1998
Second Quarter
Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended June 30, 1998 Commission file number 1-164
------------- -----
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
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 ____
As of July 31, 1998 there were outstanding 39,660,702 shares of Asarco Common
Stock, without par value.
<PAGE>
ASARCO Incorporated
and Subsidiaries
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
Page No.
<S> <C>
Part I. Financial Information:
Item 1. Financial Statements (unaudited)
Condensed Consolidated Statement of Earnings
Three Months and Six Months Ended
June 30, 1998 and 1997 2
Condensed Consolidated Balance Sheet
June 30, 1998 and December 31, 1997 3
Condensed Consolidated Statement of Cash Flows
Three Months and Six Months Ended
June 30, 1998 and 1997 4
Notes to Condensed Consolidated Financial Statements 5-11
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 12-19
Report of Independent Accountants 20
Part II. Other Information:
Item 1. Legal Proceedings 21
Item 6(a) Exhibits on Form 10Q 22
Exhibit 3 - Restated Certificate of Incorporation, filed June 26, 1998
Exhibit 11 - Statement re Computation of Earnings per Share
Exhibit 12 - Statement re Computation of Consolidated Ratio of Earnings to Fixed
Charges and Combined Fixed Charges and Preferred Share Dividend
Requirements
Signatures 23
Exhibit I - Independent Accountants' Awareness Letter
</TABLE>
- 1 -
<PAGE>
ASARCO Incorporated
and Subsidiaries
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
(unaudited)
<TABLE>
<CAPTION>
3 Months Ended 6 Months Ended
June 30, June 30,
1998 1997 1998 1997
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Sales of products and services $602,271 $740,968 $1,235,733 $1,456,567
-------- -------- ---------- ----------
Operating costs and expenses:
Cost of products and services 527,609 558,116 1,084,592 1,089,964
Selling, administrative and other 33,836 36,327 71,284 69,696
Depreciation and depletion 35,686 31,927 71,958 62,158
Research and exploration 6,841 10,016 15,041 19,820
Environmental and other closed plant
charges, net of recoveries 1,128 8,038 5,435 12,402
Provision for asset impairment - - 20,000 -
-------- -------- --------- ---------
Total operating costs and expenses 605,100 644,424 1,268,310 1,254,040
------- -------- --------- ---------
Operating income (loss) (2,829) 96,544 (32,577) 202,527
Interest expense (16,398) (19,387) (33,858) (35,932)
Other income 12,229 12,925 19,348 17,891
Gain on sale of investments and other
interests - 20,665 - 20,665
-------- -------- --------- ---------
Earnings (loss) before taxes on income and
minority interests (6,998) 110,747 (47,087) 205,151
Taxes on income (benefit) (1,482) 29,602 (15,975) 56,224
--------- -------- ---------- ---------
Earnings (loss) before minority interests (5,516) 81,145 (31,112) 148,927
Minority interests in net earnings of
consolidated subsidiaries (9,026) (29,271) (15,236) (56,473)
--------- -------- --------- ---------
Net earnings (loss) $(14,542) $ 51,874 $ (46,348) $ 92,454
========= ======== ========== =========
Per share amounts:
Net earnings (loss)
Basic $ (0.37) $ 1.21 $ (1.17) $ 2.15
========= ======== ========== =========
Diluted $ (0.37) $ 1.20 $ (1.17) $ 2.15
========= ======== ========== =========
Cash dividends $ 0.20 $ 0.20 $ 0.40 $ 0.40
Weighted average number of shares outstanding:
Basic 39,657 42,931 39,654 42,903
Diluted 39,657 43,054 39,654 43,026
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 2 -
<PAGE>
ASARCO Incorporated
and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEET
(unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
(in thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 232,323 $ 210,559
Marketable securities 52,517 205,317
Accounts and notes receivable, net 452,420 446,966
Inventories 314,847 362,119
Other assets 85,116 74,967
---------- ----------
Total current assets 1,137,223 1,299,928
Investments:
Available-for-sale and other at cost 128,331 126,843
Equity method 59,135 61,337
Net property 2,476,059 2,418,810
Other assets including intangibles, net 219,695 203,484
---------- ----------
Total Assets $4,020,443 $4,110,402
========== ==========
LIABILITIES
Current liabilities:
Bank loans $ 36,040 $ 204
Current portion of long-term debt 37,002 28,712
Accounts payable 358,951 352,839
Salaries and wages 34,454 35,788
Taxes on income 80,992 62,565
Reserve for closed plant and environmental matters 44,258 43,238
Other current liabilities 43,146 50,131
---------- ----------
Total current liabilities 634,843 573,477
---------- ----------
Long-term debt 852,880 849,991
Deferred income taxes 91,985 118,289
Reserve for closed plant and environmental matters 43,836 78,827
Postretirement benefit obligations 106,927 104,491
Other liabilities and reserves 134,293 157,543
---------- ----------
Total non-current liabilities 1,229,921 1,309,141
---------- ----------
MINORITY INTERESTS 532,957 533,911
---------- ----------
COMMON STOCKHOLDERS' EQUITY
Common stock (a) 522,381 522,420
Accumulated other comprehensive income, net of tax (5,022) 3,389
Retained earnings 1,105,363 1,168,064
---------- ----------
Total Common Stockholders' Equity 1,622,722 1,693,873
---------- ----------
Total Liabilities, Minority Interests and Common
Stockholders' Equity $4,020,443 $4,110,402
========== ==========
(a) Common shares: authorized 80,000; outstanding: 39,661 39,663
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 3 -
<PAGE>
ASARCO Incorporated
and Subsidiaries
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
3 Months Ended 6 Months Ended
June 30, June 30,
1998 1997 1998 1997
---- ---- ---- ----
(in thousands)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net earnings (loss) $(14,542) $ 51,874 $(46,348) $ 92,454
Adjustments to reconcile net earnings (loss) to net cash
provided from (used for) operating activities:
Depreciation and depletion 35,686 31,927 71,958 62,158
Provision (benefit)for deferred income taxes (5,843) 263 (24,965) 4,358
Treasury stock used for employee benefits 63 828 1,100 2,967
Undistributed equity (earnings) losses 2,129 (1,212) 191 (3,048)
Net (gain) loss on sale of investments and property
98 (20,485) 275 (20,719)
Provision for asset impairment - - 20,000 -
Increase (decrease) in reserves for closed
plant and environmental matters (23,817) (10,792) (33,971) (14,594)
Minority interests 9,026 29,271 15,236 56,473
Cashprovided from (used for) operating assets and liabilities,
net of acquisitions:
Accounts receivable 26,317 (13,841) (6,354) (32,927)
Inventories 17,598 17,904 47,102 24,314
Accounts payable and accrued liabilities 33,793 21,395 25,673 (57,450)
Other operating assets and liabilities 22,623 5,716 (5,609) 12,457
Foreign currency transaction (gains) losses
1,367 (985) 757 (1,075)
------- -------- ------- -------
Net cash provided from (used for) operating activities
104,498 111,863 65,045 125,368
------- -------- -------- --------
INVESTING ACTIVITIES
Capital expenditures (71,630) (60,969) (171,127) (123,749)
Sale of property 408 40,662 2,368 40,716
Purchase of investments and business (37,352) (593) (37,944) (2,108)
Sale of available-for-sale securities 19,844 141,241 52,037 172,760
Purchase of available-for-sale securities (27,171) (19,285) (61,851) (50,118)
Purchase of held-to-maturity investments (51,876) (208,827) (52,880) (208,827)
Proceeds from held-to-maturity investments 117,770 14 205,680 1,018
-------- -------- -------- --------
Net cash provided from (used for) investing
activities (50,007) (107,757) (63,717) (170,308)
-------- -------- -------- --------
FINANCING ACTIVITIES
Debt incurred 67,473 200,034 290,908 282,804
Debt repaid (59,049) (86,257) (243,842) (100,880)
Escrow deposits (withdrawals) on long-term loans 5,385 (12,317) 7,000 (11,878)
Treasury stock used for corporate purposes 318 263 414 1,287
Treasury stock purchased (27) (1,983) (2,042) (3,210)
Purchase of minority interests (1,425) (928) (5,083) (2,681)
Distributions to minority interests (3,301) (13,922) (11,009) (25,715)
Contributions from minority interests - 801 - 1,551
Dividends paid to common stockholders (7,932) (8,591) (15,861) (17,170)
--------- --------- --------- --------
Net cash provided from (used for) financing
activities 1,442 77,100 20,485 124,108
-------- -------- -------- --------
Effect of exchange rate changes on cash (1,243) 657 (49) 540
--------- -------- --------- --------
Increase (decrease) in cash and cash equivalents 54,690 81,863 21,764 79,708
Cash and cash equivalents at beginning of period 177,633 190,253 210,559 192,408
-------- -------- -------- --------
Cash and cash equivalents at end of period $232,323 $272,116 $232,323 $272,116
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 4 -
<PAGE>
ASARCO Incorporated
and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
A. In the opinion of the Company, the accompanying unaudited condensed
consolidated financial statements contain all adjustments
(consisting only of normal recurring adjustments) necessary to present
fairly the Company's financial position as of June 30, 1998 and the
results of operations and cash flows for the three and six month periods
ended June 30, 1998 and 1997. Certain reclassifications have been made
in the financial statements from amounts previously reported. This
financial data has been subjected to a review by PricewaterhouseCoopers
LLP, the Company's independent accountants. The results of operations for
the three month and six month periods are not necessarily indicative of
the results to be expected for the full year. The accompanying condensed
consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto included in the
Company's 1997 annual report on Form 10-K.
B. On April 22, 1998 the Company announced an agreement to sell its Missouri
lead assets to The Doe Run Company, a subsidiary of The Renco Group Inc.,
and on July 28, 1998 signed a definitive agreement covering the sale. The
Company will realize approximately $55.0 million in cash on the sale,
which is expected to close in the third quarter, and will retain a royalty
interest in the property. First quarter results include an after-tax
charge of $13.0 million ($20.0 million pre-tax) to write down the book
value of the assets in accordance with the provisions of Statement of
Financial Accounting Standards (SFAS) No. 121. In addition, during the
first quarter of 1998, the Company recorded after-tax charges of $3.0
million ($9.1 million pre-tax, and pre-minority interest) for severance
costs associated with the Southern Peru Copper Corporation (SPCC) cost
reduction program.
C. Inventories were as follows:
(in millions)
<TABLE>
<CAPTION>
June 30, Dec. 31,
1998 1997
<S> <C> <C>
Inventories of smelters and refineries at lower of
LIFO cost or market $ 4.8 $ 2.2
Provisional cost of metals received from suppliers
For which prices have not yet been fixed 1.4 56.7
Mine inventories at lower of FIFO cost or market 83.9 88.9
Metal inventory at lower of average cost or market 49.4 45.6
Materials and supplies at lower of average cost or
Market 138.4 138.2
Other 36.9 30.5
------- -------
Total $ 314.8 $ 362.1
======= =======
</TABLE>
At June 30, 1998, replacement cost exceeded inventories carried at LIFO
cost by approximately $78.3 million (December 31, 1997 - $86.4 million).
