FCX purchase proceeds to fund this shortfall. RTM is currently evaluating financing alternatives to fund its short-term needs and to provide long- term funding for expansion. RTM's future cash flow is dependent on a number of variables including fluctuations in the exchange rate between the United States dollar and the Spanish peseta, future prices and sales volumes of gold, the size and timing of the smelter and tankhouse expansions, and the supply/demand for smelter capacity and its impact on related treatment and refining charges. During 1992, the Company established the Enhanced Infrastructure Project (EIP). The full EIP (currently expected to involve aggregate cost of as much as $500 million to $600 million) includes plans for commercial, residential, educational, retail, medical, recreational, environmental and other infrastructure facilities to be constructed during the next 20 years for PT-FI operations. The EIP will develop and promote the growth of local and other third-party activities and enterprises in Irian Jaya through the creation of certain necessary support facilities. The initial phase of the EIP is under construction and is scheduled for completion in 1995. Additional expenditures for EIP assets beyond the initial phase depend on the long-term growth of PT-FI's operations and would be expected to be funded by third-party financing sources, which may include debt, equity or asset sales. As discussed in Note 10, certain portions of the EIP and other existing infrastructure assets are expected to be sold in the near future to provide additional funds for the expansion to 115,000 MTPD. Through 1995, capital expenditures are expected to be greater than cash flow from operations. Upon completion of the previously announced 115,000 MTPD expansion by year-end 1995, annual production is expected to approach 1.1 billion pounds of copper and 1.5 million ounces of gold. Subsequently, capital expenditures will be determined by the results of FCX's exploration activities and ongoing capital maintenance programs. Estimated capital expenditures for 1994 and 1995 for the expansion to 115,000 MTPD, the initial phase of the EIP, ongoing capital maintenance expenditures, and the expansion of RTM's smelter to 180,000 metric tons of metal per year are expected to range from $850 million to $950 million and will be funded by operating cash flow, sales of existing and to-be- constructed infrastructure assets and a wide range of financing sources the Company believes are available as a result of the future cash flow from PT- FI's mineral reserve asset base. These sources include, but are not limited to, PT-FI's credit facility and the public and private issuances of securities (including the January 1994 public offering of Gold-Denominated Preferred Stock, Series II). The New COW contains provisions for PT-FI to conduct or cause to be conducted a feasibility study relating to the construction of a copper smelting facility in Indonesia and for the eventual construction of such a facility, if it is deemed to be economically viable by PT-FI and the Government of Indonesia (the Government). PT-FI has participated in a group assessing the feasibility of constructing a copper smelting facility in Indonesia. PT-FI amended its $550.0 million credit agreement in June 1993. The amended credit agreement, which, among other things eliminated a required debt service reserve and provided a lower interest rate, is guaranteed by FCX and FTX, and is structured as a three year revolving line of credit followed by a 3 1/2 year reducing revolver. As of February 1, 1994, $425.0 million was available to PT-FI under the credit facility. To the extent FTX and its other subsidiaries incur additional debt, the amount available to PT-FI under the credit facility may be reduced (Note 7). Payment of future dividends by FCX will depend on the payment of dividends by PT-FI, which, in turn, depends on PT-FI's economic resources, profitability, cash flow and capital expenditures. It is the policy of PT- FI to maximize its dividend payments to stockholders, taking into account its operational cash needs including debt service requirements. FCX currently pays an annual cash dividend of 60 cents per share to its common shareholders. Management anticipates that this dividend will continue at this level through completion of the expansion in 1995, absent significant changes in the prices of copper and gold. However, FCX's Board of Directors determines its dividend payment on a quarterly basis and in its discretion