SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
1996 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, 1996 Commission file number 1-164
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ASARCO Incorporated
(Exact name of registrant as specified in its charter)
New Jersey 13-4924440
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(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 on
Title of each class which registered
Common Stock, without par value New York 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
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of February 28, 1997, there were of record 42,894,878 shares of Common Stock,
without par value, outstanding, and the aggregate market value of the shares of
Common Stock (based upon the closing price of Asarco Common Stock on the New
York Stock Exchange - Composite Transactions) of ASARCO Incorporated held by
nonaffiliates was approximately $1.3 billion.
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, 1997.
Part IV: Exhibit index is on pages C1 through C4.
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A1
PART I
Item 1. Business
Asarco, a New Jersey corporation organized in 1899, is one of the world's
leading producers of nonferrous metals, principally copper, lead, zinc, silver
and molybdenum. Asarco also produces specialty chemicals and aggregates. Asarco
and its subsidiaries operate mines in the United States, Peru, Canada and
Mexico.
All tonnages are in short tons. All ounces are troy ounces. Dollar amounts are
in U.S. dollars unless otherwise indicated. "Asarco" or "the Company" includes
Asarco and subsidiaries.
Asarco's beneficial mined copper production reached one billion pounds in 1996,
including its share of Southern Peru Copper Corporation (SPCC), a subsidiary of
the Company. This record level of production establishes Asarco as the fourth
largest private sector copper producer in the world. Copper is Asarco's most
important product, representing 65% of total sales in 1996. Approximately 68% of
copper mine production comes from the Company's mines in the U.S., with the
balance from SPCC's mines in Peru. Asarco has also developed one of the largest
copper ore reserve positions in the industry.
Asarco's lead and zinc businesses include a fully integrated lead business in
Missouri, a custom lead smelting business and a zinc mining business. Asarco
produced nearly 220 million pounds of lead from its own mines in 1996. Zinc mine
production in 1996 totaled just over 170 million pounds.
Silver is produced as a by-product of the Company's other mining operations and
from the mining operations conducted through the Company's 50% owned Silver
Valley Resources which restarted operations in 1996 at its two mines in Idaho.
The Company also has several interesting gold prospects, principally in South
America, as a result of its worldwide exploration program.
Asarco's specialty chemicals business, owned since 1957, and its aggregates
business, owned since 1971, achieved record earnings in 1996. Enthone-OMI is a
worldwide leader in specialty chemicals for the electronics and metal plating
industries. American Limestone provides a variety of crushed stone and related
construction products.
Asarco realized $326 million from the sale of its investment in M.I.M. Holdings
Limited in 1996. The proceeds from the sale were used to reduce debt which
helped to improve the Company's debt-to-capitalization ratio to 26.7% at year
end and reduced annual interest expense by about $21 million.
Asarco also holds a 23.6% interest in Grupo Mexico, S.A. de C.V., the largest
Mexican copper mining company. The Company plans to sell this investment which
has a value of approximately $400 million.
Reference is made to the following Financial Statement footnotes included in
this report: Investments in Note 6, and Business Segments in Note 13.
Additional business information follows:
PRIMARY METALS
Principal Products and Markets
Copper Business
The primary domestic 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. A substantial portion of Asarco's copper sales are made under annual
contracts to industrial users.
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A2
Asarco Copper Operations
Asarco's North American copper business includes the Mission mine south of
Tucson, Arizona; the Ray mine north of Kearny, Arizona, copper smelters in
Hayden, Arizona and El Paso, Texas; and a copper refinery in Amarillo, Texas.
Asarco also owns a 49.9% interest in Montana Resources' copper-molybdenum mine
in Butte, Montana, a 75% interest in the Silver Bell copper mine west of Tucson
where a new leaching and solvent extraction/electrowinning (SX/EW) operation is
nearing completion, and an 84.3% interest in the Minto mine project, a new
copper-gold mine under development in the Yukon Territory, Canada. The Company's
Peruvian copper business, conducted through Southern Peru Copper Corporation
(SPCC), a subsidiary of the Company, produces copper at the Toquepala and
Cuajone mines, the Ilo smelter and the Ilo refinery, all located in the southern
part of Peru.
Record Copper Production
For the first time in its history, the Company's beneficial interest in mined
copper production exceeded one billion pounds, a 13% increase over 1995. In
addition to production gains, the Company's beneficial interest in SPCC's
production grew in 1996 as a result of a full year of increased ownership. The
Company acquired an additional 10.7% interest in SPCC in April 1995.
Production gains at the Company's domestic operations resulted from increased
copper ore production and higher ore grades at both the Mission and Ray mines,
and at SPCC, from increased ore grades at Cuajone and from a full year's
operation of its SX/EW facility, which was placed in service late in 1995. The
Company's beneficial interest in refined production of copper in 1996 was 1.3
billion pounds, also a record. The increase was a result of increased capacity
at SPCC's Ilo refinery, the new SPCC SX/EW refined copper production and the
increased ownership position in SPCC.
Metal Markets
Demand for copper in 1996 was at a record level for the 11th year in a row. As a
result, despite increased worldwide production of copper, demand continued to
exceed supply and inventories declined for the third consecutive year.
Contrary to the positive inventory trends, the copper price during most of 1996
was lower than the record level realized in 1995. The copper price was affected
by uncertainties resulting from speculative trading activities and by the
expectation of excess copper supplies due to increases in worldwide production.
In 1996, the copper price averaged $1.06 per pound on the New York Commodity
Exchange (COMEX) and $1.04 per pound on the London Metal Exchange (LME). In
1995, the copper price averaged $1.35 per pound on the COMEX and $1.33 per pound
on the LME.
Ore Reserves
Asarco's beneficial interest in copper ore reserves totals 3.4 billion tons
containing 38 billion pounds of copper, one of the largest ore reserve positions
in the industry. Long-term drilling programs completed in 1996 increased
reserves at Mission, extended the life of the SX/EW operation at Ray, and
increased reserves 44% at Cuajone. Drilling programs continue at Mission, Ray,
Cuajone and Toquepala.
Development of New Producing Properties
The Company is actively expanding and modernizing two existing properties,
developing two new copper properties and is continuing a research program on
another.
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A3
The Company's largest current project is an expansion of SPCC's Cuajone mine and
a modernization and expansion of the Ilo smelter. The mine will be expanded to
increase annual copper production by 19% or 130 million pounds and the smelter
modernization will increase capacity and modernize facilities to meet current
international environmental guidelines. Engineering work is in progress on these
projects and long-term financing is being arranged.
In January 1996, the Company began construction of an SX/EW plant at its Silver
Bell mine. When completed in mid 1997, the project, in which Mitsui & Co. Ltd.
has a 25% interest, is expected to produce 36 million pounds of refined copper
annually.
In April 1996, the Company announced development of the Minto mine which is
expected to produce 27 million pounds of copper and 10 thousand ounces of gold
in concentrate annually when production begins in 1998.
Test work continued through 1996 at the Santa Cruz In-Situ Copper Mining
Research Project in Casa Grande, Arizona. Santa Cruz is a joint venture,
50%-owned with Freeport-McMoRan Copper & Gold Co. and managed by Asarco. The
project has been funded 25% by the partners and 75% by the federal government.
The objective of the project is to recover copper from deep mineralized zones
through surface injection and recovery of leach solutions. While copper-bearing
solutions were recovered from the specially engineered wells during 1996 and
copper was produced in the pilot SX/EW plant in early 1997, it is still too
early to determine if the technology will be commercially viable.
New Management Processes Implemented
In recent years, as Asarco has become an integrated producer of copper and lead,
increased emphasis has been placed upon the importance of operating consistency
at each of the Company's properties. Each element of the production process,
from mine to smelter to refinery, is interdependent and, therefore, must operate
in a predictable way and at predictable rates. As a result, increased focus is
being placed on operational planning, maintenance practices and management and
employee training.
Adopting practices used in the Company's successful ISO 9002 quality
certification at the Amarillo copper refinery, an Asarco management standard has
been established and extended to all Company operations. Practices under the
standard apply not only to the management of production, but also to other
management processes such as productivity improvement, maintenance, planning,
environmental protection, worker health and safety and administration.
The maintenance management processes, which entail well defined, documented
preventative and predictive maintenance practices provide increased operating
availability and reduced maintenance and operating costs.
The management processes and supporting systems developed by Asarco have begun
to yield results. Operating consistency has improved and accounted for an
important part of the 1996 production gains. Equipment availability has
increased and maintenance costs have declined. Employee satisfaction and
attention to environmental responsibilities and safe work practices have also
improved.
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A4
North American Copper Operations
The Company's North American copper operations established several production
records in 1996, including total mine production of 714 million pounds.
Copper production at the Mission mine increased 16% from 1995. Mined ore
production increased and ore grade also improved as a result of higher grade
ores from the new underground mine during the second half of the year.
Development drilling, increased ore reserves by 7% to 535 million tons
containing 7.4 billion pounds of copper. The drilling defined long-term
stripping requirements which led to a decision to install an overland conveyor
to move 58 million tons of waste per year. The conveyor will be placed in
operation in early 1997. To improve efficiency and handle the additional Mission
mine tonnage, two 60-cubic-yard- capacity shovels were purchased to replace
three 15-cubic-yard-capacity shovels in 1996. The smaller shovels are sized
appropriately for the Silver Bell mine and were moved there.
Copper production at Ray improved as a result of increased ore production and
higher ore grades. The increased production and access to higher grade ore was
made possible by the eleven month accelerated stripping program undertaken in
1994 and 1995. During that program ore processing at the Hayden concentrator was
reduced. Production at the Hayden concentrator was again partially curtailed in
the fourth quarter of 1996 to reduce concentrate inventory. During the Hayden
curtailments, mining equipment normally used for ore production is utilized to
move overburden, adding additional flexibility to future mining operations.
Ray increased its mining efficiency in 1996 by further improving the
effectiveness of its mine equipment maintenance process. Truck fleet
availability was improved 5% and shovel availability by 6%. Efficiency was also
improved by adding one 56-cubic-yard-capacity shovel and idling two older
15-cubic-yard-capacity shovels. Three new 240-ton-capacity trucks were purchased
to improve the efficiency of the Ray fleet. Six 170-ton trucks were transferred
from Ray for use at the Silver Bell mine. During the latter part of the year,
the mine began performance testing of a 310-ton-capacity truck. With a nearly
30% increase in capacity, such trucks may represent the next technological step
to increase mine productivity.
The Hayden, Arizona smelter achieved record copper production because of
improved equipment availability. Continuous availability of the flash furnace
and ancillary facilities allowed uninterrupted production throughout 1996, other
than for scheduled maintenance. Modernization of the smelter's gas handling
system and process control system is expected to increase future production
rates and decrease operating costs.
At El Paso, design and maintenance improvements to the CONTOP furnace, have
resulted in the reliable operation of this new furnace technology. A project to
refurbish the acid plant was completed in 1996, and additional equipment
upgrades planned for 1997 are expected to improve overall plant availability,
increase production levels and reduce costs.
The Amarillo copper refinery extended the scope of its ISO-9002 certification
from electrolytic refined cathode production, continuous cast rod manufacturing
and precious metals electro-refining to include semi-continuous cast cake
production and other by-product processes. An upgrade to the continuous cast rod
mill was completed in January 1997 increasing capacity by 17%.
A six-year labor contract was signed covering employees at the Ray mine and
concentrators and SX/EW operation. The new contract continues the labor
management cooperative programs that began in 1993. A portion of the savings
realized under the cooperative programs is returned to the employees in
gainsharing payments under a program begun in 1995.
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A5
Peruvian Copper Operations
Asarco's equity interest in SPCC is currently 54.1%. The Company began
consolidating SPCC in its financial statements effective January 1,1995 as a
result of acquiring an additional 10.7% interest in 1995.
In December 1995, SPCC completed an exchange offer of new common shares for
labor shares which had been issued to its workers under prior law in Peru. Its
common shares are now listed on the New York Stock Exchange and the Lima Stock
Exchange. Subsequently, SPCC purchased labor shares in open market transactions.
SPCC owns a 97.2% interest in the Peruvian Branch, which comprises substantially
all of SPCC's operations. Labor shares represent a 2.8% interest. Asarco's
beneficial interest in SPCC, after the labor share interest, at the end of 1996
was 52.6%.
In 1996, SPCC produced 678 million pounds of copper from its mines, a 22%
increase over 1995. Copper production at the Cuajone mine increased 14% from
1995, to 332 million pounds, a result of higher ore grades. Development drilling
at Cuajone has increased sulfide and leachable ore reserves 44% to 1.4 billion
tons containing 18.4 billion pounds of copper. As a result of the very large
reserve position at Cuajone, it is now planned to expand milling capacity by 50%
to increase annual copper production by 130 million pounds. Engineering work on
this project has begun.
Toquepala mine copper production in concentrates was 253 million pounds,
slightly lower than 1995 as a result of lower ore grades. The Toquepala
concentrator achieved record annual throughput partially offsetting the effect
of the lower ore grade.
SPCC also produced 93 million pounds of copper from its new low cost SX/EW plant
located at Toquepala and commissioned in November 1995.
In 1996, SX/EW production exceeded the design capacity of the facility. The
SX/EW facility produces refined copper cathodes from solutions leached from
mostly low grade ores stockpiled at both the Toquepala and Cuajone mines.
The Ilo smelter processed a record 1.2 million tons of concentrate in 1996,
following successful startup of a new El Teniente converter in October 1995. A
new acid plant, which became operational concurrent with the El Teniente
converter in 1995, also operated successfully during 1996. SPCC began an
expansion of the sulfuric acid plant in 1996 to increase the capture of sulfur
dioxide emissions from 18% to 30% by 1998. SPCC also announced a smelter
modernization program which will increase capacity and modernize facilities to
meet international environmental guidelines.
The production capacity of the Ilo refinery, purchased by SPCC in 1994, was
increased 20% in 1996 to an annual capacity of 494 million pounds of refined
copper. Electrolytic cells were expanded and the electrical current density
increased resulting in record production.
Labor agreements were reached in Peru with all nine unions. The pacts are of
five-years duration.
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A6
Lead, Zinc, and Silver Businesses
Asarco is a major producer of lead and zinc in the U.S. The Company produces
silver as a by-product of its copper, lead and zinc mining operations. It has a
50% interest in Silver Valley Resources which resumed operations in May 1996.
Lead
The primary domestic uses of lead are for automotive and industrial batteries
and, to a lesser extent, for lead oxide for glass, solder and other industrial
uses. A substantial portion of Asarco's lead sales are made under annual
contracts to industrial users. Remaining lead sales are sold as an intermediate
product to lead refineries outside the United States.
Asarco's Missouri lead business consists of two mines and a smelter and
refinery. The Company's Sweetwater and West Fork mines provide approximately 90%
of the feed for the Glover smelter and refinery with the balance coming from
purchased lead concentrates. Zinc is an important co-product of the lead mining
operations. Production of mined lead and zinc declined in 1996 compared with
recent years due to lower ore grades. All of the Company's lead smelting and
refining operations have faced increasingly stringent environmental requirements
for air and water emissions. To meet these requirements, in late 1996, the
Company completed construction of a $16 million modernization project at its
Glover lead smelter. The Company was able to maintain operations at the smelter
and refinery while the project was under construction, but refined lead
production was reduced from 1995 levels. With this modernization project
complete, the Glover facility should now meet ambient air standards.
Asarco's custom lead business has consisted of its East Helena, Montana lead
smelter and its Omaha, Nebraska lead refinery. This business depends on the
availability of precious metal bearing lead concentrates from the U.S. and Latin
America. Low prices for gold and silver in recent years have reduced the supply
of these materials, and as a result, treatment fees have declined and the custom
lead business has not been profitable. The Company has also been faced with
large capital investments to meet environmental standards. In 1996, the Company
completed a $26 million modernization project at East Helena to bring that
facility into environmental compliance. In 1995, however, the Company decided it
could not justify a $40 million investment required to bring the Omaha refinery
into compliance. As a consequence, the Omaha refinery will be closed. Lead
refining operations ended in June 1996 and all metallurgical operations will
cease in June 1997. The Company is working with the City of Omaha and the state
of Nebraska to convert the site into a park. The Company now sells the lead
bullion produced at East Helena to refineries located outside the U.S.
The Company manages the Leadville mine in Colorado which produces lead, zinc and
silver.
Zinc
Zinc is primarily used in the United States to make galvanized metal products,
zinc-based alloys, brass products, zinc oxide, rolled zinc and for other
industrial uses. The Company's zinc production is sold in the form of
concentrates under contracts of one to three years duration.
The Company mines zinc at four mines near Knoxville, Tennessee as well as
producing zinc as a co-product at its Missouri and Leadville mines. Low ore
grades reduced zinc output at the Tennessee mines 14% from 1995. Due to the low
zinc prices prevailing in 1996, the Tennessee mines operated at a loss. The
Company decided to suspend operations at its New Market mine in 1996. An
exploration program is underway at New Market to identify higher grade ore which
might permit reopening the mine. Early results are encouraging. In late 1996,
zinc prices began to improve. If this improvement is sustained, results should
improve in 1997.
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Silver
The principal uses for silver in the United States are for photographic,
electrical and electronic products and, to a lesser extent, brazing alloys and
solder, jewelry, coinage, silverware and catalysts. Silver is sold under monthly
contracts or in spot sales principally to industrial users.
Asarco owns a 50% interest in Silver Valley Resources. Coeur d'Alene Mines
Corporation owns the other half interest. Silver Valley Resources owns the Coeur
and Galena silver mines in Idaho both of which have been on standby due to low
silver prices. Production resumed in May 1996 at the Coeur mine and an expanded
development program was begun at the Galena mine. Operating results exceeded
expectations throughout the year with lower costs and higher silver grades than
planned. The development program which began in 1995 has increased silver
contained in ore reserves by 61%. Silver Valley Resources is expected to produce
3 million ounces of silver annually when operations resume at the Galena mine in
July 1997.
The Company also owns a 75% interest in the Troy, Montana silver-copper mine,
which is currently on standby. The Company plans to restart Troy in conjunction
with the development of the nearby Rock Creek silver-copper deposit. The Rock
Creek project has been in the permitting process for 10 years. The Company is
preparing a supplemental environmental impact statement and the process is
expected to take another two years. The Troy mine has remaining reserves
adequate for six years of production and could produce 1.3 million ounces of
silver a year.
Specialty Chemicals and Aggregates Businesses
In recent years Asarco has sought to develop businesses which will provide a
source of earnings from non-metals operations.
Specialty Chemicals
Enthone-OMI produces specialty chemicals and manufactures coating systems for
plastics and metals. Enthone-OMI's products include chemicals for industrial
plating and for applications in the electronics and computer industries. Rapid
technological advances require the continual development of new products for
these growing industries. Enthone-OMI's product development programs in the high
technology area are expected to continue to contribute to its growth.
Enthone-OMI's pre-tax profit increased to a record $24 million in 1996.
Aggregates
American Limestone Company produces construction aggregates, ready-mixed
concrete, and agricultural limestone at four locations in Tennessee and
Virginia. American Limestone had record earnings for the fourth consecutive
year, realizing pre-tax profits of $10 million in 1996.
Exploration
Asarco's international exploration program emphasizes the identification and
acquisition of ore reserves and advanced exploration projects for gold and
copper. Including expenditures made by SPCC, the Company spent $27 million on
exploration in 1996. More than 85% was spent outside the United States.
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A8
Environment, Safety and Health
Asarco is committed to protecting the environment. It is Asarco's objective not
only to comply with existing environmental, safety and health laws and
regulations, but to support other activities that contribute to environmental
protection, responsible resource management, and the safety and health of
employees customers and members of the community. With its nearly 100-year
history of operations, Asarco has in recent years committed significant
resources to the remediation of old sites, a number of which have been closed
for many decades. The Company has undertaken this work while making substantial
investments at its continuing operations in order to meet current environmental
rules and standards.
At certain locations such as at the Globe plant in Colorado and the East Helena
lead smelter in Montana, Asarco has continued to operate under current
environmental laws, while remediating the effects of historic operations. Such
projects have included soil reclamation and replacement in the vicinity of the
plants and the remediation of areas within the plant sites.
In Leadville, Colorado, the Company has continued to operate the Leadville mine,
as well as a water treatment plant completed in 1989 to treat mine drainage from
a tunnel which outflows on the Leadville mine property. Asarco has also worked
closely with EPA and others to develop and implement plans to remediate old mine
sites, mill tailings and smelter sites in the Leadville area.
In Tacoma, Washington, Asarco is working with EPA and local officials to
remediate and redevelop its former smelter site to form an urban park.
Some of Asarco's projects are included in the federal Superfund program. Asarco
also is participating in voluntary programs to deal with the impact of past
mining related activities in several states. In 1996, Asarco was recognized for
its voluntary cleanup programs at two of these sites. Asarco has also
established and funded community programs to test children's exposure to lead,
educate parents about lead in the environment and direct remediation projects
focused at reducing the exposure of children to lead.
Asarco's environmental management programs involve the use of a state-of-the-art
computer system and a specialized and highly trained staff. Management oversight
is provided at a senior level. These programs include internal environmental
audits, environmental awareness training for all employees, and close
communications with the communities and governmental agencies with which the
Company works. The Company has also developed a commercial recycling business
and a hydrological consulting and remediation business.
Safety is everybody's business at Asarco and a great deal of management emphasis
is placed on the Company's safety and health program. The Company's Safety and
Health Policy Review Committee oversees an internal review process which
examines safety processes, practices and results at all Asarco locations. At
each operation, management, safety staff personnel and employees regularly meet
and review safety and health matters.
The Company's safety and health program includes recognition of good safety
performance at its operating units.
Investment in Grupo Mexico, S.A. de C.V.
Asarco holds a 23.6% interest in Grupo Mexico, the largest publicly held mining
company in Mexico. Grupo Mexico owns 13 mines and nine metallurgical plants and
is a major producer of copper, lead, zinc, silver, molybdenum and gold. Grupo
Mexico reported profits in 1996 of US$338.1 million converted at the average
exchange rate.
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A9
Grupo Mexico pays no dividend and the Company records no earnings from this
investment. In order to realize current value for Asarco shareholders, the
Company will seek to sell at least part of its holdings. Under a 1994 agreement,
Asarco became free from restrictions on the sale of the majority of its shares
in August 1996. Asarco holdings in Grupo Mexico are valued at approximately $400
million at December 31, 1996.
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 commodities exchanges or to merchants or consumers on a spot sale basis.
Final sales values are determined based on prevailing commodity prices for the
scheduled month of delivery or shipment according to the terms of the contracts.
The backlog for other product classes and services is not material.
COMPETITIVE CONDITIONS
In the United States and abroad, Asarco and its foreign nonconsolidated
associated companies are subject to competition from other nonferrous metal
producers. Asarco's metal products also compete with other materials, including
aluminum, stainless steel, plastics, glass and wood.
Competition in nonferrous metals is principally on a price and service basis,
with price being by far the most important consideration. In construction
aggregates, geographic location of facilities in relation to the point of
consumption, and price are by far the most important competitive factors. In
specialty chemicals, Asarco competes against a substantial number of large and
small companies both in the United States and overseas.
EMPLOYEES
At December 31, 1996, Asarco excluding SPCC, employed about 6,900 persons, of
whom about 3,800 were covered by contracts with various unions, most of which
were affiliated with the AFL-CIO. At December 31, 1996 SPCC employed about 4,900
persons, substantially all of whom were covered by labor contracts.
ENERGY MATTERS
Asarco's energy requirements are met from a variety of sources, including fuel
oil, diesel fuel, gasoline, natural gas, coke and electric power. Asarco has a
large number of contracts of varying duration for its energy needs, typically
negotiated on an individual basis from time to time. Generally, substitute
sources are available except where requirements are guaranteed by local utility
companies. No reductions or interruptions of any operations because of energy
shortages were experienced in 1996.
ENVIRONMENTAL, SAFETY AND HEALTH MATTERS
Asarco's operations are subject to environmental regulation by various federal,
state, local, and foreign governments. Asarco's principal involvement in this
area concerns compliance by its existing and former operations with federal and
state air and water quality and solid and hazardous waste regulations. The
Company believes that its operations are currently in substantial compliance
with applicable environmental laws and regulations.
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A10
The Company anticipates spending $47 million for environmental control capital
expenditures at its operating units in 1997. Capital expenditures by Asarco at
its operating mines, smelters and refineries in order to comply with
environmental standards in the past three years have been (in millions):
1996-$71; 1995-$93; 1994-$23. Recurring costs associated with managing hazardous
substances and environmental issues in ongoing operations including interest on
environmental improvement bonds and other debt incurred for environmental
control facilities, reduced pre-tax earnings by (in millions): 1996-$113;
1995-$103; 1994-$88.
Environmental matters, including a discussion of the Company's reserve for
closed plants and environmental costs, are set forth in the Contingencies and
Litigation Note 8 to the Financial Statements and in Management's Discussion and
Analysis of Operations and Financial Condition and are incorporated herein by
reference.
On March 24, 1995, the Environmental Protection Agency ("EPA") issued a Record
of Decision ("ROD") for the Company's Tacoma smelter site in Tacoma, Washington,
under the Comprehensive Environmental Response, Compensation and Liability Act
of 1980 ("CERCLA" or "Superfund"). The smelter site is part of the Commencement
Bay Superfund site. The ROD calls for excavation and disposal of soils, and
demolition debris in an on-site containment facility, capping of the site with a
low permeability cap, demolition of remaining buildings, replacement of the
surface water drainage system and diversion of groundwater and off-site surface
water. The remediation selected in the ROD is consistent with an agreement in
principle entered into between the Company, the City of Tacoma, the Town of
Ruston and the Metropolitan Park District concerning a master redevelopment plan
for the site. A Consent Decree between the Company and the EPA to carry out the
ROD was entered by the United States District Court on January 3, 1997.
At Ruston, Washington, also part of the Commencement Bay Superfund site, on May
2, 1995, a Consent Decree between the Company and EPA was entered by the United
States District Court in Tacoma, Washington, pursuant to which the Company
agreed to sample and, if necessary, remediate the residential area surrounding
the Tacoma smelter site. To date, approximately 326 residential and right-of-way
properties have been remediated.
In November 1994, at the Bunker Hill Superfund site in Idaho, the Company and
two other mining companies entered into a Consent Decree with the EPA, which was
approved by the United States District Court. Pursuant to the Decree, the
companies have remediated approximately 943 residential yards. Remediation of
other yards continues.
On March 22, 1996, the United States government filed an action in United States
District Court in Boise, Idaho, against the Company and three other mining
companies under CERCLA and the federal Clean Water Act for alleged natural
resource damages to the Coeur d'Alene River Basin in Idaho. The government
contends that the defendants are liable for damages to natural resources in a
1,500 square mile area caused by mining and related activities that they and
others undertook over approximately the period between the mid-1800s and the
mid-1960s. The action also seeks a declaration that defendants are liable for
restoration of the area. The Company believes, and has been advised by outside
legal counsel, that it has strong legal defenses to the lawsuit.
On October 24, 1996, a citizens' suit was brought against the Company alleging
water discharge permitting violations under the federal Clean Water Act ("CWA")
and violations of the federal Resource Conservation and Recovery Act ("RCRA") at
the Company's Omaha, Nebraska lead refinery. On August 5, 1996, in response to a
notification by the plaintiffs' attorney that he intended to file this suit, the
Nebraska Department of Environmental Quality ("NDEQ") advised the plaintiffs'
attorney that it did not believe that he had "alleged sufficient facts under
either the CWA or RCRA to warrant the finding of a violation of either act." The
NDEQ further advised that it "does not perceive a need to take an enforcement
action against Asarco at this time because the company is presently cooperating
in the voluntary remediation of its site." The Company believes that the lawsuit
is without merit and is vigorously defending it.
<PAGE>
A11
On January 25, 1996, the Cabinet Resource Group (the "Group") filed an action in
United States District Court for the District of Montana, Missoula Division,
seeking civil penalties under the Federal Clean Water Act and demanding that the
Company obtain a discharge permit under that Act. The Company's position is that
the permit and penalty allegations lack merit.
In 1994, at the Leadville Superfund site in Colorado, a Consent Decree with the
EPA and other potentially responsible parties was entered by the United States
District Court. The Consent Decree resolved many of the liability issues at the
site. Final remedy selection must await the issuance of the ROD which is
expected in 1997. Through the end of 1996 the Company has spent approximately
$39 million for remediation at the site. Remaining issues at Leadville will not
be addressed until additional studies are completed.
In 1996, at the East Helena Superfund site in Montana, the Company completed the
remediation of approximately 51 residences at a cost of approximately $2.1
million. This brings the total number of properties remediated to date to 524.
Additional properties are expected to require remediation, which together with
proposed community protection measures, is estimated to require an expenditure
of approximately $2 million over the next five years.
With respect to notices of potential liability previously received by the
Company pursuant to the Comprehensive Environmental Response, Compensation and
Liability Act or similar state laws, the Environmental Protection Agency issued,
on June 14, 1996, a Unilateral Administrative Order directing the Company and
the other potentially responsible parties to implement the remedy specified in
the Record of Decision of the Mine Operable Unit of the Butte Montana Superfund
site issued on September 29, 1994.