- 5 -
<PAGE>
D. The decrease in the consolidated effective tax rate in the second quarter
of 1998 as compared to the second quarter of 1997 is attributable to
domestic operating losses as a result of low copper prices. The
consolidated effective tax rate increased in the first half of 1998 as
compared to the first half of 1997 primarily because in 1997 SPCC realized
a reduction in its effective tax rate as a result of a reinvestment
incentive approved by the Government of Peru in connection with the
expansion of the Cuajone mine.
E. 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 the 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 pre-tax gains of $11.0 million ($7.2 million after-tax)
for the six month period ended June 30, 1998, from option sales and
exercises related to copper sold in the first half of 1998, including the
Company's beneficial interest in SPCC's price protection program. There
were no pre-tax gains or losses from hedging activities in the second
quarter of 1998. Earnings include pre-tax gains of $2.2 million ($1.4
million after-tax) in the second quarter 1997 and $13.4 million ($8.7
million after-tax) for the six month period ended June 30, 1997, including
the Company's beneficial interest in SPCC's price protection program.
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.
- 6 -
<PAGE>
Second quarter 1998 earnings include pre-tax losses of $0.2 million from
the expiration of call options and $1.6 million ($1.0 million after-tax) of
unrealized mark to market losses. Second quarter 1997 earnings include
pre-tax gains of $0.1 million from the sale or exercise of call options and
$1.1 million ($0.7 million after-tax) of unrealized mark to market gains.
Earnings for the six month period ended June 30, 1998 include pre-tax
losses of $0.2 million from the expiration of call options in 1998 and $1.7
million ($1.1 million after-tax) of unrealized mark to market losses.
Earnings for the six month period ended June 30, 1997 include pre-tax gains
of $0.5 million ($0.3 million after-tax) from the sale or exercise of call
options and $5.5 million ($3.6 million after-tax) of unrealized mark to
market gains.
The recognized pre-tax gains (losses) of the Company's metal hedging and
trading activities, were as follows:
<TABLE>
<CAPTION>
(in millions) Three Months Ended Six Months Ended
June 30, June 30,
Metal 1998 1997 1998 1997
----- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Copper $(1.8) $3.6 $9.1 $18.7
Zinc - (0.2) - 0.7
----- ----- ---- -----
Total Gain (Loss) $(1.8) $3.4 $9.1 $19.4
====== ==== ==== =====
</TABLE>
F. Business Segments:
(in millions)
Segment Sales:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Copper $ 389.8 $ 548.6 $ 824.8 $1,090.2
Lead, Zinc & Precious Metals 104.3 85.9 207.1 168.6
Specialty Chemicals 90.0 86.0 173.0 163.5
Aggregates 14.8 14.7 24.6 24.2
Exploration - - - -
All other 3.4 5.8 6.2 10.1
------- ------- -------- --------
Total $ 602.3 $ 741.0 $1,235.7 $1,456.6
======= ======= ======== ========
Segment Operating Earnings
(including equity earnings)
Copper $ (1.6) $ 109.2 $ .2 $ 227.8
Lead, Zinc & Precious Metals (6.9) (5.3) (33.9) (11.0)
Specialty Chemicals 8.2 7.9 15.9 14.3
Aggregates 4.3 4.5 5.6 5.4
Exploration (4.1) (7.0) (10.2) (14.0)
All other (2.9) (9.9) (8.2) (15.3)
------- -------- -------- ---------
Total $ (3.0) $ 99.4 $ (30.6) $ 207.2
Interest and other (4.2) 14.2 (14.5) 2.6
Less: Equity (earnings) losses .2 (2.9) (2.0) (4.7)
------ -------- -------- ---------
Earnings (loss) before taxes on income and
minority interests $ (7.0) $ 110.7 $ (47.1) $ 205.1
======== ======= ======== =======
</TABLE>
- 7 -
<PAGE>
G. 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 thirteen other lawsuits in Texas seeking substantial
compensatory and punitive damages for personal injury and contamination of
property allegedly caused by present and former operations 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, as of June 30, 1998, are defendants in
1,594 lawsuits brought by 10,332 primary and 7,096 secondary plaintiffs
seeking substantial actual and punitive damages for personal injury or
death allegedly caused by exposure to asbestos. Three of these lawsuits
are purported class actions, one of which is allegedly being brought on
behalf of a class of persons suing both tobacco-related and
asbestos-related entities claiming damages for personal injury or death
arising from exposure to asbestos and cigarette smoke. In addition, the
Company and certain subsidiaries are defendants in product liability
lawsuits involving various other products, including metals.
In 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.
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
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 the first quarter 1998, the United States
Environmental Protection Agency (EPA) announced that it would conduct a
remedial investigation and feasibility study of the Coeur d'Alene River
Basin. In the second quarter 1998, the court rejected the government's
position that its evaluation of injury and restoration plan for the Coeur
d'Alene Basin must be upheld unless the administrative record shows it to
be arbitrary and capricious or otherwise not in accordance with law.
The Company and certain of its subsidiaries have received notices from 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.
- 8 -
<PAGE>
In January 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 agreement is embodied in two consent decrees approved in
May 1998 by federal courts in Helena, Montana and Phoenix, Arizona.
Penalties of $6.4 million applicable to past issues at Ray and East Helena
were paid in the second quarter 1998 as required by the agreement.
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 recoveries are deemed probable.
Reserves for closed plants and environmental matters totaled $88.1 million
at June 30, 1998. The Company anticipates that expenditures relating to
these reserves will be made over the next several years. Net cash
expenditures against these reserves for the three months ended June 30,
1998 and 1997 were $25.3 million and $18.7 million, respectively, and for
the six months ended June 30, 1998 and 1997 were $40.0 million and $27.0
million, respectively.
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).
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.
H. Impact of new Accounting Standard:
The Company has adopted SFAS No. 130, "Reporting Comprehensive Income".
This statement establishes standards for reporting and presentation of
comprehensive income and its components. For the three and six month
periods ended June 30, 1998 and 1997 comprehensive income consisted of net
income, changes in unrealized gains or losses on securities reported at
fair value and foreign currency translation adjustments.
- 9 -
<PAGE>
Comprehensive income for the three and six month periods ended June 30,
1998 and 1997 was as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
(in thousands) 1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income (loss) $(14,542) $ 51,874 $(46,348) $92,454
Other comprehensive income:
Foreign currency translation adjustments (2,683) 4,088 (3,222) (2,543)
Unrealized gains (losses) on securities:
Unrealized gains (losses) during the period, net of tax
(a) (897) (19,634) (1,533) (2,507)
Less: Reclassifications of gains included in income, net
of tax (b) 1,433 13,750 3,656 13,769
------- -------- -------- -------
Comprehensive income (loss) $(19,555) $ 22,578 $(54,759) $73,635
========= ======== ========= =======
</TABLE>
(a) Includes tax benefit of $482 and $10,573 for the three month period
ended June 30, 1998 and 1997, respectively, and $825 and $1,352 for
the six month period ended June 30, 1998 and 1997, respectively.
(b) Includes taxes of $771 and $7,404 for the three month period ended
June 30, 1998 and 1997, respectively, and $1,968 and $7,414 for the
six month period ended June 30, 1998 and 1997, respectively.
Accumulated other comprehensive income balances as of June 30, 1998 and
December 31, 1997 were as follows:
<TABLE>
<CAPTION>
Foreign currency Accumulated other
Unrealized gain on translation adjustments comprehensive income (loss)
securities
(in thousands)
<S> <C> <C> <C>
June 30, 1998
Beginning balance 11,654 $ (8,265) $ 3,389
Current period change (5,189) (3,222) (8,411)
--------- --------- ----------
Ending balance $ 6,465 $(11,487) $ (5,022)
======== ========= ==========
December 31, 1997
Beginning balance $ 56,311 $ 3,649 $ 59,960
Current period change (44,657) (11,914) (56,571)
--------- --------- ----------
Ending balance $ 11,654 $ (8,265) $ 3,389
========= ========= =========
</TABLE>
- 10 -
<PAGE>
In March 1998, the Financial Accounting Standards Board issued SFAS No. 132
"Employers Disclosure about Pensions and other Postretirement Benefits".
This statement which is effective for fiscal years beginning after December
15, 1997, will have no effect on the Company's financial statements but
will modify the disclosures about pensions and other postretirement benefit
plans.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities". This
statement which is effective for fiscal quarters of fiscal years beginning
after June 15, 1999, establishes accounting and reporting standards for
derivative instruments and hedging activities. The Company is currently
assessing the impact of this statement.
- 11 -
<PAGE>
Part I Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company reported a net loss of $14.5 million, or $0.37 per share, for the
second quarter ended June 30, 1998, compared with net earnings of $51.9 million,
or $1.20 per common share on a diluted basis, for the second quarter of 1997.
Results for the second quarter ended June 30, 1997 include an after-tax gain of
$13.4 million, or $0.31 per share, from the sale of a portion of the Company's
interest in Grupo Mexico, S.A. de C.V. (Grupo Mexico), Mexico's largest mining
company.
For the six month period ended June 30, 1998, the Company reported a net loss of
$46.3 million, or $1.17 per share, compared with net earnings of $92.5 million,
or $2.15 per diluted share, for the comparable 1997 period. Results for the six
month period ended June 30, 1998, include non-recurring after-tax charges of
$16.0 million , or $0.40 per share related to a pending sale of the Company's
Missouri lead business and for severance costs associated with a cost reduction
program. Results for the six month period ended June 30, 1997 include pre-tax
gains of $19.4 million ($12.6 million after-tax) from the Company's price
protection program.
The Company's second quarter 1998 results reflect the sharp decline in metal
prices in 1998 compared with the previous year. The average price of copper
declined 36 cents per pound on the New York Commodity Exchange and 35 cents per
pound on the London Metal Exchange. Higher sales volume and production increases
from the Company's North American copper operations and the benefits of a cost
reduction program offset some of the effect of the lower prices.
Results for the six month period ended June 30, 1998 also reflect low copper
prices which are 31% lower from a year ago, the write down of assets associated
with the pending sale of the Missouri lead business and charges for severance
costs associated with a cost reduction program.
A $50.0 million cost reduction program was initiated by the Company early this
year in response to the decline in the copper price. The program is estimated to
have produced a pre-tax improvement of $16.0 million ($10.4 million after-tax)
in the second quarter of 1998, and $26.0 million ($16.9 million after-tax) for
the first six months of 1998. A similar program was initiated early in the
second quarter by Southern Peru Copper Corporation (SPCC), a 54.3% owned
subsidiary of the Company. SPCC's cost reduction program is designed to improve
its pre-tax earnings by $30.0 million annually. The Company's beneficial
interest in SPCC's cost savings during the second quarter of 1998 was an
additional $3.4 million after-tax, making the total impact of the cost reduction
programs in the second quarter of 1998 approximately $20.0 million ($13.5
million after-tax). First quarter 1998 earnings include after-tax charges of
$3.0 million ($9.1 million pre-tax and pre-minority interest) for severance
costs associated with SPCC's cost reduction program. In the case of both cost
reduction programs, improvements have come from reductions in operating
expenses, purchased services, exploration and general and administrative
expenses.