may change or maintain the dividend payment. In determining dividend policy, the Board of Directors considers many factors, including current and expected future prices and sales volumes, future capital expenditure requirements, and the availability and cost of financing from third parties. PT-FI has had good relations with the Government since it commenced operations in Indonesia in 1967. The New COW provides that the Government will not nationalize the mining operations of PT-FI or expropriate assets of PT-FI. Disputes under the New COW are to be resolved by international arbitration. The 1967 Foreign Capital Investment Law, which expresses Indonesia's foreign investment policy, provides basic guarantees of remittance rights and protection against nationalization, a framework for incentives and some basic rules as to other rights and obligations of foreign investors. ENVIRONMENTAL FTX and affiliates, including FCX, have a history of commitment to environmental responsibility. Since the 1940s, long before public attention focused on the importance of maintaining environmental quality, FTX has conducted preoperational, bioassay, marine ecological, and other environmental surveys to ensure the environmental compatibility of its operations. FTX's Environmental Policy commits FTX's operations to full compliance with local, state, and federal laws and regulations. The Company believes it is in compliance with Indonesian environmental laws, rules, and regulations. The Company had a team of environmental scientists from a leading Indonesian scientific institution conduct a study to update its 1984 Environmental Impact Assessment that covered expansion to 66,000 MTPD. Subsequently, that document was expanded by other independent scientists to cover all environmental aspects of the current expansion to 115,000 MTPD. The latest study document was submitted to the Government in December 1993. Based on preliminary hearings, the Company believes the study document will be accepted substantially as submitted. The Company has made, and will continue to make, expenditures at its operations for protection of the environment. Increasing emphasis on environmental matters can be expected to require the Company to incur additional costs, which will be charged against income from future operations. On the basis of its analysis of its operations in relation to current and presently anticipated environmental requirements, management does not anticipate that these investments will have a significant adverse impact on its future operations, liquidity, capital resources, or financial position. 1992 RESULTS OF OPERATIONS COMPARED WITH 1991 FCX reported 1992 net income of $122.9 million ($.66 per share) compared with 1991 net income of $96.2 million ($.53 per share). A reconciliation of revenues from 1991 to 1992 is presented below (in millions): Revenues - 1991 .............................................. $467.5 Price realizations: Copper ..................................................... 8.8 Gold........................................................ (7.4) Sales volumes: Copper...................................................... 218.5 Gold ....................................................... 95.7 Treatment charges............................................. (73.0) Adjustments to prior year concentrate sales................... 12.5 Other......................................................... (8.3) ------ Revenues - 1992 .............................................. $714.3 ====== Revenues increased 53 percent in 1992, reflecting higher production rates due to the mine/mill expansion, higher gold grades, and the sale of all year-end 1991 inventory. Price realizations were relatively unchanged between years (2 percent increase in copper realizations and 5 percent decrease in gold realizations), but sales volumes benefited significantly from the expansion, higher gold grades, and inventory sales discussed above. Copper sales volumes increased 48 percent and gold sales volumes increased 71 percent. Partially offsetting the benefit from sales volumes increases was a 3.6 cents per pound increase in treatment charges because of tight market conditions in the smelting industry early in 1992 and increased spot market sales attributable to higher than anticipated production due to the early completion of the 57,000 MTPD expansion program. A $5.7 million upward revenue adjustment was made in 1992 compared with a $6.8 million downward revenue adjustment in 1991 for prior year concentrate sales