SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
1997 FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997 Commission file number 1-164
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ASARCO Incorporated
(Exact name of registrant as specified in its charter)
New Jersey 13-4924440
(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_____
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 27, 1998, there were of record 39,642,592 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 $0.9 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 29, 1998.
Part IV: Exhibit index is on pages C1 through C4.
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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 and
silver. Asarco also produces specialty chemicals and aggregates. Asarco has
developed one of the largest copper ore reserve positions in the industry. The
Company's copper business includes integrated mining, smelting and refining
operations in North America and in Peru through its subsidiary, Southern Peru
Copper Corporation. The Company also operates a fully integrated lead business
in Missouri, a custom lead smelting business, a silver mining business and a
zinc mining business.
Enthone-OMI, a whollyowned subsidiary, operates a worldwide specialty chemicals
business focused on functional and decorative coatings for the electronics and
metal finishing industries. American Limestone Company, a whollyowned
subsidiary, produces construction aggregates.
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.
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.
Asarco Copper Business
Asarco is one of the world's leading producers of copper. In 1997, production of
copper from mines managed by Asarco was 1.4 billion pounds, 6.8% of western
world copper mine production. Asarco's beneficial interest in copper production
in 1997 was 977 million pounds.
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Asarco's copper business includes its integrated copper operations in North
America, which accounted for 63% of its beneficial copper production in 1997,
and an integrated copper business in Peru conducted through a 54.1%-owned
subsidiary, Southern Peru Copper Corporation (SPCC). The North American copper
business includes the Mission and Ray mines in 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 in Arizona and
an 86.7% interest in the Minto mine project, a new copper-gold mine which is
currently under development in the Yukon Territory, Canada. The Company's
Peruvian copper business, operated by SPCC, includes the Toquepala and Cuajone
mines, the Ilo smelter and the Ilo refinery, all located in the southern part of
Peru.
The Company's beneficial interest in mined copper production in 1997 was
slightly below the record production of 1.0 billion pounds achieved in 1996.
Production declined in 1997 due to lower throughput as a result of the increased
hardness of ore principally at the North American copper operations. Partially
offsetting this decline in production was increased production of solvent
extraction/electro-winning (SX/EW) copper at Ray and at Silver Bell which
started up in July 1997. Production at SPCC increased in 1997 due to operational
improvements at the Cuajone concentrator and higher SX/EW production. Production
at the SX/EW plant now exceeds its original design capacity.
The Company's beneficial interest in refined copper production in 1997 set a new
record of 1.4 billion pounds. The increase was a result of operating
improvements at the Amarillo refinery, increased capacity at SPCC's Ilo
refinery, and the SX/EW production increases.
Ore Reserves
One of the strengths of Asarco's copper business is its large copper ore reserve
position. The Company's beneficial interest in copper ore reserves at the end of
1997 was 3.4 billion tons containing 38 billion pounds of copper. Ore reserves
are the key to a mining company's future and Asarco's position, which represents
a composite life of 38 years at current production rates, is one of the best in
the industry.
Copper Market
Demand for copper in 1997 was at a record level for the 12th straight year.
Despite this robust demand, western world copper inventories increased in 1997
principally as a result of a slowdown in the rate of growth in Southeast Asia
and reduced imports by China which drew down its inventories to meet their
internal requirements. The copper price declined significantly in the second
half of the year, ending the year at a four year low of 77 cents per pound. The
Company believes that supply and demand will be in balance in 1998 and that the
price should recover from the oversold condition at year end 1997.
In 1997, the copper price averaged $1.04 per pound on the New York Commodity
Exchange (COMEX), $1.09 per pound for the first three quarters and $0.87 per
pound in the fourth quarter. In 1996, the copper price averaged $1.06 per pound
on the COMEX.
The average price on the London Metal Exchange (LME) was $1.03 in 1997, compared
with $1.04 in 1996.
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The outlook for continued growth in copper demand is very favorable. Increasing
intensity of use of copper in industrialized countries continues to fuel demand.
In the last 10 years, the use of copper in the average automobile has increased
over 55% to 61 pounds per car, reflecting the greater use of sophisticated
electronics and motorized equipment. The average new home in the United States
now contains 439 pounds of copper, about 15% greater than 10 years ago. Today's
modern homes are being wired for multiple phone lines, intercoms and
entertainment systems and increased electric power requirements. Commercial
buildings require even greater amounts of copper wiring to meet the
telecommunications and energy needs of business.
In the world's developing economies, copper is an essential building block.
Electric power generation and distribution, as well as telecommunications and
transportation projects all require large amounts of copper.
Demand for copper has grown at a 4.0% annual average rate over the last five
years. No change is foreseen in the need for copper that might diminish this
robust growth in demand for the foreseeable future. While economic disruptions,
like the recent monetary crisis in Southeast Asia, may temporarily slow the rate
of growth, the underlying long-term fundamentals continue to look promising.
Expansion of Low-Cost Copper
The Company's recent strategic focus has been the development of additional low-
cost sources of copper production. The Company was active on three projects in
1997 and its exploration efforts are beginning to identify additional
opportunities for the future. In 1997, these projects included work on the
expansion of the Cuajone mine, part of the $1 billion expansion and
modernization project at SPCC, the startup of the Silver Bell SX/EW operation,
and the development of the Minto copper project now planned for startup in 2000.
The Cuajone mine is being expanded and will increase SPCC's annual copper
production by 19%, or 130 million pounds. The Ilo smelter is being modernized
and expanded to increase capacity and to enhance environmental performance.
These projects will be completed in stages between 1998 and 2003. In 1997,
financing for the project was arranged. The first stage, the $245 million
expansion of the Cuajone mine, is expected to be completed in early 1999.
Construction activities are underway and are on schedule.
The Ilo smelter is being modernized in stages. Construction of a new acid plant,
designed to increase the capture of sulfur emissions, is scheduled for
completion in 1998. Installation of a new smelting furnace and associated
environmental controls will be completed in 2001, and completion of the
converting section is expected in 2003. Engineering work on the smelter project
is nearing completion and final decisions on the construction schedule will be
made in 1998.
These projects remain attractive at current low copper prices and, therefore,
the Company is proceeding with its plans to expand its low-cost copper
operations in Peru.
Construction and development of a new SX/EW operation at the Silver Bell mine
was completed in mid-1997. Since start-up, the project, in which the Company has
a 75% interest, has produced at its planned annual rate of 36 million pounds of
copper.
Development of the Minto mine in Yukon Territory, Canada, is scheduled for
completion in 2000. The mine, in which Asarco has an 86.7% interest, is expected
to produce 27 million pounds of copper and 10,000 ounces of gold annually.
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North American Copper Operations
There were a number of significant accomplishments at the Company's North
American copper operations in 1997.
Ore grades at the Mission mine improved as a result of a full year's operation
of the higher-grade underground mine which began production in mid-1996.
Construction was completed in late summer of a large overland conveyor designed
to move 58 million tons of waste per year at Mission. The system will reduce
total waste removal costs by eight cents per ton, or $9.5 million per year.
Production at the Ray Complex's Hayden concentrator was curtailed in the fourth
quarter of 1996 to reduce concentrate inventory. Inventory levels returned to
normal and the Hayden concentrator was restarted in May. The Ray mine replaced
its remaining eleven 170-ton-capacity trucks with five 240-ton-capacity haul
trucks in late 1997.
Cathode copper production from the SX/EW operation at the Ray mine increased 5%
in 1997 following application of a new leaching technology for low-grade sulfide
material. The new leaching process provides both a quicker leach cycle and
higher copper recovery.
The Hayden smelter processed a record level of concentrates in 1997 as a result
of improved equipment availability and a more consistent and higher grade of
concentrates processed. Modernization of the smelter's gas handling system and
the process control system began in 1997 and is expected to be completed in the
second quarter of 1998. These improvements are expected to further increase
production rates and reduce operating costs.
The El Paso, Texas copper smelter, which uses CONTOP flash smelting technology,
also set a record for concentrates smelted in 1997. In the fourth quarter of
1997, production rates were 10% over the original design capacity. Improved
equipment availability and modifications to the Contop furnace feed system were
the primary reasons for the production improvements.
The Amarillo copper refinery achieved record copper cathode and rod production
and further improved the quality of its product. Amarillo also received its
second three-year ISO 9002 certification.
Peruvian Copper Operations
Asarco conducts its Peruvian copper operations through SPCC, in which Asarco
holds a 54.1% equity interest. SPCC's common shares are listed on the New York
Stock Exchange and the Lima Stock Exchange. SPCC owns a 97.8% interest in its
Peruvian Branch, which comprises substantially all of SPCC's operations. Labor
shares which were issued to SPCC's workers under prior Peruvian law represent
the remaining interest in the Branch. At the end of 1997, Asarco's beneficial
interest in SPCC's operations, after the labor share interest, was 53.0%.
In 1997, SPCC produced 686 million pounds of copper from its mines, a 1.1%
increase over 1996. Asarco's beneficial share of this production was 363 million
pounds of copper. SPCC also produced 9.4 million pounds of molybdenum and 3.1
million ounces of silver.
In 1997, copper production at the Cuajone mine increased 2.6% from 1996, to 341
million pounds, as a result of higher ore grades. At the Toquepala mine, copper
production was 247 million pounds, slightly lower than in 1996 as a result of
lower ore grades. The Toquepala concentrator achieved record annual throughput
partially offsetting the effect of the lower ore grades.
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A5
SPCC also produced 98 million pounds of copper from its low-cost SX/EW plant
located at Toquepala, 23% higher than the design capacity of the plant. The
SX/EW facility produces refined copper cathodes from solutions leached from
low-grade ores stockpiled at both the Toquepala and Cuajone mines.
The Ilo smelter processed 1.2 million tons of concentrates in 1997, producing
639 million pounds of copper in blister. SPCC began an expansion of the sulfuric
acid plant at the smelter in 1996 to increase the capture of sulfur dioxide
emissions from 18% to 30%. The project is on schedule for completion in the
first quarter of 1998 and should further improve air quality.
The production capacity of the Ilo copper refinery was increased 20%, or 82
million pounds in 1996. Production in 1997 reached a record 513 million pounds.
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 is a worldwide supplier of specialty chemicals used to produce
functional and decorative coatings on metals and plastics for the electronics
and metal finishing industries. It markets its products from 30 locations
throughout North America, Europe and Asia. Enthone-OMI's pre-tax profit
increased 21% in 1997, to a record $29.4 million.
Asarco's involvement in the specialty chemicals business started 40 years ago,
in 1957, with the acquisition of Enthone, Inc., a small, regional company based
in New Haven, Connecticut. For three decades, Enthone focused its efforts on the
United States, with overseas activities being handled by licensees. In 1988,
Asarco significantly expanded the business through the acquisitions of OMI
International and, in 1989, the Imasa Group in Europe. To gain greater control
of its business in key growth markets, Enthone-OMI has made eight subsequent
acquisitions including acquisition of the minority interests of Enthone-OMI
(Singapore) in 1995, and an additional interest in 1996 in Hua-Mei, a joint
venture in the Peoples Republic of China, bringing Enthone-OMI's ownership to
51%. Enthone-OMI has also acquired Industrias Oxy Metal, S.A., a Mexican
specialty chemicals business, STS, a small Swiss specialty chemicals company and
Blasberg Oberflachentechnik GmbH, a highly respected German specialty chemicals
company.
Enthone-OMI has also generated internal growth by investing heavily in research
and product and market development. These acquisitions and investments have made
Enthone-OMI a global participant in the specialty chemicals business and have
resulted in a compound annual growth rate of 23.6% in pre-tax profit since 1988.
Technical innovation and marketing effectiveness were the key factors
contributing to a fourth consecutive year of record sales and earnings in 1997.
Contributing to the growth was strong global market acceptance for new products
providing improved corrosion resistance for automotive components, high
performance coatings for printed circuit boards and electronic components, and
advanced technology for manufacturing semi-conductor chips. A new
state-of-the-art manufacturing facility and technical center in Singapore was
completed in June to support growth in the ASEAN region.
All of Enthone-OMI's facilities are ISO 9001 or 9002 certified and the
s'Hertogenbosch, Netherlands and Norrkoping, Sweden facilities were the first to
receive ISO 14001 certification for environmental management systems in 1997.
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Aggregates
American Limestone Company, a wholly owned subsidiary, produces construction
aggregates, ready mixed concrete and agricultural limestone at locations in
Tennessee and Virginia. Aided by favorable weather and a good construction
market in the Southeast in 1997, American Limestone increased sales by 15% and
recorded its fourth consecutive year of record earnings with pre-tax profits of
$13.8 million. Since 1989, American Limestone's earnings have grown at a
compound annual growth rate of 14%.
Asarco has also made several modest-sized investments in the aggregates business
since 1989, however, most of American Limestone's earnings growth has been from
expansions and increased volumes from its original properties and from good cost
control. Demand for aggregates in American Limestone's market area is expected
to continue to be strong in 1998.
Lead Operations
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 lead business includes its integrated Missouri lead mining, smelting
and refining business and a custom smelting business in East Helena, Montana.
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 1997 compared with
recent years due to lower ore grades. In 1997, the Company completed its
modernization project at the Glover smelter and refinery. With the completion of
this project, the Glover facility met all federal ambient air standards in 1997
and increased refined lead production by 4.5% over the prior year.
Asarco's custom lead business consists of its East Helena, Montana lead smelter.
The Company permanently closed its Omaha lead refinery in June 1997 and
continues to work 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 United States. The custom lead business
depends on the availability of precious metal-bearing lead materials primarily
from U.S. and Latin American mines. While the custom lead business was not
profitable in 1997, the closure of the Omaha refinery and process improvements
at East Helena improved operating results during the last half of the year.
In 1997, the Company completed a modernization project at East Helena. The East
Helena plant met all federal ambient air standards for 1997.
The Leadville mine in Colorado is 60% owned and managed by Asarco and produces
lead, zinc and silver. In January 1997, the mine was reopened after a brief
period on standby. The mine was not profitable in 1997 due to low metal prices.
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Lead Market
About 65% of lead consumption is used in storage batteries for automobiles and
other equipment. World wide consumption of refined lead has grown steadily in
recent years at an annual rate of 2.7%. Lead is the preferred material for the
cost-effective storage of energy in batteries. The consumption of lead in
television screens and in X-ray shielding has also been growing in recent years.
Silver Operations
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 which owns and operates
the Coeur and Galena mines in Wallace, Idaho. The Coeur mine resumed operations
in mid-1996 after a five-year standby period. In May 1997, operations at the
Galena mine were resumed. A development program, begun in 1995, has been
successful in identifying additional higher-grade silver reserves.
The Company also owns a 75% interest in the Troy, Montana silver-copper mine,
which currently is on standby. The Company plans to restart Troy in conjunction
with the development of the nearby Rock Creek silver-copper deposit which has
been in the permitting process since 1987. In 1997, the Company submitted a
draft supplemental environmental impact statement for Rock Creek and expects to
receive an approved final environmental impact statement in 1998 and operating
permits in 1999.
Silver Market
Since 1979, demand for silver has grown 73%. Consumption of silver, which
primarily is used for photographic materials, electronics and jewelry, has grown
to more than 830 million ounces annually. Since 1990, demand for silver has
exceeded mine production and by the third quarter of 1997 the surplus of 875
million ounces of silver accumulated in the 1980s was finally consumed. With
consumption currently exceeding production by a substantial margin and with
reduced worldwide inventories, the outlook is favorable for the silver price.
Zinc Operations
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 operates four zinc mines near Knoxville, Tennessee. It also produces
zinc as a co-product at its Missouri and Leadville mines. Production in 1997 of
zinc in Tennessee was below 1996 levels, due to a 42-day strike in the fourth
quarter.
Despite this work stoppage, financial results of the Tennessee operations
improved in 1997 due to higher zinc prices. New Market, one of the four
Tennessee mines, was placed on standby in the fourth quarter of 1996 and its
operations are expected to remain suspended in 1998.
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Zinc Market
Zinc is used primarily as a protective coating material in construction and in
transportation and electrical equipment. A 1996 supply deficit resulted in
higher zinc prices during much of 1997. Growth in Western World zinc demand has
averaged 3.4% over the last five years.
Specialty Metals
The Company operates a specialty metals business at its Globe plant in Denver,
Colorado. In 1997, the Company completed the transformation of the business from
processing of intracompany secondary materials into a stand-alone specialty
metals operation. The Globe plant, which produces litharge, bismuth compounds
and high purity metals, was profitable in 1997 and the Company expects it to
continue its growth.
Environment, Safety and Health
Protection of the environment is one of Asarco's principal operating objectives.
The Company has made and continues to make substantial investments to deal with
environmental issues associated with historical Company operations. The Company
has also put in place policies, practices and procedures to meet today's
environmental standards.
Nearly two years ago, the Company initiated a discussion with the U.S.
Environmental Protection Agency to establish a voluntary compliance framework to
resolve environmental matters on a nationwide basis and eliminate the time and
expense of dealing with issues individually through negotiation and litigation.
In early 1998, an agreement was reached on most outstanding issues in the
Company's copper and lead mining, smelting and refining operations in the United
States. The agreement also establishes a basis for the Company and Federal and
state agencies to work together in the future.
The Company has adopted a comprehensive Environmental Management System (EMS).
This system integrates environmental management procedures into the operating
management systems of the Company. Under EMS Company facilities are audited
regularly to assure conformity with EMS, employees receive annual environmental
awareness training and practices have been established to deal with the
environmental responsibilities of each of the Company's operations.
The agreement includes new capital projects totaling $61.5 million that resolve
issues that have been under study at the Ray mine and East Helena smelter. The
largest capital project, $55 million over six years, provides for the extension
of an existing tunnel at the Ray mine which diverts Mineral Creek around the Ray
mine workings. The project will have a positive effect on future operations as
well as on the environment. Asarco also agreed to pay penalties of $6.4 million
to resolve past disputed issues. These penalties are covered by existing
environmental reserves.
Asarco has also been active in developing and installing new environmental
technologies. Storm water recycling systems, dust suppression equipment and gas
collection facilities have been installed at a number of locations. The Company
has developed an innovative biotreatment process for mine water and developed
low-impact land reclamation methods using cattle to fertilize and stabilize
soils.
This investment of time and capital is paying off. For example, Asarco was in
full compliance in 1997 with new restrictive standards for air emissions at its
decades-old lead smelters in Missouri and Montana.
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Asarco is also very active in remediating environmental conditions at current
and former operating properties. Many of these projects are done in cooperation
with state and Federal government agencies. Asarco is working with communities
in Omaha, Nebraska and Tacoma, Washington to transform its former industrial
sites into parks and new commercial centers. In 1997, Asarco spent $63 million
on remediation work related to historic operations.
Safety and Health
The safety and health of its employees is Asarco's most important operating
objective. A Corporate Safety and Health Review Committee sets safety standards
for each unit's operations, monitors performance and administers recognition
programs which reward safety excellence. In 1997, a portion of each salaried
operating employee's incentive compensation was directly linked to their
operating unit's safety and health performance. The program has been very
successful.
In 1997, there were 28% fewer lost work day injuries in the Company's domestic
mines and 37% fewer lost work day injuries in its domestic plants. The Company
believes that a safe and healthy workplace is an essential goal. While the
programs in place have improved safety performance, management will continue to
focus attention on safety and health issues and will continue with extensive
training, education programs and recognition programs with the objective of
creating an accident-free workplace.
Exploration
Asarco's exploration effort is focused on the identification and acquisition of
advanced gold, copper and silver exploration projects. In 1997, the Company
spent $32 million on an active mineral exploration program. Over 90% of
expenditures were directed at projects outside the United States, principally in
French Guiana, Chile, Peru, Bolivia and Australia. Work in the United States was
mostly directed at identifying additional reserves at the Company's operating
properties.
In French Guiana, Asarco has interests in five large project areas with known
gold anomalies. Drilling at the Company's 100% owned Camp Caiman project has
identified a near-surface gold deposit within a five-mile long gold in soil
anomaly associated with a major structural zone. A resource of 18.6 million tons
of ore with a grade of 0.08 ounces of gold per ton has been identified. This
resource contains 1.5 million ounces of gold. Gold mineralization at Camp Caiman
is open-ended and the drilling program is continuing. To assist the company in
meeting its environmental and social responsibilities in the Camp Caiman
project, an expert, independent Advisory Committee has been created.
Thought to be the first of its kind in the mining industry, the committee
includes persons with recognized expertise in conservation of tropical
environments. To date the Committee has provided independent review and advice
on environmental and issues associated with exploration and preliminary mine
planning.
Evaluation of the San Bartolome silver project near Cerro Rico de Potosi in
Bolivia is at an advanced stage. A minable reserve of 11 million tons of ore
with a grade of 4.0 ounces of silver per ton, containing some 44 million ounces
of silver has been identified. There is excellent potential to add to this
reserve.
SPCC has been pursuing copper and gold exploration targets in Peru. The most
advanced project is the Tantahuaty copper-gold project in northern Peru, in
which SPCC has a 44% interest and is the operator. Drill results to date have
been encouraging at this porphyry type deposit. Further drilling is planned for
1998.
Asarco has recently increased its exploration activities in Chile and several
properties in northern Chile are being examined and drilled. The most advanced
project is a moderate-sized oxide copper deposit where drilling to confirm a
minable reserve is underway.
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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, 1997, Asarco excluding SPCC, employed about 6,900 persons, of
whom about 3,700 were covered by contracts with various unions, most of which
were affiliated with the AFL-CIO. At December 31, 1997 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 1997.
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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The Company anticipates spending $53 million for environmental control capital
expenditures at its operating units in 1998. 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):
1997-$64;1996-$71; 1995-$93. 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):
1997-$113;1996-$113; 1995-$103.
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 January 23, 1998, the Company, the United States Department of Justice and
the Environmental Protection Agency ("EPA") announced the signing of a
multi-region voluntary agreement covering many environmental issues affecting
the Company's United States operations. Two consent decrees containing the
agreement have been filed in the United States District Courts in Phoenix,
Arizona and Helena, Montana, and are subject to approval by both courts
following public comment. The agreement includes a commitment to undertake
capital expenditures totaling $61.5 million and will cover a number of
operational changes to resolve disputed compliance issues at the Company's Ray,
Arizona mine and East Helena, Montana smelter. A significant aspect of the
agreement is an Asarco-initiated Environmental Management System, which combines
operational and environmental systems, policies and practices. The Company has
agreed to pay penalties of $6.4 million applicable to past issues at Ray and
East Helena without an admission of wrongdoing or liability.
On March 24, 1995, 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, demolition of remaining buildings,
replacement of the surface water drainage system and diversion of groundwater
and off-site surface water. 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. Remediation pursuant to the Consent Decree is proceeding.
At Ruston, Washington, an area which is 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 470 residential
and right-of-way properties have been remediated. The Company is currently
working with EPA on a proposed plan for the remediation of off-shore sediments
in this area. Remaining issues at the Commencement Bay Superfund site, which has
hundreds of potentially responsible parties ("PRP"), will not be addressed until
additional studies are completed.
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. The companies have remediated
approximately 1,217 residential properties as well as other areas, commercial
properties and rights of way. Remediation of additional yards and other
properties continues.
<PAGE>
A12
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. In 1996, the
court granted a motion to consolidate this case with a prior similar lawsuit
filed by the Coeur d'Alene Tribe. In August 1997, the United States filed a
motion to add to the lawsuit several companies, including certain subsidiaries
of the Company. In February 1998, the EPA announced it intends to conduct a
Remedial Investigation/Feasibility Study to assist in developing a comprehensive
remediation plan for the Coeur d'Alene River Basin.
In September 1997, the Nebraska Department of Environmental Quality approved a
Remedial Action Work Plan submitted by the Company for remediation of the site
of the Company's former Omaha, Nebraska, lead refinery, which had suspended
operations on June 1, 1996.
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 1998. Through the end of 1997 the Company has spent approximately
$43 million for remediation at the site. Remaining issues at Leadville will not
be addressed until additional studies are completed.
In 1997, at the East Helena Superfund site in Montana, the Company completed the
remediation of approximately 25 residences at a cost of approximately $1.439
million. This brings the total number of residential properties remediated to
date to 564. Additional properties are expected to require remediation, which
together with proposed community protection measures, is estimated to require an
expenditure of approximately $2.1 million over the next five years.
EPA 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 1997, at the Globe proposed Superfund site in Denver, Colorado the Company
completed the remediation of approximately 187 properties, including residences,
commercial properties and open spaces, at a cost of approximately $4.1 million
pursuant to a Consent Decree with the State of Colorado and a settlement of a
lawsuit entered in 1993. This brings the total number of properties remediated
to date to approximately 549. Remediation has also started 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 ("Ecology")a remedial investigation and feasibility study report of the
Company's former smelter site in Everett, Washington. In early 1997, Ecology
issued an Enforcement Order to the Company pursuant to which the Company is
performing additional studies and remediation at the site. In late 1997, the
Company, Ecology, the City of Everett, two citizens' groups, a county, and other
interested parties began mediation process regarding the remediation plan for
the site. It is anticipated that Ecology will issue a remediation plan some time
in 1998. The Company is investigating claims presented by several area residents
and some governmental entities for alleged costs or damages based on soil
contamination.
<PAGE>
A13
In October 1996, the Company responded to an August 30, 1996 General Notice
Letter from the EPA and offered to perform certain investigation and remediation
activities at the Circle Smelting site in Beckemeyer, Illinois, an area where a
subsidiary of the Company previously operated a zinc smelter. Pursuant to an
Administrative Consent Order, effective August 1, 1997, the Company is
implementing the investigation and the remediation that it offered to perform.
Additionally the Company is negotiating with another potentially responsible
party for liability contribution.
In September 1997, the Company entered into an Administrative Order on Consent
to conduct an Engineering Evaluation/Cost Analysis ("EE/CA") for the portal
discharge from the Company's former Gem mine in the Coeur D'Alene River Basin in
Idaho, which drains to a tributary of the Coeur d'Alene River. The Company has
agreed to implement the remedy selected by the EE/CA process.
In July 1997, the Company received a notice from the United States Forest
Service that it may be potentially liable for environmental remediation at a
site in California where it appears a predecessor company had leased a mine for
approximately one year in the early 1900s.
The Company and certain of its subsidiaries are cooperating with environmental
authorities to undertake studies of certain other sites and remediate where
necessary.
In addition to the sites described above, the Company and certain subsidiaries
received notices of potential liability pursuant to CERCLA and various similar
state laws from the EPA or other federal and state agencies regarding numerous
other sites. At several of those sites the Company's liability will likely be
minor.
In 1997, the Company also received notices from EPA regarding alleged violations
of the federal Resources Conservation and Recovery Act ("RCRA") at the Company's
Encycle/Texas facility and the federal Clean Water Act ("CWA") at the Tennessee
Mines facilities; no specific penalty amounts have been demanded.
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;
however, no further action is anticipated because of the Company's suspended
operations at the facility in June 1996.
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>
A14
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. The Company has successfully completed all submittals required
by the Consent Decree and is awaiting the state's response to its Site
Assessment Investigation Workplan.
Asarco is subject to federal and state laws and regulations pertaining to plant
and mine safety and health conditions, including the Federal Occupational Safety
and Health Act of 1970 and 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.