- 12 -
<PAGE>
In the second quarter of 1998 the Company recognized pre-tax losses of $1.8
million ($1.2 million after-tax) as a result of its price protection program,
compared with pre-tax gains of $3.4 million ($2.2 million after-tax) in the
second quarter of 1997. There were no pre-tax gains or losses from SPCC price
protection in the second quarter of 1998 and 1997. For the six month period
ended June 30, 1998 the Company recognized pre-tax gains of $9.1 million ($5.9
million after-tax) compared with pre-tax gains of $19.4 million ($12.6 million
after-tax) in the first half of 1997.
The Company's beneficial interest in mined copper production in the second
quarter of 1998 was 252.5 million pounds, a 10% increase from the same period in
1997. For the first six months of 1998, the Company's beneficial mined copper
production was 490.1 million pounds compared with 463.1 million pounds in the
first six months of 1997. The increase in the second quarter and first six
months of 1998 was attributable to increased production at the Company's North
American copper operations, largely due to increased production of low cost
solvent extraction/electrowining (SX/EW) process at the Company's Ray mine and
the Company's 75% owned Silver Bell mine which started up in July of 1997. The
gains in North American copper production were partially offset by a decrease in
mined production at SPCC.
In early June the Company announced that it curtailed production by 15% at its
copper refinery located in Amarillo, Texas. The curtailment which is expected to
reduce refined copper production by approximately 12 million pounds per month
was the result of shortages of raw materials including copper anodes, blister
and scrap. Results for the second quarter were negatively impacted by
approximately $2.5 million ($3.8 million pre-tax) due to the curtailment. The
curtailment will continue until adequate supplies of copper feed become
available.
Profits from the Company's specialty chemicals business increased to $8.2
million in the second quarter of 1998 from $7.9 million in the year earlier
period. In April the Company completed the acquisition of Deutsche
Oberflachtechnik GmbH (DOT), a German specialty chemicals company which is
expected to contribute to the growth of the Company's Specialty Chemicals
business in Europe.
Second quarter results from the Company's aggregates business were $4.3 million,
slightly lower than the $4.5 million in the second quarter of 1997. The decrease
reflects the decline in construction activity in the Southeast as a result of
extremely wet weather.
On April 22, 1998 the Company announced an agreement to sell its Missouri lead
assets to The Doe Run Company, a subsidiary of The Renco Group Inc., and on July
28, 1998 signed a definitive agreement covering the sale. The Company will
realize approximately $55.0 million in cash on the sale, which is expected to
close in the third quarter, and will retain a royalty interest in the property.
First quarter results include an after-tax charge of $13.0 million ($20.0
million pre-tax) to write down the book value of the assets.
Sales: Sales in the second quarter of 1998 were $602.3 million, compared with
$741.0 million in the second quarter of 1997. The decrease is due to lower
copper prices as compared to the year ago quarter. Sales for the six month
period ended June 30, 1998, were $1,235.7 million compared to $1,456.6 million
for the comparable 1997 period. The decrease in sales in the first half of 1998
compared with the same period of 1997 is a result of lower copper prices as
compared to the year ago period partially offset by higher copper and silver
sales volume.
- 13 -
<PAGE>
Metal sales volumes and prices for the quarter were as follows:
<TABLE>
<CAPTION>
Metal Sales Volume:
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Copper (000s pounds)
Asarco 289,900 271,400 624,900 549,200
SPCC 167,200 184,000 337,200 356,000
-------- ------- -------- -------
Consolidated 457,100 455,400 962,100 905,200
Asarco Beneficial Interest (1) 376,100 368,400 799,100 736,800
Lead (000s pounds)
Asarco 66,000 69,600 123,800 126,600
Silver (000s ounces)
Asarco 9,935 5,597 18,671 11,918
SPCC 764 816 1,518 1,495
------- ------- -------- -------
Consolidated 10,699 6,413 20,189 13,413
Asarco Beneficial Interest (1) 10,342 6,027 19,479 12,706
Zinc (000s pounds) (2)
Asarco 38,000 38,600 75,000 72,400
Molybdenum (000s pounds) (2)
Asarco 1,254 1,339 2,719 2,813
SPCC 2,730 2,254 5,581 4,488
-------- ------- -------- -------
Consolidated 3,984 3,593 8,300 7,301
Asarco Beneficial Interest (1) 2,707 2,527 5,687 5,177
</TABLE>
(1) At June 30, 1998, Asarco's equity ownership was 54.3% and its
beneficial interest in SPCC was 53.2%. At June 30, 1997, Asarco's
equity ownership was 54.1% and its beneficial interest in SPCC was
52.7%.
(2) The Company's zinc and molybdenum production is sold in the form of
concentrates. Volume represents pounds of zinc and molybdenum metal
contained in concentrate.
- 14 -
<PAGE>
Average Metal Prices:
Prices for the Company's metals are established principally on the New York
Commodity Exchange (COMEX) or the London Metal Exchange (LME).
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Copper (per pound - COMEX) $ .78 $1.14 $ .78 $1.13
Copper (per pound - LME) .79 1.14 .78 1.12
Lead (per pound - LME) .25 .28 .25 .30
Silver (per ounce - Handy & Harman) 5.71 4.76 5.98 4.89
Zinc (per pound - LME) .48 .59 .48 .56
Molybdenum (per pound - Metals Week
Dealer Oxide) 3.90 4.39 3.87 4.38
</TABLE>
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 the 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 pre-tax gains of $11.0 million ($7.2 million after-tax) for the
six month period ended June 30, 1998, from option sales and exercises related to
copper sold in the first half of 1998, including the Company's beneficial
interest in SPCC's price protection program. There were no pre-tax gains or
losses from hedging activities in the second quarter of 1998. Second quarter
1997 earnings include pre-tax gains of $2.2 million ($1.4 million after-tax) and
$13.4 million ($8.7 million after-tax) for the six month period ended June 30,
1997, including the Company's beneficial interest in SPCC's price protection
program.
- 15 -
<PAGE>
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.
Second quarter 1998 earnings include pre-tax losses of $0.2 million from the
expiration of call options and $1.6 million ($1.0 million after-tax) of
unrealized mark to market losses. Second quarter 1997 earnings include pre-tax
gains of $0.1 million from the sale or exercise of call options and $1.1 million
($0.7 million after-tax) of unrealized mark to market gains. Earnings for the
six month period ended June 30, 1998 include pre-tax losses of $0.2 million from
the expiration of call options in 1998 and $1.7 million ($1.1 million after-tax)
of unrealized mark to market losses. Earnings for the six month period ended
June 30, 1997 include pre-tax gains of $0.5 million ($0.3 million after-tax)
from the sale or exercise of call options in 1997 and $5.5 million ($3.6 million
after-tax) of unrealized mark to market gains.
The recognized pre-tax gains (losses) of the Company's metal hedging and trading
activities, were as follows:
<TABLE>
<CAPTION>
(in millions) Three Months Ended Six Months Ended
June 30, June 30,
Metal 1998 1997 1998 1997
----- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Copper $(1.8) $3.6 $9.1 $18.7
Zinc - (0.2) - 0.7
----- ------ ----- ------
Total Gain (Loss) $(1.8) $3.4 $9.1 $19.4
====== ==== ==== =====
</TABLE>
Cost of Products & Services: Cost of products and services were $527.6 million
in the second quarter of 1998 and $1,084.6 million for the six month period
ended June 30, 1998 compared with $558.1 million and $1,090.0 million for the
respective periods in 1997. The decrease in costs for the three and six month
periods reflect the lower price for refined purchases, lower costs at SPCC
attributable to lower sales volume and the effect of the cost reduction
programs. Partially offsetting the decrease in costs in the second quarter of
1998 were higher purchases of refined copper to meet customer commitments and a
15% curtailment in production at the Company's copper refinery located in
Amarillo, Texas. For the six month period costs were offset by higher copper and
silver sales volume and an accrual of severance costs associated with SPCC's
cost reduction program.
Nonoperating Items: Interest expense was $16.4 million in the second quarter of
1998 and $33.9 million for the six month period ended June 30, 1998, compared
with $19.4 million and $35.9 million for the respective periods in 1997. Average
borrowings over the comparable six month periods are lower in 1998.
Environmental and other closed plant charges were $1.1 million in the second
quarter of 1998 and $5.4 million for the six month period ended June 30, 1998,
compared with $8.0 million and $12.4 million for the respective periods in 1997.
The decrease is due to additional environmental charges accrued in the second
quarter 1997.
- 16 -
<PAGE>
Taxes on Income: The decrease in the consolidated effective tax rate in the
second quarter of 1998 as compared to the second quarter of 1997 is attributable
to domestic operating losses as a result of low copper prices. The consolidated
effective tax rate increased in the first half of 1998 as compared to the first
half of 1997 primarily because in 1997 SPCC realized a reduction in its
effective tax rate as a result of a reinvestment incentive approved by the
Government of Peru in connection with the expansion of the Cuajone mine.
Cash Flows:
Second quarter - Net cash provided from operating activities was $104.5 million
in the second quarter of 1998, compared with $111.9 million in the second
quarter of 1997. The decrease is primarily the result of lower earnings
resulting from the lower copper price offset by lower receivable balances.
Net cash used for investing activities was $50.0 million in the second quarter
of 1998, compared with $107.8 million in the second quarter of 1997. The
decrease in cash used for investing activities reflects higher proceeds from
held-to-maturity securities at SPCC partially offset by the acquisition of DOT
in April 1998. The increase in capital expenditures from the prior year reflects
the expansion project at the Cuajone mine.
Cash provided from financing activities in the second quarter of 1998 was $1.4
million as compared with $77.1 million in 1997. The change reflects a net
decrease in cash proceeds from debt of $105.3 million principally due to the
sale of $150.0 million of Secured Export Notes and $50.0 million of 8.25% bonds
due June 2004 in the second quarter of 1997 to partially finance the SPCC
expansion project at the Cuajone mine.
Six months - Net cash provided from operating activities was $65.0 million for
the six month period ended June 30, 1998, compared with $125.4 million in the
corresponding prior period. The decrease is the result of lower copper prices
partially offset by net cash provided from operating assets and liabilities.
Cash used for investing activities was $63.7 million for the six month period
ended June 30, 1998, compared with $170.3 million in the corresponding prior
year period. Investing activities for the six month period ending June 30, 1998
included the proceeds of $205.7 million from held-to-maturity securities by
SPCC, partially offset by the acquisition of DOT in April 1998 and capital
expenditures of $171.1 million, principally related to the SPCC expansion.
