<PAGE>
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
SCHEDULE 14D-1
TENDER OFFER STATEMENT
PURSUANT TO SECTION 14(D)(1) OF THE SECURITIES EXCHANGE ACT OF 1934
AND
AMENDMENT NO. 4 TO
SCHEDULE 13D
UNDER THE SECURITIES EXCHANGE ACT OF 1934
------------------------
ASARCO INCORPORATED
(Name of Subject Company)
ASMEX CORPORATION
AND
GRUPO MEXICO, S.A. DE C.V.
(Bidders)
------------------------
COMMON STOCK, NO PAR VALUE
(INCLUDING THE ASSOCIATED JUNIOR
PARTICIPATING PREFERRED STOCK PURCHASE RIGHTS)
(Title of Class of Securities)
------------------------
04341310
(CUSIP Number of Class of Securities)
------------------------
Daniel Tellechea Salido
Managing Director for Administration and Finance
GRUPO MEXICO, S.A. de C.V.
Baja California 200
Colonia Roma Sur
06760 Mexico City, Mexico
TELEPHONE: 011-525-574-2067
(Name, Address and Telephone Number of Person Authorized to
Receive Notices and Communications on Behalf of Bidders)
COPY TO:
LORI ANNE CZEPIEL, ESQ.
BROWN & WOOD LLP
ONE WORLD TRADE CENTER
NEW YORK, NEW YORK 10048
TELEPHONE: (212) 839-5300
CALCULATION OF FILING FEE
<TABLE>
<S> <C>
Transaction Valuation*............................................................ $ 932,968,296
Amount of Filing Fee**............................................................ $ 186,594
</TABLE>
- ------------------------
* Estimated for purposes of calculating the filing fee only. The filing fee
calculation assumes the purchase of 35,883,396 shares of common stock,
without par value, of ASARCO Incorporated at a price of $26.00 per share in
cash without interest.
** Calculated as 1/50 of 1% of the transaction value in accordance with Rule
0-11(d) of the Securities Exchange Act of 1934, as amended.
/ / Check box if any part of the fee is offset as provided by Rule 0-11(a)(2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the Form
or Schedule and the date of its filing.
AMOUNT PREVIOUSLY PAID: Not Applicable FILING PARTY: Not Applicable
FORM OR REGISTRATION NO.: Not Applicable DATE FILED: Not Applicable
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<PAGE>
SCHEDULE 14D-1/ 13D
CUSIP NO. PAGE 2 OF 8 PAGES
<TABLE>
<C> <S>
1. NAME OF REPORTING PERSON SS. OR I.R.S. IDENTIFICATION NO. OF
ABOVE PERSON
GRUPO MEXICO, S.A. DE C.V.
2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (A) / /
(B) / /
3. SEC USE ONLY
4. SOURCE OF FUNDS
BK
5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS
2(E) OR 2(F) / /
6. CITIZENSHIP OR PLACE OF ORGANIZATION
MEXICO
</TABLE>
<TABLE>
<C> <C> <S>
7 SOLE VOTING POWER
3,900,000
NUMBER OF
SHARES
BENEFICIALLY 8 SHARED VOTING POWER
OWNED BY
NONE
EACH
REPORTING 9 SOLE DISPOSITIVE POWER
PERSON
3,900,000
WITH
10 SHARED DISPOSITIVE POWER
NONE
</TABLE>
<TABLE>
<C> <S>
11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
3,900,000
12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES / /
13. PERCENT OF CLASS REPRESENTED BY AMOUNT ON ROW (11)
9.8%
14. TYPE OF REPORTING PERSON
CO
</TABLE>
2
<PAGE>
SCHEDULE 14D-1/ 13D
CUSIP NO. PAGE 3 OF 8 PAGES
<TABLE>
<C> <S>
1. NAME OF REPORTING PERSON SS. OR I.R.S. IDENTIFICATION NO. OF
ABOVE PERSON
ASMEX CORPORATION
I.R.S. EMPLOYER IDENTIFICATION NUMBER--APPLICATION PENDING
2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (A) / /
(B) / /
3. SEC USE ONLY
4. SOURCE OF FUNDS
BK
5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS
2(E) OR 2(F) / /
6. CITIZENSHIP OR PLACE OF ORGANIZATION
DELAWARE
</TABLE>
<TABLE>
<C> <C> <S>
7 SOLE VOTING POWER
NONE
NUMBER OF
SHARES
BENEFICIALLY 8 SHARED VOTING POWER
OWNED BY
NONE
EACH
REPORTING 9 SOLE DISPOSITIVE POWER
PERSON
NONE
WITH
10 SHARED DISPOSITIVE POWER
NONE
</TABLE>
<TABLE>
<C> <S>
11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
NONE
12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES / /
NONE
13. PERCENT OF CLASS REPRESENTED BY AMOUNT ON ROW (11)
NONE
14. TYPE OF REPORTING PERSON
CO
</TABLE>
3
<PAGE>
SCHEDULE 14D-1/ SCHEDULE 13D
This Tender Offer Statement on Schedule 14D-1 and Amendment No. 4 to the
Schedule 13D (this "Statement") relates to the offer by Grupo Mexico, S.A. de
C.V., a Mexican corporation ("Parent") through its wholly owned subsidiary,
ASMEX Corporation, a Delaware corporation ("Purchaser"), to purchase all of the
outstanding shares of common stock, without par value (together with the
associated junior participating preferred stock purchase rights, the "Common
Stock"), of ASARCO Incorporated, a New Jersey corporation (the "Company"), at a
purchase price of $26.00 per share of Common Stock, net to the seller in cash,
without interest thereon, upon the terms and subject to the conditions set forth
in the Offer to Purchase dated September 27, 1999 (the "Offer to Purchase"), a
copy of which is attached hereto as Exhibit (a)(1), and in the related Letter of
Transmittal, a copy of which is attached hereto as Exhibit (a)(2) (which, as may
be amended or supplemented from time to time, together with the Offer to
Purchase constitute the "Offer").
This Statement also constitutes Amendment No. 4 to the Schedule 13D
originally filed on December 29, 1997, as amended by Amendment No. 1, filed
January 26, 1998, Amendment No. 2, filed July 31, 1998 and Amendment No. 3,
filed the date hereof. The item numbers and responses thereto below are in
accordance with the requirements of Schedule 14D-1.
ITEM 1. SECURITY AND SUBJECT COMPANY.
(a) The name of the subject company is ASARCO Incorporated and the address
of its principal executive offices is 180 Maiden Lane, New York, New York 10038.
(b) The information set forth in the "INTRODUCTION" of the Offer to Purchase
is incorporated herein by reference.
(c) The information set forth in "Section 6--Price Range of Shares of Common
Stock; Dividends" of the Offer to Purchase is incorporated herein by reference.
ITEM 2. IDENTITY AND BACKGROUND.
(a)-(d), (g) This Statement is being filed by Parent and Purchaser. The
information set forth under the captions "INTRODUCTION" and "Section 9--Certain
Information Concerning Purchaser, Parent and Certain Affiliates" in the Offer to
Purchase and the information set forth in Schedule I thereto is incorporated
herein by reference.
(e)-(f) During the last five years neither Parent nor Purchaser nor, to the
best knowledge of Parent and Purchaser, any of the persons listed in Schedule I
of the Offer to Purchase has been convicted in a criminal proceeding (excluding
traffic violations or similar misdemeanors) or was a party to a civil proceeding
of a judicial or administrative body of competent jurisdiction as a result of
which any such person was or is subject to a judgment, decree or final order
enjoining future violations of, or prohibiting activities subject to, federal or
state securities laws or finding any violation of such laws.
ITEM 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS WITH THE SUBJECT COMPANY.
(a)-(b) The information set forth under the captions "INTRODUCTION,"
"Section 9--Certain Information Concerning Purchaser, Parent and Certain
Affiliates," "Section 11--Background of the Offer; Contacts with ASARCO" and
"Section 12--Purpose of the Offer and the Merger; Plans for ASARCO; Certain
Considerations" in the Offer to Purchase is incorporated herein by reference.
4
<PAGE>
ITEM 4. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
(a)-(b) The information set forth under the caption "Section 10--Source and
Amount of Funds" in the Offer to Purchase is incorporated herein by reference.
(c) Not applicable.
ITEM 5. PURPOSE OF THE TENDER OFFER AND PLANS OR PROPOSALS OF THE BIDDER.
(a)-(e) The information set forth under the captions "INTRODUCTION,"
"Section 11--Background of the Offer; Contacts with ASARCO" and "Section
12--Purpose of the Offer and the Merger; Plans for ASARCO; Certain
Considerations" in the Offer to Purchase is incorporated herein by reference.
(f)-(g) The information set forth under the caption "Section 7--Effect of
the Offer on the Market for Shares of Common Stock; Exchange Listing and
Exchange Act Registration; Margin Regulations" in the Offer to Purchase is
incorporated herein by reference.
ITEM 6. INTEREST IN SECURITIES OF THE SUBJECT COMPANY.
(a)-(b) The information set forth under the captions "INTRODUCTION,"
"Section 9--Certain Information Concerning Purchaser, Parent and Certain
Affiliates" and "Section 11--Background of the Offer; Contacts with ASARCO" in
the Offer to Purchase is incorporated herein by reference.
ITEM 7. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT
TO THE SUBJECT COMPANY'S SECURITIES.
The information set forth under the captions "INTRODUCTION," "Section
10--Source and Amount of Funds," "Section 11--Background of the Offer; Contacts
with ASARCO," "Section 12-- Purpose of the Offer and the Merger; Plans for
ASARCO; Certain Considerations" and "Section 16--Fees and Expenses" in the Offer
to Purchase is incorporated herein by reference.
ITEM 8. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
The information set forth under the caption "Section 16--Fees and Expenses"
in the Offer to Purchase is incorporated herein by reference.
ITEM 9. FINANCIAL STATEMENTS OF CERTAIN BIDDERS.
The information set forth under the caption "Section 9--Certain Information
Concerning Purchaser, Parent and Certain Affiliates" in the Offer to Purchase
and set forth in Exhibits (g)(1), (2) and (3) hereto is incorporated herein by
reference. The incorporation by reference herein of the above-referenced
financial information does not constitute an admission that such information is
material to a decision by a security holder of ASARCO whether to exchange,
tender or hold securities being sought in the Offer.
ITEM 10. ADDITIONAL INFORMATION.
(a) None.
(b)-(c) The information set forth under the captions "INTRODUCTION,"
"Section 14--Conditions of the Offer" and "Section 15--Certain Legal Matters;
Regulatory Approvals" in the Offer to Purchase is incorporated herein by
reference.
(d) The information set forth under the captions "Section 7--Effect of the
Offer on the Market for Shares of Common Stock; Exchange Listing and Exchange
Act Registration; Margin Regulations" and
5
<PAGE>
"Section 15--Certain Legal Matters; Regulatory Approvals" in the Offer to
Purchase is incorporated herein by reference.
(e) None.
(f) The information set forth in the Offer to Purchase and the Letter of
Transmittal, copies of which are attached hereto as Exhibits (a)(1) and (a)(2),
respectively, to the extent not otherwise incorporated herein by reference, is
incorporated herein by reference.
ITEM 11. MATERIALS TO BE FILED AS EXHIBITS.
(a)(1) Offer to Purchase dated September 27, 1999.
(a)(2) Form of Letter of Transmittal.
(a)(3) Form of Notice of Guaranteed Delivery.
(a)(4) Form of Letter to Brokers, Dealers, Commercial Banks, Trust
Companies and Other Nominees.
(a)(5) Form of Letter to Clients for use by Brokers, Dealers, Commercial
Banks, Trust Companies and Other Nominees.
(a)(6) Form of Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9.
(a)(7) Form of Summary Advertisement dated September 27, 1999.
(a)(8) Press release of Parent dated September 24, 1999.
(a)(9) Press release of Parent dated September 27, 1999.
(b)(1) Commitment Letter from The Chase Manhattan Bank and Chase Securities
Inc. dated September 24, 1999.
(c) Not applicable.
(d) Not applicable.
(e) Not applicable.
(f) None.
(g)(1) 1997 Annual Report of Parent.
(g)(2) 1998 Annual Report of Parent.
(g)(3) Unaudited Financial Report of Parent as of June 30, 1999.
6
<PAGE>
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify that
the information set forth in this statement is true, complete and correct.
<TABLE>
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GRUPO MEXICO, S.A. DE C.V.
By: /s/ DANIEL TELLECHEA SALIDO
------------------------------------------
Name: Daniel Tellechea Salido
Title: Managing Director for
Administration
and Finance
GRUPO MEXICO, S.A. DE C.V.
By: /s/ HECTOR CALVA RUIZ
------------------------------------------
Name: Hector Calva Ruiz
Title: Managing Director for Exploration
and Projects
ASMEX CORPORATION
By: /s/ DANIEL TELLECHEA SALIDO
------------------------------------------
Name: Daniel Tellechea Salido
Title: Vice President and Treasurer
September 27, 1999
</TABLE>
7
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ----------- -----------------------------------------------------------------------------------------------------
<S> <C>
(a)(1) Offer to Purchase dated September 27, 1999.
(a)(2) Form of Letter of Transmittal.
(a)(3) Form of Notice of Guaranteed Delivery.
(a)(4) Form of Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees.
(a)(5) Form of Letter to Clients for use by Brokers, Dealers, Commercial Banks, Trust Companies and Other
Nominees.
(a)(6) Form of Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9.
(a)(7) Form of Summary Advertisement dated September 27, 1999.
(a)(8) Press release of Parent dated September 24, 1999.
(a)(9) Press release of Parent dated September 27, 1999.
(b)(1) Commitment Letter from The Chase Manhattan Bank and Chase Securities Inc. dated September 24, 1999.
(c) Not applicable.
(d) Not applicable.
(e) Not applicable.
(f) None.
(g)(1) 1997 Annual Report of Parent.
(g)(2) 1998 Annual Report of Parent.
(g)(3) Unaudited Financial Report of Parent as of June 30, 1999.
</TABLE>
8
<PAGE>
OFFER TO PURCHASE FOR CASH
ALL OF THE OUTSTANDING SHARES OF COMMON STOCK
(INCLUDING THE ASSOCIATED JUNIOR PARTICIPATING PREFERRED STOCK PURCHASE RIGHTS)
OF
ASARCO INCORPORATED
AT
$26.00 NET PER SHARE
BY
ASMEX CORPORATION
A WHOLLY OWNED SUBSIDIARY OF
GRUPO MEXICO, S.A. DE C.V.
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT,
NEW YORK CITY TIME, ON MONDAY, OCTOBER 25, 1999,
UNLESS THE OFFER IS EXTENDED.
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, (1) THERE BEING VALIDLY
TENDERED AND NOT PROPERLY WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER THAT
NUMBER OF SHARES OF COMMON STOCK (INCLUDING THE ASSOCIATED JUNIOR PARTICIPATING
PREFERRED STOCK PURCHASE RIGHTS (INCLUDING ANY SUCCESSORS THERETO, THE
"RIGHTS")), WITHOUT PAR VALUE (THE "COMMON STOCK"), OF ASARCO INCORPORATED,
("ASARCO"), WHICH, TOGETHER WITH SHARES OF COMMON STOCK OWNED BY GRUPO MEXICO,
S.A. DE C.V. ("PARENT"), CONSTITUTE AT LEAST 80% OF THE SHARES OF COMMON STOCK
OUTSTANDING ON A FULLY DILUTED BASIS, (2) THE RIGHTS HAVING BEEN REDEEMED BY THE
BOARD OF DIRECTORS OF ASARCO OR ASMEX CORPORATION ("PURCHASER") BEING SATISFIED,
IN ITS SOLE DISCRETION, THAT THE RIGHTS ARE INVALID OR OTHERWISE INAPPLICABLE TO
THE TRANSACTIONS CONTEMPLATED BY THIS OFFER TO PURCHASE, (3) THE PURCHASER BEING
SATISFIED, IN ITS SOLE DISCRETION, THAT THE AGREEMENT AND PLAN OF MERGER DATED
AS OF JULY 15, 1999, AMONG ASARCO, CYPRUS AMAX MINERALS COMPANY AND CERTAIN
OTHER PARTIES (THE "CYPRUS AMAX AGREEMENT"), HAS BEEN TERMINATED AND ASARCO
HAVING ENTERED INTO A DEFINITIVE MERGER AGREEMENT WITH PARENT AND PURCHASER TO
PROVIDE FOR THE ACQUISITION OF ASARCO BY PARENT OR PURCHASER AND (4) PARENT AND
PURCHASER HAVING OBTAINED ALL REGULATORY APPROVALS NECESSARY FOR THEIR
ACQUISITION OF CONTROL OF ASARCO ON TERMS AND CONDITIONS SATISFACTORY TO
PURCHASER, IN ITS SOLE DISCRETION. SEE SECTION 14.
---------------------
THE OFFER IS NOT CONDITIONED UPON PARENT OR PURCHASER OBTAINING FINANCING.
---------------------
IMPORTANT
PARENT INTENDS TO SEEK TO NEGOTIATE WITH ASARCO WITH RESPECT TO THE
ACQUISITION OF ASARCO BY PARENT OR PURCHASER. PURCHASER RESERVES THE RIGHT TO
AMEND THE OFFER (INCLUDING AMENDING THE NUMBER OF SHARES OF COMMON STOCK TO BE
PURCHASED, THE OFFER PRICE (AS DEFINED HEREIN) AND THE CONSIDERATION TO BE
ISSUED IN THE PROPOSED MERGER (AS DEFINED HEREIN)) UPON ENTERING INTO A MERGER
AGREEMENT WITH ASARCO OR TO NEGOTIATE A MERGER AGREEMENT WITH ASARCO NOT
INVOLVING A TENDER OFFER AS A RESULT OF WHICH PURCHASER WOULD TERMINATE THE
OFFER.
Any shareholder desiring to tender all or any portion of such shareholder's
shares of Common Stock should either (i) complete and sign the Letter of
Transmittal (or a facsimile thereof) in accordance with the instructions in the
Letter of Transmittal, have such shareholder's signature thereon guaranteed if
required by Instruction 1 to the Letter of Transmittal, mail or deliver the
Letter of Transmittal (or such facsimile thereof) and any other required
documents to the Depositary (as defined herein) and either deliver the
certificates for such shares of Common Stock and, if separate, the certificates
representing the associated Rights to the Depositary along with the Letter of
Transmittal (or a facsimile thereof) or deliver such shares of Common Stock (and
Rights, if applicable) pursuant to the procedure for book-entry transfer set
forth in Section 3 prior to the expiration of the Offer or (ii) request such
shareholder's broker, dealer, commercial bank, trust company or other nominee to
effect the transaction for such shareholder. A shareholder having shares of
Common Stock (and, if applicable, Rights) registered in the name of a broker,
dealer, commercial bank, trust company or other nominee must contact such
broker, dealer, commercial bank, trust company or other nominee if such
shareholder desires to tender such shares of Common Stock (and, if applicable,
Rights).
Any shareholder who desires to tender shares of Common Stock (and, if
applicable, Rights) and whose certificates for such shares (and, if applicable,
Rights) are not immediately available, or who cannot comply with the procedures
for book-entry transfer described in this Offer to Purchase on a timely basis,
may tender such shares of Common Stock (and, if applicable, Rights) by following
the procedures for guaranteed delivery set forth in Section 3.
Questions and requests for assistance may be directed to the Information
Agent (as defined herein) or the Dealer Manager (as defined herein) at their
respective addresses and telephone numbers set forth on the back cover of this
Offer to Purchase. Additional copies of this Offer to Purchase, the Letter of
Transmittal or other tender offer materials may be obtained from the Information
Agent.
---------------------
THE DEALER MANAGER FOR THE OFFER IS:
CHASE SECURITIES INC.
September 27, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<C> <S> <C>
INTRODUCTION................................................................................ 1
1. Terms of the Offer; Expiration Date.............................................. 13
2. Acceptance for Payment and Payment for Shares of Common Stock.................... 14
3. Procedures for Tendering Shares of Common Stock.................................. 16
4. Withdrawal Rights................................................................ 19
5. Certain Federal Income Tax Consequences.......................................... 20
6. Price Range of Shares of Common Stock; Dividends................................. 21
7. Effect of the Offer on the Market for Shares of Common Stock; Exchange Listing
and Exchange Act Registration; Margin Regulations................................ 21
8. Certain Information Concerning ASARCO............................................ 23
9. Certain Information Concerning Purchaser, Parent and Certain Affiliates.......... 24
10. Source and Amount of Funds....................................................... 34
11. Background of the Offer; Contacts with ASARCO.................................... 35
12. Purpose of the Offer and the Merger; Plans for ASARCO; Certain Considerations.... 43
13. Dividends and Distributions...................................................... 49
14. Conditions of the Offer.......................................................... 50
15. Certain Legal Matters; Regulatory Approvals...................................... 53
16. Fees and Expenses................................................................ 58
17. Miscellaneous.................................................................... 59
SCHEDULE I-- Directors and Executive Officers of Parent, Purchaser and
Empresarios Industriales de Mexico, S.A. de C.V............................... S-1
</TABLE>
i
<PAGE>
To the Holders of Common Stock of ASARCO:
INTRODUCTION
ASMEX Corporation ("Purchaser"), a Delaware corporation and a wholly owned
subsidiary of Grupo Mexico, S.A. de C.V., a Mexican corporation ("Parent"),
hereby offers to purchase, upon the terms and conditions set forth in this Offer
to Purchase (as it may be amended or supplemented from time to time, the "Offer
to Purchase") all outstanding shares of common stock, without par value (the
"Common Stock"), of ASARCO Incorporated, a New Jersey corporation ("ASARCO"),
including the associated junior participating preferred stock purchase rights
(including any successors thereto, the "Rights") issued pursuant to a rights
agreement dated as of January 28, 1998, as amended as of July 15, 1999, between
ASARCO and The Bank of New York, as Rights Agent (as such agreement may be
further amended and including any successor agreement, the "Rights Agreement"),
at a price of $26.00 per share of Common Stock, net to the seller in cash,
without interest thereon (the "Offer Price"), upon the terms and subject to the
conditions set forth in this Offer to Purchase and in the related Letter of
Transmittal (which, as amended from time to time, together constitute the
"Offer"). Unless the context otherwise requires, all references to shares of
Common Stock shall include the associated Rights, whether or not such Rights are
evidenced by separate Rights Certificates (as defined herein), and all
references to the Rights shall include the benefits that may inure to holders of
the Rights pursuant to the Rights Agreement, including the right to receive any
payment due upon redemption of the Rights.
Tendering shareholders will not be obligated to pay brokerage fees or
commissions or, except as set forth in Instruction 6 of the Letter of
Transmittal, stock transfer taxes on the purchase of shares of Common Stock by
Purchaser pursuant to the Offer. Purchaser will pay all charges and expenses of
Chase Securities Inc., as Dealer Manager (the "Dealer Manager"), Citibank, N.A.,
as Depositary (the "Depositary"), and D.F. King & Co., Inc., as Information
Agent (the "Information Agent"), incurred in connection with the Offer. See
Section 16.
The purpose of the Offer and the Proposed Merger (as defined herein) is to
enable Parent to acquire control of, and ultimately the entire equity interest
in, ASARCO. The Offer, as the first step in the acquisition of ASARCO, is
intended to facilitate the acquisition of that number of shares of Common Stock
that, together with shares of Common Stock owned by Parent and Purchaser, would
constitute at least 80% of the shares of Common Stock on a fully diluted basis.
Article 7 of ASARCO's Restated Certificate of Incorporation ("ASARCO Certificate
of Incorporation") appears to require the affirmative vote of at least 80% of
the outstanding shares of Common Stock to approve a transaction such as the
Proposed Merger. Parent intends to seek to negotiate with ASARCO with respect to
the acquisition of ASARCO by Parent or Purchaser in order to enter into a
definitive merger agreement providing for such acquisition. Parent currently
intends, as soon as practicable following consummation of the Offer pursuant to
such a merger agreement, to seek to have Purchaser consummate a merger with and
into ASARCO, with ASARCO continuing as the surviving corporation (the "Proposed
Merger"), pursuant to which each then outstanding share of Common Stock (other
than shares of Common Stock owned by Parent or any of its wholly owned
subsidiaries and shares of Common Stock held in the treasury of ASARCO) would be
converted into the right to receive in cash the price per share paid by
Purchaser pursuant to the Offer. In general, in the event that the Proposed
Merger is consummated as described above, gain or loss will be recognized by a
shareholder of ASARCO who receives cash in exchange for shares of Common Stock
pursuant to the Offer and/or the Proposed Merger. See Section 5.
During the period from June 25, 1997 through January 25, 1999, Parent,
either directly or through an affiliate, acquired approximately 9.8% of the
outstanding shares of Common Stock (approximately 9.4% on a fully diluted basis)
in a series of open market purchases. See Section 11.
On July 15, 1999, ASARCO and Cyprus Amax Minerals Company, a Delaware
corporation ("Cyprus Amax"), announced that they had entered into an agreement
and plan of merger (including any and all amendments thereto, the "Cyprus Amax
Agreement") pursuant to which ASARCO and Cyprus Amax would be combined to form a
single entity by means of the Proposed Cyprus Amax Transaction (as defined
1
<PAGE>
herein). Later that same day, the office of Mr. German Larrea Mota-Velasco,
Chairman of the Board and Chief Executive Officer of Parent, received by
fascimile a letter from Mr. Francis R. McAllister, Chairman of the Board and
Chief Executive Officer of ASARCO, notifying Mr. Larrea of the announced
Proposed Cyprus Amax Transaction and providing a copy of the press release
issued by ASARCO and Cyprus Amax.
On August 20, 1999, ASARCO and Cyprus Amax filed with the Securities and
Exchange Commission (the "SEC") a registration statement on Form S-4 (the
"Asarco Cyprus Form S-4") in order to register the offering of shares of Asarco
Cyprus (as defined herein) to be issued in connection with the Proposed Cyprus
Amax Transaction. The Asarco Cyprus Form S-4 included a joint proxy statement
and prospectus, among other things, (i) giving notice that the respective
special meetings of the ASARCO and Cyprus Amax shareholders called for the
purpose of voting on the Cyprus Amax Agreement and the Proposed ACO Merger (as
defined herein) (which is one of two mergers to effectuate the Proposed Cyprus
Amax Transaction) would be held on September 30, 1999 and (ii) recommending that
such shareholders vote to approve the Proposed ACO Merger.
The following description of the Cyprus Amax Agreement is qualified in its
entirety by reference to the full text of the Cyprus Amax Agreement, a copy of
which has been included as an exhibit to the Asarco Cyprus Form S-4 and may be
obtained in the manner described in Section 8 (except that copies may not be
available at regional offices of the SEC).
The Cyprus Amax Agreement provides that, following the satisfaction or
waiver of certain conditions, (i) ACO Acquisition Corp., a New Jersey
corporation ("ACO") and a wholly owned subsidiary of Asarco Cyprus Incorporated,
a newly-formed Delaware corporation ("Asarco Cyprus"), will be merged with and
into ASARCO with the separate corporate existence of ACO ceasing and ASARCO
continuing as the surviving corporation (the "Proposed ACO Merger"); and (ii)
CAM Acquisition Corp., a Delaware corporation ("CAM") and a wholly owned
subsidiary of Asarco Cyprus, would be merged with and into Cyprus Amax, with the
separate corporate existence of CAM ceasing and Cyprus Amax continuing as the
surviving corporation (the "Proposed CAM Merger" and, together with the Proposed
ACO Merger, the "Proposed Cyprus Amax Transaction"). Pursuant to the Proposed
Cyprus Amax Transaction, (i) each outstanding share of Common Stock would be
converted into one share of common stock of Asarco Cyprus, par value $.01 per
share (the "Asarco Cyprus Common Stock"); (ii) each outstanding share of common
stock of Cyprus Amax, without par value ("Cyprus Amax Common Stock"), would be
converted into 0.765 shares of Asarco Cyprus Common Stock; and (iii) each
outstanding share of Cyprus Amax Series A convertible preferred stock (the
"Cyprus Amax Preferred Stock"), other than shares of Cyprus Amax Preferred Stock
held by shareholders seeking appraisal rights, would be converted into one share
of Asarco Cyprus Series A convertible preferred stock.
The obligations of Cyprus Amax and ASARCO to effect the Proposed Cyprus Amax
Transaction are subject to various conditions, including the approval of the
Proposed ACO Merger by the holders of a majority of the votes cast by holders of
shares of Common Stock at the meeting of ASARCO's shareholders (the "ASARCO
Shareholder Approval") and the receipt of all required regulatory consents,
registrations, approvals, permits and authorizations.
In the Cyprus Amax Agreement, ASARCO has agreed to a provision (the "No
Solicitation Provision") that none of ASARCO, its subsidiaries or any of their
respective officers, directors, employees, investment bankers, financial
advisors, attorneys, accountants or other representatives will, directly or
indirectly through another person, (i) solicit, initiate or encourage (including
by way of furnishing information), or take any other action designed to
facilitate, any inquiries or the making of any proposal which constitutes an
ASARCO Takeover Proposal (as defined herein) or reasonably could be expected to
lead to an ASARCO Takeover Proposal, or (ii) participate in any discussions or
negotiations regarding any ASARCO Takeover Proposal. The No Solicitation
Provision further provides that neither the ASARCO Board of Directors (the
"ASARCO Board") nor any committee thereof shall (i) withdraw or modify, or
propose publicly to withdraw or modify, in a manner adverse to Cyprus Amax, the
approval or recommendation by the ASARCO Board or such committee of the Proposed
ACO Merger or the Cyprus Amax Agreement; provided that the ASARCO Board may
withdraw its favorable recommendation of the Cyprus
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Amax Agreement and recommend that the shareholders of ASARCO vote against
approval of the Proposed ACO Merger and the Cyprus Amax Agreement if it
determines in good faith, based on advice of outside counsel, that its failure
to do so would constitute a breach of its fiduciary duties to ASARCO's
shareholders under applicable law, (ii) approve or recommend, or propose
publicly to approve or recommend, any ASARCO Takeover Proposal, or (iii) cause
ASARCO to enter into any letter of intent, agreement in principle, acquisition
agreement or other similar agreement related to any ASARCO Takeover Proposal. As
used in the Cyprus Amax Agreement, the term "ASARCO Takeover Proposal" means any
inquiry, proposal or offer (or any improvement, restatement, amendment, renewal
or reiteration thereof) from any person relating to any direct or indirect
acquisition or purchase of a business or shares of any class of equity
securities of ASARCO or any of its subsidiaries, any tender offer or exchange
offer that, if consummated, would result in any person beneficially owning any
class of equity securities of ASARCO or any of its subsidiaries, or any merger,
consolidation, business combination, recapitalization, liquidation, dissolution
or similar transaction involving ASARCO or any of its subsidiaries, other than
the Proposed ACO Merger. Cyprus Amax has agreed to a reciprocal provision.
The Cyprus Amax Agreement also provides that ASARCO shall be liable to
Cyprus Amax for a termination fee of $45 million if the Cyprus Amax Agreement is
terminated under certain circumstances. As described in the Asarco Cyprus Form
S-4, in general, the termination fee is payable by ASARCO if (i) the
shareholders of Cyprus Amax have not voted to disapprove the Cyprus Amax
Agreement, (ii) either (a) prior to the date of ASARCO's shareholder meeting an
ASARCO Takeover Proposal is made known to ASARCO or is made directly to its
shareholders generally or any person has publicly announced an intention to make
an ASARCO Takeover Proposal and thereafter the Cyprus Amax Agreement is
terminated because of the failure of ASARCO to obtain the requisite shareholder
approval or (b) the Cyprus Amax Agreement is terminated by Cyprus Amax because
ASARCO breached the No Solicitation Provision and (iii) within eighteen months
of termination of the Cyprus Amax Agreement ASARCO enters into an agreement for,
or consummates, a transaction whereby a third party acquires twenty percent of
any class of stock of ASARCO, or a business that constitutes twenty percent or
more of the revenues, net income or assets of ASARCO, or otherwise consummates
an ASARCO Takeover Proposal. Cyprus Amax has agreed to a reciprocal provision.
Also on August 20, 1999, Phelps Dodge Corporation, a New York corporation
("Phelps Dodge"), issued a press release publicly announcing proposals pursuant
to which it would acquire either or both of ASARCO and Cyprus Amax in
stock-for-stock mergers not conditioned on each other and submitted such
proposals in letters to ASARCO and Cyprus Amax.
On August 25, 1999, ASARCO and Cyprus Amax jointly announced the terms under
which they would be willing to negotiate a three-way combination with Phelps
Dodge. ASARCO and Cyprus Amax also announced that, as soon as possible after
consummation of the Proposed Cyprus Amax Transaction, Asarco Cyprus would make a
special payment of $5.00 per share for each share of Asarco Cyprus Common Stock
outstanding as soon as possible after consummation of the Proposed Cyprus Amax
Transaction.
On August 27, 1999, Phelps Dodge filed with the SEC separate registration
statements on Form S-4 (as the same may be amended from time to time,
collectively, the "Phelps Dodge Forms S-4") in order to register the separate
offers by Phelps Dodge directly to ASARCO and Cyprus Amax shareholders in which
Phelps Dodge would, after the SEC declared the Phelps Dodge Forms S-4 effective,
commence an offer to exchange each outstanding share of Common Stock into 0.4098
shares of Phelps Dodge common stock, par value $6.25 per share (the "Phelps
Dodge Common Stock"), and a separate offer to exchange each outstanding share of
Cyprus Amax Common Stock into 0.3135 shares of Phelps Dodge Common Stock (as the
offers may be amended from time to time, each a "Phelps Dodge Exchange Offer"
with respect to each company, and, collectively, the "Phelps Dodge Exchange
Offers"). Neither of the Phelps Dodge Exchange Offers is conditioned upon
acceptance of the other. On August 27, 1999, Phelps Dodge filed with the SEC
separate preliminary proxy statements with respect to each of ASARCO and Cyprus
Amax to solicit proxies in opposition to the Proposed Cyprus Amax Transaction.
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On August 28, 1999, Mr. Larrea acting as the representative of Parent in its
capacity as the largest shareholder of ASARCO, met with Mr. McAllister in Mexico
City, Mexico at the request of Mr. McAllister to discuss the Proposed Cyprus
Amax Transaction and the recent developments involving Phelps Dodge. Mr.
McAllister attempted to solicit Parent's views in its capacity as the largest
ASARCO shareholder.
On September 2, 1999, the SEC declared the Phelps Dodge Forms S-4 effective.
On September 3, 1999, Phelps Dodge commenced the Phelps Dodge Exchange Offers.
Additionally, on September 3, 1999, Phelps Dodge filed with the SEC a
preliminary proxy statement announcing that the special meeting of its
shareholders for the purpose of voting on the issuance of Phelps Dodge Common
Stock pursuant to the Phelps Dodge Exchange Offers would be held on October 13,
1999 and recommending that its shareholders vote to approve the issuance of
shares of Phelps Dodge Common Stock pursuant to the Phelps Dodge Exchange
Offers.
On September 6, 1999, Mr. Larrea, again acting as the representative of
Parent in its capacity as the largest shareholder of ASARCO, met with Mr. J.
Steven Whisler, the President and Chief Operating Officer of Phelps Dodge, in
Mexico City, Mexico at the request of Mr. Whisler to discuss the Phelps Dodge
Exchange Offer relating to the Common Stock of ASARCO.
On September 9, 1999, ASARCO filed with the SEC a
Solicitation/Recommendation Statement on Schedule 14D-9 (the "ASARCO Schedule
14D-9") pursuant to which ASARCO reported that the ASARCO Board had unanimously
recommended that ASARCO shareholders not tender shares in connection with the
Phelps Dodge Exchange Offer. According to the ASARCO Schedule 14D-9, the ASARCO
Board determined on September 8, 1999 to postpone the occurrence of a
Distribution Date (as defined herein) under the Rights Agreement that would have
been triggered by the public announcement of the Phelps Dodge Exchange Offer
relating to the Common Stock of ASARCO until such later date as determined by
the ASARCO Board.
Following a series of meetings among representatives of Parent and Parent's
outside financial advisors and legal advisors, on September 13, 1999, Parent's
Board of Directors (the "Parent Board") met to review its strategic options in
light of the announcement of the Proposed Cyprus Amax Transaction and the Phelps
Dodge Exchange Offer relating to the Common Stock of ASARCO and to consider
whether it might be advisable to pursue a possible strategic transaction with
ASARCO.
The Parent Board authorized, subject to the final determination and approval
of a special committee of the Parent Board (the "Parent Board Committee")
appointed at the Parent Board meeting, (i) the possibility of proposing a
transaction with ASARCO such as the Offer, and (ii) the continued evaluation and
approval of how to vote Parent's shares of Common Stock in connection with the
Proposed Cyprus Amax Transaction and in light of the Phelps Dodge Exchange
Offers. The Parent Board Committee was empowered to consider and approve the
final terms of any proposals with respect to such matters and all related
matters.
On September 17, 1999, Mr. Whisler telephoned Mr. Larrea to further discuss
alternatives facing the ASARCO shareholders meeting, and the benefits of the
Phelps Dodge Exchange Offer for the Common Stock. Mr. Larrea explained that
Parent had not yet decided how it would vote its shares.
On September 22, 1999, Phelps Dodge issued a press release publicly
announcing that it had increased its offers for ASARCO and Cyprus Amax. The
revised Phelps Dodge Exchange Offers provide shareholders of ASARCO and Cyprus
Amax with the right to elect to receive consideration in the Offer on an all-
cash basis or on an all-stock basis. The all-cash election for ASARCO
shareholders is $25.90 per share of Common Stock and the all-stock election is
0.4413 shares of Phelps Dodge Common Stock per share of Common Stock, subject to
a cash proration factor which is equal to the total amount of cash that Phelps
Dodge is offering to ASARCO shareholders ($9 multiplied by the total number of
shares of Common Stock outstanding immediately prior to the closing of the
Phelps Dodge Exchange Offer relating to ASARCO) divided by the product of $25.90
and the total number of shares of Common Stock for which cash elections are
made. The revised Phelps Dodge Exchange Offers result in an exchange, assuming
full proration, of (i) with respect to ASARCO, 0.2880 shares of Phelps Dodge
Common Stock and $9.00 in
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cash for each outstanding share of Common Stock and (ii) with respect to Cyprus
Amax, 0.2203 shares of Phelps Dodge Common Stock and $6.89 in cash for each
outstanding shares of Cyprus Amax Common Stock.
On the evening of September 23, 1999, press reports stated that a
spokesperson for ASARCO said that the ASARCO Board would meet "this week" to
review and respond to the revised Phelps Dodge Exchange Offer with respect to
the Common Stock.
Later on September 23, 1999, Mr. Whisler telephoned Mr. Larrea and inquired
about Parent's reaction to the revised Phoenix Exchange Offer for ASARCO and
whether Parent had decided how to vote its shares of Common Stock. Mr. Larrea
stated that no decision had yet been made.
On the evening of September 23, 1999, Mr. Larrea telephoned Mr. McAllister
to inquire, among other things, about the timing of the ASARCO Board meeting
announced earlier that day and ASARCO's intentions regarding the revised Phelps
Dodge Exchange Offer. Mr. McAllister stated that no meeting had been scheduled
at that time.
Shortly after noon on September 24, 1999, Phelps Dodge announced that it had
been granted early termination of the waiting period under the HSR Act (as
defined herein).
Early in the afternoon of September 24, 1999, Mr. Larrea received a
telephone call from a representative of Credit Suisse First Boston Corporation
("CSFB"), financial advisor to ASARCO, who indicated that, in light of recent
developments, ASARCO would be willing to consider an all-cash, "firm" offer for
all of its shares at $26 per share. Mr. Larrea inquired about the status of the
Proposed Cyprus Amax Transaction and the status of the announced ASARCO Board
meeting and upcoming ASARCO shareholders' meeting. CSFB indicated that it would
telephone Mr. Larrea with a response.
Thereafter, Mr. Larrea telephoned Mr. McAllister to again inquire as to the
timing of the ASARCO Board meeting and whether or when the ASARCO Board would
take action in response to the revised Phelps Dodge Exchange Offer relating to
the Common Stock.
Shortly thereafter, a representative of CSFB again telephoned Mr. Larrea and
stated that, while ASARCO was still finalizing certain technical matters with
Cyprus Amax, ASARCO was free to enter into discussions concerning a possible
transaction. Mr. Larrea indicated that any proposal from Parent would require
ASARCO to enter into a definitive merger agreement that would, among other
things, render the Rights Agreement and other anti-takeover provisions
inapplicable to the acquisition, which CSFB acknowledged. CSFB further indicated
that the ASARCO Board was not going to meet that day, and that no decision had
been made about postponing or adjourning the upcoming ASARCO shareholders'
meeting.
At a meeting held on the afternoon of September 24, 1999, the Parent Board
Committee approved the terms of the Offer and authorized Mr. Larrea to send a
letter to Mr. McAllister reflecting the terms of the Offer.
Thereafter, Mr. Larrea called Mr. McAllister to inform him that a written
offer outling a transaction pursuant to which Parent would propose to acquire
ASARCO was being telecopied to Mr. McAllister.
After Mr. McAllister received Parent's letter, he telephoned Mr. Larrea and
stated that he would provide copies of the letter to members of the ASARCO Board
and ASARCO's legal and financial advisors.
Subsequently that evening after the close of the market, Parent, notified
the BOLSA MEXICANA DE VALORES, S.A. DE C.V. (the "Mexican Stock Exchange") and
the COMISION NACIONAL BANCARIA Y DE VALORES (the "Mexican Banking and Securities
Commission") of its actions. Parent also issued the following press release
disclosing the delivery and contents of the letter:
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GRUPO MEXICO OFFERS TO ACQUIRE ASARCO INC.
Mexico City, September 24, 1999 -- Earlier today, Grupo Mexico,
S.A. de C.V. sent the following letter to the Board of Directors of
ASARCO Incorporated (NYSE:AR).
German Larrea
Chairman and CEO
September 24, 1999
Mr. Francis McAllister
Chairman and Chief Executive Officer
ASARCO Incorporated
180 Maiden Lane
New York, N.Y. 10038
Dear Frank:
We have followed with considerable interest the developments
that have transpired since the announcement of your proposed
transaction with Cyprus Amax Minerals Company, including most
recently Phelps Dodge Corporation's September 22, 1999 announcement
that it was improving its pending exchange offer to acquire ASARCO
Incorporated and your announcement yesterday that your board of
directors intends to meet to consider the Phelps Dodge Corporation
offer "this week."
Given the time constraints of the current situation, we will
commence on Monday a tender offer, through a wholly owned
subsidiary, to ASARCO's shareholders for all outstanding shares of
ASARCO at $26.00 per share in cash. The offer will be conditioned
upon, among other things, Grupo Mexico, S.A. de C.V., its wholly
owned subsidiary and ASARCO entering into a merger agreement, the
number of shares being tendered constituting at least 80% of the
outstanding ASARCO shares on a fully diluted basis when taken
together with our own holdings.
As you know, in the past we have expressed an interest in
exploring the possibility of a combination of our two companies'
operations. We believe that a business combination between Grupo
Mexico and ASARCO would create a low cost international mining
entity with greatly increased ore reserves and the ability to
realize significant cost saving synergies. Furthermore, in our
capacity as your largest single shareholder, we have obviously
considered the relative economic merits of the shareholder value
inherent in your existing transaction with the Cyprus Amax and the
transaction proposed by Phelps Dodge. We also considered
alternatives that address our desire to increase our cost
efficiencies and production capacity while simultaneously providing
all of your other shareholders an opportunity to maximize the value
of their investment now, rather than rely on projections of
possible future benefits that may or may not be ultimately realized
under the transaction contemplated by your existing agreement or
the pro-rated part cash/ part stock transaction proposed by Phelps
Dodge. Our offer provides such an alternative.
We would be prepared to proceed on the basis of a negotiated
merger agreement with you in which we would expect to receive only
the same representations and warranties as you have made under your
existing agreement with Cyprus Amax. Our execution of a merger
agreement would not be contingent upon a due diligence review.
Furthermore, we are confident that consummation of our proposed
transaction would not require any burdensome regulatory approvals.
Our proposal presents an attractive opportunity for ASARCO and
its shareholders. The offer price of $26.00 per share would
represent a premium of approximately 41% over ASARCO's unaffected
price per share on August 20, 1999, immediately prior to the
announcement of Phelps Dodge's proposal. As a result of the
all-cash nature of our offer,
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your shareholders will immediately receive the entire premium for
their ASARCO shares regardless of the performance of the stock
market generally or of the market for copper following the close of
our transaction. Briefly put, we believe our proposal is in the
best interests of your shareholders. We also believe that our
combined operations would serve the interests of the employees,
customers, suppliers and local communities of each company.
Our proposed transaction is not subject to a financing
condition. In that regard, we have obtained a signed commitment
letter from The Chase Manhattan Bank and Chase Securities Inc.
providing for the full amount of financing necessary to complete
our offer.
As you are aware, the federal securities laws, as well as the
laws of the United States of Mexico, require that we promptly make
public disclosure of our intentions outlined in this letter.
We and our advisors are prepared to meet with ASARCO and its
advisors to negotiate and finalize all necessary documentation to
reflect the transaction outlined above.
Please advise me of the manner in which you and your board of
directors would like to proceed.
Very truly yours,
<TABLE>
<S> <C>
/s/ GERMAN LARREA
--------------------------
German Larrea
</TABLE>
Grupo Mexico is a diversified mining company that ranks among
the world's largest copper, zinc and silver producers. The
company's business includes mining, smelting and refining in Mexico
and is one of the world's lowest-cost operations. The company also
operates the largest railroad system in Mexico.
Grupo Mexico's financial advisor is Chase Securities Inc. and
its legal advisors are Brown & Wood LLP and Santamarina y Steta.
NOTE: Statements in this press release include "forward-looking
statements" that express expectations of future events or results.
All statements based on future expectations rather than on
historical facts are forward-looking statements that involve a
number of risks and uncertainties, and the company cannot give
assurance that such statements will prove to be correct.
On Sunday September 26, 1999, ASARCO issued the following press release:
ASARCO TO EXPLORE STRATEGIC ALTERNATIVES
SEEKING TO MAXIMIZE SHAREHOLDER VALUE
New York, NY, September 26, 1999 -- ASARCO Incorporated
(NYSE:AR) announced today that its Board of Directors has
authorized management to explore all available strategic
alternatives that could maximize shareholder value. Consistent with
the Cyprus Amax and ASARCO merger agreement, negotiations are
underway in pursuit of this strategic objective. The alternatives
being explored could lead to and involve further negotiations that
may result in:
- completion of its currently pending merger with Cyprus Amax
Minerals Company or a merger or reorganization involving the
Company and another company;
- a purchase, sale or transfer of a material amount of assets
by the Company;
- a tender or exchange offer for or other acquisition of
securities of the Company; or
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- a material change in the present capitalization or dividend
policy of the Company.
ASARCO stated, however, that it could give no assurance that any
transaction would result from these efforts.
The Company noted further that the Board has determined that,
prior to having an agreement in principle, premature disclosure of
the possible terms of any transactions or proposals could
jeopardize the initiation or continuation of negotiations of those
transactions and has, accordingly, determined not to disclose the
possible terms or parties involved, until such an agreement is
reached.
On Monday September 27, 1999, Parent issued the following press release:
GRUPO MEXICO COMMENCES TENDER OFFER
TO ACQUIRE ASARCO FOR $26 PER SHARE IN CASH
Mexico City, Mexico (September 27, 1999) -- Grupo Mexico, S.A.
de C.V., announced today that it has formally commenced a tender
offer to acquire all of the outstanding shares of ASARCO
Incorporated (NYSE:AR) at a price of $26.00 per share in cash. The
tender offer is scheduled to expire at 12:00 midnight, New York
City time, on Monday, October 25, 1999, unless extended.
Following the completion of the tender offer, Group Mexico
intends to consummate a second step merger in which all remaining
ASARCO shareholders will also receive the same cash price paid in
the tender offer.
German Larrea, chairman and chief executive officer of Grupo
Mexico, said, "Our offer to acquire ASARCO is an opportunity for
Grupo Mexico to increase shareholder value by creating an
international mining company with world-class assets in Canada, the
United States, Mexico and Peru. With a combined mine production of
approximately 975,000 MT of copper per year and composite operating
reserve life of 45 years, the combined company would be able to
rationalize production as a result of its low-cost structure.
"Our $26.00 per share in cash offer is also an opportunity for
ASARCO shareholders to receive full value for their shares. It
represents a premium of approximately 41% over ASARCO's unaffected
stock price on August 20, 1999, immediately prior to the
announcement of Phelps Dodge's proposal."
Grupo Mexico expects to achieve annual cash cost savings of at
least $100 million by 2001 from, among other things, reduced
administrative and overhead costs, as well as operating synergies.
The company anticipates the transaction to be accretive to its
earnings and EBITDA by the end of 2000.
The company noted that it has an excellent track record of
achieving cost savings. In 1993, Grupo Mexico's breakeven cash cost
per pound of copper was $0.71. By the second quarter of 1999, that
figure was reduced to approximately $0.37. With the combined cost
savings, Grupo Mexico projects a breakeven cash cost of $0.52 per
pound of copper.
The offer is conditioned upon, among other things, (1) there
being validly tendered and not properly withdrawn prior to the
expiration of the offer that number of shares of ASARCO common
stock (including the associated junior participating preferred
stock purchase rights), which together with shares of ASARCO common
stock owned by Grupo Mexico, constitute at least 80% of the shares
of ASARCO common stock outstanding on a fully diluted basis, (2)
the rights have been redeemed by the board of directors of
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ASARCO or Grupo Mexico being satisfied, in its sole discretion,
that the rights are invalid or otherwise inapplicable to the
transactions contemplated by the offer, (3) Grupo Mexico being
satisfied, in its sole discretion, that the agreement and plan of
merger dated as of July 15, 1999, among ASARCO, Cyprus Amax and
certain other parties, has been terminated and ASARCO having
entered into a definitive merger agreement with Grupo Mexico to
provide for the acquisition of ASARCO by Grupo Mexico and (4) Grupo
Mexico having obtained all regulatory approvals necessary for its
acquisition of control of ASARCO on terms and conditions
satisfactory to Grupo Mexico, in its sole discretion.
Chase Securities Inc. is acting as financial advisor to Grupo
Mexico and as Dealer Manager for the offer, and D.F. King & Co.,
Inc. is acting as Information Agent. Grupo Mexico's legal advisors
are Brown & Wood LLP and Santamarina y Steta.
Grupo Mexico is a diversified mining company that ranks among
the world's largest and lowest-cost copper, zinc and silver
producers. The company's operations include mining, smelting and
refining. Grupo Mexico also operates the largest railroad system in
Mexico.
NOTE: Statements in this press release include "forward-looking
statements" that express expectations of future events or results.
All statements based on future expectations rather than on
historical facts are forward-looking statements that involve a
number of risks and uncertainties, and the company cannot give
assurance that such statements will prove to be correct.
The foregoing discussion of the Proposed Cyprus Amax Transaction, the Phelps
Dodge Exchange Offers and related matters is based upon various public
announcements and public filings made by ASARCO, Cyprus Amax, Asarco Cyprus and
Phelps Dodge.
As indicated above, Parent intends to seek to negotiate with ASARCO with
respect to the acquisition of ASARCO by Parent or Purchaser, whether pursuant to
the Offer and the Proposed Merger, or otherwise. If such negotiations result in
a definitive merger agreement between ASARCO, Parent and Purchaser, the
consideration to be received by holders of shares of Common Stock would consist
of the right to receive an amount in cash equal to the Offer Price. Such
negotiations could, however, result in, among other things, amendment or
termination of the Offer and submission of a different acquisition proposal to
ASARCO's shareholders for their approval. See Section 12 and Section 14.
In connection with the Offer and during its pendency, or in the event the
Offer is terminated or not consummated, or after the expiration of the Offer and
pending the consummation of the Proposed Merger, in accordance with applicable
law and subject to the terms of any merger agreement that it may enter into with
ASARCO, Parent (alone or through affiliates) may explore any and all options
that may be available to it. In addition, after expiration or termination of the
Offer, Parent may seek to acquire additional shares of Common Stock, through
open market purchases, privately negotiated transactions, a tender offer or
exchange offer or otherwise, upon such terms and at such prices as it may
determine, which may be more or less than the price to be paid per share of
Common Stock pursuant to the Offer and could be for cash or other consideration.
THE OFFER DOES NOT CONSTITUTE A SOLICITATION OF PROXIES FOR ANY MEETING OF
ASARCO'S SHAREHOLDERS. ANY SUCH SOLICITATION THAT PARENT OR PURCHASER MIGHT MAKE
WOULD BE MADE ONLY PURSUANT TO SEPARATE PROXY MATERIALS COMPLYING WITH THE
REQUIREMENTS OF SECTION 14(A) OF THE EXCHANGE ACT.
In the event Purchaser obtains 90% or more of the outstanding shares of
Common Stock pursuant to the Offer or otherwise, Purchaser will effect the
Proposed Merger pursuant to the short-form merger provisions of the New Jersey
Business Corporation Act, without prior notice to, or any action by, any other
shareholder of ASARCO.
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CERTAIN CONDITIONS TO THE OFFER
THE MINIMUM CONDITION. CONSUMMATION OF THE OFFER IS CONDITIONED UPON THERE
BEING VALIDLY TENDERED AND NOT PROPERLY WITHDRAWN PRIOR TO THE EXPIRATION OF THE
OFFER THAT NUMBER OF SHARES OF COMMON STOCK WHICH, TOGETHER WITH SHARES OF
COMMON STOCK OWNED BY PARENT, CONSTITUTE AT LEAST 80% OF THE SHARES OF COMMON
STOCK OUTSTANDING ON A FULLY DILUTED BASIS (I.E., AS THOUGH ALL OPTIONS OR OTHER
SECURITIES CONVERTIBLE INTO OR EXERCISABLE OR EXCHANGEABLE FOR COMMON STOCK HAD
BEEN SO CONVERTED, EXERCISED OR EXCHANGED) (THE "MINIMUM CONDITION").
According to (i) the ASARCO Quarterly Report on Form 10-Q for the quarter
ended June 30, 1999, as of July 31, 1999, there were 39,783,396 million shares
of Common Stock issued and outstanding and (ii) the 1998 Form 10-K filed by
ASARCO on March 16, 1998 (the "ASARCO 1998 Form 10-K"), 1,721,249 shares of
Common Stock were subject to issuance pursuant to various stock option and
incentive plans of ASARCO (the "Incentive Shares"). However, according to the
Asarco Cyprus Form S-4, 41,683,903 shares of Asarco Cyprus Common Stock are to
be issued to holders of Common Stock or Incentive Shares in connection with the
Proposed ACO Merger.
Based on the foregoing, Purchaser believes there are 41,683,903 shares of
Common Stock outstanding on a fully diluted basis. Parent currently owns an
aggregate of 3,900,000 shares of Common Stock, which were acquired in
open-market transactions. Accordingly, Purchaser believes that the Minimum
Condition would be satisfied if an aggregate of 29,447,123 shares of Common
Stock are validly tendered pursuant to the Offer. For purposes of the Offer,
"fully diluted basis" assumes (i) no dilution due to Rights, (ii) the issuance
of all of the Incentive Shares, (iii) no shares of Common Stock were issued or
acquired by ASARCO after August 20, 1999 (other than Common Stock issued
pursuant to clause (ii) above) and no options, warrants, rights or other
securities convertible into or exercisable or exchangeable for shares of Common
Stock were issued or granted after August 20, 1999, and (iv) as of August 20,
1999 ASARCO had no other obligations to issue Common Stock or other securities
convertible into or exercisable for shares of Common Stock.
THE RIGHTS CONDITION. CONSUMMATION OF THE OFFER IS CONDITIONED UPON THE
RIGHTS HAVING BEEN REDEEMED BY THE ASARCO BOARD OR PURCHASER BEING SATISFIED, IN
ITS SOLE DISCRETION, THAT THE RIGHTS ARE INVALID OR OTHERWISE INAPPLICABLE TO
THE TRANSACTIONS CONTEMPLATED BY THIS OFFER TO PURCHASE (THE "RIGHTS
CONDITION").
Pursuant to the terms of the Rights Agreement, the Rights will expire at the
close of business on January 31, 2008 (the "Final Expiration Date") unless
earlier redeemed by ASARCO as described below. In the event that ASARCO adopts a
new Rights Agreement prior to the expiration or consummation of the Offer, all
references to the Rights Agreement and the Rights in this Offer to Purchase, the
related Letter of Transmittal and in the other tender offer materials shall be
deemed to be references to such new Rights Agreement and the related Rights
issued thereunder.
The following is based upon the Form 8-K filed by ASARCO with the SEC, dated
January 28, 1998 (the "ASARCO Form 8-K"), and the Form 8-A12B/A, filed by ASARCO
with the SEC, dated as of July 22, 1999 (the "ASARCO Form 8-A").
Pursuant to the Rights Agreement, the ASARCO Board declared a dividend
distribution of one Right for each share of Common Stock outstanding on August
7, 1999. Under the Rights Agreement, each Right entitles the holder to purchase
from ASARCO one one-hundredth of a share of its Junior Participating Preferred
Stock at a price of $90.00 per one one-hundredth of a share, subject to
adjustment.
Under the Rights Agreement, the Rights will be evidenced by the Common Stock
Certificates (as defined herein) and will be transferred with and only with
Common Stock Certificates until the earlier of
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(i) 5:00 p.m., New York City time on the tenth Business Day (as defined herein)
following the first date of public announcement that a person or group of
affiliated or associated persons has acquired, or obtained the right to acquire,
beneficial ownership of 15% or more of the outstanding shares of Common Stock
(an "Acquiring Person") and (ii) 5:00 p.m., New York City time on the tenth
Business Day (or such later date as the ASARCO Board shall determine) following
the commencement of a tender offer or exchange offer which would result in a
person or group beneficially owning 15% or more of the outstanding shares of
Common Stock (such earlier date being the "Distribution Date"). As soon as
practicable after the Distribution Date, the Rights Certificates (as defined
herein) will be mailed by the Rights Agent to holders of record of the Common
Stock as of the close of business on the Distribution Date, and thereafter the
separate Rights Certificates alone will evidence the Rights. "Business Day"
means any day other than a Saturday, Sunday or day on which banking institutions
in the State of New York are authorized or obligated by law or executive order
to close.
In the event that any person or group of affiliated or associated persons
becomes an Acquiring Person, each holder of a Right (other than an Acquiring
Person) will thereafter have the right to receive, upon exercise thereof, shares
of Common Stock (or, in certain circumstances, cash, property or other
securities of ASARCO) having a value equal to two times the exercise price of
the Right.
In the event that ASARCO is acquired in a merger or consolidation in which
ASARCO is not the surviving corporation (or is the surviving corporation but the
Common Stock is changed or exchanged) or ASARCO sells or transfers 50% or more
of its consolidated assets or earning power, each holder of a Right (other than
an Acquiring Person) will thereafter have the right to receive, upon the
exercise thereof at the then current exercise price of the Right, that number of
shares of common stock of the acquiring company which at the time of such
transaction will have a value equal to two times the exercise price of the
Right.
The ASARCO Board may redeem the Rights in whole, but not in part, at a
redemption price of $.01 per Right, as such amount may be appropriately adjusted
to reflect any stock split, stock dividend or similar transaction occurring
after the date of the Rights Agreement (the "Redemption Price"), at any time
prior to the earlier of (i) 5:00 p.m., New York City time on the tenth Business
Day following the public announcement that a person or group of affiliated or
associated persons has become an Acquiring Person and (ii) the Final Expiration
Date. Immediately upon the action of the ASARCO Board ordering redemption of the
Rights, the Rights will terminate, and the only right to which the holders of
Rights will be entitled will be the right to receive the Redemption Price.
ASARCO may amend or supplement the Rights Agreement in certain
circumstances. See Section 12. Pursuant to the Cyprus Amax Agreement, on July
15, 1999, ASARCO amended the Rights Agreement to render the Rights Agreement
inapplicable to the Proposed Cyprus Amax Transaction and the other transactions
contemplated by the Cyprus Amax Agreement and to ensure, among other things,
that Cyprus Amax is not deemed to be an Acquiring Person and that a Distribution
Date does not occur by reason of such agreement or transactions. Additionally,
in the Cyprus Amax Agreement, ASARCO has also agreed that it will not facilitate
any effort or attempt to make or implement an ASARCO Takeover Proposal, which
would include the Offer, including by means of an amendment to the Rights
Agreement. See Section 11.
According to the ASARCO Schedule 14D-9, the ASARCO Board determined on
September 8, 1999, to postpone the occurrence of a Distribution Date that would
be triggered by the announcement of the Phelps Dodge Exchange Offer with respect
to the Common Stock of ASARCO until such later date as determined by the ASARCO
Board.
Based on publicly available information, Purchaser believes that, as of the
date of this Offer to Purchase, the Rights were not exercisable, certificates
evidencing the Rights (the "Rights Certificates") had not been issued and the
Rights were evidenced by the certificates evidencing shares of the Common Stock
(the "Common Stock Certificates"). Purchaser believes that as a result of the
public announcement
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of this Offer, the Distribution Date will be no later than October 12, 1999 (to
the extent that October 11, 1999 is not a Business Day as defined in the Rights
Agreement) unless prior to such date (i) the ASARCO Board redeems the Rights,
(ii) the ASARCO Board determines to postpone distribution of Rights Certificates
to a later date, or (iii) ASARCO amends the Rights Agreement to render it
inapplicable to this Offer.
The foregoing summary of the Rights Agreement does not purport to be
complete and is qualified in its entirety by reference to the ASARCO Form 8-K
and the ASARCO Form 8-A and the full text of the Rights Agreement as an exhibit
thereto filed with the SEC, and subsequent amendments to the Rights Agreement as
filed with the SEC. Copies of these documents may be obtained in the manner set
forth in Section 8 (except that copies may not be available at regional offices
of the SEC).
THE MERGER AGREEMENT CONDITION. CONSUMMATION OF THE OFFER IS CONDITIONED
UPON PURCHASER BEING SATISFIED, IN ITS SOLE DISCRETION, THAT THE CYPRUS AMAX
AGREEMENT HAS BEEN TERMINATED AND ASARCO HAVING ENTERED INTO A DEFINITIVE MERGER
AGREEMENT WITH PARENT AND PURCHASER THAT WOULD PROVIDE FOR THE ACQUISITION OF
ASARCO BY PARENT OR PURCHASER (THE "MERGER AGREEMENT CONDITION").
In order for the Merger Agreement Condition to be satisfied, the ASARCO
Board and the Board of Directors of each of Parent and Purchaser must enter into
a fully negotiated merger agreement upon terms and conditions that are
acceptable to each of the parties. Depending on ASARCO's willingness to enter
into negotiations with Parent and Purchaser and the then pending status of any
such negotiations, Purchaser may extend the Offer from time to time until the
Merger Agreement Condition is satisfied.
THE REGULATORY APPROVAL CONDITION. CONSUMMATION OF THE OFFER IS CONDITIONED
UPON PARENT AND PURCHASER HAVING OBTAINED ALL REGULATORY APPROVALS NECESSARY FOR
THEIR ACQUISITION OF CONTROL OF ASARCO ON TERMS AND CONDITIONS SATISFACTORY TO
PURCHASER, IN ITS SOLE DISCRETION (THE "REGULATORY APPROVAL CONDITION").
Parent intends to file with the Federal Trade Commission (the "FTC") and the
Antitrust Division of the Department of Justice (the "Antitrust Division") a
Premerger Notification and Report Form under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, and the rules and regulations thereunder
(the "HSR Act") with respect to the Offer. If such filing is made on the date of
this Offer to Purchase, the waiting period under the HSR Act applicable to the
Offer will expire at 11:59 p.m., New York City time on October 12, 1999, unless
prior to the expiration or termination of the waiting period the FTC or the
Antitrust Division extends the waiting period by requesting additional
information or documentary material from Parent. If such a request is made, the
waiting period applicable to the Offer will expire on the tenth calendar day
after the date of substantial compliance by Parent with such request.
Thereafter, the waiting period may be extended by court order or by consent of
Parent. The waiting period under the HSR Act may be terminated by the FTC and
the Antitrust Division prior to its expiration. See Section 15.
Consummation of the Offer is also conditioned upon satisfaction of the
waiting period requirements imposed by German and Italian laws, and the other
conditions set forth in Section 14. See Section 14 and Section 15.
CERTAIN OTHER CONDITIONS TO CONSUMMATION OF THE OFFER ARE DESCRIBED IN
SECTION 14. PURCHASER EXPRESSLY RESERVES THE RIGHT, IN ITS SOLE DISCRETION, TO
WAIVE ANY ONE OR MORE OF THE CONDITIONS TO THE OFFER. SEE SECTION 14.
THIS OFFER TO PURCHASE AND THE LETTER OF TRANSMITTAL CONTAIN IMPORTANT
INFORMATION THAT SHOULD BE READ CAREFULLY BEFORE ANY DECISION IS MADE WITH
RESPECT TO THE OFFER.
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1. TERMS OF THE OFFER; EXPIRATION DATE.
Upon the terms and subject to the conditions of the Offer (including, if the
Offer is extended or amended, the terms and conditions of any extension or
amendment), Purchaser will accept for payment and pay for all shares of Common
Stock that are validly tendered prior to the Expiration Date (as defined herein)
and not properly withdrawn in accordance with Section 4. The term "Expiration
Date" means 12:00 Midnight, New York City time, on Monday, October 25, 1999,
unless and until Purchaser, in its sole discretion, shall have extended the
period of time during which the Offer is open, in which event the term
"Expiration Date" shall refer to the latest time and date at which the Offer, as
so extended by Purchaser, shall expire.
The Offer is conditioned upon, among other things, satisfaction of the
Minimum Condition, the Rights Condition, the Merger Agreement Condition and the
Regulatory Approval Condition. If any or all of such conditions are not
satisfied prior to the Expiration Date or if any or all of the other events set
forth in Section 14 shall have occurred prior to the acceptance of shares of
Common Stock for payment, Purchaser reserves the right (but shall not be
obligated) to (i) decline to purchase any of the shares of Common Stock tendered
in the Offer and to terminate the Offer and return all tendered shares of Common
Stock to the tendering shareholders, (ii) waive or reduce the Minimum Condition
or waive or amend any or all other conditions to the Offer to the extent
permitted by applicable law, and, subject to complying with applicable rules and
regulations of the SEC, purchase all shares of Common Stock validly tendered, or
(iii) extend the Offer and, subject to the right of shareholders to withdraw
shares of Common Stock until the Expiration Date, retain the shares of Common
Stock that have been tendered during the period or periods for which the Offer
is extended.
Purchaser expressly reserves the right, in its sole discretion, at any time
and from time to time, to extend for any reason the period of time during which
the Offer is open, including the occurrence of any of the events specified in
Section 14, by giving oral or written notice of such extension to the
Depositary. During any such extension, all shares of Common Stock previously
tendered and not properly withdrawn will remain subject to the Offer, subject to
the rights of a tendering shareholder to withdraw its shares of Common Stock in
accordance with the procedures set forth in Section 4.
Subject to the applicable regulations of the SEC, Purchaser also expressly
reserves the right, in its sole discretion, at any time and from time to time,
(i) to delay acceptance for payment of, or, regardless of whether such shares of
Common Stock were theretofore accepted for payment, payment for any shares of
Common Stock pending receipt of any regulatory approval, including those
specified in Section 15, or in order to comply in whole or in part with any
other applicable law, (ii) to terminate the Offer and not accept for payment any
shares of Common Stock if any of the conditions referred to in Section 14 has
not been satisfied or upon the occurrence of any of the events specified in
Section 14 and (iii) to waive any condition or otherwise amend the Offer in any
respect by giving oral or written notice of such delay, termination, waiver or
amendment to the Depositary and by making a public announcement thereof.
Purchaser acknowledges that (i) Rule 14e-1(c) under the Exchange Act
requires Purchaser to pay the consideration offered or return the shares of
Common Stock tendered promptly after the termination or withdrawal of the Offer,
and (ii) Purchaser may not delay acceptance for payment of, or payment for
(except as provided in clause (i) of the first sentence of the preceding
paragraph), any shares of Common Stock upon the occurrence of any of the
conditions specified in Section 14 without extending the period of time during
which the Offer is open.
Any such extension, delay, termination, waiver or amendment will be followed
as promptly as practicable by public announcement thereof, with such
announcement in the case of an extension to be made no later than 9:00 a.m., New
York City time, on the next business day after the previously scheduled
Expiration Date. Subject to applicable law (including Rules 14d-4(c), 14d-6(d)
and 14e-1 under the Exchange Act, which require that material changes be
promptly disseminated to shareholders in a manner reasonably designed to inform
them of such changes) and without limiting the manner in which Purchaser
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may choose to make any public announcement, Purchaser shall have no obligation
to publish, advertise or otherwise communicate any such public announcement
other than by issuing a press release to the Dow Jones News Service.
If Purchaser makes a material change in the terms of the Offer or the
information concerning the Offer, or if it waives a material condition of the
Offer, Purchaser will disseminate additional tender offer materials and extend
the Offer to the extent required by Rules 14d-4(c), 14d-6(d) and 14e-1 under the
Exchange Act. The minimum period during which the Offer must remain open
following material changes in the terms of the Offer or information concerning
the Offer, other than a change in price or a change in percentage of securities
sought, will depend upon the facts and circumstances, including the relative
materiality of the changed terms or information. In the SEC's view, an offer
generally should remain open for a minimum of five business days from the date a
material change is first published, sent or given to shareholders. With respect
to a change in price or a change in percentage of securities sought, a minimum
ten business day period is required to allow for adequate dissemination to
shareholders and investor response. As used in this Offer to Purchase, "business
day" has the meaning set forth in Rule 14d-1 under the Exchange Act.
Accordingly, if, prior to the Expiration Date, Purchaser decreases the number of
shares of Common Stock being sought, or increases or decreases the consideration
offered pursuant to the Offer, and if the Offer is scheduled to expire at any
time earlier than the period ending on the tenth business day from the date that
notice of such increase or decrease is first published, sent or given to holders
of Common Stock, the Offer will be extended at least until the expiration of
such ten business day period.
Based on publicly available information, Purchaser believes that, as of the
date of this Offer to Purchase, the Rights are evidenced by the Common Stock
Certificates and do not trade separately. Accordingly, by tendering a Common
Stock Certificate, a shareholder is automatically tendering the associated
Rights. If, however, the Rights detach and separate Rights Certificates are
issued, shareholders will be required to tender one Right for each share of
Common Stock tendered in order to effect a valid tender of such shares of Common
Stock.
A request is being made to ASARCO for the use of ASARCO's shareholder list
and security position listing for the purpose of disseminating the Offer to
shareholders. Upon compliance by ASARCO with such request, this Offer to
Purchase, the Letter of Transmittal and other relevant materials will be mailed
to record holders of Common Stock and Rights, if applicable, and will be
furnished to brokers, dealers, commercial banks, trust companies and similar
persons whose names, or the names of whose nominees, appear on the shareholder
list and list of holders of Rights, if applicable, who are listed as
participants in a clearing agency's security position listing for subsequent
transmittal to beneficial owners of shares of Common Stock or Rights.
2. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR SHARES OF COMMON STOCK.
Upon the terms and subject to the conditions of the Offer (including, if the
Offer is extended or amended, the terms and conditions of any such extension or
amendment), Purchaser will purchase, by accepting for payment, and will pay for,
all shares of Common Stock which are validly tendered prior to the Expiration
Date (and not properly withdrawn in accordance with Section 4) promptly after
the later to occur of (i) the Expiration Date and (ii) the satisfaction or
waiver of regulatory conditions, including those matters set forth in Section
15. Purchaser expressly reserves the right, in its discretion, to delay
acceptance for payment of, or, subject to applicable rules of the SEC, payment
for, shares of Common Stock in order to comply in whole or in part with any
applicable law. Purchaser understands that, in accordance with the applicable
rules of the SEC, any delay in accepting shares of Common Stock, regardless of
cause, may not exceed an unreasonable length of time. Accordingly, if it appears
at the time that the Offer is scheduled to expire that any regulatory approvals
are not likely to be obtained within a reasonable length of time thereafter,
Purchaser will either extend or terminate the Offer.
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In all cases, payment for shares of Common Stock purchased pursuant to the
Offer will be made only after timely receipt by the Depositary of (i) the Common
Stock Certificates, and if applicable, Rights Certificates or timely
confirmation of a book-entry transfer (a "Book-Entry Confirmation") of such
Common Stock, if such procedure is available, into the Depositary's account at
The Depository Trust Company (the "Book-Entry Transfer Facility") pursuant to
the procedures set forth in Section 3, (ii) the Letter of Transmittal (or
facsimile thereof), properly completed and duly executed, or, in the case of a
book-entry transfer, an Agent's Message (as defined herein) and (iii) any other
documents required by the Letter of Transmittal.
The term "Agent's Message" means a message, transmitted by the Book-Entry
Transfer Facility to, and received by, the Depositary and forming a part of a
Book-Entry Confirmation, which states that the Book-Entry Transfer Facility has
received an express acknowledgment from the participant in the Book-Entry
Transfer Facility who is tendering the Common Stock that such participant has
received and agrees to be bound by the terms of the Letter of Transmittal and
that Purchaser may enforce such agreement against the participant.
For purposes of the Offer, Purchaser will be deemed to have accepted for
payment, and thereby purchased, shares of Common Stock validly tendered and not
properly withdrawn if, as and when Purchaser gives oral or written notice to the
Depositary of Purchaser's acceptance of such shares of Common Stock for payment.
Payment for shares of Common Stock accepted pursuant to the Offer will be made
by deposit of the purchase price therefor with the Depositary, which will act as
agent for tendering shareholders for the purpose of receiving payments from
Purchaser and transmitting payments to such tendering shareholders. Under no
circumstances will interest on the purchase price for shares of Common Stock be
paid by Purchaser, regardless of any delay in making such payment. Upon the
deposit of funds with the Depositary for the purpose of making payments to
tendering shareholders, Purchaser's obligation to make such payment shall be
satisfied and tendering shareholders must thereafter look solely to the
Depositary for payment of amounts owed to them by reason of the acceptance for
payment of shares of Common Stock pursuant to the Offer. Purchaser will pay any
stock transfer taxes incident to the transfer to it of validly tendered shares
of Common Stock, except as otherwise provided in Instruction 6 of the Letter of
Transmittal, as well as any charges and expenses of the Depositary and the
Information Agent.
If any tendered shares of Common Stock are not accepted for payment for any
reason pursuant to the terms and conditions of the Offer or if Common Stock
Certificates and, if applicable, Rights Certificates, are submitted evidencing
more shares of Common Stock than are tendered, Common Stock Certificates and, if
applicable, Rights Certificates, evidencing unpurchased shares of Common Stock
will be returned, without expense to the tendering shareholder (or, in the case
of shares of Common Stock tendered by book-entry transfer into the Depositary's
account at the Book-Entry Transfer Facility pursuant to the procedure set forth
in Section 3, such shares of Common Stock will be credited to an account
maintained at the Book-Entry Transfer Facility), as promptly as practicable
following the expiration or termination of the Offer.
If purchase of or payment for shares of Common Stock is delayed for any
reason or if Purchaser is unable to purchase or pay for shares of Common Stock
for any reason, then, without prejudice to the Purchaser's rights under the
Offer, tendered shares of Common Stock may be retained by the Depositary on
behalf of Purchaser and may not be withdrawn except to the extent that tendering
shareholders are entitled to withdrawal rights as set forth in Section 4,
subject to Rule 14e-1(c) under the Exchange Act, which provides that no person
who makes a tender offer shall fail to pay the consideration offered or fail to
return the securities deposited by or on behalf of security holders promptly
after the termination or withdrawal of the Offer. Any such delay will be
accompanied by an extension of the Offer to the extent required by law. If,
prior to the Expiration Date, Purchaser increases the consideration to be paid
per share of Common Stock pursuant to the Offer, Purchaser will pay such
increased consideration for all such shares of Common Stock purchased pursuant
to the Offer, whether or not such shares of Common Stock were tendered prior to
such increase in consideration.
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Purchaser reserves the right to transfer or assign, in whole at any time, or
in part from time to time, to Parent or one or more direct or indirect wholly
owned subsidiaries of Parent, the right to purchase all or any portion of the
shares of Common Stock tendered pursuant to the Offer, provided that any such
transfer or assignment will not relieve Purchaser of its obligations under the
Offer and will in no way prejudice the rights of tendering shareholders to
receive payment for shares of Common Stock validly tendered and accepted for
payment pursuant to the Offer.
3. PROCEDURES FOR TENDERING SHARES OF COMMON STOCK.
VALID TENDER OF SHARES OF COMMON STOCK. In order for shares of Common Stock
to be validly tendered pursuant to the Offer, the Letter of Transmittal (or
facsimile thereof), properly completed and duly executed, with any required
signature guarantees, or an Agent's Message (in the case of any book-entry
transfer) and any other required documents in accordance with the instructions
in the Letter of Transmittal, must be received by the Depositary at one of its
addresses set forth on the back cover of this Offer to Purchase prior to the
Expiration Date and either (i) the Common Stock Certificates and, if applicable,
Rights Certificates, evidencing tendered shares of Common Stock must be received
by the Depositary at one of such addresses or Common Stock must be tendered
pursuant to the procedure for book-entry transfer described below and a
Book-Entry Confirmation must be received by the Depositary, in each case prior
to the Expiration Date, or (ii) the tendering shareholder must comply with the
guaranteed delivery procedures described below. No alternative, conditional or
contingent tenders will be accepted.
THE METHOD OF DELIVERY OF COMMON STOCK CERTIFICATES, THE RELATED LETTER OF
TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH THE
BOOK-ENTRY TRANSFER FACILITY, IS AT THE SOLE OPTION AND RISK OF THE TENDERING
SHAREHOLDER, AND THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY
THE DEPOSITARY. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT
REQUESTED, PROPERLY INSURED, IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME
SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
BOOK-ENTRY TRANSFER. The Depositary will establish an account with respect
to the Common Stock at the Book-Entry Transfer Facility for purposes of the
Offer within two business days after the date of this Offer to Purchase, and any
financial institution that is a participant in the Book-Entry Transfer
Facility's systems may make book-entry delivery of Common Stock by causing the
Book-Entry Transfer Facility to transfer such Common Stock into the Depositary's
account at the Book-Entry Transfer Facility in accordance with the Book-Entry
Transfer Facility's procedures for transfer. However, although delivery of
Common Stock may be effected through book-entry transfer at the Book-Entry
Transfer Facility, the Letter of Transmittal (or facsimile thereof), properly
completed and duly executed, with any required signature guarantees, or an
Agent's Message in connection with a book-entry delivery of Common Stock, and
any other required documents must, in any case, be transmitted to and received
by the Depositary at one of its addresses set forth on the back cover of this
Offer to Purchase prior to the Expiration Date or the tendering shareholder must
comply with the guaranteed delivery procedures described below.
DELIVERY OF DOCUMENTS TO THE BOOK-ENTRY TRANSFER FACILITY IN ACCORDANCE WITH
THE BOOK-ENTRY TRANSFER FACILITY'S PROCEDURES DOES NOT CONSTITUTE DELIVERY TO
THE DEPOSITARY.
SIGNATURE GUARANTEES. No signature guarantee is required on the Letter of
Transmittal (i) if the Letter of Transmittal is signed by the registered
holder(s) of Common Stock (which includes any participant in the Book-Entry
Transfer Facility's system whose name appears on a security position listing as
the owner of the Common Stock), unless such registered holder(s) has completed
either the box entitled "Special Payment Instructions" or the box entitled
"Special Delivery Instructions" on the Letter of Transmittal, or (ii) if such
shares of Common Stock are tendered for the account of a financial institution
(including most commercial banks, savings and loan associations and brokerage
houses) that is a participant in the Security Transfer Agents Medallion Program,
the New York Stock Exchange Medallion Signature Guarantee
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Program or the Stock Exchange Medallion Program, or a bank, broker, dealer,
credit union, savings association or other entity which is an "eligible
guarantor institution," as such term is defined in Rule 17Ad-15 under the
Exchange Act (each such institution, an "Eligible Institution"). In all other
cases, all signatures on the Letter of Transmittal must be guaranteed by an
Eligible Institution. See Instruction 1 of the Letter of Transmittal.
If Common Stock Certificates and, if applicable, Rights Certificates, are
registered in the name of a person other than the signer of the Letter of
Transmittal, or if payment is to be made, or Common Stock Certificates and, if
applicable, Rights Certificates, not accepted for payment or not tendered are to
be returned to a person other than the registered holder(s), then the Common
Stock Certificates and, if applicable, Rights Certificates, must be endorsed or
accompanied by appropriate stock powers, in either case signed exactly as the
name(s) of the registered holder(s) appears on the Common Stock Certificates
and, if applicable, Rights Certificates, with the signature(s) on such Common
Stock Certificates and, if applicable, Rights Certificates, or stock powers
guaranteed as described above. See Instructions 1 and 5 of the Letter of
Transmittal.
GUARANTEED DELIVERY. If a shareholder desires to tender shares of Common
Stock pursuant to the Offer and such shareholder's Common Stock Certificates
and, if applicable, Rights Certificates, are not immediately available or time
will not permit all required documents to reach the Depositary prior to the
Expiration Date or the procedure for book-entry transfer cannot be completed on
a timely basis, such shares of Common Stock may nevertheless be tendered if all
the following conditions are satisfied:
(i) the tender is made by or through an Eligible Institution;
(ii) a properly completed and duly executed Notice of Guaranteed Delivery,
substantially in the form provided by Purchaser herewith, is received
by the Depositary as provided below prior to the Expiration Date; and
(iii) in the case of a guarantee of shares of Common Stock, the Common Stock
Certificates and, if applicable, Rights Certificates, for all tendered
shares of Common Stock, in proper form for transfer, or a Book-Entry
Confirmation, together with a properly completed and duly executed
Letter of Transmittal (or manually signed facsimile thereof) with any
required signature guarantee (or, in the case of a book-entry transfer,
an Agent's Message) and any other documents required by such Letter of
Transmittal, are received by the Depositary within three New York Stock
Exchange (the "NYSE") trading days after the date of execution of the
Notice of Guaranteed Delivery.
Any Notice of Guaranteed Delivery may be delivered by hand or transmitted by
telegram, facsimile transmission or mail to the Depositary and must include a
guarantee by an Eligible Institution in the form set forth in the Notice of
Guaranteed Delivery.
Notwithstanding any other provision hereof, payment for Common Stock
purchased pursuant to the Offer will, in all cases, be made only after timely
receipt by the Depositary of (i) the Common Stock Certificates evidencing such
Common Stock, or a Book-Entry Confirmation of the delivery of such Common Stock,
if available, (ii) a properly completed and duly executed Letter of Transmittal
(or manually signed facsimile thereof) (or in the case of a book-entry transfer,
an Agent's Message) and (iii) any other documents required by the Letter of
Transmittal.
UNDER NO CIRCUMSTANCES WILL INTEREST ON THE PURCHASE PRICE OF THE COMMON
STOCK BE PAID BY THE PURCHASER, REGARDLESS OF ANY EXTENSION OF THE OFFER OR ANY
DELAY IN MAKING PAYMENT.
DISTRIBUTION OF RIGHTS. Holders of Common Stock will be required to tender
one Right for each share of Common Stock tendered to effect a valid tender of
such Common Stock. Unless and until the Distribution Date occurs, the Rights are
represented by and transferred with the Common Stock.
