SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
1997 FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997 Commission File Number: 1-14066
SOUTHERN PERU COPPER CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 13-3849074
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
180 Maiden Lane, New York, N.Y. 10038
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (212) 510-2000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Common Stock, par value $0.01 per share New York Stock Exchange
Lima Stock Exchange
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 knowledge of the registrant, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment of this
Form 10-K. [X]
As of February 27, 1998, there were of record 13,981,972 shares of Common Stock,
par value $0.01 per share, outstanding, and the aggregate market value of the
shares of Common Stock (based upon the closing price on such date as reported on
the New York Stock Exchange - Composite Transactions) of Southern Peru Copper
Corporation held by nonaffiliates was approximately $184 million. As of the
above date, there were also 65,900,833 shares of Class A Common Stock, par value
$0.01 per share, outstanding. Class A Common Stock is convertible on a
one-to-one basis into Common Stock.
PORTIONS OF THE FOLLOWING DOCUMENTS ARE INCORPORATED BY REFERENCE:
Part III: Proxy statement in connection with the Annual Meeting to be held on
April 30, 1998.
Part IV: Exhibit index is on page B1.
<PAGE>
A1
PART I
Item 1. Business
THE COMPANY
The Company is an integrated producer of copper which operates mining, smelting
and refining facilities in the southern part of Peru. The Company, incorporated
in Delaware in 1995, conducts its operations through its wholly owned
subsidiary, Southern Peru Limited ("SP Limited"). SP Limited was incorporated in
1952. It was reorganized in 1955 and has conducted copper mining operations
since 1960. Pursuant to Peruvian law, SP Limited conducts its operations in Peru
through a registered branch (the "Branch"). The Branch is not a corporation
separate from SP Limited. It is, however, an establishment, registered pursuant
to Peruvian law, through which SP Limited holds assets, incurs liabilities and
conducts operations in Peru. Although it has neither its own capital nor
liability separate from that of SP Limited, it is deemed to have an equity
capital for purposes of determining the economic interests of holders of labor
shares (the "Labor Shares"). Labor Shares are non-voting ownership interests
distributed to workers in accordance with former Peruvian laws. The Branch
comprises substantially all the assets and liabilities of SP Limited associated
with its copper operations in Peru.
On November 29, 1995, the Company offered to exchange newly issued common stock,
par value $0.01 per share (the "Common Stock"), for any and all of the
outstanding Labor Shares of the Branch. Two series of Labor Shares (S-1 and S-2)
are listed and traded on the Lima Stock Exchange. The exchange offered one share
of Common Stock for four S-1 Labor Shares and one share of Common Stock for five
S-2 Labor Shares. The exchange offer expired on December 29, 1995 with 80.8% of
all outstanding Labor Shares exchanged for 11,479,667 shares of Common Stock. In
connection with the exchange offer, the former Southern Peru Copper Corporation
changed its name to Southern Peru Limited and the Company (formerly known as
Southern Peru Copper Holding Company) changed its name to Southern Peru Copper
Corporation. Throughout this Report on Form 10-K, unless the context otherwise
requires, the terms "Southern Peru", "SPCC" and "Company" refer to the present
corporation and its consolidated subsidiaries, as well as its predecessor, now
named Southern Peru Limited, which previously was the parent company and is now
a wholly-owned subsidiary of the Company. In addition, throughout this report,
unless otherwise noted, all tonnages are in short tons and all ounces are troy
ounces.
In connection with the consummation of the exchange offer, ASARCO Incorporated
("Asarco"), Cerro Trading Company, Inc. ("Cerro") and Phelps Dodge Overseas
Capital Corporation ("Phelps Dodge" and, together with Asarco and Cerro, the
"Class A Common Stockholders") exchanged their common shares in SP Limited for
Class A common stock, par value $0.01 per share (the "Class A Common Stock"), of
the Company. At December 31, 1997 the stockholders in the Company were Asarco
(54.1%), Cerro (14.2%), Phelps Dodge (14.0%) and common stockholders (17.7%).
Reference is made to the following Financial Statement Footnote included in this
report: Net Sales in Note 5.
COPPER BUSINESS
The copper operations of the Company involve the mining, milling and flotation
of copper ore to produce copper concentrates, the smelting of copper
concentrates to produce blister copper and the refining of blister copper to
produce copper cathode.
<PAGE>
A2
The Company also produces refined copper using solvent extraction/electrowinning
("SX/EW") technology. Silver, molybdenum and small amounts of other metals are
contained in copper ore as by-products. Silver sold is recovered in the refining
process or as an element of blister copper. Molybdenum is recovered from copper
concentrate in a molybdenum by-product plant. The Company has not reported
information by industry segments because substantially all of its revenues are
generated from its copper production.
REVIEW OF OPERATIONS
SPCC, through its wholly-owned subsidiary, Southern Peru Limited, operates the
Toquepala and Cuajone mines, high in the Andes, approximately 400 miles
southeast of Lima. It also operates a smelter and refinery west of the mines at
the Pacific coast town of Ilo, Peru. SPCC is the largest mining company in Peru
and one of the 10 largest private-sector copper mining companies in the world.
Shareholders of SPCC are ASARCO Incorporated (54.1%), a subsidiary of the Marmon
Corporation (14.2%), Phelps Dodge Overseas Capital Corporation (14.0%) and
common shareholders (17.7%).
OVERVIEW
SPCC maintained high mining, smelting and refining production levels in 1997,
despite difficult operating conditions caused by the "El Nino" weather
phenomenon. Significant productivity increases offset marginally lower mine ore
grades. Efficient equipment recently acquired and continued good labor relations
permitted the optimization of equipment, operations and maintenance programs.
The $1 billion program for the expansion of the Cuajone mine and the
modernization of the Ilo smelter should further improve productivity, reduce
operating costs and increase copper production. The program also will
significantly reduce the impact of the operations on the environment and provide
improved working conditions.
MINING OPERATIONS
Total 1997 copper production increased 1% over 1996, to 685.5 million pounds,
including 98.2 million pounds of refined copper cathodes produced at the SX/EW
plant. Production of copper in concentrate rose to 587.4 million pounds compared
with 584.9 million pounds the prior year. Toquepala produced 246.8 million
pounds and Cuajone produced 340.6 million pounds of copper contained in
concentrates in 1997. Extremely heavy rainfall in March disrupted mine,
concentrator and SX/EW operations and destroyed the railroad bridge connecting
the smelter to the port and the mines. Construction of a temporary rail crossing
and the rapid repair of other infrastructure damaged by the rains mitigated the
impact on copper production. A new, permanent railroad bridge was constructed by
year-end.
New, larger equipment was added at both mines in 1997 and older, less efficient
equipment was retired. Seven new 240-ton-capacity trucks were added at Cuajone
and eight were added at Toquepala. A new, large-capacity drill was added at each
mine. Automated process controls and additional large flotation cells were
installed at both the Cuajone and Toquepala concentrators, resulting in a
savings in power costs and improved operating efficiencies. As a result, the
concentrator at Cuajone had record throughput of 21.7 million tons of ore and
produced a record 624,900 tons of concentrate. The Toquepala concentrator milled
19.0 million tons of ore, also a record. Together, the two mines produced 3.1
million ounces of silver and 9.4 million pounds of molybdenum as by-product.
<PAGE>
A3
SX/EW OPERATIONS
The SX/EW facility produces refined copper from solutions obtained from leaching
low-grade ore stored at the Toquepala and Cuajone mines. The plant, in its
second full year of operation, produced 98.2 million pounds of copper, exceeding
1996 production of 93.2 million pounds, at a cash cost below 40 cents per pound.
ORE RESERVES
SPCC continues to evaluate the substantial additional mineralized material
identified in 1996. At year-end 1997, proven and probable reserves totaled 1,422
million tons with an average copper grade of 0.64% at Cuajone and 313 million
tons with an average copper grade of 0.83% at Toquepala. An additional 170
million tons of mineralized material at an average copper grade of 0.56% at
Cuajone and 200 million tons at an average copper grade of 0.67% at Toquepala is
still being evaluated. In addition, the Company has 680 million tons of
leachable, low-grade ore that can be processed economically by the SX/EW
operation.
SMELTING AND REFINING OPERATIONS
SPCC's total refined copper production, including the 98.2 million pounds from
the SX/EW plant, increased to 611.5 million pounds in 1997 from 532.8 million
pounds in 1996. Refined production from the Ilo refinery reached a record 513.3
million pounds in 1997. The refinery, purchased from the Peruvian government in
1994 for $65 million, was built in the 1970s by a government-owned entity to
treat the output of SPCC's smelter. The purchase of the refinery made SPCC an
integrated copper producer and lowered the Company's cash cost of producing
copper. Subsequent to the acquisition, the Company spent $20 million to
modernize the refinery. The most significant improvement was to the tankhouse
where installation of acid-resistant polymer cells and a new rectifier increased
capacity by more than 20% to 520 million pounds of copper cathode per year. The
Company's Ilo smelter continues to provide all the feed for the refinery. Since
the smelter's capacity exceeds that of the refinery, the Company sells blister
copper produced at the smelter to other refineries around the world. Smelter
operations continued to benefit from operation of the Modified El Teniente
Converter (CMT), installed in late 1995.
Smelting operations were hampered throughout the year by weather events which
caused severe flooding and disrupted the concentrate supply to the smelter and
blister shipments from the smelter. Changes in the prevailing winds also caused
additional smelter curtailments to control emissions. Despite these events,
production of blister copper was 639 million pounds, exceeding the 634 million
pounds of blister produced in 1996.
EXPANSION AND MODERNIZATION PROGRAM
To capitalize on its large ore reserve position, SPCC has begun a $1 billion
program that will increase annual mined copper production and modernize the
smelter. Work continued throughout the year on the first two stages of the
program. Construction of the first stage, which consists of a
130-million-pound-per-year expansion of the Cuajone mine, will be completed in
early 1999 at an estimated cost of $245 million.
<PAGE>
A4
The $787 million second stage of the program involves the modernization and
expansion of the Ilo smelter. The project will increase capacity to 1.25 million
tons of concentrate to match the expanded mine output. Basic engineering work
for the flash furnace and related facilities is well advanced, including
specifications for long-lead-time equipment. A final decision on the schedule
will be made in 1998. When the modernization and expansion are completed, the
Ilo plant will be one of the world's largest modern smelters, with full
environmental controls.
A possible third stage project, estimated to cost $750 million, would involve a
further 50% expansion of the Cuajone mine and a further expansion of the Ilo
smelter.
The initial expansion at Cuajone will increase SPCC's annual mine production by
130 million pounds of copper. The existing concentrator is being expanded by
increasing secondary and tertiary crushing capacity, and expanding the grinding
and flotation circuits. Mining operations are being increased by the addition of
eleven 240-ton capacity haul trucks, one new 56 cubic-yard capacity shovel, and
drilling and auxiliary equipment. Three of the new haul trucks were put in
service in 1997. Engineering and materials procurement for the concentrator
expansion are nearly complete and field construction is underway. The Cuajone
expansion project is expected to be completed in early 1999.
The second stage of the expansion program, modernization and expansion of the
Ilo smelter, will be completed over the period 1998 to 2003. In 1998,
construction of a new acid plant, designed to increase the capture of sulfur
emissions, will be completed. By 2001, a flash smelting furnace will be
installed to replace the two existing reverberatory furnaces. A double-contact,
double-absorption acid plant, concentrate drying and material handling systems,
an oxygen plant, a new flux crushing facilities, and other ancillary equipment
will also be installed. A decision will be made in 1999 on whether to upgrade
the existing Peirce-Smith copper converting technology, or to construct a new
flash converting facility. Completion of the modernized converter operations is
expected by the end of 2003. The existing furnaces and converters will continue
to be available until the new plant is operating reliably at design rates.
Installation of a new 40 megawatt, diesel-fired turbine generator was completed
at Ilo in 1997 and is now operated by Enersur S.A., a subsidiary of Tractebel
S.A., a Belgian-based power company. SPCC also sold to Enersur its existing
power plant located at Ilo and entered into a 20-year, power-purchase agreement
with Enersur. As part of the agreement, Enersur is committed to supplying power
for SPCC's expansion and modernization program. Installation by Enersur of
another 40 megawatt turbine is now in progress.
EXPLORATION
SPCC has an active exploration program and the Company currently has rights to
conduct exploration on 320,000 hectares in Peru. One advanced project,
Tantahuatay, is focused on the possible heap leaching of gold and on the
development of a large-tonnage, disseminated copper-gold deposit. SPCC holds a
44.2% interest in Tantahuatay and is the project manager. Pre-feasibility
studies are being conducted.
Several other copper and gold projects, wholly-owned by the Company, are
scheduled to be drilled in 1998. These properties include several located near
SPCC's current operations.
<PAGE>
A5
ENVIRONMENT
The Company is installing new facilities and implementing new operating
procedures to further reduce the impact of its operations on the environment.
The sulfuric acid plant completed in 1995 captures 60% of the CMT off-gases, or
18% of the smelter's total emissions. Part of the acid produced is used by the
Company to leach ore at its SX/EW operation while the balance is sold in
regional markets. The plant produced 206,000 tons of acid in 1997. As part of
the Environmental Compliance and Management Program (PAMA), submitted to and
approved by the Peruvian government, a $35 million expansion of this acid plant
is scheduled for completion in 1998. Annual acid production is projected to
increase to 330,000 tons as a result of this expansion. When complete, the
expanded acid plant will capture all the off-gases from the CMT, or 30% of the
smelter's total emissions. The Company also employs a Supplemental Control
Program which decreases sulfur dioxide emissions during periods of adverse
weather by curtailing production. This program has been effective in improving
air quality in the Ilo area.
With the completion of a starter dam and the successful implementation of
cycloned tailings dam construction methods at Quebrada Honda, tailings that
formerly were discharged into the ocean are now deposited on land at a location
near the mines. The ocean bay into which tailings were previously discharged is
being reclaimed to provide a wetlands habitat for marine life and migratory
birds.
These and other environmental projects have been effective in reducing the
impact of the Company's operations on the environment. The modernization project
now underway at the smelter will produce a further major improvement.
PRINCIPAL PRODUCTS AND MARKETS
The principal uses of copper are in the building and construction industry,
electrical and electronic products and, to a lesser extent, industrial machinery
and equipment, consumer products and the automotive and transportation
industries. Silver is used for photographic, electrical and electronic products
and, to a lesser extent, brazing alloys and solder, jewelry, coinage, silverware
and catalysts. Molybdenum is used to toughen alloy steels and soften tungsten
alloy and is also used in fertilizers, dyes, enamels and reagents.
During 1997, 1996, and 1995, substantially all of the Company's copper
production was exported from Peru and sold to customers in Europe, the Far East,
the United States and elsewhere in Latin America. A substantial portion of
SPCC's copper sales is made under annual contracts to industrial users. Silver
is sold under annual contracts or in spot sales and molybdenum is sold in
concentrate form to merchants and other refiners under annual contracts. Most
customers receive shipments on a monthly basis at a constant volume throughout
the year. As a result there is little seasonality in SPCC sales volumes.
BACKLOG OF ORDERS
Substantially all of the Company's metal production is sold under annual
contracts. To the extent not sold under annual contracts, production can be sold
on commodity exchanges or in spot sales. Final sales values are determined based
on prevailing commodity prices for the quotation period, generally being the
month of, the month prior to or the month following the actual or contractual
month of shipment or delivery according to the terms of the contract.
<PAGE>
A6
COMPETITIVE CONDITIONS
Competition in the copper market is principally on a price and service basis,
with price being the most important consideration when supplies of copper are
ample. The Company's products compete with other materials, including aluminum
and plastics.
EMPLOYEES
At December 31, 1997 the Company employed approximately 4,800 persons, about
two-thirds of whom were covered by labor agreements with nine labor unions.
There were no labor strikes in 1997.
ENERGY MATTERS AND WATER RESOURCES
Electric power for the Company's operating facilities is generated by a thermal
electric plant owned and operated by Enersur S.A. and located adjacent to the
Ilo smelter. Power generation capacity is currently 150 megawatts. In addition,
the Company has 30 megawatts of power generation capacity from waste heat
boilers in the smelter and two small hydro-generating installations at Cuajone.
Power is distributed over a 139-mile, closed loop transmission circuit.
In 1997, the Company sold its Ilo power plant to Enersur S.A. and entered into a
20-year power purchase agreement. The power purchase agreement contains
provisions obligating Enersur S.A. to construct additional capacity upon notice
to meet the Company's increased electricity requirements from the planned
expansion and modernization. The parties also entered into an agreement for the
sharing of certain services between the power plant and the Company's smelter at
Ilo. Under this agreement, the Company's cost of power will increase somewhat
from its current level, while the Company will benefit by avoiding significant
capital expenditures that would be required to meet the needs of the expanded
operations.
SPCC has water concessions for well fields at Huaitire and Titijones and surface
water rights from Lake Suches.
ENVIRONMENTAL MATTERS
The Company anticipates spending $32.2 million for environmental control capital
expenditures in 1998. Capital expenditures in connection with environmental
projects were approximately $43.8 million in 1997, $24.6 million in 1996, and
$54.6 million in 1995. See "Management's Discussion and Analysis of Financial
Condition and Results of Operation Environmental Matters" which is herein
incorporated by reference.
CONCESSIONS
The Company has concessions from the Peruvian government for its exploration,
exploitation, extraction and/or production operations (collectively, the
"Concessions"). The Concessions are in full force and effect under applicable
Peruvian laws, and the Company believes it is in compliance with all material
terms and requirements applicable to the Concessions. The Concessions have
indefinite terms, subject to payment by SPCC of concession fees of up to $2 per
hectare annually for the mining concessions and a fee based on nominal capacity
for the processing concessions. Fees paid during 1997 were approximately
$220,000.
<PAGE>
A7
REPUBLIC OF PERU
Substantially all of the Company's revenues are derived from the Toquepala mine,
the Cuajone mine, the SX/EW facility and the smelter and refinery at Ilo, all of
which are located within a 30-mile radius in the southern part of Peru. Risks
attendant to the Company's operations in Peru include those associated with
economic and political conditions, effects of currency fluctuations and
inflation, effects of government regulations and the geographic concentration of
the Company's operations.
CAUTIONARY STATEMENT
Forward-looking statements in this report and in other Company statements
include statements regarding expected commencement dates of mining or metal
production operations, projected quantities of future metal production,
anticipated production rates, operating efficiencies, costs and expenditures as
well as projected demand or supply for the Company's products. Actual results
could differ materially depending upon factors including the availability of
materials, equipment, required permits or approvals and financing, the
occurrence of unusual weather or operating conditions, lower than expected ore
grades, the failure of equipment or processes to operate in accordance with
specifications, labor relations, environmental risks as well as political and
economic risk associated with foreign operations. Results of operations are
directly affected by metals prices on commodity exchanges which can be volatile.
Item 2. Properties
FACILITIES
The Company's principal executive offices are located at 180 Maiden Lane, New
York, New York 10038 and Avenida Caminos del Inca No. 171, Chacarilla del
Estanque, Santiago de Surco, Lima 33, Peru. At December 31, 1997, the Company,
through SP Limited and the Branch, has 100% interests in the Toquepala and
Cuajone mines, the SX/EW facility, the Ilo smelter, the sulfuric acid plant and
the Ilo refinery and operates them pursuant to concessions from the Peruvian
Government. See Item 1 "Business--Concessions". The Company owns, through SP
Limited and the Branch, its offices in Lima. Its offices in New York are located
in space leased to it by Asarco. Its offices in Miami are leased by the Company.
The Company believes that its existing properties are in good condition and
suitable for the conduct of its business.
The offices and the Company's major facilities, together with production
commencement dates, are listed below:
PERU UNITED STATES
Toquepala Mine -- southern Peru (1960) Executive Offices -- New York, NY
Cuajone Mine -- southern Peru (1976) Logistics Services, Inc., Miami, FL
SX/EW Facility -- southern Peru (1995)
Ilo Smelter -- Ilo, Peru (1960) Ilo
Refinery -- Ilo, Peru (1994-SPCC)
Acid Plant -- Ilo, Peru (1995) Executive
Offices -- Lima, Peru
The Company also owns and operates a railroad connecting the mines at Cuajone
and Toquepala with the smelting and refining facilities at Ilo and a port which
are located approximately 122 rail miles from the two mines sites, which are at
elevations ranging from 3,220 to 3,330 meters. In addition, the Company provides
housing, hospitals and schools for employees and their families.
<PAGE>
A8
METAL PRODUCTION STATISTICS
<TABLE>
<CAPTION>
Production Statistics
1997 1996 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Copper Production
MINES (contained copper in thousands of pounds)
Toquepala 246,818 252,928 256,128 223,594 230,094
Cuajone 340,551 332,014 290,982 312,074 300,820
SX/EW 98,153 93,170 10,012 - -
- -------------------------------------------------------------------------------------------------------------------------------
Total Mines 685,522 678,112 557,122 535,668 530,914
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
SMELTER (contained copper in thousands of pounds)
From SPCC concentrates 575,061 589,994 537,522 536,864 530,092
From purchased concentrates 63,679 43,614 96,934 107,342 95,498
- -------------------------------------------------------------------------------------------------------------------------------
Total Smelter 638,740 633,608 634,456 644,206 625,590
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
REFINERIES (thousands of pounds of copper)
Ilo (a) 513,315 439,600 432,414 421,342 396,750
SX/EW 98,153 93,170 10,012 - -
- -------------------------------------------------------------------------------------------------------------------------------
Total Refineries 611,468 532,770 442,426 421,342 396,750
- -------------------------------------------------------------------------------------------------------------------------------
COPPER SALES (thousands of pounds)
Refined 514,320 439,400 436,638 424,776 400,894
In blister 110,412 162,418 200,592 228,346 212,446
In concentrates 19,955 - - - -
SX/EW 99,297 92,472 9,374 - -
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
Total sales of Copper 743,984 694,290 646,604 653,122 613,340
- -------------------------------------------------------------------------------------------------------------------------------
LME average price (cents
per pound) 103.3 104.1 133.2 104.7 86.8
ound lb.)
Molybdenum
(thousands of pounds contained in concentrate)
MINES
Toquepala 6,066 4,483 3,674 3,058 2,570
Cuajone 3,329 4,257 4,334 3,062 3,742
- -------------------------------------------------------------------------------------------------------------------------------
Total produced 9,395 8,740 8,008 6,120 6,312
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
Sale of molybdenum
in concentrate 9,398 8,813 8,402 5,698 6,804
- -------------------------------------------------------------------------------------------------------------------------------
Metals Week Dealer
Oxide mean price ($/lb.) $ 4.30 $ 3.78 $ 7.90 $ 4.69 $2.33
</TABLE>
<PAGE>
A9
<TABLE>
<CAPTION>
Silver
(thousands of ounces)
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------------
SMELTER (in blister)
Ilo - SPCC Concentrates 3,146 3,097 2,958 2,979 2,813
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
REFINERY
Ilo (b) 2,462 2,218 2,519 2,131 2,237
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
SALES OF SILVER
Refined (b) 2,397 2,282 2,597 1,947 2,212
In blister 576 828 1,164 1,237 1,135
In concentrates 113 - - - -
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
Total sales of Silver 3,086 3,110 3,761 3,184 3,347
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
COMEX average price ($/oz.) $ 4.88 $ 5.18 $ 5.18 $ 5.28 $ 4.30
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The Ilo refinery was purchased by the Company in May 1994. The data prior to
the acquisition reflects cathode production for SPCC on a toll basis.
(b) Prior to the acquisition of the refinery, silver contained in blister was
sold by SPCC. The refinery production reflects the total silver production
by the refinery before and after its acquisition by SPCC. The "Sales of
Silver Refined" amount reflects the silver sold to the refinery by SPCC
prior to the acquisition and the refined silver sold by the Company after
the acquisition
<PAGE>
A10
METAL PRODUCTION STATISTICS
COPPER RESERVES
<TABLE>
<CAPTION>
Mineral Average
Reserves Copper Metal Production
(000s Content Contained Metal
Tons) (%) (000s Pounds)
-----------------------------------------------------
12/31/97 12/31/97 1997 1996 1995
-------- -------- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Toquepala Sulfide 313,100 0.83 246,800 252,900 256,100
Leachable 664,900 0.19 87,900 88,600 9,900
Cuajone Sulfide 1,422,300 0.64 340,600 332,000 291,000
Leachable 15,000 0.95 10,300 4,600 100
</TABLE>
The Company has ongoing exploration programs in Peru. Results of drilling at
Toquepala and Cuajone have identified mineralized material consisting of 200
million tons grading 0.67% copper at Toquepala and 170 million tons grading
0.56% at Cuajone. This mineralized material will not qualify as proven and
probable reserves until such time as a final and comprehensive economic and
technical feasibility study has been completed demonstrating that such
additional material can be economically mined.
The Company calculates its ore reserves by methods generally applied within the
mining industry and in accordance with the regulations of the Securities and
Exchange Commission. All mineral reserves are estimated quantities of proven and
probable ore that under present and anticipated conditions may be economically
mined and processed by the extraction of their mineral content.
The following ore production information is provided:
<TABLE>
<CAPTION>
1997 1996 1995
Ore Milled Avg. Mill Ore Milled Avg. Mill Ore Milled Avg. Mill
(000s Tons) Recovery (000s Tons) Recovery Rate (000s Tons) Recovery
Rate (%) (%) Rate (%)
-------------- -------------- -------------- --------------- -------------- --------------
-------------- -------------- -------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Toquepala 18,998 87.90% 18,609 84.20% 16,937 89.03%
Cuajone 21,719 87.00% 21,249 81.71% 21,378 84.27%
</TABLE>
The following productive capacity is provided:
<TABLE>
<CAPTION>
Defined Capacity (a)
<S> <C>
Ilo Smelter 320,000 tons
Ilo Refinery 260,000 tons
Toquepala - SX/EW 40,000 tons
</TABLE>
(a) SPCC's estimate of actual capacity under normal operating conditions
with allowance for normal downtime for repairs and maintenance and
based on the average metal content of input material for the three
years shown. No adjustment is made for shutdowns or production
curtailments due to strikes or air quality emissions restraints.
<PAGE>
A11
Item 3. Legal Proceedings
Reference is made to the information under the caption "Litigation" in Financial
Statement Footnote 17 "Commitments and Contingencies" on page A45 incorporated
herein by reference.
Item 4. Submission of Matters to a Vote of Security Holders
None.
<PAGE>
A12
Executive Officers of the Registrant
Set forth below are the executive officers of the Company, their ages as of
February 28, 1998, and their positions.
<TABLE>
<CAPTION>
Name Age Position
<S> <C> <C>
Richard de J. Osborne 63 Chairman of the Board and Director
Charles G. Preble 65 President, Chief Executive Officer and Director
Charles B. Smith 59 Executive Vice President and Chief Operating Officer
Ronald J. O'Keefe 55 Executive Vice President and Chief Financial Officer
Kevin R. Morano 44 Vice President and Director
Winston Cundiff, III 51 Vice President (Human Resources, Peru)
Hans A. Flury 46 Vice President (Legal, Peru)
Guillermo D. Payet 59 Vice President (Finance, Peru)
Eduardo Santistevan 56 Vice President (Logistics, Peru)
Frank R. Tweddle 38 Vice President (Commercial, Peru)
David J. Thomas 53 Vice President (Operations, Peru)
Augustus B. Kinsolving 58 Secretary, General Counsel and Director
Brendan M. O'Grady 53 Comptroller
Thomas J. Findley, Jr. 50 Treasurer
</TABLE>
Richard de J. Osborne, Chairman of the Board of the Company since February 1996
and a director since 1976. Mr. Osborne has been Chairman of the Board and Chief
Executive Officer of Asarco since 1985, its President from 1982 until 1998 and a
director since 1976.
Charles G. Preble, President and Chief Executive Officer of the Company since
1985 and a director since 1984.
Charles B. Smith, Executive Vice President and Chief Operating Officer of the
Company since February 1996. From 1992 to February 1996, he was Vice President
and General Manager (Operations, Peru). From 1988 to 1992, he served as Vice
President-U.S. Operations for ARCO Coal Company (coal production and marketing).
Ronald J. O'Keefe, Executive Vice President and Chief Financial Officer of the
Company since April 1995. Previously he was Controller of Asarco from 1982
through March 1995.
Kevin R. Morano, Vice President and a director of the Company since 1993. He has
been Executive Vice President, Chief Financial Officer and a director of Asarco
since 1998, previously its Vice President-Finance and Chief Financial Officer
from 1993 until 1998, and general manager of Asarco's Ray Complex from 1991 to
1993.