Cash provided from financing activities for the six months ended June 30, 1998
was $20.5 million compared with $124.1 million in the corresponding prior
period. The change reflects a net decrease in cash proceeds from debt of $135.0
million principally attributable to the sale of $150.0 million of Secured Export
Notes and $50.0 million of bonds due 2004 to partially finance the SPCC
expansion project at the Cuajone mine.
Liquidity and Capital Resources: At June 30, 1998, the Company's debt as a
percentage of total capitalization (total debt, minority interests and
stockholders' equity) was 30.0%, compared with 28.3% at December 31, 1997.
Consolidated debt at the end of the second quarter 1998 was $925.9 million
compared with $878.9 million at the end of 1997. Additional indebtedness
permitted under the terms of the most restrictive of the Company's credit
agreements totaled $716.9 million at June 30, 1998. Additional debt permitted
under the terms of the most restrictive of SPCC's credit agreements totaled
$862.5 million at June 30, 1998.
- 17 -
<PAGE>
The Company expects that it will meet its cash requirements for 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.
The Company paid dividends to common stockholders of $7.9 million or 20 cents
per share, in the second quarter of 1998 and $8.6 million or 20 cents per share
in the second quarter of 1997. In addition, SPCC paid dividends of $3.1 million
to minority interests in the second quarter of 1998 and $13.9 million in the
second quarter of 1997. At June 30, 1998, the Company had 39,660,782 common
shares issued and outstanding, compared with 42,898,000 at the end of the second
quarter of 1997 reflecting the repurchase of 3.3 million shares of the Company's
outstanding shares in 1997.
Year 2000 The Company has implemented a three phase program to identify and
resolve Year 2000 (Y2K) issues related to the integrity and reliability of its
computerized information systems as well as computer systems embedded in the
machinery and equipment used in its operations. Phase one of the Company's
program which involved an assessment of Y2K compliance of the Company's
computerized information systems and embedded computer systems has been
completed. In phase two of the program the Company is modifying or replacing all
non-compliant systems. As of June 30, 1998,approximately 80% of the Company's
systems are Y2K compliant and the remainder are expected to be Y2K compliant by
the first quarter of 1999. Under the third phase of the program the Company has
sent detailed information requests to its principal customers, suppliers and
service providers to determine the status of their Y2K compliance.
As of June 30, 1998, the Company had spent approximately $0.8 million in
addition to its normal internal information technology costs in connection with
its Y2K program. The Company expects to incur additional costs of $2.2 million
including its beneficial interest in SPCC's Y2K costs to complete phases two and
three of the program.
Pursuant to phase three of its program, the Company has sent surveys to its
major customers, suppliers and service providers. As of June 30, 1998, the
Company received confirmations from approximately 86% indicating that they are
or will be Y2K compliant. The Company expects to have further communications
with those who have not responded or have indicated further work was required to
achieve Y2K compliance. The third phase of the program is expected to be
completed in the first quarter of 1999. SPCC expects to send surveys to its
major customers, suppliers and service providers in the third quarter of 1998
and also expects to complete this phase of its program in the first quarter of
1999.
Among other things, the Company's operations depend on the availability of
utility services, principally electricity, and reliable performance by domestic
and international transportation services. A substantial disruption in any of
these services due to providers of these services failing to achieve Y2K
compliance could have a significant impact on the Company's financial results
depending on the length and severity of the disruption. The Company is currently
identifying alternatives and will complete a contingency plan for each of its
principal operations by March 1999. The purpose of the contingency plan is to
identify possible alternatives which could be used in the event of a disruption
in the delivery of essential goods or services and to minimize the effect of
such a disruption.
Impact of New Accounting Standard: In the first quarter of 1998, the Company
adopted Statement of Financial Accounting Standards (SFAS)No. 130, "Reporting
Comprehensive Income". This statement establishes standards for reporting and
presentation of comprehensive income and its components.
- 18 -
<PAGE>
In March 1998, the Financial Accounting Standards Board issued SFAS No. 132
"Employers Disclosure about Pensions and other Postretirement Benefits". This
statement which is effective for fiscal years beginning after December 15, 1997,
will have no effect on the Company's financial statements but will modify the
disclosures about pensions and other postretirement benefit plans.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities". This statement
which is effective for fiscal quarters of fiscal years beginning after June 15,
1999, establishes accounting and reporting standards for derivative instruments
and hedging activities. The Company is currently assessing the impact of this
statement.
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.
- 19 -
<PAGE>
PricewaterhouseCoopers LLP
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of ASARCO Incorporated:
We have reviewed the condensed consolidated balance sheet of ASARCO Incorporated
and Subsidiaries as of June 30, 1998 and the related condensed consolidated
statements of earnings and cash flows for the three month and six month periods
ended June 30, 1998 and 1997.
These financial statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the condensed consolidated financial statements referred to above for
them to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet as of December 31, 1997 and the
related consolidated statements of income, retained earnings, and cash flows for
the year then ended (not presented herein); and in our report dated January 27,
1998, we expressed an unqualified opinion on those consolidated financial
statements. In our opinion, the information set forth in the accompanying
condensed consolidated balance sheet as of December 31, 1997, is fairly stated,
in all material respects, in relation to the consolidated balance sheet from
which it has been derived.
PricewaterhouseCoopers LLP
New York, New York
July 20, 1998
- 20 -
<PAGE>
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
1. Asarco and two of its wholly-owned subsidiaries, Lac d'Amiante du
Quebec, Ltee (LAQ), and Capco Pipe Company, Inc. (Capco), have been named
as defendants, among numerous other defendants, in additional asbestos
personal injury lawsuits of the same general nature as the lawsuits
reported on Forms 10-K for 1997 and 10-Q for the first quarter of 1998. As
of June 30, 1998, there were pending against Asarco and its subsidiaries
1,594 lawsuits brought by 10,332 primary and 7,096 secondary plaintiffs in
28 states seeking substantial damages for personal injury or death
allegedly caused by exposure to asbestos. As of June 30, 1998, LAQ,
Asarco, and Capco have settled or been dismissed from a total of 7,556
asbestos personal injury lawsuits brought by 91,857 primary and 55,950
secondary plaintiffs.
2. On July 30, 1998 the Company filed suit in state court in Thurston
County, Washington challenging the applicability of certain state
environmental laws to the Company's remediation of its former Everett
Smelter site in Everett, Washington. The lawsuit follows termination of
mediation concerning the Everett site reported on Form 10-K for 1997. In
the second quarter 1998, the County of Snohomish filed a lawsuit in state
court in Snohomish County, Washington seeking damages for the cost of
remediating certain county-owned property located near the former smelter
site. The case has been removed by the Company to federal court in
Seattle.
3. With respect to the action filed in Texas state court, Nueces County,
in April 1996 alleging contamination of plaintiffs' properties by metals
emitted by the Company's Corpus Christi facility, reported on Form 10-K
for 1997 and 1996, the action was settled in June 1998.
- 21 -
<PAGE>
Item 6(a) - Exhibits on Form 10Q
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
<S> <C>
3 Restated Certificate of Incorporation, filed June 26, 1998
11 Statement re Computation of Earnings per Share
12 Statement re Computation of Consolidated Ratio of Earnings to Fixed Charges and Combined Fixed
Charges and Preferred Share Dividend Requirements
</TABLE>
- 22 -
<PAGE>
Exhibit 3 Restated Certificate Of Incorporation of ASARCO INCORPORATED
Pursuant to Section 14A:9-5 of the New Jersey Business
Corporation Act
ASARCO Incorporated, a corporation organized and existing under the
laws of the State of New Jersey, restates, integrates and amends its Certificate
of Incorporation to read in full as herein set forth.
1. The name of this corporation is ASARCO Incorporated.
2. (a) The address of this corporation's current registered office is
820 Bear Tavern Road, West Trenton, New Jersey 08628, and the name of its
current registered agent is The Corporation Trust Company.
(b) The number of directors constituting the current Board
of Directors of this corporation is 14. The names and
addresses of the members of said Board are as follows:
(c) <TABLE>
<CAPTION>
<S> <C>
Willard C. Butcher Chase Manhattan Bank
101 Park Avenue
New York, NY 10178
Vincent A. Calarco Crompton & Knowles Corporation
One Station Plaza
Metro Center
Stamford, CT 06902
James C. Cotting ASARCO Incorporated
180 Maiden Lane
New York, NY 10038
David C. Garfield Ingersoll-Rand Company
200 Chestnut Ridge Road
Woodcliff Lake, NJ 07675
E. Gordon Gee Brown University
1 Prospect Street
Providence, RI 02912
James W. Kinnear Four Stamford Plaza
Stamford, CT 06904
Francis R. McAllister ASARCO Incorporated
180 Maiden Lane
New York, NY 10038
Kevin R. Morano ASARCO Incorporated
180 Maiden Lane
New York, NY 10038
Martha T. Muse The Tinker Foundation, Inc.
55 East 59th Street
New York, NY 10022
Michael T. Nelligan Don Ward Transport, Inc.
241 West 56th Avenue
Denver, CO 80216
<PAGE>
John D. Ong The BFGoodrich Company
4000 Embassy Parkway
Akron, OH 44333
Richard de J. Osborne ASARCO Incorporated
180 Maiden Lane
New York, NY 10038
Manuel T. Pacheco University of Missouri System
321 University Hall
Columbia, MO 65211
James Wood The Great Atlantic & Pacific Tea Company, Inc.
2 Paragon Drive
Montvale, NJ 07645
</TABLE>
3. The objects for which this corporation is formed are:
(a) To acquire, deal in, sell and otherwise dispose of ores,
minerals and metals; to smelt, reduce, refine, mill and otherwise treat
ores, minerals and metals; and to manufacture, acquire, deal in, sell
and otherwise dispose of products of ores, minerals and metals;
(b) To mine, quarry, dig, cut, reduce, treat, prepare for use,
transport and deal in, ores, minerals, metals, wood, coal, stone, peat,
marl, clay and raw materials generally and their products direct and
incidental; and
(c) To engage in any other activity within the purposes for
which corporations may be organized under the New Jersey Business
Corporation Act.
4. (a) The aggregate number of shares which this corporation shall have
authority to issue is 90,000,000 of which 10,000,000 shares shall be preferred
stock without par value, and 80,000,000 shares shall be common stock without
nominal or par value.