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Accordingly, if the Distribution Date does not occur prior to the Expiration
Date of the Offer, a tender of Common Stock will constitute a tender of the
associated Rights. If a Distribution Date has occurred before shares of Common
Stock are tendered, Rights Certificates representing a number of Rights equal to
the number of shares of Common Stock being tendered must be delivered to the
Depositary in order for such Common Stock to be validly tendered. If a
Distribution Date has occurred subsequent to the tender of shares of Common
Stock, Rights Certificates representing a number of Rights equal to the number
of shares of Common Stock tendered pursuant to the Offer must be delivered to
the Depositary within three NYSE trading days after the date such Rights
Certificates are distributed. Purchaser reserves the right to require that the
Depositary receive such Rights Certificates prior to accepting Common Stock for
payment. Accordingly shareholders who sell their Rights separately from their
Common Stock and do not otherwise acquire Rights may not be able to satisfy the
requirements of the Offer for the tender of Common Stock. Payment for Common
Stock tendered and purchased pursuant to the Offer will be made only after
timely receipt by the Depositary of, among other things, such Rights
Certificates, if such Rights Certificates have been distributed to holders of
Common Stock. Purchaser will not pay any additional consideration for the Rights
tendered pursuant to the Offer.
DETERMINATION OF VALIDITY. All questions as to the validity, form,
eligibility (including time of receipt) and acceptance for payment of any
tendered shares of Common Stock pursuant to any of the procedures described
above will be determined by Purchaser in its sole discretion, whose
determination will be final and binding on all parties. Purchaser reserves the
absolute right to reject any or all tenders of any Common Stock determined by it
not to be in proper form or if the acceptance for payment of, or payment for,
such shares of Common Stock may, in the opinion of Purchaser's counsel, be
unlawful. Purchaser also reserves the absolute right, in its sole discretion, to
waive any of the conditions of the Offer or any defect or irregularity in any
tender with respect to Common Stock of any particular shareholder, whether or
not similar defects or irregularities are waived in the case of other
shareholders. No tender of Common Stock will be deemed to have been validly made
until all defects and irregularities have been cured or waived.
Purchaser's interpretation of the terms and conditions of the Offer
(including the Letter of Transmittal and the instructions thereto) will be final
and binding. None of Parent, Purchaser, the Dealer Manager, the Depositary, the
Information Agent or any other person will be under any duty to give
notification of any defects or irregularities in tenders or will incur any
liability for failure to give any such notification.
APPOINTMENT AS PROXY. By executing a Letter of Transmittal as set forth
above, a tendering shareholder irrevocably appoints designees of Purchaser as
such shareholder's proxies, each with full power of substitution, to the full
extent of such shareholder's rights with respect to the Common Stock tendered by
such shareholder and accepted for payment by Purchaser (and any and all noncash
dividends, distributions, rights, other shares of Common Stock, or other
securities issued or issuable in respect of such Common Stock on or after the
date of this Offer to Purchase). All such proxies shall be considered coupled
with an interest in the tendered Common Stock. This appointment will be
effective if, when, and only to the extent that, Purchaser accepts such Common
Stock for payment pursuant to the Offer. Upon such acceptance for payment, all
prior powers of attorney, proxies and consents given by such shareholder with
respect to such Common Stock and other securities will, without further action,
be revoked, and no subsequent powers of attorney, proxies and consents may be
given (and if given will not be deemed effective). The designees of Purchaser
will, with respect to the Common Stock and other securities for which the
appointment is effective, be empowered to exercise all voting and other rights
of such shareholder as they in their sole discretion may deem proper at any
annual, special, adjourned or postponed meeting of ASARCO's shareholders, by
written consent or otherwise, and Purchaser reserves the right to require that,
in order for Common Stock or other securities to be deemed validly tendered,
immediately upon Purchaser's acceptance for payment of such Common Stock,
Purchaser must be able to exercise full voting rights with respect to such
shares of Common Stock.
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<PAGE>
BACKUP WITHHOLDING. In order to avoid "backup withholding" of Federal income
tax on payments of cash pursuant to the Offer, a shareholder tendering shares of
Common Stock in the Offer must, unless an exemption applies, provide the
Depositary with such shareholder's correct taxpayer identification number
("TIN") on a Substitute Form W-9 and certify under penalties of perjury that
such TIN is correct and that such shareholder is not subject to backup
withholding. If a shareholder does not provide such shareholder's correct TIN or
fails to provide the certifications described above, the Internal Revenue
Service (the "IRS") may impose a penalty on such shareholder and payment of cash
to such shareholder pursuant to the Offer may be subject to backup withholding
of 31%. All shareholders surrendering shares of Common Stock pursuant to the
Offer should complete and sign the main signature form and the Substitute Form
W-9 included as part of the Letter of Transmittal to provide the information and
certification necessary to avoid backup withholding (unless an applicable
exemption exists and is proved in a manner satisfactory to the Purchaser and the
Depositary). If, however, the tendering shareholder completes the box entitled
"Special Payment Instructions" on the Letter of Transmittal, the person to whom
payment is to be made, rather than the tendering shareholder, should complete
and sign Substitute Form W-9. Certain shareholders (including, among others, all
corporations and certain foreign individuals and entities) are not subject to
backup withholding. Non-corporate foreign shareholders should complete and sign
the main signature form and a Form W-8, Certificate of Foreign Status, a copy of
which may be obtained from the Depositary, in order to avoid backup withholding.
See Instruction 9 to the Letter of Transmittal.
Purchaser's acceptance for payment of shares of Common Stock tendered
pursuant to the Offer will constitute a binding agreement between the tendering
shareholder and Purchaser upon the terms and subject to the conditions of the
Offer.
4. WITHDRAWAL RIGHTS.
Tenders of Common Stock made pursuant to the Offer are irrevocable except
that such Common Stock may be withdrawn at any time prior to the Expiration Date
and, unless theretofore accepted for payment by Purchaser pursuant to the Offer,
may also be withdrawn at any time after November 25, 1999.
If purchase of or payment for shares of Common Stock is delayed for any
reason or if Purchaser is unable to purchase or pay for shares of Common Stock
for any reason, then, without prejudice to Purchaser's rights under the Offer,
tendered shares of Common Stock may be retained by the Depositary on behalf of
Purchaser and may not be withdrawn except to the extent that tendering
shareholders are entitled to withdrawal rights as set forth in this Section 4,
subject to Rule 14e-1(c) under the Exchange Act, which provides that no person
who makes a tender offer shall fail to pay the consideration offered or fail to
return the securities deposited by or on behalf of security holders promptly
after the termination or withdrawal of the Offer. If Purchaser extends the
Offer, is delayed in its acceptance for payment of shares of Common Stock or is
unable to purchase shares of Common Stock validly tendered pursuant to the Offer
for any reason, then without prejudice to Purchaser's rights under the Offer,
the Depositary may nevertheless, on behalf of Purchaser, retain tendered shares
of Common Stock, and such shares of Common Stock may not be withdrawn except to
the extent that tendering shareholders are entitled to withdrawal rights as
described in this Section 4. Any such delay will be accompanied by an extension
of the Offer to the extent required by law.
For a withdrawal to be effective, a written, telegraphic or facsimile
transmission notice of withdrawal must be timely received by the Depositary at
one of its addresses set forth on the back cover of this Offer to Purchase. Any
such notice of withdrawal must specify the name of the person who tendered the
shares of Common Stock to be withdrawn, the number of shares of Common Stock to
be withdrawn and the name of the registered holder, if different from that of
the person who tendered such Common Stock. If Common Stock Certificates
evidencing Common Stock and, if applicable, Rights Certificates, to be withdrawn
have been delivered or otherwise identified to the Depositary, then, prior to
the physical release of such Common Stock Certificates and, if applicable,
Rights Certificates, the serial numbers shown on such Common Stock Certificates
and, if applicable, Rights Certificates, must be submitted to the Depositary and
the signature(s) on the notice of withdrawal must be guaranteed by an Eligible
Institution, unless such shares of Common Stock have been tendered for the
account of an Eligible Institution. If shares of Common Stock have been tendered
pursuant to the procedure for book-entry transfer as set forth in Section 3, any
notice of withdrawal must also specify the name and number of the account at the
Book-Entry Transfer Facility to be credited with the withdrawn Common Stock and
otherwise comply with the Book-Entry Transfer Facility's procedures.
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<PAGE>
All questions as to the form and validity (including time of receipt) of
notices of withdrawal will be determined by Purchaser, in its sole discretion,
whose determination will be final and binding. None of Parent, Purchaser, the
Dealer Manager, the Depositary, the Information Agent or any other person will
be under any duty to give notification of any defects or irregularities in any
notice of withdrawal or incur any liability for failure to give any such
notification.
Any shares of Common Stock properly withdrawn will thereafter be deemed not
to have been validly tendered for purposes of the Offer. However, withdrawn
shares of Common Stock may be retendered at any time prior to the Expiration
Date by following the procedures described in Section 3.
5. CERTAIN FEDERAL INCOME TAX CONSEQUENCES.
The following is a summary of certain United States Federal income tax
consequences of the Offer and the Proposed Merger to shareholders of ASARCO
whose shares of Common Stock are tendered and accepted for payment pursuant to
the Offer or whose shares of Common Stock are converted to cash pursuant to the
Proposed Merger. The discussion is for general information only and does not
purport to consider all aspects of Federal income taxation that might be
relevant to shareholders of ASARCO. The discussion is based on current law which
is subject to change, possibly with retroactive effect. The discussion applies
only to shareholders who hold shares of Common Stock as capital assets, and may
not apply to shares of Common Stock received pursuant to the exercise of
employee stock options or otherwise as compensation, or to certain types of
shareholders (such as insurance companies, tax-exempt organizations, financial
institutions and broker-dealers) who may be subject to special rules. This
discussion does not discuss the Federal income tax consequences to any
shareholder of ASARCO who, for United States Federal income tax purposes, is a
non-resident alien individual, foreign corporation, foreign partnership or
foreign estate or trust, and does not address any aspect of state, local or
foreign tax laws.
BECAUSE INDIVIDUAL CIRCUMSTANCES MAY DIFFER, EACH SHAREHOLDER SHOULD CONSULT
SUCH SHAREHOLDER'S TAX ADVISOR REGARDING THE APPLICABILITY OF THE RULES
DISCUSSED BELOW TO SUCH SHAREHOLDER AND THE PARTICULAR TAX EFFECTS TO SUCH
SHAREHOLDER OF THE OFFER AND THE PROPOSED MERGER, INCLUDING THE APPLICATION AND
EFFECT OF STATE, LOCAL AND FOREIGN TAX LAWS.
The receipt of cash for shares of Common Stock pursuant to the Offer or the
Proposed Merger will be a taxable transaction for United States Federal income
tax purposes. In general, a shareholder who exchanges shares of Common Stock
pursuant to the Offer or surrenders shares of Common Stock for cash pursuant to
the Proposed Merger will recognize gain or loss for United States Federal income
tax purposes equal to the difference, if any, between the amount of cash
received and the shareholder's adjusted tax basis in the shares of Common Stock
exchanged pursuant to the Offer or surrendered for cash pursuant to the Proposed
Merger. Gain or loss will be determined separately for each block of shares of
Common Stock (i.e., shares of Common Stock acquired at the same cost in a single
transaction) exchanged pursuant to the Offer or surrendered for cash pursuant to
the Proposed Merger. Such gain or loss will be long-term capital gain or loss
provided that a shareholder's holding period for such shares of Common Stock is
more than twelve months at the time of consummation of the Offer or the Proposed
Merger, as the case may be. Capital gain recognized by individuals (and certain
estates and trusts) upon a disposition of a share of Common Stock that has been
held for more than one year generally will be subject to a maximum tax rate of
20% or, in the case of a share of Common Stock that has been held for one year
or less, will be subject to tax at ordinary income tax rates. Certain
limitations apply to the use of capital losses.
BACKUP WITHHOLDING. Unless a shareholder of ASARCO complies with certain
reporting or certification procedures or is an "exempt recipient" (i.e., in
general, corporations and certain other entities) under applicable provisions of
the Federal income tax laws, such shareholder may be subject to withholding tax
of 31% with respect to any cash payments received pursuant to the Offer and/or
the Proposed Merger. A foreign shareholder of ASARCO should consult its tax
advisor with respect to the application of withholding rules to it with respect
to any cash payments received pursuant to the Offer and/or the Proposed Merger.
See Section 3.
6. PRICE RANGE OF SHARES OF COMMON STOCK; DIVIDENDS.
The Common Stock is listed and principally traded on the NYSE, and quoted
under the symbol "AR". The following table sets forth the high and low sales
prices of Common Stock as reported by the New York
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Stock Exchange Composite Transactions Tape (the "NYSE Composite Tape") and the
amount of cash dividends declared per share of Common Stock for each calender
quarter during the past three years:
<TABLE>
<CAPTION>
MARKET PRICE
CASH
---------------------- DIVIDENDS
HIGH LOW DECLARED
----- --- -----------
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1997:
First Quarter...................................................... $ 325/8 $ 251/8 $ .20
Second Quarter..................................................... 323/8 261/4 .20
Third Quarter...................................................... 341/4 293/8 .20
Fourth Quarter..................................................... 321/4 213/4 .20
YEAR ENDED DECEMBER 31, 1998:
First Quarter...................................................... $ 263/4 $ 20 /16 $ .20
Second Quarter..................................................... 271 /16 213/8 .20
Third Quarter...................................................... 24 15 /16 .20
Fourth Quarter..................................................... 23 147/8 .10
YEAR ENDED DECEMBER 31, 1999:
First Quarter...................................................... $ 183/8 $ 13 /16 $ .05
Second Quarter..................................................... 207/8 133/8 .05
Third Quarter (through September 24)............................... 235/8 17 /16 .05
</TABLE>
According to the Asarco Cyprus Form S-4, on July 14, 1999, the trading day
prior to the announcement date of the Proposed Cyprus Amax Transaction, and on
August 19, 1999, the trading day prior to the announcement date of the Phelps
Dodge Proposal, the reported closing sales prices of the Common Stock on the
NYSE Composite Tape were $19 and $18 7/16 per share of Common Stock,
respectively.
On September 24, 1999, the most recent practicable trading day prior to the
announcement date of the Offer, the closing sales price of the Common Stock, as
reported in the Monday, September 27, 1999 Wall Street Journal was $23 9/16 per
share of Common Stock.
SHAREHOLDERS ARE URGED TO OBTAIN A CURRENT MARKET QUOTATION FOR THE COMMON
STOCK.
According to the Asarco Cyprus Form S-4, as of the date of such filing
ASARCO paid dividends at a rate of $.20 per share each year.
7. EFFECT OF THE OFFER ON THE MARKET FOR SHARES OF COMMON STOCK; EXCHANGE
LISTING AND EXCHANGE ACT REGISTRATION; MARGIN REGULATIONS.
The purchase of shares of Common Stock pursuant to the Offer will reduce the
number of shares of Common Stock that might otherwise trade publicly and could
reduce the number of holders of Common Stock, which could adversely affect the
liquidity and market value of the remaining Common Stock held by the public.
Following consummation of the Offer, a large percentage of the outstanding
shares of Common Stock will be owned by Purchaser.
NYSE LISTING. According to the NYSE's published guidelines, the NYSE would
consider delisting the Common Stock if, among other things, the number of record
holders of at least 100 shares of Common Stock should fall below 1,200 and the
average monthly trading volume is less than 100,000 shares for the most recent
twelve month period, the number of publicly held shares of Common Stock
(exclusive of holdings of officers, directors and their families and other
concentrated holdings of 10% or more (the "NYSE Excluded Holdings")) should fall
below 600,000 or the aggregate market value of publicly held shares of Common
Stock (exclusive of NYSE Excluded Holdings) should fall below $5,000,000. If, as
a result of the purchase of Common Stock pursuant to the Offer or otherwise, the
shares of Common Stock no longer meet the requirements of the NYSE for continued
listing and the listing of the Common Stock is discontinued, the market for the
shares of Common Stock could be adversely affected.
If the NYSE were to delist the shares of Common Stock, it is possible that
the shares of Common Stock would continue to trade on another securities
exchange or in the over-the-counter market and that price or other quotations
would be reported by such exchange or through the National Association of
21
<PAGE>
Securities Dealers Automated Quotation System or other sources. The extent of
the public market therefor and the availability of such quotations would depend,
however, upon such factors as the number of shareholders and/or the aggregate
market value of such securities remaining at such time, the interest in
maintaining a market in the Common Stock on the part of securities firms, the
possible termination of registration under the Exchange Act as described below
and other factors. Purchaser cannot predict whether the reduction in the number
of shares of Common Stock that might otherwise trade publicly would have an
adverse or beneficial effect on the market price for or marketability of the
Common Stock or whether it would cause future market prices to be higher or
lower than the Offer Price.
EXCHANGE ACT REGISTRATION. The shares of Common Stock are currently
registered under the Exchange Act. Such registration may be terminated upon
application by ASARCO to the SEC if the Common Stock is not listed on a national
securities exchange and there are fewer than 300 record holders of the Common
Stock. The termination of registration of the Common Stock under the Exchange
Act would substantially reduce the information required to be furnished by
ASARCO to holders of Common Stock and to the SEC and would make certain
provisions of the Exchange Act, such as the short-swing profit recovery
provisions of Section 16(b), the requirement of furnishing a proxy statement in
connection with shareholders' meetings pursuant to Section 14(a), and the
requirements of Rule 13e-3 under the Exchange Act with respect to "going
private" transactions, no longer applicable to the Common Stock. In addition,
"affiliates" of ASARCO and persons holding "restricted securities" of ASARCO may
be deprived of the ability to dispose of such securities pursuant to Rule 144
promulgated under the Securities Act of 1933, as amended (the "Securities Act").
If registration of the shares of Common Stock under the Exchange Act were
terminated, the Common Stock would no longer be eligible for listing on any
stock exchange.
If the registration of the shares of Common Stock under the Exchange Act is
not terminated prior to the Proposed Merger, then the shares of Common Stock
will be delisted from all stock exchanges and the registration of the Common
Stock under the Exchange Act will be terminated following consummation of the
Proposed Merger.
Based upon publicly available information, Purchaser believes that, as of
the date of this Offer to Purchase, the Rights are registered under the Exchange
Act and are listed on the NYSE, but are attached to the Common Stock and are not
separately transferable. Purchaser believes that as a result of the public
announcement of this Offer, the Distribution Date will be no later than October
12, 1999 (to the extent that October 11, 1999 is not a Business Day as defined
in the Rights Agreement) unless prior to such date (i) the ASARCO Board redeems
the Rights, (ii) the ASARCO Board determines to postpone the distribution of
Rights Certificates to a later date, or (iii) ASARCO amends the Rights Agreement
to render it inapplicable to the Offer. According to the ASARCO Form 8-A, as
soon as practicable after the Distribution Date, the Rights Certificates will be
mailed to holders of record of the Common Stock as of the close of business on
the Distribution Date, and thereafter the separate Rights Certificates alone
will evidence the Rights and the foregoing discussion with respect to the effect
of the Offer on the market for the Common Stock, stock exchange listing and
Exchange Act registration would apply to the Rights in a similar manner.
According to the ASARCO Schedule 14D-9, the ASARCO Board determined on September
8, 1999 to postpone the occurrence of a Distribution Date that would be
triggered by the announcement of the Phelps Dodge Exchange Offers with respect
to ASARCO Common Stock until such later date as determined by the ASARCO Board.
See Section 11.
MARGIN REGULATIONS. The shares of Common Stock presently are "margin
securities" under the regulations of the Board of Governors of the Federal
Reserve System (the "Federal Reserve Board"), which status has the effect, among
other things, of allowing brokers to extend credit on the collateral of such
securities. Depending upon factors similar to those described above regarding
listing and market quotations, it is possible that, following the Offer, the
Common Stock would no longer constitute "margin securities" for the purposes of
the margin regulations of the Federal Reserve Board and therefore could no
longer be used as collateral for loans made by brokers. In addition, if
registration of the Common Stock under the Exchange Act were terminated, the
Common Stock would no longer constitute "margin securities".
22
<PAGE>
8. CERTAIN INFORMATION CONCERNING ASARCO.
ASARCO is a New Jersey corporation whose principal executive offices are
located at 180 Maiden Lane, New York, New York 10038. The following description
of ASARCO's business has been taken from the Asarco Cyprus Form S-4:
ASARCO is one of the world's leading producers of copper and has
developed one of the largest copper ore reserve positions in the industry.
ASARCO also produces specialty chemicals and aggregates. ASARCO's copper
business includes integrated mining, smelting and refining operations in
North America and in Peru through its 54.3% owned subsidiary, Southern Peru
Copper Corporation. Enthone-OMI, Inc., a wholly owned subsidiary, operates a
worldwide specialty chemicals business focused on functional and decorative
coatings for the electronics and metal finishing industries. American
Limestone Company, a wholly owned subsidiary, produces construction
aggregates, ready-mixed concrete and agricultural limestone. ASARCO also
operates a custom lead smelting business, a silver mining business, a zinc
mining business and a specialty metals business. ASARCO owns Encycle, Inc.,
which operates a waste recycling facility and Hydrometrics, an environmental
consulting and construction firm.
FINANCIAL INFORMATION. Set forth below is certain selected consolidated
financial information relating to ASARCO and its subsidiaries which has been
excerpted or derived from the financial statements contained in the ASARCO 1998
Form 10-K and other documents filed by ASARCO with the SEC. More comprehensive
financial information is included in, and the financial information that follows
is qualified in its entirety by reference to, the ASARCO 1998 Form 10-K,
ASARCO's Quarterly Report on Form 10-Q for the period ended June 30, 1999 (the
"ASARCO Form 10-Q") and other reports and documents filed by ASARCO with the
SEC. The ASARCO 1998 Form 10-K, the ASARCO Form 10-Q and such other reports and
documents may be examined at and copies may be obtained from the offices of the
SEC or the NYSE in the manner set forth below.
ASARCO INCORPORATED
FIVE-YEAR SELECTED FINANCIAL AND STATISTICAL DATA
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE SIX FOR THE SIX
MONTHS MONTHS
FOR THE YEAR ENDED DECEMBER 31, ENDED ENDED
----------------------------------------------------- JUNE 30, JUNE 30,
1994 1995 1996 1997 1998 1998 1999
--------- --------- --------- --------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
CONSOLIDATED STATEMENT OF EARNINGS
Sales.................................. $ 2,032 $ 3,198 $ 2,717 $ 2,721 $ 2,233 $ 1,186 $ 966
Operating income (loss)................ 18 487 303 275 (118) (33) (49)
Earnings (loss) before minority
interests............................ 65 299 226 234 (104) (31) (52)
Minority interests..................... (1) (130) (88) (91) (27) (15) (4)
Net earnings (loss).................... 64 169 138 143 (131) (46) (56)
Per Share of Common Stock:
Net earnings (loss)--
Basic...................... $ 1.53 $ 4.00 $ 3.24 $ 3.42 $ (3.29) $ (1.17) $ (1.42)
Net earnings (loss)--
Diluted.................... $ 1.52 $ 3.98 $ 3.23 $ 3.42 $ (3.29) $ (1.17) $ (1.42)
</TABLE>
23
<PAGE>
ASARCO INCORPORATED
FIVE-YEAR SELECTED FINANCIAL AND STATISTICAL DATA
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF JUNE AS OF JUNE
----------------------------------------------------- 30, 30,
1994 1995 1996 1997 1998 1998 1999
--------- --------- --------- --------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
CONSOLIDATED BALANCE SHEET
Total assets........................... 3,291 4,327 4,120 4,110 4,024 4,020 3,977
Inventories--replacement cost in excess
of LIFO inventory costs.............. 143 137 115 86 74 78 80
Total cash and marketable securities... 18 281 193 416 216 285 156
Long-term debt......................... 915 1,063 759 850 1,015 853 1,017
Common shareholders' equity............ 1,517 1,707 1,737 1,694 1,525 1,623 1,459
COMMON STOCK
Common Stock outstanding (millions of
shares).............................. 42.1 42.6 42.8 39.7 39.7 39.7 39.8
</TABLE>
ASARCO is subject to the information and reporting requirements of the
Exchange Act and is required to file reports and other information with the SEC
relating to its business, financial condition and other matters. Information, as
of particular dates, concerning ASARCO's directors and officers, their
remuneration, stock options granted to them, the principal holders of ASARCO's
securities, any material interests of such persons in transactions with ASARCO
and other matters is required to be disclosed in proxy statements distributed to
ASARCO's shareholders and filed with the SEC. These reports, proxy statements
and other information should be available for inspection at the public reference
facilities of the SEC located in Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and also should be available for inspection and copying
at prescribed rates at the following regional offices of the SEC: Seven World
Trade Center, Suite 1300, New York, New York 10048; and 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511. Copies of this material may also be
obtained by mail, upon payment of the SEC's customary fees, from the SEC's
principal office at 450 Fifth Street, N.W., Washington, D.C. 20549. The SEC also
maintains an Internet web site at http://www.sec.gov that contains reports,
proxy statements and other information. Reports, proxy statements and other
information concerning ASARCO should also be available for inspection at the
offices of the NYSE, 20 Broad Street, New York, New York 10005.
None of Parent, Purchaser, the Dealer Manager, the Depositary or the
Information Agent assumes any responsibility for the accuracy or completeness of
the information concerning ASARCO contained in such documents and records or for
any failure by ASARCO to disclose events which may have occurred or may affect
the significance or accuracy of any such information but which are unknown to
Parent, Purchaser, the Dealer Manager, the Depositary or the Information Agent.
9. CERTAIN INFORMATION CONCERNING PURCHASER, PARENT AND CERTAIN AFFILIATES.
PURCHASER. Purchaser is a newly incorporated Delaware corporation organized
in connection with the Offer and the Proposed Merger. Purchaser is a wholly
owned subsidiary of Parent. The principal offices of Purchaser are located at
Baja California 200, Colonia Roma Sur, 06760 Mexico City, Mexico. Until
immediately prior to the time that Purchaser will purchase Common Stock pursuant
to the Offer, it is not expected that Purchaser will have any significant assets
or liabilities or engage in activities other than those incident to its
formation and capitalization and the transactions contemplated by the Offer and
the
24
<PAGE>
Proposed Merger. Because Purchaser is newly formed and has minimal assets and
capitalization, no meaningful financial information regarding Purchaser is
available.
PARENT. Parent is a Mexican corporation with its principal executive
offices located at Baja California 200, Colonia Roma Sur, 06760 Mexico City,
Mexico. Parent's principal business is to act as a holding company for shares of
other corporations engaged in the mining, processing and sale of minerals and
other by-products and railways operations. Parent's shares are listed on the
Mexican Stock Exchange.
The largest shareholder of Parent is Empresarios Industriales de Mexico,
S.A. de C.V., a Mexican corporation ("EIM"). The principal business of EIM is to
act as a holding company for shares of other corporations engaged in a variety
of businesses including mining, construction, real estate and drilling. The
principal executive offices of EIM are located at Insurgentes Sur No. 432-9,
Colonia Roma Sur, 06760 Mexico City, Mexico. Mr. Larrea also is the Chairman of
the Board and Chief Executive Officer of EIM. The family of the late Jorge
Larrea Ortega, including Mr. Larrea, directly controls the majority of the
capital stock of EIM and directly and indirectly controls a majority of the
votes of the capital stock of Parent. Mr. Larrea disclaims beneficial ownership
of such shares other than the shares held directly by him (comprising
approximately 2.71% of the outstanding shares of Parent).
Parent owns 98.85% of the capital stock of Grupo Minero Mexico, S.A. de
C.V., a Mexican corporation ("GMM") with its principal executive offices located
at Baja California 200, Colonia Roma Sur, 06760 Mexico City, Mexico. GMM's
principal business is to act as a holding company for shares of other
corporations engaged in the mining, processing and sale of minerals and other
by-products. GMM is Mexico's largest mining company based upon consolidated net
sales and total assets in 1998. Together with Parent, GMM has been a reporting
person under the Schedule 13D, dated December 29, 1997, with respect to shares
of Common Stock (the "Initial Parent Schedule 13D"), as amended by Amendment No.
1 dated January 26, 1998 ("Amendment No. 1 to the Initial Parent Schedule 13D")
and Amendment No. 2 dated July 31, 1998 ("Amendment No. 2 to the Initial Parent
Schedule 13D" and, together with the Initial Parent Schedule 13D, Amendment No.
1 to the Initial Parent Schedule 13D and Amendment No. 3 to the Initial Parent
Schedule 13D (as defined herein), the "Parent Schedule 13D") GMM no longer
beneficially owns any shares of Common Stock because on December 26, 1997 GMM
transferred all of its shares of Common Stock to Parent. See Section 11.
Accordingly, on the date of this Offer to Purchase, GMM and Parent are
concurrently filing Amendment No. 3 to the Initial Parent Schedule 13D
("Amendment No. 3 to the Initial Parent Schedule 13D") reflecting that GMM no
longer is a reporting person in connection with the Parent Schedule 13D. Parent
currently exercises sole voting and investment control over the shares of ASARCO
Common Stock owned by it.
BACKGROUND AND OTHER INFORMATION. The name, citizenship, business address,
principal occupation or employment and five-year employment history for each of
the directors and executive officers of Purchaser, Parent and EIM are set forth
in Schedule I hereto.
The Parent is not subject to the information and reporting requirements of
the Exchange Act and therefore Parent is not required in accordance therewith to
file periodic reports, proxy statements or other information with the SEC
relating to their respective business, financial condition or other matters. In
accordance with Rule 12g3-2(b) of the Exchange Act, Parent furnishes to the SEC
certain material information that it has (i) made or is required to make public
under Mexican law, (ii) filed or is required to file with an applicable stock
exchange, or (iii) distributes or is required to distribute to shareholders.
CERTAIN TRANSACTIONS. The origins of Parent can be traced to 1918 when
ASARCO expanded its mining operations into Mexico through a wholly owned
subsidiary, Compania Minera Asarco, S.A. In 1965, Compania Minera Asarco, S.A.
was reorganized and several Mexican investors assumed a majority ownership
position in the reconstituted company. In 1974, ASARCO sold part of its interest
in the reconstituted company, thereby reducing its participation to 34%, and the
company changed its name to Asarco Mexicana, S.A. In 1978, the Larrea family
assumed a majority ownership position in ASARCO
25
<PAGE>
Mexicana, S.A. (which by that time had changed its name to Industrial Minera
Mexico, S.A. de C.V. ("IMMSA") and GMM was formed as a holding company for
IMMSA. Shortly thereafter, ASARCO exchanged its ownership interest in IMMSA for
a 38% interest in GMM (which amounts were held either directly by ASARCO or
through affiliates of ASARCO).
In 1978, as part of a separate reorganization, Grupo Industrial Minera
Mexico, S.A. de C.V. (hereinafter "GIM"), was formed in order to become the
holding company of GMM (with ASARCO remaining as shareholder of GMM) and to
create a public market for GIM shares.
During the years 1979 and 1980, ASARCO reduced its participation in GMM to
34% and, in 1992, it further reduced its participation to 31.17%.
In 1994, as part of a reorganization, Parent was formed as the new holding
company of GMM and the shares of GMM held by ASARCO were exchanged for an
equivalent number of shares in Parent (constituting a 26% interest in Parent).
As part of this same reorganization, a warrant (the "Warrant") to acquire the
10.7% of Series B Shares (as hereinafter defined) of Parent held by ASARCO (the
"ASARCO Series B Shares") was established in favor of holders of the Series B
Shares other than ASARCO (such holders other than ASARCO, the "Other
Stockholders") by contribution of the ASARCO Series B Shares, held either
directly or through subsidiaries, to a trust (the "Trust").
As a result of the above transactions, in December 1994, the capital
structure of Parent consisted of the following: (i) 574,110,777 shares of Series
B ordinary shares, which have full voting rights (the "Series B Shares") and
(ii) 115,008,122 shares of Series L shares with limited voting rights (the
"Series L Shares"). All of the Series L Shares were held by ASARCO.
The Warrant is exercisable by the Other Stockholders at any time prior to
August 9, 2001. As of the date hereof, the Warrant has not been exercised,
either in whole or in part.
During the period from 1994 through 1998, ASARCO sold through open market
transactions its 115,008,122 Series L Shares of Parent.
During the same period of time, Parent acquired through open market
transactions 39,118,899 Series L Shares. On April 28, 1998, the shareholders of
Parent, at an extraordinary meeting, resolved to cancel such repurchased shares
and exchange all remaining Series L Shares for the same number of Series B
Shares.
Parent believes that ASARCO has fully divested itself of the capital stock
of Parent, except for (i) ASARCO's right, upon exercise of the Warrant by the
Other Stockholders, to receive $1.40 per share for each share subject to the
Warrant and (ii) ASARCO's right to have the shares pursuant to which the Warrant
was not exercised returned to it in the event that the Warrant is not exercised
by August 9, 2001.
In March of 1999, Parent acquired from a third party ASARCO's rights under
the Trust to 5,782,682 Series B Shares previously held by an ASARCO subsidiary.
As of the date of this Offer to Purchase, Parent owns 3,900,000 shares of
ASARCO Common Stock. All of these shares were acquired before January 25, 1999.
For a more detailed description of the transactions pursuant to which these
shares were acquired. See Section 11.
During the past 60 days, Parent did not effect any transactions in the
equity securities of ASARCO. Except as set forth in this Offer to Purchase or
the Parent Schedule 13D, none of Parent, Purchaser or EIM or, to the knowledge
of Parent, Purchaser or EIM, any of the persons listed in Parent Schedule I
hereto, or any associate or majority-owned subsidiary of such persons,
beneficially owns any equity security of ASARCO, and none of Parent, Purchaser
or EIM or, to the knowledge of Parent, Purchaser or EIM, any of the other
persons referred to above, or any of the respective directors, executive
officers or subsidiaries of any of the foregoing, has effected any transaction
in any equity security of ASARCO during the past 60 days.
26
<PAGE>
Except as set forth in this Offer to Purchase or the Parent Schedule 13D,
none of Parent, Purchaser or EIM, or to the knowledge of Parent, Purchaser or
EIM, any of the persons listed in Schedule I hereto has any contract,
arrangement, understanding or relationship with any other person with respect to
any securities of ASARCO, including, without limitation, any contract,
arrangement, understanding or relationship concerning the transfer or the voting
of any securities of ASARCO, joint ventures, loan or option arrangements, puts
or calls, guaranties of loans, guaranties against loss or the giving or
withholding of proxies. Except as set forth in this Offer to Purchase or the
Parent Schedule 13D, none of Parent, Purchaser or EIM or, to the knowledge of
Parent, Purchaser or EIM, any of the persons listed in Schedule I hereto, has
had any transactions with ASARCO, or any of its executive officers, directors or
affiliates that would require reporting under the rules of the SEC.
Except as set forth in this Offer to Purchase or the Parent Schedule 13D,
there have been no contacts, negotiations or transactions between Parent,
Purchaser or EIM, or their respective subsidiaries, or to the knowledge of
Parent, Purchaser or EIM, any of the persons listed in Schedule I hereto, on the
one hand, and ASARCO or its executive officers, directors or affiliates, on the
other hand, concerning a merger, consolidation or acquisition, tender offer or
other acquisition of securities, election of directors, or a sale or other
transfer of a material amount of assets that would require reporting under the
rules of the SEC.
CERTAIN FINANCIAL INFORMATION. Set forth below is selected summary
consolidated financial data with respect to Parent and its subsidiaries
excerpted or derived from audited consolidated financial statements and notes
thereto published by Parent for the three years ended December 31, 1996, 1997
and 1998 and from certain unaudited consolidated financial reports of Parent for
the six-month periods ended June 30, 1998 and 1999, respectively, as filed with
the Mexican Stock Exchange (collectively, the "Financial Statements"). The
Financial Statements are filed as exhibits to the Schedule 14D-1/13D Amendment
of Parent and Purchaser filed with the SEC in connection with the Offer (the
"Parent Schedule 14D-1"), are incorporated in this Offer to Purchase by
reference and may be inspected in the same manner as set forth with respect to
ASARCO in Section 8 (except that copies may not be available at regional offices
of the SEC). The following summary is qualified in its entirety by reference to
such Financial Statements and the related notes contained therein.
The Financial Statements and the following selected consolidated financial
data are presented in Mexican pesos ("pesos") and are prepared in accordance
with accounting principles generally accepted in Mexico ("Mexican GAAP") and not
in accordance with accounting principles generally accepted in the United States
("U.S. GAAP"). Mexican GAAP differs in certain significant respects from U.S.
GAAP. Note (2) elsewhere in this Section 9 to the following selected financial
data provides a description of the principal differences between Mexican GAAP
and U.S. GAAP as they relate to Parent, and an unaudited reconciliation to U.S.
GAAP of consolidated net income and total stockholders' equity. See also
"Differences Between Mexican GAAP and U.S. GAAP" below for a summary description
of the principal differences between Mexican GAAP and U.S. GAAP applicable to
the Parent. The effects of price-level restatement under Mexican GAAP have not
been eliminated in the reconciliation to U.S. GAAP.
The Financial Statements have been prepared giving effect to Bulletin B-10,
as amended, and Bulletin B-12 issued by the Mexican Institute of Public
Accountants. Generally, Bulletin B-10 is designed to provide for the recognition
of the effects of inflation by requiring Parent to restate non-monetary assets
and liabilities using the Mexican National Consumer Price Index (the "NCPI"), to
restate the components of total stockholders' equity using the NCPI and to
record gains or losses in purchasing power from holding monetary liabilities or
assets. The Third Amendment to Bulletin B-10 requires restatement of all
financial statements to constant pesos as of the date of the most recent balance
sheet presented. All data in the Financial Statements are presented in constant
pesos as indicated therein; however, all data included in the selected
consolidated financial data set forth below have been restated in constant pesos
as of June 30, 1999, except as otherwise indicated. Bulletin B-12 requires that
the statement of changes in financial position reconcile changes from the
restated historical balance sheet to the current balance sheet.
References in this Offer to Purchase to "U.S. dollars" or "U.S.$" are to the
lawful currency of the United States. References in this Offer to Purchase to
"pesos" or "Ps." are to the lawful currency of Mexico.
27
<PAGE>
PARENT CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1996, 1997, AND 1998
AND FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1999
EXPRESSED IN TERMS OF THE PURCHASING POWER OF THE MEXICAN CURRENCY AS OF
JUNE 30, 1999
(STATED IN THOUSANDS OF MEXICAN PESOS AND THOUSANDS OF U.S. DOLLARS, EXCEPT PER
SHARE DATA,
UNLESS OTHERWISE INDICATED)
The following selected consolidated financial data contain translations of
certain peso amounts into U.S. dollars at specified rates solely for the
convenience of the reader. These translations should not be construed as
representations that the peso amounts actually represent such U.S. dollar
amounts or could be converted into U.S. dollars at the rate indicated or any
other rate. Unless otherwise indicated, such U.S. dollar amounts have been
translated from pesos at the exchange rate indicated in Note (1) to the
following selected financial data.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, UNAUDITED SIX MONTHS ENDED
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1998
1996 1997 ------------------------------- JUNE 30, 1998
-------------- -------------- U.S.$(1) ---------------------------
PESOS PESOS PESOS (UNAUDITED) PESOS U.S.$(1)
-------------- -------------- -------------- --------------- ------------ -------------
Net sales....................... Ps.14,521,440 Ps.13,247,831 Ps.15,154,793 U.S.$ 1,609,387 Ps.6,817,905 U.S.$ 724,038
Operating income................ 4,689,583 3,285,114 2,697,792 286,496 1,506,212 159,955
Other income (expenses), net.... 69,736 62,941 11,026 1,171 75,561 8,024
Income before writedown for
plant closure................. 4,004,570 2,921,045 1,093,277 116,102 621,785 66,031
Consolidated net income(2)...... 4,004,570 2,921,045 806,638 85,662 621,785 66,031
Income per common share before
writedown for plant
closure(3).................... 5.81 4.25 1.67 0.18 0.94 0.10
Net income per common
share(3)...................... 5.81 4.25 1.23 0.13 0.94 0.10
<CAPTION>
UNAUDITED SIX MONTHS ENDED
<S> <C> <C>
JUNE 30, 1999
---------------------------
PESOS U.S.$(1)
------------ -------------
Net sales....................... Ps.7,080,083 U.S.$ 751,881
Operating income................ 802,498 85,223
Other income (expenses), net.... 70,217 7,457
Income before writedown for
plant closure................. 1,292,585 137,268
Consolidated net income(2)...... 1,292,585 137,268
Income per common share before
writedown for plant
closure(3).................... 2.03 0.22
Net income per common
share(3)...................... 2.03 0.22
</TABLE>
PARENT CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1997 AND 1998, AND AS OF JUNE 30, 1998 AND 1999
EXPRESSED IN TERMS OF THE PURCHASING POWER OF THE MEXICAN CURRENCY AS OF
JUNE 30, 1999
(STATED IN THOUSANDS OF MEXICAN PESOS AND THOUSANDS OF U.S. DOLLARS
UNLESS OTHERWISE INDICATED)
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
-----------------------------------------------
1998 AS OF JUNE 30,
1997 ------------------------------- 1998 (UNAUDITED)
-------------- U.S.$(1) -------------------------------
PESOS PESOS (UNAUDITED) PESOS U.S.$(1)
<S> <C> <C> <C> <C> <C>
Working capital...................... Ps.4,572,387 Ps.9,511,481 U.S.$ 1,010,087 Ps.9,580,603 U.S.$ 1,017,427
Total assets......................... 43,646,765 45,951,987 4,879,943 44,550,636 4,731,125
Total liabilities.................... 14,004,275 16,316,203 1,732,724 14,698,138 1,560,892
Total stockholders' equity(2)........ 29,642,490 29,635,784 3,147,219 29,852,498 3,170,233
<CAPTION>
AS OF JUNE 30,
1999 (UNAUDITED)
-------------------------------
PESOS U.S.$(1)
<S> <C> <C>
Working capital...................... Ps.7,971,944 U.S.$ 846,593
Total assets......................... 44,458,741 4,721,366
Total liabilities.................... 14,126,392 1,500,174
Total stockholders' equity(2)........ 30,332,349 3,221,191
</TABLE>
(1) U.S. dollar amounts provided are translations from the peso amounts, solely
for the convenience of the reader, at the exchange rate of Ps. 9.4165 per
U.S.$1.00 as of June 30, 1999 published by Banco de Mexico ("the Mexican Central
Bank"). On June 30, 1999, the difference between the exchange rate published by
the Mexican Central Bank and the noon buying rate in New York City for cable
transfers in pesos as certified for customs purposes by the Federal Reserve Bank
of New York (the "noon buying rate") of Ps. 9.443 to U.S.$1.00 was not material.
On September 24, 1999, the noon buying rate was Ps. 9.3625 per U.S.$1.00.
28
<PAGE>
(2) Reconciliation to U.S. GAAP (unaudited): The principal differences between
Mexican GAAP and U.S. GAAP, as they relate to Parent, concern (i) deferred
income taxes and (ii) the amortization of the negative goodwill that was
recorded in Parent's acquisition of Mexicana de Cobre, S.A. de C.V., and
Ferrocarril Mexicano, S.A. de C.V. (previously Ferrocarril Pacifico Norte, S.A.
de C.V.) ("Ferrocarril Mexicano"), in 1988 and 1997, respectively. See
"Differences Between Mexican GAAP and U.S. GAAP" below for a summary description
of the principal differences applicable to Parent. Parent's consolidated net
income under U.S. GAAP would have been Ps. 2,163.7 million for the year ended
December 31, 1998, Ps. 4,105.1 million for the year ended December 31, 1997 and
Ps. 4,722.3 million for the year ended December 31, 1996, compared to Ps. 806.6
million, Ps. 2,921.0 million and Ps. 4,004.6 million respectively, under Mexican
GAAP. Total stockholders' equity under U.S. GAAP would have been Ps. 17,702.6
million as of December 31, 1998, and Ps. 15,984.0 million for the year ended
December 31, 1997, compared to Ps. 29,635.8 million, and Ps. 29,642.5 million
and respectively, under Mexican GAAP.
This Note (2) presents an unaudited reconciliation of net income and total
stockholders' equity as presented under Mexican GAAP to U.S. GAAP. However, this
reconciliation to U.S. GAAP does not include the reversal of the restatement of
the financial statements to recognize the effects of inflation, which
restatement is required under Mexican GAAP Bulletin B-10, "Recognition of the
Effects of Inflation in the Financial Information", as amended. The application
of Bulletin B-10 represents a comprehensive measure of the effects of price
level changes in the inflationary Mexican economy and, as such, is considered a
more meaningful presentation than historical cost-based financial reporting for
both Mexican and U.S. accounting purposes, consistent with the methodology
described in Statement of Financial Accounting Standards ("SFAS") No. 89,
"Financial Reporting and Changing Prices".
(3) For the years ended December 31, 1996, December 31, 1997, December 31, 1998
and the periods ended June 30, 1998 and June 30, 1999, the number of outstanding
common shares of Parent, on a weighted average basis for each period, were
689,118,899, 687,387,551, 653,987,463, 659,697,150 and 638,136,862,
respectively. During these periods there were no outstanding options, warrants,
conversion rights or other rights to acquire common shares of Parent
outstanding.
DIFFERENCES BETWEEN MEXICAN GAAP AND U.S. GAAP
The Financial Statements and certain of the foregoing consolidated financial
data, are prepared based on Mexican GAAP, which differ in certain significant
respects from U.S. GAAP. The principal differences between Mexican GAAP and U.S.
GAAP, as applicable to the Parent, are described below, together with an
explanation, where appropriate, of the method used in the determination of the
adjustments that affect net income and total stockholders' equity.
CASH FLOW INFORMATION. Under Mexican GAAP, Parent presents consolidated
statements of changes in financial position in accordance with Bulletin B-12
which specifies the appropriate presentation of the statement of changes in
financial position when the financial statements have been restated in constant
pesos (in accordance with the third amendment to Bulletin B-10). Bulletin B-12
identifies the generation and application of resources representing differences
between beginning and ending financial statement balances in constant pesos.
Bulletin B-12 also requires that monetary and foreign exchange gains and losses
be treated as cash items in the determination of resources provided by
operations.
The changes in the consolidated financial statement balances included in
this statement constitute cash flow activity stated in constant pesos (including
monetary and unrealized foreign exchange gains and losses on short-term
liabilities, which are considered cash gains and losses in the constant peso
financial statements).
In accordance with Mexican GAAP, the reduction in current and long-term debt
due to restatement in constant pesos and unrealized exchange gains and losses on
short-term liabilities are presented in the consolidated statements of changes
in financial position as a resource used by financing activities and the gain
from monetary position is presented as a component of operating activities.
Statement of Financial
29
<PAGE>
Accounting Standards (SFAS) No. 95, "Statement of Cash Flows", does not provide
guidance with respect to inflation adjusted financial statements.
Under Mexican GAAP, marketable securities that are classified as trading are
included as a component of a change in cash for cash flow purposes, whereas in
U.S. GAAP these securities would be classified under operating activities.
DEFERRED INCOME TAXES AND EMPLOYEE PROFIT SHARING. Parent has adopted SFAS
No. 109, "Accounting for Income Taxes", for U.S. GAAP reconciliation purposes.
Deferred income taxes under U.S. GAAP arise principally due to the difference in
the basis of fixed assets for book and tax purposes. Purchases and production
costs remain in inventory for book purposes, which are charged to expense for
tax purposes, and the recording of the benefits of tax loss carryforwards.
Parent records all deferred taxes and employee profit sharing in results for
U.S. GAAP purposes. Since employee profit sharing is calculated based on taxable
income after certain adjustments and is subject to the future consequences of
temporary differences in the same manner as income taxes, the deferred employee
profit sharing, which is not recorded under Mexican GAAP, must be included in
the reconciliation of Mexican to U.S. GAAP.
NEGATIVE GOODWILL. Under Bulletin B-8, any excess book value of a subsidiary
over its purchase price is recorded as a deferred credit and amortized against
income over the period in which the new business is integrated, not to exceed
five years. For Mexican GAAP purposes, negative goodwill related to 1989
acquisitions was fully amortized prior to 1994.
Under U.S. GAAP, negative goodwill must be first allocated to
proportionately reduce the values assigned to non-current assets (generally
fixed assets), and if the non-current assets are reduced to zero, any remaining
excess must be treated as a deferred credit to be amortized against income over
the period during which Parent benefits from such negative goodwill. The period
may not exceed 40 years. For U.S. GAAP purposes, negative goodwill is being
amortized over 16 years, which corresponds to the average useful life of the
fixed assets acquired.
COST OF PENSION PLANS AND OTHER EMPLOYEE BENEFITS. Under Mexican GAAP, the
requirement to record liabilities for employee benefits using actuarial
computations is substantially the same as required by SFAS No. 87, "Employers'
Accounting for Pensions".
Parent provides health care benefits for the retired and active employees of
Mexicana de Cananea, S.A. de C.V. ("Mexcananea") as well as their family members
through a subsidiary of Mexcananea (Hospital del Ronquillo, S. de R.L. de C.V.).
During 1995 Parent adopted SFAS 106, "Employers' Accounting for Postretirement
Benefits Other than Pensions". Due to the fact that Parent in previous years had
few employees that were eligible for this benefit, the liability based on the
actuarial calculation was considered immaterial and therefore the related effect
was not included in the U.S. GAAP reconciliation. In 1998 Parent terminated 600
union and 400 non-union employees, thus accelerating the related post-retirement
benefit for such employees.
For the year ended December 31, 1998, Parent adopted SFAS No. 132,
"Employers' Disclosures about Pensions and Other Postretirement Benefits", which
requires additional disclosures. Although Parent's measurement or recognition of
pensions and other postretirement benefit obligations will not change under SFAS
No. 132 it will provide additional disclosure regarding such plans.
MINORITY INTEREST. Under Mexican GAAP, Bulletin B-8, minority interests in
subsidiaries must be included as a component of stockholders' equity.
Consequently, minority interests in the income of subsidiaries is not presented
as an expense in the statement of income. Under U.S. GAAP, minority interests,
in subsidiaries are shown below liabilities on the balance sheet and are not
part of stockholders' equity and their share of the net results of operations is
deducted before arriving at net income for Parent's shareholders.
30
<PAGE>
INVESTMENT IN COMMON STOCK OF A PARENT COMPANY. GMM holds 46,524,534 Series
B Shares deposited in trusts for future sale to employees of Parent. Under
Mexican GAAP, these shares are included as an asset. Under U.S. GAAP, if a
holding company has no substantive operations, the subsidiary should account for
its purchase of the parent's stock as a reduction in equity in a manner similar
to treasury stock.
PROPERTY AND EQUIPMENT. Under Mexican GAAP, prior to 1997, property and
equipment were restated to net replacement cost on the basis of annual
appraisals, which were determined by independent appraisers. Effective January
1, 1997, property and equipment are restated using the NCPI.
U.S. GAAP requires that property and equipment be stated at historical cost.
Under Mexican GAAP, a company is not required to, but may, capitalize interest
incurred on assets under construction. The amount to be capitalized in Mexico is
based upon the "net financial cost" (i.e., the net of the sum of interest
expense, interest income, foreign exchange gains and losses and the gain or loss
from monetary position).
Under U.S. GAAP, interest expense, net of the gain on monetary position
applicable to peso denominated debt, must be considered an additional cost of
constructed assets and is depreciated over the lives of the related assets.
Exchange gains and losses on foreign denominated debt net of monetary gain may
not be capitalized.
EMPLOYEE PROFIT SHARING. Mexican law requires the payments to employees of
10% of the Parent's taxable income, excluding certain adjustments for inflation.
These amounts are treated as compensation expenses and are reflected after
income tax, in the appropriate income statement captions.
Under U.S. GAAP, employee profit sharing must be reflected as operating cost
and expenses in the income statements.
FINANCIAL STATEMENT DISCLOSURES. Disclosures in financial statements are
generally more extensive under U.S. GAAP than under Mexican GAAP.
In this regard, Parent had significant sales to three different customers in
the last three years that would be disclosed under U.S. GAAP. Sales to these
customers accounted for 8%, 5% and 5% of total sales in 1998, 25%, 9% and 8% of
total sales in 1997 and 29%, 11% and 11% of total sales in 1996.
EARNINGS PER SHARE. Under the guidelines of SFAS No. 128, "Earnings per
Share", Parent is required to calculate basic earnings per share, which is
computed by dividing income available to common stockholders (the numerator) by
the weighted-average number of common shares outstanding (the denominator)
during the period. Parent is also required to compute diluted earnings per
share, which is similar to basic earnings per share, except that the denominator
is increased to include the number of additional common shares that would have
been outstanding if potentially dilutive common shares had been issued. At
December 31, 1998 and 1997, Parent did not have any common stock equivalents.
Therefore only basic earnings per share are disclosed.
COMPREHENSIVE INCOME. SFAS No. 130, "Reporting Comprehensive Income", is
effective for fiscal years beginning after December 15, 1997. SFAS No. 130
establishes standards for reporting and displaying comprehensive income and its
components in a full set of financial statements. The objective of SFAS No. 130
is to report a measure of all changes in equity of an enterprise that result
from transactions and other economic events of the period other than
transactions with owners. This note presents a reconciliation of net majority
income under Mexican GAAP to comprehensive net majority income under U.S. GAAP.
The main reconciling item is the result of gains or losses from holding
non-monetary assets due to Bulletin B-10.
START-UP COSTS. For reconciliation purposes under U.S. GAAP, Parent adopted
in 1998 AICPA Statement of Position No. 98-5, "Reporting on the Costs of
Start-Up Activities" (SOP 98-5). Under this accounting method, certain costs,
such as organization, training and pre-feasibility expenses, incurred in
31
<PAGE>
the start-up phase of a project, are expensed as incurred. The initial
application of this SOP is reported as a cumulative effect of a change in
accounting principle in the income statement and is included in the
reconciliation of Mexican GAAP to U.S. GAAP.
In accordance with Mexican GAAP, start-up costs are deferred and amortized
at the commencement of operations, despite the inherent uncertainty regarding
their future recoverability. However, if the project is abandoned and the
start-up costs incurred to date become unrecoverable, such costs are expensed
immediately. Amortization of deferred costs is amortized on straight-line basis
over the term in which the benefit is expected to be realized.
TREASURY BONDS. GMM repurchased a portion of the guaranteed senior notes it
previously issued and is holding them with plans to resell them as market
conditions dictate and are netted against long term debt under Mexican GAAP.
Under U.S. GAAP, a debtor shall unrecognize (this means removing previously
recognized assets or liabilities from the statement of financial position) a
liability if and only if it has been extinguished. A liability has been
extinguished if the debtor pays the creditor and is relieved of its obligation
for the liability. Paying the creditor includes delivery of cash, other
financial assets, goods, or services or reacquisition by the debtor of its
outstanding debt securities, whether the securities are canceled or held as
so-called treasury bonds. The difference between the reacquisition price (the
amount paid on extinguishment, including a call premium and miscellaneous costs
of reacquisition) and the net carrying amount (the amount due at maturity,
adjusted for unamortized premium, discount, and cost of issuance) of the
extinguished debt shall be recognized currently in income of the period of
extinguishment as gain and identified as a separate item. Gain from
extinguishment of debt that is included in the determination of net income shall
be aggregated and, if material, classified as an extraordinary item, net of
related income tax effect.
When Parent resells the treasury bonds, Parent will treat the transaction as
a new issuance of notes. There is no gain or loss recognized on reissuance.
Although legally these are the same guaranteed senior notes, from an accounting
point of view the resale is a new borrowing with its own effective interest
rate. Interest expense will accrue on the newly reissued guaranteed senior notes
at their effective interest rate, which will differ from the effective interest
rate on the remaining original guaranteed senior notes.
FINANCIAL STATEMENT TRANSLATION FOR FOREIGN SUBSIDIARIES. Effective in 1998,
Parent adopted the provisions of Bulletin B-15, which establishes revised
standards of accounting and reporting for translating financial statements of
foreign subsidiaries that are incorporated in the financial statements of an
enterprise by consolidation. Bulletin B-15 requires financial statements of a
foreign subsidiary that depends economically on its parent company to be
translated by the translation restatement approach using the factors derived
from the NCPI.
Under U.S. GAAP, the translation of financial statements of subsidiaries
with operations in hyper inflationary economies should be re-measured into the
functional currency. The process requires monetary assets and liabilities to be
re-measured at the year-end exchange rate, while non-monetary assets and
liabilities and income and expense accounts are re-measured at the historical
exchange rate. Resulting exchange differences are included in income.
Parent has two foreign subsidiaries. The translation effect for these
subsidiaries is immaterial.
UNUSUAL CHARGE AND WRITE DOWN FOR PLANT CLOSURE. Under U.S. GAAP,
transactions may be considered to be extraordinary items if they are both
unusual and infrequent in nature. The presumption is that transactions should be
accounted for as ordinary in the income statement unless the weight of evidence
indicates the transaction meets both of these criteria.
32
<PAGE>
Parent classified as non-operating income the expenses incurred relating to
a labor union strike. Under U.S. GAAP, although these expenses are unusual in
nature, they would be included in operating income.
In addition, Parent accounted for the closure of the Canananea smelter and
the related severance payments as an extraordinary item. Under U.S. GAAP, the
write down for plant closures does not qualify as an extraordinary item and
therefore, these costs would be included as part of operating income.
CAPITALIZED INTEREST. In 1997 Parent through a direct subsidiary in which
Parent controls acquired 30% of the outstanding shares of Ferrocarril Mexicano
related to the company which owned the railroad concession and certain assets
and liabilities necessary for its operation, making the commitment to acquire
the remaining 70% of the outstanding shares within the following 180 days
bearing interest at variable interest rate.
This subsidiary did not have operations during this period and under Mexican
GAAP Parent capitalized all of its expenses as start-up costs. Under U.S. GAAP,
these start-up costs are being expensed as incurred except for the interest that
is being considered as part of the railroad purchase price.
AVAILABLE FOR SALE SECURITY. Under Mexican GAAP, the investment in ASARCO is
included in cash and marketable securities. Changes in the market value of the
investment were recorded as interest income (loss) in the statement of income.
Under U.S. GAAP and in accordance with Statement of Financial Accounting
Standard No. 115, this investment should be classified as an "available for sale
security" and reported at fair value, with unrealized gains and losses excluded
from earnings and reported in other comprehensive income.
ENVIRONMENTAL LIABILITIES. Under Mexican GAAP, there are no requirements to
record liabilities for environmental matters. However, under U.S. GAAP companies
must comply with EITF 93-5, "Accounting for Environmental Liabilities", and EITF
90-8, "Capitalization of Costs to Treat Environmental Contamination". These
pronouncements require companies to disclose and/or accrue on an undiscounted
basis any reclamation and remediation costs that are expected to be incurred.
Parent has accrued for known environmental matters at the balance sheet date.
EFFECT OF OTHER PRONOUNCEMENTS. In June 1998, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities" (SFAS No. 133),
which establishes accounting and reporting standards for derivative instruments
and hedging activity. SFAS No. 133 is effective for all periods in fiscal years
beginning after June 15, 1999. SFAS No. 133 requires recognition of all
derivative instruments on the balance sheet as either assets or liabilities and
measurement of such instruments at fair value. Changes in the derivatives fair
value will be recognized currently in earnings unless specific hedge accounting
criteria are met. Gains and losses on derivative hedging instruments must be
recorded in either other comprehensive income or current earnings, depending on
the nature of the instrument. Parent has not determined when it will adopt SFAS
No. 133, however, its adoption would not be expected to have a material impact
on its financial statements.
In February 1998, Statement of Position (SOP) 98-1 "Accounting for Costs of
Computer Software Developed or Purchased for Internal Use" was issued and is
effective for fiscal years beginning after December 15, 1998. SOP 98-1 is not
expected to have a material effect on the Parent's financial position or results
of operations.
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10. SOURCE AND AMOUNT OF FUNDS.
Purchaser estimates that the total amount of funds required to purchase
shares of Common Stock pursuant to the Offer and the Proposed Merger and to pay
all related costs and expenses will be approximately $980.6 million. Purchaser
plans to obtain all funds needed for the Offer through equity contributions to
be made to Purchaser out of available cash at Parent and GMM and through senior
secured credit facilities (the "Credit Facilities") to be made available
pursuant to a commitment letter, dated as of September 24, 1999, by and among
Parent, The Chase Manhattan Bank and Chase Securities Inc. The Credit Facilities
will consist of (i) a $823 million eighteen-month term loan to Purchaser, the
proceeds of which will be used to finance in part the Offer (the "A Tender
Facility"), and (ii) a $250 million revolving credit facility to be made
available to ASARCO to refinance certain existing indebtedness of ASARCO and for
working capital purposes of ASARCO and its subsidiaries (the "Working Capital
Facility"). The Working Capital Facility may be reduced or eliminated in the
event Parent and Chase Securities Inc. reasonably determine that certain of
ASARCO's existing revolving credit facilities will remain in place following the
consummation of the Offer and the Proposed Merger. The Offer is not subject to a
financing condition.
Amounts outstanding under the A Tender Facility will be unconditionally
guaranteed by Parent and amounts outstanding under the Working Capital Facility
will be unconditionally guaranteed by Parent and, prior to the Proposed Merger,
by Purchaser.
The obligations of Purchaser in respect of the A Tender Facility and its
guarantee of the Working Capital Facility will be secured by a perfected first
priority security interest in the shares of Common Stock purchased pursuant to
the Offer. The obligations of Parent under its guarantees of the A Tender
Facility and the Working Capital Facility will be secured by a perfected first
priority security interest in (i) all shares of GMM held by Parent and (ii) all
shares of Common Stock held by Parent and its subsidiaries both immediately
prior to the consummation of the Offer and after the consummation of the
Proposed Merger. The obligations of ASARCO under the Working Capital Facility
will be secured by a perfected first priority security interest in all accounts
receivable of ASARCO.
Borrowings under the A Tender Facility will bear interest, at the election
of the Purchaser (or, after the consummation of the Proposed Merger, ASARCO) at
a rate per annum equal to (i) the "ABR" (defined as the highest of (a) the rate
of interest publicly announced by The Chase Manhattan Bank as its prime rate in
effect at its principal office in New York City, (b) the secondary market rate
for three-month certificates of deposit (adjusted for statutory reserve
requirements) plus 1% and (c) the Federal funds effective rate from time to time
plus 0.5%) plus a margin of 3.50% (until consummation of the Proposed Merger) or
2.50% (after consummation of the Proposed Merger) or (ii) the "Eurodollar Rate"
(defined as the rate at which Eurodollar deposits for one, two, three or six
months are quoted on the Telerate Service of Bridge Information Services) plus a
margin of 4.50% (until consummation of the Proposed Merger) or 3.50% (after
consummation of the Proposed Merger). Borrowings under the Working Capital
Facility will bear interest, at the election of ASARCO, at a rate per annum
equal to either (i) the ABR plus a margin ranging from 0.50% to 1.25% depending
on the ratings assigned to ASARCO's senior unsecured long-term debt by Standard
& Poor's Ratings Services ("S&P") and Moody's Investors Service Inc. ("Moody's")
or (ii) the Eurodollar Rate plus a margin ranging from 1.50% to 2.25% depending
on the ratings assigned to such debt by S&P and Moody's.
The obligations of The Chase Manhattan Bank and Chase Securities Inc. under
the Credit Facilities are subject to the satisfaction or waiver of the following
conditions, among others: (i) the execution and delivery of satisfactory
documentation with respect to the Credit Facilities; (ii) the absence of a
material adverse change with respect to the business, operations, property or
financial condition or prospects of Parent and its subsidiaries, GMM and its
subsidiaries or ASARCO and its subsidiaries; (iii) the absence of any pending or
threatened material adverse litigation that has not been resolved to the
reasonable satisfaction of The Chase Manhattan Bank and Chase Securities Inc.
and that has a reasonable possibility
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<PAGE>
of enjoining, preventing or materially delaying the Proposed Merger or otherwise
materially adversely affecting the Offer, the Proposed Merger or the Credit
Facilities; and (iv) the absence of any material adverse change in the United
States or other developed country financial, banking or capital market
conditions that is reasonably likely to materially impair the syndication of the
Credit Facilities.
The Credit Facilities will contain certain financial covenants as well as
certain restrictions on Parent's, Purchaser's and ASARCO's ability to, among
other things, (i) incur indebtedness (including the issuance of preferred stock
of subsidiaries); (ii) grant liens; (iii) voluntarily prepay indebtedness other
than the Credit Facilities; (iv) guarantee other obligations; (v) merge,
consolidate, liquidate, dissolve and sell assets; (vi) engage in lease and sale
and leaseback transactions; (vii) make capital expenditures; (viii) make
investments, loans and advances; (ix) declare dividends and make other payments
in respect of their respective capital stock; (x) enter into transactions with
affiliates; (xi) make changes in their respective fiscal year; and (xii) change
lines of business. The financial covenants will require Parent, GMM and ASARCO
to, among other things, maintain specified maximum leverage ratios and minimum
interest coverage ratios.
The definitive documentation relating to the Credit Facilities also will
contain representations, warranties, covenants, events of default and conditions
customary for transactions of similar size and type.
In connection with the Credit Facilities, Purchaser has agreed to pay The
Chase Manhattan Bank and Chase Securities Inc. certain fees and to reimburse
certain expenses and to provide certain indemnities, as is customary for
commitments of the type described herein.
The A Tender Facility is repayable in full on the date eighteen months after
the consummation of the Offer. The Working Capital Facility is repayable in full
on the date three years after the consummation of the Offer. It is anticipated
that any indebtedness incurred by Purchaser under the Credit Facilities will be
repaid from a variety of sources, including, without limitation, funds generated
internally by Purchaser or its successor, through additional borrowings, or
through a combination of such sources including the possible sale of the
specialty chemicals and aggregates businesses of ASARCO. No final decisions have
been made concerning the method Purchaser will employ to repay such
indebtedness. Such decisions when made will be based on Purchaser's review from
time to time of the advisability of particular actions as well as on prevailing
interest rates and financial and other economic conditions.
The foregoing description of the Credit Facilities is qualified in its
entirety by reference to the full text of the Commitment Letter, a copy of which
has been filed with the SEC as an exhibit to the Parent Schedule 14D-1 and is
incorporated by reference herein.
11. BACKGROUND OF THE OFFER; CONTACTS WITH ASARCO.
Commencing on June 25, 1997, GMM purchased, through a series of open market
transactions, shares of Common Stock of ASARCO. By December 26, 1997 GMM had
accumulated 2,894,900 shares of Common Stock, representing approximately 7.17%
of the outstanding Common Stock, which it then transferred to Parent on December
26, 1997. Parent and GMM reported these transactions on the Initial Parent
Schedule 13D.
From January 8, 1998 through January 23, 1998 Parent, through a series of
open market transactions, purchased an additional 571,900 shares of Common Stock
(for a total at that time of 3,466,800 shares, representing approximately 8.59%
of the total outstanding shares of Common Stock). These purchases were reported
in Amendment No. 1 to the Initial Parent Schedule 13D.
From January 27, 1998 through June 1, 1998, Parent, through a series of open
market transactions, purchased an additional 129,500 shares of Common Stock (for
a total at that time of 3,596,300 shares, representing approximately 9.07% of
the total outstanding shares of Common Stock). These purchases were reported in
Amendment No. 2 to the Initial Parent Schedule 13D. In addition, Amendment No. 2
to the Initial Parent Schedule 13D disclosed, among other things, that (i)
Parent intended to file a Premerger
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<PAGE>
Notification and Report Form under the HSR Act concerning Parent's intention to
make additional purchases of Common Stock (not to exceed the 15% ownership level
under the HSR Act) that may not be exempt from notification under the HSR Act,
and (ii) Parent and GMM did not believe that ASARCO was subject to Chapter 10A
of the New Jersey Business Corporation Act (the "Shareholder Protection Act")
because they believed that ASARCO did not have its principal executive offices
or significant business operations in New Jersey.
On July 31, 1998, Parent filed a Premerger Notification and Report Form with
the Federal Trade Commission and the Antitrust Division of the Department of
Justice to report its intention to acquire additional shares of Common Stock. On
August 30, 1998, the HSR Act waiting period expired with respect to such filing.
On August 19, 1998, Parent received a letter from the ASARCO legal
department indicating ASARCO's position that it is fully subject to the
Shareholder Protection Act.
From December 7, 1998 through January 25, 1999, Parent, through a series of
open market transactions, purchased an additional 303,700 shares of Common Stock
(for a total of 3,900,000 shares, representing approximately 9.8% of the
outstanding shares of Common Stock (approximately 9.4% on a fully diluted
basis)). As these purchases did not constitute an increase in the percentage of
Parent's ownership of ASARCO sufficient to require public disclosure pursuant to
Rule 13d-2 under the Exchange Act, no amendment to the Schedule 13D was filed
with regard to these transactions. Neither GMM nor Parent has made any
additional purchases of Common Stock since January 25, 1999.
On July 15, 1999, ASARCO and Cyprus Amax announced that they had entered
into the Cyprus Amax Agreement pursuant to which ASARCO and Cyprus Amax would be
combined to form a single entity by means of the Proposed Cyprus Amax
Transaction. Later that same day, the office of Mr. Larrea, Chairman of the
Board and Chief Executive Officer of Parent, received by fascimile a letter from
Mr. McAllister, Chairman of the Board and Chief Executive Officer of ASARCO,
notifying Mr. Larrea of the announced Proposed Cyprus Amax Transaction and
providing a copy of the press release issued by ASARCO and Cyprus Amax.
On August 20, 1999, ASARCO and Cyprus Amax filed with the SEC the Asarco
Cyprus Form S-4 in order to register the offering of shares of Asarco Cyprus
Common Stock to be issued in connection with the Proposed Cyprus Amax
Transaction. The Asarco Cyprus Form S-4 included a joint proxy statement and
prospectus, among other things, (i) giving notice that the respective special
meetings of the ASARCO and Cyprus Amax shareholders called for the purpose of
voting on the Cyprus Amax Agreement and the Proposed ACO Merger (which is one of
two mergers to effectuate the Proposed Cyprus Amax Transaction) would be held on
September 30, 1999 and (ii) recommending that such shareholders vote to approve
the Proposed ACO Merger.
The following description of the Cyprus Amax Agreement is qualified in its
entirety by reference to the full text of the Cyprus Amax Agreement, a copy of
which has been included as an exhibit to the Asarco Cyprus Form S-4 and may be
obtained in the manner described in Section 8 (except that copies may not be
available at regional offices of the SEC).
The Cyprus Amax Agreement provides that, following the satisfaction or
waiver of certain conditions, (i) ACO will be merged with and into ASARCO with
the separate corporate existence of ACO ceasing and ASARCO continuing as the
surviving corporation; and (ii) CAM would be merged with and into Cyprus Amax,
with the separate corporate existence of CAM ceasing and Cyprus Amax continuing
as the surviving corporation. Pursuant to the Proposed Cyprus Amax Transaction,
(i) each outstanding share of Common Stock would be converted into one share of
Asarco Cyprus Common Stock; (ii) each outstanding share of Cyprus Amax Common
Stock would be converted into 0.765 shares of Asarco Cyprus Common Stock; and
(iii) each outstanding share of Cyprus Amax Preferred Stock, other than shares
of Cyprus Amax Preferred
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Stock held by shareholders seeking appraisal rights, would be converted into one
share of Asarco Cyprus Series A convertible preferred stock.
The obligations of Cyprus Amax and ASARCO to effect the Proposed Cyprus Amax
Transaction are subject to various conditions, including the ASARCO Shareholder
Approval and the receipt of all required regulatory consents, registrations,
approvals, permits and authorizations.
In the Cyprus Amax Agreement, ASARCO has agreed to the No Solicitation
Provision which provides that none of ASARCO, its subsidiaries or any of their
respective officers, directors, employees, investment bankers, financial
advisors, attorneys, accountants or other representatives will, directly or
indirectly through another person, (i) solicit, initiate or encourage (including
by way of furnishing information), or take any other action designed to
facilitate, any inquiries or the making of any proposal which constitutes an
ASARCO Takeover Proposal or reasonably could be expected to lead to an ASARCO
Takeover Proposal or (ii) participate in any discussions or negotiations
regarding any ASARCO Takeover Proposal. The No Solicitation Provision further
provides that neither the ASARCO Board nor any committee thereof shall (i)
withdraw or modify, or propose publicly to withdraw or modify, in a manner
adverse to Cyprus Amax, the approval or recommendation by the ASARCO Board or
such committee of the Proposed ACO Merger or the Cyprus Amax Agreement; provided
that the ASARCO Board may withdraw its favorable recommendation of the Cyprus
Amax Agreement and recommend that the shareholders of ASARCO vote against
approval of the Proposed ACO Merger and the Cyprus Amax Agreement if it
determines in good faith, based on advice of outside counsel, that its failure
to do so would constitute a breach of its fiduciary duties to ASARCO's
shareholders under applicable law, (ii) approve or recommend, or propose
publicly to approve or recommend, any ASARCO Takeover Proposal, or (iii) cause
ASARCO to enter into any letter of intent, agreement in principle, acquisition
agreement or other similar agreement related to any ASARCO Takeover Proposal.
Cyprus Amax has agreed to a reciprocal provision.
The Cyprus Amax Agreement also provides that ASARCO shall be liable to
Cyprus Amax for a termination fee of $45 million if the Cyprus Amax Agreement is
terminated under certain circumstances. As described in the Asarco Cyprus Form
S-4, in general, the termination fee is payable by ASARCO if (i) the
shareholders of Cyprus Amax have not voted to disapprove the Cyprus Amax
Agreement, (ii) either (a) prior to the date of ASARCO's shareholder meeting an
ASARCO Takeover Proposal is made known to ASARCO or is made directly to its
shareholders generally or any person has publicly announced an intention to make
an ASARCO Takeover Proposal and thereafter the Cyprus Amax Agreement is
terminated because of the failure of ASARCO to obtain the requisite shareholder
approval or (b) the Cyprus Amax Agreement is terminated by Cyprus Amax because
ASARCO breached the No Solicitation Provision and (iii) within eighteen months
of termination of the Cyprus Amax Agreement ASARCO enters into an agreement for,
or consummates, a transaction whereby a third party acquires twenty percent of
any class of stock of ASARCO, or a business that constitutes twenty percent or
more of the revenues, net income or assets of ASARCO, or otherwise consummates
an ASARCO Takeover Proposal. Cyprus Amax has agreed to a reciprocal provision.
Also on August 20, 1999, Phelps Dodge issued a press release publicly
announcing proposals pursuant to which it would acquire either or both of ASARCO
and Cyprus Amax in stock-for-stock mergers not conditioned on each other and
submitted such proposals in letters to ASARCO and Cyprus Amax.
On August 25, 1999, ASARCO and Cyprus Amax jointly announced the terms under
which they would be willing to negotiate a three-way combination with Phelps
Dodge. ASARCO and Cyprus Amax also announced that, as soon as possible after
consummation of the Proposed Cyprus Amax Transaction, Asarco Cyprus would make a
special payment of $5.00 per share for each share of Asarco Cyrpus Common Stock
outstanding as soon as possible after consummation of the Proposed Cyprus Amax
Merger.
On August 27, 1999, Phelps Dodge filed with the SEC the Phelps Dodge Forms
S-4 in order to register the Phelps Dodge Exchange Offers. Neither of the Phelps
Dodge Exchange Offers is conditioned upon acceptance of the other. On August 27,
1999, Phelps Dodge filed with the SEC separate preliminary
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proxy statements with respect to each of ASARCO and Cyprus Amax to solicit
proxies in opposition to the Proposed Cyprus Amax Transaction.
On August 28, 1999, Mr. Larrea, acting as the representative of Parent in
its capacity as the largest shareholder of ASARCO, met with Mr. McAllister, the
Chairman of the Board and Chief Executive Officer of ASARCO, in Mexico City,
Mexico at the request of Mr. McAllister to discuss the Proposed Cyprus Amax
Transaction and the recent developments involving Phelps Dodge. Mr. McAllister
attempted to solicit Parent's views in its capacity as a significant ASARCO
shareholder.
On September 2, 1999, the SEC declared the Phelps Dodge Forms S-4 effective.
On September 3, 1999, Phelps Dodge commenced the Phelps Dodge Exchange Offers.
Additionally, on September 3, 1999, Phelps Dodge filed with the SEC a
preliminary proxy statement announcing that the special meeting of its
shareholders for the purpose of voting on the issuance of Phelps Dodge Common
Stock pursuant to the Phelps Dodge Exchange Offers would be held on October 13,
1999 and recommending that its shareholders vote to approve the issuance of
shares of Phelps Dodge Common Stock pursuant to Phelps Dodge Exchange Offers.
On September 6, 1999, Mr. Larrea, again acting as the representative of
Parent in its capacity as the largest shareholder of ASARCO, met with Mr.
Whisler, the President and Chief Operating Officer of Phelps Dodge, in Mexico
City, Mexico at the request of Mr. Whisler to discuss the Phelps Dodge Exchange
Offer relating to Common Stock of ASARCO.
On September 9, 1999, ASARCO filed with the SEC the ASARCO Schedule 14D-9
pursuant to which ASARCO reported that the ASARCO Board had unanimously
recommended that ASARCO shareholders not tender shares in connection with the
Phelps Dodge Exchange Offer. According to the ASARCO Schedule 14D-9, the ASARCO
Board determined on September 8, 1999 to postpone the occurrence of a
Distribution Date under the Rights Agreement that would have been triggered by
the announcement of the Phelps Dodge Exchange Offer relating to the Common Stock
of ASARCO until such later date as determined by the ASARCO Board.
Following a series of meetings among representatives of Parent and Parent's
outside financial advisors and legal advisors, on September 13, 1999, the Parent
Board met to review its strategic options in light of the announcement of the
Proposed Cyprus Amax Transaction and the Phelps Dodge Exchange Offer relating to
the Common Stock of ASARCO, and to consider whether it might be advisable to
pursue a possible strategic transaction with ASARCO.
The Parent Board authorized, subject to the final determination and approval
of the Parent Board Committee appointed at the Parent Board meeting, (i) the
possibility of proposing a transaction with ASARCO such as the Offer and (ii)
the continued evaluation and approval of how to vote Parent's shares of Common
Stock in connection with the Proposed Cyprus Amax Transaction and in light of
the Phelps Dodge Exchange Offers. The Parent Board Committee was empowered to
consider and approve the final terms of any proposals with respect to such
matters and all related matters.
On September 17, 1999, Mr. Whisler telephoned Mr Larrea to further discuss
the alternatives facing the ASARCO shareholders meeting, including Parent, and
the benefits of the Phelps Dodge Exchange Offer for the Common Stock. Mr. Larrea
explained that Parent had not yet decided how it would vote its shares.
On September 22, 1999, Phelps Dodge issued a press release publicly
announcing that it had increased its offers for ASARCO and Cyprus Amax. The
revised Phelps Dodge Exchange Offers provide shareholders of ASARCO and Cyprus
Amax with the right to elect to receive consideration in the Offer on an all-
cash basis or on an all-stock basis. The all-cash election for ASARCO
shareholders is $25.90 per share of Common Stock and the all-stock election is
0.4413 shares of Phelps Dodge Common Stock per share of Common Stock, subject to
a cash proration factor which is equal to the total amount of cash Phelps Dodge
is offering to ASARCO shareholders ($9 multiplied by the total number of shares
of Common Stock
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outstanding immediately prior to the closing of the Phelps Dodge Exchange Offer
relating to ASARCO) divided by the product of $25.90 of the total number of
shares of Common Stock for which cash elections are made. The revised Phelps
Dodge Exchange Offers result in an exchange, assuming full proration, of (i)
with respect to ASARCO, 0.2880 shares of Phelps Dodge Common Stock and $9.00 in
cash for each outstanding share of Common Stock and (ii) with respect to Cyprus
Amax, 0.2203 shares of Phelps Dodge Common Stock and $6.89 in cash for each
outstanding shares of Cyprus Amax Common Stock.
On the evening of September 23, 1999, press reports stated that a
spokesperson for ASARCO said that the ASARCO Board would meet "this week" to
review and respond to the revised Phelps Dodge Exchange Offer with respect to
the Common Stock.
Later on September 23, 1999, Mr. Whisler telephoned Mr. Larrea and inquired
about Parent's reaction to the revised Phoenix Exchange Offer for ASARCO and
whether Parent had decided how to vote its shares of Common Stock. Mr. Larrea
stated that no decision had yet been made.
On the evening of September 23, 1999, Mr. Larrea telephoned Mr. McAllister
to inquire, among other things, about the timing of the ASARCO Board meeting
announced earlier that day and ASARCO's intentions regarding the revised Phelps
Dodge Exchange Offer. Mr. McAllister stated that no meeting had been scheduled
at that time.
Shortly after noon on September 24, 1999, Phelps Dodge announced that it had
been granted early termination of the waiting period under the HSR Act.
Early in the afternoon of September 24, 1999, Mr. Larrea received a
telephone call from a representative of CSFB, financial advisor to ASARCO, who
indicated that, in light of recent developments, ASARCO would be willing to
consider an all-cash, "firm" offer for all of its shares at $26 per share. Mr.
Larrea inquired about the status of the Proposed Cyprus Amax Transaction and the
status of the announced ASARCO Board meeting and upcoming ASARCO shareholders'
meeting. CSFB indicated that it would telephone Mr. Larrea with a response.
Thereafter, Mr. Larrea telephoned Mr. McAllister to again inquire as to the
timing of the ASARCO Board meeting and whether or when the ASARCO Board would
take action in response to the revised Phelps Dodge Exchange Offer relating to
the Common Stock.
Shortly thereafter, a representative of CSFB again telephoned Mr. Larrea and
stated that, while ASARCO was still finalizing certain technical matters with
Cyprus Amax, ASARCO was free to enter into discussions concerning a possible
transaction. Mr. Larrea indicated that any proposal from Parent would require
ASARCO to enter into a definitive merger agreement that would, among other
things, render the Rights Agreement and other anti-takeover provisions
inapplicable to the acquisition, which CSFB acknowledged. CSFB further indicated
that the ASARCO Board was not going to meet that day, and that no decision had
been made about postponing or adjourning the upcoming ASARCO shareholders'
meeting.
At a meeting held on the afternoon of September 24, 1999, the Parent Board
Committee approved the terms of the Offer and authorized Mr. Larrea to send a
letter to Mr. McAllister reflecting the terms of the Offer.
Thereafter, Mr. Larrea called Mr. McAllister to inform him that a written
offer outlining a transaction pursuant to which Parent would propose to acquire
ASARCO was being telecopied to Mr. McAllister.
After Mr. McAllister received Parent's letter, he telephoned Mr. Larrea and
stated that he would provide copies of the letter to members of the ASARCO Board
and ASARCO's legal and financial advisors.
Subsequently that evening, after the close of the market, Parent notified
the Mexican Stock Exchange and the Mexican Banking and Securities Commission of
its actions. Parent also issued the following press release disclosing the
delivery and contents of the letter:
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GRUPO MEXICO OFFERS TO ACQUIRE ASARCO INC.
Mexico City, September 24, 1999 -- Earlier today, Grupo Mexico, S.A.
de C.V. sent the following letter to the Board of Directors of ASARCO
Incorporated (NYSE:AR).
German Larrea
Chairman and CEO
September 24, 1999
Mr. Francis McAllister
Chairman and Chief Executive Officer
ASARCO Incorporated
180 Maiden Lane
New York, N.Y. 10038
Dear Frank:
We have followed with considerable interest the developments that
have transpired since the announcement of your proposed transaction with
the Cyprus Amax Minerals Company, including most recently Phelps Dodge
Corporation's September 22, 1999 announcement that it was improving its
pending exchange offer to acquire ASARCO Incorporated and your
announcement yesterday that your board of directors intends to meet to
consider the Phelps Dodge Corporation offer "this week."
