1999
Third Quarter
Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 1999 Commission file number 1-164
ASARCO Incorporated
(Exact name of registrant as specified in its charter)
New Jersey 13-4924440
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
180 Maiden Lane, New York, N.Y. 10038
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 212-510-2000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No ____
As of October 31, 1999 there were outstanding 39,952,357 shares of Asarco Common
Stock, without par value.
<PAGE>
ASARCO Incorporated
and Subsidiaries
INDEX TO FORM 10-Q
Page No.
Part I. Financial Information:
Item 1. Financial Statements (unaudited)
Condensed Consolidated Statement of Earnings
Three Months and Nine Months Ended
September 30, 1999 and 1998 2
Condensed Consolidated Balance Sheet
September 30, 1999 and December 31, 1998 3
Condensed Consolidated Statement of Cash Flows
Three Months and Nine Months Ended
September 30, 1999 and 1998 4
Notes to Condensed Consolidated Financial Statements 5-11
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 12-20
Report of Independent Accountants 21
Part II. Other Information:
Item 1. Legal Proceedings 22-23
Item 6. Exhibits and Reports on Form 8-K 24-25
Signatures 26
Exhibit Index 27
Exhibits 28-52
1
<PAGE>
<TABLE>
ASARCO Incorporated
and Subsidiaries
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
(unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
----- ----- ----- -----
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Sales of products and services $ 504,144 $ 545,600 $ 1,470,155 $1,731,258
----------- ----------- ----------- ----------
Operating costs and expenses:
Cost of products and services 425,214 460,545 1,280,488 1,494,517
Selling, administrative and other 45,931 34,530 118,023 105,814
Depreciation and depletion 37,124 36,107 110,241 108,065
Research and exploration 5,826 6,669 16,502 21,710
Environmental and other closed plant
charges, net of recoveries 8,915 1,386 12,596 7,366
Asset dispositions and impairments 16,672 - 16,672 20,000
-------- -------- -------- --------
Total operating costs and expenses 539,682 539,237 1,554,522 1,757,472
-------- -------- -------- --------
Operating income (loss) (35,538) 6,363 (84,367) (26,214)
Interest expense (18,639) (17,665) (56,976) (51,523)
Other income 46,524 4,683 56,108 24,030
-------- -------- -------- --------
Earnings (loss) before taxes on income and
minority interests (7,653) (6,619) (85,235) (53,707)
Taxes on income (benefit) (8,471) (943) (33,554) (16,918)
-------- -------- -------- --------
Earnings (loss) before minority interests 818 (5,676) (51,681) (36,789)
Minority interests in net earnings of
consolidated subsidiaries (5,878) (9,921) (9,760) (25,157)
-------- -------- -------- --------
Net earnings (loss) $ (5,060) $ (15,597) $ (61,441) $ (61,946)
========= ========= ========= =========
Per share amounts:
Net earnings (loss) - basic and diluted $ (0.13) $ (0.39) $ (1.55) $ (1.56)
Dividends to common stockholders $ 0.05 $ 0.20 $ 0.15 $ 0.60
Weighted average number of shares outstanding:
Basic and Diluted 39,823 39,661 39,750 39,656
The accompanying notes are an integral part of these financial statements.