In 1996, at the Globe proposed Superfund site in Denver, Colorado the Company
completed the remediation of approximately 130 properties, including residences,
commercial properties and open spaces, at a cost of approximately $2.9 million
pursuant to a Consent Decree and a settlement of a lawsuit entered in 1993. This
brings the total number of properties remediated to date to approximately 362.
Remediation has also been commenced at the plant site itself. Remediation of
additional properties and the plant site will continue for the next several
years.
In 1995, the Company completed and presented to the Washington Department of
Ecology a remedial investigation and feasibility study report of the Company's
former smelter site in Everett, Washington. It is anticipated that the
Department of Ecology will issue a cleanup action plan for the site during 1997
or 1998. The Company has purchased residences on and near the former smelter
site. Litigation with an adjacent landowner has been dismissed without prejudice
to enable the parties to share information with the objective of negotiating a
settlement of site responsibility at a later date.
With respect to a Superfund site located in Tar Creek, Oklahoma for which the
Company entered into a Consent Decree in 1989 and settled with the EPA for
$479,000 for reimbursement of EPA response costs, the Company received a Special
Notice from the EPA in 1995 invoking the provisions of the Consent Decree
permitting further remedial action under certain circumstances and requesting
that the Company and other PRPs enter into good faith negotiations to conduct
studies and design remedial actions at the site. The Company and the other PRPs
declined but have voluntarily funded a community monitoring program.
In October 1996, the Company responded to an August 30, 1996 General Notice
Letter from the EPA and offered to perform certain remediation activities at the
Circle Smelting site in Beckemeyer, Illinois, an area where a subsidiary of the
Company previously operated a zinc smelter. Negotiations are underway between
the EPA and the Company concerning the scope of remediation.
The Company and certain of its subsidiaries are cooperating with environmental
authorities to undertake studies of certain other sites and remediate where
necessary.
<PAGE>
A12
Prior to 1996, the Company and certain subsidiaries received notices of
potential liability pursuant to CERCLA from the EPA or federal agencies
regarding 14 sites in eight states. In March 1996, the company received a notice
from the United States Department of Agriculture-Forest Service that it may be
potentially liable for environmental remediation at a site on the border of
Montana and Idaho where the Company had operated a former mine and mill.
Further, prior to 1996 the Company received notices from state agencies
regarding five other sites in four states. Significant developments at certain
of these sites during 1996 are described above. Also, the Company has received
notification of potential liability or information requests from EPA and state
agencies regarding various other sites where the Company's liability is
considered minor.
Other environmental matters involving potential civil penalties are as follows:
1) In 1992, the United States Department of Justice on behalf of the
EPA notified the Company that it intends to sue seeking civil penalties for
alleged violation of the Company's water discharge permit at the Company's Ray
Complex. Under the Clean Water Act, civil penalties may be sought for up to
$25,000 per day for each violation. The Company is negotiating with EPA and the
Department of Justice to resolve this matter.
2) In July and August 1994, the EPA notified the Montana Department of
Health and Environmental Sciences that it considers the Company's East Helena
plant to be in violation of the federal Clean Water Act because of unauthorized
discharges into a nearby creek. The Company applied for a NPDES permit in 1994
and is in discussions with the EPA and the State of Montana regarding this
matter. Pending final issuance of the permit, the Company is complying with
discharge limitations imposed by an EPA Administrative Order. Additionally, in
1996 the Company initiated discussions with EPA concerning materials handling
practices at the plant.
3) In 1992 and 1993, the Company's Glover, Missouri lead smelter and
refinery received several Notices of Violation for monitored levels of lead in
excess of the ambient air standard. Additionally, the Missouri Department of
Natural Resources ordered the Company to conduct stack testing at the plant to
determine whether the plant is in compliance with applicable emission
regulations. The Company has investigated emission levels and has been working
with the Missouri Department of Natural Resources to develop a new State
Implementation Plan ("SIP") for lead. The state adopted the SIP in February
1996. The SIP was implemented in 1996 at a cost of approximately $18 million.
In July 1996, the Company filed a lawsuit in State Court in Nebraska challenging
the right of the state to exercise direct enforcement of the National Ambient
Air Quality Standard ("NAAQS") for lead applicable to the Company's Omaha plant.
On October 24, 1996 the court ruled against the Company and upheld the state's
right to directly enforce the NAAQS applicable to the Omaha plant. The Company
appealed the decision, and on January 3, 1997 an agreement with the state was
reached in which the Company agreed to withdraw its appeal and the state agreed
to stay a direct enforcement provision of the NAAQS for six months.
SIPs designed to achieve compliance by January 6, 1997 with the EPA ambient air
quality standard for lead of 1.5 micrograms per cubic meter of air have been
developed and approved in each state in which Asarco has a lead smelter or
refinery. Final EPA approval of each plan is expected in the near future.
<PAGE>
A13
The Company is studying means of compliance with RCRA through process changes at
its facilities, where feasible, to manage the wastes not excluded from
regulation. Mine tailings, slag, and slag tailings from primary copper
processing, calcium sulfate wastewater treatment plant sludge from primary
copper processing, and slag from primary lead processing at the Company's
operations are excluded from RCRA regulation. The Company is a party to a court
approved Consent Decree with the Missouri Department of Natural Resources, in
which the Company has implemented certain process changes and is conducting
sampling and testing to remain in compliance with RCRA requirements at its
Glover smelter.
Asarco is subject to federal and state laws and regulations pertaining to plant
and mine safety and health conditions, including the Occupational Safety and
Health Act of 1970 and the federal Mine Safety and Health Act of 1977. Asarco
has made, and is likely to continue to make, expenditures to comply with such
laws and regulations.
NEW ACCOUNTING STANDARD
In February, 1997, the Accounting Standards Board issued Statement of Financial
Accounting Standards 128, "Earnings Per Share." The Company is currently
assessing the impact of this statement which will be effective for financial
statements issued for periods ending after December 15, 1997, including interim
periods.
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>
A14
Item 2. Properties
- -------------------------------------------------------------------------------
ASARCO Worldwide Operations
- -------------------------------------------------------------------------------
METALS
COPPER
MINES(1)
Mission; Sahuarita, Arizona
Montana Resources; Butte, Montana
Ray; Hayden, Arizona
Silver Bell; Silver Bell, Arizona
Minto; Yukon Territory, Canada
PLANTS
Amarillo, Texas (Refinery)
(Also Selenium, Tellurium)
El Paso, Texas (Smelter)
(Also Sulfuric Acid)
Hayden, Arizona (Smelter)
(Also Sulfuric Acid)
Ray; Hayden, Arizona
(Electrowinning Plant)
SOUTHERN PERU COPPER CORPORATION (1)
Cuajone mine, Peru
Toquepala mine, Peru
Ilo Copper Smelter and Refinery, Peru
MOLYBDENUM
MINES (1)
Mission; Sahuarita, Arizona (2)
Montana Resources; Butte, Montana
SOUTHERN PERU COPPER CORPORATION (1)
Cuajone, Peru
Toquepala, Peru
LEAD
MINES (1)
Leadville; Leadville, Colorado
Sweetwater; Reynolds County, Missouri
West Fork; Reynolds County, Missouri
PLANTS
East Helena, Montana (Smelter)
(Also Sulfuric Acid)
Glover, Missouri (Smelter, Refinery)
ZINC
MINES (1)
Coy; Jefferson County, Tennessee
Immel; Knox County, Tennessee
New Market; Jefferson County, Tennessee (2)
Young; Jefferson County, Tennessee
Leadville; Leadville, Colorado
<PAGE>
A15
SILVER
MINES (1)
Silver Valley Resources
Coeur; Wallace, Idaho
Galena; Wallace, Idaho
Troy; Troy, Montana (2)
Leadville; Leadville, Colorado
Mission; Sahuarita, Arizona
Ray; Hayden, Arizona
Montana Resources; Butte, Montana
SOUTHERN PERU COPPER CORPORATION (1)
Cuajone, Peru
Toquepala, Peru
PRECIOUS METALS REFINERY
Amarillo, Texas
(Silver, Gold, Palladium and Platinum)
SPECIALTY CHEMICALS
Enthone-OMI
North America
Bridgeview, Illinois
West Haven, Connecticut
Orange, Connecticut
Warren, Michigan
Toronto, Canada
Mexico City, Mexico
Europe
Barcelona, Spain
s-Hertogenbosch, Netherlands
Woking, United Kingdom
Milan, Italy
Marne-La-Vallee, France
Brunn Am Gebirge, Austria
Erkrath, Germany
Norrkoping, Sweden
Geneva, Switzerland
Pacific Rim
Melbourne, Australia
Kowloon, Hong Kong
Singapore
Shen Zhen, People's Republic
of China
Yokohama, Japan
Taipei, Taiwan
AGGREGATES
American Limestone Company, Inc.
(Construction Aggregates,
Concrete, Agricultural Limestone)
Knoxville, Tennessee
Tri-Cities, Tennessee
Nashville, Tennessee
Abingdon, Virginia
<PAGE>
A16
ENVIRONMENTAL SERVICES
Encycle/Texas, Inc.
Corpus Christi, Texas
Hydrometrics, Inc.
Helena, Montana
East Helena, Montana
Billings, Montana
Kalispell, Montana
Spokane, Washington
Tacoma, Washington
Ruston, Washington
Kellogg, Idaho
Denver, Colorado
Tucson, Arizona
El Paso, Texas
OTHER
High Purity Metals
Denver, Colorado
INVESTMENTS
Grupo Mexico, S.A. de C.V. (23.6%)
Thirteen mines, nine metallurgical
plants throughout Mexico,
including: La Caridad and Cananea
(Copper, Lead, Zinc, Silver, Gold,
Coal, Coke, Fluorspar, Sulfuric Acid)
(1) Beneficial interest for this operation is shown in the Mineral Reserves
tables starting on page A19
(2) On standby
(Percent ownership of companies shown in parentheses)
<PAGE>
A17
Southern Peru Copper Corporation
SPCC operates two open pit mines under concessions granted by the Peruvian
government.
Silver Valley Resources
In 1995, Asarco and Coeur d'Alene Mines Corporation established Silver Valley
Resources, a corporation owned 50% by each, to consolidate the companies'
interest in the Coeur and Galena silver mines in Idaho. The Couer mine began
production in May 1996 and the Galena mine, shut down since 1992, is scheduled
to begin production in June 1997. Asarco has an equity interest in Silver Valley
Resources profits or losses in proportion to the 50% related ownership interest.
Silver Bell
In 1996, Asarco and Mitsui & Co. Ltd., established Silver Bell L.L.C., a limited
liability corporation owned 75% by Asarco and 25% by Mitsui & Co. Asarco's
interest in Silver Bell L.L.C. profits and losses is in proportion to its 75%
related ownership interest.
Leadville
Leadville (60.3%) is operated by Asarco under a joint venture agreement. Asarco
and its joint venture partner share operating results in proportion to their
respective ownership interests, except that Asarco bears 100% of losses, if any
in excess of cumulative profits generated since October 1991.
Troy
Troy is operated by Asarco under a lease agreement. Asarco retains 75% of net
proceeds after operating expenses but before depletion, depreciation and income
taxes. The Troy mine was temporarily shut down commencing in April 1993 due to
depressed silver prices.
Mission
A portion of the mine is held under long-term leases in which the lessors have
retained a royalty interest.
West Fork
A portion of the mine is held under a long-term lease in which the lessor has
retained a royalty interest.
Investments
Grupo Mexico, S.A. de C.V., a 23.6% owned company, operates thirteen mines under
concessions granted by the Mexican government.
<PAGE>
A18
The following production information is provided:
<TABLE>
<CAPTION>
MILL PRODUCTION 1996 1995 1994
- --------------- ---- ---- ----
Avg Mill Avg Mill Avg Mill
Ore Milled Recovery Ore Milled Recovery Ore Milled Recovery Rate
(000s Rate (000s Rate (000s Tons) (%)
ASARCO Tons) (%) Tons) (%)
<S> <C> <C> <C> <C> <C> <C>
Domestic
Mission 15,192 85.9 14,803 83.6 15,722 81.4
Mission South 7,616 82.5 7,346 82.7 7,574 80.6
Hayden
Concentrator 8,975 81.5 8,452 78.4 7,550 80.9
Ray Concentrator 12,687 82.4 13,216 82.7 12,143 82.3
Montana Resources 15,990 87.2 14,853 90.9 15,202 93.3
Leadville 131 95.1 219 91.4 223 89.7
Sweetwater 1,271 98.3 1,269 98.1 1,260 98.3
West Fork 1,007 97.2 1,005 97.7 1,009 97.8
Tennessee 2,823 92.4 3,206 92.6 3,193 92.9
Other
Quiruvilca (a) - - 291 82.1 513 84.5
SPCC (c)
Toquepala 18,609 84.2 16,937 89.0 15,737 88.8
Cuajone 21,249 81.7 21,378 84.3 21,688 86.0
</TABLE>
Productive Capacity
<TABLE>
<CAPTION>
Defined Defined
Smelter Capacity (b) Refineries Capacity (b)
<S> <C> <C> <C>
Anode Copper (tons) Copper (tons)
El Paso 115,000 Amarillo 483,000
Hayden 175,000 Ray (SX-EW) 40,000
-------
Total 290,000 Ilo - SPCC (c) 247,000
Blister Copper (tons) Toquepala (SX/EW)(c) 40,000
--------
Ilo - SPCC (c) 300,000 Total 810,000
Lead Bullion (tons) Lead (tons)
East Helena 75,000 Omaha (d) -
Glover 130,000 Glover 130,000
-------
Total 205,000
Silver (000s ounces)
Amarillo 60,000
Gold (ounces)
Amarillo 600,000
</TABLE>
(a) Asarco sold its 80% interest in Quiruvilca on August 31, 1995.
(b) Asarco'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.
(c) Asarco consolidated SPCC effective January 1, 1995 based on Asarco's
52.3% equity ownership. The minority interest in SPCC represented by
Labor Shares in its Peruvian Branch results in Asarco having a
beneficial interest in SPCC of 43.2%. Effective April 1995, Asarco's
equity ownership of SPCC increased to 63% and its beneficial interest
increased to 52.1%. Effective December 31, 1995, Asarco's equity
ownership was 54% and its beneficial interest was 52.3% reflecting the
effects of SPCC's completed labor exchange offer. At December 31, 1996,
Asarco's equity interest was 54.1% and its beneficial interest in SPCC
was 52.6%. SPCC purchased the Ilo copper refinery in May 1994.
(d) Asarco ceased refining lead at its Omaha plant on June 1, 1996.
<PAGE>
A19
METAL PRODUCTION STATISTICS
<TABLE>
<CAPTION>
COPPER Mineral Average
Reserves Mineral Metal Production
Asarco (000s Tons) Content Contained Metal
Int. (%) (000s Pounds)
-------------
(%) 12/31/96 12/31/96 1996 1995 1994
--- -------- -------- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
MINES
Domestic
Mission Complex 100 534,973 0.69 261,200 224,600 229,400
Ray 100 988,888 0.60 273,200 260,400 214,600
Ray leachable 100 204,107 0.45 70,200 70,200 64,000
Montana Resources 49.9 516,038 0.33 104,800 112,800 112,200
Silver Bell L.L.C. 75(a) 197,500 0.39 4,800 6,800 7,200
Troy (e) 75 11,996 0.65 - - -
--------- --------- ---------
Total Domestic 714,200 674,800 627,400
--------- --------- ---------
SPCC (f)
Toquepala-sulfide 52.6(b) 331,580 0.82 252,900 256,200 223,600
-leachable 52.6(b) 650,000 0.20 93,200 10,000 -
Cuajone-sulfide 52.6(b) 1,400,331 0.65 332,000 291,000 312,000
-leachable 52.6(b) 15,000 0.98 - - -
Other
Quiruvilca-Peru (c) - - - 1,200 2,200
Minto 84.3 7,176 2.13 - - -
--------- --------- ---------
678,100 558,400 537,800
--------- --------- ---------
Asarco Beneficial Production 1,015,900 898,400 804,600
--------- --------- ---------
SMELTERS
El Paso 100 230,000 253,000 196,000
Hayden 100 429,800 387,000 400,200
SPCC - Ilo 52.6(b) 633,600 634,400 644,200
--------- --------- ---------
Total 1,293,400 1,274,400 1,240,400
--------- --------- ---------
Asarco Beneficial Production 991,800 956,400 874,400
REFINERIES
Amarillo 100 945,600 966,800 921,200
Ray (SX/EW) 100 70,200 70,200 64,000
SPCC - Ilo 52.6(b) 439,600 432,400 245,000
Toquepala (SX/EW) 52.6(b) 93,200 10,000 -
--------- --------- ---------
Total 1,548,600 1,479,400 1,230,200
--------- --------- ---------
Asarco Beneficial Production 1,295,000 1,258,000 1,090,800
--------- --------- ---------
INVESTMENTS
GRUPO MEXICO (d) 23.6
Base Metal Mines (100.0%) 75,728 0.65 56,300 49,400 47,000
Mexicana de Cobre (96.0%) 516,500 0.53 357,300 358,000 365,300
leachable (96.0%) 223,200 0.24 41,500 21,400 -
Mexicana de Cananea (76.1%) 1,768,300 0.61 219,500 179,000 97,800
leachable (76.1%) 907,200 0.25 58,600 64,400 56,800
</TABLE>
(a) Asarco's interest in Silver Bell was 100% until February 1996 when Asarco
sold a 25% interest to Mitsui & Co., Ltd.
(b) Asarco consolidated SPCC effective January 1, 1995 based on Asarco's 52.3%
equity ownership. The minority interest in SPCC represented by Labor
Shares in its Peruvian Branch results in Asarco having a beneficial
interest in SPCC of 43.2%. Effective April 1995, Asarco's equity ownership
of SPCC increased to 63% and its beneficial interest increased to 52.1%.
Effective December 31, 1995, Asarco's equity ownership was 54% and its
beneficial interest was 52.3% reflecting the effects of SPCC's completed
labor exchange offer. At December 31, 1996, Asarco's equity interest was
54.1% and its beneficial interest in SPCC was 52.6%. SPCC purchased the
Ilo copper refinery in May 1994.
(c) Asarco sold its 80% interest in Quiruvilca on August 31, 1995.
(d) As published by Grupo Mexico, reserves are as of December 31, 1995. Grupo
Mexico ownership of each mine is identified in brackets.
(e) Troy is currently on standby.
(f) In addition to the proven and probable ore reserves, SPCC is evaluating
380 million tons of mineralized reserves with an average copper grade of
0.64%.
<PAGE>
A20
METAL PRODUCTION STATISTICS (continued)
<TABLE>
<CAPTION>
LEAD Mineral Average
Reserves Mineral Metal Production
Asarco (000s Tons) Content Contained Metal
Int. (%) (000s Pounds)
-------------
(%) 12/31/96 12/31/96 1996 1995 1994
--- -------- -------- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
MINES
Domestic
Leadville 60.3 607 2.91 6,500 10,000 9,600
Sweetwater 100 10,443 4.30 106,900 124,400 134,200
West Fork 100 5,465 5.21 107,100 110,000 104,600
------- ------- -------
Total Domestic 220,500 244,400 248,400
Other
Quiruvilca-Peru (a) - 7,800 13,800
------- ------- -------
Total 220,500 252,200 262,200
------- ------- -------
Asarco Beneficial Production 217,900 246,600 255,600
------- ------- -------
SMELTERS
East Helena 100 124,900 127,800 123,400
Glover 100 243,300 271,600 265,400
------- ------- -------
Total 368,200 399,400 388,800
------- ------- -------
REFINERIES
Omaha (b) 100 51,400 140,800 146,200
Glover 100 243,300 271,600 265,400
------- ------- -------
Total 294,700 412,400 411,600
------- ------- -------
Investment
GRUPO MEXICO(c) 23.6
Base Metal Mines (100.0%) 75,728 1.20 80,500 83,400 97,800
</TABLE>
(a) Asarco sold its 80% interest in Quiruvilca on August 31, 1995
(b) Asarco ceased refining lead at its Omaha plant on June 1, 1996.
(c) As published by Grupo Mexico, reserves are as of December 31, 1995. Grupo
Mexico ownership of each mine is identified in brackets.
<PAGE>
A21
METAL PRODUCTION STATISTICS (continued)
<TABLE>
<CAPTION>
ZINC Mineral Average
Reserves Mineral Metal Production
Asarco (000s Tons) Content Contained Metal
Int (%) (000s Pounds)
-------------
(%) 12/31/96 12/31/96 1996 1995 1994
--- -------- -------- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
MINES
Domestic
Leadville 60.3 607 8.86 18,300 30,800 30,800
Sweetwater 100 10,443 0.39 13,800 24,400 17,800
Tennessee 100 4,506 3.30 132,700 154,200 149,200
West Fork 100 5,465 1.06 14,400 21,800 23,600
------- ------- -------
Total Domestic 179,200 231,200 221,400
Other
Quiruvilca-Peru (a) - 25,200 41,200
------- ------- -------
Total 179,200 256,400 262,600
------- ------- -------
Asarco Beneficial Production 171,900 238,800 241,000
INVESTMENTS
GRUPO MEXICO (c) 23.6
Base Metal Mines (100.0%) 75,728 4.20 370,000 402,000 410,800
MOLYBDENUM
1996 1995 1994
---- ---- ----
MINES
Domestic
Mission 100 534,973 .02 800 900 -
Montana Resources 49.9 516,038 .03 11,000 10,200 7,600
------ ------ -----
Total Domestic 11,800 11,100 7,600
------ ------ -----
SPCC (d)
Toquepala 52.6(b) 331,580 .04 4,500 3,700 3,000
Cuajone 52.6(b) 1,400,331 .02 4,200 4,300 3,100
----- ----- -----
Total 8,700 8,000 6,100
----- ----- -----
Asarco Beneficial Production 10,900 10,000 6,400
------ ------ -----
INVESTMENTS
GRUPO MEXICO (c) 23.6
Mexicana de Cobre (96.0%) 516,500 .03 8,700 8,400 5,800
</TABLE>
(a) Asarco sold its 80% interest in Quiruvilca on August 31, 1995.
(b) Asarco consolidated SPCC effective January 1, 1995 based on Asarco's 52.3%
equity ownership. The minority interest in SPCC represented by Labor
Shares in its Peruvian Branch results in Asarco having a beneficial
interest in SPCC of 43.2%. Effective April 1995, Asarco's equity ownership
of SPCC increased to 63% and its beneficial interest increased to 52.1%.
Effective December 31, 1995, Asarco's equity ownership was 54% and its
beneficial interest was 52.3% reflecting the effects of SPCC's completed
labor exchange offer. At December 31, 1996, Asarco's equity interest was
54.1% and its beneficial interest in SPCC was 52.6%. SPCC purchased the
Ilo copper refinery in May 1994.
(c) As published by Grupo Mexico, reserves are as of December 31, 1995. Grupo
Mexico ownership of each mine is identified in brackets.
(d) In addition to the proven and probable ore reserves, SPCC is evaluating
380 million tons of mineralized reserves with an average molybdenum grade
of 0.03%.
<PAGE>
A22
METAL PRODUCTION STATISTICS (continued)
<TABLE>
<CAPTION>
SILVER Mineral Average
Reserves Mineral Metal Production
Asarco (000s Tons) Content Contained Metal
Int. (oz/Ton) (000s troy ounces)
------------------
(%) 12/31/96 12/31/96 1996 1995 1994
--- -------- -------- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
MINES
Domestic
Silver Valley Resources 50 1,913 17.53 1,651 - -
Leadville 60.3 607 1.66 176 347 381
Mission 100 534,973 0.16 1,981 2,604 2,355
Montana Resources 49.9 516,038 0.07 822 680 546
Ray 100 - - 480 839 570
Sweetwater 100 10,443 - 176 272 238
Troy (a) 75 11,996 1.42 - - -
West Fork 100 5,465 - 175 232 256
------ ------ ------
Total Domestic 5,461 4,974 4,346
SPCC
Toquepala 52.6(b) 331,580 - 1,412 1,557 1,401
Cuajone 52.6(b) 1,400,331 - 1,685 1,401 1,579
Other
Quiruvilca-Peru (c) - - - 1,621 2,807
Minto 84.3 7,176 0.27 - - -
------ ------ ------
Total 8,558 9,553 10,133
------ ------ ------
Asarco Beneficial Production 5,778 7,273 7,437
------ ------ ------
REFINERIES
Amarillo 100 30,842 37,265 36,126
SPCC-Ilo 52.6(b) 2,218 2,519 1,210
------ ------ ------
Total 33,060 39,784 37,336
------ ------ ------
Asarco Beneficial Production 32,004 38,530 36,648
------ ------ ------
Investment
GRUPO MEXICO (d) 23.6
Base Metal Mines (100.0%) 75,728 3.12 11,300 10,800 10,700
Mexicana de Cobre (96.0%) 516,500 - 2,300 2,500 2,300
Mexicana de Cananea (76.1%) 1,768,300 - 900 550 730
</TABLE>
(a) Troy is currently on standby.
(b) Asarco consolidated SPCC effective January 1, 1995 based on Asarco's 52.3%
equity ownership. The minority interest in SPCC represented by Labor
Shares in its Peruvian Branch results in Asarco having a beneficial
interest in SPCC of 43.2%. Effective April 1995, Asarco's equity ownership
of SPCC increased to 63% and its beneficial interest increased to 52.1%.
Effective December 31, 1995, Asarco's equity ownership was 54% and its
beneficial interest was 52.3% reflecting the effects of SPCC's completed
labor exchange offer. At December 31, 1996, Asarco's equity interest was
54.1% and its beneficial interest in SPCC was 52.6%. SPCC purchased the
Ilo copper refinery in May 1994.
(c) Asarco sold its 80% interest in Quiruvilca on August 31, 1995.
(d) As published by Grupo Mexico, reserves are as of December 31, 1995. Grupo
Mexico ownership of each mine is identified in brackets.
<PAGE>
A23
All mineral reserves represent 100% of the reserves for that mine and the
percentage ownership of Asarco and its investments are separately indicated. All
mineral reserves are at December 31, 1996, except for Grupo Mexico which is at
December 31, 1995. Reserves are estimated quantities of proven and probable ore
that under present and anticipated conditions may be economically mined and
processed for the extraction of their mineral content. The data for Grupo Mexico
is as published by that company and supplemental information to support the
reserves for that company has not been reviewed by the U.S. Securities and
Exchange Commission. Controlled mineral deposits include those owned, directly
or indirectly through subsidiaries, partnerships or joint ventures, optioned,
leased, or held under government concession.
All production figures represent entire amounts of operations, including those
under lease, joint venture, government concessions or operated by subsidiaries.
Metal production figures for Grupo Mexico are from mines.
Other Operations
The principal activities included in the business segment entitled "Other" are
those of Encycle/Texas, Inc. and Hydrometrics, Inc., wholly-owned subsidiaries
in the environmental services business. None of these operations constitute a
significant portion of the total operations of the Company.
Item 3. Legal Proceedings
Reference is made to the Contingencies and Litigation footnote 8 to the
Financial Statements incorporated herein by reference. The following is
additional detail with respect to the litigation referred to in footnote 8.
Texas Litigation
In 1996, a lawsuit was filed in state district court in San Patricio County,
Texas, against Asarco and two of its wholly-owned subsidiaries, Encycle, Inc.
and Encycle/Texas Inc. and ten other defendants by approximately 457 plaintiffs
who allegedly own property and reside near a landfill in Sinton, Texas.
Plaintiffs seek compensatory and punitive damages for personal injury and
property damage allegedly caused by defendants' disposal of toxic and hazardous
wastes at the landfill. This landfill is the same one that was the subject of a
previous lawsuit in Duval County, Texas by nearby residents, settlement of which
was reported on Form 10-K for 1995.
In 1994, the Company and one of its wholly-owned subsidiaries, Encycle/Texas,
Inc., were sued in state court in Nueces County, Texas in three purported class
actions on behalf of persons residing in neighborhoods around the Company's
Corpus Christi, Texas property. These actions seek compensatory and punitive
damages for diminution of property values, annoyance, loss of use and enjoyment,
loss of income from commercial uses, remediation costs, emotional distress, and
medical monitoring due to alleged contamination of plaintiffs' properties by
metals emitted from the Corpus Christi facility. In 1994, two additional suits
alleging contamination of plaintiffs' properties by metals emitted by the Corpus
Christi facility were filed against the Company and two of its wholly-owned
subsidiaries, Encycle, Inc. and Encycle/Texas, Inc. and several other defendants
in state court in Duval County, Texas. In one suit, 20 plaintiffs who resided
and owned property near the Corpus Christi facility seek compensatory and
punitive damages for diminution in property values, personal injuries, mental
anguish, lost wages, medical expenses and medical monitoring. In the second
suit, two plaintiffs who owned and operated a business near the Corpus Christi
facility seek compensatory and punitive damages for diminution of property value
and loss of profits. In April 1996, one additional suit alleging contamination
of plaintiffs' properties by metals emitted by the Corpus Christi facility was
filed against the Company and two of its wholly-owned subsidiaries in state
court in Nueces County, Texas. This suit seeks compensatory and punitive damages
and equitable relief for diminution of property values and remediation costs.