Winston Cundiff, III, Vice President (Human Resources, Peru) of the Company
since September 1996. From 1995 to August 1996 he served as General Director of
Human Resources for the Company. From 1991 to 1994, he served as Director, Human
Resources Training and Quality for Liquid Air Corporation.
Hans A. Flury, Vice President (Legal, Peru) of the Company since 1989.
Guillermo D. Payet, Vice President (Finance, Peru) of the Company since 1991.
Prior to that, he was Vice President, Finance and Logistics (Peru) from 1987 to
1991.
<PAGE>
A13
Eduardo Santistevan, Vice President (Logistics, Peru) of the Company since 1991.
From 1988 to 1990, he served as General Maintenance Superintendent. He is the
brother-in-law of Charles G. Preble.
Frank R. Tweddle, Vice President (Commercial, Peru) elected Vice President on
May 1, 1997. From May 1994 to April 1997, he was Assistant Director of Marketing
for the Company. From 1988 to April 1994 he was Vice President Trading for
Minpeco USA.
David J. Thomas, Vice President (Operations, Peru) of the Company since October
1997. Prior to that he was Director of Project Development for Touchstone Mining
(Australia) from June 1996 to September 1997. From September 1993 to May 1996 he
was Director of Austpac Gold (Australia). From 1989 to August 1993 he was Vice
President of Mellon Bank.
Augustus B. Kinsolving, Secretary, General Counsel and a director of the
Company, has been a director since 1989 and Secretary and General Counsel since
1994. He has been a Vice President of Asarco since 1983, its General Counsel
since 1986 and served as its Secretary from 1987 to 1995.
Brendan M. O'Grady, Comptroller of the Company since 1992. Previously, he was
Assistant Comptroller from 1981 to 1992.
Thomas J. Findley, Jr., Treasurer of the Company since 1996. He has been
Managing Director of Corporate Development of Asarco since 1997. Prior to that
he was Treasurer of ASARCO since 1992.
<PAGE>
A14
PART II
Item 5. Market For Registrant's Common Equity and Related Stockholder Matters
At December 31, 1997, there were 3,613 holders of record of the Company's Common
Stock. SPCC's Common Stock is traded on the New York Stock Exchange (NYSE) and
the Lima Stock Exchange (BVL). The SPCC Common Stock symbol is PCU on the NYSE
and PCUC1 on the BVL. The Common Stock commenced trading on the NYSE on a when
issued basis on January 5, 1996. Regular way trading commenced January 12, 1996.
On the BVL, the Common Stock commenced trading on January 5, 1996.
The table below sets forth the cash dividends paid per share of capital stock
and the high and low stock prices on both the NYSE and the BLV for the periods
indicated.
<TABLE>
<CAPTION>
1997 1996
---- ----
--------------------------------------------------------- ------------------------------------------------------
Quarters 1st 2nd 3rd 4th Year 1st 2nd 3rd 4th Year
--------------------------------------------------------- ------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Dividend per
share $0.30 $0.35 $0.37 $0.24 $1.26 $0.65 $0.30 $0.28 $0.24 $1.47
Stock market price NYSE:
High $17-3/8 $21-1/8 $20-7/8 $18-1/4 $21-1/8 $21 $19 $16 $16-1/4 $21
Low $15 $16-7/8 $17-5/8 $12-3/4 $12-3/4 $15 $15-1/4 $14-3/8 $13-7/8 $13-7/8
BVL:
High (a) $17.35 $21.20 $21.06 $17.99 $21.20 $21.10 $17.99 $15.45 $16.10 $21.10
Low (a) $14.85 $16.80 $17.30 $12.58 $12.58 $13.58 $14.34 $13.92 $13.50 $13.50
</TABLE>
On February 3, 1998, the Board of Directors of the Company declared a dividend
of $0.20 per share payable March 4, 1998 to stockholders of record as of
February 19, 1998.
(A) The Company's common stock is quoted on the BVL in U.S. Dollars.
For a description of limitations on the ability of the Company to make dividend
distributions, see "Management's Discussion and Analysis of Financial Condition
and Results of Operations-Liquidity and Capital Resources" and Note 12 to the
Consolidated Financial Statements of the Company.
<PAGE>
A15
Item 6. Selected Financial Data
FIVE-YEAR SELECTED FINANCIAL AND STATISTICAL DATA
<TABLE>
<CAPTION>
(in millions, except per share and employee data)
1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Consolidated Statement of Earnings:
- ----------------------------------
Net sales $814 $ 753 $ 929 $ 702 $ 547
Operating costs and expenses (1) 579 504 562 560 477
Operating income 235 249 367 142 70
Minority interest of labor shares in
income of Peruvian Branch 4 5 44 19 11
Earnings before cumulative effect of
change in accounting principle 186 181 218 91 29
Cumulative effect of change in
accounting principle - - - - 165(2)
------------------------------------------------------------
Net earnings $186 $ 181 $ 218 $ 91 $ 194
------------------------------------------------------------
Per Share Amounts (3):
Earnings before cumulative effect of
the change in accounting principle $2.32 $ 2.25 $ 3.31 $ 1.39 $ 0.45
Cumulative effect of change in
accounting principle - - - - 2.51
------------------------------------------------------------
Net earnings $2.32 $ 2.25 $ 3.31 $ 1.39 $ 2.96
------------------------------------------------------------
Dividends paid $1.26 $ 1.47 $ 1.27 $ 0.33 $ 0.27
Consolidated Balance Sheet:
Total assets $1,543 $1,280 $1,272 $ 969 $ 728
Cash and marketable securities 331 174 262 136 68
Total debt 248 107 94 118 16
Stockholders' equity 1,098 1,015 953 635 565
Consolidated Statement of Cash Flows:
Cash provided from operating activities $278 $ 159 $ 330 $ 135 $ 32
Dividends paid 101 118 84 21 18
Capital expenditures 184 121 183 182 32
Depreciation and depletion 47 42 36 40 35
Capital Stock:
Common shares outstanding 14.2 13.6 11.5 55.2 55.2
NYSE Price - high $21-1/8 $ 21 - - -
- low $12-3/4 $13-7/8 - - -
Class A common shares outstanding 65.9 66.6 68.8 - -
Book value per share $ 13.71 $ 12.66 $ 11.90 $ 9.67 $ 8.60
P/E ratio 7.28 7.10 - - -
Financial Ratios:
Current assets to current liabilities 6.6 3.8 2.8 3.0 4.2
Debt as % of capitalization 18.2% 9.3% 8.8% 14.2% 2.4%
Debt as % of capitalization, net of
excess cash (4) - - - 1.7% -
Employees (at year end) 4,829 4,859 5,035 5,407 5,629
</TABLE>
<PAGE>
Notes to five year selected financial and statistical data
(1) Includes provision for workers' participation of $14.4 million, $18.0
million, $32.2 million, $13.9 million and $8.8 million in the years
ended December 31, 1997, 1996, 1995, 1994 and 1993, respectively.
(2) Represents the cumulative effect as of January 1, 1993, of adopting
Statement of Financial Accounting Standards No. 109 "Accounting for
Income Taxes."
(3) Per share amounts are presented after giving retroactive effect to a
100 to 1 stock split declared and made on November 4, 1994. In
addition, earnings per share are basic and diluted.
(4) Available cash exceeded debt at December 31, 1997, 1996, 1995 and 1993.
<PAGE>
A17
Item 7 Management's Discussion and Analysis of Financial Condition and Results
of Operations
OVERVIEW
The Company's business is affected by the factors outlined below which should be
considered in reviewing the financial position, results of operations and cash
flows of the Company for the periods described herein.
Inflation and Devaluation of the Peruvian Sol: A portion of the Company's
operating costs are denominated in Peruvian Soles. Since the revenues of the
Company are primarily denominated in U.S. dollars, when inflation in Peru is not
offset by a corresponding devaluation of the sol, the financial position,
results of operations and cash flows of the Company could be adversely affected.
The Peruvian economy has significantly improved following the implementation of
the government's stabilization and reform plan in 1991. The recent inflation and
devaluation rates are as follows:
Years ended December 31, 1997 1996 1995
---- ---- ----
Peruvian Inflation Rate 6.5% 11.8% 10.2%
Sol/Dollar Devaluation Rate 4.9% 12.1% 6.0%
Peruvian Branch: The consolidated financial statements included herein are
prepared in U.S. dollars and in accordance with generally accepted accounting
principles in the United States (US GAAP). The Peruvian Branch (the Branch)
consists of substantially all the assets and liabilities of Southern Peru Copper
Corporation (SPCC) associated with its copper operations in the Republic of
Peru. The Branch is registered with the Peruvian government as a branch of a
foreign mining company. The results of the Branch are consolidated in the
financial statements of the Company.
The Branch maintains its books of account in soles, prepares financial
information in accordance with generally accepted accounting principles in Peru
(Peruvian GAAP) and reports to the Peruvian government on this basis for
purposes of calculating its Peruvian income tax liability as well as the amount
payable for workers' participation. Since these amounts are determined on the
basis of Peruvian GAAP, they cannot be derived directly from the consolidated
financial statements of the Company. Peruvian GAAP requires the inclusion in the
financial statements of the Branch of the Resultado por Exposicion a la
Inflacion (Result of Exposure to Inflation), which seeks to account for the
effects of inflation by adjusting the value of non-monetary assets and
liabilities and equity by a factor corresponding to wholesale price inflation
rates during the period covered by the financial statements. Monetary assets and
liabilities are not so adjusted.
Expansion and Modernization Project: In September 1996, the Company announced a
two-stage project which includes an expansion of the Cuajone mine and an
expansion and modernization of the copper smelter at Ilo. Total capital cost for
this project is estimated at $1.0 billion, budgeted to be spent over the next
six years.
The Cuajone mine expansion is expected to increase annual copper production by
130 million pounds at an estimated capital investment of $245 million.
Construction contracts for the expansion have been awarded and site construction
commenced in mid-1997. Completion of this stage of the expansion program is
expected in early 1999.
<PAGE>
A18
Engineering for the second stage of the program, the expansion and modernization
of the Ilo smelter, began in 1997. Following completion of preliminary
engineering, SPCC plans to modernize and increase the capacity of its existing
copper smelter at Ilo. The expected cost of the second stage, based on the
Company's preliminary engineering studies, is approximately $787 million and is
expected to be completed in 2003.
The Company has planned a third stage of the expansion and modernization
program, consisting of a second expansion at Cuajone and further expansion of
the Ilo smelter capacity. The Company expects to consider whether to proceed
with this third stage in 1999, dependent on the availability of financing and
other conditions at the time. The Company expects that the projects will be
funded from a combination of existing cash, internally generated funds and
external financing.
RESULTS OF OPERATIONS FOR THE YEARS ENDED
DECEMBER 31, 1997, 1996 AND 1995
SPCC reported 1997 net earnings of $185.7 million, or diluted earnings per share
of $2.32, compared with net earnings of $180.5 million, or diluted earnings per
share of $2.25 in 1996 and net earnings of $217.8 million, or diluted earnings
per share of $3.31 in 1995.
The improvement in net earnings in 1997 compared with 1996 was largely the
result of a lower effective income tax rate, offset in part by higher power
costs.
In early 1997, the Government of Peru approved a reinvestment allowance for the
Company's program to expand the Cuajone mine. Pursuant to the reinvestment
allowance, the Company receives certain tax incentives in Peru. As a result,
U.S. tax credit carryforwards for which no benefit had previously been recorded
were utilized. Principally because of the reinvestment program, the Company's
effective tax rate is lower in 1997, compared with the prior year, increasing
net earnings by approximately $14.7 million.
As a result of the $1 billion expansion program, electric power requirements
will increase significantly requiring the construction of substantial additional
generating capacity. In the second quarter of 1997, the Company sold its
existing power plant to an independent power company for $33.6 million. In
connection with the sale, a power purchase agreement was also completed, under
which the Company will purchase its power needs for the next twenty years. Under
the agreement, the cost of power will increase somewhat from its 1996 level,
however, the Company will avoid the significant capital expenditures that would
be required to meet the needs of expanded operations and its power costs will be
favorably affected by benefits available to independent power companies in Peru.
Lower copper prices decreased 1996 net earnings by an estimated $109 million
compared with 1995. This decline in earnings due to lower copper prices was
somewhat offset by increased production and lower production costs. Sales of
copper produced from the Company's mines, including the new solvent extraction-
electrowinning (SX/EW) facility increased significantly in 1996 as the operation
commenced production in late 1995. In addition, net earnings in 1996 reflect a
reduction in the minority interest of labor shares in the Branch. An exchange of
labor shares for common shares was completed in the fourth quarter of 1995 and
reduced the interest of labor shares from 17.3% to 3.3%. At December 31, 1997,
the interest of the labor shares was 2.2% as a result of subsequent open market
purchases of labor shares.
<PAGE>
A19
Net Sales: Net sales in 1997 were $814.2 million, compared with $753.0 million
in 1996 and $928.8 million in 1995. Sales increased in 1997 by $61.1 million,
largely as a result of increased copper and molybdenum volume and an increase in
the molybdenum price. Copper sales volume was 49.7 million pounds higher in 1997
compared with 1996. Of this increase, 46.4 million pounds were from purchased
concentrates and 3.3 million pounds from SPCC's own mines.
While copper sales volume was 47.7 million pounds higher in 1996 than in 1995,
net sales decreased by $175.8 million principally due to lower copper prices.
Prices: Sales prices for the Company's metals are established principally by
reference to prices quoted on the London Metal Exchange (LME) and on the New
York Commodity Exchange (COMEX) or published in Platt's Metals Week for dealer
oxide mean prices for molybdenum products.
Price/Volume Data 1997 1996 1995
---- ---- ----
Average Metal Prices
Copper (per pound - LME) $1.03 $1.04 $1.33
Molybdenum (per pound) $4.30 $3.78 $7.90
Silver (per ounce - COMEX) $4.88 $5.18 $5.18
Sales volume (in thousands)
Copper (pounds) 743,984 694,290 646,604
Molybdenum (pounds)(1) 9,398 8,813 8,402
Silver (ounces) 3,086 3,110 3,761
(1) The Company's molybdenum production is sold in concentrate form. Volume
represents pounds of molybdenum contained in concentrates.
Hedging Activities: The Company may use derivative instruments to manage its
exposure to market risk from changes in commodity prices. Derivative instruments
which are designated as hedges must be deemed effective at reducing the risk
associated with the exposure being hedged and must be designated as a hedge at
the inception of the contract.
Copper: Depending on the market fundamentals of a metal and other conditions,
the Company may purchase put options to reduce or eliminate the risk of metal
price declines below the option strike price on a portion of its anticipated
future production. Put options purchased by the Company establish a minimum
sales price for the production covered by such put options and permit the
Company to participate in price increases above the option price. The cost of
options is amortized on a straight-line basis during the period in which the
options are exercisable. Depending upon market conditions, the Company may
either sell options it holds or exercise the options at maturity. Gains or
losses from the sale or exercise of options, net of unamortized acquisition
costs, are recognized in the period in which the underlying production is sold
and are reported as a component of the underlying transaction.
Earnings include gains from option sales and exercises of $10.2 million in 1997,
$9.9 million in 1996 and losses of $2.1 million in 1995.
<TABLE>
<CAPTION>
At December 31, 1997, the Company held the following copper put options:
(in millions, except per pound amounts)
Percent of
Strike Price Unamortized Estimated
Pounds Period Per Pound Cost Production
- ------------ ------------------- ---------------------- --------------------- -------------------------------
<S> <C> <C> <C> <C>
44.0 1/98-3/98 $0.95 $0.6 27%
</TABLE>
<PAGE>
A20
Fuel Swaps: The Company may enter into fuel swap agreements to limit the effect
of changes in fuel prices on its production costs. A fuel swap establishes a
fixed price for the quantity of fuel covered by the agreement. The difference
between the published price for fuel and the price established in the contract
for the month covered by the swap is recognized in production costs. As of
December 31, 1997 the Company has entered into the following fuel swap
agreements:
<TABLE>
<CAPTION>
Percent of
Quantity Contract Estimated Fuel
Fuel Type Period (Barrels) Price Requirements
- ------------------------------- --------------------- ---------------- -------------- ------------------------
<S> <C> <C> <C> <C>
Residual Oil #6: 1/98-3/98 270,000 $13.21 88%
4/98-12/98 270,000 $13.93 30%
Diesel Fuel #2: 1/98-3/98 80,500 $20.83 54%
4/98-12/98 120,000 $21.40 27%
</TABLE>
Cost of Sales: Cost of sales was $456.5 million in 1997 compared with $389.6
million in 1996. The increase of $66.9 million was principally due to the higher
sales volume of copper produced from purchased concentrates and higher power
costs. Cost of sales decreased in 1996 by $49.8 million compared to 1995. This
reduction was attributable to lower sales of copper produced from purchased
concentrates of 61.3 million pounds, and an increase of 109.0 million pounds of
mostly low-cost SX/EW copper produced from Company mines.
Other Expenses: Depreciation and depletion expense was $46.7 million in 1997,
compared with $41.6 million in 1996 and $36.0 million in 1995. The increase in
1997 reflects depreciation on the refinery expansion program completed in late
1996, and the addition of haul trucks and other mobile equipment. The increase
in 1996 reflects a full year of depreciation on the Ilo acid plant and the
Toquepala SX/EW plant.
The provision for workers' participation was $14.4 million in 1997 compared to
$18.0 million in 1996 and $32.2 million in 1995. The decrease year over year was
due to lower pre-tax profits of the Branch. Higher copper prices in 1995
significantly increased earnings used to calculate workers' participation.
Peruvian law provides that workers in mining companies participate in 8% of
pre-tax profits. Such participations are paid in the following year.
Exploration expense was $7.4 million, $5.1 million and $2.0 million, in 1997,
1996 and 1995, respectively. Acceleration of drilling programs at the Company's
exploration properties was responsible for the increase.
Non-Operating Items: Interest income was $20.9 million in 1997 compared with
$18.3 million in 1996 and $14.8 million in 1995. The increase in 1997 reflects
higher invested cash balances partially offset by lower interest rates, while
the increase in 1996 was due to both higher invested cash balances and interest
rates. Interest income is expected to decrease as available cash is used to fund
the Company's expansion and modernization program.
Other income was $9.0 million in 1997 compared with $11.4 million in 1996 and
$12.8 million in 1995. Other income includes pre-tax gains on sales of
investments of $1.3 million in 1995 and exchange gains of $2.0 million, $6.7
million and $6.0 million for the years 1997, 1996 and 1995, respectively.
<PAGE>
A21
Interest expense was $19.6 million in 1997, compared with $12.5 million in 1996
and $13.9 million in 1995. Increased interest expense in 1997 reflects the cost
of additional borrowings in connection with the Company's expansion program. In
1997, the Company capitalized $2.3 million of interest, principally related to
expenditures on the expansion program.
Taxes on Income: Taxes on income were $55.6 million, $80.2 million and $119.1
million for 1997, 1996 and 1995, respectively, and include $45.3 million, $74.9
million and $114.5 million of Peruvian income taxes and $10.3 million, $5.3
million and $4.6 million, respectively, for U.S. federal and state taxes. U.S.
income taxes are primarily attributable to investment income as well as
limitations on use of foreign tax credits in determining the alternative minimum
tax.
In the first quarter of 1997, the Government of Peru approved a reinvestment
allowance for the Company's program to expand the Cuajone mine. The reinvestment
allowance provides the Company with tax incentives in Peru and, as a result,
certain U.S. tax credit carryforwards, for which no benefit had previously been
recorded, were realized. The reduction in the Company's effective tax rate, as a
result of the reinvestment allowance, lowered tax expense by approximately $14.7
million in 1997. Pursuant to the reinvestment allowance the Company receives tax
deductions in Peru in amounts equal to the cost of the qualifying property
(approximately $245 million). As qualifying property is acquired, the financial
statement carrying value of the qualifying property will be reduced to reflect
the tax benefit associated with the reinvestment allowance (approximately $73
million). As a result, financial statement depreciation expense related to the
qualifying property will be reduced over its useful life (approximately 15
years).
The Company obtains income tax credits in Peru for value-added taxes (VAT) paid
in connection with the purchase of capital equipment and other goods and
services employed in its operations and records these credits as a prepaid
expense. Under current Peruvian law, the Company is entitled to use the credits
against its Peruvian income tax liability or to receive a refund.
Minority Interest of Labor Shares: The minority interest of labor shares was
$4.4 million in 1997, compared to $5.2 million in 1996 and $43.6 million in
1995. The provision for minority interest of labor shares represents an accrual
of 2.4%, 3.1% and 17.3% for 1997, 1996 and 1995, respectively, of the Branch's
after-tax earnings.
The reduction in the minority interest of labor shares in 1997 and 1996 as
compared with 1995, principally reflects the effect of the exchange of labor
shares for common stock completed in the fourth quarter of 1995 and subsequent
purchases of labor shares by the Company.
Cash Flows - Operating Activities: Net cash provided from operating activities
was $277.6 million in 1997, compared with $158.8 million in 1996 and $330.4
million in 1995. The increase in 1997 reflects higher earnings of $5.1 million,
higher depreciation of $5.1 million and changes in operating assets and
liabilities. The increase in cash provided from operating assets and liabilities
reflects a decrease in trade accounts receivable due to the decline in copper
prices in the final months of 1997 and a reduction in the Company's income tax
payments, due to the reinvestment allowance in Peru. The decrease in operating
cash flow in 1996 was a result of higher Peruvian income taxes and workers'
participation paid in 1996 but accrued in 1995, and lower cash earnings.
<PAGE>
A22
Cash Flows - Investing Activities: Net cash used for investing activities was
$337.6 million in 1997, compared with $79.3 million in 1996 and $119.5 million
in 1995. Capital expenditures in 1997 were $184.0 million, compared with $120.8
million in 1996 and $183.0 million in 1995.
The increase in 1997 capital expenditures reflects $51.1 million for the Cuajone
mine expansion and $14.4 million for a new gas turbine, which was sold with the
Company's Ilo power plant.
The decline in capital expenditures in 1996 from 1995 reflects the completion of
construction of the SX/EW and sulfuric acid plants in 1995. In 1995, the Company
spent $77 million for completion of the Toquepala SX/EW plant and $36 million
for completion of the sulfuric acid plant at the Ilo smelter.
The Company's planned capital expenditures in 1998 are estimated to be
approximately $252 million, which include expenditures related to the expansion
of the Cuajone mine.
Cash Flows - Financing Activities: Financing activities provided cash of $11.8
million in 1997 compared with a use of cash of $127.6 million in 1996 and $86.1
million in 1995. Included in 1997 are proceeds from the sale of $150 million of
Secured Export Notes and the placement of $50 million of bonds in the Peruvian
market. Debt repaid in 1997 was $58.7 million, including the prepayment of a
$35.0 million loan from Mitsui & Co., Ltd. In 1997, purchases of labor shares
and treasury stock were $8.8 million and $2.0 million, respectively.
The 1996 amount includes the purchase of labor shares and treasury stock of $8.3
million, and net borrowings of $2.6 million as compared with net repayment of
borrowings of $13.3 million in 1995. The 1995 amount includes proceeds from a
subscription of labor shares of $10.9 million.
Dividends paid in 1997 were $101.1 million compared with $117.9 million in 1996
and $83.7 million in 1995. Distributions to the labor share minority interest
were $2.5 million and $4.1 million in 1997 and 1996, respectively.
On February 3, 1998 a dividend of $0.20 a share, totaling $16.0 million was
declared, payable March 4, 1998. It has been the Company's policy to distribute
approximately 50% of net earnings as dividends.
LIQUIDITY AND CAPITAL RESOURCES
Financing: In April 1997, the Company entered into a $600 million seven year
loan facility with a group of international financial institutions. The facility
consists of a $400 million term loan and a $200 million revolving credit line.
The interest rate during the first three years of the agreement on any loans
outstanding is LIBOR plus 1.75% per annum for term loans and LIBOR plus 2.0% for
revolving credit loans. A commitment fee of 0.5% per annum is payable on the
undrawn portion of the facility. No amounts have been drawn under this agreement
as of December 31, 1997.
In May 1997, the Company privately placed $150 million of Secured Export Notes
in the United States and international markets. These notes which have been
registered with the Securities and Exchange Commission, have an average maturity
of seven years and a final maturity in 2007 and were priced at par with a coupon
rate of 7.9%. In addition, in June the Company sold $50 million of bonds, due
June 2004 to investors in Peru. The bonds have a fixed interest rate of 8.25%.
Funds raised in 1997, the loan facility of $600 million and internal funds
should provide the Company with sufficient resources for its $1 billion
expansion programs.
<PAGE>
A23
The Company also has a loan outstanding with Corporacion Andina de Fomento (CAF)
of $27.5 million with interest based on LIBOR and an outstanding loan from the
United States Export - Import (EXIM) Bank of $20.4 million, with interest at a
6.43% fixed rate. Both loans are payable in semi-annual installments through
2001.
At December 31, 1997, the Company had outstanding borrowings of $247.9 million,
compared with $106.6 million at December 31, 1996.
Certain financing agreements contain covenants which limit the payment of
dividends to stockholders. Under the most restrictive covenant, the Company may
pay dividends to stockholders equal to 50% of the net income of the Company for
any fiscal quarter as long as such dividends are paid by June 30 of the
following year. Net assets of the Company unavailable for the payment of
dividends totaled $1,082 million at December 31, 1997. In accordance with the
most restrictive covenant of the Company's loan agreements, additional
indebtedness of $849.7 million would have been permitted at December 31, 1997.
The EXIM Bank credit agreement is collateralized by pledges of receivables from
7,700 tons of copper per year. The CAF loan is collateralized by liens on the
SX/EW facility. The Secured Export Notes (SENS) and the seven year loan facility
require that most of the collections of export copper sales be deposited into a
trust account in the United States. Twenty percent of these collections are used
as collateral for the outstanding SENS with the balance of the collections
remitted directly to the Company. The excess funds in the collateral account are
remitted to the Company, if all financial requirements are met. As part of these
agreements, the Company must maintain three-month and six-month collection
ratios, as defined (aggregate collection as a specified multiple of debt
service). Both facilities require escrow deposits of three months debt service.
In addition, certain of the agreements require the Company to maintain a minimum
stockholders' equity of $750 million, specified ratios of debt to equity,
current assets to current liabilities and an interest coverage test. Reduction
of ASARCO Incorporated's (Asarco) voting interest in the Company to less than a
majority would constitute an event of default under one of the financing
agreements. The Company is in compliance with the various loan covenants at
December 31, 1997. Included in Other Assets are $13.5 million held in escrow
accounts as required by the Company's loan agreements. The funds will be
released from escrow as scheduled loan repayments are made.
At December 31, 1997, the Company's debt as a percentage of total capitalization
(the total of debt, minority interest of labor shares and stockholders' equity)
was 18.2% as compared with 9.3% at December 31, 1996.
Cash Position and Requirements: At December 31, 1997, the Company's cash and
marketable securities amounted to $331.1 million compared with $174.2 million at
December 31, 1996.
EXCHANGE OFFER
In November 1995, the Company offered to exchange newly issued common stock for
any and all of the outstanding labor shares of the Company's Peruvian Branch.
The exchange offer expired on December 29, 1995, with 80.8% of outstanding labor
shares exchanged for 11,480,093 shares of common stock. The common stock has
been listed on the New York Stock Exchange and the Lima Stock Exchange since
January 5, 1996.
In conjunction with the exchange of labor shares, the founding common
stockholders of the Company exchanged their shares for Class A common shares.
<PAGE>
A24
The exchange of common stock for labor shares has been accounted for as a
purchase of a minority interest. The value of the common stock issued in the
exchange (based on the average per share trading value for the three business
days ended January 9, 1996) plus issuance costs exceeded the carrying value of
the minority interests acquired by $82.0 million, net of tax. The increase in
value was assigned to metal inventory and to proven and probable sulfide and
leachable ore reserves and mineralized material.
DIVIDENDS AND CAPITAL STOCK
The Company paid dividends to stockholders of $101.1 million, or $1.26 per
share, in 1997, $117.9 million, or $1.47 per share, in 1996 and $83.7 million,
or $1.27 per share in 1995.
At the end of 1997 and 1996, the authorized and outstanding capital stock of the
Company consisted of 65,900,833 and 66,550,833 shares of Class A common stock,
par value $0.01 per share, respectively; and 34,099,167 and 33,449,167
authorized shares of common stock, par value $0.01 per share, respectively, of
which 14,157,107 were outstanding at December 31, 1997 and 13,633,674 shares
were outstanding at December 31, 1996.