</TABLE>
2
<PAGE>
<TABLE>
ASARCO Incorporated
and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEET
(unaudited)
September 30, December 31,
1999 1998
----- -----
<CAPTION>
(in thousands)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 151,675 $ 193,048
Marketable securities 1,084 22,705
Accounts receivable, net 377,726 409,792
Inventories 347,557 352,411
Other assets 102,984 104,809
--------- ---------
Total current assets 981,026 1,082,765
Investments:
Available-for-sale and other at cost 145,294 121,532
Equity method 62,817 64,465
Property, net 2,620,930 2,526,567
Other assets including intangibles, net 223,168 228,480
----------- ----------
Total Assets $4,033,235 $4,023,809
=========== ===========
LIABILITIES
Current liabilities:
Bank loans $ 3,487 $ 4,963
Current portion of long-term debt 47,344 27,676
Accounts payable 381,469 336,501
Salaries and wages 39,980 27,268
Taxes on income 97,543 84,007
Reserve for closed plant and environmental matters 47,548 53,394
Other current liabilities 25,349 47,611
-------- --------
Total current liabilities 642,720 581,420
-------- --------
Long-term debt 1,080,685 1,014,942
Deferred income taxes 9,886 56,045
Reserve for closed plant and environmental matters 69,608 90,985
Postretirement benefit obligation 112,060 108,741
Other liabilities and reserves 120,194 113,754
--------- ----------
Total non-current liabilities 1,392,433 1,384,467
--------- ----------
MINORITY INTERESTS 538,424 533,329
--------- ----------
COMMON STOCKHOLDERS' EQUITY
Common stock (a) 529,313 521,956
Accumulated other comprehensive income (loss),
net of tax (9,669) (6,989)
Retained earnings 940,014 1,009,626
--------- ----------
Total Common Stockholders' Equity 1,459,658 1,524,593
--------- ----------
Total Liabilities, Minority Interests and Common
Stockholders' Equity $4,033,235 $4,023,809
========== ===========
(a) Common shares: authorized 80,000; outstanding: 39,921 39,652
The accompanying notes are an integral part of these financial statements.
</TABLE>
<
3
<PAGE>
<TABLE>
ASARCO Incorporated
and Subsidiaries
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
<CAPTION>
3 Months Ended 9 Months Ended
September 30, September 30,
1999 1998 1999 1998
(in thousands)
OPERATING ACTIVITIES
<S> <C> <C> <C> <C>
Net earnings (loss) $(5,060) $(15,597) $(61,441) $(61,946)
Adjustments to reconcile net earnings (loss) to net cash provided
from (used for) operating activities:
Depreciation and depletion 37,124 36,107 110,241 108,065
Provision (benefit)for deferred income taxes (18,381) (11,721) (46,124) (36,686)
Treasury stock used for employee benefits 1,829 9 2,695 1,109
Undistributed equity (earnings) losses 531 995 (1,138) 1,187
Net (gain) loss on asset dispositions and impairments 16,672 - 16,672 20,000
Net (gain) loss on sale of investments and property (10,169) 1,564 (9,859) 1,839
Decrease in reserves for closed plant and
environmental matters (6,623) (13,274) (27,224) (47,245)
Minority interests 5,878 9,921 9,760 25,157
Cash provided from (used for) operating assets and liabilities:
Accounts receivable 26,306 25,129 27,765 18,775
Inventories (42,331) (35,109) 3,384 11,993
Accounts payable and accrued liabilities 21,158 1,181 72,454 26,854
Other operating assets and liabilities (5,483) 15,784 (3,274) 10,175
Foreign currency transaction (gains) losses
828 1,153 1,885 1,910
-------- -------- -------- --------
Net cash provided from (used for) operating activities
22,279 16,142 95,796 81,187
-------- -------- -------- --------
INVESTING ACTIVITIES
Capital expenditures (87,730) (84,834) (232,380) (255,961)
Sale of property 240 47,079 1,972 49,447
Purchase of cost investments and businesses - (1,663) (671) (39,607)
Sale of available-for-sale securities 1,470 6,595 35,354 58,632
Purchase of available-for-sale securities (1,653) (8,455) (34,756) (70,306)
Purchase of held-to-maturity investments (8) (13,294) (55,916) (40,486)
Proceeds from held-to-maturity investments 30,612 862 77,537 180,854
--------- --------- --------- ---------
activities (57,069) (53,710) (208,860) (117,427)
--------- --------- --------- ---------
FINANCING ACTIVITIES
Debt incurred 94,721 69,148 172,028 360,056
Debt repaid (24,613) (50,361) (86,263) (294,203)
Escrow (deposits) withdrawals on long-term loans - (5,016) (67) 1,984
Treasury stock transactions 933 (4) 2,532 (1,632)
Purchase of minority interests (831) (340) (1,360) (5,423)
Distributions to minority interests (1,086) (5,192) (3,305) (16,201)
Dividends paid to common stockholders (1,990) (7,932) (5,960) (23,793)
--------- -------- --------- ---------
Net cash provided from (used for) financing
Activities 67,134 303 77,605 20,788
--------- --------- --------- ---------
Effect of exchange rate changes on cash (5,413) (3,628) (5,914) (3,677)
--------- --------- --------- ---------
Increase (decrease) in cash and cash equivalents 26,931 (40,893) (41,373) (19,129)
Cash and cash equivalents at beginning of period 124,744 232,323 193,048 210,559
---------- ---------- ---------- ----------
Cash and cash equivalents at end of period $151,675 $191,430 $151,675 $191,430
========== ========== ========== ==========
The accompanying notes are an integral part of these financial statements.