<PAGE>
A24
In 1993, the State of Texas notified the Company that it and ten other persons
are PRPs with respect to the Col-Tex Refinery State Superfund site in Mitchell
County, Texas where the Company stored diesel fuel in the mid-1970's. In 1996,
the State of Texas notified the Company that it is no longer considered a PRP
and that it has dismissed this claim. The Company has also been named as one of
several defendants in twelve lawsuits filed by or on behalf of 295 persons who
have lived or owned property near the Col-Tex Refinery site seeking compensatory
and punitive damages for alleged wrongful death, personal injury, and property
damage.
In 1994, the Company received notice from the State of Texas that it is a PRP
for the remediation of the site of a former pesticide manufacturing plant in
Hunt County, Texas. In addition, the Company has been named as one of a number
of defendants in nine lawsuits filed in various Texas State District Courts by
or on behalf of approximately 2,281 individuals who live or lived near the site
for compensatory and punitive damages, including damages for alleged personal
injuries and property damage, due to alleged exposure to arsenic products that
the Company sold to the manufacturer at the site. The bankruptcy filing of the
owner of the former pesticide plant has resulted in all of these actions being
stayed, removed to federal court and transferred to the United States District
Court for the Northern District of Texas. Also, in 1995, the Company was named
as a third-party defendant in a suit, pending in the United States District
Court for the Northern District of Texas, for contribution under CERCLA and
Texas state law involving approximately 15 parties alleged to be responsible for
remediation of a railroad property adjacent to the site.
Asbestos Litigation
While no one personal injury action is exactly like any other, the following
three pending lawsuits are typical of those in which employees of other
companies allege death or injury resulting from alleged exposure to asbestos
fiber supplied by Lac d'Amiante du Quebec, Ltee ("LAQ"), a wholly-owned
subsidiary, and other suppliers to their employers' manufacturing operations:
1) In Pogorzelski, et al. v. Amtorg Trading Corporation, et al., Docket No.
L-12274-91, pending since October 31, 1991 in the Superior Court of New Jersey,
Middlesex County, 19 primary and 8 secondary plaintiffs sued LAQ and 25 other
defendants that allegedly supplied asbestos fiber or asbestos containing
products to Johns-Manville's Manville, New Jersey facility for substantial
compensatory and punitive damages for death or injuries allegedly resulting from
the primary plaintiffs' exposure to asbestos fiber while employed at that
facility. The claims of seven of the primary plaintiffs were dismissed as to LAQ
in 1992. The plaintiffs allege a broad range of respiratory and other injuries
including disabling lung changes, asbestosis, cancer, and mesothelioma.
Liability is alleged on theories of strict liability, negligence, breach of
warranty, misrepresentation, ultra hazardous activity and conduct, conspiracy,
concert of action, market share or enterprise liability, and alternative
liability. The thrust of the complaint is that the defendants, individually or
collectively, failed to warn the primary plaintiffs of the possible hazards
associated with inhalation of asbestos fibers while working with or being
exposed to such fibers.
2) In Darlene Turner and Patricia Foret, Individually and on Behalf of Their
Father, Robert Foret, Sr. v. Raymond Plauche, etc., et al., Case No. 94-13057,
pending since August 24, 1994 in the Civil District Court for the Parish of
Orleans of the State of Louisiana, the heirs of Mr. Foret sued LAQ and three
other defendants that allegedly supplied asbestos fiber or asbestos containing
products to the National Gypsum plant in New Orleans, Louisiana. A fifth
defendant was an officer of National Gypsum that plaintiffs allege was negligent
in not providing Mr. Foret with a safe place to work. The plaintiffs seek
substantial compensatory and punitive damages for Mr. Foret's death from lung
cancer and other diseases that allegedly resulted from his exposure to asbestos
fiber while employed at National Gypsum.
<PAGE>
A25
3) In Haines v. Aetna Casualty Co., et al., Docket No. L-5918-95, pending since
July 13, 1995 in the Superior Court of New Jersey, Camden County, one primary
and one secondary plaintiff sued LAQ and six other defendants that allegedly
supplied asbestos fiber or asbestos containing products to New York Shipbuilding
& Drydock Co. in Chester, Pennsylvania and Owens-Corning Fiberglas in Berlin,
New Jersey. The plaintiffs demand substantial compensatory and punitive damages
for asbestosis allegedly resulting from primary plaintiff's exposure to asbestos
fiber while employed at these facilities.
In addition to these personal injury lawsuits arising out of alleged asbestos
exposure to employees of other companies using asbestos fiber in their
manufacturing operations, included in the asbestos product liability lawsuits
pending against LAQ and Asarco are numerous lawsuits arising from products (such
as insulation and brake linings) manufactured by others. These cases typically
allege a failure to warn of possible health hazards associated with those
products and proceed on theories similar to those asserted in the Pogorzelski
case. In many such cases LAQ and Asarco, having never manufactured such
products, have obtained dismissals. Typical of lawsuits in which plaintiffs
allege asbestos exposure due to products manufactured by others are:
1) Tronlone v. Garlock, Inc., et al., Index No. 95-120163, pending since
September 8, 1995 in the Supreme Court of the State of New York, New York
County, in which the executrix for the decedent Mr. Tronlone sued LAQ and 22
other defendants that allegedly supplied asbestos and products containing
asbestos to his employers. The plaintiff demands substantial compensatory and
punitive damages for Mr. Tronlone's death from unspecified injuries that
allegedly resulted from his exposure to asbestos.
The thrust of the complaint is similar to the Pogorzelski case.
2) Roger Adkins et al. v. Owens Corning Fiberglas Corporation, et al., Civil
Action Nos. 95-C-3049 to 95-C-3064, 95-C-3138 and 95-C-3139, pending since
November 3, 1995 in the Circuit Court of Kanawha County, West Virginia, in which
eighteen primary and fourteen secondary plaintiffs sued LAQ, Asarco and 33 other
defendants that allegedly supplied asbestos and products containing asbestos to
the primary plaintiffs' employers. The plaintiffs demand substantial
compensatory and punitive damages for injuries allegedly resulting from their
exposure to asbestos. The thrust of the complaint is similar to the Pogorzelski
case.
3) Aaron, et al. v. Abex Corporation, et al., Case No. 94-C2110, pending since
March 14, 1995 in the District Court of Brazoria County, Texas, 23rd Judicial
District, in which 2,700 primary plaintiffs and 1,021 secondary plaintiffs sued
Asarco, its wholly-owned subsidiary Capco Pipe Company, Inc. ("Capco") and 184
other defendants that either owned the premises where some of the primary
plaintiffs worked, or that provided workers compensation or other insurance
coverage to various of the manufacturers named as defendants, or that allegedly
supplied asbestos and products containing asbestos to the primary plaintiffs'
employers. The claims of 1,254 of the primary plaintiffs were dismissed as to
Asarco and Capco during December 1996. The plaintiffs demand substantial
compensatory and punitive damages for injuries allegedly resulting from their
exposure to asbestos. The thrust of the complaint is similar to the Pogorzelski
case.
The Malvaso v. Owens Corning Fiberglas Corporation, et al., case described in
Item 3 of Asarco's 1995 Form 10-K was dismissed as to LAQ and Asarco on August
15, 1996. As of December 31, 1996, Capco was a defendant in 29 cases brought by
1,548 primary plaintiffs.
In 1991, the Judicial Panel on Multidistrict Litigation transferred all asbestos
cases pending in federal court to a multi-district litigation ("MDL 875") in the
United States District Court for the Eastern District of Pennsylvania for
coordinated and consolidated pretrial proceedings. Cases containing
approximately five percent of LAQ's primary plaintiffs are affected by this
action.
<PAGE>
A26
During January 1996, LAQ and nine former managerial and supervisory employees of
Capco were sued in two separate state court actions in Alabama by 53 former
Capco employees seeking substantial compensatory and punitive damages for
injuries and death allegedly caused by workplace exposure to asbestos on
theories of product liability and negligence. Since that time eight additional
former Capco employees have been added to the litigation through amended
complaints.
On March 3, 1996, Asarco was served with a complaint in a purported class action
filed in state court in West Virginia that also names as defendants LAQ and 49
other companies. The action is allegedly brought on behalf of a class of over
50,000 persons who were exposed to asbestos at West Virginia work sites and who
are allegedly at increased risk of developing cancer. The case seeks the
establishment of a medical monitoring fund. The case was subsequently removed to
federal court by three of the defendants and was thereafter transferred to MDL
875. The Company and LAQ intend to oppose the lawsuit. Additionally, in June
1995, Capco was served with a complaint in a purported class action filed in
Illinois state court in Cook County that also names 139 other defendants. The
class action is allegedly brought on behalf of a nationwide class of persons
claiming to be at an increased risk of developing asbestos-related diseases as a
result of asbestos exposure. Capco and nearly all the other defendants moved to
dismiss the case, and their motions were granted by the court in October 1996.
An appeal has been filed by plaintiffs.
On February 25, 1997, LAQ was served with a complaint in Ohio state court naming
63 defendants in a purported class action filed allegedly on behalf of over
50,000 persons who claim to have an increased risk of developing
asbestos-related diseases, and who fear they will contract cancer as a result of
their exposure to asbestos or asbestos-containing end products while employed at
Ohio worksites. The complaint seeks damages and a medical monitoring fund.
As of December 31, 1996, LAQ, Asarco and Capco have settled or been dismissed
from a total of approximately 6,414 asbestos personal injury lawsuits brought by
approximately 82,766 primary and 52,749 secondary plaintiffs.
With respect to the actions relating to asbestos-containing products in
structures reported in Note 8 Contingencies and Litigation to the Financial
Statements, the following supplemental information is provided:
As of December 31, 1996, there was only one such action pending against LAQ, a
purported statewide class action involving public buildings in cities in which
substantial compensatory and punitive damages were sought. On February 26, 1997,
the Court dismissed the action against LAQ and all other defendants. This
dismissal is subject to appeal. LAQ has settled five and been dismissed from
another 82 actions involving asbestos in structures. Asarco has been dismissed
from all twelve actions in which it has been named.
SPCC Litigation
Reference is made to the lawsuit against a subsidiary of Southern Peru Copper
Corporation ("SPCC"), the Company and others, brought in September 1995 by 698
Peruvian plaintiffs for personal injury and property damage allegedly caused by
the operations of a subsidiary of SPCC, reported in the Contingencies and
Litigation Note to the Financial Statements. In February 1996, plaintiffs filed
a notice of appeal from the United States District Court order dismissing the
complaint and from an earlier order of that court denying plaintiffs' motion to
remand the case to state court. The U.S. Court of Appeals for the Fifth Circuit
heard argument on the appeal on December 5, 1996. A decision is expected in
1997.
<PAGE>
A27
Environmental Litigation
In 1991, ARCO Incorporated ("ARCO") filed suit in federal court in Montana
against Montana Resources and its partners, including Asarco and one of its
subsidiaries, alleging breach of contract resulting from defendants' failure to
reclaim contaminated water in an inactive mining pit (the Berkeley Pit) at
partnership-owned property in Butte, Montana. ARCO's demands include
compensation for study costs under CERCLA with respect to such water, and a
determination that defendants are responsible for reclamation of the pit. The
defendants assert that ARCO is responsible for such CERCLA and reclamation
costs.
In 1993, the Mayor of Tacna, Peru brought a lawsuit against Southern Peru
Limited, an indirect subsidiary of the Company, seeking $100 million in damages
from alleged harmful disposition of tailings, slag, and smelter emissions. In
1994, the First Civil Court of Tacna dismissed the complaint. The plaintiff
appealed and in 1994, the Superior Court of Tacna reversed the lower court's
decision and remanded the case for further proceedings. In March 1995, the trial
court dismissed the complaint on the ground that the plaintiff lacks standing to
bring the action. The plaintiff appealed this dismissal. In May 1996, the
Superior Court of Tacna affirmed the lower court's dismissal. The case is
currently on appeal before the Supreme Court, which may grant discretionary
review on limited issues in exceptional cases.
In 1992, the owner of a property leased by a subsidiary of the Company filed
suit in New Jersey state court in Essex County seeking declaratory judgment and
compensatory and punitive damages for alleged contamination of the property
during the lease term by the subsidiary and others. Settlement of this action
was concluded in November 1996 and the suit was dismissed with prejudice.
In June 1996, the Company was sued in state court in Salt Lake City, Utah along
with numerous other companies alleged to have been engaged in mining or smelting
in the Bingham Canyon area of Utah. Plaintiffs, thirty-six individuals alleged
to be members of four families that resided in homes located in the historic
flood plains of the Bingham Creek, seek compensatory and punitive damages for
personal injury, fear of cancer and wrongful death allegedly caused by exposure
to toxic wastes including arsenic, lead and cadmium, from the defendants' mining
and smelting activities in the area.
In 1995, the Company was sued in federal court in Tacoma, Washington by a
retirement home with 200 residents and 21 acres of property seeking damages for
diminution of property value, response costs and attorneys' fees. In September
1996, the suit was dismissed on the grounds that plaintiffs claims were barred
by lack of subject matter jurisdiction, lack of actual and substantial damages,
or by the applicable statute of limitations. In October 1996, a notice of appeal
was filed by plaintiff.
Other Litigation
In 1989, a lawsuit was filed in state court in Butte, Montana by Montana Mining
Properties ("MMP") which claims to have had a contractual first right of refusal
on the 49.9 percent interest in the Montana copper mining business of Montana
Resources, Inc. that was sold to Asarco in 1989. MMP sought an injunction and
compensatory and punitive damages from Asarco for alleged tortious interference
with its contract with Montana Resources, Inc. In 1994, the court granted
summary judgment in favor of defendants, including Asarco. On appeal, summary
judgment was reversed in 1995, and the case was remanded for further proceedings
against all defendants other than Asarco.
<PAGE>
A28
In June 1993, the Company was sued by two of its liability insurers, the
Insurance Company of North America and California Union Insurance Company, in
state court in New Brunswick, New Jersey for a declaration that the insurers
have no insurance obligation for environmental matters for which the Company is
seeking coverage. The plaintiff insurance companies also included Asarco's other
liability insurers in the lawsuit, and those insurers have sought similar
declaratory relief. Asarco has filed cross claims and counterclaims in this
lawsuit seeking a court declaration that insurance coverage of its environmental
matters does exist. The Company has settled with certain of these insurers, and
in January 1997 summary judgment dismissing Asarco's claims was granted in favor
of most other insurers. The litigation continues as to the remaining insurers
and the Company intends to appeal the granting of summary judgment.
Opinion of Management
The opinion of management regarding the outcome of legal proceedings and
environmental contingencies, set forth in the Contingencies and Litigation Note
(Note 8) to the Financial Statements, is based on considerations including
experience relating to previous court judgments and settlements and remediation
costs and terms. The financial viability of other potentially responsible
parties has been considered when relevant and no credit has been assumed for any
potential insurance recoveries when availability of insurance is not
established. The Company considered such factors in establishing its
environmental reserve in December of 1990 and in determining modifications to
its reserve in 1991, 1992, 1993, 1994, and 1995.
See also Item 1, "Environmental, Safety and Health Matters," for further
information concerning pending legal or administrative proceedings involving
Asarco.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
<PAGE>
A29
EXECUTIVE OFFICERS OF ASARCO AND BUSINESS EXPERIENCE DURING THE PAST FIVE YEARS
(As of February 28, 1997)
<TABLE>
<CAPTION>
Officer
Name Office and Experience Age Since
- ---- --------------------- --- -----
<S> <C> <C> <C> <C>
Richard de J. Osborne 1992-1997 Chairman of the Board, President 62 1975
and Chief Executive Officer
Francis R. McAllister 1993-1997 Executive Vice President, Copper 54 1978
Operations
1992-1993 Executive Vice President, Finance
and Administration and Chief
Financial Officer
Augustus B. Kinsolving 1996-1997 Vice President and General Counsel 57 1983
1992-1995 Vice President, General Counsel
and Secretary
Kevin R. Morano 1993-1997 Vice President, Finance and Chief 43 1993
Financial Officer
1992-1993 General Manager, Ray Complex
Robert J. Muth 1992-1997 Vice President, Government and 63 1977
Public Affairs
Robert M. Novotny 1993-1997 Vice President, Lead, Zinc, 48 1988
Silver and Mineral Operations
1992-1993 Vice President, Operations
William L. Paul 1997 Vice President, Commercial 46 1996
1993-1996 Manager, Omaha Plant
1992 Executive Vice President and Chief Operating
Officer - Boliden Sulex
Gerald D. Van Voorhis 1992-1997 Vice President, Exploration 58 1992
Michael O. Varner 1993-1997 Vice President, Environmental 55 1993
Operations
1992-1993 General Manager, Western Metals
David B. Woodbury 1993-1997 Vice President, Human Resources 56 1993
1992-1993 Vice President, Human Resources
- Ferro Corporation
Robert Ferri 1995-1997 Secretary 49 1995
1992-1995 Associate General Counsel
William Dowd 1995-1997 Controller 47 1995
1992-1995 Assistant Controller
Thomas J. Findley, Jr. 1992-1997 Treasurer 49 1991
James L. Wiers 1992-1997 General Auditor 52 1987
</TABLE>
<PAGE>
A30
PART II
Item 5 - Market for Registrant's Common Stock and Related Stockholder Matters
At December 31, 1996, there were 8,234 common stockholders of record. The
principal market for Asarco's Common Stock is the New York Stock Exchange. The
Stock Exchange symbol for Asarco's common stock is AR. High and low stock prices
and dividends for last two years were:
<TABLE>
<CAPTION>
1996 1995
---- ----
QUARTERS 1st 2nd 3rd 4th Year 1st 2nd 3rd 4th Year
--- --- --- --- ---- --- --- --- --- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Dividends paid
per common share .20 .20 .20 .20 .80 .10 .20 .20 .20 .70
Stock market price:
High 35-1/4 35-7/8 27-7/8 28 35-7/8 30-3/8 31-1/8 36-1/2 35-7/8 36-1/2
Low 27-1/2 27-5/8 23-3/4 24-1/8 23-3/4 24-3/8 25-3/8 30-1/4 29-3/8 24-3/8
</TABLE>
Item 6 - Selected Financial Data
FIVE-YEAR SELECTED FINANCIAL AND STATISTICAL DATA (in millions, except per share
and employee data)
<TABLE>
<CAPTION>
1996 1995(c) 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Consolidated Statement of Earnings
Net sales $2,697 $3,198 $2,032 $1,736 $1,908
Operating income (loss) 303(a) 487(d) 18(e) (110)(g) (42)(i)
Earnings (loss) before equity earnings and
cumulative effect of change in accounting
principles 134 167 16 (98) (32)
Equity earnings 4 2 48 27 3
Net earnings (loss) 138(b) 169 64(f) 16(h) (83)
Net earnings (loss) per share $ 3.24 $ 4.00 $ 1.53 $ 0.38 $(2.01)
Dividends to common stockholders per share
$ 0.80 $ 0.70 $ 0.40 $ 0.50 $ 0.80
Consolidated Statement of Cash Flows
Cash provided from (used for)
operating activities $ 267 $ 489 $ (10) $ 39 $ 106
Dividends to common stockholders 34 30 17 21 33
Capital expenditures 286 338 98 112 135
Depreciation and depletion 119 119 83 81 87
Consolidated Balance Sheet
Total assets $4,120 $4,327 $3,291 $3,153 $2,946
Inventories - replacement cost in excess of LIFO
inventory costs 115 137 143 114 125
Total debt 814 1,122 933 901 869
Common stockholders' equity 1,737 1,707 1,517 1,472 1,357
Common Stock
Common shares outstanding 42.8 42.6 42.1 41.7 41.5
Price-high $35-7/8 $36-1/2 $34-7/8 $28-5/8 $31-3/8
-low $23-3/4 $24-3/8 $21-3/8 $16-5/8 $19-7/8
Book value per common share $40.56 $40.11 $36.04 $35.27 $32.74
Price/Earnings ratio 7.68 8.01 18.65 60.92 -
Dividends to common stockholders as a percent of
earnings 24.7% 17.5% 26.2% 133.2% -
Financial Ratios
Current assets to current liabilities
1.8 1.9 1.6 1.5 1.6
Debt as a % of capitalization 26.7% 34.1% 38.1% 38.0% 39.0%
Employees (at year-end) 11,800 12,200 8,000 8,500 8,900
</TABLE>
<PAGE>
A31
Notes to Selected Financial Data
(a) Includes a $15.0 million pre-tax charge ($72.0 million in charges offset
by $57.0 million in insurance settlements and other recoveries) for
environmental and closed plant liabilities
(b) Includes a $60.1 pre-tax gain from the sale of the Company's remaining
interest in MIM and a $11.1 pre-tax gain from the sale of a 25% interest
in the Company's Silver Bell project.
(c) On April 5, 1995, the Company acquired an additional 10.7% interest in
Southern Peru Copper Corporation (SPCC) for $116.4 increasing its
ownership from 52.3% to 63%. The additional shares acquired enabled the
Company to elect a majority of the directors of SPCC. As a result, the
Company has consolidated SPCC in its financial statements based on its
52.3% ownership, effective January 1, 1995, and 63% ownership, effective
April 5, 1995. The Company previously accounted for its investment in SPCC
by the equity method.
(d) Includes a $139.4 pre-tax charge to add to the Company's reserve for
environmental matters, to provide for asset impairments and plant closures
and to writedown certain in-process inventory to net realizable value.
(e) Includes a $65.5 pre-tax charge to add to the Company's reserve for
environmental matters and $2.8 of LIFO profits.
(f) Includes a $58.5 pre-tax gain from the sale of the Company's remaining
interest in Asarco Australia Limited.
(g) Includes a $37.6 pre-tax provision for the valuation of inventories and
additions to reserves for closed plants, $9.2 of LIFO profits and $8.2 of
previously unrecognized losses of Nor Peru.
(h) Includes $26.4 (net of taxes of $0.4) of previously unrecognized equity
earnings of SPCC and $86.3 as the result of the cumulative effect of a
change in accounting principle at SPCC.
(i) Includes a $84.4 pre-tax provision for environmental matters and a $31.9
pre-tax provision to reduce the carrying value of certain facilities.
Item 7 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
Asarco reported 1996 net earnings of $138.3 million or $3.24 per share. Results
for 1996 include an after-tax gain of $39.0 million ($60.1 million pre-tax) from
the sale of the Company's interest in M.I.M. Holdings Limited (MIM), an
Australian based mining company, and a $7.2 million after-tax gain ($11.1
million pre-tax) from the sale of a 25% interest in the Company's Silver Bell
project.
Net earnings in 1995 and 1994 were $169.2 million and $64.0 million,
respectively. Net earnings in 1995 included a special after-tax charge of $79.5
million ($122.3 million pre-tax) related to the termination of lead refining
operations at the Company's Omaha, Nebraska plant, adoption of an accounting
principle regarding the impairment of long-lived assets, and additions to the
Company's reserve for costs associated with previously closed plants. Net
earnings in 1994 included an after-tax gain of $31.9 million ($58.5 million
pre-tax) on the sale of Asarco Australia Limited (Asarco Australia) and a $30.7
million after-tax ($51.2 million pre-tax) charge to add to the Company's
environmental reserves.
The Company's earnings are heavily influenced by the prices for its metals as
established on U.S. and international commodity exchanges. The decline in the
average price of copper in 1996 as compared with 1995 reduced the Company's net
earnings by an estimated $187.0 million. The Company was able to offset some of
the negative effect of reduced copper prices through its price protection
program, operational improvements and earnings improvements in its non-metals
business segments.
Asarco's beneficial mined copper production in 1996 reached record levels as
production grew over 13% from the previous year. For the first time in its
history, the Company's beneficial interest in annual consolidated mined copper
production exceeded one billion pounds. Consolidated copper production includes
the Company's beneficial interest in the production of Southern Peru Copper
Corporation (SPCC), a 54.1% owned subsidiary of the Company which operates in
Peru. Production gains were recorded at both the Ray and Mission Arizona copper
mines in 1996. In addition, SPCC increased its copper production nearly 22%
compared with 1995. SPCC's increased production in 1996 is largely the result of
a full year's operation of its solvent extraction/electrowinning (SX/EW)
facility which was placed in service in late 1995.
<PAGE>
A32
The Company is developing two new copper properties as well as expanding some of
its existing properties. In January 1996, the Company began construction of an
SX/EW plant at its Silver Bell mine in Arizona. When completed in mid 1997, the
project, in which Mitsui & Co. Ltd. has a 25% interest, is expected to produce
36 million pounds of refined copper annually. The Minto mine in the Yukon
Territory of Canada is also currently in development. The Minto mine is expected
to produce 27 million pounds of copper and 10 thousand ounces of gold in
concentrate annually when production begins in 1998. The Company has an 84.3%
interest in the Minto Project. SPCC has also announced a modernization and
expansion plan. The plan includes an expansion of its Cuajone mine to increase
its annual copper production by 19% or 130 million pounds and the modernization
of the Ilo smelter which will increase capacity and modernize facilities to meet
current international environmental guidelines. Engineering work is in progress
on these projects and SPCC is currently arranging long-term financing.
The Company's earnings for 1996 benefited significantly from its copper price
protection program. The Company, including its interest in SPCC, either
exercised or sold put options covering approximately 447 million pounds of its
1996 and 1997 copper production. As a result, in 1996 the Company recognized
pre-tax gains of $28.5 million (including its proportionate interest in SPCC's
gain of $11.1 million). A further pre-tax gain of $17.3 million (including the
Company's proportionate interest in SPCC's gain of $5.6 million) will be
recognized in 1997 as copper production originally covered by put options is
sold.
The Company's specialty chemicals and aggregates businesses both had record
earnings in 1996. Specialty chemicals had pre-tax profits of $24.2 million in
1996 with especially strong performance in its international operations. Pre-tax
profits from the Company's aggregates business reached $10.1 million in 1996, an
increase of 17% compared with 1995. Both businesses benefited from sales
increases as well as effective cost management. Development of these businesses
has been part of the Company's strategy to develop sources of earnings unrelated
to the cycles of its metals business.
In 1996, the Company sold its investment in MIM and used the proceeds to reduce
debt. At year end, the Company's debt as a percentage of total capital was
26.7%, close to the long term goal of 25%. In addition, the Company reached
settlements with two of its insurance carriers to reimburse the Company $42.3
million for environmental expenditures. By year end, $36.1 million of the
settlements had been received. During 1996, additional ore reserves were
identified at the Company's Mission copper mine and at SPCC further expanding
the Company's ore reserve position.
In April 1995, the Company acquired an additional 10.7% interest in SPCC and
consolidated SPCC's results in its financial statements effective January 1,
1995. The Company's ownership of SPCC was 52.3% at January 1, 1995, and
increased to 63.0% effective April 5, 1995. The Company had previously accounted
for its investment in SPCC by the equity method. In November 1995, SPCC offered
to exchange new common shares for labor shares issued by its Peruvian Branch to
workers under prior law in Peru. These labor shares, which are traded on the
Lima Stock Exchange, represented a 17.3% interest in the Peruvian Branch which
comprises substantially all of the operations of SPCC in Peru. The offer was
concluded in December 1995, with 80.8% of the labor shares tendered. As a
result, SPCC owned 96.7% of the Branch at December 31, 1995. At December 31,
1996, SPCC owned 97.2% of the Branch as a result of open market purchases of
labor shares. The Company's equity interest in SPCC at December 31, 1996 and
1995 was 54.1% and 54.0%, respectively, and its voting interest were 62.6% and
61.0%, respectively. The Company's beneficial economic interest in the
operations of SPCC, net of the remaining labor shares interest, was 52.6% and
52.3% at December 31, 1996 and 1995, respectively.
<PAGE>
A33
In 1995, the Company decided not to make a $40 million investment which would
have been required to meet State and EPA environmental requirements at its Omaha
refinery. As a result, the Company terminated lead refining operations at Omaha
in June 1996. The special charges taken in 1995 included the write-off of the
remaining book value of the assets at Omaha, a provision for severance and legal
expenses, expected cleanup and demolition costs associated with the termination
of lead refining operations and the writedown of certain in-process inventory to
net realizable value.
Net earnings in 1994 included $44.9 million in net equity earnings of SPCC.
SPCC's earnings benefited from a $12.4 million after-tax gain on the sale of
certain investments in Peru and a reduction in Peruvian income tax rates.
Sales: Sales in 1996 were $2.7 billion, compared with $3.2 billion in 1995 and
$2.0 billion in 1994. The decrease in 1996 sales compared with 1995 was
principally attributable to a 29 cent reduction in the average selling price of
copper partially offset by higher sales volumes. The higher sales volume in 1996
was mainly due to a full year of sales of production from SPCC's SX/EW plant and
higher copper concentrate sales partially offset by lower sales due to the
termination of refining operations at the Omaha, Nebraska refinery. The increase
in 1995 sales over 1994 mainly reflected the consolidation of SPCC ($881.5
million), higher copper prices ($285.4 million) and increased specialty
chemicals sales offset by lower copper sales volumes.