Given the time constraints of the current situation, we will
commence on Monday a tender offer, through a wholly owned subsidiary, to
ASARCO's shareholders for all outstanding shares of ASARCO at $26.00 per
share in cash. The offer will be conditioned upon, among other things,
Grupo Mexico, S.A. de C.V., its wholly owned subsidiary and ASARCO
entering into a merger agreement, the number of shares being tendered
constituting at least 80% of the outstanding ASARCO shares on a fully
diluted basis when taken together with our own holdings.
As you know, in the past we have expressed an interest in exploring
the possibility of a combination of our two companies' operations. We
believe that a business combination between Grupo Mexico and ASARCO
would create a low cost international mining entity with greatly
increased ore reserves and the ability to realize significant cost
saving synergies. Furthermore, in our capacity as your largest single
shareholder, we have obviously considered the relative economic merits
of the shareholder value inherent in your existing transaction with
Cyprus Amax and the transaction proposed by Phelps Dodge. We also
considered alternatives that address our desire to increase our cost
efficiencies and production capacity while simultaneously providing all
of your other shareholders an opportunity to maximize the value of their
investment now, rather than rely on projections of possible future
benefits that may or may not be ultimately realized under the
transaction contemplated by your existing agreement or the pro-rated
part cash/part stock transaction proposed by Phelps Dodge. Our offer
provides such an alternative.
We would be prepared to proceed on the basis of a negotiated merger
agreement with you in which we would expect to receive only the same
representations and warranties as you have made under your existing
agreement with Cyprus Amax. Our execution of a merger agreement would
not be contingent upon a due diligence review. Furthermore, we are
confident that consummation of our proposed transaction would not
require any burdensome regulatory approvals.
Our proposal presents an attractive opportunity for ASARCO and its
shareholders. The offer price of $26.00 per share would represent a
premium of approximately 41% over
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ASARCO's unaffected price per share on August 20, 1999, immediately
prior to the announcement of Phelps Dodge's proposal. As a result of the
all-cash nature of our offer, your shareholders will immediately receive
the entire premium for their ASARCO shares regardless of the performance
of the stock market generally or of the market for copper following the
close of our transaction. Briefly put, we believe our proposal is in the
best interests of your shareholders. We also believe that our combined
operations would serve the interests of the employees, customers,
suppliers and local communities of each company.
Our proposed transaction is not subject to a financing condition. In
that regard, we have obtained a signed commitment letter from The Chase
Manhattan Bank and Chase Securities Inc. providing for the full amount
of financing necessary to complete our offer.
As you are aware, the federal securities laws, as well as the laws
of the United States of Mexico, require that we promptly make public
disclosure of our intentions outlined in this letter.
We and our advisors are prepared to meet with ASARCO and its
advisors to negotiate and finalize all necessary documentation to
reflect the transaction outlined above.
Please advise me of the manner in which you and your board of
directors would like to proceed.
Very truly yours,
<TABLE>
<S> <C>
/s/ GERMAN LARREA
-------------------
German Larrea
</TABLE>
Grupo Mexico is a diversified mining company that ranks among the
world's largest copper, zinc and silver producers. The company's
business includes mining, smelting and refining in Mexico and is one of
the world's lowest-cost operations. The company also operates the
largest railroad system in Mexico.
Grupo Mexico's financial advisor is Chase Securities Inc. and its
legal advisors are Brown & Wood LLP and Santamarina y Steta.
NOTE: Statements in this press release include "forward-looking
statements" that express expectations of future events or results. All
statements based on future expectations rather than on historical facts
are forward-looking statements that involve a number of risks and
uncertainties, and the company can not give assurance that such
statements will prove to be correct.
On Sunday, September 26, 1999, ASARCO issued the following press release:
ASARCO TO EXPLORE STRATEGIC ALTERNATIVES
SEEKING TO MAXIMIZE SHAREHOLDER VALUE
New York, NY, September 26, 1999 -- ASARCO Incorporated (NYSE:AR)
announced today that its Board of Directors has authorized management to
explore all available strategic alternatives that could maximize
shareholder value. Consistent with the Cyprus Amax and
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Asarco merger agreement, negotiations are underway in pursuit of this
strategic objective. The alternatives being explored could lead to and
involve further negotiations that may result in:
- completion of its currently pending merger with Cyprus Amax Minerals
Company or a merger or reorganization involving the Company and
another company;
- a purchase, sale or transfer of a material amount of assets by the
Company;
- a tender or exchange offer for or other acquisition of securities of
the Company; or
- a material change in the present capitalization or dividend policy
of the Company.
Asarco stated, however, that it could give no assurance that any
transaction would result from these efforts.
The Company noted further that the Board has determined that, prior
to having an agreement in principle, premature disclosure of the
possible terms of any transactions or proposals could jeopardize the
initiation or continuation of negotiations of those transactions and
has, accordingly, determined not to disclose the possible terms or
parties involved, until such an agreement is reached.
On Monday, September 27, 1999, Parent issued the following press release:
GRUPO MEXICO COMMENCES TENDER OFFER
TO ACQUIRE ASARCO FOR $26 PER SHARE IN CASH
Mexico City, Mexico (September 27, 1999) -- Grupo Mexico, S.A. de C.V.,
announced today that it has formally commenced a tender offer to acquire
all of the outstanding shares of ASARCO Incorporated (NYSE:AR) at a
price of $26.00 per share in cash. The tender offer is scheduled to
expire at 12:00 midnight, New York City time, on Monday, October 25,
1999, unless extended.
Following the completion of the tender offer, Grupo Mexico intends
to consummate a second step merger in which all remaining ASARCO
shareholders will also receive the same cash price paid in the tender
offer.
German Larrea, chairman and chief executive officer of Grupo Mexico,
said, "Our offer to acquire ASARCO is an opportunity for Grupo Mexico to
increase shareholder value by creating an international mining company
with world-class assets in Canada, the United States, Mexico and Peru.
With a combined mine production of approximately 975,000 MT of copper
per year and composite operating reserve life of 45 years, the combined
company would be able to rationalize production as a result of its
low-cost structure.
"Our $26.00 per share in cash offer is also an opportunity for
ASARCO shareholders to receive full value for their shares. It
represents a premium of approximately 41% over ASARCO's unaffected stock
price on August 20, 1999, immediately prior to the announcement of
Phelps Dodge's proposal."
Grupo Mexico expects to achieve annual cash cost savings of at least
$100 million by 2001 from, among other things, reduced administrative
and overhead costs, as well as operating synergies. The company
anticipates the transaction to be accretive to its earnings and EBITDA
by the end of 2000.
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The company noted that it has an excellent track record of achieving
cost savings. In 1993, Grupo Mexico's breakeven cash cost per pound of
copper was $0.71. By the second quarter of 1999, that figure was reduced
to approximately $0.37. With the combined cost savings, Grupo Mexico
projects a breakeven cash cost of $0.52 per pound of copper.
The offer is conditioned upon, among other things, (1) there being
validly tendered and not properly withdrawn prior to the expiration of
the offer that number of shares of ASARCO common stock (including the
associated junior participating preferred stock purchase rights), which
together with shares of ASARCO common stock owned by Grupo Mexico,
constitute at least 80% of the shares of ASARCO common stock outstanding
on a fully diluted basis, (2) the rights have been redeemed by the board
of directors of ASARCO or Grupo Mexico being satisfied, in its sole
discretion, that the rights are invalid or otherwise inapplicable to the
transactions contemplated by the offer, (3) Grupo Mexico being
satisfied, in its sole discretion, that the agreement and plan of merger
dated as of July 15, 1999, among ASARCO, Cyprus Amax and certain other
parties, has been terminated and ASARCO having entered into a definitive
merger agreement with Grupo Mexico to provide for the acquisition of
ASARCO by Grupo Mexico and (4) Grupo Mexico having obtained all
regulatory approvals necessary for its acquisition of control of ASARCO
on terms and conditions satisfactory to Grupo Mexico, in its sole
discretion.
Chase Securities Inc. is acting as financial advisor to Grupo Mexico
and as Dealer Manager for the offer, and D.F. King & Co., Inc. is acting
as Information Agent. Grupo Mexico's legal advisors are Brown & Wood LLP
and Santamarina y Steta.
Grupo Mexico is a diversified mining company that ranks among the
world's largest and lowest-cost copper, zinc and silver producers. The
company's operations include mining, smelting and refining. Grupo Mexico
also operates the largest railroad system in Mexico.
NOTE: Statements in this press release include "forward-looking
statements" that express expectations of future events or results. All
statements based on future expectations rather than on historical facts
are forward-looking statements that involve a number of risks and
uncertainties, and the company cannot give assurance that such
statements will prove to be correct.
As indicated in Parent's proposal, Parent intends to seek to negotiate with
ASARCO with respect to the acquisition of ASARCO by Parent and Purchaser,
whether pursuant to the Offer and the Proposed Merger, or otherwise. If such
negotiations result in a definitive merger agreement between ASARCO, Parent and
Purchaser, the consideration to be received by holders of shares of Common Stock
would consist of the right to receive an amount in cash equal to the Offer
Price. Such negotiations could, however, result in, among other things,
amendment or termination of the Offer and submission of a different acquisition
proposal to ASARCO's shareholders for their approval. See Section 12 and Section
14.
The foregoing discussion of the Proposed Cyprus Amax Transaction, the Phelps
Dodge Exchange Offers and related matters is based upon various public
announcements and public filings made by ASARCO, Cyprus Amax, Asarco Cyprus and
Phelps Dodge.
12. PURPOSE OF THE OFFER AND THE MERGER; PLANS FOR ASARCO; CERTAIN
CONSIDERATIONS.
GENERAL. The purpose of the Offer and the Proposed Merger is to enable
Parent to acquire control of, and ultimately the entire equity interest in,
ASARCO.
The Offer, as the first step in the acquisition of ASARCO, is intended to
facilitate the acquisition of that number of shares of Common Stock that
together with shares of Common Stock Owned by Parent and Purchaser would
constitute at least 80% of the shares of Common Stock on a fully diluted basis.
The
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purpose of the Proposed Merger is to acquire all shares of Common Stock not
beneficially owned by the Purchaser following consummation of the Offer.
The strategic purpose of the Offer and the Proposed Merger is to create a
low cost international mining entity with greatly increased ore reserves and the
ability to realize significant cost saving synergies.
Pursuant to the Proposed Merger, each then outstanding share of Common Stock
(other than shares of Common Stock owned by Parent or any of its wholly owned
subsidiaries, or shares of Common Stock held in the treasury of ASARCO) would be
converted into the right to receive in cash the price per share paid by
Purchaser pursuant to the Offer.
Except in the case of a "short-form" merger as described below, in
accordance with the New Jersey Business Corporation Act, the approval of the
ASARCO Board would be required to approve the Proposed Merger. In addition,
Article 7 of the ASARCO Certificate of Incorporation appears to require the
affirmative vote of the holders of at least 80% of the outstanding shares of
Common Stock (including any Common Stock owned by Purchaser) to approve a
transaction such as the Proposed Merger. If Purchaser acquires through the Offer
that number of shares of Common Stock that, together with shares of Common Stock
owned by Parent, equals at least 80% of the outstanding shares of Common Stock
(which would be the case if the Minimum Condition was satisfied and Purchaser
were to accept for payment Common Stock tendered pursuant to the Offer) and, the
Merger Agreement Condition, the Rights Condition and the Regulatory Approval
Condition and the other conditions set forth in Section 14 were each satisfied,
Purchaser would have sufficient voting power to ensure approval of the Proposed
Merger by the holders of the Common Stock.
In the event Purchaser obtains 90% or more of the outstanding shares
pursuant to the Offer or otherwise, Purchaser will effect the Proposed Merger
pursuant to the short-form merger provisions of the New Jersey Business
Corporation Act, without prior notice to, or any action by, any other
shareholder of ASARCO and without the approval of the ASARCO Board.
Although Parent is seeking to enter into negotiations with ASARCO with
respect to the Proposed Merger and continues to pursue such negotiations, there
can be no assurance, that such negotiations will occur, or, if such negotiations
occur, as to the outcome thereof. Purchaser reserves the right to amend the
Offer (including amending the number of shares of Common Stock to be purchased,
the purchase price and the Proposed Merger consideration) in connection with
entering into the Proposed Merger or otherwise or to negotiate a merger
agreement with ASARCO not involving a tender offer pursuant to which Purchaser
would terminate the Offer and the Common Stock would, upon consummation of such
merger, be converted into the right to receive an amount in cash equal to the
Offer Price.
In connection with the Offer and during its pendency, or in the event the
Offer is terminated or not consummated, or after the expiration of the Offer and
pending consummation of the Proposed Merger, in accordance with applicable law
and subject to the terms of any merger agreement that it may enter into with
ASARCO, Parent may explore any and all options which may be available to it.
Parent may also determine, whether or not the Offer is then pending, to conduct
a proxy contest in connection with ASARCO's 2000 annual meeting of shareholders
seeking to elect directors designated by Parent in the place of those current
members of the ASARCO Board whose terms are expiring. After expiration or
termination of the Offer, Parent may seek to acquire additional shares of Common
Stock, through open market purchases, privately negotiated transactions, a
tender offer or exchange offer or otherwise, upon such terms and at such prices
as it may determine, which may be higher or lower than the Offer Price and could
be for cash or other consideration.
Whether or not the Offer is consummated, Parent and Purchaser reserve the
right, subject to applicable legal restrictions, to sell or otherwise dispose of
any or all shares of Common Stock held by them, whether acquired pursuant to the
Offer or otherwise. Such transactions may be effected on terms and at prices as
Parent or Purchaser shall determine, which may be higher or lower than the Offer
Price and could be for cash or other consideration.
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THE OFFER DOES NOT CONSTITUTE A SOLICITATION OF PROXIES FOR ANY ANNUAL OR
OTHER MEETING OF ASARCO'S SHAREHOLDERS. ANY SUCH SOLICITATION WHICH PARENT OR
PURCHASER MIGHT MAKE WOULD BE MADE ONLY PURSUANT TO SEPARATE PROXY MATERIALS IN
COMPLIANCE WITH THE REQUIREMENTS OF SECTION 14(A) OF THE EXCHANGE ACT.
PLANS FOR ASARCO. In connection with the Offer, Parent and Purchaser have
reviewed, and will continue to review, on the basis of publicly available
information, various possible business strategies that they might consider in
the event that Parent acquires control of ASARCO, whether pursuant to the Offer,
the Proposed Merger or otherwise. Parent anticipates that upon consummation of
the transactions contemplated hereby, or in the event Parent otherwise acquires
control of ASARCO, the members of the Board of Directors of Purchaser will
constitute all of the members of the ASARCO Board. In addition, if and to the
extent that Parent acquires control of ASARCO or otherwise obtains access to the
books and records of ASARCO, Parent and Purchaser intend to conduct a detailed
review of ASARCO and its assets, corporate structure, dividend policy,
capitalization, operations, properties, policies, management and personnel and,
to consider and determine what, if any, changes would be desirable in light of
the circumstances which then exist. Furthermore, the purchase of shares of
Common Stock pursuant to the Offer will reduce the number of shares of Common
Stock and the number of holders thereof. See Section 7.
Except as described in this Offer to Purchase, neither Purchaser nor Parent
has any plans or proposals that would relate to or would result in (i) an
extraordinary corporate transaction, such as a merger, reorganization or
liquidation, involving ASARCO or any of its subsidiaries, (ii) a sale or
transfer of a material amount of assets of ASARCO or any of its subsidiaries,
(iii) any change in the present ASARCO Board or management of ASARCO, (iv) any
material changes in the present capitalization or dividend policy of ASARCO, (v)
any other material change in ASARCO's corporate structure or business, (vi)
causing a class of securities of ASARCO to be delisted from a national
securities exchange or to cease to be authorized to be quoted in an inter-dealer
quotation system of a registered national securities association or (vii) a
class of equity securities of ASARCO becoming eligible for termination of
registration pursuant to Section 12(g)(4) of the Exchange Act.
SHAREHOLDER PROTECTION ACT. The Shareholder Protection Act generally
provides that no resident domestic corporation shall engage in any business
combination with any interested shareholder for a period of five years following
that interested shareholder's stock acquisition date unless the business
combination is approved by the Board of Directors prior to that stock
acquisition date. An "interested shareholder" is any person (other than the
resident domestic corporation or its subsidiary) that (i) is the beneficial
owner directly or indirectly, of 10% or more of the voting power of the
outstanding voting stock of the resident domestic corporation, or (ii) is an
affiliate or associate of that resident domestic corporation who, at any time
within the five year period immediately prior to the date in question, was a
beneficial owner, directly or indirectly, of 10% or more of the voting power of
the outstanding stock of the resident domestic corporation. A "resident domestic
corporation" is an issuer of voting stock which is organized under the laws of
the State of New Jersey and, as of the date in which any such person became an
interested shareholder, has its principal executive offices located in New
Jersey or significant business operations located in New Jersey. The "stock
acquisition date" is the date that a person first becomes an interested
shareholder of a resident domestic corporation. The "business combinations" at
which these provisions are directed include any merger or consolidation.
Accordingly, in the event ASARCO is a resident domestic corporation within
the meaning of the Shareholder Protection Act, the New Jersey Business
Corporation Act gives the ASARCO Board a veto power over any business
combination proposed by one who directly or indirectly acquires 10% or more of
ASARCO's voting stock.
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DISSENTERS' RIGHTS AND OTHER MATTERS. Holders of Common Stock will not be
entitled to dissenters' rights under New Jersey law in connection with the Offer
or the Proposed Merger, and neither the Purchaser nor the Parent intends to
accord dissenters' rights to holders of Common Stock.
"GOING PRIVATE" TRANSACTIONS. The Proposed Merger would have to comply with
any applicable Federal law operative at the time of its consummation. The SEC
has adopted Rule 13e-3 under the Exchange Act which is applicable to certain
"going private" transactions and which may under certain circumstances be
applicable to the Proposed Merger. However, Rule 13e-3 would be inapplicable if
(i) the shares of Common Stock are deregistered under the Exchange Act prior to
the Proposed Merger or (ii) the Proposed Merger is consummated within one year
after the purchase of the Common Stock pursuant to the Offer and the highest
amount paid per share of Common Stock in the Proposed Merger is at least equal
to the amount paid per share of Common Stock in the Offer. If applicable, Rule
13e-3 requires, among other things, that certain financial information
concerning the fairness of the proposed transaction and the consideration
offered to minority shareholders in such transaction be filed with the SEC and
disclosed to shareholders prior to consummation of the transaction.
THE ASARCO CERTIFICATE OF INCORPORATION AND THE ASARCO BY-LAWS. The ASARCO
Certificate of Incorporation and ASARCO By-Laws (the "ASARCO By-Laws") contain
several provisions that may delay a change in control of ASARCO following the
purchase of shares of Common Stock by Purchaser pursuant to the Offer,
including, among others, (i) a provision that the ASARCO Board shall be
classified, with each class elected for a term of three years and one class
elected each year at ASARCO's annual meeting of shareholders, (ii) a provision
requiring advance notice to ASARCO of any shareholder nominations for directors
at an annual meeting of shareholders, and (iii) a provision that special
meetings of shareholders may be called only by the President of ASARCO, the
Chairman of the ASARCO Board and by resolution of a majority of directors of the
ASARCO Board.
Pursuant to Section 2.02 of Article II of the ASARCO By-Laws, the ASARCO
Board is divided into three classes, with each class elected for a term of three
years and one class elected at ASARCO's annual meeting of shareholders each
year. The number of ASARCO directors is currently limited to between nine and
fifteen pursuant to Section 2.02 of Article II of the ASARCO By-Laws and,
according to the ASARCO Proxy Statement on Schedule 14A filed on March 18, 1999
in connection with its 1999 annual meeting, there are currently twelve.
If the ASARCO Board opposes the Offer or the Proposed Merger, Parent may
determine, whether or not the Offer is then pending, to take action necessary to
place a majority of its designees on the ASARCO Board, including, without
limitation, seeking to amend the ASARCO Certificate of Incorporation and ASARCO
By-Laws to remove the provisions described above or to increase the number of
seats available on the ASARCO Board for its nominees and to solicit proxies from
the shareholders of ASARCO for use at ASARCO's 2000 annual meeting of
shareholders for the purpose of electing directors designated by Parent in the
place of those current members of the ASARCO Board whose terms are expiring.
Article 7 of the ASARCO Certificate of Incorporation appears to provide
that, in addition to any affirmative vote required by law, the affirmative vote
of the holders of at least 80% of the outstanding voting shares is required to
effectuate certain business combination transactions with interested
shareholders (i.e., holders of 10% or more of ASARCO's capital stock),
including, among others, a merger, sale of assets, sale of shares and
reclassification of securities.
Amendment of the Article 7 of the ASARCO Certificate of Incorporation
requires the affirmative vote of the holders of at least 80% of ASARCO's
outstanding voting shares.
Article 10 of the ASARCO Certificate of Incorporation (the "Affiliated
Transaction Provision") requires that any Affiliated Transaction (as therein
defined) proposed by or on behalf of any Interested Shareholder (as therein
defined) must be approved by a majority of the Continuing Directors (as therein
defined), in addition to any affirmative vote required by law, the ASARCO
Certificate of Incorporation or the ASARCO By-Laws. As used in the Affiliated
Transaction Provision, the term "Affiliated Transaction"
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means (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 with or for the
benefit of any Interested Shareholder involving any assets, securities or
commitments of ASARCO which has an aggregate fair market value and/or involves
aggregate commitments of $10,000,000 or more or constitutes more than 1% of the
book value of the corporation's total consolidated assets as shown on ASARCO's
latest audited financial statements (in the case of transactions involving
assets or commitments other than capital stock); (ii) the adoption of any plan
or proposal for the liquidation or dissolution of ASARCO or for any amendment to
ASARCO's By-Laws; (iii) any reclassification of securities (including any
reverse stock split), or recapitalization of ASARCO 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).
As used in the Affiliated Transaction Provision, the term "Interested
Shareholder" means any person who is or has announced or publicly disclosed a
plan or intention to become the beneficial owner directly or indirectly of more
than 10% of the voting stock of ASARCO. As used in the Affiliated Transaction
Provision, the term "Continuing Director" means any member of the ASARCO Board,
while such person is a member of the ASARCO Board, 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.
Amendment of the Affiliated Transaction Provision requires the affirmative
vote of the holders of either (i) at least 80% of ASARCO's outstanding voting
shares or (ii) a majority vote of ASARCO's outstanding shares if such amendment
was first approved by a majority of the ASARCO Board, which majority vote
includes the affirmative vote of two-thirds of the Continuing Directors.
The foregoing description of the ASARCO Certificate of Incorporation and the
ASARCO By-Laws is qualified in its entirety by reference to the full text of the
ASARCO Certificate of Incorporation and ASARCO By-Laws, copies of which have
been filed by ASARCO as exhibits to documents filed with the SEC and may be
obtained in the manner described in Section 8 (except that copies may not be
available at regional offices of the SEC).
THE RIGHTS. The following is based upon the ASARCO Form 8-K, and the ASARCO
Form 8-A, filed with the SEC:
On January 28, 1998, the ASARCO Board executed the Rights Agreement and
declared a dividend distribution of one Right for each share of Common Stock
oustanding on August 7, 1999. Under the Rights Agreement, each Right entitles
the holder to purchase from ASARCO one one-hundredth of a share of its Junior
Participating Preferred Stock at a price of $90.00 per one one-hundredth of a
share, subject to adjustment.
Under the Rights Agreement, until the close of business on the Distribution
Date the Rights will be evidenced by the Common Stock Certificates and will be
transferred with and only with Common Stock Certificates. As soon as practicable
after the Distribution Date, the Rights Certificates will be mailed by the
Rights Agent to holders of record of the Common Stock as of the close of
business on the Distribution Date, and thereafter the separate Rights
Certificates alone will evidence the Rights.
The Rights are not exercisable until the Distribution Date. The Rights will
expire at the close of business on the Final Expiration Date unless earlier
redeemed by ASARCO as described below.
In the event that any person or group of affiliated or associated persons
becomes an Acquiring Person, each holder of a Right (other than an Acquiring
Person) will thereafter have the right to receive, upon exercise, shares of
Common Stock (or, in certain circumstances, cash, property or other securities
of ASARCO) having a value equal to two times the exercise price of the Right.
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In the event that ASARCO is acquired in a merger or consolidation in which
ASARCO is not the surviving corporation (or is the surviving corporation but the
Common Stock is changed or exchanged) or ASARCO sells or transfers 50% or more
of its consolidated assets or earning power, each holder of a Right (other than
an Acquiring Person) will thereafter have the right to receive, upon the
exercise thereof at the then current exercise price of the Right, that number of
shares of common stock of the acquiring company which at the time of such
transaction will have a value equal to two times the exercise price of the
Right.
The ASARCO Board may redeem the Rights in whole, but not in part, at the
Redemption Price at any time prior to the earlier of (i) 5:00 p.m. New York City
time on the tenth Business Day following the public announcement that a person
or group of affiliated or associated persons has become an Acquiring Person and
(ii) the Final Expiration Date. Immediately upon the action of the ASARCO Board
ordering redemption of the Rights, the Rights will terminate, and the only right
to which the holders of Rights will be entitled will be the right to receive the
Redemption Price.
Until a Right is exercised, the holder thereof, as such, will have no rights
as a shareholder of ASARCO, including, without limitation, the right to vote or
to receive dividends.
Prior to the Distribution Date, ASARCO may amend or supplement any provision
of the Rights Agreement, except that ASARCO may not amend the Rights Agreement
to extend the period of time in which the Rights may be redeemed at such time
the Rights are not then redeemable nor may it amend the Purchase Price, the
Redemption Price, the Final Expiration Date or the number of one one-hundredths
of a share of Junior Participating Preferred Stock for which a Right is
exercisable; provided, however, that prior to (i) the announcement that a person
or group of affiliated or associated persons has become an Acquiring Person or
(ii) the date of the commencement of a tender offer or exchange offer which
would result in a person or group beneficially owning 15% or more of the
outstanding shares of Common Stock, ASARCO may increase the Purchase Price or
extend the Final Expiration Date. On and after the Distribution Date, ASARCO may
amend or supplement any provision of the Rights Agreement to cure any ambiguity,
to correct or supplement any defect or inconsistency, to shorten or lengthen any
time period or to change or supplement the provisions in any manner which ASARCO
may deem necessary or desirable and which shall not adversely affect the rights
of holders of the Rights (excluding the interests of any Acquiring Person). See
the "Introduction" to this Offer to Purchase.
Pursuant to the Cyprus Amax Agreement, on July 15, 1999, ASARCO has amended
the Rights Agreement to render the Rights Agreement inapplicable to the Proposed
Cyprus Amax Transaction and the other transactions contemplated by the Cyprus
Amax Agreement and to ensure, among other things, that Cyprus Amax is not deemed
to be an Acquiring Person and that a Distribution Date does not occur by reason
of such agreements or transactions. However, pursuant to the Cyprus Amax
Agreement ASARCO has also agreed that it will not facilitate any effort or
attempt to make or implement a ASARCO Takeover Proposal, which would include the
Offer, including by means of an amendment to the Rights Agreement. See Section
11.
According to the ASARCO Schedule 14D-9, the ASARCO Board determined on
September 8, 1999, to postpone the occurrence of a Distribution Date that would
be triggered by the announcement of the Phelps Dodge Exchange Offer with respect
to the Common Stock of ASARCO until such later date as determined by the ASARCO
Board.
Based on publicly available information, Purchaser believes that, as of the
date of this Offer to Purchase, the Rights were not exercisable, the Rights
Certificates had not been issued and the Rights were evidenced by Common Stock
Certificates. Purchaser believes that as a result of the public announcement of
this Offer, the Distribution Date will be no later than October 12, 1999 (to the
extent that October 11, 1999 is not a Business Day as defined in the Rights
Agreement) unless prior to such date (i) the ASARCO Board redeems the Rights,
(ii) the ASARCO Board determines to postpone distribution of the Rights
Certificates to a later date, or (iii) ASARCO amends the Rights Agreement to
render it inapplicable to this Offer.
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The foregoing summary of the Rights Agreement does not purport to be
complete and is qualified in its entirety by reference to the ASARCO Form 8-K
and the ASARCO Form 8-A and the full text of the Rights Agreement as an exhibit
thereto filed with the SEC, and subsequent amendments to the Rights Agreement as
filed with the SEC. Copies of these documents may be obtained in the manner set
forth in Section 8 (except that copies may not be available at regional offices
of the SEC).
If the Rights Condition is not satisfied and Purchaser elects, in its sole
discretion, to waive such condition and consummate the Offer, and if there are
outstanding Rights which have not been acquired by Purchaser, Purchaser will
evaluate its alternatives. Such alternatives could include purchasing additional
Rights in the open market, in privately negotiated transactions, in another
tender or exchange offer or otherwise. Any such additional purchase of Rights
could be for cash or other consideration. Under such circumstances, the Proposed
Merger might be delayed or abandoned as impracticable. The form and amount of
consideration to be received by the holders of Common Stock in the Proposed
Merger, if consummated, might be subject to adjustment to compensate Purchaser
for, among other things, the costs of acquiring Rights and a portion of the
potential dilution cost of Rights not owned by Purchaser and its affiliates at
the time of the Proposed Merger. In such event, the value of the consideration
to be exchanged for Common Stock in the Proposed Merger could be substantially
less than the consideration paid in the Offer. In addition, Purchaser may elect
under such circumstances not to consummate the Proposed Merger.
Unless the Rights are redeemed, shareholders will be required to tender one
Right for each share of Common Stock tendered in order to effect a valid tender
of such shares of Common Stock in accordance with the procedures set forth in
Section 3. If separate Rights Certificates are not issued, a tender of Common
Stock will also constitute a tender of the associated Rights. See Section 1 and
Section 3.
Consummation of the Offer is conditioned upon, among other things, the
Rights having been redeemed by the ASARCO Board or Purchaser being satisfied, in
its sole discretion, that the Rights are invalid or otherwise inapplicable to
the Offer and to the Proposed Merger. See Section 14.
13. DIVIDENDS AND DISTRIBUTIONS.
If, on or after the date of this Offer to Purchase, ASARCO should (i) split,
combine or otherwise change the Common Stock or its capitalization, (ii) issue
or sell any additional securities of ASARCO or otherwise cause an increase in
the number of outstanding securities of ASARCO or (iii) acquire currently
outstanding shares of Common Stock or otherwise cause a reduction in the number
of outstanding shares of Common Stock, then, without prejudice to Purchaser's
rights under Section 1 and Section 14, Purchaser, in its sole discretion, may
make such adjustments as it deems appropriate in the purchase price and other
terms of the Offer, including, without limitation, the amount and type of
securities offered to be purchased.
If, on or after the date of this Offer to Purchase, ASARCO should declare or
pay any dividend on the Common Stock, other than regular quarterly dividends, or
make any distribution (including, without limitation, the issuance of additional
shares of Common Stock pursuant to a stock dividend or stock split, the issuance
of other securities or the issuance of rights for the purchase of any
securities) with respect to the Common Stock that is payable or distributable to
shareholders of record on a date prior to the transfer to Purchaser or its
nominee or transferee on ASARCO's stock transfer records of the Common Stock
purchased pursuant to the Offer, then, without prejudice to Purchaser's rights
under Section 1 and Section 14, (i) the Offer Price will be reduced by the
amount of any such cash dividend or cash distribution and (ii) any such non-cash
dividend, distribution or right to be received by the tendering shareholders
will be received and held by such tendering shareholders for the account of
Purchaser and will be required to be promptly remitted and transferred by each
such tendering shareholder to the Depositary for the account of Purchaser,
accompanied by appropriate documentation of transfer. Pending such remittance
and subject to applicable law, Purchaser will be entitled to all rights and
privileges as owner of any such non-cash dividend, distribution or right and may
withhold the entire purchase price or deduct from the purchase price the amount
of value thereof, as determined by Purchaser in its sole discretion.
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14. CONDITIONS OF THE OFFER.
Notwithstanding any other provisions of the Offer, and in addition to (and
not in limitation of) Purchaser's rights to extend and amend the Offer at any
time in its sole discretion, Purchaser shall not be required to accept for
payment or, subject to any applicable rules and regulations of the SEC,
including Rule 14e-1(c) under the Exchange Act (relating to Purchaser's
obligation to pay for or return tendered shares of Common Stock promptly after
termination or withdrawal of the Offer), pay for, and may delay the acceptance
for payment of or, subject to the restriction referred to above, the payment
for, any tendered shares of Common Stock, and may terminate the Offer as to any
shares of Common Stock not then paid for, if, in the sole judgment of Purchaser
(i) at or prior to the expiration of the Offer any one or more of the Minimum
Condition, the Rights Condition, the Merger Agreement Condition or the
Regulatory Approval Condition has not been satisfied, or (ii) prior to the
acceptance for payment of shares of Common Stock, any of the following events
shall occur or shall be deemed by the Purchaser to have occurred:
(a) there shall have been threatened, instituted or pending any action,
proceeding, application or counterclaim before any court, governmental
regulatory or administrative agency or commission, authority or tribunal,
domestic, foreign or supranational, by any government, governmental
authority or other regulatory or administrative agency or commission,
domestic, foreign or supranational, or by any other person, domestic or
foreign (whether brought by ASARCO, an affiliate of ASARCO or any other
person), which (i) challenges or seeks to challenge the acquisition by
Parent or Purchaser or any affiliate of either of them of the shares of
Common Stock, restrains, delays or prohibits or seeks to restrain, delay or
prohibit the making of the Offer or the Proposed Merger, consummation of the
transactions contemplated by the Offer or any other subsequent business
combination, restrains or prohibits or seeks to restrain or prohibit the
performance of any of the contracts or other arrangements entered into by
Purchaser or any of its affiliates in connection with the acquisition of
ASARCO or obtains or seeks to obtain any material damages or otherwise
directly or indirectly relates to the transactions contemplated by the
Offer, the Proposed Merger or any other subsequent business combination,
(ii) prohibits or limits or seeks to prohibit or limit Parent's or
Purchaser's ownership or operation of all or any material portion of their
or ASARCO's business or assets (including, without limitation, the business
or assets of their respective affiliates and subsidiaries) or to compel or
seeks to compel Parent or Purchaser to dispose of or hold separate all or
any material portion of their own or ASARCO's business or assets (including,
without limitation, the business or assets of their respective affiliates
and subsidiaries) or imposes or seeks to impose any limitation on the
ability of Parent, Purchaser or any affiliate of either of them to conduct
its own business or own such assets as a result of the transactions
contemplated by the Offer, Proposed Merger or any other subsequent business
combination, (iii) makes or seeks to make the acceptance for payment,
purchase of, or payment for, some or all of the shares of Common Stock
pursuant to the Offer or the Proposed Merger illegal, or restricts the
ability of Parent or Purchaser, or renders Parent or Purchaser unable, to
accept for payment, purchase or pay for some or all of the shares of Common
Stock or to consummate the Proposed Merger, (iv) imposes or seeks to impose
limitations on the ability of Parent or Purchaser or any affiliate of either
of them effectively to acquire or hold or to exercise full rights of
ownership of the Common Stock, including, without limitation, the right to
vote the shares of Common Stock purchased by them on an equal basis with all
other shares of Common Stock on all matters properly presented to the
shareholders of ASARCO, (v) in the sole judgment of Parent or Purchaser,
might materially and adversely affect ASARCO or any of its subsidiaries or
affiliates or Parent, Purchaser, or any of their respective affiliates or
subsidiaries, (vi) in the sole judgment of Parent or Purchaser, might result
in a material diminution in the value of the Common Stock or the benefits
expected to be derived by Parent or Purchaser as a result of the
transactions contemplated by the Offer, or (vii) in the sole judgment of
Parent or Purchaser, imposes or seeks to impose any material condition to
the Offer unacceptable to Parent or Purchaser;
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(b) there shall be any action taken, or any statute, rule, regulation or
order or injunction shall be sought, proposed, enacted, promulgated,
entered, enforced or deemed or become applicable to the Offer, the Proposed
Merger or other subsequent business combination between Purchaser or any
affiliate of Purchaser and ASARCO or any other action shall have been taken,
proposed or threatened, by any government, governmental authority or other
regulatory or administrative agency or commission or court, domestic,
foreign or supranational, other than the routine application of the waiting
period provisions of the HSR Act to the Offer, that, in the sole judgment of
Parent or Purchaser, could reasonably be expected, directly or indirectly,
to result in any of the consequences referred to in clauses (i) through
(vii) of paragraph (a) above;
(c) any change (or any condition, event or development involving a
prospective change) shall have occurred or become reasonably likely to occur
in the business, properties, assets, liabilities, capitalization,
shareholders' equity, condition (financial or otherwise), operations,
licenses, franchises, permits, permit applications, results of operations or
prospects of ASARCO or any of its subsidiaries or affiliates which, in the
sole judgment of Parent or Purchaser, is or may be materially adverse to
ASARCO or any of its subsidiaries or affiliates, taken as a whole, or Parent
or Purchaser shall have become aware of any fact (including, without
limitation, that any material contractual right of ASARCO or any of its
subsidiaries or affiliates shall be impaired or otherwise adversely affected
or that any material amount of indebtedness of ASARCO or any of its
subsidiaries shall become accelerated or otherwise become due prior to its
stated due date, in either case with or without notice or the lapse of time
or both, as a result of the transactions contemplated by the Offer or the
Proposed Merger) or which, in the sole judgment of Parent or Purchaser, has
or may have material adverse significance with respect to either the value
of ASARCO or any of its subsidiaries, taken as a whole, or the value of the
Common Stock to Parent or Purchaser;
(d) there shall have occurred (i) any general suspension of trading in,
or limitation on prices for, securities on any national securities exchange
or in the over-the-counter market, or any material adverse change in the
financial markets or major stock exchange indices in the United States, (ii)
a declaration of a banking moratorium or any suspension of payments in
respect of banks in the United States (whether or not mandatory), (iii) any
limitation (whether or not mandatory) by any governmental authority or
agency on, or any other event which, in the sole judgment of Parent or
Purchaser, might affect, the extension of credit by banks or other lending
institutions generally, (iv) a commencement of a war, armed hostilities or
other national or international crisis directly or indirectly involving the
United States or Mexico, (v) any significant change in United States or
Mexican or any other currency exchange rates or any suspension of, or
limitation on, the markets therefor (whether or not mandatory), (vi) any
significant adverse change in the market price of the Common Stock, or (vii)
in the case of any of the foregoing existing at the time of the commencement
of the Offer, in the sole judgment of Parent or Purchaser, a material
acceleration or worsening thereof;
(e) other than the redemption of the Rights at the Redemption Price,
ASARCO or any subsidiary of ASARCO shall have, at any time after August 20,
1999 (i) issued, distributed, pledged, sold or authorized, proposed or
announced the issuance of or sale, distribution or pledge to any person of
(A) any shares of its capital stock (other than sales or issuances pursuant
to options outstanding on August 20, 1999 in accordance with their terms as
disclosed on such date) of any class (including, without limitation, the
Common Stock) or securities convertible into any such shares of capital
stock, or any rights, warrants or options to acquire any such shares or
convertible securities or any other securities of ASARCO, or (B) any other
securities in respect of, in lieu of, or in substitution for, Common Stock
outstanding on August 20, 1999, (ii) purchased, acquired or otherwise caused
a reduction in the number of, or proposed or offered to purchase, acquire or
otherwise reduce the number of, any outstanding shares of Common Stock, or
other securities, (iii) declared, paid or proposed to declare or pay any
dividend or distribution on any shares of Common Stock (other than the
regular quarterly dividend on the Common Stock not in excess of the amount
per share, and with
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record and payment dates, in accordance with recent practice) or on any
other security or issued, authorized, recommended or proposed the issuance
or payment of any other distribution in respect of the shares of Common
Stock whether payable in cash, securities or other property, (iv) altered or
proposed to alter any material term of any outstanding security, (v) issued,
sold or authorized or announced or proposed the issuance of or sale to any
person of any debt securities or any securities convertible into or
exchangeable for debt securities or any rights, warrants or options
entitling the holder thereof to purchase or otherwise acquire any debt
securities or incurred or announced its intention to incur any debt other
than in the ordinary course of business and consistent with past practice or
any debt containing burdensome covenants, (vi) split, combined or otherwise
changed or authorized or proposed the split, combination or other change of
the Common Stock, or its capitalization, (vii) authorized, recommended,
proposed or entered into or publicly announced its intent to enter into any
merger, consolidation, liquidation, dissolution, business combination,
acquisition or disposition of a material amount of assets or securities, any
material change in its capitalization, any waiver, release or relinquishment
of any material contract rights or comparable right of ASARCO or any of its
subsidiaries or any agreement contemplating any of the foregoing or any
comparable event not in the ordinary course of business, or taken any action
to implement any such transaction previously authorized, recommended,
proposed or publicly announced, (viii) transferred into escrow any amounts
required to fund any existing benefit, employment or severance agreements
with any of its employees or entered into any employment, severance or
similar agreement, arrangement or plan with any of its employees other than
in the ordinary course of business and consistent with past practice or
entered into or amended any agreements, arrangements or plans so as to
provide for increased benefits to the employees as a result of or in
connection with the transactions contemplated by the Offer or any other
change in control of ASARCO, (ix) except as may be required by law, taken
any action to terminate or amend any employee benefit plan (as defined in
Section 3(2) of the Employee Retirement Income Security Act of 1974, as
amended) of ASARCO or any of its subsidiaries, or Parent or Purchaser shall
have become aware of any such action which was not previously disclosed in
publicly available filings, (x) amended or proposed or authorized any
amendment to the ASARCO Certificate of Incorporation or ASARCO By-Laws or
similar organizational documents, (xi) authorized, recommended, proposed or
entered into any other transaction that in the sole judgment of Parent or
Purchaser could, individually or in the aggregate, adversely affect the
value of the Common Stock to Parent or Purchaser or (xii) agreed in writing
or otherwise to take any of the foregoing actions or Parent or Purchaser
shall have learned about any such action which has not previously been
publicly disclosed by ASARCO in filings with the SEC;
(f) ASARCO and Parent or Purchaser shall have reached an agreement or
understanding that the Offer be terminated or amended;
(g) Purchaser not being satisfied, in its sole discretion, that the
provisions of the Shareholder Protection Act are invalid or otherwise
inapplicable to the transactions contemplated by this Offer to Purchase; or
(h) Purchaser not being satisfied, in its sole discretion, that the
provisions of Article 10 of the ASARCO Certificate of Incorporation are
inapplicable, invalid or, if legally required, satisfied with respect to the
transactions contemplated by this Offer to Purchase;
which, in the sole judgment of Parent or Purchaser in any such case, and
regardless of the circumstances (including any action or inaction by Parent or
Purchaser or any of their affiliates) giving rise to any such condition, makes
it inadvisable to proceed with the Offer and/or with such acceptance for payment
or payment. Parent and Purchaser have the right to rely on any condition set
forth in the immediately preceding sentence being satisfied in determining
whether to consummate the Offer; however, if Parent or Purchaser asserts the
failure of any such condition without relying on the exercise of its reasonable
judgment or some other objective criteria, Parent and Purchaser shall promptly
disclose such assertion and
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the Expiration Date will be (and, if necessary, will be extended to be) at least
five business days after the date of such disclosure.
The foregoing conditions are for the sole benefit of Parent and Purchaser
and may be asserted by Parent or Purchaser in their sole discretion regardless
of the circumstances (including any action or omission by Parent or Purchaser)
giving rise to any such conditions or may be waived by Parent or Purchaser in
their sole discretion in whole or in part at any time and from time to time. The
failure by Parent or Purchaser at any time to exercise any of the foregoing
rights shall not be deemed a waiver of any such right and each such right shall
be deemed an ongoing right which may be asserted at any time and from time to
time. Any determination by the Parent or Purchaser concerning any condition or
event described in this Section 14 shall be final and binding upon all parties.
15. CERTAIN LEGAL MATTERS; REGULATORY APPROVALS.
GENERAL. Except as otherwise disclosed in this Offer to Purchase, based on
a review of publicly available information filed by ASARCO with the SEC, neither
Purchaser nor Parent is aware of (i) any license or regulatory permit that
appears to be material to the business of ASARCO and its subsidiaries, taken as
a whole, that might be adversely affected by the acquisition of shares of Common
Stock and the indirect acquisition of the capital stock of ASARCO's subsidiaries
by Parent or Purchaser pursuant to the Offer or the Proposed Merger, or (ii) any
approval or other action by any governmental, administrative or regulatory
agency or authority, domestic, foreign or supranational, that would be required
for the acquisition or ownership of shares of Common Stock, or the indirect
acquisition of the capital stock of ASARCO's subsidiaries by Parent or Purchaser
as contemplated herein. Should any such approval or other action be required,
Parent and Purchaser currently contemplate that such approval or action would be
sought. While Purchaser does not currently intend to delay the acceptance for
payment of shares of Common Stock tendered pursuant to the Offer pending the
outcome of any such matter, there can be no assurance that any such approval or
action, if needed, would be obtained or would be obtained without substantial
conditions or that adverse consequences might not result to the business of
ASARCO, Purchaser or Parent or that certain parts of the businesses of ASARCO,
Purchaser or Parent might not have to be disposed of in the event that such
approvals were not obtained or any other actions were not taken. Purchaser's
obligation under the Offer to accept for payment and pay for shares of Common
Stock is subject to certain conditions. See the "Introduction" to this Offer to
Purchase and Section 14.
Other than as disclosed herein, Purchaser does not believe that any domestic
or foreign takeover statutes or similar regulatory provisions apply to the Offer
or the Proposed Merger and, therefore, neither Purchaser nor Parent currently
has complied with any other such domestic or foreign takeover statute or
regulation. Purchaser reserves the right to challenge the applicability or
validity of any domestic or foreign law or regulation purportedly applicable to
the Offer or the Proposed Merger and nothing in this Offer to Purchase or any
action taken in connection with the Offer or the Proposed Merger is intended as
a waiver of such right. If it is asserted that any domestic or foreign takeover
statute or related regulation is applicable to the Offer or the Proposed Merger
and an appropriate court or other body does not determine that it is
inapplicable or invalid as applied to the Offer or the Proposed Merger,
Purchaser might be required to file certain information with, or to receive
approvals from, the relevant domestic or foreign authorities, and Purchaser
might not be able to accept for payment or pay for shares of Common Stock
tendered in the Offer, or be delayed in consummating the Offer or the Proposed
Merger. In such case, Purchaser may not be obligated to accept for payment or
pay for any shares of Common Stock tendered pursuant to the Offer.
U.S. ANTITRUST. Under the HSR Act and the rules that have been promulgated
thereunder by the FTC, certain acquisition transactions may not be consummated
unless certain information has been furnished to the Antitrust Division and to
the FTC and certain waiting period requirements have been satisfied. Parent
expects to file such information on the date of this Offer to Purchase. Under
the
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provisions of the HSR Act applicable to the Offer, the purchase of Common Stock
pursuant to the Offer may not be consummated until the expiration of a
fifteen-calendar day waiting period following the filing by Parent, unless the
Antitrust Division and the FTC terminate the waiting period prior thereto. If,
within such fifteen-day period, either the Antitrust Division or the FTC
requests additional information or material from Parent concerning such Offer,
the waiting period will be extended and would expire at 11:59 p.m., New York
City time, on the tenth calendar day after the date of substantial compliance by
Parent with such request. Only one extension of the waiting period pursuant to a
request for additional information is authorized by the HSR Act. Thereafter,
such waiting period may be extended only by court order or with the consent of
Parent. Purchaser will not accept for payment shares of Common Stock tendered
pursuant to the Offer unless and until the waiting period requirements imposed
by the HSR Act with respect to the Offer have been satisfied. See the
"Introduction" to this Offer to Purchase and Section 14.
The Proposed Merger would not require an additional filing under the HSR Act
if Purchaser owns 50% or more of the outstanding shares of Common Stock at the
time of the Proposed Merger.
The FTC and the Antitrust Division frequently scrutinize the legality under
the antitrust laws of transactions such as Purchaser's acquisition of Common
Stock pursuant to the Offer. At any time before or after Purchaser's acquisition
of Common Stock, the Antitrust Division or the FTC could take such action under
the antitrust laws as it deems necessary or desirable in the public interest,
including seeking to enjoin the acquisition of Common Stock pursuant to the
Offer or otherwise seek divestiture of Common Stock acquired by Purchaser or
divestiture of assets of Parent or its subsidiaries. Private parties and state
attorneys general may also bring legal action under the antitrust laws under
certain circumstances. Based upon an examination of publicly available
information relating to the businesses in which Parent and ASARCO are engaged,
Parent and Purchaser believe that the acquisition of Common Stock by Purchaser
will not violate the U.S. antitrust laws. Nevertheless, there can be no
assurance that a challenge to the Offer or other acquisition of Common Stock by
Purchaser on antitrust grounds will not be made or, if such a challenge is made,
of the result. See Section 14 for certain conditions to the Offer, including
conditions with respect to litigation and certain governmental actions.
GERMAN ANTITRUST LAW. Under the German Act Against Restraints of
Competition, certain acquisition transactions may not be consummated in Germany
unless certain information has been furnished to the BUNDESKARTELLAMT, the
German antitrust authority (the "BKartA") and certain waiting period
requirements have been satisfied without issuance by the BKartA of an order to
refrain. The purchase of shares of Common Stock by Purchaser pursuant to the
Offer and the consummation of the Proposed Merger may be subject to such
requirements. Under such act, the BKartA has one month from the time of filing
of such information with the BKartA to advise the parties of its intention to
investigate the Offer and the Proposed Merger, in which case the BKartA has four
months from the date of filing in which to take steps to oppose the Offer and
the Proposed Merger. Purchaser and/or Parent intends to file promptly the
required notification with the BKartA and request early termination of the
one-month waiting period. While Purchaser and Parent do not believe that there
is any basis for the BKartA to investigate the Offer and the Proposed Merger and
Purchaser and Parent believe that early termination of the waiting period will
be granted, there can be no assurance that the BKartA will not investigate or
oppose the transactions or that early termination of the waiting period will be
granted. Based on an examination of publicly available information relating to
the business in which ASARCO and Parent are engaged, including Parent's lack of
German business activities, Parent and Purchase believe that the acquisition of
Common Stock by Purchaser will not violate the German antitrust laws.
Nevertheless, there can be no assurance that a challenge to the Offer or other
acquisition of Common Stock by Purchaser on German antitrust grounds will not be
made or, if such a challenge is made, of the result.
ITALIAN ANTITRUST LAW. Under Italian antitrust law, Parent may be required
to provide notice of the Offer to the Italian antitrust authority (the "Italian
Authority"). Upon receipt of such notice, the Italian Authority has 15 days to
either (i) approve the consummation of the Offer or (ii) institute a full
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investigation of the effect of the Offer on competition in the Italian market.
Unlike U.S. antitrust law, there is no waiting period and there is no
prohibition on consummating the Offer during the review period. If the Italian
Authority institutes an investigation, within 45 days the Italian Authority must
either (i) approve the consummation of the Offer, (ii) prohibit the indirect
transfer of Italian assets, (iii) condition the transfer on divestiture of a
portion of the Italian assets, or (iv) in the case where the
parties have failed to provide all available information, extend the
investigation for an additional 30 days. If the Offer has already been
consummated, the Italian Authority may order divestment. Based on an examination
of publicly available information relating to the businesses in which ASARCO and
Parent are engaged, including Parent's lack of Italian business activities,
Parent and Purchaser believe that the acquisition of Common Stock by Purchaser
will not violate the Italian antitrust laws. Nevertheless, there can be no
assurance that a challenge to the Offer or other acquisition of Common Stock by
Purchaser on Italian antitrust grounds will not be made or, if such a challenge
is made, of the result.
OTHER. In connection with the acquisition of shares of Common Stock
pursuant to the Offer or the Proposed Merger, the laws of certain of other
foreign countries and jurisdictions may require the filing of information with,
or the obtaining of the approval or consent of, governmental authorities in such
countries and jurisdictions. The governments in such countries and jurisdictions
might attempt to impose additional conditions on ASARCO's operations conducted
in such countries and jurisdictions as a result of the acquisition of the shares
of Common Stock pursuant to the Offer or the Proposed Merger. If such approvals
or consents are found to be required the parties intend to make the appropriate
filings and applications. In the event such a filing or application is made for
the requisite foreign approvals or consents, there can be no assurance that such
approvals or consents will be granted and, if such approvals or consents are
received, there can be no assurance as to the date of such approvals or
consents. In addition, there can be no assurance that the Purchaser will be able
to cause ASARCO or its subsidiaries to satisfy or comply with such laws or that
compliance or noncompliance will not have adverse consequences for ASARCO or any
subsidiary after purchase of the shares of Common Stock pursuant to the Offer or
the Proposed Merger.
ASARCO conducts business and owns properties in many locations throughout
the world, and Purchaser's knowledge thereof, which is based on publicly
available information, is necessarily incomplete and may be inaccurate. Based on
such publicly available information, however, Purchaser believes that ASARCO may
own property in one or more jurisdictions whose laws may prohibit or otherwise
restrict the transfer of property, or a controlling interest in the owner
thereof, without first investigating the environmental condition of such
property and remediating, or entering into an agreement with the appropriate
governmental authority to remediate, contamination thereon. Purchaser will seek
to comply with any such environmental laws that it determines may be applicable
to the Offer (or to enter into agreements with such regulatory authorities to
comply therewith following completion of the Offer).
STATE TAKEOVER STATUTES. A number of other states have adopted laws and
regulations that purport to apply to attempts to acquire corporations that are
incorporated in such states, or whose business operations have substantial
economic effects in such states, or which have substantial assets, security
holders, employees, principal executive offices or principal places of business
in such states. In EDGAR V. MITE CORP., the Supreme Court of the United States
invalidated on constitutional grounds the Illinois Business Take-Over Act,
which, as a matter of state securities law, made takeovers of corporations
meeting certain requirements more difficult by, among other things, requiring
the pre-approval of Illinois officials. However, in 1987, in CTS CORP. V.
DYNAMICS CORP. OF AMERICA, the Supreme Court of the United States held that the
State of Indiana may, as a matter of corporate law and, in particular, with
respect to those aspects of corporate law concerning corporate governance,
constitutionally disqualify a potential acquiror from voting on the affairs of a
target corporation without the prior approval of a majority of the remaining
shareholders. The Indiana Act did not require pre-approval of state officials.
The state law before the Supreme Court of the United States was by its terms
applicable only to corporations that had a substantial number of shareholders in
the state and were incorporated there. Subsequently, in TLX ACQUISITION CORP.
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V. TELEX CORP., a Federal district court in Oklahoma ruled that the Oklahoma
statutes were unconstitutional insofar as they apply to corporations
incorporated outside Oklahoma and that they would subject such corporations to
inconsistent regulations. Similarly, in TYSON FOODS, INC. V. MCREYNOLDS, a
Federal district court in Tennessee ruled that four Tennessee takeover statutes
were unconstitutional as applied to corporations incorporated outside Tennessee.
This decision was affirmed by the United States Court of Appeals for the Sixth
Circuit. In KENNECOTT CORP. V. SMITH, a decision pre-dating the two United
States Supreme Court decisions, the Federal district court in New Jersey, on
remand from the United States Court of Appeals for the Third Circuit, found
unconstitutional certain provisions of the New Jersey Takeover Bid Disclosure
Law, including those requiring pre-approval of a New Jersey official. The court
permanently enjoined enforcement of New Jersey law.
Except as described in this Offer to Purchase, neither Purchaser nor Parent
has currently complied with any state takeover statute or regulation. Purchaser
reserves the right to challenge the applicability or validity of any state law
purportedly applicable to the Offer or the Proposed Merger and nothing in this
Offer to Purchase or any action taken in connection with the Offer or the
Proposed Merger is intended as a waiver of such right. If it is asserted that
any state takeover statute is applicable to the Offer or the Proposed Merger and
an appropriate court does not determine that it is inapplicable or invalid as
applied to the Offer or the Proposed Merger, Purchaser might be required to file
certain information with, or to receive approvals from, the relevant state
authorities, and Purchaser might be unable to accept for payment or pay for
shares of Common Stock tendered pursuant to the Offer, or be delayed in
consummating the Offer or the Proposed Merger. In such case, Purchaser may not
be obliged to accept for payment or pay for any shares of Common Stock tendered
pursuant to the Offer.
A number of other states have adopted laws and regulations applicable to
attempts to acquire securities of corporations which are incorporated, or have
substantial assets, shareholders, principal executive offices or principal
places of business, or whose business operations otherwise have substantial
economic effects, in such states. Purchaser does not know whether any of these
laws will, by their terms, apply to the Offer and has not complied with any such
laws. Should any person seek to apply any state takeover law, Purchaser will
take such action as then appears desirable, which may include challenging the
validity or applicability of any such statute in appropriate court proceedings.
In the event it is asserted that one or more state takeover laws are applicable,
and an appropriate court does not determine that such law is, or such laws are
inapplicable or invalid as applied to the Offer, Purchaser might be required to
file certain information with, or receive approvals from, the relevant state
authorities. In addition, if enjoined, Purchaser might be unable to accept for
payment any shares of Common Stock tendered pursuant to the Offer, or be delayed
in continuing or consummating the Offer. In such case, Purchaser may not be
obligated to accept for payment any shares of Common Stock tendered. See Section
14.
THE SHAREHOLDER PROTECTION ACT. Consummation of the Offer is conditioned on
Purchaser being satisfied, in its sole discretion, that the provisions of the
Shareholder Protection Act are inapplicable to the acquisition of shares of
Common Stock pursuant to this Offer and to the Proposed Merger.
The Shareholder Protection Act generally provides that no resident domestic
corporation shall engage in any business combination with any interested
stockholder for a period of five years following that interested stockholder's
stock acquisition date unless the business combination is approved by the Board
of Directors prior to that stock acquisition date. An "interested stockholder"
is any person (other than the resident domestic corporation or any of its
subsidiaries) that (i) is the beneficial owner directly or indirectly, of 10% or
more of the voting power of the outstanding voting stock of the resident
domestic corporation, or (ii) is an affiliate or associate of that resident
domestic corporation who, at any time within the five-year period immediately
prior to the stock acquisition date, was a beneficial owner directly or
indirectly of 10% or more of the outstanding voting stock of the resident
domestic corporation. A "beneficial owner" of stock is a person that,
individually or with or through any of its affiliates or associates (i)
beneficially owns that stock directly or indirectly, (ii) has the right to
acquire or vote that stock, or (iii) has any agreement, arrangement or
understanding for the purpose of acquiring, holding, voting or
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disposing of that stock with any other beneficial owner thereof. An "affiliate"
of a beneficial owner is a person that directly, or indirectly through one or
more intermediaries, controls, or is controlled by or under common control with,
the beneficial owner. A "resident domestic corporation" is an issuer of voting
stock which is organized under the laws of the State of New Jersey and, as of
the date in which any such person became an interested stockholder, has its
principal executive offices located in New Jersey or significant business
operations located in New Jersey. The "stock acquisition date" is the date that
a person first becomes an interested stockholder of a resident domestic
corporation. The "business combinations" at which these provisions are directed
include any merger or consolidation.
Accordingly, in the event ASARCO is a resident domestic corporation within
the meaning of the Shareholder Protection Act, New Jersey law gives the ASARCO
Board a veto power over any business combination proposed by one who directly or
indirectly acquires 10% or more of ASARCO's voting stock.
In addition, unless it falls under certain excluded categories of
transactions, a business combination with an interested stockholder is
prohibited at any time unless any one of the following three conditions are
satisfied:
(1) the board of directors must approve the business combination prior
to the stock acquisition date of the interested stockholder;
(2) the holders of two-thirds of the voting stock of the resident
domestic corporation not beneficially owned by the interested stockholder
must approve the business combination by affirmative vote at a meeting
called for that purpose; or
(3) (a) the holder of the resident domestic corporation's common stock,
must receive the higher of (i) the maximum price paid for such class of
stock by the interested stockholder during the five years preceding the
announcement date or the date of the transaction in which the interested
stockholder became an interested stockholder, whichever is higher, plus
interest compounded annually, less the aggregate amount of cash dividends
paid or (ii) the market value per share of common stock of the resident
domestic corporation on the announcement date with respect to the business
combination or on the interested shareholder's stock acquisition date,
whichever yields a higher price,
(b) the holder of stock other than common stock receives a similarly
determined price, taking into account the highest preferential amount per
share to which the holders of such shares are entitled in the event of
any liquidation, dissolution or winding up of the resident domestic
corporation, plus any preferential dividends to which they would be
entitled that is not included in the preferential amount,
(c) the consideration to the shareholders is paid in cash or in the
same form that the interested stockholder used to acquire the largest
block of stock that he acquired,
(d) the holders of all outstanding stock not owned by the interested
stockholder received the consideration required by the preceding
paragraphs in the business combination, and
(e) the interested stockholder did not become the beneficial owner of
any additional shares of stock of the resident domestic corporation
between his stock acquisition date and the date of consummation of the
business combination, except (i) as part of the transaction that resulted
in his becoming an interested stockholder, (ii) by virtue of
proportionate stock splits, dividends or distributions not themselves
constituting a business combination, (iii) pursuant to a business
combination meeting the conditions of paragraph (c), or (iv) through
purchase by that interested stockholder at any price which, if that price
had been paid in an otherwise permissible business combination, the
announcement date and consummation date of which were the date of that
purchase, would have satisfied the requirements of paragraphs (a), (b)
and (c).
The foregoing summary of the Shareholder Protection Act does not purport to
be complete and is qualified in its entirety by reference to the provisions of
the Shareholder Protection Act.
57
<PAGE>
FEDERAL RESERVE BOARD REGULATIONS. Regulations T, U and X (the "Margin
Regulations") of the Federal Reserve Board restrict the extension or maintenance
of credit for the purpose of buying or carrying margin stock, including the
shares of Common Stock, if the credit is secured directly or indirectly by
margin stock. Such secured credit may not be extended or maintained in an amount
that exceeds the maximum loan value of all the direct and indirect collateral
securing the credit, including margin stock and other collateral. As described
in Section 10 of this Offer to Purchase, the financing of the Offer will be
secured by, among other things, the shares of Common Stock. Based upon the value
of the shares of Common Stock and the value of the other pledged collateral,
Purchaser believes that the financing will be in compliance with the Margin
Regulations.
16. FEES AND EXPENSES.
Except as set forth below, neither Parent nor Purchaser will pay any fees or
commissions to any broker, dealer or other person for soliciting tenders of
shares of Common Stock pursuant to the Offer. The Dealer Manager is acting in
such capacity in connection with the Offer and is acting as financial advisor to
Parent in connection with its effort to acquire ASARCO. Parent has agreed
pursuant to an engagement letter (the "Engagement Letter") to pay the Dealer
Manager (i) a fee of $2,000,000 upon the execution of the Engagement Letter,
(ii) a fee of $750,000 upon the earlier to occur of (a) the execution of a
definitive merger agreement between Parent and the Company or (b) the
commencement of general retail syndication of the Credit Facilities and (iii) a
fee of $10,000,000 (reduced by amounts paid pursuant to (i) and (ii) above)
payable upon the consummation of the acquisition of ASARCO by Parent, if the
acquisition is consummated, or an agreement is entered into which subsequently
results in a consummated acquisition of ASARCO by Parent, in either case, on or
prior to June 24, 2000. Parent has also agreed to reimburse the Dealer Manager
(in its capacities as Dealer Manager and financial advisor) for its reasonable
out-of-pocket expenses, including the reasonable fees and expenses of its legal
counsel, incurred in connection with their engagement, and to indemnify the
Dealer Manager and certain related persons against certain liabilities and
expenses in connection with their engagement, including certain liabilities
under the Federal securities laws. The Dealer Manager has rendered various
investment banking and other advisory services to Parent and its affiliates in
the past and is expected to continue to render such services, for which it has
received and will continue to receive customary compensation from Parent and its
affiliates. In the ordinary course of business, the Dealer Manager and its
affiliates may actively trade or hold the securities of ASARCO and Parent for
its own account or for the account of customers and, accordingly, may at any
time hold a long or short position in such securities.
Purchaser has retained D.F. King & Co., Inc. to act as the Information Agent
in connection with the Offer. The Information Agent may contact holders of
Common Stock by mail, telephone, facsimile, telegraph and personal interviews
and may request brokers, dealers and other nominee shareholders to forward
materials relating to the Offer to beneficial owners of Common Stock. The
Information Agent will receive reasonable and customary compensation for its
services, will be reimbursed for certain reasonable out-of-pocket expenses and
will be indemnified against certain liabilities and expenses in connection
therewith, including certain liabilities under the Federal securities laws.
In addition, Citibank, N.A. has been retained as the Depositary. The
Depositary has not been retained to make solicitations or recommendations in its
role as Depositary. The Depositary will receive reasonable and customary
compensation for its services, will be reimbursed for certain reasonable
out-of-pocket expenses and will be indemnified against certain liabilities and
expenses in connection therewith, including certain liabilities under the
Federal securities laws. Brokers, dealers, commercial banks and trust companies
will be reimbursed by Purchaser for customary mailing and handling expenses
incurred by them in forwarding offering material to their customers.
58
<PAGE>
17. MISCELLANEOUS.
Purchaser is not aware of any jurisdiction where the making of the Offer is
prohibited by any administrative or judicial action pursuant to any valid state
statute. If Purchaser becomes aware of any valid state statute prohibiting the
making of the Offer or the acceptance of the shares of Common Stock pursuant
thereto, Purchaser will make a good faith effort to comply with such state
statute. If, after such good faith effort, Purchaser cannot comply with any such
state statute, the Offer will not be made to (nor will tenders be accepted from
or on behalf of) the holders of Common Stock in such state. In any jurisdiction
where the securities, blue sky or other laws require the Offer to be made by a
licensed broker or dealer, the Offer shall be deemed to be made on behalf of
Purchaser by one or more registered brokers or dealers which are licensed under
the laws of such jurisdiction.
No person has been authorized to give any information or make any
representation on behalf of Parent or Purchaser not contained in this Offer to
Purchase or in the Letter of Transmittal and, if given or made, such information
or representation must not be relied upon as having been authorized.
Parent and Purchaser have filed with the SEC the Parent Schedule 14D-1,
together with exhibits, pursuant to Rule 14d-3 of the General Rules and
Regulations under the Exchange Act, furnishing certain additional information
with respect to the Offer and may file amendments thereto. The Schedule 14D-1,
and any amendments thereto, may be inspected at, and copies may be obtained
from, the same places and in the same manner as set forth in Section 8 (except
that copies may not be available at regional offices of the SEC).
ASMEX CORPORATION
September 27, 1999
59
<PAGE>
SCHEDULE I
DIRECTORS AND EXECUTIVE OFFICERS OF PARENT, PURCHASER
AND EIM
1. DIRECTORS AND EXECUTIVE OFFICERS OF PARENT. The following table sets
forth the name and present principal occupation or employment, and material
occupations, positions, offices or employments for the past five years of each
director and executive officer of Parent. Except as noted, each such person, is
a citizen of Mexico. The business address of each such person is c/o Parent. See
Section 9.
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT;
NAME OFFICES OR POSITIONS HELD FIVE-YEAR EMPLOYMENT HISTORY
- -------------------------------------- --------------------------- --------------------------------------------
<S> <C> <C>
German Larrea Mota-Velasco............ Chairman of the Board and Chief Executive Officer since 1994. Chief
Chief Executive Officer Executive Officer of EIM since 1994.
Director since 1994.
Juan Sanchez-Navarro Peon............. Director Vice President of Grupo Modelo, S.A. de C.V.
since 1993. Chairman of Banco
Internacional, S.A. from July 22, 1992 to
April 23, 1997. Chairman of Grupo
Financiero Bital, S.A. de C.V. from July
22, 1992 to April 23, 1997. Director since
1994.
Romulo O'Farrill Jr................... Director Chief Executive Officers of Novedades
Editores, S.A. de C.V. during the past
five years. Director since 1994.
Prudencio Lopez Martinez.............. Director President of Sanvica, S.A. de C.V. since
1982. Director since 1994.
Juan I. Gallardo Thurlow.............. Director Chairman of the Board of Grupo Azucarero de
Mexico, S.A. de C.V. since 1995. Chairman
of the Board of Grupo Embotelladoras
Unidas, S.A. de C.V. since 1986. Director
since 1994.
Claudio X. Gonzalez................... Director Chairman and Chief Executive Officer of
Kimberly-Clark de Mexico, S.A. de C.V.
during the past five years. Director since
1994.
Carlos Giron Peltier.................. Director Retired since 1995. Director since 1994.
Jose Mendoza Fernandez................ Director Chief Executive Officer of Bufete
Industrial, S.A. for the past five years.
Director since 1994.
Genaro Larrea Mota-Velasco............ Director and Commercial Commercial Managing Director since 1994.
Managing Director Director since 1994.
Agustin Santamarina Vazquez........... Director and Secretary of Of counsel of Parent since July 1, 1992.
the Board Director since 1994.
</TABLE>
S-1
<PAGE>
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT;
NAME OFFICES OR POSITIONS HELD FIVE-YEAR EMPLOYMENT HISTORY
- -------------------------------------- --------------------------- --------------------------------------------
<S> <C> <C>
Hector Calva Ruiz..................... Managing Director for Managing Director of Industrial Minera
Exploration and Projects Mexico, S.A. de C.V. from 1984 to 1997.
and Alternate Director Managing Director for Exploration and
Projects of Parent since 1997. Alternate
Director since 1998.
Daniel Tellechea Salido............... Managing Director for Managing Director of Mexicana de Cobre, S.A.
Administration and de C.V. from 1986 to 1993. Managing
Finance and Alternate Director for Administration and Finance
Director since 1994. Alternate Director since 1998.
Oscar Gonzalez Rocha.................. Managing Director for Managing Director for Mexicana de Cobre,
Mexicana de Cobre, S.A. S.A. de C.V. since 1986. Managing Director
de C.V. and Mexicana de of Mexicana de Cananea, S.A. de C.V. since
Cananea, S.A. de C.V. and 1990. Alternate Director since 1988.
Alternate Director
Xavier Garcia de Quevedo Topete....... Managing Director for Managing Director for Exploration and
Ferrocarril Mexicano, Development of Parent from 1994 to 1997.
S.A. de C.V. and Grupo Managing Director for Ferrocarril
Ferroviario Mexicano, Mexicano, S.A. de C.V. and Grupo
S.A. de C.V. and Ferroviario Mexicano, S.A. de C.V. since
Alternate Director 1997. Alternate Director since 1998.
Alfredo Casar Perez................... Managing Director for Managing Director of Compania Perforadora
Development and Alternate Mexico, S.A. de C.V. from 1992 to date.
Director Managing Director for Development of
Parent since 1997. Alternate Director
since 1998.
Daniel Chavez Carreon................. Managing Director for Corporate Purchasing Director for Parent
Industrial Minera Mexico, from 1991 to 1997. Managing Director for
S.A. de C.V. and Industrial Minera Mexico, S.A. de C.V.
Alternate Director since 1997. Alternate Director since 1998.
Eduardo Gonzalez Gomez................ Alternate Director CEO's Assistant of Mexicana de Cobre, S.A.
de C.V. from 1984 to 1997. Independent
Financial Advisor since 1997. Alternate
Director since 1994.
Sergio M. Ferrer de la Barrera........ General Counsel and Associate in Baker & McKenzie, S.C. from
Alternate Director and 1993 to 1995. General Counsel since 1995.
Assistant Secretary Alternate Director since 1998.
Manuel Calderon Cardenas.............. Director of Mine Planning Director of Mine Planning and Control for
and Control the past five years.
Vidal Muhech Dip...................... Director for Engineering Director for Engineering and Construction
and Construction since 1985.
</TABLE>
S-2
<PAGE>
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT;
NAME OFFICES OR POSITIONS HELD FIVE-YEAR EMPLOYMENT HISTORY
- -------------------------------------- --------------------------- --------------------------------------------
<S> <C> <C>
Ernesto Duran Trinidad................ Comptroller Comptroller of Mexicana de Cobre, S.A. de
C.V. from 1986 to 1993. Comptroller of
Parent since 1993.
Genaro Guerrero Diaz Mercado.......... Treasurer Treasurer since 1993.
Gabino Paez Gonzalez.................. Managing Director for Managing Director for Industrial Relations
Industrial Relations and since 1989. Alternate Director since 1994.
Alternate Director
Rolando Vega Iniguez.................. Examiner Examiner of the Board since 1994.
Gilberto Nava Escobedo................ Alternate Examiner Alternate Examiner of the Board since 1994.
</TABLE>
2. DIRECTORS AND EXECUTIVE OFFICERS OF PURCHASER. The following table sets
forth the name and present principal occupation or employment, and material
occupations, positions, offices or employments for the past five years of each
director and executive officer of Purchaser. Each such person is a citizen of
Mexico and the business address of each such person is c/o Purchaser. See
Section 9.
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT;
NAME OFFICES OR POSITIONS HELD FIVE-YEAR EMPLOYMENT HISTORY
- -------------------------------------- --------------------------- --------------------------------------------
<S> <C> <C>
German Larrea Mota-Velasco............ President and Chairman of See above.
the Board
Genaro Larrea Mota-Velasco............ Vice President and Director See above.
Agustin Santamarina Vazquez........... Director See above.
Daniel Tellechea Salido............... Vice President and See above.
Treasurer
Hector Calva Ruiz..................... Vice President See above.
Sergio M. Ferrer de la Barrera........ Secretary See above.
</TABLE>
3. DIRECTORS AND EXECUTIVE OFFICERS OF EIM. The following table sets forth
the name and present principal occupation or employment, and material
occupations, positions, offices or employments for the past five years of each
director and executive officer of EIM. Except as noted each such person, is a
citizen of Mexico. The business address of each such person is c/o EIM. See
Section 9.
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT;
NAME OFFICES OR POSITIONS HELD FIVE-YEAR EMPLOYMENT HISTORY
- -------------------------------------- --------------------------- --------------------------------------------
<S> <C> <C>
German Larrea Mota-Velasco............ Chairman of the Board and See above.
Chief Executive Officer
Genaro Larrea Mota-Velasco............ Director See above.
Alfredo Casar Perez................... Director See above.
Eduardo Gonzalez Gomez................ Director See above.
</TABLE>
S-3
<PAGE>
Facsimile copies of the Letter of Transmittal, properly completed and duly
signed, will be accepted. The Letter of Transmittal, Common Stock Certificates
(and Rights Certificates, if applicable) and any other required documents should
be sent by each shareholder of ASARCO or his broker, dealer, commercial bank,
trust company or other nominee to the Depositary as follows:
THE DEPOSITARY FOR THE OFFER IS:
CITIBANK, N.A.
<TABLE>
<S> <C> <C>
BY COURIER: BY MAIL: BY HAND:
Citibank, N.A. Citibank, N.A. Citibank, N.A.
915 Broadway P.O. Box 685 Corporate Trust Window
5th Floor Old Chelsea Station 111 Wall Street, 5th Floor
New York, New York 10010 New York, New York 10113 New York, New York 10043
</TABLE>
Facsimile for Eligible Institutions: (212) 505-2248
To Confirm Facsimile Only: (800) 270-0808
-------------------
Any questions or requests for assistance may be directed to the Information
Agent or the Dealer
Manager at their respective telephone numbers and locations listed below.
Additional copies of the Offer to Purchase, the Letter of Transmittal and the
Notice of Guaranteed Delivery may be obtained from the Information Agent at its
address and telephone numbers set forth below. Holders of shares of Common Stock
may also contact their broker, dealer, commercial bank or trust company or other
nominee for assistance concerning the Offer.
THE INFORMATION AGENT FOR THE OFFER IS:
D.F. KING & CO., INC.
UNITED STATES
77 Water Street
New York, New York 10005
CALL TOLL-FREE: (800) 714-3305
or
(212) 269-5550 (call collect)
EUROPE
Royex House, Aldermanbury Square
London, England EC2V 7HR
(44) 171 600 5005 (call collect)
THE DEALER MANAGER FOR THE OFFER IS:
CHASE SECURITIES INC.
270 Park Avenue
New York, New York 10017
Telephone: (212) 270-3298
<PAGE>
LETTER OF TRANSMITTAL
TO TENDER SHARES OF COMMON STOCK
(INCLUDING THE ASSOCIATED JUNIOR PARTICIPATING PREFERRED STOCK PURCHASE RIGHTS)
OF
ASARCO INCORPORATED
PURSUANT TO THE OFFER TO PURCHASE,
DATED SEPTEMBER 27, 1999
BY
ASMEX CORPORATION
A WHOLLY OWNED SUBSIDIARY OF
GRUPO MEXICO, S.A. DE C.V.
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT
12:00 MIDNIGHT, NEW YORK CITY TIME, ON MONDAY, OCTOBER 25, 1999,
UNLESS THE OFFER IS EXTENDED.
THE DEPOSITARY FOR THE OFFER IS:
CITIBANK, N.A.
<TABLE>
<S> <C> <C>
BY COURIER: BY MAIL: BY HAND:
Citibank, N.A. Citibank, N.A. Citibank, N.A.
915 Broadway P.O. Box 685 Corporate Trust Window
5th Floor Old Chelsea Station 111 Wall Street, 5th Floor
New York, New York 10010 New York, New York 10113 New York, New York 10043
</TABLE>
BY FACSIMILE TRANSMISSION:
(FOR ELIGIBLE INSTITUTIONS ONLY)
(212) 505-2248
FOR INFORMATION TELEPHONE:
(800) 270-0808
------------------------
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE TRANSMISSION OTHER THAN AS
SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. YOU MUST SIGN THIS LETTER
OF TRANSMITTAL WHERE INDICATED BELOW AND COMPLETE THE SUBSTITUTE FORM W-9
PROVIDED BELOW.
THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ
CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED.
THIS LETTER OF TRANSMITTAL IS TO BE COMPLETED BY SHAREHOLDERS OF ASARCO
INCORPORATED EITHER IF CERTIFICATES EVIDENCING SHARES OF COMMON STOCK AND/OR
RIGHTS (EACH AS DEFINED HEREIN) ARE TO BE FORWARDED HEREWITH, OR IF DELIVERY OF
SHARES OF COMMON STOCK AND/OR RIGHTS IS TO BE MADE BY BOOK-ENTRY TRANSFER TO THE
DEPOSITARY'S ACCOUNT AT THE DEPOSITORY TRUST COMPANY (THE "BOOK-ENTRY TRANSFER
FACILITY") PURSUANT TO THE BOOK-ENTRY TRANSFER PROCEDURE DESCRIBED IN
"PROCEDURES FOR TENDERING SHARES OF COMMON STOCK" OF THE OFFER TO PURCHASE (AS
DEFINED HEREIN). DELIVERY OF DOCUMENTS TO THE BOOK-ENTRY TRANSFER FACILITY IN
ACCORDANCE WITH SUCH BOOK-ENTRY TRANSFER FACILITY'S PROCEDURES DOES NOT
CONSTITUTE DELIVERY TO THE DEPOSITARY (AS DEFINED IN THE OFFER TO PURCHASE).
<PAGE>
Unless the Rights Condition has been satisfied or waived, holders of shares
of Common Stock will be required to tender one Right for each share of Common
Stock tendered to effect a valid tender of such shares of Common Stock. Unless
and until the Distribution Date (as defined in the Offer to Purchase) occurs,
the Rights are represented by and transferred with the Common Stock.
Accordingly, if the Distribution Date does not occur prior to the Expiration
Date (as defined in the Offer to Purchase) of the Offer, a tender of shares of
Common Stock will constitute a tender of the associated Rights. If a
Distribution Date has occurred before shares of Common Stock are tendered,
Rights Certificates (as defined in the Offer to Purchase) representing a number
of Rights equal to the number of shares of Common Stock being tendered must be
delivered to the Depositary in order for such shares of Common Stock to be
validly tendered. If a Distribution Date has occurred subsequent to the tender
of shares of Common Stock, Rights Certificates representing a number of Rights
equal to the number of shares of Common Stock tendered pursuant to the Offer
must be delivered to the Depositary within three New York Stock Exchange
("NYSE") trading days after the date such Rights Certificates are distributed in
order for such shares of Common Stock to be validly tendered.
If a shareholder desires to tender shares of Common Stock pursuant to the
Offer and such shareholder's Common Stock Certificates, and if applicable,
Rights Certificates, are not immediately available or time will not permit all
required documents to reach the Depositary prior to the Expiration Date or the
procedure for book-entry transfer cannot be completed on a timely basis, such
shares of Common Stock may nevertheless be tendered pursuant to the guaranteed
delivery procedure described in "Procedures for Tendering Shares of Common
Stock" of the Offer to Purchase. See Instruction 2. Delivery of documents to a
Book-Entry Transfer Facility (as defined in the Offer to Purchase) in accordance
with the Book-Entry Transfer Facility's procedures does not constitute delivery
to the Depositary.
2
<PAGE>
/ / CHECK HERE IF TENDERED SHARES OF COMMON STOCK ARE BEING DELIVERED BY
BOOK-ENTRY TRANSFER TO THE DEPOSITARY'S ACCOUNT AT THE BOOK-ENTRY TRANSFER
FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution: _____________________________________________
Account Number: ____________________________________________________________
Transaction Code Number: ___________________________________________________
/ / CHECK HERE IF TENDERED RIGHTS ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER TO
THE DEPOSITARY'S ACCOUNT AT THE BOOK-ENTRY TRANSFER FACILITY AND COMPLETE
THE FOLLOWING*:
Name of Tendering Institution: _____________________________________________
Account Number: ____________________________________________________________
Transaction Code Number: ___________________________________________________
*NOTE: MUST BE PROVIDED ONLY IN THE EVENT THAT THERE HAS BEEN A DISTRIBUTION
DATE (AND RIGHTS CERTIFICATES HAVE BEEN DELIVERED) PRIOR TO THE TENDER OF
YOUR COMMON STOCK.
/ / CHECK HERE IF TENDERED SHARES OF COMMON STOCK ARE BEING TENDERED PURSUANT
TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE DEPOSITARY AND
COMPLETE THE FOLLOWING:
Name(s) of Registered Holder(s): ___________________________________________
Window Ticket Number (if any): _____________________________________________
Date of Execution of Notice of Guaranteed Delivery: ________________________
Name of Institution which Guaranteed Delivery: _____________________________
Account Number: ____________________________________________________________
Transaction Code Number: ___________________________________________________
/ / CHECK HERE IF TENDERED RIGHTS ARE BEING TENDERED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY PREVIOUSLY SENT TO THE DEPOSITARY AND COMPLETE THE
FOLLOWING*:
Name(s) of Registered Holder(s): ___________________________________________
Window Ticket Number (if any): _____________________________________________
Date of Execution of Notice of Guaranteed Delivery: ________________________
Name of Institution which Guaranteed Delivery: _________________________
Account Number: ________________________________________________________
Transaction Code Number: ___________________________________________________
*NOTE: MUST BE PROVIDED ONLY IN THE EVENT THAT THERE HAS BEEN A DISTRIBUTION
DATE (AND RIGHTS CERTIFICATES HAVE BEEN DELIVERED) PRIOR TO THE TENDER OF YOUR
COMMON STOCK.
3
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
DESCRIPTION OF SHARES OF COMMON STOCK TENDERED
-------------------------------------------------------------------------------------------
NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S) SHARES OF COMMON STOCK CERTIFICATE(S) TENDERED (ATTACH
(PLEASE FILL IN, IF BLANK) ADDITIONAL LIST IF NECESSARY)
- ---------------------------------------------------------------------------------------------------------------
TOTAL NUMBER OF
SHARES OF NUMBER OF
COMMON STOCK SHARES OF
CERTIFICATE REPRESENTED BY COMMON STOCK
NUMBER(S)* CERTIFICATE(S) TENDERED**
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
TOTAL SHARES OF
COMMON STOCK
- ---------------------------------------------------------------------------------------------------------------
* Need not be completed by shareholders tendering by book-entry transfer.