contractually priced during the year. Cost of sales for 1992 were $357.2 million, an increase of 47 percent from 1991 due primarily to the 48 percent increase in copper sales volumes. Unit site production and delivery costs in 1992 approximated 1991 costs. FCX's depreciation rate declined from an average 8.7 cents per recoverable pound in 1991 to 7.4 cents in 1992 because of the significant increase in ore reserves during 1991. Interest expense was $18.9 million during 1992 compared with $21.5 million in 1991, excluding $24.0 million and $18.3 million of capitalized interest, respectively. The 1992 general and administrative expenses rose to $68.5 million from $40.6 million in 1991, because of several financing transactions and operational and environmental studies in 1992 which required additional corporate personnel whose salaries and related overhead, were charged to the Company. General and administrative expenses also increased because of the additional personnel and facilities needed in Indonesia for the expanding operations. Minority interest share of net income reflects FCX's 80 percent ownership interest in PT-FI for 1992, compared with its 90 percent interest during 1991. ___________________________ The results of operations reported and summarized above are not necessarily indicative of future operating results. The information set forth under the caption "FCX Class A Common Shares" and "Class A Common Share Dividends", on the inside back cover of FCX's 1993 Annual Report to stockholders, is incorporated herein by reference. As of March 15, 1994, there were 2,355 record holders of FCX's Class A common stock. Item 8. Financial Statements and Supplementary Data. - ----------------------------------------------------- The financial statements of FCX, the notes thereto, the report of management and the report thereon of Arthur Andersen & Co., appearing on pages 25 through 39, inclusive, of FCX's 1993 Annual Report to stockholders, are incorporated herein by reference. Item 9. Changes in and Disagreements with Accountants on Accounting - ---------------------------------------------------------------------------- and Financial Disclosure. ------------------------- Not applicable. PART III -------- Items 10, 11, 12, and 13. Directors and Executive Officers of the Registrant, - ------------------------------------------------------------------------------ Executive Compensation, Security Ownership of Certain Beneficial -------------------------------------------------------------------- Owners and Management, and Certain Relationships and Related ----------------------------------------------------------------- Transactions. ------------- The information set forth under the captions "Voting Procedure" and "Election of Directors", beginning on pages 1 and 5, respectively, of the Proxy Statement dated March 31, 1994, submitted to the stockholders of FCX in connection with its 1994 Annual Meeting to be held on May 5, 1994, is incorporated herein by reference. PART IV ------- Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K. - -------------------------------------------------------------------------- (a)(1), (a)(2), and (d). Financial Statements. See Index to Financial Statements appearing on page F-1 hereof. (a)(3) and (c). Exhibits. See Exhibit Index beginning on page E-1 hereof. (b). Reports on Form 8-K. No reports on Form 8-K were filed by the registrant during the fourth quarter of 1993. SIGNATURES ---------- Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on March 29, 1994. FREEPORT-McMoRan COPPER & GOLD INC. BY: /s/ James R. Moffett -------------------------------- James R. Moffett Chairman of the Board Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on March 29, 1994. /s/ James R. Moffett Chairman of the Board and - ------------------------------ Director James R. Moffett George A. Mealey* President, Chief Executive Officer and Director (Principal Executive Officer) Stephen M. Jones* Vice President and Chief Financial Officer (Principal Financial Officer) C. Donald Whitmire* Controller (Principal Accounting Officer) Leland 0. Erdahl* Director Ronald Grossman* Director Rene L. Latiolais* Director Wolfgang F. Siegel* Director Elwin E. Smith* Director Eiji Umene* Director *By: /s/ James R. Moffett ------------------------------- James R. Moffett Attorney-in-Fact INDEX TO FINANCIAL STATEMENTS ------------------------------ The financial statements of FCX, the notes thereto, and the report thereon of Arthur Andersen & Co. appearing on pages 25 through 39, inclusive, of FCX's 1993 Annual Report to stockholders are incorporated by reference. The financial statement schedules listed below should be read in conjunction with such financial statements contained in FCX's 1993 Annual Report to stockholders. Page ---- Report of Independent Public Accountants........................ F-1 II-Amounts Receivable from Employees............................ F-2 III-Condensed Financial Information of Registrant............... F-3 V-Property, Plant and Equipment................................. F-6 VI-Accumulated Depreciation and Amortization.................... F-7 X-Supplementary Income Statement Information.................... F-8 Schedules other than those schedules listed above have been omitted since they are either not required or not applicable or the required information is included in the financial statements or notes thereof. * * * REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ---------------------------------------- We have audited, in accordance with generally accepted auditing standards, the financial statements as of December 31, 1993 and 1992 and for each of the three years in the period ended December 31, 1993 included in Freeport-McMoRan Copper & Gold Inc.'s annual report to shareholders incorporated by reference in this Form 10-K, and have issued our report thereon dated January 25, 1994. Our audits were made for the purpose of forming an opinion on those statements taken as a whole. The schedules listed in the index above are the responsibility of the Company's management and are presented for purposes of complying with the Securities and Exchange Commission's rules and are not part of the basic financial statements. These schedules have been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly state in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. Arthur Andersen & Co. New Orleans, Louisiana January 25, 1994 FREEPORT-McMoRan COPPER & GOLD INC. SCHEDULE II - AMOUNTS RECEIVABLE FROM EMPLOYEES for the years ended December 31, 1993, 1992 and 1991
Balance at Balance at Beginning Amounts End of Period ------------------- -------------- Employee of Period Additions Collected Written Current Long- Off Term - ------------------- ---------- --------- --------- --------- ------- ------ 1993: - ---- Usman S. Pamuntjak $305,910 $ - $305,910 - $ - $ - Hoediatmo Hoed 248,069 - 25,668 - 25,663 196,738 Adrianto Machribie 480,000 200,000 65,500 - 73,200 541,300 1992: - ---- Usman S. Pamuntjak 339,900 - 33,990 - 33,990 271,920 Hoediatmo Hoed 271,425 256,625 279,981 - 25,663 222,406 Adrianto Machribie - 500,000 20,000 - 60,000 420,000 1991: - ---- Usman S. Pamuntjak 339,900 - - - 33,990 305,910 Hoediatmo Hoed 291,625 - 20,200 - 22,400 249,025 a. Under the (PT-FI) residential loan policy, Mr. Pamuntjak, President of PT-FI until December 31, 1990, Mr. Hoed, President of PT-FI effective January 1, 1991, and Mr. Machribie, Vice President of PT-FI, borrowed $525,450, $360,000 and $700,000, respectively. Mr. Pamuntjak retired from PT-FI on December 31, 1990 and on January 1, 1991 signed a consulting services agreement with PT-FI. For the performance of his services under this agreement, PT-FI forgave, as compensation, 10 percent of the indebtedness in 1992. The consulting services agreement with Mr. Pamuntjak was terminated in January 1993, at which time Mr. Pamuntjak repaid the balance of the loan. Effective September 1992, Mr. Hoed executed a new loan in the amount of $256,625 which was used to pay off the remaining balance of the existing loan; 10 percent of the principal amount of the new loan will be forgiven annually. Effective August 1992, Mr. Machribie borrowed $500,000 consisting of one loan for $400,000 (First Loan) and a second loan for $100,000 (Second Loan). As long as Mr. Machribie remains in the employ of PT- FI, 10 percent of the principal amount of the First Loan and 20 percent of the principal amount of the Second Loan will be forgiven annually; a pro rata amount of $20,000 was forgiven in 1992. Additionally, effective July 6, 1993, Mr. Machribie borrowed $200,000. This loan will be repaid over 15 years through monthly salary deductions in the amount of $1,100, which began in August 1993.