Price/volume data:
<TABLE>
<CAPTION>
Average Metal Prices 1996 1995 1994
-------------------- ---- ---- ----
<S> <C> <C> <C>
Copper (per pound - COMEX) $ 1.06 $ 1.35 $ 1.07
Copper (per pound - LME) 1.04 1.33 1.05
Lead (per pound - LME) 0.35 0.29 0.25
Silver (per ounce - Handy & Harman) 5.18 5.19 5.28
Zinc (per pound - LME) (1) 0.47 0.47 0.45
Molybdenum (per pound - Metals
Week Dealer Oxide)(1) 3.61 7.42 4.50
Metal Sales Volume (see note) 1996 1995 1994
------------------ ---- ---- ----
Copper (000s pounds)
Asarco 1,092,900 1,006,800 1,078,800
SPCC 694,300 646,600 653,200
Consolidated 1,787,200 1,653,400 1,078,800
Asarco Beneficial Interest 1,456,700 1,332,600 1,360,600
Lead (000s pounds)
Asarco 295,800 394,000 397,000
Silver (000s ounces)
Asarco 26,628 38,086 33,320
SPCC 3,110 3,761 3,184
Consolidated 29,738 41,847 33,320
Asarco Beneficial Interest 28,257 39,987 34,694
Zinc (000s pounds) (1)
Asarco 200,456 240,230 265,410
Molybdenum (000s pounds) (1)
Asarco 6,470 5,686 3,690
SPCC 8,813 8,402 5,698
Consolidated 15,283 14,087 3,690
Asarco Beneficial Interest 11,088 9,896 6,150
Note: SPCC presented at 100%. Asarco consolidated SPCC effective January 1, 1995. Asarco's beneficial interest in
SPCC was 52.6% at December 31, 1996, 52.3% at December 31, 1995 and 43.2% at December 31, 1994. Consolidated
sales volume for 1994 does not include SPCC.
</TABLE>
<PAGE>
A34
(1) The Company's zinc and molybdenum production is sold in the
form of concentrates. Volume represents pounds of zinc and
molybdenum metal contained in those concentrates.
Substantially all of the Company's copper and most of its lead production is
sold under annual contracts. To the extent not sold under annual contracts,
production can be sold on commodity exchanges or to merchants or consumers on a
spot sale basis. The Company's zinc production and a portion of its lead
production is sold in the form of intermediate products under contracts of one
to three years duration. Silver is sold under monthly contracts or in spot
sales. Except for some consolidated subsidiaries, primarily SPCC, metal sales
prices are based on the average of prevailing commodity prices for the scheduled
month of delivery or shipment according to the terms of the contracts. SPCC
revenues represent the invoiced value of products shipped to customers. Price
estimates used for provisionally priced shipments are based on management's
judgment of the current price level, which is susceptible to change during the
settlement period.
Financial Instruments: Depending on the market fundamentals of a metal and other
conditions, the Company may purchase put options or synthetic 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. Synthetic put options are established by purchasing a call
option and entering into a forward sale for the same quantity of metal at the
same price and for the same time period as the call option. 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, net of
unamortized acquisition costs, are recognized in the period in which the
underlying hedged production is sold. The Company also uses futures contracts to
hedge the effect of price changes on a portion of the metals it sells. Gains and
losses on hedge contracts are reported as a component of the underlying
transaction.
The Company's beneficial interest, which includes the Company's proportionate
interest in the pre-tax gain of SPCC, from 1996 copper option sales and
exercises was $45.8 million of which $28.5 million was recognized in 1996. The
remaining $17.3 million will be recognized in 1997 when the underlying
production is sold. Copper put options with a cost of $2.2 million expired
during the first six months of 1996.
As part of its price protection program, the Company may use synthetic put
options which consist of a call option and a forward sale. Each component of a
synthetic put option may be purchased or sold at different times. In those cases
where the forward sale component has not been entered into or has been offset,
call options purchased are accounted for as trading activities and the carrying
values of such call options are marked to market and any related adjustments are
recorded in earnings.
At December 31, 1996, the Company held copper call options covering an aggregate
of 149.5 million pounds of copper, a portion of which are exercisable in each
quarter of 1997 at an average strike price of $1.04 and zinc call options
covering an aggregate of 21.8 million pounds, one-third of which are exercisable
in each of the last three quarters of 1997 at an average strike price of 52
cents. The carrying value of the copper and zinc call options at December 31,
1996 was $3.7 million and $0.3 million, respectively.
The recognized pre-tax gains (losses) of the Company's metal hedging and trading
activities, were as follows:
<TABLE>
<CAPTION>
For the years ending December 31, 1996 1995 1994
---- ---- ----
(in millions)
<S> <C> <C> <C>
Metal
-----
Copper $ 26.9 $ (5.7) $ 3.2
Zinc (0.1) (0.1) 1.8
Silver - 0.5 0.7
Lead 0.2 (0.3) -
------ ------- ------
Net Gain (Loss) $ 27.0 $ (5.6) $ 5.7
====== ======= ======
</TABLE>
<PAGE>
A35
The Company may enter into interest rate swap agreements to limit the effect of
increases in the interest rates on any floating rate debt. The differential is
accrued as interest rates change and is recorded in interest expense. During
1995, the Company entered into three swap agreements, expiring 1998 to 2000,
with an aggregate notional amount of $115.0 million. The effect of these
agreements is to limit the interest rate exposure to 6.6% on $100 million of the
Company's revolving credit loans and 6.8% on its $15 million, 5 year term loan.
As a result of these swap agreements interest expense was increased by $0.7
million in 1996 and $0.2 million in 1995.
Cost of Products and Services: Cost of products and services in 1996 were $2.1
billion compared with $2.3 billion in 1995 and $1.8 billion in 1994. The
decrease in cost of sales in 1996 compared with 1995 was mainly due to the
termination of refining operations at the Company's Omaha refinery. In addition,
higher mine concentrate production at SPCC in 1996 reduced its need to
supplement its production with higher cost outside concentrate purchases.
The increase in 1995 over 1994 reflected $421.1 million due to the consolidation
of SPCC, higher specialty chemicals costs due to increased sales volumes and the
write-down of certain in-process inventory to net realizable value associated
with the termination of lead refining operations at Omaha. The higher price of
outside copper purchases in 1995 was partially offset by the lower volume of
such purchases as a result of an increase in sales of copper mined by the
Company.
Other Expenses: Selling, administrative and other costs were $132.8 million in
1996, $130.9 million in 1995 and $79.1 million in 1994. The increase in 1995
over 1994 was primarily due to the consolidation of SPCC and higher selling
expenses related to the specialty chemicals business. Included in 1994 is a
recovery of $4.0 million from the settlement of litigation related to a bad debt
written-off in 1991.
Depreciation and depletion expense was largely unchanged in 1996 compared with
1995. In 1996 a full year of depreciation of the SX/EW plant at SPCC of $4.3
million was offset by lower depreciation on domestic Asarco operations.
Depreciation and depletion expense increased by $35.7 million in 1995 primarily
due to the consolidation of SPCC. The increase in research and exploration costs
year over year is mainly due to higher exploration spending on prospects located
in South America, principally in French Guiana.
At December 31, 1996, the Company applied the American Institute of Certified
Public Accountants: Statement of Position 96-1, "Environmental Remediation
Liabilities" (SOP 96-1), which provides authoritative accounting guidance with
regard to recognizing, measuring and disclosing environmental liabilities. The
Company incurred expenses of $15.0 million ($72.0 million in charges offset by
$57.0 million in insurance and other recoveries) in 1996 for environmental and
closed plant liabilities, including $10.0 million for the effect of the
application of SOP 96-1. Environmental and other closed plant expenses incurred
in 1995 and 1994 were $76.3 million and $65.6 million respectively.
Nonoperating Items: Interest expense decreased $15.5 million in 1996 from 1995
due to lower average borrowing requirements. The increase in 1995 over 1994
reflected $13.9 million due to the consolidation of SPCC, higher debt
outstanding and higher interest rates on short term borrowing.
The increase in other income in 1995 reflected the consolidation of SPCC net of
a pre-tax loss of $4.0 million on the sale of the Company's stock in Nor Peru
and the sale of its Lone Star Lead Construction business. Included in other
income are dividends from MIM and interest income earned by SPCC. The increase
in minority interests in 1995 reflects the consolidation of SPCC.
<PAGE>
A36
Taxes on Income: The Company's effective tax rate is lower than the statutory
rate primarily because of the percentage depletion and dividends received
deductions which are permitted for tax purposes. The effective tax rate was
slightly higher in 1996 compared with 1995 principally due to the decrease in
the percentage depletion deduction as a result of lower mine earnings. The
Company's tax expense included substantial foreign taxes, primarily attributable
to SPCC's Peruvian Branch. Subject to certain limitations, these taxes have been
applied as credits to reduce U.S. federal income tax otherwise due. The Company
has recorded a $168.2 million benefit for tax net operating loss carryforwards
at December 31, 1996. The Company believes that these carryforwards, which
expire in years 2007 through 2010, will reduce future federal income taxes
otherwise payable. If necessary, the Company would implement available tax
planning strategies, including the sale of certain assets, to realize the tax
benefit of the carryforwards. The effective tax rate was higher in 1995 compared
with 1994 primarily due to the consolidation of SPCC. Taxes in 1994 were
affected by a higher gain for tax purposes on the sale of shares of Asarco
Australia, as a result of providing taxes on earnings previously treated as
permanently reinvested while Asarco Australia was a consolidated subsidiary.
Equity Earnings: Equity earnings in 1994 are principally from SPCC. SPCC
contributed $44.9 million of after-tax equity earnings in 1994. The Company has
consolidated SPCC in its financial statements effective January 1, 1995.
Asset Sales Program: In 1995 the Company substantially completed its program to
divest certain non-core businesses. The program was initiated in 1993. Since
1993, the Company sold nine businesses or operations and raised a total of
approximately $185 million in cash. The program included the sale of the
Company's interests in Nor Peru, Asarco Australia, PVC pipe, zinc oxide and Lone
Star Lead Construction businesses.
In the third quarter of 1995, the Company recorded a pre-tax loss of $4.0
million on the sale of its stock in Nor Peru, which owned and operated the
Quiruvilca mine in the northern part of Peru and the sale of its Lone Star Lead
Construction business. In addition, in the fourth quarter of 1995, the Company
sold its interest in two exploration projects, Aquarius in Canada and Aginskoe
in Kamchatka, Russia, for approximately $11.8 million, and recorded a pre-tax
loss of $0.9 million ($0.6 million after-tax) on the sales.
In January 1994, the Company sold its remaining 45.3% interest in Asarco
Australia, a gold mining and exploration company, for $79.5 million which
resulted in a pre-tax gain of $58.5 million ($31.9 million after-tax). From an
original investment of $4 million in exploration at Asarco Australia, the
Company received more than $106 million of cash. Also in 1994 the Company sold
its PVC pipe and zinc oxide businesses and closed its asbestos pipe business.
Cash Flows - Operating Activities: Net cash provided from operating activities
was $267.3 million in 1996 compared with $489.1 million in 1995 and net cash
used for operating activities of $9.8 million in 1994. In general, lower cash
flow from operating activities in 1996 compared with 1995 reflected lower cash
earnings due to lower copper prices. Other cash used for operating assets and
liabilities included payments by SPCC of income taxes and workers' participation
payments accrued in 1995 and paid in 1996. These uses of cash were partially
offset by proceeds received on insurance settlements related to environmental
liabilities.
Cash from 1995 operating activities as compared to 1994 reflected higher cash
earnings due to the consolidation of SPCC's earnings and higher copper prices
partially offset by $95.8 million of expenditures for closed plants and
environmental matters largely at the Company's former Tacoma, Washington
smelter. Cash provided from operating assets and liabilities in 1995 is
principally a result of lower inventory levels, higher receivables due to copper
prices and accrual of higher income taxes in 1995.
The use of operating cash in 1994 reflected the effect of higher metal prices on
trade receivables and inventories offset by trade payable financing of outside
material purchases.
<PAGE>
A37
Cash Flows - Investing Activities: Net cash provided from investing activities
was $93.8 million in 1996, compared with cash used of $296.8 million in 1995 and
$3.1 million in 1994. The decrease in capital expenditures in 1996 from 1995
reflects the completion of construction on SPCC's SX/EW and sulfuric acid plants
in 1995. Other investing activities in 1996 included the sale of MIM stock, the
sale of a 25% interest in the Company's Silver Bell project, and proceeds from
the maturity of held-to-maturity investments, primarily at SPCC.
The increase in capital expenditures in 1995 from 1994 reflects the construction
of the SX/EW and sulfuric acid plants at SPCC. Other investing activities in
1995 include the purchase of an additional 10.7% interest in SPCC, the effect of
consolidating SPCC's opening cash balance as of January 1, 1995, and the release
of restricted cash. The release of restricted cash represents the withdrawal by
SPCC of funds deposited with the Central Reserve Bank of Peru under an agreement
pursuant to which SPCC agreed to use such funds in an investment program over
five years from 1992 through 1996.
Investing activities in 1994 include proceeds of $79.5 million from the sale of
Asarco Australia.
The Company's planned capital expenditures in 1997 are estimated to be
approximately $320 million. Included in 1997 spending are expenditures related
to the development of the Silver Bell project, the Minto mine and the expansion
of SPCC's Cuajone mine.
Liquidity and Capital Resources: The Company has two revolving credit agreements
that permit borrowings of up to $850 million. At December 31, 1996, the
Company's debt as a percentage of total capitalization (the total of debt,
minority interests and equity) was 26.7%, compared with 34.1% at the end of 1995
and 38.1% at the end of 1994. Consolidated debt at the end of 1996, including
the debt of SPCC, none of which is guaranteed by Asarco, was $814.3 million,
compared with $1,121.9 million in 1995 and $933.1 million in 1994. Additional
indebtedness permitted under the terms of the Company's most restrictive
agreements was $794.7 million at the end of 1996.
The decrease in debt in 1996 reflects the use of proceeds from the sale of MIM
stock to repay a portion of the Company's revolving credit debt.
In early 1996, the Company began construction of a new SX/EW facility at its
Silver Bell mine in Arizona. The SX/EW facility is expected to produce 36
million pounds of refined copper per year using leach mining techniques. The
Company has secured operating lease financing for up to $60 million of
qualifying costs of the construction. At December 31, 1996, $36.8 million of
this financing has been spent on the project. The Company has also contributed
$13.2 million towards the construction of the facility as of December 31, 1996.
The project, expected to be completed in July 1997, will require an estimated
$20 million of additional expenditures. The project is being developed with
Mitsui & Co., Ltd., which purchased a 25% interest in Silver Bell in early 1996.
The Company has a 75% interest and will be the manager and operator of the
project.
The Company has on file with the Securities and Exchange Commission a universal
shelf registration statement covering the future issuance of up to $300 million
in equity and debt securities. The Company has no immediate plans to issue
securities and the registration is intended to provide the Company with the
flexibility to access the capital markets when appropriate.
In January 1996, SPCC borrowed the remaining balance ($47 million) under a $50
million loan agreement with Mitsui & Co., Ltd. at a rate of LIBOR plus 2.87%.
Certain of SPCC's loan agreements require that some funds be held in escrow
accounts. These funds are released from escrow as scheduled loan payments are
made.
In the second quarter of 1995, the Company sold $150 million of 8 1/2%
debentures due May 1, 2025. The Company used the proceeds to repay revolving
credit bank borrowings. Borrowings under the revolving credit agreements were
used to fund the purchase of an additional 10.7% interest in SPCC and for
general corporate purposes.
<PAGE>
A38
Financing activities in 1995 also included the completion of a $15 million 5
year bank term loan at a rate of 6.8% used primarily to prepay $13.5 million of
the Company's 8 3/4% pollution control revenue bonds at par value plus a premium
of 1.5%. SPCC prepaid $77.0 million, substantially all of the outstanding
balance, under its $115 million credit facility and borrowed $35 million under a
loan agreement with the Export-Import Bank of the United States at a fixed
interest rate of 6.43% for use in its capital investment program. Financing
activities in the first quarter of 1994 included the prepayment of the Company's
9 3/4% Sinking Fund Debentures at par value plus a premium of 0.9%.
The Company's consolidated cash position at December 31, 1996 included $173.2
million of cash held by SPCC. The Company expects that it will meet its cash
requirements in 1997 and beyond from internally generated funds, cash on hand
and from borrowings under its revolving credit agreements or from additional
debt or equity financing.
Dividends and Capital Stock: The Company paid dividends to common stockholders
of $34.2 million, or 80 cents per share, in 1996, $29.6 million, or 70 cents per
share, in 1995 and $16.8 million, or 40 cents per share, in 1994. In addition,
SPCC paid dividends of $58.3 million to minority interests in 1996. At the end
of 1996, the Company had 42,824,000 common shares issued and outstanding,
compared with 42,571,000 at the end of 1995 and 42,102,000 at the end of 1994.
Closed Facilities and Environmental Matters: Reserves for closed plants and
environmental matters totaled $128.3 million at December 31, 1996. The Company
anticipates that expenditures relating to these reserves will be made over the
next several years. Net cash expenditures charged to these reserves were $54.1
million in 1996, $95.8 million in 1995 and $59.9 million in 1994.
<PAGE>
A39
Item 8 - Financial Statements and Supplementary Data
ASARCO Incorporated
and Subsidiaries
CONSOLIDATED STATEMENT OF EARNINGS
<TABLE>
<CAPTION>
(in thousands, except per share amounts)
<S> <C> <C> <C>
For the years ended December 31, 1996 1995 1994
---- ---- ----
Sales of products and services $ 2,696,694 $ 3,197,753 $ 2,031,846
----------- ----------- -----------
Operating costs and expenses:
Cost of products and services 2,089,305 2,313,194 1,765,927
Selling, administrative and other 132,779 130,871 79,136
Depreciation and depletion 118,569 118,827 83,097
Research and exploration 37,609 25,881 19,775
Provision for asset impairments and plant closures - 45,564 -
Environmental and other closed plant charges, net of
recoveries 14,993 76,274 65,610
----------- ----------- -----------
Total operating costs and expenses 2,393,255 2,710,611 2,013,545
----------- ----------- -----------
Operating income 303,439 487,142 18,301
Interest expense (76,442) (91,954) (62,529)
Other income 24,599 24,136 12,281
Gain on sale of investments and other interests 71,158 - 58,512
----------- ----------- -----------
Earnings before taxes, minority interests and equity earnings 322,754 419,324 26,565
Taxes on income 99,924 122,465 9,375
----------- ----------- -----------
Earnings before minority interests and equity earnings 222,830 296,859 17,190
Minority interests in net earnings of consolidated
subsidiaries (88,331) (129,543) (809)
Equity earnings, net of taxes of $648 in 1996, $451 in 1995
and $4,863 in 1994 3,837 1,837 47,653
----------- ----------- ----------
Net earnings $ 138,336 $ 169,153 $ 64,034
=========== =========== ==========
Per share amounts:
Net earnings $ 3.24 $ 4.00 $ 1.53
Dividends to common stockholders $ 0.80 $ 0.70 $ 0.40
Weighted average number of shares outstanding 42,711 42,326 41,905
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
A40
ASARCO Incorporated
and Subsidiaries
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
(Dollars in thousands)
At December 31, 1996 1995
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 192,408 $ 238,400
Marketable securities 1,039 42,493
Accounts receivable:
Trade, net of allowance for doubtful accounts of $8,129 and $7,409 462,141 456,955
Other 78,419 57,413
Inventories 383,281 360,861
Other assets 67,856 60,480
---------- ----------
Total current assets 1,185,144 1,216,602
---------- ---------
Investments:
Available-for-sale and other cost 442,707 822,152
Equity 59,787 61,758
---------- ----------
Total investments 502,494 883,910
---------- ----------
Property, net 2,274,088 2,110,266
Other assets including intangibles, net 158,623 115,945
----------- -----------
Total Assets $ 4,120,349 $ 4,326,723
=========== ===========
LIABILITIES
Current liabilities:
Bank loans $ 15,913 $ 29,451
Current portion of long-term debt 39,815 29,826
Accounts payable:
Trade 379,406 273,027
Other 57,198 56,950
Salaries and wages 32,427 33,815
Taxes on income 57,695 103,282
Reserve for closed plant and environmental matters 38,128 53,042
Other 51,975 72,254
---------- ----------
Total current liabilities 672,557 651,647
---------- ----------
Long-term debt 758,583 1,062,588
Deferred income taxes 173,245 211,270
Reserve for closed plant and environmental
matters 90,205 62,484
Postretirement benefit obligation 99,945 95,125
Other liabilities and reserves 93,163 72,225
---------- ----------
Total non-current liabilities 1,215,141 1,503,692
---------- ----------
Contingencies
MINORITY INTERESTS 495,706 463,900
---------- ---------
PREFERRED STOCKHOLDERS' EQUITY
Authorized - 10,000,000 shares without par value; none issued
- -
COMMON STOCKHOLDERS' EQUITY
Authorized - 80,000,000 common shares without par value: Issued shares:
1996 and 1995 - 45,039,878 679,991 679,991
Unrealized gain on securities reported at fair value, net of tax 56,311 131,600
Retained earnings 1,066,191 976,107
Treasury stock (at cost) - common shares 1996 - 2,216,015; 1995 -
2,469,125 (65,548) (80,214)
----------- ----------
Total Common Stockholders' Equity 1,736,945 1,707,484
----------- ----------
Total Liabilities, Minority Interests, Preferred and Common
Stockholders' Equity
$ 4,120,349 $ 4,326,723
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
A41
ASARCO Incorporated
and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
(Dollars in thousands)
For the years ended December 31, 1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net earnings $ 138,336 $ 169,153 $ 64,034
Adjustments to reconcile net earnings to net cash provided from (used for)
operating activities:
Depreciation and depletion 118,569 118,827 83,097
Provision for deferred income taxes 26,302 97 10,084
Treasury stock used for employee benefits 5,707 4,775 5,964
Undistributed equity earnings (438) (460) (38,214)
Net (gain) loss on sale of investments and property (72,321) 4,124 (59,837)
Provision for asset impairment - 34,864 -
Increase (decrease) in reserves for closed plant
and environmental matters 12,807 (6,878) 6,301
Minority interests 88,331 129,543 809
Cashprovided from (used for) operating assets and liabilities, net of the
consolidation of SPCC:
Accounts receivable (27,200) (36,867) (70,673)
Inventories (23,742) 48,842 (53,171)
Accounts payable and accrued liabilities 49,193 19,671 45,584
Other operating assets and liabilities (41,527) 8,915 (6,174)
Foreign currency transaction (gains) losses (6,739) (5,536) 2,369
--------- -------- --------
Net cash provided from (used for) operating
activities 267,278 489,070 (9,827)
--------- -------- --------
INVESTING ACTIVITIES
Capital expenditures (286,474) (337,831) (98,464)
Sale of securities, investments and property 346,327 9,966 94,808
Purchase of investments (5,800) (4,513) (959)
Sale of available-for-sale securities 44,840 20,953 177,264
Purchase of available-for-sale securities (46,513) (23,203) (175,712)
Proceeds from held-to-maturity investments 42,455 76,877 -
Purchase of held-to-maturity investments (1,002) (76,375) -
Release of restricted cash - 60,450 -
Acquisition of additional interest in SPCC - (116,444) -
Consolidation of the opening cash balance of SPCC - 93,348 -
--------- --------- --------
Net cash provided from (used for) investing activities
93,833 (296,772) (3,063)
--------- --------- --------
FINANCING ACTIVITIES
Debt incurred 53,303 234,449 115,058
Debt repaid (360,847) (162,892) (82,752)
Escrow deposits on long-term loans (10,064) 10,809 -
Net treasury stock transactions 1,146 6,754 4,418
Purchase of minority interest (5,280) - -
Distributions to minority interests (58,295) (33,828) -
Contributions from minority interests 4,000 - -
Dividends paid to common stockholders (34,174) (29,645) (16,765)
--------- --------- ---------
Net cash provided from (used for) financing activities
(410,211) 25,647 19,959
Effect of exchange rate changes on cash 3,108 2,134 (1,248)
--------- --------- ---------
Increase (decrease) in cash and cash equivalents (45,992) 220,079 5,821
Cash and cash equivalents at beginning of year 238,400 18,321 12,500
--------- --------- ---------
Cash and cash equivalents at end of year $ 192,408 $ 238,400 $ 18,321
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
A42
ASARCO Incorporated
and Subsidiaries
CONSOLIDATED STATEMENT OF CHANGES IN
COMMON STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
(Dollars in thousands)
For the years ended December 31, 1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
COMMON STOCK
Balance at beginning and end of year
45,039,878 shares $ 679,991 $ 679,991 $ 679,991
---------- ---------- ----------
UNREALIZED GAIN ON SECURITIES REPORTED
AT FAIR VALUE
Balance at beginning of year 131,600 91,627 112,729
Net increase (decrease) in fair value (75,289) 39,973 (21,102)
---------- ---------- ----------
Balance at end of year 56,311 131,600 91,627
---------- ---------- ----------
RETAINED EARNINGS
Balance at beginning of year 976,107 853,169 808,143
Net earnings 138,336 169,153 64,034
Dividends paid to common stockholders (34,174) (29,645) (16,765)
Treasury stock issued at less than cost (7,813) (15,656) (11,484)
Foreign currency adjustment (6,265) (914) 9,241
---------- ---------- ----------
Balance at end of year 1,066,191 976,107 853,169
---------- ---------- ----------
TREASURY STOCK
Balance at beginning of year (80,214) (107,400) (129,265)
Purchased (568) (1,130) (245)
Used for corporate purposes 15,234 28,316 22,110
---------- ---------- ----------
Balance at end of year (65,548) (80,214) (107,400)
---------- ---------- ----------
1996 - 2,216,015 shares
1995 - 2,469,125 shares
1994 - 2,937,788 shares
TOTAL COMMON STOCKHOLDERS' EQUITY $1,736,945 $1,707,484 $1,517,387
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
A43
ASARCO Incorporated and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Summary of Significant Accounting Policies
Principles of Consolidation: The consolidated financial statements of Asarco
Incorporated and Subsidiaries include all significant wholly-owned and
majority-owned subsidiaries. Investments over which the Company has significant
influence but does not have voting control are accounted for by the equity
method. 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
generally accepted accounting principles 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.
Cash Equivalents: Cash equivalents include all highly liquid investments with a
maturity of three months or less, when purchased.
Marketable Securities: Marketable securities include liquid investments with a
maturity of more than three months, when purchased, and are carried at cost,
which approximates market.
Inventories: Company-owned metals processed by domestic smelters and refineries
are valued at the lower of last-in, first-out (LIFO) cost or market. Southern
Peru Copper Corporation (SPCC) in-process and refined metal inventories are
valued at the lower of average cost or market. All other inventories are valued
at the lower of first-in, first-out (FIFO) or average cost or market.
Property: Assets are valued at cost or net realizable value. In the fourth
quarter of 1995, the Company adopted SFAS No. 121 "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets To Be Disposed Of". This
statement requires that long-lived assets, certain identifiable intangibles and
goodwill related to those assets be reviewed 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.
The Company evaluates the carrying value of assets based on undiscounted future
cash flows and for its metals segment also considers expected metal prices based
on historical metal prices and price trends.
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. Plant assets are depreciated over their estimated useful lives,
generally by the units-of-production method. Depreciation and depletion of mine
assets are computed generally by the units-of-production method using proven and
probable ore reserves. SPCC computes depreciation on its buildings and equipment
using the straight-line method over estimated lives from 5 to 40 years, or the
estimated life of the mine, if shorter.
Goodwill is amortized over the mine life up to a maximum of 40 years on a
units-of-production basis or over 40 years on a straight-line basis, for
non-mining assets.
<PAGE>
A44
Revenue Recognition: Substantially all of the Company's copper and most of its
lead production is sold under annual contracts. To the extent not sold under
annual contracts, production can be sold on commodity exchanges or to merchants
or consumers on a spot sale basis. The Company's zinc production and the balance
of its lead production is sold in the form of intermediate products under
contracts of one to two years duration. Silver is sold under monthly contracts
or in spot sales. Except for some consolidated subsidiaries, primarily SPCC,
revenue is recognized based on the average of prevailing commodity prices for
the scheduled month of delivery or shipment according to the terms of the
contracts. SPCC revenues represent the invoiced value of products shipped to
customers. Price estimates used for provisionally priced shipments are based on
management's judgment of the current price level which is susceptible to change
during the settlement period.
Financial Instruments: Depending on the market fundamentals of a metal and other
conditions, the Company may purchase put options or synthetic 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. The Company also uses futures contracts to
hedge the effect of price changes on a portion of the metals it sells. Gains and
losses on hedge contracts are reported as a component of the underlying
transaction.
As part of its price protection program, the Company may use synthetic put
options which consist of a call option and a forward sale on the same quantity
of metal. Each component of a synthetic put option may be purchased or sold at
different times. In those cases where the forward sale component has not been
entered into or has been offset, call options purchased are accounted for as
trading activities and the carrying values of such call options are marked to
market and any related adjustments are recorded in net earnings.
The Company may enter into interest rate swap agreements to limit the effect of
increases in the interest rates on any floating rate debt. The differential is
accrued as interest rates change and is recorded in interest expense.