** Unless otherwise indicated, it will be assumed that all shares of Common Stock being delivered to the
Depositary are being tendered. See Instruction 4.
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
PLEASE COMPLETE THE BOX BELOW ONLY IN THE EVENT A DISTRIBUTION
DATE HAS OCCURRED
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------
DESCRIPTION OF RIGHTS TENDERED
- -------------------------------------------------------------------------------------------
NAME(S) AND ADDRESS(ES) OF REGISTERED
HOLDER(S) RIGHTS CERTIFICATE(S) TENDERED*
(PLEASE FILL IN, IF BLANK) (ATTACH ADDITIONAL LIST IF NECESSARY)
- --------------------------------------------------------------------------------------------
TOTAL NUMBER
OF RIGHTS NUMBER OF
CERTIFICATE REPRESENTED BY RIGHTS
NUMBER(S)** CERTIFICATE(S) TENDERED***
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
TOTAL RIGHTS
- --------------------------------------------------------------------------------------------
* If the tendered Rights are represented by separate Rights Certificates, provide the
certificate numbers of such Rights Certificates. Shareholders tendering Rights which are
not represented by separate certificates will need to submit an additional Letter of
Transmittal if Rights Certificates are distributed.
** Need not be completed by shareholders tendering by book-entry transfer.
*** Unless otherwise indicated, it will be assumed that all Rights being delivered to the
Depositary are being tendered. See Instruction 4.
- --------------------------------------------------------------------------------------------
</TABLE>
The name(s) and address(es) of the registered holder(s) should be printed,
if not already printed above, exactly as it appears on the certificate(s)
representing shares of Common Stock and/or Rights tendered hereby. The
certificate(s) and number of shares of Common Stock and/or Rights that the
undersigned wishes to tender should be indicated in the appropriate boxes.
4
<PAGE>
NOTE: SIGNATURES MUST BE PROVIDED BELOW.
PLEASE READ THE INSTRUCTIONS SET FORTH IN THIS
LETTER OF TRANSMITTAL CAREFULLY.
Ladies and Gentlemen:
The undersigned hereby tenders to ASMEX Corporation, a Delaware corporation
("Purchaser") and a wholly owned subsidiary of Grupo Mexico, S.A. de C.V., a
Mexican corporation ("Parent"), the above described shares of common stock,
without par value (the "Common Stock"), of ASARCO Incorporated, a New Jersey
corporation ("ASARCO"), including the associated junior participating preferred
stock purchase rights (including any successors thereto, the "Rights") issued
pursuant to the Rights Agreement, dated as of January 28, 1998, as amended as of
July 15, 1999, between ASARCO and The Bank of New York, as Rights Agent (as such
agreement may be further amended and including any successor agreement, the
"Rights Agreement"), pursuant to Purchaser's offer to purchase all of the
outstanding shares of Common Stock, including the associated Rights, at a price
of $26.00 per share, net to the seller in cash, without interest thereon, upon
the terms and subject to the conditions set forth in the Offer to Purchase,
dated September 27, 1999 (the "Offer to Purchase"), receipt of which is hereby
acknowledged, and in this Letter of Transmittal (which, as amended from time to
time, together constitute the "Offer"). Unless the context requires otherwise,
all references herein to Common Stock shall include the associated Rights,
whether or not such Rights are evidenced by separate Rights Certificates (as
defined in the Offer to Purchase), and all references to the Rights shall
include the benefits that may inure to the holders of the Rights pursuant to the
Rights Agreement, including the right to receive any payment due upon redemption
of the Rights.
The undersigned understands that Purchaser reserves the right to transfer or
assign, in whole at any time, or in part from time to time, to Parent or one or
more wholly owned subsidiaries of Parent, the right to purchase all or any
portion of the Common Stock tendered pursuant to the Offer, provided that any
such transfer or assignment will not relieve Purchaser of its obligations under
the Offer and will in no way prejudice the rights of tendering shareholders to
receive payment for shares of Common Stock validly tendered and accepted for
payment pursuant to the Offer.
Subject to, and effective upon, acceptance for payment of the shares of
Common Stock and Rights tendered herewith, in accordance with the terms of the
Offer (including, if the Offer is extended or amended, the terms and conditions
of any such extension or amendment), the undersigned hereby sells, assigns and
transfers to, or upon the order of, Purchaser all right, title and interest in
and to all the shares of Common Stock and Rights that are being tendered hereby
(and any and all non-cash dividends, distributions, rights, other shares of
Common Stock or other securities issued or issuable in respect thereof or
declared, paid or distributed in respect of such shares of Common Stock on or
after the date of the Offer to Purchase (collectively, "Distributions")), and
irrevocably appoints the Depositary the true and lawful agent and
attorney-in-fact of the undersigned with respect to such shares of Common Stock
and all Distributions, with full power of substitution (such power of attorney
being deemed to be an irrevocable power coupled with an interest), to (i)
deliver certificates for such shares of Common Stock and Rights (each a
"Certificate") and all Distributions, or transfer ownership of such shares of
Common Stock and all Distributions on the account books maintained by the
Book-Entry Transfer Facility, together, in either case, with all accompanying
evidence of transfer and authenticity to, or upon the order of Purchaser, (ii)
present such shares of Common Stock and all Distributions for transfer on the
books of ASARCO and (iii) receive all benefits and otherwise exercise all rights
of beneficial ownership of such shares of Common Stock and all Distributions,
all in accordance with the terms of the Offer.
If, on or after the date of this Offer to Purchase, ASARCO should declare or
pay any dividend on the Common Stock, other than regular quarterly dividends, or
make any distribution (including, without limitation, the issuance of additional
shares of Common Stock pursuant to a stock dividend or stock split, the issuance
of other securities or the issuance of rights for the purchase of any
securities) with respect to
5
<PAGE>
the Common Stock that is payable or distributable to shareholders of record on a
date prior to the transfer to Purchaser or its nominee or transferee on ASARCO's
stock transfer records of the Common Stock purchased pursuant to the Offer,
then, without prejudice to Purchaser's rights under Section 1 and Section 14 of
the Offer to Purchase, (i) the purchase price per share of Common Stock payable
by Purchaser pursuant to the Offer will be reduced by the amount of any such
cash dividend or cash distribution and (ii) any such non-cash dividend,
distribution or right to be received by the tendering shareholders will be
received and held by such tendering shareholders for the account of Purchaser
and will be required to be promptly remitted and transferred by each such
tendering shareholder to the Depositary for the account of Purchaser,
accompanied by appropriate documentation of transfer. Pending such remittance
and subject to applicable law, Purchaser will be entitled to all rights and
privileges as owner of any such non-cash dividend, distribution or right and may
withhold the entire purchase price or deduct from the purchase price the amount
of value thereof, as determined by Purchaser in its sole discretion.
By executing this Letter of Transmittal, the undersigned irrevocably
appoints Daniel Tellechea Salido and Hector Calva Ruiz as proxies of the
undersigned, individually but not jointly, each with full power of substitution,
to the full extent of the undersigned rights with respect to the Common Stock
tendered by the undersigned and accepted for payment by Purchaser (and any and
all Distributions). All such proxies shall be considered coupled with an
interest in the tendered Common Stock. This appointment will be effective if,
when, and only to the extent that, Purchaser accepts such Common Stock for
payment pursuant to the Offer. Upon such acceptance for payment, all prior
powers of attorney, proxies and consents given by the undersigned with respect
to such Common Stock and other securities will, without further action, be
revoked, and no subsequent powers of attorney, proxies and consents may be given
(and if given will not be deemed effective). The designees of Purchaser will,
with respect to the Common Stock and other securities for which the appointment
is effective, be empowered to exercise all voting and other rights of the
undersigned as they in their sole discretion may deem proper at any annual,
special, adjourned or postponed meeting of ASARCO's shareholders, by written
consent or otherwise, and Purchaser reserves the right to require that, in order
for Common Stock or other securities to be deemed validly tendered, immediately
upon Purchaser's acceptance for payment of such Common Stock, Purchaser must be
able to exercise full voting rights with respect to such shares of Common Stock.
The undersigned hereby represents and warrants that the undersigned has full
power and authority to tender, sell, assign and transfer the shares of Common
Stock tendered hereby and all Distributions, that the undersigned own(s) the
shares of Common Stock tendered hereby within the meaning of Rule 14e-4
promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), that such tender of shares of Common Stock complies with Rule 14e-4 under
the Exchange Act, and that, when such shares of Common Stock are accepted for
payment by Purchaser, Purchaser will acquire good, marketable and unencumbered
title thereto and to all Distributions, free and clear of all liens,
restrictions, charges and encumbrances, and that none of such shares of Common
Stock, and Distributions will be subject to any adverse claim. The undersigned,
upon request, shall execute and deliver all additional documents deemed by the
Depositary or Purchaser to be necessary or desirable to complete the sale,
assignment and transfer of the shares of Common Stock tendered hereby and all
Distributions. In addition, the undersigned shall remit and transfer promptly to
the Depositary for the account of Purchaser all Distributions in respect of the
shares of Common Stock tendered hereby, accompanied by appropriate documentation
of transfer, and, pending such remittance and transfer or appropriate assurance
thereof, Purchaser shall be entitled to all rights and privileges as owner of
each such Distribution and may withhold the entire purchase price or deduct from
such purchase price the amount or value of such Distribution as determined by
Purchaser in its sole discretion.
No authority herein conferred or agreed to be conferred shall be affected
by, and all such authority shall survive, the death or incapacity of the
undersigned. All obligations of the undersigned hereunder shall be binding upon
the heirs, executors, personal and legal representatives, administrators,
trustees in
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<PAGE>
bankruptcy, successors and assigns of the undersigned. Except as stated in the
Offer to Purchase, this tender is irrevocable, provided that shares of Common
Stock tendered pursuant to the Offer may be withdrawn at any time prior to their
acceptance for payment in accordance with Section 4 of the Offer to Purchase.
The undersigned understands that tenders of shares of Common Stock pursuant
to any one of the procedures described in "Procedures for Tendering Shares of
Common Stock" of the Offer to Purchase and in the Instructions hereto will
constitute the undersigned's acceptance of the terms and conditions of the
Offer. Purchaser's acceptance for payment of shares of Common Stock tendered
pursuant to the Offer will constitute a binding agreement between the
undersigned and Purchaser upon the terms and subject to the conditions of the
Offer. The undersigned recognizes that under certain circumstances set forth in
the Offer to Purchase, Purchaser may not be required to accept for payment any
of the shares of Common Stock tendered hereby.
Unless otherwise indicated herein in the box entitled "Special Payment
Instructions", please issue the check for the purchase price and/or return any
certificates evidencing shares of Common Stock and/or Rights not tendered or
accepted for payment, in the name(s) of the registered holder(s) appearing above
under "Description of Shares of Common Stock Tendered" and/or "Description of
Rights Tendered". Similarly, unless otherwise indicated in the box entitled
"Special Delivery Instructions", please mail the check for the purchase price
and/or return any certificates evidencing shares of Common Stock and/or Rights
not tendered or accepted for payment (and accompanying documents, as
appropriate) to the address(es) of the registered holder(s) appearing above
under "Description of Shares of Common Stock Tendered" and/or "Description of
Rights Tendered". In the event that the boxes entitled "Special Payment
Instructions" and "Special Delivery Instructions" are both completed, please
issue the check for the purchase price and/or return any certificates for shares
of Common Stock and/or Rights not purchased or not tendered or accepted for
payment in the name(s) of, and mail such check and/or return such certificates
to, the person(s) so indicated. Unless otherwise indicated herein in the box
entitled "Special Payment Instructions", please credit any shares of Common
Stock and/or Rights tendered hereby and delivered by book-entry transfer, but
which are not purchased, by crediting the account at the Book-Entry Transfer
Facility designated above. The undersigned recognizes that Purchaser has no
obligation, pursuant to the Special Payment Instructions, to transfer any shares
of Common Stock and/or Rights from the name of the registered holder(s) thereof
if Purchaser does not accept for payment any of the shares of Common Stock
and/or Rights tendered hereby.
7
<PAGE>
- ----------------------------------------------------------
SPECIAL PAYMENT INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5, 6 AND 7 OF THIS
LETTER OF TRANSMITTAL)
To be completed ONLY if certificates for shares of Common Stock and/or
Rights not tendered or not purchased and/or the check for the purchase price
of shares of Common Stock and/or Rights purchased are to be issued in the name
of someone other than the undersigned, or if the shares of Common Stock and/or
Rights delivered by book-entry transfer which are not purchased are to be
returned by credit to an account maintained at the Book-Entry Transfer
Facility other than that designated above.
Issue / / Check and/or / / Certificate(s) to:
Name: ________________________________________________________________________
(Please Print)
Address: _____________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
(Include Zip Code)
______________________________________________________________________________
(Tax Identification or Social Security Number(s))
(Complete Substitute Form W-9 Below)
/ / Credit unpurchased shares of Common Stock and/or Rights delivered by
book-entry transfer to the Book-Entry Transfer Facility account set forth
below:
___________________________________________________________________________
(Account Number)
- ----------------------------------------------
- ----------------------------------------------
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5 AND 7 OF THIS
LETTER OF TRANSMITTAL)
To be completed ONLY if certificates for shares of Common Stock and/or
Rights not tendered or not purchased and/or the check for the purchase price
of shares of Common Stock and/or Rights purchased are to be sent to someone
other than the undersigned, or to the undersigned at an address other than
that shown above.
Mail / / Check and/or / / Certificate(s) to:
Name: ________________________________________________________________________
(Please Print)
Address: _____________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
(Include Zip Code)
- ------------------------------------------
8
<PAGE>
- --------------------------------------------------------------------------------
HOLDER(S) SIGN HERE
(PLEASE COMPLETE SUBSTITUTE FORM W-9 BELOW)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
____________________________________________________________________________
____________________________________________________________________________
(SIGNATURE(S) OF HOLDER(S))
Name(s): ___________________________________________________________________
____________________________________________________________________________
(PLEASE PRINT)
Capacity (full title): _____________________________________________________
Address: ___________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
(INCLUDE ZIP CODE)
____________________________________________________________________________
Area Code and Telephone Number:_____________________________________________
(Tax Identification or Social Security Number(s)) __________________________
(COMPLETE
SUBSTITUTE W-9 BELOW)
Date: ___________________, 1999
(Must be signed by registered holder(s) exactly as name(s) appear(s) on
Common Stock certificate(s) or on a security position listing or by
person(s) authorized to become registered holder(s) by certificates and
documents transmitted herewith. If signature is by trustees, executors,
administrators, guardians, attorneys-in-fact, officers of corporations or
others acting in a fiduciary or representative capacity, please provide the
following information. See Instruction 5 of the Letter of Transmittal.)
GUARANTEE OF SIGNATURE(S)
(SEE INSTRUCTIONS 1 AND 5 OF THIS LETTER OF TRANSMITTAL)
Authorized signature _______________________________________________________
Name (Please Print) ________________________________________________________
Name of Firm: ______________________________________________________________
Capacity (full title): _____________________________________________________
(PLEASE PRINT)
Address: ___________________________________________________________________
____________________________________________________________________________
(INCLUDE ZIP CODE)
____________________________________________________________________________
Area Code and Telephone Number: ____________________________________________
Date: ___________________, 1999
9
<PAGE>
- --------------------------------------------------------------------------------
10
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER
1. GUARANTEE OF SIGNATURES. Except as otherwise provided below, all
signatures on this Letter of Transmittal must be guaranteed by a firm which is a
bank, broker, dealer, credit union, savings association or other entity that is
an "eligible guarantor institution", as such term is defined in Rule 17Ad-15
under the Exchange Act or is a member in good standing of the Securities
Transfer Agents Medallion Program, the New York Stock Exchange Medallion
Signature Guarantee Program or the Stock Exchange Medallion Program (each, an
"Eligible Institution"). No signature guarantee is required on this Letter of
Transmittal (a) if this Letter of Transmittal is signed by the registered
holder(s) (which term, for purposes of this document, shall include any
participant in the Book-Entry Transfer Facility's system whose name appears on a
security position listing as the owner of shares of Common Stock or Rights) of
shares of Common Stock and/or Rights tendered herewith, unless such registered
holder(s) has completed either the box entitled "Special Delivery Instructions"
or the box entitled "Special Payment Instructions", or (b) if such shares of
Common Stock or Rights are tendered for the account of an Eligible Institution.
See Instruction 5. If a Certificate is registered in the name of a person other
than the signer of this Letter of Transmittal, or if payment is to be made, or a
Certificate not accepted for payment or not tendered is to be returned, to a
person other than the registered holder(s), then the Certificate must be
endorsed or accompanied by appropriate stock powers, in either case signed
exactly as the name(s) of the registered holder(s) appears on the Certificate,
with the signature(s) on such Certificate or stock powers guaranteed as
described above. See Instruction 5.
2. DELIVERY OF LETTER OF TRANSMITTAL AND COMMON STOCK AND RIGHTS. This
Letter of Transmittal is to be used either if Certificates are to be forwarded
herewith or if shares of Common Stock and/or Rights are to be delivered by
book-entry transfer pursuant to the procedure set forth in "Procedures for
Tendering Shares of Common Stock" of the Offer to Purchase. If a Distribution
Date has occurred, Certificates representing a number of Rights equal to the
number of shares of Common Stock being tendered must be delivered to the
Depositary in order for such Common Stock to be validly tendered. If a
Distribution Date has occurred, a tender of Common Stock without Rights
constitutes an agreement by the tendering shareholder to deliver Certificates
representing a number of Rights equal to the number of shares of Common Stock
tendered pursuant to the Offer to the Depositary within three NYSE trading days
after the date such Rights Certificates are distributed. Purchaser reserves the
right to require that it receive such Certificates prior to accepting Common
Stock for payment. Payment for Common Stock tendered and purchased pursuant to
the Offer will be made only after timely receipt by the Depositary of, among
other things, such Rights Certificates, if such Certificates have been
distributed to holders of Common Stock. Purchaser will not pay any additional
consideration for the Rights tendered pursuant to the Offer. Certificates
evidencing all tendered shares of Common Stock and/or Rights, or confirmation of
a book-entry transfer of such shares of Common Stock and/or Rights, if such
procedure is available, into the Depositary's account at the Book-Entry Transfer
Facility pursuant to the procedures set forth in "Procedures for Tendering
Shares of Common Stock" of the Offer to Purchase, together with a properly
completed and duly executed Letter of Transmittal (or facsimile thereof) with
any required signature guarantees (or, in the case of a book-entry transfer, an
Agent's Message, as defined herein) and any other documents required by this
Letter of Transmittal, must be received by the Depositary at its address set
forth on the cover page hereof prior to the Expiration Date (as defined in
"Terms of the Offer; Expiration Date" of the Offer to Purchase). If Certificates
are forwarded to the Depositary in multiple deliveries, a properly completed and
duly executed Letter of Transmittal must accompany each such delivery.
Shareholders whose Certificates are not immediately available, who cannot
deliver their Certificates and all other required documents to the Depositary
prior to the Expiration Date or who cannot complete the procedure for delivery
by book-entry transfer on a timely basis may tender their shares of Common Stock
or Rights pursuant to the guaranteed delivery procedure described in "Procedures
for Tendering Shares of Common Stock" of the Offer to Purchase. Pursuant to such
procedure: (i) such tender must be made by or
10
<PAGE>
through an Eligible Institution; (ii) a properly completed and duly executed
Notice of Guaranteed Delivery, substantially in the form provided by Purchaser
herewith, must be received by the Depositary prior to the Expiration Date; and
(iii) in the case of a guarantee of shares of Common Stock, the Common Stock
Certificates for all tendered shares of Common Stock, in proper form for
transfer, or a Book Entry Confirmation (as defined in the Offer to Purchase),
together with a properly completed and duly executed Letter of Transmittal (or
manually signed facsimile thereof) with any required signature guarantee (or, in
the case of a book-entry transfer, an Agent's Message), and any other documents
required by this Letter of Transmittal, must be received by the Depositary
within three NYSE trading days after the date of execution of the Notice of
Guaranteed Delivery, all as described in "Procedures for Tendering Shares of
Common Stock" of the Offer to Purchase. The term "Agent's Message" means a
message, transmitted by the Book-Entry Transfer Facility to, and received by,
the Depositary and forming a part of a Book-Entry Confirmation, which states
that the Book-Entry Transfer Facility has received an express acknowledgment
from the participant in the Book-Entry Transfer Facility who is tendering the
Common Stock that such participant has received and agrees to be bound by the
terms of the Letter of Transmittal and that Purchaser may enforce such agreement
against the participant. DELIVERY OF DOCUMENTS TO THE BOOK-ENTRY TRANSFER
FACILITY IN ACCORDANCE WITH THE BOOK-ENTRY TRANSFER FACILITY'S PROCEDURES DOES
NOT CONSTITUTE DELIVERY TO THE DEPOSITARY.
THE METHOD OF DELIVERY OF CERTIFICATES, THE RELATED LETTER OF TRANSMITTAL
AND ALL OTHER REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH THE BOOK-ENTRY
TRANSFER FACILITY, IS AT THE SOLE OPTION AND RISK OF THE TENDERING SHAREHOLDER,
AND THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE
DEPOSITARY. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT
REQUESTED, PROPERLY INSURED, IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME
SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
No alternative, conditional or contingent tenders will be accepted and no
fractional shares of Common Stock or Rights will be purchased. By execution of
this Letter of Transmittal (or a facsimile hereof), all tendering shareholders
waive any right to receive any notice of the acceptance of their shares of
Common Stock or Rights for payment.
3. INADEQUATE SPACE. If the space provided herein under "Description of
Shares of Common Stock Tendered" or "Description of Rights Tendered" is
inadequate, the Certificate numbers, the number of shares of Common Stock or
Rights evidenced by such Certificates and the number of shares of Common Stock
or Rights tendered should be listed on a separate schedule (executed in the same
manner as this Letter of Transmittal) and attached hereto.
4. PARTIAL TENDERS. (Not applicable to shareholders who tender by book-entry
transfer.) If fewer than all the shares of Common Stock or Rights evidenced by
any Certificate delivered to the Depositary herewith are to be tendered hereby,
fill in the number of shares of Common Stock or Rights which are to be tendered
in the boxes entitled "Number of Shares of Common Stock Tendered" and "Number of
Rights Tendered." In such cases, new Certificate(s) evidencing the remainder of
the shares of Common Stock or Rights that were evidenced by the Certificates
delivered to the Depositary herewith will be sent to the person(s) signing this
Letter of Transmittal, unless otherwise provided in the box entitled "Special
Delivery Instructions", as soon as practicable after the expiration or
termination of the Offer. All shares of Common Stock or Rights evidenced by
Certificates delivered to the Depositary will be deemed to have been tendered
unless otherwise indicated in the manner described above.
5. SIGNATURES ON LETTER OF TRANSMITTAL; STOCK POWERS AND ENDORSEMENTS. If
this Letter of Transmittal is signed by the registered holder(s) of the shares
of Common Stock or Rights tendered hereby, the signature(s) must correspond with
the name(s) as written on the face of the Certificate(s) evidencing such shares
of Common Stock or Rights without alteration, enlargement or any other change
whatsoever.
If any shares of Common Stock or Rights tendered hereby are owned of record
by two or more persons, all such persons must sign this Letter of Transmittal.
11
<PAGE>
If any of the shares of Common Stock or Rights tendered hereby are
registered in the names of different holders, it will be necessary to complete,
sign and submit as many separate Letters of Transmittal as there are different
registrations of such certificates.
If this Letter of Transmittal is signed by the registered holder(s) of the
shares of Common Stock or Rights tendered hereby, no endorsements of
Certificates or separate stock powers are required, unless payment is to be made
to, or Certificates evidencing shares of Common Stock or Rights not tendered or
not purchased are to be issued in the name of, a person other than the
registered holder(s), in which case, the Certificate(s) evidencing the shares of
Common Stock or Rights tendered hereby must be endorsed or accompanied by
appropriate stock powers, in either case signed exactly as the name(s) of the
registered holder(s) appear(s) on such Certificate(s). Signatures on such
Certificate(s) and stock powers must be guaranteed by an Eligible Institution.
If this Letter of Transmittal is signed by a person other than the
registered holder(s) of the shares of Common Stock or Rights tendered hereby,
the Certificate(s) evidencing the shares of Common Stock or Rights tendered
hereby must be endorsed or accompanied by appropriate stock powers, in either
case signed exactly as the name(s) of the registered holder(s) appear(s) on such
Certificate(s). Signatures on such Certificate(s) and stock powers must be
guaranteed by an Eligible Institution.
If this Letter of Transmittal or any Certificate(s) or stock power is signed
by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a
corporation or other person acting in a fiduciary or representative capacity,
such person should so indicate when signing, and proper evidence satisfactory to
Purchaser of such person's authority so to act must be submitted.
6. STOCK TRANSFER TAXES. Except as otherwise provided in this Instruction 6,
Purchaser will pay all stock transfer taxes with respect to the sale and
transfer of any shares of Common Stock or Rights to it or its order pursuant to
the Offer. If, however, payment of the purchase price of any shares of Common
Stock or Rights purchased is to be made to, or Certificate(s) evidencing shares
of Common Stock or Rights not tendered or not purchased are to be issued in the
name of, a person other than the registered holder(s), the amount of any stock
transfer taxes (whether imposed on the registered holder(s), such other person
or otherwise) payable on account of the transfer to such other person will be
deducted from the purchase price of such shares of Common Stock or Rights
purchased, unless evidence satisfactory to Purchaser of the payment of such
taxes, or exemption therefrom, is submitted.
EXCEPT AS PROVIDED IN THIS INSTRUCTION 6, IT WILL NOT BE NECESSARY FOR
TRANSFER TAX STAMPS TO BE AFFIXED TO THE CERTIFICATE(S) EVIDENCING THE SHARES OF
COMMON STOCK TENDERED HEREBY.
7. SPECIAL PAYMENT AND DELIVERY INSTRUCTIONS. If a check for the purchase
price of any shares of Common Stock or Rights tendered hereby is to be issued,
or Certificate(s) evidencing shares of Common Stock or Rights not tendered or
not purchased are to be issued, in the name of a person other than the person(s)
signing this Letter of Transmittal or if such check or any such Certificate is
to be sent to someone other than the person(s) signing this Letter of
Transmittal or to the person(s) signing this Letter of Transmittal but at an
address other than that shown in the box entitled "Description of Shares of
Common Stock Tendered", the appropriate boxes on this Letter of Transmittal must
be completed. Shareholders tendering shares of Common Stock or Rights by
book-entry transfer may request that shares of Common Stock or Rights not
purchased be credited to such account maintained at the Book-Entry Transfer
Facility as such shareholder may designate in the box entitled "Special Payment
Instructions". If no such instructions are given, all such shares of Common
Stock or Rights not purchased will be returned by crediting the account at the
Book-Entry Transfer Facility designated as the account from which such shares of
Common Stock or Rights were delivered.
8. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Requests for assistance may
be directed to the Information Agent or the Dealer Manager at their respective
addresses or telephone numbers set forth below. Additional copies of the Offer
to Purchase, this Letter of Transmittal, the Notice of Guaranteed
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<PAGE>
Delivery and the Guidelines for Certification of Taxpayer Identification Number
on Substitute Form W-9 may be obtained from the Information Agent or the Dealer
Manager or from brokers, dealers, commercial banks, trust companies or other
nominees.
9. SUBSTITUTE FORM W-9. Each tendering shareholder is required to provide
the Depositary with a correct Taxpayer Identification Number ("TIN") on the
Substitute Form W-9 which is provided under "Important Tax Information" below,
and to certify, under penalties of perjury, that such number is correct and that
such shareholder is not subject to backup withholding of federal income tax. If
a tendering shareholder has been notified by the IRS that such shareholder is
subject to backup withholding, such shareholder must cross out item (2) of the
Certification box of the Substitute Form W-9, unless such shareholder has since
been notified by the IRS that such shareholder is no longer subject to backup
withholding. Failure to provide the information on the Substitute Form W-9 may
subject the tendering shareholder to penalties and to a 31% federal income tax
withholding on the payment of the purchase price of all shares of Common Stock
or Rights purchased from such shareholder. If the tendering shareholder has not
been issued a TIN and has applied for one or intends to apply for one in the
near future, such shareholder should write "Applied For" in the space provided
for the TIN in Part I of the Substitute Form W-9, and sign and date the
Substitute Form W-9. If "Applied For" is written in Part I and the Depositary is
not provided with a TIN within 60 days, the Depositary will withhold 31% on all
payments of the purchase price to such shareholder until a TIN is provided to
the Depositary. If the tendering shareholder completes the box entitled "Special
Payment Instructions", the person to whom payment is to be made, rather than the
tendering shareholder, should complete and sign Substitute Form W-9. All
shareholders surrendering shares of Common Stock pursuant to the Offer should
complete and sign the main signature form and the Substitute Form W-9 (unless an
applicable exemption exists and is proved in a manner satisfactory to the
Purchaser and the Depositary). Non-corporate foreign shareholders should
complete and sign the main signature form and a Form W-8, Certificate of Foreign
Status, a copy of which may be obtained from the Depositary.
10. LOST, DESTROYED OR STOLEN CERTIFICATES. If any certificate(s)
representing shares of Common Stock or Rights has been lost, destroyed or
stolen, the shareholder should promptly notify the Depositary. The shareholder
will then be instructed as to the steps that must be taken in order to replace
the certificate(s). This Letter of Transmittal and related documents cannot be
processed until the procedures for replacing lost or destroyed certificates have
been followed.
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR FACSIMILE HEREOF), PROPERLY
COMPLETED AND DULY EXECUTED, WITH ANY REQUIRED SIGNATURE GUARANTEES, OR AN
AGENT'S MESSAGE (TOGETHER WITH COMMON STOCK CERTIFICATES OR CONFIRMATION OF
BOOK-ENTRY TRANSFER AND ALL OTHER REQUIRED DOCUMENTS) OR A PROPERLY COMPLETED
AND DULY EXECUTED NOTICE OF GUARANTEED DELIVERY MUST BE RECEIVED BY THE
DEPOSITARY PRIOR TO THE EXPIRATION DATE (AS DEFINED IN THE OFFER TO PURCHASE).
IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY
INSURED, IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO
ENSURE TIMELY DELIVERY.
IMPORTANT TAX INFORMATION
Under the federal income tax law, a shareholder whose tendered shares of
Common Stock or Rights are accepted for payment is required by law to provide
the Depositary (as payer) with such shareholder's correct TIN on Substitute Form
W-9 below. If such shareholder is an individual, the TIN is such shareholder's
social security number. If the Depositary is not provided with the correct TIN,
the shareholder may be subject to a $50 penalty imposed by the IRS. In addition,
payments that are made to such shareholder with respect to shares of Common
Stock or Rights purchased pursuant to the Offer may be subject to backup
withholding of 31% unless such shareholder complies with certain reporting or
certification procedures or is an "exempt recipient" (i.e., in general,
corporations and certain other entities) under applicable provisions of the Code
and Treasury Regulations promulgated thereunder.
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<PAGE>
Certain shareholders (including, among others, all corporations and certain
foreign individuals) are not subject to these backup withholding and reporting
requirements. A foreign shareholder should consult its tax advisor with respect
to the application of withholding rules to it. In order for a foreign individual
to qualify as an exempt recipient, such individual must submit a statement,
signed under penalties of perjury, attesting to such individual's exempt status.
Forms of such statements can be obtained from the Depositary. See the enclosed
Guidelines for Certification of Taxpayer Identification Number on Substitute
Form W-9 for additional instructions.
If backup withholding applies with respect to a shareholder, the Depositary
is required to withhold 31% of any payments made to such shareholder. Backup
withholding is not an additional tax. Rather, the tax liability of persons
subject to backup withholding will be reduced by the amount of tax withheld. If
withholding results in an overpayment of taxes, a refund may be obtained from
the IRS.
PURPOSE OF SUBSTITUTE FORM W-9
To prevent backup withholding on payments that are made to a shareholder
with respect to shares of Common Stock or Rights purchased pursuant to the
Offer, the shareholder is required to notify the Depositary of such
shareholder's correct TIN by completing the form below certifying (a) that the
TIN provided on Substitute Form W-9 is correct (or that such shareholder is
awaiting a TIN), and (b) that (i) such shareholder has not been notified by the
IRS that such shareholder is subject to backup withholding as a result of a
failure to report all interest or dividends or (ii) the IRS has notified such
shareholder that such shareholder is no longer subject to backup withholding.
WHAT NUMBER TO GIVE THE DEPOSITARY
The shareholder is required to give the Depositary the social security
number or employer identification number of the record holder of the shares of
Common Stock or Rights tendered hereby. If the shares of Common Stock or Rights
are in more than one name or are not in the name of the actual owner, consult
the enclosed Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9 for additional guidance on which number to report. If the
tendering shareholder has not been issued a TIN and has applied for a number or
intends to apply for a number in the near future, the shareholder should write
"Applied For" in the space provided for the TIN in Part I, and sign and date the
Substitute Form W-9. If "Applied For" is written in Part I and the Depositary is
not provided with a TIN within 60 days, the Depositary will withhold 31% of all
payments of the purchase price to such shareholder until a TIN is provided to
the Depositary.
14
<PAGE>
<TABLE>
<S> <C> <C>
PAYER'S NAME: DEPOSITARY
SUBSTITUTE PART 1 -- PLEASE PROVIDE YOUR TIN
FORM W-9 IN THE BOX AT RIGHT AND CERTIFY Social Security Number
DEPARTMENT OF THE BY SIGNING AND DATING BELOW. OR
TREASURY Employer Identification
INTERNAL REVENUE Number
SERVICE (If awaiting TIN write "Applied
For")
PART 2 -- For Payees Exempt from Backup Withholding, see the
enclosed Guidelines and complete as instructed therein.
CERTIFICATION Under penalties of perjury, I certify that:
(1) The number shown on this form is my correct Taxpayer
Identification Number (or a Taxpayer Identification Number has not
been issued to me and either (a) I have mailed or delivered an
application to receive a Taxpayer Identification Number to the
appropriate Internal Revenue Service ("IRS") or Social Security
Administration office or (b) I intend to mail or deliver an
application in the near future. I understand that if I do not
provide a Taxpayer Identification Number within sixty (60) days,
PAYER'S REQUEST FOR 31% of all reportable payments made to me thereafter will be
TAXPAYER
IDENTIFICATION
NUMBER (TIN) withheld until I provide a number), and
(2) I am not subject to backup withholding because (a) I am exempt
from backup withholding, (b) I have not been notified by the IRS
that I am subject to backup withholding as a result of failure
to report all interest or dividends or (c) the IRS has notified
me that I am no longer subject to backup withholding.
SIGNATURE: DATE: , 1999
</TABLE>
CERTIFICATION INSTRUCTIONS -- You must cross out item (2) above if you have been
notified by the IRS that you are subject to backup withholding because of
underreporting interest or dividends on your tax return. However, if after being
notified by the IRS that you were subject to backup withholding you received
another notification from the IRS that you are no longer subject to backup
withholding, do not cross out item (2). (Also see instructions in the enclosed
Guidelines.)
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER. PLEASE REVIEW
THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU WROTE "APPLIED FOR"
IN THE SPACE PROVIDED FOR THE TIN IN PART I OF SUBSTITUTE FORM W-9.
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a Taxpayer Identification Number
has not been issued to me, and either (1) I have mailed or delivered an
application to receive a Taxpayer Identification Number to the appropriate IRS
Center or Social Security Administration Office, or (2) I intend to mail or
deliver an application in the near future. I understand that if I do not provide
a Taxpayer Identification Number by the time of payment, 31% of all reportable
payments made to me will be withheld.
SIGNATURE ___________________________________________ DATE: ___________, 1999
15
<PAGE>
Questions and requests for assistance or additional copies of the Offer to
Purchase, Letter of Transmittal and other tender offer materials may be directed
to the Information Agent as set forth below:
THE INFORMATION AGENT FOR THE OFFER IS:
D.F. KING & CO., INC.
UNITED STATES
77 Water Street
New York, New York 10005
CALL TOLL-FREE: (800) 714-3305
or
(212) 269-5550 (call collect)
EUROPE
Royex House, Aldermanbury Square
London, England EC2V 7HR
(44) 171 600 5005 (call collect)
THE DEALER MANAGER FOR THE OFFER IS:
CHASE SECURITIES INC.
270 Park Avenue
New York, New York 10017
Telephone: (212) 270-3298
<PAGE>
NOTICE OF GUARANTEED DELIVERY
FOR
TENDER OF SHARES OF COMMON STOCK
OF
ASARCO INCORPORATED
TO
ASMEX CORPORATION
A WHOLLY OWNED SUBSIDIARY OF
GRUPO MEXICO, S.A. DE C.V.
(not to be used for signature guarantees)
This Notice of Guaranteed Delivery, or a form substantially equivalent
hereto, must be used to accept the Offer (as defined below) if certificates
representing shares of common stock, without par value (the "Common Stock"),
and/or Rights (as defined in the Offer to Purchase) (each a "Certificate") of
ASARCO Incorporated, a New Jersey corporation, are not immediately available, if
the procedure for book-entry transfer cannot be completed prior to the
Expiration Date (as defined in Section 1 of the Offer to Purchase), or if time
will not permit all required documents to reach the Depositary prior to the
Expiration Date. Such form may be delivered by hand, transmitted by facsimile
transmission or mailed to the Depositary. See Section 3 of the Offer to
Purchase.
THE DEPOSITARY FOR THE OFFER IS:
CITIBANK, N.A.
<TABLE>
<S> <C> <C>
BY COURIER: BY MAIL: BY HAND:
Citibank, N.A. Citibank, N.A. Citibank, N.A.
915 Broadway P.O. Box 685 Corporate Trust Window
5th Floor Old Chelsea Station 111 Wall Street, 5th Floor
New York, New York 10010 New York, New York 10113 New York, New York 10043
</TABLE>
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS
SET FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE TRANSMISSION OTHER
THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
This form is not to be used to guarantee signatures. If a signature on a
Letter of Transmittal is required to be guaranteed by an Eligible Institution
under the instructions thereto, such signature guarantee must appear in the
applicable space provided in the signature box on the Letter of Transmittal.
THE GUARANTEE ON THE REVERSE SIDE MUST BE COMPLETED.
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to ASMEX Corporation, a Delaware corporation
("Purchaser") and a wholly owned subsidiary of Grupo Mexico, S.A. de C.V., a
Mexican corporation, upon the terms and subject to the conditions set forth in
Purchaser's Offer to Purchase dated September 27, 1999 and the related Letter of
Transmittal (which, together with any amendments or supplements thereto,
constitute the "Offer"), receipt of which is hereby acknowledged, the number of
shares of common stock, without par value (the "Common Stock") and/or Rights (as
defined in the Offer to Purchase), set forth below, of ASARCO Incorporated, a
New Jersey corporation, pursuant to the guaranteed delivery procedures set forth
in Section 3 of the Offer to Purchase.
<TABLE>
<S> <C>
Number of shares of Common Stock: Number of Rights
- ------------------------------------------- -------------------------------------------
Certificate Nos. (if available): Certificate Nos. (if available):
- ------------------------------------------- -------------------------------------------
- ------------------------------------------- -------------------------------------------
Book-Entry Transfer Facility Book-Entry Transfer Facility
Account Number: Account Number:
- ------------------------------------------- -------------------------------------------
Dated: Dated:
, 1999 , 1999
Name(s) of Record Holder(s): Name(s) of Record Holder(s):
- ------------------------------------------- -------------------------------------------
- ------------------------------------------- -------------------------------------------
(Please Print) (Please Print)
Address(es): Address(es):
------------------------------------------- -------------------------------------------
------------------------------------------- -------------------------------------------
------------------------------------------- -------------------------------------------
(Zip Code) (Zip Code)
Area Code and Tel. No.: Area Code and Tel. No.:
- ------------------------------------------- -------------------------------------------
- ------------------------------------------- -------------------------------------------
Signature(s): Signature(s):
- ------------------------------------------- -------------------------------------------
- ------------------------------------------- -------------------------------------------
</TABLE>
2
<PAGE>
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEES)
The undersigned, a participant in the Security Transfer Agents Medallion
Program, the New York Stock Exchange Medallion Signature Guarantee Program or
the Stock Exchange Medallion Program, guarantees to deliver to the Depositary
either Certificates, in proper form for transfer, or confirmation of book-entry
transfer of such shares into the Depositary's account at The Depository Trust
Company, in each case with delivery of a properly completed and duly executed
Letter of Transmittal (or facsimile thereof), with any required signature
guarantees, or an Agent's Message (as defined in the Offer to Purchase), and any
other documents required by the Letter of Transmittal, within three New York
Stock Exchange trading days after the date hereof.
The Eligible Institution that completes this form must communicate the
guarantee to the Depositary and must deliver the Letter of Transmittal and
Certificates to the Depositary within the time period shown herein. Failure to
do so could result in a financial loss to such Eligible Institution.
<TABLE>
<S> <C>
Name of Firm:
(Authorized Signature)
Address: Title:
Name:
(Zip Code) (Please Print)
Dated: , 1999
Area Code and Tel. No.
</TABLE>
NOTE: DO NOT SEND CERTIFICATES WITH THIS NOTICE. CERTIFICATES SHOULD BE SENT
ONLY WITH YOUR LETTER OF TRANSMITTAL.
3
<PAGE>
OFFER TO PURCHASE FOR CASH
ALL OF THE OUTSTANDING SHARES OF COMMON STOCK
(INCLUDING THE ASSOCIATED JUNIOR PARTICIPATING
STOCK PURCHASE RIGHTS)
OF
ASARCO INCORPORATED
AT
$26.00 NET PER SHARE IN CASH
BY
ASMEX CORPORATION,
A WHOLLY OWNED SUBSIDIARY OF
GRUPO MEXICO, S.A. DE C.V.
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT
12:00 MIDNIGHT, NEW YORK CITY TIME, ON MONDAY, OCTOBER 25, 1999,
UNLESS THE OFFER IS EXTENDED.
September 27, 1999
TO BROKERS, DEALERS, COMMERCIAL BANKS,
TRUST COMPANIES AND OTHER NOMINEES:
We have been engaged by ASMEX Corporation, a Delaware corporation
("Purchaser") and a wholly owned subsidiary of Grupo Mexico, S.A. de C.V., a
Mexican corporation ("Parent"), to act as Dealer Manager in connection with
Purchaser's offer to purchase all outstanding shares of common stock, without
par value (the "Common Stock"), of ASARCO Incorporated, a New Jersey corporation
("ASARCO"), including the associated junior participating preferred stock
purchase rights (including any successors thereto, the "Rights"), at a price of
$26.00 per share, net to the seller in cash, without interest thereon, upon the
terms and subject to the conditions set forth in the Offer to Purchase, dated
September 27, 1999 (the "Offer to Purchase"), and in the related Letter of
Transmittal (which, together with any amendments or supplements thereto,
constitute the "Offer") enclosed herewith. Unless the context otherwise
requires, all references herein to the Common Stock shall include the associated
Rights.
Unless the Rights Condition has been satisfied or waived, holders of shares
of Common Stock will be required to tender one Right for each share of Common
Stock tendered to effect a valid tender of such shares of Common Stock. Unless
and until the Distribution Date (as defined in the Offer to Purchase) occurs,
the Rights are represented by and transferred with the Common Stock.
Accordingly, if the Distribution Date does not occur prior to the Expiration
Date (as defined in the Offer to Purchase) of the Offer, a tender of shares of
Common Stock will constitute a tender of the associated Rights. If a
Distribution Date has occurred before shares of Common Stock are tendered,
Rights Certificates (as defined in the Offer to Purchase) representing a number
of Rights equal to the number of shares of Common Stock being tendered must be
delivered to the Depositary (as defined in the Offer to Purchase) in order for
such shares of Common Stock to be validly tendered. If a Distribution Date has
occurred subsequent to the tender of shares of Common Stock, Rights Certificates
representing a number of Rights equal to the number of shares of Common Stock
tendered pursuant to the Offer must be delivered to the Depositary within three
New York Stock Exchange ("NYSE") trading days after the date such Rights
Certificates are distributed in order for such shares of Common Stock to be
validly tendered.
<PAGE>
If a shareholder desires to tender shares of Common Stock pursuant to the
Offer and such shareholder's Common Stock Certificates, and if applicable,
Rights Certificates, are not immediately available or time will not permit all
required documents to reach the Depositary prior to the Expiration Date or the
procedure for book-entry transfer cannot be completed on a timely basis, such
shares of Common Stock may nevertheless be tendered pursuant to the guaranteed
delivery procedure described in "Procedures for Tendering Shares of Common
Stock" of the Offer to Purchase. See Instruction 2 of the Letter of Transmittal.
Delivery of documents to a Book-Entry Transfer Facility (as defined in the Offer
to Purchase) in accordance with the Book-Entry Transfer Facility's procedures
does not constitute delivery to the Depositary.
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, (1) THERE BEING VALIDLY
TENDERED AND NOT PROPERLY WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER THAT
NUMBER OF SHARES OF COMMON STOCK (INCLUDING THE ASSOCIATED RIGHTS) OF ASARCO
WHICH, TOGETHER WITH SHARES OF COMMON STOCK OWNED BY PARENT AND PURCHASER,
CONSTITUTE AT LEAST 80% OF THE SHARES OF COMMON STOCK OUTSTANDING ON A FULLY
DILUTED BASIS, (2) THE RIGHTS HAVING BEEN REDEEMED BY THE BOARD OF DIRECTORS OF
ASARCO OR PURCHASER BEING SATISFIED, IN ITS SOLE DISCRETION, THAT THE RIGHTS ARE
INVALID OR OTHERWISE INAPPLICABLE TO THE TRANSACTIONS CONTEMPLATED BY THE OFFER
TO PURCHASE, (3) THE PURCHASER BEING SATISFIED, IN ITS SOLE DISCRETION, THAT THE
AGREEMENT AND PLAN OF MERGER DATED AS OF JULY 15, 1999, AMONG ASARCO, CYPRUS
AMAX AND CERTAIN OTHER PARTIES, HAS BEEN TERMINATED AND ASARCO HAVING ENTERED
INTO A DEFINITIVE MERGER AGREEMENT WITH PARENT AND PURCHASER TO PROVIDE FOR THE
ACQUISITION OF ASARCO BY PARENT OR PURCHASER AND (4) PARENT AND PURCHASER HAVING
OBTAINED ALL REGULATORY APPROVALS NECESSARY FOR THEIR ACQUISITION OF CONTROL OF
ASARCO ON TERMS AND CONDITIONS SATISFACTORY TO PURCHASER, IN ITS SOLE
DISCRETION.
For your information and for forwarding to your clients for whom you hold
shares of Common Stock registered in your name or in the name of your nominee,
or who hold shares of Common Stock in their own name we are enclosing the
following documents:
1. Offer to Purchase dated September 27, 1999;
2. Letter of Transmittal to be used by holders of shares in accepting
the Offer and tendering shares of Common Stock and Rights;
3. Notice of Guaranteed Delivery to be used to accept the Offer if the
certificates evidencing such shares of Common Stock and Rights are not
immediately available or time will not permit all required documents to
reach the Depositary prior to the Expiration Date or if the procedure for
book-entry transfer cannot be completed on a timely basis;
4. A letter which may be sent to your clients for whose accounts you
hold shares of Common Stock registered in your name or in the name of your
nominee, with space provided for obtaining such clients' instructions with
regard to the Offer;
5. Guidelines of the Internal Revenue Service for Certification of
Taxpayer Identification Number on Substitute Form W-9; and
6. A return envelope addressed to the Depositary.
For purposes of the Offer, Purchaser will be deemed to have accepted for
payment, and thereby purchased, shares of Common Stock validly tendered and not
properly withdrawn if, as and when Purchaser gives oral or written notice to the
Depositary of Purchaser's acceptance of such shares of Common Stock for payment.
Payment for shares of Common Stock accepted pursuant to the Offer will be made
by deposit of the purchase price therefor with the Depositary, which will act as
agent for tendering
2
<PAGE>
shareholders for the purpose of receiving payments from Purchaser and
transmitting payments to such tendering shareholders. Under no circumstances
will interest on the purchase price for shares of Common Stock be paid by
Purchaser, regardless of any delay in making such payment. Upon the deposit of
funds with the Depositary for the purpose of making payments to tendering
shareholders, Purchaser's obligation to make such payment shall be satisfied and
tendering shareholders must thereafter look solely to the Depositary for payment
of amounts owed to them by reason of the acceptance for payment of shares of
Common Stock pursuant to the Offer. Purchaser will pay any stock transfer taxes
incident to the transfer to it of validly tendered shares of Common Stock,
except as otherwise provided in Instruction 6 of the Letter of Transmittal, as
well as any charges and expenses of the Depositary and the Information Agent.
Neither Parent nor Purchaser will not pay any fees or commissions to any
broker or dealer or any other person (other than the Dealer Manager and the
Information Agent as described in "Fees and Expenses" of the Offer to Purchase)
in connection with the solicitation of tenders of shares of Common Stock and
Rights pursuant to the Offer. Purchaser will, however, upon request, reimburse
you for customary mailing and handling expenses incurred by you in forwarding
the enclosed materials to your clients.
YOUR PROMPT ACTION IS REQUESTED. WE URGE YOU TO CONTACT YOUR CLIENTS AS
PROMPTLY AS POSSIBLE. THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00
MIDNIGHT, NEW YORK CITY TIME, ON MONDAY, OCTOBER 25, 1999, UNLESS THE OFFER IS
EXTENDED.
In order to take advantage of the Offer, a duly executed and properly
completed Letter of Transmittal (or facsimile thereof), with any required
signature guarantees and any other required documents, should be sent to the
Depositary, and certificates evidencing the tendered shares of Common Stock, and
Rights, if applicable, should be delivered or such shares of Common Stock and
Rights should be tendered by book-entry transfer, all in accordance with the
Instructions set forth in the Letter of Transmittal and the Offer to Purchase.
Any inquiries you may have with respect to the Offer should be addressed to,
and additional information may be obtained from, the Dealer Manager or the
Information Agent at their respective addresses and telephone numbers set forth
on the back cover page of the Offer to Purchase.
Very truly yours,
CHASE SECURITIES INC.
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU
OR ANY OTHER PERSON AS AN AGENT OF PARENT, PURCHASER, THE DEALER MANAGER, THE
INFORMATION AGENT, THE DEPOSITARY OR ANY AFFILIATE OF ANY OF THE FOREGOING OR
ANY OTHER PERSON, OR AUTHORIZE YOU OR ANY OTHER PERSON TO USE ANY DOCUMENT OR
MAKE ANY STATEMENT ON BEHALF OF ANY OF THEM IN CONNECTION WITH THE OFFER OTHER
THAN THE DOCUMENTS ENCLOSED HEREWITH AND THE STATEMENTS CONTAINED THEREIN.
3
<PAGE>
OFFER TO PURCHASE FOR CASH
ALL OF THE OUTSTANDING SHARES OF COMMON STOCK
(INCLUDING THE ASSOCIATED JUNIOR PARTICIPATING
PREFERRED STOCK PURCHASE RIGHTS)
OF
ASARCO INCORPORATED
AT
$26.00 NET PER SHARE IN CASH
BY
ASMEX CORPORATION,
A WHOLLY OWNED SUBSIDIARY OF
GRUPO MEXICO, S.A. DE C.V.
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT
12:00 MIDNIGHT, NEW YORK CITY TIME, ON MONDAY, OCTOBER 25, 1999,
UNLESS THE OFFER IS EXTENDED.
September 27, 1999
TO OUR CLIENTS:
Enclosed for your consideration are the Offer to Purchase dated September
27, 1999 and the related Letter of Transmittal (which, as amended or
supplemented from time to time, together constitute the "Offer") in connection
with the offer by ASMEX Corporation, a Delaware corporation ("Purchaser"), and a
wholly owned subsidiary of Grupo Mexico, S.A. de C.V., a Mexican corporation
("Parent"), to purchase for cash all outstanding shares of common stock, without
par value (the "Common Stock"), of ASARCO Incorporated, a New Jersey corporation
("ASARCO"), including the associated junior participating preferred stock
purchase rights (including any successor thereto, the "Rights"), at a price of
$26.00 per share of Common Stock, net to the seller in cash, without interest
thereon, upon the terms and subject to the conditions set forth in the Offer.
Unless the context otherwise requires, all references to the Common Stock shall
include the associated Rights.
Unless the Rights condition has been satisfied or waived, holders of shares
of Common Stock will be required to tender one Right for each share of Common
Stock tendered to effect a valid tender of such shares of Common Stock. Unless
and until the Distribution Date (as defined in the Offer to Purchase) occurs,
the Rights are represented by and transferred with the Common Stock.
Accordingly, if the Distribution Date does not occur prior to the Expiration
Date (as defined in the Offer to Purchase) of the Offer, a tender of shares of
Common Stock will constitute a tender of the associated Rights. If a
Distribution Date has occurred before shares of Common Stock are tendered,
Rights Certificates (as defined in the Offer to Purchase) representing a number
of Rights equal to the number of shares of Common Stock being tendered must be
delivered to the Depositary (as defined in the Offer to Purchase) in order for
such shares of Common Stock to be validly tendered. If a Distribution Date has
occurred subsequent to the tender of shares of Common Stock, Rights Certificates
representing a number of Rights equal to the number of shares of Common Stock
tendered pursuant to the Offer must be delivered to the Depositary within three
New York Stock Exchange ("NYSE") trading days after the date such Rights
Certificates are distributed in order for such shares of Common Stock to be
validly tendered.
If a shareholder desires to tender shares of Common Stock pursuant to the
Offer and such shareholder's Common Stock Certificates, and if applicable,
Rights Certificates, are not immediately available or time will not permit all
required documents to reach the Depositary prior to the Expiration
<PAGE>
Date or the procedure for book-entry transfer cannot be completed on a timely
basis, such shares of Common Stock may nevertheless be tendered pursuant to the
guaranteed delivery procedure described in "Procedures for Tendering Shares of
Common Stock" of the Offer to Purchase. See Instruction 2 of the Letter of
Transmittal. Delivery of documents to a Book-Entry Transfer Facility (as defined
in the Offer to Purchase) in accordance with the Book-Entry Transfer Facility's
procedures does not constitute delivery to the Depositary.
THE MATERIAL IS BEING SENT TO YOU AS THE BENEFICIAL OWNER OF SHARES OF
COMMON STOCK HELD BY US FOR YOUR ACCOUNT BUT NOT REGISTERED IN YOUR NAME. WE ARE
THE HOLDER OF RECORD OF SHARES OF COMMON STOCK HELD BY US FOR YOUR ACCOUNT. A
TENDER OF SUCH SHARES OF COMMON STOCK CAN BE MADE ONLY BY US AS THE HOLDER OF
RECORD AND PURSUANT TO YOUR INSTRUCTIONS. THE LETTER OF TRANSMITTAL IS FURNISHED
TO YOU FOR YOUR INFORMATION ONLY AND CANNOT BE USED BY YOU TO TENDER SHARES OF
COMMON STOCK HELD BY US FOR YOUR ACCOUNT.
We request instructions as to whether you wish to have us tender on your
behalf any or all of the shares of Common Stock held by us for your account,
upon the terms and subject to the conditions set forth in the Offer.
Your attention is invited to the following:
1. The Offer price is $26.00 per share, net to the seller in cash,
without interest thereon.
2. The Offer is being made for all outstanding shares of Common Stock.
3. The Offer and withdrawal rights expire at 12:00 Midnight, New York
City time, on October 25, 1999, unless the Offer is extended.
4. The offer is conditioned upon, among other things, (1) there being
validly tendered and not properly withdrawn prior to the expiration of the
offer that number of shares of Common Stock (including the associated
Rights) which, together with shares of Common Stock owned by Parent and
Purchaser, constitute at least 80% of the shares of Common Stock outstanding
on a fully diluted basis, (2) the Rights having been redeemed by the Board
of Directors of ASARCO or Purchaser being satisfied, in its sole discretion,
that the Rights are invalid or otherwise inapplicable to the transactions
contemplated by the Offer to Purchase, (3) the Purchaser being satisfied, in
its sole discretion, that the Agreement and Plan of Merger dated as of July
15, 1999, among ASARCO, Cyprus Amax Minerals Company and certain other
parties, has been terminated and ASARCO having entered into a definitive
merger agreement with Parent and Purchaser to provide for the acquisition of
ASARCO by Parent or Purchaser and (4) Parent and Purchaser having obtained
all regulatory approvals necessary for their acquisition of control of
ASARCO on terms and conditions satisfactory to Purchaser, in its sole
discretion.
5. Tendering shareholders will not be obligated to pay brokerage fees or
commissions or, except as set forth in Instruction 6 of the Letter of
Transmittal, stock transfer taxes on the purchase of shares of Common Stock
by Purchaser pursuant to the Offer.
The Offer is not being made to, nor will tenders be accepted from, or on
behalf of, holders of shares of Common Stock in any jurisdiction in which the
making or acceptance of the Offer would not be in compliance with the laws of
such jurisdiction. In any jurisdiction where the securities or blue sky laws
require the Offer to be made by a licensed broker or dealer, the Offer will be
deemed made on behalf of the Purchaser by the Dealer Manager or one or more
registered brokers or dealers that are licensed under the laws of such
jurisdiction.
2
<PAGE>
If you wish to have us tender any or all of your shares of Common Stock,
please so instruct us by completing, executing and returning to us the
instruction form contained in this letter. An envelope to return your
instructions to us is enclosed. If you authorize the tender of your shares, all
such shares will be tendered unless otherwise specified on the instruction form
set forth in this letter. YOUR INSTRUCTIONS SHOULD BE FORWARDED TO US IN AMPLE
TIME TO PERMIT US TO SUBMIT A TENDER ON YOUR BEHALF PRIOR TO THE EXPIRATION OF
THE OFFER.
INSTRUCTIONS WITH RESPECT TO THE
OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF COMMON STOCK
(INCLUDING THE ASSOCIATED JUNIOR PARTICIPATING
STOCK PURCHASE RIGHTS)
OF
ASARCO INCORPORATED
The undersigned acknowledge(s) receipt of your letter, the enclosed Offer to
Purchase dated September 27, 1999 and the related Letter of Transmittal (which,
as amended or supplemented from time to time, together constitute the "Offer")
in connection with the Offer by ASMEX Corporation, a Delaware corporation
("Purchaser") and a wholly owned subsidiary of Grupo Mexico, S.A. de C.V., a
Mexican corporation, to purchase all outstanding shares of common stock, without
par value per share (the "Common Stock"), of ASARCO Incorporated, a New Jersey
corporation, including the associated junior participating preferred stock
purchase rights (including any successor thereto, the "Rights"), at a price of
$26.00 per share of Common Stock, net to the seller in cash, without interest
thereon, upon the terms and conditions set forth in the Offer. Unless the
context otherwise requires, all references to shares of Common Stock shall
include the associated Rights.
3
<PAGE>
This will instruct you to tender to Purchaser the number of shares of Common
Stock and Rights indicated below (or if no number is indicated in either of the
appropriate spaces below, all shares of Common Stock and Rights) held by you for
the account of the undersigned, upon the terms and subject to the conditions set
forth in the Offer.
<TABLE>
<S> <C>
Number of shares of Common Stock to be Number of Rights to be tendered (to be
tendered:* filled out only if a Distribution Date has
occurred and Rights Certificates have been
delivered prior to the tender of your Common
Stock):*
- ------------------------------------------- -------------------------------------------
Account Number: Account Number:
Dated: , 1999 Dated: , 1999
SIGN HERE SIGN HERE
- ------------------------------------------- -------------------------------------------
- ------------------------------------------- -------------------------------------------
PRINT NAME(S) PRINT NAME(S)
- ------------------------------------------- -------------------------------------------
- ------------------------------------------- -------------------------------------------
ADDRESS(ES) ADDRESS(ES)
- ------------------------------------------- -------------------------------------------
- ------------------------------------------- -------------------------------------------
- ------------------------------------------- -------------------------------------------
- ------------------------------------------- -------------------------------------------
AREA CODE AND TELEPHONE NUMBER AREA CODE AND TELEPHONE NUMBER
- ------------------------------------------- -------------------------------------------
TAX ID OR SOCIAL SECURITY NUMBER TAX ID OR SOCIAL SECURITY NUMBER
- ------------------------------------------- -------------------------------------------
</TABLE>
* Unless otherwise indicated, it will be assumed that all shares of Common Stock
and Rights held by us for your account are to be tendered.
4
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE
PAYER. Social Security numbers have nine digits separated by two hyphens:
I.E.,000-00-0000. Employer identification numbers have nine digits separated by
only one hyphen, i.e., 00-0000000. The table below will help determine the
number to give the payer.
<TABLE>
<CAPTION>
- -----------------------------------------------------------
<S> <C> <C>
GIVE THE NAME AND
SOCIAL SECURITY
FOR THIS TYPE OF ACCOUNT: NUMBER OF--
- -----------------------------------------------------------
1. An individual's account The individual
2. Two or more individuals The actual owner of the
(joint account) account or, if combined
funds, any one of the
individuals(2)
3. Husband and wife (joint The actual owner of the
account) account or, if joint
funds, either person(2)
4. Custodian account of a The minor(3)
minor (Uniform Gift to
Minors Act)
5. Adult and minor (joint The adult or, if the
account) minor is the only
contributor, the
minor(1)
6. Account in the name of The ward, minor, or
guardian or committee incompetent person(4)
for a designated ward,
minor, or incompetent
person
7. a. The usual revocable The grantor-trustee(1)
savings trust account
(grantor is also
trustee)
b. So-called trust The actual owner(1)
account that is not a
legal or valid trust
under State law
8. Sole proprietorship The owner(5)
account
- -----------------------------------------------------------
<CAPTION>
GIVE THE NAME AND
EMPLOYER
IDENTIFICATION
FOR THIS TYPE OF ACCOUNT: NUMBER OF--
<S> <C> <C>
- -----------------------------------------------------------
9. A valid trust, estate, The legal entity (do
or pension trust not furnish the
identifying number of
the personal
representative or
trustee unless the
legal entity itself is
not designated in the
account title)(1)
10. Corporate account The corporation
11. Religious, charitable, The organization
or educational
organization account
12. Partnership account The partnership
held in the name of the
business
13. Association, club, or The organization
other tax-exempt
organization
14. A broker or registered The broker or nominee
nominee
15. Account with the The public entity
Department of
Agriculture in the name
of a public entity
(such as a State or
local government,
school district, or
prison) that receives
agricultural program
payments
</TABLE>
- ---------------------------------------------
- ---------------------------------------------
(1) List first and circle the name of the legal trust, estate, or pension trust.
(2) List first and circle the name of the person whose number you furnish.
(3) Circle the minor's name and furnish the minor's social security number.
(4) Circle the ward, minor's or incompetent person's name and furnish such
person's social security number.
(5) Show the name of the owner.
NOTE: If no name is circled when there is more than one name, the number will
be considered to be that of the first name listed.
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
PAGE 2
OBTAINING A NUMBER
If you don't have a TIN or you don't know your number, obtain Internal Revenue
Service Form SS-5, Application for Social Security Number Card (for individuals)
or Form SS-4, Application for Employer Identification Number (for businesses and
all other entities) at your local office of the Social Security Administration
or the Internal Revenue Service and apply for a number.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
Payees specifically exempted from backup withholding on ALL payments include the
following:
- A corporation.
- A financial institution.
- An organization exempt from tax under Section 501(A) or an individual
retirement plan.
- The United States or any agency or instrumentality thereof.
- A state, the District of Columbia, a possession of the United States or
any subdivision or instrumentality thereof.
- A foreign government, a political subdivision of a foreign government, or
any agency or instrumentality thereof.
- An international organization or any agency or instrumentality thereof.
- A registered dealer in securities or commodities registered in the U.S. or
a possession of the U.S.
- A real estate investment trust.
- A common trust fund operated by a bank under Section 584(a).
- An exempt charitable remainder trust, or a non-exempt trust described in
section 4947(a)(1).
- An entity registered at all times under the Investment Company Act of
1940.
- A foreign central bank of issue.
- A futures commission merchant registered with the Commodity Futures
Trading Commission.
Payments of dividends and patronage dividends not generally subject to backup
withholding include the following:
- Payments to nonresident aliens subject to withholding under Section 1441.
- Payments to partnerships not engaged in a trade or business in the U.S.
and which have at least one nonresident partner.
- Payments of patronage dividends where the amount received is not paid in
money.
- Payments made by certain foreign organizations.
- Payments made to a nominee.
- Section 404(k) payments made by an ESOP.
Payments of interest not generally subject to backup withholding include the
following:
- Payments of interest on obligations issued by individuals. Note: You may
be subject to backup withholding if this interest is $600 or more and is
paid in the course of the payer's trade or business and you have not
provided your correct taxpayer identification number to the payer.
- Payments of tax-exempt interest (including exempt interest dividends under
section 852).
- Payments described in section 6049(b)(5) to nonresident aliens.
- Payments on tax-free covenant bonds under section 1451.
- Payments made by certain foreign organizations.
- Payments made to a nominee.
- Payments of mortgage interest to you.
Exempt payees described above should file Substitute Form W-9 to avoid possible
erroneous backup withholding.
FILE THIS FORM WITH THE PAYER. FURNISH YOUR TAXPAYER IDENTIFICATION NUMBER.
WRITE "EXEMPT" ON THE FACE OF THE FORM AND RETURN IT TO THE PAYER. IF THE
PAYMENTS ARE INTEREST, DIVIDENDS, OR PATRONAGE DIVIDENDS, ALSO SIGN AND DATE THE
FORM. IF YOU ARE A NONRESIDENT ALIEN OR A FOREIGN ENTITY NOT SUBJECT TO BACKUP
WITHHOLDING, FILE WITH PAYER A COMPLETED INTERNAL REVENUE FORM W-8 (CERTIFICATE
OF FOREIGN STATUS).
Certain payments other than interest, dividends, and patronage dividends that
are not subject to information reporting are also not subject to backup
withholding. For details, see the regulations under sections 6041, 6041A(a),
6045, and 6050A.
PRIVACY ACT NOTICE--Section 6109 requires most recipients of dividend, interest
or other payments to give taxpayer identification numbers to payers who must
report the payments to the IRS. The IRS uses the numbers for identification
purposes. Payers must be given the numbers whether or not recipients are
required to file tax returns. Beginning January 1, 1993, payers must generally
withhold 31% of taxable interest, dividend, and certain other payments to a
payee who does not furnish a taxpayer identification number to a payer. Certain
penalties may also apply.
PENALTIES
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER--If you fail
to furnish your taxpayer identification number to a payer, you are subject to a
penalty of $50 for each such failure unless your failure is due to reasonable
cause and not to willful neglect.
(2) FAILURE TO REPORT CERTAIN DIVIDEND AND INTEREST PAYMENTS--If you fail to
properly include any portion of an includible payment for interest, dividends,
or patronage dividends in gross income, such failure will be treated as being
due to negligence and will be subject to a penalty of 5% on any portion of an
underpayment attributable to that failure unless there is clear and convincing
evidence to the contrary.
(3) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING-- If you
make a false statement with no reasonable basis which results in no imposition
of backup withholding, you are subject to a penalty of $500.
(4) CRIMINAL PENALTY FOR FALSIFYING INFORMATION--Willfully falsifying
certifications or affirmations may subject you to criminal penalties including
fines and/or imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE
SERVICE
<PAGE>
Exhibit 99(a)(7)
This announcement is neither an offer to purchase nor a solicitation
of an offer to sell shares of Common Stock. The Offer is made solely by the
Offer to Purchase, dated September 27, 1999, and the related Letter of
Transmittal, and is being made to all holders of shares of Common Stock. The
Offer is not being made to (nor will tenders be accepted from or on behalf
of) holders of shares of Common Stock in any jurisdiction in which the making
of the Offer or the acceptance thereof would not be in compliance with the
laws of such jurisdiction. In those jurisdictions where securities, blue sky
or other laws require the Offer to be made by a licensed broker or dealer,
the Offer shall be deemed to be made on behalf of Purchaser by
Chase Securities Inc. or one or more registered brokers or dealers licensed
under the laws of such jurisdiction.
Notice of Offer to Purchase for Cash
All of the Outstanding Shares of Common Stock
(Including the Associated Junior Participating Preferred Stock Purchase Rights)
of
ASARCO Incorporated
at
$26.00 Net Per Share
by
ASMEX Corporation
a wholly owned subsidiary of
Grupo Mexico, S.A de C.V.
ASMEX Corporation ("Purchaser"), a Delaware corporation and a wholly
owned subsidiary of Grupo Mexico, S.A de C.V., a Mexican corporation
("Parent"), hereby offers to purchase, upon the terms and conditions set
forth in the Offer to Purchase dated September 27, 1999 (as it may be amended
or supplemented from time to time, the "Offer to Purchase") all outstanding
shares of common stock, without par value (the "Common Stock"), of ASARCO
Incorporated, a New Jersey corporation ("ASARCO"), including the associated
junior participating preferred stock purchase rights (including any
successors thereto, the "Rights") issued pursuant to the rights agreement
dated as of January 28, 1998, as amended as of July 15, 1999, between ASARCO
and The Bank of New York, as Rights Agent (as such agreement may be further
amended and including any successor agreement, the "Rights Agreement"), at a
price of $26.00 per share of Common Stock, net to the seller in cash,
without interest thereon (the "Offer Price"), upon the terms and subject to
the conditions set forth in the Offer to Purchase and in the related Letter
of Transmittal (which, as amended from time to time, together constitute the
"Offer"). Unless the context otherwise requires, all references to Common
Stock shall include the associated Rights, whether or not such Rights are
evidenced by separate Rights Certificates (as defined in the Offer to
Purchase), and all references to the Rights shall include the benefits that
may inure to holders of the Rights pursuant to the Rights Agreement,
including the right to receive any payment due upon redemption of the Rights.
<PAGE>
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON MONDAY, OCTOBER 25, 1999, UNLESS THE OFFER IS EXTENDED.
The Offer is conditioned upon, among other things, (1) there being
validly tendered and not properly withdrawn prior to the expiration of the
Offer that number of shares of Common Stock (including the associated Rights)
which, together with shares of Common Stock owned by Parent, constitute at
least 80% of the shares of the Common Stock outstanding on a fully diluted
basis, (2) the Rights having been redeemed by the Board of Directors of
ASARCO or Purchaser being satisfied, in its sole discretion, that the Rights
are invalid or otherwise inapplicable to the transactions contemplated by the
Offer to Purchase, (3) Purchaser being satisfied, in its sole discretion,
that the Agreement and Plan of Merger dated as of July 15, 1999, among
ASARCO, Cyprus Amax Minerals Company and certain other parties, has been
terminated and ASARCO having entered into a definitive merger agreement with
Parent and Purchaser to provide for the acquisition of ASARCO by Parent or
Purchaser and (4) Parent and Purchaser having obtained all regulatory
approvals necessary for their acquisition of control of ASARCO on terms and
conditions satisfactory to Purchaser, in its sole discretion.
The Offer is not conditioned upon Parent or Purchaser obtaining
financing.
The purpose of the Offer and the Proposed Merger (as defined below)
is to enable Parent to acquire control of, and ultimately the entire equity
interest in, ASARCO. The Offer, as the first step in the acquisition of
ASARCO, is intended to facilitate the acquisition of that number of shares of
Common Stock that, together with shares of Common Stock owned by Parent and
Purchaser, would constitute at least 80% of the shares of Common Stock on a
fully diluted basis. Article 7 of ASARCO's Restated Certificate of
Incorporation ("ASARCO Certificate of Incorporation") appears to require the
affirmative vote of at least 80% of the outstanding shares of Common Stock to
approve a transaction such as the Proposed Merger. Parent intends to seek to
negotiate with ASARCO with respect to the acquisition of ASARCO by Parent or
Purchaser in order to enter into a definitive merger agreement providing for
such acquisition. Parent currently intends, as soon as practicable following
consummation of the Offer pursuant to such a merger agreement, to seek to
have Purchaser consummate a merger with and into ASARCO, with ASARCO
continuing as the surviving corporation (the "Proposed Merger"), pursuant to
2
<PAGE>
which each then outstanding share of Common Stock (other than
shares of Common Stock owned by Parent or any of its wholly owned
subsidiaries and shares of Common Stock held in the treasury of ASARCO) would
be converted into the right to receive in cash the price per share paid by
Purchaser pursuant to the Offer. In general, in the event that the Proposed
Merger is consummated as described above, gain or loss will be recognized by
a shareholder of ASARCO who receives cash in exchange for shares of Common
Stock pursuant to the Offer and/or the Proposed Merger.
Purchaser expressly reserves the right, in its sole discretion, at any
time and from time to time and regardless of whether any of the events set forth
in Section 14 of the Offer to Purchase shall have occurred or shall have been
determined by Purchaser to have occurred, (i) to extend the period of time
during which the Offer is open and thereby delay acceptance for payment of, and
the payment for, any shares of Common Stock, by giving oral or written notice of
such extension to the Depositary (as defined in the Offer to Purchase) and (ii)
to amend the Offer in any respect by giving oral or written notice of such
amendment to the Depositary. Any such extension or amendment will be followed as
promptly as practicable by a public announcement thereof, such announcement in
the case of an extension, to be issued not later than 9:00 a.m., New York City
time, on the next business day after the previously scheduled Expiration Date
(as defined in the Offer to Purchase). During any such extension, all shares of
Common Stock previously tendered and not withdrawn will remain subject to the
Offer, subject to the right of a tendering shareholder to withdraw such
shareholder's shares of Common Stock.
For purposes of the Offer, Purchaser will be deemed to have accepted
for payment, and thereby purchased, shares of Common Stock validly tendered and
not properly withdrawn if, as and when Purchaser gives oral or written notice to
the Depositary of Purchaser's acceptance of such shares of Common Stock for
payment. Payment for shares of Common Stock accepted pursuant to the Offer will
be made by deposit of the purchase price therefor with the Depositary, which
will act as agent for tendering shareholders for the purpose of receiving
payments from Purchaser and transmitting payments to such tendering
shareholders. Under no circumstances will interest on the purchase price for
shares of Common Stock be paid by Purchaser, regardless of any delay in making
such payment. Upon the deposit of funds with the Depositary for the purpose of
making payments to tendering shareholders, Purchaser's obligation to make such
payment shall be satisfied and tendering shareholders must thereafter look
solely to the Depositary for payment of amounts owed to them by reason of the
acceptance for payment of Common Stock pursuant to the Offer. Purchaser will pay
any stock transfer taxes incident to the transfer to it of validly tendered
Common Stock, except as otherwise provided in Instruction 6 of the Letter of
Transmittal, as well as any charges and expenses of the Depositary and the
Information Agent.
In all cases, payment for shares of Common Stock purchased pursuant
to the Offer will be made only after timely receipt by the Depositary of (i)
certificates for such shares of Common Stock ("Common Stock Certificates")
and, if applicable, Rights Certificates or timely confirmation of a book-entry
transfer (a "Book Entry Confirmation") of such Common Stock, if such
procedure is available, into the Depositary's account at The Depository Trust
Company (the "Book-Entry Transfer Facility")
3
<PAGE>
pursuant to the procedures set forth in Section 3 of the Offer to Purchase,
(ii) the Letter of Transmittal (or facsimile thereof), properly completed and
duly executed, or in the case of a book-entry transfer, an Agent's Message
(as defined in the Offer to Purchase) and (iii) any other documents required
by the Letter of Transmittal.
If, for any reason whatsoever, acceptance for payment of any shares
of Common Stock tendered pursuant to the Offer is delayed, or Purchaser
is unable to accept for payment shares of Common Stock tendered pursuant to
the Offer, then, without prejudice to Purchaser's rights set forth in the
Offer to Purchase, the Depositary may, nevertheless, on behalf of Purchaser,
retain tendered shares of Common Stock, and such shares of Common Stock may
not be withdrawn except to the extent that the tendering shareholders are
entitled to and properly exercise withdrawal rights as described in Section 4
of the Offer to Purchase and as otherwise required by Rule 14e-1(c) under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). Any such
delay will be followed by an extension of the Offer to the extent required by
law. If, prior to the Expiration Date, Purchaser increases the consideration
to be paid per share of Common Stock pursuant to the Offer, Purchaser will
pay such increased consideration for all such shares of Common Stock
purchased pursuant to the Offer, whether or not such shares of Common Stock
were tendered prior to such increase in consideration.
Except as otherwise provided in Section 4 of the Offer to Purchase,
tenders of shares of Common Stock made pursuant to the Offer are irrevocable
except that such shares of Common Stock may be withdrawn at any time prior to
12:00 Midnight, New York City time, on Monday, October 25, 1999 (or if
Purchaser shall have extended the period of time for which the Offer is open,
at the latest time and date at which the Offer, as so extended by Purchaser,
shall expire) and, unless theretofore accepted for payment by Purchaser
pursuant to the Offer, may also be withdrawn at any time after November 25,
1999.
For a withdrawal to be effective, a written, telegraphic or
facsimile transmission notice of withdrawal must be timely received by the
Depositary at one of its addresses set forth on the back cover of the Offer
to Purchase. Any notice of withdrawal must specify the name of the person who
tendered the shares of Common Stock to be withdrawn, the number of shares of
Common Stock to be withdrawn and the name of the registered holder, if
different from that of the person who tendered such Common Stock. If Common
Stock Certificates evidencing shares of Common Stock and, if applicable,
Rights Certificates, to be withdrawn have been delivered or otherwise
identified to the Depositary, then, prior to the physical release of such
Common Stock Certificates and, if applicable, Rights Certificates, the serial
numbers shown on such Common Stock Certificates and, if applicable, Rights
Certficates, must be submitted to the Depositary and the signature(s) on the
notice of withdrawal must be guaranteed by a firm which is a bank, broker,
dealer, credit union, savings association or other entity that is an
"eligible guarantor institution," as such term is defined in Rule 17Ad-15
under the Exchange Act or is a participant in the Securities Transfer Agents
Medallion Program, the New York Stock Exchange Medallion Signature Guarantee
Program or the Stock Exchange Medallion Program (each, an "Eligible
Institution"), unless such shares of Common Stock have been tendered for the
account of an Eligible Institution. If shares of Common Stock have been
tendered pursuant to the procedures for book-entry transfer set
4
<PAGE>
forth in Section 3 of the Offer to Purchase, any notice of withdrawal must
also specify the name and number of the account at the Book-Entry Transfer
Facility to be credited with the withdrawn Common Stock and
otherwise comply with such Book-Entry Transfer Facility's procedures.
Any shares of Common Stock properly withdrawn will thereafter be
deemed not to have been validly tendered for purposes of the Offer. However,
withdrawn shares of Common Stock may be retendered at any time prior to the
Expiration Date by following the procedures described in Section 3 of the
Offer to Purchase. All questions as to the form and validity (including time
of receipt) of notices of withdrawal will be determined by Purchaser, in its
sole discretion, whose determination will be final and binding. None of
Parent, Purchaser, the Dealer Manager, the Depositary, the Information Agent
or any other person will be under any duty to give notification of any
defects or irregularities in any notice of withdrawal or incur any liability
for failure to give any such notification.
The information required to be disclosed by Rule 14d-6(e)(1)(vii) of
the General Rules and Regulations under the Exchange Act is contained in the
Offer to Purchase and is incorporated herein by reference.
A request is being made to ASARCO pursuant to Rule 14d-5 of the
Exchange Act for use of ASARCO's shareholder list, its list of holders of
Rights, if any, and security position listing for the purpose of
disseminating the Offer to shareholders. Upon compliance by ASARCO with such
request, the Offer to Purchase and the Letter of Transmittal and other
relevant materials will be mailed to record holders of shares of Common Stock
and Rights, if applicable, and will be furnished to brokers, dealers,
commercial banks, trust companies and similar persons whose names, or the
names of whose nominees, appear on the shareholder list and list of holders
of Rights, if applicable, who are listed as participants in a clearing
agency's security position listing for subsequent transmittal to beneficial
owners of shares of Common Stock or Rights.
The Offer to Purchase and the related Letter of Transmittal contain
important information which should be read carefully before any decision is made
with respect to the offer.
Questions and requests for assistance may be directed to the
Information Agent or to the Dealer Manager at their respective addresses and
telephone numbers as set forth below. Additional copies of the Offer to
Purchase, the Letter of Transmittal or other tender offer materials may be
obtained from the Information Agent. Such copies will be furnished promptly at
Purchaser's expense. No fees or commissions will be paid to brokers, dealers or
other persons (other than the Information Agent and the Dealer Manager) for
soliciting tenders of shares of Common Stock pursuant to the Offer.
THE INFORMATION AGENT FOR THE OFFER IS:
D.F. KING & CO., INC.
UNITED STATES EUROPE
77 Water Street Royex House, Aldermanbury Square
New York, NY 10005 London, England EC2V 7HR
(800) 714-3305 (Call Toll Free) (44) 171 600 5005 (Call Collect)
or (212) 269-5550 (Call Collect)
THE DEALER MANAGER FOR THE OFFER IS:
Chase Securities Inc.
270 Park Avenue
New York, NY 10017
(212) 270-3298
September 27, 1999
5
<PAGE>
Exhibit (a)(8)
News Release
(Logo of Grupo Mexico)
Av. Baja California #200, Mexico City 06760
FOR IMMEDIATE RELEASE
CONTACTS
GRUPO MEXICO, S.A. de C.V. Abernathy MacGregor Frank
Daniel Tellechea Chuck Burgess
011-525-574-8483 212-371-5999
Eduardo Gonzalez
011-525-574-8423
GRUPO MEXICO OFFERS TO ACQUIRE ASARCO INC.
Mexico City, September 24, 1999 - Earlier today, Grupo Mexico, S.A. de C.V.
sent the following letter to the Board of Directors
of ASARCO Incorporated (NYSE:AR):
German Larrea
Chairman & CEO
September 24, 1999
Mr. Francis McAllister
Chairman and Chief Executive Officer
ASARCO Incorporated
180 Maiden Lane
New York, N.Y. 10038
Dear Frank:
We have followed with considerable interest the developments that have
transpired since the announcement of your proposed transaction with Cyprus Amax
Mineral Company, including most recently Phelps Dodge Corporation's September
22, 1999 announcement that it was improving its pending exchange offer to
acquire ASARCO Incorporated and your announcement yesterday that your board of
directors intends to meet to consider the Phelps Dodge Corporation offer "this
week."
- more -
<PAGE>
- 2 -
Given the time constraints of the current situation, we will commence on Monday
a tender offer, through a wholly owned subsidiary, to ASARCO's shareholders for
all outstanding shares of ASARCO at $26.00 per share in cash. The offer will be
conditioned upon, among other things, Grupo Mexico S.A. de C.V., its wholly
owned subsidiary and ASARCO entering into a merger agreement, the number of
shares being tendered constituting at least 80% of the outstanding ASARCO shares
on a fully diluted basis when taken together with our own holdings. [sic]
As you know, in the past we have expressed an interest in exploring the
possibility of a combination of our two companies' operations. We believe that a
business combination between Grupo Mexico and ASARCO would create a low cost
international mining entity with greatly increased ore reserves and the ability
to realize significant cost saving synergies. Furthermore, in our capacity as
your largest single shareholder, we have obviously considered the relative
economic merits of the shareholder value inherent in your existing transaction
with Cyprus Amax and the transaction proposed by Phelps Dodge. We also
considered alternatives that address our desire to increase our cost
efficiencies and production capacity while simultaneously providing all of your
other shareholders an opportunity to maximize the value of their investment now,
rather than rely on projections of possible future benefits that may or may not
be ultimately realized under the transaction contemplated by your existing
agreement or the pro-rated part cash/part stock transaction proposed by Phelps
Dodge. Our offer provides such an alternative.