</TABLE>
4
<PAGE>
ASARCO Incorporated
and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
A. In the opinion of Asarco Incorporated ("the Company"), the accompanying
unaudited condensed consolidated financial statements contain all
adjustments (consisting only of normal recurring adjustments) necessary to
present fairly the Company's financial position as of September 30, 1999
and the results of operations and cash flows for the three and nine month
periods ended September 30, 1999 and 1998. Certain reclassifications have
been made in the financial statements from amounts previously reported.
This financial data has been subjected to a review by
PricewaterhouseCoopers LLP, the Company's independent accountants. The
results of operations for the three month and nine month periods are not
necessarily indicative of the results to be expected for the full year. The
December 31, 1998 condensed consolidated balance sheet data was derived
from audited financial statements, but does not include all disclosures
required by generally accepted accounting principles. The accompanying
condensed consolidated financial statements should be read in conjunction
with the consolidated financial statements and notes thereto included in
the Company's 1998 annual report on Form 10-K.
B. The company's third quarter 1999 results include $16.7 million pre-tax
charge ($10.8 million after-tax) as a result of the sale of the Troy mine
and an advanced stage exploration project in Montana, which closed in
October 1999.
In addition, during the third quarter of 1999, the Company concluded an
agreement to acquire 7.125 million newly issued common shares of Coeur
d'Alene Mines, or a fully diluted 19.3% common stock interest. In exchange
for this interest, the Company contributed the following: its investment in
Silver Valley Resources Corporation, which operates the Coeur and Galena
silver mines; Asarco's wholly-owned subsidiary, Empresa Minera Manquiri
S.A., which owns an advanced Bolivian silver exploration project; 1.5
million shares and warrants, representing an approximate 5% interest in Pan
American Silver Corporation of Vancouver, British Columbia; and a 20% net
profits interest in the Quiruvilca silver mine in Peru operated by Pan
American Silver. A pre-tax gain of $10.2 million was recorded by the
Company on this transaction.
<TABLE>
C. Inventories were as follows:
(in millions)
<CAPTION>
September 30, December 31,
1999 1998
---------- ----------
<S> <C> <C>
Inventories of smelters and refineries at lower of
LIFO cost or market $ 6.5 $ 2.3
Provisional cost of metals received from suppliers 66.2 57.9
Mine inventories at lower of FIFO cost or market 66.5 93.5
Metal inventory at lower of average cost or market 48.4 39.5
Materials and supplies at lower of average cost or
Market 123.9 124.9
Other ---------- ----------
Total $347.6 $352.4
At September 30, 1999 and December 31, 1998, replacement cost exceeded
inventories valued at LIFO cost by approximately $82.6 million and $74.0
million, respectively.