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>
A15
Item 2. Properties
ASARCO Worldwide Operations
METALS
COPPER MINES
Mission; Sahuarita, Arizona
Montana Resources; Butte, Montana
Ray; Hayden, Arizona
Silver Bell; Silver Bell, Arizona
Minto; Yukon Territory, Canada
Cuajone; Peru
Toquepala; Peru
COPPER PLANTS
Amarillo, Texas (Refinery)
El Paso, Texas (Smelter)
Hayden, Arizona (Smelter)
Ray; Hayden, Arizona
(Electrowinning Plant)
Silver Bell; Arizona (SX/EW)
Ilo; Peru (Smelter, Refinery)
Toquepala; Peru (SX/EW)
LEAD MINES
Leadville; Leadville, Colorado
Sweetwater; Reynolds County, Missouri
West Fork; Reynolds County, Missouri
LEAD PLANTS
East Helena, Montana (Smelter)
Glover, Missouri (Smelter, Refinery)
ZINC MINES
Coy; Jefferson County, Tennessee
Immel; Knox County, Tennessee
New Market; Jefferson County, Tennessee (2)
Young; Jefferson County, Tennessee
Leadville; Leadville, Colorado
Sweetwater; Missouri
West Fork; Missouri
SILVER MINES
Silver Valley Resources; Wallace, Idaho
Troy; Troy, Montana (2)
Leadville; Leadville, Colorado
Mission; Sahuarita, Arizona
Ray; Hayden, Arizona
Montana Resources; Butte, Montana
Cuajone and Toquepala, Peru
<PAGE>
A16
SILVER AND GOLD PLANTS
Amarillo (Refinery), Texas
Ilo (Refinery), Peru
MOLYBDENUM MINES
Montana Resources; Butte, Montana
Cuajone; Peru
Toquepala; Peru
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
Luien, Austria
Solingen, Germany
Norrkoping, Sweden
Geneva, Switzerland
Pacific Rim
Melbourne, Australia
Tsuen Wan, Hong Kong
Singapore
Shen Zhen, People's Republic
of China
Yokohama, Japan
Taipei, Taiwan
Penang, West Malaysia
AGGREGATES
American Limestone Company, Inc.
(Construction Aggregates,
Concrete, Agricultural Limestone)
Knoxville, Tennessee
Tri-Cities, Tennessee
Nashville, Tennessee
Abingdon, Virginia
<PAGE>
A17
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
Specialty Metals
Denver, Colorado
INVESTMENTS
Grupo Mexico, S.A. de C.V. (8.2% ownership)
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
<PAGE>
A18
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 began 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 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
In 1997, Asarco sold all of its unrestricted shares of Grupo Mexico, S.A. de
C.V. Asarco currently owns 8.2% of Grupo Mexico, which operates thirteen mines
under concessions granted by the Mexican government.
<PAGE>
A19
The following production information is provided:
<TABLE>
<CAPTION>
MILL PRODUCTION 1997 1996 1995
- --------------- ---- ---- ----
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 14,822 83.8 15,192 85.9 14,803 83.6
Mission South 7,341 83.0 7,616 82.5 7,346 82.7
Hayden
Concentrator 8,295 80.8 8,975 81.5 8,452 78.4
Ray Concentrator 11,223 82.3 12,687 82.4 13,216 82.7
Montana Resources 15,219 89.8 15,990 87.2 14,853 90.9
Leadville (a) 202 88.6 131 95.1 219 91.4
Sweetwater 1,403 98.4 1,271 98.3 1,269 98.1
West Fork 1,025 96.8 1,007 97.2 1,005 97.7
Tennessee 2,173 91.4 2,823 92.4 3,206 92.6
Other
Quiruvilca (b) - - - - 291 82.1
SPCC (c)
- ----
Toquepala 18,998 87.9 18,609 84.2 16,937 89.0
Cuajone 21,719 87.0 21,249 81.7 21,378 84.3
</TABLE>
Productive Capacity (d)
<TABLE>
<CAPTION>
Defined Defined
Smelter Capacity Refineries Capacity
<S> <C> <C> <C>
Anode Copper (tons) Copper (tons)
El Paso 115,000 Amarillo 483,000
Hayden 175,000 Ray (SX-EW) 40,000
-------
Silver Bell, L.L.C. (SX-EW) 18,000
Total 290,000 Ilo - SPCC (c) 247,000
Blister Copper (tons) Toquepala (SX/EW)(c) 40,000
-------
Ilo - SPCC (c) 320,000 Total 828,000
Lead Bullion (tons) Lead (tons)
East Helena 75,000 Omaha (e) -
Glover 130,000 Glover 130,000
-------
Total 205,000
Silver (000s ounces)
Amarillo 60,000
Gold (ounces)
Amarillo 600,000
</TABLE>
(a) 1997 reflects Asarco's beneficial interest in Leadville at 100%.
(b) Asarco sold its 80% interest in Quiruvilca in August 1995.
(c) Asarco consolidated SPCC effective January 1, 1995. The minority
interest in SPCC, represented by Labor Shares in its Peruvian Branch,
results in Asarco having a beneficial interest which is less than its
equity interest in SPCC. Asarco's beneficial interest in SPCC was 53.0%
at December 1997, 52.6% at December 1996 and 52.3% at December 1995.
(d) 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.
(e) Asarco ceased refining lead at its Omaha, Nebraska refinery in June
1996.
<PAGE>
A20
METAL PRODUCTION STATISTICS
<TABLE>
<CAPTION>
COPPER Mineral Average
Reserves Mineral Metal Production
Asarco (000s Content Contained Metal
Int. Tons) (%) (000s Pounds)
-------------
(%) 12/31/97 12/31/97 1997 1996 1995
--- -------- -------- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
MINES
Domestic
Mission Complex 100 514,091 .70 252,300 261,200 224,600
Ray 100 969,689 .62 230,700 273,200 260,400
Ray leachable 100 189,037 .44 73,400 70,200 70,200
Montana Resources 49.9 499,438 .33 91,400 104,800 112,800
Silver Bell L.L.C. 75(a) 178,892 .38 19,300 4,800 6,800
Troy (b) 75 - - -
------------------------------------------------
Total Domestic 667,100 714,200 674,800
------------------------------------------------
SPCC (c)
Toquepala-sulfide 53.0(d) 313,149 .83 246,800 252,900 256,200
-leachable 53.0(d) 664,887 .19 87,900 88,600 10,000
Cuajone-sulfide 53.0(d) 1,422,339 .64 340,600 332,000 291,000
-leachable 53.0(d) 14,972 .95 10,200 4,600 -
Other
Quiruvilca-Peru (e) - - 1,200
Minto 86.7 7,176 2.13 - - -
------------------------------------------------
685,500 678,100 558,400
------------------------------------------------
Asarco Beneficial Production 977,400 1,015,900 898,400
------------------------------------------------
SMELTERS
El Paso 100 239,500 230,000 253,000
Hayden 100 423,900 429,800 387,000
SPCC - Ilo 53.0(d) 638,700 633,600 634,400
------------------------------------------------
Total 1,302,100 1,293,400 1,274,400
------------------------------------------------
Asarco Beneficial Production 1,001,900 991,800 956,400
REFINERIES
Amarillo 100 984,600 945,600 966,800
Ray (SX/EW) 100 73,400 70,200 70,200
Silver Bell L.L.C. (SX/EW) 75(a) 18,200 - -
SPCC - Ilo 53.0(d) 513,300 439,600 432,400
Toquepala (SX/EW) 53.0(d) 98,100 93,200 10,000
------------------------------------------------
Total 1,687,600 1,548,600 1,479,400
------------------------------------------------
Asarco Beneficial Production 1,394,200 1,295,000 1,258,000
------------------------------------------------
</TABLE>
(a) Asarco's interest in Silver Bell was 100% until February 1996 when
Asarco sold a 25% interest to Mitsui & Co., Ltd. Silver Bell L.L.C.
commenced SX/EW operations in July 1997.
(b) Troy is currently on standby.
(c) In addition to the proven and probable ore reserves, SPCC is evaluating
370 million tons of mineralized reserves with an average copper grade
of 0.62%.
(d) Asarco consolidated SPCC effective January 1, 1995. The minority
interest in SPCC, represented by Labor Shares in its Peruvian Branch,
results in Asarco having a beneficial interest which is less than its
equity interest in SPCC. Asarco's beneficial interest in SPCC was 53.0%
at December 1997, 52.6% at December 1996 and 52.3% at December 1995.
(e) Asarco sold its 80% interest in Quiruvilca in August 1995.
<PAGE>
A21
METAL PRODUCTION STATISTICS (continued)
LEAD
<TABLE>
<CAPTION>
Mineral Average
Reserves Mineral Metal Production
Asarco (000s Tons) Content Contained Metal
Int. (%) (000s Pounds)
---------------------------------------------
(%) 12/31/97 12/31/97 1997 1996 1995
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
MINES
Domestic
Leadville 100(a) 407 2.72 9,500 6,500 10,000
Sweetwater 100 11,724 4.28 113,900 106,900 124,400
West Fork 100 5,033 5.00 107,600 107,100 110,000
---------------------------------------------
Total Domestic 231,000 220,500 244,400
Other
Quiruvilca-Peru (b) - - 7,800
---------------------------------------------
Total 231,000 220,500 252,200
---------------------------------------------
Asarco Beneficial Production 231,000 217,900 246,600
---------------------------------------------
SMELTERS
East Helena 100 116,600 124,900 127,800
Glover 100 254,200 243,300 271,600
---------------------------------------------
Total 370,800 368,200 399,400
---------------------------------------------
REFINERIES
Omaha (c) 100 - 51,400 140,800
Glover 100 254,200 243,300 271,600
---------------------------------------------
Total 254,200 294,700 412,400
---------------------------------------------
</TABLE>
(a) 1997 reflects Asarco's beneficial interest in Leadville at 100%.
(b) Asarco sold its 80% interest in Quiruvilca in August 1995.
(c) Asarco ceased refining lead at its Omaha, Nebraska refinery in June
1996.
<PAGE>
A22
METAL PRODUCTION STATISTICS (continued)
ZINC
<TABLE>
<CAPTION>
Mineral Average
Reserves Mineral Metal Production
Asarco (000s Tons) Content Contained Metal
Int (%) (000s Pounds)
-----------------------------------------
(%) 12/31/97 12/31/97 1997 1996 1995
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
MINES
Domestic
Leadville 100(a) 407 9.01 23,600 18,300 30,800
Sweetwater 100 11,724 .35 2,700 13,800 24,400
West Fork 100 5,033 .99 14,700 14,400 21,800
Tennessee 100 6,102 3.06 104,900 132,700 154,200
----------------------------------------
Total Domestic 145,900 179,200 231,200
Other
Quiruvilca-Peru (b) - - 25,200
----------------------------------------
Total 145,900 179,200 256,400
----------------------------------------
Asarco Beneficial Production 145,900 171,900 238,800
----------------------------------------
MOLYBDENUM
1997 1996 1995
----------------------------------------
MINES
Domestic
Mission 100 514,091 .02 - 800 900
Montana Resources 49.9 499,438 .03 10,300 11,000 10,200
----------------------------------------
Total Domestic 10,300 11,800 11,100
----------------------------------------
SPCC (d)
Toquepala 53.0(c) 313,149 .07 6,100 4,500 3,700
Cuajone 53.0(c) 1,422,339 .03 3,300 4,200 4,300
----------------------------------------
Total 9,400 8,700 8,000
----------------------------------------
Asarco Beneficial Production 10,100 10,900 10,000
----------------------------------------
</TABLE>
(a) 1997 reflects Asarco's beneficial interest in Leadville at 100%.
(b) Asarco sold its 80% interest in Quiruvilca on August 31, 1995.
(c) Asarco consolidated SPCC effective January 1, 1995. The minority
interest in SPCC, represented by Labor Shares in its Peruvian Branch,
results in Asarco having a beneficial interest which is less than its
equity interest in SPCC. Asarco's beneficial interest in SPCC was 53.0%
at December 1997, 52.6% at December 1996 and 52.3% at December 1995.
(d) In addition to the proven and probable ore reserves, SPCC is evaluating
370 million tons of mineralized reserves with an average molybdenum
grade of 0.03%.
<PAGE>
A23
METAL PRODUCTION STATISTICS (continued)
SILVER
<TABLE>
<CAPTION>
Mineral Average
Reserves Mineral Metal Production
Asarco (000s Tons) Content Contained Metal
Int. (oz/Ton) (000s troy ounces)
-----------------------------------------
(%) 12/31/97 12/31/97 1997 1996 1995
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
MINES
Domestic
Silver Valley Resources 50 1,607 19.48 3,436 1,651 -
Leadville 100(a) 407 1.67 250 176 347
Mission 100 514,091 .16 2,169 1,981 2,604
Montana Resources 49.9 499,438 .07 858 822 680
Ray 100 - - 424 480 839
Sweetwater 100 11,724 .13 83 176 272
Troy (b) 75 11,996 1.42 - - -
West Fork 100 5,033 .25 171 175 232
----------------------------------------
Total Domestic 7,391 5,461 4,974
SPCC
Toquepala 53.0(c) 313,149 - 1,474 1,412 1,557
Cuajone 53.0(c) 1,422,339 - 1,671 1,685 1,401
Other
Quiruvilca-Peru (d) - - 1,621
San Bartolome 100 10,700 3.97 - - -
Minto 86.7 7,176 .27 - - -
----------------------------------------
Total 10,536 8,558 9,553
----------------------------------------
Asarco Beneficial Production 6,901 5,778 7,273
----------------------------------------
REFINERIES
Amarillo 100 20,330 30,842 37,265
SPCC-Ilo 53.0(c) 2,462 2,218 2,519
----------------------------------------
Total 22,792 33,060 39,784
----------------------------------------
Asarco Beneficial Production 21,629 32,004 38,530
----------------------------------------
</TABLE>
(a) 1997 reflects Asarco's beneficial interest in Leadville at 100%.
(b) Troy is currently on standby.
(c) Asarco consolidated SPCC effective January 1, 1995. The minority
interest in SPCC, represented by Labor Shares in its Peruvian Branch,
results in Asarco having a beneficial interest which is less than its
equity interest in SPCC. Asarco's beneficial interest in SPCC was 53.0%
at December 1997, 52.6% at December 1996 and 52.3% at December 1995.
(d) Asarco sold its 80% interest in Quiruvilca in August 1995.
<PAGE>
A24
All mineral reserves represent 100% of the reserves for that mine and the
percentage ownership of Asarco are separately indicated. All mineral reserves
are at December 31, 1997. 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. 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.
Other Operations
The principal activities included in the business segment entitled "All Other"
are those of Encycle/Texas, Inc. and Hydrometrics, Inc., wholly-owned
subsidiaries in the environmental services business, a specialty metals
business, and income and expenses associated with facilities previously operated
by the Company. 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 Note 8 to the Financial
Statements incorporated herein by reference. The following is additional detail
with respect to the litigation referred to in Note 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 679 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. In December 1997, a similar lawsuit was filed on behalf
of 23 additional plaintiffs. The landfill at issue 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>
A25
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 14 lawsuits filed by or on behalf of approximately 366
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 1997, the Company was dismissed from three of those
lawsuits involving approximately 170 individuals.
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 owned and operated by a former customer of the Company. 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.
In May 1997, the Company and five other defendants, mostly metal companies, were
sued in state court in El Paso County, Texas, by approximately 360 plaintiffs,
including approximately 200 minors, seeking compensatory and punitive damages
for alleged personal injury, death and property damage resulting from toxic
chemical discharges into the air, water and soil from the defendants' facilities
in El Paso.
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 of the Company, and other suppliers to their employers' manufacturing
operations:
1) In the action In Re Gada, Docket No. L-6100-97, pending since June 10, 1997
in the Superior Court of New Jersey, Middlesex County, 13 cases were
consolidated for purposes of discovery in June 1997. These 13 actions involve 13
primary and 6 secondary plaintiffs who have sued LAQ and 23 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 eight of the primary plaintiffs were dismissed as to LAQ on September
15, 1997. 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.
<PAGE>
A26
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. The thrust of the complaint is similar
to the In Re Gada case.
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. The thrust of the complaint is similar
to the In Re Gada case.
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 In Re Gada
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 In Re Gada 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 In Re Gada
case.
3) Abbott, et al. v. Pittsburgh Corning Corporation, et al., Case No. 97-28510,
pending since May 28, 1997 in the District Court of Harris County, Texas, 125th
Judicial District, in which 2,512 primary plaintiffs and 1,954 secondary
plaintiffs sued Asarco, LAQ, and 58 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 In Re Gada case.
<PAGE>
A27
Pogorzelski v. Amtorg Trading Corporation, et al., described in Item 3 of
Asarco's 1996 Form 10-K, was settled by LAQ as to all remaining plaintiffs
during May 1997. Aaron, et al. v. Abex Corporation, et al., also described in
the same Item 3 was dismissed as to Asarco and its wholly-owned subsidiary Capco
Pipe Company, Inc. ("Capco") in June, 1997 with respect to the remaining 1,576
primary plaintiffs. As of December 31, 1997, Capco was a defendant in 27 cases
brought by 102 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 less than
one percent of LAQ's primary plaintiffs are affected by this action.
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. During January 1998, plaintiffs' counsel amended their complaint for
a fifth time to add Capco as a defendant with respect to one plaintiff not
alleged to have been a Capco employee.
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. In
October 1997, dismissal of this action as to all defendants was approved by the
Court.
On February 2, 1998, Asarco was served by defendant Owens-Corning with a writ to
join over 360 additional defendants, including LAQ and Asarco, in a medical
monitoring class action filed in 1996 in Pennsylvania state court.
As of December 31, 1997, LAQ, Asarco and Capco have settled or been dismissed
from a total of approximately 7,210 asbestos personal injury lawsuits brought by
approximately 86,933 primary and 53,592 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:
<PAGE>
A28
A purported statewide class action involving public buildings in cities seeking
substantial compensatory and punitive damages from LAQ was dismissed by the
trial court in February 1997 and plaintiffs' appeal is pending. 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.
Environmental Litigation
In September 1997, the Company was sued in United States District Court in
Nebraska in a purported class action. The complaint was brought on behalf of
classes alleged to number in excess of 10,000 persons owning and in excess of
15,000 persons renting property in Nebraska and Iowa located within boundaries
of up to approximately five miles from the Company's former Omaha plant, and on
behalf of a medical monitoring class alleged to number in excess of 30,000
persons. The action asserts claims of trespass, nuisance, negligence, strict
liability, unjust enrichment, medical monitoring and under CERCLA due to the
alleged contamination of soils by airborne releases from the plant, and seeks
compensatory damages for diminution in property value and loss of use, punitive
damages, a declaratory judgment of liability for future response costs, and
creation of a medical monitoring fund.
In October 1997, the Company was sued in state court in Denver, Colorado, in a
purported class action brought on behalf of property owners and other persons
residing in approximately 300 homes located within one mile south of the
Company's Globe plant. The action asserts claims of trespass, private nuisance,
negligence, and strict liability allegedly due to the contamination of
properties by emissions from the plant, and seeks compensatory damages for
diminution in property value and loss of use, as well as punitive damages. The
Company has removed the action from state court to federal district court in
Denver. A motion to remand to state court is pending.
On October 24, 1996, a citizens' suit was brought against the Company alleging
water discharge permitting violations under the CWA and violations of 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 believed that he had not "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.
In February 1997, the Company was named as a third-party defendant in a lawsuit
filed in state court in King County, Washington asserting claims for indemnity
and contribution under Washington's Model Toxic Control Act. The case was
settled in the first quarter of 1998.
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. An appeal is pending.
<PAGE>
A29
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.
Other Litigation
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 has appealed 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
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 not deemed probable. The Company considered such
factors in establishing its environmental reserve in December of 1990 and in
determining modifications to its reserve in each year thereafter.
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>
A30
EXECUTIVE OFFICERS OF ASARCO AND BUSINESS EXPERIENCE DURING THE PAST FIVE YEARS
(As of February 27, 1998)
<TABLE>
<CAPTION>
Officer
Name Office and Experience Age Since
- ---- --------------------- --- -----
<S> <C> <C> <C> <C>
Richard de J. Osborne 1998 Chairman of the Board and Chief Executive Officer 63 1975
1993-1998 Chairman of the Board, President and
Chief Executive Officer
Francis R. McAllister 1998 President and Chief Operating Officer 55 1978
1993-1998 Executive Vice President, Copper
Operations
Kevin R. Morano 1998 Executive Vice President and Chief Financial Officer 44 1993
1993-1998 Vice President, Finance and Chief
Financial Officer
1993 General Manager, Ray Complex
Augustus B. Kinsolving 1996-1998 Vice President and General Counsel 58 1983
1993-1995 Vice President, General Counsel
and Secretary
Robert J. Muth 1993-1998 Vice President, Government and 64 1977
Public Affairs
Robert M. Novotny 1993-1998 Vice President, Lead, Zinc, 49 1988
Silver and Aggregates
William L. Paul 1997-1998 Vice President, Commercial 47 1996
1993-1996 Manager, Omaha Plant
Gerald D. Van Voorhis 1993-1998 Vice President, Exploration 59 1992
Michael O. Varner 1993-1998 Vice President, Environmental 56 1993
Operations
1993 General Manager, Western Metals
David B. Woodbury 1993-1998 Vice President, Human Resources 57 1993
Robert Ferri 1995-1998 Secretary 50 1995
1993-1995 Associate General Counsel
William Dowd 1995-1998 Controller 48 1995
1993-1995 Assistant Controller
Christopher F. Schultz 1997-1998 Treasurer 46 1997
1993-1997 Assistant Treasurer
James L. Wiers 1993-1998 General Auditor 53 1987
</TABLE>
<PAGE>
A31
PART II
Item 5 - Market for Registrant's Common Stock and Related Stockholder Matters
At December 31, 1997, there were 7,636 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>
1997 1996
----------------------------------------------------- --------------------------------------------------
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 .20 .20 .20 .20 .80
Stock market price:
High 32-1/2 32-1/4 34 31-7/8 34 35-1/4 35-7/8 27-7/8 28 35-7/8
Low 25-1/8 26-1/2 30 21-3/4 21-3/4 27-1/2 27-5/8 23-3/4 24-1/8 23-3/4
</TABLE>
Item 6 - Selected Financial Data
FIVE-YEAR SELECTED FINANCIAL AND STATISTICAL DATA (in millions, except per share
and employee data)
<TABLE>
<CAPTION>
1997 1996 1995(f) 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Consolidated Statement of Earnings
Sales $2,721 $2,717 $3,198 $2,032 $1,736
Operating income (loss) 275(a) 303(d) 487(g) 18(h) (110)(j)
Earnings (loss) before minority interests, equity
earnings and cumulative effect of change in
accounting principles
234 226 299 17 (97)
Minority interests (91) (88) (130) (1) (1)
Equity earnings, net of taxes -(b) -(b) -(b) 48 27
Net earnings 143(c) 138(e) 169 64(i) 16(k)
Per common share:
Net earnings - Basic $ 3.42 $ 3.24 $ 4.00 $ 1.53 $ 0.38
Net earnings - Diluted $ 3.42 $ 3.23 $ 3.98 $ 1.52 $ 0.38
Dividends to common stockholders $ 0.80 $ 0.80 $ 0.70 $ 0.40 $ 0.50
Consolidated Statement of Cash Flows
Cash provided from (used for)
operating activities $ 321 $ 267 $ 489 $ (10) $ 39
Dividends to common stockholders 34 34 30 17 21
Capital expenditures 322 286 338 98 112
Depreciation and depletion 131 119 119 83 81
Consolidated Balance Sheet
- --------------------------
Total assets $4,110 $4,120 $4,327 $3,291 $3,153
Inventories - replacement cost in excess of LIFO
inventory costs 86 115 137 143 114
Total cash and marketable securities 416 193 281 18 13
Total debt 879 814 1,122 933 901
Common stockholders' equity 1,694 1,737 1,707 1,517 1,472
Common Stock
- ------------
Common shares outstanding 39.7 42.8 42.6 42.1 41.7
Price-high $34 $35-7/8 $36-1/2 $34-7/8 $28-5/8
-low $21-3/4 $23-3/4 $24-3/8 $21-3/8 $16-5/8
Book value per common share $42.71 $40.56 $40.11 $36.04 $35.27
Price/Earnings ratio 6.56 7.68 8.01 18.65 60.92
Dividends to common stockholders as a percent of
earnings 23.4% 24.7% 17.5% 26.2% 133.2%
Financial Ratios
Current assets to current liabilities
2.3 1.8 1.9 1.6 1.5
Debt as a % of capitalization 28.3% 26.7% 34.1% 38.1% 38.0%
Debt as a % of capitalization, net of excess cash
20.2% 24.1% 32.1% 38.1% 38.0%
Employees (at year-end) 11,800 11,800 12,200 8,000 8,500
</TABLE>
<PAGE>
A32
Notes to Five-Year Selected Financial and Statistical Data
(a) Environmental charges of $20.2 include third quarter charges of $30.0
to increase reserves for closed plant and environmental matters, offset
entirely by anticipated insurance recoveries.
(b) Net earnings from investments accounted for by the equity method are
included in earnings (above).
(c) Includes a $47.6 after-tax gain ($73.3 pre-tax) from the sale of shares
of Grupo Mexico.
(d) Includes a $15.0 pre-tax charge ($67.7 in charges offset by $52.7 in
insurance settlements and other recoveries) for closed plant and
environmental matters.
(e) Includes a $39.0 after-tax gain ($60.1 pre-tax) from the sale of the
Company's remaining interest in MIM and a $7.2 after-tax gain ($11.1
pre-tax) from the sale of a 25% interest in the Company's Silver Bell
project.
(f) 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.
(g) Includes a $139.4 pre-tax charge to add to the Company's reserve for
closed plant and environmental matters, to provide for asset
impairments and plant closures and to write down certain in-process
inventory to net realizable value.
(h) Includes a $65.5 pre-tax charge to add to the Company's reserve for
closed plant and environmental matters.
(i) Includes a $31.9 after-tax gain ($58.5 pre-tax) from the sale of the
Company's remaining interest in Asarco Australia Limited.
(j) Includes a $37.6 pre-tax charge for the valuation of inventories and
additions to reserves for closed plant and environmental matters, $9.2
of LIFO profits and $8.2 of previously unrecognized losses of Nor Peru.
(k) Includes $26.4 (net of taxes of $0.4) of previously unrecognized equity
earnings of SPCC and a gain of $86.3 as the result of the cumulative
effect of a change in accounting principle at SPCC.
Item 7 - Management's Discussion and Analysis of Financial Condition and Results
of Operations
Asarco reported 1997 net earnings of $143.4 million, or diluted earnings per
share of $3.42. Earnings for 1997 include after-tax gains totaling $47.6 million
($73.3 million pre-tax), or $1.13 per share, from the sale of shares of Grupo
Mexico, S.A. de C.V. (Grupo Mexico), Mexico's largest mining company.
Net earnings in 1996 and 1995 were $138.3 million and $169.2 million,
respectively. Results for 1996 included an after-tax gain of $39.0 million
($60.1 million pre-tax) from the sale of the Company's interest in MIM 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. Results for 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.
<PAGE>
A33
The Company's earnings are heavily influenced by the prices for its metals as
established on U.S. and international commodity exchanges. Asarco's fourth
quarter 1997 earnings reflect the sharp decrease in copper prices which took
place during the final months of 1997. Asarco announced in January 1998 that it
has instituted a company-wide cost reduction program to respond to the decline
in metal prices. The program, which has already been implemented, includes the
purchase of higher productivity equipment, reductions in personnel and
reductions in general and administrative expenses, purchased services and other
operating costs. In total, the cost reduction program is expected to result in
savings of $50 million in 1998, and improve net earnings by approximately 80
cents per share. The Company provided for the severance costs associated with
this program in the fourth quarter of 1997.
Asarco made significant progress in 1997 in achieving its long-term objectives
of growing its copper business, developing its specialty chemicals and
aggregates businesses, realizing value from its investments in foreign mining
companies, reducing debt, repurchasing stock to enhance shareholder value, and
improving and enhancing its safety, health and environmental performance:
The Company's beneficial interest in mined copper production in 1997 was
977.4 million pounds. While 1997 production was down 3.8% from 1996
primarily due to lower ore grades at the Company's North American copper
operations and the partial curtailment of the Hayden concentrator at the
Ray mine in Arizona during the early part of 1997, the Company's mine
copper production is more than double that produced by the Company in 1985.
In July 1997, the Company began production of refined copper at its new
solvent extraction/electrowinning (SX/EW) facility at the Silver Bell mine
in Arizona. The new SX/EW plant, in which Asarco has a 75% interest, is
designed to produce 36 million pounds of refined copper annually. The
plant, which started up on schedule, has been producing copper at its
designed capacity.