We would be prepared to proceed on the basis of a negotiated merger agreement
with you in which we would expect to receive only the same representations and
warranties as you have made under your existing agreement with Cyprus Amax. Our
execution of a merger agreement would not be contingent upon a due diligence
review. Furthermore, we are confident that consummation of our proposed
transaction would not require any burdensome regulatory approvals.
Our proposal presents an attractive opportunity for ASARCO and its shareholders.
The offer price of $26.00 per share would represent a premium of approximately
41% over ASARCO's unaffected price per share on August 20, 1999, immediately
prior to the announcement of Phelps Dodge's proposal. As a result of the
all-cash nature of our offer, your shareholders will immediately receive the
entire premium for their ASARCO shares regardless of the performance of the
stock market generally or of the market for copper following the close of our
transaction. Briefly put, we believe our proposal is in the best interests of
your shareholders. We also believe that our combined operations would serve the
interests of the employees, customers, suppliers and local communities of each
company.
Our proposed transaction is not subject to a financing condition. In that
regard, we have
- more -
<PAGE>
- 3-
obtained a signed commitment letter from The Chase Manhattan Bank and Chase
Securities Inc. providing for the full amount of financing necessary to complete
our offer.
As you are aware, the federal securities laws, as well as the laws of the United
States of Mexico, require that we promptly make public disclosure of our
intentions outlined in this letter.
We and our advisors are prepared to meet with ASARCO and its advisors to
negotiate and finalize all necessary documentation to reflect the transaction
outlined above.
Please advise me of the manner in which you and your board of directors would
like to proceed.
Very truly yours,
/s/ German Larrrea
German Larrrea
Grupo Mexico is a diversified mining company that ranks among the world's
largest copper, zinc and silver producers. The company's business includes
mining, smelting and refining in Mexico and is one of the world's lowest-cost
operations. The company also operates the largest railroad system in Mexico.
Grupo Mexico's financial advisor is Chase Securities Inc. and its legal
advisors are Brown & Wood LLP and Santamarina y Steta.
NOTE: Statements in this press release include "forward-looking statements" that
express expectations of future events or results. All statements based on future
expectations rather than on historical facts are forward-looking statements that
involve a number of risks and uncertainties, and the company cannot give
assurance that such statements will prove to be correct.
<PAGE>
Exhibit (a)(9)
NEWS RELEASE
FOR IMMEDIATE RELEASE
CONTACTS
GRUPO MEXICO, S.A. de C.V. ABERNATHY MacGREGOR FRANK
Daniel Tellechea Chuck Burgess
011-525-574-8483 212-371-5999
Eduardo Gonzalez
011-525-574-8423
GRUPO MEXICO COMMENCES TENDER OFFER
TO ACQUIRE ASARCO FOR $26 PER SHARE IN CASH
Mexico City, Mexico (September 27, 1999) - Grupo Mexico, S.A. de C.V., announced
today that it has formally commenced a tender offer to acquire all of the
outstanding shares of ASARCO Incorporated (NYSE:AR) at a price of $26.00 per
share in cash. The tender offer is scheduled to expire at 12:00 midnight, New
York City time, on Monday, October 25, 1999, unless extended.
Following the completion of the tender offer, Grupo Mexico intends to consummate
a second step merger in which all remaining ASARCO shareholders will also
receive the same cash price paid in the tender offer.
German Larrea, chairman and chief executive officer of Grupo Mexico, said, "Our
offer to acquire ASARCO is an opportunity for Grupo Mexico to increase
shareholder value by creating an international mining company with world-class
assets in Canada, the United States, Mexico and Peru. With a combined mine
production of approximately 975,000 MT of copper per year and composite
operating reserve life of 45 years, the combined company would be able to
rationalize production as a result of its low-cost structure.
"Our $26.00 per share in cash offer is also an opportunity for ASARCO
shareholders to receive full value for their shares. It represents a premium of
approximately 41% over ASARCO's unaffected stock price on August 20, 1999,
immediately prior to the announcement of Phelps Dodge's proposal."
Grupo Mexico expects to achieve annual cash cost savings of at least $100
million by 2001 from, among other things, reduced administrative and overhead
costs, as well as operating synergies. The company anticipates the transaction
to be accretive to its earnings and EBITDA by the end of 2000.
- more -
<PAGE>
- 2 -
The company noted that it has an excellent track record of achieving cost
savings. In 1993, Grupo Mexico's breakeven cash cost per pound of copper was
$0.71. By the second quarter of 1999, that figure was reduced to approximately
$0.37. With the combined cost savings, Grupo Mexico projects a breakeven cash
cost of $0.52 per pound of copper.
The offer is conditioned upon, among other things, (1) there being validly
tendered and not properly withdrawn prior to the expiration of the offer that
number of shares of ASARCO common stock (including the associated junior
participating preferred stock purchase rights), which together with shares of
ASARCO common stock owned by Grupo Mexico, constitute at least 80% of the shares
of ASARCO common stock outstanding on a fully diluted basis, (2) the rights
having been redeemed by the board of directors of ASARCO or Grupo Mexico being
satisfied, in its sole discretion, that the rights are invalid or otherwise
inapplicable to the transactions contemplated by the offer, (3) Grupo Mexico
being satisfied, in its sole discretion, that the agreement and plan of merger
dated as of July 15, 1999, among ASARCO, Cyprus Amax and certain other parties,
has been terminated and ASARCO having entered into a definitive merger agreement
with Grupo Mexico to provide for the acquisition of ASARCO by Grupo Mexico and
(4) Grupo Mexico having obtained all regulatory approvals necessary for its
acquisition of control of ASARCO on terms and conditions satisfactory to Grupo
Mexico, in its sole discretion.
Chase Securities Inc. is acting as financial advisor to Grupo Mexico and as
Dealer Manager for the offer, and D.F. King & Co., Inc. is acting as Information
Agent. Grupo Mexico's legal advisors are Brown & Wood LLP and Santamarina y
Steta.
Grupo Mexico is a diversified mining company that ranks among the world's
largest and lowest-cost copper, zinc and silver producers. The company's
operations include mining, smelting and refining. Grupo Mexico also operates the
largest railroad system in Mexico.
NOTE: Statements in this press release include "forward-looking statements" that
express expectations of future events or results. All statements based on future
expectations rather than on historical facts are forward-looking statements that
involve a number of risks and uncertainties, and the company cannot give
assurance that such statements will prove to be correct.
# # #
<PAGE>
EXHIBIT 99(b)(1)
[GRAPHIC OMITTED]
THE CHASE MANHATTAN BANK CHASE SECURITIES INC.
270 Park Avenue 270 Park Avenue
New York, New York 10017 New York, New York 10017
September 24, 1999
ASMEX Corporation
Senior Secured Credit Facilities
Commitment Letter
Grupo Mexico, S.A. de C.V.
Baja California 200
Colonia Roma Sur
Mexico, D.F. Mexico
06760
Attention: Daniel Tellechea
Ladies and Gentlemen:
You have advised The Chase Manhattan Bank ("CHASE") and Chase
Securities Inc. ("CSI") that ASMEX Corporation, a Delaware corporation (the
"BORROWER"), a wholly-owned subsidiary of Grupo Mexico, S.A. de C.V., a Mexican
corporation ("GRUPO MEXICO"), intends to make a cash tender offer (the "TENDER
OFFER") for common stock of Asarco Incorporated, a New Jersey corporation
("ASARCO"), representing at least 80% of the ordinary voting power of all of the
shares of capital stock of Asarco on a fully diluted basis (including stock of
Asarco owned by Grupo Mexico and subsidiaries prior to the Tender Offer), to be
<PAGE>
2
followed by the merger of the Borrower into Asarco, with Asarco thereby becoming
a wholly-owned subsidiary of Grupo Mexico.
We understand that to provide funds for the Tender Offer and
to pay related fees and expenses, Grupo Mexico requires that senior secured
financing be made available to the Borrower in the amount of up to $823 million
(the "A TENDER FACILITY"). We further understand that, following the successful
completion of the Tender Offer, the Borrower is to be merged into Asarco with
Asarco thereby becoming a wholly-owned subsidiary of Grupo Mexico (the "MERGER"
and, together with the Tender Offer, the "TRANSACTIONS"), and that (whether or
not the Merger is immediately effected) Grupo Mexico will require senior
financing for Asarco (the "R/C FACILITIES") in an aggregate amount equal to $250
million in order to refinance certain indebtedness of Asarco and to provide
funds for ongoing general corporate purposes. The A Tender Facility and the R/C
Facilities are herein collectively referred to as the "FACILITIES".
In that connection, you have requested that CSI agree to
structure, arrange and syndicate the Facilities, and that Chase commit to
provide the entire principal amount of the Facilities and to serve as
administrative agent for the Facilities.
CSI is pleased to advise you that it is willing to act as
exclusive advisor, lead arranger and book manager for the Facilities.
Furthermore, Chase is pleased to advise you of its commitment
to provide the entire amount of the Facilities upon the terms and subject to the
conditions set forth or referred to in this commitment letter (the "COMMITMENT
LETTER"), in the Summary of Terms and Conditions attached hereto as Exhibit A
(the "TERM SHEET") and in the Fee Letter dated the date hereof and delivered
herewith (the "FEE LETTER"). We intend to syndicate the Facilities to a group of
financial institutions (together with Chase, the "LENDERS") identified by us in
consultation with you. Chase shall be relieved of its obligation to provide the
entire amount of the Facilities to the extent that the offers of Lenders other
than Chase to provide any portion of the Facilities are accepted.
CSI intends to commence syndication efforts promptly, and you
agree actively to assist CSI in its efforts to complete a syndication
satisfactory to it prior to the Tender Closing Date referred to in the Term
Sheet. Such assistance shall include (a) your using commercially reasonable
efforts to ensure that the syndication efforts benefit materially from your
existing lending relationships, (b) direct contact between senior management and
advisors of yourselves and the Borrower and the proposed Lenders, (c) assistance
in the preparation of a Confidential Information Memorandum and other marketing
materials to be used in connection with the syndication and (d) the hosting,
with CSI, of one or more meetings of prospective Lenders.
It is agreed that Chase will act as the sole and exclusive
Administrative Agent for the Facilities and as the Collateral Agent in
connection with the Facilities, and that CSI will act as the sole and exclusive
advisor, arranger and book manager for the Facilities, and each will, in such
capacities, perform the duties and exercise the authority customarily performed
and
<PAGE>
3
exercised by it in such roles. You agree that no other agents, co-agents,
arrangers or book managers will be appointed, no other titles will be awarded
and no compensation (other than that expressly contemplated by the Term Sheet
and the Fee Letter referred to below) will be paid in connection with the
Facilities unless you and we shall so agree.
CSI will (in consultation with you) manage all aspects of the
syndication, including decisions as to the selection of institutions to be
approached and when they will be approached, when their commitments will be
accepted, which institutions will participate, the allocations of the
commitments among the Lenders and the amount and distribution of fees among the
Lenders. To assist CSI in its syndication efforts, you agree promptly to prepare
and provide to CSI and Chase all information with respect to Grupo Mexico, Grupo
Minero Mexico, S.A. de C.V., a Mexican corporation ("GMM") , the Borrower and
their respective subsidiaries, the Transactions and the other matters
contemplated hereby, including all financial information and projections (the
"PROJECTIONS"), as we may reasonably request in connection with the arrangement
and syndication of the Facilities. You hereby represent and covenant that (a)
all information other than the Projections (the "INFORMATION") that has been or
will be made available to Chase or CSI by you or any of your representatives is
or will be, when furnished, complete and correct in all material respects and
does not or will not, when furnished, contain any untrue statement of a material
fact or omit to state a material fact necessary in order to make the statements
contained therein not materially misleading in light of the circumstances under
which such statements are made and (b) the Projections that have been or will be
made available to Chase or CSI by you or any of your representatives have been
or will be prepared in good faith based upon reasonable assumptions. You
understand that in arranging and syndicating the Facilities we may use and rely
on the Information and Projections without independent verification thereof.
As consideration for Chase's commitment hereunder and CSI's
agreement to perform the services described herein, you agree to pay and to
cause the Borrower to pay to Chase the non-refundable fees set forth in Annex I
to the Term Sheet and in the Fee Letter.
Chase's commitment hereunder and CSI's agreement to perform
the services described herein are subject to
(a) there not occurring or becoming known to us any material
adverse condition or material adverse change in or affecting the
business, operations, property or financial condition or prospects of
Grupo Mexico and its subsidiaries, GMM and its subsidiaries, or Asarco
and its subsidiaries, in each case taken as a whole, which (in the case
of Asarco and its subsidiaries) is not already disclosed and publicly
available or otherwise known by any of our officers who is working with
you on the Transactions; and our not becoming aware after the date
hereof of any information or other matter affecting Grupo Mexico and
its subsidiaries, GMM and its subsidiaries, Asarco and its
subsidiaries, in each case taken as a whole, or the transactions
contemplated hereby which is inconsistent in a material and adverse
manner with any such information or other matter disclosed to us prior
to the date hereof and which (in the case of Asarco and its
subsidiaries) is not
<PAGE>
4
already disclosed and publicly available or otherwise known by any of
our officers who is working with you on the Transactions,
(b) there not being any pending or threatened material adverse
litigation or investigation affecting or relating to the Transactions
or the Facilities (i) that has not been settled, dismissed, vacated,
discharged or terminated prior to each of the proposed closing dates
for the Facilities to the reasonable satisfaction of Chase and CSI, or,
(ii) if it has not been so settled, dismissed, vacated, discharged or
terminated, as to which there is, in the reasonable judgment of Chase
and CSI, a reasonable possibility that it would result in the Merger
being enjoined, prevented or materially delayed or otherwise would
materially adversely affect the Transactions or the Facilities,
(c) there not having occurred a material disruption of or
material adverse change in U.S. or developed country financial, banking
or capital market conditions that, in our judgment, is reasonably
likely to materially impair the syndication of the Facilities,
(d) our satisfaction that prior to and during the syndication
of the Facilities there shall be no competing offering, placement or
arrangement of any debt securities or bank financing by or on behalf of
Grupo Mexico or any affiliate thereof,
(e) in the case of the A Tender Facility, our satisfaction
with the conditions of the Tender Offer which will include, in any
event, (i) invalidation, redemption or other inapplicability of the
rights issued under Asarco's Shareholder Rights Agreement dated as of
January 28, 1998, as amended, (ii) invalidation or satisfaction of the
requirements of Article 7 of Asarco's Restated Certificate of
Incorporation with respect to the Transactions such that following
consummation of the Tender Offer the Merger may be consummated without
the affirmative vote of the holders of any Asarco shares other than the
Borrower, (iii) invalidity, inapplicability or satisfaction (if
necessary) of Article 10 of Asarco's Restated Certificate of
Incorporation with respect to the Transactions or the Facilities, (iv)
satisfaction or inapplicability of the requirements of Section 14A:10A
of the New Jersey Business Corporation Act with respect to the Merger
such that following consummation of the Tender Offer the Merger may be
consummated without the affirmative vote of the holders of any Asarco
shares other than the Borrower and (v) obtaining all regulatory
approvals and consents (including Hart-Scott-Rodino and other approvals
or consents, if any) necessary to effect the Transactions,
(f) in the case of the R/C Facilities, prior or concurrent
disbursement of the A Tender Facility, successful consummation of the
Tender Offer and our satisfaction with the terms and conditions of the
definitive Merger agreement,
(g) the negotiation, execution and delivery on or prior to the
Tender Closing Date of definitive documentation with respect to the
Facilities satisfactory to all parties, and
(h) the other conditions set forth or referred to in the Term
Sheet.
<PAGE>
5
The terms and conditions of Chase's commitments hereunder and of the Facilities
are not limited to those set forth herein and in the Term Sheet and Fee Letter.
Those matters that are not covered by the provisions hereof and of the Term
Sheet are subject to the approval and agreement of Chase, CSI and Grupo Mexico.
Notwithstanding the foregoing, the Term Sheet and Fee Letter are intended to
reflect all material closing conditions, representations and warranties,
covenants and events of default, subject however, in each case, to such
additional provisions as shall be appropriate to take into account developments
after the date hereof.
You agree (a) to indemnify and hold harmless Chase, CSI, their
affiliates and their respective officers, directors, employees, advisors, and
agents (each, an "INDEMNIFIED PERSON") from and against any and all losses,
claims, damages and liabilities to which any such indemnified person may become
subject arising out of or in connection with this Commitment Letter, the
Facilities, the use of the proceeds thereof, the Transactions or any related
transaction or any claim, litigation, investigation or proceeding relating to
any of the foregoing, regardless of whether any indemnified person is a party
thereto, and to reimburse each indemnified person upon demand for any legal or
other expenses incurred in connection with investigating or defending any of the
foregoing, PROVIDED that the foregoing indemnity will not, as to any indemnified
person, apply to losses, claims, damages, liabilities or related expenses to the
extent they are found by a final, non-appealable judgment of a court to arise
from the willful misconduct or gross negligence of such indemnified person, and
(b) to reimburse Chase, CSI and their affiliates on demand for all reasonable
and documented out-of-pocket expenses (including due diligence expenses,
syndication expenses, consultant's fees and expenses, travel expenses, and
reasonable fees, charges and disbursements of counsel) incurred in connection
with the Facilities and any related documentation (including this Commitment
Letter, the Term Sheet, the Fee Letter and the definitive financing
documentation) or (without duplication of fees or costs for administrative
services covered in the Fee Letter) the administration, amendment, modification
or waiver thereof. No indemnified person shall be liable for any damages arising
from the use by others of Information or other materials obtained through
electronic, telecommunications or other information transmission systems, or for
any special, indirect, consequential or punitive damages in connection with the
Facilities.
You acknowledge that Chase and/or CSI may be providing debt
financing, equity capital or other services (including financial advisory
services) to other companies in respect of which you may have conflicting
interests regarding the transactions described hereby and otherwise. Neither
Chase nor CSI will use confidential information obtained from you by virtue of
the transactions contemplated hereby or other relationships with you in
connection with the performance by Chase or CSI of services for other companies,
and neither Chase nor CSI will furnish any such information to other companies.
You also acknowledge that neither Chase nor CSI has any obligation to use in
connection with the transactions contemplated hereby, or to furnish to you,
confidential information obtained from other companies.
This Commitment Letter shall not be assignable by you without
the prior written consent of Chase and CSI (and any purported assignment without
such consent shall be null and
<PAGE>
6
void), is intended to be solely for the benefit of the parties hereto and is not
intended to confer any benefits upon, or create any rights in favor of, any
person other than the parties hereto. This Commitment Letter may not be amended
or waived except by an instrument in writing signed by you, Chase and CSI. This
Commitment Letter may be executed in any number of counterparts, each of which
shall be an original, and all of which, when taken together, shall constitute
one agreement. Delivery of an executed signature page of this Commitment Letter
by facsimile transmission shall be effective as delivery of a manually executed
counterpart hereof. This Commitment Letter and the Fee Letter are the only
agreements that have been entered into among us with respect to the Facilities
and set forth the entire understanding of the parties with respect thereto. This
Commitment Letter shall be governed by, and construed in accordance with, the
laws of the State of New York.
This Commitment Letter is delivered to you on the
understanding that neither this Commitment Letter, the Term Sheet or the Fee
Letter nor any of their terms or substance shall be disclosed, directly or
indirectly, to any other person except (a) to your officers, agents and advisors
who are directly involved in the consideration of this matter or (b) as may be
compelled in a judicial or administrative proceeding or as otherwise required by
law (in which case you agree to inform us promptly thereof), PROVIDED, that the
foregoing restrictions shall cease to apply (except in respect of the Fee Letter
and its terms and substance) after this Commitment Letter has been accepted by
you.
The compensation, reimbursement, indemnification and
confidentiality provisions contained herein and in the Fee Letter shall remain
in full force and effect regardless of whether definitive financing
documentation shall be executed and delivered and notwithstanding the
termination of this Commitment Letter or Chase's commitments hereunder.
If the foregoing correctly sets forth our agreement, please
indicate your acceptance of the terms hereof and of the Term Sheet and the Fee
Letter by returning to us executed counterparts hereof and of the Fee Letter,
together with the amounts agreed upon pursuant to the Fee Letter to be payable
upon the acceptance hereof, not later than 6:00 p.m., New York City time, on
September 24, 1999. Chase's commitment and CSI's agreements herein will expire
at such time in the event Chase has not received such executed counterparts and
such amounts in accordance with the immediately preceding sentence.
Chase and CSI are pleased to have been given the opportunity
to assist you in connection with this important financing.
Very truly yours,
THE CHASE MANHATTAN BANK
<PAGE>
7
By:
-------------------------------
Name:
Title:
CHASE SECURITIES INC.
By:
-------------------------------
Name:
Title:
<PAGE>
8
Accepted and agreed to as of the
date first written above by:
GRUPO MEXICO, S.A. DE C.V.
By:
----------------------------------
Name:
Title:
<PAGE>
Exhibit A
SENIOR SECURED CREDIT FACILITIES
Summary of Terms and Conditions
September 24, 1999
AS USED HEREIN, CAPITALIZED TERMS NOT OTHERWISE DEFINED HEREIN
SHALL HAVE THE RESPECTIVE MEANINGS ASCRIBED TO THEM IN THE COMMITMENT LETTER TO
WHICH THIS SUMMARY OF TERMS AND CONDITIONS IS ATTACHED.
The following sets forth the terms and conditions for the
senior secured credit facilities that will be made available to ASMEX
Corporation, a Delaware corporation ("ASMEX"), in connection with Asmex'
proposed cash tender offer (the "TENDER OFFER" and, together with the Merger
defined below, the "TRANSACTIONS") for shares of common stock of Asarco
Incorporated (the "SHARES"), a New Jersey corporation ("ASARCO"), representing
not less than 80% of the ordinary voting power of all of the shares of capital
stock of Asarco on a fully diluted basis, including stock of Asarco owned by
Grupo Mexico, S.A. de C.V., ("GRUPO MEXICO") and subsidiaries prior to the
Tender Offer (determined in a manner satisfactory to the Arranger). The
conditions precedent to the obligation of Asmex to purchase the Shares pursuant
to the Tender Offer will include the following: (i) invalidation, redemption or
other inapplicability of the rights issued under Asarco's Shareholder Rights
Agreement dated as of January 28, 1998, as amended, (ii) invalidation or
satisfaction of the requirements of Article 7 of Asarco's Restated Certificate
of Incorporation with respect to the Transactions such that, following
consummation of the Tender Offer, the Merger can be consummated without the
affirmative vote of the holders of any Asarco shares other than Asmex, (iii)
invalidity, inapplicability or satisfaction (if necessary) of Article 10 of
Asarco's Restated Certificate of Incorporation with respect to the Transactions
or the Facilities, (iv) satisfaction or inapplicability of the requirements of
Section 14A:10A of the New Jersey Business Corporation Act with respect to the
Merger such that following consummation of the Tender Offer the Merger can be
consummated without the affirmative vote of the holders of any Asarco shares
other than Asmex and (v) obtaining all regulatory approvals and consents
(including Hart-Scott-Rodino, and other approvals or consents, if any) necessary
to effect the Transactions. The purchase of shares will be funded through credit
facilities (the "A Tender Facility" referred to below) together with certain
cash from Grupo Minero Mexico, S.A. de C.V. ("GMM") and Grupo Mexico. Following
the purchase of the Shares pursuant to the Tender Offer, Asmex, a direct
wholly-owned subsidiary of Grupo Mexico, is to be merged into Asarco with Asarco
thereby becoming a wholly-owned subsidiary of Grupo Mexico and with Asarco
shareholders receiving solely cash consideration (the "MERGER"). The following
also sets forth the terms and conditions for the other senior credit facilities
(the "R/C Facilities" referred to below) that will be made available to Asarco
upon and subsequent to consummation of the Tender Offer.
<PAGE>
2
<TABLE>
<CAPTION>
<S> <C> <C>
I. PARTIES
Borrowers: Under the A Tender Facility, ASMEX
Corporation ("ASMEX") and, after the
Merger, Asarco; and under the R/C
Facilities, Asarco (each of Asmex and
Asarco being sometimes referred to below
as a "BORROWER").
Guarantor(s): Under the A Tender Facility, Grupo Mexico;
and under the R/C Facilities, Grupo Mexico
and, until consummation of the Merger,
Asmex.
Advisor, Lead Arranger
and Book Manager: Chase Securities Inc. (in such capacity, the
"ARRANGER").
Administrative Agent: The Chase Manhattan Bank ("CHASE" and,
in such capacity, the "ADMINISTRATIVE
AGENT").
Lenders: A syndicate of banks, financial institutions
and other entities, including Chase, arranged
by the Arranger in consultation with Grupo
Mexico (collectively, the "LENDERS").
II. TYPES AND AMOUNTS OF
CREDIT FACILITIES
1. A TENDER FACILITY
Type and Amount of Facility: An aggregate principal amount of up to $823
million will be available to Asmex under a
senior secured credit facility (the "A TENDER
FACILITY").
Availability: The Loans under the A Tender Facility (the
"A TENDER LOANS") shall be made in a single
drawing on the Tender Closing Date (as
defined below); provided that in the event of
tender of less than 100% of the Shares of
Asarco (other than those owned by Grupo
Mexico and subsidiaries) in the Tender
<PAGE>
3
Offer, the unused portion of the
commitments under the A Tender Facility
will be reserved for drawing on the Merger
closing date for payment for the remaining
Shares of Asarco.
Amortization: The A Tender Loans shall be repayable in
full on the date eighteen (18) months after
the Tender Closing Date (the date on which
the A Tender Loans are repayable, the
"MATURITY DATE").
Purpose: The proceeds of the A Tender Loans shall be
used to purchase Shares.
2. R/C FACILITIES
Type and Amount of Facility: An aggregate principal amount of up to
$250 million will be available to Asarco
subsequent to consummation of the Tender
Offer under a senior secured revolving credit
facility (the "R/C FACILITIES"). Such
aggregate principal amount may, based on
the actual amount of eligible accounts
receivable of Asarco available to secure the
R/C Facilities and in the sole discretion of
the Arranger, be increased provided that the
A Tender Loans are prepaid in an amount
equal to the amount of such increase. Such
aggregate principal amount may, based on
the aggregate principal amount of Existing
R/C Facilities (as defined below) available
to Asarco and remaining in place subsequent
to the consummation of the Tender Offer, be
reduced in an amount equal to the amount of
such Existing R/C Facilities.
Availability: The Loans under the R/C Facilities (the
"R/C LOANS" and together with the A Tender
Loans, the "LOANS") shall be available for
borrowing, repayment and reborrowing
during the period from the Tender Closing
Date to the date thirty-three (33) months
thereafter.
<PAGE>
4
Termination: The R/C Facilities shall terminate, and all
outstanding R/C Loans shall be repayable in
full, on the date three (3) years after the
Tender Closing Date.
Purpose: The proceeds of the R/C Loans shall be used
(i) to refinance outstanding indebtedness of
Asarco under the Existing R/C Facilities (as
defined below) and in the event of an increase
in the amount of the R/C Facilities above $250
million to repay a portion of outstanding
A Tender Loans and (ii) for working capital
purposes of Asarco. The "EXISTING R/C
FACILITIES" means the credit facilities
identified as such by Grupo Mexico and the
Administrative Agent and which are on terms
reasonably acceptable to the Arranger and Grupo
Mexico. The aggregate principal amount of the
Existing R/C Facilities is believed to total
$800 million and to be for working capital
purposes (based on publicly available
information).
III. CERTAIN PAYMENT PROVISIONS
Fees and Interest Rates: As set forth on Annex I.
Optional Prepayments
and Commitment Reductions: All or a portion of the Loans may be prepaid at
any time and the unutilized portion of the
Facilities may be terminated in whole or in part
(in minimum amounts to be agreed upon) at the
respective Borrower's option (except, in the
case of the R/C Facilities prior to the Tender
Closing Date, at the option of Grupo Mexico). A
Tender Loans once prepaid may not be reborrowed.
Mandatory Prepayments and
Commitment Reductions: The A Tender Loans will be prepaid, undrawn
commitments for A Tender Loans will be reduced
and replaced, and R/C Loans will be prepaid, in
that order, to the extent
<PAGE>
5
of the net cash proceeds received from the
following (in each case subject to customary
exclusions to be agreed):
-- any asset sales by Asarco and
designated subsidiaries
-- any debt issuances by Asarco (other
than R/C Loans, except for R/C Loans
required to reduce the A Tender
Facility)
-- any equity issuances by Asmex or Asarco
(to any party other than Asmex or Grupo
Mexico)
-- any sale of Asarco stock
-- any proceeds received by Asarco as a
result of the exercise (by holders) of
warrants relating to shares of Grupo
Mexico held in a trust for the benefit
of Asarco
IV. GUARANTEES AND COLLATERAL
Guarantees: (a) All obligations of Asmex (and, after the
Merger, of Asarco) in respect of the A Tender
Facility will be unconditionally guaranteed by
Grupo Mexico.
(b) All obligations of Asarco in respect of
the R/C Facilities will be unconditionally
guaranteed by Grupo Mexico until the A Tender
Loans are repaid in full (except as otherwise
noted below in the case of Alternative R/C
Facilities, and provided the conditions for
release of the collateral for such guarantee
obligations have been met), and by Asmex
until consummation of the Merger.
<PAGE>
6
The Borrowers and guarantors are collectively
referred to herein as "CREDIT PARTIES."
Collateral: (a) The obligations of Asmex in respect of the
Facilities will be secured by a perfected first
priority security interest in the Shares at any
time owned by it.
(b) The obligations of Grupo Mexico under its
guarantees of the A Tender Facility and the
R/C Facilities will be secured by a perfected
first priority security interest in (1)
shares of GMM representing 100% of the
outstanding shares of GMM (other than shares
not exceeding 1.50% held by others) and (2)
all shares of Asarco held by Grupo Mexico,
both immediately prior to the making of the A
Tender Loans (presently representing
approximately 9.8% of the outstanding shares
of Asarco) and after the Merger. In addition,
Grupo Mexico will covenant to maintain at all
times, in support of its guarantees (so long
as they remain in effect), an amount of
unencumbered cash and short-term authorized
money market investments (to be agreed with
the Arranger, including deposits with
approved banks, which in Mexico shall include
only Banamex and Bancomer) equal to the lower
of (A) 6 months of interest on the
outstanding A Tender Loans and (B) $100
million.
(c) The obligations of Asarco in respect of
the R/C Facilities will be secured by
accounts receivable of Asarco (except as
otherwise provided below in the case of
"Alternative R/C Facilities"). The security
documentation will provide that in the event
of default and enforcement or foreclosure at
a time when both Asarco shares and GMM shares
are held as
<PAGE>
7
collateral for the defaulted obligation, the
collateral agent will be instructed to
exercise reasonable efforts (for a period of
up to 45 days) to sell collateral consisting
of Asarco shares before selling collateral
consisting of GMM shares.
Certain Releases of Collateral: So long as no Default has occurred and is
continuing:
(a) The pledge of Asarco Shares securing
guarantees of the R/C Loans will terminate
when the A Tender Loans are repaid in full,
PROVIDED that at such time (i) the R/C Loans
and R/C Facilities are not Alternative R/C
Loans and Alternative R/C Facilities, and
(ii) Asarco is in compliance with its
financial covenant relating to minimum EBITDA;
(b) The pledge of Asarco Shares securing
guarantees of the Alternative R/C Loans will
terminate when (i) the A Tender Loans are
repaid in full, and (ii) Asarco's senior
unsecured long-term indebtedness is rated at
or above BBB- by S&P and Baa3 by Moody's;
(c) The pledge of GMM shares securing Grupo
Mexico guarantees of the Facilities will be
reduced pro rata (on a percentage basis) with
reductions (by repayment) of the outstanding
principal of the A Tender Loans, PROVIDED
that (except as described in clause (d)
below) the percentage of outstanding GMM
shares remaining in pledge as security for
guarantees of the Facilities may not thereby
be reduced below 51% (or such higher
percentage, if any, as is required for
approval of corporate actions of GMM that are
subject to shareholder consent and for
election of a majority of the Board of
Directors of GMM);
<PAGE>
8
(d) At such time as the outstanding principal
of the A Tender Loans has been reduced (by
repayment) to an amount equal to or less than
25% of the original principal amount of the A
Tender Loans, all GMM shares remaining in
pledge as security for guarantees of the
Facilities will be released, PROVIDED that
Asarco's senior unsecured long-term
indebtedness is rated at or above BBB- by S&P
and Baa3 by Moody's.
V. CERTAIN CONDITIONS The availability of the Facilities shall be
conditioned upon satisfaction of, among other
things, the following conditions precedent (the
date upon which all such conditions precedent
shall be satisfied and the A Tender Facility is
first utilized being herein called the "TENDER
CLOSING DATE") and the occurrence of the first
utilization of the A Tender Facility on or
before the date nine (9) months after the date
Grupo Mexico publicly announces its intention to
make the Tender Offer (or, if such announcement
is not made within 10 days after the date of the
Commitment Letter, the date nine months and 10
days after the date of the Commitment Letter),
and other conditions precedent customary for
facilities and transactions of this type,
including evidence of authority and receipt of
necessary consents and approvals:
(a) Each Credit Party shall have executed and
delivered satisfactory definitive financing
documentation with respect to the Facilities (the
"CREDIT DOCUMENTATION").
(b) On or prior to the Tender Closing Date,
cash in an amount not less than $270 million
shall be contributed to the equity capital of
Asmex through Grupo Mexico (i) from existing
cash resources of GMM in an aggregate amount
not less than $250
<PAGE>
9
million, and (ii) from existing cash resources
of Grupo Mexico, in an amount not less than
$20 million.
(c) Satisfaction of the Arranger with all
material terms and conditions of the Tender
Offer. In addition, the Tender Offer shall
have been, or shall be concurrently,
consummated in a manner satisfactory to the
Administrative Agent (including satisfaction
of the Administrative Agent with all
determinations as to the satisfaction of
material conditions thereunder) and no such
condition of the Tender Offer shall have been
waived, amended, supplemented or otherwise
modified without the prior written consent of
the Administrative Agent; and Asmex shall
have acquired shares of common stock of
Asarco representing not less than 80% of the
ordinary voting power of all of the shares of
capital stock of Asarco on a fully diluted
basis, including stock of Asarco owned by
Grupo Mexico and subsidiaries prior to the
Tender Offer (determined in a manner
satisfactory to the Arranger).
(d) Grupo Mexico and Asarco shall have
entered into a definitive merger agreement in
form and substance satisfactory to the
Administrative Agent, or Grupo Mexico shall
have made satisfactory arrangements for the
initiation of a statutory short-form merger,
in each case pursuant to which Asarco will
become a wholly-owned subsidiary of Grupo
Mexico with Grupo Mexico able to exercise
full control over the business and affairs of
Asarco.
(e) Invalidation or satisfaction of the
requirements of Article 7 of Asarco's
Restated Certificate of Incorporation with
respect to the Transactions such that,
<PAGE>
10
following consummation of the Tender Offer,
the Merger can be consummated without the
affirmative vote of the holders of any Asarco
shares other than Asmex; and invalidity,
inapplicability or satisfaction (if
necessary) of Article 10 of Asarco's Restated
Certificate of Incorporation with respect to
the Transactions or the Facilities.
(f) Satisfaction or inapplicability of the
requirements of Section 14A:10A of the New
Jersey Business Corporation Act with respect
to the Merger such that following
consummation of the Tender Offer the Merger
can be consummated without the affirmative
vote of the holders of any Asarco shares
other than Asmex.
(g) Invalidation, redemption or other
inapplicability of the rights issued under
Asarco's Shareholder Rights Agreement dated
as of January 28, 1998, as amended.
(h) There not being any pending or threatened
material adverse litigation or investigation
affecting or relating to the Transactions or
the Facilities (i) that has not been settled,
dismissed, vacated, discharged or terminated
prior to the Tender Closing Date or, (ii) if
it has not been so settled, dismissed,
vacated, discharged or terminated, as to
which there is, in the reasonable judgment of
the Administrative Agent, a reasonable
possibility that it would result in the
Merger being enjoined, prevented or
materially delayed or otherwise would
materially adversely affect the Transactions
or the Facilities.
(i) The Lenders, the Administrative Agent and
the Arranger shall have received all fees
required to be paid, and all expenses for
which invoices have been presented, on or
before the Tender Closing Date.
<PAGE>
11
(j) The documents and materials filed publicly by
Grupo Mexico (and its affiliates) and Asmex in
connection with the Tender Offer shall have been
furnished to the Administrative Agent and such
documents and materials shall be reasonably
satisfactory in form and substance to the
Administrative Agent.
(k) All regulatory and third party approvals and
consents (including Hart-Scott-Rodino and other
approvals and consents, if any) necessary in
connection with the Transactions and the financing
contemplated by the Commitment Letter shall have
been obtained and be in full force and effect and
all applicable waiting periods shall have expired
without any action being taken or threatened by
any competent authority which could restrain,
prevent or otherwise impose materially adverse
conditions on the Transactions or the financing
thereof, in each case on terms satisfactory to the
Administrative Agent.
(l) The Lenders shall have received (i) audited
consolidated financial statements of Grupo Mexico,
GMM and Grupo Ferroviario Mexicano, S.A. de C.V.
("RR") for the two most recent fiscal years (in
the case of RR, one year) ended prior to the
Tender Closing Date and (ii) unaudited interim
consolidated financial statements of Grupo Mexico
and of GMM for each quarterly period ended
subsequent to the date of the latest financial
statements delivered pursuant to clause (i) of
this paragraph (l) as to which such financial
statements are available.
(m) The requisite Lenders shall be satisfied that
upon making the initial A Tender Loans the
requirements of Regulation U of the
<PAGE>
12
Board of Governors of the Federal Reserve System
shall have been complied with.
(n) The Lenders shall have received such legal
opinions (including opinions (i) from counsel to
Grupo Mexico and its subsidiaries and (ii) from
such special and local counsel as may be required
by the Administrative Agent), documents and other
instruments as are customary for transactions of
this type or as they may reasonably request.
(o) The negotiation, execution and delivery of
definitive Credit Documentation with respect to
the R/C Facilities satisfactory to all parties.
Such Credit Documentation will contain a borrowing
base condition to each utilization of the R/C
Facilities, requiring that borrowings thereunder
not exceed 85% of the amount of eligible
receivables of Asarco securing the R/C Loans;
provided that if such requirement renders the R/C
Facilities initially unutilizable by Asarco in an
amount sufficient to satisfy the financing needs
of Asarco on the Tender Closing Date, such Credit
Documentation will provide (until such time as
such borrowing base and security requirement can
be satisfied) for an alternative mechanism
(referred to herein as the "ALTERNATIVE R/C
FACILITIES") for utilization by Asarco of the R/C
Facilities, with the following principal features
(borrowings under such alternative mechanism being
herein referred to as the "ALTERNATIVE R/C LOANS"):
-- Alternative R/C Loans will not be
secured by Asarco assets
-- Alternative R/C Loans will be
(i) guaranteed by Asmex (until the
Merger), with such guarantee secured by
the Shares, and
<PAGE>
13
(ii) guaranteed by Grupo Mexico, with such
guarantee secured by pledges of any Shares held by
Grupo Mexico and of the shares of GMM; and such
guarantee and pledges will not terminate or be
fully released (notwithstanding contrary
provisions elsewhere in this Term Sheet) until (in
addition to other conditions noted above) Asarco's
senior unsecured long-term indebtedness is rated
at or above BBB- by S&P and Baa3 by Moody's.
In the event that the working capital requirements
of Asarco may be satisfied with Existing R/C
Facilities subsequent to the consummation of the
Tender Offer, the aggregate principal amount of
the R/C Facilities may be reduced by the amount of
such Existing R/C Facilities.
(p) Hedging arrangements satisfactory to the
Administrative Agent shall have been entered into
(with counterparties acceptable to the
Administrative Agent) for a "costless" collar
covering production of GMM (with a minimum copper
price of $0.75/lb with respect to 70,000 tons per
annum) and, upon the consummation of the Tender
Offer, covering production of Asarco (with a
minimum copper price of $0.75/lb with respect to
100,000 tons per annum), in each case for a period
of at least one year from the Tender Closing Date.
On-Going Conditions: The making of each extension of credit shall be
conditioned on (a) the accuracy of all
representations and warranties in the Credit
Documentation (including, without limitation,
the material adverse change and litigation
representations) and (b) there being no default
or event of default in
<PAGE>
14
existence at the time of, or after giving effect
to the making of, such extension of credit.
As used herein and in the Credit Documentation a
"MATERIAL ADVERSE CHANGE" shall mean any event,
development or circumstance that has had or could
reasonably be expected to have a material adverse
effect on (i) the Transactions, (ii) the business,
assets, property, condition (financial or
otherwise) or prospects of Grupo Mexico and its
subsidiaries, GMM and its subsidiaries, or Asarco
and its subsidiaries, in each case taken as a
whole (including any material change, prior to
consummation of the Tender Offer, in capital
structure or indebtedness of Asarco and any
material acquisition or divestiture of assets of
Asarco or any of its subsidiaries taken as a
whole, that in any such case has had or could
reasonably be expected to have such a material
adverse effect) or (iii) the validity or
enforceability of any of the Credit Documentation
or the rights and remedies of the Administrative
Agent and the Lenders thereunder.
VI. CERTAIN DOCUMENTATION MATTERS The Credit Documentation for the A Tender Facility
and the R/C Facilities shall contain
representations, warranties, covenants and events
of default customary for financings of these types
and other terms deemed appropriate by the Lenders,
including, without limitation (but subject in
appropriate cases to customary and other
exceptions to be agreed), those specified below.
Representations and Warranties: Financial statements (including pro forma
financial statements); absence of undisclosed
liabilities; no material adverse change; corporate
existence; compliance with law; corporate power
and authority; enforceability of Credit
Documentation; no
<PAGE>
15
conflict with law or contractual obligations; no
material litigation; no default; ownership of
property; liens; intellectual property; no
burdensome restrictions; taxes; margin stock
regulations; Federal Reserve regulations; ERISA;
Investment Company Act; subsidiaries;
environmental matters; solvency; labor matters;
accuracy of disclosure; and creation and
perfection of security interests.
Affirmative Covenants: Delivery of financial statements, reports,
accountants' letters, annual projections,
officers' certificates and other information
requested by the Lenders; payment of certain
other obligations; all payments under the
Facilities to be made free and clear of and
without reduction by reason of present or future
taxes (customary gross-up, indemnity and
evidence of payment provisions); continuation of
business and maintenance of existence and
material rights and privileges; compliance with
laws and material contractual obligations;
maintenance of property and insurance;
maintenance of books and records; right of the
Lenders to inspect property and books and
records; notices of defaults, litigation and
other material events; maintenance of required
hedging arrangements; compliance with
environmental laws; further assurances
(including, without limitation, with respect to
security interests in after-acquired property);
ownership of GMM, of RR, of Asmex and, after the
Merger, of Asarco; in the event of Asarco's
utilization of the Alternative R/C Facility,
Grupo Mexico to use its best efforts to cause
Asarco to replace such utilization with R/C
Loans that are not Alternative R/C Loans; and
Grupo Mexico to use its best efforts to
consummate the Merger as soon as practicable;
and GMM to take reasonable steps to maintain
investment
<PAGE>
16
grade ratings from S&P, Moody's and Duff & Phelps.
Financial Covenants: Financial covenants relating to
(a) Grupo Mexico (consolidated with all subsidiaries,
and consolidated with all subsidiaries other than
Southern Peru Copper Corporation)
(i) Maximum Debt to EBITDA ratio
(ii) Minimum ratio of EBITDA to
interest expense
(iii) Maximum Debt to Capital ratio
(b) GMM and subsidiaries (for so long as any Grupo
Mexico guarantee is in effect)
(i) Debt to Capital ratio not
exceeding 45%
(ii) Minimum Tangible Net Worth
(iii) Minimum Collections to Debt
Service ratio
(iv) Minimum annual level of export
receivables
(v) Minimum ratio of export receivables
to SEN debt service
(vi) Minimum ratio of EBITDA to interest
expense
(c) Asarco
Minimum EBITDA levels
Negative Covenants: Limitations on: indebtedness (including
preferred stock of subsidiaries); voluntary
prepayments of indebtedness other than under the
Facilities; liens (including
<PAGE>
17
negative pledge on stock of GMM, Asarco and RR);
guarantee obligations; mergers, consolidations,
liquidations and dissolutions; sales of assets;
leases; capital expenditures; investments, loans
and advances; dividends and other payments in
respect of capital stock; transactions with
affiliates; sale and leasebacks; changes in fiscal
year; and changes in lines of business.
Special Covenant of Asmex: Asmex shall covenant that it will not engage in
any activity other than the Transactions, the A
Tender Facility and activities necessary to effect
the same.
Events of Default: (a) A Borrower shall fail to make any payment
of principal of any Loan when due.
(b) A Borrower shall fail to make any payment of
interest or fees on any Loan, or any other
payments required under the Credit Documentation,
within 3 business days of due date.
(c) Any representation or warranty by a Credit
Party contained in the Credit Documentation or any
certificate required to be delivered thereunder
shall prove to have been incorrect in a material
respect when made or deemed made.
(d) A Credit Party (or any of its subsidiaries)
shall fail to perform or observe any of its
financial or other covenants under the Credit
Documentation (subject to grace periods to be
agreed).
(e) Customary bankruptcy events of default,
including (i) Grupo Mexico, GMM, Asarco or any of
their subsidiaries (except for non-material
subsidiaries (to be defined)) shall consent to the
appointment of a receiver for itself or a
substantial part of its property, (ii) Grupo
Mexico, GMM, Asarco or any of
<PAGE>
18
their subsidiaries (except for non-material
subsidiaries) shall seek relief under any
applicable bankruptcy law or (iii) an involuntary
bankruptcy or like proceeding shall have been
commenced against Grupo Mexico, GMM, Asarco or any
of their subsidiaries (except for non-material
subsidiaries) and such proceeding shall not have
been stayed or vacated for a period of 60 days
after the date it was commenced.
(f) The security interest in any collateral
furnished by a Credit Party listed above under
"Guarantees and Collateral" shall cease to be a
first priority perfected security interest as
required hereunder.
(g) Failure by a Credit Party to pay when due
(after taking into account applicable grace
periods) any unsecured or secured indebtedness
(including capitalized lease obligations) or any
default that permits the acceleration of the
maturity of any such indebtedness and obligations
or termination of any capital lease, aggregating
in the case of all such indebtedness and
obligations an amount equal to or exceeding
threshold amounts to be agreed.
(h) A final judgment or judgments for the payment
of money shall be entered against Grupo Mexico,
GMM, Asarco or any of their subsidiaries (except
for non-material subsidiaries, and except, in the
case of Asarco and its subsidiaries prior to
consummation of the Tender Offer, judgments the
existence of which was already disclosed and
publicly available (or otherwise known by officers
of the Arranger or Chase working on the
Transactions) prior to the date of the Commitment
Letter) in an aggregate amount for all such
persons equal to or exceeding threshold amounts to
be
<PAGE>
19
agreed and which have not been bonded, stayed or
satisfied for a period of 30 days or more.
(i) There shall occur one or more ERISA Events
which individually or in the aggregate results in
or could reasonably be expected to result in a
material adverse change; or there shall exist an
amount of unfunded benefit liabilities (as defined
in the Statement of Financial Accounting Standards
No. 87), individually or in the aggregate for all
Plans (excluding for purposes of such computation
any Plans with respect to which assets exceed
benefit liabilities), which could reasonably be
expected to result in a material adverse change.
(j) There shall occur a change in control of GMM,
Asmex or (after the consummation of the Tender
Offer) Asarco; or Persons (to be identified)
controlling Grupo Mexico (I.E., having the power
to elect a majority of the members of the Board of
Directors of Grupo Mexico) on the date hereof
shall cease to maintain such control.
(k) Default in the performance or observation of
any term or condition in any material contract of
Grupo Mexico, GMM or Asarco, or any of their
subsidiaries, in each case taken as a whole, that
could reasonably be expected to result in a
material adverse change.
(l) So long as any obligations under the A Tender
Facility remain outstanding, any Default or
acceleration under the A Tender Facility, or the
R/C Facilities (including Alternative R/C
Facilities) or the secured export note or other
long-term debt obligations of GMM (with a
threshhold
<PAGE>
20
amount, in the case of GMM, of $30 million).
Voting: Amendments and waivers with respect to the
Credit Documentation shall require the approval
of Lenders holding not less than a majority of
the aggregate amount of the Loans thereunder and
commitments under the related Facilities, except
that (a) the consent of each Lender directly
affected thereby shall be required with respect
to (i) changes in the maturity of any Loan,
(ii) reductions in the rate of interest or any
fee or extensions of any due date thereof,
(iii) increases in the amount or extensions of
the expiry date of any Lender's commitment and
(iv) modifications to the pro rata provisions of
the Credit Documentation and (b) the consent of
100% of the Lenders shall be required with
respect to (i) modifications to any of the
voting percentages and (ii) releases of any
guarantee other than of a non-material
subsidiary (to be defined) or all or any
substantial part of the collateral.
Assignments and Participations: The Lenders shall be permitted to assign and
sell participations in their Loans and
commitments, subject, in the case of assignments
(other than to another Lender or to an affiliate
of a Lender), to the consent of the
Administrative Agent and Grupo Mexico (which
consent in each case shall not be unreasonably
withheld, provided that if a default shall have
occurred and be continuing Grupo Mexico's
consent shall not be necessary). In the case of
partial assignments (other than to another
Lender or to an affiliate of a Lender of any
interest in the A Tender Facility), the minimum
assignment amount shall be $5,000,000 unless
otherwise agreed by Grupo Mexico and the
Administrative Agent. Each assignment shall be
subject to payment to
<PAGE>
21
the Administrative Agent of a processing fee of
$3,500. Participants shall have the same benefits
as the Lenders from which they acquired their
participations with respect to yield protection
and increased cost provisions. Voting rights of
participants shall be limited to those matters
with respect to which the affirmative vote of the
Lender from which it purchased its participation
would be required as described in items (a) and
(b) of the paragraph on "Voting" above. Pledges of
Loans in accordance with applicable law shall be
permitted without restriction.
Yield Protection: The Credit Documentation shall contain customary
provisions (a) protecting the Lenders against
increased costs or loss of yield resulting from
changes in reserve, tax, capital adequacy and
other requirements of law and from the
imposition of or changes in withholding or other
taxes and (b) indemnifying the Lenders for
"breakage costs" incurred in connection with,
among other things, any prepayment of a
Eurodollar Loan (as defined in Annex I) on a day
other than the last day of an interest period
with respect thereto.
Expenses and Indemnification: The Borrowers shall pay (a) all reasonable
out-of-pocket expenses of the Administrative
Agent and the Arranger associated with the
syndication of the Credit Facilities and the
preparation, execution, delivery and
administration of the Credit Documentation and
any amendment or waiver with respect thereto
(including the reasonable fees, disbursements
and other charges of counsel) and (b) all
out-of-pocket expenses of the Administrative
Agent and (after an Event of Default) of the
Lenders (including the fees, disbursements and
other
<PAGE>
22
charges of counsel) in connection with the
enforcement of the Credit Documentation.
The Administrative Agent, the Arranger and the
Lenders (and their affiliates and their respective
officers, directors, employees, advisors and
agents) will have no liability for, and will be
indemnified and held harmless against, any loss,
liability, cost or expense incurred in respect of
the financing contemplated hereby or the use or
the proposed use of proceeds thereof (except to
the extent resulting from the gross negligence or
willful misconduct of the indemnified party).
Governing Law and Forum: State of New York.
Counsel to the Administrative
Agent and the Arranger: Milbank, Tweed, Hadley & McCloy LLP, and Ritch,
Heather y Mueller S.C.
</TABLE>
<PAGE>
Exhibit (g)(1)
[GRAPHIC OMITTED]
[LOGO]
GRUPO MEXICO
[GRAPHIC OMITTED]
Annual
Report 1997
[GRAPHIC OMITTED]
<PAGE>
Highlights
- ------
1
<TABLE>
<CAPTION>
1995 1996 1997 Dif. % 1995 1996 1997 Dif. %
- -----------------------------------------------------------------------------------------------------------------------------------
Average Prices Sales volumes
(Dils.) (Tons-Kgs.*)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Prices and Volumes
Copper (Pound)* 1.33 1.04 1.03 (1) 303,685 317,577 356,008 12
- -----------------------------------------------------------------------------------------------------------------------------------
Zinc (Pound)* 0.47 0.47 0.60 28 162,194 149,546 144,724 (3)
- -----------------------------------------------------------------------------------------------------------------------------------
Silver (Ounce)** 5.19 5.18 4.88 (6) 666,514* 580,989* 563,001* (3)
- -----------------------------------------------------------------------------------------------------------------------------------
Gold (Ounce)** 384.50 387.86 331.49 (15) 3,186* 2,639* 3,018* 14
- -----------------------------------------------------------------------------------------------------------------------------------
Lead (Pound)* 0.29 0.35 0.28 (20) 35,864 32,477 33,922 4
- -----------------------------------------------------------------------------------------------------------------------------------
Molybdenum (Pound) 7.42 3.61 4.18 16 3,628 3,939 4,720 20
- -----------------------------------------------------------------------------------------------------------------------------------
[Earnings]
Total Sales 1,347 1,172 1,240 6
---------------------------------------------------
Cost of Sales 598 666 780 17
---------------------------------------------------
Operating Income 608 367 302 (18)
---------------------------------------------------
Integral Financing Cost (24) 12 (8) (167)
---------------------------------------------------
Net Income 478 297 263 (11)
---------------------------------------------------
Cash Flow
From Operations 556 456 374 (18)
---------------------------------------------------
From Financing Activities 6 (195) 323
---------------------------------------------------
Total Cash Flow 562 261 697 167
---------------------------------------------------
Investment Expenditures (129) (237) (1,117) 371
---------------------------------------------------
Cash Flow after Investment 433 24 (420)
---------------------------------------------------
[Balance Sheet]
Current Assets 1,028 1,236 998 (19)
---------------------------------------------------
Total Assets 2,782 3,297 4,259 29
---------------------------------------------------
Bank Debt 745 736 813 10
---------------------------------------------------
Total Liabilities 878 896 1,366 52
---------------------------------------------------
Stockholders' Equity 1,745 2,209 2,750 24
---------------------------------------------------
Per Share Data
Total Shares Outstanding (Thous.) 689,119 689,119 674,985 (2)
---------------------------------------------------
Earnings Per Share* 0.71 0.44 0.39 (11)
---------------------------------------------------
Book Value*** 2.59 3.27 4.07 24
---------------------------------------------------
[Financial Ratios]
Operating Income to Total Sales 45% 31% 24% (23)
---------------------------------------------------
Net Income to Total Sales 35% 25% 21% (16)
---------------------------------------------------
Current Ratio (Times) 4.0 5.5 1.8 (67)
---------------------------------------------------
Total Liabilities to Total Assets 32% 27% 32% 19
---------------------------------------------------
Total Bank Debt to Stockholders' and Bank Debt 30% 25% 23% (8)
---------------------------------------------------
External Debt Rating
Standard & Poor's BBB BBB BBB
---------------------------------------------------
Personnel 13,626 13,859 14,032 1
---------------------------------------------------
Other Data
Annual Inflation 52% 28% 16% (43)
---------------------------------------------------
Exchange Rate at the End of Each Year 7.6842 7.8557 8.0640 3
---------------------------------------------------
Average Exchange Rate for The Year 6.4385 7.6003 7.9182 4
---------------------------------------------------
</TABLE>
* Based on L.M.E. Metals Prices
** Based on Comex N.Y. Metals Prices
*** Referred to 674,984,899 Shares
Note: Current pesos converted into dollars at the average exchange rate of the
year for the income statements, the exchange rate for the end of the year was
applied to the Balance Sheet Figures.
<PAGE>
Board of Directors
- ------
2
Directors
Series "B"
Jorge Larrea O. German Larrea Mota-Velasco
Juan Sanchez-Nevarro Peon Prudencio Lopez Martinez
Juan L Gallardo Thurlow Claudio X. Gonzalez
Carlos Giron Peltier Romulo O'Farrill Jr.
Agustin Santamarina V. Jose Mendoza Fernandez
Genaro Larrea Mosa-Velasco Hector Calva Ruiz
Daniel Tellechea Salido Oscar Gonzalez Rocha
Hector Garcia de Quevedo
Series "L"
Xavier Garcia de Quevedo Alfredo Casar Perez
Alternate Directors
Series "B"
Juan Sanchez-Navarro Redo Eduardo Gonzalez Gomez
Gabino Paez Gonzalez Manuel Calderon Cardenas
Series "L"
Daniel Chavez Carreon Sergio M. Ferrer de la Barrera
Examiner
Series "B"
Rolando Vega Iniguez
Alternate Examiner
Series "B"
Gilberto Nava Escobedo
Secretary Assistant Secretary
Agustin Santamarina V. Juan Sanchez-Navarro Redo
<PAGE>
Corporate Structure
GRUPO MEXICO
98.8% 74%
- --------------------------------------------------------------------------------
GRUPO MINERO MEXICO GRUPO FERROVIARIO MEXICANO
96.4% 100%
Mexicana de Cobre Ferrocarril Mexicano
100% 100%
Industrial Minera Mexico Ferrocarril Chihuahua-Pacifico
98.5% 100%
Mexicana de Cananea Other Subsidiaries
100%
Other Subsidiaries
Executive Officers
Chairman and Chief Executive Officer
German Larrea Mota-Velasco
Managing Director/Mexicana de Cobre and Cananea
Oscar Gonzalez Rocha
Managing Director/Ferrocarril Mexicano
Xavier Garcia de Quevedo
Managing Director/Exploration and Projects
Hector Calva Ruiz
Managing Director/Administration and Finance
Daniel Tellechea Salido
Managing Director/Commercial
Genaro Larrea Mota-Velasco
Managing Director/Industrial Minera Mexico
Daniel Chavez Carreon
General Consultant
Hector Garcia de Quevedo
Director/Industrial Relations
Gabino Paez Gonzalez
Director/Planning Mining Units
Manuel Calderon Cardenas
Director/Engineering and Construction
Vidal Muhech Dip
Director/Controller's Department
Ernesto Duran Trinidad
Director/Legal
Sergio M. Ferrer de la Barrera
Director/Sales
Mario Vinageras Barrasco
Director/Purchasing
Manuel Tellez Pina
Director/Information Systems
Carlos Meyer Lujan
Director Operations/Mexicana de Cobre
Ruben Tello Flores
Director Operations/Mexicana de Cananea
Isaac Lopez Arzola
Director/Metallurgical Operations/Industrial Minera Mexico
Arturo Bermea Castro
Director/Mining Operations/Industrial Minera Mexico
Sergio Ramirez Pineda
<PAGE>
To Our Stockholders:
- ------
4
During 1997, Grupo Mexico continued consolidating its development through the
efficient operation of its mining units and metallurgical plants, the
strengthening of its financial position, and engaging in a broad investment
program aimed at increasing production and the integration of activities within
our group of companies.
As a result of this integration, production of ore by our mining units will
increase and unit production coats will decrease. Additionally, treatment and
refining expenditures to third parties will be eliminated and we will increase
earnings from premiums obtained in the international markets for higher value
added finished and semi-manufactured products.
Continuing with our investment program, 1,117 million dollars were expended in
the expansion of mining, additional smelting capacity, new copper, gold and
silver refineries, a new plant for the production of copper rod and the
acquisition of the concessions to operate the Pacifico-Norte and
Chihuahua-Pacifico railroad lines by our subsidiary, Grupo Ferroviario Mexicano,
in which Grupo Mexico owns 74% of the capital stock. Grupo also increased its
ownership in its subsidiary, Mexicana de Cananea, through acquisition of the
shares formerly held by the minority stockholders of this company. Consequently,
Grupo Mexico's holdings increased by 33% over the previous year.
New records in production volumes were established and the productivity of the
different companies forming the Group reached historic heights. All our plants
producing finished products obtained international certificates of quality
ISO-9002 for their respective products.
The total output of copper, our major product, amounting to 396,507 tons, was
21.7% higher than that of 1996; while copper sales reached 356,000 Tons, an
increase of 12% above those of the previous year. A significant part of the
unsold production was used to build up the in-process inventories required by
the new smelting and refining plants. Prices for the majority of the metals
produced by Grupo Mexico were affected by supply and demand factors in the
international markets, particularly by the reduction in the consumption by the
Asian nations. Zinc was an exception, inasmuch as its price increased by 28% due
to the low inventories of this metal available to world markets.
Dollar equivalents of our sales increased by 6%, while sales in Mexican pesos
were 9% lower, mainly because of reduced international metals prices, and
strengthening of the
<PAGE>
parity of the peso. The higher volumes of production and sales were unable to
compensate for the effects of lower prices and the peso valuation.
Cost of sales and operating expenses were constant, in real terms, in comparison
to those of the previous year, notwithstanding costs incurred in the start-up of
the new metallurgical plants and expansions in the mining units, indicating that
our objective, to reduce unit costs per ton of production, was attained.
Operating profits for the period amounted to 25% of sales, and net profits were
21% of sales, highly satisfactory percentages for primary industries. However,
profits were unfavorably affected by lower revenues due to the decrease in the
international metals prices, and the disparity between the inflation rate and
the reduction in the rate of devaluation of the peso.
Our results for the year 1997 confirm the attainment of the goals set relative
to productivity, reduction in unit costs, improved utilization of resources and
broader integration of our products, in addition to diversification into other
industrial sectors of a similar nature that make it possible to reap the
benefits of improved synergies and efficiency in our operations and assure
operating cash flows from activities not subject to the cycles of International
quotations.
Despite the fact that there were signs of economic weakness in some nations at
the end of the year that affected the metal markets, the overall picture for the
most developed and emerging nations indicates that the rhythm of demand for our
products will be maintained, which allows us so be very optimistic with regards
to prospects for the future, particularly as we have reached our goal of being
an extremely competitive enterprise.
The enthusiastic collaboration and constant preparation of our personnel have
been fundamental in attaining our goals. We recognize that the confidence and
encouragement provided by you, our stockholders, have made it possible for us to
attain our objetives.
Thank You
/s/ Jorge Larrea /s/ German Larrea
Jorge Larrea German Larrea
Honorary President Founder Chairman of the Board of Directors
<PAGE>
Exploration and Ore Reserves
- ------
6
[GRAPHIC OMITTED]
An intensive exploration program dividend into three groups, was implemented at
our mining units and projects during the year. Northeast, Northcentral, and
South, in order to optimize the resources assigned in accordance with fulfilled
objetives. This allowed for headway in geological and metallurgical studies, as
well as in-depth diamond drilling around the Cananea and the La Caridad, Sonora,
open pit mines that produced highly positive results. At year's end, Cananea had
3,079.1 million tons of concentrating and leaching ore in its reserves, making
it one of the largest ore bodies currently in operation in the world.
Work on the projects located in Angangueo, Mich., Bolanos, Jal., and
Chalchihuites, Zac., progressed favorably and additional reserve tonnages
registered make us very optimistic with regard to opening new mining units in
these localities.
[GRAPHIC OMITTED]
<PAGE>
[GRAPHIC OMITTED]
Ore Reserves
Open Pit
Millions Copper Molybdenum
Tons % %
Cananea
Milling Ore 1,737.5 0.62 --
--------------------------------------------
Leaching Ore 1,341.6 0.27 --
--------------------------------------------
La Caridad
Milling Ore 451.4 0.53 0.03
--------------------------------------------
Leaching Ore 241.8 0.23 --
--------------------------------------------
Underground Mines
Millions Copper Zinc Lead Gold Silver
Tons % % % gms./ton gms./ton
IMMSA
Milling Ore
Proven and Probable 58.7 0.61 3.76 1.11 0.18 99
---------------------------------------------------------
Inferred and Possible 46.8 0.46 4.05 1.22 0.16 107
---------------------------------------------------------
<PAGE>
International Metal Prices
- ------
8
[GRAPHIC OMITTED]
Copper Rod
La Caridad, Son.
With the adjustment and downward curves of the economies of the Asian nations,
demand therein for the different metals was reduced. However, the sustained
growth of the economies of the highly developed and emerging countries of other
continents signified continued increase in world demand. The annual average
prices for the industrial metals had varying performances in relation to supply
and speculation concerning future demand by the Asian economies. Therefore,
copper reflected a 1% decrease against the previous year, and lead a 20% drop,
which contrasted with a 28% increase in zinc prices. Decisions by the Central
Banks of some nations and the International Monetary Fund to sell significant
amounts of precious metals caused reductions in the prices of these metals.
[GRAPHIC OMITTED]
[LINE CHART]
Prices & Inventories of Copper
LME Inventories LME Prices
(Thousands of (Cts. Dlls./
metric tons) Pound)
1993 667.00 86.70
1994 327.00 104.66
1995 318.00 133.16
1996 152.00 104.09
1997 418.00 103.27
[LINE CHART]
Prices & Inventories of Gold
COMEX Inventories COMEX Prices
(Thousands of (Dlls./
troy ounces) Ounce)
1993 2,524.00 359.90
1994 1,622.00 394.04
1995 1,459.00 384.53
1996 666.00 387.86
1997 488.00 331.49
[LINE CHART]
Prices & Inventories of Lead
LME Inventories LME Prices
(Thousands of (Cts. Dlls./
metric tons) Pound)
1993 304.00 8.43
1994 343.00 24.85
1995 132.00 28.62
1996 19.00 35.12
1997 112.00 28.31
<PAGE>
[GRAPHIC OMITTED]
[LINE CHART]
Prices & Inventories of Silver
COMEX Inventories COMEX Prices
(Millions of (Dlls./
Troy Ounces) Ounce)
1993 263.00 4.30
1994 258.00 5.28
1995 159.00 5.19
1996 146.00 5.18
1997 118.00 4.88
[LINE CHART]
Prices & Inventories of Zinc
LME Inventories LME Prices
(Thousands of (Cts. Dlls./
metric tons) Pound)
1993 907.00 43.55
1994 1,185.00 45.22
1995 665.00 46.79
1996 507.00 46.52
1997 492.00 59.72
<PAGE>
Sales
- ------
10
[BAR CHART]
Total Sales
Millions of Dollars
1993 866
1994 1,117
1995 1,347
1996 1,172
1997 1,240
Current pesos converted to dollars at the average exchange rate of the year.
Sales were 9% lower in real terms, compared with the previous year, due to the
combination of prices and production volumes during 1997. Greater tonnages of
copper were sold and additional volumes of production were used to build-up the
in-process inventories required by the new refining plants, and the expansion of
the smelter at La Caridad. Higher amounts of gold, lead, molybdenum, and
sulphuric acid were sold, while lesser volumes of zinc and silver were available
for sale due to lower grades in the ores processed and reduced purchases from
third parties.
For the first time in the history of the Company, we produced and sold copper
cathodes as the end product of the conventional concentrator-smelter-refinery
process, made possible by the integration of our production facilities. Our
cathode production enables us to broaden the scope of our exports since the
customer base for refined products in the world is more extensive than that of
unrefined metal, and premiums above normal copper quotations are directly
available to us. Tonnages of copper have increased by 30% during the last five
years and we have increased the added value of our production by selling refined
copper in lieu of concentrates and unrefined copper.
[GRAPHIC OMITTED]
Sales
Product
Volume (Tons) Value Millions of U.S. Dollars
1996 1997 Dif.% 1996 1997 Dif.%
Copper 317,577 356,008 12 714 806 13
----------------------------------------------------------------
Zinc 149,546 144,724 (3) 158 203 28
----------------------------------------------------------------
Silver (kgs.) 580,989 563,001 (3) 97 87 (10)
----------------------------------------------------------------
Gold (kgs.) 2,639 3,018 14 33 33 --
----------------------------------------------------------------
Lead 32,477 33,922 4 25 20 (20)
----------------------------------------------------------------
Molybdenum 3,939 4,720 20 30 45 50
----------------------------------------------------------------
Sulphuric Acid 751,673 949,537 26 18 20 11
----------------------------------------------------------------
Other Products 97 26 (73)
----------------------------------------------------------------
Total Sales $1,172 $1,240 6
----------------------------------------------------------------
<PAGE>
[GRAPHIC OMITTED]
[PIE CHART]
Summary of Sales by Product
1996
Copper 61%
Zinc 14%
Silver 8%
Gold 3%
Lead 2%
Molybdenum 2%
Sulphuric Acid 2%
Others 8%
1997
Copper 65%
Zinc 16%
Silver 7%
Gold 3%
Lead 1%
Molybdenum 4%
Sulphuric Acid 2%
Others 2%
Regional Distribution of Sales
1996
Mexico 48%
United States 33%
Europe 18%
Others 1%
1997
Mexico 49%
United States 30%
Europe 19%
Asia 1%
Others 1%
<PAGE>
Financing
- ------
12
Placement of 220 million U.S. dollars, to substitute that portion of the 600
million dollar export note program that was subject to a floating interest rate,
was transacted during August, 1997. This operation enabled us to obtain more
favorable repayment terms and costs. The transaction was assigned a BBB
classification by the credit rating agencies, Standard & Poor's, Duff & Phelps
and Moody's Investor Service. In addition, during the same month, a two year
bridge loan for 420 million dollars was obtained, to finance Grupo Mexico's
participation in the acquisition of the Pacifico-Norte railroad.
These financial operations and Grupo Mexico's sustained cash flow levels have
provided us with an excellent financial position, with a total debt amounting to
810 million dollars at an average financing cost of 7.6%, that assures our
ability to continue our growth and investment programs.
[GRAPHIC OMITTED]
[BAR CHART]
Net Bank Debt
Millions of Dollars
1993 1994 1995 1996 1997
Total Bank Debt 767 757 716 734 810
Cash & Banks and Marketable securities 151 194 635 799 637
Net Bank Debt 616 563 81 (65) 173
<PAGE>
[GRAPHIC OMITTED]
<PAGE>
Operations of Mining Units and Metallurgical Plants
- ------
14
Mexicana de Cobre
[GRAPHIC OMITTED]
The 75.6 million tons of material extracted from this mine in 1997 represent the
highest tonnage achieved since the beginning of operations in 1974. The
concentrating plant operated above its design capacity, milling 91,000 tons per
day. In addition, there was a 25% increase in the tonnage of ore destined for
the leaching process. However, copper production was 5% lower due to a foreseen
reduction in the grade of ore extracted. The investments carried out in the
concentrator improved metallurgical recoveries that resulted in an increase of
22% in molybdenum production. The smelter's copper anode production increased by
36% with the start-up of operations of the new "El Teniente" converter furnace
during the second quarter. The investment in this area increased design capacity
from 180,000 to 300,000 tons per year.
Copper cathode production from the SX-EW refining plant increased by 13%,
operating at an energy efficiency coefficient of 93%. The refined copper
produced by this plant obtained the ISO-9002 international quality certification
as regards to its physical characteristics and purity.
Production
Mine and Concentrator
<TABLE>
<CAPTION>
C O N T E N T S
Ore Stripping Milling Leaching Copper Copper in *Copper Molybdenum in
Mined Ratio Ore Ore Concentrates Concentrates Total Concentrates
Year Tons Tons Tons Tons Tons Tons Tons Tons
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1993 62,881,400 0.5/1.0 32,164,000 9,474,200 516,840 158,356 158,356 1,705
1994 66,213,900 0.4/1.0 31,669,000 15,798,400 506,606 165,684 165,684 2,614
1995 67,250,000 0.3/1.0 32,336,000 19,353,718 529,536 162,410 172,139 3,806
1996 75,378,000 0.4/1.0 33,286,000 19,280,000 529,308 162,077 180,915 3,968
- ------------------------------------------------------------------------------------------------------------------------------------
1997 75,572,000 0.3/1.0 33,045,000 24,132,000 477,892 149,709 171,086 4,842
Dif. 96/97 -- (25%) -- 25% (10%) (8%) (5%) 22%
</TABLE>
*Copper in concentrates + Electrowon copper cathodes from SX-EW
<PAGE>
During the year 70% of the integration program at La Caridad, Sonora,
mining/metallurgical complex was completed, with the expansion of the smelter
and start-up of the first stage of the new copper refinery. Construction
continued at the 150,000 tons per year copper rod plant, the new gold and silver
refinery and the second stage of the copper refinery which will all go on-stream
during 1998, as well as the expansion of the smelter to 400,000 tons per year by
1999. These processes will conclude the integration of the copper operations at
La Caridad.
[GRAPHIC OMITTED]
Smelter and Refineries: SX/EW and Electrolytic.
<TABLE>
<CAPTION>
SMELTER SX-EW ELECTROLYTIC
Copper Copper in *Copper **Copper ***Copper in Gold in Silver in Sulphuric
Concentrates Smelted Anodes Cathodes Total Cathodes Anodes Anodes Acid
Year Tons Tons Tons Tons Tons Kgs. Kgs. Tons
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1993 586,111 181,246 -- 181,246 -- 300 86,694 570,000
1994 579,043 183,286 -- 183,286 -- 265 90,269 555,076
1995 610,522 183,870 9,729 193,599 -- 256 82,284 599,100
1996 608,803 188,950 18,838 207,788 -- 377 83,447 621,300
- ------------------------------------------------------------------------------------------------------------------------
1997 855,611 257,593 21,377 278,970 48,965 1,281 176,879 854,994
Dif. 96/97 41% 36% 13% 34% -- 240% 112% 38%
</TABLE>
* SX/EW Process since mid 1995
** Copper in Anodes + Copper Cathodes from SX/EW
*** Electrolytic Refinery to process copper anodes began operations 3rd. qtr.
1997.
<PAGE>
- ------
16
Industrial Minera Mexico
Total ore milled during 1997 amounted to 5.9 million tons, the fifth consecutive
year of increase. Average metal recoveries in the concentrating plants improved
by 3%. Gold, lead, and zinc contents reflected lower assays of the ore
processed, while copper contents increased due to higher assays of this metal in
the ore.
Work to increase milling capacity of the Santa Barbara and Santa Eulalia Units,
located in the State of Chihuahua, was concluded and these units will increase
their production during the first quarter of 1998. Santa Barbara's capacity
increases from 4,500 to 6,000 tons of ore per day and Santa Eulalia's from 850
to 1,500 tons per day.
Coal production in Coahuila improved by 8% over the previous year and
construction work continued to increase mine production as well as on the new
coal washing plant, which will begin operating in mid 1998.
The Electrolytic Zinc Refinery in San Luis Potosi produced a historic maximum
tonnage of 102,000 tons of refined zinc. The San Luis Potosi Copper Smelter and
the Monterrey Precious Metals Refinery operated at programmed levels of
production.
[GRAPHIC OMITTED]
Ecological Nursery
Copper Smelter, S.L.P.
Production
Mining Units
<TABLE>
<CAPTION>
C O N T E N T S
Ore Milled Gold Silver Lead Copper Zinc Coal
Year Tons Kgs. Kgs. Tons Tons Tons Tons
<S> <C> <C> <C> <C> <C> <C> <C>
1993 5,332,240 456 346,220 41,048 20,807 172,158 233,965
1994 5,632,298 454 332,355 44,398 21,325 186,361 289,882
1995 5,755,214 370 336,034 37,790 22,376 182,385 244,063
1996 5,852,689 450 350,025 36,527 25,547 167,832 280,455
- --------------------------------------------------------------------------------------------------------
1997 5,909,103 327 349,453 32,805 27,102 161,914 302,028
Dif. 96/97 1% (27%) -- (10%) 6% (4%) 8%
</TABLE>
<PAGE>
[GRAPHIC OMITTED]
Smelters and Refineries
<TABLE>
<CAPTION>
Gold Silver Lead Copper Zinc Coke Sulphuric Acid
Year Kgs. Kgs. Tons Tons Tons Tons Tons
<S> <C> <C> <C> <C> <C> <C> <C>
1993 2,455 667,430 *39,576 47,077 94,637 108,456 145,169
1994 2,850 559,729 7,321 43,022 97,021 104,960 160,553
1995 2,932 485,740 9,502 39,295 101,349 103,281 164,208
1996 2,806 495,301 3,978 34,049 97,715 112,695 167,143
- ---------------------------------------------------------------------------------------------------------
1997 3,283 579,167 2,627 30,528 101,901 99,828 171,677
Dif 96/97 17% 17% (34%) (10%) 4% (11%) 3%
</TABLE>
* Suspended operations 2nd semester 1993. Later years' production comes from
recovery of metals contained in byproducts and secondaries.
<PAGE>
- ------
18
Mexicana de Cananea
Higher production was obtained in all the operating areas at the Cananea
complex, located in Sonora, in comparison with the previous year. An annual
record of ore extracted, 109.4 million tons, was 8% higher; low grade leaching
ore production increased by 57% and the concentrator improved by 2%. This mine,
operating at a rhythm of over 300,000 tons of material per day, is a world class
mining operation. A new crushing system for low grade leaching ore became
operative during the year making it possible to improve metallurgical recoveries
and reduce unit operating costs.
The concentrator processed 24.2 million tons of ore, a 2.2% increase against
1996, notwithstanding a parallel program of modifications to increase milling
capacity from 62,000 to 80,000 tons of ore per day, which will be concluded
during the second quarter of 1998.
The SX-EW plants produced more refined cathode copper in 1997 than the previous
year and obtained their ISO-9002 quality certification of their refining
process. The smelter produced 60,000 tons of impure copper, an amount equal to
design capacity.
[GRAPHIC OMITTED]
Production
Mine and Concentrator
<TABLE>
<CAPTION>
Copper
Ore Stripping Milling Leaching Copper Contained in *Copper
Mined Ratio Ore Ore Concentrates Concentrates Contained Total
Year Tons Tons Tons Tons Tons Tons Tons
<S> <C> <C> <C> <C> <C> <C> <C>
1993 75,435,501 2.2/1.0 10,017,357 10,779,800 192,631 52,736 76,818
1994 71,598,713 1.4/1.0 9,806,265 19,848,000 168,151 44,355 70,154
1995 82,647,633 1.7/1.0 20,461,871 10,493,000 299,796 81,158 110,347
1996 101,382,000 1.4/1.0 23,682,000 19,207,000 378,916 99,557 126,126
- -----------------------------------------------------------------------------------------------------------------
1997 109,419,000 1.0/1.0 24,203,000 30,168,000 430,165 109,445 136,285
Dif. 96/97 8% (29%) 2% 57% 14% 10% 8%
</TABLE>
* Copper in concentrates + Electrowon copper cathode
<PAGE>
[GRAPHIC OMITTED]
Smelter and SX/EW Plants
<TABLE>
<CAPTION>
Copper Concentrates Blister Copper Copper Gold in Silver in
Smelted Copper Cathodes Total Blister Blister
Year Tons Tons Tons Tons Kgs. Kgs.
<S> <C> <C> <C> <C> <C> <C>
1993 195,527 53,304 24,082 77,386 179 12,055
1994 174,231 45,433 25,799 71,232 142 23,595
1995 197,472 51,191 29,189 80,380 169 11,283
1996 223,537 57,463 26,569 84,032 241 17,366
- ---------------------------------------------------------------------------------------------------
1997 238,553 60,169 26,840 87,009 239 19,473
Dif. 96/97 7% 5% 1% 4% (1%) 12%
</TABLE>
<PAGE>
Ferrocarril Mexicano
- ------
20
[GRAPHIC OMITTED]
Preliminary work for the reception and start-up of the Pacifico-Norte and
Chihuahua-Pacifico Railway Lines was carried out during the second semester of
the year. The corporate organizational structure was designed; executive and
middle management personnel were selected and contracted; and the physical
inspection of all trackage, buildings, maintenance facilities, switching
equipment and all locomotives was performed. Short and medium term business
plans were defined and company policies and procedures were established, as well
as the selection of information systems applicable to the administration and
operation of the railroads.
Environmental audits were carried out in the repair shops and junction centers.
Warehouse facilities, trackage rights and other concessions were inspected and
planning and negotiations related to other connecting rail lines were carried
out. Studies concerning investments applicable to track maintenance and
improvement, repair shops, telecommunications, and dispatching systems were
undertaken and
[GRAPHIC OMITTED]
<PAGE>
the program for the requirements of rolling equipment and locomotives for an
efficient operation were also defined.
Human resources requirements for start-up operations, and their programmed
future growth, were thoroughly scrutinized and preliminary labor negotiations
with the National Railroad Union (Sindicato National de Trabajadores
Ferrocarrileros de la Republica Mexicana) for the new collective labor agreement
were begun.
We are sure that our operating organizational structure, new working methods,
programmed investments and the efforts of our workers and employees will result
in substantial improvements in the quality of service and results of FERROMEX in
the immediate future.
The above mentioned work, which will enable start-up of operations in February
1998, was performed jointly, with our partners, Union Pacific and Ingenieros
Civiles Asociacdios.
[GRAPHIC OMITTED]
<PAGE>
Investments and Projects
- ------
22
[GRAPHIC OMITTED]
Copper Smelter
La Caridad, Son.
Grupo Mexico continued its investment program designed to optimize the installed
capacity of our mining units and metallurgical plants, to increase the added
value of our products and reduce unit costs.
The expansion of La Caridad's, smelter was completed and operation of this plant
at its new 300,000 tons per year capacity of copper anodes went on-stream. The
investment of 120 million dollars includes a new "El Teniente" furnace, a
700,000 tons per year acid plant, and a 300 tons per day oxygen plant. An
electrical power plant to generate 45 MW started operating. The first stage of
the copper refinery, adjacent to La Caridad's smelter, with an initial capacity
of 180,000 tons per year of refined cathode copper, began operating during the
third quater, with a total investment of 170 million dollars. The second stage
of construction of this refinery continues and upon completion during the second
quarter of 1998, the refined copper capacity will be 300,000 tons per year.
In order to attain increased integration of the processing of the copper ores
from the La Caridad Complex and to complement the aforementioned investments, a
150,000 tons per year copper rod plant was completed and will begin operating in
February 1998. The precious metals refinery with a capacity to produce
15,000,000 ounces of refined silver and 100,000 ounces of refined gold per annum
continued under construction and this refinery, with an investment of 36 million
dollars, will stars operating during the last quarter of 1998.
[GRAPHIC OMITTED]
At the Concentrater Plant
Santa Eulalia Unit, Chih.
<PAGE>
Upon completion of these mining/industrial plants, La Caridad will become one
of the most important and fully integrated copper, silver and gold complexes in
the world.
A second system of crushers and conveyors, able to process 17.5 million tons per
year of leaching ore, was completed and went on-stream at the Cananea, Sonora
Unit. This will reduce processing time and improve copper recoveries.
Work was continued to expand the concentrating plant capacity at the Cananea
Complex from 62,000 to 80,000 tons of ore per day and the concentrator will
start operating at the new rate in May 1998. Important unit cost benefits and
production increases will be derived from this expansion. Construction has begun
on SX-EW Plants III and IV, with annual capacities of 23,000 and 30,000 tons
respectively, thereby increasing copper production at the Cananea Complex to
over 200,000 tons per year.
Investments to increase production in the underground mining activities of the
Group include expansion of the Santa Barbara and Santa Eulalia Units, both
located in the State of Chihuahua, to increase their milling capacities from
4,500 to 6,000 and 850 to 1,500 tons of ore per day, respectively. Operation at
the new capacities will begin during the first quarter of 1998. A total of 33.9
million dollars were spent in these projects. Construction of the new coal
washing plant in Nueva Rosita, Coah. will be completed next May enabling us to
produce higher tonnages of high quality coal.
The El Arco, B.C.N. project, with an ore body of 1,016 million tons of 0.47%
copper and 0.14 gr. per ton gold, continues to progress and studies are underway
to define the appropriate financial strategy for the infrastructure and economic
feasibility study.