ENVIRONMENTAL MATTERS
As part of a 1991 agreement with the Peruvian government, the Company made a
significant number of environmental capital expenditures, including,
construction of a sulfuric acid plant at the Ilo smelter for partial recapture
of sulfur dioxide. An expansion of the sulfuric acid plant is expected to
commence operations during the first quarter of 1998, increasing the capture of
sulfur dioxide emissions from the smelter to 30% from the current 18%.
Environmental capital expenditures related to this expansion were approximately
$43.8 million during 1997.
The Company's exploration, mining, milling, smelting and refining activities are
subject to Peruvian laws and regulations, including environmental laws and
regulations, which change from time to time. The Company's environmental
compliance and management plan, PAMA, sets forth the investment to be made by
the Company to comply with current Peruvian environmental regulations applicable
to its operations. To implement the PAMA, the Company is required to make a
minimum annual investment of 1% of net annual sales until compliance is met. The
PAMA will require the Company to make significant additional capital
expenditures to achieve compliance with the maximum permissible levels for its
emissions and waste discharges within a period of five years, except for
environmental controls applicable to its smelter operation which must be put in
place within ten years. The PAMA contemplates a number of environmental
projects, the largest and most capital intensive of which is the planned
modernization of the Ilo smelter. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Expansion and Modernization
Project." Under current Peruvian law and regulations, compliance with the PAMA
will satisfy environmental requirements pertaining to the Company's operations
during the applicable five-or-ten year implementation period. The Company
remains, however, subject to other environmental requirements applicable to its
operations.
Impact of New Accounting Standard: In June 1997, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income." This statement which is effective for fiscal
years beginning after December 15, 1997 requires the Company to make certain
disclosures but has no impact on the Company's financial statements.
<PAGE>
A25
Other: The Company has implemented a program to identify and resolve the effect
of Year 2000 issues on the integrity and reliability of its financial and
operational systems. In addition, the Company is also communicating with its
principal customers, suppliers and service providers to ensure Year 2000 issues
will not have an adverse impact on the Company. The costs of achieving Year 2000
compliance are not expected to have a material impact on the Company's business,
operations or its financial condition.
Cautionary Statement: Forward-looking statements in this report and in other
Company statements include statements regarding expected commencement dates of
mining or metal production operations, projected quantities of future metal
production, anticipated production rates, operating efficiencies, costs and
expenditures as well as projected demand or supply for the Company's products.
Actual results could differ materially depending upon factors including the
availability of materials, equipment, required permits or approvals and
financing, the occurrence of unusual weather or operating conditions, lower than
expected ore grades, the failure of equipment or processes to operate in
accordance with specifications, labor relations, environmental risks as well as
political and economic risk associated with foreign operations. Results of
operations are directly affected by metals prices on commodity exchanges which
can be volatile.
<PAGE>
A26
Item 8. Financial Statements and Supplementary Data.
Southern Peru Copper Corporation
and Subsidiaries
CONSOLIDATED STATEMENT OF EARNINGS
<TABLE>
<CAPTION>
For the years ended December 31, 1997 1996 1995
(in thousands, except for per share amounts) ---- ---- ----
<S> <C> <C> <C>
Net sales:
Stockholders and affiliates $ 59,897 $ 71,740 $ 85,819
Others 754,259 681,292 843,021
---------------- --------------- --------------
Total net sales 814,156 753,032 928,840
Operating costs and expenses:
Cost of sales 456,509 389,577 439,382
Administrative and other 53,769 49,979 52,687
Depreciation and depletion 46,736 41,623 35,952
Provision for workers' participation 14,392 18,025 32,212
Exploration 7,390 5,063 1,950
---------------- --------------- --------------
Total operating costs and expenses 578,796 504,267 562,183
---------------- --------------- --------------
Operating income 235,360 248,765 366,657
Interest income 20,934 18,264 14,827
Interest expense (19,573) (12,467) (13,904)
Other income 8,984 11,358 12,825
---------------- --------------- --------------
Earnings before taxes on income and minority interest
of labor shares 245,705 265,920 380,405
Taxes on income 55,610 80,200 119,093
Minority interest of labor shares in income of Peruvian
Branch (4,437) (5,208) (43,558)
---------------- --------------- --------------
Net earnings $185,658 $180,512 $217,754
================ =============== ==============
Per common share amounts:
Net earnings - basic and diluted $2.32 $2.25 $3.31
Dividends paid $1.26 $1.47 $1.27
Weighted average number of shares outstanding-basic 80,188 80,195 65,717
Weighted average number of shares outstanding-diluted 80,197 80,252 65,717
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
A27
Southern Peru Copper Corporation
and Subsidiaries
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
At December 31, 1997 1996
---- ----
(Dollars in thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 126,491 $ 173,205
Marketable securities 204,590 1,000
Accounts receivable:
Trade:
Stockholders and affiliates 2,941 8,504
Other trade 44,740 70,252
Other 26,083 10,831
Inventories 108,683 118,681
Other current assets 48,062 20,637
-----------------------------------
Total current assets 561,590 403,110
Net property 947,457 855,808
Other assets 34,278 20,931
===================================
Total assets $1,543,325 $1,279,849
===================================
LIABILITIES
Current liabilities:
Current portion of long-term debt $ 13,683 $ 23,683
Accounts payable:
Trade 22,296 23,740
Other 25,645 10,124
Other current liabilities 23,490 47,768
-----------------------------------
Total current liabilities 85,114 105,315
-----------------------------------
Long-term debt 234,208 82,892
Deferred credits 58,574 -
Deferred income taxes 44,823 49,426
Other liabilities 4,083 4,806
-----------------------------------
Total non-current liabilities 341,188 137,124
-----------------------------------
Contingencies
Minority interest of labor shares in the
Peruvian Branch 19,385 22,383
-----------------------------------
STOCKHOLDERS' EQUITY
Common stock, par value $0.01; shares authorized:
1997 - 34,099,167; 1996 - 33,449,167
shares issued: 1997 - 14,330,093;
1996 - 13,680,093 143 137
Class A Common stock, par value $0.01;
Shares issued and authorized: 1997 - 65,900,833;
1996 - 66,550,833 659 666
Additional paid-in capital 265,745 265,745
Retained earnings 833,560 749,267
Treasury stock, at cost, common shares 1997 -
172,986; 1996 - 46,419 (2,469) (788)
-----------------------------------
Total Stockholders' Equity 1,097,638 1,015,027
-----------------------------------
Total Liabilities, Minority Interest
and Stockholders' Equity $1,543,325 $1,279,849
===================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
A28
Southern Peru Copper Corporation
and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
For the years ended December 31, 1997 1996 1995
---- ----- ----
(Dollars in thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net earnings $185,658 $180,512 $217,754
Adjustments to reconcile net earnings to net cash provided from operating
activities:
Depreciation and depletion 46,736 41,623 35,952
Provision (benefit) for deferred income taxes (7,289) 12,043 3,168
Minority interest of labor shares 4,437 5,208 43,558
Net loss on sale of investments and property 268 110 2,473
Cash provided from (used for) operating assets and liabilities:
Accounts receivable 15,718 10,498 (1,939)
Inventories 9,998 (15,046) 7,992
Accounts payable and accrued liabilities (7,089) (52,023) 19,667
Other operating assets and liabilities 30,747 (17,444) 7,699
Foreign currency transaction gain (1,616) (6,707) (5,950)
----------------------------------------------------
Net cash provided from operating activities 277,568 158,774 330,374
----------------------------------------------------
INVESTING ACTIVITIES
Capital expenditures (183,956) (120,803) (183,041)
Release of restricted cash - - 60,450
Purchase of held-to-maturity investments (204,590) - (76,333)
Proceeds from held-to-maturity investments 1,000 41,453 76,877
Sales of investments and property 49,914 - 2,596
----------------------------------------------------
Net cash used for investing activities (337,632) (79,350) (119,451)
----------------------------------------------------
FINANCING ACTIVITIES
Debt incurred 200,000 47,000 62,000
Debt repaid (58,684) (34,289) (86,110)
Escrow deposits on long-term loans (15,364) (10,065) 10,809
Dividends paid to common stockholders (101,050) (117,913) (83,747)
Distributions to minority interests (2,504) (4,091) -
Net treasury stock transactions (1,681) (1,155) -
Purchases of labor shares (8,885) (7,130) -
Proceeds from labor share subscription - - 10,944
----------------------------------------------------
Net cash provided from (used for)
financing activities 11,832 (127,643) (86,104)
----------------------------------------------------
Effect of exchange rate changes on cash 1,518 1,778 1,491
----------------------------------------------------
Increase (decrease) in cash and cash equivalents (46,714) (46,441) 126,310
Cash and cash equivalents, at beginning of year 173,205 219,646 93,336
----------------------------------------------------
Cash and cash equivalents, at end of year $126,491 $173,205 $219,646
----------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
A29
Southern Peru Copper Corporation
and Subsidiaries
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
For the years ended December 31, 1997 1996 1995
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
CAPITAL STOCK:
SOUTHERN PERU COPPER CORPORATION
COMMON STOCK:
Balance at beginning of year $137 $115 $ -
Issuance of 11,480,093 shares - - 115
Conversion from Class A to Common Stock, 1997 - 650,000 shares; 1996 -
2,200,000 shares 6 22 -
---------------------------------------------------
Balance at end of year 143 137 115
---------------------------------------------------
CLASS A COMMON STOCK:
Balance at beginning of year 666 688 -
Issuance of 68,750,833 shares - - 688
Conversion to Common Stock, 1997 - 650,000 shares;
1996 - 2,200,000 shares (7) (22) -
---------------------------------------------------
Balance at end of year 659 666 688
---------------------------------------------------
SOUTHERN PERU LIMITED
COMMON STOCK:
Balance at beginning of year, 76,251,193 shares - - 763
Retirement of treasury stock, 10,533,700 shares - - (106)
Exchange for shares of Southern Peru
Copper Corporation, 65,717,493 shares - - (657)
---------------------------------------------------
Balance at end of year - - -
---------------------------------------------------
ADDITIONAL PAID-IN CAPITAL:
SOUTHERN PERU COPPER CORPORATION
Balance at beginning of year 265,745 265,738 -
Additional paid-in capital on shares issued - - 81,222
Market value of shares issued in exchange for
labor shares - - 184,516
Additional paid-in capital on treasury shares issued - 7 -
---------------------------------------------------
Balance at end of year 265,745 265,745 265,738
---------------------------------------------------
SOUTHERN PERU LIMITED
Balance at beginning of year - - 122,477
Retirement of treasury stock - - (41,224)
Exchange to shares of Southern Peru Copper Corp. - - (81,253)
---------------------------------------------------
Balance at end of year - - -
---------------------------------------------------
TREASURY STOCK:
SOUTHERN PERU COPPER CORPORATION
Balance at beginning of year (788) - -
Purchased 1,997) (1,155) -
Used for corporate purposes 316 367 -
---------------------------------------------------
Balance at end of year (2,469) (788) -
---------------------------------------------------
SOUTHERN PERU LIMITED
Balance at beginning of year, 10,533,700 shares - - (60,000)
Retirement of 10,533,700 shares of treasury stock - - 60,000
---------------------------------------------------
Balance at end of year - - -
---------------------------------------------------
RETAINED EARNINGS:
Balance at beginning of year 749,267 686,946 571,609
Net earnings 185,658 180,512 217,754
Dividends paid (101,050) (117,913) (83,747)
Stock awards (315) (278) -
Retirement of treasury stock - - (18,670)
---------------------------------------------------
Balance at end of year 833,560 749,267 686,946
---------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY $1,097,638 $1,015,027 $ 953,487
---------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
A30
SOUTHERN PERU COPPER CORPORATION
and SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Principles of consolidation:
The consolidated financial statements of Southern Peru Copper Corporation and
Subsidiaries (the Company) include the accounts of significant subsidiaries in
which the Company has voting control, and are prepared in accordance with
generally accepted accounting principles in the United States (U.S. GAAP).
Certain prior year amounts have been reclassified to conform to the current
year's presentation.
Use of estimates:
The preparation of financial statements in conformity with U.S. GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Revenue recognition:
Substantially all of the Company's copper is sold under annual contracts. Sales
are recognized when title passes. Pricing is based on prevailing monthly average
London Metal Exchange (LME) copper prices for a quotation period, generally
being the month of, the month prior or the month following the actual or
contractual month of shipment or delivery according to the terms of the
contracts. Price estimates used for provisionally priced sales are based on
prices in effect at the time of shipment or period end prices, if lower, and
these estimates are subject to change during the settlement period. The Company
sells copper in blister and refined form at industry standard commercial terms.
Net sales include the invoiced value of copper, silver, molybdenum, and gains
from the sale or settlement of copper put options.
Cash equivalents and marketable securities:
Cash equivalents include all highly liquid investments with a maturity of three
months or less, when purchased. Marketable securities include short-term liquid
investments with a maturity of more than three months, when purchased, and are
carried at cost, which approximates market.
Inventories:
Metal inventories are carried at the lower of average cost or market. Costs
incurred in the production of metal inventories exclude general and
administrative costs. Supplies inventories are carried at average cost less a
reserve for obsolescence.
Property:
Assets are valued at cost or net realizable value. In accordance with SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of", the Company reviews long-lived assets, certain
identifiable intangibles and goodwill related to those assets for impairment
whenever events or changes in circumstances indicate that the carrying amount of
the assets may not be recoverable. The impairment loss on such assets, as well
as long-lived assets and certain identifiable intangibles to be disposed of, is
measured as the amount by which the carrying value of the assets exceeds the
fair value of the assets (less disposal costs, if applicable).
The Company evaluates the carrying value of assets based on undiscounted future
cash flows considering expected metal prices based on historical metal prices
and price trends.
<PAGE>
A31
Betterments, renewals, costs of bringing new mineral properties into production,
and the cost of major development programs at existing mines are capitalized as
mineral land. Maintenance, repairs, normal development costs at existing mines,
and gains or losses on assets retired or sold are reflected in earnings as
incurred. Buildings and equipment are depreciated on the straight-line method
over estimated lives from 5 to 40 years, or the estimated life of the mine if
shorter. Depletion of mineral land is computed by the units-of-production method
using proven and probable ore reserves.
Exploration:
Tangible and intangible costs incurred in the search for mineral properties are
charged against earnings when incurred.
Financial Instruments:
The Company may use derivative instruments to manage its exposure to market risk
from changes in commodity prices. Derivative instruments which are designated as
hedges must be deemed effective at reducing the risk associated with the
exposure being hedged and must be designated as a hedge at the inception of the
contract.
Depending on the market fundamentals of a metal and other conditions, the
Company may purchase put options to reduce or eliminate the risk of metal price
declines below the option strike price on a portion of its anticipated future
production. The cost of options is amortized on a straight-line basis during the
period in which the options are exercisable. Gains or losses from the sale or
exercise of options, net of unamortized acquisition costs, are recognized in the
period in which the underlying hedged production is sold and are reported as a
component of the underlying transaction.
The Company may enter into fuel swap agreements to limit the effect of fuel
price changes on production costs. A fuel swap establishes a fixed price for the
quantity of fuel covered by the agreement. The difference between the published
price for fuel and the price established in the contract for the month covered
by the swap is recognized in production costs.
Stock Based Compensation:
In 1996 the Company elected to apply the disclosure only provisions of Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation."
Impact of New Accounting Standard:
In 1997 the Company adopted Statement of Financial Accounting Standards No. 128,
"Earnings per Share." The statement did not have a material impact on the
Company's financial statements.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income." This
statement which is effective for fiscal years beginning after December 15, 1997,
requires the Company to make certain disclosures but has no impact on the
Company's financial statements.
2. Exchange Offer
Southern Peru Copper Holding Company, (the Holding Company), was incorporated on
September 7, 1995, pursuant to the General Corporation Law of the State of
Delaware for the purpose of conducting an exchange offer of its common stock,
par value $0.01 per share for any and all labor shares of the Peruvian Branch
(the Branch) of Southern Peru Copper Corporation (the Operating Company). In
connection with the exchange offer, the Operating Company changed its name to
Southern Peru Limited (SP Limited) and the Holding Company changed its name to
Southern Peru Copper Corporation.
<PAGE>
A32
The exchange offer expired on December 29, 1995, with 80.8% of the labor shares
tendered which reduced the interest of labor shares from 17.3% to 3.3%. The
common stock is listed on the New York Stock Exchange and the Lima Stock
Exchange and trading commenced January 5, 1996.
In addition, the stockholders of SP Limited exchanged 65,717,493 shares of their
common stock for 68,750,833 shares of Class A common stock in the Company.
With the completion of the exchange offer, the Company has outstanding two
classes of common stock, the common stock exchanged for labor shares and Class A
common stock which at December 31, 1997, represented 17.8% and 82.2% of the
common equity of the Company, respectively. Holders of common stock are entitled
to one vote per share and holders of Class A common stock are entitled to five
votes per share except for the election of directors and as required by law.
The exchange of common stock for labor shares was accounted for as a purchase of
a minority interest. The value of the common stock issued in the exchange (based
on the average per share trading value for the three business days ended January
9, 1996) plus issuance costs exceeded the carrying value of the minority
interests acquired by $82.0 million, net of income taxes. The increase in value
was assigned to proven and probable sulfide and leachable ore reserves and
mineralized material which is being amortized based on the units of production
method, and to metal inventory.
The following table provides the comparative unaudited proforma 1995 earnings
information, as if the exchange offer were completed on January 1, 1995:
<TABLE>
<CAPTION>
1995
(Unaudited)
<S> <C> <C>
Historical Proforma
(in millions, except per share data)
Net sales $ 928.8 $ 928.8
------ ------
Earnings before taxes on
income and minority interest of labor shares 380.4 370.7(a)
Taxes on income 119.1 118.9(b)
Minority interest of labor
shares in Peruvian Branch 43.5 7.7(c)
-- ---- ----
Net earnings $ 217.8 $ 244.1
====== ======
Net earnings per share (basic and diluted) $ 3.31 $ 3.04
Cash dividends paid per share $ 1.27 $ 1.04
Weighted average number of
shares outstanding 65.7 80.2
</TABLE>
(a) The market value of the common stock issued for labor shares tendered
pursuant to the exchange offer was in excess of the book value of the
minority interest of such labor shares. This excess was assigned to proven
and probable mineral reserves, mineralized material and to metal inventory.
Proforma earnings reflect the amortization of the excess of market value
over book value which was assigned to mineral reserves and mineralized
material, based on actual copper production and a charge to cost of
products sold of the excess amount which would have been assigned to metal
inventory at January 1, 1995.
(b) Reflects the reduction of the deferred income taxes related to the
amortization of the excess of the market value of common stock issued for
labor shares tendered pursuant to the exchange offer over the book value of
the minority interest of such labor shares.
(c) Reflects the reduction of the minority interest of the labor shares
tendered pursuant to the exchange offer.
<PAGE>
A33
3. Foreign Exchange
The functional currency of the Company is the U.S. dollar. The Company's sales,
cash, trade receivables, fixed asset additions, trade payables and debt are
primarily dollar-denominated. A portion of the operating costs of the Company is
denominated in Peruvian soles.
Gains resulting from foreign currency transactions are included in "Other
income" and amounted to $2.0 million, $6.7 million and $6.0 million in 1997,
1996 and 1995, respectively.
4. Taxes on Income
The components of the provision for taxes on income are as follows:
<TABLE>
<CAPTION>
For the years ended December 31, 1997 1996 1995
---- ---- ----
(in millions)
<S> <C> <C> <C>
------------------- --------------- ---------------
U.S. Federal and state $ 10.6 $ 5.3 $ 4.6
------------------- --------------- ---------------
Foreign:
Current 52.3 62.9 111.3
Deferred (7.3) 12.0 3.2
------------------- --------------- ---------------
Foreign 45.0 74.9 114.5
=================== =============== ===============
Total provision for income taxes $ 55.6 $ 80.2 $ 119.1
=================== =============== ===============
</TABLE>
Total taxes paid were $30.1 million, $123.4 million and $80.1 million in
1997, 1996 and 1995, respectively.
Reconciliation of the statutory income tax rate to the effective income tax rate
is as follows:
<TABLE>
<CAPTION>
For the years ended December 31, 1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Peruvian income tax at maximum
statutory rates 30.0% 30.0% 30.0%
U.S. income tax at statutory rate 35.0 35.0 35.0
Utilization of foreign tax credits (16.9) (25.3) (27.9)
Peruvian reinvestment allowance (9.0) - -
Alternative minimum tax (AMT) credit (3.4) - -
Percentage depletion (9.6) (9.0) (6.6)
Income not deductible (not taxable)
in Peru (2.6) (1.8) 0.1
Other (0.9) 1.3 0.7
==================== =================== ====================
Effective income tax rate 22.6% 30.2% 31.3%
==================== =================== ====================
</TABLE>
<PAGE>
A34
Temporary differences and carryforwards which give rise to deferred tax assets,
liabilities and related valuation allowances are as follows:
<TABLE>
<CAPTION>
Deferred tax assets (liabilities)
At December 31, 1997 1996
---- ----
(in millions)
<S> <C> <C>
Current:
Accounts receivable $1.6 $ 0.5
Inventories 0.1 0.1
------------------- ------------------
Net deferred tax assets 1.7 0.6
------------------- ------------------
Non-current:
Foreign tax credit carryforwards - 69.4
AMT credit carryforwards - 6.8
Property, plant and equipment (43.5) (48.7)
Other (0.8) (0.7)
Valuation allowance for deferred tax assets - (76.2)
------------------- ------------------
Net deferred tax liabilities (44.3) (49.4)
------------------- ------------------
Total net deferred tax liabilities $(42.6) $ (48.8)
=================== ==================
</TABLE>
The decrease in the valuation allowance of $76.2 million from 1996 to 1997 is
primarily attributable to the utilization of foreign tax credits and alternative
minimum tax credits in 1997.
In the first quarter of 1997, the Government of Peru approved a reinvestment
allowance for the Company's program to expand the Cuajone Mine. The reinvestment
allowance provides SPCC with tax incentives in Peru, and as a result, certain
U.S. tax credit carryforwards, for which no benefit had previously been
recorded, were realized. The reduction in the effective tax rate, as a result of
the reinvestment allowance for the twelve months ended December 31, 1997,
lowered tax expense approximately $14.7 million. Pursuant to the reinvestment
allowance SPCC has received tax deductions in Peru in amounts equal to the cost
of the qualifying property (approximately $245 million). As qualifying property
is acquired, the financial statement carrying value of the qualifying property
will be reduced to reflect the tax benefit associated with the reinvestment
allowance (approximately $73 million). As a result, financial statement
depreciation expense related to the qualifying property will be reduced over its
useful life (approximately 15 years).
The Company obtains income tax credits in Peru for value-added taxes (VAT)paid
in connection with the purchase of capital equipment and other goods and
services employed in its operations and records these credits as a prepaid
expense. Under current Peruvian law, the Company is entitled to use the credits
against its Peruvian income tax liability or to receive a refund. The carrying
value of these Peruvian tax credits approximates their market value.
<PAGE>
A35
5. Net Sales
<TABLE>
<CAPTION>
Net sales by country were as follows:
For the years ended December 31, 1997 1996 1995
---- ---- ----
(in millions)
<S> <C> <C> <C>
United States $132.1 $ 77.4 $ 60.3
Italy 110.0 109.4 153.0
United Kingdom 98.4 110.3 108.8
The Netherlands 83.8 94.3 189.7
Japan 72.5 82.0 102.4
Foreign - Other 317.4 279.6 314.6
================ ============== ===============
Net sales $814.2 $753.0 $928.8
================ ============== ===============
</TABLE>
At December 31, 1997, the Company had recorded sales of 42.1 million pounds of
copper at a provisional price of 78.2 cents per pound. These sales are subject
to final pricing based on the average monthly LME copper price in the month of
final settlement which will occur principally in the first quarter of 1998.
Under the terms of a sales contract with Union Miniere, the Company is required
to supply Union Miniere, through its agent, S.A. Sogem N.V., with 46,300 tons of
blister copper annually for a ten year period from January 1, 1994, through
December 31, 2003. The price of the copper, contained in blister, supplied under
the contract is determined based on the LME monthly average settlement price
less a refining allowance, which is agreed upon annually based on world market
terms.
Under the terms of a sales contract with Mitsui & Co. Ltd (Mitsui), the Company
is required to supply to Mitsui, at its option, up to 26,455 tons of copper
cathodes annually for a seven year period from January 1, 1994 through December
31, 2000. Pricing of the cathodes is based upon the LME monthly average
settlement price plus a producer premium which is agreed upon annually based on
world market terms.
6. Financial Instruments
Hedging Activities: The Company may use derivative instruments to manage its
exposure to market risk from changes in commodity prices. Derivative instruments
which are designated as hedges must be deemed effective at reducing the risk
associated with the exposure being hedged and must be designated as a hedge at
the inception of the contract.
Copper: Depending on the market fundamentals and other conditions, the Company
may purchase put options to reduce or eliminate the risk of price declines below
the option strike price on a portion of its anticipated future production. Put
options purchased by the Company establish a minimum sales price for the
production covered by such put options and permit the Company to participate in
price increases above the option price. The cost of options is amortized on a
straight-line basis during the period in which the options are exercisable.
Depending upon market conditions the Company may either sell options it holds or
exercise the options at maturity. Gains or losses from the sale or exercise of
options, net of unamortized acquisition costs, are recognized in the period in
which the underlying production is sold and are reported as a component of the
underlying transaction.
<PAGE>
A36
Earnings include gains from option sales and exercises of $10.2 million in 1997,
$9.9 million in 1996 and losses of $2.1 million in 1995.
<TABLE>
<CAPTION>
At December 31, 1997, the Company held the following copper put options:
(in millions, except per pound amounts)
Percent of
Strike Price Unamortized Estimated
Pounds Period Per Pound Cost Production
- ------------ ------------------- ---------------------- --------------------- -------------------------------
<S> <C> <C> <C> <C>
44.0 1/98-3/98 $0.95 $0.6 27%
</TABLE>
Fuel Swaps: The Company may enter into fuel swap agreements to limit the effect
of changes in fuel prices on its production costs. A fuel swap establishes a
fixed price for the quantity of fuel covered by the agreement. The difference
between the published price for fuel and the price established in the contract
for the month covered by the swap is recognized in production costs. As of
December 31, 1997, the Company has entered into the following fuel swap
agreements:
<TABLE>
<CAPTION>
Percent of
Quantity Contract Estimated Fuel
Fuel Type Period (Barrels) Price Requirement
- --------------------------- ----------------------- ------------------------ ------------------------ ------------------------
<S> <C> <C> <C> <C>
Residual Oil #6: 1/98-3/98 270,000 $13.21 88%
4/98-12/98 270,000 $13.93 30%
Diesel Fuel #2: 1/98-3/98 80,500 $20.83 54%
4/98-12/98 120,000 $21.40 27%
</TABLE>
The estimated fair value of the Company's financial instruments is:
<TABLE>
<CAPTION>
At December 31, 1997 1996
(in millions) Carrying Fair Carrying Fair
Value Value Value Value
<S> <C> <C> <C> <C> <C>
Assets:
Cash and cash equivalents $126.5 $126.5 $ 173.2 $ 173.2
Marketable securities -
held to maturity 204.6 204.6 1.0 1.0
Put options 0.6 7.2 - -
Fuel swap agreements - (0.5) - -
Liabilities:
Long-term debt $247.9 $248.3 $ 106.6 $ 102.3
</TABLE>
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value:
Cash and cash equivalents - The carrying amount approximates fair value because
of the short maturity of these instruments.
Marketable securities - The carrying amount and fair value are reported at
amortized cost, which approximates market, since these securities are to be held
to maturity.
<PAGE>
A37
Put options - Fair value is an estimate based on relevant market information
such as: volatility of similar options, futures prices and the contracted strike
price.
Fuel swap agreements - Fair value is based on quoted market prices.
Long-term debt - Fair value is based on the quoted market prices for the same or
similar issues.
7. Workers' Participation
Provisions for workers' participation are calculated at 8% of pre-tax Branch
earnings as required by Peruvian law. This participation is accrued during the
year and distributed to workers following determination of final results for the
year.
8. Minority Interest of Labor Shares
The minority interest of the labor shares is based on the earnings of the
Company's Peruvian Branch.