</TABLE>
5
<PAGE>
D. Financial Instruments
Hedging: Derivative instruments may be used to manage exposure to market
risk from changes in commodity prices, interest rates or the value of the
Company's assets and liabilities. Derivative instruments which are
designated as hedges must be deemed effective at reducing the risk
associated with the exposure being hedged and must be designated as a hedge
at the inception of the contract.
The Company may purchase put options or create synthetic put options to
reduce or eliminate the risk of metal price declines below the option
strike price on a portion of its anticipated future production. The cost of
options is amortized on a straight-line basis during the period in which
the options are exercisable. Gains or losses from the sale or exercise of
options, net of unamortized acquisition costs, are recognized in the period
in which the underlying hedged production is sold. The Company also uses
futures contracts to hedge the effect of price changes on a portion of the
metals it sells. Gains and losses on futures contracts are reported as a
component of the underlying transaction.
Trading Activities: Derivative instruments that do not meet the criteria to
be designated as hedges are considered trading activities and are marked to
market with the related adjustments recorded in net earnings.
Swap Agreements: Interest rate swap agreements limit the effect of
increases in interest rates on floating rate debt. The differential to be
paid or received as interest rates change under any such agreement is
recorded in interest expense. Fuel swap agreements limit the effect of
increases in the price of fuel. The differential to be paid or received as
fuel prices change is recorded as a component of cost of sales.
E. Business Segments:
(in millions)
<TABLE>
The Company's reportable segments are separately managed strategic business units that offer different products and services.
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
Segment Sales 1999 1998 1999 1998
------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
Copper $ 380.6 $ 411.3 $ 1,106.0 $ 1,322.9
Specialty Chemicals 84.4 86.6 259.3 259.6
Aggregates 17.2 16.8 42.8 41.4
All Other 21.9 30.9 62.0 107.4
Total $ 504.1 $ 545.6 $ 1,470.1 $1,731.3
Segment Earnings
----------------
Copper $(7.1) $ 9.7 $(53.3) $ 9.5
Specialty Chemicals 7.8 6.9 23.4 22.8
Aggregates 5.2 4.9 9.8 10.4
Exploration (4.1) (3.9) (11.5) (14.1)
All Other (1) (36.3) (10.3) (49.7) (52.0)
Total (34.5) 7.3 (81.3) (23.4)
Interest and other excluding
equity (earnings) losses (2) 26.8 (13.9) (3.9) (30.3)
Earnings (loss) before taxes on income and
minority interests
$ (7.7) $ (6.6) $ (85.2) $ (53.7)
</TABLE>
6
<PAGE>
(1) The All Other segment includes a $16.7 million charge in the third
quarter of 1999 to reflect the sale of the Troy Mine, which closed in
October 1999 and a $20.0 million charge in the first quarter of 1998
to reflect the effect of the sale of the Missouri Lead Division
("MLD").
(2) Includes a $10.2 million gain in the third quarter of 1999 as a result
of the transaction exchanging the Company's investment in Silver
Valley Resources Corporation and other assets for newly issued common
shares of Coeur d'Alene Mines. The third quarter of 1999 also includes
a $45.0 million merger termination fee partially offset by $11.4
million in merger related costs, as further described in Footnote I,
"Merger and Acquisition Developments".
With the sale of the MLD in 1998, the closure of the Black Cloud lead-zinc mine
in Leadville, Colorado in the first quarter of 1999 and the change in management
responsibilities completed in April 1999, the Company's Lead, Zinc and Precious
Metals segment has been reclassified. The Company's custom lead smelting and
zinc mining operations are included in the All Other segment, and precious
metals refined at the Company's copper refineries are included in the Copper
segment.
F. Contingencies and Litigation:
Environmental Litigation and Related Matters
In connection with the matters referred to below, as well as at other closed
plants and sites where the Company is working with federal and state agencies to
resolve environmental issues, the Company accrues for losses when such losses
are probable and reasonably estimable. Such accruals are adjusted as new
information develops or circumstances change and are not discounted to their
present value. Recoveries of environmental remediation costs from insurance
carriers and other parties are recorded as assets when the recoveries are deemed
probable.