Inasmuch as mining is a very dynamic activity and requires continual
actualization, important investments were made in the majority of the mining
units and metallurgical plants in order to improve productivity indexes and
increase the exploitation of our mineral resources.
[GRAPHIC OMITTED]
<PAGE>
Corporate Development
- ------
24
The Group participated in the public bidding for the acquisition of the
Pacifico-Norte Railroad and the Ojinaga-Topolobampo (Chihuahua Pacifico) route,
through a 74% stock ownership of its subsidiary, Grupo Ferroviario Mexicano,
together with the Union Pacific Railroad and Grupo ICA, each of which holds 13%
of the capital stock. The total amount of the bid was 4,196 million pesos.
The Pacifico-Norte and Chihuahua-Pacfico rail lines are the longest within the
national railway system, with 7,500 km. of tracks. Among the places that they
connect are the main cities of the Nation: Guadalajara, Monterrey, and Mexico
City; the ports of Manzanillo, Mazatlan, Topolobampo, Guaymas, Tampico and
Altamira; and the border cities of Mexicali, Nogales, Ojinaga, Cd. Juarez and
Piedras Negras. Its services are dedicated 70% to domestic traffic and 30%
international. The Chihuahua-Pacifico line connects the Mexico City-Juarez and
the Guadalajara-Nogales corridors.
[GRAPHIC OMITTED]
<PAGE>
The corporate entity that operates these railways is Ferrocarril Mexicano, S.A.,
commercially know as FERROMEX. Ferrocarril Mexicano, S.A. is a wholly owned
subsidiary of Grupo Ferroviario Mexicano.
The minimum required investment for the next five years amounts to 500 million
dollars which will be expended, basically, on track improvements, systems,
telecommunications, signaling equipment, border terminals, locomotive purchases
and switching yard equipment, among others.
We continue to analyze future investment opportunities in the
mining/metallurgical field, transportation activities, infrastructure, specially
in electric energy, seaports, warehousing, multimodal terminals, and other areas
compatible with the experience and trajectory of the Company, with our goal of
integration and diversification within the Group in mind.
[LOGO] Ferrocarril Mexicano
[GRAPHIC OMITTED]
<PAGE>
Summary of Production*
- ------
26
<TABLE>
<CAPTION>
IMMSA MEXCOBRE MEXCANANEA TOTAL 1997
--------------------------------------------------
<S> <C> <C> <C> <C>
Copper Concentrates 91,559 477,892 430,165 999,616
--------------------------------------------------
Copper Content of Concentrates 27,102 149,709 109,445 286,256
--------------------------------------------------
Copper Content from SX-EWs (cathodes) -- 21,377 26,840 48,217
--------------------------------------------------
Total Copper Contents from Mines 27,102 171,086 136,285 334,473
--------------------------------------------------
Copper Content Smelters 30,528 257,593 60,169 348,290
--------------------------------------------------
Total Copper Content (Smelter + SX-EWs) 30,528 278,970 87,009 396,507
--------------------------------------------------
Refined Copper -- 48,965 -- 48,965
--------------------------------------------------
Zinc Concentrates 288,371 -- -- 288,371
--------------------------------------------------
Zinc Content of Concentrates 161,914 -- -- 161,914
--------------------------------------------------
Refined Zinc 101,901 -- -- 101,901
--------------------------------------------------
Lead Concentrates 52,416 -- -- 52,416
--------------------------------------------------
Lead Content of Concentrates 32,805 -- -- 32,805
--------------------------------------------------
Gold Content of Concentrates (Kgs.) 327 140 488 955
--------------------------------------------------
Silver Content of Concentrates (Kgs.) 349,458 72,226 31,856 454,540
--------------------------------------------------
Molybdenum Content of Concentrates -- 4,842 -- 4,842
--------------------------------------------------
Coal 302,028 -- -- 302,028
--------------------------------------------------
Coke 99,828 -- -- 99,828
--------------------------------------------------
Sulphuric Acid 171,677 854,994 -- 1,026,671
--------------------------------------------------
Cadmium 659 -- -- 659
--------------------------------------------------
Arsenic Trioxide 2,999 -- -- 2,999
--------------------------------------------------
Bismuth Content of Alloys 185 -- -- 185
--------------------------------------------------
Lime -- 119,323 -- 119,323
--------------------------------------------------
</TABLE>
* Figures stated in metric tons unless indicated otherwise
<PAGE>
1996 1995 1994 1993
---------------------------------------
Copper Concentrates 994,080 899,434 740,945 769,670
---------------------------------------
Copper Content of Concentrates 287,181 265,944 231,364 231,899
---------------------------------------
Copper Content from SX-EWs (cathodes) 45,407 38,918 25,799 24,082
---------------------------------------
Total Copper Contents from Mines 332,588 304,862 257,163 255,981
---------------------------------------
Copper Content Smelters 280,462 274,356 271,741 281,627
---------------------------------------
Total Copper Content (Smelter + SX-EWs) 325,869 313,274 297,540 305,709
---------------------------------------
Refined Copper -- -- -- --
---------------------------------------
Zinc Concentrates 298,044 321,138 327,541 301,233
---------------------------------------
Zinc Content of Concentrates 167,832 182,385 186,361 172,158
---------------------------------------
Refined Zinc 97,715 101,349 97,021 94,637
---------------------------------------
Lead Concentrates 58,650 59,084 69,523 65,309
---------------------------------------
Lead Content of Concentrates 36,527 37,790 44,398 41,048
---------------------------------------
Gold Content of Concentrates (Kgs.) 1,049 885 819 900
---------------------------------------
Silver Content of Concentrates (Kgs.) 450,291 430,453 426,889 423,013
---------------------------------------
Molybdenum Content of Concentrates 3,968 3,806 2,614 1,705
---------------------------------------
Coal 280,455 244,063 289,882 233,965
---------------------------------------
Coke 112,695 103,281 104,960 108,456
---------------------------------------
Sulphuric Acid 788,443 763,308 715,629 715,169
---------------------------------------
Cadmium 582 639 604 704
---------------------------------------
Arsenic Trioxide 2,954 3,620 4,498 4,446
---------------------------------------
Bismuth Content of Alloys 117 11 -- --
---------------------------------------
Lime 125,333 117,971 108,643 122,960
---------------------------------------
[GRAPHIC OMITTED]
<PAGE>
Financial Statistics
- ------
28
[BAR CHART]
Fixed Assets
Millions of Dollars
1993 2,568
1994 1,828
1995 1,671
1996 1,993
1997 2,998
[GRAPHIC OMITTED]
[BAR CHART]
Stockholders' Equity and Total Assets
Millions of Dollars
Stockholders' Equity Total Assets
1993 1,525 3,282
1994 1,515 2,559
1995 1,745 2,782
1996 2,209 3,297
1997 2,750 4,259
[BAR CHART]
Operating Income - Exchange Losses -
Net Income
Millions of Dollars
Operating Income Exchange Losses Net Income
1993 (18) (13) (28)
1994 227 338 (164)
1995 608 156 478
1996 367 (6) 297
1997 322 8 263
<PAGE>
[BAR CHART]
Current Assets & Current Liabilities
Millions of Dollars
Assets Liabilities
1993 584 427
1994 585 504
1995 1,028 259
1996 1,236 224
1997 998 552
[BAR CHART]
Stockholders' Equity & Total Liabilities
Millions of Dollars
Stockholders' Equity Total Liabilities
1993 1,525 879
1994 1,515 900
1995 1,745 878
1996 2,209 896
1997 2,750 1,366
[BAR CHART]
Stockholders' Equity
Millions of Dollars
1993 1,525
1994 1,515
1995 1,745
1996 2,209
1997 2,750
[GRAPHIC OMITTED]
[BAR CHART]
Operating Earnings Per Share*
Dollars
1993 (0.03)
1994 0.34
1995 0.90
1996 0.54
1997 0.45
[BAR CHART]
Earnings Per Share*
Dollars
1993 (0.05)
1994 (0.24)
1995 0.71
1996 0.44
1997 0.39
[BAR CHART]
Book Value Per Share*
Dollars
1993 2.26
1994 2.24
1995 2.59
1996 3.27
1997 4.07
The book value and earnings per share are based on 674,984,899 shares of Grupo
Mexico S.A. de C.V. in circulation as of December 31, 1999.
<PAGE>
Geographic Locations
- ------
30
MINING UNITS
MEXICANA DE COBRE
o a La Caridad, Son.
Copper, molybdenum, gold and silver
INDUSTRIAL MINERA MEXICO
o b Charcas, S.L.P.
Silver, copper, lead and zinc
o c Rosario, Sin.
Lead, zinc, silver and gold
o d Santa Eulalia, Chih.
Silver, lead and zinc
o e San Martin, Zac.
Silver, lead, zinc and copper
o f Taxco, Gro.
Gold, sliver, lead and zinc
o g Santa Barbara, Chih.
Gold, silver, copper, lead and zinc
o h Velardena, Dgo.
Silver, copper, lead and zinc
o i Nueva Rosita, Coah.
Coal
MEXICANA DE CANANEA
o j Cananea, Son.
Copper, gold and silver
CENTRAL OFFICES
o k Mexico, D.F.
SMELTERS AND REFINERIES
MEXICANA DE COBRE
o i La Caridad, Son.
Copper Smelter
Electrolytic Copper Refinery
Copper Electrowinning Plant
Sulphuric Acid Plants
Copper Rod Plant
o m Agua Prieta, Son.
Lime Plant
INDUSTRIAL MINERA MEXICO
o n San Luis Potosi, S.L.P
Copper Smelter and Arsenic Refinery
o o Electrolitica de Zinc, S.L.P.
Zinc and cadmium Refinery; gold and silver
concentrates
Sulphuric Acid
o p Monterrey, N.L.
Silver, gold, lead and bismuth Refinery
o q Nueva Rosita, Coah.
Washed coal, coke and coal byproducts
MEXICANA DE CANANEA
o r Cananea, Son.
Copper Smelter
Copper Electrowinning Plants
EXPLORATION AND DEVELOPMENT PROJECTS
o s El Arco, B.C.N.
Gold and copper
o t Bolanos, Jal.
Gold, silver, lead, copper and zinc
o u Angangueo, Mich.
Gold, silver, lead and zinc
[GRAPHIC OMITTED]
o Santa Barbara Unit, Chih.
<PAGE>
[GRAPHIC OMITTED]
<PAGE>
Our Products
- ------
32
Gold Molybdenum Concentrates
Silver Molybdenum Trioxide
Copper Anodes Refined Cadmium
Blister Copper Bismuth Alloys
Electrorefined Copper Cathode Sulphuric Acid
Electrowon Copper Cathode Lime
Copper Wire Rod Coal
Special High Grade Zinc Metallurgical Coke
High Grade Zinc Nut Coke
Zinc Alloys Crude Light Oil
Zamak Tar
Zinc Concentrates Ammonium Sulphate
Lead Concentrates Naftalene
Refined Lead Arsenic Trioxide
Special Lead Alloys Calcium Arsenate
[GRAPHIC OMITTED]
<PAGE>
[GRAPHIC OMITTED]
Grupo Mexico, S.A. de C.V.
Central Offices
Baja California 200
Mexico 06760, D.F.
Tel 564 7066
Fax 564 7677
<PAGE>
[GRAPHIC OMITTED]
[LOGO]
GRUPOMEXICO
[GRAPHIC OMITTED]
GRUPO MEXICO, S.A. DE C.V. AND SUBSIDIARIES
TRANSLATION OF FINANCIAL STATEMENTS ORIGINALLY ISSUED IN SPANISH CONSOLIDATED
FINANCIAL STATEMENTS AS OF DECEMBER 31, 1997 AND 1996 EXPRESSED IN TERMS OF THE
PURCHASING POWER OF THE MEXICAN CURRENCY AS OF DECEMBER 31, 1997 TOGETHER WITH
AUDITORS' REPORT
[GRAPHIC OMITTED]
<PAGE>
GRUPO MEXICO, S.A. DE C.V. AND SUBSIDIARIES
Translation of a report originally issued in Spanish
(See explanation added to notes to financial statements)
To the Stockholders of
Grupo Mexico, S.A. de C.V.:
We have audited the accompanying consolidated balance sheets of GRUPO
MEXICO, S.A. DE C.V. AND SUBSIDIARIES as of December 31, 1997 and 1996,
and the related consolidated statements of income, stockholders' equity
and changes in financial position for the years then ended. These
financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We did not audit the financial statements of Grupo Ferroviario Mexicano,
S.A. de C.V. and subsidiaries, which statements reflect total assets and
total liabilities of 14% and 30% of the consolidated totals. Those
statements were audited by other auditors whose report has been furnished
to us and our opinion, insofar as it relates to the amounts included for
those entities is based solely on the report of the other auditors.
We conducted our audits in accordance wish generally accepted auditing
standards, which require that the audit be planned and performed to obtain
reasonable assurance about whether the financial statements are free of
material misstatement and that they are prepared in accordance with
generally accepted accounting principles. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
financial statements; an audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that
our audits and the report of the other auditors provide a reasonable basis
for our opinion.
As explained in Note 3 to the accompanying financial statements, effective
January 1, 1997 the Company adopted the provisions established in the
Fifth Amendment to Bulletin B-10 for the restatement of fixed assets and
Circular 50 for the interest rate applied in valuing its labor
liabilities.
In our opinion, based on our audits and the report of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Grupo Mexico S.A. de C.V. and
Subsidiaries as of December 31, 1997 and 1996, and the results of their
operations, the changes in their stockholder's equity and the changes in
their financial position for the years then ended, in accordance with
accounting principles generally accepted in Mexico.
/s/ Arthur Andersen
Arthur Andersen
February 20, 1998
(except with respect to the subsequent event discussed in Note 13,
as to which the date is March 31, 1998)
<PAGE>
- ------
2
GRUPO MEXICO, S.A. DE C.V. AND SUBSIDIARIES
Translation of financial statements originally issued in Spanish
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1997 AND 1996
EXPRESSED IN TERMS OF THE PURCHASING POWER OF THE MEXICAN CURRENCY
AS OF DECEMBER 31, 1997
(Stated in thousands of Mexican pesos)
ASSETS
1997 1996
Current Assets:
Cash and marketable securities $ 3,976,817 $ 7,365,704
Notes and accounts receivable-
Trade, net 1,021,013 1,012,408
-----------------------------
Refundable taxes 722,329 653,112
-----------------------------
Other 184,283 117,719
-----------------------------
1,927,625 1,783,239
-----------------------------
Inventories of primary and secondary
metals and byproducts 1,149,598 1,312,444
-----------------------------
Materials and supplies 993,270 769,792
-----------------------------
Prepaid expenses and other 2,916 3,519
-----------------------------
Total current assets 8,050,226 11,234,698
Other Assets:
Deferred charges 381,937 91,729
-----------------------------
Deposits and long-term accounts receivable 1,533,734 514,718
-----------------------------
1,915,671 606,447
Property and Equipment, net 23,043,172 18,114,759
Concession Titles 1,134,770 --
Investments in Shares in Associated
Companies and Others 69,225 8,796
Goodwill 130,130 --
-----------------------------
$34,343,194 $29,964,700
=============================
The accompanying notes are an integral part of these consolidated balance
sheets.
<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY
1997 1996
Current Liabilities:
Debt with Federal Government $ 3,147,582 $ --
--------------------------------
Notes and interest payable 198,658 570,747
--------------------------------
Accounts payable and accrued liabilities 816,902 1,160,493
--------------------------------
Income taxes, asset tax and employee
profit sharing 289,328 273,075
--------------------------------
Total current liabilities 4,452,470 2,004,315
Long-term debt 6,443,759 6,119,560
Voluntary Retirement and Seniority
Premium Reserve 50,037 21,044
Negative Goodwill 72,913 --
--------------------------------
Total liabilities 11,019,179 8,144,919
Stockholders' Equity:
Capital stock 7,317,460 7,384,898
--------------------------------
Reserve for purchase of own shares 511,875 821,364
--------------------------------
Retained earnings 23,899,174 21,874,473
--------------------------------
Accumulated restatement effect (9,548,519) (10,002,279)
--------------------------------
22,179,990 20,078,456
Minority interest 1,144,025 1,741,325
--------------------------------
Total stockholders' equity 23,324,015 21,819,781
--------------------------------
$ 34,343,194 $ 29,964,700
================================
<PAGE>
- ------
4
GRUPO MEXICO, S.A. DE C.V. AND SUBSIDIARIES
Translation of financial statements originally issued in Spanish
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
EXPRESSED IN TERMS OF THE PURCHASING POWER OF THE MEXICAN CURRENCY
AS OF DECEMBER 31, 1997
(Stated in thousands of Mexican pesos)
1997 1996
Net Sales $ 10,423,976 $ 11,426,562
Cost of Sales 6,517,420 6,440,235
--------------------------------
Gross profit 3,906,556 4,986,327
Deductions:
Administrative expenses 321,343 333,452
--------------------------------
Depreciation and amortization 1,000,341 962,758
--------------------------------
1,321,684 1,296,210
Integral Result of Financing:
Interest income, net (260,217) (112,434)
--------------------------------
Foreign exchange loss (gain), net 45,304 (60,944)
--------------------------------
Loss on monetary position 139,356 271,053
--------------------------------
(75,557) 97,675
Other Income, net 49,525 54,873
--------------------------------
Income before provisions 2,709,954 3,647,315
<PAGE>
1997 1996
Provisions for:
Income tax 121,653 221,850
--------------------------------
Asset tax 26,700 32,007
--------------------------------
Employee profit sharing 263,194 308,772
--------------------------------
Tax loss carryforwards -- (66,411)
--------------------------------
411,547 496,218
--------------------------------
Consolidated net income for the year $ 2,298,407 $ 3,151,097
================================
Distribution of the Consolidated Net
Income:
Income of minority interest $ 79,467 $ 180,783
--------------------------------
Income of majority interest 2,218,940 2,970,314
--------------------------------
$ 2,298,407 $ 3,151,097
================================
Earnings per share $ 3.34 4.57
================================
Weighted average shares outstanding
(in thousands) 687,388 689,119
================================
The accompanying notes are an integral part of these consolidated statements.
<PAGE>
- ------
6
GRUPO MEXICO, S.A. DE C.V. AND SUBSIDIARIES
Translation of financial statements originally issued in Spanish
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
EXPRESSED IN TERMS OF THE PURCHASING POWER OF THE MEXICAN CURRENCY
AS OF DECEMBER 31, 1997
(Stated in thousands of Mexican pesos)
<TABLE>
<CAPTION>
Capital Stock
-----------------------------------------
Nominal
---------------------------
Subscribed Unsubscribed Restatement
<S> <C> <C> <C>
Balances at December 31, 1995 $ 3,237,962 $ (11,623) $ 4,158,559
Cancellation of reserve for purchase
of own shares -- -- --
-------------------------------------------
Increase in reserve for purchase of own shares -- -- --
-------------------------------------------
Changes in equity -- -- --
-------------------------------------------
Balances at December 31, 1996 3,237,962 (11,623) 4,158,559
Dividends paid -- -- --
-------------------------------------------
Purchase of own shares (66,172) -- (1,266)
-------------------------------------------
Changes in equity -- -- --
-------------------------------------------
Balances at December 31, 1997 $ 3,171,790 $ (11,623) $ 4,157,293
===========================================
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
<PAGE>
<TABLE>
<CAPTION>
Reserve for Accumulated Total
Purchase of Retained Restatement Minority Stockholders'
Own Shares Earnings Effect Interest Equity
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1995 $ 305,084 $ 19,420,439 $ (7,298,638) $ 1,806,329 $ 21,618,112
Cancellation of reserve for purchase
of own shares (305,084) 305,084 -- -- --
------------------------------------------------------------------------------
Increase in reserve for purchase of own shares 821,364 (821,364) -- -- --
------------------------------------------------------------------------------
Changes in equity -- 2,970,314 (2,703,641) (65,004) 201,669
------------------------------------------------------------------------------
Balances at December 31, 1996 821,364 21,874,473 (10,002,279) 1,741,325 21,819,781
Dividends paid -- (194,239) -- -- (194,239)
------------------------------------------------------------------------------
Purchase of own shares (309,489) -- -- -- (376,927)
------------------------------------------------------------------------------
Changes in equity -- 2,218,940 453,760 (597,300) 2,075,400
------------------------------------------------------------------------------
Balances at December 31, 1997 $ 511,875 $ 23,899,174 $ (9,548,519) $ 1,144,025 $ 23,324,015
==============================================================================
</TABLE>
<PAGE>
- ------
8
GRUPO MEXICO, S.A. DE C.V. AND SUBSIDIARIES
Translation of financial statements originally issued in Spanish
CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
EXPRESSED IN TERMS OF THE PURCHASING POWER OF THE MEXICAN CURRENCY
AS OF DECEMBER 31, 1997
(Stated in thousands of Mexican pesos)
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Operations:
Results-
Consolidated net income for the year $ 2,298,407 $ 3,151,097
Items applied to results that did not require
(generate) resources-
Provisions for voluntary retirement and
seniority Premiums, net 2,727 (6,619)
----------------------------
Depreciation and amortization 1,000,341 962,758
----------------------------
Resources obtained from results 3,301,475 4,107,236
Resources (used for) provided by working capital (283,696) 43,717
----------------------------
Resources provided by operations 3,017,779 4,150,953
Financings:
Debt with Federal Government 3,147,582 --
----------------------------
Dividends paid (194,239) --
----------------------------
Purchase of own shares (376,927) --
----------------------------
Increase in long term-debt in real terms 860,456 62,815
----------------------------
Effect of variation of long-term debt in constant pesos (908,346) (1,835,815)
----------------------------
Negative goodwill 72,913 --
----------------------------
Resources provided by (used for) financing
activities 2,601,439 (1,773,000)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Investments:
Additions to property and equipment, less
net book value of retirements (5,402,214) (2,135,613)
----------------------------
Increase net in investments in shares in associated
companies and others, no consolidated (1,031,767) (5,055)
----------------------------
Increase net in other assets (1,309,224) (15,542)
----------------------------
Concession titles (1,134,770) --
----------------------------
Goodwill (130,130) --
----------------------------
Resources used for investing activities (9,008,105) (2,156,210)
(Decrease) increase in cash and marketable
securities (3,388,887) 221,743
Cash and marketable securities at
beginning of year 7,365,704 7,143,961
----------------------------
Cash and marketable securities at end of year $ 3,976,817 $ 7,365,704
============================
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
<PAGE>
- ------
10
GRUPO MEXICO, S.A. DE C.V. AND SUBSIDIARIES
Translation of financial statements originally issued in Spanish
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1997 AND 1996
EXPRESSED IN TERMS OF THE PURCHASING POWER OF THE MEXICAN CURRENCY
AS OF DECEMBER 31, 1997
(Stated in thousands of Mexican pesos)
Explanation added for translation to English:
The accompanying financial statements have been translated to English for use
outside of Mexico. These financial statements are presented on the basis of
generally accepted accounting principles in Mexico. Certain accounting practices
applied by the Companies that conform with generally accepted accounting
principles in Mexico may not conform with generally accepted accounting
principles in the country of use.
1. Companies activities and significant events of 1997:
The main activity of the group of operating companies of Grupo Mexico, S.A. de
C.V. and Subsidiaries, is related to the mining-metallurgical industry, engaged
in the exploring, mining and processing of metallic and nonmetallic minerals, as
well as the mining of coal and multi-use railroad services.
Acquisition of "Ferrocarril Mexicano, S.A. de C.V." (formerly Ferrocarril
Pacifico Norte, S.A. de C.V.)
During March, 1995, Article 28 of the Political Constitution of the United
Mexican States, was reformed and initiated the legal restructuring of the
Mexican Railroad System to allow the participation of the private investment in
this Sector.
On June 19, 1997, Grupo Ferroviario Mexicano, S.A. de C.V. (a 74% subsidiary),
presented a proposal to bid for of 80% of the capital stock of Ferrocarril
Mexicano. S.A. de C.V. (formerly Ferrocarril Pacifico Norte, S.A. de C.V.). In
addition, the Company also proposed to acquire the remaining 20% of such shares.
On June 26, 1997, the Desincorporation Interministerial Commission, declared
Grupo Ferrovario Mexicano, S.A. de C.V., as the winner of the bid, and acquired
100% of the shares.
Additionally, the general guidelines relating to the privatization of the
Mexican Railroad System, provide that each private company, that is going to
operate the railroad system, will have 25% of the shares of Terminal Ferroviaria
del Valle de Mexico, S.A. de C.V. (which is recorded as an investment in
associated companies in the accompanying balance sheet).
Grupo Ferroviario Mexicano, S.A. de C.V. signed a purchase-sale contracts with
the Federal Government for capital stock (80% of the first investment package
and 20% of the second investment package) and the purchase of fixed assets and
inventories of the Ojinaga-Topolobampo railroad tracks. The delivery and
acceptance of the operations of the company consist of three phases, as follows:
o Issuance of shares -- The Federal Government will issue the purchaser the
title of the shares in the same proportion as the purchase price.
o Delivery of the goods and material equipment are subject to the terms
stated in the contracts.
o Delivery of the general railroad communications and of the material goods
of the concession titles.
On February 19, 1998, the final certificate agreement was obtained, which
confirmed the delivery and acceptance of the goods and equipment stated above.
<PAGE>
Additionally, the Company has the option within the 180 days following the date
of delivery and acceptance of the operation and assets to acquire certain
assets, not included in the contract, which amount to 46.3 million U.S. dollars.
This option had not been exercised as of the date of the financial statement.
The nominal value of the shares purchased from the Federal Government amounted
to $3,940,905 and $253,125 of the fixed assets and inventories of
Ojinaga-Topolobampo track, 30% of $1,182,271 and $75,938 were paid in August
1997. The remaining guaranteed interests through the last date of payment, at a
rate equivalent to the daily average of the Interbank Interest Rate Equilibrium
of 28 days, published by the Banco de Mexico. The remaining balance was paid on
February 19, 1998, amounting to $3,231,070, which included the remaining
(nominal value) of the shares acquired amounting so $2,758,634, the remaining
balance of the fixed assess and inventories of the Ojinaga-Topolobampo track,
for $177,187 and $295,249 including interest generated through the date of
payment. On that same date, Ferrocarril Mexicano, S.A. de C.V. took possession
of the fixed assets and inventories, as well as control of the operations.
Ferrocarril Mexicano, S.A. de C.V. has the concession title to the
Pacifico-Norte tracks and to Ojinaga-Topolobampo, the short tracks (see Note 7),
which represent the difference between the net value of the acquired assets and
the amount paid to the Federal Government.
As of February 19, 1998, the Company has been given the exclusive right to the
general communications of the railroad tracks and the assets that are of public
ownership over a period of 50 years. In addition the exclusive rights to provide
cargo transportation services will be for a period of 30 years, with the
exception of passenger services and the right of cart-towing.
In accordance with the official standards as the end of this concession, the
Company at no cost will revert the iron tracks and the public ownership assets
to the Federal Government, in good operating conditions. Ferrocarril Mexicano,
S.A. de C.V. has committed at a minimum, to the investment commitments
established in the "business plan", which should be updated every 5 years.
The concessions, the operation, the use of the railroad tracks, the benefit of
the assets, such as providing public transportation services to railroad cargo
and auxiliary services, will be subject to the Regulatory Law of Railroad
Services and Regulations, the General Law of Rail Communications, the General
Law of National Goods, the General Law of Ecological Equilibrium, Environment
Protection and the Federal Law of Economical Competition, among others.
In accordance with tax laws applicable to the companies which participate in
providing railroad services, Ferrocarril Mexicano, S.A. de C.V., will obtain tax
benefits that are described in Note 9.
Increase in the participation of capital stock in Mexicana de Cananea, S.A. de
C.V.-
On August 7, 1997, Grupo Minero Mexico, S.A. de C.V. increased its equity
holdings in Mexicana de Cananea, S.A. de C.V. from 76.57% to 83.14% by paying
72.7 million U.S. dollars in cash. On December 29, 1997, Grupo Minero Mexico,
S.A. de C.V. acquired an additional 15.35% of the capital stock of Mexicana de
Cananea, S.A. de C.V. from UM Mexico, S.A. de C.V. for 122 million U.S. dollar
in cash, increasing its ownership at December 31, 1997, from 83.14% to 98.49%.
As part of the purchase agreement, certain litigation between the Company and
its subsidiaries and UM Mexico, S.A. de C.V. and its affiliates was dismissed.
<PAGE>
- ------
12
2. Basis of consolidation:
The consolidated financial statements includes the financial statements of Grupo
Mexico, S.A. de C.V. (holding company) and its subsidiaries, 98.85% of Grupo
Minero Mexico, S.A. de C.V. (formerly Mexico Desarrollo Industrial Minero, S.A.
de C.V.), 74% of Grupo Ferroviario Mexicano, S.A. de C.V. and 100% of Lineas
Ferroviarias de Mexico, S.A. de C.V. (two sub-holding companies). These
sub-holding companies include the following subsidiaries
Percentage of Ownership
Grupo Minero Mexico, S.A. de C.V.
o Mexicana de Cobre, S.A. de C.V. and Subsidiaries 96.43%
-----------------------
o Industrial Minera Mexico, S.A. de C.V. and
Subsidiary 100.00%
-----------------------
o Minerales Metalicos del Norte, S.A. 100.00%
-----------------------
o Servicios de Apoyo Administrativo, S.A. de C.V. 100.00%
-----------------------
o Mexicana de Cananea, S.A. de C.V. and Subsidiaries 98.49%
-----------------------
o Mexico Compania Inmobiliaria, S.A. 100.00%
-----------------------
o Minerales y Minas Mexicanas, S.A. de C.V. 100.00%
-----------------------
o Western Copper Supplies, Inc. 100.00%
-----------------------
o Minera Mexico Internacional, Inc. 100.00%
-----------------------
o Mexicana del Arco, S.A. de C.V. (formerly
Zinc de Mexico, S.A. de C.V.) 100.00%
-----------------------
o Transportes Mineros Mexico, S.A. de C.V. 100.00%
-----------------------
Grupo Ferroviario Mexicano, S.A. de C.V.
o Ferrocarril Mexicano, S.A. de C.V. 100.00%
-----------------------
o GFM Servicios Administrativos, S.A. de C.V. 100.00%
-----------------------
The accompanying consolidated financial statements include the accounts of the
Company and its subsidiaries, all under the same administration. All significant
intercompany balances and transactions have been eliminated in consolidation.
Equity investments which were acquired or sold during the year were included in
the financial statements from or up to the date of the transaction occurred and
were restated in terms of the purchasing power of the currency at yearend.
3. Significant accounting policies:
The significant accounting policies followed by the Companies, are in accordance
with generally accepted accounting principles in Mexico, which require
management to make certain estimates and use certain assumptions to determine
the valuation of some of the balances included in the financial statements and
to make the disclosures required to be included therein. Although the actual
results may differ from those estimates, management believes that the estimates
and assumptions used were appropriate in the circumstances.
Changes in accounting policies-
During the year, the Company changed some accounting policies as follows:
o During 1997, the Company adopted the Fifth Amendment to Bulletin B-10
(modified), issued by the Mexican Institute Of Public Accountants (MIPA),
which established that the general price level method was the only
acceptable restatement method for property and equipment. Therefore, the
Company discontinued the use of appraisals and the value of property and
equipment has been restated using the National Consumer Price Index
("NCPI"), published by Banco de Mexico, based on the values recorded at
December 31, 1996. Depreciation has been recorded based on the estimated
useful life of the assets.
<PAGE>
o Property and equipment values determined as of December 31, 1996 were
considered as the historic costs for subsequent restatements, and
depreciation was determined based on the estimated useful lives of the
assets.
o In addition, during 1997 the Company adopted Circular 50 issued by the
MIPA, which requires the use or real interest races to calculate the
benefits obligation for labor liabilities in lieu of using nominal rates.
Recognition of the effects of inflation in the financial statements-
The Companies restate all of their financial statements in terms of the
purchasing power of the currency as of the end of the latest period, thereby
comprehensively recognizing the effects of inflation. Consequently, all
financial statement amounts are comparable, both for the current and the prior
year, since all are stated in terms of Mexican pesos of the same purchasing
power. Accordingly, the prior year amounts presented herein differ from those
originally reported in terms of currency of the corresponding year. As a result
all financial statements are comparable with those of previous years as all are
stated in Mexican pesos of the same purchasing power.
To recognize the effects of inflation in terms of Mexican pesos with purchasing
power as of yearend, the procedures were as follows:
o Balance sheets:
Primary metal inventories are stated as current international metal market
quotations as yearend, less the current cost of completing the processing
cycle to obtain the finished product. Other inventory items are stated at
their replacement or production cost, without exceeding their net
realizable value.
Prior to 1997, property and equipment (except for construction in
progress) were restated so net replacement cost, which was determined by
independent appraisers. Effective January 1, 1997 the Company has restated
its property and equipment using the NCPI.
Stockholders' equity and other nonmonetary items are restated using a
factor derived from the NCPI cumulative from the date of contribution or
generation.
o Statement of incomes:
Revenues and expenses which are associated with a monetary item are
restated from the month in which they arise through yearend, based on
factors derived from the NCPI.
Cost of sales of primary metals and other inventories are restated by
applying the replacement cost so products sold, and restated to yearend
based on factors derived from the NCPI.
Prior to 1997, depreciation and amortization were calculated using rates
based on the estimated useful lives and the average value of the assets as
determined by the appraisers. Effective January 1, 1997, depreciation is
calculated based on the estimated useful lives of the NCPI restated
assets. The Company depreciates property and equipment from the date they
are placed in service.
The result from monetary position, which represents the erosion on the
purchasing power of monetary same caused by inflation, is determined by
applying to net monetary assets or liabilities at the beginning of the
year the factor of inflation derived from the NCPI, and so the monthly
variation in net monetary assets or liabilities the factor from the end of
each month through year-end.
o In the other statements:
The statement of changes in financial position, presents the changes in
constant pesos, according to the financial position at prior yearend
restated to pesos of the most recent yearend.
<PAGE>
- ------
14
The accumulated restatement effect presented in the statement of
stockholders' equity consists mainly of gains or losses resulting from
holding nonmonetary assets, which represents the change in the specific
price level of these assets and its effect on results of operations
compared to the change in the NCPI.
Investments in marketable securities-
Investments in marketable securities include mainly investment funds, treasury
certificates and short-term bank deposits carried as market value.
Deferred charges-
Exploration costs incurred before development of a site begins, are expensed as
incurred, except for expenditures on specified properties having confirmed the
presence of a mineral resource with the potential of being developed into a
mine, in which case the expenditures are capitalized. Mine development costs are
capitalized when proven reserves have been found. Deferred changes include
mainly development expenses of certain subsidiaries which will be amortized on a
straight line basis over the estimated useful lives of the corresponding proven
ore reserves and preoperating expenses incurred by Ferrocarril Mexicano, S.A de
C.V., which will be amortized over a period of 5 years, beginning in 1998.
Labor liabilities-
In accordance with Mexican Labor Law and the Company's collective labor
contracts, most of the subsidiaries have contingent liabilities for severance,
voluntary separation, seniority premium and pension payments so employees under
certain circumstances.
The Companies records the liability resulting from seniority premiums, voluntary
separations and pensions as incurred, utilizing reserves and irrevocable trust
funds. Contributions to the funds and increases in reserves are made in
accordance with actuarial computations based on the projected unit credit
method.
Therefore, a liability is accrued as present value, will covers the projected
obligation to the estimated retirement date of the employees, as follows:
Projected benefit obligations (PBO) $ 189,481
----------------------
Trust assets (191,075)
----------------------
Reserves crested (50,037)
----------------------
(51,631)
Additional liability 26,266
----------------------
Excess of funds and reserves over protected
benefit obligation $ (25,365)
======================
As December 31, 1997, funds in the trust and established reserves exceeded the
accumulated benefits obligation (equivalent to PBO without projecting the
salaries to the date of retirement) by $38,336.
The effect of employee benefits was charge to operating results of the year as
follows:
Service cost of the year $11,927
----------------------
Amortization of past service cost (1,606)
----------------------
Interest cost 7,157
----------------------
17,478
Less-Actual return on plan assets 11,867
----------------------
$ 5,611
======================
Indemnity payments to dismissed employees are charged to expense in the periods
the employees are dismissed.
<PAGE>
As discussed above, during 1997 the Company adopted Circular 50 issued by the
MIPA and has calculated its labor liabilities using real interest rates in lieu
of nominal rates. As a results of this change, the accumulated benefits
obligation has increased by approximately $49,796, whereas, interest cost and
return on assets have decreased approximately $3,016 and $3,212, respectively.
The effect related to the net gain on monetary position of approximately $3,022
has been eliminated since this liability has been considered non monetary.
Employee benefits-
Grupo Minero Mexico, S.A. de C.V. has established a trust fund, which at
December 31, 1997 held 56,616,957 (8.4%) of the common shares of Grupo Mexico,
S.A. de C.V., at market value for the sale of such shares so its employees and
to workers of other operating subsidiaries and affiliated companies which are
directly or indirectly part of the holding company, Grupo Mexico, S.A. de C.V.
Income taxes and employee profit sharing-
The Companies recognize by means of the liability method the future effects of
income taxes and employee profit sharing related to the cumulative temporary
differences between accounting and taxable income, which arise from specific
items whose turnaround period can be determined and which are not expected to be
replaced by items of a similar nature and amount.
Integral result of financing-
The integral result of financing includes all financial revenues and expenses,
such as interest, exchange gains or losses and gains or losses from monetary
position as earned or incurred.
Transactions in foreign currency are recorded as the exchange rate as of the
date of the transaction, and the assess and liabilities in foreign currency are
adjusted to the exchange rate as of yearend, affecting income as part of the
integral results of financing.
The Companies have followed the policy of capitalizing during the construction
period, the integral cost of borrowing used to finance property and equipment
additions. This cost is amortized over the estimated useful life of the asset.
No amounts were capitalized during 1997 and 1996. As such, the integral cost of
liabilities generated from the acquisition of Ferrocarril Mexicano, S.A. de
C.V., which was in its preoperating stage as of December 31, 1997, was
capitalized. The integral coat of financing generated, amounting to $4,012, was
included in deferred charges.
Concession titles-
Concession titles are recorded at historical cost and restated based on factors
derived from the NCPI. Concession titles will be amortized 50 years on the
straight-line method, when Ferrocarril Mexicano, S.A de C.V. commences
operations.
Excess of cost or book value of shares in subsidiaries-
Goodwill resulting from the acquisition of shares in Mexicana de Cananea, S.A.
de C.V., and in the purchase of 25% of the shares in Terminal Ferroviaria del
Valle de Mexico, S.A. de C.V., will be amortized over a period of 10 and 5
years, respectively, beginning in 1998. The amortization period was determined
based on the estimated benefits that will be generated from such investments.
The negative goodwill generated for the purchase of Ferrocarril Mexicano, S.A de
C.V., will be amortized over a period of 5 years, beginning in 1998, which is
the period of times it is estimated this subsidiary will be integrated into the
Group.
Investment in shares of associated companies and others, not consolidated-
These investments are recorded under the equity method and are integrated,
primarily, by 25% of the Terminal Ferroviaria del Ville de Mexico, S.A. de C.V.,
capital stock.
<PAGE>
- ------
16
Earnings per share-
Earnings per share have been computed in each period by dividing the majority
net income by the weighted average number of shares outstanding.
4. Transactions and foreign currency position:
The consolidated foreign currency position, without including inventories of
primary metals, as of December 31, 1997 was as follows (expressed in thousands
of U.S. dollars:
Current assets 521,775
Liabilities-
Current 81,050
-----------------
Long-term 799,077
-----------------
880,127
-----------------
Foreign currency liability position, net 358,352
=================
During the year ended December 31, 1997, the Companies' most significant
transactions in foreign currency stated in thousands of U.S. dollars, were as
follows:
Sales 1,240,175
-----------------
Purchases 241,627
-----------------
Interest earned 46,221
-----------------
Interest paid 66,516
-----------------
Technical assistance 21,685
-----------------
Revenues from metal hedging, net 2,128
-----------------
Sales prices of almost all of the Companies' products are determined by world
market quotations in U.S. dollars.
At December 31, 1997, the exchange rate was $8.064 per U.S. dollar.
As of February 20, 1998, date of issuance of the financial statements, the
unaudited foreign exchange position was similar to that at yearend, except for a
new revolving line of credit with ING. Baring (U.S.) Capital Corporation, Chase
Securities, Inc. and Banque Paribas for 293 million U.S. dollars (see Note 5),
which the exchange rate was $8.5449 per U.S. Dollar.
5. Long term debts:
Maturities of notes and interest payable are as follows:
Thousands Thousands of
of U.S. Mexican
Due in: Dollars Pesos
1998 24,635 $ 198,658
1999 170,889 1,378,046
-----------------------------------------------
2000 43,005 346,795
-----------------------------------------------
2001 36,260 292,404
-----------------------------------------------
2002 76,366 615,811
-----------------------------------------------
2003 and thereafter 472,557 3,810,703
-----------------------------------------------
799,077 6,443,759
-----------------------------------------------
823,712 $6,642,417
===============================================
<PAGE>
Notes and interest payable consist principally of the following:
On August 8, 1997, Grupo Mexico, S.A. de C.V. obtained a revolving line of
credit wish ING Baring (U.S.) Capital Corporation, Chase Securities Inc. and
Banque Paribas, for up to 420 million U.S. dollars, for the acquisition of the
total shares of Ferrocarril Mexicano, S.A. de C.V. As of December 31, 1997, the
Company has obtained 127 million U.S. dollars from the available credit, which
will be paid in one lump-sum in August 1999, resulting in monthly interest
payments at LIBOR plus 0.875% during the first year and a half. Since the
following six month period, the interest rate will be LIBOR plus 0.5%.
The revolving credit contains certain restrictive covenants, the most important
of which are the following:
o The Company and its subsidiaries may not incur other debt, if after such
debt the capitalizable debt percentage computed over a consolidated amount
exceeds 45%.
o At any given date, the Company's stockholders' equity may not be less than
$12,500 million restated as of December 1996, through the date of the
computation.
o At any given date, the interest coverage (operating income plus charges to
the statement of income which do not result in cash disbursements against
the interest paid during the period being calculated) may not be less than
the ratio of 3.5 to 1.0.
On February 13, 1998, Grupo Mexico, S.A. de C.V. disposed of the remaining
available credit from this loan, amounting to 293 million U.S. dollars, which
will be paid in one lump-sum in August 1999.
On November 28, 1995, Grupo Minero Mexico, S.A. de C.V. privately placed Secured
Export Notes in the amount of 525 million U.S. Dollars. On October 28, 1996 the
Company privately placed Secured Export Notes in the amount of 80 million U.S.
Dollars and prepaid 5 million U.S. Dollars of Series "A" Secured Export Notes.
In August 1997, the Company issued new Series "E" notes, the proceeds of which
were used to prepay both Series "A" and Series "B-2" notes. After these
transactions the notes are divided into 4 series, as follows:
<TABLE>
<CAPTION>
Amount in
Thousands Number of Periods of Payments
of U.S. Monthly
Series Dollars Interest Rate Payments From To
----------------------------
<S> <C> <C> <C> <C> <C>
B-1 100,000 8.05% 48 equal Dec-28-1998 Nov-28-2002
----------------------------------------------
C 200,000 8.51% 60 variable Dec-28-2002 Nov-28-2007
----------------------------------------------
D 80,000 9.43% 60 variable Nov-28-2006 Oct-26-2011
----------------------------------------------
E 220,000 One month Libor + 0.89% 24 equal Sep-28-2002 Aug-28-2004
- ----------------------------------------------------------------------------------------------
600,000
==============================================================================================
</TABLE>
The loan is guaranteed by Industrial Minera Mexico, S.A. de C.V., Mexicana de
Cobre, S.A. de C.V., Mexicana de Cananea, S.A. de C.V., Minerales Metalicos del
Norte, S.A. and Minera Mexico Internacional, Inc., denominated as the principal
subsidiaries.
In connection with the placement of the Secured Export Noses, Grupo Minero
Mexico, S.A. de C.V. has entered into a trust agreement for the benefit of the
noteholders, with the Bank of New York as trustee and Chase Manhattan Bank
(formerly Chemical Bank) as collateral agent. As collateral for the notes, the
proceeds of export sales of the Company's principal subsidiaries must be
deposited in collateral accounts with the collateral agent. The Company may make
use of the collected amounts, provided there is no event of default or other
specified event. As of the date of the financial statements there has been no
such event. Also, there is a letter of credit established by Grupo Minero
Mexico, S.A. de C.V. with a foreign bank to guarantee repayment of principal and
interest which falls due within the following three months.
During due term of the loan, the Company must comply with certain requirements,
of which the most significant are:
<PAGE>
- ------
18
o The Companies may not incur any indebtedness if, after such borrowing,
consolidated total debt exceeds 45% of consolidated total capitalization.
o The consolidated stockholders' equity of Grupo Minero Mexico, S.A. de C.V.
at the end of any quarter may not be less than $6,700 million pesos
restated from June 1995 through the date of calculation.
o The export collections of the latest month may not be less than 1.5 times
the principal and interest payments on notes during the prior month, and
at no time may the average of the monthly export collections of the prior
three months be less than two times the principal and interest payments
from notes of the prior month.
o Annually and commencing the first year of the original nose issuance, the
Company and its subsidiaries, may not permit the export collections of the
last 12 months to be lower than the lesser of (1) 150 million U.S. dollars
plus 25% of the principal of any additional notes issued or (2) 30% of all
unpaid note principal, including any additional notes issued.
On November 18, 1996, Grupo Minero Mexico, S.A. de C.V. entered into a long-term
loan agreement with Export Development Corporation of Canada providing for 47
million U.S. dollars loan to finance the expansion of the copper smelter owned
by Mexicana de Cobre, S.A. de C.V. The principal amount of the loan is payable
in 14 equal semiannual installments, beginning July 17, 1997, with interest
payable monthly at the annual LIBOR rate plus 0.75%.
During the term of the loan, certain requirements must be complied with, of
which the most significant are:
o The Company's tangible net worth as the end of any quarter may not be less
than $6,700 million pesos, restated from June 1995 through the data of
calculation.
o The Company and its subsidiaries may not incur indebtedness if, after such
borrowing consolidated total debt exceeds 45% of consolidated total
capitalization.
o The debt service coverage ratio must at no time be lesser than 1.0 to 1.
On August 21, 1996, Grupo Minero Mexico, S.A. de C.V. entered into a long-term
export financing credit agreement with Societe General for a total amount of
21.3 million U.S. dollars. The Company has borrowed 19.0 million U.S. dollars
under this agreement, which will be payable in 14 semiannual installments
beginning June 15, 1997 and bears interest at LIBOR plus 0.25%. During the term
of the loan, the Company must comply with certain affirmative and negative
covenants.
On June 29, 1994, Mexicana de Cobra, S.A. de C.V. entered into a long-term
credit agreement with International Finance Corporation (IFC) providing for a 60
million U.S. dollars loan to finance the construction and the equipment of the
lixiviation plant to obtain cathodic copper, payable in five equal semiannual
installments beginning September 15, 1999 and bearing interest payable
semiannually at LIBOR plus 4% during the construction of the project and
following completion of the project at LIBOR plus 3%.
During the term of the loan, certain requirements must be complied with, of
which the most significant are:
o Maintain working capital of no less than 20 million U.S. dollars.
o The Company's stockholders' equity may not be less than 85% of the
stockholders' equity as of March 31, 1995 expressed in U.S. dollars.
In 1996, the Mexicana de Cobre, S.A. de C.V., prepaid approximately 10 million
U.S. dollars of the loan, and on March 17, 1997 prepaid the balance of the loan
of approximately 52 million U.S. dollars, which included principal and accrued
interest. Therefore, it has been included in the current portion of notes and
interest payable as of December 31, 1996.
<PAGE>
On June 22, 1995, Mexicana de Cobre, S.A. de C.V. entered into a long-term loan
agreement with Chase Manhattan Bank for 15.7 million U.S. dollars to finance the
purchase of equipment and to pay for services provided in connection with the
expansion of the smelter plant. Borrowings occurred during February and March
1996, and will be payable in 17 equal semiannual installments beginning April
15, 1996, with semiannual interest, payable at the annual LIBOR rate plus 3%.
During the term of the loan, the Company must comply with certain affirmative
and negative covenants.
On December 15, 1997, Mexicana de Cobre, S.A. de C.V. prepaid the balance of the
Chase Manhattan Bank loan of approximately 12.1 million U.S. dollars, which
included principal and accrued interest. Therefore, it has been included in the
current portion of notes and interest payable as of December 31, 1996.
On August 28, 1995, Mexicana de Cobre, S.A. de C.V. obtained an equipment loan
for 4.5 million US. dollars from First National Bank of Maryland (FNBM) for the
acquisition of an electric mining shovel. The loan is payable in 10 equal
semiannual installments beginning September 15, 1995 and bears interest at LIBOR
plus 0.375% payable on a semiannual basis.
On December 13, 1993, Mexicana de Cobre, S.A. de C.V. obtained an equipment loan
with First National Bank of Maryland for 1.4 million U.S. dollars. The loan is
payable in 10 equal semiannual installments beginning July 16, 1994 and bears
interest at 5.36% payable on a semiannual basis.
On August 4, 1993, Mexicana de Cananea, S.A. de C.V. obtained an equipment loan
for 29.5 million U.S. dollars from Generale Bank, S.A./N.V. Funds were
received in six different installments from September 15, 1994 to May 9, 1995
and are payable in semiannual installments over a period of seven years bearing
interest at LIBOR plus 0.375%. The loan is guaranteed by The Export Import Bank
of the United States and Banco Nacional de Comercio Exterior, S.N.C. During the
term of the loan, the Company must comply with certain affirmative and negative
covenants.
The Company's short and long-term debt includes a sublease contract with
Ferrocarril Mexicano, S.A. de C.V. and Ferrocarriles Nacionales de Mexico,
consisting of 24 locomotives the later company has leased to Arrendadora
Internacional, S.A. de C.V. The balance as of December 31, 1997 amounted to
$86,201, payable in 6 variable half-year amortizations, resulting in half-year
payable interest at variable interest rates, in accordance with the sublease
contract.
At December 31, 1997, the Companies have complied with all requirements
established in the loan contracts.
6. Property and equipment analysis:
Property and equipment are as follows:
Average
Annual
Depreciation
1997 1996 Rate
Mining concessions and land $ 1,201,191 $ 814,153 4.0%
---------------------------------------------
Buildings and Improvements 7,338,183 6,927,901 2.5%
---------------------------------------------
Automobiles and trucks 408,395 225,110 6.7%
---------------------------------------------
Mobile equipment 5,849,218 5,661,683 4.9%
---------------------------------------------
Processing equipment 14,919,173 13,479,808 3.4%
---------------------------------------------
Locomotives and railroad carts 3,079,649 -- --
---------------------------------------------
32,795,810 27,108,655
Less-Accumulated depreciation
and amortization (11,488,295) (10,550,515)
---------------------------------------------
21,307,515 16,558,140
---------------------------------------------
Construction in progress 1,735,657 1,556,619
---------------------------------------------
$ 23,043,172 $18,114,759
=============================================
<PAGE>
- ------
20
As Ferrocarril Mexicano, S.A. de C.V. was in its preoperating stage as of
December 31, 1997, no depreciation was recorded for its fixed assets.
7. Concession titles:
Ferrocarril Mexicano, S.A. de C.V., has the following concession titles, which
represent the difference between the net value of assets acquired and the amount
paid to the Federal Government.
Concession Title Amount
Via troncal del Pacifico-Norte $ 1,131,923
-------------------
Via corta Ojinaga-Topolobampo 2,847
-------------------
$ 1,134,770
===================
The fixed asset, that belong so the Federal Government, are registered in the
Concession Titles. Such assets include, sidewalks, crossroads, stations,
terminals, offices, track roofs, rails and other materials, such as rail-logs,
fences, signs, elevated structures, bridges, etc. These goods should be
classified as fixed assets at the replacement cost determined by independent
appraisers. Ferrocarril Mexicano, S.A. de C.V. does not have such replacement
cost to date, therefore, these assets comprise the concession titles.
The main characteristics of the concession titles are the following:
a) The general railroad tracks, which communicate to the main tracks of the
Pacifico-Norte and Ojinaga-Topolobampo tracks.
b) The assets that pertain to public domain, such as providing public cargo
transportation.
c) Auxiliary services (cargo terminals, supply centers for railroad
equipment, maintenance shops, connection and change).
8. Stockholders' equity:
Capital stock-
During a General Ordinary Stockholders' Meeting held on April 30, 1997, the
stockholders approved a $179,171 cash dividend payment, whose restated amount is
$194,239.
During a Board of Directors' Meeting held on July 11, 1997, acquisition of up to
20,701,462 Class I, Series "B" and "L" shares representing the capital stock of
Grupo Mexico, S.A. de C.V. was approved. Price per share would be paid at
current market price on the date of the transaction.
As December 31, 1997, the Company acquired 14,134,000 of its own shares at a
restated value of $376,927. In accordance with the Law on Market Value, the
value of the acquired shares (own shares) should be decreased from the capital
stock up to an amount equivalent to its theorical value. The theorical amount is
obtained from dividing the capital stock paid among the number of shares issued
from the Company, which amount to $66,172 (nominal value). The remaining was
deducted from the Reserve of Purchase of Own Shares.
At December 31, 1997, capital stock is represented by common nominative Class I
shares without par value, representing the minimum capital stock, as follows:
<PAGE>
Number of Nominal
Shares Amount
Series "B" Class I 575,040,613 $3,012,173
Pending of subscription and payment (929,836) (11,623)
-------------------------------------
574,110,777 3,000,550
Series "L" Class I 115,008,122 225,789
-------------------------------------
689,118,899 3,226,339
Purchase of own shares (14,134,000) (66,172)
-------------------------------------
674,984,899 $3,160,167
=====================================
Series "B" will consist of common voting shares which at any time may represent
100% of the total common voting shares and which at no time shall represent less
than 75% of the capital stock. At least 51% of Series "B" shares must be
subscribed by mexican individuals or companies.
Series "L" has restricted voting rights and other limited corporate rights and
may not represent more than 25% of capital stock. There are no ownership
restrictions for these shares.
The variable capital stock has a limit of up to 10 times the amount of the fixed
capital stock.
In the event capital is reduced, the excess of restated paid-in capital will be
taxed in accordance with procedures established by income tax laws.
Retained earnings-
During a General Ordinary Stockholders' Meeting held on April 28, 1995 the
stockholders approved the creation of a reserve for purchase of treasury stock
for $135,872 (at nominal value) by debiting retained earnings and subject to the
payment of dividends in the same amount by the Company's subsidiaries. During a
General Ordinary Stockholders' Meeting held on April 30, 1996, the stockholders
superseded the above resolution and approved $619,413 (at nominal value) as a
the reserve for the purchase of treasury stock.
Dividends are not subject to income taxes, as long as they are paid from "net
taxable income" (UFIN). Dividends not paid from UFIN are subject to a tax of
34%.
The annual net income of each Company is subject to the legal requirement that
5% thereof be transferred to a legal reserve each year until the reserve equals
20% of capital stock. At December 31, 1997, the nominal amount of this reserve
is $12,530, and is included within the retained earnings caption. This reserve
may not be distributed to stockholders during the existence of the Company,
except in the form of a stock dividend.
9. Tax environment:
Income and asset tax regulations-
The Companies are subject to income and asset taxes. Income taxes are computed
taking into consideration the taxable and deductible effects of inflation, such
as depreciation calculated on restated asset values and the deduction of
purchases in place of cost of sales, which permit the deduction of current
costs, and taxable income is increased or reduced by the effects of inflation on
certain monetary assets and liabilities through the inflationary component,
which is similar to the result on monetary position. Income taxes are calculated
in terms of Mexican pesos when the transactions occurred and not in terms of
currency as of the end of the period. The income tax rate in effect is 34% over
taxable income.
<PAGE>
- ------
22
The asset tax is computed at an annual rate of 1.8% of the average of the
majority of restated assets less certain liabilities, and the tax is paid only
to the extent that is exceeds the income taxes of the year. Any required payment
of asset taxes is creditable against the excess of income taxes over asset tax
of the following ten years.
Taxable Income-
The principal items which affect the determination of taxable income are
differences between purchases and cost of sales, recognition of the effects of
inflation on depreciation and on monetary assess and liabilities through the
inflationary component, which differ for accounting and tax purposes.
The Company obtained authorization from the Ministry of Finance to file a
consolidated income and asses tax. The resulting benefit is recognized by Grupo
Mexico, S.A. de C.V. Employee profit sharing is computed on the individual
income of each of the subsidiary companies.
Tax incentives-
On November 1, 1995, pursuant to the resolutions of the Economic Recovery
Alliance ("Alianza para la Recuperacion Economica" "ARE"), a decree was issued
whereby certain taxpayers are exempt from the payment of certain federal taxes
and are granted certain tax incentives. Article 2 of the decree establishes an
option to immediately deduct up to 100% of investments made in new fixed assets
(except automobiles) during 1997 and the period from November 1, 1995 to
December 31, 1996, using the calculations established in the decree. On December
24, 1996 a new decree was issued, under which companies may immediately deduct
up so 62.5% of the fixed assets acquired during 1997. The subsidiaries took
advantage of this benefits, resulting in a decrease of taxable income and asset
tax of approximately $682,156 and $1,070,681 respectively, which was reflected
in the provision as income and asset taxes. In the following years, these
benefits will reverse as book depredation of fixed assets is charged against
income. As of December 31, 1997 the Company has a carryforward of $294,736 which
my be applied against tax provisions related to the asset tax for the next five
years.
The tax authorities have established the tax laws applicable to the companies,
which participate in providing railroad services in Mexico. As such, the
subsidiary Ferrocarril Mexicano, will enjoy the following tax benefits:
o The value of the concession will be amortized at a 15% annual tax rate.
o The Company will be allowed to amortize its tax loss carryforwards until
these losses are utilized, the concession expires or the Company
liquidated, whichever comes first.
o In accordance with Article 51 of the Income Tax Law, the expenses the
Company incurs in the construction of railroad tracks will be deductible
immediately upon incurrence.
o The tax rate of 5%, instead of 21% will be applied to payments issued to
foreign residents, for the use or benefit of locomotives and railroad
carts.
o The locomotives and railroad cart expenses may be deductible immediately
upon incurrence, even when these are used outside Mexico or in
metropolitan areas.
Recurring temporary differences-
The net amount of recurring temporary differences of $80,479, which do not
result in recording deferred income taxes and employee profit sharing, will
become deductible upon reversal. This amount does not include items arising from
the differences between the accounting and tax bases of inventories or property
and equipment.
10. Information by segment:
The Company operates in two types of industries within the country's economy,
which is the mine-steel industry and the
<PAGE>
railroad transportation of cargo, as it is engaged in the exploration, use, and
benefits of mineral metals and non-metals, and multi-use railroad services.
The most significant data by business segment is as follows:
Mine and
Steel
Industry Railroad
Net sales $10,423,976 $ --
----------------------------------
Net income (loss), net $ 2,302,534 $ (4,127)
----------------------------------
Total assets $29,691,409 $4,651,785
----------------------------------
11. Contingencies:
The Company is involved in various legal proceedings incidental to its
operations, but it does not believe that decisions in any such proceedings
would, Individually or in the aggregate, have a material adverse effect on its
financial position or results of operations.
12. Commitments:
Ferrocarril Mexicano, S.A. de C.V. assumed the commitments for the maintenance
contracts that Ferrocarriles Nacionales de Mexico had with the companies GIMCO,
S.A. de C.V. y MK Gain, S.A. de C.V. The primary characteristics of these
contracts are as follows:
a) The objective of the contracts is to provide maintenance services, repair and
maintenance of traction/towing equipment in the Torreon, Chihuahua and Acambaro
repair shops. The life of these contracts is 10 years, beginning 1994, which may
be renewed with an agreement among the companies.
b) Ferrocarril Mexicano, S.A. de C.V. has the right to cancel the maintenance
contract with one or both of the companies. Should the Company cancel, the
Company would have to pay a penalty fee of 95 million U.S. dollars as of
December 31.1997. The Ojinaga-Topolobampo track would have a penalty fee of
approximately 23 million U.S. dollars.
13. Subsequent event:
On March 31, 1998, the Company, through its subsidiary Grupo Minero Mexico, S.A.
de C.V. received 495.4 million U.S. dollars, net of commissions, representing
proceeds from a 500 million U.S. dollars, placement in the international market
of guaranteed debt notes, consisting of
Amount in
Thousands of
Series U.S. Dollars Interest Rate Maturity
A 375,000 8.25% 2008
-------------------------------------------------------------
B 125,000 9.25% 2028
-------------------------------------------------------------
500,000
=============================================================
Proceeds ware used to make early payment of a 420.4 million U.S. dollars
long-term loan, including principal and interest, with ING. Baring (U.S.)
Capital Corporation, Chase Securities, Inc. and Banque Paribas (made up of 127
million U.S. dollars received in 1997 and 293 million U.S. dollars received in
1998, see Note 5). As December 31, 1997, the consolidated long-term debt remains
unchanged.
<PAGE>
GRUPO MEXICO, S.A. DE C.V. AND SUBSIDIARIES
February 20, 1998
To the Stockholders of
Grupo Mexico, S.A. de C.V.
In my capacity as Examiner and in compliance with Article 166 of the
General Law on Mercantile Societies and the Companys bylaws, I submit my
report regarding the truthfulness reasonableness and sufficiency of the
information presented to you by the Board of Directors, concerning the
Companys operations for the year ended December 31, 1997.
I have attended the meetings of the Board of Directors and have obtained
from the corporate officers all the information relative to operations,
documents and records that I deemed necessary.
Also, I have reviewed the individual and consolidated balance sheets of
the Company as of December 31, 1997 and the related statements of income,
stockholders' equity and changes in financial position for the year then
ended, which are submitted for your information and approval. In
submitting this report, I have also relied upon the reports on such
financial statements issued by Ruiz, Urquiza y Cia., S.C. (Arthur
Andersen), independent auditors of the Company.
As explained in Note 3 to the accompanying financial statements, effective
January 1, 1997 the Company adopted the provisions established in the
Fifth Amendment to Bulletin B-10 for the restatement of fixed assets and
Circular 50 for the interest rate applied in valuing its labor
liabilities.
In my opinion, the accounting and information criteria and policies
followed by the Company and considered by Management in the preparation of
the financial information presented by them are appropriate and sufficient
and were applied on a basis consistent with that of the preceding year,
therefore the information presented by the officers reflects truthfully,
fairly and sufficiently the financial position as of December 31, 1997,
and the results of the operations and the changes in their financial
position of Grupo Mexico, S.A. de C.V. for the year then ended, in
conformity with generally accepted accounting principles.
/s/ Rolando Vega Iniguez
Rolando Vega Iniguez
Examiner
<PAGE>
Exhibit (g)(2)
[GRAPHIC OMITTED]
GRUPO MEXICO, S.A. DE C.V. AND SUBSIDIARIES
TRANSLATION OF FINANCIAL STATEMENTS ORIGINALLY ISSUED IN SPANISH
CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 1998 AND 1997
EXPRESSED IN TERMS OF THE PURCHASING POWER OF MEXICAN PESOS AS OF
DECEMBER 31, 1998 TOGETHER WITH AUDITORS' REPORT
[LOGO]
GRUPO MEXICO
<PAGE>
GRUPO MEXICO, S.A. DE C.V. AND SUBSIDIARIES
Translation of a report originally issued in Spanish
(See explanation added to the notes to financial statements)
To the Stockholders of
Grupo Mexico, S.A. de C.V.:
We have audited the accompanying consolidated balance sheets of GRUPO MEXICO,
S.A. DE C.V. AND SUBSIDIARIES (collectively referred to as the "Company") as of
December 31, 1998 and 1997, and the related consolidated statements of income,
stockholders' equity and changes in financial position for the years then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We did not audit the financial statements of Grupo Ferroviario Mexicano, S.A. de
C.V. and Subsidiaries, which statements reflect total assets of 17% and 14% in
1998 and 1997, respectively, and total revenues of 26% in 1998 of the related
consolidated totals. Those statements were audited by other auditors whose
report has been furnished to us, and our opinion, insofar as it relates to the
amounts included for those entities, is based solely on the report of the other
auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement and that they are prepared in accordance with the accounting
principles generally accepted in Mexico. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management as well as evaluating the overall
financial statement presentation. We believe that our audits and the report of
other auditors provide a reasonable basis for our opinion.
As discussed in Note 1 to the financial statements, on November 19, 1998 workers
at the Mexicano de Cananea, S.A. de C.V. subsidiary initiated a strike that
forced the suspension of operations until February 9, 1999. As part of the
negotiations to terminate the strike, the Company agreed to the closure of the
Cananea Copper Smelter and three departments, as well a reduction of workers at
the Cananea mine. The costs and expenses incurred from the date of the strike
through December 31, 1998 amounting to $62,839 thousand are presented as an
unusual item in the statement of income. The difference between the book value
and the net realizable value of the fixed assets of the closed operations, plus
the severance payments to personnel of the closed operating units, which
amounted to a total of $267,487 thousand, are shown as a loss from discontinued
operation in the accompanying statement of income.
In our opinion, based on our audits and the report of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Grupo Mexico, S.A. de C.V. and
Subsidiaries as of December 31, 1998 and 1997, and the results of their
operations, the changes in their stockholders' equity and the changes in their
financial position for the years then ended, in accordance with the accounting
principles generally accepted in Mexico.
/s/ Arthur Andersen
Arthur Andersen
February 26, 1999
(except with respect to the
subsequent event discussed
in Note 15, as to which the
date is April 7, 1999)
1
<PAGE>
GRUPO MEXICO, S.A. DE C.V. AND SUBSIDIARIES
Translation of financial statements originally issued in Spanish
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1998 AND 1997
EXPRESSED IN TERMS OF THE PURCHASING POWER OF MEXICAN PESOS
AS OF DECEMBER 31, 1998
(Stated in thousands of Mexican pesos)
ASSETS
1998 1997
Current Assets:
Cash and marketable securities $ 6,589,866 $ 4,716,505
Notes and accounts receivable-
Trade, net 1,379,985 1,210,921
- --------------------------------------------------------------------------------
Recoverable taxes 601,863 856,683
- --------------------------------------------------------------------------------
Other 126,106 218,559
- --------------------------------------------------------------------------------
2,107,954 2,286,163
Inventories of primary and secondary
metals and byproducts 1,296,201 1,363,423
Materials and supplies 1,656,097 1,178,018
Prepaid expenses and other 8,083 3,459
- --------------------------------------------------------------------------------
Total current assets 11,658,201 9,547,568
PROPERTY AND EQUIPMENT, net 27,973,481 27,411,972
CONCESSION TITLES, net 1,323,509 1,345,837
INVESTMENTS IN SHARES OF ASSOCIATED
AND OTHER UNCONSOLIDATED
COMPANIES 86,281 82,101
GOODWILL, net 138,837 154,334
OTHER ASSETS:
Deferred charges, net 484,816 371,637
- --------------------------------------------------------------------------------
Share trust 1,216,535 1,817,579
- --------------------------------------------------------------------------------
1,701,351 2,189,216
$42,881,660 $40,731,028
================================================================================
The accompanying notes are an integral part of these consolidated balance
sheets.
2
<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY
1998 1997
Current Liabilities:
Debt with Federal Government $ -- $ 3,733,032
- --------------------------------------------------------------------------------
Notes and interest payable 649,726 235,608
- --------------------------------------------------------------------------------
Accounts payable and accrued liabilities 1,755,273 968,845
- --------------------------------------------------------------------------------
Income taxes, asset taxes and
employee profit sharing 377,239 343,144
- --------------------------------------------------------------------------------
Total current liabilities 2,782,238 5,280,629
LONG-TERM DEBT 12,345,862 7,642,298
VOLUNTARY RETIREMENT, PENSION AND
SENIORITY PREMIUM RESERVE 25,851 59,344
NEGATIVE GOODWILL 72,068 86,475
- --------------------------------------------------------------------------------
Total liabilities 15,226,019 13,068,746
STOCKHOLDERS' EQUITY:
Capital stock 8,527,046 8,678,508
- --------------------------------------------------------------------------------
Reserve for purchase of own shares 1,021,655 607,084
- --------------------------------------------------------------------------------
Retained earnings 27,559,588 28,344,420
- --------------------------------------------------------------------------------
Cumulative effect of restatement (12,044,017) (11,324,544)
- --------------------------------------------------------------------------------
25,064,272 26,305,468
Minority interest 2,591,369 1,356,814
- --------------------------------------------------------------------------------
Total stockholders' equity 27,655,641 27,662,282
$ 42,881,660 $ 40,731,028
================================================================================
3
<PAGE>
GRUPO MEXICO, S.A. DE C.V. AND SUBSIDIARIES
Translation of financial statements originally issued in Spanish
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
EXPRESSED IN TERMS OF THE PURCHASING POWER OF MEXICAN PESOS
AS OF DECEMBER 31, 1998
(Stated in thousands of Mexican pesos, except earnings (loss) per share data)
1998 1997
Net sales $ 10,505,530 $ 12,362,835
- -------------------------------------------------------------------------------
Service income 3,636,681 --
- -------------------------------------------------------------------------------
14,142,211 12,362,835
Cost of sales 7,122,587 7,729,660
- -------------------------------------------------------------------------------
Operating cost 2,279,456 --
- -------------------------------------------------------------------------------
9,402,043 7,729,660
Gross profit 4,740,168 4,633,175
EXPENSES:
Administrative 550,168 381,113
- -------------------------------------------------------------------------------
Depreciation 1,672,464 1,186,404
- -------------------------------------------------------------------------------
2,222,632 1,567,517
- -------------------------------------------------------------------------------
Operating income 2,517,536 3,065,658
INTEGRAL RESULT OF FINANCING:
Interest expense (income), net 635,568 (308,617)
- -------------------------------------------------------------------------------
Foreign exchange loss, net 1,301,003 53,731
- -------------------------------------------------------------------------------
(Gain) loss on monetary position (806,024) 165,275
- -------------------------------------------------------------------------------
1,130,547 (89,611)
OTHER INCOME, net 10,289 58,737
- --------------------------------------------------------------------------------
Income from continuing operations before
unusual item and provisions 1,397,278 3,214,006
4
<PAGE>
1998 1997
UNUSUAL ITEM 62,839 --
PROVISIONS FOR:
Income taxes 151,535 144,281
- --------------------------------------------------------------------------------
Asset taxes 76,925 31,666
- --------------------------------------------------------------------------------
Employee profit sharing 239,356 312,148
- --------------------------------------------------------------------------------
Utilization of tax loss carryforwards (16,546)
- --------------------------------------------------------------------------------
Recovery of income taxes paid in prior years
in excess of asset taxes (137,060) --
- --------------------------------------------------------------------------------
314,210 488,095
- --------------------------------------------------------------------------------
Income from continuing operations 1,020,229 2,725,911
LOSS FROM DISCONTINUED OPERATION 267,487 --
- --------------------------------------------------------------------------------
Consolidated net income for the year $ 752,742 $ 2,725,911
================================================================================
CONSOLIDATED NET INCOME APPLICABLE TO:
Majority interest $ 531,701 $ 2,631,662
- --------------------------------------------------------------------------------
Minority interest 221,041 94,249
- --------------------------------------------------------------------------------
$ 752,742 $ 2,725,911
================================================================================
Earnings per share from continuing operations
without unusual item $ 1.65 $ 3.97
================================================================================
Loss per share from unusual item (0.09) --
================================================================================
Loss per share from discontinued operation (0.41) --
================================================================================
Earnings per share from net income 1.15 3.97
================================================================================
Weighted average number of shares outstanding
(in thousands) 653,987 687,388
================================================================================
The accompanying notes are an integral part of these consolidated statements.
5
<PAGE>
GRUPO MEXICO, S.A. DE C.V. AND SUBSIDIARIES
Translation of financial statements originally issued in Spanish
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
EXPRESSED IN TERMS OF THE PURCHASING POWER OF MEXICAN PESOS AS OF
DECEMBER 31, 1998
(Stated in thousands of Mexican pesos)
<TABLE>
<CAPTION>
Capital Stock
-----------------------------------------
Nominal
----------------------------
Unsubscribed
and
Subscribed Unpaid Restatement
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BALANCES AT DECEMBER 31, 1996 $ 3,237,962 $ (11,623) $ 5,532,150
Dividends paid -- -- --
- ---------------------------------------------------------------------------------------------
Purchase of own shares (66,172) -- (13,809)
- ---------------------------------------------------------------------------------------------
Changes in equity -- -- --
- ---------------------------------------------------------------------------------------------
BALANCES AT DECEMBER 31, 1997 3,171,790 (11,623) 5,518,341
Cancellation of unsubscribed and unpaid
capital stock (11,623) 11,623 --
- ---------------------------------------------------------------------------------------------
Dividends paid -- -- --
- ---------------------------------------------------------------------------------------------
Increase in reserve for purchase of own shares -- -- --
- ---------------------------------------------------------------------------------------------
Purchase of own shares (155,567) -- (19,705)
- ---------------------------------------------------------------------------------------------
Reissuance of own shares 19,743 -- 4,067
- ---------------------------------------------------------------------------------------------
Changes in equity -- -- --
- ---------------------------------------------------------------------------------------------
BALANCES AT DECEMBER 31, 1998 $ 3,024,343 $ -- $ 5,502,703
=============================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
6
<PAGE>
Reserve for Cumulative Total
Purchase of Retained Effect of Minority Stockholders'
Own Shares Earnings Restatement Interest Equity
- --------------------------------------------------------------------------------
$ 974,138 $ 25,943,125 $(11,862,703) $ 2,065,211 $ 25,878,260
-- (230,367) -- -- (230,367)
- --------------------------------------------------------------------------------
(367,054) -- -- -- (447,035)
- --------------------------------------------------------------------------------
-- 2,631,662 538,159 (708,397) 2,461,424
- --------------------------------------------------------------------------------
607,084 28,344,420 (11,324,544) 1,356,814 27,662,282
-- -- -- -- --
- --------------------------------------------------------------------------------
-- (290,472) -- -- (290,472)
- --------------------------------------------------------------------------------
1,005,480 (1,005,480) -- -- --
- --------------------------------------------------------------------------------
(719,780) -- -- -- (895,052)
- --------------------------------------------------------------------------------
128,871 (20,581) -- -- 132,100
- --------------------------------------------------------------------------------
-- 531,701 (719,473) 1,234,555 1,046,783
- --------------------------------------------------------------------------------
$ 1,021,655 $ 27,559,588 $(12,044,017) $ 2,591,369 $ 27,655,641
================================================================================
7
<PAGE>
GRUPO MEXICO, S.A. DE C.V. AND SUBSIDIARIES
Translation of financial statements originally issued in Spanish
CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
EXPRESSED IN TERMS OF THE PURCHASING POWER OF MEXICAN PESOS AS OF
DECEMBER 31, 1998
(Stated in thousands of Mexican pesos)
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
OPERATIONS:
Results-
Income from continuing operations $ 1,020,229 $ 2,725,911
Items applied to results that did not require resources-
Provisions for voluntary retirement, pension and
seniority premiums 10,210 6,654
- ---------------------------------------------------------------------------------------
Depreciation 1,672,464 1,186,404
- ---------------------------------------------------------------------------------------
Amortization of deferred charges 50,064 15,457
- ---------------------------------------------------------------------------------------
Amortization of concession titles 22,328 --
- ---------------------------------------------------------------------------------------
Amortization of goodwill and negative goodwill, net 1,090 --
- ---------------------------------------------------------------------------------------
Resources obtained from results 2,776,385 3,934,426
Loss from discontinued operation (267,487) --
- ---------------------------------------------------------------------------------------
Resources provided from results after
loss from discontinued operation 2,508,898 3,934,426
Resources provided by (used for) working capital 1,286,828 (355,340)
- ---------------------------------------------------------------------------------------
Resources provided by operating activities 3,795,726 3,579,086
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
FINANCING:
Debt with Federal Government (3,733,032) 3,733,032
- -----------------------------------------------------------------------------------------
Dividends paid (290,472) (230,367)
- -----------------------------------------------------------------------------------------
Purchase of own shares (895,052) (447,035)
- -----------------------------------------------------------------------------------------
Sale of own shares 132,100 --
- -----------------------------------------------------------------------------------------
Increase in long-term debt in real terms 6,353,171 1,020,501
- -----------------------------------------------------------------------------------------
Effect of variation of long-term debt in constant pesos (1,235,489) (1,077,298)
- -----------------------------------------------------------------------------------------
Negative goodwill -- 86,474
- -----------------------------------------------------------------------------------------
Resources provided by financing activities 331,226 3,085,307
- -----------------------------------------------------------------------------------------
INVESTMENTS:
Additions to property and equipment, less
net book value of retirements (2,294,711) (6,407,026)
- -----------------------------------------------------------------------------------------
Net increase in investments in shares of associated
and other unconsolidated companies (4,180) (1,223,676)
- -----------------------------------------------------------------------------------------
Net decrease (increase) in other assets 45,300 (1,552,740)
- -----------------------------------------------------------------------------------------
Concession titles -- (1,345,837)
- -----------------------------------------------------------------------------------------
Goodwill -- (154,334)
- -----------------------------------------------------------------------------------------
Resources used in investing activities (2,253,591) (10,683,613)
- -----------------------------------------------------------------------------------------
Increase (decrease) in cash and marketable securities 1,873,361 (4,019,220)
Cash and marketable securities at beginning of year 4,716,505 8,735,725
- -----------------------------------------------------------------------------------------
Cash and marketable securities at end of year $ 6,589,866 $ 4,716,505
=========================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
9
<PAGE>
GRUPO MEXICO, S.A. DE C.V. AND SUBSIDIARIES
Translation of financial statements originally issued in Spanish
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1998 AND 1997
EXPRESSED IN TERMS OF THE PURCHASING POWER
OF MEXICAN PESOS AS OF DECEMBER 31, 1998
(Stated in thousands of Mexican pesos)
Explanation added for translation into English:
The accompanying financial statements have been translated into English for use
outside of Mexico. These financial statements are presented on the basis of
accounting principles generally accepted in Mexico. Certain accounting practices
applied by the Company that conform with accounting principles generally
accepted in Mexico may not conform with the accounting principles generally
accepted in the country of use.
1. COMPANY ACTIVITIES AND SIGNIFICANT EVENTS:
The operating companies making up Grupo Mexico, S.A. de C.V. and Subsidiaries
("the Company") are in the metallurgical mining industry. They engage in the
exploring, mining and processing of metallic and nonmetallic minerals, the
mining of coal and provide multi-use and freight railroad services.
Acquisition of "Ferrocarril Mexicano, S.A. de C.V." (formerly Ferrocarril
Pacifico Norte, S.A. de C.V.):
After article 28 of the Political Constitution of the United Mexican States was
amended in March 1995, the legal restructuring of the Mexican Railroad System
permitted the participation of private investors in this industry.
On June 26, 1997 Grupo Ferroviario Mexicano, S.A. de C.V ("GFM") (a 74%
subsidiary of the Company) acquired 100% of Ferrocarril Mexicano, S.A. de C.V.'s
("Ferromex") stock (formerly Ferrocarril Pacifico Norte, S.A. de C.V). The
guidelines for the privatization of the Mexican Railroad System provide that
each private company that will operate a portion the railroad system will also
own 25% of the shares of Terminal Ferroviaria del Valle de Mexico, S.A. de C.V.
("T.V.F.M"). This investment is reflected under investments in shares of
associated and other unconsolidated companies in the accompanying balance sheet.
Delivery and acceptance of Ferromex was carried out in three stages, as follows:
- - Delivery of shares -- The Federal Government delivered the shares to
G.F.M. in proportion to the amounts paid to settle the purchase price.
- - Delivery of the assets covered by the sale agreements, according to the
terms established therein.
- - Delivery of the railroad and other assets covered by the concession
titles.
On February 19, 1998 the Company settled the purchase price, and delivery and
acceptance of Ferromex was formalized in a minute that described the assets that
were transferred, including the railroads and other assets covered by the
concession titles. The term for the exclusive right to render freight services
is 30 years, except for the right of way and pulling rights that have a 50-year
term renewable for another 50 years.
Labor strike at Mexicana de Cananea, S.A. de C.V.
On November 19, 1998, the union of Mexicana de Cananea, S.A. de C.V.
("Mexcananea") went on strike. Since, in the opinion of management the strike
was illegal, on November 24, 1998 Mexcananea applied for termination of the
collective bargaining agreement and all individual and collective contractual
labor relationships before the Junta Federal de Conciliacion y Arbitraje
(Federal
10
<PAGE>
Reconciliation and Arbitration Board). On February 9, 1999, the strike was
resolved before the Coordinacion General de Funcionarios Conciliadores de la
Secretaria de Trabajo (General Arbitrators Unit of the Labor Secretary) and both
parties agreed to the following:
- - Mexcananea recognizes the validity and existence of the collective
bargaining agreement executed with the union and waives the termination
suit filed before the Junta Federal de Conciliacion y Arbitraje.
- - In view of the fact that Mexcananea must close down the smelting operation
for environmental reasons, and because of the completion of the tailing
dam, the automation of warehouses, the delivery of the purified water
facilities and their operation to the local government, and the prevailing
economic and metal market conditions, both parties acknowledged the need
to reduce the number of unionized workers in the three departments
mentioned above, and at the smelting and other areas, who would retire
voluntarily or accept to be terminated under the terms established in the
collective bargaining agreement. Union workers that did not volunteer for
contractual termination were relocated to other operating areas of
Mexcananea to prevent affecting the normal operation of the areas that are
still operating. Also, it was agreed that the aggregate number of
terminated and voluntarily terminated workers of the other areas should
range between 600 and 700.
- - Mexcananea and the union agreed to comply with each and every term of the
provisions established in the Productivity Agreement dated January 27,
1995.
- - Mexcananea agreed to pay the productivity bonus through June 1998.
Costs and expenses incurred from the date of the strike through December 31,
1998, consisting principally of depreciation, fixed costs and non-unionized
personnel salaries and wages amounting to $62,839 are shown as an unusual item
in the accompanying consolidated statement of income.
The difference between the book and net realizable values of fixed assets
retired as a result of the above reasons, as well as personnel severance
payments, amounting to $267,487 were recognized in the accompanying consolidated
statement of income as a loss from discontinued operation, net of the related
income taxes and employee profit sharing.
Start-up of copper refining operation-
As part of the program to expand the operations of Mexicana de Cobre, S.A. de
C.V. ("Mexcobre"), early in 1998 the refining of copper anodes through
hydro-metallurgic processes was placed in operation, as well as the copper rod
plant. These processes generate a significant accumulation and recovery of gold
and silver content.