In the second and third quarters of 1997, the Company sold all of its
unrestricted shares of Grupo Mexico for $322.5 million. The sales resulted
in an after-tax gain of $47.6 million. With the sale of the Grupo Mexico
shares, the Company has monetized the last of its historical minority
investments. The proceeds from the Grupo Mexico sale, and the MIM sale in
1996, have enabled the Company to strengthen its balance sheet, reduce its
interest expense, and undertake a major share repurchase program.
Following the initial sale of Grupo Mexico shares in June 1997, the
Company undertook a $100 million share repurchase program. In December
1997, the Company completed the program after repurchasing 3.3 million
shares and reduced the number of its outstanding shares by approximately
7.7% to slightly under 40 million shares.
Southern Peru Copper Corporation (SPCC) arranged long-term financing at
favorable rates for its $1 billion expansion program. The program includes
a 50% increase in production at SPCC's Cuajone mine which is expected to
add 130 million pounds to SPCC's annual copper production, and the
modernization of its Ilo smelter. The expansion at Cuajone is currently on
schedule and is expected to be completed in the first quarter of 1999.
<PAGE>
A34
In 1997, the Company's specialty chemicals and aggregates businesses
continued their strong growth. Each of these businesses achieved record
earnings, totaling over $43 million before tax, a level which now
contributes significantly to Asarco's results, particularly at the bottom
of the metal market cycle. In specialty chemicals, technical innovation and
marketing effectiveness were key factors contributing to a fourth
consecutive year of record sales and earnings. In aggregates, favorable
weather and a good construction market in the Southeast increased sales by
15%.
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,
1997 and 1996, SPCC owned 97.8% and 97.2%, respectively of the Branch as a
result of open market purchases of labor shares. The Company's equity interest
in SPCC at December 31, 1997 and 1996 was 54.1% and at December 31, 1995 was
54.0%, and its voting interest was 63.1%, 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 53.0%, 52.6% and 52.3% at December 31,
1997, 1996 and 1995, respectively.
Sales: Sales were $2.7 billion in 1997 and 1996, and $3.2 billion in 1995. In
1997, sales reflect higher copper, specialty chemicals and aggregates sales
volumes offset by the lower metal prices in 1997 compared to 1996 and lower lead
and silver sales volumes due to the termination of refining operations at the
Omaha, Nebraska refinery in June 1996. 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 copper sales volumes. The higher
copper 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 in June 1996.
Price/volume data:
<TABLE>
<CAPTION>
Average Metal Prices 1997 1996 1995
-------------------- ---- ---- ----
<S> <C> <C> <C>
Copper (per pound - COMEX) $ 1.04 $ 1.06 $ 1.35
Copper (per pound - LME) 1.03 1.04 1.33
Lead (per pound - LME) 0.28 0.35 0.29
Silver (per ounce - Handy & Harman) 4.89 5.18 5.19
Zinc (per pound - LME) (1) 0.60 0.47 0.47
Molybdenum (per pound - Metals
Week Dealer Oxide)(1) 4.18 3.61 7.42
</TABLE>
<PAGE>
A35
<TABLE>
<CAPTION>
Metal Sales Volume 1997 1996 1995
------------------ ---- ---- ----
<S> <C> <C> <C>
Copper (000s pounds)
Asarco 1,113,300 1,103,700 1,006,800
SPCC 744,000 694,300 646,600
Consolidated 1,857,300 1,798,000 1,653,400
Asarco Beneficial Interest (2)(3) 1,502,800 1,467,500 1,332,600
Lead (000s pounds)
Asarco 255,000 295,800 394,000
Silver (000s ounces)
Asarco 19,883 26,955 38,086
SPCC 3,086 3,110 3,761
Consolidated 22,969 30,065 41,847
Asarco Beneficial Interest (2) 21,511 28,584 39,987
Zinc (000s pounds) (1)
Asarco 145,970 200,456 240,230
Molybdenum (000s pounds) (1)
Asarco 5,346 6,470 5,685
SPCC 9,398 8,813 8,402
Consolidated 14,744 15,283 14,087
Asarco Beneficial Interest (2) 10,307 11,088 9,896
</TABLE>
(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.
(2) SPCC presented at 100%. Asarco consolidated SPCC effective
January 1, 1995. Asarco's beneficial interest in SPCC was
53.0% at December 31, 1997, 52.6% at December 31, 1996 and
52.3% at December 31, 1995.
(3) Effective February, 1996, Asarco's beneficial interest in
Silver Bell L.L.C. is 75%.
Substantially all of the Company's copper and most of its lead production are
sold as refined metal under annual contracts. To the extent not sold under
annual contracts, production may be sold on a spot sale basis. The Company's
zinc production and the balance of its lead production are sold in the form of
concentrates and bullion under contracts of one to three years duration. Silver
and gold are sold under monthly contracts or in spot sales. Revenue is
recognized primarily in the month product is shipped to customers based on
prices as provided in sales contracts. Certain subsidiaries, principally SPCC,
recognize revenue based on prices prevailing at the time of shipment to
customers with final pricing generally occurring within three months of
shipment. Revenues with respect to these sales are adjusted in the period of
settlement to reflect final pricing and in periods prior to settlement to
reflect any decline in market prices which may occur between shipment and
settlement.
Hedging and Trading Activities: The Company may use derivative instruments to
manage its exposure to market risk from changes in commodity prices, interest
rates or the value of its assets and liabilities. Derivative instruments which
are designated as hedges must be deemed effective at reducing the risk
associated with the exposure being hedged and must be designated as a hedge at
the inception of the contract.
<PAGE>
A36
Hedging: Depending on the market fundamentals of a metal and other conditions,
the Company may purchase put options or create 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. The cost of options is amortized on a straight-line basis during
the period in which the options are exercisable. Depending upon market
conditions, the Company may either sell options it holds or exercise the options
at maturity. Gains or losses from the sale or exercise of options, net of
unamortized acquisition costs, are recognized in the period in which the
underlying production is sold. 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 futures contracts are reported as a component of the underlying
transaction. Earnings include gains from option sales and exercises, primarily
related to copper, of $25.8 million in 1997 and $27.1 million in 1996 and losses
of $5.6 million in 1995.
At December 31, 1997, the Company held the following copper put options:
(in millions, except per pound amounts)
<TABLE>
<CAPTION>
Percent of
Strike Price Per Unamortized Cost Estimated
Pounds Period Pound Production
------ ------ ----- ----------
<S> <C> <C> <C> <C> <C>
Asarco 44.0 1/98-3/98 $0.95 $0.7 26%
SPCC 44.0 1/98-3/98 $0.95 $0.6 27%
</TABLE>
Trading: 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. Price protection programs utilizing synthetic puts may be
implemented in steps. In cases where the step approach is used, the Company's
objective is to take advantage of current market conditions to minimize its cost
while at the same time limiting the Company's exposure should market conditions
change before the synthetic put is completed. Until a synthetic put is
completed, any calls not matched with a forward sale are marked to market with
the gain or loss, if any, recorded in earnings. Earnings include gains of $0.5
million in 1997 from the sale or exercise of call options. Earnings also include
gains of $3.6 million in 1997 and losses of $0.1 million in 1996 from unrealized
mark to market adjustments. At December 31, 1997, the Company held copper call
options covering an aggregate of 140.3 million pounds of copper, a portion of
which are exercisable in each quarter of 1998 at an average strike price of 97
cents. The carrying value of these calls at December 31, 1997 was $0.4 million.
Gains and Losses: The recognized pre-tax gains (losses) of the Company's metal
hedging and trading activities, were as follows:
<TABLE>
<CAPTION>
For the years ended December 31, 1997 1996 1995
---- ---- ----
(in millions)
<S> <C> <C> <C>
Metal
-----
Copper $ 28.7 $ 26.9 $ (5.7)
Zinc 1.2 (0.1) (0.1)
Silver - - 0.5
Lead - 0.2 (0.3)
================== ================== ===================
Net Gain (Loss) $ 29.9 $ 27.0 $ (5.6)
================== ================== ===================
</TABLE>
<PAGE>
A37
Interest Rate Swaps: The Company may enter into interest rate swap agreements to
limit the effect of increases in the rates on any floating rate debt. The
differential is recorded in interest expense. In 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 $0.6 million in 1997, $0.7 million in 1996 and
$0.2 million in 1995.
Cost of Products and Services: Cost of products and services was $2.1 billion in
1997 and 1996 and $2.3 billion in 1995. In 1997, cost of products and services
reflects higher sales volumes of copper produced from purchased concentrates at
SPCC, higher power costs at SPCC and increased specialty chemicals and
aggregates sales volumes offset by lower purchases of refined copper to meet
customer commitments and lower lead and silver sales volumes due to the
termination of refining operations at the Company's Omaha, Nebraska refinery in
June 1996. Cost of products and services was reduced by $16.7 million in 1997,
$5.3 million in 1996 and $0.7 million in 1995 as a result of liquidation of a
portion of the Company's LIFO inventories.
As a result of its $1 billion expansion program, SPCC's electric power
requirements will increase significantly requiring the construction of
substantial additional generating capacity. In the second quarter of 1997, SPCC
sold its existing power plant to an independent power company. In connection
with the sale, a power purchase agreement was also completed, under which SPCC
will purchase its power needs for the next twenty years. Under the agreement,
SPCC's cost of power will increase somewhat from its 1996 level, however, SPCC
will avoid the significant capital expenditures that would be required to meet
the needs of expanded operations and its power costs will be favorably affected
by benefits available to independent power companies in Peru.
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, Nebraska refinery in
June 1996. In addition, higher mine production at SPCC in 1996 reduced its need
to supplement its production with higher cost outside concentrate purchases.
Other Expenses: Depreciation and depletion expense was $130.8 million in 1997
compared with $118.6 million in 1996 and $118.8 million in 1995. The increase in
1997 over 1996 reflects a full year's depreciation of the sulfuric acid plant
and additional assets related to the Cuajone and Toquepala mines in Peru, and
the Silver Bell mine in Arizona, which commenced its new SX/EW operations in
July 1997. In 1996, a full year of depreciation of the SX/EW plant in Peru was
offset by lower depreciation from domestic operations.
The increase in research and exploration costs year over year is primarily due
to higher exploration spending on prospects located in French Guiana, Peru and
Chile.
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.
Environmental and other closed plant charges were $20.2 million in 1997 ($50.4
million in charges offset by $30.2 million in anticipated insurance and other
recoveries), and $15.0 million in 1996 ($67.7 million in charges offset by $52.7
million in insurance and other recoveries) including $10.0 million for the
effect of the application of SOP 96-1.
<PAGE>
A38
Nonoperating Items: Interest expense was $74.2 million in 1997, $76.4 million in
1996 and $92.0 million in 1995. The decrease year over year reflects lower
average borrowings due to the use of proceeds from the sale of the Company's
interest in MIM in the second quarter of 1996 and the sale of shares of Grupo
Mexico in the second and the third quarters of 1997.
The increase in other income in 1997 from 1996 reflects a dividend from Grupo
Mexico and higher equity earnings, principally from Silver Valley Resources.
Included in other income are dividends from MIM in 1996 and 1995.
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 U.S. tax purposes. The effective tax rate was
lower in 1997 compared with 1996 principally due to tax incentives approved by
the Government of Peru in connection with the expansion of SPCC's Cuajone mine.
The Company's tax expense includes 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 $119.0 million benefit for tax net operating loss
carryforwards at December 31, 1997. The Company believes that these
carryforwards, which expire in years 2008 through 2010, will reduce future
federal income taxes otherwise payable. 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.
Cash Flows - Operating Activities: Net cash provided from operating activities
was $321.3 million in 1997 compared with $267.3 million in 1996 and $489.1
million in 1995. The increase in 1997 from 1996 is primarily a result of cash
provided from operating assets and liabilities which reflects a decrease in
accounts receivable due to the decline in copper prices during the final months
of 1997 and proceeds received from insurance settlements related to
environmental liabilities.
Cash from 1996 operating activities as compared to 1995 reflected lower earnings
due to lower copper prices. Other cash used for operating assets and liabilities
included payments by SPCC in 1996 of income taxes and workers' participation
accrued in 1995. These uses of cash were partially offset by proceeds received
from insurance settlements related to environmental matters. Cash provided from
operating assets and liabilities in 1995 is principally a result of lower
inventory levels and accrual of higher income taxes in 1995.
Cash Flows - Investing Activities: Net cash used for investing activities was
$167.3 million in 1997, compared with cash provided of $93.8 million in 1996 and
cash used of $296.8 million in 1995. The increase in capital expenditures in
1997 from 1996 reflects the expansion project at the Cuajone mine. Other
investing activities in 1997 included proceeds of $322.5 million from the sale
of shares of Grupo Mexico partially offset by the investment of the proceeds
from SPCC financing activities in held-to-maturity investments.
The decrease in capital expenditures in 1996 from 1995 reflects the completion
of construction of 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.
<PAGE>
A39
Investing activities in 1995 included 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.
The Company's planned capital expenditures in 1998 are estimated to be
approximately $367 million. Included in 1998 spending are expenditures related
to the expansion of SPCC's Cuajone mine.
Liquidity and Capital Resources: At December 31, 1997, the Company's debt as a
percentage of total capitalization (the total of debt, minority interests and
equity) was 28.3%, compared with 26.7% at the end of 1996 and 34.1% at the end
of 1995. Consolidated debt at the end of 1997, including the debt of SPCC, none
of which is guaranteed by Asarco, was $878.9 million, compared with $814.3
million in 1996 and $1,121.9 million in 1995. Additional indebtedness permitted
under the terms of the Company's most restrictive covenants was $868.6 million
at December 31, 1997. In addition, under the most restrictive covenants of
SPCC's loan agreements, SPCC would have been permitted additional indebtedness
of $849.7 million at December 31, 1997.
The increase in debt in 1997 reflects the private placement by SPCC of $150.0
million of Secured Export Notes in the United States and international markets
and the sale by SPCC of $50.0 million of 8.25% bonds due 2004 to investors in
Peru, offset by the portion of the proceeds from the sale of shares of Grupo
Mexico not used to purchase Company stock. The secured export notes which were
issued with an average maturity of seven years and a final maturity in 2007 were
priced at par with a coupon rate of 7.9%.
The Company has two revolving credit agreements that permit borrowings of up to
$850 million. One facility for $350 million expires in April 1999 and the other
facility for $500 million expires in May 2002. The borrowings bear interest
based on LIBOR, the CD rate or the prime rate. At December 31, 1997, there were
no outstanding borrowings under either agreement.
In the second quarter of 1997, SPCC entered into a $600 million seven-year
credit agreement with a group of international financial institutions. The
agreement consists of a $400 million term loan facility and a $200 million
revolving credit facility. The interest rate during the first three years of the
agreement on any loans outstanding is LIBOR plus 1.75% per annum for term loans
and LIBOR plus 2.00% for revolving credit loans. No amounts have been drawn by
SPCC under this agreement as of December 31, 1997. SPCC's loan agreements are
not guaranteed by Asarco. The funds raised in 1997, the loan facility of $600
million and internal funds are expected to provide the Company with sufficient
resources for the $1 billion expansion program at SPCC.
Some of SPCC's financing agreements contain covenants which limit the payment of
dividends to stockholders. Under the most restrictive covenant, SPCC may pay
dividends to stockholders equal to 50% of its net income for any fiscal quarter
as long as such dividends are paid by June 30 of the following year. As a
result, at December 31, 1997, $572.8 million of SPCC's net assets included in
the Company's Consolidated net assets are unavailable for the payment of
dividends.
Financing activities in 1997 also included the repurchase of 3.3 million shares
of the Company's stock for approximately $100 million which reduced the number
of outstanding shares by approximately 7.7% to slightly under 40 million shares.
<PAGE>
A40
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 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.
In January 1998, the Company closed on a refinancing of three tax exempt debt
issues and called for the redemption of the existing bonds. The aggregate
principal amount of the refinancing was $132.8 million. The refinancing is
expected to reduce the Company's annual interest costs by approximately $3.3
million.
The Company's cash and marketable securities at December 31, 1997 were $415.9
million including $331.1 million held by SPCC. The Company expects that it will
meet its cash requirements in 1998 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 $33.6 million, or 80 cents per share, in 1997, $34.2 million, or 80 cents per
share, in 1996 and $29.6 million, or 70 cents per share, in 1995. In addition,
SPCC paid dividends of $49.4 million to minority interests in 1997, $58.3
million in 1996 and $33.8 million in 1995. At the end of 1997, the Company had
39,663,000 common shares issued and outstanding, compared with 42,824,000 at the
end of 1996 and 42,571,000 at the end of 1995.
Closed Facilities and Environmental Matters: Reserves for closed plants and
environmental matters totaled $122.1 million and $128.3 million at December 31,
1997 and 1996, respectively. The Company anticipates that expenditures relating
to these reserves will be made over the next several years. Net cash
expenditures against these reserves were $63.1 million in 1997, $54.1 million in
1996 and $95.8 million in 1995.
On January 23, 1998, the Company, the United States Department of Justice and
EPA announced the signing of a multi-region voluntary agreement covering a broad
range of environmental issues affecting the Company's United States operations.
The two consent decrees containing the agreement have been filed in United
States District Courts in Phoenix, Arizona and Helena, Montana and are subject
to approval by both courts following public comment. Pursuant to the agreement,
which resolves numerous issues that were being negotiated and litigated
separately, the Company will undertake capital construction projects amounting
to $61.5 million, to be spent over six years, and pay penalties of $6.4 million.
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, Nebraska 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 write-down of certain
in-process inventory to net realizable value.
<PAGE>
A41
Impact of New Accounting Standard: In June 1997, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income." This statement which is effective for fiscal
years beginning after December 15, 1997 requires the Company to make certain
disclosures but has no impact on the Company's financial statements.
Other: The Company has implemented a program to identify and resolve the effect
of Year 2000 issues on the integrity and reliability of its financial and
operational systems. In addition, the Company is also communicating with its
principal customers, suppliers and service providers to ensure Year 2000 issues
will not have an adverse impact on the Company. The costs of achieving Year 2000
compliance are not expected to have a material impact on the Company's business,
operations or its financial condition.
Cautionary Statement: Forward-looking statements in this report and in other
Company statements include statements regarding expected commencement dates of
mining or metal production operations, projected quantities of future metal
production, anticipated production rates, operating efficiencies, costs and
expenditures as well as projected demand or supply for the Company's products.
Actual results could differ materially depending upon factors including the
availability of materials, equipment, required permits or approvals and
financing, the occurrence of unusual weather or operating conditions, lower than
expected ore grades, the failure of equipment or processes to operate in
accordance with specifications, labor relations, environmental risks as well as
political and economic risk associated with foreign operations. Results of
operations are directly affected by metals prices on commodity exchanges which
can be volatile.
<PAGE>
A42
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, 1997 1996 1995
---- ---- ----
Sales of products and services $ 2,721,048 $ 2,716,784 $ 3,197,753
-------------------- -------------------- --------------------
Operating costs and expenses:
Cost of products and services 2,114,554 2,109,395 2,313,194
Selling, administrative and other 137,657 132,779 130,871
Depreciation and depletion 130,802 118,569 118,827
Research and exploration 43,186 37,609 25,881
Provision for asset impairments and plant closures
- - 45,564
Environmental and other closed plant charges, net of
recoveries 20,160 14,993 76,274
-------------------- -------------------- --------------------
Total operating costs and expenses 2,446,359 2,413,345 2,710,611
-------------------- -------------------- --------------------
Operating income 274,689 303,439 487,142
Interest expense (74,247) (76,442) (91,954)
Other income 33,845 29,084 26,424
Gain on sale of investments and other interests
73,281 71,158 -
-------------------- -------------------- --------------------
Earnings before taxes on income and minority interests
307,568 327,239 421,612
Taxes on income 73,571 100,572 122,916
-------------------- -------------------- --------------------
Earnings before minority interests 233,997 226,667 298,696
Minority interests in net earnings of consolidated
subsidiaries (90,605) (88,331) (129,543)
==================== ==================== ====================
Net earnings $ 143,392 $ 138,336 $ 169,153
==================== ==================== ====================
Per share amounts:
Net earnings:
Basic $ 3.42 $ 3.24 $ 4.00
Diluted $ 3.42 $ 3.23 $ 3.98
Dividends to common stockholders $ 0.80 $ 0.80 $ 0.70
Weighted average common shares outstanding:
Basic 41,903 42,711 42,326
Diluted 41,976 42,769 42,458
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
A43
ASARCO Incorporated
and Subsidiaries
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
(Dollars in thousands)
At December 31, 1997 1996
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 210,559 $ 192,408
Marketable securities 205,317 1,039
Accounts receivable:
Trade, net of allowance for doubtful accounts of $8,121 and $8,129 375,904 462,141
Other 71,062 78,419
Inventories 362,119 383,281
Other assets 74,967 67,856
-------------------------------------------
Total current assets 1,299,928 1,185,144
-------------------------------------------
Investments:
Available-for-sale and other cost 126,843 442,707
Equity 61,337 59,787
-------------------------------------------
Total investments 188,180 502,494
-------------------------------------------
Property, net 2,418,810 2,274,088
Other assets including intangibles, net 203,484 158,623
-------------------------------------------
Total Assets $ 4,110,402 $ 4,120,349
===========================================
LIABILITIES
Current liabilities:
Bank loans $ 204 $ 15,913
Current portion of long-term debt 28,712 39,815
Accounts payable:
Trade 289,234 379,406
Other 63,605 57,198
Salaries and wages 35,788 32,427
Taxes on income 62,565 57,695
Reserve for closed plant and environmental matters 43,238 38,128
Other 50,131 51,975
-------------------------------------------
Total current liabilities 573,477 672,557
-------------------------------------------
Long-term debt 849,991 758,583
Deferred income taxes 118,289 173,245
Reserve for closed plant and environmental matters 78,827 90,205
Postretirement benefit obligation 104,491 99,945
Other liabilities and reserves 157,543 93,163
-------------------------------------------
Total non-current liabilities 1,309,141 1,215,141
-------------------------------------------
Contingencies
MINORITY INTERESTS 533,911 495,706
-------------------------------------------
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: 1997
and 1996 - 45,039,878 679,991 679,991
Unrealized gain on securities reported at fair value, net of tax 11,654 56,311
Retained earnings 1,159,799 1,066,191
Treasury stock (at cost) - common shares 1997 - 5,377,339; 1996 - 2,216,015 (157,571) (65,548)
-------------------------------------------
Total Common Stockholders' Equity 1,693,873 1,736,945
===========================================
Total Liabilities, Minority Interests, Preferred and Common
Stockholders' Equity $ 4,110,402 $ 4,120,349
===========================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
A44
ASARCO Incorporated
and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
(Dollars in thousands)
For the years ended December 31, 1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net earnings $ 143,392 $ 138,336 $ 169,153
Adjustments to reconcile net earnings to net cash provided from (used for)
operating activities:
Depreciation and depletion 130,802 118,569 118,827
Provision (benefit) for deferred income taxes (12,074) 26,302 97
Treasury stock used for employee benefits 3,272 5,707 4,775
Undistributed equity earnings (3,934) (438) (460)
Net (gain) loss on sale of investments and property (69,671) (72,321) 4,124
Provision for asset impairment - - 34,864
Increase (decrease) in reserves for closed plant
and environmental matters (6,268) 12,807 (6,878)
Minority interests 90,605 88,331 129,543
Cashprovided from (used for) operating assets and liabilities, net of the
consolidation of SPCC:
Accounts receivable 88,416 (27,200) (36,867)
Inventories 19,376 (23,742) 48,842
Accounts payable and accrued liabilities (87,981) 49,193 19,671
Other operating assets and liabilities 27,527 (41,527) 8,915
Foreign currency transaction (gains) losses (2,196) (6,739) (5,536)
------------------ ----------------- ------------------
Net cash provided from operating activities 321,266 267,278 489,070
------------------ ----------------- ------------------
INVESTING ACTIVITIES
Capital expenditures (322,436) (286,474) (337,831)
Sale of property 47,426 20,109 9,966
Purchase of investments (12,650) (5,800) (4,513)
Sale of available-for-sale securities 417,831 371,058 20,953
Purchase of available-for-sale securities (93,945) (46,513) (23,203)
Proceeds from held-to-maturity investments 1,036 42,455 76,877
Purchase of held-to-maturity investments (204,590) (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 (used for) provided from investing activities (167,328) 93,833 (296,772)
------------------ ----------------- ------------------
FINANCING ACTIVITIES
Debt incurred 283,024 53,303 234,449
Debt repaid (218,184) (360,847) (162,892)
Escrow deposits on long-term loans (15,364) (10,064) 10,809
Net treasury stock transactions (99,561) 1,146 6,754
Purchase of minority interest (7,272) (5,280) -
Distributions to minority interests (49,417) (58,295) (33,828)
Contributions from minority interests 1,863 4,000 -
Dividends paid to common stockholders (33,604) (34,174) (29,645)
------------------ ----------------- ------------------
Net cash (used for) provided from financing activities (138,515) (410,211) 25,647
Effect of exchange rate changes on cash 2,728 3,108 2,134
------------------ ----------------- ------------------
Increase (decrease) in cash and cash equivalents 18,151 (45,992) 220,079
Cash and cash equivalents at beginning of year 192,408 238,400 18,321
================== ================= ==================
Cash and cash equivalents at end of year $ 210,559 $ 192,408 $ 238,400
================== ================= ==================
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
A45
ASARCO Incorporated
and Subsidiaries
CONSOLIDATED STATEMENT OF CHANGES IN
COMMON STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
(Dollars in thousands)
<S> <C> <C> <C>
For the years ended December 31, 1997 1996 1995
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 56,311 131,600 91,627
Net increase (decrease) in fair value (44,657) (75,289) 39,973
------------------ ----------------- -------------------
Balance at end of year 11,654 56,311 131,600
------------------ ----------------- -------------------
RETAINED EARNINGS
Balance at beginning of year 1,066,191 976,107 853,169
Net earnings 143,392 138,336 169,153
Dividends paid to common stockholders (33,604) (34,174) (29,645)
Treasury stock issued at less than cost (4,266) (7,813) (15,656)
Foreign currency adjustment (11,914) (6,265) (914)
------------------ ----------------- -------------------
Balance at end of year 1,159,799 1,066,191 976,107
------------------ ----------------- -------------------
TREASURY STOCK
Balance at beginning of year (65,548) (80,214) (107,400)
Purchased (101,366) (568) (1,130)
Used for corporate purposes 9,343 15,234 28,316
------------------ ----------------- -------------------
Balance at end of year (157,571) (65,548) (80,214)
------------------ ----------------- -------------------
1997 - 5,377,339 shares
1996 - 2,216,015 shares
1995 - 2,469,125 shares
TOTAL COMMON STOCKHOLDERS' EQUITY $1,693,873 $1,736,945 $1,707,484
================== ================= ===================
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
A46
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 short-term 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 accordance with
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets To Be Disposed Of," the Company reviews long-lived assets,
certain identifiable intangibles and goodwill related to those assets for
impairment whenever events or changes in circumstances indicate that the
carrying amount of the assets may not be recoverable. The impairment loss on
such assets, as well as long-lived assets and certain identifiable intangibles
to be disposed of, is measured as the amount by which the carrying value of the
assets exceeds the fair value of the assets (less disposal costs, if
applicable).
The Company evaluates the carrying value of assets based on undiscounted future
cash flows 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 up to 40 years on a straight-line basis, for
non-mining assets.
<PAGE>
A47
Revenue Recognition: Substantially all of the Company's copper and most of its
lead production are sold as refined metal under annual contracts. To the extent
not sold under annual contracts, production may be sold on a spot sale basis.
The Company's zinc production and the balance of its lead production are sold in
the form of concentrates and bullion under contracts of one to three years
duration. Silver and gold are sold under monthly contracts or in spot sales.