FREEPORT-McMoRan COPPER & GOLD INC. SCHEDULE III - CONDENSED FINANCIAL INFORMATION OF REGISTRANT Balance Sheets December 31, ---------------------------- 1993 1992 ---------- -------- (In Thousands) ASSETS Cash and short-term investments $ 427 $174,760 Interest receivable 7,582 1,739 Receivable from Government of Indonesia 2,247 8,535 Notes receivable-PT-FI 1,064,888 458,274 Investment in PT-FI 145,959 106,169 Investment in PTII 75,601 74,401 Investment in RTM 43,254 - Other Assets 2,011 115 ---------- -------- Total assets $1,341,969 $823,993 ========== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable & accrued liabilities $ 32,468 $ 3,953 Zero coupon exchangeable notes 102,039 173,583 Amount due to FTX 12,270 - RTM stock subscription payable 12,644 - Other liabilities and deferred credits 2,001 - Mandatory Redeemable Gold-Denominated Preferred Stock 232,620 - Stockholders' equity 947,927 646,457 ------- -------- Total liabilities and stockholders' equity $1,341,969 $823,993 ========== ======== Statements of Income Years Ended December 31, ------------------------------------- 1993 1992 1991 -------- --------- -------- (In Thousands) Income from investment in PT-FI and PTII, net of PT-FI tax provision $ 53,861 $128,220 $100,472 Net loss from investment in RTM (15,666) - - Elimination of intercompany profit (6,610) - - General and administrative expenses (5,207) (4,802) (3,280) Depreciation and amortization (2,397) (200) (1,134) Interest expense (8,017) (16,518) (8,767) Interest income on PT-FI notes receivable: Zero coupon exchangeable notes 19,175 18,326 8,767 Promissory notes 9,292 11,097 - 8.235% convertible 14,036 - - Step-up perpetual convertible 12,785 - - Gold production payment loan 4,055 - - Other income (expense), net (406) 5,561 101 Provision for income taxes (24,085) (11,791) - ------- -------- -------- Net income 50,816 129,893 96,159 Preferred dividends (28,954) (7,025) - ------- -------- -------- 21,862 $122,868 $ 96,159 ======= ======== ======== FREEPORT-McMoRan COPPER & GOLD INC. SCHEDULE III - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (Continued) Statements of Cash Flow Years Ended December 31, ----------------------------- 1993 1992 1991 -------- -------- -------- (In Thousands) Cash flow from operating activities: Net income $ 50,816 $129,893 $ 96,159 Adjustments to reconcile net income to net cash provided by operating activities: Income from investment in PT-FI and PTII (53,861) (128,220) (100,472) Net loss from investment in RTM 15,666 - - Elimination of intercompany profit 6,610 - - Dividends received from PT-FI 132,048 78,214 126,330 Accretion of note receivable - PT-FI, net (9,104) (1,808) - Depreciation and amortization 2,397 200 1,134 (Increase) decrease in accounts receivable - 20,000 (20,000) Increase (decrease) in accounts payable (646) 597 (18) Other (5,959) (1,854) - -------- -------- -------- Net cash provided by operating activities 137,967 97,022 103,133 -------- -------- -------- Cash flow from investing activities: Received from Government of Indonesia 6,288 3,911 5,615 Investment in RTM (43,642) - - Investment in PTII - (211,892) - Investment in Freeport Hasa Inc. - (1) - -------- -------- -------- Net cash provided by (used in) investing activities (37,354) (207,982) 5,615 -------- -------- -------- Cash flow from financing activities: Cash dividends paid: Class A common stock (33,298) (26,088) (22,000) Class B common stock (85,277) (85,277) (78,171) Special preference stock (15,708) (4,407) - Step-Up preferred stock (5,590) - - Gold-denominated preferred stock (1,683) - - Net proceeds from issuance of zero coupon notes - - 218,560 Proceeds from Class A common stock offering - 174,142 - Proceeds from Depositary shares offerings 561,090 217,867 - Proceeds from sale of stock to Bakrie - 212,484 - Proceeds from FTX 20,650 - - Repayment to FTX (8,380) - - Loans to PT-FI (706,750) (212,484) (218,560) -------- -------- -------- Net cash provided by (used) in financing activities (274,946) 276,237 (100,171) -------- -------- -------- Net increase (decrease) in cash and short-term investments (174,333) 165,277 8,577 Cash and short-term investments at beginning of year 174,760 9,483 906 -------- -------- -------- Cash and short-term investments at end of year $ 427 $174,760 $ 9,483 ======== ======== ======== Interest paid $ 213 $ - $ - ======== ======== ======== Taxes paid $ 22,723 $ 11,762 $ - ======== ======== ======== a. The footnotes contained in FCX's 1993 Annual Report to stockholders are an integral part of these statements. b. Effective December 31, 1991, PT-FI issued 21,300 of its shares, representing a 10 percent interest in PT-FI, to a publicly traded entity owned by Indonesian investors for $212.5 million, pursuant to an agreement negotiated in early 1991. FCX guaranteed the buyer's financing for this purchase and accordingly, deferred the