(b) Subject to the provisions of subdivision (c) of this
Article 4, the Board of Directors shall have authority at any time or from time
to time (i) to divide any or all of the preferred stock into series; (ii) to
determine for any such series its designation, number of shares, relative
rights, preferences and limitations; (iii) to increase the number of shares of
any such series previously determined by it and to decrease such previously
determined number of shares to a number not less than that of the shares of such
series then outstanding; (iv) to change the designation or number of shares, or
the relative rights, preferences and limitations of the shares, of any
theretofore established series no shares of which have been issued; and (v) to
cause to be executed and filed without further approval of the shareholders such
amendment or amendments to the Certificate of Incorporation as may be required
in order to accomplish any of the foregoing. In particular, but without limiting
the generality of the foregoing, the Board of Directors shall have authority to
determine with respect to any series of preferred stock:
<PAGE>
(1) The dividend rate or rates on shares of such
series and any restrictions, limitations or conditions upon the payment
of such dividends, and whether dividends shall be cumulative and, if
so, the date or dates from which dividends shall cumulate, and the
dates on which dividends, if declared, shall be payable;
(2) Whether the shares of such series shall be
redeemable and, if so, the time or times and the price or prices at
which and the other terms and conditions on which the shares may be
redeemed;
(3) The rights of the holders of shares of such
series in the event of the liquidation, dissolution or winding up of
the corporation, whether voluntary or involuntary, or any other
distribution of its assets;
(4) Whether the shares of such series shall be
subject to the operation of a purchase, retirement or sinking fund and,
if so, the terms and conditions thereof;
(5) Whether the shares of such series shall be
convertible into shares of any other class or classes or of any series
of the same or any other class or classes, and if so convertible, the
price or prices or the rate or rates of conversion and the method, if
any, of adjusting the same, and the other terms and conditions, if any,
on which shares shall be so convertible; and
(6) The extent of voting powers, if any, of the
shares of such series.
(c) So long as any shares of preferred stock of any series
are outstanding,
(1) Whenever dividends on the preferred stock of any
series in an aggregate amount at least equal to six full quarterly
dividends (which need not be consecutive) on such series shall not be
paid, the holders of the outstanding preferred stock of all series
shall have the special right, voting separately as a single class, to
elect two directors of the corporation, at the next succeeding annual
meeting of shareholders (and at each succeeding annual meeting of
shareholders thereafter until such right shall terminate as hereinafter
provided).
At each meeting of shareholders at which the holders
of the preferred stock of all series shall have the special right,
voting separately as a single class, to elect directors as provided in
this paragraph (1), the presence in person or by proxy of the holders
of record of one-third of the total number of shares of the preferred
stock of all series then issued and outstanding shall be necessary and
sufficient to constitute a quorum of such class for such election by
such shareholders as a class.
Each director elected by the holders of the preferred
stock of all series voting separately as a single class as provided in
this paragraph (1) shall hold office until the annual meeting of
shareholders next succeeding his election and until his successor, if
any, is elected by such holders and qualified.
<PAGE>
In case any vacancy shall occur among the directors
elected by the holders of the preferred stock of all series voting
separately as a single class as provided in this paragraph (1), such
vacancy may be filled for the unexpired portion of the term by vote of
the single remaining director theretofore elected by such shareholders,
or his successor in office, or by the vote of such shareholders given
at a special meeting of such shareholders called for the purpose.
Whenever all dividends accrued and unpaid on the
preferred stock of all series having cumulative dividends shall have
been paid and dividends thereon for the current quarterly period shall
have been paid or declared and provided for, and, if dividends on any
series of preferred stock shall not be cumulative, if and when such
dividends shall have been paid regularly for one year or declared and
provided for, the right of the holders of the preferred stock of all
series, voting separately as a single class, to elect directors as
provided in this paragraph (1) shall terminate at the next succeeding
annual meeting of shareholders, but subject always to the same
provisions for the vesting of such special right of the holders of the
preferred stock of all series, voting separately as a single class, to
elect directors in the case of future unpaid dividends as hereinabove
set forth.
(2) The consent of the holders of at least two-thirds
of the outstanding shares of preferred stock, given in person or by
proxy, either in writing without a meeting or at a special or annual
meeting of shareholders called for the purpose, at which the holders of
the preferred stock of all series shall vote separately as a single
class, shall be necessary for effecting or validating the authorization
of any additional class of stock ranking prior (either as to dividends
or upon liquidation, dissolution or winding up) to the preferred stock,
or the increase in the authorized amount of any class of stock so
ranking prior to the preferred stock, or any amendment of the
Certificate of Incorporation which would alter materially any
provisions of the preferred stock so as to adversely affect the holders
of all series of preferred stock.
(3) The consent of the holders of at least a majority
of the outstanding shares of preferred stock, given in person or by
proxy, either in writing without a meeting or at a special or annual
meeting of shareholders called for the purpose, at which the holders of
the preferred stock of all series shall vote separately as a single
class, shall be necessary for effecting or validating an increase in
the authorized amount of the preferred stock, or the authorization or
increase in the authorized amount of any additional class of stock
ranking on a parity (either as to dividends or upon liquidation,
dissolution or winding up) with the preferred stock.
(4) In any case in which the holders of the preferred
stock shall be entitled to vote separately as a single class pursuant
to the provisions of this subdivision (c) or pursuant to law, each
holder of preferred stock of any series shall be entitled to one vote
for each such share held.
(d) Except as otherwise provided in subdivision (c) of this
Article 4 and except as required by law or as determined by the Board of
Directors pursuant to subdivision (b) of this Article 4, the exclusive voting
power for all purposes shall be vested in the holders of common stock, each
share thereof from time to time outstanding having voting power of one vote.
<PAGE>
(e) No holder of stock of any class of this corporation shall
have any preferential or other right to subscribe to any new, additional or
increased shares of stock of this corporation of any class or to any securities
or obligations convertible into shares of stock of this corporation nor any
right to subscribe to any thereof, other than such, if any, as the Board of
Directors in its discretion may determine; and any shares of stock of this
corporation or securities or obligations convertible into shares of stock of
this corporation which the Board of Directors may determine to offer for
subscription to holders of stock, may, as the Board of Directors shall
determine, be offered to holders of any class or classes of stock of this
corporation, at the time existing, to the exclusion of holders of any or all
other classes, at the time existing, at such prices as the Board of Directors in
its discretion may fix subject to applicable provisions of law.
(f) Junior Participating Preferred Stock. Pursuant to
subdivision (b) of this Article 4, there are hereby authorized and established,
out of the 10,000,000 shares of preferred stock, without par value, which the
corporation has authority to issue pursuant to subdivision (a) of this Article
4, a series of such preferred stock, designated "Junior Participating Preferred
Stock." The rights of the holders of Junior Participating Preferred Stock (as to
dividends and redemption and upon liquidation, dissolution or winding up) shall
rank junior to all other series of preferred stock hereafter authorized and
established unless the terms of any such other series shall provide otherwise.
(1) Number of Shares. The Junior Participating
Preferred Stock shall consist of 800,000 shares without par value.
(2) Dividends and Distributions.
(A) Subject to the prior and superior rights
of the holders of any shares of any series of preferred stock
ranking prior and superior to the shares of Junior
Participating Preferred Stock with respect to dividends, the
holders of shares of Junior Participating Preferred Stock
shall be entitled to receive, when, as and if declared by the
Board of Directors out of funds legally available for the
purpose, quarterly dividends payable in cash on the 15th day
of February, May, August and November in each year (each such
date being referred to herein as a "Quarterly Dividend Payment
Date"), commencing on the first Quarterly Dividend Payment
Date after the first issuance of a share or fraction of a
share of Junior Participating Preferred Stock, in an amount
per share (rounded to the nearest cent) equal to the greater
of (a) $2.50 or (b) subject to the provision for adjustment
hereinafter set forth, 100 times the aggregate per share
amount of all cash dividends, and 100 times the aggregate per
share amount (payable in kind) of all non-cash dividends or
other distributions other than a dividend payable in shares of
common stock, without par value, of the corporation (the
"Common Stock") or a subdivision of the outstanding shares of
Common Stock (by reclassification or otherwise), declared on
the Common Stock, since the immediately preceding Quarterly
Dividend Payment Date, or, with respect to the first Quarterly
Dividend Payment Date, since the first issuance of any share
or fraction of a share of Junior Participating Preferred
Stock. In the event the corporation shall at any time after
July 26, 1989 (the "Rights Declaration Date") (i) declare any
dividend on Common Stock payable in shares of Common Stock,
(ii) subdivide the outstanding Common Stock, or (iii) combine
the outstanding Common Stock into a smaller number of shares,
then in each such case the amount to which holders of shares
of Junior Participating Preferred Stock were entitled
immediately prior to such event under clause (b) of the
preceding sentence shall be adjusted by multiplying such
amount by a fraction the numerator of which is the number of
shares of Common Stock outstanding immediately after such
<PAGE>
event and the denominator of which is the number of shares of
Common Stock that were outstanding immediately prior to such
event.
(B) The corporation shall declare a dividend
or distribution on the Junior Participating Preferred Stock as
provided in paragraph (A) above immediately after it declares
a dividend or distribution on the Common Stock (other than a
dividend payable in shares of Common Stock); provided that, in
the event no dividend or distribution shall have been declared
on the Common Stock during the period between any Quarterly
Dividend Payment Date and the next subsequent Quarterly
Dividend Payment Date, a dividend of $2.50 per share on the
Junior Participating Preferred Stock shall nevertheless be
payable on such subsequent Quarterly Dividend Payment Date.
(C) Dividends shall begin to accrue and be
cumulative on outstanding shares of Junior Participating
Preferred Stock from the Quarterly Dividend Payment Date next
preceding the date of issue of such shares of Junior
Participating Preferred Stock, unless the date of issue of
such shares is prior to the record date for the first
Quarterly Dividend Payment Date, in which case dividends on
such shares shall begin to accrue from the date of issue of
such shares, or unless the date of issue is a Quarterly
Dividend Payment Date or is a date after the record date for
the determination of holders of shares of Junior Participating
Preferred Stock entitled to receive a quarterly dividend and
before such Quarterly Dividend Payment Date, in either of
which events such dividends shall begin to accrue and be
cumulative from such Quarterly Dividend Payment Date. Accrued
but unpaid dividends shall not bear interest. Dividends paid
on the shares of Junior Participating Preferred Stock in an
amount less than the total amount of such dividends at the
time accrued and payable on such shares shall be allocated pro
rata on a share-by-share basis among all such shares at the
time outstanding. The Board of Directors may fix a record date
for the determination of holders of shares of Junior
Participating Preferred Stock entitled to receive payment of a
dividend or distribution declared thereon, which record date
shall be no more than 60 days prior to the date fixed for the
payment thereof.
(3) Voting. The holders of shares of Junior
Participating Preferred Stock shall not be entitled to vote except as
follows: The holders of Junior Participating Preferred Stock shall have
(i) the voting powers provided for in subdivision (c) of this Article
4, (ii) the voting powers provided for by law and (iii) the further
voting powers provided for below:
(A) Subject to the provision for adjustment
hereinafter set forth, each share of Junior Participating
Preferred Stock shall entitle the holder thereof to 100 votes
on all matters submitted to a vote of the stockholders of the
corporation. In the event the corporation shall at any time
after the Rights Declaration Date (i) declare any dividend on
Common Stock payable in shares of Common Stock, (ii) subdivide
the outstanding Common Stock, or (iii) combine the outstanding
Common Stock into a smaller number of shares, then in each
such case the number of votes per share to which holders of
shares of Junior Participating Preferred Stock were entitled
immediately prior to such event shall be adjusted by
multiplying such number by a fraction the numerator of which
is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is
the number of shares of Common Stock that were outstanding
immediately prior to such event.