Revenue is recognized primarily in the month product is shipped to customers
based on prices as provided in sales contracts. Certain subsidiaries,
principally SPCC, recognize revenue based on prices prevailing at the time of
shipment to customers with final pricing generally occurring within three months
of shipment. Revenues with respect to these sales are adjusted in the period of
settlement to reflect final pricing and in periods prior to settlement to
reflect any decline in market prices which may occur between shipment and
settlement.
Financial Instruments: The Company may use derivative instruments to manage its
exposure to market risk from changes in commodity prices, interest rates or the
value of its assets and liabilities. Derivative instruments which are designated
as hedges must be deemed effective at reducing the risk associated with the
exposure being hedged and must be designated as a hedge at the inception of the
contract.
Depending on the market fundamentals of a metal and other conditions, the
Company may purchase put options or create 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
futures 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 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 costs associated with
environmental remediation obligations when such costs are probable and
reasonably estimable and generally not 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.
<PAGE>
A48
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.
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.
Stock Based Compensation: In 1996 the Company elected to apply the disclosure
only provisions of Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation."
Impact of New Accounting Standards: In 1997, the Company adopted Statements of
Financial Accounting Standards No. 128, "Earnings per Share" and No. 131,
"Disclosure about Segments of an Enterprise and Related Information." Neither
statement had a material impact on the Company's financial statements.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income." This
statement which is effective for fiscal years beginning after December 15, 1997
requires the Company to make certain disclosures but has no impact on the
Company's financial statements.
(2) 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 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.
<PAGE>
A49
The table below summarizes unaudited pro forma consolidated results of
operations of Asarco for the year ended December 31, 1995, assuming that Asarco
had acquired an additional 10.7% of the outstanding stock of SPCC on January 1,
1995. 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 date assumed.
<TABLE>
<CAPTION>
Pro Forma Results of Operations:
<S> <C>
For the year ended December 31, 1995
----
(in millions, except per share amounts)
Sales of products and services $3,197.8
Net earnings $172.2
Net earnings per common share (Basic) $4.07
Net earnings per common share (Diluted) $4.05
</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% at December 31, 1995 (54.1% at December 31, 1997
and 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 (53.0% and 52.6%
at December 31, 1997 and 1996, respectively). The Company's voting interest in
SPCC was 61.0% at December 31, 1995 (63.1% and 62.6% at December 31, 1997 and
1996, respectively). The common shares issued in exchange for the labor shares
are listed on both the New York Stock Exchange and Lima Stock Exchange. 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.
<PAGE>
A50
(3) Other Income (Expense)
<TABLE>
<CAPTION>
For the years ended December 31, 1997 1996 1995
---- ---- ----
(in millions)
<S> <C> <C> <C>
Interest income $ 20.7 $ 20.0 $ 16.5
Equity earnings 8.9 4.5 2.3
Dividends from MIM - 5.3 9.2
Dividends from Grupo Mexico 5.4 - -
Other (1.2) (0.7) (1.6)
================= ================ =================
Total $ 33.8 $ 29.1 $ 26.4
================= ================ =================
</TABLE>
(4) Taxes on Income
Certain subsidiaries that have been consolidated for financial reporting
purposes, principally SPCC, 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, 1997 1996 1995
---- ---- ----
(in millions)
<S> <C> <C> <C>
Domestic operations $ 42.9 $ 40.3 $ 24.7
Foreign operations 264.7 286.9 396.9
=====================================================
Total $ 307.6 $ 327.2 $ 421.6
=====================================================
</TABLE>
Tax Expense (Benefit):
The components of the provision (benefit) for taxes on income were:
<TABLE>
<CAPTION>
For the years ended December 31, 1997 1996 1995
---- ---- ----
(in millions)
<S> <C> <C> <C>
U.S. Federal:
Current $ 24.4 $ 3.4 $ 4.1
Deferred (4.8) 14.5 (3.1)
------------------------------------------
U.S. Federal 19.6 17.9 1.0
------------------------------------------
Foreign and State:
Current 61.3 70.9 118.7
Deferred (7.3) 11.8 3.2
------------------------------------------
Foreign and State 54.0 82.7 121.9
==========================================
Total income tax $ 73.6 $100.6 $122.9
==========================================
</TABLE>
Total taxes paid were: 1997 - $54.2 million; 1996 - $134.4 million; 1995 - $65.8
million.
<PAGE>
A51
Reconciliation of Statutory Income Tax Rate:
<TABLE>
<CAPTION>
For the years ended December 31, 1997 1996 1995
---- ---- ----
<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 (2.3) (1.1) (0.3)
Percentage depletion (9.5) (9.6) (12.3)
Dividends from non-includible subsidiaries 11.4 10.4 11.0
Dividends received deduction (9.4) (8.5) (8.8)
Foreign taxes 16.9 24.6 28.3
Foreign tax credit (13.5) (20.5) (25.2)
Reversal of taxes previously accrued (2.1) - -
Other (2.6) 0.4 1.5
=============================================
Effective income tax rate 23.9% 30.7% 29.2%
=============================================
</TABLE>
Temporary differences and carryforwards which give rise to deferred tax assets,
liabilities and related valuation allowances were:
<TABLE>
<CAPTION>
Deferred Tax Assets (Liabilities)
At December 31, 1997 1996
---- ----
<S> <C> <C>
(in millions)
Current:
Reserve for closed plant and environmental matters $ 7.2 $ 12.4
Inventories 5.3 6.6
Other 6.6 5.4
---------------------------------
Net deferred tax asset $ 19.1 $ 24.4
---------------------------------
Noncurrent:
Tax effect of regular net operating losses $ 119.0 $ 168.2
Reserve for closed plant and environmental matters 22.2 33.1
Postretirement benefit obligation 36.6 35.0
Alternative minimum tax credit carryforwards 28.3 16.2
Foreign tax credit carryforwards - 69.4
Previously taxed income 6.1 5.3
Capitalized leases 21.1 25.6
Pension obligation (17.5) (19.8)
Property, plant and equipment (314.1) (308.6)
Investments - Grupo Mexico (12.8) (120.4)
Other (7.2) (1.1)
Valuation allowance for deferred tax assets - (76.2)
---------------------------------
Net deferred tax liability (118.3) (173.3)
=================================
Total net deferred tax liability $ (99.2) $(148.9)
=================================
</TABLE>
At December 31, 1997, the Company had $339.9 million of net operating loss
carryforwards which expire, if unused, in years 2008 through 2010 and $28.3
million of alternative minimum tax credits which are not subject to expiration.
These net operating loss carryforwards and alternative minimum tax credits are
available solely to Asarco and not to SPCC. The Company believes that 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.
The decrease in the valuation allowance of $76.2 million from 1996 to 1997 is
attributable to the utilization of foreign tax credits and alternative minimum
tax credits by SPCC in 1997.
<PAGE>
A52
In the first quarter of 1997, the Government of Peru approved a reinvestment
allowance for a program of SPCC to expand the Cuajone mine. The reinvestment
allowance provides SPCC with tax incentives in Peru and, as a result, certain
U.S. tax credit carryforwards, for which no benefit had previously been
recorded, were realized. The reduction in the effective tax rate as a result of
the reinvestment allowance for the twelve months ended December 31, 1997 lowered
consolidated tax expense by approximately $14.7 million. Pursuant to the
reinvestment allowance SPCC has received tax deductions in Peru in amounts equal
to the cost of the qualifying property (approximately $245 million). As
qualifying property is acquired, the financial statement carrying value of the
qualifying property will be reduced to reflect the tax benefit associated with
the reinvestment allowance (approximately $73 million). As a result, financial
statement depreciation expense related to the qualifying property will be
reduced over its useful life (approximately 15 years).
U.S. deferred tax liabilities have not been provided on approximately $272.0
million in 1997 ($270.8 million in 1996 and $257.6 million in 1995) 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 1997 ($1.2
million in 1996 and $0.5 million in 1995).
(5) Inventories
<TABLE>
<CAPTION>
At December 31, 1997 1996
---- ----
(in millions)
<S> <C> <C>
Inventories of smelters and refineries at lower of LIFO cost or market
$ 7.4 $ 10.3
Provisional cost of metals received from suppliers for which prices have
not yet been fixed 51.5 44.5
Mine inventories at lower of FIFO cost or market 88.9 105.8
Metal inventory at lower of average cost or market 45.6 49.5
Materials and supplies at lower of average cost or market
138.2 141.0
Other 30.5 32.2
================ ===============
Total $ 362.1 $ 383.3
================ ===============
</TABLE>
Replacement cost exceeds inventories valued at LIFO cost by approximately $86.4
million in 1997 (1996-$115.2 million). Liquidation of LIFO inventories resulted
in pre-tax earnings of $16.7 million in 1997, $5.3 million in 1996 and $0.7
million in 1995.
(6) Investments
During 1997 the Company sold 106.3 million shares of Grupo Mexico for proceeds
of $322.5 million, resulting in a pre-tax gain of $73.3 million ($47.6 million
after-tax). At December 31, 1997, the value of the Company's remaining interest
in Grupo Mexico is $78.9 million representing the exercise price of shares
subject to an option granted as part of the restructuring of the Company's
investment in 1994. These shares are carried on the books of the Company at
$50.2 million. The Company's results for the year ended 1996 include a $60.1
million pre-tax gain ($39.0 million after-tax) on the sale of its 15% interest
in MIM Holdings Limited (MIM) and an $11.1 million pre-tax gain ($7.2 million
after-tax) on the sale of a 25% interest in its Silver Bell copper mine to
Mitsui & Co.
<PAGE>
A53
In accordance with the provisions of SFAS No. 115, available-for-sale securities
are carried at fair value. Unrealized gains at December 31, 1997 of $11.6
million (net of deferred taxes of $6.3 million), compared with unrealized gains
of $56.3 million (net of deferred taxes of $30.3 million) at December 31, 1996,
were included as a component of stockholders' equity.
Available-for-sale and other cost investments:
<TABLE>
<CAPTION>
At December 31, Unrealized Holding
(in millions) Cost Gains (Losses) Total
---- ----- -------- -----
<S> <C> <C> <C> <C>
1997
Available-for-sale:
Equity securities $ 25.3 $ 17.5 $ - $ 42.8
Debt securities 30.3 0.4 - 30.7
Cost investments:
Grupo Mexico 50.2 - - 50.2
Other 3.1 - - 3.1
================= ================ =============== ================
Total $ 108.9 $ 17.9 $ - $ 126.8
================= ================ =============== ================
1996
Available-for-sale:
Grupo Mexico $ 249.1 $ 79.6 $ - $ 328.7
Equity securities 23.9 7.1 - 31.0
Debt securities 28.3 - (0.1) 28.2
Cost investments:
Grupo Mexico 50.2 - - 50.2
Other 4.6 - - 4.6
================= ================ =============== ================
Total $ 356.1 $ 86.7 $(0.1) $ 442.7
================= ================ =============== ================
</TABLE>
Gross realized gains on available-for-sale securities in 1997 were $76.0
million, compared with gross realized gains of $60.1 million and losses of $1.1
million in 1996, and gross realized losses of $0.3 million in 1995. The debt
securities have maturity dates ranging from 1999 to 2027. The unrealized holding
gains and losses, excluding realized gains and losses, included as a component
of stockholders' equity increased $7.3 million in 1997 and decreased $56.9
million in 1996. The average cost method has been used to determine the realized
gain or loss on securities sold.
(7) Property
<TABLE>
<CAPTION>
At December 31, 1997 1996
---- ----
(in millions)
<S> <C> <C>
Buildings and equipment $ 3,762.8 $ 3,617.2
Capital leases-equipment 123.7 122.4
Mineral land 701.0 645.0
Land, other than mineral 70.4 70.6
Other 6.2 6.1
--------------------- ---------------------
Total property 4,664.1 4,461.3
Accumulated depreciation (2,245.3) (2,187.2)
===================== =====================
Property, net $ 2,418.8 $ 2,274.1
===================== =====================
</TABLE>
Accumulated depreciation applicable to capitalized leases amounted to $81.6
million in 1997 and $72.0 million in 1996.
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.
<PAGE>
A54
In accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets To Be Disposed Of," the Company reviews
long-lived assets, certain identifiable intangibles and goodwill related to
those assets for impairment whenever events or changes in circumstances indicate
that the carrying amount of the assets may not be recoverable. The impairment
loss on such assets, as well as long-lived assets and certain identifiable
intangibles to be disposed of, is measured as the amount by which the carrying
value of the assets exceeds the fair value of the assets (less disposal costs,
if applicable).
The Company 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 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 involving the United States,
Native Americans and 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 alleged contamination of ground
water. The lawsuits could 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 purported class
actions and fourteen other lawsuits in Texas seeking substantial compensatory
and punitive damages for personal injury and contamination of property allegedly
caused by present and former operations in Texas, and product sales of the
Company and its subsidiaries. Most of the cases name additional corporations as
defendants.
The Company and two subsidiaries, at December 31, 1997, are defendants in 661
lawsuits brought by 8,333 primary and 2,469 secondary plaintiffs seeking
substantial compensatory and punitive damages for personal injury or death
allegedly caused by exposure to asbestos. Two of these lawsuits are purported
statewide class actions brought on behalf of classes of persons who are not yet
known to have asbestos related injury. One of these lawsuits has been dismissed
subject to appeal. One subsidiary was dismissed from one lawsuit seeking damages
for removal or containment of asbestos-containing products in structures.
Plaintiffs have appealed. In addition, the Company and certain subsidiaries are
defendants in product liability lawsuits involving various other products,
including metals.
In September and October 1997, separate purported class actions were commenced
against the Company in Omaha, Nebraska and in Denver, Colorado, seeking
compensatory and punitive damages for alleged contamination of properties by
emissions from the Company's former Omaha plant and the Globe plant in Denver.
The actions are pending in federal district court in Omaha and Denver.
<PAGE>
A55
In March 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. In 1996, the court granted a motion to consolidate this case with a
prior, similar lawsuit filed by the Coeur d'Alene Tribe. In August 1997, the
United States filed a motion to add to the lawsuit several companies, including
certain subsidiaries of the Company.
The Company and certain of its subsidiaries have received notices from the
United States Environmental Protection Agency ("EPA") and the United States
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 that
seek substantial damages and remediation.
Remedial action is being undertaken by the Company at some of the sites.
On January 23, 1998, the Company, the United States Department of Justice and
EPA announced the signing of a multi-region voluntary agreement covering a broad
range of environmental issues affecting the Company's United States operations.
The two consent decrees containing the agreement have been filed in United
States District Courts in Phoenix, Arizona and Helena, Montana and are subject
to approval by both courts following public comment. Pursuant to the agreement,
which resolves numerous issues that were being negotiated and litigated
separately, the Company will undertake capital construction projects amounting
to $61.5 million, to be spent over six years, and pay penalties of $6.4 million.
In connection with the matters referred to above, as well as at other closed
plants and sites where the Company is working with Federal 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 insurance
carriers and other parties are recorded as assets when the recovery is deemed
probable.
Reserves for closed plants and environmental matters totaled $122.1 million and
$128.3 million at December 31, 1997 and 1996, respectively. The Company
anticipates that expenditures relating to these reserves will be made over the
next several years. Net cash expenditures against these reserves were $63.1
million in 1997, $54.1 million in 1996 and $95.8 million in 1995.
The effect on pre-tax earnings of environmental and other closed plant charges
was $20.2 million in 1997 ($50.4 million in charges offset by $30.2 million in
anticipated insurance and other recoveries), and $15.0 million in 1996 ($67.7
million in charges offset by $52.7 million in insurance and other recoveries)
including $10.0 million for the effect of the application of the American
Institute of Certified Public Accountants: Statement of Position 96-1,
"Environmental Remediation Liabilities".
<PAGE>
A56
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 recovery when not deemed probable.
(9) Debt and Available Credit Facilities
<TABLE>
<CAPTION>
Long-Term Debt
At December 31, 1997 1996
---- ----
(in millions)
<S> <C> <C>
Revolving credit agreements $ - $ 45.0
Pollution control bonds, 1997/2006 - rates from
6 3/4% to 8.9% 155.0 155.6
Capital lease obligations, 1997/2006 - rates from
7.3% to 12.0% 61.8 74.8
7% Notes due 2001 50.0 50.0
7 3/8% Notes due 2003 99.7 99.6
7 7/8% Debentures due 2013 99.7 99.7
8 1/2% Debentures due 2025 149.0 148.9
6.8% term loan due 2000 15.0 15.0
6.43% EXIM Bank credit agreement 20.4 26.3
Mitsui credit agreement - LIBOR +2.87% - 45.0
CAF credit agreement - average 9.4% 27.5 35.3
7.9% Secured Export Notes due 2007 150.0 -
8.25% Bonds due 2004 50.0 -
Other .6 3.2
----------------- ----------------
Total debt 878.7 798.4
Less current portion 28.7 39.8
================= ================
Long-term debt $ 850.0 $ 758.6
================= ================
</TABLE>
Interest paid by the Company (excluding amounts capitalized of $5.5 million in
1997, $2.8 million in 1996 and $3.3 million in 1995) was $74.4 million in 1997,
$78.1 million in 1996 and $89.2 million in 1995.
Maturities of debt instruments and future minimum payments under capital leases
are:
<TABLE>
<CAPTION>
At December 31, Debt Instruments Capital Leases
---------------- --------------
(in millions)
<S> <C> <C>
1998 $ 37.0 $ 18.3
1999 14.4 16.5
2000 39.0 27.6
2001 75.0 4.3
2002 20.1 2.5
Thereafter 631.4 4.9
Less interest - (12.3)
================================== ===========================
$ 816.9 $ 61.8
================================== ===========================
</TABLE>
<PAGE>
A57
The Company has two revolving credit agreements that permit borrowings of up to
$850.0 million, all of which was available at December 31, 1997. One facility
for $350 million expires in April 1999 and the other facility for $500 million
expires in May 2002. The borrowings bear interest based on LIBOR, the CD rate or
the prime rate. 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 April 1997, SPCC entered into a $600 million seven-year credit agreement with
a group of international financial institutions. The agreement consists of a
$400 million term loan facility and a $200 million revolving credit facility.
The interest rate during the first three years of the agreement on any loans
outstanding is LIBOR plus 1.75% per annum for term loans and LIBOR plus 2.00%
for revolving credit loans. A commitment fee of 0.5% per annum is payable on the
undrawn portion of the facility. No amounts have been drawn by SPCC under this
agreement as of December 31, 1997.
In May 1997, SPCC privately placed $150 million of Secured Export Notes in the
United States and international markets. These notes were issued with an average
maturity of seven years and a final maturity in 2007 and were priced at par with
a coupon rate of 7.9%. In addition, in June 1997 SPCC sold $50 million of 8.25%
bonds due June 2004 to investors in Peru.
Some of SPCC's financing agreements contain covenants which limit the payment of
dividends to stockholders. Under the most restrictive covenant, SPCC may pay
dividends to stockholders equal to 50% of its net income for any fiscal quarter
as long as such dividends are paid by June 30 of the following year. As a
result, at December 31, 1997, $572.8 million of SPCC's net assets included in
the Company's consolidated net assets are unavailable for payment of dividends.
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.
Under the most restrictive terms of the credit 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,
1997, and the percentage of current assets to current liabilities, as defined,
was 156%. In accordance with the most restrictive covenants of these agreements,
additional indebtedness of $868.6 million would have been permitted as of
December 31, 1997. In addition, under the most restrictive covenants of SPCC's
loan agreements, SPCC would have been permitted additional indebtedness of
$849.7
million at December 31, 1997.
In January 1998, the Company closed on a refinancing of three tax exempt debt
issues and called for the redemption of the existing bonds. The aggregate
principal amount of the refinancing was $132.8 million. The refinancing is
expected to reduce the Company's annual interest costs by approximately $3.3
million.
Consolidated debt includes the debt of SPCC, none of which is guaranteed by
Asarco.
The weighted average interest rate on short term borrowings was 7.4% at December
31, 1997, and 8.1% at December 31, 1996.
<PAGE>
A58
(10) Commitments
The Company has entered into several sale-leaseback agreements of mining
equipment and has options to purchase this equipment. The options are 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, 1997 for each of the next
5 years and in the aggregate are:
<TABLE>
<CAPTION>
Year Amount (in millions)
- ---- --------------------
<S> <C>
1998 $ 20.6
1999 19.4
2000 18.8
2001 18.4
2002 16.3
Thereafter 100.6
---------------------------------------
$194.1
---------------------------------------
</TABLE>
Total rental expense was $14.6 million in 1997, $13.3 million in 1996 and $10.9
million in 1995.
The Company's operating lease obligations include a lease by Silver Bell Mining,
L.L.C., a 75% owned subsidiary, of its SX/EW facility. The gross rentals under
the lease which are guaranteed by the Company are $85.8 million. 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 this guarantee. Production of
refined copper at the plant began in July, 1997.
As a result of its $1 billion expansion program, SPCC's electric power
requirements will increase significantly requiring the construction of
substantial additional generating capacity. In the second quarter of 1997, SPCC
sold its existing power plant to an independent power company. In connection
with the sale, a power purchase agreement was also completed, under which SPCC
will purchase its power needs for the next twenty years. Under the agreement,
SPCC's cost of power will increase somewhat from its 1996 level, however, SPCC
will avoid the significant capital expenditures that would be required to meet
the needs of expanded operations and its power costs will be favorably affected
by benefits available to independent power companies in Peru.
(11) Stockholders' Equity
The Company purchased 3,371,618 of its common shares in 1997 (17,364 shares in
1996 and 34,729 shares in 1995). In 1997, 210,294 common shares (270,474 shares
in 1996 and 503,392 shares in 1995) were used for employee benefit plans.
Retained earnings at December 31, 1997 includes undistributed earnings of $20.0
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 $8.3 million at December 31, 1997 ($3.7 million
at December 31, 1996 and $9.9 million at December 31, 1995). 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.
<PAGE>
A59
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 issued under prior plans
will continue to be governed by, and exercised under the Stock Option Plan and
the Stock Incentive Plan. 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 $1.0 million in 1997, $1.1 million in 1996 and $0.7
million in 1995. Retained earnings have been reduced by $8.4 million at December
31, 1997 ($7.1 million at December 31, 1996) 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 1997,
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
(not including the earnings effect of options granted by SPCC for its stock,
which is immaterial) indicated below:
<TABLE>
<CAPTION>
In millions, except per share amounts 1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net earnings - as reported $143.4 $138.3 $169.2
Net earnings - pro forma $141.0 $136.7 $167.7
Earnings per share (Basic)- as reported $ 3.42 $ 3.24 $ 4.00
Earnings per share (Diluted)- as reported $ 3.42 $ 3.23 $ 3.98
Earnings per share (Basic)- pro forma $ 3.36 $ 3.20 $ 3.96
Earnings per share (Diluted)- pro forma $ 3.36 $ 3.20 $ 3.95
For purposes of computing earnings per share, basic and diluted, the dilutive
effect of stock options on common shares outstanding is as follows:
Weighted Average Common Shares Outstanding: 1997 1996 1995
---- ---- ----
(in millions)
Basic 41.9 42.7 42.3
Dilutive effect of stock options 0.1 0.1 0.1
----- ----- -----
Diluted 42.0 42.8 42.4
===== ===== =====
</TABLE>
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 1997: dividend yield of 2.9% (2.6% - 1996, 2.4% - 1995); expected
volatility of 29.2% (28.4% - 1996, 27.6% - 1995); risk-free interest rate of
6.5% (5.43% - 1996, 7.8% - 1995); and expected lives of 7.0 years in 1997, 6.9
in 1996 and 1995.
<PAGE>
A60
The total number of shares that may be optioned or awarded under the 1996 Stock
Incentive Plan is 478,165 shares as of December 31, 1997, (475,076 shares at
December 31, 1996) 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, 1997 was 6.6 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, 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 at
January 1, 1997 990,363 $27.81 $22.31 to $34.38
Granted 370,450 $27.49 $27.50 to $31.97
Exercised (71,815) $26.47 $22.31 to $29.19
Canceled or expired (24,600) $27.14 $22.31 to $31.13
----------
Outstanding and exercisable at December 31, 1997 1,264,398 $27.88 $22.31 to $34.38
</TABLE>
In 1989, the Company adopted a Shareholder Rights plan, which expires on August
7, 1999, and declared a dividend of one Right for each of its common shares. In
January 1998, the Company extended the Shareholder Rights plan, with certain
minor modifications, for an additional ten year period effective upon the
earlier of the expiration of the existing Rights plan or the redemption of the
existing Rights. 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 tax deductible amounts as may
be advisable under the circumstances. Plan assets are invested principally in
commingled stock funds, mutual funds and securities issued by the United States.
<PAGE>
A61
Net pension costs consisted of:
<TABLE>
<CAPTION>
For the years ended December 31, 1997 1996 1995
---- ---- ----
(in millions)
<S> <C> <C> <C>
Service cost $ 9.1 $ 8.6 $ 6.3
Interest cost on projected benefit obligations 12.7 11.0 9.8
Actual return on plan assets (41.0) (21.8) (30.8)
Net amortization and deferral 26.9 10.7 21.0
============== ============== ==============
Net pension costs $ 7.7 $ 8.5 $ 6.3
============== ============== ==============
</TABLE>
The actuarial present value of benefit obligations and funded status for the
Company's plans were:
<TABLE>
<CAPTION>
At December 31, 1997 1996
(in millions) Plans with Plans with Assets Plans with Accum.
Assets Exceeding Exceeding Accum. Benefit Obligation
Accum. Benefit Benefit Exceeding Assets (a)
Obligation Obligation
<S> <C> <C> <C>
Assets and obligations:
Vested benefit obligation $163.5 $139.4 $ 5.3
Nonvested benefits 8.5 7.8 0.5
---------------------------------------------------------
Accumulated benefit obligation 172.0 147.2 5.8
Plan assets at fair value 227.5 174.3 5.0
---------------------------------------------------------
Plan assets in excess of (less than) accumulated
benefit obligation
$ 55.5 $ 27.1 $(0.8)
=========================================================
Projected benefit obligation (PBO) $204.0 $175.4 $ 7.2
Plan assets at fair value 227.5 174.3 5.0
---------------------------------------------------------
Plan assets in excess of (less than) PBO
23.5 (1.1) (2.2)
Prior service cost 16.3 18.1 (0.1)
Initial net plan obligation 2.4 0.9 2.1
Effect of changes in assumptions and actuarial
gains and losses
(11.9) 8.6 (0.2)
Minimum liability - - (0.5)
---------------------------------------------------------
Pension asset (liability) reflected in
consolidated balance sheet
$ 30.3 $ 26.5 $(0.9)
=========================================================
Actuarial assumptions:
Discount Rate 7.0% 7.0% 7.0%
Expected long-term rate of return on plan assets (b) 10.0% 10.0% 8.0%
Expected annual salary increases 4.0% 4.0% 4.0%
</TABLE>
(a) Plans maintained by SPCC.
(b) The expected long-term rate of return on plan assets is 8.0% for plans
maintained by SPCC.
<PAGE>
A62
Postretirement benefits:
Noncontributory postretirement health care coverage under the Asarco Health
Plan, is provided to substantially all U.S. 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 tables below exclude the postretirement benefit obligation of SPCC, which is
immaterial.