Reserves for closed plants and environmental matters, including mine reclamation
costs for active and closed properties, totaled $117.2 million at September 30,
1999. The Company anticipates that expenditures relating to these reserves will
be made over the next several years. Net cash expenditures against these
reserves for the three months ended September 30, 1999 and 1998 were $16.0
million and $15.4 million, respectively. Expenditures for the nine months ended
September 30, 1999 and 1998 were $41.1 million and $55.4 million, respectively.
The effect on pre-tax earnings of environmental and other closed plant charges
was $8.9 million and $1.4 million for the three months ended September 30, 1999
and 1998, respectively, and $12.6 million and $7.4 million for the nine months
ended September 30, 1999 and 1998, respectively.
In 1997, separate class actions were commenced against the Company in Omaha,
Nebraska and in Denver, Colorado seeking compensatory and punitive damages for
alleged contamination of properties by emissions from the Company's former Omaha
plant and the Globe plant in Denver. In May 1999, the United States District
Court for the District of Nebraska dismissed the action relating to the Omaha
plant. Plaintiffs have appealed that ruling and filed a similar action in
Nebraska state court. The state court lawsuit has been stayed pending the
outcome of appeal proceedings in the federal case. The matter regarding the
Globe plant has been settled subject to court approval and has been recorded as
an accrued cost in the third quarter of 1999.
7
<PAGE>
In March 1996, the United States government filed an action in United States
District Court in Boise, Idaho against the Company and three other mining
companies under the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 (CERCLA or Superfund) and the federal Clean Water Act for
alleged natural resource damage to the Coeur d'Alene River Basin in Idaho. The
government contends that the defendants are liable for damages to natural
resources in a 1,500 square mile area caused by mining and related activities
that they and others undertook over the period between the mid-1800s and the
mid-1960s. The action also seeks a declaration that defendants are liable for
restoration of the area. The Company believes, and has been advised by outside
legal counsel, that it has strong legal defenses to the lawsuit. In 1996, the
court granted a motion to consolidate this case with a prior, similar lawsuit
filed by the Coeur d'Alene Tribe of Idaho. In 1998, the United States
Environmental Protection Agency (EPA) commenced a remedial investigation and
feasibility study of the Coeur d'Alene River Basin.
The Company, the United States Department of Justice, the EPA, and the Texas
Natural Resources Conservation Commission signed a consent decree filed in
United States District Court in Houston, Texas in April 1999 covering a broad
range of environmental issues affecting principally the facility of
Encycle/Texas, Inc., an indirect wholly-owned subsidiary of the Company, in
Corpus Christi, Texas and Asarco's Coy zinc mine in Tennessee. The consent
decree was approved by the Court in October 1999. Subsequently certain parties
who are adversary to the Company and Encycle/Texas, Inc. in other suits filed a
motion to intervene and amend the consent decree. The Company and the U.S.
Government are opposing the motion. Pursuant to the consent decree, the Company
will perform certain environmental projects and has paid a $5.5 million penalty,
without an admission of wrongdoing or liability. The Company's existing
environmental reserves are adequate to cover the cost of the penalty and
supplemental environmental projects.
The Company and certain of its subsidiaries have received notices from EPA and
other Federal and state agencies that they and in most cases numerous other
parties are potentially responsible to remediate alleged hazardous substance
releases at certain sites under CERCLA or similar state laws. In addition, the
Company and certain of its subsidiaries are defendants in lawsuits brought under
CERCLA or state laws that seek substantial damages and remediation. Remedial
action is being undertaken by the Company at some of the sites.