2. BASIS OF CONSOLIDATION:
The consolidated financial statements include the financial statements of Grupo
Mexico, S.A. de C.V. ("GMEXICO", holding company) and those of its subsidiaries,
Grupo Minero Mexico, S.A. de C.V. ("G.M.M.", 98.85% owned), Grupo Ferroviario
Mexicano, S.A. de C.V. ("G.F.M.", 74% owned) and Lineas Ferroviarias de Mexico,
S.A. de C.V. ("L.F.M.", 100% owned). Both G.M.M. and G.F.M. are, in turn,
sub-holding companies and consolidate their financial statements with those of
their subsidiaries, as follows:
11
<PAGE>
Percentage of
Grupo Minero Mexico, S.A. de C.V. ("G.M.M.") Ownership
- Mexicana de Cobre, S.A. de C.V. and Subsidiaries
("Mexcobre") 96.43%
-------------------------------------------------------------------
- Industrial Minera Mexico, S.A. de C.V. and
Subsidiaries ("Immsa") 100.00%
-------------------------------------------------------------------
- Minerales Metalicos del Norte, S.A. ("Mimenosa") 100.00%
-------------------------------------------------------------------
- Servicios de Apoyo Administrativo, S.A. de C.V
("Saasa") 100.00%
-------------------------------------------------------------------
- Mexicana de Cananea, S.A. de C.V. and Subsidiaries
("Mexcananea") 98.49%
-------------------------------------------------------------------
- Mexico Compania Inmobiliaria, S.A. ("Mexci") 100.00%
-------------------------------------------------------------------
- Minerales y Minas Mexicanas, S.A. de C.V. ("M.M.M.") 100.00%
-------------------------------------------------------------------
- Western Copper Supplies, Inc. ("W.C.S.") 100.00%
-------------------------------------------------------------------
- Minera Mexico Internacional, Inc. ("M.M.I.") 100.00%
-------------------------------------------------------------------
- Mexicana del Arco, S.A. de C.V ("Mexarco") 100.00%
-------------------------------------------------------------------
- Transportes Mineros Mexico, S.A. de C.V. ("T.M.M.") 100.00%
-------------------------------------------------------------------
Grupo Ferroviario Mexicano, S.A. de C.V. ("G.F.M.")
- Ferrocarril Mexicano, S.A. de C.V. ("Ferromex") 100.00%
-------------------------------------------------------------------
- GFM Servicios Administrativos, S.A. de C.V.
("G.F.M.S.A.") 100.00%
-------------------------------------------------------------------
The consolidated financial statements include the accounts of the Company and
its subsidiaries, all under the same administration. All significant
intercompany balances and transactions have been eliminated in consolidation.
The financial statements of foreign subsidiaries whose operations are an
integral part of the Company are translated as follows: monetary items at the
exchange rate prevailing at yearend; nonmonetary items, stockholders' equity and
income and expenses at the exchange rate prevailing at the date the transactions
occurred. The resulting Mexican pesos are restated using factors derived from
the National Consumer Price Index (NCPI).
Equity in the results and changes in the stockholders' equity of subsidiaries
and the associated companies that were acquired or sold during the year were
included in the financial statements from or up to the date of the transaction,
and were restated in terms of the purchasing power of the Mexican peso as of the
latest yearend.
3. SIGNIFICANT ACCOUNTING POLICIES:
The accounting policies followed by the Company are in conformity with the
accounting principles generally accepted in Mexico, which require that
management make certain estimates and use certain assumptions to determine the
valuation of some of the items included in the financial statements and make the
required disclosures therein. While the estimates and assumptions used may
differ from their final effect, management believes they were adequate under the
circumstances.
Change in accounting policies-
In 1998 the Company adopted the financial statement translation procedure for
integrated foreign subsidiaries according to newly-issued Bulletin B-15, whose
effect is the translation of monetary items at the exchange rate prevailing at
yearend; nonmonetary items, stockholders' equity and income and expenses at the
exchange rate prevailing at the date the transactions occurred. The resulting
pesos are restated using factors derived from the NCPI.
12
<PAGE>
Recognition of the effects of inflation in the financial information-
The Company restates all of its financial statements in terms of the purchasing
power of the Mexican peso as of the end of the latest period, thereby
comprehensively recognizing the effects of inflation. Consequently, all
financial statement amounts are comparable, both for the current and the prior
year, since all are stated in terms of Mexican pesos of the same purchasing
power. Accordingly, the financial statements of the prior year have been
restated in terms of Mexican pesos of the latest period. The prior year amounts
presented herein differ from those originally reported in terms of Mexican pesos
of the corresponding year.
To recognize the effects of inflation in terms of Mexican pesos with purchasing
power as of the latest yearend, the procedures were as follows:
- - Balance sheet:
Primary metal inventories are stated at current international metal market
quotations at yearend, less the restated cost of completing the processing
cycle to obtain the finished product. Other inventory items are stated at
their replacement or production cost, without exceeding their net
realizable value.
Property and equipment are restated by applying a factor derived from the
NCPI. Depreciation of restated assets is calculated based on the estimated
useful life of each asset using the straight-line method.
Stockholders' equity and other nonmonetary items are restated using a
factor derived from the NCPI cumulative from the date of contribution or
generation.
- - Statement of income:
Revenues and expenses that are associated with a monetary item (trade
receivables, cash, liabilities, etc.) are restated from the month in which
they arise through yearend, based on factors derived from the NCPI.
The cost of sales of primary metals and other inventories is restated
based on the replacement cost of products consumed, and restated through
yearend based on factors derived from the NCPI.
As indicated above, depreciation is calculated on the restated value of
property and equipment. Depreciation begins when the related assets are
placed in service.
The gain or loss from monetary position, which represents the erosion of
the purchasing power of monetary items caused by inflation, is determined
by applying to net monetary assets or liabilities at the beginning of each
month the factor of inflation derived from the NCPI and is restated
through yearend with the corresponding factor.
- - Other statements:
The statement of changes in financial position presents the changes in
constant Mexican pesos, according to the financial position at prior
yearend, restated to Mexican pesos of the most recent yearend.
The gain or loss resulting from inflation presented in the statement of
stockholders' equity is comprised mainly of accumulated income or loss
resulting from holding nonmonetary assets, which represents the change in
the specific price level of these assets and its effect on the results of
operations compared to the change in the NCPI.
Investments in marketable securities-
Marketable securities are primarily short-term investment funds and bank
deposits valued at market (cost plus accrued interest).
Deferred charges-
Exploration costs incurred before development of a site begins are expensed as
incurred, except for expenditures on specific properties where the presence of a
mineral resource with the potential of being developed into a mine has been
confirmed, in which case the expenditures are capitalized. Mine development
costs are capitalized when proven reserves have been found. Deferred charges
include mainly development expenses of certain subsidiaries that will be
amortized on a straight-line basis over the estimated useful lives of the
corresponding proven ore reserves and preoperating expenses incurred by
Ferromex, which will be amortized over a period of 5 years, beginning in March,
1998.
13
<PAGE>
Labor liabilities-
Under the Federal Labor Law and the collective bargaining agreements, most of
the subsidiaries have contingent liabilities for severance, voluntary
separation, seniority premium and pension payments to employees terminating
under certain circumstances.
The Company records the liabilities from seniority premiums, voluntary
separations and pensions as they accrue, by establishing reserves and
irrevocable trust funds. Contributions to the funds and increases in reserves
are made in accordance with actuarial computations based on the projected unit
credit method, using real interest rates beginning in 1997.
As explained in Note 1, as of December 31, 1998 the actuarial computations of
Mexcananea were adjusted based on the employees that remained with the Company
after payment of employee benefits to voluntarily terminated personnel.
Accordingly, the liability is being accrued, which at present value will cover
the obligation from benefits projected to the estimated retirement date of the
Company's employees, as follows:
1998 1997
Projected benefit obligation (PBO) $ 190,144 $ 224,724
-------------------------------------------------------------------------
Trust assets (212,251) (226,615)
-------------------------------------------------------------------------
Reserves created (25,851) (59,344)
-------------------------------------------------------------------------
(47,958) (61,235)
Additional liability 4,112 31,151
-------------------------------------------------------------------------
Excess of funds and reserves over
projected benefit obligation $ (43,846) $ (30,084)
=========================================================================
At December 31, 1998 and 1997, trust funds and established reserves exceeded the
accumulated benefit obligation (equivalent to the PBO without projecting the
salaries to the date of retirement) by $61,021 and $45,466, respectively.
The cost of employee benefits for each year is as follows:
1998 1997
Service costs of the year $ 17,335 $ 14,145
-------------------------------------------------------------------------
Amortization of past service costs (1,176) (1,905)
-------------------------------------------------------------------------
Interest on projected benefit obligation 9,026 8,488
-------------------------------------------------------------------------
25,185 20,728
Less- Actual return on plan assets (14,975) (14,074)
-------------------------------------------------------------------------
$ 10,210 $ 6,654
=========================================================================
The interest rates used in the actuarial projections are:
1998 1997
Interest rate 5.0% 5.0%
-------------------------------------------------------------------------
Salary increase rate 1.5% 1.5%
-------------------------------------------------------------------------
Investment return rate 7.0% 7.0%
-------------------------------------------------------------------------
Indemnity payments to involuntarily terminated employees are charged to results
in the period in which they are made.
14
<PAGE>
Employee benefits-
G.M.M. has a trust fund, which at December 31, 1998 and 1997 held 46,524,534 and
56,616,857 shares, respectively, representing 7.1% and 8.4% of GMEXICO's capital
stock. These shares are valued at market (presented as share trust in the
accompanying consolidated balance sheets) and are intended for sale to
non-unionized employees and to workers of subsidiaries and operating and
affiliated companies that directly or indirectly are part of the Company.
Income taxes and employee profit sharing-
The Company recognizes by means of the liability method the future effects of
income taxes and employee profit sharing related to the cumulative temporary
differences between accounting and taxable income, which arise from specific
items whose turnaround period can be determined and which are not expected to be
replaced by items of similar nature and amount. Since there are no significant
nonrecurring temporary differences whose turnaround period can be determined and
that are not expected to be replaced by items of similar nature and amount, the
Company has not recorded any deferred income tax or employee profit sharing
assets or liabilities.
Integral result of financing-
The integral result of financing includes all financial revenues and expenses,
such as interest, exchange gains or losses and gains or losses from monetary
position as earned or incurred.
Transactions in foreign currency are recorded at the exchange rate as of the
date of the transaction, and the assets and liabilities in foreign currency are
adjusted to the exchange rate as of yearend, affecting income as part of the
integral result of financing.
The integral result of financing of liabilities assumed in the acquisition of
Ferromex, which was in its preoperating stage as of December 31, 1997, amounted
to $4,758, and was recorded in deferred charges.
Concession titles-
Concession titles granted to Ferromex are recorded at their acquisition cost and
restated based on factors derived from the NCPI. Starting in 1998, concession
titles are amortized using the straight-line method over the concession term of
50 years.
Goodwill and negative goodwill-
Goodwill from the acquisition of Mexcananea and the purchase of 25% of the
shares of T.F.V.M. is being amortized as of 1998, over 10 and 5 years,
respectively the terms over which the benefits from these investments are
expected to be realized.
The negative goodwill from the purchase of Ferromex is being amortized as of
1998, over a 5-year period, which is the term over which this subsidiary is
expected to be integrated into the Company.
Investment in shares of associated and other unconsolidated companies-
These investments are recorded under the equity method. The primary component is
the 25% investment in the capital stock of T.F.V.M.
Earnings (loss) per share-
Earnings (loss) per share have been computed for each period by dividing the
income from continuing operations without unusual item, unusual item and loss
from discontinued operation by the weighted average number of shares
outstanding.
15
<PAGE>
4. FOREIGN CURRENCY TRANSACTIONS AND POSITION:
The consolidated foreign currency position, excluding inventories of primary
metals, as of December 31, 1998 and 1997, expressed in thousands of U.S.
dollars, was as follows:
1998 1997
Current assets 637,192 521,775
--------------------------------------------------------------------
Liabilities-
Current 139,939 81,050
--------------------------------------------------------------------
Long-term 1,242,101 799,077
--------------------------------------------------------------------
1,382,040 880,127
Foreign currency
liability position, net 744,848 358,352
====================================================================
During the years ended December 31, 1998 and 1997, the Company's most
significant transactions in foreign currency stated in thousands of U.S. dollars
were as follows:
1998 1997
Sales 1,149,969 1,317,546
--------------------------------------------------------------------
Purchases 239,479 241,627
--------------------------------------------------------------------
Interest income 52,444 46,221
--------------------------------------------------------------------
Interest expense 99,962 66,516
--------------------------------------------------------------------
Technical assistance 9,493 21,685
--------------------------------------------------------------------
Revenues obtained on currency and
metal hedging, net 21,377 2,128
--------------------------------------------------------------------
Sales prices of almost all of the Company's products are determined by
international market quotations in U.S. dollars.
At December 31, 1998 and 1997, the Mexican peso/U.S. dollar exchange rates were
$9.9395 and $8.064, respectively.
As of February 26, 1999, the date on which these financial statements were
issued, the unaudited foreign exchange position was similar to that at yearend,
and the exchange rate was $9.9836 per U.S. dollar.
16
<PAGE>
5. PROPERTY AND EQUIPMENT:
As of December 31, property and equipment were as follows:
<TABLE>
<CAPTION>
Average
Annual
Depreciation
1998 1997 Rate
------------
<S> <C> <C> <C>
Mining concessions and land $ 1,578,019 $ 1,507,384 4.0%
----------------------------------------------------------------------------
Buildings and improvements 8,875,375 8,703,085 2.5%
----------------------------------------------------------------------------
Automobiles and trucks 522,316 484,356 6.7%
----------------------------------------------------------------------------
Mobile equipment 6,944,564 6,937,173 4.9%
----------------------------------------------------------------------------
Processing equipment 19,025,340 17,694,139 3.4%
----------------------------------------------------------------------------
Locomotives and railroad cars 3,686,770 3,652,464 8.8%
----------------------------------------------------------------------------
40,632,384 38,978,601
Less-Accumulated depreciation (14,830,759) (13,625,118)
----------------------------------------------------------------------------
25,801,625 25,353,483
Construction-in-progress 2,171,856 2,058,489
----------------------------------------------------------------------------
$ 27,973,481 $ 27,411,972
============================================================================
</TABLE>
Given that Ferromex was in its preoperating stage as of December 31, 1997, no
depreciation expense was recorded in 1997.
6. CONCESSION TITLES:
Ferromex was granted the following concession titles, which represent the
difference between the net value of assets acquired and the amount paid to the
Federal Government.
Concession Title Amount
North Pacific railroad track $ 1,342,462
------------------------------------------------------------
Ojinaga-Topolobampo railroad track 3,375
------------------------------------------------------------
1,345,837
Accumulated amortization (22,328)
------------------------------------------------------------
Concession titles, net $ 1,323,509
============================================================
Fixed assets formerly owned by the Federal Government are recorded under
concession titles in the balance sheet. Such assets include railway-platforms,
crossings, stations, terminals, offices, track roofs, rails and other materials,
such as rail logs, fences, signs, elevated structures, bridges, etc. These items
should be classified as fixed assets at their appraised value. However, given
that as of the date of these financial statements, the appraisals are not yet
available to Ferromex, these assets are included in the concession titles.
The concession titles cover the following:
a) The general railroad tracks, which communicate with the mainline of the
North Pacific and the Ojinaga-Topolobampo short-line
b) The right to provide public freight services
17
<PAGE>
c) The right to provide auxiliary services (cargo terminals, supply centers
for railroad equipment, maintenance shops, connections and consolidation)
At the end of the concession period, the railroad tracks and related assets must
be returned to the government in good operating condition at no cost, in
accordance with the respective official rules and regulations. Ferromex agrees
to make the investments established in the "business plan" to be updated every
five years.
In order for cargo transportation and auxiliary services to be duly provided,
the operation of the railroad concessions and other related assets will be
subject to all pertinent laws and regulations.
7. DEFERRED CHARGES:
Deferred charges include the following:
1998 1997
Preoperating expenses $ 310,954 $ 252,367
--------------------------------------------------------------------------
Development expenses 172,362 122,447
--------------------------------------------------------------------------
Debt placement expenses 56,008 --
--------------------------------------------------------------------------
Intangible asset arising from employee benefits 846 10,036
--------------------------------------------------------------------------
Other 3,860 2,245
--------------------------------------------------------------------------
Amortization (59,214) (15,458)
--------------------------------------------------------------------------
$ 484,816 $ 371,637
==========================================================================
8. TAX ENVIRONMENT:
Income and asset tax regulations-
The Company is subject to income and asset taxes. Income taxes are computed
taking into consideration the taxable and deductible effects of inflation, such
as depreciation calculated on restated asset values and the deduction of
purchases in place of cost of sales, which permit the deduction of current
costs, and taxable income is increased or reduced by the effects of inflation on
certain monetary assets and liabilities through the inflationary component,
which is similar to the gain or loss from monetary position. Income taxes are
calculated in terms of Mexican pesos when the transactions occurred and not in
terms of Mexican pesos as of the end of the period. Beginning in 1999, the
income tax rate increased from 34% to 35% with the obligation to pay this tax
each year at a rate of 30% (transitorily 32% in 1999), with the remainder
payable upon distribution of earnings.
Asset taxes are computed at an annual rate of 1.8% on the average of the
majority of restated assets less certain liabilities, and the tax is paid only
to the extent that it exceeds the income taxes of the year. Any required payment
of asset taxes is creditable against the excess of income taxes over asset tax
of the preceding three and following ten years.
18
<PAGE>
Taxable income-
The principal items which affect the determination of taxable income are the
differences between purchases and cost of sales, recognition of the effects of
inflation on depreciation and on monetary assets and liabilities through the
inflationary component, which differ for book and tax purposes.
The Company obtained authorization from the Secretariat of Finance and Public
Credit to file consolidated income and asset tax returns and the corresponding
right to take credit for the tax on assets on a consolidated basis. The
resulting benefit is recognized by GMEXICO. Employee profit sharing is computed
based on the individual income of each subsidiary, rather than on a consolidated
basis.
Tax incentives-
During 1997 and 1996 certain subsidiaries adhered to the benefit of the ARE
(Alliance for Economic Recovery) program whereby they were exempted from payment
of various federal taxes. This program also granted tax incentives, which the
companies benefited from. Thus, in 1997 the taxable income and asset tax basis
were reduced by approximately $809,037, which is reflected in the relative
provisions. These benefits will reverse in the future to the extent to which
book depreciation of fixed assets is reflected as an expense. The remaining
balances of $68,781 and $85,761 as of December 31, 1998, may be applied against
the asset tax of the following 3 and 4 years, respectively.
Tax authorities have established the tax scheme applicable to companies
providing railroad services in Mexico. As such, the subsidiary Ferromex, will
enjoy the following tax benefits:
- - The value of the concession will be amortized at a 15% annual rate.
- - The Company will be allowed to amortize its tax loss carryforwards until
they are fully utilized, the concession expires or the Company is
liquidated, whichever comes first.
- - In accordance with Article 51 of the Income Tax Law, the expenses the
Company incurs in the construction of railroad tracks will be deductible
as incurred, regardless of their being constructed in metropolitan areas.
- - Payments made to foreign residents, for the use or enjoyment of
locomotives and railroad cars will be subject to a tax with holding rate
of 5%, instead of 21%.
- - The Company may take the immediate deduction of investments in locomotives
and railroad cars, regardless of whether these assets are used outside of
Mexico or in metropolitan areas.
Amendments to tax legislation effective January 1, 1999 call for the
cancellation of the immediate deduction of capital investments. Therefore,
Ferromex will confirm with the tax authorities whether these amendments affect
the above tax benefit.
Recurring temporary differences-
The net amount of recurring temporary differences of $152,609, which do not
result in recording deferred income taxes and employee profit sharing, will
become deductible upon reversal. This amount does not include items arising from
the differences between the book and tax bases of inventories or property and
equipment.
19
<PAGE>
9. NOTES AND INTEREST PAYABLE:
The scheduled maturities of notes and interest payable are as follows:
<TABLE>
<CAPTION>
1998 1997
---------------------------- ---------------------------
Thousands Thousands of Thousands Thousands of
of U.S. Mexican of U.S. Mexican
Due in: Dollars Pesos Dollars Pesos
---------------------- ---------------------------- ---------------------------
<S> <C> <C> <C> <C>
1998 24,635 $ 235,608
-------------------------
1999 65,368 $ 649,726 170,889 1,634,363
--------------------------------------------------------
2000 47,691 474,022 43,005 411,299
---------------------------------------------------------------------------------------------
2001 71,840 714,050 36,260 346,790
---------------------------------------------------------------------------------------------
2002 137,945 1,371,106 76,366 730,352
---------------------------------------------------------------------------------------------
2003 257,585 2,560,267 200,628 1,918,790
---------------------------------------------------------------------------------------------
2004 and thereafter 772,263 7,675,909 271,929 2,600,704
---------------------------------------------------------------------------------------------
1,287,324 12,795,354 799,077 7,642,298
Repurchased guaranteed
senior notes pending
placement (45,223) (449,492) -- --
---------------------------------------------------------------------------------------------
1,242,101 12,345,862 799,077 7,642,298
---------------------------------------------------------------------------------------------
1,307,469 $ 12,995,588 823,712 $ 7,877,906
=============================================================================================
</TABLE>
Notes and interest payable consist mainly of the following:
On March 31, 1998, G.M.M. placed guaranteed senior notes in the international
market, in the amount of US$500 million, with interest payable semiannually. The
proceeds from the notes were used to repay approximately US$139 million in
principal and interest relative to a loan granted to G.M.M. by GMEXICO. On
addition granted GMEXICO a US$281 million short-term loan.
The notes are divided into two series, as follows:
Amounts in
Thousands
of U.S. Interest
Series Dollars Rate Payment Due
------ ------- ---- -----------
A 375,000 8.25% April 1, 2008
--------------------------------------------------------------------------
B 125,000 9.25% April 1, 2028
--------------------------------------------------------------------------
500,000
==========================================================================
The senior notes are guaranteed by Mexcobre, Mexcananea, Immsa, Mimenosa and
M.M.I.
During the term of the senior notes the Company must comply with certain
requirements, of which the most significant is:
- - G.M.M. and its subsidiaries shall not assume any debt if, thereafter, the
interest coverage ratio (EBITDA to consolidated interest expense) would be
lower than 2.5 to 1.0.
20
<PAGE>
In September 1998, G.M.M. repurchased a portion of its guaranteed senior notes
as are investments. Total amount paid was US$39,999 thousands which was the fair
value at the date of purchase. It is not managements' intention to redeem these
bonds but to resale them during favorable market conditions. These notes are
reflected as a reduction to long-term debt in the amount of US$45,223 thousands,
which is the market value as of December 31, 1998. At February 26, 1999, date of
these financial statements, the Company has not sold this investment and their
market value was US$42,190 thousands.
On August 8, 1997, GMEXICO obtained a bridge loan from ING Baring (U.S.) Capital
Corporation, Chase Securities Inc. and Banque Paribas, for up to US$420 million,
to fully acquire Ferromex through its subsidiary G.F.M. As of December 31, 1997,
GMEXICO had drawn US$127 million and on February 13, 1998, made a final draw for
the remaining US$293 million. This bridge loan was to be repaid in one lump sum
in August 1999, bearing monthly interest at LIBOR plus 0.875% during the first
year and a half, to reduce to LIBOR plus 0.5% during the following six-month
period. On March 31, 1998, the Company repaid the loan out of the proceeds of
the placement of the US$500 million guaranteed senior notes described above.
On November 20, 1995, G.M.M. made a private offering to place Secured Export
Notes in the amount of US$600 million, of which US$525 million were placed on
November 28, 1995 and US$80 million placed on October 28, 1996, thus prepaying
US$5 million of Series "A" notes. In August 1997, the Company issued new Series
"E" notes, the proceeds of which were used to prepay both Series "A" and Series
"B-2" notes, whereupon the notes were divided into four series, as follows:
<TABLE>
<CAPTION>
Amount in
Thousands Number of Payment Period
of U.S. Monthly ------------------------------
Series Dollars Interest Rate Payments From To
------ ------- ------------- -------- ---- --
<S> <C> <C> <C> <C> <C>
B-1 100,000 8.05% 48 equal December 28, 1998 November 28, 2002
-------------------------------------------------------------------------------------------------------------
C 200,000 8.51% 60 variable December 28, 2002 November 28, 2007
-------------------------------------------------------------------------------------------------------------
D 80,000 9.43% 60 variable November 28, 2006 October 28, 2011
-------------------------------------------------------------------------------------------------------------
E 220,000 One month LIBOR + 0.89% 24 equal September 28, 2002 August 28, 2004
-------------------------------------------------------------------------------------------------------------
600,000
=============================================================================================================
</TABLE>
The notes are guaranteed by Immsa, Mexcobre, Mexcananea, Mimenosa and M.M.I.,
referred to as the principal subsidiaries.
In connection with the placement of the Secured Export Notes, G.M.M. has entered
into a trust agreement for the benefit of the noteholders with the Bank of New
York as trustee and issuer of the notes, and Chase Manhattan Bank as collateral
agent. An additional guarantee was established consisting of the proceeds from
export sales of the Company's principal subsidiaries, which must be deposited in
collateral accounts with the collateral agent. The subsidiaries may use the
collected amounts, provided there is no event of default. Repayment of principal
and interest, which fall due within the next three months, is also guaranteed by
a letter of credit established by G.M.M. with a foreign bank to be used in the
event of default, prior to the collateral collection accounts. As of the date of
the financial statements, there has been no such event.
During the term of the agreement the Company must comply with certain
requirements, the most significant of which are:
- - The Company shall not assume any debt if, thereafter, the consolidated
debt-to-capital exceeds 45%.
- - The consolidated stockholders' equity of G.M.M. at the end of any quarter
may not be less than $6,700 million Mexican pesos restated from June 1995
through the date of calculation.
- - The export collections of the latest month may not be less than 1.5 times
the principal and interest payments on notes during the prior month, and
at no time may the average of the monthly export collections of the prior
three months be less than two times the principal and interest payments on
notes of the prior month.
- - Annually and commencing the first year of the original note issuance,
G.M.M. and its subsidiaries may not permit the export collections of the
last 12 months to be lower than the lesser of (1) 150 million U.S. dollars
plus 25% of the principal of any additional notes issued or (2) 30% of all
unpaid note principal, including any additional notes issued.
21
<PAGE>
On October 6, 1998, G.M.M. obtained a long-term syndicated loan from Bank of
America for US$130 million payable in five quarterly installments beginning on
September 28, 2001, bearing quarterly interest at LIBOR plus 0.90%. The loan is
guaranteed by Mexcobre, Immsa, Mexcananea, Mimenosa and M.M.I.
During the term of the loan certain requirements must be complied with, the most
significant of which are:
- - G.M.M. and its subsidiaries shall not assume any debt if, thereafter, the
consolidated debt-to-capital ratio exceeds 45%.
- - The consolidated stockholders' equity of G.M.M. at the end of any quarter
may not be less than $12,000 million Mexican pesos restated from December
1997 through the date of calculation.
- - G.M.M. and its subsidiaries shall not assume any debt if, thereafter, the
interest coverage ratio (EBITDA to consolidated interest expense) would be
lower than 2.5 to 1.0.
On November 18, 1996, G.M.M. entered into a long-term loan agreement with Export
Development Corporation for US$47 million to finance the expansion of the copper
smelter owned by Mexcobre. Principal is payable in 14 equal semiannual
installments, beginning on July 17, 1997, bearing monthly interest at LIBOR plus
0.75%. Mexcobre is the guarantor of the loan.
During the term of the loan certain requirements must be complied with, the most
significant of which are:
- - G.M.M. and its subsidiaries' quarterly stockholders' equity cannot be less
than $6,700 million Mexican pesos restated from June 1995 through the date
of calculation.
- - G.M.M. and its subsidiaries shall not assume any debt if, thereafter, the
consolidated debt-to-capital ratio exceeds 45%.
- - The debt service coverage ratio must at no time be less than 1.0.
On June 15, 1998, G.M.M. entered into a long-term credit agreement with Export
Development Corporation for up to US$75 million to finance the purchase of
Canadian-made assets for the construction of a copper and precious metals
refining plant owned by Mexcobre, and other assets for the subsidiaries. As of
December, 31, 1998 had drawn US$46.2 million, payable in ten equal semiannual
installments beginning on December 15, 1998, bearing semiannual interest at
LIBOR plus 0.75%. This credit is guaranteed by Mexcobre, Immsa, Mexcananea,
Mimenosa and M.M.I.
During the term of the credit agreement certain requirements must be complied
with, the most significant of which are:
- - G.M.M. and its subsidiaries' quarterly stockholders' equity cannot be less
than $6,700 million Mexican pesos restated from June 1995 through the date
of calculation.
- - G.M.M. and its subsidiaries shall not assume any debt if, thereafter, the
consolidated debt-to-capital ratio exceeds 45%.
- - G.M.M. and its subsidiaries shall not assume any debt if, thereafter, the
interest coverage ratio (EBITDA to consolidated interest expense) would be
lower than 2.5 to 1.0.
On August 21, 1996, G.M.M. entered into a long-term export finance credit
agreement with Societe Generale for US$21.3 million. G.M.M. has drawn US$19.0
million payable in 14 equal semiannual installments beginning on July 15, 1997,
bearing semiannual interest at LIBOR plus 0.25%. Mexcobre and Immsa are
guarantors of this loan. During the term of the loan, certain affirmative and
negative covenants must be complied with.
On August 28, 1995, Mexcobre obtained an equipment loan for US$4.5 million from
First National Bank of Maryland for the acquisition of an electric mining
shovel. The loan is payable in 10 equal semiannual installments beginning on
September 15, 1995 and bears interest at LIBOR plus 0.375% payable on a
semiannual basis.
On December 13, 1993, Mexcobre obtained an equipment loan from First National
Bank of Maryland for US$1.4 million. The loan is payable in 10 equal semiannual
installments beginning on July 16, 1994 and bears interest at 5.36% payable on a
semiannual basis.
22
<PAGE>
On August 4, 1993, Mexcananea obtained an equipment loan for US$29.5 million
from Generale Bank, S.A./N.V. Funds were received in six different tranches from
September 15, 1994 to May 9, 1995 and are payable in semiannual installments
over a 7-year period bearing interest at LIBOR plus 0.375%. The loan is
guaranteed by The Export Import Bank of the United States and Banco Nacional de
Comercio Exterior, S.N.C. During the term of the loan, certain affirmative and
negative covenants must be complied with. On March 16, 1998 total prepayment of
principal and interest was made of US$15.1 million.
Short- and long-term debt include a sublease contract between Ferromex and
Ferrocarriles Nacionales de Mexico consisting of 24 locomotives the latter has
leased from Arrendadora Internacional, S.A. de C.V. The balance as of December
31, 1998 and 1997 amounted to $72,559 and $102,242, respectively, payable in six
variable semiannual installments, bearing semiannual interest at variable rates,
in accordance with the sublease contract.
At December 31, 1998 and 1997, the Company had complied with all requirements
established in the loan contracts.
10. STOCKHOLDERS' EQUITY:
Capital stock-
During a General Ordinary Stockholders' Meeting held on April 28, 1998 the
stockholders approved a cash dividend of $260,000, at nominal value, whose
restated amount is $290,472.
On April 30, 1996 during a General Ordinary Stockholders' Meeting the
stockholders approved the creation of a $619,413 (at nominal value) reserve
against retained earnings to purchase the Company's own shares. On April 28,
1998 the stockholders approved to increase the reserve against retained earnings
by an additional $900,000 (at nominal value).
During a Board of Directors' Meeting held on July 11, 1997 acquisition of up to
20,701,462 Series "B" and "L" Class I shares, representing GMEXICO capital
stock, in one or several transactions, at the prevailing market value on the
date of purchase was approved, using the established reserve. During a Board of
Directors' Meeting held on July 15, 1998, the acquisition of up to 32,500,000
Series "B" shares, representing GMEXICO capital stock was approved. During the
year, trading activities were as follows:
<TABLE>
<CAPTION>
Shares
----------------------------------------
Series Deemed
------------------------- Nominal
"B" "L" Total Value
--------- ---------- ---------- -------
<S> <C> <C> <C> <C>
Purchase of shares pending
to be sold as of December
31, 1997 3,858,000 10,276,000 14,134,000 $ 66,172
----------------------------------------------------------------------------------------------------
Shares acquired in 1998 4,385,000 28,842,899 33,227,899 155,567
Shares reissuance in 1998 (4,217,000) -- (4,217,000) (19,743)
Shares cancelled -- (39,118,899) (39,118,899) (183,147)
----------------------------------------------------------------------------------------------------
Purchase of shares pending
to be sold as of December
31, 1998 4,026,000 -- 4,026,000 $ 18,849
====================================================================================================
</TABLE>
During an Extraordinary Stockholders' Meeting held on April 28, 1998, the
stockholders approved the cancellation of 39,118,899 repurchased Series "L"
shares and 929,836 Series "B" shares that were pending to be subscribed and
paid, with a nominal value of $11,623. The remaining 75,889,223 of outstanding
Series "L" shares were to be exchanged for the same amount of Series "B" common
full voting rights shares, so that in the future the capital stock be
represented only by Series "B" shares.
23
<PAGE>
At December 31, 1998 total repurchased shares represented 0.6% of total GMEXICO
outstanding shares. The market value at February 26, 1999, the date of issuance
of these financial statements, was $110,111.
At December 31, 1998, capital stock consisted of common registered, no par value
Class I shares representing the minimum fixed capital stock, as follows:
Total Nominal
Shares Value
----------- -------------
Series "B" Class I 650,000,000 $ 3,043,192
--------------------------------------------------------
Purchase of own shares (4,026,000) (18,849)
--------------------------------------------------------
645,974,000 $ 3,024,343
========================================================
Series "B" is comprised of common, full voting shares, which at all times shall
represent 100% of common full-voting shares. At least 51% of the Series "B"
shares must at all times be subscribed by individuals or corporations qualifying
as Mexican investors.
The variable portion of the capital stock may be up to ten times the amount of
the minimum fixed capital.
Retained earnings-
As of 1999, dividends paid to individuals or foreign residents will be subject
to income tax withholding at an effective rate ranging from 7.5% to 7.7%,
depending on the year in which the earnings were generated. In addition, if
earnings for which no corporate tax has been paid are distributed, the tax must
be paid upon distribution of the dividends. Consequently, the Company must keep
a record of earnings subject to each tax rate. Earnings for which corporate
taxes have been paid amounted to approximately $2,144,961.
Capital reductions will be subject to taxes on the excess of the reduction over
the price-level adjusted paid-in capital, in accordance with the formula
prescribed by the income tax law.
The annual net income of the each Company is subject to the legal requirement
that 5% thereof be transferred to a legal reserve each year until the reserve
equals 20% of capital stock. At December 31, 1998 and 1997, the nominal amount
of this reserve amounted to $19,867 and $12,530, respectively, in GMEXICO and is
included in retained earnings. This reserve may not be distributed to
stockholders during the existence of the Company, except in the form of a stock
dividend.
11. SEGMENT INFORMATION:
The Company operates in two industries, the metallurgical mining industry, which
includes the exploring, mining and processing of metallic and nonmetallic
minerals and the mining of coal, and the rendering of multi-use and freight
railroad services. The most significant data by business segment is as follows:
24
<PAGE>
<TABLE>
<CAPTION>
1998 1997
----------------------------- -------------------------------
Metallurgical Metallurgical
Mining Mining
Industry Railroad Industry Railroad
------------- ----------- ------------- ------------
<S> <C> <C> <C> <C>
Net sales $10,505,530 $ -- $12,362,835 $ --
=====================================================================================
Service income $ -- $ 3,636,681 $ -- $ --
=====================================================================================
Gain (loss), net $ 65,219 $ 687,523 $ 2,730,806 $ (4,895)
=====================================================================================
Total assets $35,606,090 $ 7,275,570 $35,214,011 $ 5,517,017
=====================================================================================
</TABLE>
12. COMMITMENTS:
Ferromex assumed the commitments under the maintenance contracts originally
executed by Ferrocarriles Nacionales de Mexico and GIMCO, S.A. de C.V. and MPI
Noroeste, S.A. de C.V. (previously MK Gain, S.A. de C.V.) The major
characteristics of these contracts are as follows:
a) The purpose of the contracts is to provide maintenance services, repair and
inspection of towing equipment in the Torreon, Chihuahua and Acambaro repair
shops. The life of these contracts is 10 years, beginning in 1994, and they may
be renewed upon agreement between the parties.
b) Ferromex has the right to cancel the maintenance contract with either
company, in which case, the Company would have to pay a penalty of approximately
US$95 million as of December 31, 1998. The Ojinaga-Topolobampo track would carry
a penalty of approximately US$23 million.
13. FINANCIAL INSTRUMENTS:
As of December 31, 1998, the book value of guaranteed debt issued by G.M.M. as
described in Note 9, was US$454.77 million with market value of US$383.5
million. The Company does not expect to refinance its debt by settling any of
its long-term debt at market value.
The Company utilizes derivative financial instruments to reduce certain market
risks to which it is exposed. These market risks consist of the impact of
changes in the prices of primary metals. Historically, the international market
prices for the Company's products, mainly copper, zinc, silver, gold and lead
fluctuate widely and are affected by a number of factors beyond the Company's
control. The Company's revenues are directly related to those prices.
25
<PAGE>
During 1998 the Company's derivative transactions were limited in volume and
restricted to risk control activities. The Company does not hold or issue
financial instruments for speculative purposes. Decisions on each transaction
and on general hedging policies are made by the executive committee, whose
members are the Chairman of the Board, the Chief Executive Officer, the Chief
Financial Officer and the Risk Management Manager, to ensure that the risks and
benefits have been appropriately assessed.
Fluctuations in the market prices of the Company's primary metals are hedged
through financial instruments. Gains and losses on these positions are deferred
until settled at a future date.
For the convenience of its customers, the Company enters, from time to time,
into hedging transactions, related to sales of refining metals under the same
terms and conditions and therefore, such hedging transactions are offset and
there is no effect in the statement of income. At December 31, 1998 price
hedgings for sales of refining metals included an overall volume of 1,515 tons
of zinc.
During, 1997 the Company entered into a series of forward contracts maturing in
1998, to purchase US dollars. The notional value of these contracts was US$150
million. Upon settlement a US$22 million gain was obtained, which was recorded
under interest income in the statement of income.
14. CONTINGENCIES:
The Company is involved in various legal proceedings incidental to its
operations, but it does not believe that the final decisions in any such
proceedings will, individually or in the aggregate, have a material adverse
effect on its financial position or results of operations.
15. SUBSEQUENT EVENT:
Reserve for purchase of own shares-
During the January 1 - April 7, 1999 period, the Company repurchased 15,974,000
shares, in addition to the 4,026,000 shares it held as of December 31, 1998 (see
Note 10), making a total of 20,000,000 purchased shares pending to be sold as of
April 7, 1999. The effect on stockholders' equity as of this date is as follows:
Series "B" Nominal
Shares Value
---------- -------
Purchase of shares pending
to be sold as of December 31, 1998 4,026,000 $ 18,849
-------------------------------------------------------------------------
Shares acquired during the period 15,974,000 74,787
-------------------------------------------------------------------------
Purchase of shares pending to be sold
as of April 7, 1999 20,000,000 $ 93,636
=========================================================================
26
<PAGE>
The shares were acquired at a market value of $511,095, of which $436,308 were
recorded in the reserve for purchase of own shares and $74,787 decreased the
nominal value of capital stock.
Employee benefits-
As discussed in Note 3, the Company as of December 31, 1998 holds 46,524,534
shares of common stock of GMEXICO deposited in a trust for future sale to
employees of the Company. From January 1 to April 7, 1999 the Company sold
15,018,000 shares, leaving a balance on April 7, 1999 of 31,506,534 shares. The
market value of these shares as of this date is $1,030,866.
27
<PAGE>
GRUPO MEXICO, S.A. DE C.V. AND SUBSIDIARIES
February 26,1999
To the Stockholders of
Grupo Mexico, S.A. de C.V.:
In my capacity as Examiner and in compliance with Article 166 of the General Law
on Mercantile Societies and the Companys bylaws, I submit my report regarding
the truthfulness, reasonableness and sufficiency of the financial information
presented to you by the Board of Directors, concerning the Company's operations
for the year ended December 31, 1998.
I have attended the meetings of the Stockholders and Board of Directors and have
obtained from corporate officers all the information relative to operations,
documents and records that I deemed necessary. I conducted my examination in
accordance with generally accepted auditing standards.
Also, I have reviewed the individual and consolidated balance sheets of the
Company as of December 31, 1998 and the related statements of income,
stockholders equity and changes in financial position for the year then ended,
which are submitted for your information and approval. In submitting this
report, I have also relied upon the reports on such financial statements issued
by Ruiz Urquiza y Cia., S.C. (Arthur Andersen), independent auditors of the
Company.
As discussed in Note 1 to the accompanying financial statements, on November 19,
1998, workers at the Mexicana de Cananea, S.A. de C.V. subsidiary walked out of
the mine in an illegal strike that suspended operations until February 9, 1999.
As part of the labor union negotiations, the Company agreed to the closure of
the Cananea Copper Smelter and three departments. As a result of these
developments, the Company laid off workers at the Cananea mine. Cost and
expenses incurred from the date of the strike through December 31, 1998,
amounting to $62,839 thousands, are shown as an unusual item in the statement of
income. The difference between the book value and the net realizable value of
the fixed assets, as well as the severance payments to personnel of the closed
areas, which amounted to $267,487 thousands, are shown as loss from discontinued
operations in the accompanying statement of income.
In my opinion, the accounting and information criteria and policies followed by
the Company and considered by Management in the preparation of the financial
information presented by them, are appropriate and sufficient and were applied
on a basis consistent with that of the preceding year, therefore the information
presented by the officers reflects truthfully, fairly and sufficiently the
financial position as of December 31, 1998, and the results of the operations,
stockholders equity and the changes in their financial position of Grupo Mexico,
S.A. de C.V., for the year then ended in conformity with generally accepted
accounting principles.
/s/ Rolando Vega Iniguez
Rolando Vega Iniguez
Examiner
28
<PAGE>
[LOGO]
GRUPOMEXICO
[GRAPHIC OMITTED]
<PAGE>
Exhibit 99(g)(3)
[LOGO]
GRUPOMEXICO
GRUPO MEXICO, S.A. DE C.V.
AV BAJA CALIFORNIA No. 200, COL. ROMA SUR 06760, MEXICO, D.F.
TELS: 564-7470, FAX: 564-7677, EMAIL: eduran@ infosel.net.mx
August 3, 1999.
United States Securities and Exchange Commission
450 Fifth Avenue, N.W.
Washington, D.C. 20549
U.S.A.
Attention: Filing Desk
Issuer: GRUPO MEXICO S.A DE C.V. File Number 82-4582
Ladies and Gentlemen:
In accordance with rule 12g 3-2 (b), annex you will find Financial
Information of Grupo Mexico, S.A. de C.V., filed to the Mexican Stock Exchange
(Bolsa Mexicana de Valores) of the second quarter ended June 30, 1999.
Any questions concerning the enclosed, should be addressed to the
undersigned at (011) (525) 564-7470 or to Daniel Tellechea Salido at (011) (525)
574-8483.
Sincerely,,
/s/ Ernesto Duran Trinidad
--------------------------------------
Ernesto Duran Trinidad
Enclosure
cc: Daniel Tellechea Salido, Managing Director, Finance
Grupo Mexico, S.A. de C.V.
<PAGE>
MEXICAN STOCK EXCHANGE
SIFIC / ICS
STOCK EXCHANGE CODE: GMEXICO QUARTER: 2 YEAR: 1999
GRUPO MEXICO, S.A. DE C.V.
CONSOLIDATED FINANCIAL STATEMENT
AT JUNE 30 OF 1999 AND 1998
(Thousands of Pesos)
Final Printing
<TABLE>
<CAPTION>
==================================================================================================
REF QUARTER OF PRESENT QUARTER OF PREVIOUS
CONCEPTS ---------------------------------------------
S Amount % Amount %
==================================================================================================
<C> <S> <C> <C> <C> <C>
1 TOTAL ASSETS 44,458,741 100 44,550,636 100
2 CURRENT ASSETS 10,490,406 24 11,430,243 26
3 CASH AND SHORT TERM INVESTMENTS 5,312,522 12 5,642,523 13
4 ACCOUNTS AND DOCUMENTS RECEIVABLE (NET) 1,617,672 4 1,702,558 4
5 OTHER ACCOUNTS AND DOCUMENTS RECEIVABLE (NET) 739,375 2 1,156,861 3
6 INVENTORIES 2,809,749 6 2,920,503 7
7 OTHER CURRENT ASSETS 11,088 0 7,798 0
8 LONG-TERM 91,503 0 87,137 0
9 ACCOUNTS AND DOCUMENTS RECEIVABLE (NET) 0 0 0 0
10 INVESTMENT IN SHARES OF SUBSIDIARIES
AND NON-CONSOLIDATED 91,503 0 87,137 0
11 OTHER INVESTMENTS 0 0 0 0
12 PROPERTY, PLANT AND EQUIPMENT 31,666,915 71 31,088,326 70
13 PROPERTY 12,701,494 29 12,394,301 28
14 MACHINERY AND INDUSTRIAL 32,012,075 72 30,498,038 68
15 OTHER EQUIPMENT 702,283 2 621,199 1
16 ACCUMULATED DEPRECIATION 16,758,318 38 15,465,872 35
17 CONSTRUCTION IN PROGRESS 3,009,381 7 3,040,660 7
18 DEFERRED ASSETS (NET) 932,779 2 635,338 1
19 OTHER ASSETS 1,277,138 3 1,309,592 3
20 TOTAL LIABILITIES 14,126,392 100 14,698,138 100
21 CURRENT LIABILITIES 2,518,462 18 1,849,640 13
22 SUPPLIERS 1,234,011 9 1,200,674 8
23 BANK LOANS 959,407 7 329,746 2
24 STOCK MARKET LOANS 0 0 0 0
25 TAXES TO BE PAID 85,779 1 104,065 1
26 OTHER CURRENT LIABILITIES 239,265 2 215,155 1
27 LONG-TERM LIABILITIES 11,505,091 81 12,703,097 86
29 BANK LOANS 11,478,700 81 12,643,726 86
29 STOCK MARKET LOANS 0 0 0 0
30 OTHER LOANS 26,391 0 59,371 0
31 DEFERRED LOANS 67,965 0 86,500 1
32 OTHER LIABILITIES 34,874 0 58,901 0
33 CONSOLIDATED STOCKHOLDERS' EQUITY 30,332,349 100 29,852,498 100
34 MINORITY INTEREST 2,848,271 9 2,649,560 9
35 MAJORITY INTEREST 27,484,078 91 27,202,938 91
36 CONTRIBUTED CAPITAL 9,061,082 30 9,157,089 31
37 PAID-IN CAPITAL STOCK (NOMINAL) 2,949,556 10 3,043,191 10
39 RESTATEMENT OF PAID-IN CAPITAL STOCK 6,111,525 20 6,113,898 20
39 PREMIUM ON SALES OF SHARES 0 0 0 0
40 CONTRIBUTIONS FOR FUTURE CAPITAL INCREASES 0 0 0 0
41 CAPITAL INCREASE (DECREASE) 18,422,996 61 18,045,849 60
42 RETAINED EARNINGS AND CAPITAL RESERVE 28,688,853 95 28,985,138 97
43 REPURCHASE FUND OF SHARES 1,205,531 4 1,179,673 4
44 EXCESS (SHORTFALL) IN RESTATEMENT OF
STOCKHOLDERS' EQUITY (12,689,930) (42) (12,641,364) (42)
45 NET INCOME FOR THE YEAR 1,218,542 4 522,402 2
==================================================================================================
</TABLE>
<PAGE>
MEXICAN STOCK EXCHANGE
SIFIC / ICS
STOCK EXCHANGE CODE: GMEXICO QUARTER: 2 YEAR: 1999
GRUPO MEXICO, S.A. DE C.V.
CONSOLIDATED FINANCIAL STATEMENT
BREAKDOWN OF MAIN CONCEPTS
(Thousands of Pesos)
Final Printing
<TABLE>
<CAPTION>
==================================================================================================
REF QUARTER OF PRESENT QUARTER OF PREVIOUS
FINANCIAL YEAR FINANCIAL YEAR
CONCEPTS ---------------------------------------------
S Amount % Amount %
==================================================================================================
<C> <S> <C> <C> <C> <C>
3 CASH AND SHORT-TERM INVESTMENTS 5,312,522 100 5,642,523 100
46 CASH 100,474 2 228,564 4
47 SHORT-TERM INVESTMENTS 5,212,048 98 5,413,959 96
18 DEFERRED ASSETS (NET) 932,779 100 635,338 100
48 AMORTIZED OR REDEEMED EXPENSES 791,923 85 490,158 77
49 GOODWILL 140,856 15 145,180 23
50 DEFERRED TAXES 0 0 0 0
51 OTHERS 0 0 0 0
21 CURRENT LIABILITIES 2,518,462 100 1,849,640 100
52 FOREIGN CURRENCY LIABILITIES 1,502,549 60 739,768 40
53 MEXICAN PESOS LIABILITIES 1,015,913 40 1,109,872 60
24 STOCK MARKET LOANS 0 100 0 100
54 COMMERCIAL PAPER 0 0 0
55 CURRENT MATURITIES OF MEDIUM TERM NOTES 0 0 0
56 CURRENT MATURITIES OF BONDS 0 0 0
26 OTHER CURRENT LIABILITIES 239,265 100 215,155 100
57 OTHER CURRENT LIABILITIES WITH COST 0 0 0 0
58 OTHER CURRENT LIABILITIES WITHOUT COST 239,265 100 215,155 100
27 LONG-TERM LIABILITIES 11,505,091 100 12,703,097 100
59 FOREIGN CURRENCY LIABILITIES 11,505,091 100 12,703,097 100
60 MEXICAN PESOS LIABILITIES 0 0 0 0
29 STOCK MARKET LOANS 0 100 0 100
61 BONDS 0 0 0
62 MEDIUM TERM NOTES 0 0 0
30 OTHER LOANS 26,391 100 59,371 100
63 OTHER LOANS WITH COST 26,391 100 59,371 100
64 OTHER LOANS WITHOUT COST 0 0 0 0
31 DEFERRED LOANS 67,965 100 86,500 100
65 NEGATIVE GOODWILL 67,965 100 86,500 100
66 DEFERRED TAXES 0 0 0 0
67 OTHERS 0 0 0 0
32 OTHER LIABILITIES 34,874 100 58,901 100
68 RESERVES 34,396 99 58,340 99
69 OTHERS LIABILITIES 478 1 561 1
44 EXCESS (SHORTFALL) IN RESTATEMENT OF
STOCK HOLDERS' EQUITY (12,689,930) 100 (12,641,364) 100
70 ACCUMULATED INCOME DUE TO MONETARY
POSITION (1,783,693) (14) (2,225,446) (18)
71 INCOME FROM NON-MONETARY POSITION ASSETS (10,906,237) (86) (10,415,918) (82)
==================================================================================================
</TABLE>
<PAGE>
MEXICAN STOCK EXCHANGE
SIFIC / ICS
STOCK EXCHANGE CODE: GMEXICO QUARTER: 2 YEAR: 1999
GRUPO MEXICO, S.A. DE C.V.
CONSOLIDATED FINANCIAL STATEMENT
OTHER CONCEPTS
(Thousands of Pesos)
Final Printing
<TABLE>
<CAPTION>
=========================================================================================
REF QUARTER OF PRESENT QUARTER OF PREVIOUS
FINANCIAL YEAR FINANCIAL YEAR
CONCEPTS -------------------------------------------
S Amount Amount
=========================================================================================
<C> <S> <C> <C>
72 WORKING CAPITAL 7,971,944 9,580,603
73 PENSIONS FUND AND SENIORITY PREMIUMS 0 0
74 EXECUTIVES(*) 125 113
75 EMPLOYERS(*) 5,033 4,984
76 WORKERS(*) 16,460 17,442
77 CIRCULATION SHARES(*) 630,000,000 650,000,000
78 REPURCHASED SHARES(*) 0 0
=========================================================================================
</TABLE>
(*) THESE CONCEPTS SHOULD BE EXPRESSED IN UNITS
<PAGE>
MEXICAN STOCK EXCHANGE
SIFIC / ICS
STOCK EXCHANGE CODE: GMEXICO QUARTER: 2 YEAR: 1999
GRUPO MEXICO, S.A. DE C.V.
CONSOLIDATED FINANCIAL STATEMENT
FROM JANUARY THE 1st TO JUNE 30 OF 1999 AND 1998
(Thousands of Pesos)
Final Printing
<TABLE>
<CAPTION>
=======================================================================================================
REF QUARTER OF PRESENT QUARTER OF PREVIOUS
FINANCIAL YEAR FINANCIAL YEAR
CONCEPTS -----------------------------------------------
S Amount % Amount %
=======================================================================================================
<C> <S> <C> <C> <C> <C>
1 NET SALES 7,080,083 100 6,817,905 100
2 COST OF SALES 5,115,118 72 4,241,342 62
3 GROSS INCOME 1,964,965 28 2,576,563 38
4 OPERATING 1,162,467 16 1,070,351 16
5 OPERATING INCOME 802,498 11 1,506,212 22
6 TOTAL FINANCING COST (780,020) (11) 714,206 10
7 INCOME AFTER FINANCING COST 1,582,518 22 792,006 12
8 OTHER FINANCIAL OPERATIONS (70,217) (1) (75,561) (1)
9 INCOME BEFORE TAXES AND WORKERS' PROFIT SHARING 1,652,735 23 867,567 13
10 RESERVE FOR TAXES AND WORKERS' PROFIT SHARING 287,008 4 245,782 4
11 NET INCOME AFTER TAXES AND WORKERS' PROFIT
SHARING 1,365,727 19 621,785 9
12 SHARE IN NET INCOME OF SUBSIDIARIES AND
NON-CONSOLIDATED ASSOCIATES 0 0 0 0
13 CONSOLIDATED NET INCOME OF CONTINUOUS 1,365,727 19 621,785 9
14 INCOME OF DISCONTINUOUS OPERATIONS 73,142 1 0 0
15 CONSOLIDATED NET INCOME BEFORE
EXTRAORDINARY ITEMS 1,292,585 18 621,785 9
16 EXTRAORDINARY ITEMS NET EXPENSES (INCOME) 0 0 0 0
17 NET EFFECT AT THE BEGINNING OF THE YEAR BY
CHANGES IN ACCOUNTING PRINCIPLES 0 0 0 0
18 NET CONSOLIDATED INCOME 1,292,585 18 621,785 9
19 NET INCOME OF MINORITY INTEREST 74,043 1 99,383 1
20 NET INCOME OF MAJORITY INTEREST 1,218,542 17 522,402 8
=======================================================================================================
</TABLE>
<PAGE>
MEXICAN STOCK EXCHANGE
SIFIC / ICS
STOCK EXCHANGE CODE: GMEXICO QUARTER: 2 YEAR: 1999
GRUPO MEXICO, S.A. DE C.V.
CONSOLIDATED FINANCIAL STATEMENT
FROM JANUARY THE 1st TO JUNE 30 OF 1999 AND 1998
(Thousands of Pesos)
Final Printing
<TABLE>
<CAPTION>
=======================================================================================================
REF QUARTER OF PRESENT QUARTER OF PREVIOUS
FINANCIAL YEAR FINANCIAL YEAR
CONCEPTS -----------------------------------------------
R Amount % Amount %
=======================================================================================================
<C> <S> <C> <C> <C> <C>
1 NET SALES 7,080,083 100 6,817,905 100
21 DOMESTIC 4,004,122 57 3,109,592 46
22 FOREIGN 3,075,961 43 3,708,313 54
23 TRANSLATED INTO DOLLARS(***) 317,361 4 393,810 6
6 TOTAL FINANCING COST (780,020) 100 714,206 100
24 INTEREST PAID 542,445 70 516,042 72
25 EXCHANGE LOSSES 1,397,187 179 1,716,473 240
26 INTEREST EARNED 496,949 64 145,157 20
27 EXCHANGE PROFITS 1,788,966 229 1,077,878 151
28 GAIN DUE TO MONETARY POSITION (433,737) (56) (295,274) (41)
8 OTHER FINANCIAL OPERATIONS (70,217) 100 (75,561) 100
29 OTHER NET EXPENSES (INCOME) NET (70,217) (100) (75,561) (100)
30 PROFIT) LOSS ON SALE OF OWN SHARES 0 0 0 0
31 (PROFIT) LOSS ON SALE OF SHORT-TERM INVESTMENTS 0 0 0 0
10 RESERVE FOR TAXES AND WORKERS' PROFIT SHARING 287,008 100 245,782 100
32 INCOME TAX 201,684 70 141,047 57
33 DEFERED INCOME TAX 0 0 0 0
34 WORKERS' PROFIT SHARING 85,324 30 104,735 43
35 DEFERED WORKERS' PROFIT SHARING 0 0 0 0
=======================================================================================================
</TABLE>
(***) THOUSANDS OF DOLLARS
<PAGE>
MEXICAN STOCK EXCHANGE
SIFIC / ICS
STOCK EXCHANGE CODE: GMEXICO QUARTER: 2 YEAR: 1999
GRUPO MEXICO, S.A. DE C.V.
CONSOLIDATED FINANCIAL STATEMENT
OTHER CONCEPTS
(Thousands of Pesos)
Final Printing
<TABLE>
<CAPTION>
=========================================================================================
REF QUARTER OF PRESENT QUARTER OF PREVIOUS
FINANCIAL YEAR FINANCIAL YEAR
CONCEPTS -------------------------------------------
R Amount Amount
=========================================================================================
<C> <S> <C> <C>
36 TOTAL SALES 7,080,082 6,817,904
37 NET INCOME OF THE YEAR 16,263 110,951
38 NET SALES (*) 15,417,911 12,883,427
39 OPERATION INCOME (**) 2,000,772 2,226,901
40 NET INCOME OF MAJORITY INTEREST (**) 1,271,570 1,556,001
41 NET CONSOLIDATED INCOME (**) 1,483,113 1,584,354
=========================================================================================
</TABLE>
(**) THE RESTATED INFORMATION ON THE LAST TWELVE MONTHS SHOULD BE USED
<PAGE>
MEXICAN STOCK EXCHANGE
SIFIC / ICS
STOCK EXCHANGE CODE: GMEXICO QUARTER: 2 YEAR: 1999
GRUPO MEXICO, S.A. DE C.V.
CONSOLIDATED FINANCIAL STATEMENT
FROM JANUARY THE 1st TO JUNE 30 OF 1999 AND 1998
(Thousands of Pesos)
Final Printing
<TABLE>
<CAPTION>
=========================================================================================
REF QUARTER OF PRESENT QUARTER OF PREVIOUS
FINANCIAL YEAR FINANCIAL YEAR
CONCEPTS -------------------------------------------
C Amount Amount
=========================================================================================
<C> <S> <C> <C>
1 CONSOLIDATED NET INCOME 1,292,585 621,785
2 +(-) ITEMS ADDED TO INCOME WHICH DO NOT
REQUIRE USING CASH 921,853 872,580
3 CASH FLOW FROM NET INCOME OF THE YEAR 2,214,438 1,494,365
4 CASH FLOW FROM CHANGE IN WORKING CAPITAL (797,295) 407,885
5 CASH GENERATED (USED) IN OPERATING
ACTIVITIES 1,417,143 1,902,250
6 CASH FLOW FROM EXTERNAL FINANCING (1,494,666) 305,057
7 CASH FLOW FROM INTERNAL FINANCING (809,776) (1,002,420)
8 CASH FLOW GENERATED (USED) BY FINANCING (2,304,442) (697,363)
9 CASH FLOW GENERATED (USED) IN INVESTMENT
ACTIVITIES (917,819) (643,071)
10 NET INCREASE (DECREASE) IN CASH AND
SHORT-TERM INVESTMENTS (1,805,118) 561,816
11 CASH AND SHORT-TERM INVESTMENTS AT THE
BEGINNING OF PERIOD 7,117,640 5,080,707
12 CASH AND SHORT-TERM INVESTMENTS AT THE
END OF PERIOD 5,312,522 5,642,523
=========================================================================================
</TABLE>
<PAGE>
MEXICAN STOCK EXCHANGE
SIFIC / ICS
STOCK EXCHANGE CODE: GMEXICO QUARTER: 2 YEAR: 1999
GRUPO MEXICO, S.A. DE C.V.
CONSOLIDATED FINANCIAL STATEMENT
BREAKDOWN OF MAIN CONCEPTS
(Thousands of Pesos)
Final Printing
<TABLE>
<CAPTION>
========================================================================================================================
REF QUARTER OF PRESENT QUARTER OF PREVIOUS
FINANCIAL YEAR FINANCIAL YEAR
CONCEPTS -------------------------------------------
C Amount Amount
========================================================================================================================
<C> <S> <C> <C>
2 + (-) ITEMS ADDED TO INCOME WHICH DO NOT REQUIRE USING CASH 921,853 872,580
13 DEPRECIATION AND AMORIZATION FOR THE YEAR 887,246 841,991
14 + (-) NET INCREASE (DECREASE) IN PENSIONS FUND AND SENIORITY PREMIUMS 8,491 29,394
15 + (-) NET LOSS (PROFIT) IN MONEY EXCHANGE 0 0
16 + (-) NET LOSS (PROFIT) IN ASSETS AND LIABILITIES ACTUALIZATION 0 0
17 + (-) OTHER ITEMS 26,116 1,195
4 CASH FLOW FROM CHANGE IN WORKING CAPITAL (797,295) 407,885
18 + (-) DECREASE (INCREASE) IN ACCOUNT RECEIVABLE (195,593) (884,769)
19 + (-) DECREASE (INCREASE) IN INVENTORIES 236,936 (185,561)
20 + (-) DECREASE (INCREASE) IN OTHER ACCOUNT RECEIVABLE (618) (4,183)
21 + (-) INCREASE (DECREASE) IN SUPPLIER ACCOUNT (310,588) 290,666
22 + (-) INCREASE (DECREASE) IN OTHER LIABILITIES (527,432) 1,191,732
6 CASH FLOW FROM EXTERNAL FINANCING (1,494,666) 305,057
23 + SHORT-TERM BANK AND STOCK MARKET FINANCING 441,371 9,572,536
24 + LONG-TERM BANK AND STOCK MARKET FINANCING 0 0
25 + DIVIDEND RECEIVED 438 1,775
26 + OTHER FINANCING 0 0
27 (-) BANK FINANCING AMORTIZATION (1,936,475) (9,269,254)
28 (-) STOCK MARKET AMORTIZATION 0 0
29 (-) OTHER FINANCING AMORTIZATION 0 0
7 CASH FLOW FROM INTERNAL FINANCING (809,776) (1,002,420)
30 + (-) INCREASE (DECREASE) IN CAPITAL STOCKS (522,704) (691,150)
31 (-) DIVIDENDS PAID (287,072) (311,270)
32 + PREMIUM ON SALE OF SHARES 0 0
33 + CONTRIBUTION FOR FUTURE CAPITAL INCREASES 0 0
9 CASH FLOW GENERATED (UTILIZED) IN INVESTMENT ACTIVITIES (917,819) (643,071)
34 + (-) DECREASE (INCREASE) IN STOCK INVESTMENTS OF A PERMANENT NATURE 8,877 21,063
35 (-) ACQUISITION OF PROPERTY, PLANT AND EQUIPMENT (748,421) (284,446)
36 (-) INCREASE IN CONSTRUCTIONS IN PROGRESS (517,173) (830,500)
37 + SALE OF OTHER PERMANENT INVESTMENTS 0 0
38 + SALE OF TANGIBLE FIXED ASSETS 0 0
39 + (-) OTHER ITEMS 338,898 450,812
========================================================================================================================
</TABLE>
<PAGE>
MEXICAN STOCK EXCHANGE
SIFIC / ICS
STOCK EXCHANGE CODE: GMEXICO QUARTER: 2 YEAR: 1999
GRUPO MEXICO, S.A. DE C.V.
RATIOS
CONSOLIDATED
Final Printing
<TABLE>
<CAPTION>
=================================================================================================================
REF QUARTER OF PRESENT QUARTER OF PREVIOUS
CONCEPTS FINANCIAL YEAR FINANCIAL YEAR
p
=================================================================================================================
<C> <S> <C> <C>
YIELD
1 NET INCOME TO NET SALES 18.26 % 9.12 %
2 NET INCOME TO STOCK HOLDER'S EQUITY (**) 4.63 % 5.72 %
3 NET INCOME TO TOTAL ASSETS (**) 3.34 % 3.56 %
4 CASH DIVIDENDS TO PREVIOUS YEAR NET INCOME 50.38 % 11.04 %
5 INCOME DUE TO MONEYTARY POSITION TO NET INCOME 33.56 % 47.49 %
ACTIVITY
6 NET SALES TO NET ASSETS (**) 0.35 times 0.29 times
7 NET SALES TO FIXED ASSETS (**) 0.49 times 0.41 times
8 INVENTORIES ROTATION (**) 3.89 times 2.97 times
9 ACCOUNTS RECEIVABLE IN DAYS OF SALES 36 days 39 days
10 PAID INTEREST TO TOTAL LIABILITIES WITH COST (**) 9.13 % 6.93 %
LEVERAGE
11 TOTAL LIABILITIES TO TOTAL ASSETS 31.77 % 32.99 %
12 TOTAL LIABILITIES TO STOCK HOLDERS' EQUITY 0.47 times 0.49 times
13 FOREIGN CURRENCY LIABILITIES TO TOTAL LIABILITIES 92.08 % 91.46 %
14 LONG-TERM LIABILITIES TO FIXED ASSETS 36.33 % 40.86 %
15 OPERATING INCOME TO INTEREST PAID 1.48 times 2.92 times
16 NET SALES TO TOTAL LIABILITIES (**) 1.09 times 0.88 times
LIQUIDITY
17 CURRENT ASSETS TO CURRENT LIABILITIES 4.17 times 6.18 times
18 CURRENT ASSETS LESS INVENTORY TO CURRENT LIABILITIES 3.05 times 4.60 times
19 CURRENTS ASSETS TO TOTAL LIABILITIES 0.74 times 0.78 times
20 AVAILABLE ASSETS TO CURRENT LIABILITIES 210.94 % 305.06 %
CASH FLOW
21 CASH FLOW FROM NET INCOME TO NET SALES 31.28 % 21.92 %
22 CASH FLOW FROM CHANGES IN WORKING CAPITAL TO NET SALES (11.26) % 5.98 %
23 CASH GENERATED (USED) IN OPERATING TO INTEREST PAID 2.61 times 3.69 times
24 EXTERNAL FINANCING TO CASH GENERATED (USED) IN FINANCING 64.86 % (43.74) %
25 INTERNAL FINANCING TO CASH GENERATED (USED) IN FINANCING 35.14 % 143.74 %
26 ACQUISITION OF PROPERTY, PLANT AND EQUIPMENT TO CASH GENERATED
(USED) IN INVESTMENT ACTIVITIES 81.54 % 44.23
=================================================================================================================
</TABLE>
(**) IN THESE RATIOS FOR THE DATA TAKE INTO CONSIDERATION
THE LAST TWELVE MONTHS.
<PAGE>
MEXICAN STOCK EXCHANGE
SIFIC / ICS
STOCK EXCHANGE CODE: GMEXICO QUARTER: 2 YEAR: 1999
GRUPO MEXICO, S.A. DE C.V.
DATA PER SHARE
CONSOLIDATED FINANCIAL STATEMENT
Final Printing
<TABLE>
<CAPTION>
========================================================================================================================
REF QUARTER OF PRESENT QUARTER OF PREVIOUS
FINANCIAL YEAR FINANCIAL YEAR
CONCEPTS -------------------------------------------
D Amount Amount
========================================================================================================================
<C> <S> <C> <C>
1 BASIC PROFIT PER ORDINARY SHARE (**) $ 1.98 $ 2.31
2 BASIC PROFIT PER PREFERENT SHARE (**) $ 0.00 $ 0.00
3 DILUTED PROFIT PER ORDINARY SHARE (**) $ 0.00 $ 0.00
4 CONTINUOUS OPERATING PROFIT PER COMMON SHARE (**) $ 1.98 $ 2.31
5 EFFECT OF DISCONTINUOUS OPERATING ON CONTINUOUS
OPERATING PROFIT PER SHARE (**) $ 0.66 $ 0.00
6 EFFECT OF EXTRAORDINARY PROFIT AND LOSS ON
CONTINUOUS OPERATING PROFIT PER SHARE (**) $ 0.00 $ 0.00
7 EFFECT BY CHANGES IN ACCOUNTING POLICIES ON
CONTINUOUS OPERATING PROFIT PER SHARE (**) $ 0.00 $ 0.00
8 CARRYING VALUE PER SHARE $ 43.63 $ 41.85
9 CASH DIVIDEND ACUMULATED PER SHARE $ 0.45 $ 0.40
10 DIVIDEND IN SHARES PER SHARE 0.00 shares 0.00 shares
11 MARKET PRICE TO CARRYING VALUE 0.92 times 0.59 times
12 MARKET PRICE TO BASIC PROFIT PER ORDINARY SHARE (**) 0.23 times 10.67 times
13 MARKET PRICE TO BASIC PROFIT PER PREFERENT SHARE (**) 0.00 times 0.00 times
========================================================================================================================
</TABLE>
(**) TO CALCULATE THE DATA PER SHARE USE THE NET INCOME FOR THE LAST TWELVE
MONTHS
<PAGE>
MEXICAN STOCK EXCHANGE
SIFIC / ICS
STOCK EXCHANGE CODE: GMEXICO QUARTER: 2 YEAR: 1999
GRUPO MEXICO, S.A. DE C.V.
DIRECTOR REPORT (1)
ANNEX 1
CONSOLIDATED
Final Printing
================================================================================
GRUPO MEXICO, S.A. DE C.V.
SECOND QUARTER 1999 CONSOLIDATED RESULTS
CONSOLIDATED FINANCIAL RESULTS (GMEXICO)
- ----------------------------------------
FINANCIAL PERFORMANCE FOR THE FIRST HALF OF 1999 WAS INFLUENCED BY A NUMBER OF
FACTORS: ON ONE SIDE, THE MARKET PRICES OF THE METALS THAT WE PRODUCE WERE LOWER
THAN THOSE REGISTERED A YEAR AGO, DESPITE THE IMPORTANT GROWTH REGISTERED IN THE
UNITED STATES AND AN IMPROVED ECONOMIC PERSPECTIVE IN ASIA; PERFORMANCE WAS ALSO
AFFECTED BY LOWER PROFITS DUE TO THE EFFECT OF THE MEXICAN PESO APPRECIATION
AGAINST THE US DOLLAR BY 5.3% AND THE INITIATION OF OPERATIONS IN CANANEA, WHERE
A REDUCTION OF APPROXIMATELY 1,000 WORKERS AND EMPLOYEES SLOWED THE CONTINUITY
OF OPERATIONS. FURTHERMORE, AN EFFICIENT OPERATION IN THE REMAINDER OF OUR
MINING UNITS ALLOWED FOR LOWER OPERATING COSTS AND HIGHER LEVELS OF PRODUCTION
THAN THOSE ACHIEVED DURING THE SAME PERIOD LAST YEAR. ON THE OTHER HAND,
RAILROAD SECTOR VOLUME WAS SLOWER THAN WHAT WE ORIGINALLY FORECASTED BECAUSE OF
LOWER PRODUCTION LEVELS IN THE DOMESTIC AGRICULTURAL SECTOR. WE EXPECT THIS
SITUATION TO IMPROVE IN THE NEXT HALF OF THE YEAR WITH AGRICULTURAL IMPORTS FROM
THE UNITED STATES.
TOTAL REVENUES DURING THE PERIOD INCREASED BY 3.8% ON THOSE REPORTED IN 1998.
THE MINING SECTOR ACCOUNTED FOR 68.3% OF TOTAL REVENUES AND THE RAILROAD SECTOR
GENERATED THE REMAINING 31.7%. IN TERMS OF PRODUCT/SERVICE PARTICIPATION OF
TOTAL REVENUES, COPPER REPRESENTED 41.4%, RAILROAD SERVICES FOR 31.7%, ZINC FOR
11.9%, SILVER & GOLD FOR 8.2% AND OTHER MINING PRODUCTS FOR THE REMAINING 6.8%.
GRUPO MEXICO REGISTERED AN ACCUMULATED OPERATING PROFIT OF $802.5 MILLION PESOS
THAT REPRESENTS 11.3% OF CONSOLIDATED SALES. OPERATING PROFIT PLUS DEPRECIATION
(EBITDA) REPRESENTED 23.9% OF REVENUES AND IS EQUIVALENT TO $1,689.7 MILLION
PESOS ($179.5 MILLION DOLLARS).
THE ILLEGAL STRIKE AT THE CANANEA UNIT NEGATIVELY AFFECTED THE PERIOD'S RESULTS
BY $73.1 MILLION PESOS. THIS FIGURE REPRESENTS THE ACCOUNT THAT WAS NOT
PROVISIONED IN 1998 FOR LAID-OFF WORKERS AND EMPLOYEES.
THE GROUP REPORTED 1999 ACCUMULATED SECOND QUARTER NET INCOME OF $1,218.5
MILLION PESOS OR 17.2% OF SALES AT THE CONSOLIDATED LEVEL. THIS COMPARES TO
522.4 MILLION PESOS DURING THE SAME PERIOD LAST YEAR OR 7.7% OF SALES.
GRUPO MINERO MEXICO (GMM)
- -------------------------
GMM ACHIEVED HIGHER PRODUCTION VOLUMES AND SALES OF COPPER, ZINC AND MOLYBDENUM
EVEN AFTER TAKING INTO ACCOUNT THE ILLEGAL STRIKE AT THE CANANEA MINE. IN
ADDITION, CONSIDERABLE AMOUNTS OF GOLD AND SILVER WERE DIVERTED TO THE NEW
PRECIOUS METALS REFINERY AT MEXCOBRE TO BEGIN OPERATIONS.
================================================================================
<PAGE>
MEXICAN STOCK EXCHANGE
SIFIC / ICS
STOCK EXCHANGE CODE: GMEXICO QUARTER: 2 YEAR: 1999
GRUPO MEXICO, S.A. DE C.V.
DIRECTOR REPORT (1)
ANNEX 1
CONSOLIDATED
Final Printing
================================================================================
PRODUCTION SOLD:
SECOND SECOND SECOND FIRST
QUARTER QUARTER PERCENT QUARTER QUARTER PERCENT
1999 1998 CHANGE 1998 1999 CHANGE
(ACCUM.) (ACCUM.)
----------------------------------------------------------
COPPER (MT) 198,398 185,427 7.0 96,515 101,883 (5.3)
ZINC (MT) 79,841 71,258 12.0 40,546 39,295 3.2
SILVER (KG) 299,070 329,701 (9.3) 182,765 116,305 57.2
GOLD (KG) 1,051 1,642 (36.0) 583 458 24.5
MOLYBDENUM (MT) 3,496 2,786 25.5 2,068 1,428 44.8
THE INCREASES IN VOLUME ABOVE MENTIONED AND HIGHER VALUE ADDED HELPED MITIGATE
THE IMPACT OF THE LOWER METAL PRICES DURING THE PERIOD:
METALS AVERAGE REALIZATION PRICES:
SECOND SECOND SECOND FIRST
QUARTER QUARTER PERCENT QUARTER QUARTER PERCENT
1999 1998 CHANGE 1998 1999 CHANGE
(ACCUM.) (ACCUM.)
-------------------------------------------------------
COPPER US CENTS/LB 68.0 78.0 (12.8) 70.0 66.00 6.1
ZINC US CENTS/LB 49.0 52.0 (5.8) 50.0 49.00 2.0
SILVER DLS/OZ 5.19 5.92 (12.3) 5.16 5.25 (1.7)
GOLD DLS/OZ 282.55 309.48 (8.7) 278.59 287.49 (3.1)
MOLYBDENUM US CENTS/LB 2.66 3.90 (31.8) 2.60 2.74 (5.1)
ON THE OTHER HAND, THE APPRECIATION OF THE MEXICAN PESO AGAINST THE US DOLLAR BY
5.3% AFFECTED GRUPO MINERO MEXICO'S SALES:
VENTAS DE GMM
2Q-1999 2Q1998 PERCENT
(ACCUM.) (ACCUM.) CHANGE
-------------------------------
THOUSANDS OF PESOS 4,836,383 5,425,899 (10.9)
THOUSANDS OF USD 490,309 526,370 (6.9)
-------------------------------
BECAUSE OF THESE DEVELOPMENTS, THE OPERATING PROFIT PLUS DEPRECIATION (EBITDA)
FOR THE MINING SECTOR DURING THE PERIOD WAS $1,090.5 MILLION PESOS (EQUIVALENT
TO US$115.8 MILLION) THAT REPRESENTS 22.5% OF SALES.
DURING THE PERIOD, MEXCOBRE INITIATED OPERATIONS OF THE NATURAL GAS PIPELINE
THAT PROVIDES AN ECONOMIC AS WELL AS ENVIRONMENTALLY FRIENDLY ALTERNATIVE FOR
FUEL. ALSO, MEXCOBRE INITIATED OPERATIONS OF THE PRECIOUS METALS REFINERY. THESE
PROJECTS WILL ADD ADDITIONAL BENEFITS TO THE MINING SECTOR IN THE NEAR FUTURE.
================================================================================
<PAGE>
MEXICAN STOCK EXCHANGE
SIFIC / ICS
STOCK EXCHANGE CODE: GMEXICO QUARTER: 2 YEAR: 1999
GRUPO MEXICO, S.A. DE C.V.
DIRECTOR REPORT (1)
ANNEX 1
CONSOLIDATED
Final Printing
================================================================================
WITH RESPECT TO CANANEA, ON JUNE 5TH, 1999, MANAGEMENT AND THE MINING UNION
AGREED TO INCREASE PRODUCTIVITY PARAMETERS WITH THE OBJECTIVE TO ACHIEVE A
PRODUCTION LEVEL OF 330,000 METRIC TONES OF MATERIAL PER DAY. WITH THIS
AGREEMENT, MANAGEMENT EXPECTS TO INCREASE PRODUCTION LEVELS AS WELL AS LOWER
UNITARY COSTS DURING THE SECOND HALF OF 1999.
WITH RESPECT TO NEW PROJECTS, MANAGEMENT CONTINUES WITH THE NEW COPPER LEACHING
PLANT AT THE CANANEA MINING COMPLEX TO PRODUCE ELECTROLYTIC COPPER AND WITH
EXPLORATION AS WELL AS COST/BENEFIT ANALYSES FOR INVESTING IN NEW MINING UNITS.
AT THE END OF FIRST HALF OF 1999, WE INVESTED THE AMOUNT OF $559.9 MILLION PESOS
IN NEW PROJECTS FOR GMM.
GRUPO FERROVIARIO MEXICANO (GFM)
- --------------------------------
AT THE END OF THE FIRST HALF OF 1999, GFM REGISTERED AN INCREASE IN SALES OF 63%
WITH RESPECT TO THE SAME PERIOD LAST YEAR (HOWEVER, IT IS IMPORTANT TO MENTION
THAT FERROMEX INITIATED OPERATIONS ON THE 19TH OF FEBRUARY OF 1998) AND AN
INCREASE OF 1.5% WHEN COMPARED TO THE FIRST QUARTER OF 1999. LOWER HARVEST
LEVELS IN THE NORTHWEST OF THE COUNTRY DIMINISHED THE AMOUNT OF GRAIN MOVED BY
RAIL. NEVERTHELESS, WE EXPECT THIS SITUATION TO RECOVER DURING THE NEXT HALF OF
THE YEAR WITH GRAIN IMPORTS FORM THE UNITED STATES. ON THE OTHER HAND, AN
INCREASE IN INDUSTRIAL, CHEMICAL AND INTERMODAL TRAFFIC HELPED MITIGATE THE
AGRICULTURAL SHORTFALL. INTERMODAL TRAFFIC INCREASED PARTIALLY BECAUSE OF 1000
ADDITIONAL PLATFORMS THAT WERE PUT IN SERVICE.
SALES MIX FOR GFM (MILLIONS OF PESOS)
100% (MILLION PESOS) 1,170.0 1,152.0
-------------------------------
AGRICULURAL 23.9% 28.9%
MINERALS 21.6% 21.8%
INDUSTRIAL 13.6% 11.9%
CEMENT 9.3% 10.7%
OTHERS* 31.6% 26.7%
-------------------------------
SECOND FIRST
QUARTER QUARTER
1999 1999
* OTHERS INCLUDES PETROLEUM & DERIVATIVES, STEEL, AUTOMOBILES, FERTILIZERS AND
CHEMICALS
DURING THIS PERIOD, GFM INCREASED NET TONS-KILOMETER BY 65.8% WHEN COMPARED TO
THE FIRST SEMESTER OF 1998. ON THE OTHER HAND, THE DIVISION ALSO REGISTERED AN
INCREASE OF 75.3% IN TERMS OF OPERATING COST WITH RESPECT TO THE SAME PERIOD OF
1998 (AGAIN, IT IS IMPORTANT TO UNDERLINE THAT OPERATIONS WERE INITIATED ON THE
19TH OF FEBRUARY OF LAST YEAR) AND 14.7% WHEN COMPARED TO THE FIRST QUARTER OF
1999. THE INCREASE IN OPERATING COST ORIGINATES PRINCIPALLY FROM INITIAL
MAINTENANCE REQUIREMENTS FOR CARS, LOCOMOTIVES AND RAILS WITH THE OBJECTIVE TO
PROVIDE A BETTER, SAFER AND MORE EFFICIENT SERVICE.
================================================================================
<PAGE>
MEXICAN STOCK EXCHANGE
SIFIC / ICS
STOCK EXCHANGE CODGMEXICO QUARTER 2 YEAR 1999
GRUPO MEXICO. S.A. DE C.V.
PAGE 4
DIRECTOR REPORT (1)
ANNEX 1 CONSOLIDATED
Final Printing
- --------------------------------------------------------------------------------
AS A RESULT OF MAINTENANCE SCHEDULES, GFM ACHIEVED AN AVAILABILITY INDEX
OF 92.0% IN LOCOMOTIVES, UP FROM AN AVERAGE OF 85.2% IN 1998. WITH RESPECT
TO RAILROAD CARS, AVAILABILITY INCREASED TO 91% COMPARED TO 83.2% IN 1998.
IN INFRASTRUCTURE AND RAIL MAINTENANCE, MODERNIZATION EFFORTS WERE
DUPLICATED WITH THE PURCHASE OF NEW EQUIPMENT AND SPECIALIZED MACHINERY.
IN RAILROAD YARDS, GFM INCREASED EFFICIENCY IN LOADED CARS BY 61% AND MET
96% OF CLIENT'S DEMAND FOR CARS.
DURING THE SECOND QUARTER OF 1999, GEM OBTAINED A $38 MILLION DOLLAR
BRIDGE LOAN FROM BANK OF AMERICA FOR THE ACQUISITION OF 20 GE AC 4,400 HP
LOCOMOTIVES WITH THE LATEST TECHNOLOGICAL ADVANCES. IN AUGUST, WE EXPECT
TO FINALIZE A LONG-TERM CREDIT FACILITY WITH EXIMBANK (US) FOR THE
ACQUISITION OF 50 LOCOMOTIVES IN ALL. THESE NEW LOCOMOTIVES WILL ALLOW GFM
TO MEET TRAFFIC INCREASES ADEQUATELY AND DECREASE MAINTENANCE COSTS AS
WELL AS DIESEL FUEL CONSUMPTION. IN ADDITION, THESE NEW LOCOMOTIVES HAVE
THE CAPACITY TO MOVE 2.3 TIMES MORE FREIGHT THAN PRESENT LOCOMOTIVES.
IN ACCORDANCE WITH OUR CAPITAL EXPENDITURES PROGRAM, WE HAVE INVESTED A
TOTAL OF $701.7 MILLION PESOS DURING THIS PERIOD OF WHICH $334.1 MILLION
PESOS WERE USED FOR THE ACQUISITION OF LOCOMOTIVES AND THE REMAINING
$367.6 MILLION PESOS ON THE RECONSTRUCTION OF RAILROAD TRACKS,
MODERNIZATION OF MAINTENANCE SHOPS, STATIONS, EXPANSION OF YARDS AND
ACQUISITION OF CONTROL SYSTEMS.
THE RAILROAD SECTOR REPORTED AN OPERATING PROFIT EQUAL TO 15.6% OF PERIOD
SALES THAT WERE $2,321.6 MILLION PESOS. OPERATING PROFIT PLUS DEPRECIATION
(EBITDA) WAS $610.0 MILLION PESOS (EQUIVALENT TO $64.8 MILLION DOLLARS) OR
26.3% OF TOTAL SALES.