Net periodic postretirement benefit costs include:
<TABLE>
<CAPTION>
For the years ended December 31, 1997 1996 1995
(in millions) ---- ---- ----
<S> <C> <C> <C>
Service cost $ 3.5 $ 3.4 $ 2.4
Interest cost 8.1 8.0 8.5
Amortization of loss 1.2 1.3 -
=============== =============== ==============
Net periodic postretirement benefit costs $12.8 $12.7 $ 10.9
=============== =============== ==============
The following sets forth the plan's status reconciled with amounts reported in
the Consolidated Balance Sheet:
At December 31, 1997 1996
(in millions) ---- ----
<S> <C> <C>
Accumulated postretirement benefit obligation (APBO):
Retirees $ 58.2 $ 60.7
Fully eligible active plan participants 21.7 20.0
Other plan participants 42.9 41.1
-------------- --------------
Total APBO 122.8 121.8
Item not yet recognized in earnings:
Effect of changes in assumptions and actuarial gains and losses (18.3) (21.9)
============== ==============
Postretirement benefit obligation $104.5 $ 99.9
============== ==============
</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 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, 1997, by $10.8 million, and the net periodic postretirement benefit
costs for 1997 by $1.2 million. The discount rate used in determining the
accumulated postretirement benefit obligation was 7% at December 31, 1997 and
1996. The plans are unfunded.
Employee Savings Plan:
The Company maintains employee savings plans for salaried and hourly employees
which permit employees to make contributions by salary reduction pursuant to
section 401(k) of the Internal Revenue Code. The Company matches contributions
up to 3% of compensation. In connection with the required match, the Company's
contributions charged against earnings were $4.6 million in 1997, $4.5 million
in 1996 and $4.3 million in 1995.
<PAGE>
A63
(13) Business Segments
At December 31, 1997, the Company adopted SFAS No. 131, "Disclosure About
Segments of an Enterprise and Related Information." This statement establishes
standards for reporting information about operating segments and related
disclosures about products and services, geographic areas, and major customers.
Prior year amounts have been restated to conform to the current year's
presentation.
The Company's copper segment includes integrated mining, smelting and refining
operations in North America and in Peru, through its subsidiary, Southern Peru
Copper Corporation. The Company's lead, zinc and precious metals segment
consists of a fully integrated lead business in Missouri, a custom lead smelting
business, a silver mining business and a zinc mining business.
Enthone-OMI, a wholly-owned subsidiary, operates a world-wide specialty
chemicals business focused on functional and decorative coatings for the
electronics and metal finishing industries. American Limestone Company, a
wholly-owned subsidiary, produces construction aggregates.
The Company also maintains an active exploration effort focused on the
identification and acquisition of advanced gold, copper and silver exploration
projects. The segment labeled "All Other" includes environmental services, a
specialty metals business, and income and expenses associated with facilities
previously operated by the Company. The Company's reportable segments are
separately managed strategic business units that offer different products and
services.
The accounting policies of the segments are described in the summary of
significant accounting policies. The Company evaluates segment performance based
on operating income or loss plus the equity in the net earnings of investments
accounted for by the equity method attributable to each segment, where
applicable. Corporate and general administrative expenses are allocated among
the segments generally in proportion to operating expenses. Identifiable assets
are those directly used in the operations of each segment. Unallocated corporate
assets are principally cash, marketable securities, and investments. 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>
A64
Business Segments - Sales
(in millions)
<TABLE>
<CAPTION>
For the years ended December 31, 1997 1996 1995
---- ---- ----
By Reportable Segment
<S> <C> <C> <C>
Copper $ 2,022 $ 1,968 $ 2,329
Lead, Zinc & Precious Metals 304 357 489
Specialty Chemicals 324 319 309
Aggregates 54 47 44
All Other 17 26 27
=============== =============== ===============
Total $ 2,721 $ 2,717 $ 3,198
=============== =============== ===============
By Country (a)
United States $ 1,501 $ 1,529 $ 1,781
Japan 219 245 264
Italy 166 147 189
United Kingdom 146 153 157
The Netherlands 109 122 217
Foreign - Other 580 521 590
=============== =============== ===============
Total $ 2,721 $ 2,717 $ 3,198
=============== =============== ===============
(a) Revenues are attributed to countries based on location of customer.
Business Segments - Earnings
(in millions)
For the years ended December 31, 1997 1996 1995
---- ---- ----
By Reportable Segment (a), (b), (c)
Copper $ 315 $ 326 $ 617
Lead, Zinc & Precious Metals (15) (11) (62)
Specialty Chemicals 29 24 24
Aggregates 14 10 8
Exploration (32) (27) (15)
All Other (d) (28) (14) (83)
--------------- --------------- ---------------
Total $ 283 $ 308 $ 489
Interest and other 33 23 (66)
Less: Equity Earnings (9) (4) (2)
--------------- --------------- ---------------
Earnings before taxes on income and minority
interests $ 307 $ 327 $ 421
=============== =============== ===============
Depreciation and Depletion
Copper $ 108 $ 99 $ 96
Lead, Zinc & Precious Metals 17 14 16
Specialty Chemicals 3 3 4
Aggregates 3 2 2
All Other - 1 1
=============== =============== ===============
Total $ 131 $ 119 $ 119
=============== =============== ===============
Equity in results of non-consolidated companies
Copper $ 1 $ 1 $ -
Lead, Zinc & Precious Metals 3 (1) (2)
Specialty Chemicals 5 4 4
=============== =============== ===============
Total $ 9 $ 4 $ 2
=============== =============== ===============
</TABLE>
(a) Includes provision for asset impairment of $1.1 for Copper, $36.3 for Lead,
Zinc & Precious Metals and $8.2 for All Other in 1995.
(b) Includes LIFO profits of $16.7 in 1997, $5.3 in 1996 and $.7 in 1995
primarily reported in the Copper and Lead, Zinc and Precious Metals
segments.
(c) Includes equity in the net earnings of investees accounted for by the equity
method.
(d) Includes environmental and other closed plant charges of $20.2 in 1997,
$15.0 in 1996 and $76.3 in 1995.
<PAGE>
A65
Business Segments - Identifiable Assets
(in millions)
<TABLE>
<CAPTION>
For the years ended December 31, 1997 1996 1995
<S> <C> <C> <C>
By Reportable Segment
Copper $ 3,009 $ 2,810 $ 2,728
Lead, Zinc & Precious Metals 427 401 360
Specialty Chemicals 263 272 267
Aggregates 32 32 31
Exploration 15 11 11
All Other 153 123 82
--------------- --------------- ---------------
Total Reportable Segments $ 3,899 $ 3,649 $ 3,479
Unallocated corporate assets 211 471 848
=============== =============== ===============
Total $ 4,110 $ 4,120 $ 4,327
=============== =============== ===============
Long-Lived Assets
United States $ 1,547 $ 1,820 $ 2,123
Peru 919 872 796
Foreign - Other 142 84 75
=============== =============== ===============
Total $ 2,608 $ 2,776 $ 2,994
=============== =============== ===============
Equity Method Investments
Copper $ 2 $ 2 $ 2
Lead, Zinc & Precious Metals 9 5 3
Specialty Chemicals 50 53 57
=============== =============== ===============
Total $ 61 $ 60 $ 62
=============== =============== ===============
Capital Expenditures
Copper $ 295 $ 233 $ 287
Lead, Zinc & Precious Metals 18 42 30
Specialty Chemicals 4 7 3
Aggregates 3 3 3
All Other 2 1 15
--------------- --------------- ---------------
Total $ 322 $ 286 $ 338
=============== =============== ===============
</TABLE>
(14) Financial Instruments
Hedging: The Company may use derivative instruments to manage its exposure to
market risk from changes in commodity prices, interest rates or the value of its
assets and liabilities. Derivative instruments which are designated as hedges
must be deemed effective at reducing the risk associated with the exposure being
hedged and must be designated as a hedge at the inception of the contract.
Depending on the market fundamentals of a metal and other conditions, the
Company may purchase put options or create 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. The cost of options is amortized on a straight-line basis during
the period in which the options are exercisable. Depending upon market
conditions, the Company may either sell options it holds or exercise the options
at maturity. Gains or losses from the sale or exercise of options, net of
unamortized acquisition costs, are recognized in the period in which the
underlying production is sold. 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 futures contracts are reported as a component of the underlying
transaction. Earnings include gains from option sales and exercises, primarily
related to copper, of $25.8 million in 1997, $27.1 million in 1996 and losses of
$5.6 million in 1995.
<PAGE>
A66
At December 31, 1997, the Company held the following copper put options:
(in millions, except per pound amounts)
<TABLE>
<CAPTION>
Percent of
Strike Price Per Unamortized Cost Estimated
Pounds Period Pound Production
------ ------ ----- -------------- ----------
<S> <C> <C> <C> <C> <C>
Asarco 44.0 1/98-3/98 $0.95 $0.7 26%
SPCC 44.0 1/98-3/98 $0.95 $0.6 27%
</TABLE>
Trading: 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. Price protection programs utilizing synthetic puts may be
implemented in steps. In cases where the step approach is used, the Company's
objective is to take advantage of current market conditions to minimize its cost
while at the same time limiting the Company's exposure should market conditions
change before the synthetic put is completed. Until a synthetic put is
completed, any calls not matched with a forward sale are marked to market with
the gain or loss, if any, recorded in earnings. Earnings include gains of $0.5
million in 1997 from the sale or exercise of call options. Earnings also include
gains of $3.6 million in 1997 and losses of $0.1 million in 1996 from unrealized
mark to market adjustments. At December 31, 1997, the Company held copper call
options covering an aggregate of 140.3 million pounds of copper, a portion of
which are exercisable in each quarter of 1998 at an average strike price of 97
cents. The carrying value of these calls at December 31, 1997 was $0.4 million.
Gains and Losses: The recognized pre-tax gains (losses) of the Company's metal
hedging and trading activities, were as follows:
<TABLE>
<CAPTION>
For the years ended December 31, 1997 1996 1995
---- ---- ----
(in millions)
<S> <C> <C> <C>
Metal
-----
Copper $ 28.7 $ 26.9 $ (5.7)
Zinc 1.2 (0.1) (0.1)
Silver - - 0.5
Lead - 0.2 (0.3)
================== ================== ===================
Net Gain (Loss) $ 29.9 $ 27.0 $ (5.6)
================== ================== ===================
</TABLE>
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 $0.6
million in 1997, $0.7 million in 1996 and $0.2 million in 1995.
<PAGE>
A67
The estimated fair values of the Company's financial instruments are:
<TABLE>
<CAPTION>
At December 31, 1997 1996
(in millions) Carrying Fair Carrying Fair
Value Value Value Value
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents $ 210.6 $ 210.6 $ 192.4 $ 192.4
Marketable securities - held to maturity
$ 205.3 $ 205.3 $ 1.0 $ 1.0
Put options $ 1.3 $ 14.3 - -
Call options $ 0.4 $ 0.4 $ 4.0 $ 4.0
Investments:
Available-for-sale securities $ 73.5 $ 73.5 $ 387.9 $ 387.9
Restricted investment in Grupo Mexico (a)
50.2 78.9 50.2 78.9
Other 3.1 (b) 4.6 (b)
---------------- --------------- --------------- ---------------
Total investments $ 126.8 $ 152.4 $ 442.7 $ 466.8
---------------- --------------- --------------- ---------------
Liabilities:
Long-term debt (excluding capital lease obligations) $ 816.9 $ 848.3 $ 723.6 $ 736.9
Interest rate swaps - $ (0.6) - $ (0.8)
</TABLE>
(a)At December 31, 1997 and 1996, 56.3 million shares of Grupo Mexico were
subject to a fixed price option which limits the sale of the shares for a
period of more than one year. The fair value shown is equal to the exercise
price of the option.
(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 these instruments.
Marketable securities: The carrying amount and fair value are reported at
amortized cost, which approximates market, since these securities are to be held
to maturity.
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 held at December 31, 1997, which represent
trading securities, had an average fair value of $1.3 million during the year
ended December 31, 1997.
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.
<PAGE>
A68
Unaudited Quarterly Data
(in millions, except per share data)
<TABLE>
<CAPTION>
1997 1996
---- ----
QUARTERS 1st 2nd(a)(b) 3rd(c)(d) 4th Total 1st(e) 2nd(f) 3rd 4th(g) Total
==============================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sales $ 715.6 $ 741.0 $ 661.3 $ 603.1 $2,721.0 $ 735.0 $ 682.5 $ 647.8 $ 651.5 $2,716.8
Operating
income $ 106.0 $ 96.5 $ 53.6 $ 18.6 $ 274.7 $ 92.6 $ 88.4 $ 51.7 $ 70.7 $ 303.4
Net earnings $ 40.6 $ 51.9 $ 45.8 $ 5.1 $ 143.4 $ 35.7 $ 72.4 $ 5.9 $ 24.3 $ 138.3
Dividends paid
per common share $ 0.20 $ 0.20 $ 0.20 $ .20 $ 0.80 $ 0.20 $ 0.20 $ 0.20 $ 0.20 $ 0.80
Stock market
price:
High $32-1/2 $32-1/4 $ 34 $31-7/8 $ 34 $35-1/4 $35-7/8 $27-7/8 $ 28 $ 35-7/8
Low $25-1/8 $26-1/2 $ 30 $21-3/4 $ 21-3/4 $27-1/2 $27-5/8 $23-3/4 $24-1/8 $ 23-3/4
Net earnings
per share:
Basic $ 0.95 $ 1.21 $ 1.10 $ 0.13 $ 3.42 $ 0.84 $ 1.70 $ 0.14 $ 0.57 $ 3.24
Diluted $ 0.94 $ 1.20 $ 1.09 $ 0.13 $ 3.42 $ 0.83 $ 1.69 $ 0.14 $ 0.57 $ 3.23
</TABLE>
(a) Includes a $13.4 after-tax gain, $20.7 pre-tax, on the sale of 43.4
million shares of Grupo Mexico.
(b) Includes a $10.3 after-tax gain, $15.9 pre-tax, as a result of
liquidation of LIFO inventories.
(c) Includes a $34.2 after-tax gain, $52.6 pre-tax, on the sale of the
Company's remaining unrestricted shares in Grupo Mexico.
(d) Includes a $30.0 pre-tax charge to increase reserves for closed plant
and environmental matters, offset entirely by anticipated insurance
recoveries.
(e) 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. (f) Includes a $39.0
after-tax gain, $60.1 pre-tax, on the sale of the Company's remaining
15.0% interest in MIM. (g) 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.
Metals Price Sensitivity
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 1998. Estimates are based on 39.7 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 17.5(cent) 4.8(cent) 1.9(cent) 13.6(cent) 14.1(cent)
</TABLE>
<PAGE>
A69
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, 1997 and 1996, and the related
consolidated statements of earnings, cash flows, and changes in common
stockholders' equity for each of the three years in the period ended December
31, 1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of ASARCO
Incorporated and Subsidiaries as of December 31, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997, in conformity with generally
accepted accounting principles.
COOPERS & LYBRAND L.L.P.
New York, New York
January 27, 1998
<PAGE>
A70
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 A30. Information in response to the disclosure
requirements specified by these items appears under the captions and pages of
the 1998 Proxy Statement indicated below:
<TABLE>
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 11 - 13
Retirement Plans through
Employment Agreements 14 - 19
12. Security Ownership Security Ownership of Certain Beneficial
Owners through Common Stock Equivalents
7 - 9
13. Certain Relationships and Related
Transactions. Certain Transactions 19 - 20
</TABLE>
The information referred to above is incorporated herein by reference.
<PAGE>
A71
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>
Consolidated Statement of Earnings for the years
ended December 31, 1997, 1996 and 1995 A42
Consolidated Balance Sheet at December 31,
1997 and 1996 A43
Consolidated Statement of Cash Flows for the
years ended December 31, 1997, 1996 and 1995 A44
Consolidated Statement of Changes in Common
Stockholders' Equity for the years ended
December 31, 1997, 1996 and 1995 A45
Notes to Financial Statements A46-A68
Report of Independent Accountants A69
2. Financial Statement Schedules
Form 10-K
Pages
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>
A72
3. Exhibits
Exhibit
No.
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, 1997
(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
<PAGE>
A73
(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
(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) Form of Rights Agreement dated as of January 28, 1998,
between the Company and the Bank of New York, as Rights
Agent, defining the rights of shareholders under a January
1998 Shareholders' Rights plan and dividend declaration. The
effect of the 1998 Rights plan is to extend the 1989 Rights
plan, which expires in 1999.
(f) 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
(g) 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 A.B. Kinsolving
(c) Deferred Fee Plan for Directors, as amended through January
28, 1998
(d) Supplemental Pension Plan for Designated Mid-Career
Officers, as amended through January 28, 1998
(e) Retirement Plan for Non-Employee Directors, as amended
through January 28, 1998. 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, as amended through January
28, 1998
(i) Incentive Compensation Plan for Senior Officers, effective
January 1, 1996
(j) 1996 Stock Incentive Plan, effective April 24, 1996
(k) Compensation Deferral Plan, as amended through January 28,
1998
11. Statement re Computation of Earnings Per Share
<PAGE>
A74
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 1997 and first
quarter of 1998:
Current report filed on March 2, 1998 containing a copy of the Rights
Agreement dated as of January 28, 1998, between the Company and The
Bank of New York, as Rights Agent, defining the rights of shareholders
under a January 1998 Shareholders' Rights plan and dividend
declaration. The effect of the 1998 Rights plan is to extend the 1989
Rights plan which expires in 1999.
(c) Exhibits - The exhibits to this Form 10-K are listed on the Exhibit
Index on pages C1 through C5. Copies of the following exhibits are
filed with this Form 10-K:
10(c) Deferred Fee Plan for Directors
10(d) Supplemental Pension Plan for Designated Mid-Career Officers
10(e) Retirement Plan for Non-Employee Directors
10(h) Directors' Deferred Payment Plan
10(k) Compensation Deferral Plan
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 A75
of this Annual Report on Form 10-K.
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>
A75
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 A69. 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 27, 1998
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,
333-18083, and 333-46181) of ASARCO Incorporated of our report dated January 27,
1998, on our audit of the consolidated financial statements of Asarco
Incorporated and Subsidiaries, which report appears on page A69 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 A69 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 20, 1998
<PAGE>
A76
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 27, 1998
ASARCO Incorporated
(Registrant)
By_/s/ Richard de J. Osborne
(Richard de J. Osborne,
Chairman of the Board and
Chief Executive Officer)
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 Executive 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/ Vincent A. Calarco /s/ James C. Cotting
(Vincent A. Calarco) (James C. Cotting)
/s/ David C. Garfield /s/ E. Gordon Gee
(David C. Garfield) (E. Gordon Gee)
/s/ James W. Kinnear III /s/ Francis R. McAllister
(James W. Kinnear III) (Francis R. McAllister)
/s/ Kevin R. Morano /s/ Martha T. Muse
(Kevin R. Morano) (Martha T. Muse)
/s/ Michael T. Nelligan /s/ John D. Ong
(Michael T. Nelligan) (John D. Ong)
/s/ Manuel T. Pacheco /s/ James Wood
(Manuel T. Pacheco) (James Wood)
</TABLE>
Date: February 27, 1998
<PAGE>
B1
ASARCO Incorporated
AND SUBSIDIARIES
Schedule II - Valuation and Qualifying Accounts
FOR THE YEAR 1997
(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
Deducted from assets written off, net of
on Balance Sheet: recoveries $1,432
======
Foreign currency
Allowance for Translation
doubtful accounts: $8,129 $1,921 adjustment $497 $8,121
====== ====== ==== ======
Current portion of Net amount
reserves for transferred from
closed plants noncurrent reserve
and for closed plants Current
environmental and enviornmental charges to
matters $38,128 matters $61,819 reserves $56,709 $43,238
======= ======= ======= =======
Non-current portion
of reserves for
closed plants Net amount
and transferred to
environmental current
matters $90,205 $50,441 liabilities $61,819 $78,827
======= ======= ======= =======
Included in caption
"Other
liabilities and
reserves" on Increase in the Charges against
Balance Sheet reserve for the reserve for
Other $36,938 $7,590 Major Repairs Major Repairs $771 $43,757
======= ====== ==== =======
</TABLE>
<PAGE>
B2
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 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
Deducted from assets written off, net of
on Balance Sheet: recoveries $1,151
======
Allowance for Foreign currency
Doubtful translation
accounts: $7,409 $1,993 adjustment $122 $8,129
====== ====== ==== ======
Current portion of Net amount
reserves for transferred from
closed plants noncurrent reserve
and for closed plants Current
environmental and environmental charges to
matters $53,042 matters $39,983 reserves $54,897 $38,128
======= ======= ======= =======
Non-current portion
of reserves for
closed plants Net amount
and transferred to
environmental current
matters $62,484 $67,704 liabilities $39,983 $90,205
======= ======= ======= =======
Included in caption
"Other
liabilities and
reserves" on Increase in the Charges against
Balance Sheet reserve for the reserve for
Other $26,018 $13,774 Major Repairs Major Repairs $2,854 $36,938
======= ======= ====== =======
</TABLE>
<PAGE>
B3
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
Deducted from assets written off, net of
on Balance Sheet: recoveries $1,125
======
Allowance for Foreign currency
doubtful translation
accounts: $6,249 $2,189 adjustment $(96) $7,409
====== ====== ===== ======
Current portion of Net amount
reserves for transferred from
closed plants noncurrent reserve
and for closed plants Current
environmental and environmental charges to
matters $55,946 matters $73,874 reserves $76,778 $53,042
======= ======= ======= =======
Non-current portion
of reserves for
closed plants Net amount
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>
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, 1997
(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) Form of Rights Agreement dated as of January 28, 1998,
between the Company and The Bank of New York, as Rights
Agent, defining the rights of shareholders' under a January
1998 Stockholders' Rights plan and dividend declaration
(filed as an Exhibit to the Company's Form 8-K filed on
March 2, 1998, 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 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)
(g) 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 A.B. Kinsolving
(Filed as an Exhibit to the Company's 1996 Annual Report on
Form 10-K and incorporated herein by reference)
(c) Deferred Fee Plan for Directors, as amended through January
28, 1998 C11-C15 (d) Supplemental Pension Plan for
Designated Mid-Career Officers, as amended through January
28, 1998 C16-C24
(e) Retirement Plan for Non-Employee Directors, as amended
through January 28, 1998. Effective December 31, 1995, the
Company terminated the plan for current and future
directors. C25-C30 (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, as amended through January
28, 1998 C31-C37 (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
ASARCO Incorporated
EXHIBIT INDEX
<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 as amended through January 28,
1998 C38-C48 11. Statement re Computation of Earnings Per
Share C5
12. Statement re Computation of Ratios C6
21. Subsidiaries of the Registrant C7-C10
23. Consent of Independent Accountants is included on page A75 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,
1997 1996 1995
<S> <C> <C> <C>
Net earnings (loss) applicable to common stock $143,392 $138,336 $169,153
=============== ================= ===============
Weighted average number of common shares outstanding
41,903 42,711 42,326
Shares issuable from assumed excercise of Stock Options
73 58 132
=============== ================= ===============
Weighted average number of common shares outstanding, as adjusted
41,976 42,769 42,458
=============== ================= ===============
Diluted earnings per share:
Net earnings (loss) applicable to common stock $3.42 $3.23 $3.98
=============== ================= ===============
Basic earnings per share:
Net earnings (loss) applicable to common stock $3.42 $3.24 $4.00
=============== ================= ===============
</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>
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
NET EARNINGS $143,392 $138,336 $169,153 $ 64,034 $ 15,619
Adjustments
Taxes on Income 72,356 99,924 122,465 9,375 (36,503)
Equity Earnings, Net of
Taxes (7,706) (3,837) (1,837) (47,653) (27,384)
Cumulative Effect of Change
in Accounting Principle - - - - (86,295)
Dividends received from
non-consolidated
companies 5,209 4,047 1,828 14,301 1,676
Total Fixed Charges 84,972 83,553 99,516 66,377 64,359
Interest Capitalized (5,515) (2,839) (3,256) (869) (4,010)
Capitalized Interest Amortized 2,113 2,274 2,949 1,727 1,629
Minority interest 90,605 88,331 129,543 809 693
-------- -------- -------- -------- --------
EARNINGS (LOSS) $385,426 $409,789 $520,361 $108,101 $(70,216)
======== ======== ======== ======== ========
FIXED CHARGES
Interest Expense $ 74,247 $ 76,442 $ 91,954 $ 62,529 $ 57,321
Interest Capitalized 5,515 2,839 3,256 869 4,010
Imputed Interest Expense 5,210 4,272 4,306 2,979 3,028
-------- -------- -------- -------- --------
TOTAL FIXED CHARGES $ 84,972 $ 83,553 $ 99,516 $ 66,377 $ 64,359
======== ======== ======== ======== ========
Ratio of Earnings to Fixed Charges 4.5 4.9 5.2 1.6 (a)
======== ======== ======== ======== ========
</TABLE>
(a) For the year ended 1993 earnings were insufficient to cover fixed
charges by $134,575.
<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 Minera San Bernardo, S.A. de C.V. (Mexico) 100.0 (A)
7 AR Mexican Holdings, Inc. (Delaware) 100.0 (A)
8 AR Specialty Chemicals, S. A. de C.V. (Mexico) 100.0 (A)
9 Enthone-OMI de Mexico S.A. de C.V. (Mexico) 100.0 (A)
10 Rafco Kemicals S.A. de C.V. (Mexico) (See 41) 17.0 (B)
11 AR Silver Bell, Inc. (Delaware) 100.0 (A)
12 Silver Bell Mining, L.L.C. (Delaware) 75.0 (A)
13 AR Montana Corporation (Delaware) 100.0 (A)
14 Asarco Arizona, Inc. (Delaware) 100.0 (A)
15 Asarco (Delaware) Incorporated (Delaware) 100.0 (C)
16 Asarco Exploration Company, Inc. (New York) 100.0 (A)
17 ASARCO Guyane Francaise S.A.R.L. 100.0 (A)
18 Empresa Minera Manquiri S.R.L. (Bolivia) (See 94) 50.0 (A)
19 Asarco Exploration Company of Canada, Limited
(Canada) 100.0 (A)
20 Asarco Finance Limited (Bermuda) 100.0 (C)
21 Asarco International Corporation (Delaware) 100.0 (A)
22 Asarco International Corp. FSC (Virgin Islands) 100.0 (A)
23 Asarco de Mexico (Delaware) Inc. 100.0 (C)
24 Asarco Oil and Gas Company, Inc. (New York) 100.0 (A)
25 Asarco Peruvian Exploration Company (Delaware) 100.0 (A)
26 ASARCO Santa Cruz, Inc. (Delaware) 100.0 (A)
27 Covington Land Company (Delaware) 100.0 (A)
28 CP Water Company (Arizona) 100.0 (A)
29 Asarco Trans-Ural Company (Delaware) 100.0 (C)
30 Asarco Aginskoe, Inc. (Delaware) 100.0 (C)
31 BioTrace Laboratories, Incorporated (Utah) 100.0 (C)
32 Bridgeview Management Company, Inc. (New Jersey) 100.0 (A)
33 Compania Minera Asarco, S.A. (Chile) 100.0 (A)
34 Copper Basin Railway, Inc. (Delaware) 45.0 (B) (D)
35 Domestic Realty Company, Inc. (Montana) 100.0 (A)
36 Encycle, Inc. (Delaware) 100.0 (A)
37 Hydrometrics, Inc. (Delaware) 100.0 (A)
38 Encycle/Texas, Inc. (Delaware) 100.0 (A)
39 Enthone, Incorporated (New York) 100.0 (A)
40 Meltex, Inc. (Japan) 16.25 (B) (D)
41 Enthone-OMI (Singapore) Pte. Ltd. (Singapore) 1.6 (A)
(See 81)
42 Rafco Kemicals, S.A. de C.V. (Mexico) (See 10) 34.0 (C)
43 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:
44 Ebara-Udylite Co., Ltd. (Japan) 45.0 (B) (D)
45 Electroplating Engineers of Japan Ltd. (Japan) 25.0 (B) (D)
(See 72)
46 Electroplating Engineers S.A. (Switzerland) 24.0 (B) (D)
(see 48)
47 Enthone-OMI (Australia) Pty. Ltd. (Victoria, 100.0 (A)
Australia)
48 Enthone-OMI (Benelux) B.V. (The Netherlands) 100.0 (A)
49 Electroplating Engineers S.A. (Switzerland) 20.0 (B) (D)
(see 45)
50 Enthone-OMI (France) S.A. (France) (See 53) 28.5 (A)
51 Enthone-OMI (Canada) Inc. (Ontario, Canada) 100.0 (A)
52 Enthone-OMI (Deutschland)GmbH (Germany) 100.0 (A)
53 IMASA B.V. (The Netherlands) 100.0 (A)
54 Enthone-OMI (France) S.A. (France) (See 49) 71.5 (A)
55 Enthone-OMI Holdings (U.K.) Ltd. (United 82.41 (A)
Kingdom) (see 67)
56 AMZA Ltd. (Israel) 33.3 (B) (D)
57 Enthone-OMI (U.K.) Limited (United Kingdom) 100.0 (A)
58 L.P.W. Chemie GmbH (Germany) 49.0 (B) (D)
59 Blasberg Oberflaechentechnik GmbH (Germany) 100.0 (A)
60 Galvano Production Chemie GmbH (Germany) 100.0 (A)
61 Nihon LPW K.K. (Japan) 40.0 (B)
62 Enthone-OMI (Hong Kong) Company Limited (Hong 5.5 (A)
Kong) (See 78)
63 Enthone-OMI (Italia) S.p.A. (Italy) (See 68) 51.6 (A)
64 Enthone-OMI K.K. (Japan) 100.0 (A)
65 Enthone-OMI (Sverige) A.B. (Sweden) 100.0 (A)
66 IMASA Kemi A.B. (Sweden) 100.0 (A)
67 Enthone-OMI Holdings (Europe) S.A. (France) 100.0 (A)
68 Enthone-OMI Holdings (U.K.) Ltd. (United 17.59 (A)
Kingdom) (See 54)
69 Enthone-OMI (Italia) S.p.A. (Italy) (See 62) 48.4 (A)
70 Imasa A.G. (Switzerland) 40.0 (B) (D)
71 Internacional de Manufacturas Asociadas, S.A. 100.0 (A)
(Spain)
72 OMI Holding S.A. (Switzerland) 100.0 (A)
73 Electroplating Engineers of Japan Ltd. (Japan) 25.0 (B) (D)
(See 44)
74 Enthone-OMI (Suisse) S.A. (Switzerland) 100.0 (A)
75 OMI International Corporation (Delaware) 100.0 (A)
76 Enthone-OMI (Austria) GmbH (Austria) 100.0 (A)
77 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
SUBSIDIARIES AND OTHER ASSOCIATED COMPANIES, cont'd:
<S> <C> <C> <C>
78 Enthone-OMI (Europe) Corporation (Delaware) 100.0 (A)
79 Enthone-OMI (Hong Kong) Company Limited (Hong 94.5 (A)
Kong) (See 61)
80 Hua-Mei Electroplating Technology Company Ltd. 51.0 (B) (D)
(People's Rep.of China)
81 Hua-Mei (Tianjin) Electroplating Technology 51.0 (B) (D)
Company, Ltd.