gain on the sale. In December 1992, FCX purchased approximately 49 percent of the capital stock of P.T. Indocopper Investama Corporation (PTII), a publicly traded Indonesian entity which owned 10 percent of the outstanding common stock of PT-FI. PTII acquired the 10 percent of the outstanding common stock of PT-FI from the Indonesian investors who acquired the shares on December 31, 1991. When FCX recorded its investment in PTII it utilized purchase accounting and thus eliminated the deferred gain of $138.6 million on the original sale to the Indonesian investors against the cost of the 4.9 percent indirect interest in PT-FI. The excess cost resulting from the purchase ($69.5 million) is reflected in FCX's consolidated balance sheet as property, plant and equipment and is being amortized over the remaining life of the Contract of Work (approximately 28 years), at a rate of approximately $2.4 million per year. This property, plant and equipment is included in the condensed balance sheet as part of FCX's investment in PTII. FREEPORT-McMoRan COPPER & GOLD INC. SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT for the years ended December 31, 1993, 1992, and 1991 Col. A Col. B Col. C Col. D Col. E Col. F - --------------------- ------------ --------- ----------- --------- ---------- Balance at Balance at Beginning of Additions Retirements Other-Add End of Description Period at Cost and Sales (Deduct) Period - --------------------- ------------ --------- ----------- --------- --------- (In Thousands) 1993: - ---- Exploration and development costs $ 137,576 $ 9,365 $ - $ - $ 146,941 Plant and equipment 1,306,363 751,131 (2,882) (29,331) 2,025,281 ---------- -------- ------- --------- ---------- $1,443,939 $760,496 $(2,882) $ (29,331) $2,172,222 ========== ======== ======= ========= ========== 1992: - ---- Exploration and development costs $ 135,548 $ 2,028 $ - $ - $ 137,576 Plant and equipment 876,481 365,820 (5,445) 69,507 (a) 1,306,363 ---------- -------- ------- --------- ---------- $1,012,029 $367,848 $(5,445) $ 69,507 $1,443,939 ========== ======== ======= ========= ========== 1991: - ---- Exploration and development costs $ 129,138 $ 6,410 $ - $ - $ 135,548 Plant and equipment 748,851 233,544 (3,729) (102,185)(a) 876,481 ---------- -------- ------- --------- ---------- $ 877,989 $239,954 $(3,729) $(102,185) $1,012,029 ========== ======== ======= ========= ========== a. See note (b) on Schedule III. FREEPORT-McMoRan COPPER & GOLD INC. SCHEDULE VI - ACCUMULATED DEPRECIATION AND AMORTIZATION for the years ended December 31, 1993, 1992, and 1991 Col. A Col. B Col. C Col. D Col. E Col. F - ------------------------- ----------- ----------- ---------- --------- ------- Balance at Additions Balance Beginning Charged to Retire- at of Costs and ments Other-Add End of Description Period Expenses(a) and Sales (Deduct) Period - ------------------------- ----------- ----------- --------- --------- ------ (In Thousands) 1993: Accumulated - ---- depreciation and amortization $450,527 $67,906 $(2,732) $ 9,918 $525,619 ======== ======= ======= ======= ======== 1992: Accumulated - ---- depreciation and amortization $410,354 $48,272 $(5,438) $(2,661) $450,527 ======== ======= ======= ======= ======== 1991: Accumulated - ---- depreciation and amortization $375,818 $38,397 $(3,729) $ (132) $410,354 ======== ======= ======= ======= ======== a. Mine and mill assets, including estimated future capital costs, are depreciated on the unit-of-production method while the remaining assets are depreciated on a straight-line basis. FREEPORT-McMoRan COPPER & GOLD INC. SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION for the years ended December 31, 1993, 1992, and 1991 Col. A Col. B - -------------------------------------- ------------------------------------ Description Charged to Costs and Expenses - -------------------------------------- ------------------------------------ 1993 1992 1991 ------- ------- ------- (In Thousands) Maintenance and repairs $78,335 $68,623 $52,061 ======= ------- ------- Taxes, other than payroll and income taxes: Value added tax $ 4,164 $ 792 $ 1,371 Shippers tax - - (12) Fiscal 259 263 60 P.I.U.D. 3,050 3,148 2,716 ------- ------- ------- $ 7,473 $ 4,203 $ 4,135 ======= ======= ======= Royalties $ 9,539 $15,708 $10,355 ======= ======= ======= Freeport-McMoRan Copper & Gold Inc. Exhibit Index Sequentially Exhibit Numbered Number Page ------ ------------ 3.1 Composite copy of the Certificate of Incorporation of FCX. 3.2 By-Laws of FCX, as amended. Incorporated by reference to Exhibit 3.2 to the Annual Report on Form 10-K of FCX for the fiscal year ended December 31, 1992 (the "FCX 1992 Form 10-K"). 