During 1997 and 1996, the Company acquired approximately 2.0 million (1.8
million in 1996) labor shares representing a 0.6% (0.5% in 1996) interest in the
Branch at a total cost of $8.9 million ($7.1 million in 1996). The carrying
value of the minority interest was reduced by $5.1 million and the excess paid
over the carrying value of $3.8 million was assigned primarily to proven and
probable sulfide and leachable ore reserves and mineralized material and is
being amortized based on production. As a result of the acquisition, the
remaining labor shareholders hold a 2.2% interest in the Branch at December 31,
1997, and are entitled to a pro rata participation in the cash distributions
made by the Branch. The labor shares are recorded as a minority interest in the
Company's financial statements.
9. Inventories
<TABLE>
<CAPTION>
At December 31, 1997 1996
---- ----
(in millions)
<S> <C> <C>
Metals:
Finished goods $ 0.6 $ 2.4
Work-in-process 45.0 47.1
Supplies, net of reserves 63.1 69.2
----------------- -----------------
----------------- -----------------
Total inventories $108.7 $118.7
----------------- -----------------
</TABLE>
10. Property
<TABLE>
<CAPTION>
At December 31, 1997 1996
---- ----
(in millions)
<S> <C> <C>
Buildings and equipment $1,574.3 $ 1,503.3
Mineral land 250.0 235.3
Land, other than mineral 1.3 0.9
----------------- -----------------
----------------- -----------------
Total property 1,825.6 1,739.5
Accumulated depreciation 878.1 883.7
---------------- -----------------
Net property $ 947.5 $ 855.8
----------------- -----------------
</TABLE>
<PAGE>
A38
11. Other Current Liabilities
<TABLE>
<CAPTION>
At December 31, 1997 1996
(in millions) ---- ----
<S> <C> <C>
Accrued workers' participation $13.8 $ 16.7
Accrued severance pay, current portion 1.7 3.1
Salaries and wages 8.0 8.1
Taxes on income - 8.9
Other - 11.0
----------------- -----------------
Total other current liabilities $23.5 $ 47.8
----------------- -----------------
</TABLE>
12. Debt and Available Credit Facilities
<TABLE>
<CAPTION>
Long-term debt at December 31, 1997 1996
---- ----
(in millions)
<S> <C> <C>
6.43% EXIM Bank credit agreement $20.4 $ 26.3
CAF credit agreement - average 9.4% 27.5 35.3
Mitsui credit agreement - LIBOR + 2.87% - 45.0
7.9% Secured Export Notes due 2007 150.0 -
8.25% Corporate bonds due 2004 50.0 -
----------------- -----------------
Total debt 247.9 106.6
Less, current portion 13.7 23.7
----------------- -----------------
Total long-term debt $234.2 $ 82.9
----------------- -----------------
</TABLE>
Interest paid by the Company (excluding amounts capitalized of $2.3 million, nil
and $1.8 million in 1997, 1996 and 1995, respectively) was $19.0 million, $10.8
million and $12.6 million in 1997, 1996 and 1995, respectively.
Fees paid for loan agreements of $13.9 million and $1.6 million in 1997 and
1995, respectively, are included in other assets and amortized over the
respective terms of the loans.
Aggregate maturities of the borrowings outstanding at December 31, 1997,
are as follows (in millions):
<TABLE>
<CAPTION>
<S> <C>
1998 $13.7
1999 13.7
2000 23.3
2001 24.3
2002 18.9
Thereafter 154.0
--------------------
Total $247.9
--------------------
</TABLE>
In April 1997, the Company entered into a $600 million seven-year credit
agreement with a group of international financial institutions. The agreement
consists of a $400 million term loan facility and a $200 million revolving
credit facility. The interest rate during the first three years of the agreement
on any loans outstanding is LIBOR plus 1.75% per annum for term loans and LIBOR
plus 2.0% for revolving credit loans. A commitment fee of 0.5% per annum is
payable on the undrawn portion of the facility. No amounts have been drawn under
this agreement as of December 31, 1997.
<PAGE>
A39
In May 1997, the Company privately placed $150 million of Secured Export Notes
in the United States and international markets. These notes were issued with an
average maturity of seven years and a final maturity in 2007 and were priced at
par with a coupon rate of 7.9%. In addition, in June 1997 the Company sold $50
million of 8.25% bonds due June 2004 to investors in Peru.
Some financing agreements contain covenants which limit the payment of dividends
to stockholders. Under the most restrictive covenant, the Company may pay
dividends to stockholders equal to 50% of its net income for any fiscal quarter
as long as such dividends are paid by June 30 of the following year. As a
result, net assets of the Company unavailable for the payment of dividends
totaled $1,082 million at December 31, 1997. In accordance with the most
restrictive covenant of the Company's loan agreements, additional indebtedness
of $849.7 million would have been permitted at December 31, 1997.
The EXIM Bank credit agreement is collateralized by pledges of receivables from
sales of 7,700 tons of copper per year. The CAF loan is collateralized by liens
on the SX/EW facility. The Secured Export Notes and the seven-year loan facility
require that most of the collections of export copper sales be deposited into a
trust account in the United States. Twenty percent of these collections are used
as collateral for the outstanding Secured Export Notes with the balance of the
collections remitted directly to the Company. The excess funds in the collateral
account are remitted to the Company, if all financial requirements are met. As
part of these agreements, the Company must maintain three month and six month
collection ratios, as defined (aggregate collection as a specified multiple of
debt service). Both facilities require escrow deposits of three months debt
service. In addition, certain of the agreements require the Company to maintain
a minimum stockholders' equity of $750 million, specified ratios of debt to
equity, current assets to current liabilities and an interest coverage test.
Reduction of ASARCO Incorporated's (Asarco) voting interest in the Company to
less than a majority would constitute an event of default under one of the
financing agreements. The Company is in compliance with the various loan
covenants at December 31, 1997. Included in Other Assets are $13.5 million held
in escrow accounts as required by the Company's loan agreements. The funds will
be released from escrow as scheduled loan repayments are made.
13. Benefit Plans
The Company has two noncontributory, defined benefit pension plans covering
salaried employees in the United States and certain employees in Peru. Benefits
are based on salary and years of service. The Company's funding policy is to
contribute amounts to the plans sufficient to meet the minimum funding
requirements set forth in the Employee Retirement Income Security Act of 1974,
plus such additional amounts as the Company may determine to be appropriate.
Plan assets are primarily invested in immediate participation guarantee
contracts, mutual funds, stock index funds and deposit administration contracts.
Effective January 1, 1997 one of the Company's pension plans, which provides
benefits to non-U.S. expatriate employees, was amended to cease future benefit
accruals. Accordingly, those participants became eligible for future benefits
under the Company's other pension plan.
<PAGE>
A40
Net pension costs consisted of:
<TABLE>
<CAPTION>
For the years ended December 31, 1997 1996 1995
(in millions) ---- ---- ----
<S> <C> <C> <C>
Service cost $ 0.4 $ 0.5 $ 0.3
Interest cost on projected
benefit obligations 0.6 0.5 0.4
Actual return on plan assets (0.6) (0.6) (0.4)
Other items - 0.4 0.3
------------------- ------------------- --------------------
Net pension cost $ 0.4 $ 0.8 $ 0.6
------------------- ------------------- --------------------
</TABLE>
The funded status of the plans using the projected unit credit method is:
<TABLE>
<CAPTION>
At December 31, 1997 1996
(in millions) ---- ----
<S> <C> <C>
Assets and obligations:
Vested benefit obligation $7.8 $ 5.3
Nonvested benefits 0.5 0.5
------------------- -----------------
Accumulated benefit obligation 8.3 5.8
Plan assets at fair value 9.0 5.0
------------------- -----------------
------------------- -----------------
Plan assets in excess of (less than)
accumulated benefit obligation 0.7 (0.8)
------------------- -----------------
------------------- -----------------
Projected benefit obligation (PBO) 9.7 7.2
Plan assets at fair value 9.0 5.0
------------------- -----------------
Plan assets less than PBO (0.7) (2.2)
Minimum liability - (0.5)
Prior service cost (0.1) (0.1)
Initial net plan obligation 1.8 2.1
Effect of changes in assumptions and
actuarial gains and losses (0.6) (0.2)
------------------- -----------------
Pension asset (liability) reflected
in consolidated balance sheet $0.4 $(0.9)
=================== =================
</TABLE>
The actuarial computations for 1997 and 1996 are based upon a discount rate on
benefit obligations of 7%, an expected long-term rate of return on plan assets
of 8% and expected annual salary increases of 4%.
Post-retirement Benefits:
The post-retirement health care plan for retired salaried employees eligible for
Medicare was adopted by the Company on May 1, 1996. Secondary coverage under the
Company's plan is available for all retired salaried employees who permanently
reside in the United States and who contribute amounts as defined by the plan.
Net periodic post-retirement benefit costs include:
<TABLE>
<CAPTION>
For the year ended December 31, 1997 1996
(in millions) ---- ----
<S> <C> <C>
Service and interest cost $0.1 $0.1
Amortization of prior service cost 0.1 0.1
--- ---
Net periodic post-retirement benefit costs $0.2 $0.2
==== ====
</TABLE>
<PAGE>
A41
The following sets forth the plan's status reconciled with amounts reported in
the Consolidated Balance Sheet:
<TABLE>
<CAPTION>
At December 31, 1997 1996
(in millions) ---- ----
<S> <C> <C>
Accumulated post-retirement benefit obligation (APBO):
Retirees $0.2 $0.2
Fully eligible active plan participants 0.1 0.1
Other plan participants 0.6 0.6
--- ---
Total APBO 0.9 0.9
Item not yet recognized in earnings:
Prior service cost (0.5) (0.7)
----- -----
Post-retirement benefit obligation $0.4 $0.2
==== ====
</TABLE>
The annual assumed rate of increase in the per capita cost of covered benefits
(i.e. health cost trend rate) is 6% for 1997 and 1996 and is assumed to decrease
gradually to 5% by 1999 and remain at that level thereafter. The health care
cost trend rate assumption has a significant effect on the amounts reported. For
example, increasing the assumed health care cost trend rates by one percentage
point in each year would increase the accumulated post-retirement benefit
obligation at December 31, 1997 by $0.1 million and would have no material
effect on the net periodic post-retirement benefit costs for 1997. The discount
rate used in determining the accumulated post-retirement benefit obligation was
7% at December 31, 1997 and 1996. The plan is unfunded.
Employee Savings Plan:
The Company maintains an employee savings plan for employees working in the
United States and expatriate employees in Peru which permits employees to make
contributions by salary reduction pursuant to section 401(k) of the Internal
Revenue Code. The plan was amended, effective January 1, 1997, to include a
Company matching contribution equal to 50% of the first 6% of employee
contributions. In connection with the required match, the Company's
contributions charged against earnings were $0.2 million in 1997.
14. Stockholders' Equity
Common Stock:
The stockholders of the Company at December 31, 1997 were:
<TABLE>
<CAPTION>
Percent of
Total Number of
-------------------- --------------------
<S> <C> <C>
Class A Common Shares:
ASARCO Incorporated 43,348,949 54.1%
Cerro Trading Company, Inc. 11,378,088 14.2%
Phelps Dodge Overseas Capital
Corporation 11,173,796 14.0%
-------------------- --------------------
-------------------- --------------------
65,900,833 82.3%
Common Shares 14,157,107 17.7%
-------------------- --------------------
Total 80,057,940 100.0%
-------------------- --------------------
-------------------- --------------------
</TABLE>
<PAGE>
A42
On March 3, 1997, Cerro Trading Company, Inc. transferred 650,000 Class A
common shares to The Pritzker Family Philanthropic Fund. In accordance with
the Company's Certificate of Incorporation these shares were automatically
converted into common stock of the Company.
Stock Options:
The Company has two stockholder approved plans, a Stock Incentive Plan and a
Directors' Stock Award Plan. The Stock Incentive Plan provides for the
granting of nonqualified or incentive stock options, as defined under the
Internal Revenue Code of 1986, as amended, as well as for the award of
restricted stock and bonuses payable in stock. The price at which options may
be granted under the Stock Incentive Plan shall not be less than 100% of the
fair market value of the common stock on the date of grant in the case of
incentive stock options, or 50% in the case of other options. In general,
options are not exercisable for six months and expire after 10 years from the
date of grant.
Options granted may provide for Stock Appreciation Rights (SAR). An SAR
permits an optionee, in lieu of exercising the option, to receive from the
Company payment of an amount equal to the difference between the market value
of the stock on the date of election of the SAR and the purchase price of the
stock under the terms of the option.
The authorized number of shares under the Stock Incentive Plan is 1,000,000 of
which 300,000 may be awarded as restricted stock. At December 31, 1997,
836,635 shares are available for future grants under this plan (927,110 shares
at December 31, 1996).
The Directors' Stock Award Plan provides that directors who are not
compensated as employees of the Company will be automatically awarded 200
shares of common stock upon election and 200 additional shares following each
annual meeting of stockholders thereafter. Under the directors plan, 100,000
shares have been reserved for awards. At December 31, 1997, 8,400 shares have
been awarded under this plan.
The Company has adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation". Accordingly, no compensation cost
has been recognized for awards under the stock option plan. If compensation
cost for the Company's Stock Incentive Plan had been determined based on the
fair value at the grant date for awards in 1997 and 1996, consistent with the
provisions of SFAS No. 123, the Company's net earnings and earnings per share
would have been reduced to the proforma amounts indicated below:
<TABLE>
<CAPTION>
(in millions, except per share amounts)
1997 1996
---- ----
<S> <C> <C>
Net earnings - as reported $185.7 $180.5
Net earnings - pro forma $185.5 $180.4
Earnings per share (Basic) - as reported $ 2.32 $ 2.25
Earnings per share (Diluted) - as reported $ 2.32 $ 2.25
Earnings per share (Basic) - pro forma $ 2.32 $ 2.25
Earnings per share (Diluted) - pro forma $ 2.32 $ 2.25
</TABLE>
<PAGE>
A43
For purposes of computing earnings per share, basic and diluted, the dilutive
effect of stock options on common shares outstanding is as follows:
<TABLE>
<CAPTION>
Weighted average common shares outstanding: 1997 1996
(in millions) ---- ----
<S> <C> <C>
Basic 80.2 80.2
Dilutive effect of stock options - -
================= ==============
Diluted 80.2 80.2
================= ==============
</TABLE>
The fair value of each option grant was estimated on the date of grant using the
Black-Scholes option-pricing model with the following assumptions used for
grants in 1997: dividend yield of 4.05% (6.57%-1996); expected volatility of
29.2% (28.4%-1996); risk-free interest rate of 6.31% (6.17%-1996); and expected
life of 7.0 years (6.9 years-1996).
Stock option activity over the past two years under the Stock Incentive Plan
was:
<TABLE>
<CAPTION>
Weighted
Number of Average Option Price
Shares Price (Range Per Share)
----------------- ----------------- ----------------------------------
<S> <C> <C> <C>
Outstanding at January 1, 1996 - - -
Granted 72,890 16.06 $16.06
Exercised - - -
Canceled or expired - - -
-----------------
Outstanding at January 1, 1997 72,890 16.06 16.06
Granted 90,475 16.30 16.25 to 17.06
Exercised (3,238) 16.06 16.06
Canceled or expired (1,342) 16.15 16.06 to 16.25
-----------------
Outstanding and exercisable at
December 31, 1997 158,785 $16.20 $16.06 to $17.06
</TABLE>
15. Related Party Transactions
Asarco, a 54.1% stockholder of the Company, provides legal, tax, treasury and
administrative support services to the Company. The amounts paid to Asarco for
these services were $1.6 million, $0.8 million and $0.3 million in 1997, 1996
and 1995, respectively.
16. Concentration of Risk
The Company operates two copper mines, a smelter and two refineries in Peru and
substantially all of its assets are located there. There can be no assurances
that the Company's operations and assets that are subject to the jurisdiction of
the Government of Peru may not be adversely affected by future actions of such
government. Substantially all of the sales of the Company's products are
exported from Peru to customers principally in Europe, Asia, South America and
the United States. In 1995, one customer represented 13% of net sales.
<PAGE>
A44
Financial instruments which potentially subject the Company to a concentration
of credit risk consist primarily of cash and cash equivalents, marketable
securities and trade accounts receivable.
The Company invests or maintains available cash with various high-quality banks,
principally in the U.S., Canada and Peru, or in commercial paper of highly rated
companies. As part of its cash management process, the Company regularly
monitors the relative credit standing of these institutions, and by policy,
limits the amount of credit exposure to any one institution. At December 31,
1997, the Company had invested 19.7% of its cash equivalents and marketable
securities with Peruvian banks, of which 41.3% of this amount was invested with
one institution.
During the normal course of business, the Company provides credit to its
customers. Although the receivables resulting from these transactions are not
collateralized, the Company has not experienced significant problems with the
collection of receivables.
The largest ten trade receivable balances accounted for 60.9% of the trade
accounts receivable at December 31, 1997, of which one customer represented
12.2%.
17. Commitments and Contingencies
Expansion and Modernization Project: In September 1996, the Company announced a
two stage project which includes an expansion of the Cuajone mine and an
expansion and modernization of the copper smelter at Ilo. Total capital cost for
this project is estimated at $1.0 billion, budgeted to be spent over the next
six years.
The Cuajone mine expansion is expected to increase annual copper production by
130 million pounds at an estimated capital investment of $245 million.
Construction contracts for the expansion have been awarded and site construction
commenced in mid-1997 and completion of this stage of the expansion program is
expected in early 1999.
Engineering for the second stage of the program, the expansion and modernization
of the Ilo smelter, began in 1997. Following completion of preliminary
engineering, SPCC plans to modernize and increase the capacity of its existing
copper smelter at Ilo. The expected cost of the second stage, based on the
Company's preliminary engineering studies, is approximately $787 million and is
expected to be completed in 2003.
The Company has planned a third stage of the expansion and modernization plan,
consisting of a second expansion at Cuajone and further expansion of the Ilo
smelter capacity. The Company expects to consider a decision to proceed with
this third stage in 1999, dependent on the availability of financing and other
conditions at the time. The Company expects that the projects will be funded
from a combination of existing cash, internally-generated funds and external
financing.
As a result of the $1 billion expansion program, electric power requirements
will increase significantly, requiring the construction of substantial
additional generating capacity. In the second quarter of 1997, the Company sold
its existing power plant to an independent power company for $33.6 million. In
connection with the sale, a power purchase agreement was also completed, under
which the Company will purchase its power needs for the next twenty years. Under
the agreement, cost of power will increase somewhat from its 1996 level,
however, the company will avoid the significant capital expenditures that would
be required to meet the needs of expanded operations and its power costs will be
favorably affected by benefits available to independent power companies in Peru.
<PAGE>
A45
Environmental:
As part of the 1991 Agreement, the Company has made a significant number of
environmental capital expenditures, including a sulfuric acid plant at the Ilo
smelter for partial recapture of emissions of sulfur dioxide, completed in 1995
at a cost of $103.0 million, a sewage treatment plant at Ilo, completed in 1994
at a cost of $2.0 million, and a tailings storage facility at Quebrada Honda,
completed in 1996 at a cost of $40.8 million. The Company also has incurred
capital costs of $3.0 million for environmental projects committed with the Ilo
refinery acquisition in 1994. In addition, in April 1996 the Company began a $35
million expansion of the Ilo sulfuric acid plant. The expansion will increase
the capture of sulfur dioxide emissions from the smelter from 18% to 30% and
will also increase sulfuric acid production at the smelter to 330,000 tons per
year in 1998, the expected year of expanded plant operation. Capital
expenditures in connection with environmental projects were approximately $43.8
million in 1997.
The Company's exploration, mining, milling, smelting and refining activities are
subject to Peruvian laws and regulations, including environmental laws and
regulations, which change from time to time. The Company's environmental
compliance and management plan, PAMA, sets forth the investment to be made by
the Company to comply with current Peruvian environmental regulations applicable
to its operations. To implement the PAMA, the Company is required to make a
minimum annual investment of 1% of net annual sales until compliance is met. The
PAMA will require the Company to make significant additional capital
expenditures to achieve compliance with the maximum permissible levels for its
emissions and waste discharges (MPLs) within a period of five years, except for
environmental controls applicable to its smelter operation which must be put in
place within 10 years. The PAMA contemplates a number of environmental projects,
the largest and most capital intensive of which is the planned modernization of
the Ilo smelter. Management believes that under current Peruvian law and
regulations, compliance with the PAMA will satisfy the MPL requirements
pertaining to the Company's operations during the applicable five- or 10-year
implementation period. The Company remains, however, subject to other
environmental requirements applicable to its operations.
Litigation:
In April 1996, Southern Peru Limited, a wholly owned subsidiary of the Company,
was served with a complaint filed in Peru by approximately 800 former employees
seeking the delivery of a substantial number of labor shares of its Peruvian
Branch plus dividends. In October 1997, the Superior Court of Lima nullified a
decision of a court of first instance, which had been adverse to Southern Peru
Limited. The Superior Court remanded the case for a new trial. Plaintiff filed
an extraordinary appeal before the Peruvian Supreme Court. The Supreme Court may
grant discretionary review in limited cases. The Supreme Court has not yet ruled
as to whether it will accept the appeal. There is also pending against Southern
Peru Limited a similar lawsuit filed by 127 additional former employees. In the
third quarter of 1997, the court of first instance dismissed their complaint.
The plaintiffs have appealed to the Superior Court of Lima.
It is the opinion of management that the outcome of the legal proceedings
mentioned, as well as other miscellaneous litigation and proceedings now
pending, will not materially adversely affect the financial position of the
Company and its consolidated subsidiaries. However, it is possible that
litigation matters could have a material effect on quarterly or annual operating
results, when they are resolved in future periods.
<PAGE>
A46
18. Summarized Financial Information of Significant Subsidiary
The condensed consolidated financial information for Southern Peru Limited, a
wholly owned subsidiary of Southern Peru Copper Corporation, included in the
consolidated financial statements of the Company, is summarized below. Separate
financial statements and other disclosures for Southern Peru Limited are not
presented because management has determined that such information is not
material to holders of Southern Peru Limited's debt securities.
<TABLE>
<CAPTION>
Statement of Earnings and Cash Flow
For the years ended December 31, 1997 1996 1995
(in millions) ---- ---- ----
<S> <C> <C> <C>
Earnings:
Net sales $814.2 $753.0 $928.8
Operating income 235.4 248.8 366.7
Net earnings 185.7 180.5 217.8
Cash Flow:
Operating activities $277.6 $158.8 $330.4
Investing activities (337.6) (79.3) (119.5)
Financing activities 11.8 (127.6) (86.1)
</TABLE>
<TABLE>
<CAPTION>
Balance Sheet
At December 31, 1997 1996
(in millions) ---- ----
<S> <C> <C> <C>
Current assets $561.6 $403.1
Noncurrent assets 981.7 876.7
Current liabilities 85.1 105.3
Noncurrent liabilities 341.2 137.1
Minority interest 19.4 22.4
Stockholders' equity 1,097.6 1,015.0
</TABLE>
Southern Peru Limited, a wholly owned subsidiary of Southern Peru Copper
Corporation, holds all the operating assets and liabilities of the Company and
does not hold any other operating assets. Accordingly, the effect of the
exchange offer described in note 2 has been reflected in the summary financial
information presented above.
<PAGE>
A47
Unaudited Quarterly Data
Quarters
(in millions, except per share data)
<TABLE>
<CAPTION>
1997 1996
---- ----
1st 2nd 3rd 4th Year 1st 2nd 3rd 4th Year
===============================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $214.8 $226.2 $202.3 $170.9 $814.2 $196.4 $173.2 $180.5 $202.9 $753.0
Operating
income $ 75.3 $ 74.0 $ 51.0 $ 35.1 $235.4 $ 72.1 $ 64.1 $ 54.1 $ 58.5 $248.8
Net earnings $ 55.8 $ 59.6 $ 39.9 $ 30.4 $185.7 $ 49.1 $ 45.2 $ 37.9 $ 48.3 $180.5
Net earnings per share:
Basic $ 0.70 $ 0.74 $ 0.50 $ 0.38 $ 2.32 $ 0.61 $ 0.56 $ 0.47 $ 0.60 $ 2.25
Diluted $ 0.70 $ 0.74 $ 0.50 $ 0.38 $ 2.32 $ 0.61 $ 0.56 $ 0.47 $ 0.60 $ 2.25
Dividend per share $ 0.30 $ 0.35 $ 0.37 $ 0.24 $ 1.26 $ 0.65 $ 0.30 $ 0.28 $ 0.24 $ 1.47
Stock prices
New York Stock Exchange:
High $17-3/8 $21-1/8 $20-7/8 $18-1/4 $21-1/8 $21 $19 $16 $16-1/4 $21
Low $15 $16-7/8 $17-5/8 $12-3/4 $12-3/4 $15 $15-1/4 $14-3/8 $13-7/8 $13-7/8
Lima Stock Exchange(a):
High $17.35 $21.20 $21.06 $17.99 $21.20 $21.10 $17.99 $15.45 $16.10 $21.10
Low $14.85 $16.80 $17.30 $12.58 $12.58 $13.58 $14.34 $13.92 $13.50 $13.50
</TABLE>
(a) The Company's common stock is quoted on the Lima Stock Exchange in U.S.
dollars.
Metal Price Sensitivity
Assuming that expected metal production and sales are achieved, that tax rates
are unchanged, that the number of shares outstanding is unchanged, and giving no
effect to hedging programs or changes in the costs of production, metal price
sensitivity factors would indicate the following estimated change in earnings
per share resulting from metal price changes in 1998. Estimates are based on
80.2 million shares outstanding.
<TABLE>
<CAPTION>
Copper Silver Molybdenum
<S> <C> <C> <C>
Change in Metal Price $.01/lb. $1.00/oz. $1.00/lb.
Annual Change in Earnings
per Share $0.05 $0.02 $0.07
</TABLE>
<PAGE>
A48
Report of Independent Accountants
To the Board of Directors and Stockholders
of Southern Peru Copper Corporation
We have audited the accompanying consolidated balance sheets of Southern Peru
Copper Corporation and Subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statements of earnings, cash flows, and changes in common
stockholders' equity for each of the three years in the period ended December
31, 1997. 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 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 provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Southern Peru
Copper Corporation and Subsidiaries as of December 31, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles.
COOPERS & LYBRAND L.L.P.
New York, New York
January 23, 1998
<PAGE>
A49
Item 9. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Items 10, 11, 12, and 13
Reference is made to the Section captioned "Executive Officers of the
Registrant" on pages A-13 to A-14. Information in response to the disclosure
requirements specified by these items appears under the captions and pages of
the 1998 Proxy Statement indicated below:
Proxy
Statement
Item Required Information Proxy Statement Section Pages
10. Directors and Executive Nominees for Election as Directors
Officers Representing Common Stock and
Nominees for Election as
Directors Representing
Class A Common Stock 4-7
11. Executive Compensation Committee Reports on Executive
Compensation through Employment
Agreements 12-20
Compensation of Directors and
Compensation Committee Interlocks
and Insider Participation 23-24
12. Security Ownership Security Ownership of Certain
Beneficial Owners and Beneficial
Ownership of Management 7-12
13. Certain Relationships Certain Transactions 21-22
and Related Transactions
The information referred to above is incorporated herein by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed as part of this report:
1. Financial Statements
The following financial statements of Southern Peru Copper Corporation and
its subsidiaries are included at the indicated pages of the document as stated
below:
<PAGE>
A50
<TABLE>
<CAPTION>
Form
10 - K
Pages
<S> <C>
Consolidated Statement of Earnings for the years ended
December 31, 1997, 1996 and 1995 A26
Consolidated Balance Sheet at December 31, 1997 and 1996 A27
Consolidated Statement of Cash Flows for the years ended
December 31, 1997, 1996 and 1995 A28
Consolidated Statement of Stockholders' Equity for the
years ended December 31, 1997, 1996 and 1995 A29
Notes to Consolidated Financial Statements A30 - A47
Report of Independent Accountants A48
</TABLE>
2. Financial Statement Schedules
Financial Statement Schedules are omitted, as they are not required or are
not applicable, or the required information is shown in the financial statements
or notes thereto.
3. Exhibits
3.1 Restated Certificate of Incorporation, filed December 29, 1995
3.2 Certificate of Decrease, filed February 29, 1996
3.3 Certificate of Increase, filed February 29, 1996
3.4 Certificate of Decrease, filed March 24, 1997
3.5 Certificate of Increase, filed March 24, 1997
3.6 By-Laws, as last amended on February 3, 1998
4.1 Indenture, dated as of May 30, 1997, among Southern Peru
Limited, Southern Peru Copper Corporation, as guarantor, and
Citibank, N.A., as Trustee.
4.2 Supplemental Indenture, dated as of May 30, 1997, among
Southern Peru Limited, Southern Peru Copper Corporation, as
guarantor, and Citibank, N.A., as Trustee.