82 Enthone-OMI (Singapore) Pte. Ltd. (Singapore) 98.4 (A)
(See 40)
83 Enthone-OMI (Malaysia) SDN BHD (Malaysia) 100.0 (A)
84 Federated Metals Canada Limited (Canada) 100.0 (A)
85 Federated Genco Limited (Canada) 60.0 (B) (D)
86 Federated Metals Corporation (New York) 100.0 (A)
87 LSLC Corp. (New York). 100.0 (C)
88 Geominerals Insurance Company, Ltd. (Bermuda) 100.0 (A)
89 Grupo Mexico, S.A. de C.V. (Mexico) 8.17 (B) (F)
90 Lac d'Amiante du Quebec, Ltee (Delaware) 100.0 (A)
91 LAQ Canada, Ltd. (Delaware) 100.0 (A)
92 Mines Trading Company Limited (United Kingdom) 100.0 (C)
93 Mining Development Company (Delaware) 100.0 (A)
94 Empresa Minera Manquiri S.R.L. (Bolivia) (See 18) 50.0 (A)
95 Minto Explorations Ltd. (British Columbia) 55.77 (A)
96 Mission Exploration Company (Delaware) 100.0 (A)
97 Lesarco, Inc. (Phillipines) 30.0 (A)
98 NCBR, Inc. (Delaware) 100.0 (A)
99 Neptune Mining Company (Delaware) 52.2 (B) (D)
100 Northern Peru Mining Corporation (Delaware) 100.0 (A)
101 Silver Valley Resources Corporation (Delaware) 50.0 (A)
102 Southern Peru Copper Corporation (Delaware) 62.6 (A) (E)
103 Southern Peru Limited (Delaware) 100.0 (A)
104 Fomenta, S.A. (Peru) 99.50 (A)
105 Pegasus Travels, S.A. (Peru) 90.0 (A)
106 Logistics Services Incorporated (Delaware) 100.0 (A)
107 LSI-Peru, S.A. (Peru) 98.18 (A)
108 Global Natural Resources Inc. (Delaware) 100.0 (C)
109 Multimines Corporation (Delaware) 100.0 (B)
110 Multimines Insurance Company, Ltd. (Bermuda) 100.0 (A)
111 Recursos e Inversiones Andinas, S.A. (Peru) 99.99 (A)
112 Compania Minera Los Tolmos, S.A. (Peru) 98.05 (B)
113 The International Metal Company (New York) 100.0 (A)
114 Tulipan Company, Inc. (Delaware) 63.0 (B)
</TABLE>
<PAGE>
C10
Form 10-K
NOTES
(A) Included in financial statements of Registrant and consolidated subsidiaries
at December 31, 1997, 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, E and F. 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) Effective January 1, 1995, Asarco consolidated the financial results of SPCC
in its financial statements. Previously, SPCC was accounted for under the equity
method.
(F) Grupo Mexico is carried on the cost method.
<PAGE>
C11
ASARCO INCORPORATED
DEFERRED FEE PLAN FOR DIRECTORS
As Last Amended on January 28, 1998
Section 1. Effective Date. The effective date of the ASARCO Incorporated
Deferred Fee Plan For Directors (the "Plan"), is January 1,
1982.
Section 2. Eligibility. Any Director of ASARCO Incorporated (the
"Company") is eligible to participate in the Plan.
Section 3. Deferred Compensation Account. A deferred compensation
account shall be established for each Director who elects to
participate in the Plan. Each Director's deferred compensation
account shall consist of a cash subaccount and a stock
subaccount.
Section 4. Amount of Deferral. A participant may elect to defer receipt
of all or one-half of the compensation payable to the
participant for serving on the Board of Directors or committees
of the Board of Directors of the Company. An amount equal to the
compensation deferred will be credited to the participant's
deferred compensation account on the date such compensation is
otherwise payable.
Section 5. Time of Election of Deferral. The first election to defer
compensation received during the calendar year, and any
subsequent election modifying the prior election as provided in
Section 10, shall be effective when made and, with respect to
the percentage of compensation deferred, shall only apply to
compensation not then earned. An election, as subsequently
modified, shall continue in force with respect to compensation
earned during such calendar year until the Company is notified
in writing that the participant no longer wishes to defer
compensation for future services on the Board of Directors.
Section 6. Cash Subaccount. Any compensation which a director elects to
defer pursuant to this Plan shall be credited to such Director's
cash subaccount unless such Director elects in writing that all
or a portion of such deferral be credited to his stock
subaccount in accordance with Section 7 of this Plan. Each
deferred compensation cash subaccount will be credited with
interest from the date on which deferred compensation would
normally have been paid, until payment, at a rate equal to the
prime rate of The Chase Manhattan Bank (National Association),
on the first day of each calendar quarter in which such interest
is credited to the participant's deferred compensation cash
subaccount. Interest shall be compounded quarterly.
Section 7. Stock Election. A Director may elect in writing that all or a
portion, in increments of 25%, of the compensation he is
deferring pursuant to the Plan for any year be credited to his
deferred compensation stock subaccount in lieu of his deferred
compensation cash subaccount.
An election by a Director to have an amount credited to his deferred
compensation stock subaccount must be received by the Company prior to January 1
of the calendar year during which the election is to be effective and shall be
irrevocable for the entire year. Such election shall remain in effect for
subsequent years unless changed prior to the January 1 of any such subsequent
year. Notwithstanding the foregoing, however, any such election which is to take
effect in 1988 must be received by the Company prior to April 1, 1988 and shall
be effective only for compensation earned on and after that date.
<PAGE>
C12
A bookkeeping entry shall be made of the number of whole shares of
Company common stock which could be purchased at fair market value with the
compensation credited to such stock subaccount on the day such amount normally
would have been paid to the Director.
The stock subaccount also shall be credited with a bookkeeping entry
indicating the number of additional whole shares which would be payable as a
stock dividend on the shares previously credited to the stock subaccount.
Any deferred compensation amounts which are insufficient to permit the
crediting of a whole share of Company common stock and any amounts which would
represent cash dividends on Company common stock credited to a stock subaccount
shall be carried as a cash balance bookkeeping entry in such stock subaccount.
At such time as the cash balance equals at least the fair market value of one
share of Company common stock, the cash balance bookkeeping entry shall be
converted to an entry representing the number of additional whole shares of
Company common stock which could be purchased at fair market value with such
balance. No interest shall be credited on any such stock subaccount cash
balance.
For purposes of this Section 7, "fair market value" of a share of
Company common stock shall mean the average of the of the high and low prices of
a single share of Company common stock as reported by the Wall Street Journal
for New York Stock Exchange-Composite Trading as of the first trading day
coincident with or next following the day as of which such value is to be
determined.
No election may be made to have amounts previously credited to a
Director's deferred compensation cash subaccount credited instead to his stock
subaccount, and no election may be made to have amounts previously credited to a
Director's stock subaccount credited instead to a cash subaccount.
Section 8. Value of Deferred Compensation Accounts. The value of each
participant's deferred compensation account shall include the
compensation deferred pursuant to Section 4 which is credited to
a Director's deferred compensation cash subaccount, the interest
credited on such compensation pursuant to Section 6, the value
of any shares of Company common stock credited to the Director's
deferred compensation stock subaccount and the cash balance
credited to such stock subaccount, less any payments made under
Section 9.
Section 9. Payment of Deferred Compensation. The value of a
participant's deferred compensation cash subaccount and deferred
compensation stock account shall be payable solely in cash. All
payments of a participant's deferred compensation account shall
be made in a lump sum or in annual installments in accordance
with an election made by the participant as provided in Section
10. At a participant's election, such payments may commence on
January 15 of any year subsequent to the fourth year following
the year in which such fees are earned, provided, that in all
cases payment shall commence on the January 15 of the calendar
year following termination of services as a Director.
If the annual installments are elected, such payments shall be made on
each January 15 in accordance with the participant's election as provided in
Section 10. The amount of the first payment attributable to the cash subaccount
shall be a fraction of the value of the participant's cash subaccount, the
numerator of which is one and the denominator of which is the total number of
installments elected, and the amount of each subsequent payment shall be a
fraction of the value (including interest earned) on the date preceding each
subsequent payment, the numerator of which is one and the denominator of which
is the total number of installments elected minus the number of installments
previously paid.
<PAGE>
C13
The amount of the first payment attributable to the stock subaccount
shall be a fraction of the value of the participant's stock subaccount (based
upon the fair market value of the stock determined under Section 7 plus any cash
balance), the numerator of which is one and the denominator of which is the
number of installments elected, and the amount of each subsequent payment shall
be a fraction of the redetermined value of the participant's stock subaccount,
the numerator of which is one and the denominator of which is the total number
of installments elected minus the number of installments previously paid.
If one lump sum payment is elected, such payment shall be made on the
date designated in accordance with the participant's election as provided in
Section 10.
Section 10. Manner of Electing Deferral and Payment; Changes in
Election. A participant shall elect to defer compensation by
giving written notice to the Company on a form provided by the
Company, which notice shall include (1) the percentage amount to
be deferred; (2) an election of a lump sum payment or the number
of annual installments (not to exceed ten) for the payment of
the deferred compensation; and (3) the date of the lump sum
payment or of the first installment payment, as appropriate. A
participant's election shall remain in effect unless changed in
the manner set forth below. A participant may change his
election with respect to the percentage of deferral at any time
by submitting a new written notice to the Company, provided,
that such a changed election will be effective only for
compensation subsequently earned during the calendar year to
which the election applies. All deferred elections shall be
irrevocable as to compensation previously earned and may not be
changed as to the form or time of payments. Notwithstanding the
foregoing, prior to the calendar year in which payments would
otherwise commence, a participant may request the Company,
subject to the discretion of the Company, (i) to change his
election with respect to the form and time of payments of his
cash subaccount and/or (ii) to change his election with respect
to the form and time of payments of his stock subaccount in
connection with his retirement or termination as a Director,
provided, that no such change may accelerate the time of the
initial payment date of any deferred amount, or delay the
scheduled initial payment day for a period of less than three
years.
Section 11. Designation of Beneficiary. A participant may designate a
beneficiary by giving written notice to the Company on the form
described in Section 10. If no beneficiary is designated, the
beneficiary will be the participant's estate. If more than one
beneficiary statement has been filed, the beneficiary designated
in the statement bearing the most recent date will be deemed the
valid beneficiary.
Section 12. Death of Participant or Beneficiary. In the event of a
participant's death before he has received all of the deferred
payments to which he is entitled hereunder, the value of the
participant's deferred compensation account shall be paid to the
estate or designated beneficiary of the deceased participant in
one lump sum on the first January 15 or July 15 following such
date of death, or as soon as reasonably possible after such
January 15 or July 15, unless the participant has elected to
continue without change the schedule for payment of benefits.
If the distribution is to be made to a beneficiary and such beneficiary
dies before such distribution has been made, the amount of the distribution will
be paid to the estate of the beneficiary in one lump sum.
<PAGE>
C14
Section 13. Participant's Rights Unsecured. The right of any participant
to receive future installments under the provisions of the Plan
shall be contractual in nature only, however, the amounts of
such installments may be held in a trust, the assets of which
shall be subject to the claims of the Company's general
creditors in the event of bankruptcy or insolvency only. Any
installment paid from such trust shall reduce the amount of
benefits owed by the Company.
Section 14. Statement of Account. Statements will be sent to
participants by the end of February of each year as to the value
of their deferred compensation accounts as of the end of
December of the preceding year.
Section 15. Assignability. No right to receive payments hereunder shall
be transferable or assignable by a participant or beneficiary,
except by will or by the laws of descent and distribution.
Section 16. Participation in Other Plans. Nothing in this Plan will
affect any right which a participant may otherwise have to
participate in any other retirement plan or agreement which the
Company may have now or hereafter.
Section 17. Change of Control. (a) Notwithstanding any other provision
of this Plan, in the event of a Change of Control (as defined
below), no person that is not a participant in the Plan
immediately prior to such Change of Control shall be permitted
to be a participant under the Plan following such Change of
Control. Upon and after a Change of Control, this Plan may not
be amended, modified or terminated if any such amendment,
modification or termination would adversely affect any accrued
benefits of a participant or his or her rights with respect to
such accrued benefits in the Plan, unless any such amendment,
modification or termination is consented to in writing by all
such participants. Upon a Change of Control, payment of all of
the value of any and all amounts accrued to the participant
hereunder shall be made to a participant immediately. For
purposes of calculating such payment, a participant's cash
subaccount and/or stock subaccount shall be valued as of the
date of the Change of Control.
(b) Participants who are receiving annual installment payments pursuant to
Section 10 as of January 28, 1998, who do not consent to the provisions
of this Section 17 within sixty (60) days of the date of notice of this
amendment shall continue to receive annual installment payments as
elected pursuant to Section 10 hereof following a Change of Control.
(c) For purposes of this Plan, a "Change of Control" shall be deemed to
have occurred if:
(1) 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") (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;
<PAGE>
C15
(2) 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 of Directors
of the Company 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 of Directors 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;
(3) 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 (i) 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 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 (ii) a merger or consolidation
effected to implement a recapitalization of the Company (or similar
transaction) in which no "person" (as defined herein) acquires more
than 50% of the combined voting power of the Company's then outstanding
securities; or
(4) 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.
Section 18. Amendment. This Plan may at any time or from time to time
be amended, modified or terminated by the Board of Directors of
the Company. No amendment, modification or termination shall,
without the consent of a participant, adversely affect such
participant's accruals in his deferred compensation account.
Section 19. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York.
IN WITNESS WHEREOF, the Company has caused this Amendment to its
Deferred Fee Plan for Directors to be duly adopted and executed by its duly
authorized officers and its corporate seal affixed hereto on the 28th day of
January, 1998.
ASARCO Incorporated
By:_________________
Vice President
Attest:
- ---------------------
Assistant Secretary
[SEAL]
<PAGE>
C16
ASARCO Incorporated
SUPPLEMENTAL PENSION PLAN
FOR DESIGNATED MID-CAREER OFFICERS
(As amended through January 28, 1998)
WHEREAS, the Organization and Compensation Committee (the "Committee")
of the Board of Directors of ASARCO Incorporated (the "Company" or "Asarco") has
been advised by its independent compensation consultants that executive officers
who join or have joined the Company in mid-career, and subsequently serve as
vice president or higher rank for ten or more years, usually do not have
sufficient time before retirement to accrue benefits under existing pension
plans of the Company adequate to their needs or appropriate to reflect their
experience or employment responsibilities, and that a supplemental retirement
benefits plan for such persons should be adopted to remove these inequities, to
encourage the continued association of these executives with the Company, and to
assure that the Company is able to attract and retain executives with valuable
prior experience; and
WHEREAS, the Committee has recommended the adoption of, and the Board
of Directors has approved and decided to adopt, the ASARCO Incorporated
Supplemental Pension Plan for Designated Mid-Career Officers (the "Plan") to
permit the Company to provide supplemental retirement benefits to key officers
identified by the Committee who otherwise would receive retirement benefits
which would not reflect their experience prior to employment with the Company or
would not be appropriate for the position of responsibility which they hold with
the Company.
NOW, THEREFORE, the Company hereby adopts the Plan effective November
24, 1987.
1. DEFINITIONS.
1.1 Committee. Committee is the Organization and Compensation
Committee of the Board of Directors of the Company.
1.2 Executive. Executive is an officer of the Company holding a rank
of Vice President or higher who is determined by the Committee
in its sole discretion to be a person who when first employed by
the Company already had prior business or professional
experience which was valuable to the Company and relevant to the
position for which he was employed. This term shall also include
the Executive's spouse in the event benefit payments, as
described hereinafter, to such spouse have commenced under the
Plan. The terms Executive or Participant shall have identical
meaning in this Plan.
1.3 Final Compensation Rate. The Final Compensation Rate of the
Executive shall mean the average of the sixty highest
consecutive monthly amounts of his basic compensation, bonuses,
and payments he received for his trust account each month under
the Salary Adjustment Program and Contingent Stock Allotment
Plan in the one hundred twenty months preceding his retirement
or termination of employment prior to age 65. Basic compensation
shall include any amount of salary or bonus which is deferred
under any deferred compensation plan of the Company, at the time
the services giving rise to the deferred income are performed.
<PAGE>
C17
1.4 Primary Insurance Amount. The Primary Insurance Amount shall be
the Executive's Primary Insurance Amount for social security
purposes, determined on the basis of the Executive's actual
compensation with respect to years of employment with the
Company. With respect to years of employment, if any, prior to
employment with the Company, the Committee shall estimate the
Executive's income that is treated as wages for purposes of the
Social Security Act. If the Executive's employment with the
Company is terminated prior to age 65, for years following
termination of employment, it shall be assumed for purposes of
calculating the Primary Insurance Amount that the Executive
earns compensation so as to accrue maximum Social Security
benefits.
2. SUPPLEMENTAL BENEFIT. All supplemental benefits under the Plan
shall be determined according to this Section 2.
2.1 Net Annual Benefit. The base annual benefit payable to the
Executive on or after age 65 shall be determined by multiplying
his annualized Final Compensation Rate by 0.55 (fifty-five
percent). This amount shall be reduced by the sum of (i) the
annual amount of any benefits accrued to the date of termination
of employment with the Company (other than benefits attributable
to pre- or post-tax contributions made by the Executive) which
are payable, which have been paid or which will become payable
to the Executive from any defined benefit or money purchase
pension plan (whether qualified or nonqualified) maintained by
the Company or any other employer at any time, and (ii) his
annual Primary Insurance Amount. In the event the Executive has
received, is receiving, or is scheduled to receive benefits from
another such pension plan in any form other than a single life
annuity (including a single sum distribution or a variable
annuity) or at a time other than when benefits commence under
this Plan, the benefits to be taken into account under (i) above
shall be determined in good faith by the Company based on
actuarial assumptions and factors reasonably utilized under the
ASARCO Salaried Retirement Plan (the "Salaried Plan") as of the
date of determination, or to the extent such factors or
assumptions do not contemplate a particular situation which
arises under this Plan, based upon the factors applied by the
Pension Benefit Guaranty Corporation for purposes of determining
the present value of benefits upon termination of a plan with
insufficient assets. In the event of a controversy concerning
the calculation of benefits described in (i) above, the
Committee shall in good faith determine the amount of benefits
pursuant to Section 5 of the Plan. The benefit remaining after
this reduction shall constitute the Executive's Net Annual
Benefit.
2.2 Form and Timing of Payment. (a) Except as otherwise provided
herein, the benefit shall be payable to the Executive in a lump
sum, payable as soon as practicable following the earlier of (i)
the Date of Termination (as defined below), or (ii) a Change of
Control (as defined below) which lump sum shall be calculated as
set forth in Section 2.3. Date of Termination shall mean the day
upon which the Executive is first eligible to receive benefits
at or after age 65 from the Salaried Plan (whether or not
benefits have actually commenced from such plan) except as
provided under Sections 3.1 and 6 below;
<PAGE>
C18
(b) An Executive may elect prior to the Date of Termination to defer
(for a period not to exceed twenty (20) years) the lump sum
payment (the "Deferral Amount") to a future date or to convert
the Deferral Amount to a series of scheduled installments. Such
an election must be made at least twelve (12) months prior to
the Date of Termination, except in the event of termination by
reason of "disability" (as defined for purposes of the Salaried
Plan), in which case the election must be made prior to the Date
of Termination. Any such election may be changed, provided that
no such change shall be given effect unless it is made in
writing at least twelve (12) months prior to the Date of
Termination. The Deferral Amount shall be deemed invested in
accordance with an election to be made by the Executive in such
funds as are provided under the Savings Plan of ASARCO
Incorporated and Participating Subsidiaries ("ASARCO Savings
Plan"), except, however, that the ASARCO Common Stock Fund shall
not be available as a deemed investment under the Plan. ASARCO
will attempt to follow the Executive's elections, but will not
be required to do so. Regardless of whether the Executive's
elections are followed, the Deferral Amount shall be credited
with deemed earnings, gains, losses, expenses and changes in the
fair market value of such Deferral Amount as if ASARCO had
followed such investment designations. The Executive must elect
in writing to have his Deferral Amount deemed invested in
increments of no less than 5%, in one or more of the investment
funds described in the ASARCO Savings Plan. Said election must
total one hundred percent (100%) of his Deferral Amount.
(c) The election of a deemed investment option is the sole
responsibility of each Executive. Neither ASARCO, nor the
Committee, nor any trustee of any trust that may be established
in connection with the Plan are authorized or permitted to
advise (or shall have any liability with respect to) an
Executive as to the election of any option or the manner in
which his Deferral Amount shall be deemed to be invested.
(d) Consistent with this Section 2, each Executive may elect in
writing, that a whole percentage (no less than 5%) or specific
dollar amount of his deemed investment in any fund may be
transferred to any other fund available under the ASARCO Savings
Plan (except for the ASARCO Common Stock Fund). Such election
will be prospective only and will be permitted on a daily basis,
in accordance with rules, if any, as shall be established by
ASARCO.
(e) Notwithstanding paragraphs (a) and (b) above, an Executive may
elect in writing to receive single life annuity payments under
the Plan at approximately the same time as payments are to be
made to the Executive under the Salaried Plan. Such an election
must be made at least twelve (12) months prior to the Date of
Termination, except in the event of termination by reason of
"disability" (as defined for purposes of the Pension Plan), in
which case the election must be made prior to the Date of
Termination. Any such election may be changed , provided that no
such change shall be given effect unless it is made in writing
at least twelve (12) months prior to the Date of Termination.
<PAGE>
C19
(f) At any time subsequent to an Executive's Date of Termination, an
Executive who made an election pursuant to Section 2.2(b) may
request a payment of all or a portion of the value of his
Deferral Amount not yet payable. Such a request shall be
approved by the Committee only upon a finding that the Executive
has suffered a severe financial hardship which has resulted from
events beyond the Executive's control ("Hardship Event"), and
only in the amount reasonably needed to satisfy such Hardship
Event. Whether a Hardship Event has occurred shall be determined
in accordance with Treasury Regulation Sections 1.457-2(h)(4)
and (5). In the event such a payment is approved, payment of all
or a portion of the value of the Deferral Amount shall be made
as soon as practicable to the Executive.
(g) At any time subsequent to an Executive's Date of Termination, an
Executive who made an election pursuant to Section 2.2(b) may
elect the acceleration of payment of all or a portion of the
value of an Executive's Deferral Amount not yet payable subject
to a 6% penalty of the payment amount. Payment of such amount,
less such penalty (which shall be forfeited), shall be paid in
cash in a single lump sum as soon as practicable after the
requested payment date.
(h) Notwithstanding the foregoing, subsequent to his or her Date of
Termination, an Executive who has made an election pursuant to
Section 2.2(b) may file an election to amend such prior election
as to the time of any amount due and payable at least 12 months
subsequent to such amendment, and to change the form of such
payments, provided no such election may accelerate any payment
to a date earlier than 12 months from the date of amendment. The
amended form of payment may be a single sum payment of any
amounts not yet due and payable, or annual installments of any
such amounts, or a combination thereof, with payments extended
for no more than 20 years following the Executive's Date of
Termination.
(i) Upon the death of an Executive who has elected an annuity
form of payment pursuant to Section 2.2(e) above, his or her
surviving spouse, if any, at date of death ("Surviving Spouse")
shall receive 50% of the Net Annual Benefit described in Section
2.1 above for his or her life.
(ii) Upon the death of an Executive in all other events, the
Executive's Surviving Spouse, if any, shall receive any benefits
due the Executive under this Plan at the same time, in the same
form and in the same amount as the Executive would have received
such benefits; provided, however, that such Surviving Spouse
shall be entitled to elect to alter the timing or form of
benefit to the same extent the Executive could have so elected
pursuant to Sections 2.2(b), 2.2(f), 2.2(g) or 2.2(h) above, and
shall be entitled to direct the deemed investment of the
Deferral Amount in the same manner in which the Executive would
have been entitled pursuant to Section 2.2(b).
(iii) In the event of the death of an Executive described in (ii)
above who has no Surviving Spouse, the benefit payable pursuant
to (ii) above shall be paid as soon as practicable in a single
sum to his beneficiary, or if none, to his estate.
<PAGE>
C20
2.3 Calculation of Lump Sum. The amount of the lump sum described in
Section 2.2(a) shall be the lump sum equivalent value of the Net
Annual Benefit, determined by using the following actuarial
assumptions for the Executive (and spouse, if married at the
date of determination):
Interest Rate: The rate will be the yield on U.S. Treasury debt
obligations with a 10-year maturity. The rate will be
determined as of the Date of Termination or, if elected by
the Participant at least 12 calendar months prior to the
Date of Termination, the rate in effect as of the date 12
calendar months prior to the Date of Termination.
Mortality Table: The Mortality Table contained in U.S. Internal
Revenue Service Revenue Ruling 95-6 or any succeeding
Revenue Ruling issued by the Internal Revenue Service for
use in applying the provisions of sections 415 and 417(e) of
the Internal Revenue Code.
2.4 Eligibility for Benefit. Except for payments under Section 3.3
and in the case of a Change of Control (as defined below) no
benefit shall be payable unless the Executive shall have been
in the employ of the Company as a Vice President or officer of
higher rank for a period of at least 10 years on his date of
termination of employment.
3.TERMINATION OF EMPLOYMENT PRIOR TO AGE 65. If the Executive terminates
employment prior to age 65, for any reason, his rights and benefits under the
Plan will be determined in accordance with this Section 3.