<PAGE>
(B) Except as otherwise provided in
subdivision (c) of this Article 4 or by law, the holders of
shares of Junior Participating Preferred Stock and the holders
of shares of Common Stock shall vote together as one class on
all matters submitted to a vote of stockholders of the
corporation.
(4) Dividend Arrearages.
(A) In the event that full cumulative
dividends on the Junior Participating Preferred Stock have not
been declared and paid or set apart for payment when due, the
corporation shall not declare or pay or set apart for payment
any dividends or make any other distributions on, or make any
payment on account of the purchase, redemption or other
retirement of any other class of stock or series thereof of
the corporation ranking, as to dividends or as to
distributions in the event of a liquidation, dissolution or
winding-up of the corporation, junior to the Junior
Participating Preferred Stock until full cumulative dividends
on the Junior Participating Preferred Stock shall have been
paid or declared and set apart for payment; provided, however,
that the foregoing shall not apply to (i) any dividend payable
solely in any shares of any stock ranking, as to dividends and
as to distributions in the event of a liquidation, dissolution
or winding-up of the corporation, junior to the Junior
Participating Preferred Stock or (ii) the acquisition of
shares of any stock ranking, as to dividends or as to
distributions in the event of a liquidation, dissolution or
winding-up of the corporation, junior to the Junior
Participating Preferred Stock in exchange solely for shares of
any other stock ranking, as to dividends and as to
distributions in the event of a liquidation, dissolution or
winding-up of the corporation, junior to the Junior
Participating Preferred Stock.
(B) The corporation shall not permit any
subsidiary of the corporation to purchase or otherwise acquire
for consideration any shares of stock of the corporation
unless the corporation could, under subparagraph (A) of this
paragraph 4, purchase or otherwise acquire such shares at such
time and in such manner.
(5) Liquidation, Dissolution or Winding Up.
(A) Upon any liquidation (voluntary or
otherwise), dissolution or winding up of the corporation, no
distribution shall be made to the holders of shares of stock
ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Junior Participating
Preferred Stock unless, prior thereto, the holders of shares
of Junior Participating Preferred Stock shall have received
$100 per share, plus an amount equal to accrued and unpaid
dividends and distributions thereon, whether or not declared,
to the date of such payment (the "Junior Participating
Preferred Stock Liquidation Preference"). Following the
payment of the full amount of the Junior Participating
Preferred Stock Liquidation Preference, no additional
distributions shall be made to the holders of shares of Junior
Participating Preferred Stock unless, prior thereto, the
holders of shares of Common Stock shall have received an
amount per share (the "Common Adjustment") equal to the
quotient obtained by dividing (i) the Junior Participating
Preferred Stock Liquidation Preference by (ii) 100 (as
appropriately adjusted as set forth in subparagraph (C) below
to reflect such events as stock splits, stock dividends and
recapitalizations with respect to the Common Stock) (such
number in clause (ii) immediately above being referred to as
the "Adjustment Number"). Following the payment of the full
amount of the Junior Participating Preferred Stock Liquidation
Preference
<PAGE>
and the Common Adjustment in respect of all outstanding shares
of Junior Participating Preferred Stock and Common Stock,
respectively, holders of Junior Participating Preferred Stock
and holders of shares of Common Stock shall receive their
ratable and proportionate share of the remaining assets to be
distributed in the ratio of the Adjustment Number to one (1)
with respect to such Junior Participating Preferred Stock and
Common Stock, on a per share basis, respectively.
(B) In the event, however, that there are
not sufficient assets available to permit payment in full of
the Junior Participating Preferred Stock Liquidation
Preference and the liquidation preferences of all other series
of preferred stock, if any, which rank on a parity with the
Junior Participating Preferred Stock, then such remaining
assets shall be distributed ratably to the holders of such
parity shares in proportion to their respective liquidation
preferences. In the event, however, that there are not
sufficient assets available to permit payment in full of the
Common Adjustment, then such remaining assets shall be
distributed ratably to the holders of Common Stock.
(C) In the event the corporation shall at
any time after the Rights Declaration Date (i) declare any
dividend on Common Stock payable in shares of Common Stock,
(ii) subdivide the outstanding Common Stock, or (iii) combine
the outstanding Common Stock into a smaller number of shares,
then in each such case the Adjustment Number in effect
immediately prior to such event shall be adjusted by
multiplying such Adjustment Number by a fraction the numerator
of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is
the number of shares of Common Stock that were outstanding
immediately prior to such event.
(6) Consolidation, Merger, etc. In case the
corporation shall enter into any consolidation, merger, combination or
other transaction in which the shares of Common Stock are exchanged for
or changed into other stock or securities, cash and/or any other
property, then in any such case the shares of Junior Participating
Preferred Stock shall at the same time be similarly exchanged or
changed in an amount per share (subject to the provision for adjustment
hereinafter set forth) equal to 100 times the aggregate amount of
stock, securities, cash and/or any other property (payable in kind), as
the case may be, into which or for which each share of Common Stock is
changed or exchanged. In the event the corporation shall at any time
after the Rights Declaration Date (i) declare any dividend on Common
Stock payable in shares of Common Stock, (ii) subdivide the outstanding
Common Stock, or (iii) combine the outstanding Common Stock into a
smaller number of shares, then in each such case the amount set forth
in the preceding sentence with respect to the exchange or change of
shares of Junior Participating Preferred Stock shall be adjusted by
multiplying such amount by a fraction the numerator of which is the
number of shares of Common Stock outstanding immediately after such
event and the denominator of which is the number of shares of Common
Stock that were outstanding immediately prior to such event.
(7) Redemption. The outstanding shares of Junior
Participating Preferred Stock may be redeemed at the option of the
Board of Directors as a whole, or in part, at any time, or from time to
time, at a cash price per share equal to the product of the Adjustment
Number times the Average Market Value (as such term is hereinafter
defined) of the Common Stock on the date of mailing of the notice of
redemption, plus all dividends which on the redemption date have
accrued on the shares to be redeemed and have not been paid, or
declared and a sum sufficient for the
<PAGE>
payment thereof set apart, without interest. The "Average Market Value"
as of a particular date is the average of the closing sale prices of
the Common Stock during the 10 consecutive Trading Day period
immediately preceding such date on the Composite Tape for New York
Stock Exchange Listed Stocks, or, if such stock is not quoted on the
Composite Tape, on the New York Stock Exchange, or, if such stock is
not listed on such Exchange, on the principal United States securities
exchange registered under the Securities Exchange Act of 1934, as
amended, on which such stock is listed, or, if such stock is not listed
on any such exchange, the average of the closing sale prices with
respect to a share of Common Stock during such 10-day period, as quoted
on the National Association of Securities Dealers, Inc. Automated
Quotations System or any system then in use, or if no such quotations
are available, the fair market value of the Common Stock as determined
by the Board of Directors in good faith. The term "Trading Day" shall
mean a day on which the principal national securities exchange on which
the Common Stock is listed or admitted to trading is open for the
transaction of business or, if the Common Stock is not listed or
admitted to trading on any national securities exchange, a Monday,
Tuesday, Wednesday, Thursday or Friday on which banking institutions in
the State of New York are not authorized or obligated by law or
executive order to close.
(8) Amendment. The Restated Certificate of
Incorporation of the corporation shall not be further amended in any
manner which would materially alter or change the powers, preferences
or special rights of the Junior Participating Preferred Stock so as to
affect them adversely without the affirmative vote of the holders of a
majority of the outstanding shares of Junior Participating Preferred
Stock, voting separately as a class.
(9) Fractional Shares. Junior Participating Preferred
Stock may he issued in fractions of a share which shall entitle the
holder, in proportion to such holders fractional shares, to exercise
voting rights, receive dividends, participate in distributions and to
have the benefit of all other rights of holders of Junior Participating
Preferred Stock.
(10) Cancellation. Any shares of the Junior
Participating Preferred Stock redeemed, exchanged, or purchased or
otherwise acquired by the corporation in any manner whatsoever shall be
retired and cancelled promptly after the acquisition thereof; all such
shares shall upon their cancellation become authorized but unissued
shares of preferred stock.
<PAGE>
5. (a) Except as otherwise fixed pursuant to the provisions of Article
4 hereof relating to the rights of the holders of any class or series of stock
having a preference over the common stock as to dividends or upon liquidation to
elect additional directors under specified circumstances, the number of
directors of this corporation shall be fixed from time to time by or pursuant to
the by-laws but shall not be less than 9 nor more than 15. Directors may be
removed by shareholders only for cause, as provided by law. Commencing at the
1985 annual meeting of shareholders, the directors, other than those who may be
elected by the holders of any class or series of stock having a preference over
the common stock as to dividends or upon liquidation, shall be classified, with
respect to the time for which they severally hold office, into three classes, as
nearly equal in number as possible, as shall be provided in the manner specified
in the by-laws, one class to hold office initially for a term expiring at the
1986 annual meeting of shareholders, another class to hold office initially for
a term expiring at the 1987 annual meeting of shareholders, and another class to
hold office initially for a term expiring at the 1988 annual meeting of
shareholders, with the members of each class to hold office until their
successors are elected and qualified. At each annual meeting of the shareholders
of this corporation, beginning with the 1986 annual meeting of shareholders, the
successors to the class of directors whose term expires at that meeting shall be
elected to hold office for a term expiring at the annual meeting of shareholders
held in the third year following the year of their election.
(b) Except as otherwise fixed pursuant to the provisions of
Article 4 hereof relating to the rights of the holders of any class or series of
stock having a preference over the common stock as to dividends or upon
liquidation to elect directors under specified circumstances, any vacancies on
the Board of Directors resulting from an increase in the number of directors,
death, resignation, disqualification, removal with or without cause or from any
other cause shall either be (i) eliminated by resolution of the Board of
Directors reducing the number of directors constituting the entire Board of
Directors adopted by the affirmative vote of a majority of the remaining
directors then in office, even though less than a quorum of the Board of
Directors, or (ii) filled by the affirmative vote of a majority of the remaining
directors then in office, even though less than a quorum of the Board of
Directors. Any director elected in accordance with the preceding sentence shall
hold office until the next succeeding annual meeting of shareholders and until
such director's successor shall have been elected and qualified, and, upon
reelection of such director or the election of such director's successor, shall
become a member of the same class of directors as the director he or she is
succeeding or, if elected to fill a newly-created directorship, a member of such
class as a majority of the Board shall designate even if such majority does not
constitute a quorum. No decrease in the number of directors constituting the
Board of Directors shall shorten the term of any incumbent director.
(c) Except as otherwise required by law and subject to the
rights of the holders of any class or series of stock having a preference over
the common stock as to dividends or upon liquidation, (i) any action required or
permitted to be taken by the shareholders of this corporation must be effected
at a duly called annual or special meeting of such holders and may not be
effected by any consent in writing by such holders, and (ii) special meetings of
shareholders of this corporation may be called only by the Chairman of the
Board, by the President or by the Board of Directors pursuant to a resolution
approved by a majority of the entire Board of Directors.