4.3 Form of Amended and Restated Collateral Trust Agreement, dated
as of July 15, 1997, between Southern Peru Limited and
Deutsche Bank AG, New York Branch, as collateral trustee.
4.4 Form of Series A-1 Secured Export Notes due 2007
10.1 Form of Agreement Among Certain Stockholders of the Company
<PAGE>
A51
10.2 Tax Stability Agreement, dated August 8, 1994, between the
Government of Peru and the Company regarding SX/EW facility (and
English translation)
10.3 Incentive Compensation Plan of the Company
10.4 Supplemental Retirement Plan of the Company, as amended February 3,
1998
10.5 Stock Incentive Plan of the Company
10.6 Form of Directors Stock Award Plan of the Company
10.7 Form of Deferred Fee Plan for Directors, as amended February 3, 1998
10.8 Form of Agreement Accepting Membership in the Plan, containing text
of Retirement Plan and Trust for Selected Employees
10.9 Compensation Deferral Plan, as amended February 3, 1998
11. Statement re Computation of Earnings Per Share
21.1 Subsidiaries of the Company
23.1 Consent of Independent Accountants
The exhibits listed as 10.4 through 10.9 above are the management contracts or
compensatory plans or arrangements required to be filed pursuant to Item 14(c)
of Form 10-K.
(B) Reports on Form 8-K filed in the fourth quarter of 1997 and the first
quarter of 1998:
None.
(C) Exhibits - The exhibits to this Form 10-K are listed on the Exhibit
Index on page B1 through B3. Copies of the following exhibits are filed
with this Form 10-K:
3.6 By-Laws, as last amended on February 3, 1998
10.4 Supplemental Retirement Plan of the Company, as amended February 3,
1998
10.7 Form of Deferred Fee Plan for Directors, as amended February 3,
1998
10.9 Compensation Deferral Plan, as amended February 3, 1998
11. Statement re Computation of Earnings Per share
21.1 Subsidiaries of the Company
23.1 Consent of Independent Accountants
Copies of exhibits may be acquired upon written request to the Secretary and the
payment of processing and mailing costs.
<PAGE>
A52
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this Report on
Form 10-K to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York, State of New York.
SOUTHERN PERU COPPER CORPORATION
(Registrant)
By: /s/ Charles G. Preble
Charles G. Preble
President and Chief Executive Officer
Date: March 10, 1998
Pursuant to requirements of the Securities Exchange Act of 1934, this
Report on Form 10-K has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C>
/s/ Richard de J. Osborne Chairman of the Board and Director
Richard de J. Osborne
/s/ Charles G. Preble President, Chief Executive Officer and Director
Charles G. Preble principal executive officer)
/s/ Ronald J. O'Keefe Executive Vice President and Chief Financial Officer
Ronald J. O'Keefe (principal financial officer)
/s/ Brendan M. O'Grady Comptroller (principal accounting officer)
Brendan M. O'Grady
DIRECTORS
/s/ Everett E. Briggs /s/ Robert M. Novotny
Everett E. Briggs Robert M. Novotny
/s/ Jaime Claro /s/ Robert A. Pritzker
Jaime Claro Robert A. Pritzker
/s/ Augustus B. Kinsolving /s/ Michael O. Varner
Augustus B. Kinsolving Michael O. Varner
/s/ Francis R. McAllister /s/ J. Steven Whisler
Francis R. McAllister J. Steven Whisler
John F. McGillicuddy /s/ David B. Woodbury
John F. McGillicuddy David B. Woodbury
/s/ Kevin R. Morano /s/ Douglas C. Yearley
Kevin R. Morano Douglas C. Yearley
/s/ Robert J. Muth
Robert J. Muth
</TABLE>
Date: March 10, 1998
<PAGE>
B1
Southern Peru Copper Corporation
Exhibit Index
Sequential
Exhibit Page
Number Number
Document Description
3. Certificate of Incorporation and By-Laws
3.1 Restated Certificate of Incorporation, filed December 29, 1995 (Filed as
Exhibit 3.1 to the Company's 1995 Annual Report on Form 10-K and
incorporated herein by reference)
3.2 Certificate of Decrease, filed February 29, 1996 (Filed as Exhibit 3.2 to
the Company's 1995 Annual Report on Form 10-K and incorporated herein by
reference)
3.3 Certificate of Increase, filed February 29, 1996
(Filed as Exhibit 3.3 to the Company's 1995 Annual Report on Form 10-K and
incorporated herein by reference)
3.4 Certificate of Decrease, filed March 24, 1997
(Filed as Exhibit 3.6 to the Company's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1997 and incorporated herein by reference)
3.5 Certificate of Increase, filed March 24, 1997
(Filed as Exhibit 3.5 to the Company's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1997 and incorporated herein by reference)
3.6 By-Laws, as last amended on February 3, 1998 B7
4. Instruments Defining Rights of Security Holders
4.1 Indenture, dated as of May 30, 1997, among Southern Peru Limited,
Southern Peru Copper Corporation, as guarantor, and Citibank, N.A., as
Trustee.
(Filed as Exhibit 4.1(a) to the Company's Registration Statement on Form
S-4, as amended by Ammendment No. 1 there to File No. 333-34505, and
incorporated herein by reference)
4.2 Supplemental Indenture, dated as of May 30, 1997, among Southern Peru
Limited, Southern Peru Copper Corporation, as guarantor, and Citibank,
N.A., as Trustee.
(Filed as Exhibit 4.1(b) to the Company's Registration Statement on Form
S-4, as amended by Ammendment No. 1 there to File No. 333-34305, and
incorporated herein by reference)
4.3 Form of Amended and Restated Collateral Trust Agreement, dated as of
July 15, 1997, between Southern Peru Limited and Deutsche Bank AG, New
York Branch, as collateral trustee.
(Filed as Exhibit 4.1(c) to the Company's Registration Statement on Form
S-4, as amended by Ammendment No. 1 there to File No. 333-34305, and
incorporated herein by reference)
4.4 Form of Series A-1 Secured Export Notes due 2007
(Filed as Exhibit 4.1(d) to the Company's Registration Statement on Form
S-4, as amended by Ammendment No. 1 there to File No. 333-34305, and
incorporated herein by reference)
10. Material Contracts
<PAGE>
B2
Southern Peru Copper Corporation
Exhibit Index
Sequential
Exhibit Page
Number Number
Document Description
10.1 Form of Agreement Among Certain Stockholders of the Company
(Filed as Exhibit 10.1 to the Company's Registration
Statement on Form S-4, as amended by Amendments No. 1 and 2 thereto, File
No 33-97790 (the "Form S-4"), and incorporated herein by reference)
10.2 Tax Stability Agreement, dated August 8, 1994, between
the Government of Peru and the Company regarding SX/EW facility (and
English translation)
(Filed as Exhibit 10.3 to the Company's Form S-4 and incorporated herein
by reference)
10.3 Incentive Compensation Plan of the Company
(Filed as Exhibit 10.11 to the Company's Form S-4 and incorporated herein
by reference)
10.4 Supplemental Retirement Plan of the Company, as amended B30
February 3, 1998
10.5 Stock Incentive Plan of the Company
(Filed as an Exhibit to the Company's Registration
Statement on Form S-8 dated March 25, 1996 (Registration
No. 333-2736) and incorporated herein by reference)
10.6 Form of Directors Stock Award Plan of the Company
(Filed as Exhibit 10.16 to the Company's Form S-4 and incorporated herein
by reference)
10.7 Form of Deferred Fee Plan for Directors, as amended B35
February 3, 1998
10.8 Form of Agreement Accepting Membership in the Plan, containing text of
Retirement Plan and Trust for Selected Employees
(Filed as Exhibit 10.17 to the Company's Form S-4 and incorporated herein
by reference)
10.9 Compensation Deferral Plan, as amended February 3, 1998 B40
10.10 Credit Agreement dated as of March 31, 1997 among Southern Peru
Limited, as Borrower, Southern Peru Copper Corporation, as Guarantor, the
several banks and other financial institutions from time to time parties
to the Credit Agreement, Morgan Guaranty Trust Company of New York, as
Administrative Agent, The Chase Manhattan Bank, as Documentation Agent,
Citicorp Securities, Inc., as Syndication Agent, and Deutsche Bank AG, New
York Branch, as Security and Collateral Agent.
(Filed as Exhibit 10.9 to the Company's Registration Statement on Form
S-4, File No. 333-3405, and incorporated herein by reference)
<PAGE>
B3
Southern Peru Copper Corporation
Exhibit Index
Sequential
Exhibit Page
Number Number
Document Description
10.11 First Amendment to the Credit Agreement, dated July 14, 1997.
(Filed as Exhibit 10.10 to the Company's Registration Statement on Form
S-4, File No. 333-34305, and incorporated herein by reference)
11. Statement re Computation of Earnings per Share B4
21.1 Subsidiaries of the Company B5
23.1 Consent of Independent Accountants B6
<PAGE>
B4
Form 10K
Exhibit 11 Statement re Computation of Earnings per Share
This calculation is submitted in accordance with regulation S-K item 601(b)(11).
Diluted Earnings per Common Share
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
For the years ended December 31, 1997 1996 1995
- -------------------------------- ---- ---- ----
<S> <C> <C> <C>
==================================================
Net earnings applicable to common stock $185,658 $ 180,512 $ 217,754
==================================================
Weighted average number of common shares outstanding 80,188
80,195 65,717
Shares issuable from assumed exercise of Stock Options
9 57 -
--------------------------------------------------
Weighted average number of common shares outstanding,
adjusted 80,197 80,252 65,717
Diluted earnings per share:
Net earnings applicable to common stock $2.32 $ 2.25 $ 3.31
==================================================
Basic earnings per share
Net earnings applicable to common stock $2.32 $ 2.25 $ 3.31
==================================================
</TABLE>
<PAGE>
B5
SOUTHERN PERU COPPER CORPORATION
Subsidiaries
(More than 50% ownership)
<TABLE>
<CAPTION>
Percentage of voting
securities owned Key to
Name of Company control below
<S> <C> <C>
PARENT: ASARCO Incorporated (New Jersey)
Registrant: Southern Peru Copper Corporation (Delaware)
Southern Peru Limited (Delaware) 100.0 (A)
Fomenta, S.A. (Peru) 99.50 (A)
Pegasus Travels, S.A. (Peru) 90.0 (A)
Logistics Services Incorporated (Delaware) 100.0 (A)
LSI-Peru, S.A. (Peru) 98.18 (A)
Global Natural Resources Inc. (Delaware) 100.0 (C)
Multimines Corporation (Delaware) 100.0 (B)
Multimines Insurance Company, Ltd. (Bermuda) 100.0 (A)
Recursos e Inversiones Andinas, S. A. (Peru) 99.99 (A)
Compania Minera Los Tolmos, S.A. (Peru) 98.05 (B)
</TABLE>
(A) Included in financial statements of SPCC and consolidated subsidiaries at
December 31, 1997.
(B) Excluded from financial statements of SPCC and consolidated subsidiaries
(these companies are not in the aggregate considered significant).
(C) Inactive (having no assets or liabilities or undergoing liquidation).
<PAGE>
B6
Exhibit 23.1
Form 10-K
Consent of Independent Accountants
We consent to the incorporation by reference in the prospectuses constituting
part of the Registration Statements on Form S-8 (File Nos. 333-2736 and
333-40293) of Southern Peru Copper Corporation of our report dated January 23,
1998, on our audit of the consolidated financial statements of Southern Peru
Copper Corporation and Subsidiaries, which report appears on page A48 of this
Annual Report on Form 10-K.
We also consent to the reference to our Firm as experts in the prospectuses
referred to in the preceding paragraph only insofar as such reference relates to
our report appearing on page A48 of this Annual Report on Form 10-K.
Coopers & Lybrand L.L.P.
New York, New York
March 16, 1998
<PAGE>
B7
BY-LAWS
OF
SOUTHERN PERU COPPER CORPORATION
(A Delaware Corporation)
(As last amended on February 3, 1998)
------------
ARTICLE I.
MEETINGS OF STOCKHOLDERS.
SECTION 1.01. Annual Meetings. The annual meeting of the stockholders of
the Corporation for the election of directors and for the transaction of such
other business as properly may come before the meeting shall be held at 2
o'clock in the afternoon, or on such other date or at such other hour as shall
be fixed by the Board of Directors (the "Board"), on the Thursday next following
the last Wednesday of April in each year, commencing April 25, 1996, if not a
legal holiday, or, if a legal holiday, then on the next succeeding day not a
legal holiday.
SECTION 1.02. Special Meetings. Except as provided by Section 211(c) of
the General Corporation Law of the State of Delaware with respect to meetings
ordered by the Court of Chancery, special meetings of the stockholders may be
called at any time but only by the Chairman of the Board, the President, the
Board pursuant to a resolution approved by eight Directors or by a holder of
shares representing at least 10% of the then outstanding number of shares of the
Corporation's Class A Common Stock (as defined below). In the event that all
outstanding shares of Class A Common Stock shall be converted into shares of
Common Stock in accordance with the provisions of Paragraph 4.9 of the
Certificate of Incorporation, then a holder of shares representing at least 10%
of the then outstanding number of shares of the Corporation's Common Stock may
call a special meeting of the stockholders.
SECTION 1.03. Place of Meeting. All meetings of the stockholders shall be
held at the principal office of the Corporation in New York City or at such
other place, within or without the State of Delaware, as may be designated by
the Board and stated in the notice of the meeting.
SECTION 1.04. Notice of Meetings. Except as otherwise required by statute,
the Secretary or an Assistant Secretary shall cause notice of the time, place
and purpose or purposes of each meeting of the stockholders (whether annual or
special) to be mailed or otherwise delivered, at least ten (but not more than
sixty) days prior to the meeting to each stockholder of record entitled to
notice of and to vote at such meeting at his address as the same appears on the
books of the Corporation at the time of such mailing or delivery. Notice of any
meeting of stockholders shall not be required to be given to any person
<PAGE>
B8
who may become a stockholder of record after such mailing or delivery of such
notice and prior to the meeting, or to any stockholder who shall sign a waiver
of such notice in writing, whether before or after the time of such meeting.
Notice of any adjourned meeting of the stockholders of the Corporation shall not
be required to be given, unless otherwise required by statute.
SECTION 1.05. List of Stockholders Entitled to Vote. At least ten days
before every meeting of stockholders, a complete list of the stockholders
entitled to vote at the meeting, arranged in alphabetical order, and showing the
address of each stockholder shall be prepared. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten days prior to the meeting,
at a place within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or, if not so specified, at the place
where the meeting is to be held. The list shall also be produced and kept at the
time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder who is present.
SECTION 1.06. Quorum. Unless otherwise provided by statute or by the
Certificate of Incorporation, the presence in person or by proxy of the holders
of record of the shares entitled to cast a majority of the votes at any meeting
of the stockholders shall constitute a quorum at such meeting. Unless otherwise
provided by statute or by the Certificate of Incorporation, whenever the holders
of any class or series of shares are entitled to vote separately on a specified
item of business, the presence in person or by proxy of stockholders holding of
record in the aggregate a majority of the outstanding shares of such class or
series entitled to vote shall constitute a quorum for the transaction of such
specified item of business. Whether or not a quorum shall be present at any
meeting of the stockholders, the stockholders entitled to vote who are present
in person or by proxy, or, if no stockholder entitled to vote is present in
person or by proxy, any officer authorized to preside or act as Secretary of
such meeting, without notice other than by announcement at such meeting, may
adjourn such meeting from time to time for a period not exceeding thirty days at
any one time. At any such adjourned meeting at which a quorum may be present any
business may be transacted which might have been transacted at the meeting as
originally called. If a record date for the determination of the stockholders
entitled to notice of and to vote at such meeting as originally called shall
have been fixed as hereinafter provided, said record date shall apply to any
such adjourned meeting unless the Board fixes a new record date for such
adjourned meeting, in which case notice of said adjourned meeting shall be given
to each stockholder of record on the new record date at least ten days before
the date of said adjourned meeting.
SECTION 1.07. Organization. The Chairman of the Board, or in his absence
the President, shall preside at all meetings of stockholders. If both are
absent, any other officer designated by the Board shall preside. If no officer
so designated is present, the stockholders present in person or represented by
proxy may elect one of their number to preside. The Secretary shall act as
secretary at all meetings of the stockholders; but in the absence of the
Secretary the presiding officer may appoint any person to act as secretary of
the meeting.
SECTION 1.08. Voting. At each meeting of the stockholders each stockholder
having the right to vote shall be entitled to such vote for each share of stock
held by him as may be provided in the Certificate of Incorporation. At each
meeting of the stockholders each stockholder entitled to vote shall be entitled
to vote in person or by proxy. Every
<PAGE>
B9
proxy shall be executed in writing by the stockholder or his agent unless given
by telegram or cable. A copy or facsimile telecommunication may be substituted
or used in lieu of the original writing or transmission so long as such copy or
facsimile telecommunication is a complete reproduction of the entire original
writing or transmission. No proxy shall be valid after eleven months from the
date of its execution, unless a longer time is expressly provided therein, but
in no event shall a proxy be valid after three years from the date of its
execution, except as provided in Section 2.4 of the Agreement Among Certain
Stockholders, as executed by ASARCO Incorporated, Cerro Trading Company, Inc.
and Phelps Dodge Overseas Capital Corporation, as the same may be supplemented
or amended (the "Stockholders' Agreement"). At all meetings of the stockholders,
all matters, other than those the manner of deciding which is expressly
regulated by statute or by the Certificate of Incorporation or by Sections 2.04
or 2.09 of Article II, shall be decided by a majority of the votes cast in
person or by proxy by the holders of shares entitled to vote thereon. Shares
belonging to the Corporation shall not be voted or counted in determining the
total number of shares outstanding at any time.
SECTION 1.09. Inspectors. The Board shall, in advance of any meeting of
stockholders, appoint one or more inspectors to act at the meeting or any
adjournment thereof. If inspectors are not so appointed or shall fail to
qualify, the person presiding at such meeting shall appoint one or more
inspectors to act at such meeting. Each inspector, before entering upon the
discharge of his duties, shall take and sign an oath faithfully to execute the
duties of inspector with strict impartiality and according to the best of his
ability.
SECTION 1.10. Consent of Stockholders in Lieu of Meeting. Unless otherwise
provided in the Certificate of Incorporation, any action required to be taken at
any annual or special meeting of stockholders of the Corporation, or any action
which may be taken at any annual or special meeting of such stockholders, may be
taken without a meeting, without prior notice and without a vote, if a consent
in writing, setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted. Prompt notice of the taking of
the corporate action without a meeting by less than unanimous written consent
shall be given to those stockholders who have not consented in writing.
ARTICLE II.
BOARD OF DIRECTORS.
SECTION 2.01. General Powers. The property, affairs and business of the
Corporation shall be managed under the direction of the Board.
SECTION 2.02. Number, Term of Office and Qualifications. The number of
directors which shall constitute the entire Board shall be one, until such time
as such sole director shall increase the number of directors. At such time, the
sole director shall increase the number of directors to fifteen, of which one of
the directors shall be the President of the Corporation. The Certificate of
Incorporation designates two series of capital stock of the Corporation, Common
Stock, par value one cent ($0.01) per share (the "Common Stock"), and Class A
Common Stock, par value one cent ($0.01) per share (the "Class A Common
<PAGE>
B10
Stock" and, together with the Common Stock, the "Common Shares"). The directors
shall be elected annually at the annual meetings of the stockholders, and each
director (whether elected at any annual meeting or to fill a vacancy or
otherwise) shall hold office until his successor is elected and qualified or
until his death or until he shall resign in the manner provided in Section 2.10,
or shall have been removed in the manner provided in Section 2.09.
SECTION 2.03. Nominations of Director Candidates. (a) Nominations for the
election of directors to be elected by a vote of the holders of Class A Common
Stock (the "Class A Common Stock Directors") may be made by the Board, by a
Committee appointed by the Board or by any holder of Class A Common Stock
entitled to vote in the election of Class A Common Stock Directors, subject in
each case to the provisions of the Stockholders' Agreement.
(b) Nominations for the election of directors to be elected by the
holders of Common Stock (the "Common Stock Directors") may be made by the Board,
by a committee appointed by the Board or by any holder of Common Stock entitled
to vote in the election of the Common Stock Directors. Any holder of Common
Stock entitled to vote in the election of Common Stock Directors may nominate
one or more persons for election as Common Stock Directors at a stockholders'
meeting only if written notice of such stockholder's intent to make such
nomination or nominations has been given, either by personal delivery or by
United States mail, postage prepaid, to the Secretary of the Corporation not
later than (i) with respect to an election to be held at an annual meeting of
stockholders, January 25, 1996 with respect to the 1996 annual meeting of
stockholders, and with respect to subsequent annual meetings, 90 days prior to
the anniversary date of the immediately preceding annual meeting, and (ii) with
respect to an election to be held at a special meeting of stockholders for the
election of directors, the close of business on the tenth day following the date
on which notice of such meeting is first given to stockholders. Each such notice
shall set forth: (a) the name and address of the stockholder who intends to make
the nomination and of the person or persons to be nominated; (b) each nominee's
age and principal occupation or employment; (c) the number of shares of equity
securities of the Corporation beneficially owned by each nominee; (d) a
representation that the stockholder is a holder of record of stock of the
Corporation entitled to vote at such meeting and intends to appear in person or
by proxy at the meeting to nominate the person or persons specified in the
notice; (e) a description of all arrangements or understandings between the
stockholder and each nominee and any other person or persons (naming such person
or persons) pursuant to which the nomination or nominations are to be made by
the stockholder; (f) such other information regarding each nominee proposed by
such stockholder as would be required to be included in a proxy statement filed
pursuant to the proxy rules of the Securities and Exchange Commission; and (g)
the consent of each nominee to serve as a director of the Corporation if so
elected. A stockholder who does not comply with the foregoing procedure may be
precluded from nominating a candidate for election as a director at a meeting of
stockholders.
SECTION 2.04. Election of Directors. At each meeting of the stockholders
for the election of directors, (i) the holders of Common Stock shall be entitled
by class vote, exclusive of all other stockholders, to elect two of the
Corporation's directors, with each share of Common Stock entitled to one vote,
such directors to be elected by a plurality of the votes cast at such election
by the holders of Common Stock entitled to vote, and (ii) the holders of Class A
Common Stock shall be entitled by class vote, exclusive of all other
<PAGE>
B11
stockholders, to elect the remaining thirteen directors of the Corporation, one
of whom shall be the President of the Corporation. In the event that all
outstanding shares of Class A Common Stock shall be converted into shares of
Common Stock (the effective date of the conversion of the last outstanding share
of Class A Common Stock being the "Total Conversion Date"), then the thirteen
members of the Corporation's Board of Directors who previously were elected by
the holders of the Class A Common Stock pursuant to this Paragraph 2.04 shall,
at the next annual meeting of stockholders following such Total Conversion Date
(or at a special meeting called after the Total Conversion Date for the purpose
of electing directors), be elected by the holders of Common Stock, with each
share of Common Stock entitled to one vote.
SECTION 2.05. Annual and Regular Meetings. An annual meeting of the Board
shall be held in each year on the day of the annual meeting of the stockholders,
at such time as is convenient either before or after such meeting, at the place
where such meeting is held or at such other place as may be fixed by the Board,
and if so held no notice of such annual meeting need be given to any director of
the Corporation. If the annual meeting of the Board shall not be so held on the
day of the annual meeting of stockholders in any year, such meeting shall be
held as soon thereafter as practicable, upon the notice provided for in Section
2.06 of this Article II in the case of special meetings, at such time and place
(which may be within or outside the State of Delaware) as may be specified in
the notice or waiver of notice of such meeting. The Board from time to time may
provide for the holding of other regular meetings of the Board and fix the time
and place (which may be within or outside of the State of Delaware) thereof.
Notice of regular meetings shall not be required to be given; provided, however,
that in case the Board shall fix or change the time or place of regular
meetings, notice of such action shall be mailed promptly to each director who
shall not have been present at the meeting at which such action was taken,
addressed to him at his usual place of business. Any or all directors may
participate in meetings of the Board or Committees of the Board by means of
conference telephone or by any means of communication by which all persons
participating in the meeting are able to hear each other, and such participation
shall constitute presence in person at such meeting.
SECTION 2.06. Special Meetings; Notice. Special meetings of the Board
shall be held whenever called by the Chairman of the Board, the President, the
Chairman of the Executive Committee or by three of the directors at such time
and place (which may be within or outside of the State of Delaware) as may be
specified in the respective notices or waivers of notice thereof; provided that,
if the Chairman is unable to serve by reason of death, disability or other cause
beyond his control, the available director who is most senior in terms of length
of service as a director, or, if there is more than one such available director
of equal seniority, any such director, shall promptly call a special meeting of
the Board to appoint an interim or replacement chairman. Except as otherwise
required by statute, notice of each special meeting shall be mailed to each
director addressed to him at his usual place of business at least three days
before the day on which the meeting is to be held, or shall be sent to him at
such place by telegram, cable, telex or facsimile, or if such notice is not
feasible, shall be given by telephone or two-way radio, or shall be delivered
personally, not later than one day before the day on which the meeting is to be
held; provided, however, that if the meeting is to be held outside the United
States, the notice, if mailed, shall be mailed at least ten days before the day
on which the meeting is to be held, or, if sent by telegram, cable, telex or
facsimile, or if such notice is not feasible, by
<PAGE>
B12
telephone or two-way radio, or delivered personally, not later than five days
before the day on which the meeting is to be held. Notice of any special meeting
shall not be required to be given to any director who shall attend such meeting
in person, or to any director who shall sign a waiver of notice of such meeting,
whether before or after the time of such meeting; and any such meeting shall be
a valid meeting without any notice thereof having been given if all the
directors shall be present thereat and none of them shall protest such lack of
notice prior to the conclusion of the meeting. Notice of any adjourned meeting
shall not be required to be given.
SECTION 2.07. Quorum. At meetings of the Board, the presence of eight
Directors shall be necessary and sufficient to constitute a quorum for the
transaction of business and the affirmative vote of a majority of the directors
present shall be necessary for the adoption of any resolution or the taking of
any action unless the matter is one for which by express provision of the
Certificate of Incorporation or of these By-laws, or by law, a different vote is
required. In the absence of a quorum, a majority of the directors present may
adjourn the meeting from time to time until a quorum shall be present.
SECTION 2.08. Organization. The Chairman of the Board, or in his absence
the President, shall preside at all meetings of the Board. If both are absent,
the Board shall appoint a temporary chairman from among the directors present.
The Board shall follow such order of business at its meetings as it may from
time to time determine.
SECTION 2.09. Removal of Directors. Any director may be removed at any
time, either for or without cause, by the affirmative vote in person or by proxy
of stockholders holding of record in the aggregate a majority of the outstanding
shares of the class of stock of the Corporation entitled to vote for such
director, voting as a class, given at a special meeting of said stockholders
called for that purpose; provided, however, that with respect to the removal of
any director elected by the holders of Class A Common Stock, a replacement
director shall be concurrently designated and elected in accordance with the
requirements of Section 2.2 of the Stockholders' Agreement.
SECTION 2.10. Resignations. Any director may resign at any time by giving
written notice of such resignation to the Board, the Chairman of the Board, the
President or the Secretary of the Corporation. Unless a subsequent time is
specified in written notice, such resignation shall take effect upon receipt
thereof by the Board or any such officer.
SECTION 2.11. Vacancies. If any vacancy shall occur in the Board by reason
of death, resignation, disqualification, removal or other, the remaining
directors shall continue to act. Subject to Section 2.09 of this Article and
Section 2.2 of the Stockholders' Agreement, vacancies shall be filled by the
affirmative vote of a majority of the remaining directors then in office, even
though less than a quorum of the Board. Any director elected in accordance with
the preceding sentence shall hold office until the next succeeding annual
meeting of stockholders, or a special meeting at which directors are elected,
and until such director's successor shall have been duly elected and qualified.
SECTION 2.12. Compensation of Directors. Each director who is not
compensated as an employee of the Company shall receive such compensation for
attendance at meetings of the Board, or of any committee appointed by the Board,
as the Board may fix and determine from time to time.
<PAGE>
B13
SECTION 2.13. Designation as Director Emeritus. The Board may, in its sole
discretion, grant the honorary title of Director Emeritus to a former director
of the Corporation in recognition of service to the Corporation. Such title
shall be honorary only, and a Director Emeritus shall not be a "Director" as
that term is used in these By-Laws or in any document of the Corporation. Any
such Director Emeritus shall have no duties or responsibilities to the
Corporation, nor any authority to act on behalf of the Corporation or receive
any compensation from it solely by virtue of holding such title.