3.1 Benefit Commencement. Except as provide in Section 6 upon a
Change of Control, the commencement date of benefit payments
shall be the day upon which the Executive is first eligible
to receive benefits from the Salaried Plan (and the
Executive shall have no right to elect any other
commencement date); provided, however, that at the option of
the Company, the Company may require that the Executive's
benefit commencement date shall be age 65, if later than the
date benefits would otherwise commence hereunder. The option
provided to the Company herein shall not be exercised
unreasonably or in bad faith.
3.2 Benefit Adjustment. If the Executive terminates prior to age
65 for reasons other than death or total and permanent
disability, as determined by the Company's physician, his
Net Annual Benefit shall be reduced by 33/100 of one percent
(0.0033) for each month such termination precedes the month
in which he attains age 65.
<PAGE>
C21
3.3 Death and Disability. If the employment of the Executive
with the Company terminates prior to age 65 but after
completion of at least 10 years service with the Company,
whether or not as an officer, due to reason of total and
permanent disability, as determined by the Company's
physician, the Executive will be eligible for immediate
commencement of benefit payments pursuant to Section 2.
Further, no reduction in Net Annual Benefits will be made
under Section 3.2 above. If the employment of the Executive
with the Company terminates prior to the age 65 but after
completion of at least 10 years service with the Company,
whether or not as an officer, for the reason of death, the
Executive's Surviving Spouse, if any, shall be eligible for
50% of the Executive's Net Annual Benefit set forth in
Section 2.2 above, except that if the spouse is more than 60
months younger than the Executive, such spouse's Net Annual
Benefit shall be reduced by 1/12 of 1% for each full month
by which the spouse is more than 60 months younger than the
Executive; provided, however, that in determining the amount
of such survivor benefit, no reduction shall be made
pursuant to Section 3.2 for the early commencement of
benefits; and further provided, however, such benefits shall
be paid in accordance with Section 2.2 above.
3.4 Company Consent. Except for termination of employment under
Section 3.3 above or in the event of a Change of Control (as
defined below), if the Executive voluntarily terminates
employment with the Company prior to age 65 without the
express, written consent of the Company, all rights of the
Executive to benefits hereunder shall thereupon terminate;
it being understood that if the Executive's employment is
terminated at the Company's request, no benefits hereunder
shall be forfeited pursuant to this Section 3.4.
4.INDEMNIFICATION. The Company shall pay any and all legal fees and expenses
incurred by the Executive in seeking to obtain or enforce any rights under the
Plan, provided that Executive is successful in obtaining or enforcing such
rights.
5.ADMINISTRATION. Issues relating to the administration of the Plan and payment
of benefits thereunder shall be determined in good faith by the Committee
pursuant to the terms of the Plan.
6.CHANGE OF CONTROL. (a) Notwithstanding any other provision of this Plan, in
the event of a Change of Control (as defined below), no person that is not a
Participant in the Plan immediately prior to such Change of
Control shall be permitted to be a Participant under the Plan following such
Change of Control. Upon and after a Change of Control, this Plan may not be
amended, modified or terminated if any such amendment, modification or
termination would adversely affect any accrued benefits of a Participant or
his or her rights with respect to such accrued benefit in the Plan, unless any
such amendment, modification or termination is consented to in writing by all
such Participants. Upon a Change of Control, the benefits under the Plan of a
Participant shall vest at a rate of ten percent (10%) for each year the
Executive served as a Vice President or higher (prorated for partial years)
and the requirement of Sections 2.4, 3.1 and 3.4 shall be deemed waived. Upon
a Change of Control, all of the value of any and all amounts accrued to a
Participant hereunder, adjusted as required under Section 3.2 assuming that
the Executive terminated on the date of a Change of Control at age 55, shall
be paid in a single cash lump sum to the Participant immediately, provided
that in the case of an Executive who has not attained age 55, such amount be
further reduced in accordance with the actuarial assumptions in Section 2.3.
<PAGE>
C22
(b) For purposes of this Plan, a "Change of Control" shall be
deemed to have occurred if:
(1) 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") (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;
(2) 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 of Directors of the Company 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 of Directors 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;
(3) 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 (i) 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 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 (ii) a merger or consolidation
effected to implement a recapitalization of the Company (or similar
transaction) in which no "person" (as defined herein) acquires more
than 50% of the combined voting power of the Company's then outstanding
securities; or
(4) 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.
7.AMENDMENT. The Plan may not be terminated or amended except by action of the
Board of Directors of the Company, and may not be amended to terminate or
reduce or adversely affect benefits to any Executive then participating in the
Plan without the approval of such Executive.
8.FORFEITURE. No forfeiture provisions contained herein shall survive a Change
of Control.
<PAGE>
C23
9. GOVERNING LAW; BINDING EFFECT. The Plan shall be governed and construed
and enforceable in accordance with the laws of the State of New York.
If the Company is consolidated or merged with or into another
corporation, or if another entity purchases all, or substantially all
of the Company's assets the surviving or acquiring corporation shall
succeed to the Company's rights and obligations under the Plan. The
Plan shall inure to the benefit of, and shall be enforceable by, the
Executive's personal or legal representatives, executors,
administrators, successors, heirs, devisees, and legatees.
10. NATURE OF OBLIGATIONS. The Company's obligations to pay benefits under
the Plan shall be contractual in nature only; however, the amounts of
such payments may be held in a trust, the assets of which shall be
subject to the claims of the Company's general creditors in the event
of bankruptcy or insolvency only. Any benefit paid from such trust
shall reduce the amount of benefits owed by the Company.
11. NOTICE. Any notice or filing required or permitted to be given to the
Company shall be sufficient if in writing and hand delivered or when
sent by Registered or Certified mail to the principal office of the
Company, directed to the attention of the Secretary of the Company. Any
notice to the Executive must be in writing and is effective when
delivered or when mailed by Registered or Certified mail, return
receipt requested, postage prepaid to the Executive or his personal
representatives at his last known address.
12. EMPLOYMENT. Nothing contained in the Plan nor any action taken
hereunder shall be construed as a contract guaranteeing the Executive
continued status as an employee. Further, if the Executive has
committed willful misconduct in office materially injurious to the
Company or has been convicted of a felony relating to conduct in office
affecting the Company constituting willful violation of criminal law,
any rights of the Executive under the Plan shall terminate.
13. VALIDITY. In the event any provision of this Plan is held invalid,
void, or unenforceable, the same shall not affect in any respect
whatsoever the validity of any other provision of this Plan. Recipients
in pay status as of January 28, 1998, who do not consent to the
amendment to the Plan, effective January 28, 1998, within sixty (60)
days of the date of notice of the amendment shall continue to receive
benefits in the event of a Change of Control under the terms of the
Plan in effect on the date preceding January 28, 1998.
14. ASSIGNMENT. Executive may not assign, alienate, anticipate, or
otherwise encumber any rights, duties or amounts which he may be
entitled to receive under the Plan.
15. PROTECTIVE PROVISIONS. The Executive shall cooperate in good faith with
the Company in furnishing any and all information reasonably requested
by the Company in order to determine and facilitate benefit payments
under the Plan.
16. GENDER, SINGULAR AND PLURAL. All pronouns in any variations thereof
shall be deemed to refer to the masculine or feminine as the identity
of the person or persons may require. As the context may require, the
singular may be read as the plural and the plural as the singular.
17. CAPTIONS. The captions to the sections and paragraphs of the Plan are
for convenience only and shall not control or affect the meaning or
construction of any of its provisions.
<PAGE>
C24
IN WITNESS WHEREOF, the Plan, as amended through January 28, 1998, has
been adopted by the Company upon the recommendation of the Committee and the
approval of its Board of Directors.
ASARCO Incorporated
By __________________________
Vice President
Attest:
- ------------------------
Assistant Secretary
<PAGE>
C25
ASARCO INCORPORATED RETIREMENT PLAN FOR
NON-EMPLOYEE DIRECTORS
(As Amended through January 28, 1998)
Effective as of January 27, 1988, ASARCO Incorporated
("ASARCO" or the "Company") hereby establishes the ASARCO Incorporated
Retirement Plan for
Non-Employee Directors, a non-qualified deferred compensation plan for the
exclusive benefit of its non-employee directors, pursuant to authorization of
the Board of Directors of ASARCO.
ARTICLE I
INTRODUCTION
Section 1.1 Name of Plan. The name of the plan is the "ASARCO
Incorporated Retirement Plan for Non-Employee Directors." It
is also referred to as the "Plan."
Section 1.2 Effective Date. The effective date of the Plan is
January 27, 1988.
ARTICLE II
DEFINITIONS
Section 2.1 "Board" shall mean the Board of Directors of ASARCO.
Section 2.2 "Compensation Committee" shall mean the Organization and
Compensation Committee of the Board or its delegate.
Section 2.3 "Non-Employee Director" shall mean a director serving on
the Board of ASARCO who is not an employee of ASARCO or any
of its subsidiaries or affiliated business entities.
Section 2.4 "Participant" shall mean a Non-Employee Director.
Section 2.5 "Plan Year" shall mean a calendar year.
Section 2.6 "Year of Service" shall mean 365 days of membership on
the Board both before and after the Effective Date;
provided, however, that in no event shall membership on the
Board from the date of one annual meeting of stockholders of
ASARCO to the date of the next consecutive annual meeting of
such stockholders be treated as less than one Year of
Service. Membership on the Board shall be cumulative for
periods of service on the Board which are not consecutive.
ARTICLE III
BENEFITS UNDER THE PLAN
Section 3.1 Eligibility to Receive Benefits Under The Plan. A
Participant under this Plan shall be eligible to receive
benefits under this Plan only if, at the time of termination
from service on the Board or at any later date, such
Participant has not earned an accrued benefit under any
qualified retirement plan sponsored by ASARCO or any of its
subsidiaries or affiliated businesses. If a Participant
earns an accrued benefit under any such qualified retirement
plan after payments under this Plan to the Participant have
commenced, all future payments made from this Plan on behalf
of such Participant shall immediately be forfeited.
<PAGE>
C26
Section 3.2 Vesting of Benefits Under the Plan. A Participant shall
be vested in benefits provided under the Plan in accordance
with the following schedule:
Years of Service Vested
as an ASARCO Director Percentage
<TABLE>
<CAPTION>
<S> <C>
less than 5 0%
5 but less than 6 50%
6 but less than 7 60%
7 but less than 8 70%
8 but less than 9 80%
9 but less than 10 90%
10 or more 100%
</TABLE>
Section 3.3 Amount of Annual Benefit Payable Under The Plan. A
vested Participant who is eligible to receive benefits under
this Plan shall be entitled to receive an annual benefit
equal to the amount of the annual retainer fee in effect for
service on the Board at the time the Participant's most
recent service on the Board is terminated. Notwithstanding
the above, the aggregate annual amount, if any, payable
during the remainder of the calendar year in which the
Participant terminates service with the Board, shall be
equal to:
(a)The amount of the annual retainer fee in effect at the time
of termination from the Board, minus
(b)The pro rata portion, if any, of the annual retainer fee for
the year the Participant's service is terminated, and during
which the Participant served in the capacity of a director.
Section 3.4 Form of Benefit. Except as provided in Section 3.5,
benefits payable to a Participant shall be paid in the form
of a quarterly single life annuity in an amount equal to
one-fourth of the annual benefit determined in accordance
with Section 3.3.
In no event shall any benefits be payable under the
Plan after the death of a Participant.
Section 3.5 Time and Duration of Payments Under the Plan. Benefits
under the Plan shall commence as of the last day of the
calendar quarter coincident with or next following the later
of the date the Participant attains age 65 or the date the
Participant terminates service on the Board (the "Date of
Termination"). Such payments shall be made on the last day
of each calendar quarter thereafter and shall continue until
the last day of the calendar quarter preceding the
Participant's death; provided, however, that a Participant
may, (i) at least twelve (12) months prior to the Date of
Termination or (ii) in the event of termination by reason of
disability (as determined by the Compensation Committee),
prior to the Date of Termination, elect in writing to
receive such payments in a lump sum, payable as soon as
practicable following the later of the date the Participant
attains age 65 or the Date of Termination. Any such election
may be revoked, provided that no such revocation shall be
given effect unless it is made in writing at least twelve
(12) months prior to the Date of Termination. The amount of
such lump sum shall be the lump sum equivalent value of a
Participant's benefits under the Plan, determined by using
the following actuarial assumptions:
<PAGE>
C27
Interest Rate: The rate will be the yield on U.S. Treasury debt
obligations with a 10-year maturity. The rate will be
determined as of the Date of Termination or, if elected by
the Participant at least 12 calendar months prior to the
Date of Termination, the rate in effect as of the date 12
calendar months prior to the Date of Termination; provided,
however, if at the Date of Termination the Participant has
not attained age 64, such Participant shall have the right
to elect, up to the time of attaining age 64, to apply the
rate in effect as of the date 12 calendar months prior to
the date that benefits commence under the Plan.
Mortality Table: The Mortality Table contained in U.S. Internal
Revenue Service Revenue Ruling 95-6 or any succeeding
Revenue Ruling issued by the Internal Revenue Service for
use in applying the provisions of sections 415 and 417(e) of
the Internal Revenue Code.
Notwithstanding any other provision of this Plan to the
contrary, the Chairperson of the Compensation Committee
may, in his or her sole discretion, direct that
payments be made before such payments are otherwise due
if, for any reason (including, but not limited to, a
change in the tax or revenue laws of the United States
of America, a published ruling or similar announcement
issued by the Internal Revenue Service, a regulation
issued by the Secretary of the Treasury or his
delegate, or a decision by a court of competent
jurisdiction involving a Participant), it believes that
a Participant has recognized or will recognize income
for federal income tax purposes with respect to amounts
that are or will be payable under the Plan before they
are paid. In making this determination, the Chairperson
shall take into account the hardship that would be
imposed on the Participant by the payment of federal
income taxes under such circumstances.
Section 3.6 Non-Assignability of Interests. The interests herein and
the right to receive benefits hereunder may not be
anticipated, alienated, sold, transferred, assigned,
pledged, encumbered, or subjected to any charge or legal
process, and if any attempt is made to do so, or a
Participant becomes bankrupt, the interests under the Plan
of the person affected may be terminated by the Compensation
Committee.
Section 3.7 No Offsets. Under no circumstances shall ASARCO be
entitled to offset benefits payable pursuant to the Plan to
a Participant in any manner with respect to any claim it may
have against such Participant.
<PAGE>
C28
ARTICLE IV
PLAN ADMINISTRATION
Section 4.1 Administration. The Plan shall be administered by the
Compensation Committee. The Compensation Committee shall
have the authority to interpret the Plan and any such
interpretation shall be final and binding on all parties.
The Compensation Committee shall have the authority to
delegate the duties and responsibilities of maintaining
records, issuing such regulations as it deems appropriate,
and making distributions hereunder.
ARTICLE V
CHANGE OF CONTROL,
AMENDMENT AND TERMINATION
Section 5.1 Change of Control. (a) Notwithstanding any other
provision of this Plan, in the event of a Change of Control
(as defined below), no person that is not a participant in
the Plan immediately prior to such Change of Control shall
be permitted to be a Participant under the Plan following
such Change of Control. Upon and after a Change of Control,
this Plan may not be amended, modified or terminated if any
such amendment, modification or termination would adversely
affect any accrued benefits of a Participant or his or her
rights with respect to such accrued benefits in the Plan,
unless any such amendment, modification or termination is
consented to in writing by all such Participants. Upon a
Change of Control, payment of all of the value of any and
all amounts accrued to the Participant hereunder shall be
made to a Participant immediately in a single cash lump sum
calculated using the interest rate and the mortality table
set forth in Section 3.5.
(b) Participants who are receiving quarterly installment
payments pursuant to Section 3.4 as of January 28, 1998 who
do not consent to the provisions of this Section 5.1. within
sixty (60) days of the date of notice of this amendment
shall continue to receive quarterly installment payments as
elected pursuant to Section 3.4 hereof following a Change of
Control.
(c) For purposes of this Plan, a "Change of Control" shall be
deemed to have occurred if:
(1) 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") (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;
<PAGE>
C29
(2) 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 of Directors of the Company 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 of Directors 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;
(3) 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 (i) 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 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 (ii) a merger or consolidation
effected to implement a recapitalization of the Company
(or similar transaction) in which no "person" (as
defined herein) acquires more than 50% of the combined
voting power of the Company's then outstanding
securities; or
(4) 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.
Section 5.2 Amendment and Termination. The Board may amend or
terminate the Plan at any time, provided that no such
amendment or termination shall adversely affect the amounts
payable under the Plan before the time of such amendment or
termination unless the Participant becomes entitled to a
benefit equal in value to such amount under another plan or
practice adopted by ASARCO. ASARCO will pay for all
distributions made pursuant to the Plan and for all costs,
charges and expenses relating to the administration of the
Plan.
ARTICLE VI
MISCELLANEOUS
Section 6.1 Limitation of Rights. Neither the establishment of this
Plan, nor any modification hereof, nor the payment of any
benefits hereunder, shall be construed as giving to any
Participant or other person any legal or equitable right
against ASARCO, or any officer or employee thereof, except
as herein provided. Under no circumstances shall
participation in the Plan be construed to confer upon any
individual the right to remain a member of the Board.
<PAGE>
C30
ASARCO's obligation to pay any benefits under this Plan
shall be contractual in nature only, however, the
amounts of such benefits may be held in a trust, the
assets of which shall be subject to the claims of
ASARCO's general creditors in the event of bankruptcy
or insolvency only. Any benefit paid from such trust
shall reduce the amount of benefits owed by ASARCO.
Section 6.2 Application of Payments. If, for any reason, the
Compensation Committee shall determine that it is not
desirable because of the incapacity of the person who shall
be entitled to receive any payments hereunder, to make such
payments directly to such person, the Compensation Committee
may apply such payment for the benefit of such person in any
way that it shall deem advisable or may make any such
payment to any third person who, in the judgment of the
Compensation Committee, will apply such payment for the
benefit of the person entitled thereto. In the event of such
payment ASARCO and the Board shall be discharged from all
further liability for such payment.
Section 6.3 Applicable Law. All questions pertaining to the
construction, validity and effect of the Plan shall be
determined in accordance with the laws of the
United States and the laws of the State of New York.
IN WITNESS WHEREOF the Plan, as amended through January 28,1998, has
been adopted by the Company upon the recommendation of its Organization and
Compensation Committee and the approval of its Board of Directors.
ASARCO Incorporated
By __________________________
Vice President
Attest:
- ------------------------
Assistant Secretary
<PAGE>
C31
ASARCO Incorporated
Amendment No. 1
to
DIRECTORS' DEFERRED PAYMENT PLAN
(As amended through January 28, 1998)
This Amendment No. 1 to the ASARCO Incorporated Directors' Deferred
Payment Plan (the "Plan"), which was originally adopted October 25, 1995,
restates and amends the text of the Plan, effective as of January 28, 1998, to
read as follows:
Section 1. Effective Date. The effective date of the Plan as originally
adopted is October 25, 1995; the effective date of the Plan as hereby amended is
January 28, 1998.
Section 2. Eligibility. Any Director of ASARCO Incorporated (the
"Company") elected to the Board of Directors after October 25, 1995 and who is
not an employee of the Company is eligible to participate in the Plan. The
following transitional provisions applied to participation in the Plan by the
Company's Directors elected prior to October 25, 1995 who are not Company
employees.
2.1 Directors with ten or more years of Board service as
of October 25, 1995 shall continue to be eligible to
receive benefits under the ASARCO Incorporated
Retirement Plan for Non-Employee Directors (the
"Directors' Retirement Plan"). Such Directors shall
not participate in the Plan except as to the amount
of any credits to the Plan reallocated from the
Directors' Retirement Plan pursuant to Section 2.4
below.
2.2 Directors with at least five years but less than ten
years of Board service as of the date hereof shall be
eligible to accrue benefits under the Plan commencing
January 1, 1996 until December 31 of the year in
which they attain their tenth Board service
anniversary date, or such earlier or later date as
would cause the sum of such Director's credited years
of service under the Directors' Retirement Plan plus
months of credited service under the Plan to equal
ten full years of service. Such Directors shall
continue to be eligible to accrue benefits under the
Directors' Retirement Plan to the extent such
benefits are accrued for benefit computation purposes
as of December 31, 1995, and may reallocate
Directors' Retirement Plan benefits to this Plan
pursuant to Section 2.4 below.
<PAGE>
C32
2.3 Directors with less than five years of Board service
as of December 31, 1995 shall receive an initial
credit under the Plan equal to 75 percent of the
current annual cash retainer for Directors times the
number of years (rounded to the nearest quarter of a
year) of Board service as of December 31, 1995. Such
Directors shall thereafter be eligible to receive
benefits under the Plan through their tenth year of
Board service (that is, until their tenth anniversary
date). Such Directors shall not be eligible for any
benefits under the Directors' Retirement Plan.
2.4 All directors who would have vested benefits as of
December 31, 1995 under the Directors' Retirement
Plan (at least five years of Board service) will be
entitled to reallocate to their account in the
Deferred Payment Plan by an election made on or prior
to December 31, 1995 the lump-sum present value of
their accrued pension benefit as of December 31,
1995. For purposes of computing the lump sum present
value of accrued pension benefits at December 31,
1995 and to discount such amount if it is reallocated
to the Deferred Payment Plan prior to December 31,
1995, a discount rate of 6 percent per annum, the
10-year Treasury bill interest yield rate as in
effect on October 25, 1995 will be used.
Any such election, once made, shall terminate an
electing director's benefits under the Directors'
Retirement Plan.
2.5 Directors who commence Board service after December
31, 1995 shall be eligible to receive benefits under
the Plan through their tenth year of Board service
(that is, until their tenth anniversary date).
Section 3. Deferred Payment Account. A deferred payment account shall
be established for each eligible Director. Each such Director's deferred payment
account shall consist of a stock equivalent subaccount and, if the Director
elects to participate in the U.S. Treasury bond equivalent described below, a
bond equivalent subaccount.
Section 4. Amount of Deferral. The Company shall credit an amount equal
to 75 percent of a Director's annual cash retainer to the participant's deferred
payment account. These credits will be made at the time of each quarterly
payment made of a Director's annual cash retainer for years beginning January 1,
1996.
Section 5. Time of Credit. Credits to the participant's deferred
payment accounts shall be made by the Company on each date when the Company pays
the Director's annual cash retainer. Amounts reallocated from the Directors'
Retirement Plan to this Plan pursuant to Section 2.4 hereof shall be credited to
the Director's account on the date the Director's election is made pursuant to
Section 2.4.
<PAGE>
C33
Section 6. Stock Election. At least 50 percent of each Director's
deferred payment account shall be credited to the stock equivalent subaccount. A
Director may elect in writing that additional amounts, in increments of 25
percent, of the deferred payment account shall be credited to his stock
equivalent subaccount.
An election by a Director under this Section 6 must be received by the
Company prior to January 1 of the calendar year during which the election is to
be effective and shall be irrevocable for the entire year. Such election shall
remain in effect for subsequent years unless changed prior to the January 1 of
any such subsequent year. If no such election is made, amounts credited to the
deferred payment account shall be allocated 100 percent to the stock equivalent
subaccount.
A bookkeeping entry shall be made on the number of whole shares of
Company Common Stock which could be purchased at "fair market value" as defined
below in this Section with the amount credited to such stock equivalent
subaccount on the date as of which such credit is made except that for amounts
reallocated to this Plan from the Directors' Retirement Plan, such fair market
value shall be determined at the average of the high and low prices on New York
Stock Exchange - Composite Transactions on the date of the Director's election
pursuant to Section 2.4.
The stock equivalent subaccount also shall be credited on each dividend
payment date with a bookkeeping entry indicating the number of additional whole
shares which could be purchased with the dividend on the shares previously
credited to the stock equivalent subaccount.
Any deferred payment amounts which are insufficient to permit the
crediting of a whole share of Company Common Stock and any amounts which would
represent cash dividends on Company Common Stock credited to a stock equivalent
subaccount shall be carried as a cash balance bookkeeping entry in such stock
subaccount. At such time as the cash balance equals at least the fair market
value of one share of Company Common Stock, the cash balance bookkeeping entry
shall be converted to an entry representing the number of additional whole
shares of Company Common Stock which could be purchased at fair market value
with such balance. No interest shall be credited on any such stock equivalent
subaccount cash balance.
For purposes of this Section 6, "fair market value" of a share of
Company Common Stock shall mean the average of the high and low prices of a
single share of Company Common Stock as reported by the Wall Street Journal for
New York Stock Exchange - Composite Trading for the trading day next preceding
the day as of which such value is to be determined.
No election may be made to have amounts previously credited to a
Director's bond equivalent subaccount credited instead to his or her stock
equivalent subaccount, and no election may be made to have amounts previously
credited to a Director's stock equivalent subaccount credited instead to a bond
equivalent subaccount except that a Director who has elected pursuant to Section
9 or Section 12 to receive annual installments may, at least six months prior to
the date such payments would commence or at least six months prior to the
effective date of election elect to transfer on the date such payments commence
the fair market value of the entire stock equivalent subaccount to the bond
equivalent subaccount. Following retirement, a Director may, by written notice
at least 30 days prior to any annual installment payment date, elect to transfer
any entire remaining balance in the stock equivalent subaccount to the bond
equivalent subaccount.
<PAGE>
C34
The stock equivalent subaccounts shall be adjusted to reflect any stock
split, stock dividend, recapitalization, merger, consolidation, reorganization
or other similar change in the Company's Common Stock.
Section 7. Bond Equivalent Subaccount. Each bond equivalent subaccount
will be credited with interest from the date of initial credit until payment as
follows. The bond equivalent subaccount will be credited at the end of each
calendar quarter with interest at the yield rate for U.S. Treasury debt
obligations with a 10-year maturity effective for the last business day in each
quarter. Amounts so credited will be added to the balance in such subaccount.
Section 8. Value of Deferred Payment Accounts. The value of each
participant's deferred payment account shall include the amount which is
credited to a Director's bond equivalent subaccount, the interest credited on
such amount pursuant to Section 7, the value of any shares of Company Common
Stock credited to the Director's stock equivalent subaccount and the cash
balance credited to such stock equivalent subaccount, all with respect to the
amount deferred pursuant to Section 4 and the amount, if any, reallocated from
the Directors' Retirement Plan pursuant to Section 2.4, and less any payments
made under Section 9.
Section 9. Payment of Deferred Compensation. The value of a
participant's bond equivalent subaccount and stock equivalent account shall be
payable solely in cash. All payments of a participant's deferred compensation
account shall be made in a lump sum or in annual installments in accordance with
an election made by the participant. In all cases payment shall be made on the
date of termination of services as a Director unless payment on the next January
15 or annual installments are elected.
If a lump sum payment is elected, the participant shall have the right
to elect at least one year prior to the year of payment that all or part of such
lump sum payment shall be made on the January 15 next following the year on
which such lump sum payment would otherwise occur.
If annual installments are elected, such payments shall be made in
accordance with the participant's election. The amount of the first payment
attributable to the bond equivalent subaccount shall be a fraction of the value
of the participant's bond equivalent subaccount, the numerator of which is one
and the denominator of which is the total number of installments elected, and
the amount of each subsequent payment shall be a fraction of the value
(including interest earned) on the date preceding each subsequent payment, the
numerator of which is one and the denominator of which is the total number of
installments elected minus the number of installments previously paid.
The amount of the first payment attributable to the stock equivalent
subaccount shall be a fraction of the value of the participant's stock
equivalent subaccount (based upon the fair market value of the stock determined
under Section 6 plus any cash balance), the numerator of which is one and the
denominator of which is the number of installments elected, and the amount of
each subsequent payment shall be a fraction of the redetermined value of the
participant's stock equivalent subaccount, the numerator of which is one and the
denominator of which is the total number of installments elected minus the
number of installments previously paid.
If one lump sum payment is elected, such payment shall be made on the
date designated in accordance with the participant's election.