Exploration: Tangible and intangible costs incurred in the search for mineral
properties are charged against earnings when incurred.
Environmental Remediation Costs: The Company provides for losses associated with
environmental remediation obligations when such losses are probable and
reasonably estimable and generally no later than completion of the remediation
feasibility study. Such accruals are adjusted as new information develops or
circumstances change and are not discounted. Recoveries of environmental
remediation costs from other parties are recorded as assets when the recovery is
deemed probable. The American Institute of Certified Public Accountants issued
Statement of Position 96-1, "Environmental Remediation Liabilities" (SOP 96-1),
in October 1996. SOP 96-1 provides authoritative guidance on specific accounting
issues in connection with recognizing, measuring and disclosing environmental
remediation liabilities. The Company has applied the provisions of SOP 96-1 as
of December 31, 1996.
Taxes on Income: Deferred income taxes reflect the future tax consequences of
differences between the tax bases of assets and liabilities and their financial
reporting amounts at each year end. No U.S. deferred income taxes have been
provided for the income tax liability which would be incurred on repatriation of
the undistributed earnings of the Company's consolidated foreign subsidiaries
and the undistributed earnings of SPCC prior to 1993 because the Company intends
indefinitely to reinvest these earnings outside the United States. General
business credits are accounted for by the flow-through method.
<PAGE>
A45
Subsidiary Stock Issuance: Gains or losses arising from the sale of previously
unissued shares to an unrelated party by a subsidiary are recognized in net
earnings to the extent that the net book value of the shares owned by the parent
after the sale exceeds or is lower than the net book value per share immediately
prior to the sale of the shares by the subsidiary.
Impact of New Accounting Standard: The Financial Accounting Standards Board
issued SFAS No. 123 "Accounting for Stock-Based Compensation" in October 1995.
In accordance with this pronouncement, the Company has a choice of adopting the
accounting provisions of SFAS No. 123 or continuing its current accounting with
additional disclosure required. In 1996, the Company elected the disclosure only
alternative and will continue its current accounting.
(2) Interest in Southern Peru Copper Corporation:
Acquisition of Additional Interest:
On April 5, 1995, the Company acquired an additional 10.7% interest in SPCC for
$116.4 million, increasing its ownership from 52.3% to 63.0%. The additional
shares acquired enabled the Company to elect a majority of the directors of
SPCC. As a result, the Company has consolidated SPCC in its financial statements
based on its 52.3% ownership, effective January 1, 1995, and 63.0% ownership,
effective April 5, 1995. The Company previously accounted for its investment in
SPCC by the equity method. The acquisition has been accounted for as a purchase
transaction. The excess of the purchase price over the Company's interest in the
net book value of SPCC attributable to the shares acquired of $46.4 million has
been assigned to proven and probable sulfide reserves, proven and probable
leachable reserves and mineralized material and is being amortized based on
production.
The table below summarizes unaudited pro forma consolidated results of
operations of Asarco for the years ended December 31, 1995 and 1994, assuming
that Asarco had acquired an additional 10.7% of the outstanding stock of SPCC on
January 1, 1995 and January 1, 1994, respectively. The unaudited pro forma
financial information is based on management's estimates and assumptions and
does not purport to represent the results that actually would have occurred if
the acquisition had, in fact, been completed on the dates assumed.
<TABLE>
<CAPTION>
Pro Forma Results of Operations:
For the years ending December 31, 1995 1994
---- ----
<S> <C> <C>
(in millions, except per share amounts)
Sales of products and services $3,197.8 $2,700.6
Net earnings $172.2 $67.3
Net earnings per common share $4.07 $1.61
</TABLE>
Common Share Exchange Offer:
On December 29, 1995, SPCC completed an offer to exchange its common stock, par
value of $0.01 per share, for any and all labor shares of the Peruvian Branch of
SPCC. These labor shares, which are traded on the Lima Stock Exchange,
represented a 17.3% interest in the Peruvian Branch which comprises
substantially all of the operations of SPCC in Peru. The offer allowed holders
of the labor shares in the Branch to exchange four Series-1 Labor shares or five
Series-2 Labor shares for one share of common stock. Common shares are entitled
to one vote per share. In connection with the offering, the Company exchanged
its shares of SPCC for Class A shares which are entitled to five votes per
share. As a result of this transaction, Asarco's equity interest in SPCC was
reduced to approximately 54.0% (54.1% at December 31, 1996) and the Company's
economic interest in the assets of SPCC, net of the remaining labor share
interest was 52.3% at December 31, 1995 (52.6% at December 31, 1996). The
Company's voting interest in SPCC was 61.0% at December 31, 1995 (62.6% at
December 31, 1996). The common shares issued in exchange for the labor shares
are listed on both the New York Stock Exchange and Lima Stock Exchange.
<PAGE>
A46
The exchange of common shares for labor shares was accounted for by SPCC 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 ending January 9, 1996) plus issuance costs exceeded the carrying value of
the minority interests acquired by $82.0 million, net of tax. Of this amount,
$4.1 million was assigned to metal inventory on hand at December 31, 1995 and
charged to earnings in 1996. The remaining amount was assigned to proven and
probable sulfide reserves, proven and probable leachable reserves and
mineralized material and is being amortized based on production. Asarco's share
of the increase in value ($30.4 million, net of tax) has been eliminated in
consolidation. The Company's balance sheet at December 31, 1995 reflected the
effect of the exchange transaction.
Significant Subsidiary:
Financial information is provided for SPCC for 1994 when it was a significant
subsidiary accounted for by the equity method.
<TABLE>
<CAPTION>
For the Year Ended December 31, 1994
(in millions)
<S> <C>
Net Sales 100% $ 701.7
Net Earnings 100% $ 91.2
Equity Earnings Reported by Asarco $ 48.3
Dividends to Asarco $ 11.2
</TABLE>
(3) Other Income (Expense)
<TABLE>
<CAPTION>
For the years ended December 31, 1996 1995 1994
---- ---- ----
(in millions)
<S> <C> <C> <C>
MIM dividends $ 5.3 $ 9.2 $ 9.3
Interest income 20.0 16.5 2.5
Other (0.7) (1.6) 0.5
------ ------ ------
Total $ 24.6 $ 24.1 $ 12.3
====== ====== ======
</TABLE>
(4) Taxes on Income
Certain subsidiaries that have been consolidated for financial reporting
purposes, principally SPCC in 1996 and 1995, are not includible in Asarco's
consolidated federal income tax return. The following tables combine the
separate provisions for income taxes that have been determined for each company,
in accordance with SFAS No. 109:
Earnings (loss) before taxes on income and minority interests were:
<TABLE>
<CAPTION>
For the years ended December 31, 1996 1995 1994
<S> <C> <C> <C>
(in millions)
Domestic operations $ 40.3 $ 24.7 $(39.7)
Foreign operations 286.9 396.9 118.8
------- ------- -------
Total $ 327.2 $ 421.6 $ 79.1
======= ======= =======
</TABLE>
<PAGE>
A47
Tax Expense (Benefit):
The components of the provision (benefit) for taxes on income were:
<TABLE>
<CAPTION>
For the years ended December 31, 1996 1995 1994
---- ---- ----
(in millions)
<S> <C> <C> <C>
U.S. Federal:
Current $ 3.4 $ 4.1 $ (0.3)
Deferred 14.2 (3.1) 10.1
------ ------ ------
U.S. Federal 17.6 1.0 9.8
------ ------ ------
Foreign and State:
Current 70.9 118.7 4.4
Deferred 12.1 3.2 -
------ ------ ------
Foreign and state 83.0 121.9 4.4
------ ------ ------
Total income tax $100.6 $122.9 $ 14.2
====== ====== ======
</TABLE>
Total taxes paid (refunded) were: 1996 - $134.4 million; 1995 - $65.8 million;
1994 - $(11.2) million.
Reconciliation of Statutory Income Tax Rate:
<TABLE>
<CAPTION>
For the years ended December 31, 1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
U.S. statutory income tax rate 35.0% 35.0% 35.0%
Adjustment for entities for which no U.S. tax
is required (1.1) (0.3) (0.6)
Percentage depletion (9.6) (12.3) (13.1)
Dividends from non-includible subsidiaries 10.4 11.0 -
Dividends received deduction (8.5) (8.8) (17.8)
Foreign taxes 24.6 28.3 4.4
Foreign tax credit (20.5) (25.2) -
Excess of tax over book gain on sale of shares - - 8.0
Other 0.4 1.5 2.1
------ ------ ------
Effective income tax rate 30.7% 29.2% 18.0%
====== ====== ======
</TABLE>
Temporary differences and carryforwards which give rise to deferred tax assets,
liabilities and related valuation allowances were:
Deferred Tax Assets (Liabilities)
<TABLE>
<CAPTION>
At December 31, 1996 1995
---- ----
(in millions)
<S> <C> <C>
Current:
Reserve for closed plant and environmental matters $ 12.4 $ 12.3
Inventories 6.6 13.7
Other 5.4 4.6
------- -------
Net deferred tax asset $ 24.4 $ 30.6
------- -------
Noncurrent:
Tax effect of regular net operating losses $ 168.2 $ 191.8
Reserve for closed plant and environmental matters 33.1 27.2
Postretirement benefit obligation 35.0 33.3
Alternative minimum tax credit carryforwards 16.2 12.3
Foreign tax credit carryforwards 69.4 87.3
Previously taxed income 5.3 5.3
Capitalized leases 25.6 29.1
Pension obligation (19.8) (15.7)
Property, plant and equipment (308.6) (271.1)
Investments - Grupo Mexico (120.4) (137.2)
Investments - MIM - (84.8)
Other (1.1) 4.3
Valuation allowance for deferred tax assets (76.2) (93.1)
-------- --------
Net deferred tax liability (173.3) (211.3)
-------- --------
Total net deferred tax liability $(148.9) $(180.7)
======== ========
</TABLE>
<PAGE>
A48
At December 31, 1996, the Company had $480.7 million of net operating loss
carryforwards which expire, if unused, in years 2007 through 2010 and $16.2
million of alternative minimum tax credits ($6.8 million available solely to
SPCC) which are not subject to expiration. The Company believes that, except as
to the SPCC credits, these carryforwards will be available to reduce future
federal income tax liabilities and has recorded the tax benefit of these
carryforwards as noncurrent deferred tax assets. The Company's net operating
loss carryforwards for state purposes are not significant and, therefore, have
not been recorded as deferred tax assets.
At December 31, 1996, the foreign tax credit carryforwards available to reduce
possible future U.S. income taxes amounted to approximately $69.4 million, all
of which is available solely to SPCC. Of the $69.4 million, $16.8 million
expires in 1998, $13.6 million expires in 1999, and $39.0 expires in 2001.
Because of both the expiration dates and the rules governing the order in which
such credits are applied, it is unlikely that these foreign tax credit
carryforwards will be utilized. Accordingly, the Company has recorded a
valuation allowance for the full amount of its foreign tax credit carryforwards.
The decrease in the valuation allowance of $16.9 million from 1995 to 1996 is
primarily attributable to the expiration and utilization of foreign tax credits,
net of additional alternative minimum tax credits by SPCC.
U.S. deferred tax liabilities have not been provided on approximately $270.8
million in 1996 ($257.6 million in 1995 and $251.9 million in 1994) of
undistributed earnings of foreign subsidiaries and nonconsolidated companies
more than 50% owned, because assets representing those earnings are permanently
invested. It is not practicable to determine the amount of income taxes that
would be payable upon remittance of assets that represent those earnings. The
amount of foreign withholding taxes that would be payable upon remittance of
assets that represent those earnings is approximately $1.2 million in 1996 ($0.5
million in 1995 and $0.3 million in 1994).
(5) Inventories
<TABLE>
<CAPTION>
At December 31, 1996 1995
<S> <C> <C>
(in millions)
Inventories of smelters and refineries at lower of LIFO cost or market
$ 10.3 $ 12.9
Provisional cost of metals received from suppliers for which prices have not
yet been fixed 44.5 34.0
Mine inventories at lower of FIFO cost or market 105.8 111.1
Metal inventory at lower of average cost or market 49.5 35.2
Materials and supplies at lower of average cost or market 141.0 139.1
Other 32.2 28.6
------- -------
Total $ 383.3 $ 360.9
======= =======
</TABLE>
Replacement cost exceeds inventories valued at LIFO cost by approximately $115.2
million in 1996 (1995-$136.8 million). Liquidation of LIFO inventories resulted
in pre-tax earnings of $5.3 million in 1996, $0.7 million in 1995 and $2.8
million in 1994.
<PAGE>
A49
(6) Investments
The Company has a substantial interest in Grupo Mexico, S.A., de C.V. (Grupo
Mexico), which is engaged principally in mining, smelting and refining
nonferrous metals in Mexico. In August 1994, the Company exchanged its 28.3%
interest in Mexico Desarrollo Industrial Minero S.A., de C.V. (MEDIMSA) for a
23.6% interest in the publicly traded Grupo Mexico, the assets of which are
substantially the same as MEDIMSA. The Company owns 162.6 million shares of
Grupo Mexico. As part of the restructuring, the Company granted a 7-year option
to purchase 56.3 million of its Grupo Mexico shares aggregating 8.2% of Grupo
Mexico at a price of U.S. $1.40 per share and agreed not to sell the majority of
its remaining shares until August 1996. The Company accounts for its investment
in Grupo Mexico by the cost method of accounting because it has little influence
over the operating and financial activities of Grupo Mexico.
The carrying value of Asarco's investment in Grupo Mexico at December 31, 1996
was $378.9 million. The 106.3 million shares of Grupo Mexico not covered by the
7-year option are classified as available-for-sale and are reported at fair
value, which includes an unrealized gain of $79.6 million before deferred taxes
of $27.9 million. The unrealized gain, which is based on the December 31, 1996,
closing market price of Grupo Mexico on the Mexican Stock Exchange, is not
necessarily indicative of an amount that may be realized in the event of a sale.
The Company sold its remaining 15% interest in MIM in the second quarter of 1996
for $326.2 million, net of expenses, resulting in a pre-tax gain of $60.1
million and an after-tax gain of $39.0 million. In January 1994, the Company
sold its remaining 45.3% interest in Asarco Australia for $79.5 million, which
resulted in a pre-tax gain of $58.5 million.
In accordance with the provisions of SFAS No. 115, available-for-sale securities
are carried at fair value. Unrealized gains at December 31, 1996 of $56.3
million (net of deferred taxes of $30.3 million), compared with unrealized gains
of $131.6 million (net of deferred taxes of $70.9 million) at December 31, 1995,
were included as a component of stockholders' equity.
Available-for-sale and other cost investments were:
<TABLE>
<CAPTION>
At December 31, Unrealized Holding
(in millions) Cost Gains (Losses) Total
---- ----- -------- -----
<S> <C> <C> <C> <C>
1996
Available-for-sale:
Grupo Mexico $299.3 $79.6 $ - $378.9
MIM - - - -
Other equity securities 23.9 7.1 - 31.0
Debt securities 28.3 - (0.1) 28.2
Other cost investments 4.6 - - 4.6
------ ----- ------- ------
Total $356.1 $86.7 $(0.1) $442.7
====== ===== ====== ======
1995
Available-for-sale:
Grupo Mexico $299.2 $127.8 $ - $427.0
MIM 266.8 69.0 - 335.8
Other equity securities 21.8 4.6 - 26.4
Debt securities 28.9 1.1 - 30.0
Other cost investments 3.0 - - 3.0
------ ------ --- ------
Total $619.7 $202.5 $ - $822.2
====== ====== === ======
</TABLE>
Gross realized gains and losses on available-for-sale securities in 1996 were
$60.1 million and $1.1 million, respectively, compared with gross realized
losses of $0.3 million in 1995, and gross realized gains and losses of $0.2
million and $1.0 million in 1994, respectively. The net decrease in unrealized
holding gains and losses, excluding realized gains and losses, was $56.9 million
in 1996 as compared with a net increase of $61.2 million in 1995. The debt
securities have maturity dates ranging from 1999 to 2028. The average cost
method has been used to determine the realized gain or loss on securities sold.
<PAGE>
A50
(7) Property
<TABLE>
<CAPTION>
At December 31, 1996 1995
---- ----
(in millions)
<S> <C> <C>
Buildings and equipment $ 3,617.2 $ 3,401.3
Capital leases-equipment 122.4 122.6
Mineral land 645.0 606.8
Land, other than mineral 70.6 72.4
Other 6.1 6.1
--------- ---------
Total property 4,461.3 4,209.2
Accumulated depreciation (2,187.2) (2,098.9)
--------- ---------
Property, net $ 2,274.1 $ 2,110.3
========= =========
</TABLE>
Accumulated depreciation applicable to capitalized leases amounted to $72.0
million in 1996 and $62.0 million in 1995.
In the first quarter of 1996, the Company recorded a pre-tax gain of $11.1
million ($7.2 million after-tax) on the sale of a 25% interest in its Silver
Bell project to Mitsui & Co., Ltd.
SFAS No. 121- Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets To Be Disposed Of:
In the fourth quarter of 1995, the Company adopted SFAS No. 121 "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets To Be Disposed
Of." This statement requires that long-lived assets, certain identifiable
intangibles and goodwill related to those assets be reviewed 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 terminated lead refining operations at its Omaha, Nebraska plant in
1996 because of the substantial investment which would have been required to
meet state and U.S. EPA imposed environmental requirements. As a result of the
decision to terminate lead refining at the Omaha plant, in 1995 the Company
recorded a pre-tax charge of $25.6 million, which represented the total carrying
value of the net property of the Omaha refinery at December 31, 1995.
The Company has also recorded at December 31, 1995 a pre-tax charge to earnings
of $9.2 million in accordance with SFAS No. 121 with respect to the assets at
its waste recycling subsidiary in Corpus Christi, Texas (Encycle) and an
obsolete mill. The impairment loss on Encycle's assets was the result of prior
operating losses.
(8) Contingencies and Litigation
The Company is a defendant in lawsuits in Arizona brought by Native Americans
and some other Arizona water users contesting the right of the Company and
numerous other individuals and entities to use water and, in some cases, seeking
damages for water usage and contamination of ground water. The lawsuits could
potentially affect the Company's use of water at its Ray Complex, Mission
Complex and other Arizona operations.
The Company and certain subsidiaries are defendants in four class action and
thirteen other lawsuits in Texas seeking substantial compensatory and punitive
damages for personal injury and contamination of property allegedly caused by
present and former operations, primarily in Texas, and product sales of the
Company and its subsidiaries. Most of the cases name additional corporations as
defendants.
<PAGE>
A51
The Company and two subsidiaries, at December 31, 1996, are defendants in 1,011
lawsuits brought by 2,810 primary and 1,603 secondary plaintiffs seeking
substantial actual and punitive damages for personal injury or death allegedly
caused by exposure to asbestos. One subsidiary is a defendant in one lawsuit
seeking damages for removal or containment of asbestos-containing products in
structures. In addition, the Company and certain subsidiaries are defendants in
product liability lawsuits involving various other products, including metals.
A subsidiary of SPCC, the Company, other present and former corporate
shareholders of the subsidiary of SPCC and certain other companies are
defendants in a lawsuit in federal district court in Corpus Christi, Texas,
brought in 1995 by 698 Peruvian plaintiffs seeking damages for personal injury
and property damage allegedly caused by the operations of SPCC's subsidiary in
Peru. Plaintiffs have appealed the district court order dismissing the complaint
and from an earlier order of that court denying plaintiffs' motion to remand the
case to state court. The United States Court of Appeals for the Fifth Circuit
heard argument on the appeal on December 5, 1996. A decision is expected in
1997.
On March 22, 1996, the United States government filed an action in United States
District Court in Boise, Idaho, against the Company and three other mining
companies under the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 (CERCLA or Superfund) and the federal Clean Water Act for
alleged natural resource damages to the Coeur d'Alene River Basin in Idaho. The
government contends that the defendants are liable for damages to natural
resources in a 1,500 square mile area caused by mining and related activities
that they and others undertook over approximately the period between the
mid-1800s and the mid-1960s. The action also seeks a declaration that defendants
are liable for restoration of the area. The Company believes, and has been
advised by outside legal counsel, that it has strong legal defenses to the
lawsuit.
The Company and certain of its subsidiaries have received notices from the
United States Environmental Protection Agency (EPA) and the U.S. Forest Service
that they and in most cases numerous other parties are potentially responsible
to remediate alleged hazardous substance releases at certain sites under CERCLA.
In addition, the Company and certain of its subsidiaries are defendants in
lawsuits brought under CERCLA or state laws which seek substantial damages and
remediation. Remedial action is being undertaken by the Company at some of the
sites.
In connection with the sites referred to above, as well as at other closed
plants and sites where the Company is working with the EPA and state agencies to
resolve environmental issues, the Company accrues for these losses when such
losses are probable and reasonably estimable. Such accruals are adjusted as new
information develops or circumstances change and are not discounted to their
present value. Recoveries of environmental remediation costs from other parties
are recorded as assets when the recovery is deemed probable. At December 31,
1996, the Company applied the American Institute of Certified Public
Accountants: Statement of Position 96-1 "Environmental Remediation Liabilities"
(SOP 96-1) which provides authoritative accounting guidance with regard to
recognizing, measuring and disclosing environmental liabilities.
The Company incurred expenses of $15.0 million ($72.0 million in charges offset
by $57.0 million in insurance and other recoveries) in 1996 for environmental
and closed plant liabilities, including $10.0 million for the effect of the
application of SOP 96-1. Environmental and other closed plant expenses in 1995
and 1994 were $76.3 million and $65.6 million, respectively. Reserves for closed
plants and environmental matters totaled $128.3 million at December 31, 1996.
The Company anticipates that expenditures relating to these reserves will be
made over the next several years. Net cash expenditures charged to reserves were
$54.1 million in 1996, $95.8 million in 1995 and $59.9 million in 1994.
<PAGE>
A52
Future environmental related expenditures cannot be reliably determined in many
circumstances due to the early stages of investigation, the uncertainties
relating to specific remediation methods and costs, the possible participation
of other potentially responsible parties and changing environmental laws and
interpretations. Similarly, due to the uncertainty of the outcome of court
proceedings, future expenditures related to litigation cannot be reliably
determined. It is the opinion of management that the outcome of the legal
proceedings and environmental contingencies mentioned, and other miscellaneous
litigation and proceedings now pending, will not materially adversely affect the
financial position of Asarco and its consolidated subsidiaries. However, it is
possible that litigation and environmental contingencies could have a material
effect on quarterly or annual operating results, when they are resolved in
future periods. This opinion is based on considerations including experience
related to previous court judgments and settlements and remediation costs and
terms. The financial viability of other potentially responsible parties has been
considered when relevant and no credit has been assumed for any potential
insurance recoveries when it is not deemed probable.
(9) Debt and Available Credit Facilities
<TABLE>
<CAPTION>
Long-Term Debt
At December 31, 1996 1995
---- ----
(in millions)
<S> <C> <C>
Revolving credit agreement $ 45.0 $ 340.0
Pollution control bonds, 1996/2006 - rates from
7 1/8% to 8.9% 155.6 156.3
Capital lease obligations, 1996/2006 - rates from
7.3% to 12.0% 74.8 85.0
7% Notes due 2001 50.0 50.0
7 3/8% Notes due 2003 99.6 99.5
7 7/8% Debentures due 2013 99.7 99.7
8 1/2% Debentures due 2025 148.9 148.9
6.8% term loan due 2000 15.0 15.0
6.43% EXIM Bank credit agreement 26.3 32.1
Mitsui credit agreement - LIBOR +2.87% 45.0 3.2
CAF credit agreement - average 9.1% 35.3 43.2
Other 3.2 19.5
------- --------
Total debt 798.4 1,092.4
Less current portion 39.8 29.8
------- --------
Long-term debt $ 758.6 $1,062.6
======= ========
</TABLE>
Interest paid by the Company (excluding amounts capitalized of $2.8 million in
1996, $3.3 million in 1995 and $0.9 million in 1994) was $78.1 million in 1996,
$89.2 million in 1995 and $61.9 million in 1994.
Maturities of debt instruments and future minimum payments under capital leases
are:
<TABLE>
<CAPTION>
At December 31, Debt Instruments Capital Leases
---------------- --------------
<S> <C> <C>
(in millions)
1997 $ 26.9 $ 18.6
1998 47.0 18.4
1999 24.4 16.5
2000 39.3 27.6
2001 107.5 4.3
Thereafter 478.5 7.4
Less interest - (18.0)
------ ------
$723.6 $ 74.8
====== ======
</TABLE>
<PAGE>
A53
The Company has two revolving credit agreements that permit borrowings of up to
$850.0 million, of which $805 million was available at December 31, 1996. One
facility for $350 million expires in April 1999 and the other facility for $500
million expires in May 2001. The borrowings bear interest based on LIBOR, the CD
or the prime rate, and averaged 5.8% at December 31, 1996. Rates may vary based
upon the Company's debt rating. Facility fees are payable on the full amount of
the $350 million and $500 million revolving credit agreements at 0.2% and 0.125%
per annum, respectively.
In January 1996, SPCC borrowed the remaining balance ($47 million) under a $50
million loan agreement with Mitsui & Co., Ltd. at a rate of LIBOR plus 2.87%.
Under the most restrictive terms of the debt agreements, the Company must
maintain a tangible net worth, as defined, of at least $1 billion and the
percentage of current assets to current liabilities, as defined, cannot be less
than 125%. Tangible net worth, as defined, was $1.7 billion at December 31,
1996, and the percentage of current assets to current liabilities, as defined,
was 141%. In accordance with the most restrictive covenants of these agreements,
additional indebtedness of $794.7 million would have been permitted as of
December 31, 1996.
In April 1995, the Company issued $150 million face amount of 8 1/2% Debentures
due in May 2025. In July 1995, the Company entered into a term loan agreement
for $15 million maturing in August 2000. Concurrent with the term loan, the
Company entered into a five year interest rate swap agreement resulting in a
fixed interest rate of 6.8% on the principal amount. Proceeds of the loan were
used primarily to prepay $13.5 million of 8 3/4% pollution control revenue bonds
at par value plus a premium of 1.5% in the third quarter of 1995. The Company
also concluded interest rate swap agreements in July 1995 resulting in a fixed
interest rate of 6.6% on $100 million of its revolving credit loans.
Consolidated debt includes the debt of SPCC, none of which is guaranteed by
Asarco.
The weighted average interest rate on short term borrowings was 8.1% at December
31, 1996, and 6.9% at December 31, 1995.
(10) Operating Leases
During 1996 and 1995, the Company entered into several sale-leaseback agreements
of mining equipment. The Company has options to purchase this equipment at fixed
prices prior to expiration of the leases and at fair market value upon
expiration. The leasebacks have been accounted for as operating leases.
The book value and associated depreciation of the equipment sold have been
removed from the Company's property accounts. Any profit on the sale has been
deferred and will be amortized into net earnings in proportion to the rental
charged over the lease term.
Minimum future rental payments under non-cancelable operating leases having
remaining terms in excess of 1 year as of December 31, 1996 for each of the next
5 years and in the aggregate are:
<TABLE>
<CAPTION>
Year Ended Amount (in millions)
- ---------- --------------------
<S> <C>
1997 $ 12.8
1998 12.3
1999 11.2
2000 10.7
2001 10.7
Thereafter 31.2
------
$ 88.9
======
</TABLE>
Total rental expense was $13.3 million in 1996, $10.9 million in 1995 and $7.4
million in 1994.
<PAGE>
A54
The Company has guaranteed the obligation of Silver Bell Mining, L.L.C., a 75%
owned subsidiary which has entered into agreements that provide $60.0 million in
financing for the construction of a new solvent-extraction electrowinning
facility at the Silver Bell mine and the subsequent lease of that facility.
Under an agreement with the owner of the 25% interest, the Company will be
reimbursed for 25% of any payments made by the Company under these agreements.
(11) Stockholders' Equity
The Company purchased 17,364 of its common shares in 1996 (34,729 shares in 1995
and 9,250 shares in 1994). In 1996, 270,474 common shares (503,392 shares in
1995 and 392,940 shares in 1994) were used for employee benefit plans. The
effect on the calculations of net earnings per common share of the Company's
common stock equivalents (shares under option) was insignificant.
Retained earnings at December 31, 1996 includes undistributed earnings of $266.0
million for investments in 50% or less owned entities previously or currently
accounted for by the equity method. Retained earnings includes cumulative
foreign currency adjustments of $3.7 million at December 31, 1996 ($9.9 million
in 1995, $10.8 million in 1994). In 1996, a credit of $0.6 million was
recognized in determining the gain from cumulative foreign currency adjustments
on the sale of the Company's interest in MIM. In 1994, a charge of $2.2 million
was recognized in determining the gain from cumulative foreign currency
adjustments on the sale of the Company's interest in Asarco Australia.
Stock Options: The Company has three stockholder approved plans, the 1996 Stock
Incentive Plan, a Stock Incentive Plan prior to 1996 and a Stock Option Plan.