ARTICLE III.
EXECUTIVE COMMITTEE.
SECTION 3.01. Powers. During the intervals between meetings of the Board,
the Executive Committee shall have and may exercise all the powers and authority
of the Board, except as prohibited by statute, in the management of the business
and affairs of the Corporation, including the power and authority of the Board
to declare a dividend and to authorize the issuance of stock, and may authorize
the seal of the Corporation to be affixed to all papers which may require it. In
the discretion of the Board, the Executive Committee shall have such more
limited or specific powers as the Board may from time to time designate.
SECTION 3.02. Designation of Members; Qualifications; Term of Office;
Alternate Members. The Board, by resolution or resolutions passed in the manner
provided in Section 2.07, shall designate from among its members an Executive
Committee of five members, one of whom shall be the President of the
Corporation. The Board, by resolution or resolutions passed in the manner
provided in Section 2.07, shall designate, from among the five designees to the
Executive Committee, a Chairman of the Executive Committee. Thereafter, members
of the Executive Committee shall be designated annually, in like manner, at the
annual meetings of the Board. Each member of the Executive Committee (whether
designated at an annual meeting of the Board or to fill a vacancy or otherwise)
shall be and remain a director and shall hold office until his successor shall
have been designated or until he shall cease to be a director or until his death
or until he shall resign in the manner provided in Section 3.05 of this Article
or shall have been removed in the manner provided in Section 3.06 of this
Article. The Board, by resolution or resolutions passed in the manner provided
in Section 2.07, may appoint another member of the Board to serve as an
alternate to any director appointed to the Executive Committee. During any
meeting of the Executive Committee which shall be attended by an alternate so
appointed and not attended by the member for whom such alternate was appointed
as an alternate, the alternate shall be deemed a member of the Executive
Committee for all purposes in the place of the member for whom he was appointed
an alternate.
SECTION 3.03. The Chairman of the Executive Committee. The Board, by
resolution or resolutions passed in the manner provided in Section 2.07, shall
designate, from among the five designees to the Executive Committee, a Chairman
of the Executive Committee. The Chairman of the Executive Committee shall
preside at all meetings of the Executive Committee and shall perform such other
duties as are given to him by these By-Laws or as from time to time may be
assigned to him by the Board or the Executive Committee.
SECTION 3.04. Meetings; Notices; Records. The Executive Committee may hold
regular and special meetings at such place or places (within or outside the
State of Delaware) and at such time or times as it shall
<PAGE>
B14
determine from time to time. Notice of regular meetings shall not be required to
be given; provided, however, that whenever the time or place of regular meetings
shall be fixed or changed, notice of such action shall be mailed promptly to
each member who shall not have been present at the meeting at which such action
was taken, addressed to him at his usual place of business. Notice of each
special meeting shall be mailed to each member addressed to him at his usual
place of business at least three days before the day on which the meeting is to
be held, or shall be sent to him at such place by telegram, cable, telex or
facsimile, or if such notice is not feasible, shall be given by telephone or
two-way radio, or shall be delivered to him personally, not later than two days
before the day on which the meeting is to be held; provided, however, that if
the meeting is to be held outside the United States, the notice, if mailed,
shall be mailed at least ten days before the day on which the meeting is to be
held, or, if sent by telegram, cable, telex or facsimile, or if such notice is
not feasible, by telephone or two-way radio, or delivered personally, not later
than five days before the day on which the meeting is to be held. Notice of any
special meeting need not be given to any member who (or the alternate of whom)
shall attend such meeting in person, or who shall sign a waiver of notice of
such meeting, whether before or after the time of such meeting; and any such
meeting shall be a valid meeting without any notice thereof having been given if
all the members shall be present thereat (a member being deemed present if his
alternate is present) and none of them shall protest such lack of notice prior
to the conclusion of the meeting. No notice need be given to any alternate
member, and no notice need be given of any adjourned meeting. The Executive
Committee shall keep a record of its proceedings.
SECTION 3.05. Quorum and Manner of Acting. (a) At all meetings of the
Executive Committee the presence of at least four members shall be necessary and
sufficient to constitute a quorum for the transaction of business, and the
affirmative vote of all members who are present shall be necessary for the
adoption of any resolution or the taking of any action. All questions on which
such a vote shall not have been obtained shall be referred to the Board.
(b) Minutes of all meetings of the Executive Committee will be
delivered to the entire Board. Copies of all materials submitted to the
Executive Committee will be made available to the entire Board.
SECTION 3.06. Resignations. Any member of the Executive Committee may resign
at any time by giving written notice of such resignation to the Board, the
Chairman of the Board, the President or the Secretary of the Corporation. Unless
otherwise specified in such written notice, such resignation shall take effect
upon receipt thereof by the Board or any such officer.
SECTION 3.07. Removal. Any member of the Executive Committee may be removed
at any time, either for or without cause, by resolution passed at any meeting of
the Board in the manner provided in Section 2.07.
SECTION 3.08. Vacancies. If any vacancy shall occur in the Executive
Committee by reason of disqualification, death, resignation, removal or
otherwise, the remaining members shall continue to act and such vacancy may be
filled at any meeting of the Board by resolution passed in the manner provided
in Section 2.07.
<PAGE>
B15
ARTICLE IV.
OTHER COMMITTEES.
SECTION 4.01. Committees of the Board. The Board, by resolution passed
in the manner provided in Section 2.07, may appoint from among its members one
or more additional committees, each of which shall have at least two members and
each of which, to the extent provided in the resolution, shall have and may
exercise all the authority of the Board except as otherwise provided by statute.
Such committee or committees shall have such name or names as may be determined
from time to time by resolution adopted by the Board, and the quorum for the
Audit Committee shall be the presence in person or by telephone of one member,
but in no case less than one-third of the total number of members of the Audit
Committee.
ARTICLE V.
OFFICERS.
SECTION 5.01. Number. The Board of Directors may elect a Chairman of
the Board, who shall be a director, and shall elect a President, who shall be a
director, one or more Vice Presidents, a Treasurer, a Comptroller, a Secretary
and a General Auditor. The Board of Directors may elect such other officers as
may be appointed in accordance with the provisions of Section 5.03. In addition,
the Board may designate one or more of the Vice Presidents as Executive Vice
President or Senior Vice President. Any two or more offices may be held by the
same person but no officer shall execute, acknowledge, or verify any instrument
in more than one capacity if such instrument is required by law or the By-Laws
to be executed, acknowledged, or verified by two or more officers.
SECTION 5.02. Election, Term of Office and Qualifications. Each officer
(except such officers as may be appointed in accordance with the provisions of
Section 5.03) shall be elected by the Board annually at its annual meeting,
provided, however, that officers may be elected at any meeting of the Board to
fill vacancies or additional offices. Each such officer (whether chosen at an
annual meeting of the Board or to fill a vacancy or otherwise) shall hold office
until the next annual meeting of the Board and until his successor shall have
been elected and qualified, or until his death, or until he shall resign in the
manner provided in Section 5.04 or shall have been removed in the manner
provided in 5.05.
SECTION 5.03. Appointed Officers and Agents. In addition to the
officers of the Corporation to be elected pursuant to Section 5.02, the Board,
or the Chairman of the Board or the President with the approval of the Board,
may from time to time appoint such other officers and agents as the Board or the
officer making such appointment may deem necessary or advisable, to hold office
for such period, have such authority and perform such duties as may be
determined from time to time by the Board or the officer making such
appointment.
SECTION 5.04. Resignations. Any officer may resign at any time by
giving written notice of such resignation to the Board, the Chairman of the
Board, the President or the Secretary. Unless a subsequent time
<PAGE>
B16
is specified in such written notice, such resignation shall take effect upon
receipt thereof.
SECTION 5.05. Removal. All officers, except those appointed in
accordance with the provisions of Section 5.03, may be removed, either for or
without cause, at any meeting of the Board called for that purpose, by
resolution passed by a vote of a majority of the entire Board. The officers and
agents appointed in accordance with the provisions of Section 5.03 may be
removed, either for or without cause, at any meeting of the Board by resolution
passed by a majority of a quorum, or by any superior officer or agent upon whom
such power of removal shall have been conferred by the Board.
SECTION 5.06. Vacancies. A vacancy in any office by reason of death,
resignation, removal, disqualification or any other cause shall be filled in the
manner provided in this Article V for election or appointment to such office.
SECTION 5.07. The Chairman of the Board. The Chairman of the Board, if
one shall have been elected, shall preside at all meetings of the stockholders
and of the Board. He may sign certificates representing stock of the
Corporation, the issuance of which shall have been authorized by the Board. He
shall perform such other duties as are required of him by these By-Laws or as
from time to time may be assigned to him by the Board. Subject to the discretion
of the Board, the Chairman of the Board may be designated by the Board as the
chief executive officer of the Corporation.
SECTION 5.08. The President. Unless the Board of Directors otherwise
determines, the President shall be the chief executive officer of the
Corporation. Subject to the direction of the Board and the Chairman of the
Board, he shall have general charge of the business, affairs and property of the
Corporation and general supervision over its officers and agents. He shall see
that all orders and resolutions of the Board are carried into effect. Unless the
Board of Directors otherwise determines, in the absence or in the case of the
death or disability of the Chairman of the Board, or in the event of and during
the period of a vacancy in that office, he shall have and exercise all powers of
the Chairman of the Board. He may sign certificates of stock of the Corporation,
the issuance of which shall have been authorized by the Board. From time to time
he shall report to the Board all matters within his knowledge which the
interests of the Corporation may require to be brought to its notice. He shall
perform such other duties as are given to him by these By-Laws or as may from
time to time be assigned to him by the Board or the Chairman of the Board.
SECTION 5.09. Absence of the Chairman and President. In the absence or
in the case of the death or disability of the Chairman of the Board and the
President, any officer designated by the Chairman of the Board or by the Board
shall perform the duties of the Chairman of the Board and, when so acting, such
officer shall have and exercise all the powers of the Chairman of the Board.
SECTION 5.10. The Vice Presidents. Each Executive Vice President,
Senior Vice President and Vice President shall have the power of signing deeds,
contracts and other instruments requiring execution by the Corporation, and
shall perform such other duties as shall be assigned to him by the Chairman of
the Board or President from time to time. Any Executive Vice President, Senior
Vice President or Vice President may sign certificates representing stock of the
Corporation the issuance of which shall have been authorized by the Board. One
of the Vice Presidents, as designated from time to time by the Chairman of
<PAGE>
B17
the Board, shall act as the custodian of all deeds, leases, contracts and other
legal documents and all other important papers and records of the Corporation
which are delivered to him for safekeeping.
SECTION 5.11. The Treasurer. The Treasurer shall
(a) have charge of and be responsible for the funds of the
Corporation;
(b) cause the moneys of the Corporation to be deposited in the
name and to the credit of the Corporation in such banks or
trust companies or with such bankers or other depositaries as
shall be selected in accordance with Section 6.03 or to be
otherwise dealt with in such manner as the Board may direct;
(c) render to the Chairman of the Board, the President or the
Board, whenever requested, a statement of all his transactions
as Treasurer;
(d) sign (unless the Secretary, an Assistant Secretary or an
Assistant Treasurer shall sign) certificates representing
stock of the Corporation the issuance of which shall have been
authorized by the Board; and
(e) in general, perform all duties incident to the office of
Treasurer and such other duties as are required of him by
these By-Laws or as from time to time may be assigned to him
by the Board, the Chairman of the Board or the President.
SECTION 5.12. The Comptroller. The Comptroller shall be the chief
accounting officer of the Corporation. He shall
(a) establish and maintain accounting policies, practices and
procedures, including an adequate system of internal controls
to safeguard the assets and properly determine the liabilities
of the Corporation;
(b) cause appropriate accounting records to be maintained and
reports rendered;
(c) establish and administer the tax policy, planning and
compliance functions;
(d) prepare appropriate financial reports for government agencies,
stockholders, creditors and stock exchanges;
(e) be the custodian of all securities, negotiable instruments and
other like assets of the Corporation;
(f) be empowered from time to time to require from any and all
officers or agents of the Corporation reports or statements
giving such information as he may desire with respect to any
and all transactions of the Corporation;
(g) render to the Chairman of the Board, the President or the
Board, whenever requested, such statements and accounts as ma
be required; and.
(h) in general, perform all duties incident to the office of
Comptroller and such other duties as are required of him by
<PAGE>
B18
these By-Laws or as from time to time may be assigned to him
by the Board, the Chairman of the Board or the President.
SECTION 5.13. The Secretary. The Secretary shall
(a) record all votes and the minutes of all meetings of
the stockholders and the Board, and of committees of
directors when required, in a book or books to be kept for
that purpose;
(b) cause all notices to be duly given in accordance with the
provisions of these By-Laws and as required by statute;
(c) be custodian of the seal of the Corporation, and cause such
seal or a facsimile thereof to be affixed to all certificates
representing stock of the Corporation prior to the issuance
thereof and to all instruments the execution of which on
behalf of the Corporation under its seal shall have been duly
authorized in accordance with these By-Laws;
(d) see that the books, reports, statements, certificates and
other documents and records, other than the financial and
stock books, required by statute, are properly kept and filed;
(e) sign (unless the Treasurer, an Assistant Treasurer or
Assistant Secretary shall sign) certificates representing
stock of the Corporation the issuance of which shall have been
authorized by the Board; and
(f) in general, perform all duties incident to the office of
Secretary and such other duties as are required of him by
these By-Laws or as from time to time may be assigned to him
by the Board, the Chairman of the Board or the President.
SECTION 5.14. General Auditor. The General Auditor shall be the chief
auditing officer of the Corporation. He shall determine the adequacy of the
system of internal control, investigate compliance with Corporation policy and
procedures, verify the existence of assets of the Corporation, see that proper
safeguards are maintained to prevent or discover fraud and check on the
reliability of the accounting and reporting system. He shall render such reports
as may be requested, and perform such other duties as may be assigned to him, by
the Board, the Chairman of the Board or the President.
ARTICLE VI.
EXECUTION OF INSTRUMENTS, BORROWING OF MONEY AND
DEPOSIT OF CORPORATE FUNDS.
SECTION 6.01. Execution of Instruments. All deeds, contracts and other
instruments requiring execution by the Corporation shall be signed by the
Chairman of the Board, the President, the Chairman of the Executive Committee,
an Executive Vice President, a Senior Vice President, a Vice President, or the
Treasurer, and attested or countersigned by the Comptroller, an Assistant
Comptroller, the Secretary, an Assistant Secretary, or an Assistant Treasurer;
provided, however, that authority to sign any deeds, contracts or other
instruments requiring execution by the Corporation may be conferred by the Board
upon any person or persons whether or not such person or
<PAGE>
B19
persons be officers of the Corporation; and provided, further, that the Chairman
of the Board, the President, the Chairman of the Executive Committee and any
Executive Vice President may delegate, from time to time, by instrument in
writing, all or any part of his or her authority to any other person or persons.
Such authority may be general or confined to specific instances.
SECTION 6.02. Indebtedness. When so authorized by the Board, any
officer or agent of the Corporation may effect loans and advances at any time
for the Corporation secured by mortgage or pledge of the Corporation's property
or otherwise, and may do every act and thing necessary or proper in connection
therewith. Such authority may be general or confined to specific instances.
SECTION 6.03. Deposits. All funds of the Corporation not otherwise
employed shall be deposited from time to time to its credit in such banks or
trust companies or with such bankers or other depositaries as the Board may
select, or as may be selected by any officer or officers, or agent or agents,
authorized so to do by the Board.
SECTION 6.04. Checks, Drafts, etc. All notes, drafts, acceptances,
checks, endorsements, and all evidences of indebtedness of the Corporation
whatsoever, shall be signed by such officer or officers or such agent or agents
of the Corporation and in such manner as the Board from time to time may
determine.
SECTION 6.05. Proxies. Proxies to vote with respect to shares of stock
of other corporations owned by or standing in the name of the Corporation may be
executed and delivered from time to time on behalf of the Corporation by the
Chairman of the Board, the President, the Chairman of the Executive Committee,
an Executive Vice President, a Senior Vice President, a Vice President or the
Treasurer, and attested or countersigned by the Secretary or an Assistant
Secretary of the Corporation, or by any other person or persons thereunto
authorized by the Board.
ARTICLE VII.
SHARES OF STOCK.
SECTION 7.01. Certificates of Stock. Every holder of stock in the
Corporation shall be entitled to have a certificate, signed by the Chairman of
the Board, the President, an Executive Vice President, a Senior Vice President,
or a Vice President, and by the Treasurer, an Assistant Treasurer, the
Secretary, or an Assistant Secretary (or signed in such other manner as may be
required or permitted by statute) certifying the number of shares owned by him
in the Corporation. Each such certificate shall be signed by the Corporation's
transfer agent or an assistant transfer agent and by the Corporation's
registrar, at least one of whom shall not be an officer or employee of the
Corporation. Any such signature required hereunder may be facsimile; and in case
any officer, transfer agent, assistant transfer agent or registrar whose
facsimile signature has been used on any such certificate shall cease to hold
such office before it shall have been issued, such certificate shall
nevertheless be deemed adopted and approved by the Corporation for issuance and
delivery thereafter. Certificates representing shares of stock of the
Corporation shall be in such form as shall have been approved by the Board and
the seal of the Corporation or a facsimile thereof shall be affixed thereto.
There shall be entered upon the stock books of the Corporation at the time of
issuance of each share the
<PAGE>
B20
number of the certificate issued, the name of the person owning the shares
represented thereby, the number and class of such shares and the date of
issuance thereof. Every certificate exchanged or returned to the Corporation
shall be marked "Canceled," with the date of cancellation indicated thereon.
SECTION 7.02. Transfer of Stock. Transfer of shares of the stock of the
Corporation shall be made on the books of the Corporation by the holder of
record thereof, or by his attorney thereunto duly authorized by a power of
attorney duly executed in writing and filed with the Secretary, and on surrender
of the certificate or certificates representing such shares. The Corporation
shall be entitled to treat the holder of record of any share or shares of stock
as the absolute owner thereof for all purposes, and accordingly shall not be
bound to recognize any legal, equitable or other claim to or interest in such
share or shares on the part of any other person whether or not it shall have
express or other notice thereof, except as otherwise expressly provided by the
statutes of the State of Delaware.
SECTION 7.03. Regulations. Subject to the provisions of this Article
VII, the Board may make such rules and regulations as it may deem expedient
concerning the issuance, transfer and registration of certificates for shares of
the stock of the Corporation.
SECTION 7.04. Transfer Agents and Registrars. The Board shall appoint
one or more transfer agents and one or more registrars with respect to the
certificates representing shares of stock of the Corporation and all such
certificates shall bear the signatures of at least one transfer agent and one
registrar.
SECTION 7.05. Fixing of Record Date. For the purpose of determining the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or to express consent to or dissent from any proposal
without a meeting, or for the purpose of determining stockholders entitled to
receive payment of any dividend or allotment or any right, or for the purpose of
any other action, the Board may fix, in advance, a date as the record date for
any such determination of stockholders. Such date shall not be more than sixty
nor less than ten days before the date of such meeting, nor more than sixty days
prior to any other action.
SECTION 7.06. Lost or Destroyed Certificates. The holder of any shares
of stock of the Corporation shall immediately notify the Corporation and its
transfer agents and registrars, if any, of any loss or destruction of the
certificate representing the same. The Corporation may issue a new certificate
in the place of any certificate theretofore issued by it alleged to have been
lost or destroyed, and the Board may require the owner of the lost or destroyed
certificate or his legal representatives to give the Corporation a bond in such
sum or without limit as to amount as the Board may direct, and with such surety
or sureties as may be satisfactory to the Board, to indemnify the Corporation
against any claim that may be made against it or any such transfer agent or
registrar with respect to any such certificate alleged to have been lost or
destroyed. A new certificate may be issued without requiring any Bond when, in
the judgment of the Board, it is proper so to do.
ARTICLE VIII.
MISCELLANEOUS.
<PAGE>
B21
SECTION 8.01. Offices. The Corporation may establish and maintain one
or more offices outside of the State of Delaware, in such places as the Board
from time to time may deem advisable.
SECTION 8.02. Corporate Seal. The corporate seal shall be circular in
form and shall bear the name of the Corporation and shall otherwise be in such
form as shall have been or shall be approved from time to time by the Board.
SECTION 8.03. Fiscal Year. The fiscal year of the Corporation shall
begin on the first day of January in each year and shall end on the thirty-first
day of the following December.
SECTION 8.04. Word Usage. Use of the masculine pronoun shall be
deemed to include usage of the feminine pronoun where appropriate.
SECTION 8.05. Amendments. These By-Laws may be altered or amended at
any meeting of the stockholders (annual or special) at which a quorum is
present, if notice of the proposed alteration or amendment be contained in the
notice of the meeting, by the affirmative vote of the holders of at least a
majority of the voting power of all Common Shares of the Corporation entitled to
vote generally in the election of directors, voting together as a single class,
with each share of Common Stock entitled to one vote and each share of Class A
Common Stock entitled to five votes, or at any regular or special meeting of the
Board by the affirmative vote of eight Directors if notice of the proposed
alteration or amendment be contained in the notice of such meeting or if all the
directors are present; provided, however, that Section 1.02 of Article I,
Sections 2.02, 2.04 and 2.09 of Article II and this proviso to Section 8.05 of
Article VIII shall not be altered, amended or repealed, and no provision
inconsistent with such provisions shall be adopted, except by the affirmative
vote of the holders of at least 80% of the voting power of all Common Shares of
the Corporation entitled to vote generally in the election of directors, voting
together as a single class, with each share of Common Stock entitled to one vote
and each share of Class A Common Stock entitled to five votes; and provided,
further, that Article IX shall not be altered, amended or repealed, and no
provision inconsistent with its provisions shall be adopted, except in
accordance with the provisions of Section 9.17 therein.
<PAGE>
B22
ARTICLE IX.
INDEMNIFICATION.
SECTION 9.01. General. The Corporation shall indemnify against
Liabilities (as hereinafter defined) and advance Expenses (as hereinafter
defined) to an Indemnitee (as hereinafter defined) to the fullest extent
permitted by applicable law and as provided in this Article.
SECTION 9.02. Proceedings Other Than Proceedings by or in the Right of
the Corporation. An Indemnitee shall be entitled to the indemnification provided
in this Section 9.02 if, by reason of his being or having been a Corporate Agent
(as hereinafter defined), he is, or is threatened to be made, a party to any
threatened, pending or completed Proceeding (as hereinafter defined), other than
a Proceeding by or in the right of the Corporation. Pursuant to this Section
9.02, an Indemnitee shall be indemnified against Expenses and Liabilities
actually and reasonably incurred by him or on his behalf in connection with such
Proceeding or any claim, issue or matter therein, if he acted in good faith and
in a manner he reasonably believed to be in or not opposed to the best interests
of the Corporation, and, with respect to any criminal Proceeding, had no
reasonable cause to believe his conduct was unlawful.
SECTION 9.03. Proceedings by or in the Right of the Corporation. An
Indemnitee shall be entitled to the indemnification provided in this Section
9.03 if, by reason of his being or having been a Corporate Agent, he is, or is
threatened to be made, a party to any threatened, pending or completed
Proceeding brought by or in the right of the Corporation to procure a judgment
in its favor. Pursuant to this Section 9.03, an Indemnitee shall be indemnified
against Expenses actually and reasonably incurred by him or on his behalf in
connection with such Proceeding and against any amount paid in settlement of
such Proceeding if he acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the Corporation.
Notwithstanding the foregoing, no indemnification against such Expenses shall be
made in respect of any claim, issue or matter in such Proceeding as to which the
Indemnitee shall have been adjudged to be liable to the Corporation, unless and
only to the extent that the Court of Chancery of the State of Delaware or the
court in which such Proceeding was brought shall decide that, despite the
adjudication of liability, the Indemnitee is fairly and reasonably entitled to
indemnity for such Expenses in view of all the circumstances of the case;
provided further, that, with respect to indemnification for settlement of any
such Proceeding, the Corporation shall provide indemnification only if either
the amount paid in settlement is reasonable under all the facts and
circumstances, including its relationship to the estimated expense of litigating
the Proceeding to conclusion, or the Court of Chancery of the State of Delaware,
or the court in which such Proceeding was brought or is pending, shall
determine, upon application, that in view of all the circumstances of the case,
the Indemnitee is fairly and reasonably entitled to indemnification for such
settlement. No indemnification for amounts paid in settlement of any such
Proceeding shall be required unless the Corporation has given its prior consent
to such settlement.
SECTION 9.04. Indemnification for Expenses of a Party Who is Wholly or
Partially Successful. Notwithstanding any other provision of this Article, to
the extent that an Indemnitee is, by reason of his being or having been a
Corporate Agent, a party to any Proceeding and is successful, on the merits or
otherwise, in such Proceeding, he shall be
<PAGE>
B23
indemnified against all Expenses actually and reasonably incurred by him or on
his behalf in connection therewith. If an Indemnitee is not wholly successful in
such Proceeding but is successful, on the merits or otherwise, as to one or more
but less than all claims, issues or matters in such Proceeding, the Corporation
shall indemnify such Indemnitee against all Expenses actually and reasonably
incurred by him or on his behalf in connection with each successfully resolved
claim, issue or matter. For purposes of this Section 9.04 and without
limitation, the termination of any claim, issue or matter in such a Proceeding
by dismissal, with or without prejudice, shall be deemed to be a successful
result as to such claim, issue or matter.
SECTION 9.05. Indemnification for Expenses of a Witness.
Notwithstanding any other provision of this Article, to the extent that an
Indemnitee is, by reason of his being or having been a Corporate Agent, a
witness in any Proceeding, he shall be indemnified against all Expenses actually
and reasonably incurred by him or on his behalf in connection therewith.
SECTION 9.06. Advancement of Expenses. The Corporation shall advance
all reasonable Expenses incurred by or on behalf of an Indemnitee in connection
with any Proceeding upon the receipt by the Corporation of a statement or
statements from the Indemnitee requesting such advance or advances from time to
time, whether prior to or after final disposition of such Proceeding. Such
statement or statements shall reasonably evidence the Expenses incurred by the
Indemnitee or refer to invoices or bills for Expenses furnished or to be
furnished directly to the Corporation, and shall include or be preceded or
accompanied by an undertaking by or on behalf of the Indemnitee to repay any
Expenses advanced unless it shall ultimately be determined pursuant to Section
9.07 of this Article that the Indemnitee is entitled to be indemnified against
such Expenses.
SECTION 9.07. Procedure for Determination of Entitlement to
Indemnification.
(a) To obtain indemnification under this Article, an
Indemnitee shall submit to the Corporation a written request for
indemnification, and provide for the furnishing to the Corporation of
such documentation and information as is reasonably available to the
Indemnitee and is reasonably necessary to determine whether and to what
extent the Indemnitee is entitled to indemnification. The Secretary of
the Corporation shall, promptly upon receipt of such a request for
indemnification, advise the Board in writing that the Indemnitee has
requested indemnification.
(b) Upon written request by an Indemnitee for indemnification
pursuant to Section 9.07(a) hereof, a written determination with
respect to the Indemnitee's entitlement thereto shall be made: (i) if a
Change in Control (as hereinafter defined) shall have occurred, by
Independent Counsel (as hereinafter defined); (ii) if a Change in
Control shall not have occurred, (A) by the Board by a majority vote of
the Disinterested Directors (as hereinafter defined) even though less
than a quorum, or (B) by a majority vote of a quorum of Disinterested
Directors on a Committee of the Board, or (C) by Independent Counsel;
and, if it is so determined that the Indemnitee is entitled to
indemnification, payment to the Indemnitee shall be made in a timely
fashion. An Indemnitee shall cooperate with the person, persons or
entity making such determination with respect to the Indemnitee's
entitlement to indemnification, including providing to such person,
persons or entity upon reasonable advance request
<PAGE>
B24
any documentation or information which is not privileged or otherwise
protected from disclosure and which is reasonably available to the
Indemnitee and reasonably necessary to such determination. Any costs or
expenses (including attorneys' fees and disbursements) incurred by an
Indemnitee in so cooperating with the person, persons or entity making
such determination shall be borne by the Corporation (irrespective of
the determination as to an Indemnitee's entitlement to
indemnification).