<PAGE>
C35
Section 10. Changes in Election. At least one year prior to the
calendar year in which payments would otherwise commence, a participant may
request the Company, subject to the discretion of the Company, (i) to change his
or her election with respect to the time of payments of his or her bond
equivalent subaccount and/or (ii) to change his or her election with respect to
the time of payments of his or her stock equivalent subaccount in connection
with his or her retirement or termination as a Director, provided, that no such
change may accelerate the time of the initial payment date of any deferred
amount.
Section 11. Change of Control. (a) Notwithstanding any other provision
of this Plan, in the event of a Change of Control (as defined below), no person
that is not a participant in the Plan immediately prior to such Change of
Control shall be permitted to be a participant under the Plan following such
Change of Control. Upon and after a Change of Control, this Plan may not be
amended, modified or terminated if any such amendment, modification or
termination would adversely affect any accrued benefits of a participant or his
or her rights with respect to such accrued benefits in the Plan, unless any such
amendment, modification or termination is consented to in writing by all such
participants. Upon a Change of Control, payment of all of the value of any and
all amounts accrued to the participant hereunder shall be made to a participant
immediately. For purposes of calculating such payment, a participant's bond
equivalent subaccount and/or stock equivalent subaccount shall be valued as of
the date of the Change of Control.
(b) Participants who have deferred a lump sum payment or are
receiving annual installment payments pursuant to Section 9 as of the date of
this Amendment No. 1 who do not consent to the provisions of this Section 11
within sixty (60) days of notice of this amendment shall continue to receive
annual installment payments as elected pursuant to Section 9 hereof following a
Change of Control.
(c) For purposes of this Plan, a "Change of Control" shall be
deemed to have occurred if:
(1) 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") (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;
(2) 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 of Directors
of the Company 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 of Directors 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;
<PAGE>
C36
(3) 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 (i) 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 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 (ii) a merger or consolidation
effected to implement a recapitalization of the Company (or similar
transaction) in which no "person" (as defined herein) acquires more
than 50% of the combined voting power of the Company's then outstanding
securities; or
(4) 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.
Section 12. Designation of Beneficiary. A participant may designate a
beneficiary by giving written notice to the Company. Attention: Secretary. If no
beneficiary is designated, the beneficiary will be the participant's estate. If
more than one beneficiary statement has been filed, the beneficiary designated
in the statement bearing the most recent date will be deemed the valid
beneficiary.
Section 13. Death of Participant or Beneficiary. In the event of a
participant's death before he or she has received all of the deferred payments
to which he or she is entitled hereunder, the value of the participant's
deferred payment account shall be paid to the estate or designated beneficiary
of the deceased participant in one lump sum on the first January 15 or July 15
following such date of death, or as soon as reasonably possible after such
January 15 or July 15, unless the participant has elected to continue without
change the schedule for payment of benefits.
If the distribution is to be made to a beneficiary and such beneficiary
dies before such distribution has been made, the amount of the distribution will
be paid to the estate of the beneficiary in one lump sum.
Section 14. Participant's Rights Unsecured. The right of any
participant to receive payments under the provisions of the Plan shall be
contractual in nature only, however, the Company reserves the right to establish
a trust to provide an alternative source of benefit payments under the Plan, the
assets of which shall be subject to the claims of the Company's general
creditors in the event of bankruptcy or insolvency only. Any payments paid from
such trust shall reduce the amount of benefits owed by the Company.
Section 15. Statement of Account. Statements will be sent to
participants by the end of February of each year as to the value of their
deferred payment accounts as of the end of December of the preceding year.
Section 16. Assignability. No right to receive payments hereunder shall
be transferable or assignable by a participant or beneficiary, except by will or
by the laws of descent and distribution.
Section 17. Participation in Other Plans. Nothing in the Plan will
affect any right which a participant may otherwise have to participate in any
other retirement plan or agreement which the Company may have now or hereafter.
<PAGE>
C37
Section 18. Amendment. This Plan may at any time or from time to time
be amended, modified or terminated by the Board of Directors of the Company. No
amendment, modification or termination shall, without the consent of a
participant, adversely affect such participant's balances in his or her deferred
payment account.
Section 19. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York.
IN WITNESS WHEREOF, the Company has caused this Amendment No. 1 to its
Directors' Deferred Payment Plan to be duly adopted and executed by its duly
authorized officers and its corporate seal affixed hereto on the 28th day of
January, 1998.
ASARCO Incorporated
By:_________________
Vice President
Attest:
- ---------------------
Assistant Secretary
[SEAL]
<PAGE>
C38
ASARCO Incorporated
Compensation Deferral Plan
(as amended through January 28, 1998)
WHEREAS, the Board of Directors of ASARCO Incorporated (the "Board of
Directors") has adopted, and the stockholders of ASARCO Incorporated have
approved, an Incentive Compensation Plan for Senior Officers (the "Incentive
Plan");
WHEREAS, the Incentive Plan permits, in the discretion of the Organization and
Compensation Committee of the Board of Directors (the "Committee") deferral of
payments within limits established by the Committee;
WHEREAS, the Company (as hereinafter defined) maintains a program known as the
Incentive Compensation Award Plan for exempt salaried employees (the "Incentive
Compensation Plan"). The Incentive Compensation Plan is a flexible bonus program
based on targets of earnings, performance levels and other considerations that
are determined by the Committee (or the Board of Directors, in the case of
directors who are also officers) each year taking into account factors, which
may include the results of the Company's operations, its financial position and
the performance of each management group;
WHEREAS, the Board of Directors adopted the ASARCO Incorporated Supplemental
Savings Plan ( the "Supplemental Savings Plan") to provide supplemental
retirement benefits to those employees who are affected by Section 401(a)(17) of
the Internal Revenue Code of 1986, as amended (the "Code"), which imposes
limitations on the amount of annual compensation that may be taken into account
for all "tax-qualified" plan purposes;
WHEREAS, the Board of Directors deems it advisable to rename the Supplemental
Savings Plan as the ASARCO Incorporated Compensation Deferral Plan (the "Plan")
and amend and restate it, as set forth herein, to include deferrals to be made
under the Incentive Plan and the Incentive Compensation Plan; and
WHEREAS, the Committee has adopted the Plan as its administrative guidelines to
permit the deferral of compensation pursuant to the Incentive Plan and has
recommended to the Board of Directors the adoption of the Plan as its amendment
and restatement of the Supplemental Savings Plan to permit the continuation of
deferrals made thereunder and additional deferrals of salaries for employees
affected by Section 401(k)(3) of the Code, and to permit deferrals of awards
made pursuant to the Incentive Compensation Plan, and the Board of Directors has
approved and decided to adopt the Plan as recommended.
NOW, THEREFORE, the Board of Directors hereby renames the Supplemental Savings
Plan and amends and restates it in its entirety by adopting the ASARCO
Incorporated Compensation Deferral Plan as herein after set forth.
Section 1 - Effective Date
The effective date of the ASARCO Incorporated Compensation Deferral Plan ( the
"Plan") shall be February 1, 1995 except as to (i) deferrals of salaries for
employees affected by Section 401(k)(3) of the Code, and (ii) incentive
compensation deferrals under the Incentive Compensation Plan ("Incentive
Compensation Plan") and the Incentive Compensation Plan for Senior Officers
("Incentive Plan"), for which the effective date shall be December 1, 1996 (the
"Effective Date").
<PAGE>
C39
Section 2 - Eligibility
(a) Salary Deferral
For purposes of salary deferral, any employee eligible to participate
in the Savings Plan of ASARCO Incorporated and Participating
Subsidiaries ("Asarco Savings Plan") who:
(i) had compensation from the Company of at least $80,000 (or such
other greater limit as may be established under Code Section
414(q)(1)(B)(1)) (the "HCE Limit") for the calendar year preceding the
year for which the election is effective, or
(ii) has an annualized base salary equal to or greater than the HCE
Limit for the year for which the election is effective, or
(iii) had 1996 contributions under the Asarco Savings Plan returned in
1997 as a result of limitation imposed by Code Section 401(k)(3)
shall be considered an "Eligible Employee". Except as otherwise
provided herein ASARCO Incorporated and its Participating Subsidiaries
shall be referred to herein as the "Company". Participating Subsidiary
shall mean a subsidiary of ASARCO Incorporated that has adopted the
Plan.
(b) Incentive Compensation Deferral
For purposes of incentive compensation deferrals under the Incentive
Compensation Plan and the Incentive Plan, any exempt salaried employee
of the Company who meets the compensation requirements of Section
2(a)(i) or 2 (a) (ii) above, shall be considered an "Eligible
Employee".
Section 3 - Participation
(a) Election to Defer
(1) Salary Deferral. To become a participant in the salary deferral
component of the Plan for a particular calendar year, an Eligible
Employee must elect, prior to the beginning of such calendar year, to
defer receipt of a percentage of his base annual salary to be earned
during the calendar year (an Eligible Employee who has a valid election
in effect under this section 3 shall be referred to herein as a
"Participant"). Such an election shall be in writing on forms
prescribed by the Committee, which election shall include the
percentage amount to be deferred. A Participant's election to defer
with respect to a calendar year under this subsection (a)(1) shall
continue in effect for all subsequent calendar years until changed in
accordance with subsection (e). An employee of the Company that becomes
an Eligible Employee after the Effective Date may elect to become a
Participant in the Salary Deferral component of the Plan for the
calendar year in which he becomes an Eligible Employee by electing to
defer a percentage of his base annual salary (in accordance with
Section 3(b)) within 30 days of becoming an Eligible Employee. The
election will be effective on a prospective basis beginning with the
payroll period that occurs as soon as administratively practicable
following receipt of the election by the Committee.
<PAGE>
C40
(2) Incentive Compensation Deferral. To become a participant in the
Incentive Compensation Deferral component of the Plan for a particular
calendar year, an Eligible Employee must elect, prior to the beginning
of such calendar year, to defer receipt of an amount not to exceed 100
percent of his award under the Incentive Plan or the Incentive
Compensation Plan, or both as the case may be (the "Incentive
Compensation Award"), declared during the calendar year to which the
election relates. Such an election shall be in writing on forms
prescribed by the Committee as described in Section (3)(a) (1) above. A
Participant's election to defer with respect to a calendar year under
this subsection (a)(2) shall continue in effect for all subsequent
calendar years until changed in accordance with subsection (e).
(b) Deferral Amount
1) Salary Deferral. A Participant who meets the requirements of Section
3(a)(1) for a calendar year may elect to have the following amounts
(the "Salary Deferral Amount") credited to his account for such
calendar year or portion thereof during which an election is effective
(the "Deferral Period"):
(a) the Participant's elected salary deferral contribution percentage
under the Asarco Savings Plan as in effect on January 1 of such year,
multiplied by the Participant's base annual salary in excess of the
Code Section 401(a)(17) limit, as adjusted from time to time ($150,000
in 1996) (the "Compensation Limit"); provided, however, that the total
amount of Salary Deferrals under this subsection cannot exceed twelve
percent of the Participant's base annual salary in excess of the
Compensation Limit; and
(b) the product of (i) multiplied by (ii), where (i) is the
Participant's elected salary deferral contribution percentage under
this Plan (not to exceed twelve percent) reduced by the maximum
contribution percentage permitted for highly compensated employees
under the Asarco Savings Plan due to the limitations imposed by Code
Section 401(k)(3) or by the Plan Administrator for the Asarco Savings
Plan for such calendar year, and, (ii) is the lesser of the
Participant's base annual salary for such year or the Compensation
Limit.
(2) Incentive Compensation Deferral. The amount of a Participant's
incentive compensation deferral for a Deferral Period shall be any
whole dollar amount or whole percent of his Incentive Compensation
Award declared during the calendar year as elected by the Participant
(the "Incentive Compensation Deferral Amount"). In the event the award
declared is less than the dollar amount specified in the Participant's
election, the full amount of the award shall be deferred (subject to
Section 13).
(c) Irrevocability of Election
Subject to the provisions of subsection (e) of this Section 3, a
deferral election hereunder shall be irrevocable.
<PAGE>
C41
(d) Employer Provided Benefit
With respect to each Deferral Period, the Company shall make a deemed
matching contribution equal to 50% of each Participant's Salary
Deferral Amount (each such deemed matching contribution, an "Employer
Provided Benefit); provided, however, that no Participant's Employer
Provided Benefit with respect to a particular year may exceed the
amount by which 3% of such Participant's base salary for such year
exceeds the matching contribution made by the Company on the
Participant's behalf under the Asarco Savings Plan for such year. Each
such Employer Provided Benefit shall be deemed to be invested in
accordance with the applicable Participant's investment election, as
provided in Section 4.
(e) Change of Election
A Participant may change his election to defer once in each calendar
year. Such an election to change shall be in writing, on forms
prescribed by the Committee. Such change of election shall first be
effective for the calendar year following the election change date.
(f) Special Incentive Awards
Notwithstanding anything to the contrary herein, the Committee, in its
discretion, may provide for any amounts awarded to a Participant by the
Board or the Committee as a special incentive award under the Incentive
Compensation Plan to be deferred pursuant to the terms of this Plan and
credited, at the sole cost and expense of the Company, on behalf of a
Participant to a Participant's Account (as defined below), subject to
the terms and limitations of the award ("Special Incentive Awards").
Section 4 - Deemed Investment Provisions
(a) A Participant's Salary Deferral Amount, Incentive Compensation Deferral
Amount, Employer Provided Benefit and Special Incentive Compensation
Awards (together, the "Deferral Amounts") shall be deemed invested in
accordance with the Participant's election in such funds as are
provided under the Asarco Savings Plan, except, however, that the
Asarco Common Stock Fund shall not be available as a deemed investment
under the Plan. The Company will attempt to follow the Participants'
elections, but will not be required to do so. Regardless of whether the
Participants' elections are followed, the Participant Accounts (as
defined in Section 5(a)) shall be credited with deemed earnings, gains,
losses, expenses and changes in the fair market value of such
Participant Accounts as if the Company had followed such investment
designations.
(b) At the time of the election to participate in the Plan, the Participant
must elect in writing to have his Deferral Amounts deemed invested, in
increments of no less than 5%, in one or more of the investment funds
described in Section 4(a). Said election must total one hundred percent
(100%) of his Deferral Amounts.
(c) Each Participant may elect in writing that his future Deferral Amounts
be deemed invested in a proportion different from that previously
elected, but the new election shall be prospective only and shall be
made in accordance with paragraph (b) of this Section 4. Changes in
such deemed investments may be made by a Participant on a daily basis,
in accordance with rules, if any, as shall be established by the
Committee.
<PAGE>
C42
(d) The election of a deemed investment option is the sole responsibility
of each Participant. Neither the Company, nor the Committee, nor any
trustee of any trust that may be established in connection with the
Plan are authorized or permitted to advise (or shall have any liability
with respect to) a Participant as to the election of any option or the
manner in which his Deferral Amounts shall be deemed to be invested.
(e) Consistent with this Section 4, each Participant may elect in writing,
that a whole percentage (no less than 5%) or specific dollar amount of
his deemed investment in any fund may be transferred to any other fund
available under the Plan. Such election will be prospective only and
will be permitted on a daily basis, in accordance with rules, if any,
as shall be established by the Committee.
Section 5 - Value and Payment of Benefits
(a) Participant Account
A bookkeeping account shall be established in the financial records of
the Company for each Participant ("Participant Account") to which there
shall be credited for each year during which a deferral election is in
effect, (i) the Participant's Deferral Amounts and (ii) deemed
investment earnings or losses arising therefrom based on the
Participant's elections pursuant to Section 4, as in effect from time
to time in accordance therewith.
(b) Payment of Benefits
Subject to paragraphs (c) and (d) of this Section 5, each Participant
shall receive the value of his Participant Account in cash as elected
under the Plan (subject to Section 13 and 14) as soon as practicable in
the year following the year of the Participant's early or normal
retirement from the Company. If a Participant terminates service with
the Company prior to qualifying for early retirement, the value of his
Participant Account will be distributed as soon as practicable
following the termination from service in cash as elected under the
Plan (subject to Section 13). In the event of the death of a
Participant before receiving the value of his Participant Account, such
distribution shall be paid to his beneficiary or beneficiaries
designated pursuant to Section 6.
(c) Financial Hardship of Participants
Except as may otherwise be provided by the terms of a Special Incentive
Award, at any time prior to commencement of payment of benefits
pursuant to paragraph (b) of this Section 5, a Participant may request
a payment of all or a portion of the value of his Participant Account.
Such a request shall be approved by the Committee only upon a finding
that the Participant has suffered a severe financial hardship which has
resulted from events beyond the Participant's control ("Hardship
Event"), and only in the amount reasonably needed to satisfy such
Hardship Event. Whether a Hardship Event has occurred shall be
determined in accordance with Treasury Regulation Sections 1.457-
2(h)(4) and (5). In the event such a payment is approved, payment of
all or a portion of the value of the Participant Account shall be made
as soon as practicable to the Participant.
<PAGE>
C43
(d) Withdrawals
(1) Adequate Prior Notice. Except as may otherwise be provided by the
terms of a Special Incentive Award, absent a Hardship Event, a request
for a payment of all or a portion of the value of a Participant's
Participant Account may be made by such Participant prior to the
payment of benefits pursuant to paragraph (b) of this Section 5,
subject to prior written notice to the Committee (in accordance with
such rules and on such forms as the Committee may prescribe) at least 1
year prior to the requested payment date. Such payment shall be made in
cash in a single lump sum (subject to Section 13 and 14) as soon as
practicable after such requested payment date.
(2) Other Withdrawals. Except as may otherwise be provided by the terms
of a Special Incentive Award, and absent a Hardship Event or adequate
prior notice (in accordance with paragraph (d)(1) above), a request for
a payment of all or a portion of the value of a Participant's
Participant Account may be made by such Participant prior to the
payment of benefits pursuant to paragraph (b) of this Section 5,
subject to a 6% penalty of the amount of the requested payment, which
penalty shall be deducted from the requested payment. The requested
payment, less such penalty, shall be paid in cash in a single lump sum
(subject to Section 13 and 14) as soon as practicable after the
requested payment date.
(e) Change of Election
Notwithstanding the foregoing, subsequent to his or her date of
termination, a Participant who has made an election pursuant to this
Section 3 may file an election to amend such prior election as to the
time of any amount due and payable at least twelve (12) months
subsequent to such amendment, and to change the form of such payments,
provided no such election may accelerate any payment to a date earlier
than twelve (12) months from the date of amendment. The amended form of
payment may be a single sum payment of any amounts not yet due and
payable, or annual installments of any such amounts, or a combination
thereof. The Deferral Period or any further deferral made under this
Subsection (e) may not exceed twenty (20) years from the date of
termination of the Participant.
Section 6 - Designation of Beneficiary
A Participant may designate one or more beneficiaries by giving written notice
to the Committee on the form of Attachment I hereto or such other form as may be
provided by the Committee for that purpose. If no beneficiary is so designated,
a Participant's beneficiary will be the legal representative of the
Participant's estate. If more than one beneficiary statement has been filed, the
beneficiary or beneficiaries designated in the statement bearing the most recent
date will be deemed the valid beneficiary.
<PAGE>
C44
Section 7 - Participant's Rights Unsecured
This Plan shall be unfunded, and the right of any Participant or beneficiary to
receive payment under the provisions of the Plan shall be an unsecured claim
against the general assets of the Company, and no provisions contained in the
Plan shall be construed to give any Participant or beneficiary at any time a
security interest in any Participant Account or any asset of the Company. The
liabilities of the Company to any Participant or beneficiary pursuant to the
Plan shall be solely those of a debtor pursuant to such contractual obligations
as are created by the Plan. Amounts, if any, which may be set aside by the
Company for accounting purposes may be held in trust, the assets of which shall
be subject to the claims of the Company's or the employing Participating
Subsidiary's creditors, as the case may be, in the event of the Company's or
applicable Participating Subsidiary's bankruptcy or insolvency only. Any
Deferral Amount paid from such trust shall reduce the amount of such benefits
owed by the Company, or the applicable Participating Subsidiary. No Participant
or beneficiary shall have any right to, or control or incidence of ownership
with respect to, any such amounts or any other assets of the Company, or any
subsidiary of the Company.
Section 8 - Non-Alienation of Benefits
No benefit payable under or interest in the Plan shall be subject in any manner
to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance or
charge (in each case, whether voluntary or involuntary), and any such attempted
action shall be void and no such benefit or interest shall be in any manner
liable for or subject to debts, contracts, liabilities, engagements or torts of
any Participant, former Participant or beneficiary. If a Participant, former
Participant or beneficiary shall attempt to anticipate, alienate, sell,
transfer, assign, pledge, encumber or charge any benefit payable under or
interest in the Plan in contravention of the foregoing sentence, the Committee
will disregard the attempted transfer, assignment, or other alienation, and will
pay the value of his Participant Account in accordance with the terms of Section
5.
Section 9 - Administration of the Plan
The Plan shall be administered by the Committee. The Committee shall construe
and interpret the Plan and may adopt rules and regulations governing the
administration of the Plan, as well as exercise any duties and powers conferred
on it by the terms of the Plan. The Committee shall act by vote or written
consent of a majority of its members or otherwise as in accordance with its
general procedures as in effect from time to time.
Section 10 - Amendment or Termination of the Plan
Except as provided in Section 14 hereof, this Plan may at any time or from time
to time be amended, modified or terminated by the Board of Directors. In the
event that the Board of Directors determines that it is inadvisable to continue
to maintain the Plan for any reason, it may provide that no further deferrals
shall be allowed under this Plan and (a) that amounts credited to each
Participant Account shall be paid out immediately in a cash lump-sum, or (b)
provide that payments shall continue to be made pursuant to the provisions of
Section 5 with respect to then existing Participant Accounts, which shall
continue to be credited with deemed investment earnings or losses in accordance
with Section 5 (a) until paid in full in accordance with Section 5.
<PAGE>
C45
Section 11 - No Entitlement to Awards or Right of Continued Employment
Neither the establishment of the Plan nor the payment of any benefits hereunder
nor any action of the Company, a subsidiary of the Company, or the Committee
shall be held or construed to confer upon any person any legal right to be
awarded any amounts under the Incentive Plan or the Incentive Compensation Plan
or to continue in the employ of the Company or a subsidiary of the Company. The
Company and its subsidiaries expressly reserve the right to discharge any
Participant whenever the interest of any such company in its sole discretion may
so require without liability to such company or the Committee except as to any
rights which may be expressly conferred upon such Participant under the Plan.
Section 12 - Discretion of Company, Board of Directors and Committee
(a) Any decision made or action taken by the Company or by the Board of
Directors or by the Committee arising out of or in connection with the
construction, administration, interpretation and effect of the Plan
shall lie within the absolute discretion of the Company, the Board of
Directors or the Committee, as the case may be, and shall be final,
conclusive and binding upon all persons.
(b) No member of the Board of Directors or of the Committee or officer or
employee of the Company or its subsidiaries shall be liable for any act
or action hereunder, whether of commission or omission, taken by any
other member, or by any officer, agent, or employee, except in
circumstances involving his bad faith for anything done or omitted to
be done by himself.
Section 13 - Tax Withholding
There shall be deducted from all deferrals or payments made under this Plan the
amount of any taxes required to be withheld by any Federal, state, local or
foreign government, including any employment taxes required to be withheld under
Code Section 3121(v). The Participants and their beneficiaries, distributees,
and personal representatives will bear any and all Federal, foreign, state,
local or other income or other taxes imposed on amounts paid under the Plan, and
the Company may take whatever actions are necessary and proper to satisfy all
obligations of such persons for payment of all such taxes.
Section 14 - Change Of Control
(a) Notwithstanding any other provision of this Plan, in the event of a
Change of Control (as defined below), no person that is not a
Participant in the Plan immediately prior to such Change of Control
shall be permitted to be a Participant under the Plan following such
Change of Control. Upon and after a Change of Control, this Plan may
not be amended, modified or terminated if any such amendment,
modification or termination would adversely affect any accrued benefits
of a Participant or his or her rights with respect to such accrued
benefits in the Plan, unless any such amendment, modification or
termination is consented to in writing by all such Participants. Upon a
Change of Control, payment of all of the value of a Participant
Account, including any Special Incentive Award component thereof, shall
be made to the Participant immediately in a single cash lump sum prior
to the payment of benefits pursuant to Section 5. Participants who are
in pay status as of January 28, 1998 and who do not consent to the
amendment to the Plan effective January 28, 1998 within sixty (60) days
of the date of notice of the amendment, shall continue to receive
benefits in the event of a Change of Control under the terms of the
Plan as in effect on the date preceding January 28, 1998. For purposes
of this Section 14 the term "Company" shall mean ASARCO Incorporated.
<PAGE>
C46
(b) For purposes of this Plan, a "Change of Control" shall be deemed to
have occurred if:
(1) 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")
(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;
(2) 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 of Directors of the Company 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 of Directors 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;
(3) 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 (i) 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 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 parent
thereof outstanding immediately after such merger or consolidation or
(ii) a merger or consolidation effected to implement a recapitalization
of the Company (or similar transaction) in which no "person" (as
defined herein) acquires more than 50% of the combined voting power of
the Company's then outstanding securities; or
(4) 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.
Section 15 - Severability
In the event any provision of this Plan would serve to invalidate the Plan, that
provision shall be deemed to be null and void, and the Plan shall be construed
as if it did not contain the particular provision that would make it invalid.
<PAGE>
C47
Section 16 - Governing Law; Binding Effect; Miscellaneous
The Plan shall be governed and construed and enforceable in accordance with the
laws of the State of New York, except as superseded by applicable Federal law.
If the Company is consolidated or merged with or into another corporation, or if
another entity purchases all, or substantially all of the Company's assets the
surviving or acquiring corporation shall succeed to the Company's rights and
obligations under the Plan. The Plan shall inure to the benefit of, and be
enforceable by, each Participant, the Participant's personal or legal
representatives, executors, administrators, successors, heirs, devisees, and
legatees, as the case may be.
Where appearing in the Plan, the masculine gender shall include the feminine
gender.
References to the Code or to Treasury Regulations shall include any successor
provisions, amendments or substitutions thereto.
IN WITNESS WHEREOF, the Company has caused the ASARCO Incorporated Compensation
Deferral Plan to be duly adopted and executed by its duly authorized officers
and its corporate seal affixed hereon as of the 28th day of January, 1998.
ATTEST: ASARCO Incorporated
_____________________ By:______________________
Assistant Secretary Vice President
<PAGE>
C48
ATTACHMENT I
ASARCO Incorporated
Compensation Deferral Plan
DESIGNATION OF BENEFICIARY
In the event of my death prior to my retirement from employment with ASARCO
Incorporated or its applicable subsidiary, or following my retirement but before
I have received all benefits payable to me under the Compensation Deferral Plan
(the Plan"), I hereby designate, for purposes of Section 6 of the plan, the
following beneficiary (or beneficiaries) to receive the benefits, if any, to
which I may be entitled under the plan.
Beneficiary or Beneficiaries:
Name/Address: Relationship:
- -----------------------------------------------------------------
- -----------------------------------------------------------------
- -----------------------------------------------------------------
In the event that I wish at a later date to designate a beneficiary or
beneficiaries different from the designation election above a new designation of
beneficiary form will be completed by me.
- ----------------------------- -------------------------
Signature Date
- ----------------------------- -------------------------
Print Name Social Security Number
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<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 210559
<SECURITIES> 205317
<RECEIVABLES> 455087
<ALLOWANCES> 8121
<INVENTORY> 362119
<CURRENT-ASSETS> 1299928
<PP&E> 4664099
<DEPRECIATION> 2245289
<TOTAL-ASSETS> 4110402
<CURRENT-LIABILITIES> 573477
<BONDS> 0
0
0
<COMMON> 522420
<OTHER-SE> 1171453
<TOTAL-LIABILITY-AND-EQUITY> 4110402
<SALES> 2721048
<TOTAL-REVENUES> 2721048
<CGS> 2114554
<TOTAL-COSTS> 2114554
<OTHER-EXPENSES> 331805
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