4.1 Certificate of Designations of the 7% Convertible Exchangeable Special Preference Stock (the "Special Preference Stock") of FCX. Incorporated by reference to Exhibit 5 to the Form 8 Amendment No. 1 dated July 16, 1992 (the "Form 8 Amendment") to the Application for Registration on Form 8-A of FCX dated July 2, 1992. 4.2 Deposit Agreement dated as of July 21, 1992 among FCX, Mellon Securities Trust Company, as Depositary, and holders of depositary receipts ("Depositary Receipts") evidencing certain Depositary Shares, each of which, in turn, represents 2-16/17 shares of Special Preference Stock. Incorporated by reference to Exhibit 2 to the Form 8 Amendment. 4.3 Form of Depositary Receipt. Incorporated by reference to Exhibit 1 to the Form 8 Amendment. 4.4 Certificate of Designations of the Step-Up Convertible Preferred Stock (the "Step-Up Convertible Preferred Stock") of FCX. 4.5 Deposit Agreement dated as of July 1, 1993 among FCX, Mellon Securities Trust Company, as Depositary, and holders of depositary receipts ("Step-Up Depositary Receipts") evidencing certain Depositary Shares, each of which, in turn, represents 0.05 shares of Step-Up Convertible Preferred Stock. 4.6 Form of Step-Up Depositary Receipt. 4.7 Certificate of Designations of the Gold-Denominated Preferred Stock (the "Gold-Denominated Preferred Stock") of FCX. 4.8 Deposit Agreement dated as of August 12, 1993 among FCX, Mellon Securities Trust Company, as Depositary, and holders of depositary receipts ("Gold-Denominated Depositary Receipts") evidencing certain Depositary shares, each of which, in turn, represents 0.05 shares of Gold Denominated Preferred Stock. 4.9 Form of Gold-Denominated Depositary Receipt. 4.10 Credit Agreement dated as of June 1, 1993 (the "PT-FI Credit Agreement") among PT-FI, the several banks which are parties thereto (the "PT-FI Banks"), Morgan Guaranty Trust Company of New York, as PT-FI Trustee (the "PT-FI Trustee"), and Chemical Bank, as agent (the "PT-FI Bank Agent"). 4.11 First Amendment dated as of February 2, 1994 to the PT-FI Credit Agreement among PT-FI, the PT-FI Banks, the PT- FI Trustee and the PT-FI Bank Agent. 4.12 Second Amendment dated as of March 1, 1994 to the PT-FI Credit Agreement among PT-FI, the PT-FI Banks, the PT- FI Trustee and the PT-FI Bank Agent. 4.13 Agreement dated as of May 1, 1988 between Freeport Minerals Company and FCX assigning certain stockholder rights and obligations. Incorporated by reference to Exhibit 10.13 to Registration No. 33-20807. 10.1 Design, Engineering and Related Services Contract dated as of September 15, 1992 between PT-FI and Fluor Daniel Engineers & Constructors, Ltd. Incorporated by reference to Exhibit 10.1 to the FCX 1992 Form 10-K. 10.2 Site Services Contract dated as of September 15, 1992 between PT-FI and Fluor Daniel Eastern, Inc. Incorporated by reference to Exhibit 10.2 to the FCX 1992 Form 10-K. 10.3 Contract of Work dated December 30, 1991 between The Government of the Republic of Indonesia and PT-FI. Incorporated by reference to Exhibit 10.20 to the FCX 1991 Form 10-K. 10.4 Management Services Agreement dated as of May 1, 1988 among FCX, FII and FTX. Incorporated by reference to Exhibit 10.01 to Registration No. 33- 20807. 10.5 Concentrate Sales Agreement dated as of December 30, 1990 between FII and Dowa Mining Co., Ltd., Furukawa Co., Ltd., Mitsubishi Materials Corporation, Mitsui Mining & Smelting Co., Ltd., Nittetsu Mining Co., Ltd., Nippon Mining Co., Ltd. and Sumitomo Metal Mining Co., Ltd. (Confidential information omitted and filed separately with the Securities and Exchange Commission.) Incorporated by reference to Exhibit 10.3 to the Annual Report on Form 10-K of FCX for the fiscal year ended December 31, 1990. 12.1 FCX Computation of Ratio of Earnings to Fixed Charges. 13.1 Those portions of the 1993 Annual Report to stockholders of FCX which are incorporated herein by reference. 18.1 Letter from Arthur Andersen & Co. concerning changes in accounting principles. 21.1 Subsidiaries of FCX. 23.1 Consent of Arthur Andersen & Co. dated March 25, 1994. 24.1 Certified resolution of the Board of Directors of FCX authorizing this report to be signed on behalf of any officer or director pursuant to a Power of Attorney. 24.2 Powers of Attorney pursuant to which this report has been signed on behalf of certain officers and directors of FCX. -----END PRIVACY-ENHANCED MESSAGE-----