Product Litigation
The Company and two subsidiaries, as of September 30, 1999, are defendants in
1,377 lawsuits brought by 5,950 primary and 1,036 secondary plaintiffs seeking
substantial actual and punitive damages for personal injury or death allegedly
caused by exposure to asbestos. Three of these lawsuits are purported class
actions, two of which are allegedly brought on behalf of persons who are not
known to have asbestos-related injury. The third is purportedly brought on
behalf of persons suing both tobacco-related and asbestos-related entities
claiming damages for personal injury or death arising from exposure to asbestos
and cigarette smoke. In addition, the Company and certain subsidiaries are
defendants in product liability lawsuits involving various other products,
including metals.
8
<PAGE>
Other Litigation
The Company is a defendant in lawsuits in Arizona, the earliest of which
commenced in 1975, involving the United States, Native Americans, and other
Arizona water users contesting the right of the Company and numerous other
individuals and entities to use water and, in some cases, seeking damages for
water usage and alleged contamination of ground water. The lawsuits could affect
the Company's use of water at its Ray Complex, Mission Complex, and other
Arizona operations.
The Company and certain subsidiaries are defendants in four purported class
actions and thirteen other lawsuits in Texas seeking substantial compensatory
and punitive damages for personal injury and contamination of property allegedly
caused by present and former operations in Texas and product sales of the
Company and its subsidiaries. Most of the cases name additional corporations as
defendants.
On November 9, 1999, an action was commenced against the Company in Federal
court in the Southern District of New York by Cyprus Amax Minerals Company
("Cyprus"), a subsidiary of Phelps Dodge Corporation ("Phelps Dodge"). The
Company and Cyprus were formerly parties to a Merger Agreement, dated July 15,
1999, and amended September 27, 1999 (the "Cyprus Merger Agreement"). On
September 30, 1999, Cyprus terminated the Cyprus Merger Agreement in order to
enter into a merger agreement with Phelps Dodge and paid Asarco a $45 million
termination fee. Phelps Dodge subsequently acquired control of and a substantial
majority of the common shares of Cyprus. On October 5, 1999, the Company entered
into a merger agreement with Phelps Dodge (the "Phelps Dodge Merger Agreement").
On October 25, 1999, Asarco terminated the Phelps Dodge Merger Agreement, paid
Phelps Dodge a $30 million termination fee and entered into a merger agreement
with Grupo Mexico, S.A. de C.V. The action seeks damages of not less than $90
million, plus attorneys' fees and interest, based on claims allegedly arising
from the foregoing series of events. Asarco intends to defend the lawsuit
vigorously.
Opinion of Management
Future environmental related expenditures cannot be reliably determined in many
circumstances due to the early stages of investigation, the uncertainties
relating to specific remediation methods and costs, the possible participation
of other potentially responsible parties, and changing environmental laws and
interpretations. Similarly, due to the uncertainty of the outcome of court
proceedings, future expenditures related to litigation cannot be reliably
determined. It is the opinion of management that the outcome of the legal
proceedings and environmental contingencies mentioned, and other miscellaneous
litigation and proceedings now pending, will not materially adversely affect the
financial position of Asarco and its consolidated subsidiaries. However, it is
possible that litigation and environmental contingencies could have a material
effect on quarterly or annual operating results when they are resolved in future
periods. This opinion is based on considerations including experience related to
previous court judgments and settlements and remediation costs and terms. The
financial viability of other potentially responsible parties has been considered
when relevant and no credit has been assumed for any potential insurance
recovery when not deemed probable.
9
<PAGE>
<TABLE>
G. Comprehensive Income:
Comprehensive income for the three and nine month periods ended September 30, 1999 and 1998 was as follows:
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
(in thousands) 1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net earnings (loss) $(5,060) $(15,597) $(61,441) $(61,946)
Other comprehensive income (loss):
Foreign currency translation adjustments 5,913 (4,800) (3,885) (8,022)
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during the
period, net of tax(a) (485) (4,672) 1,284 (6,205)
Less: Reclassifications of gains to net earnings (loss), net
of tax (b) - (2,991) (79) (6,647)
-------- -------- -------- --------
Comprehensive income (loss) $ 368 $(28,060) $(64,121) $(82,820)
========= ========= ========= =========
(a) Includes tax expense (benefit) of $(261) and $(173) for the three
month period ended September 30, 1999 and 1998, respectively, and $691
and $(999) for the nine month period ended September 30, 1999 and
1998, respectively.