<PAGE>
(d) The Board of Directors shall have power to make, alter,
amend and repeal the by-laws (except so far as the by-laws adopted by the
shareholders shall otherwise provide). Any by-laws made by the directors under
the powers conferred hereby may be altered, amended or repealed by the directors
or by the shareholders. Notwithstanding the foregoing and anything contained in
this restated certificate of incorporation, as amended, to the contrary, but
nevertheless subject to the rights of the holders of any class or series of
stock having a preference over the common stock as to dividends or upon
liquidation, Section 1.02 of Article I, Sections 2.02 and 2.08 of Article II and
the proviso to Section 7.04 of Article VII of the corporation's by-laws shall
not be altered, amended or repealed, and no provision inconsistent therewith
shall be adopted, without the affirmative vote of the holders of at least 80% of
the voting power of all the shares of this corporation entitled to vote
generally in the election of directors, voting together as a single class.
(e) Advance notice of nominations for the election of
directors, other than by the Board of Directors or a committee thereof, shall be
given in the manner provided in the corporation's by-laws.
6. Notwithstanding anything contained in this restated certificate of
incorporation, as amended, to the contrary, the affirmative vote of the holders
of at least 80% of the voting power of all shares of the corporation entitled to
vote generally in the election of directors, voting together as a single class,
shall be required to alter, amend or adopt any provision inconsistent with or
repeal Article 5 or any provision thereof or this Article 6 or any provision
hereof.
7. (a) The affirmative vote of the holders of four-fifths of the
outstanding shares of all classes of stock of this corporation entitled
to vote, considered for the purposes of this Article 7 as one class,
shall be required
(i) for the adoption of any plan or agreement for the merger
or consolidation of this corporation or a subsidiary of this
corporation with or into any other corporation, person or other entity;
(ii) to authorize any sale, lease, exchange or other
disposition of all or any material part of the assets of this
corporation or of any subsidiary of this corporation to or with any
other corporation, person or other entity; or
(iii) to authorize any issuance or transfer of securities of
this corporation upon conversion of or in exchange for the securities
or assets of any other corporation, person or entity,
if (as of the date of any action taken by the Board of Directors with respect to
such transaction or as of any record date for the determination of shareholders
entitled to notice and to vote with respect thereto or immediately prior to the
consummation of such transaction) such other corporation, person or other entity
referred to in clause (i), clause (ii), or clause (iii) above is the beneficial
owner, directly or indirectly, of more than 10% of any class of capital stock of
this corporation. For the purposes hereof any corporation, person or other
entity shall be deemed to be the beneficial owner of any shares of capital stock
of this corporation, (x) which it has the right to acquire pursuant to any
agreement, or upon exercise of conversion rights, warrants or options, or
otherwise, or (y) which are beneficially owned, directly or indirectly
(including shares deemed owned through application of clause (x) above), by any
other corporation, person or other entity with which it has any agreement,
arrangement or understanding with respect to the acquisition, holding, voting or
disposition of stock or of any material part of the assets of this corporation
or of it, or which is its "affiliate" or "associate" as those terms are defined
in Rule 12b-2
<PAGE>
of the General Rules and Regulations under the Securities Exchange Act of 1934,
as in effect on January 1, 1970.
(b) Any determination made in good faith by the Board of
Directors, on the basis of information at the time available to it, as to
whether any corporation, person or other entity is the beneficial owner of more
than 10% of any class of capital stock of this corporation, or is an "affiliate"
or "associate", as above defined, shall be conclusive and binding for all
purposes of this Article 7.
(c) The provisions of subdivision (a) of this Article 7 shall
not apply to any agreement for the merger of any subsidiary of this corporation
with this corporation where this corporation shall be the surviving corporation
and where the provisions of this Article 7 shall not be changed or otherwise
affected by or by virtue of the merger.
(d) The affirmative vote of the holders of at least
four-fifths of the shares of all classes of stock of this corporation entitled
to vote, considered for the purposes of this Article 7 as one class, shall be
required for any amendment or deletion of this Article 7.
8. Except as provided in Articles 5, 6, 7 and 10 the majority voting
requirements prescribed in subsections 14A:10-3(2) and 14A:12-4(4) and in
paragraphs 14A:9-2(4)(c) and 14A:10-11(1)(c) of the New Jersey Business
Corporation Act shall apply to this corporation.
9. This corporation shall indemnify to the full extent permitted by law
any person made, or threatened to be made, a party to any pending, threatened or
completed civil, criminal, administrative or arbitrative action, suit or
proceeding and any appeal therein (and any inquiry or investigation which could
lead to such action, suit or proceeding) by reason of the fact that he is or was
a director, officer or employee of this corporation or serves or served any
other enterprise as a director, officer or employee at the request of this
corporation. Such right of indemnification shall inure to the benefit of the
legal representative of any such person.
10. (a) Certain Definitions:
For purposes of this Article 10:
(1) The term "Affiliated Transaction" shall mean:
(i) any mortgage, pledge, transfer or security
arrangement, investment, loan, advance, guarantee, agreement to
purchase, agreement to pay, extension of credit, joint venture
participation or other arrangement (in one transaction or a series of
transactions and including contemplated future events) with or for the
benefit of any Interested Shareholder or any Affiliate or Associate of
any Interested Shareholder involving any assets, securities or
commitments of the corporation, any Subsidiary or any Interested
Shareholder or any Affiliate or Associate of any Interested Shareholder
which has an aggregate Fair Market Value and/or involves aggregate
commitments of $10,000,000 or more or constitutes more than 1 percent
of the book value of the corporation's total consolidated assets as
shown on the corporation's latest audited financial statements (in the
case of transactions involving assets or commitments other than capital
stock), provided that any arrangement, whether as employee, consultant
or otherwise, other than as a director, pursuant to which any
Interested Shareholder or any Affiliate or Associate thereof shall,
directly or indirectly, have any control over or responsibility for the
management of any aspect of the business or affairs of the corporation,
shall be deemed
<PAGE>
an "Affiliated Transaction" irrespective of the value test set forth
above; or
(ii) the adoption of any plan or proposal for the
liquidation or dissolution of the corporation or for any amendment to
the corporation's by-laws; or
(iii) any reclassification of securities (including
any reverse stock split), or recapitalization of the corporation or any
other transaction (whether or not with or otherwise involving an
Interested Shareholder) that has the effect, directly or indirectly, of
increasing the proportionate share of any class or series of Capital
Stock, or any securities convertible into Capital Stock or into equity
securities of any Subsidiary, that is beneficially owned by any
Interested Shareholder or any Affiliate or Associate of any Interested
Shareholder; or
(iv) any agreement, contract or other arrangement
providing for any one or more of the actions specified in the
foregoing clauses (i) to (iii).
(2) The term "Capital Stock" shall mean all capital stock of
the corporation authorized to be issued from time to time under Article
4 of this restated certificate of incorporation, and the term "Voting
Stock" shall mean all Capital Stock which by its terms may be voted on
all matters submitted to stockholders of the corporation generally.
(3) The term "Person" shall mean any individual, firm, company
or other entity and shall include any group comprised of any Person and
any other Person with whom such Person or any Affiliate or Associate of
such Person has any agreement, arrangement or understanding, directly
or indirectly, for the purpose of acquiring, holding, voting or
disposing of Capital Stock.
(4) The term "Interested Shareholder" shall mean any person
(other than the corporation or any Subsidiary and other than any
profit-sharing, employee stock ownership or employee benefit plans of
the corporation or any Subsidiary or any trustee of or fiduciary with
respect to any such plan when acting in such capacity) who (a) is or
has announced or publicly disclosed a plan or intention to become the
beneficial owner of Voting Stock representing ten percent (10%) or more
of the votes entitled to be cast by the holders of all then outstanding
shares of Voting Stock; or (b) is an Affiliate or Associate of the
corporation and at any time within the two-year period immediately
prior to the date in question was the beneficial owner of Voting Stock
representing more than ten percent (10%) of the votes entitled to be
cast by the holders of all then outstanding shares of Voting Stock.
<PAGE>
(5) A person shall be a "beneficial owner" of any Capital
Stock (a) which such person or any of its Affiliates or Associates
beneficially owns, directly or indirectly; (b) which such person or any
of its Affiliates or Associates has, directly or indirectly, (i) the
right to acquire (whether such right is exercisable immediately or
subject only to the passage of time), pursuant to any agreement,
arrangement or understanding or upon the exercise of conversion rights,
exchange rights, warrants or options, or otherwise, or (ii) the right
to vote pursuant to any agreement, arrangement or understanding; or (c)
which are beneficially owned, directly or indirectly, by any other
person, other than the corporation, with which such person or any of
its Affiliates or Associates has any agreement, arrangement or
understanding for the purpose of acquiring, holding, voting or
disposing of any shares of Capital Stock that has not been approved by
a majority of the Continuing Directors. For the purposes of determining
whether a person is an Interested Shareholder pursuant to subparagraph
4 of this paragraph (a), the number of shares of Capital Stock deemed
to be outstanding shall include shares deemed beneficially owned by
such person through application of this subparagraph 5 of paragraph
(a), but shall not include any other shares of Capital Stock that may
be issuable pursuant to any agreement, arrangement or understanding, or
upon exercise of conversion rights, warrants or options, or otherwise.
(6) The terms "Affiliate" and "Associate" shall have the
respective meanings ascribed to such terms in Rule 12b-2 of the
Exchange Act Rules as in effect on the date that Article 11 is approved
by the Board (the term "registrant" in said Rule 12b-2 meaning in this
case the corporation).
(7) The term "Subsidiary" means any company of which a
majority of any class of equity security is beneficially owned by the
corporation; provided, however, that for the purposes of the definition
of Interested Shareholder set forth in subparagraph 4 of this paragraph
(a), the term "Subsidiary" shall mean only a company of which the
corporation beneficially owns voting securities affording the
corporation control (as such term is defined in Rule 12b-2 of the
Exchange Act Rules), of such other company.
(8) The term "Continuing Director" means any member of the
Board of Directors of the corporation (the "Board of Directors"), while
such person is a member of the Board of Directors, who is not an
Affiliate or Associate or representative of the Interested Shareholder
and was a member of the Board of Directors prior to the time that the
Interested Shareholder became an Interested Shareholder, and any
successor of a Continuing Director while such successor is a member of
the Board of Directors, who is not an Affiliate or Associate or
representative of the Interested Shareholder and is recommended or
elected to succeed the Continuing Director by a majority of Continuing
Directors, provided that no current or future member of the Board of
Directors shall be deemed an Affiliate or Associate or representative
of any corporation, partnership or other entity which, on March 5,
1985, owned more than 15% of this corporation's outstanding voting
securities and in which, on the same date, this corporation owned more
than 40% of the outstanding voting securities, and that all members of
the Board of Directors as of March 29, 1985 shall be deemed "Continuing
Directors."