The 1996 Stock Incentive Plan replaced the prior Stock Incentive Plan which in
turn had replaced the Stock Option Plan. Future options can only be granted
under the 1996 Stock Incentive Plan. Unexpired options will continue to be
governed by, and exercised under the Stock Option Plan and the Stock Incentive
Plan prior to 1996. The 1996 Stock Incentive Plan provides for the granting of
nonqualified stock options, Incentive Stock Options, as defined under the
Internal Revenue Code of 1986, as amended, as well as limited rights, restricted
stock, bonuses or other compensation payable in stock, other stock based awards
and dividend equivalents. The price at which options may be granted under the
1996 Stock Incentive Plan shall not be less than 100% of the fair market value
of the Common Stock, on the date of grant. In general, options expire after 10
years and are not exercisable for six months from the date of grant.
Compensation cost charged against earnings for restricted stock awards under the
above plans was $1.1 million in 1996, $0.7 million in 1995 and $0.4 million in
1994. Retained earnings have been reduced by $7.1 million at December 31, 1996
($6.5 million at December 31, 1995) for unearned compensation related to
restricted stock awards.
The Company has adopted the disclosure-only provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation."
Accordingly, no compensation cost has been recognized for awards under the stock
option plans. 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 1996 and
1995 consistent with the provisions of SFAS No. 123, the Company's net earnings
and earnings per share would have been reduced to the pro forma amounts
(including the earnings effect of the Company's proportionate interest in SPCC)
indicated below:
<TABLE>
<CAPTION>
In millions, except per share amounts 1996 1995
---- ----
<S> <C> <C>
Net earnings - as reported $138.3 $169.2
Net earnings - pro forma $136.7 $167.7
Earnings per share - as reported $3.24 $4.00
Earnings per share - pro forma $3.20 $3.96
</TABLE>
<PAGE>
A55
The fair value of each option grant is estimated on the date of grant using a
Black-Scholes option-pricing model with the following assumptions used for
grants in 1996: dividend yield of 2.6% (2.4% - 1995); expected volatility of
28.4% (27.6% - 1995); risk-free interest rate of 5.43% (7.8% - 1995); and
expected lives of 6.9 years in 1996 and 1995.
The total number of shares that may be optioned or awarded under the 1996 Stock
Incentive Plan is 475,076 shares as of December 31, 1996, (769,326 shares at
December 31, 1995) plus an additional number of shares on January 1 of each
calendar year for the 10 year duration of the Stock Incentive Plan equal to one
percent of the number of shares of the Company's Common Stock outstanding on the
immediately preceding December 31. The weighted average remaining contractual
life of stock options outstanding as of December 31, 1996 was 6.4 years. Stock
option activity over the past three years under the Stock Incentive Plan and
Stock Option Plan was:
<TABLE>
<CAPTION>
Weighted
Number of Average Option Price
shares Price (range per share)
<S> <C> <C> <C>
Outstanding at
January 1, 1994 1,020,786 $25.84 $18.00 to $33.19
Granted 234,600 $23.75 $23.75 to $23.75
Exercised (304,070) $24.77 $18.00 to $28.94
Canceled or expired (71,200) $28.87 $22.31 to $33.19
----------
Outstanding at
January 1, 1995 880,116 $25.41 $20.57 to $29.38
Granted 216,200 $29.19 $26.63 to $32.57
Exercised (304,321) $25.00 $20.57 to $29.19
Canceled or expired (9,026) $25.96 $21.94 to $29.19
----------
Outstanding at
January 1, 1996 782,969 $26.60 $20.57 to $32.57
Granted 253,000 $31.20 $31.13 to $34.38
Exercised (39,306) $26.01 $20.57 to $29.19
Canceled or expired (6,300) $25.85 $20.57 to $31.13
----------
Outstanding and exercisable at December 31, 1996 990,363 $27.81 $22.31 to $34.38
</TABLE>
In 1989, the Company adopted a Shareholder Rights plan and declared a dividend
of one Right for each of its common shares. In certain circumstances, if a
person or group becomes the beneficial owner of 15% or more of the outstanding
common shares, with certain exceptions, these rights vest and entitle the holder
to certain share purchase rights. In connection with the Rights dividend,
800,000 shares of Junior Participating Preferred Stock were authorized for
issuance upon exercise of the Rights.
(12) Benefit Plans
Pension benefits:
The Company maintains several noncontributory, defined benefit pension plans
covering substantially all domestic employees. Benefits for salaried plans are
based on salary and years of service. Hourly plans are based on negotiated
benefits 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 may be deductible
for income tax purposes. Plan assets are invested principally in commingled
stock funds and securities issued by the United States.
<PAGE>
A56
Net pension costs consisted of:
<TABLE>
<CAPTION>
For the years ended December 31, 1996 1995 1994
---- ---- ----
(in millions)
<S> <C> <C> <C>
Service cost $ 8.6 $ 6.3 $ 8.5
Interest cost on projected benefit obligations 11.0 9.8 8.8
Actual return on plan assets (21.8) (30.8) 0.5
Net amortization and deferral 10.7 21.0 (7.6)
----- ----- ------
Net pension costs $ 8.5 $ 6.3 $ 10.2
===== ===== ======
</TABLE>
The actuarial present value of benefit obligations and funded status for the
Company's plans were:
<TABLE>
<CAPTION>
At December 31, 1996 1995
---- ----
(in millions) Plans with Plans with Accum. Plans with Assets Plans with Accum.
Assets Exceeding Benefit Obligation Exceeding Accum. Benefit Obligation
Accum. Benefit Exceeding Assets (a) Benefit Exceeding Assets (a)
Obligation Obligation
<S> <C> <C> <C> <C>
Assets and obligations:
Vested benefit obligation $139.4 $ 5.3 $121.8 $ 5.2
Nonvested benefits 7.8 0.5 7.6 0.5
------ ------ ------ -----
Accumulated benefit obligation 147.2 5.8 129.4 5.7
Plan assets at fair value 174.3 5.0 142.0 4.4
------ ------ ------ -----
Plan assets in excess of (less than) accumulated
benefit obligation $ 27.1 $(0.8) $ 12.6 $(1.3)
====== ====== ====== ======
Projected benefit obligation (PBO) $175.4 $ 7.2 $158.1 $ 7.1
Plan assets at fair value 174.3 5.0 142.0 4.4
------ ------ ------ -----
Plan assets in excess of (less than) PBO (1.1) (2.2) (16.1) (2.7)
Prior service cost 18.1 (0.1) 13.5 (0.1)
Initial net plan obligation 0.9 2.1 1.2 2.3
Effect of changes in assumptions and actuarial
gains and losses 8.6 (0.2) 18.8 0.5
Minimum liability - (0.5) - (1.4)
------ ------ ------ -----
Pension asset (liability) reflected in
consolidated balance sheet $ 26.5 $(0.9) $ 17.4 $(1.4)
====== ====== ====== ======
Actuarial assumptions:
Discount rate 7.0% 7.0% 7.0% 7.0%
Expected long-term rate of return on plan assets
10.0% 8.0% 10.0% 8.0%
Expected annual salary increases 4.0% 4.0% 4.0% 4.0%
</TABLE>
(a) Plans maintained by SPCC.
<PAGE>
A57
Postretirement benefits:
Noncontributory postretirement health care coverage under the Asarco Health Plan
is provided to substantially all retirees not eligible for Medicare. A cost
sharing Medicare supplement plan is available for retired salaried employees and
life insurance coverage is provided to substantially all retirees.
The following sets forth the plan's status reconciled with amounts reported in
the Consolidated Balance Sheet:
<TABLE>
At December 31, 1996 1995
---- ----
(in millions)
<S> <C> <C>
Accumulated postretirement benefit obligation (APBO):
Retirees $ 60.7 $ 67.9
Fully eligible active plan participants 20.0 17.8
Other plan participants 41.1 35.7
----- -----
Total APBO 121.8 121.4
Item not yet recognized in earnings:
Effect of changes in assumptions and actuarial gains and losses
(21.9) (26.3)
Postretirement benefit obligation $ 99.9 $ 95.1
====== ======
</TABLE>
Net periodic postretirement benefit costs include:
<TABLE>
<CAPTION>
For the years ended December 31, 1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
(in millions)
Service cost $ 3.4 $ 2.4 $ 3.1
Interest cost 8.0 8.5 7.8
Amortization of loss 1.3 - 1.5
----- ------ ------
Net periodic postretirement benefit costs $12.7 $ 10.9 $ 12.4
</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 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 postretirement benefit
obligation at December 31, 1996, by $9.9 million, and the net periodic
postretirement benefit costs for 1996 by $1.2 million. The discount rate used in
determining the accumulated postretirement benefit obligation was 7% at December
31, 1996 and 1995. The plans are unfunded.
(13) Business Segments
The Company operates principally in the nonferrous metals industry, involving
mining, smelting, refining and selling of copper, silver and lead and the mining
of ore containing zinc and molybdenum which is sold as concentrates. The Company
also produces specialty chemicals for the metals plating and electronics
industries and aggregates comprising limestone, sand and gravel. The caption
"Other" includes environmental services operations and a polyvinyl chloride pipe
business which was sold in 1994.
General corporate administrative expenses are allocated among the segments
generally in proportion to their operating expenses. Exploration expenses are
attributable to the metals segment, while research expenses are attributable to
metals and specialty chemicals. Identifiable assets are those directly used in
the operations of each segment. Corporate assets are principally cash and
investments. Export sales from the United States to unaffiliated customers
principally in Europe and the Pacific Rim were $341.7 million in 1996, $366.2
million in 1995 and $280.2 million in 1994. There can be no assurance that
operations and assets of the Company subject to the jurisdiction of foreign
governments will not be affected adversely by future actions by such
governments.
<PAGE>
A58
Business Segments and Lines of Business
<TABLE>
<CAPTION>
For the years ended December 31, 1996(a) 1995(a) 1994
---- ---- ----
<S> <C> <C> <C>
(in millions)
Sales
Metals (detail below) $ 2,304 $ 2,816 $ 1,675
Specialty Chemicals 319 309 278
Aggregates 47 44 43
Other 27 29 36
------- ------- -------
Total $ 2,697 $ 3,198 $ 2,032
======= ======= =======
Domestic 1,820 2,137 1,867
Foreign - Peru 706 882 -
- Other 171 179 165
Operating Income (Loss) (b), (c), (d)
Metals $ 277 $ 486 $ (9)
Specialty Chemicals 19 19 14
Aggregates 10 8 7
Other (3) (26) 6
------- ------- -------
Total $ 303 $ 487 $ 18
======= ======= =======
Domestic 33 106 17
Foreign - Peru 260 378 -
- Other 10 3 1
Equity earnings (loss):
Metals $ (1) $ (2) $ -
Specialty Chemicals 5 4 2
Corporate (primarily SPCC) - - 46
------- ------- -------
Total $ 4 $ 2 $ 48
======= ======= =======
Identifiable Assets
Metals $ 3,275 $ 3,098 $ 1,820
Specialty Chemicals (e) 272 266 247
Aggregates 33 32 32
Other 50 44 43
Corporate 490 887 1,149
------- ------- -------
Total $ 4,120 $ 4,327 $ 3,291
======= ======= =======
Domestic 2,631 2,867 3,097
Foreign - Peru 1,290 1,280 -
- Other 199 180 194
Depreciation and Depletion
Metals $ 112 $ 112 $ 77
Specialty Chemicals 4 4 3
Aggregates 2 2 2
Corporate and Other 1 1 1
- - -
------- ------- -------
Total $ 119 $ 119 $ 83
======= ======= =======
Capital Expenditures
Metals $ 275 $ 317 $ 87
Specialty Chemicals 7 4 3
Aggregates 3 3 2
Corporate and other 1 14 6
------- ------- -------
Total $ 286 $ 338 $ 98
======= ======= =======
</TABLE>
(a) Includes consolidation of SPCC effective January 1, 1995. See Note 2 for
further details.
(b) Includes environmental and other closed plant charges, net of recoveries
of $12.1 Metals, $0.1 Specialty Chemicals, $2.8 Other in 1996; $54.9
Metals, $0.9 Specialty Chemicals, $20.5 Other in 1995 and $65.9 Metals,
$0.2 Specialty Chemicals, $(0.5) Other in 1994.
(c) Includes provision for asset impairments and plant closures of $37.4
Metals and $8.2 Other in 1995.
(d) Includes LIFO profits of $5.3 in 1996, $0.7 in 1995 and $2.8 in 1994
primarily in metals.
<PAGE>
A59
(e) Includes vertically integrated equity investments of $56.8 in 1996, $58.3
in 1995 and $55.5 in 1994.
Metal Sales, excluding intersegment sales
<TABLE>
<CAPTION>
For the years ended December 31, 1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
(in millions)
Copper $ 1,821 $ 2,170 $ 1,164
Silver 156 216 175
Lead 113 126 113
Other 214 304 223
------- ------- -------
$ 2,304 $ 2,816 $ 1,675
======= ======= =======
</TABLE>
(14) Financial Instruments
Depending on the market fundamentals of a metal and other conditions, the
Company may purchase put options or synthetic 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.
Synthetic put options are established by purchasing a call option and entering
into a forward sale for the same quantity of metal at the same price and for the
same time period as the call option. 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, net of unamortized
acquisition costs, are recognized in the period in which the underlying
production is sold. The Company also uses futures contracts to hedge the effect
of price changes on a portion of the metals it sells. Gains and losses on hedge
contracts are reported as a component of the underlying transaction.
The Company's beneficial interest, which includes the Company's proportionate
interest in the pre-tax gain of SPCC, from 1996 copper option sales and
exercises was $45.8 million of which $28.5 million was recognized in 1996. The
remaining $17.3 million will be recognized in 1997 when the underlying
production is sold. Copper put options with a cost of $2.2 million expired
during the first six months of 1996.
As part of its price protection program, the Company may use synthetic put
options which consist of a call option and a forward sale. Each component of a
synthetic put option may be purchased or sold at different times. In those cases
where the forward sale component has not been entered into or has been offset,
call options purchased are accounted for as trading activities and the carrying
values of such call options are marked to market and any related adjustments are
recorded in earnings.
At December 31, 1996, the Company held copper call options covering an aggregate
of 149.5 million pounds of copper, a portion of which are exercisable in each
quarter of 1997 at an average strike price of $1.04 and zinc call options
covering an aggregate of 21.8 million pounds, one-third of which are exercisable
in each of the last three quarters of 1997 at an average strike price of 52
cents. The carrying values of the copper and zinc call options at December 31,
1996 was $3.7 million and $0.3 million, respectively.
The recognized pre-tax gains (losses) of the Company's metal hedging and trading
activities, were:
<TABLE>
<CAPTION>
For the years ending December 31, 1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
(in millions)
Metal
-----
Copper $ 26.9 $ (5.7) $ 3.2
Zinc (0.1) (0.1) 1.8
Silver - 0.5 0.7
Lead 0.2 (0.3) -
------ ------- ------
Net Gain (Loss) $ 27.0 $ (5.6) $ 5.7
====== ======= ======
</TABLE>
<PAGE>
A60
The Company may enter into interest rate swap agreements to limit the effect of
increases in the interest rates on any floating rate debt. The differential is
accrued as interest rates change and is recorded in interest expense. During
1995, the Company entered into three swap agreements, expiring 1998 to 2000,
with an aggregate notional amount of $115.0 million. The effect of these
agreements is to limit the interest rate exposure to 6.6% on $100 million of the
Company's revolving credit loans and 6.8% on its $15 million, 5 year term loan.
As a result of these swap agreements interest expense was increased by $0.7
million in 1996 and $0.2 million in 1995.
The estimated fair values of the Company's financial instruments are:
<TABLE>
<CAPTION>
At December 31, 1996 1995
(in millions) Carrying Fair Carrying Fair
Value Value Value Value
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents $192.4 $192.4 $ 238.4 $ 238.4
Marketable securities - held to maturity $ 1.0 $ 1.0 $ 42.5 $ 42.5
Put options - - $ 10.0 $ 6.5
Call options $ 4.0 $ 4.0 - -
Investments:
Available-for-sale securities $387.9 $387.9 $ 769.0 $ 769.0
Restricted investment in Grupo Mexico 50.2 (a) 50.2 (a)
Other 4.6 (b) 3.0 (b)
------ ------ -------- -------
Total investments $442.7 $387.9 $ 822.2 $ 769.0
------ ------ -------- -------
Liabilities:
Long-term debt (excluding capital lease obligations) $723.6 $736.9 $1,007.4 $1,044.6
Interest rate swaps - $(0.8) - $ 3.3
</TABLE>
(a) At December 31, 1996 and 1995, 56.3 million shares of Asarco's investment
in Grupo Mexico had restrictions limiting their sale for a period of more
than one year. Accordingly, the Company has not determined the fair value
of such securities.
(b) No fair value was available for these investments as they represent an
interest in companies whose stock is not publicly traded. Accordingly, it
is not practicable to determine the fair value of such securities.
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 those instruments.
<PAGE>
A61
Marketable securities: The carrying amount and fair value are reported at
amortized cost since these securities are to be held to maturity.
Put and call options: Fair value is an estimate based on relevant market
information such as: volatility of similar options, futures prices and the
contracted strike price. Call options represent trading securities. Average fair
value during the period approximated fair value at December 31, 1996.
Available-for-sale securities and Interest rate swaps: Fair value is based on
quoted market prices.
Long-term debt: The fair value is based on the quoted market prices for the same
or similar issues or the carrying value is used where a market price is
unavailable.
Unaudited Quarterly Data
(in millions, except per share data)
<TABLE>
<CAPTION>
1996 1995
---- ----
QUARTERS 1st(a) 2nd(b) 3rd 4th(c) Total 1st 2nd 3rd 4th(d) Total
====== ====== === ====== ===== === === === ====== =====
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sales $717.2 $680.2 $647.8 $651.5 $2,696.7 $791.0 $787.5 $819.7 $799.6 $3,197.8
Operating $92.6 $88.4 $51.7 $70.7 $303.4 $151.2 $137.4 $166.6 $ 31.9 $ 487.1
income
Net earnings (loss) $35.7 $72.4 $5.9 $24.3 $138.3 $ 65.7 $ 56.4 $ 58.3 $(11.2) $ 169.2
Net earnings
(loss) per share $0.84 $1.70 $0.14 $0.57 $3.24 $ 1.56 $ 1.34 $ 1.38 $(0.27) $ 4.00
Dividends paid
per common share $0.20 $0.20 $0.20 $0.20 $0.80 $ 0.10 $ 0.20 $ 0.20 $ 0.20 $ 0.70
Stock market
price:
High $35-1/4 $35-7/8 $27-7/8 $28 $35-7/8 $30-3/8 $31-1/8 $36-1/2 $35-7/8 $36-1/2
Low $27-1/2 $27-5/8 $23-3/4 $24-1/8 $23-3/4 $24-3/8 $25-3/8 $30-1/4 $29-3/8 $24-3/8
</TABLE>
(a) Includes a $7.2 after-tax gain, $11.1 pre-tax, on the sale of a 25%
interest in the Company's Silver Bell project.
(b) Includes a $39.0 after-tax gain, $60.1 pre-tax, on the sale of the
Company's remaining 15.0% interest in MIM.
(c) Includes a pre-tax charge of $0.6 ($53.3 in charges, including $10.0
related to the application of SOP 96-1, offset by $52.7 in insurance and
other recoveries) for environmental and other closed plant matters.
(d) Includes $79.5 after-tax charges, $122.3 pre-tax, to add to the Company's
reserve for environmental matters, to provide for asset impairments and
plant closures and to provide for the writedown of certain in-process
inventory to net realizable value.
Metals Price Sensitivity
(Estimates based on 42.8 million shares outstanding)
Assuming that expected metal production and sales are achieved, tax and royalty
rates are unchanged, that the number of shares outstanding is unchanged and
giving no effect to results of other business segments, 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 1997. Estimates are based on 42.8 million shares
outstanding.
<TABLE>
<CAPTION>
Copper Lead Zinc Silver Molybdenum
<S> <C> <C> <C> <C> <C>
Change in Metal Price 1(cent)/lb 1(cent)/lb 1(cent)/lb $1/oz. $1/lb.
Annual Change in Earnings per Share 16.0(cent) 4.3(cent) 1.6(cent) 12.4(cent) 11.3(cent)
</TABLE>
<PAGE>
A62
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of ASARCO Incorporated
We have audited the accompanying consolidated balance sheets of ASARCO
Incorporated and Subsidiaries as of December 31, 1996 and 1995, 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, 1996. 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 ASARCO
Incorporated and Subsidiaries as of December 31, 1996 and 1995, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles.
COOPERS & LYBRAND L.L.P.
New York, New York
January 28, 1997
<PAGE>
A63
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 Executive Officers of Asarco and Business Experience During
the Past Five Years on page A29. Information in response to the disclosure
requirements specified by these items appears under the captions and pages of
the 1996 Proxy Statement indicated below:
<TABLE>
<CAPTION>
Proxy Statement
Pages
Item Required Information Proxy Statement Section
<S> <C> <C> <C>
10. Directors and Executive
Officers Election of Directors 2 - 5
11. Executive Compensation Executive Compensation
through Option Exercises
and Fiscal Year-End
Values 13 - 15
Retirement Plans through
Employment Agreements 16 - 18
12. Security Ownership Security Ownership of Certain Beneficial
Owners through Common Stock Equivalents 5 - 7
13. Certain Relationships and Related
Transactions. Certain Transactions 18
</TABLE>
The information referred to above is incorporated herein by reference.
<PAGE>
A64
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 ASARCO Incorporated and
its subsidiaries are included at the indicated pages of the document as stated
below:
<TABLE>
<CAPTION>
Form 10-K
Pages
<S> <C> <C> <C>
Consolidated Statement of Earnings for the years
ended December 31, 1996, 1995 and 1994 A39
Consolidated Balance Sheet at December 31,
1996 and 1995 A40
Consolidated Statement of Cash Flows for the
years ended December 31, 1996, 1995 and 1994 A41
Consolidated Statement of Changes in Common
Stockholders' Equity for the years ended
December 31, 1996, 1995 and 1994 A42
Notes to Financial Statements A43-A61
Report of Independent Accountants A62
</TABLE>
2. Financial Statement Schedules
<TABLE>
<CAPTION>
Form 10-K
Pages
<S> <C> <C> <C>
Schedule II - Valuation and qualifying
accounts B1-B3
</TABLE>
Schedules other than those listed above are omitted, as they are not required or
are not applicable, or the required information is shown in the financial
statements or notes thereto. Columns omitted from schedules filed have been
omitted because the information is not applicable. Any other information omitted
from schedules filed has been omitted due to immateriality.
<PAGE>
A65
<TABLE>
<CAPTION>
3. Exhibits
Exhibit
No.
<S> <C> <C>
3. Certificate of Incorporation and By-Laws
(a) Certificate of Incorporation - restated, filed May 4, 1970
(b) Certificate of Amendment to the Certificate of Incorporation
effective April 23, 1975
(c) Certificate of Amendment of Certificate of Incorporation
executed April 14, 1981
(d) Certificate of Amendment of Restated Certificate of
Incorporation filed on May 6, 1985
(e) Certificate of Amendment of Certificate of Incorporation
filed July 21, 1986
(f) Certificate of Amendment of Restated Certificate of
Incorporation, as amended filed April 22, 1987
(g) Statement of Cancellation filed July 31, 1987 whereby
155,000 shares of Series A Cumulative Preferred Stock
and 862,500 shares of $9.00 Convertible Exchangeable
Preferred Stock were cancelled
(h) Statement of Cancellation filed November 20, 1987
whereby 1,026,900 shares of Series A Cumulative
Preferred Stock were cancelled
(i) Statement of Cancellation filed December 18, 1987
whereby 1,250,000 shares of Series B Cumulative
Convertible Preferred Stock were cancelled
(j) Statement of Cancellation filed March 3, 1988 whereby
27,000 shares of Series A Cumulative Preferred Stock
were cancelled
(k) Certificate of Amendment of Restated Certificate of Incorporation, as amended, filed August 7, 1989
(l) By-Laws as last amended on June 26, 1991
4. Instruments defining the rights of security holders, including indentures
(a) There are currently various separate indentures,
agreements or similar instruments under which long-term
debt of Asarco is currently outstanding. The Registrant
hereby agrees to furnish to the Commission, upon
request, a copy of any of the instruments which define
the rights of holders of long-term debt securities.
None of the outstanding instruments represent long-term
debt securities in excess of 10% of the total assets of
Asarco as of December 31, 1996
(b) Form of Rights Agreement dated as of July 26, 1989,
between the Company and First Chicago Trust Company of
New York, as Rights Agent, defining the rights of
shareholders under a July 1989 Shareholders' Rights
plan and dividend declaration
(c) Rights Agreement Amendment dated as of September 24,
1992, between the Company and The Bank of New York, as
Successor Rights Agent under the Rights Agreement
listed above
</TABLE>
<PAGE>
A66
<TABLE>
<CAPTION>
<S> <C> <C>
(d) Second Rights Agreement Amendment dated as of February
23, 1995, between the Company and The Bank of New York
deleting certain special conditions relating to MIM.
The effect of the amendment is to apply to MIM the same
percentage ownership conditions (15%) that apply to all
other shareholders.
(e) Indenture Agreement dated as of February 1, 1993,
between the Company and Bankers Trust Company, as
Trustee, covering the issuance of debt securities
registered by the Company in April 1992 not to exceed
$250 million
(f) Indenture Agreement dated as of October 1, 1994,
between the Company and Chemical Bank, as Trustee,
covering the issuance of debt securities registered by
the Company in October 1994 not to exceed $300 million
10. Material Contracts
(a) Stock Option Plan as amended through November 30, 1994
(b) Form of Amended Employment Agreement dated February 26, 1997, between the Company and currently 12 of
its executive officers, including Messrs. R. de J. Osborne, F.R. McAllister, K.R. Morano, R.M. Novotny
and R.J. Muth
(c) Deferred Fee Plan for Directors, as amended through January 26, 1994
(d) Supplemental Pension Plan for Designated Mid-Career Officers, as
amended through January 25, 1995
(e) Retirement Plan for Non-Employee Directors, as amended
through January 25, 1995. Effective December 31, 1995,
the Company terminated the plan for current and future
directors.
(f) Directors' Stock Award Plan, as amended through January 27, 1993
(g) Stock Incentive Plan adopted by the Company's
Shareholders on April 25, 1990 and as amended through
November 29, 1995
(h) Directors' Deferred Payment Plan, effective October 25, 1995
(i) Incentive Compensation Plan for Senior Officers, effective January 1, 1996
(j) 1996 Stock Incentive Plan, effective April 24, 1996
(k) Compensation Deferral Plan, effective December 1, 1996
11. Statement re Computation of Earnings Per Share
12. Statement re Computation of Ratios
21. Subsidiaries of the Registrant
23. Consent of Independent Accountants
The exhibits listed as 10(a) through (k) 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 of Form 8-K filed in the fourth quarter of 1996 and first quarter of 1997: None
</TABLE>
<PAGE>
A67
<TABLE>
<CAPTION>
<S> <C>
(c) Exhibits - The exhibits to this Form 10-K are listed on the Exhibit
Index on pages C1 through C4. Copies of the following exhibits are
filed with this Form 10-K:
10(b) Form of Amended Employment Agreement
11. Statement re Computation of Earnings Per Share
12. Statement re Computation of Ratios
21. Subsidiaries of the Registrant
23. Consent of Independent Accountants is included on page A68 of this Annual Report on Form 10-K.
</TABLE>
Copies of exhibits may be acquired upon written request to the Treasurer and the
payment of processing and mailing costs.
Individual financial statements of subsidiaries and 50%-or-less owned persons
accounted for by the equity method have been omitted because such subsidiaries
and 50%-or-less owned persons considered in the aggregate as a single subsidiary
would not constitute a significant subsidiary.
<PAGE>
A68
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and
Stockholders of ASARCO Incorporated
Our report on the consolidated financial statements of ASARCO Incorporated and
Subsidiaries has been included in this Form 10-K on page A62. In connection with
our audits of such financial statements, we have also audited the related
financial statement schedule which appears on pages B1 through B3 of this Form
10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
COOPERS & LYBRAND L.L.P.
New York, New York
January 28, 1997
Item 14
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Prospectuses constituting
part of the Registration Statements on Form S-3 (File Nos. 33-45631, 33-55993
and 333-02359) and Form S-8 (File Nos. 2-83782, 2-67732, 33-34606, 333-16875 and
333-18083) of ASARCO Incorporated of our report dated January 28, 1997, on our
audit of the consolidated financial statements of Asarco Incorporated and
Subsidiaries, which report appears on page A62 of this Annual Report on Form
10-K. We also consent to the incorporation by reference of our report on our
audit of the financial statement schedule, which appears above.
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 A62 of this Annual Report on Form 10-K and to our
report on the financial statement schedule which appears above.
COOPERS & LYBRAND L.L.P.