CONSOLIDATED SALES
CONSOLIDATED REVENUES AND SERVICES FOR THE FIRST HALF OF 1999 WERE
$7,080.1 MILLION PESOS THAT IS EQUIVALENT TO A 3.8% INCREASE IN REAL TERMS
FROM THOSE GENERATED LAST YEAR ($6,817.9 MILLION PESOS).
THE MINING SECTOR (GMM) GENERATED SALES OF $4,836.4 MILLION PESOS, A 10.9%
DECREASE IN REAL TERMS ON THOSE GENERATED DURING THE SAME PERIOD A YEAR
AGO. THESE SALES WERE ACHIEVED DESPITE THE CONSIDERABLE DECLINE IN METAL
COMMODITY PRICES, THE ILLEGAL STRIKE IN THE CANANEA UNIT AND THE
APPRECIATION OF THE MEXICAN PESO AGAINST THE US DOLLAR.
THE RAILROAD SECTOR (GFM) GENERATED TOTAL REVENUES OF $2,321.6 MILLION
PESOS COMPARED TO $1,424.6 MILLION PESOS DURING THE SAME PERIOD A YEAR AGO
AFTER ITS INCORPORATION ON THE 19TH OF FEBRUARY OF 1998.
CONSOLIDATED COST OF SALES
FOR THE MINING SECTOR (GMM), COST OF SALES OF $3,570.6 MILLION PESOS IN
REAL TERMS SHOWED ALMOST NO CHANGE OVER THE COST OF SALES FROM THE FIRST
HALF OF 1998 OF $3,348.9 MILLION PESOS DESPITE THE SHORTAGE OF COPPER
CONCENTRATES DUE TO THE STRIKE AT THE CANANEA MINE THAT WERE SUBSTITUTED
FROM A REDUCTION IN
- --------------------------------------------------------------------------------
<PAGE>
MEXICAN STOCK EXCHANGE
SIFIC / ICS
STOCK EXCHANGE CODGMEXICO QUARTER 2 YEAR 1999
GRUPO MEXICO. S.A. DE C.V.
PAGE 5
DIRECTOR REPORT (1)
ANNEX 1 CONSOLIDATED
Final Printing
- --------------------------------------------------------------------------------
INVENTORIES AND THIRD PARTY PURCHASES.
THE COST OF SALES FOR THE RAILROAD GROUP (GFM) ASCENDED TO $1,623.6
MILLION PESOS COMPARED TO $926.5 INCURRED AFTER THE INCORPORATION OF THIS
OPERATION (19 OF FEBRUARY OF 1998).
CONSOLIDATED OPERATIONAL EXPENSES
CONSOLIDATED OPERATIONAL EXPENSES FOR THE 1ST HALF OF 1999 ASCENDED TO
$1,162.5 MILLION PESOS WITH THE INCORPORATION OF THE RAILROAD'S
OPERATIONAL EXPENSES THAT AMOUNTED TO $334.7 MILLION PESOS FOR THE PERIOD.
CONSOLIDATED INTEGRAL COST OF FINANCING
THE CONSOLIDATED INTEGRAL COST OF FINANCING REPRESENTED A $780.0 MILLION
PESO GAIN DURING THE PERIOD BECAUSE OF THE MEXICAN PESO APPRECIATION
AGAINST THE US DOLLAR BY $391.8 MILLION PESOS AND BECAUSE OF A $433.7
MILLION PESO GAIN ON MONETARY POSITION.
NET INCOME
ACCUMULATED NET INCOME FOR GRUPO MEXICO AMOUNTED TO $1,218.5 MILLION PESOS
COMPARED TO $522.4 MILLION PESOS DURING THE SAME PERIOD OF 1998, A 133.3%
INCREASE.
OTHER INFORMATION
1.-METALS PRICES AND BREAKEVEN POINT
METAL COMMODITY PRICES HAVE EXPERIENCED SIGNIFICANT DECLINES DURING THE
FIRST SIX MONTHS OF THE YEAR, PRIMARILY COPPER AND SILVER WHOSE PRICE
AVERAGED US$68 CENTS PER POUND AND US$5.19 PER OUNCE RESPECTIVELY.
NEVERTHELESS, SINCE THE BEGINNING OF JULY, METAL COMMODITY PRICES HAVE
EXPERIENCED SIGNIFICANT INCREASES, COPPER HAS REACHED US$79 CENTS PER
POUND, SILVER US$5.3 DOLLARS PER OUNCE AND ZINC US$51.1 CENTS PER POUND.
THESE INCREASES CAN BE ATTRIBUTED TO THE POSITIVE EXPECTATIONS ON WORLD
ECONOMIC GROWTH AND THE RECOVERY OF ASIAN ECONOMIES.
IN ADDITION, IT IS IMPORTANT TO MENTION THAT THE CONSOLIDATED BREAKEVEN
POINT IN TERMS OF CASH COSTS FOR THE SECOND QUARTER OF 1999 FOR GRUPO
MEXICO TO PRODUCE AND SELL A POUND OF COPPER IS $37.1 CENTS TO THE DOLLAR.
GRUPO MEXICO'S CASH COST OF $37.1 CENTS IS WELL BELOW RECENT MARKET COPPER
PRICES AND WILL ALLOW US TO MOVE FORWARD THROUGH THIS LOW COMMODITY PRICE
CYCLE. THIS ASSURES THE FUTURE DEVELOPMENT AND FAVORABLE PERFORMANCE OF
GRUPO MEXICO.
- --------------------------------------------------------------------------------
<PAGE>
MEXICAN STOCK EXCHANGE
SIFIC / ICS
STOCK EXCHANGE CODE: GMEXICO QUARTER: 2 YEAR: 1999
GRUPO MEXICO, S.A. DE C.V.
PAGE 6
DIRECTOR REPORT (1)
ANNEX 1 CONSOLIDATED
Final Printing
- --------------------------------------------------------------------------------
2. Y2K
MANAGEMENT AT GRUPO MEXICO RECOGNIZES THE SERIOUSNESS OF THE Y2K DATE IMPACT ON
OUR OPERATIONS. ACCORDINGLY, WE DEVELOPED AN INITIATIVE TO DEAL WITH THE Y2K
PROBLEM AT THE END OF 1997. THE "YEAR 2000 INITIATIVE" COVERS ALL CRITICAL AREAS
THAT USE INFORMATION TECHNOLOGY AND ELECTRICAL DEVICES THAT COULD BE AFFECTED.
GRUPO MEXICO IS COMMITTED TO ASSIGN THE REQUIRED RESOURCES TO COMPLETE OUR YEAR
2000 PROJECT ON TIME. WE HAVE AND WILL CONTINUE TO MAKE EVERY EFFORT NECESSARY
TO MAINTAIN THE COMPETITIVENESS OF OUR COMPANY AND TO MINIMIZE THE IMPACT OF THE
NEW MILLENNIUM ON OUR OPERATIONS.
GM ESTABLISHED A 2.2 MILLION DOLLAR BUDGET FOR THE YEAR 2000 PROGRAM (IN
ADDITION TO THE YEARLY BUDGET) AND ESTABLISHED A PROGRAM THAT TOOK CORRECTIVE
ACTIONS, IN PARALLEL TO THE ASSESSMENT PHASE, IN THE AREAS OF THIRD PARTY
SOFTWARE APPLICATIONS, EMBEDDED SYSTEMS, AND SUPPLY CHAIN ISSUES WITH CRITICAL
BUSINESS PARTNERS. ADDITIONALLY, GM HAS DEVELOPED CONTINGENCY PLANS FOR EACH
CRITICAL BUSINESS AREA TO ENSURE BUSINESS CONTINUITY, AND MINIMIZE RISKS TO OUR
OPERATION. THE PROGRAM IS TO BE COMPLETED DURING OCTOBER OF 1999.
<PAGE>
MEXICAN STOCK EXCHANGE
SIFIC / ICS
STOCK EXCHANGE CODE: GMEXICO QUARTER: 2 YEAR: 1999
GRUPO MEXICO, S.A. DE C.V.
FINANCIAL STATEMENT NOTES (1)
ANNEX 2 CONSOLIDATED
Final Printing
- --------------------------------------------------------------------------------
+ NOTE 1 PRINCIPAL ACCOUNTING AND FINANCIAL POLICIES
A) CONSOLIDATION BASIS.
THE CONSOLIDATED FINANCIAL STATEMENTS INCLUDE GRUPO MEXICO'S, S.A. DE C.V.,
FINANCIAL STATEMENTS (CONTROLLER COMPANY) AS WELL AS THOSE OF THE SUBSIDIARY
COMPANIES OF GRUPO MINERO MEXICO'S , S.A. DE C.V. BY 98.85%; GRUPO FERROVIA--RIO
MEXICANO, S.A. DE C.V. BY 74% AND LINEAS FERROVIARIAS DE MEXICO, S.A. DE C.V. BY
A 100% (THE FIRST TWO, SUBCONTROLLING COMPANIES) WICH ALSO CONSOLIDATED THEIR
FINANCIAL STATEMENTS WITH THOSE OF THEIR SUBSIDIARIES, MENTIONED AS FOLLOWS:
PARTICIPATION
GRUPO MINERO MEXICO, S.A. DE C.V. PERCENTAGE
------------------------------------------------ --------------
- MEXICANA DE COBRE, S.A. DE C.V.,
AND SUBSIDIARY COMPANIES 96.43%
- INDUSTRIAL MINERA MEXICO, S.A. DE C.V., AND
SUBSIDIARY COMPANIES 100.00%
- MINERALES METALICOS DEL NORTE, S.A. 100.00%
- SERVICIOS DE APOYO ADMINISTRATIVO, S.A. DE C.V. 100.00%
- MEXICANA DE CANANEA, S.A. DE C.V.,
AND SUBSIDIARY COMPANIES 98.49%
- MEXICO COMPANIA INMOBILIARIA, S.A. 100.00%
- MINERALES Y MINAS MEXICANAS, S.A. DE C.V. 100.00%
- WESTERN COPPER SUPPLIES, INC. 100.00%
- MINERA MEXICO INTERNACIONAL, INC. 100.00%
- MEXICANA DEL ARCO, S.A. DE C.V. 100.00%
- TRANSPORTES MINEROS MEXICO, S.A. DE C.V. 100.00%
GRUPO FERROVIARIO MEXICANO, S.A. DE C.V.
------------------------------------------------ --------------
- FERROCARRIL MEXICANO, S.A. DE C.V. 100.00%
- GFM SERVICIOS ADMINISTRATIVOS, S.A. DE C.V. 100.00%
B) BASIS FOR THE DETERMINATION OF FIGURES, FOR COMPARABILITY EFFECTS OF THE
FINANCIAL STATEMENTS
IN ACCORDANCE TO THE DECREED IN THE THIRD OF ADEQUACY TO BULLETIN B-10 AND OF
CIRCULAR LETTER 11-10 BIS 4, THE REEXPRESION OF THE ENTRIES WAS PERFORMED OF THE
FINANCIAL STATEMENTS OF THE PREVIOUS YEAR AS WELL AS THE PRESENT PERIOD TO PESOS
OF PURCHASING POWER OF JUNE 30, 1999, FOR COMPARISON PURPOSES.
<PAGE>
MEXICAN STOCK EXCHANGE
SIFIC / ICS
STOCK EXCHANGE CODE: GMEXICO QUARTER: 2 YEAR: 1999
GRUPO MEXICO, S.A. DE C.V.
FINANCIAL STATEMENT NOTES (1)
PAGE 2
ANNEX 2 CONSOLIDATED
Final Printing
- --------------------------------------------------------------------------------
C) TEMPORARY INVESTMENT APPRAISAL.
THE INVESTMENTS IN LIQUID ASSETS ARE FOUND REPRESENTED MAINLY BY INVESTMENT
FUNDS IN SHARES OF MEXICAN AND FOREIGN COMPANIES, CETES AND SHORT TERM BANK
DEPOSITS, VALUED AT THEIR MARKET VALUE.
D) APPRAISAL OF RIGHTS AND OBLIGATIONS IN FOREIGN CURRENCY.
THE TRANSACTIONS IN FOREIGN CURRENCY, ARE REGISTERED AT THE EXCHANGE RATE ON THE
DATE OF OPERATION, ASSETS AND LIABILITIES IN FOREIGN CURRENCY AT THE CLOSING OF
THE EXERCISE, ARE ADJUSTED TO THE EXCHANGE RATE TO THAT DATE, AFFECTING THE
RESULTS OF THE EXERCISE AS PART OF THE FINANCIAL COST. THE EXCHANGE RATE USED AT
THE CLOSE OF THE REVALUATION OF THE U.S. DOLLAR WAS 9.4165.
E) INVENTORIES AND SALES COST APPRAISAL.
AT THE CLOSING OF THE EXCERCISE, INVENTORIES OF THE PRINCIPAL METALS ARE
APPRAISED AT THE ONGOING PRICES OF THE INTERNATIONAL METALS MARKET, MINUS THE
UPDATED COST OF THE PENDING TREATMENT AND ACCORDING TO THE PROCESS STAGE OF
PRODUCTION AND REFINING IN WHICH THEY ARE FOUND. THE OTHER INVENTORY CONCEPTS
ARE APPRAISED AT ACTUAL PURCHASING OR PRODUCTION COSTS. THE REST OF THE VALUES
DO NOT EXCEED THE NET VALUE OF LIQUIDATION.
F) REAL ESTATE, MACHINERY AND EQUIPMENT APPRAISAL.
AT THE SECOND QUARTER OF 1999, PROPERTIES AND EQUIPMENT WERE ACTUALIZED APPLYING
THE METHOD OF CHANGES IN THE GENERAL PRICE LEVEL IN ACCORDANCE TO CIRCULAR
LETTER 11-27 PUBLISHED SEPTEMBER 15, 1997 AS WELL AS LINEAMENTS APPROVED IN THE
FINAL TEXT OF THE FIFTH DOCUMENT OF ADEQUATIONS TO BULLETIN B-10 OF THE
GENERALLY ACCEPTED ACCOUNTING PRINCIPALS.
G) DEPRECIATION RESOLUTION.
DEPRECIATION AND AMORTIZATION ARE CALCULATED BY THE DIRECT LINE METHOD
CONSIDERING THE UPDATED VALUE BY THE ADJUSTMENT METHOD FOR CHANGES IN THE
GENERAL PRICE LEVEL AND THE REMAINING USEFUL LIFE.
H) CAPITAL.
THE ACCUMULATED AND CONTRIBUTED CAPITAL AS WELL AS THE NON-MONETARY ENTRIES, ARE
MADE EFFECTIVE WITH A FACTOR DERIVED FROM THE NATIONAL CONSUMERS PRICE
INDEX (INPC), FROM THE DATE CONTRIBUTION OR GENERATION.
<PAGE>
MEXICAN STOCK EXCHANGE
SIFIC / ICS
STOCK EXCHANGE CODE: GMEXICO QUARTER: 2 YEAR: 1999
GRUPO MEXICO, S.A. DE C.V.
DIRECTOR REPORT (1)
PAGE 3
ANNEX 2 CONSOLIDATED
Final Printing
- --------------------------------------------------------------------------------
(MONTHLY HISTORICAL AND UPDATED NET RESULT)
MONTHLY UPDATE
NET RESULT OF
THE EXERCISE
NET HISTORICAL RESULT INDEX THOUSAND OF
ACCUMULATED MONTH AT CLOSING OF ORIGIN PESOS)
- -------------------------------------------------------------------------------
JULY 1998 0 99,372 294.750 253.500 115,542
AUGUST 1998 (535,330) (635,202) 294.750 255.937 (731,531)
SEPTEMBER 1998 (161,462) 374,368 294.759 260.088 424,260
OCTOBER 1998 (80,838) 80,624 294.750 263.815 90,078
NOVEMBER 1998 173,173 254,016 294.750 268.487 278,863
DECEMBER 1998 57,254 (115,924) 294.750 275.038 (124,232)
JANUARY 1999 56,783 (471) 294.750 281.983 (492)
FEBRUARY 1999 257,267 200,484 294.750 285.773 206,782
MARCH 1999 760,889 503,622 294,750 288.428 514,661
APRIL 1999 1,159,481 398,592 294.750 291.075 403,624
MAY 1999 726,751 (432,730) 294.750 292.826 (435,573)
JUNE 1999 1,256,339 529,588 294.750 794.750 529,588
----------
NET RESULTS, FOR THE LAST TWELVE MONTHS 1,271,570
----------
JULY 1997 0 257,710 294.750 219.646 345,829
AUGUST 1997 434,262 176,552 294.750 221.599 234,833
SEPTEMBER 1997 477,358 43,096 294.750 224.359 56,617
OCTOBER 1997 523,676 46,318 294.750 226.152 60,367
NOVEMBER 1997 451,076 (72,600) 294.750 223.682 (93,575)
DECEMBER 1997 789,029 337,953 294.750 231.886 429,572
JANUARY 1998 690,393 (98,636) 294.750 236.931 (122,706)
FEBRUARY 1998 733,976 43,583 294.750 241.079 53,286
MARCH 1998 1,110,488 376,512 294.750 243.903 455,004
APRIL 1998 1,165,326 54,838 294.750 246.185 65,656
MAY 1998 1,068,954 (96,372) 294.750 248.146 (114,472)
JUNE 1998 1,192,457 123,503 294.750 251.079 185,590
----------
NET RESULTS, FOR THE LAST TWELVE MONTHS 1,556,001
----------
*BOARD OF DIRECTORS
DURATION FROM APRIL 30, 1999 TO APRIL 30, 2000 OR UNTIL FURTHER NOTICE.
MARKET VALUE OF EACH SHARE
<PAGE>
MEXICAN STOCK EXCHANGE
SIFIC / ICS
STOCK EXCHANGE CODE: GMEXICO QUARTER 2 YEAR 1999
GRUPO MEXICO, S.A. DE C.V.
FINANCIAL STATEMENT NOTES (1)
PAGE 4
ANNEX 2 CONSOLIDATED
Final Printing
- --------------------------------------------------------------------------------
LAST MADE 40.05 24.65
C-17 INCLUDED IN THIS ITEM THE PARTICIPATION OF THE RESULTS OF SUBSIDIARY
COMPANIES.
C-27 AMORTIZATION OF BANK FINANCEMENTS.
1999 1998
---------- ----------
NET LOSS IN EXCHANGES (1,685,311) (1,142,964)
NET LOSS FOR UPDATING 456,227 1,434,652
AMORTIZATION OF BANK FINANCEMENTS (707,391) (9,560,942
---------- ----------
(1,936,475) (9,269,254)
========== ==========
OBSERVATIONS TO ANNEX 3.
PARTICIPATION PERCENTAGE IS INCLUDED BETWEEN SUBSIDIARIES WITH LESS THAN 51%.
INVESTMENTS ARE EXCLUDED IN THE CONSOLIDATION IN ASSOCIATED COMPANIES WITH MORE
THAN 51% ON ACCOUNT OF BEING NON-PROFIT ORGANIZATIONS.
OBSERVATIONS TO ANNEX 4.
IN OTHER ASSETS, RAILROAD CONCESSION TITLES ARE INCLUDED, FOR A NET AMOUNT OF
$1,404,293.
CONSOLIDATED STATEMENTS OF INCOME.
R-14 SPECIAL ITEMS AND DISCONTINUOS OPERATIONS.
IN 1999 INCLUDED SPECIAL ITEM BY $ 73.1, MILLION PESOS DUE TO NON-PRODUCTIVE
FIXED CHARGES EXPENDED AND THE AMOUNT THAT WAS NOT PROVISIONED FOR LAID-OFF
WORKERS AND EMPLOYEES DURING THE STOPPAGE OF MEXICANA DE CANANEA S.A. DE C.V.
<PAGE>
MEXICAN STOCK EXCHANGE
SIFIC / ICS
STOCK EXCHANGE CODE: GMEXICO QUARTER 2 YEAR 1999
GRUPO MEXICO, S.A. DE C.V.
RELATIONS OF SHARES INVESTMENTS
ANNEX 3 CONSOLIDATED
Final Printing
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TOTAL AMOUNT
(Thousands of Pesos)
-----------------------------
NUMBER OF WNERSHI CQUISITIO PRESENT
COMPANY NAME (1) MAIN ACTIVITIES SHARES (2) COST VALUE (3)
=============================================================================================================
<S> <C> <C> <C> <C> <C>
SUBSIDIARIES
2 GRUPO MEXICO, S.A DE 1 0.00 0 0
C.V.
3 GRUPO MINERO PROM. ORG. SOC. 642,670,270 98.85 6,920,137 25,372,344
MEXICO, S.A. DE C.V. INDUSTRIALES
4 GRUPO FERROVIARIO ADMINISTRATIVE 3,511,522,283 74.00 3,515,780 5,126,004
MEXICANO, S.A. DE C.V. SERVICES
5 LINEAS FERROVIARIAS DE TRANSPORTATION 99 99.00 99 99
MEXICO, S.A. DE C.V. SERVICES
6 GRUPO FERROVIARIO 1 0.00 0 0
MEXICANO, S.A. DE C.V.
7 FERROCARRIL MEXICANO, TRANSPORTATION 4,468,668,764 100.00 4,468,669 6,968,667
S.A. DE C.V. SERVICES
8 GFM SERVICIOS ADMINISTRATIVE 2,000 100.00 2,000 5,287
ADMINISTRATIVOS, S.A DE SERVICES
C.V.
9 GRUPO MINERO MEXICO, 1 0.00 0 0
S.A. DE C.V.
10 INDUSTRIAL MINERA MINING AND 5,445,791,877 98.12 650,777 5,459,362
MEXICO, S.A. DE C.V. CONCENTRATING
METALS
11 MINERALES METALICOS MINING 49,401,265 100.00 150 1,124,247
DEL NORTE, S.A DE C.V.
12 MEXICANA DEL ARCO, S.A. MINING 1,495,284,999 100.00 61,216 51,606
DE C.V.
13 MEXICANA DE COBRE, S.A. MINING 986,829,656 94.59 1,988,893 17,264,736
DE C.V.
14 MEXICANA DE CANANEA, MINING 198,755,722 98.49 4,344,317 6,301,332
S.A. DE C.V.
15 SERVICIOS DE APOYO ADMINISTRATIVE 49,999 100.00 578 94,948
ADMINISTRATIVO, S.A. DE SERVICES
C.V.
16 MINERA MEXICO INT. INC. SALES COMPANY 1,000 100.00 47 (24,016)
17 MEXICO CIA. REAL ESTATE 3,999,999 100.00 111,914 491,999
INMOBILIARIA, S.A. DE C.V.
18 MINERALES Y MINAS MINING 1,330,892 33.26 64,593 83,525
MEXICANAS, S.A. DE C.V.
19 WESTERN COPPER SALES COMPANY 1,000 100.00 4,764 6,418
SUPPLIES, INC.
20 TRANSPORTES MINEROS TRANSPORTATION 1,420,403 100 00 14,204 13,809
MEXICO, S.A. DE C.V. SERVICES
21 INDUSTRIAL MINERA 1 0.00 0 0
MEXICO, S.A. DE C.V.
22 CIA DE TERR. E INV. DE EXPLN. AND ADMON. OF 139 99.29 3 (254)
S.L.P.A.C. POR A.S.A. ITS PROPERTIES
23 MINERALES Y MINAS MINING 2,670,240 66.74 133,512 167,581
MEXICANAS S.A. DE C.V.
24 MINERALES METALICOS 1 0.00 0 0
DEL NORTE, S.A. DE C.V.
25 INDUSTRIAL MINERA MINING AND 294,879,625 1.87 22,516 104,225
MEXICO, S.A. DE C.V. CONCENTRATING
METALS
26 MEXICANA DE COBRE, S.A. MINING 19,171,560 1.84 30,885 335,409
DE C.V.
27 MEXICANA DE COBRE, S.A. 1 0.00 0 0
DE C.V.
</TABLE>
<PAGE>
MEXICAN STOCK EXCHANGE
SIFIC / ICS
STOCK EXCHANGE CODE: GMEXICO QUARTER 2 YEAR 1999
GRUPO MEXICO, S.A. DE C.V.
RELATIONS OF SHARES INVESTMENTS
PAGE 2
ANNEX 3 CONSOLIDATED
Final Printing
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TOTAL AMOUNT
(Thousands of Pesos)
---------------------------
NUMBER OF WNERSHI CQUISITIO PRESENT
COMPANY NAME (1) MAIN ACTIVITIES SHARES (2) COST VALUE (3)
===================================================================================================================
<S> <C> <C> <C> <C> <C>
28 MINERA PILARES, S.A. DE MINING 2,550 51.00 23 3,677
C V.
29 CIA. HOTELERA LA HOTEL EMPLOYEES ONLY 5,090 50.90 5 5
CARIDAD, S.A. DE C.V.
30 MEXICANA DE CANANEA, 1 0.00 0 0
S.A. DE C.V.
31 APOSENTOS DEL REAL, SA. HOTEL EMPLOYEES ONLY 121,679 100.00 381 (387)
DE C.V.
32 PROYECCIONES REAL ESTATE 1 100.00 1,461 169,486
URBANISTICAS, S. DE R.L.
DE C.V.
33 HOSPITAL DEL RONGUILLO, EMPLOYEE MEDICAL 1 100.00 1,637 (819)
S. DE R.L. DE C.V. SERVICES
34 ELIMINACION DE CIAS. 1 0.00 (22,338,561) (69,119,291)
SUBS. EN CONSOLIDACION
- --------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT IN SUBSIDIARIES 0 0
===================================================================================================================
ASSOCIATEDS
1 FISON, S A. 3 100.00 2,168 2,168
2 MEXICO CONSTRUCTORA 491,800 49.18 492 492
INDUSTRIAL, SA. DE C V.
3 PROVEEDORA MINERA DE 5 51.64 3,859 3,859
ARTICULOS DE CONSUMO,
S.C.
4 PREPARACION DE 3 98.00 2 2
TERRENOS PARA
LABRANZA, S.C.
5 TERM. FERROV. DEL VALLE 21,456,840 25.00 83,706 83,706
DE MEXICO, S.A. DE C.V.
6 SOC. DE TRANSP. MINEROS 1 51.02 1,276 1,276
SECCION V, S.C.
7 OTRAS ASOCIADAS (4) 1 0.00 0 0
(No. DE ASOC.:)
0 0.00 0 0
- --------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENT IN ASSOCIATEDS 91,503 91,503
===================================================================================================================
OTHER PERMANENT INVESTMENTS 0
- --------------------------------------------------------------------------------------------------------------------
TOTAL 91,503
===================================================================================================================
</TABLE>
NOTES
<PAGE>
MEXICAN STOCK EXCHANGE
SIFIC / ICS
STOCK EXCHANGE CODE: GMEXICO QUARTER 2 YEAR 1999
GRUPO MEXICO, S.A. DE C.V.
PROPERTY, PLANT AND EQUIPMENT
(Thousands of Pesos)
ANNEX 4 CONSOLIDATED
Final Printing
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DEPRECIATION CARRYING VALUE
ACQUISITION ACCUMULATED CARRYING REVALUATION ON (-) REVALUATION
CONCEPT COST DEPRECIATION VALUE REVALUATION (-) DEPRECIATION
==========================================================================================================
<S> <C> <C> <C> <C> <C> <C>
DEPRECIATION ASSETS
===================
PROPERTY 1,473,632 248,761 1,224,871 8,058,500 3,177,881 6,105,490
- -------------------
MACHINERY 9,301,540 2,690,931 6,610,609 22,710,535 10,156,395 19,164,749
- -------------------
TRANSPORT 219,318 83,066 136,252 325,424 186,275 275,401
EQUIPMENT
- -------------------
OFFICE EQUIPMENT 0 0 0 0 0 0
- -------------------
COMPUTER 121,678 64,014 57,664 52,726 (904) 111,294
EQUIPMENT
- -------------------
OTHER 1,126,079 71,917 1,054,162 979,837 81,586 1,952,413
- ----------------------------------------------------------------------------------------------------------
DEPRECIABLES TOTAL 12,242,247 3,158,689 9,083,558 32,127,022 13,601,233 27,609,347
==========================================================================================================
NOT DEPRECIATION
ASSETS
===================
GROUNDS 451,994 0 451,994 594,590 (1,603) 1,048,187
- -------------------
CONSTRUCTIONS IN 2,556,125 0 2,556,125 453,256 0 3,009,381
PROCESS
- -------------------
OTHER 0 0 0 0 0 0
- ----------------------------------------------------------------------------------------------------------
NOT DEPRECIABLE 3,008,119 0 3,008,119 1,047,846 (1,603) 4,057,568
TOTAL
==========================================================================================================
T 0 T A L 15,250,366 3,158,689 12,091,677 33,174,868 13,599,630 31,666,915
==========================================================================================================
</TABLE>
<PAGE>
STOCK EXCHANGE CODE: GMEXICO QUARTER: 2 YEAR: 1999
GRUPO MEXICO, S.A. DE C.V.
MEXICAN STOCK EXCHANGE
ANNEX 05
CREDITS BREAK DOWN
(THOUSANDS OF PESOS)
Final Printing
CONSOLIDATED
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Amortization of Credits in Foreign Currency
With National Entities (Thousands Of $)
Denominated in ----------------------------------------------------------
Pesos Time Interval
Credit --------------------------------------------------------------------------------
Type / Concertation Rate of Until 1 More Than Current Until 1 Until 2 Until 3 Until 4 Until 5
Institution Date Interest Year 1 Year Year Year Years Years Years Years
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BANKS
-------------------------------------------------------------------------------------------------------
OTHER FINANCIAL ENTITIES
- ------------------------------------------------------------------------------------------------------------------------------------
PROG DE BURSAT /ING 28/11/1995 8.45 0 0 0 0 0 0 0 0
BARING
- ------------------------------------------------------------------------------------------------------------------------------------
COLOCACION DE BONOS/ING 31/03/1998 8.68 0 0 0 0 0 0 0 0
BARI
- ------------------------------------------------------------------------------------------------------------------------------------
SINDICADO/BANK OF AMERICA 06/10/1998 7.18 0 0 0 0 0 0 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
REFACCIONARIO/EXPORT 18/11/1996 0.00 0 0 0 0 0 0 0 0
DEVELOP
- ------------------------------------------------------------------------------------------------------------------------------------
REFACCIONARIO/SOCIETE 28/02/1997 0.00 0 0 0 0 0 0 0 0
GENERA
- ------------------------------------------------------------------------------------------------------------------------------------
REFACCIONARIO/F N.B. 28/08/1995 0.00 0 0 0 0 0 0 0 0
MARYLAN
- ------------------------------------------------------------------------------------------------------------------------------------
INTEREST 0 0 0 0 0 0 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL BANKS 0 0 0 0 0 0 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ---------------------------------------------------------------------------------------
Amortization of Credits in Foreign Currency
With Foreign Entities (Thousands Of $)
------------------------------------------------------------
Time Interval
Credit ------------------------------------------------------------
Type / Current Until 1 Until 2 Until 3 Until 4 Until 5
Institution Year Year Years Years Years Years
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BANKS
------------------------------------------------------------
OTHER FINANCIAL ENTITIES
- ---------------------------------------------------------------------------------------
PROG DE BURSAT /ING 235,412 0 0 0 0 5,277,163
BARING
- ---------------------------------------------------------------------------------------
COLOCACION DE BONOS/ING 0 0 0 0 0 4,245,885
BARI
- ---------------------------------------------------------------------------------------
SINDICADO/BANK OF AMERICA 357,827 0 0 0 0 1,224,145
- ---------------------------------------------------------------------------------------
REFACCIONARIO/EXPORT 172,321 0 0 0 0 602,220
DEVELOP
- ---------------------------------------------------------------------------------------
REFACCIONARIO/SOCIETE 28,730 0 0 0 0 129,287
GENERA
- ---------------------------------------------------------------------------------------
REFACCIONARIO/F N.B. 8,475 0 0 0 0 0
MARYLAN
- ---------------------------------------------------------------------------------------
INTEREST 156,642 0 0 0 0 0
- ---------------------------------------------------------------------------------------
TOTAL BANKS 959,407 0 0 0 0 11,478,700
- ---------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Amortization of Credits in Foreign Currency
With National Entities (Thousands Of $)
Denominated in ----------------------------------------------------------
Pesos Time Interval
Credit --------------------------------------------------------------------------------
Type / Concertation Rate of Until 1 More Than Current Until 1 Until 2 Until 3 Until 4 Until 5
Institution Date Interest Year 1 Year Year Year Years Years Years Years
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SUPPLIERS
- ------------------------------------------------------------------------------------------------------------------------------------
VARIOS 690,869 0 0 0 0 0 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL SUPPLIERS 690,869 0 0 0 0 0 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ---------------------------------------------------------------------------------------
Amortization of Credits in Foreign Currency
With Foreign Entities (Thousands Of $)
------------------------------------------------------------
Time Interval
Credit ------------------------------------------------------------
Type / Current Until 1 Until 2 Until 3 Until 4 Until 5
Institution Year Year Years Years Years Years
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SUPPLIERS
- ---------------------------------------------------------------------------------------
VARIOS 543,142 0 0 0 0 0
- ---------------------------------------------------------------------------------------
TOTAL SUPPLIERS 543,142 0 0 0 0 0
- ---------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Amortization of Credits in Foreign Currency
With National Entities (Thousands Of $)
Denominated in ----------------------------------------------------------
Pesos Time Interval
Credit --------------------------------------------------------------------------------
Type / Concertation Rate of Until 1 More Than Current Until 1 Until 2 Until 3 Until 4 Until 5
Institution Date Interest Year 1 Year Year Year Years Years Years Years
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OTHER CURRENT LIABILITIES
AND OTHER CREDITS
- ------------------------------------------------------------------------------------------------------------------------------------
OTHER CREDITS 239,265 0 0 0 0 0 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
OTHER CURRENT LIABILITIES 239,265 0 0 0 0 0 0 0
AND OTHER CREDITS
- ------------------------------------------------------------------------------------------------------------------------------------
930,134 0 0 0 0 0 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- -------------------------------------------------------------------------------------------
Amortization of Credits in Foreign Currency
With Foreign Entities (Thousands Of $)
----------------------------------------------------------------
Time Interval
Credit ----------------------------------------------------------------
Type / Current Until 1 Until 2 Until 3 Until 4 Until 5
Institution Year Year Years Years Years Years
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
OTHER CURRENT LIABILITIES
AND OTHER CREDITS
- -------------------------------------------------------------------------------------------
OTHER CREDITS 0 0 0 0 0 26,391
- -------------------------------------------------------------------------------------------
OTHER CURRENT LIABILITIES 0 0 0 0 0 26,391
AND OTHER CREDITS
- -------------------------------------------------------------------------------------------
1,502,549 11,505,091
- -------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
STOCK EXCHANGE CODE: GMEXICO QUARTER: 2 YEAR: 1999
GRUPO MEXICO, S.A. DE C.V.
MEXICAN STOCK EXCHANGE
ANNEX 05
CREDITS BREAK DOWN
(THOUSANDS OF PESOS)
Final Printing
CONSOLIDATED
NOTES
4) REFACCIONARIO/EXPORT DEVELOPMENT CORP. (EDC) TASA DE INTERES
LIBOR+0.750
5) REFACCIONARIO/SOCIETE GENERALE TASA DE INTERES LIBOR+0.250
6) REFACCIONARIO/FIRST NATIONAL BANK OF MARYLAND (FNBM) TASA DE INTERES
LIBOR+0.375
THE EXCHANGE RATE USED AT THE CLOSE OF THE REVALUATION OF THE DOLLAR WAS
9.4165.
<PAGE>
MEXICAN STOCK EXCHANGE
SIFIC / ICS
STOCK EXCHANGE CODE: GMEXICO QUARTER 2 YEAR 1999
GRUPO MEXICO, S.A. DE C.V.
TRADE BALANCE AND MONETARY POSITION IN FOREIGN EXCHANGE
(Thousands of Pesos)
ANNEX 6 CONSOLIDATED
Final Printing
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
DOLARS (1) OTHER CURRENCIES TOTAL
---------------------------------------------------------
THOUSANDS OF THOUSANDS OF THOUSANDS OF THOUSANDS OF THOUSANDS OF
TRADE BALANCE DOLARS PESOS DOLARS PESOS PESOS
=========================================================================================================
<S> <C> <C> <C> <C> <C>
1. INCOME
===============================
EXPORTS 317,361 3,075,961 0 0 3,075,961
OTHER 24,389 235,417 0 0 235,417
TOTAL 341,750 3,311,378 3,311,378
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
2. EXPENDITURE
===============================
IMPORT(RAW MATERIALS) 113,201 1,095,150 3,074 29,756 1,124,906
INVESTMENTS 45,814 435,016 827 7,846 442,862
OTHER 91,976 892,044 0 0 892,044
TOTAL 250,991 2,422,210 3,901 37,602 2,459,812
- ---------------------------------------------------------------------------------------------------------
NET BALANCE 90,759 889,168 (3,901) (37,602) 851,566
- ---------------------------------------------------------------------------------------------------------
FOREIGN MONETARY POSITION
===============================
TOTAL ASSETS 591,982 5,572,026 30 287 5,572,313
LIABILITIES POSITION 1,380,812 13,002,416 555 5,224 13,007,640
SHORT TERM LIABILITIES POSITION 159,011 1,497,325 555 5,224 1,502,549
LONG TERM LIABILITIES POSITION 1,221,801 11,505,091 0 0 11,505,091
- ---------------------------------------------------------------------------------------------------------
NET BALANCE (788,830) (7,430,390) (525) (4,937) (7,435,327)
- ---------------------------------------------------------------------------------------------------------
=========================================================================================================
</TABLE>
NOTES
THE EXCHANGE RATE USED AT THE CLOSE OF THE REVALUATION OF THE DOLLAR WAS 9.4165.
<PAGE>
MEXICAN STOCK EXCHANGE
SIFIC / ICS
STOCK EXCHANGE CODE: GMEXICO QUARTER 2 YEAR 1999
GRUPO MEXICO, S.A. DE C.V.
INTEGRATION AND INCOME
CALCULATION BY MONETARY POSITION (1)
(Thousands of Pesos)
ANNEX 7 CONSOLIDATED
Final Printing
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(ASSET LIABILITIES) MONTHLY
MONETARY MONETARY MONETARY MONTHLY (PROFIT)
MONTH ASSETS LIABILITIES POSITION INFLATION AND LOSS
========================================================================================
<S> <C> <C> <C> <C> <C>
JANUARY 11,755,451 17,755,808 6,000,357 2.52 151,209
FEBRUARY 12,280,264 17,570,189 5,289,925 1.34 70,885
MARCH 12,026,799 19,749,842 7,723,043 0.92 71,052
APRIL 13,283,215 18,007,611 4,724,396 0.91 42,992
MAY 12,662,902 19,578,569 6,915,667 0.60 41,494
JUNE 13,168,251 20,041,636 6,873,385 0.65 44,677
ACTUALIZATION: 0 0 0 0.00 11,428
CAPITALIZATION 0 0 0 0.00 0
FOREIGN CORP 0 0 0 0.00 0
OTHER 0 0 0 0.00 0
========================================================================================
TOTAL 433,737
========================================================================================
</TABLE>
NOTES
<PAGE>
MEXICAN STOCK EXCHANGE
SIFIC / ICS
STOCK EXCHANGE CODE: GMEXICO QUARTER 2 YEAR 1999
GRUPO MEXICO, S.A. DE C.V.
BONDS AND MEDIUM TERM NOTES LISTING IN STOCK MARKET (1)
ANNEX 8 CONSOLIDATED
Final Printing
- --------------------------------------------------------------------------------
FINANCIAL LIMITED BASED IN ISSUED DEED AND/OR TITLE
================================================================================
NOT APPLICABLE
================================================================================
================================================================================
ACTUAL SITUATION OF FINANCIAL LIMITED
================================================================================
NOT APPLICABLE
================================================================================
================================================================================
BONDS AND/OR MEDIUM TERM NOTES CERTIFICATE
================================================================================
<PAGE>
MEXICAN STOCK EXCHANGE
SIFIC / ICS
STOCK EXCHANGE CODE: GMEXICO QUARTER 2 YEAR 1999
GRUPO MEXICO, S.A. DE C.V.
PLANTS, COMMERCE CENTERS OR DISTRIBUTION CENTERS
ANNEX 9 CONSOLIDATED
Final Printing
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PLANT PLANT
OR ECONOMIC CAPACITY UTILIZATION
CENTER ACTIVITY (1) (%)
===============================================================================================================
===============================================================================================================
<S> <C> <C> <C>
MEXICANA DE COBRE 0 0
S.A. DE C.V. 0 0
CONCENTRATE MINE EXTRACTION AND GRINDING OF MINERALS 0 0
AND PRODUCTION OF COPPER 0 0
CONCENTRATES 31,500,000 100
SMELTING COPPER SMELTER 360,000 92
COAL PLANT EXTRACTION OF HYDRATED LIME 122,400 83
MOLYBDENUM PLANT PRODUCTION OF MOLYBDENUM CONC. 720,000 100
SULPHURIC ACID PLANT SULPHURIC ACID PRODUCTION 1,565,520 62
SX/EW PLANT COPPER IN ELECTROLITIC CATHODE 21,900 100
REFINERY COPPER IN ELECTROLITIC CATHODE 300,000 89
WIRE ROD PLANT PRODUCTION COPPER WIRE ROD 115,000 66
INDUSTRIAL MINERA MEXICO 0 0
S.A. DE C.V 0 0
MONTERREY PLANT REFINERY OF: 0 0
FINE GOLD* 1,200 27
REFINED SILVER 192 100
SAN LUIS PLANT SMELTING OF 0 0
COPPER CONC. AND MINERALS 230,000 37
ARSENIC 6,000 21
ELECTROLYTIC ZINC REFINERY 0 0
REFINING OF: 0 0
ZINC 100,000 55
CADMIUM 600 51
PRODUCTION OF: 0 0
SULPHURIC ACID 140,000 67
NUEVA ROSITA AND AGUJITA PROD. COKE BY PRODUCTS 120,000 36
PLANT CHARCAS UNIT MINING, MILLING PRODUCTION OF LEAD 0 0
AND ZINC CONCENTRATES 1,476,000 96
TAXCO UNIT MINING, MILLING PRODUCTION OF LEAD 0 0
AND ZINC CONCENTRATES 1,079,100 50
SANTA EULALIA UNIT MINING, MILLING PRODUCTION OF LEAD 0 0
AND ZINC CONCENTRATES 262,400 100
ROSARIO UNIT MINING, MILLING PRODUCTION OF LEAD 0 0
CONCENTRATES 196,800 96
SAN MARTIN UNIT MINING, MILLING PRODUCTION OF COPPER 0 0
AND ZINC CONCENTRATES 2,230,400 84
PASTA DE CONCHOS UNIT MINING AND PRODUCTION OF COAL 400,000 25
MINERALES METALICOS DEL NORTE 0 0
S.A. 0 0
SANTA BARBARA UNIT EXTRACTION AND GRINDING OF MINERALS 0 0
PRODUCTION OF LEAD COPPER 1,574,400 100
AND ZINC CONCENTRATES 0 0
VELARDENA UNIT EXTRACTION AND GRINDING OF MINERALES 278,800 100
</TABLE>
<PAGE>
MEXICAN STOCK EXCHANGE
SIFIC / ICS
STOCK EXCHANGE CODE: GMEXICO QUARTER 2 YEAR 1999
GRUPO MEXICO, S.A. DE C.V.
PLANTS, COMMERCE CENTERS OR DISTRIBUTION CENTERS
PAGE 2
ANNEX 9 CONSOLIDATED
Final Printing
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PLANT PLANT
OR ECONOMIC CAPACITY UTILIZATION
CENTER ACTIVITY (1) (%)
===============================================================================================================
===============================================================================================================
<S> <C> <C> <C>
AND PRODUC. OF LEAD COPPER AND ZINC 0 0
CONCENTRATES 0 0
MEXICANA DE CANANEA 0 0
S.A DE C.V. 0 0
CONCENTRATE MINE EXTRACTION OF COPPER AND ORE 0 0
BENEFIT 24,500,000 73
LIXIVIATION PLANTS COPPER CATHODES 34,200 66
===============================================================================================================
</TABLE>
NOTES
(1) THOUSAND KILOGRAMS VOLUME.
* KILOGRAM VOLUME.
<PAGE>
MEXICAN STOCK EXCHANGE
SIFIC / ICS
STOCK EXCHANGE CODE: GMEXICO QUARTER 2 YEAR 1999
GRUPO MEXICO, S.A. DE C.V.
MAIN RAW MATERIALS
ANNEX 10 CONSOLIDATED
Final Printing
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MAIN MAIN DOM. COST
DOMESTIC SUPPLIERS FOREIGN SUPPLIERS SUBST. PRODUCTION
(%)
=======================================================================================================
=======================================================================================================
<S> <C> <C> <C> <C>
COPPER MATTE GLENCORE NO 5.00
COPPER CONC. MINERA LA ESCONDIDA. NO 4.00
ANODIC SLIMES COBRE DE PASTEJE, S.A. NO 1.00
MATTE AND SPEISS MET-MEX PENOLES, S.A. NO 1.00
COPPER CONC. TRAFIGURA, A.G. NO 1.00
COPPER CONCENTRATES CIA. MINERA MEXICANA
S.A. DE C.V. NO 1.00
DIESEL AND LUBRICANT PETROLEOS MEXICANO NO 6.00
REFACTIONS GIMCO, S.A. DE C.V. NO 6.00
COPPER CONCENTRATES SOC. COOP. MET. SANT
GUANAJUATO, S.A. DE C. NO 1.00
COPPER CONCENTRATES MINERA TIZAPA, S.A. DE NO
COPPER CONCENTRATES CIA. MINERA METALURG
SAN MIGUEL, S.A. DE C. NO
OTROS NO 4.00
=======================================================================================================
</TABLE>
NOTES
<PAGE>
MEXICAN STOCK EXCHANGE
SIFIC/ICS
STOCK EXCHANGE CODE: GMEXICO
GRUPO MEXICO, S.A. DE C.V. QUARTER: 2 YEAR: 1999
SELLS DISTRIBUTION PRODUCT
ANNEX 11
DOMESTIC SELLS CONSOLIDATED
Final Printing
<TABLE>
<CAPTION>
==========================================================================================================================
MAIN PRODUCTS TOTAL PRODUCTION NET SELLS MARKET MAIN
------------------ ------------------ SHARE -------------------------------------
VOLUME AMOUNT VOLUME AMOUNT (%) TRADEMARKS COSTUMERS
==========================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
GOLD 614 33,557 3.00 IMM MONTERREY MET. PRECIOSOS DE
MONTERREY
IMM MONTERREY GRUPO SAN MIGUEL
SILVER 142 6,228 4 5,589 IMM MONTERREY MET. PRECIOSOS DE
MONTERREY
IMM MONTERREY GRUPO SAN MIGUEL
LEAD 16,743 90,195 18,379 92,211 34.00 MET-MEX PENOLES
ZINC 47,780 394,488 27,757 292,593 45.00 IMM-SLP GRUPO NACOBRE
ALUM. Y ZINC INDUST.
COPPER CONTENT IN INDUST. MONTERREY
CONCENTRATES 40,777 401,364 MEXICANA DE COBRE
ZINC CONTENT
IN CONCENTRATES 28,133 93,319 2,898 31,611 25.00 MET-MEX PENOLES
LEAD CONTENT IN
CONCENTRATES 2,053 9,319 MET-MEX PENOLES
COPPER BLISTER 14,343 249,443 1,122 11,696 90.00 COBRE DE MEXICO
COBRE DE PASTEJE
COPPER WIRE ROD 37,900 412,198 7,479 120,922 CONDUCTORES COBR
CONDULIMEX
COPPER ANODES 2,636 17,395 6,763 93,778 100.00 COBRE DE MEXICO
COBRE DE PASTEJE
COPPER CATHODES 116,283 1,198,738 52,007 749,091 15.00 COBRE DE MEXICO
INDUST. UNIDAS
MOLYBDENUM 3,624 21,108 3,016 170,677 90.00 LA CARIDAD MOLYMEX
TRANSPORTATION
SERVICES 1,594,627 2,202,418
OTHERS 127,728
3TH DOC. EFFECT 72,251
- --------------------------------------------------------------------------------------------------------------------------
TOTAL 4,489,036 4,004,122
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
MEXICAN STOCK EXCHANGE
SIFIC/ICS
STOCK EXCHANGE CODE: GMEXICO
GRUPO MEXICO, S.A. DE C.V. QUARTER: 2 YEAR: 1999
SELLS DISTRIBUTION PRODUCT
ANNEX 11
PAGE 2
FOREIGN SELLS CONSOLIDATED
Final Printing
<TABLE>
<CAPTION>
==========================================================================================================================
MAIN PRODUCTS TOTAL PRODUCTION NET SELLS MAIN
------------------ ------------------ DESTINATION -------------------------------------
VOLUME AMOUNT VOLUME AMOUNT TRADEMARKS COSTUMERS
==========================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
GOLD 1 58,843 USA PHELPS DODGE
GLENCORE
SILVER 295 476,346 USA IMM MONTERREY AIG. INTERNATIONAL
IMM MONTERREY SCOTIA BANK
LEAD 89 356 USA INLAND STEEL
ZINC 23,951 252,085 USA BETHLEHEM STEEL
INLAND STEEL
ZINC CONTENT IN
CONCENTRATES 25,234 253,208 ALEMANIA UNION MINIERE
LEAD CONTENT IN BELGICA ROHSTOFFHANDEL
CONCENTRATES 2,053 9,591 BELGICA SOGEM
COPPER BLISTER 10,261 144,017 USA CANANEA TRAFIGURA, A.G.
GERALD METALS
COPPER WIRE ROD 40,597 624,813 USA PECHINEY WORLD T
COPPER ANODES 2,976 39,755 BELGICA SOGEM
COPPER CATHODES 76,655 1,099,936 USA ELECTROLITICO PECHINEY WORLD T
ELECTROWON GERALD METALS
MOLYBDENUM 481 28,214 USA LA CARIDAD GLENCORE INT.
AUSTRIA LA CARIDAD CHEMETALLGES
OTHERS 34,651
3TH DOC. EFFECT 54,146
- --------------------------------------------------------------------------------------------------------------------------
TOTAL 3,075,961
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTES
VOLUME IS EXPRESSED IN THOUSANDS OF UNIT
AMOUNT IS EXPRESSED IN THOUSAND OF PESOS
<PAGE>
STOCK EXCHANGE CO GMEXICO QUARTER: 2 YEAR: 1999
GRUPO MEXICO, S.A. DE C.V.
ANNEX 12
CEDULE FOR THE DETERMINATION OF THE NET FISCAL EARNINGS ACCOUNT (NFEA)
(Thousands of Pesos)
- --------------------------------------------------------------------------------
NFEA BALANCE FOR PREVIOUS PERIOD FOR WHICH IS DETERMINED
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
---------------
NFEA BALANCE TO DECEMBER 31st OF: 1998 2,035,064
---------------
---------------
Number of shares Outstanding at the Date at the NFEA: 645,974,000
(Units) ---------------
|X| ARE THE FIGURES FISCALLY AUDITED? |X| ARE THE FIGURES FISCALLY
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
DIVIDENDS COLLECTED IN THE PERIOD
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NUMBER OF SHARES
QUARTER SERIES OUTSTANDING DATE OF SETLEMENT AMOUNT
- --------------------------------------------------------------------------------
2 A 600,000.00 07/04/1999 320.00
- --------------------------------------------------------------------------------
2 A 458,000.00 08/04/1999 81.00
- --------------------------------------------------------------------------------
2 B 300,000 00 25/05/1999 32.00
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
DIVIDENDS PAID OUT IN THE PERIOD THAT COMES FROM THE NFEA
- --------------------------------------------------------------------------------
NUMBER OF SHARES
QUARTER SERIES OUTSTANDING DATE OF SETLEMENT AMOUNT
- --------------------------------------------------------------------------------
2 B 630,000,000.00 04/06/1999 17.00
- --------------------------------------------------------------------------------
2 B 630,000,000.00 11/05/1999 283,343.00
- --------------------------------------------------------------------------------
2 B 644,921,000.00 22/04/1999 2.00
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
DETERMINATION OF THE NFEA OF THE PRESENT YEAR
- --------------------------------------------------------------------------------
NFE FROM THE PERIOD FROM JANUARY 1 TO 30 OF JUNE OF 1999
---------------
FISCAL EARNINGS 16,263
---------------
---------------
- DETERMINED INCOME 5,204
---------------
---------------
+ DEDUCTED WORKER'S PRO 4,497
---------------
---------------
- DETERMINED WORK 43,604
---------------
---------------
- DETERMINED RFE 0
---------------
---------------
- NON DEDUCTABLES 21,516
---------------
---------------
NFE OF PERIOD 0
---------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
BALANCE OF THE NFEA AT THE END OF THE PERIOD
(Present year information)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
---------------
NFEA BALANCE TO 30 OF JUNE OF 1999 1,379,923
---------------
---------------
Number of shares Outstanding at the Date of the NFEA: 630,000,000
(Units) ---------------
- --------------------------------------------------------------------------------
<PAGE>
STOCK EXCHANGE CO GMEXICO QUARTER: 1 YEAR: 1999
RAZON SOCIAL: GRUPO MEXICO, S.A. DE C.V.
ANNEX 12
CEDULE FOR THE DETERMINATION OF THE NET FISCAL EARNINGS ACCOUNT (NFEA)
(Thousands of Pesos)
- --------------------------------------------------------------------------------
MODIFICATION BY COMPLENTARY
- --------------------------------------------------------------------------------
NFEA BALANCE TO DECEMBER 31st OF: 0000
---------------
0
---------------
---------------
Number of shares Outstanding at the Date of the NFEA: 0
(Units) ---------------
- --------------------------------------------------------------------------------
<PAGE>
STOCK EXCHANGE CO GMEXICO QUARTER: 2 YEAR: 1999
RAZON SOCIAL: GRUPO MEXICO, S.A. DE C.V.
ANNEX 12 - A
CEDULE FOR THE DETERMINATION OF THE NET FISCAL EARNINGS ACCOUNT
REINVERTED (NFEAR)
(Thousands of Pesos)
- --------------------------------------------------------------------------------
NFEAR BALANCE FOR PREVIOUS PERIOD FOR WHICH IS DETERMINED
- --------------------------------------------------------------------------------
---------------
NFEA BALANCE TO DECEMBER 31st OF: 0000 0
---------------
---------------
Number of shares Outstanding at the Date of the NFEAR: 0
(Units) ---------------
|_| ARE FIGURES FISCALLY AUDITED? |_| ARE FIGURES FISCALLY CONSOLIDATED?
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
DIVIDENDS PAIDOUT IN THE PERIOD THAT COMES FROM DE NFEAR
- --------------------------------------------------------------------------------
NUMBER OF SHARES
QUARTER SERIES OUTSTANDING DATE OF SETTELMENT AMOUNT
- --------------------------------------------------------------------------------
0 0 0.00 000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
DETERMINATION OF THE NFEAR OF THE PRESENT YEAR
- --------------------------------------------------------------------------------
NFER FROM THE PERIOD TO 30 OF JUNIO OF 1999
-------------
FISCAL EARNINGS 16,263
-------------
-------------
+ DEDUCTED WORKER'S PROFIT SHA 4,497
-------------
-------------
- DETERMINED INCOME TAX 43,604
-------------
-------------
- NON-DEDUCTABLES 21,516
-------------
-------------
-(+) EARNINGS (LOSS) FROM FOREING OF PROFIT 0
-------------
-------------
DETERMINATED RFE OF THE FISCAL YEAR 0
-------------
-------------
- INCOME TAX (DEFERED ISR):
-------------
-------------
* FACTOR TO DETERMINE THE NFEAR: 0
-------------
-------------
NFER FROM THE PERIOD 0
-------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
BALANCE OF THE NFEAR AT THE END OF THE PERIOD
- --------------------------------------------------------------------------------
-------------
0
-------------
NFEAR BALANCE TO: 30 OF JUNIO OF 1999
-------------
630,000,000
-------------
Number of shares Outstanding at the Date of the NFEAR
(Units)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
MODIFICATION BY COMPLEMENTARY
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NFEAR BALANCE TO DECEMBER 31st OF: 0000
-------------
0
-------------
-------------
0
-------------
Number of shares Outstanding at the Date of the NFEAR
(Units)
- --------------------------------------------------------------------------------
<PAGE>
MEXICAN STOCK EXCHANGE
SIFIC / ICS
STOCK EXCHANGE CODE: GMEXICO QUARTER: 2 YEAR 1999:
GRUPO MEXICO, S.A. DE C.V.
CONSOLIDATED
Final Printing
INTEGRATION OF THE PAID SOCIAL CAPITAL STOCK
CHARACTERISTICS OF THE SHARES
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
NOMINAL VALID CAPITAL STOCK
SERIES VALUE CUPON NUMBER OF SHARES (Thousands of Pesos)
----------------------------------------------- ------------------------
PORTION PORTION MEXICAN SUSCRIPTION FIXED VARIABLE
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
B-1 4 630,000,000 630,000,000 2,949,556
- --------------------------------------------------------------------------------------------------------
TOTAL 630,000,000 0 0 630,000,000 2,949,556 0
- --------------------------------------------------------------------------------------------------------
</TABLE>
TOTAL NUMBER OF SHARES REPRESENTING THE PAID-IN CAPITAL STOCK ON THE DATE OF
SENDING THE INFORMATION
630,000,000
SHARES PROPORTION BY:
CPO'S:
UNITS:
ADRS's:
GDRS's:
ADS's:
GDS's:
REPURCHASED OWN SHARES
NUMBER OF MARKET VALUE OF THE SHARE
SERIES SHARES AT REPURCHASE AT QUARTER
------ ------ ------------- ----------
<PAGE>
MEXICAN STOCK EXCHANGE
SIFIC / ICS
STOCK EXCHANGE CODE: GMEXICO QUARTER: 2 YEAR: 1999
GRUPO MEXICO, S.A. DE C.V.
CONSOLIDATED
Final Printing
DECLARATION FROM THE COMPANY OFFICIALS RESPONSABLE FOR THE INFORMATION.
I HEREBY SWEAR THAT THE FINANCIAL INFORMATION HERE IN SUPPLIED TO THIS
STOCK EXCHANGE, CORRESPONDING TO THE PERIOD FROM 1 OF JANUARY TO 30 OF
JUNE OF 1999 AND 1998 IS THAT OBTAINED FROM OUR AUTHORIZED ACCOUNTING
REGISTERS AND IS THE RESULT OF THE APPLICATION OF THE ACCOUNTING
PRINCIPLES AND NORMS ACCEPTED AND STATED BY THE MEXICAN INSTITUTE OF
PUBLIC ACCOUNTANTS AND IN THE PROVISIONS OF THE MEXICAN NATIONAL BANK AND
STOCK COMMISSION (COMISION NACIONAL BANCARIA Y DE VALORES).
THE ACCOUNTING PRINCIPLES USED BY THIS COMPANY AND THE PROCESSING OF DATA
FOR THE PERIOD TO WHICH THE SAID INFORMATION REFERS WERE APPLIED USING THE
SAME BASES AS FOR THE SIMILAR PERIOD OF THE PREVIOUS YEAR.
--------------------------- ----------------------------
C.P. ERNESTO DURAN TRINIDAD C.P. DANIEL TELLECHEA SALIDO
APODERADO APODERADO
MEXICO, D.F., AT JULY 30 OF 1999
<PAGE>
MEXICAN STOCK EXCHANGE
SIFIC/ICS
STOCK EXCHANGE CODE: GMEXICO Quarter: 2 Year: 1999
GRUPO MEXICO, S.A. DE C.V.
NON CONSOLIDATED FINANCIAL STATEMENT
AT JUNE 30 OF 1999 AND 1998
(Thousands of Pesos)
Final Printing
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
QUARTER OF PRESENT QUARTER OF PREVIOUS
REF -------------------------------------------------------------------------------
S CONCEPTS Amount % Amount %
- ------------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
1 TOTAL ASSETS 31,834,072 100 31,234,051 100
2 CURRENT ASSETS 1,327,646 4 1,496,462 5
3 CASH AND SHORT-TERM INVESTMENTS 1,061,812 3 884,698 3
4 ACCOUNTS AND DOCUMENTS RECEIVABLE (NET) 0 0 0 0
5 OTHER ACCOUNTS AND DOCUMENTS RECEIVABLE (NET) 265,834 1 611,764 2
6 INVENTORIES 0 0 0 0
7 OTHER CURRENT ASSETS 0 0 0 0
8 LONG-TERM 30,499,165 96 29,732,776 95
9 ACCOUNTS AND DOCUMENTS RECEIVABLE (NET) 0 0 0 0
10 INVESTMENT IN SHARES OF SUBSIDIARIES
AND NON-CONSOLIDATED 30,499,165 96 29,732,776 95
11 OTHER INVESTMENTS 0 0 0 0
12 PROPERTY, PLANT AND EQUIPMENT 0 0 0 0
13 PROPERTY 0 0 0 0
14 MACHINERY AND INDUSTRIAL 0 0 0 0
15 OTHER EQUIPMENT 0 0 0 0
16 ACCUMULATED DEPRECIATION 0 0 0 0
17 CONSTRUCTION IN PROGRESS 0 0 0 0
18 DEFERRED ASSETS (NET) 7,261 0 4,813 0
19 OTHER ASSETS 0 0 0 0
20 TOTAL LIABILITIES 4,349,994 100 4,031,113 100
21 CURRENT LIABILITIES 4,349,994 100 4,031,113 100
22 SUPPLIERS 0 0 0 0
23 BANK LOANS 0 0 0 0
24 STOCK MARKET LOANS 0 0 0 0
25 TAXES TO BE PAID 0 0 0 0
26 OTHER CURRENT LIABILITIES 4,349,994 100 4,031,113 100
27 LONG-TERM LIABILITIES 0 0 0 0
28 BANK LOANS 0 0 0 0
29 STOCK MARKET LOANS 0 0 0 0
30 OTHER LOANS 0 0 0 0
31 DEFERRED LOANS 0 0 0 0
32 OTHER LIABILITIES 0 0 0 0
33 CONSOLIDATED STOCK HOLDERS' EQUITY 27,484,078 100 27,202,938 100
36 CONTRIBUTED CAPITAL 9,061,082 33 9,157,089 34
37 PAID-IN CAPITAL STOCK (NOMINAL) 2,949,556 11 3,043,191 11
38 RESTATEMENT OF PAID-IN CAPITAL STOCK 6,111,526 22 6,113,898 22
39 PREMIUM ON SALES OF SHARES 0 0 0 0
40 CONTRIBUTIONS FOR FUTURE CAPITAL INCREASES 0 0 0 0
41 CAPITAL INCREASE (DECREASE) 18,422,996 67 18,045,849 66
42 RETAINED EARNINGS AND CAPITAL RESERVE 28,688,853 104 28,985,138 107
43 REPURCHASE FUND OF SHARES 1,205,531 4 1,179,673 4
44 EXCESS (SHORTFALL) IN RESTATEMENT OF STOCK
HOLDERS' EQUITY (12,689,930) (46) (12,641,364) (46)
45 NET INCOME FOR THE YEAR 1,218,542 4 522,402 2
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
MEXICAN STOCK EXCHANGE
SIFIC/ICS
STOCK EXCHANGE CODE: GMEXICO Quarter: 2 Year: 1999
GRUPO MEXICO, S.A. DE C.V.
NON CONSOLIDATED FINANCIAL STATEMENT
BREAKDOWN OF MAIN CONCEPTS
(Thousands of Pesos)
Final Printing
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
QUARTER OF PRESENT QUARTER OF PREVIOUS
FINANCIAL YEAR FINANCIAL YEAR
REF -------------------------------------------------------------------------------
S CONCEPTS Amount % Amount %
- ------------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C>
3 CASH AND SHORT-TERM INVESTMENTS 1,061,812 100 884,698 100
46 CASH 598 0 1,929 0
47 SHORT-TERM INVESTMENTS 1,061,214 100 882,769 100
18 DEFERRED ASSETS (NET) 7,261 100 4,813 100
48 AMORTIZED OR REDEEMED EXPENSES 7,261 100 4,813 100
49 GOODWILL 0 0 0 0
50 DEFERRED TAXES 0 0 0 0
51 OTHERS 0 0 0 0
21 CURRENT LIABILITIES 4,349,994 100 4,031,113 100
52 FOREIGN CURRENCY LIABILITIES 4,349,994 100 4,030,630 100
53 MEXICAN PESOS LIABILITIES 595 0 483 0
24 STOCK MARKET LOANS 0 100 0 100
54 COMMERCIAL PAPER 0 0
55 CURRENT MATURITIES OF MEDIUM TERM NOTES 0 0
56 CURRENT MATURITIES OF BONDS 0 0
26 OTHER CURRENT LIABILITIES 4,349,994 100 4,031,113 100
57 OTHER CURRENT LIABILITIES WITH COST 4,349,994 100 4,030,630 100
58 OTHER CURRENT LIABILITIES WITHOUT COST 595 0 483 0
27 LONG-TERM LIABILITIES 0 100 0 100
59 FOREIGN CURRENCY LIABILITIES 0 0
60 MEXICAN PESOS LIABILITIES 0 0
29 STOCK MARKET LOANS 0 100 0 100
61 BONDS 0 0
62 MEDIUM TERM NOTES 0 0
30 OTHER LOANS 0 100 0 100
63 OTHER LOANS WITH COST 0 0
64 OTHER LOANS WITHOUT COST 0 0
31 DEFERRED LOANS 0 100 0 100
65 NEGATIVE GOODWILL 0 0
66 DEFERRED TAXES 0 0
67 OTHERS 0 0
32 OTHER LIABILITIES 0 100 0 100
68 RESERVES 0 0
69 OTHER LIABILITIES 0 0
44 EXCESS (SHORTFALL) IN RESTATEMENT OF (12,689,930) 100 (12,641,364) 100
STOCK HOLDERS' EQUITY
70 ACCUMULATED INCOME DUE TO MONETARY POSITION (1,783,693) (14) (2,225,446) (18)
71 INCOME FROM NON-MONETARY POSITION ASSETS (10,906,237) (86) (10,415,918) (82)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
MEXICAN STOCK EXCHANGE
SIFIC/ICS
STOCK EXCHANGE CODE: GMEXICO Quarter: 2 Year: 1999
GRUPO MEXICO, S.A. DE C.V.
NON CONSOLIDATED FINANCIAL STATEMENT
OTHER CONCEPTS
(Thousands of Pesos)
Final Printing
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
QUARTER OF PRESENT QUARTER OF PREVIOUS
FINANCIAL YEAR FINANCIAL YEAR
REF -------------------------------------------------------------------------------
S CONCEPTS Amount Amount
- ------------------------------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C>
72 WORKING CAPITAL (3,022,348) (2,534,651)
73 PENSIONES FUND AND SENIORITY PREMIUMS 0 0
74 EXECUTIVES (*) 0 0
75 EMPLOYERS (*) 0 0
76 WORKERS (*) 0 0
77 CIRCULATION SHARES (*) 630,000,000 650,000,000
78 REPURCHASED SHARES (*) 0 0
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(*) THESE CONCEPTS SHOULD BE EXPRESSED IN UNITS.
<PAGE>
MEXICAN STOCK EXCHANGE
SIFIC/ICS
STOCK EXCHANGE CODE: GMEXICO QUARTER: 2 YEAR: 1999
GRUPO MEXICO, S.A. DE C.V.
NON CONSOLIDATED EARNING STATEMENT
FROM JANUARY THE 1st TO JUNE 30 OF 1999 AND 1998
Thousands of Pesos
<TABLE>
<CAPTION>
Final Printing
================================================================================================
REF CONCEPTS QUARTER OF PRESENT QUARTER OF PREVIOUS
FINANCIAL YEAR FINANCIAL YEAR
----------------------------------------------
R Amount % Amount %
================================================================================================
<S> <C> <C> <C> <C>
1 NET SALES 0 100 0 100
2 COST OF SALES 0 0 0 0
3 GROSS INCOME 0 0 0 0
4 OPERATING 12,030 0 10,971 0
5 OPERATING INCOME (12,030) 0 (10,971) 0
6 TOTAL FINANCING COST (307,636) 0 248,326 0
7 INCOME AFTER FINANCING COST 295,606 0 (259,297) 0
8 OTHER FINANCIAL OPERATIONS 11,864 0 (30,063) 0
9 INCOME BEFORE TAXES AND WORKERS' PROFIT
SHARING 283,742 0 (229,234) 0
10 RESERVE FOR TAXES AND WORKERS' PROFIT
SHARING (65,292) 0 (123,610) 0
11 NET INCOME AFTER TAXES AND WORKERS' PROFIT
SHARING 349,034 0 (105,624) 0
12 SHARE IN NET INCOME OF SUBSIDIARIES AND
NON-CONSOLIDATED ASSOCIATES 869,508 0 628,026 0
13 CONSOLIDATED NET INCOME OF CONTINUOUS 1,218,542 0 522,402 0
14 INCOME OF DISCONTINUOUS OPERATIONS 0 0 0 0
15 CONSOLIDATED NET INCOME BEFORE
EXTRAORDINARY ITEMS 1,218,542 0 522,402 0
16 EXTRAORDINARY ITEMS NET EXPENSES (INCOME) 0 0 0 0
17 NET EFFECT AT THE BEGINNING OF THE YEAR BY
CHANGES IN ACCOUNTING PRINCIPLES 0 0 0 0
18 NET CONSOLIDATED INCOME 1,218,542 0 522,402 0
================================================================================================
</TABLE>
<PAGE>
MEXICAN STOCK EXCHANGE
SIFIC/ICS
STOCK EXCHANGE CODE: GMEXICO QUARTER: 2 YEAR: 1999
GRUPO MEXICO, S.A. DE C.V.
NON CONSOLIDATED EARNING STATEMENT
BREAKDOWN OF MAIN CONCEPTS
(Thousands of Pesos)
<TABLE>
<CAPTION>
Final Printing
================================================================================================
REF CONCEPTS QUARTER OF PRESENT QUARTER OF PREVIOUS
FINANCIAL YEAR FINANCIAL
----------------------------------------------
R Amount % Amount %
================================================================================================
<S> <C> <C> <C> <C>
1 NET SALES 0 100 0 100
21 DOMESTIC 0 0
22 FOREIGN 0 0
23 TRANSLATED INT0 DOLLARS (***) 0 0
6 TOTAL FINANCING COST (307,636) 100 248,326 100
24 INTEREST PAID 182,851 59 188,880 76
25 EXCHANGE LOSSES 391,782 127 412,329 166
26 INTEREST EARNED 152,113 49 81,668 33
27 EXCHANGE PROFITS 545,125 177 251,927 101
28 GAIN DUE TO MONETARY POSITION (185,031) (60) (19,288) (8)
8 OTHER FINANCIAL OPERATIONS 11,864 100 (30,063) 100
29 OTHER NET EXPENSES (INCOME) NET 11,864 100 (30,063) (100)
30 (PROFIT) LOSS ON SALE OF OWN SHARES 0 0 0 0
31 (PROFIT) LOSS ON SALE OF SHORT-TERM INVESTMENTS 0 0 0 0
10 RESERVE FOR TAXES AND WORKERS' PROFIT SHARING (65,292) 100 (123,610) 100
32 INCOME TAX (65,292) (100) (123,610) (100)
33 DEFERED INCOME TAX 0 0 0 0
34 WORKERS' PROFIT SHARING 0 0 0 0
35 DEFERED WORKERS' PROFIT SHARING 0 0 0 0
================================================================================================
</TABLE>
(***) THOUSANDS OF DOLLARS
<PAGE>
MEXICAN STOCK EXCHANGE
SIFIC/ICS
STOCK EXCHANGE CODE: GMEXICO QUARTER: 2 YEAR: 1999
GRUPO MEXICO, S.A. DE C.V.
NON CONSOLIDATED EARNING STATEMENT
OTHER CONCEPTS
(Thousands of Pesos)
Final Printing
================================================================================
REF QUARTER OF PRESENT QUARTER OF PREVIOUS
CONCEPTS FINANCIAL YEAR FINANCIAL YEAR
R Amount Amount
================================================================================
36 TOTAL SALES 0 0
37 NET INCOME OF THE YEAR 173,093 (97,732)
38 NET SALES (**) 0 0
39 OPERATION INCOME (**) (27,992) (15,407)
41 NET CONSOLIDATED INCOME (**) 1,271,570 1,556,001
================================================================================
(**) THE RESTATED INFORMATION ON THE LAST TWELVE MONTHS SHOULD BE USED
<PAGE>
MEXICAN STOCK EXCHANGE
SIFIC / ICS
STOCK EXCHANGE CODE: GMEXICO QUARTER: 2 YEAR: 1999
GRUPO MEXICO, S.A. DE C.V.
NON CONSOLIDATED FINANCIAL STATEMENT
FROM JANUARY THE 1ST TO JUNE 30 OF 1999 AND 1998
(Thousands of Pesos)
Final Printing
<TABLE>
<CAPTION>
===============================================================================================================================
QUARTER OF PRESENT QUARTER OF PREVIOUS
FINANCIAL YEAR FINANCIAL YEAR
REF ------------------------------------------
C CONCEPTS Amount Amount
===============================================================================================================================
<S> <C> <C> <C>
1 CONSOLIDATED NET INCOME 1,218,542 522,402
2 + (-) ITEMS ADDED TO INCOME WHICH DO NOT REQUIRE USING CASH (869,508) (628,026)
3 CASH FLOW FROM NET INCOME OF THE YEAR 349,034 (105,624)
4 CASH FLOW FROM CHANGE IN WORKING CAPITAL 104,670 4,700,658
5 CASH GENERATED (USED) IN OPERATING ACTIVITIES 453,704 4,595,034
6 CASH FLOW FROM EXTERNAL FINANCING 0 (1,305,308)
7 CASH FLOW FROM INTERNAL FINANCING (809,776) (1,002,420)
8 CASH FLOW GENERATED (USED) BY FINANCING (809,776) (2,307,728)
9 CASH FLOW GENERATED (USED) IN INVESTMENT ACTIVITIES 0 (3,139,134)
10 NET INCREASE (DECREASE) IN CASH AND SHORT-TERM INVESTMENTS (356,072) (851,828)
11 CASH AND SHORT-TERM INVESTMENTS AT THE BEGINNING OF PERIOD 1,417,884 1,736,526
12 CASH AND SHORT-TERM INVESTMENTS AT THE END OF PERIOD 1,061,812 884,698
===============================================================================================================================
</TABLE>
<PAGE>
MEXICAN STOCK EXCHANGE
SIFIC / ICS
STOCK EXCHANGE CODE: GMEXICO QUARTER: 2 YEAR: 1999
GRUPO MEXICO, S.A. DE C.V.
NON CONSOLIDATED FINANCIAL STATEMENT
BREAKDOWN OF MAIN CONCEPTS
(Thousands of Pesos)
Final Printing
<TABLE>
<CAPTION>
===============================================================================================================================
QUARTER OF PRESENT QUARTER OF PREVIOUS
FINANCIAL YEAR FINANCIAL YEAR
REF ------------------------------------------
C CONCEPTS Amount Amount
===============================================================================================================================
<S> <C> <C> <C>
2 + (-) ITEMS ADDED TO INCOME WHICH DO NOT REQUIRE USING CASH (869,508) (628,026)
13 DEPRECIATION AND AMORTIZATION FOR THE YEAR
14 + (-) NET INCREASE (DECREASE) IN PENSIONS FUND AND SENIORITY PREMIUMS
15 + (-) NET LOSS (PROFIT) IN MONEY EXCHANGE
16 + (-) NET LOSS (PROFIT) IN ASSETS AND LIABILITIES ACTUALIZATION
17 + (-) OTHER ITEMS (869,508) (O25,026)
4 CASH FLOW FROM CHANGE IN WORKING CAPITAL 104,670 4,700,658
18 + (-) DECREASE (INCREASE) IN ACCOUNT RECEIVABLE 0
19 + (-) DECREASE (INCREASE) IN INVENTORIES 0 0
20 + (-) DECREASE (INCREASE) IN OTHER ACCOUNT RECEIVABLE (100,406) 1,520,419
21 + (-) INCREASE (DECREASE) IN SUPPLIER ACCOUNT 0 0
22 + (-) INCREASE (DECREASE) IN OTHER LIABILITIES 205,075 3,180,239
6 CASH FLOW FROM EXTERNAL FINANCING 0 (1,305,308)
23 + SHORT-TERM BANK AND STOCK MARKET FINANCING 4,863,299
24 + LONG-TERM BANK AND STOCK MARKET FINANCING 0
25 + DIVIDEND RECEIVED 0
26 + OTHER FINANCING 0
27 (-) BANK FINANCING AMORTIZATION (6,168,607)
28 (-) STOCK MARKET AMORTIZATION 0
29 (-) OTHER FINANCING AMORTIZATION 0
7 CASH FLOW FROM INTERNAL FINANCING (809,776) (1,002,420)
30 + (-) INCREASE (DECREASE) IN CAPITAL STOCKS (522,704) (691,150)
31 (-) DIVIDENDS PAID (287,072) (311,270)
32 + PREMIUM ON SALE OF SHARES 0 0
33 + CONTRIBUTION FOR FUTURE CAPITAL INCREASES 0 0
9 CASH FLOW GENERATED (UTILIZED) IN INVESTMENT ACTIVITIES 0 (3,139,134)
34 + (-) DECREASE (INCREASE) IN STOCK INVESTMENTS OF A PERMANENT NATURE (3,139,134)
35 (-) ACQUISITION OF PROPERTY, PLANT AND EQUIPMENT 0
36 (-) INCREASE IN CONSTRUCTIONS IN PROGRESS 0
37 + SALE OF OTHER PERMANENT INVESTMENTS 0
38 + SALE OF TANGIBLE FIXED ASSETS 0
39 + (-) OTHER ITEMS 0
===============================================================================================================================
</TABLE>
<PAGE>
MEXICAN STOCK EXCHANGE
SIFIC / ICS
STOCK EXCHANGE CODE: GMEXICO QUARTER: 2 YEAR: 1999
GRUPO MEXICO, S.A. DE C.V.
RATIOS
NON CONSOLIDATED
Final Printing
<TABLE>
<CAPTION>
===============================================================================================================================
REF QUARTER OF PRESENT QUARTER OF PREVIOUS
P CONCEPTS FINANCIAL YEAR FINANCIAL YEAR
===============================================================================================================================
<S> <C> <C> <C>
YIELD
1 NET INCOME TO NET SALES 0.00% 0.00%
2 NET INCOME TO STOCK HOLDERS' EQUITY(**) 4.63% 5.72%
3 NET INCOME TO TOTAL ASSETS (**) 3 99 4.98%
4 CASH DIVIDENDS TO PREVIOUS YEAR NET INCOME 50.38% 11.04%
5 INCOME DUE TO MONETARY POSITION TO NET INCOME 15.18% 3.59%
ACTIVITY
6 NET SALES TO NET ASSETS (**) 0.00 times 0.00 times
7 NET SALES TO FIXED ASSETS (**) 0.00 times 0.00 times
8 INVENTORIES ROTATION (**) 0.00 times 0.00 times
9 ACCOUNTS RECEIVABLE IN DAYS OF SALES 0 days 0 days
10 PAID INTEREST TO TOTAL LIABILITIES WITH COST (**) 8.80% 6.42%
LEVERAGE
11 TOTAL LIABILITIES TOTAL ASSETS 13.66% 12.91%
12 TOTAL LIABILITIES TO STOCK HOLDERS' EQUITY 0.16 times 0.15 times
13 F0REIGN CURRENCY LIABILITIES TO TOTAL LIABILITIES 99.99% 99.99%
14 LONG-TERM LIABILITIES TO FIXED ASSETS 0.00% 0.00%
15 OPERATING INCOME TO INTEREST PAID (0.07) times (0.06) times
16 NET SALES TO TOTAL LIABILITIES (**) 0.00 times 0.00 times
LIQUIDITY
17 CURRENT ASSETS TO CURRENT LIABILITIES 0.31 times 0.37 times
18 CURRENT ASSETS LESS INVENTORY TO CURRENT LIABILITIES 0.31 times 0.37 times
19 CURRENT ASSETS TOTAL LIABILITIES 0.31 times 0.37 times
20 AVAILABLE ASSETS TO CURRENT LIABILITIES 24.41% 21.95%
CASH FLOW
21 CASH PLOW FROM NET INCOME TO NET SALES 0.00% 0.00%
22 CASH PLOW FROM CHANGES IN WORKING CAPITAL TO NET SALES 0.00% 0.00%
23 CASH GENERATED (USED) IN OPERATING TO INTEREST PAID 2.48 times 24.33 times
24 EXTERNAL FINANCING TO CASH GENERATED (USED) IN FINANCING 0.00% 56.56%
25 INTERNAL FINANCING TO CASH GENERATED (USED) IN FINANCING 100.00% 43.44%
26 ACQUISITION OF PROPERTY, PLANT AND EQUIPMENT TO CASH
GENERATED (USED) IN INVESTMENT ACTIVITIES 0.00% 0.00
===============================================================================================================================
</TABLE>
(**) IN THESE RATIOS FOR THE DATA TAKE INTO CONSIDERATION THE LAST TWELVE
MONTHS.
<PAGE>
MEXICAN STOCK EXCHANGE
SIFIC / ICS
STOCK EXCHANGE CODE: GMEXICO QUARTER: 2 YEAR: 1999
GRUPO MEXICO, S.A. DE C.V.
DATA PER SHARE
NON CONSOLIDATED FINANCIAL STATEMENT
Final Printing
<TABLE>
<CAPTION>
===============================================================================================================================
QUARTER OF PRESENT QUARTER OF PREVIOUS
FINANCIAL YEAR FINANCIAL YEAR
REF -------------------------------------------
D CONCEPTS Amount Amount
===============================================================================================================================
<S> <C> <C> <C>
1 BASIC PROFIT PER ORDINARY SHARE (**) $ 1.98 $ 2.31
2 BASIC PROFIT PER PREFERENT SHARE (**) $ 0.00 $ 0.00
3 DILUTED PROFIT PER ORDINARY SHARE (**) $ 0.00 $ 0.00
4 CONTINUOUS OPERATING PROFIT PER COMUN SHARE(**) $ 1.98 $ 2.31
5 EFFECT OF DISCONTINUOUS OPERATING ON CONTINUOUS OPERATING
PROFIT PER SHARE (**) $ 0.66 $ 0.00
6 EFFECT OF EXTRAORDINARY PROFIT AND LOSS ON CONTINUOUS
OPERATING PROFIT PER SHARE (**) $ 0.00 $ 0.00
7 EFFECT BY CHANGES IN ACCOUNTING POLICIES ON CONTINUOUS
OPERATING PROFIT PER SHARE (**) $ 0.00 $ 0.00
8 CARRYING VALUE PER SHARE $ 43.63 $ 41.85
9 CASH DIVIDEND ACUMULATED PER SHARE $ 0.45 $ 0.40
10 DIVIDEND IN SHARES PER SHARE 0.00 shares 0.00 shares
11 MARKET PRICE TO CARRYING VALUE 0.92 times 0.59 times
12 MARKET PRICE TO BASIC PROFIT PER ORDINARY SHARE (**) 20.23 times 10.67 times
13 MARKET PRICE TO BASIC PROFIT PER PREFERENT SHARE (**) 0.00 times 0.00 times
===============================================================================================================================
</TABLE>
(**) TO CALCULATE THE DATA PER SHARE USE THE NET INCOME FOR THE LAST TWELVE
MONTHS.