(c) In the event the determination of entitlement is to be made
by Independent Counsel pursuant to Section 9.07(b) of this Article, the
Independent Counsel shall be selected as provided in this Section
9.07(c). If a Change in Control shall not have occurred, the
Independent Counsel shall be selected by the Board or a Committee
thereof, and the Corporation shall give written notice to the
Indemnitee advising him of the identity of the Independent Counsel so
selected. If a Change of Control shall have occurred, the Independent
Counsel shall be selected jointly by the Indemnitee and the Board or a
Committee thereof. In the event that the Board or a Committee thereof
cannot agree with the Indemnitee on the choice of Independent Counsel,
such Counsel shall be selected by the Board or a Committee thereof from
among the New York City law firms having more than 100 attorneys. The
Corporation shall pay any and all reasonable fees and expenses of
Independent Counsel incurred by such Independent Counsel in connection
with acting pursuant to Section 9.07(b) hereof, and the Corporation
shall pay all reasonable fees and expenses incident to the procedures
of this Section 9.07(c), regardless of the manner in which such
Independent Counsel was selected or appointed.
SECTION 9.08. Presumptions and Effect of Certain Proceedings.
(a) If a Change in Control shall have occurred, in making a
determination with respect to entitlement to indemnification hereunder,
the person, persons or entity making such determination shall presume
that an Indemnitee is entitled to indemnification under this Article if
the Indemnitee has submitted a request for indemnification in
accordance with Section 9.07(a) of this Article, and the Corporation
shall have the burden of proof to overcome that presumption in
connection with the making by any person, persons or entity of any
determination contrary to that presumption.
(b) If the person, persons or entity empowered or selected
under Section 9.07 of this Article to determine whether an Indemnitee
is entitled to indemnification shall not have made such determination
in a timely fashion after receipt by the Corporation of the request
therefor, the requisite determination of entitlement to indemnification
shall be deemed to have been made and the Indemnitee shall be entitled
to indemnification, absent (i) a misstatement by the Indemnitee of a
material fact, or an omission of a material fact necessary to make the
Indemnitee's statement not materially misleading, in connection with
the request for indemnification, or (ii) a prohibition of such
indemnification under applicable law.
(c) The termination of any Proceeding or of any claim, issue or
matter therein by judgment, order, settlement or conviction, or upon a
plea of nolo contendere or its equivalent, shall not (except as
otherwise expressly provided in this Article) of itself adversely
affect the right of an Indemnitee to indemnification or create a
presumption that an Indemnitee did not
<PAGE>
B25
act in good faith and in a manner which he reasonably believed to be in
or not opposed to the best interests of the Corporation or, with
respect to any criminal Proceeding, that an Indemnitee had reasonable
cause to believe that his conduct was unlawful.
(d) Every Indemnitee shall be presumed to have relied upon this
Article in serving or continuing to serve as a Corporate Agent.
SECTION 9.09. Indemnification of Estate; Standards for Determination.
If an Indemnitee is deceased and would have been entitled to indemnification
under any provision of this Article, the Corporation shall indemnify the
Indemnitee's estate and his spouse, heirs, administrators and executors. When
the Board, a Committee thereof or Independent Counsel acting in accordance with
Section 9.07 of this Article in determining the availability of indemnification
under Sections 9.02, 9.03, 9.04 or 9.05 and when an Indemnitee is unable to
testify on his own behalf by reason of his death or mental or physical
incapacity, said Board, Committee or Counsel shall deem the Indemnitee to have
satisfied applicable standards set forth in Sections 9.02, 9.03, 9.04 or 9.05
unless it is affirmatively demonstrated by clear and convincing evidence that
indemnification is not available under Sections 9.02, 9.03, 9.04 or 9.05. When
requested in writing by the spouse of an Indemnitee and/or the heirs, executors
or administrators of an Indemnitee's estate, the Corporation shall provide
appropriate evidence of this By-Law.
SECTION 9.10. Limitation of Actions and Release of Claims. No legal
action shall be brought and no cause of action shall be asserted by or on behalf
of the Corporation or its affiliates (as hereinafter defined) against an
Indemnitee, his spouse, heirs, executors or administrators after the expiration
of two years from the date the Indemnitee ceases (for any reason) to serve as a
Corporate Agent, and any claim or cause of action of the Corporation or its
affiliates shall be extinguished and deemed released unless asserted by filing
of a legal action within such two-year period.
SECTION 9.11. Other Rights and Remedies of Indemnitee.
(a) The Corporation, on behalf of Indemnitees, may arrange for
such insurance covering such Liabilities and Expenses arising from
actions or omissions of an Indemnitee in his capacity as a Corporate
Agent as is obtainable and is reasonable and appropriate in cost and
amount.
(b) In the event that (i) a determination is made pursuant to
Section 9.07 of this Article that an Indemnitee is not entitled to
indemnification under this Article, (ii) advancement of Expenses is not
timely made pursuant to Section 9.06 of this Article, (iii) the
determination of entitlement to indemnification is to be made by
Independent Counsel pursuant to Section 9.07(b) of this Article and
such determination shall not have been made and delivered in a written
opinion in a timely fashion after receipt by the Corporation of the
request for indemnification, (iv) payment of indemnification is not
made pursuant to Section 9.05 of this Article in a timely fashion after
receipt by the Corporation of a written request therefor, or (v)
payment of indemnification is not made in a timely fashion after a
determination has been made that an Indemnitee is entitled to
indemnification or such determination is deemed to have been made
pursuant to Section 9.08 of this Article, the Indemnitee shall be
entitled to an adjudication in the Court of Chancery of the State
<PAGE>
B26
of Delaware, or in any other court of competent jurisdiction, of his
entitlement to such indemnification or advancement of Expenses.
Alternatively, the Indemnitee, at his option, may seek an award in
arbitration to be conducted by a single arbitrator pursuant to the
rules of the American Arbitration Association. The Indemnitee shall
commence such proceeding seeking an adjudication or an award in
arbitration in a timely manner following the date on which the
Indemnitee first has the right to commence such Proceeding pursuant to
this Section 9.11(b). The Corporation shall not oppose the Indemnitee's
right to seek any such adjudication or award in arbitration.
(c) In the event that a determination shall have been made
pursuant to Section 9.07 of this Article that an Indemnitee is not
entitled to indemnification, any judicial proceeding or arbitration
commenced pursuant to this Section 9.11 shall be conducted in all
respects as a de novo trial or arbitration on the merits, and the
Indemnitee shall not be prejudiced by reason of that adverse
determination. If a Change in Control shall have occurred, in any
judicial proceeding or arbitration commenced pursuant to this Section
9.11 the Corporation shall have the burden of proving that the
Indemnitee is not entitled to indemnification or advancement of
Expenses, as the case may be.
(d) If a determination shall have been made or deemed to have
been made pursuant to Sections 9.07 or 9.08 of this Article that an
Indemnitee is entitled to indemnification, the Corporation shall be
bound by such determination in any judicial proceeding or arbitration
commenced pursuant to this Section 9.11, absent (i) a misstatement by
the Indemnitee of a material fact, or an omission of a material fact
necessary to make the Indemnitee's statement not materially misleading,
in connection with the request for indemnification, or (ii) a
prohibition of such indemnification under applicable law.
(e) The Corporation shall be precluded from asserting in any
judicial proceeding or arbitration commenced pursuant to this Section
9.11 that the procedures and presumptions of this Article are not
valid, binding and enforceable and shall stipulate in any such court or
before any such arbitrator that the Corporation is bound by all the
provisions of this Article.
(f) In the event that an Indemnitee, pursuant to this Section
9.11, seeks a judicial adjudication of, or an award in arbitration to
enforce his rights under, or to recover damages for breach of, this
Article, the Indemnitee shall be entitled to recover from the
Corporation, and shall be indemnified by the Corporation against, any
and all expenses (of the types described in the definition of Expenses
in Section 9.15 of this Article) actually and reasonably incurred by
him in such judicial adjudication or arbitration, but only if he
prevails therein. If it shall be determined in said judicial
adjudication or arbitration that the Indemnitee is entitled to receive
part but not all of the indemnification or advancement of Expenses
sought, the Expenses incurred by the Indemnitee in connection with such
judicial adjudication or arbitration shall be appropriately prorated.
SECTION 9.12. Non-Exclusivity; Survival of Rights; Subrogation.
<PAGE>
B27
(a) The rights of indemnification and to receive advancement
of Expenses as provided by this Article shall not be deemed exclusive
of any other rights to which an Indemnitee may at any time be entitled
under applicable law, the Certificate of Incorporation of the
Corporation or any affiliate, the By-Laws of the Corporation or any
affiliate, any agreement, any insurance policy maintained or issued,
directly or indirectly, by the Corporation or any affiliate, a vote of
stockholders, a resolution of Disinterested Directors, or otherwise. No
amendment, alteration or repeal of this Article or of any provision
hereof shall be effective as to any Indemnitee with respect to any
action taken or omitted by such Indemnitee as a Corporate Agent prior
to such amendment, alteration or repeal. The provisions of this Article
shall continue as to an Indemnitee whose status as a Corporate Agent
has ceased and shall inure to the benefit of his heirs, executors and
administrators.
(b) In the event of any payment under this Article, the
Corporation shall be subrogated to the extent of such payment to all of
the rights of recovery of the Indemnitee, who shall execute all papers
required and take all action necessary to secure such rights, including
execution of such documents as are necessary to enable the Corporation
to bring suit to enforce such rights.
(c) The Corporation shall not be liable under this Article to
make any payment of amounts otherwise indemnifiable hereunder if and to
the extent that the Indemnitee has otherwise actually received such
payment under any insurance policy, contract, agreement or otherwise.
SECTION 9.13. Severability. If any provision or provisions of this
Article shall be held to be invalid, illegal or unenforceable for any reason
whatsoever: (a) the validity, legality and enforceability of the remaining
provisions of this Article (including without limitation, each portion of any
Section of this Article containing any such provision held to be invalid,
illegal or unenforceable, that is not itself invalid, illegal or unenforceable)
shall not in any way be affected or impaired thereby; and (b) to the fullest
extent possible, the provisions of this Article (including, without limitation,
each portion of any Section of this Article containing any such provision held
to be invalid, illegal or unenforceable, that is not itself invalid, illegal or
unenforceable) shall be construed so as to give effect to the intent manifested
by the provision held invalid, illegal or unenforceable.
SECTION 9.14. Certain Persons Not Entitled to Indemnification or
Advancement of Expenses. Except as expressly provided in Section 9.11(b) and (f)
of this Article, no person shall be entitled to indemnification or advancement
of Expenses under this Article with respect to any Proceeding, or any claim
therein, brought or made by him against the Corporation.
SECTION 9.15. Definitions. For purposes of this Article:
(a) Affiliate of a Person shall mean any Person (other than
the Corporation) that directly or indirectly through one or more
intermediaries controls, is controlled by, or is under common control
with, the first Person. For the purposes of the above definition, the
term "control" (including, with correlative meaning, the terms
"controlled by" and "under common control with"), shall mean the
possession, directly or indirectly, of more
<PAGE>
B28
than 50% of the then outstanding voting stock entitled to elect
directors of such Person. "Person" shall mean any natural person, firm,
partnership, association, corporation, company, trust, business trust,
joint venture, unincorporated organization or government or any
department or agency thereof.
(b) "affiliate" and "associate" shall have the meanings given
such terms under Rule 405 under the Securities Act of 1933, as amended.
(c) "Change in Control" shall mean either:
(i) a change in the membership of the Board such that
one-half or more of its members were neither recommended nor
elected to the Board by ASARCO Incorporated or its Affiliates; or
(ii) ASARCO Incorporated and its Affiliates cease to own at
least 35,000,000 shares of Class A Common Stock of the
Corporation.
(d) "Corporate Agent" is a person who is or was a director,
officer, employee, agent or fiduciary of the Corporation or of any
other corporation, partnership, joint venture, trust, employee benefit
plan or other enterprise which such person is or was serving at the
request of the Corporation.
(e) "Disinterested Director" means a director of the Corporation
who is not and was not a party to the Proceeding in respect of which
indemnification is sought by an Indemnitee.
(f) "Expenses" shall include all reasonable costs, disbursements
and counsel fees.
(g) "Founding Stockholder" shall mean each of ASARCO
Incorporated, Cerro Trading Company, Inc. and Phelps Dodge Overseas
Capital Corporation and their respective successors and assigns
qualifying pursuant to Section 4.3 of the Stockholders' Agreement;
provided that each of Cerro Trading Company, Inc. and Phelps Dodge
Overseas Capital Corporation shall remain a Founding Stockholder for
purposes hereof only for such time as it would also qualify as an
Affiliate of The Marmon Corporation or Marmon Holdings, Inc. or Phelps
Dodge Corporation, or their respective successors, as the case may be.
(h) "Indemnitee" includes any person who is, or is threatened to
be made, a witness in or a party to any Proceeding as described in
Sections 9.02, 9.03, 9.04 or 9.05 of this Article by reason of his
being or having been a Corporate Agent.
(i) "Independent Counsel" means a law firm, or a member of a law firm,
that is experienced in matters of corporation law and neither presently
is, nor in the past five years has been, retained to represent: (i) the
Corporation or the Indemnitee or any affiliate or associate of any such
person, in any matter material to any such person; or (ii) any other
party to the Proceeding giving rise to a claim for indemnification
hereunder. Notwithstanding the foregoing, the term "Independent
Counsel" shall not include any person who, under the applicable
standards of professional conduct then prevailing, would have a
conflict of interest in representing either the Corporation or the
Indemnitee
<PAGE>
B29
in an action to determine the Indemnitee's rights under this Article.
(j) "Liabilities" shall mean amounts paid or incurred in
satisfaction of settlements, judgments, awards, fines and penalties.
(k) "Proceeding" includes any action, suit, arbitration,
alternate dispute resolution mechanism, investigation, administrative
hearing or any other proceeding whether civil, criminal, administrative
or investigative, except one initiated by an Indemnitee pursuant to
Section 9.11 of this Article to enforce his rights under this Article.
SECTION 9.16. Notices. Any notice, request or other communication
required or permitted to be given to the Corporation under this Article shall be
in writing and either delivered in person or sent by telex, telegram or
certified or registered mail, postage prepaid, return receipt requested, to the
Secretary of the Corporation and shall be effective only upon receipt by the
Secretary.
SECTION 9.17. Amendments. This Article may be amended or repealed only
by action of the Board approved by the favorable vote of a majority of the votes
cast by stockholders entitled to vote thereon (with such stockholders voting
together as a single class, with each share of Common Stock entitled to one vote
and each share of Class A Common Stock entitled to five votes) at a meeting of
stockholders for which proxies are solicited in accordance with then applicable
requirements of the Securities and Exchange Commission, except that (i) the
Board, without stockholder approval, may make technical amendments that do not
substantively affect the rights of an Indemnitee hereunder and (ii) following a
Change in Control, as defined in Section 9.15(c) of this Article, there shall
also be required for approval of any such amendment or repeal the favorable vote
of a majority of the votes (voted as a single class, with each share of Common
Stock entitled to one vote and each share of Class A Common Stock entitled to
five votes) cast by persons other than any person or group of persons owning,
directly or indirectly, more than 50% of the then outstanding voting stock of
the Corporation (and any affiliate or associate of any such person or persons).
<PAGE>
B30
Southern Peru Copper Corporation
Supplemental Retirement Plan
( As Amended through February 3, 1998)
Section 1. Establishment and Purpose of the Plan.
1.1 Establishment. Effective December. 12, 1990 Southern Peru Copper Corporation
(the "Company") hereby establishes the Southern Peru Copper Corporation
Supplemental Retirement Plan (the "SRP" or "Plan") for the benefit of its
eligible employees qualifying as Participants.
1.2 Purpose. The purpose of the SRP is to provide supplemental retirement income
to eligible employees whose benefits under the Retirement Benefit Plan for the
Salaried Employees of Southern Peru Copper Corporation ("Pension Plan") are
limited in accordance with the limitations imposed by Section 415 of the
Internal Revenue Code (the "Code") on the amount of annual retirement benefits
payable to employees from qualified pension plans and by Code section 401 (a)
(17) on the amount of annual compensation that may be taken into account for all
qualified plan purposes. The limitations described in the preceding sentence
shall hereinafter be referred to as "Code Limitations". Additionally, the
purpose of the SRP is to provide benefits of the same amount had the Participant
not elected to participate in the Company's Compensation Deferral Plan.
Section 2. Participation.
2.1 Participant. Each employee of the Company who is an active participant in
the Pension Plan on or after the effective date of this SRP whose benefits under
the Pension Plan are limited in accordance with the Code Limitations shall
participate in this SRP and be eligible to receive benefits hereunder. Southern
Peru Copper Corporation and its Participating Subsidiaries shall be referred
herein as the " Company". Participating Subsidiary shall mean a subsidiary of
Southern Peru Copper Corporation that has adopted the Plan.
Section 3. Benefits.
3.1 Amount. The Company will pay or cause to be paid to each Participant who
retires under the Pension Plan, or the Surviving Spouse of such a Participant
(as the term is defined in the Pension Plan), as the case may be, who receives a
benefit under the Pension Plan (hereinafter each a "recipient"), an amount which
equals the excess, if any, of:
(i) The amount such recipient would have received under the Pension Plan
for each calendar year, taking into account all provisions of the
Pension Plan in effect and applicable from time to time to the
recipient, except for the Code Limitations and participation in the
Compensation Deferral Plan over
(ii) The amount the recipient would be entitled to receive under the Pension
Plan for such year, taking into account the Code Limitations for such
year and assuming payments under the Pension Plan commenced at the same
time as payments commenced hereunder.
3.2 Time and Manner of Payment.
<PAGE>
B31
(a) Except as otherwise provided herein, payments under the SRP shall be made
in a lump sum, payable as soon as practicable following the the earliest date on
which payment under the Pension Plan may commence (the "Date of Termination"),
which lump sum shall be calculated as set forth in this Section 3.2.
(b) A Participant may elect prior to the Date of Termination to defer (for a
period not to exceed twenty (20) years) the lump sum payment (the "Deferral
Amount") to a future date or to convert the Deferral Amount to a series of
scheduled installments. Such an election must be made at least twelve (12)
months prior to the Date of Termination, except in the event of termination by
reason of "disability" (as defined for purposes of the Pension Plan), in which
case the election must be made prior to the Date of Termination. Any such
election may be changed, provided that no such change shall be given effect
unless it is made in writing at least twelve (12) months prior to the Date of
Termination. The Deferral Amount shall be deemed invested in accordance with an
election to be made by the Participant in such funds as are provided under the
Savings Plan of Southern Peru Copper Corporation and Participating Subsidiaries
("SPCC Savings Plan"), except, however, that the SPCC Common Stock Fund shall
not be available as a deemed investment under the Plan. SPCC will attempt to
follow the Participant's elections, but will not be required to do so.
Regardless of whether the Participant's elections are followed, the Deferral
Amount shall be credited with deemed earnings, gains, losses, expenses and
changes in the fair market value of such Deferral Amount as if SPCC had followed
such investment designations. The Participant must elect in writing to have his
Deferral Amount deemed invested in increments of no less than 5%, in one or more
of the investment funds described in the SPCC Savings Plan, except that the SPCC
Common Stock Fund shall not be available as a deemed investment under the Plan.
Said election must total one hundred percent (100%) of his Deferral Amount.
(c) The election of a deemed investment option is the sole responsibility of
each Participant. Neither the Company, nor the Plan Administrator, nor any
trustee of any trust that may be established in connection with the Plan are
authorized or permitted to advise (or shall have any liability with respect to)
a Participant as to the election of any option or the manner in which his
Deferral Amount shall be deemed to be invested.
(d) Consistent with this Section 3.2, each Participant may elect in writing,
that a whole percentage (no less than 5%) or specific dollar amount of his
deemed investment in any fund may be transferred to any other fund available
under the SPCC Savings Plan (except for the SPCC Common Stock fund). Such
election will be prospective only and will be permitted on a daily basis, in
accordance with rules, if any, as shall be established by the Company.
(e) Notwithstanding paragraphs (a) and (b) above, a Participant may elect in
writing to receive annuity payments under the SRP in the same form and at
approximately the same time as payments are to be made to the Participant under
the Pension Plan. Such an election must be made at least twelve (12) months
prior to the Date of Termination, except in the event of termination by reason
of "disability" (as defined for purposes of the Pension Plan), in which case the
election must be made prior to the Date of Termination. Any such election may be
changed, provided that no such change shall be given effect unless it is made in
writing at least twelve (12) months prior to the Date of Termination
<PAGE>
B32
(f) At any time subsequent to a Participant's Date of Termination, a Participant
who made an election pursuant to Section 3.2(b) may request a payment of all or
a portion of the value of his Deferral Amount for which payment is not yet
payable. Such a request shall be approved by the Plan Administrator (as defined
below) only upon a finding that the Participant has suffered a severe financial
hardship which has resulted from events beyond the Participant's control
("Hardship Event"), and only in the amount reasonably needed to satisfy such
Hardship Event. Whether a Hardship Event has occurred shall be determined in
accordance with Treasury Regulation Sections 1.457- 2(h)(4) and (5). In the
event such a payment is approved, payment of all or a portion of the value of
the Deferral Amount shall be made as soon as practicable to the Participant.
(g) At any time subsequent to a Participant's Date of Termination, a Participant
who made an election pursuant to Section 3.2 (b) may elect the acceleration of
payment of all or a portion of the value of a Participant's Deferral Amount not
yet payable subject to a 6% penalty of the payment amount. Payment of such
amount, less such penalty, (which shall be forfeited) shall be paid in cash in a
single lump sum as soon as practicable after the requested payment date.
(h) Notwithstanding the foregoing, subsequent to his or her Date of Termination,
a Participant who has made an election pursuant to Section 3.2(b) may file an
election to amend such prior election as to the time of any amount due and
payable at least 12 months subsequent to such amendment, and to change the form
of such payments, provided no such election may accelerate any payment to a date
earlier than 12 months from the date of amendment. The amended form of payment
may be a single sum payment of any amounts not yet due and payable, or annual
installments of any such amounts, or a combination thereof, with payments
extended for no more than 20 years following the Participant's Date of
Termination.
(i) (A) In the event of the death of a Participant who has elected an annuity
form of payment pursuant to Section (e) above, his or her beneficiary under the
Pension Plan shall receive the benefit described in Section 3.1 above, if any,
in the same form and approximately at the same time as payments are made to such
beneficiary under the Pension Plan.
(B) Upon the death of a Participant in all other events, the
Participant's Surviving Spouse, if any, shall receive any remaining amounts due
the Participant under this Plan at the same time, in the same form and in the
same amount as the Participant would have received such amounts; provided,
however, that such Surviving Spouse shall be entitled to elect to alter the
timing or form of benefit to the same extent the Participant could have so
elected pursuant to Sections 3.2(b), 3.2(f), 3.2(g) or 3.2(h) above, and shall
be entitled to direct the deemed investment of the Deferral Amount in the same
manner in which the Participant would have been entitled pursuant to Section
3.2(b) and Section 3.2(d).
(C) In the event of the death of a Participant described in (B) above
who has no Surviving Spouse, the amount payable pursuant to (B) above shall be
paid as soon as practicable in a single sum to his beneficiary, or if none, to
his estate.
3.3 The amount of the lump sum referred to in Section 3.2(b) shall be
the lump sum equivalent value of the amount determined under Section 3.1 (after
taking into account, if applicable, any reductions set forth in the Pension Plan
to reflect the commencement of payments
<PAGE>
B33
prior to age 65) by assuming that the Participant has elected a straight life
annuity under the Pension Plan and by using the following actuarial assumptions:
Interest Rate: The rate will be the yield on U.S.
Treasury debt obligations with a
10-year maturity. The rate will be
determined as of the Date of
Termination or, if elected by the
Participant at least 12 calendar
months prior to the Date of
Termination, the rate in effect as of
the date 12 calendar months prior to
the Date of Termination.
Mortality Table: The Mortality Table contained in U.S.
Internal Revenue Service Revenue
Ruling 95-6 or any succeeding Revenue
Ruling issued by the Internal Revenue
Service for use in applying the
provisions of sections 415 and 417(e)
of the Internal Revenue Code.
Section 4. Obligations and Rights.
4.1 Company's Obligation. The Company's obligation to make payments to the
recipient when due shall be contractual in nature only, and participation in
this SRP will not create in favor of any Participant any right or lien against
any assets of the Company. All payments hereunder shall be paid in cash from the
general funds of the Company, no special or separate fund shall be established,
provided, however, that the Company may fund such benefits through a trust, the
assets of which are subject to the claims of the Company's creditors in the
event of insolvency or bankruptcy. Otherwise, no segregation of assets shall be
made to assure the payment of benefits hereunder. Nothing contained in this SRP,
and no action taken pursuant to its provisions, shall create or be construed to
create a trust of any kind, or a fiduciary relationship between the Company and
any Participant or any other person, and the promise to pay benefits hereunder
shall at all times remain unfunded as to each Participant.
4.2 Participant's Rights. Nothing in this SRP shall affect the right of a
recipient to participate in and receive benefits under and in accordance with
any pension, profit-sharing, deferred compensation or other benefit plan or
program of the Company. In addition, nothing in this SRP shall be construed as a
contract of employment between the Company and any Participant, and the right
and power of the Company to dismiss or discharge any Participant is specifically
reserved.
4.3 Non-alienation. No right or interest of a Participant or recipient under
this SRP shall be subject to voluntary or involuntary alienation, assignment or
transfer of any kind.
Section 5. Plan Administration.
5.1 Administrator. The SRP shall be administered by the Plan Administrator of
the Pension Plan (the "Plan Administrator") who shall have the authority to
interpret the terms and provisions of the SRP. The Plan Administrator shall
maintain records, make the requisite calculations and disburse payments
hereunder, and his interpretations,
<PAGE>
B34
determinations, regulations and calculations shall be final and binding on all
persons and parties concerned.
5.2 Amendment and Termination. The Company expects to continue this SRP
indefinitely, but reserves the right to amend or discontinue the SRP at any
time, and to eliminate any benefits accrued hereunder, if , in its sole
discretion, the Company deems such a change necessary and desirable.
Section 6. Miscellaneous.
6.1 Applicable State Law. This SRP shall be construed, regulated and
administered for all purposes according to the laws of the State of New York.
6.2 Agreement Severable. The provisions of this Agreement shall be severable,
and if any one or more provisions shall be considered or held to be invalid or
unenforceable, or shall result in a portion of the SRP being treated as a
pension plan under Title I of ERISA, the remaining provisions shall continue to
be valid and enforceable.
IN WITNESS WHEREOF, the Company has caused the Southern Peru Copper Corporation
Supplemental Retirement Plan to be duly adopted and executed by its duly
authorized officers and its corporate seal affixed hereon as of the
- -------------------.
ATTEST: Southern Peru Copper Corporation
_____________________ By:______________________
Assistant Secretary Vice President
SPCC\SRP
2/3/98
<PAGE>
B35
SOUTHERN PERU COPPER CORPORATION
DEFERRED FEE PLAN FOR DIRECTORS
( As Amended through February 3, 1998)
Section 1. Effective Date. The effective date of the Southern Peru Copper
Corporation Deferred Fee Plan For Directors (the "Plan"), is March 1, 1996.
Section 2. Eligibility. Any Director of Southern Peru Copper Corporation
(the "Company") is eligible to participate in the Plan.
Section 3. Deferred Compensation Account. A deferred compensation account
shall be established for each Director who elects to participate in the Plan.
Each Director's deferred compensation account shall consist of a cash subaccount
and a stock subaccount.
Section 4. Amount of Deferral. A participant may elect to defer receipt of
all or one-half of the compensation payable to the participant for serving on
the Board of Directors or committees of the Board of Directors of the Company.
An amount equal to the compensation deferred will be credited to the
participant's deferred compensation account on the date such compensation is
otherwise payable.
Section 5. Time of Election of Deferral. The first election to defer
compensation received during the calendar year, and any subsequent election
modifying the prior election as provided in Section 10, shall be effective when
made and, with respect to the percentage of compensation deferred, shall only
apply to compensation not then earned. An election, as subsequently modified,
shall continue in force with respect to compensation earned during such calendar
year until the Company is notified in writing that the participant no longer
wishes to defer compensation for future services on the Board of Directors.
An election by a Director to have an amount credited to his cash or to his
deferred compensation stock subaccount must be received by the Company prior to
January 1 of the calendar year during which the election is to be effective and
shall be irrevocable for the entire year. Such election shall remain in effect
for subsequent years unless changed prior to the January 1 of any such
subsequent year. Notwithstanding the foregoing, however, any such election which
is to take effect in 1996 must be received by the Company within thirty (30)
days after the effective date of the Plan and shall be effective only for
compensation earned on and after that date. For newly elected Directors such
election must be received within thirty (30) days after the effective date of
the election and shall be effective for compensation earned on and after that
date.