New York, New York
March 21, 1997
<PAGE>
A69
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Date: February 28, 1997
ASARCO Incorporated
(Registrant)
By_/s/ Richard de J. Osborne
(Richard de J. Osborne, Chairman
of the Board, Chief Executive
Officer and President)
Pursuant to requirements of the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
(a) Principal Executive Officer:
<S> <C> <C>
/s/ Richard de J. Osborne Chairman of the Board
-------------------------
(Richard de J. Osborne)
(b) Principal Financial Officer:
/s/ Kevin R. Morano Vice President and
(Kevin R. Morano) Chief Financial Officer
(c) Principal Accounting Officer:
/s/ William Dowd Controller
(William Dowd)
(d) Directors:
/s/ Richard de J. Osborne /s/ Willard C. Butcher
(Richard de J. Osborne) (Willard C. Butcher)
/s/ James C. Cotting /s/ David C. Garfield
(James C. Cotting) (David C. Garfield)
/s/ E. Gordon Gee /s/ James W. Kinnear III
(E. Gordon Gee) (James W. Kinnear III)
/s/ Francis R. McAllister /s/ Martha T. Muse
(Francis R. McAllister) (Martha T. Muse)
/s/ Michael T. Nelligan /s/ John D. Ong
(Michael T. Nelligan) (John D. Ong)
/s/ James Wood
(James Wood)
</TABLE>
Date: February 28, 1997
<PAGE>
B1
ASARCO Incorporated
AND SUBSIDIARIES
Schedule II - Valuation and Qualifying Accounts
FOR THE YEAR 1996
(in thousands)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
-------- -------- -------- -------- --------
Additions Deductions
Charged to
Balance at costs/expenses or Charged Balance at
beginning (credited) to other end of
Description of period to income Description accounts Descriptions Amount period
- ----------- --------- --------- ----------- -------- ------------ ------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
Accounts and
notes written
Deducted from assets off, net of
on Balance Sheet: recoveries $1,151
Foreign currency
Allowance for translation
doubtful accounts: $7,409 $1,993 adjustment $122 $8,129
====== ====== ==== ======
Net amount
transferred from
noncurrent
Current portion of reserves reserve for
for closed plants and closed plants
environmental and environmental Current charges to
matters $53,042 matters $39,983 reserves $54,897 $38,128
======= ======= ======= =======
Non-current portion of
reserves for closed Net amount
plants and transferred to
environmental current
matters $62,484 $67,704 liabilities $39,983 $90,205
======= ======= ======= =======
Included in caption "Other
liabilities and
reserves" on Balance Increase in the Charges against
Sheet reserve for the reserve for
Other $26,018 $13,774 Major Repairs Major Repairs $2,854 $36,938
======= ======= ====== =======
</TABLE>
<PAGE>
B2
ASARCO Incorporated
AND SUBSIDIARIES
Schedule II - Valuation and Qualifying Accounts
FOR THE YEAR 1995
(in thousands)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
-------- -------- -------- -------- --------
Additions Deductions
Charged to
Balance at costs/expenses Charged Balance at
beginning or (credited) to other end of
Description of period to income Description accounts Descriptions Amount period
- ----------- --------- --------- ----------- -------- ------------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Accounts and
notes written
Deducted from assets off, net of
on Balance Sheet: recoveries $1,125
Foreign currency
Allowance for translation
doubtful accounts: $6,249 $2,189 adjustment $(96) $7,409
====== ====== ===== ======
Net amount
transferred from
noncurrent
Current portion of reserves reserve for
for closed plants and closed plants
environmental and environmental Current charges to
matters $55,946 matters $73,874 reserves $76,778 $53,042
======= ======= ======= =======
Non-current portion of
reserves for closed Net amount
plants and transferred to
environmental current
matters $66,458 $69,900 liabilities $73,874 $62,484
======= ======= ======= =======
Included in caption "Other
liabilities and
reserves" on Balance
Sheet
Other $28,435 $26,018
======= =======
</TABLE>
<PAGE>
B3
ASARCO Incorporated
AND SUBSIDIARIES
Schedule II - Valuation and Qualifying Accounts
FOR THE YEAR 1994
(in thousands)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
-------- -------- -------- -------- --------
Additions Deductions
Charged to
Balance at costs/expenses Charged Balance at
beginning or (credited) to other end of
Description of period to income Description accounts Descriptions Amount period
- ----------- --------- --------- ----------- -------- ------------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Accounts and
notes written
Deducted from assets off, net of
on Balance Sheet: recoveries $1,197
Foreign currency
Allowance for doubtful translation
accounts: $4,579 $2,525 adjustment $(342) $6,249
====== ====== ====== ======
Net amount
transferred from
noncurrent
Current portion of reserves reserve for
for closed plants and closed plants
environmental matters and
environmental Current charges
$46,409 matters $54,441 to reserves $44,904 $55,946
======= ======= ======= =======
Non-current portion of
reserves for closed Net amount
plants and transferred to
environmental matters current
$69,694 $51,205 liabilities $54,441 $66,458
======= ======= ======= =======
Included in caption "Other
liabilities and
reserves" on Balance
Sheet
Other $28,451 $28,435
======= =======
</TABLE>
<PAGE>
C1
ASARCO Incorporated
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Indexed
No. Description on Page
<S> <C> <C>
3. Certificate of Incorporation and By-Laws
(a) Certificate of Incorporation - restated, filed May 4, 1970
(Filed as an Exhibit to the Company's 1980 Annual Report on
Form 10-K and incorporated herein by reference)
(b) Certificate of Amendment to the Certificate of
Incorporation effective April 23, 1975 (Filed as an Exhibit
to the Company's 1980 Annual Report on Form 10-K and
incorporated herein by reference)
(c) Certificate of Amendment of Certificate of Incorporation
executed April 14, 1981 (Filed as an Exhibit to the
Post-Effective Amendment No. 8 to Registration Statement
No. 2-47616, filed April 30, 1981 and incorporated herein
by reference)
(d) Certificate of Amendment of Restated Certificate of
Incorporation filed on May 6, 1985 (Filed as an Exhibit to
the Company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1985 and incorporated herein by reference)
(e) Certificate of Amendment of Certificate of Incorporation
filed July 21, 1986 (Filed as an Exhibit to the Company's
Quarterly Report on Form 10-Q for the quarter ended June
30, 1986 and incorporated herein by reference)
(f) Certificate of Amendment of Restated Certificate of
Incorporation, as amended filed April 22, 1987 (Filed as an
Exhibit to the Company's 1987 Annual Report on Form 10-K
and incorporated herein by reference)
(g) Statement of Cancellation filed July 31, 1987 whereby
155,000 shares of Series A Cumulative Preferred Stock and
862,500 shares of $9.00 Convertible Exchangeable Preferred
Stock were cancelled (Filed as an Exhibit to the Company's
1987 Annual Report on Form 10-K and incorporated herein by
reference)
(h) Statement of Cancellation filed November 20, 1987 whereby
1,026,900 shares of Series A Cumulative Preferred Stock
were cancelled (Filed as an Exhibit to the Company's 1987
Annual Report on Form 10-K and incorporated herein by
reference)
(i) Statement of Cancellation filed December 18, 1987 whereby
1,250,000 shares of Series B Cumulative Convertible
Preferred Stock were cancelled (Filed as an Exhibit to the
Company's 1987 Annual Report on Form 10-K and incorporated
herein by reference)
</TABLE>
<PAGE>
C2
ASARCO Incorporated
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Indexed
No. Description on Page
<S> <C> <C>
(j) Statement of Cancellation filed March 3, 1988 whereby
27,000 shares of Series A Cumulative Preferred Stock were
cancelled (Filed as an Exhibit to the Company's 1987 Annual
Report on Form 10-K and incorporated herein by reference)
(k) Certificate of Amendment of Restated Certificate of
Incorporation, as amended, filed August 7, 1989 (Filed as
an Exhibit to the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1989 and incorporated herein
by reference)
(l) By-Laws as last amended on June 26, 1991
(Filed as an Exhibit to the Company's 1991 Annual Report on
Form 10-K and incorporated herein by reference.)
4. Instruments defining the rights of security holders,
including indentures
(a) There are currently various separate indentures, agreements
or similar instruments under which long-term debt of Asarco
is currently outstanding. The Registrant hereby agrees to
furnish to the Commission, upon request, a copy of any of
the instruments which define the rights of holders of
long-term debt securities. None of the outstanding
instruments represent long-term debt securities in excess
of 10% of the total assets of Asarco as of December 31,
1996
(b) Form of Rights Agreement dated as of July 26, 1989, between
the Company and First Chicago Trust Company of New York, as
Rights Agent, defining the rights of shareholders under a
July 1989 Shareholders' Rights plan and dividend
declaration (Filed as an Exhibit to the Company's report on
Form 8-K filed on July 28, 1989 and incorporated herein by
reference)
(c) Rights Agreement Amendment dated as of September 24, 1992,
between the Company and The Bank of New York, as Successor
Rights Agent under the Rights Agreement listed above (Filed
as an Exhibit to the Company's 1992 Annual Report on Form
10-K and incorporated herein by reference)
(d) Second Rights Agreement Amendment dated as of February 23,
1995, between the Company and The Bank of New York (Filed
as an Exhibit to the Company's report on Form 8-K filed on
February 24, 1995, and incorporated herein by reference)
(e) Indenture Agreement dated as of February 1, 1993 between
the Company and Bankers Trust Company, as Trustee, covering
the issuance of debt securities registered by the Company
in April 1992, not to exceed $250 million (Filed as an
Exhibit to the Company's 1992 Annual Report on form 10-K
and incorporated herein by reference)
</TABLE>
<PAGE>
C3
ASARCO Incorporated
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Indexed
No. Description on Page
<S> <C> <C>
(f) Indenture agreement dated as of October 1, 1994 between the
Company and Chemical Bank, as Trustee covering the issuance
of debt securities registered by the Company in October
1994, not to exceed $300 million (Filed as an Exhibit to
the Company's registration statement on Form S-3 filed on
October 12, 1994, and incorporated herein by reference)
10. Material Contracts
(a) Stock Option Plan as last amended on November 30, 1994
(Filed as an Exhibit to the Company's 1994 Annual Report on
Form 10-K and incorporated herein by reference)
(b) Form of Amended Employment Agreement dated February 26,
1997, between the Company and currently 12 of its executive
officers, including Messrs. R. de J. Osborne, F.R.
McAllister, K.R. Morano, R.M. Novotny and R.J. Muth
C11-C20
(c) Deferred Fee Plan for Directors, as amended through January
26, 1994 (Filed as an Exhibit to the Company's 1993 Annual
Report on Form 10-K and incorporated herein by reference)
(d) Supplemental Pension Plan for Designated Mid-Career
Officers, as amended through January 25, 1995 (Filed as an
Exhibit to the Company's 1994 Annual Report on Form 10-K
and incorporated herein by reference)
(e) Retirement Plan for Non-Employee Directors, as amended
through January 25, 1995. Effective December 31, 1995, the
Company terminated the plan for current and future
directors. (Filed as an Exhibit to the Company's 1994
Annual Report on Form 10-K and incorporated herein by
reference)
(f) Directors' Stock Award Plan, as amended through January 27,
1993 (Filed as an Exhibit to the Company's 1992 Annual
Report on Form 10-K and incorporated herein by reference)
(g) Stock Incentive Plan adopted by the Company's Shareholders
on April 25, 1990, as last amended on November 29, 1995
(Filed as an Exhibit to the Company's 1995 Annual Report on
Form 10-K and incorporated herein by reference)
(h) Director's Deferred Payment Plan, effective October 25,
1995 (Filed as an Exhibit to the Company's 1995 Annual
Report on Form 10-K and incorporated herein by reference)
(i) Incentive Compensation Plan for Senior Officers, effective
January 1, 1996 (Filed on Exhibit B to the Company's 1996
Proxy Statement filed on March 12, 1996 and incorporated
herein by reference)
</TABLE>
<PAGE>
C4
<TABLE>
<CAPTION>
Exhibit Indexed
No. Description on Page
<S> <C> <C>
(j) 1996 Stock Incentive Plan, effective April 24, 1996
(Filed as an Exhibit to the Company's Registration
Statement on Form S-8 filed on December 17, 1996, and
incorporated herein by reference)
(k) Compensation Deferral Plan, effective December 1, 1996
(Filed as an Exhibit to the Company's Registration
Statement on Form S-8 filed on November 26, 1996, and
incorporated herein by reference)
11. Statement re Computation of Earnings Per Share C5
12. Statement re Computation of Ratios C6
21. Subsidiaries of the Registrant C7-C9
23. Consent of Independent Accountants is included on page A68 of this
Annual Report on Form 10-K.
</TABLE>
Report on Form 11-K relating to the Savings Plan for Salaried Employees of
ASARCO Incorporated and Participating Subsidiaries is to be filed by amendment
on Form 10-K/A.
Copies of exhibits may be acquired upon written request to the Treasurer and the
payment of processing and mailing costs.
<PAGE>
C5
Exhibit 11 Statement re Computation of Earnings per Share
This calculation is submitted in accordance with regulation S-K item 601(b)(11).
Fully Diluted Earnings per Common Share
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
For the years ended December 31,
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net earnings (loss) applicable to common stock $138,336 $169,153 $64,034
======== ======== =======
Weighted average number of common shares outstanding
42,711 42,326 41,905
Shares issuable from assumed excercise of Stock Options 58 132 91
------ ------ -------
Weighted average number of common shares outstanding, as adjusted 42,769 42,458 41,996
====== ====== ======
Fully diluted earnings per share:
Net earnings (loss) applicable to common stock $3.23 $3.98 $1.52
===== ===== =====
Primary earnings per share:
Net earnings (loss) applicable to common stock $3.24 $4.00 $1.53
===== ===== =====
</TABLE>
<PAGE>
C6
Exhibit 12 Statement re Computation of Consolidated Ratio of Earnings to Fixed
Charges and Combined Fixed Charges and Preferred Share Dividend Requirements
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
NET EARNINGS $138,336 $169,153 $ 64,034 $ 15,619 $(83,091)
Adjustments
Taxes on Income 99,924 122,465 9,375 (36,503) (37,371)
Equity Earnings, Net of Taxes (3,837) (1,837) (47,653) (27,384) (2,575)
Cumulative Effect of Change
in Accounting Principle - - - (86,295) 53,964
Dividends received from
non-consolidated
companies 4,047 1,828 14,301 1,676 803
Total Fixed Charges 83,553 99,516 66,377 64,359 62,200
Interest Capitalized (2,839) (3,256) (869) (4,010) (7,433)
Capitalized Interest Amortized 2,274 2,949 1,727 1,629 1,825
Minority interest 88,331 129,543 809 693 615
-------- -------- -------- -------- --------
EARNINGS (LOSS) $409,789 $520,361 $108,101 $(70,216) $(11,063)
======== ======== ======== ======== ========
FIXED CHARGES
Interest Expense $76,442 $ 91,954 $ 62,529 $ 57,321 $ 51,230
Interest Capitalized 2,839 3,256 869 4,010 7,433
Imputed Interest Expense 4,272 4,306 2,979 3,028 3,537
-------- -------- -------- -------- --------
TOTAL FIXED CHARGES $ 83,553 $ 99,516 $ 66,377 $ 64,359 $ 62,200
======== ======== ======== ======== ========
Ratio of Earnings to Fixed Charges 4.9 5.2 1.6 (a) (a)
======== ======== ======== === ===
</TABLE>
(a) For the years 1993 and 1992, earnings were insufficient to cover fixed
charges by $134,575 and $73,263, respectively.
<PAGE>
C7
Item 14. (c) Exhibit 21 Subsidiaries of the Registrant
<TABLE>
<CAPTION>
Percentage of
voting securities Key to
owned or other notes
Name of Company bases of control below
<S> <C> <C> <C>
PARENTS: None
Registrant: ASARCO Incorporated (A)
SUBSIDIARIES AND OTHER ASSOCIATED COMPANIES:
1 Air Resources Corporation (Delaware) 100.0 (A)
2 Alta Mining and Development Company (Utah) 62.4 (C)
3 American Limestone Company, Inc. (Delaware) 100.0 (A)
4 American Smelting and Refining Company (New Jersey) 100.0 (C)
5 AR Mexican Explorations Inc. (Delaware) 100.0 (A)
6 Compania Minera Real de Las Lomas, S.A. de C.V. (Mexico) 100.0 (A)
7 Minera San Bernardo, S.A. de C.V. (Mexico) 100.0 (A)
8 Minera Santa Regina, S.A. de C.V. (Mexico) 100.0 (A)
9 AR Mexican Holdings, Inc. (Delaware) 100.0 (A)
10 AR Specialty Chemicals, S. A. de C.V. (Mexico) 100.0 (A)
11 Enthone-OMI de Mexico S.A. de C.V. (Mexico) 100.0 (A)
12 Rafco Kemicals S.A. de C.V. (Mexico) (See 45) 17.0 (B) (E)
13 AR Silver Bell, Inc. (Delaware) 100.0 (A)
14 Silver Bell Mining, L.L.C. (Delaware) 75.0 (A)
15 AR Montana Corporation (Delaware) 100.0 (A)
16 Asarco Arizona, Inc. (Delaware) 100.0 (A)
17 Asarco (Delaware) Incorporated (Delaware) 100.0 (A)
18 Grupo Mexico, S.A. de C.V. (Mexico) (See 26 & 93) 2.4 (B) (E)
19 Asarco Exploration Company, Inc. (New York) 100.0 (A)
20 ASARCO Guyane Francaise S.A.R.L. 100.0 (A)
21 Asarco Exploration Company of Canada, Limited
(Canada) 100.0 (A)
22 Asarco Finance Limited (Bermuda) 100.0 (C)
23 Asarco International Corporation (Delaware) 100.0 (A)
24 Asarco International Corp. FSC (Virgin Islands) 100.0 (A)
25 Asarco de Mexico (Delaware) Inc. 100.0 (A)
26 Grupo Mexico, S.A. de C.V. (Mexico) (See 18 & 93) 0.09 (B) (E)
27 Asarco Oil and Gas Company, Inc. (New York) 100.0 (A)
28 Asarco Peruvian Exploration Company (Delaware) 100.0 (A)
29 ASARCO Santa Cruz, Inc. (Delaware) 100.0 (A)
30 Covington Land Company (Delaware) 100.0 (A)
31 CP Water Company (Arizona) 50.0 (A)
32 Asarco Trans-Ural Company (Delaware) 100.0 (C)
33 Asarco Aginskoe, Inc. (Delaware) 100.0 (C)
34 BioTrace Laboratories, Incorporated (Utah) 100.0 (C)
35 Bridgeview Management Company, Inc. (New Jersey) 100.0 (A)
36 Compania Minera Asarco, S.A. (Chile) 100.0 (A)
37 Copper Basin Railway, Inc. (Delaware) 45.0 (B) (D)
38 Domestic Realty Company, Inc. (Montana) 100.0 (A)
39 Encycle, Inc. (Delaware) 100.0 (A)
40 Hydrometrics, Inc. (Delaware) 100.0 (A)
41 Encycle/Texas, Inc. (Delaware) 100.0 (A)
42 Enthone, Incorporated (New York) 100.0 (A)
43 Meltex, Inc. (Japan) 16.25 (B) (D)
44 Enthone-OMI (Singapore) Pte. Ltd. (Singapore) 3.2 (A)
(See 85)
45 Rafco Kemicals, S.A. de C.V. (Mexico) (See 12) 34.0 (C)
46 Enthone-OMI, Inc. (Delaware) 100.0 (A)
</TABLE>
<PAGE>
C8
Form 10-K
Item 14. (c) Exhibit 21 Subsidiaries of the Registrant
<TABLE>
<CAPTION>
Percentage of
voting securities Key to
owned or other notes
Name of Company bases of control below
<S> <C> <C> <C>
SUBSIDIARIES AND OTHER ASSOCIATED COMPANIES, cont'd:
47 Ebara-Udylite Co., Ltd. (Japan) 45.0 (B) (D)
48 Electroplating Engineers of Japan Ltd. (Japan) 25.0 (B) (D)
(See 75)
49 Electroplating Engineers S.A. (Switzerland) 24.0 (B) (D)
(see 51)
50 Enthone-OMI (Benelux) B.V. (The Netherlands) 100.0 (A)
51 Electroplating Engineers S.A. (Switzerland) 20.0 (B) (D)
(see 49)
52 Enthone-OMI (France) S.A. (France) (See 56) 28.5 (A)
53 Enthone-OMI (Canada) Inc. (Ontario, Canada) 100.0 (A)
54 Enthone-OMI (Deutschland)GmbH (Germany) 100.0 (A)
55 IMASA B.V. (The Netherlands) 100.0 (A)
56 Enthone-OMI (France) S.A. (France) (See 52) 71.5 (A)
57 Enthone-OMI Holdings (U.K.) Ltd. (United 82.41 (A)
Kingdom) (see 70)
58 AMZA Ltd. (Israel) 33.3 (B) (D)
59 Enthone-OMI (U.K.) Limited (United Kingdom) 100.0 (A)
60 L.P.W. Chemie GmbH (Germany) 49.0 (B) (D)
61 Blasberg Oberflaechentechnik GmbH (Germany) 100.0 (A)
62 Galvano Production Chemie GmbH (Germany) 100.0 (A)
63 Nihon LPW K.K. (Japan) 40.0 (B) (E)
64 Enthone-OMI (Hong Kong) Company Limited (Hong 5.5 (A)
Kong) (See 82)
65 Enthone-OMI (Italia) S.p.A. (Italy) (See 71) 51.6 (A)
66 Enthone-OMI K.K. (Japan) 100.0 (A)
67 Enthone-OMI (Sverige) A.B. (Sweden) 100.0 (A)
68 IMASA Kemi A.B. (Sweden) 100.0 (A)
69 Enthone-OMI (Europe) 100.0 (A)
70 Enthone-OMI Holdings (U.K.) Ltd. (United 17.59 (A)
Kingdom) (See 57)
71 Enthone-OMI (Italia) S.p.A. (Italy) (See 65) 48.4 (A)
72 Imasa A.G. (Switzerland) 40.0 (B) (D)
73 Internacional de Manufacturas Asociadas, S.A. 100.0 (A)
(Spain)
74 OMI Holding S.A. (Switzerland) 100.0 (A)
75 Electroplating Engineers of Japan Ltd. (Japan) 25.0 (B) (D)
(See 48)
76 Enthone-OMI (Suisse) S.A. (Switzerland) 100.0 (A)
77 OMI International Corporation (Delaware) 100.0 (A)
78 Enthone-OMI (Australia) Pty. Ltd. (Victoria, 100.0 (A)
Australia)
79 Enthone-OMI (Austria) GmbH (Austria) 100.0 (A)
80 Enthone-OMI (Espana) S.A. (Spain) 100.0 (A)
</TABLE>
<PAGE>
C9
Form 10-K
Item 14. (c) Exhibit 21 Subsidiaries of the Registrant
<TABLE>
<CAPTION>
Percentage of
voting securities Key to
owned or other notes
Name of Company bases of control below
<S> <C> <C> <C>
SUBSIDIARIES AND OTHER ASSOCIATED COMPANIES, cont'd:
81 Enthone-OMI (Europe) Corporation (Delaware) 100.0 (A)
82 Enthone-OMI (Hong Kong) Company Limited (Hong 94.5 (A)
Kong) (See 64)
83 Hua-Mei Electroplating Technology Company Ltd. 45.0 (B) (D)
(People's Rep.of China)
84 Hua-Mei (Tianjin) Electroplating Technology 45.0 (B) (D)
Company, Ltd.
85 Enthone-OMI (Singapore) Pte. Ltd. (Singapore) 96.8 (A)
(See 44)
86 Enthone-OMI (Malaysia) SDN BHD (Malaysia) 100.0 (A)
87 Federal Mining and Smelting Company (Idaho) 100.0 (A)
88 Federated Metals Canada Limited (Canada) 100.0 (A)
89 Federated Genco Limited (Canada) 60.0 (B) (D)
90 Federated Metals Corporation (New York) 100.0 (A)
91 LSLC Corp. (New York). 100.0 (C)
92 Geominerals Insurance Company, Ltd. (Bermuda) 100.0 (A)
93 Grupo Mexico, S.A. de C.V. (Mexico) (See 18 & 26) 21.1 (B) (E)
94 Lac d'Amiante du Quebec, Ltee (Delaware) 100.0 (A)
95 LAQ Canada, Ltd. (Delaware) 100.0 (A)
96 Mines Trading Company Limited (United Kingdom) 100.0 (A)
97 Mining Development Company (Delaware) 100.0 (A)
98 Puya Raymondi Empresa Minera S.A. (Bolivia) 70.0 (A)
99 Minto Explorations Ltd. (British Columbia) 47.83 (B) (D)
100 Mission Exploration Company (Delaware) 100.0 (A)
101 Lesarco, Inc. (Phillipines) 30.0 (A)
102 NCBR, Inc. (Delaware) 100.0 (A)
103 Neptune Mining Company (Delaware) 52.2 (B) (D)
104 Northern Peru Mining Corporation (Delaware) 100.0 (A)
105 Silver Valley Resources Corporation (Delaware) 50.0 (A)
106 Southern Peru Copper Corporation (Delaware) 62.6 (A)
107 Southern Peru Limited (Delaware) 100.0 (A)
108 Fomenta, S.A. (Peru) 99.50 (A)
109 Pegasus Travels, S.A. (Peru) 90.0 (A)
110 Logistics Service Incorporated (Delaware) 100.0 (A)
111 LSI-Peru, S.A. (Peru) 98.18 (A)
112 Globe Natural Resources Inc. (Delaware) 100.0 (C)
113 Multimines Corporation (Delaware) 100.0 (B)
114 Multimines Insurance Company, Ltd. (Bermuda) 100.0 (A)
115 Recursos e Inversiones Andinas, S.A. (Peru) 99.99 (A)
116 Caleras Orbama, S.A. (Peru) 99.26 (B)
117 Compania Minera Los Tolmos, S.A. (Peru) 98.05 (B)
118 Inversiones Mineras El Puente, S.A. (Peru) 99.88 (B)
119 Pacific Mining Investments Ltd. (Cayman Islands) 100.0 (C)
120 The International Metal Company (New York) 100.0 (A)
121 Tulipan Company, Inc. (Delaware) 63.0 (B) (E)
</TABLE>
<PAGE>
C10
NOTES
(A) Included in financial statements of Registrant and consolidated subsidiaries
at December 31, 1996, filed as part of this Form 10-K.
(B) Excluded from financial statements of Registrant and consolidated
subsidiaries filed as part of this Form 10-K, except to the extent noted in
Notes D and E. These companies are not in the aggregate considered significant.
(C) Inactive, having no assets or liabilities.
(D) Carried on the equity method. None of the 50%-or-less owned companies
constitutes a significant subsidiary.
(E) Grupo Mexico is carried on the cost method. Effective January 1, 1995,
Asarco consolidated the financial results of SPCC in its financial statements.
Previously, SPCC was accounted for under the equity method.
<PAGE>
C11
Exhibit 10(b)
ASARCO INCORPORATED
FORM OF AMENDED EMPLOYMENT AGREEMENT
February 26, 1997
THIS AMENDED EMPLOYMENT AGREEMENT, dated as of February 26,
1997, between ASARCO Incorporated, a New Jersey corporation (including its
subsidiaries unless the context otherwise requires, the "Company"), and ((Name))
(the "Employee").
W I T N E S S E T H
WHEREAS, Employee has served the Company for a number of years in
various managerial positions and is currently ((Title)) of the Company; and
WHEREAS, the Company and the Employee have previously entered
into an Employment Agreement; and
WHEREAS, the Company desires to insure the continued availability
to the Company of the Employee's services, managerial skills and business
experience and the Employee is willing to render such services, all upon and
subject to the terms and conditions contained in this Amended Agreement;
NOW THEREFORE, in consideration of the premises and the mutual
covenants set forth in this Amended Agreement, the Company and the Employee
agree as follows:
1. Employment Agreement. The Company hereby employs the Employee,
and the Employee hereby accepts and agrees to be employed, as an executive
officer of the Company on a full-time basis for a period of one year commencing
on the date of this Agreement and continuing until the first anniversary of such
date, and thereupon automatically renewing on a year-to-year basis (the
"Employment Term") unless the Company or the Employee shall give written notice
at least nine months prior to any anniversary date that the Employment Term
shall expire on such anniversary date and unless earlier terminated pursuant to
Section 4 of this Agreement; provided, however, that if a Change in Control of
the Company, as defined in Section 5 of this Agreement, shall have occurred
during the original or extended term of this Agreement, this Agreement shall
continue in effect for a period of not less than thirty-six (36) months beyond
the month in which such Change in Control occurred, unless earlier terminated
pursuant to Section 4 of this Agreement. Notwithstanding anything provided
herein to the contrary, the term of this Agreement shall not extend beyond the
end of the month in which the Employee attains his Regular Retirement, as
defined in Section 5(c) of this Agreement.