<PAGE>
(9) The term "Fair Market Value" means (a) in the case of
cash, the amount of such cash; (b) in the case of stock, the highest
closing sale price during the 30-day period immediately preceding the
date in question of a share of such stock on the Composite Tape for
NYSE-Listed Stocks, or, if such stock is not quoted on the Composite
Tape, on the NYSE, or, if such stock is not listed on the NYSE, on the
principal United States securities exchange registered under the
Securities Exchange Act of 1934, as amended, on which such stock is
listed, or, if such stock is not listed on any such exchange, the
highest closing bid quotation with respect to a share of such stock
during the 30-day period preceding the date in question on the National
Association of Securities Dealers, Inc. Automated Quotations System or
any similar system then in use, or if no such quotations are available,
the fair market value on the date in question of a share of such stock
as determined by a majority of the Continuing Directors in good faith;
and (c) in the case of property other than cash or stock, the fair
market value of such property on the date in question as determined in
good faith by a majority of the Continuing Directors.
(b) Required Vote
No Affiliated Transaction with, or proposed by or on behalf of, any
interested Shareholder or any Affiliate or Associate of any Interested
Shareholder or any person who thereafter would be an Affiliate or Associate of
such Interested Shareholder may be effected unless, in addition to any
affirmative vote required by law or this restated certificate of incorporation
or the by-laws of the corporation, it shall have first been approved either
specifically or as a transaction which is within an approved category of
transactions, by a majority (whether such approval is made prior to or
subsequent to the acquisition of, or announcement or public disclosure of the
intention to acquire, beneficial ownership of the Voting Stock that caused the
Interested Shareholder to become an Interested Shareholder) of the Continuing
Directors.
(c) Factual Determinations
A majority of the Continuing Directors shall have the power and duty to
determine for the purposes of this Article 10, on the basis of information known
to them after reasonable inquiry, all questions arising under this Article 10,
including, without limitation, (a) whether a person is an Interested
Shareholder, (b) the number of shares of Capital Stock or other securities
beneficially owned by any person, (c) whether a person is an Affiliate or
Associate of another, (d) whether a proposed action is with, or proposed by, or
on behalf of an Interested Shareholder or an Affiliate or Associate of an
Interested Shareholder, or (e) whether the assets that are the subject of any
Affiliated Transaction have, or the consideration to be received for the
issuance or transfer of securities by any Subsidiary in any Affiliated
Transaction has, an aggregate Fair Market Value of $10,000,000 or more. Any such
determination made in good faith shall be binding and conclusive on all parties.
(d) No Derogation of Fiduciary Obligations
Nothing contained in this Article 10 shall be construed to relieve any
Interested Shareholder from any fiduciary obligation imposed by law.
<PAGE>
(e) Amendment
Any amendment, alteration, change or repeal of this Article 10
shall, in addition to any other vote or approval required by law or by this
restated certificate of incorporation, require the affirmative vote of the
holders of then outstanding Voting Stock entitling the holders thereof to cast
at least 80% of the votes entitled to be cast by the holders of all of the then
outstanding Voting Stock (and such affirmative vote must include the affirmative
vote of the holders of Voting Stock entitled to cast a majority of the votes
entitled to be cast by the holders of all Voting Stock not beneficially owned by
any Interested Shareholder); provided, however, that this paragraph (e) shall
not apply to, and such 80% vote (and such further majority vote) shall not be
required for, any amendment, alteration, change or repeal declared advisable by
the Board of Directors by the affirmative vote of two-thirds of the members of
the Board of Directors and submitted to the shareholders for their
consideration, but only if a majority of the members of the Board of Directors
acting upon such matter shall be Continuing Directors and two-thirds of such
Continuing Directors shall have voted in favor of such amendment, alteration,
change or repeal.
11. To the full extent from time to time permitted by law, no director
or officer of the corporation shall be personally liable to the corporation or
its shareholders for damages for breach of any duty owed to the corporation or
its shareholders. Neither the amendment or repeal of this Article 11, nor the
adoption of any provision of this certificate of incorporation inconsistent with
this Article 11, shall eliminate or reduce the protection afforded by this
Article 11 to a director or officer of the corporation in respect to any matter
which occurred, or any cause of action, suit or claim which but for this Article
11 would have accrued or arisen, prior to such amendment, repeal or adoption.
IN WITNESS WHEREOF, ASARCO Incorporated has caused this Restated
Certificate of Incorporation to be duly executed this 24th day of June, 1998.
ASARCO Incorporated
By: /s/Richard de J. Osborne
Richard de J. Osborne
Chairman of the Board
<PAGE>
CERTIFICATE OF ADOPTION OF
RESTATED CERTIFICATE OF INCORPORATION
OF
ASARCO INCORPORATED
Pursuant to Section 14A:9-5(5) of the New Jersey Business Corporation Act,
the undersigned hereby certifies:
FIRST: The name of the Corporation is ASARCO Incorporated.
SECOND: The Restated Certificate of Incorporation attached hereto
was duly adopted by the Board of Directors of the Corporation at its
meeting held on June 24, 1998.
THIRD: Said Restated Certificate of Incorporation restates and
integrates but does not substantively amend the Corporation's Certificate
of Incorporation as restated and amended prior hereto, other than (i) to
eliminate, pursuant to authority of the Board of Directors under Section
14A:7-2(4) of the New Jersey Business Corporation Act, designations of
series of preferred stock as to which no shares are currently outstanding,
and (ii) to state in Article 2 the number, names and addresses of the
directors constituting its current Board and the address of its current
registered office as required by Section 14A:9-5(4)(a) of the New Jersey
Business Corporation Act.
IN WITNESS WHEREOF, ASARCO Incorporated has caused this Certificate to be
duly executed this 24th day of June, 1998.
ASARCO Incorporated
By: /s/Richard de J. Osborne
Richard de J. Osborne
Chairman of the Board
<PAGE>
Exhibit 11 Statement re Computation of Earnings per Share
This calculation is submitted in accordance with Regulation S-K item 601(b)(11).
Earnings per Common Share
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
3 Months Ended 6 Months Ended
June 30, June 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net earnings (loss) applicable to common stock $(14,542) $51,874 $(46,348) $92,454
Weighted average number of common shares outstanding
39,657 42,931 39,654 42,903
Shares issuable from assumed exercise of Stock Options
- 123 - 123
------- ------- ------- -------
Weighted average number of common shares outstanding, as adjusted
39,657 43,054 39,654 43,026
======= ======= ======= =======
Diluted earnings (loss) per share:
Net earnings (loss) applicable to common stock $(0.37) $ 1.20 $(1.17) $ 2.15
======= ======= ======= =======
Basic earnings (loss) per share:
Net earnings (loss) applicable to common stock $(0.37) $ 1.21 $ (1.17) $ 2.15
======= ======= ======== =======
</TABLE>
<PAGE>
Exhibit 12 Statement re Computation of Consolidated Ratio of Earnings
to Fixed Charges and Combined Fixed Charges and Preferred
Share Dividend Requirements
<TABLE>
<CAPTION>
Six months
Ended
June 30,
1998 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
NET EARNINGS (LOSS) $(46,348) $143,392 $138,336 $169,153 $ 64,034 $ 15,619
Adjustments
Taxes (benefit) on Income (16,152) 72,356 99,924 122,465 9,375 (36,503)
Equity Earnings, Net of Taxes (1,728) (7,706) (3,837) (1,837) (47,653) (27,384)
Cumulative Effect of Change in
Accounting Principle - - - - - (86,295)
Dividends received from non-
Consolidated associated
Companies 2,096 5,209 4,047 1,828 14,301 1,676
Total Fixed Charges 41,888 84,972 83,553 99,516 66,377 64,359
Interest Capitalized (5,276) (5,515) (2,839) (3,256) (869) (4,010)
Capitalized Interest Amortized 1,714 2,113 2,274 2,949 1,727 1,629
Minority interest 15,236 90,605 88,331 129,543 809 693
-------- -------- -------- -------- -------- --------
EARNINGS (LOSS) $ (8,570) $385,426 $409,789 $520,361 $108,101 $(70,216)
========= ======== ======== ======== ======== ========
FIXED CHARGES
Interest Expense $ 33,858 $ 74,247 $ 76,442 $ 91,954 $ 62,529 $ 57,321
Interest Capitalized 5,276 5,515 2,839 3,256 869 4,010
Imputed Interest Expense 2,754 5,210 4,272 4,306 2,979 3,028
------- -------- -------- -------- -------- --------
TOTAL FIXED CHARGES $ 41,888 $ 84,972 $ 83,553 $ 99,516 $ 66,377 $ 64,359
======== ======== ======== ======== ======== ========
Ratio of Earnings to Fixed Charges (a) 4.5 4.9 5.2 1.6 (b)
======== ======== ======== ======== ======== ========
</TABLE>
(a) For the six months ended June 30, 1998 earnings were insufficient to cover
fixed charges by $50,458.
(b) For the year ended December 31, 1993 earnings were insufficient to cover
fixed charges by $134,575
<PAGE>
SIGNATURES
Pursuant to the requirement 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.
ASARCO Incorporated
(Registrant)
Date: August 14, 1998 /s/ Kevin R. Morano
-------------------
Kevin R. Morano
Executive Vice President and
Chief Financial Officer
Date: August 14, 1998 /s/ William Dowd
----------------
William Dowd
Controller
- 23 -
<PAGE>
Exhibit I
PricewaterhouseCoopers LLP
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
We are aware that our report dated July 20, 1998 on our review of the interim
financial information of ASARCO Incorporated and Subsidiaries as of June 30,
1998 and for the three month and six month periods ended June 30, 1998 and 1997
and included in this Form 10-Q for the quarter ended June 30, 1998 is
incorporated by reference in the Company's Registration Statements on Form S-8
(File Nos. 2-67732, 2-83782, 33-34606, 333-16875, 333-18083 and 333-46181) and
Form S-3 (File Nos. 33-45631, 33-55993 and 333-02359). Pursuant to Rule 436(c)
under the Securities Act of 1933, this report should not be considered a part of
the Registration Statements prepared or certified by us within the meaning of
Sections 7 and 11 of that Act.
PricewaterhouseCoopers LLP
New York, New York
August 11, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 232323
<SECURITIES> 52517
<RECEIVABLES> 462334
<ALLOWANCES> 9914
<INVENTORY> 314847
<CURRENT-ASSETS> 1137223
<PP&E> 4809971
<DEPRECIATION> 2333912
<TOTAL-ASSETS> 4020443
<CURRENT-LIABILITIES> 634843
<BONDS> 0
<COMMON> 522381
0
0
<OTHER-SE> 1100341
<TOTAL-LIABILITY-AND-EQUITY> 4020443
<SALES> 1235733
<TOTAL-REVENUES> 1235733
<CGS> 1084592
<TOTAL-COSTS> 1084592
<OTHER-EXPENSES> 183718
<LOSS-PROVISION> 620
<INTEREST-EXPENSE> 33858
<INCOME-PRETAX> (47087)
<INCOME-TAX> (15975)
<INCOME-CONTINUING> (46348)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (46348)
<EPS-PRIMARY> (1.17)
<EPS-DILUTED> (1.17)
</TABLE>