Section 6. Cash Subaccount. Any compensation which a director elects to
defer pursuant to this Plan shall be credited to such Director's cash subaccount
unless such Director elects in writing that all or a portion of such deferral be
credited to his stock subaccount in accordance with Section 7 of this Plan. Each
deferred compensation cash subaccount will be credited with interest from the
date on which deferred compensation would normally have been paid, until
payment, at a rate equal to the yield rate for U.S. Treasury debt obligations
with a 10-year maturity effective for the last business day in each quarter, on
<PAGE>
B36
the first day of each calendar quarter in which such interest is credited to the
participant's deferred compensation cash subaccount. Interest shall be
compounded quarterly.
Section 7. Stock Election. A Director may elect in writing that all or a
portion, in increments of 25%, of the compensation he is deferring pursuant to
the Plan for any year be credited to his deferred compensation stock subaccount
in lieu of his deferred compensation cash subaccount.
A bookkeeping entry shall be made of the number of whole shares of Company
common stock which could be purchased at fair market value with the compensation
credited to such stock subaccount on the day such amount normally would have
been paid to the Director.
The stock equivalent subaccount also shall be credited on each dividend
payment date with a bookkeeping entry indicating the number of additional whole
shares which could be purchased with the dividend on the shares previously
credited to the stock subaccount.
Any deferred compensation amounts which are insufficient to permit the
crediting of a whole share of Company common stock and any amounts which would
represent cash dividends on Company common stock credited to a stock subaccount
shall be carried as a cash balance bookkeeping entry in such stock subaccount.
At such time as the cash balance equals at least the fair market value of one
share of Company common stock, the cash balance bookkeeping entry shall be
converted to an entry representing the number of additional whole shares of
Company common stock which could be purchased at fair market value with such
balance. No interest shall be credited on any such stock subaccount cash
balance.
For purposes of this Section 7, "fair market value" of a share of Company
common stock shall mean the average of the high and low prices of a single share
of Company common stock as reported by the Wall Street Journal for New York
Stock Exchange-Composite Trading as of the first trading day coincident with or,
if it is not a trading day, the next trading day following the day as of which
such value is to be determined.
No election may be made to have amounts previously credited to a Director's
cash subaccount credited instead to his or her stock subaccount, and no election
may be made to have amounts previously credited to a Director's stock subaccount
credited instead to a cash subaccount except that a Director who has elected
pursuant to Section 9 or Section 12 to receive annual installments may, at least
six months prior to the date such payments would commence or at least six months
prior to the effective date of election elect to transfer on the date such
payments commence the fair market value of the entire stock subaccount to the
cash subaccount. Following retirement, a Director may, by written notice at
least 30 days prior to any annual installment payment date, elect to transfer
any entire remaining balance in the stock subaccount to the cash subaccount.
The stock subaccounts shall be adjusted to reflect any stock split, stock
dividend, recapitalization, merger, consolidation, reorganization or other
similar change in the Company's Common Stock.
Section 8. Value of Deferred Compensation Accounts. The value of each
participant's deferred compensation account shall include the compensation
deferred pursuant to Section 4 which is credited to a Director's deferred
compensation cash subaccount, the interest credited on such compensation
pursuant to Section 6, the value of any shares of
<PAGE>
B37
Company common stock credited to the Director's deferred compensation stock
subaccount and the cash balance credited to such stock subaccount, less any
payments made under Section 9.
Section 9. Payment of Deferred Compensation. The value of a participant's
deferred compensation cash subaccount and deferred compensation stock account
shall be payable solely in cash. All payments of a participant's deferred
compensation account shall be made in a lump sum or in annual installments in
accordance with an election made by the participant as provided in Section 10.
At a participant's election, such payments may commence on January 15 of any
year subsequent to the fourth year following the year in which such fees are
earned, provided, that in all cases payment shall commence on the January 15 of
the calendar year following termination of services as a Director.
If annual installments are elected, such payments shall be made on each
January 15 in accordance with the participant's election as provided in Section
10. The amount of the first payment attributable to the cash subaccount shall be
a fraction of the value of the participant's cash subaccount, the numerator of
which is one and the denominator of which is the total number of installments
elected, and the amount of each subsequent payment shall be a fraction of the
value (including interest earned) on the date preceding each subsequent payment,
the numerator of which is one and the denominator of which is the total number
of installments elected minus the number of installments previously paid.
The amount of the first payment attributable to the stock subaccount shall
be a fraction of the value of the participant's stock subaccount (based upon the
fair market value of the stock determined under Section 7 plus any cash
balance), the numerator of which is one and the denominator of which is the
number of installments elected, and the amount of each subsequent payment shall
be a fraction of the redetermined value of the participant's stock subaccount,
the numerator of which is one and the denominator of which is the total number
of installments elected minus the number of installments previously paid.
If one lump sum payment is elected, such payment shall be made on the date
designated in accordance with the participant's election as provided in Section
10.
Section 10. Manner of Electing Deferral and Payment; Changes in Election. A
participant shall elect to defer compensation by giving written notice to the
Company on a form provided by the Company, which notice shall include (1) the
percentage amount to be deferred; (2) an election of a lump sum payment or the
number of annual installments (not to exceed ten) for the payment of the
deferred compensation; and (3) the date of the lump sum payment or of the first
installment payment, as appropriate. A participant's election shall remain in
effect unless changed in the manner set forth below. A participant may change
his election with respect to the percentage of deferral at any time by
submitting a new written notice to the Company, provided, that such a changed
election will be effective only for compensation subsequently earned during the
calendar year to which the election applies. All deferred elections shall be
irrevocable as to compensation previously earned and may not be changed as to
the form or time of payments. Notwithstanding the foregoing, prior to the
calendar year in which payments would otherwise commence, a participant may
request the Company, subject to the discretion of the Company, (i) to change his
election with respect to the form and time of payments of his cash subaccount
and/or (ii) to change his election with respect to the form
<PAGE>
B38
and time of payments of his stock subaccount in connection with his retirement
or termination as a Director, provided, that no such change may accelerate the
time of the initial payment date of any deferred amount, or delay the scheduled
initial payment day for a period of less than three years.
Section 11. Designation of Beneficiary. A participant may designate a
beneficiary by giving written notice to the Company on the form described in
Section 10. If no beneficiary is designated, the beneficiary will be the
participant's estate. If more than one beneficiary statement has been filed, the
beneficiary designated in the statement bearing the most recent date will be
deemed the valid beneficiary.
Section 12. Death of Participant or Beneficiary. In the event of a
participant's death before he has received all of the deferred payments to which
he is entitled hereunder, the value of the participant's deferred compensation
account shall be paid to the estate or designated beneficiary of the deceased
participant in one lump sum on the first January 15 or July 15 following such
date of death, or as soon as reasonably possible after such January 15 or July
15, unless the participant has elected to continue without change the schedule
for payment of benefits.
If the distribution is to be made to a beneficiary and such beneficiary
dies before such distribution has been made, the amount of the distribution will
be paid to the estate of the beneficiary in one lump sum.
Section 13. Participant's Rights Unsecured. The right of any participant to
receive future installments under the provisions of the Plan shall be
contractual in nature only, however, the amounts of such installments may be
held in a trust, the assets of which shall be subject to the claims of the
Company's general creditors in the event of bankruptcy or insolvency only. Any
installment paid from such trust shall reduce the amount of benefits owed by the
Company.
Section 14. Statement of Account. Statements will be sent to participants
by the end of February of each year as to the value of their deferred
compensation accounts as of the end of December of the preceding year.
Section 15. Assignability. No right to receive payments hereunder shall be
transferable or assignable by a participant or beneficiary, except by will or by
the laws of descent and distribution.
Section 16. Participation in Other Plans. Nothing in this Plan will affect
any right which a participant may otherwise have to participate in any other
retirement plan or agreement which the Company may have now or hereafter.
Section 17. Amendment. This Plan may at any time or from time to time be
amended, modified or terminated by the Board of Directors of the Company. No
amendment, modification or termination shall, without the consent of a
participant, adversely affect such participant's accruals in his deferred
compensation account.
Section 18. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York.
IN WITNESS WHEREOF, the Company has caused the Southern Peru Copper Corporation
Deferred Fee Plan to be duly adopted and executed by its
<PAGE>
B39
duly authorized officers and its corporate seal affixed hereon as of the
___________________.
ATTEST: Southern Peru Copper Corporation
_____________________ By:______________________
Assistant Secretary Vice President
<PAGE>
B40
Southern Peru Copper Corporation
Compensation Deferral Plan
( As Amended through February 3, 1998)
WHEREAS, the Company (as herein after defined) maintains programs known as the
Southern Peru Limited Incentive Plan for Select Management Payroll Employees
(the "SIP Plan") and the Logistics Services Incorporated Incentive Plan (the
"LSI Plan"), approved by the Board of Directors. The SIP Plan and LSI Plan are
flexible bonus programs based on targets of earnings and performance levels that
are determined by the Compensation Committee of the Board of Directors (or the
Board of Directors, in the case of directors who are also officers) each year
taking into account factors, which may include the results of the Company's
operations, its financial position and the performance of each eligible
employee;
WHEREAS, the Board of Directors has determined that it is advisable to provide
supplemental retirement benefits to those employees who are affected by Section
401(a)(17) of the Internal Revenue Code of 1986, as amended (the "Code"), which
imposes limitations on the amount of annual compensation that may be taken into
account for all "tax qualified" plan purposes, to permit deferrals of salaries
for employees affected by Section 401(k)(3) of the Code, and to include
deferrals to be made under the SIP Plan or LSI Plan and
WHEREAS, the Administrative Committee (the "Committee") has adopted the
Compensation Deferral Plan as its administrative guidelines to permit the
deferral of compensation pursuant to the SIP Plan or LSI Plan and to permit
deferrals of compensation for employees affected by Code Sections 401(a)(17) and
401(k)(3) and has recommended to the Board of Directors the adoption of the Plan
to permit deferrals, and the Board of Directors has approved and decided to
adopt the Plan as recommended, NOW, THEREFORE, the Board of Directors hereby
adopts the Southern Peru Copper Corporation Compensation Deferral Plan as herein
after set forth.
Section 1 - Effective Date
The effective date of the Southern Peru Copper Corporation Compensation Deferral
Plan shall be January 1, 1998 (the "Effective Date").
Section 2 - Eligibility
(a) Salary Deferral
For purposes of salary deferral, any employee eligible to participate
in the Savings Plan of Southern Peru Copper Corporation and
Participating Subsidiaries ("Southern Peru Copper Corporation Savings
Plan") who
(i) had compensation from the Company of at least $80,000 (or such
other greater limit as may be established under Code Section
414(q)(1)(B)(1)) (the "HCE Limit") for the calendar year preceding the
year for which the election is effective, or
(ii) has an annualized base salary equal to or greater than the HCE
Limit for the year for which the election is effective,
<PAGE>
B41
shall be considered an "Eligible Employee". Southern Peru Copper
Corporation and Participating Subsidiaries shall be referred to herein
as the "Company". Participating Subsidiary shall mean a subsidiary of
Southern Peru Copper Corporation that has adopted the Plan.
(b) Incentive Compensation Deferral
For purposes of deferrals under the SIP Plan or LSI Plan , any eligible
salaried employee of the Company who meets the compensation
requirements of Section 2(a)(i) or 2(a) (ii) above shall be considered
an "Eligible Employee".
Section 3 - Participation
(a) Election to Defer
(1) Salary Deferral. To become a participant in the salary deferral
component of the Plan for a particular calendar year, an Eligible
Employee must elect, prior to the beginning of such calendar year, to
defer receipt of a percentage of his base annual salary to be earned
during the calendar year (an Eligible Employee who has a valid election
in effect under this section 3 shall be referred to herein as a
"Participant"). Such an election shall be in writing on forms
prescribed by the Committee, which election shall include the
percentage amount to be deferred. A Participant's election to defer
with respect to a calendar year under this subsection (a)(1) shall
continue in effect for all subsequent calendar years until changed in
accordance with subsection (e). An employee of the Company that becomes
an Eligible Employee after the Effective Date may elect to become a
Participant in the Salary Deferral component of the Plan for the
calendar year in which he becomes an Eligible Employee by electing to
defer a percentage of his base annual salary (in accordance with
Section 3(b)) within 30 days of becoming an Eligible Employee. The
election will be effective on a prospective basis beginning with the
payroll period that occurs as soon as administratively practicable
following receipt of the election by the Committee.
(2) Incentive Compensation Deferral. To become a participant in the
Incentive Compensation Deferral component of the Plan for a particular
calendar year, an Eligible Employee must elect, prior to the beginning
of such calendar year, to defer receipt of an amount not to exceed 100
percent of his award under the SIP Plan or the LSI Plan as the case may
be (the "Incentive Compensation Award"), declared during the calendar
year to which the election relates. Such an election shall be in
writing on forms prescribed by the Committee as described in Section
(3)(a)(1) above. A Participant's election to defer with respect to a
calendar year under this subsection (a)(2) shall continue in effect for
all subsequent calendar years until changed in accordance with
subsection (e).
(b) Deferral Amount
(1) Salary Deferral. A Participant who meets the requirements of
Section 3(a)(1) for a calendar year may elect to have the following
amounts (the "Salary Deferral Amount") credited to his account for such
calendar year or portion thereof during which an election is effective
(the "Deferral Period"):
(a) the Participant's elected salary deferral contribution percentage
under the Southern Peru Copper Corporation Savings Plan as in effect on
January 1 of such year, multiplied by the
<PAGE>
B42
Participant's base annual salary in excess of the Code Section
401(a)(17) limit, as adjusted from time to time ($160,000 in 1998) (the
"Compensation Limit"); provided, however, that the total amount of
Salary Deferrals under this subsection cannot exceed twelve percent of
the Participant's base annual salary in excess of the Compensation
Limit; and
(b) the product of (i) multiplied by (ii) where (i) is the
Participant's elected salary deferral contribution percentage under
this Plan (not to exceed twelve percent) reduced by the maximum
contribution percentage permitted for highly compensated employees
under the Southern Peru Copper Corporation Savings Plan due to the
limitation imposed by Code Section 401(k)(3) or by the Plan
Administrator for the Southern Peru Copper Corporation Savings Plan for
such calendar year, and (ii) is the lesser of the Participant's base
annual salary for such year or the Compensation Limit.
(2) Incentive Compensation Deferral. The amount of a Participant's
incentive compensation deferral for a Deferral Period shall be any
whole dollar amount or whole percent of his Incentive Compensation
Award declared during the calendar year as elected by the Participant
(the "Incentive Compensation Deferral Amount"). In the event the award
declared is less than the dollar amount specified in the Participant's
election, the full amount of the award shall be deferred (subject to
Section 13).
(c) Irrevocability of Election
Subject to the provisions of subsection (e) of this Section 3, a
deferral election hereunder shall be irrevocable.
(d) Employer Provided Benefit
With respect to each Deferral Period, the Company shall make a deemed
matching contribution equal to 50% of each Participant's Salary
Deferral Amount; provided, however, that no Participant's Employer
Provided Benefit with respect to a particular year may exceed the
amount by which 3% of such Participant's base salary for such year
exceeds the matching contribution made by the Company on the
Participants behalf under the Southern Peru Savings Plan for such year.
Each such Employer Provided Benefit shall be deemed to be invested in
accordance with the applicable Participant's investment election, as
provided in Section 4.
(e) Change of Election
A Participant may change his election to defer once in each calendar
year. Such an election to change shall be in writing, on forms
prescribed by the Committee. Such change of election shall first be
effective for the calendar year following the election change date.
(f) Special Incentive Awards
Notwithstanding anything to the contrary herein, the Committee, in its
discretion, may provide for any amounts awarded to a Participant by the
Board or the Committee as a special incentive award under the SIP Plan
or LSI Plan to be deferred pursuant to the terms of this Plan and
credited, at the sole cost and expense of the Company, on behalf of a
Participant to a Participant's Account (as defined below), subject to
the terms and limitations of the award ("Special Incentive Awards").
Section 4 - Deemed Investment Provisions
<PAGE>
B43
(a) A Participant's Salary Deferral Amount, Incentive Compensation
Deferral Amount, Employer Provided Benefit and Special Incentive
Compensation Awards (together, the "Deferral Amounts") shall be deemed
invested in accordance with the Participant's election in such funds as
are provided under the Southern Peru Copper Corporation Savings Plan,
except, however, that the Southern Peru Copper Corporation Common Stock
Fund shall not be available as a deemed investment under the Plan. The
Company will attempt to follow the Participants' elections, but will
not be required to do so. Regardless of whether the Participants'
elections are followed, the Participant Accounts (as defined in Section
5(a)) shall be credited with deemed earnings, gains, losses, expenses
and changes in the fair market value of such Participant Accounts as if
the Company had followed such investment designations.
(b) At the time of the election to participate in the Plan, the Participant
must elect in writing to have his Deferral Amounts deemed invested, in
increments of no less than 5%, in one or more of the investment funds
described in Section 4(a). Said election must total one hundred percent
(100%) of his Deferral Amounts.
(c) Each Participant may elect in writing that his future Deferral Amounts
be deemed invested in a proportion different from that previously
elected, but the new election shall be prospective only and shall be
made in accordance with paragraph (b) of this Section 4. Changes in
such deemed investments may be made by a Participant on a daily basis,
in accordance with rules, if any, as shall be established by the
Committee.
(d) The election of a deemed investment option is the sole responsibility
of each Participant. Neither the Company, nor the Committee, nor any
trustee of any trust that may be established in connection with the
Plan are authorized or permitted to advise (or shall have any liability
with respect to) a Participant as to the election of any option or the
manner in which his Deferral Amounts shall be deemed to be invested.
(e) Consistent with this Section 4, each Participant may elect in writing,
that a whole percentage (no less than 5%) or specific dollar amount of
his deemed investment in any fund may be transferred to any other fund
available under the Plan. Such election will be prospective only and
will be permitted on a daily basis, in accordance with rules, if any,
as shall be established by the Committee.
Section 5 - Value and Payment of Benefits
(a) Participant Account
A bookkeeping account shall be established in the financial records of
the Company for each Participant ("Participant Account") to which there
shall be credited for each year during which a deferral election is in
effect, (i) the Participant's Deferral Amounts and (ii) deemed
investment earnings or losses arising therefrom based on the
Participant's elections pursuant to Section 4, as in effect from time
to time in accordance therewith.
<PAGE>
B44
(b) Payment of Benefits
Subject to paragraphs (c) and (d) of this Section 5, each Participant
shall receive the value of his Participant Account in cash as elected
under paragraph (e) of this Section 5 (subject to Section 13) as soon
as practicable in the year following the year of the Participant's
early or normal retirement from the Company. If a Participant
terminates service with the Company prior to qualifying for early
retirement, the value of his Participant Account will be distributed as
soon as practicable following the termination from service in cash as
elected under the Plan (subject to Section (13)). In the event of the
death of a Participant before receiving the value of his Participant
Account, such distribution shall be paid to his beneficiary or
beneficiaries designated pursuant to Section 6.
(c) Financial Hardship of Participants
Except as otherwise provided with respect to a Special Incentive Award,
at any time prior to commencement of payment of benefits pursuant to
paragraph (b) of this Section 5, a Participant may request a payment of
all or a portion of the value of his Participant Account. Such a
request shall be approved by the Committee only upon a finding that the
Participant has suffered a severe financial hardship which has resulted
from events beyond the Participant's control ("Hardship Event"), and
only in the amount reasonably needed to satisfy such Hardship Event.
Whether a Hardship Event has occurred shall be determined in accordance
with Treasury Regulation Sections 1.457- 2(h)(4) and (5). In the event
such a payment is approved, payment of all or a portion of the value of
the Participant Account shall be made as soon as practicable to the
Participant.
(d) Withdrawals
(1) Adequate Prior Notice. Except as otherwise provided with respect to
a Special Incentive Award, absent a Hardship Event, a request for a
payment of all or a portion of the value of a Participant's Participant
Account may be made by such Participant prior to the payment of
benefits pursuant to paragraph (b) of this Section 5, subject to prior
written notice to the Committee (in accordance with such rules and on
such forms as the Committee may prescribe) at least 1 year prior to the
requested payment date. Such payment shall be made in cash in a single
lump sum (subject to Section 13) as soon as practicable after such
requested payment date.
(2) Other Withdrawals. Except as otherwise provided with respect to a
Special Incentive Award, absent a Hardship Event or adequate prior
notice (in accordance with paragraph (d)(1) above), a request for a
payment of all or a portion of the value of a Participant's Participant
Account may be made by such Participant prior to the payment of
benefits pursuant to paragraph (b) of this Section 5, subject to a 6%
penalty of the amount of the requested payment, which penalty shall be
deducted from the requested payment. The requested payment, less such
penalty, shall be paid in cash in a single lump sum (subject to Section
13) as soon as practicable after the requested payment date.
(e) Change of Election
Notwithstanding the foregoing, subsequent to his or her date of
termination, a Participant who has made an election pursuant to this
Section 3 may file an election to amend such prior election as to the
time of any amount due and payable at least twelve (12)
<PAGE>
B45
months subsequent to such amendment, and to change the form of such
payments, provided no such election may accelerate any payment to a
date earlier than twelve (12) months from the date of amendment. The
amended form of payment may be a single sum payment of any amounts not
yet due and payable, or annual installments of any such amounts, or a
combination thereof. The Deferral Period or any further deferral made
under this Subsection (e) may not exceed twenty (20) years from the
date of termination of the Participant.
Section 6 - Designation of Beneficiary
A Participant may designate one or more beneficiaries by giving written notice
to the Committee on the form of Attachment I hereto or such other form as may be
provided by the Committee for that purpose. If no beneficiary is so designated,
a Participant's beneficiary will be the legal representative of the
Participant's estate. If more than one beneficiary statement has been filed, the
beneficiary or beneficiaries designated in the statement bearing the most recent
date will be deemed the valid beneficiary.
Section 7 - Participant's Rights Unsecured
This Plan shall be unfunded, and the right of any Participant or beneficiary to
receive payment under the provisions of the Plan shall be an unsecured claim
against the general assets of the Company, and no provisions contained in the
Plan shall be construed to give any Participant or beneficiary at any time a
security interest in any Participant Account or any asset of the Company. The
liabilities of the Company to any Participant or beneficiary pursuant to the
Plan shall be solely those of a debtor pursuant to such contractual obligations
as are created by the Plan. Amounts, if any, which may be set aside by the
Company for accounting purposes may be held in trust, the assets of which shall
be subject to the claims of the Company's or the employing Participating
Subsidiary's creditors, as the case may be, in the event of the Company's or
applicable Participating Subsidiary's bankruptcy or insolvency only. Any
Deferral Amount paid from such trust shall reduce the amount of such benefits
owed by the Company. No Participant or beneficiary shall have any right to, or
control or incidence of ownership with respect to, any such amounts or any other
assets of the Company, or any subsidiary of the Company.
Section 8 - Non-Alienation of Benefits
No benefit payable under or interest in the Plan shall be subject in any manner
to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or
charge (in each case, whether voluntary or involuntary), and any such attempted
action shall be void and no such benefit or interest shall be in any manner
liable for or subject to debts, contracts, liabilities, engagements or torts of
any Participant, former Participant or beneficiary. If a Participant, former
Participant or beneficiary shall attempt to anticipate, alienate, sell,
transfer, assign, pledge, encumber or charge any benefit payable under or
interest in the Plan in contravention of the foregoing sentence, the Committee
will disregard the attempted transfer, assignment, or other alienation, and will
pay the value of his Participant Account in accordance with the terms of Section
5.
Section 9 - Administration of the Plan
<PAGE>
B46
The Plan shall be administered by the Committee. The Committee shall construe
and interpret the Plan and may adopt rules and regulations governing the
administration of the Plan, as well as exercise any duties and powers conferred
on it by the terms of the Plan. The Committee shall act by vote or written
consent of a majority of its members or otherwise as in accordance with its
general procedures as in effect from time to time.
Section 10 - Amendment or Termination of the Plan
This Plan may at any time or from time to time be amended, modified or
terminated by the Board of Directors. In the event that the Board of Directors
determines that it is inadvisable to continue to maintain the Plan for any
reason, it may provide that no further deferrals shall be allowed under this
Plan and (a) that amounts credited to each Participant Account shall be paid out
immediately in a cash lump-sum, or (b) provide that payments shall continue to
be made pursuant to the provisions of Section 5 with respect to then existing
Participant Accounts, which shall continue to be credited with deemed investment
earnings or losses in accordance with Section 5 (a) until paid in full in
accordance with Section 5.
Section 11 - No Entitlement to Awards or Right of Continued Employment
Neither the establishment of the Plan nor the payment of any benefits hereunder
nor any action of the Company, a subsidiary of the Company, or the Committee
shall be held or construed to confer upon any person any legal right to be
awarded any amounts under the Incentive Plan or the Incentive Compensation Plan
or to continue in the employ of the Company or a subsidiary of the Company. The
Company and its subsidiaries expressly reserve the right to discharge any
Participant whenever the interest of any such company in its sole discretion may
so require without liability to such company or the Committee except as to any
rights which may be expressly conferred upon such Participant under the Plan.
Section 12 - Discretion of Company, Board of Directors and Committee
(a) Any decision made or action taken by the Company or by the Board of
Directors or by the Committee arising out of or in connection with the
construction, administration, interpretation and effect of the Plan
shall lie within the absolute discretion of the Company, the Board of
Directors or the Committee, as the case may be, and shall be final,
conclusive and binding upon all persons.
(b) No member of the Board of Directors or of the Committee or officer or
employee of the Company or its subsidiaries shall be liable for any act
or action hereunder, whether of commission or omission, taken by any
other member, or by any officer, agent, or employee, except in
circumstances involving his bad faith for anything done or omitted to
be done by himself.
Section 13 - Tax Withholding
There shall be deducted from all deferrals or payments made under this Plan the
amount of any taxes required to be withheld by any Federal, state, local or
foreign government, including any employment taxes required to be withheld under
Code Section 3121(v). The Participants and their beneficiaries, distributees,
and personal representatives will
<PAGE>
B47
bear any and all Federal, foreign, state, local or other income or other taxes
imposed on amounts paid under the Plan and the Company may take whatever actions
are necessary and proper to satisfy all obligations of such persons for payment
of all such taxes.
Section 14 - Severability
In the event any provision of this Plan would serve to invalidate the Plan, that
provision shall be deemed to be null and void, and the Plan shall be construed
as if it did not contain the particular provision that would make it invalid.
Section 15 - Governing Law; Binding Effect; Miscellaneous
The Plan shall be governed and construed and enforceable in accordance with the
laws of the State of New York, except as superseded by applicable Federal law.
If the Company is consolidated or merged with or into another corporation, or if
another entity purchases all, or substantially all of the Company's assets the
surviving or acquiring corporation shall succeed to the Company's rights and
obligations under the Plan. The Plan shall inure to the benefit of, and be
enforceable by, each Participant, the Participant's personal or legal
representatives, executors, administrators, successors, heirs, devisees, and
legatees, as the case may be.
Where appearing in the Plan, the masculine gender shall include the feminine
gender.
References to the Code or to Treasury Regulations shall include any successor
provisions, amendments or substitutions thereto.
IN WITNESS WHEREOF, the Company has caused the Southern Peru Copper Corporation
Compensation Deferral Plan to be duly adopted and executed by its duly
authorized officers and its corporate seal affixed hereon as of the
- -------------------.
ATTEST: Southern Peru Copper Corporation
_____________________ By:______________________
Assistant Secretary Vice President
<PAGE>
B48
ATTACHMENT I
Southern Peru Copper Corporation
Compensation Deferral Plan
DESIGNATION OF BENEFICIARY
In the event of my death prior to my retirement from employment with Southern
Peru Cooper Corporation or its applicable subsidiary, or following my retirement
but before I have received all benefits payable to me under the Compensation
Deferral Plan (the "Plan"), I hereby designate, for purposes of Section 6 of the
plan, the following beneficiary (or beneficiaries) to receive the benefits, if
any, to which I may be entitled under the plan.
Beneficiary or Beneficiaries:
Name/Address: Relationship:
- -----------------------------------------------------------------
- -----------------------------------------------------------------
- -----------------------------------------------------------------
In the event that I wish at a later date to designate a beneficiary or
beneficiaries different from the designation election above a new designation of
beneficiary form will be completed by me.
- ----------------------------- -------------------------
Signature Date
- ----------------------------- -------------------------
Print Name Social Security Number
<PAGE>
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