2. Duties. The Employee shall perform such duties of an executive
nature as those currently performed by him for the Company and as may be
assigned to him from time to time by an appropriate senior executive officer of
the Company or the Board of Directors of the Company (the "Board"). The Employee
shall devote the same amount of time, attention and energies to the affairs of
the Company as the Employee has devoted to the affairs of the Company prior to
the date of this Agreement. The Employee shall use his best efforts to perform
his duties and discharge his responsibilities pursuant to this Agreement
competently, carefully and faithfully, and such performance shall be of a
quality consistent with his responsibilities as an officer of the Company. The
Employee agrees that, subject to the terms and conditions of this Agreement, in
the event of a Potential Change in Control, as defined in this Section 2, he
will remain in the employ of the Company until the earliest of (a) a date which
is 180 days from the occurrence of such Potential Change in Control, (b) his
termination of employment by the Company, (c) the termination by him of his
employment by reason of death, or Regular Retirement, or (d) the date on which
he first becomes entitled under this Agreement to terminate his employment under
circumstances entitling him to receive the benefits provided in Section 5(c).
For purposes of this Agreement, a "Potential Change in Control" shall be deemed
to have occurred if:
<PAGE>
C12
a. the Company enters into an agreement, the consummation of
which would result in the occurrence of a Change in Control;
b. any "person" (as such term is used in Sections 13(d) and 14(d)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act")),
including the Company, publicly announces an intention to take or to consider
taking actions which if consummated would constitute a Change in Control;
c. any person, other than a trustee or other fiduciary holding
securities under an employee benefit plan of the Company (or a company owned,
directly or indirectly, by the stockholders of the Company in substantially the
same proportions as their ownership of stock of the Company), who is or becomes
the beneficial owner, directly or indirectly, of securities of the Company
representing 9.5% or more of the combined voting power of the Company's then
outstanding securities, increases his beneficial ownership of such securities by
5% or more over the percentage so owned by such person on the date hereof; or
d. The Board adopts a resolution to the effect that, for the
purposes of this Agreement, a Potential Change in Control has occurred.
3. Compensation, Benefits and Expenses. (a) For the services of
the Employee to be rendered under this Agreement, the Company shall pay the
Employee: (i) a basic annual salary in an amount at least equal to the salary
the Employee is currently being paid by the Company, paid in a manner consistent
with the Company's policy and practice relating to payment of executive officers
as of the date of this Agreement; and (ii) such bonus compensation as may be
determined by the Board of Directors (or appropriate committee) of the Company
in accordance with the Company's bonus policies in effect from time to time.
(b) In addition to any compensation received under Section 3(a),
the Company shall reimburse the Employee for all reasonable travel,
entertainment and miscellaneous expenses incurred in connection with the
performance of his duties under this Agreement, such reimbursement to be made in
accordance with the policies and procedures of the Company relating to
reimbursement of executive officers as of the date of this Agreement.
(c) During the term of this Agreement, the Employee shall be
entitled to at least the paid vacation time he is currently allowed by the
Company. Such vacation is to be taken in accordance with the Company's policy
and practice relating to vacations of executive officers as of the date of this
Agreement.
(d) In addition to and without limiting the compensation to which
the Employee is entitled under this Section 3, during the Employment Term the
Employee shall be eligible to participate in any incentive, bonus or
compensation, stock option, savings, pension, insurance or other employee
benefit plan of the Company now or from time to time applicable to the executive
officers of the Company. Nothing paid to the Employee under any plan or
arrangement presently in effect or made available in the future shall be deemed
to be in lieu of the salary payable to the Employee pursuant to Section 3(a).
Any payments or benefits payable to the Employee under this Section 3(d) in
respect of any calendar year during which the Employee is employed by the
Company for less than such entire year shall, unless otherwise provided in the
applicable plan or arrangement, be provided in accordance with the number of
days in such calendar year during which he is so employed.
4. Termination. (a) The Employment Term and the obligations of
the Company and the Employee under this Agreement shall terminate:
(i) upon the death of the Employee;
(ii) upon the date on which the Employee is entitled to
Regular Retirement (as defined in Section 5(c));
(iii) if illness or incapacity shall prevent the Employee
from performing his duties for a period of six consecutive months, 30 days after
written notice of such termination is given to the Employee by the Company;
(iv) upon the giving by the Company of Notice of Termination
of the Employee's employment for "Cause" as defined in, and in accordance with,
Section 4(c);
<PAGE>
C13
(v) at any time prior to a Change in Control, upon the
giving by the Company of a Notice of Termination to the Employee in accordance
with Section 4(d) (except that no specific reason for termination need be given
for such Notice of Termination); or
(vi) following any Change in Control as described in Section
4(d) below upon performance of all the provisions of this agreement.
(b) Upon a termination of the Employment Term pursuant to Section
4(a) in a manner that does not constitute an Involuntary Termination (as
hereinafter defined), the Company shall have no further liability or obligation
to the Employee under this Agreement except to pay the Employee or his estate
(i) all compensation accrued pursuant to Section 3(a) through the date of
termination and unpaid, and (ii) all sums payable and owed to the Employee as
specified in Sections 3(b), 3(c) and 3(d) for expenses and benefits, in each
case earned before termination of this Agreement. Upon a termination of the
Employment Term pursuant to Section 4(a) that constitutes an Involuntary
Termination, the Employee, to the extent applicable, shall be entitled, in
addition to the foregoing, to the payments and benefits specified in Section 5.
(c) (i) For purposes of this Agreement, the Company shall have
"Cause" to terminate the Employee's employment hereunder upon (A) the willful
and continued failure by the Employee to substantially perform his duties
hereunder (other than any such failure resulting from the Employee's incapacity
due to physical or mental illness or any such actual or anticipated failure
after the issuance of a Notice of Termination, as defined in Section 4(d), by
the Employee upon his Involuntary Termination, as defined in Section 5(b)),
after written demand for substantial performance is delivered by the Company
that specifically identifies the manner in which the Company believes the
Employee has not substantially performed his duties, or (B) the willful engaging
by the Employee in misconduct which is materially injurious to the Company,
monetarily or otherwise. For purposes of this Section 4(c), no act or failure to
act, on the Employee's part shall be considered "willful" unless done, or
omitted to be done, by him not in good faith and without reasonable belief that
his action or omission was in the best interest of the Company.
(ii) Notwithstanding the foregoing, after a Change in
Control (as defined in Section 5(a)) has occurred, the Employee shall not be
deemed to have been terminated for Cause without delivery to the Employee of a
Notice of Termination, as defined in Section 4(d), from the Board finding that
in the good faith opinion of at least three quarters (3/4) of the Board (after
reasonable notice to the Employee and an opportunity for the Employee, together
with his counsel, to be heard before the Board), the Employee was guilty of
conduct set forth above in clause (i) hereof, and specifying the particulars
thereof in detail. In the event of a dispute concerning the application of this
Section 4, no claim by the Company that Cause exists shall be given effect
unless the Company establishes to the Board by clear and convincing evidence
that Cause exists.
(d) Any purported termination of the Employee's employment by the
Company shall be communicated by written Notice of Termination to the Employee
in accordance with Section 11. "Notice of Termination" shall mean a notice that
shall indicate the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of the Employee's employment under the provision
so indicated and that shall, in the event of a purported termination of
Employee's employment for Cause following a Change in Control, comply with
Section 4(c)(ii) above. "Date of Termination," with respect to any purported
termination of the Employee's employment after a Change in Control and during
the Employment Term, shall mean (i) if the Employee's employment is terminated
for illness or incapacity as defined in Section 4(a)(iii) hereof, thirty (30)
days after Notice of Termination is given (provided that the Employee shall not
have returned to the full-time performance of the Employee's duties during such
thirty (30) day period), and (ii) if the Employee's employment is terminated for
any other reason, the date specified in the Notice of Termination (which, in the
case of a termination by the Company, shall not be less than thirty (30) days
(except in the case of a termination for Cause) and, in the case of a
termination by the Employee, shall not be less than fifteen (15) days nor more
than sixty (60) days, respectively, from the date such Notice of Termination is
given).
<PAGE>
C14
5. Involuntary Termination. (a) For purposes of this Agreement, a
"Change in Control" shall be deemed to have occurred if:
(i) any person (other than the Company, any trustee or other
fiduciary holding securities under an employee benefit plan of the Company, or
any company owned, directly or indirectly, by the stockholders of the Company in
substantially the same proportions as their ownership of the stock of the
Company), is or becomes the "beneficial owner" (as defined in Rule 13d-3 under
the Exchange Act), directly or indirectly, of securities of the Company
representing either 31% or more of the voting power of all classes of capital
stock of the Company or 33-1/3% or more of the then outstanding common stock,
without par value of the Company ("Common Shares");
(ii) the following individuals cease for any reason to
constitute a majority of the number of directors then serving: individuals, who
on the date hereof, constitute the Board, and any new director (other than a
director whose initial assumption of office is in connection with an actual or
threatened election contest, including but not limited to a consent
solicitation, relating to the election of directors of the Company) whose
appointment or election by the Board or nomination for election by the Company's
stockholders was approved or recommended by a vote of at least two-thirds (2/3)
of the directors then still in office who either were directors on the date
hereof or whose appointment or election or nomination for election was
previously so approved or recommended (the "Continuing Directors");
(iii) the stockholders of the Company approve a merger or
consolidation of the Company or any direct or indirect subsidiary of the Company
with any other company, other than (1) a merger or consolidation which would
result in the voting securities of the Company outstanding immediately prior
thereto continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity or any parent thereof)
more than 50% of the combined voting power of the voting securities of the
Company or such surviving entity or any parent thereof outstanding immediately
after such merger or consolidation or (2) a merger or consolidation effected to
implement a recapitalization of the Company (or similar transaction) in which no
"person" (as hereinabove defined) acquires more than 50% of the combined voting
power of the Company's then outstanding securities; or
(iv) the stockholders of the Company approve a plan of
complete liquidation of the Company or an agreement for the sale or disposition
by the Company of all or substantially all of the Company's assets.
The foregoing to the contrary notwithstanding, a Change in Control shall not be
deemed to have occurred with respect to the Employee (i) if the event first
giving rise to the Potential Change in Control involves a publicly-announced
transaction or publicly-announced proposed transaction which at the time of the
announcement has not been previously approved by the Board and (ii) the Employee
is part of a purchasing group proposing the transaction. A Change in Control
shall also not be deemed to have occurred with respect to the Employee if the
Employee is part of a purchasing group which consummates the Change in Control
transaction. The Employee shall be deemed "part of a purchasing group" for
purposes of the two preceding sentences if he is an equity participant or has
agreed to become an equity participant in the purchasing company or group
(except for (i) passive ownership of less than 5% of the stock of a public
company, (ii) ownership of equity participation in the purchasing company or
group which is otherwise not deemed to be significant, as determined prior to
the Change in Control by a majority of the non-employee Continuing Directors, or
(iii) beneficial ownership of any equity interest in the purchasing company or
group as a result of the grant to the Employee of an incentive compensation
award under one or more incentive plans of the purchasing company or group
(including, but not limited to, the conversion in connection with a transaction
of incentive compensation awards of the Company into incentive compensation
awards of the purchasing company or group), on terms and conditions
substantially equivalent to those applicable to other executives of the Company
immediately prior to the transaction, after taking into account normal
differences attributable to job responsibilities, title and the like).
<PAGE>
C15
b. For purposes of this Agreement, the term "Involuntary
Termination" shall mean either: (i) any termination of the Employment Term by
the Company within three years following any Change in Control, other than (A) a
termination pursuant to Section 4(a)(iii) for disability of the Employee, (B)
termination upon death of the Employee, (C) termination for retirement pursuant
to Section 4(a)(ii) above, or (D) a termination for Cause as defined in Section
4(c); or (ii) any termination of the Employment Term by the Employee after any
Change in Control and the occurrence of any of the following:
(A) without the express written consent of the
Employee, a material diminution in his position, duties,
responsibilities or status with the Company from those in existence
immediately prior to a Change in Control, a material reduction or
alteration (not in the nature of a promotion) in his reporting
responsibilities, titles or offices from those in effect immediately
prior to a Change in Control, or the removal from or failure to be
re-elected to the positions held immediately prior to a Change in
Control;
(B) a reduction by the Company of the base annual
salary of the Employee immediately prior to a Change in Control or as
the same may be increased from time to time thereafter, or a failure
by the Company to increase such base salary each year after such
Change in Control at least by a percentage amount equal to the average
percentage increases given to such Employee in the three years prior
to such Change in Control, or a failure to pay such Employee each year
after such Change in Control an annual bonus in an amount at least
equal to that which would have been paid to such Employee utilizing
the bonus policies of the Company in existence immediately prior to a
Change in Control;
(C) the failure of the Company to continue in effect
any incentive, benefit, bonus or compensation, insurance, pension or
other employee benefit plan of the Company in effect immediately prior
to a Change in Control (or plans and benefits which are, in the
aggregate, no less favorable to the Employee than those the Employee
enjoyed immediately prior to a Change in Control);
(D) the relocation of the Company's principal executive
offices to a location outside the Borough of Manhattan, New York, New
York, the requirement by the Company that the Employee, without his
consent, be based anywhere other than the Company's principal
executive offices or the location where he is based immediately prior
to a Change in Control, or, in the event the Employee consents to such
move, the failure of the Company to reimburse the Employee for moving
expenses and any loss realized on the sale of the Employee's principal
residence in connection with such move;
(E) a reduction in the number of the Employee's yearly
paid vacation days;
(F) the failure by the Company to pay to the Employee
any portion of the Employee's then current compensation or to pay any
portion of an installment of deferred compensation under any deferred
compensation program of the Company within seven (7) days of the date
such compensation is due;
(G) any purported termination of the Employee's
employment that is not effected pursuant to a Notice of Termination,
which purported termination shall not be effective for purposes of
this Agreement;
(H) the breach by the Company of any provision of this
Agreement; or
(I) the failure by the Company to obtain a satisfactory
agreement from any successor to the Company to assume and agree to
perform this Agreement.
For purposes of this Agreement, an Involuntary Termination shall also be deemed
to have occurred, if (i) the Employee's employment is terminated by the Company
without Cause prior to a Change in Control (whether or not a Change in Control
ever occurs) and such termination was at the request or direction of a person
who has entered into an agreement with the Company the consummation of which
would constitute a Change in Control, (ii) the Employee terminates his
employment after the occurrence of any of the events or circumstances set forth
in Section 5(b)(A) through (I) hereof prior to a Change in Control (whether or
not a Change in Control ever occurs) and the aforementioned event or
circumstance occurs at the request or direction of a person described in clause
(i) above, or (iii) the Employee's employment is terminated either (x) by the
Company without Cause or (y) by the Employee for the occurrence of any of the
events or circumstances set forth in Section 5(b)(A) through (H) hereof, and, in
either case under clause (x) or (y), such termination or the circumstance or
event is otherwise in connection with or in anticipation of a Change in Control
(whether or not a Change in Control ever occurs).
<PAGE>
C16
(c) In the event of an Involuntary Termination, the Company shall
pay to the Employee, and the Employee shall be entitled to a payment (together
with the payments provided in Sections 5(d), 5(e), 5(f) and 5(i) below, the
"Severance Payments") equal to three times the sum of the amounts set forth in
clauses (A), (B) and (C) below:
(A) the Employee's base salary as in effect immediately
prior to the Date of Termination or, if higher, in effect immediately
prior to the first occurrence of an event or circumstance described in
Section 5(b)(A) through (I);
(B) the average of the bonuses received by the Employee
with respect to either the three or five completed fiscal years of the
Company immediately preceding either the Involuntary Termination or
the Change in Control, whichever period of time and date would result
in the highest benefit; and
(C) the annual cost to the Company of all benefits to
which the Employee is entitled under Section 3(d) above (other than
(1) benefits described in Section 5(d) below and (2) contingent stock,
stock options and other similar benefits) immediately preceding the
Involuntary Termination, including, without limitation (but without
duplication), any pension, savings, or other employee benefit plans
and any amounts forfeited thereunder by reason of termination prior to
vesting. For purposes of the foregoing, the annual cost to the Company
of the pension benefit to which the Employee is entitled shall be
calculated by determining the excess of (i) the actuarial present
value of the Employee's accrued pension benefit, under all qualified
or non-qualified pension plans of the Company in which the Employee is
a participant, determined by Johnson & Higgins (or if such firm is not
then in the actuarial business, a nationally recognized firm of
comparable quality) as of the December 31 preceding the Date of
Termination (determined without regard to any amendment to any such
plan made subsequent to the Change in Control, which amendment would
be an event described in Section 5(b)(ii)(C) above) over (ii) the same
value determined as of one year previously, with both values in (i)
and (ii) to be discounted utilizing the yield rate on ten-year U.S.
Treasury obligations as of the December 31 preceding the Date of
Termination;
provided, however, that if, at the time of an Involuntary Termination, the
number of months remaining until the Employee is entitled to retire without any
reduction of benefits on account of early retirement under the Company's
Retirement Benefit Plan for Salaried Employees ("Regular Retirement") shall be
less than 36, then the Severance Payment provided for above shall be reduced to
an amount which is the product of multiplying (i) an amount equal to the
payments in this Section 5(c) calculated in accordance with the foregoing by
(ii) a fraction, the numerator of which is the number of months remaining until
Regular Retirement and the denominator of which is 36. (For purposes of this
section, the term "reduction in benefits" refers to any reduction in benefits
caused by any Employee having been credited with fewer months of service or
compensation for purposes of computing his benefits under the Company's
Retirement Benefit Plan for Salaried Employees than if such Employee continued
working for the Company until age 65.)
(d) In the event of an Involuntary Termination, the Company shall
continue, for a period of three years after the date of the Involuntary
Termination, to cover the Employee and his dependents under those life,
disability, accident and health insurance benefits which were applicable to the
Employee on the date of the Involuntary Termination at the same benefit levels
then in effect (or shall provide their equivalent); provided, however, that the
coverage provided to the Employee shall be no less favorable than that to which
the Employee was entitled immediately prior to the Change in Control that
preceded the Involuntary Termination and further provided that the Employee's
continued participation is possible under the general terms and provisions of
such plans and programs. In the event that the Employee's participation in any
such program is barred, the Company shall arrange to provide the Employee with
benefits substantially similar to those which the Employee would otherwise have
been entitled to receive under such plans and programs from which his continued
participation is barred.
<PAGE>
C17
(e) In the event of an Involuntary Termination, upon the election
of the Employee at his sole discretion, the Company shall pay to the Employee,
in cash, an amount equivalent to the excess, if any, of the aggregate market
value (measured as of the close of trading on the date of the Involuntary
Termination) of all shares of any class or series of the Company's capital stock
issuable upon exercise of then outstanding employee stock options granted to the
Employee (whether or not then exercisable) over the aggregate exercise price of
such options, and such options shall thereupon be cancelled and of no further
force or effect.
(f) The Company shall pay to the Employee all legal fees and
expenses incurred by the Employee as a result of any termination during the
thirty-six (36) month period following a Change in Control (including all such
fees and expenses, if any, incurred in contesting or disputing any such
termination or in seeking to obtain or enforce any right or benefit provided by
this Agreement or in connection with any tax audit or proceeding to the extent
attributable to the application of section 4999 of the Code, to any payment or
benefit provided hereunder).
(g) In the event that the Employee becomes entitled to the
Severance Payments, if any of the Severance Payments will be subject to the tax
imposed by section 4999 of the Code (or any similar tax that may hereafter be
imposed) (the "Excise Tax"), the Company shall pay to him at the time specified
in Section 5(h), below, an additional amount (the "Gross-up Payment") such that
the net amount retained by him, after deduction of any Excise Tax on the Total
Payments (as hereinafter defined) and any federal, state and local income tax
and Excise Tax upon the payment provided for by this subsection, shall be equal
to the Total Payments. For purposes of determining whether any of the Severance
Payments will be subject to the Excise Tax, and the amount of such Excise Tax,
(a) any other payments or benefits received or to be received by the Employee in
connection with a Change in Control or his termination of employment (whether
pursuant to the terms of this Agreement or any other plan, arrangement or
agreement with the Company, any person whose actions result in a Change in
Control or any person affiliated with the Company or such person) (which
together with the Severance Payments, constitute the "Total Payments") shall be
treated as "parachute payments" within the meaning of section 280G(b)(2) of the
Code, and all "excess parachute payments" within the meaning of section
280G(b)(l) shall be treated as subject to the Excise Tax, unless in the opinion
of tax counsel selected by the Company's independent auditors and acceptable to
the Employee such other payments or benefits (in whole or in part) do not
constitute parachute payments, or such excess parachute payments (in whole or in
part) represent reasonable compensation for services actually rendered within
the meaning of section 280G(b)(4) of the Code in excess of the base amount
within the meaning of section 280G(b)(3) of the Code, or are otherwise not
subject to the Excise Tax, (b) the amount of the Total Payments which shall be
treated as subject to the Excise Tax shall be equal to the lesser of (1) the
total amount of the Total Payments or (2) the amount of excess parachute
payments within the meaning of section 280G(b)(l) (after applying paragraph (a),
above), and (c) the value of any non-cash benefits or any deferred payment or
benefit shall be determined by the Company's independent auditors in accordance
with the principles of sections 280G(d)(3) and (4) of the Code. For purposes of
determining the amount of the Gross-Up Payment, the Employee shall be deemed to
pay federal income taxes at the highest marginal rate of federal income taxation
in the calendar year in which the Gross-Up Payment is to be made and state and
local income taxes at the highest marginal rate of taxation in the state and
locality of his residence on the date of Involuntary Termination, net of the
maximum reduction in federal income taxes which could be obtained from deduction
of such state and local taxes. In the event that the Excise Tax is subsequently
determined to be less than the amount taken into account hereunder at the time
of termination of his employment, the Employee shall repay to the Company at the
time that the amount of such reduction in Excise Tax is finally determined the
portion of the Gross-Up Payment attributable to such reduction (plus the portion
of the Gross-Up Payment attributable to the Excise Tax and federal and state and
local income tax imposed on the Gross-Up Payment being repaid by him if such
repayment results in reduction in Excise Tax and/or a federal and state and
local income tax deduction) plus interest on the amount of such repayment at the
rate provided in section 1274(b)(2)(B) of the Code. In the event that the Excise
Tax is determined to exceed the amount taken into account hereunder at the time
of the Employee's termination of employment (including by reason of any payment
the existence or amount of which cannot be determined at the time of the
Gross-Up Payment), the Company shall make an additional Gross-Up Payment in
respect of such excess (plus any interest payable with respect to such excess)
at the time that the amount of such excess is finally determined.
<PAGE>
C18
(h) The Severance Payments (excluding payments made pursuant to
Sections 5(d) and 5(f) and including any payments made pursuant to Section 5(g))
shall be made by the Company to the Employee in full on the tenth business day
(the "Payment Date") following the date of Involuntary Termination; provided,
however, that if the amounts of such payments cannot be finally determined on or
before the Payment Date, the Company shall pay to the Employee on the Payment
Date an estimate, as determined in good faith by the Company of the minimum
amount of such payments and shall pay the remainder of such payments (together
with interest at the rate provided in section 1274(b)(2)(B) of the Code) as soon
as the amount thereof can be determined but in no event later than the thirtieth
day after the date of Involuntary Termination. In the event that the amount of
the estimated payments exceeds the amount subsequently determined to have been
due, such excess shall constitute a loan by the Company to the Employee payable
on the fifth day after demand by the Company (together with interest at the rate
provided in section 1274(b)(2)(B) of the Code).
(i) In the event of an Involuntary Termination, the Company shall
pay to the Employee without reduction all benefits or amounts payable in
accordance with the terms of the Company's Supplemental Retirement Benefit Plan,
Supplemental Pension Plan for Designated Mid-Career Officers (if the Employee
has theretofore been designated to participate therein), Incentive Compensation
Plan, Deferred Income Benefit System and any similar or successor plans.
(j) The Company agrees that, if the Employee's employment with
the Company terminates during the Employment Term, the Employee is not required
to seek other employment or to attempt in any way to reduce any amounts payable
to the Employee by the Company pursuant to Section 5 hereof. Further, the amount
of any payment or benefit provided for in this Agreement (other than Section
5(d) hereof) shall not be reduced by any compensation earned by the Employee as
the result of employment by another employer, by retirement benefits, by offset
against any amount claimed to be owed by the Employee to the Company, or
otherwise.
(k) If within fifteen (15) days after any Notice of Termination
is given, or, if later, prior to the Date of Termination (as determined without
regard to this Section 5(k)), the party receiving such Notice of Termination
notifies the other party that a dispute exists concerning the termination, the
Date of Termination shall be extended until the earlier of (i) the date on which
the Employment Term ends or (ii) the date on which the dispute is finally
resolved, either by mutual written agreement of the parties or by a final
judgment, order or decree of an arbitrator or a court of competent jurisdiction
(which is not appealable or with respect to which the time for appeal therefrom
has expired and no appeal has been perfected); provided, however, that the Date
of Termination shall be extended by a notice of dispute given by the Employee
only if such notice is given in good faith and the Employee pursues the
resolution of such dispute with reasonable diligence.
(l) If a purported termination occurs following a Change in
Control and during the Employment Term and the Date of Termination is extended
in accordance with Section 5(k) hereof, the Company shall continue to pay the
Employee the full compensation in effect when the notice giving rise to the
dispute was given (including, but not limited to, salary) and continue the
Employee as a participant in all compensation, benefit and insurance plans in
which the Employee was participating when the notice giving rise to the dispute
was given, until the Date of Termination, as determined in accordance with
Section 5(k) hereof. Amounts paid under this Section 5(l) are in addition to all
other amounts due under this Agreement (other than those due under the first
sentence of Section 4(b) hereof) and shall not be offset against or reduce any
other amounts due under this Agreement.
<PAGE>
C19
6. Noncompetition Agreement. During the Employment Term, without
the consent of the Company the Employee shall not, directly or indirectly, in
association with or as a stockholder, director, officer, consultant, employee,
member or otherwise of or through any person, firm, corporation, partnership,
association or other entity, engage in any enterprise or business based or
operating in the United States of America which designs, provides, distributes
or otherwise deals in products or renders services which are competitive with
the businesses of the Company or its successors, as such businesses may now or
hereafter be conducted or developed during the term of this Agreement
(individually, a "Competitor"); provided, however, that an investment by the
Employee, his spouse and his children in not more than two percent of the total
capital of any Competitor whose stock is listed on a national securities
exchange shall not be deemed a violation of this Section 6.
7. Nondisclosure of Confidential Information. The Employee
recognizes and acknowledges that the trade secrets and other similar proprietary
information of the Company as acquired and used by the Company are special,
valuable and unique assets. The Employee shall not, except as may be necessary
in the discharge of his duties with the Company or as may be required by
applicable law or regulations, disclose during the Employment Term and
thereafter any such confidential information, knowledge or data obtained by the
Employee prior to the date of this Agreement or during the Employment Term which
is material to the business of the Company and not publicly available, otherwise
disclosed by the Company to third parties or recognized as standard practice.
8. Arbitration. Any controversy or claim arising out of or
relating to this Agreement or the breach of this Agreement which cannot be
resolved by the Employee and the Company, including any dispute, at the instance
of either the Employee or the Company, as to the calculation of the Employee's
benefits or tax consequences of the Severance Payments pursuant to Section 5(g)
above, shall, at the instance of either the Employee or the Company, be
submitted to arbitration in accordance with New York law and the procedures of
the American Arbitration Association. The determination of the arbitrator(s)
shall be conclusive and binding on the Company and Employee and judgment may be
entered on the arbitrator(s) award in any court having jurisdiction.
Notwithstanding any provision of this Agreement to the contrary, the Employee
shall be entitled to seek specific performance of the Employee's right to be
paid until the Date of Termination during the pendency of any dispute or
controversy arising under or in connection with this Agreement.
9. Assignability. The rights and obligations of the Company under
this Agreement shall inure to the benefit of and be binding upon the successors
and assigns of the Company. The Employee's rights and obligations hereunder may
not be assigned or alienated and any attempt to do so by the Employee shall be
void.
10. Separability. If any provision of this Agreement is deemed to
be invalid or unenforceable or is prohibited by the laws of the state or place
where it is to be performed, this Agreement shall be considered divisible as to
such provision and such provisions shall be inoperative in such state or place
and shall not be part of the consideration moving from either of the parties to
the other. The remaining provisions of this Agreement, however, shall be valid
and binding and of like effect as though such provision were not included.
11. Notice. Notice given pursuant to the provisions of this
Agreement shall be sent by certified mail, return receipt requested, to the
following addresses:
To the Company:
ASARCO Incorporated
180 Maiden Lane
New York, New York 10038
Attention: General Counsel
To the Employee:
((Name))
((Address))
<PAGE>
C20
12. Miscellaneous. This Agreement is to be construed and enforced
in accordance with the laws of the State of New York. The waiver by any party to
this Agreement of a breach of any provision of this Agreement by any other party
shall not be construed as a waiver of any subsequent breach by any party. This
Agreement constitutes the entire agreement of the parties with respect to the
subject matter of this Agreement and may not be changed orally, but only by an
agreement in writing signed by the parties to this Agreement. This Agreement
supersedes any prior employment agreement between the Company and the Employee
to the extent inconsistent. The obligations of the Company and the Employee
under this Agreement which by their nature may require either partial or total
performance after the expiration of the Employment Term (including, without
limitation, those under Section 5 hereof) shall survive such expiration.
IN WITNESS WHEREOF, the Company and the Employee have executed
this Employment Agreement as of the day and year first above written.
The Company:
ASARCO Incorporated
By:
Name:
Title:
The Employee:
((Name))
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