(b) Includes taxes of $1,611 for the three month period ended September
30, 1998 and $42 and $3,579 for the nine month period ended September
30, 1999 and 1998, respectively.
Accumulated other comprehensive income balances as of September 30, 1999 and December 31, 1998 were as follows:
</TABLE>
<TABLE>
<CAPTION>
Foreign
Unrealized currency Accumulated other
gain (loss) Translation comprehensive
on securities adjustments income (loss)
-----------------------------------------------------------------
(in thousands)
September 30, 1999
<S> <C> <C> <C>
Balance on January 1, 1999 $ 1,469 $ (8,458) $ (6,989)
Period change 1,205 (3,885) (2,680)
---------- ----------- ---------
Balance on Sept 30, 1999 $ 2,674 $(12,343) $ (9,669)
========== ============ ==========
December 31, 1998
Balance on January 1, 1998 $ 11,654 $ (8,265) $3,389
Period change (10,185) (193) (10,378)
---------- ----------- ---------
Balance on December 31, 1998 $ 1,469 $ (8,458) $ (6,989)
========== ============ ==========
</TABLE>
10
<PAGE>
H. Impact of New Accounting Standards:
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." This
statement establishes accounting and reporting standards for derivative
instruments and hedging activities. Initially, the statement was to be effective
in fiscal years beginning after June 15, 1999. In June 1999, the FASB issued
SFAS No. 137 which defers the effective date of SFAS No. 133 to fiscal years
beginning after June 15, 2000. The Company is currently assessing the impact of
SFAS No.133.
I. Merger and Acquisition Developments
On July 15, 1999, the Company and Cyprus Amax Minerals Company ("Cyprus Amax")
announced an agreement for the combination of the two companies in a
merger-of-equals transaction. Phelps Dodge Corporation ("Phelps Dodge")
subsequently announced a hostile exchange offer for both Asarco and Cyprus Amax.
Cyprus Amax terminated the merger agreement with Asarco on September 30, 1999
and subsequently agreed to merge with Phelps Dodge. In accordance with the terms
of the Asarco/Cyprus Amax merger agreement, Cyprus Amax paid Asarco a $45.0
million termination fee.
On September 27, 1999, Grupo Mexico, S.A. de C.V. ("Grupo Mexico") a Mexican
mining and rail conglomerate, made an unsolicited cash offer for Asarco. On
October 6, 1999 the Board of Directors of Asarco announced that it had accepted
an offer from Phelps Dodge Corporation to acquire Asarco common shares for cash
and stock of Phelps Dodge. On October 25, 1999, Asarco terminated its agreement
with Phelps Dodge and announced that it had signed a definitive merger agreement
with Group Mexico under which Grupo Mexico will acquire all of the outstanding
shares of the Company's common stock for $29.75 in cash. A termination fee of
$30 million was paid to Phelps Dodge as a result of the termination of that
agreement.
As a result of the series of events described above, Asarco recorded $11.4
million of investment banking, legal and other merger related costs in the third
quarter of 1999.
As of November 10, 1999, 35,780,174 of Asarco Common Stock had been tendered
under the terms of the Grupo Mexico offer, which when added to the shares
already owned by Grupo Mexico, represent approximately 89.5% of the shares of
Asarco common stock. Grupo Mexico can effect a merger without a shareholder vote
if it owns at least 90% of the outstanding Asarco shares. Grupo Mexico has
extended the expiration of its offer for Asarco through Friday, November 12,
1999.
Concurrent with the consummation of Grupo Mexico's tender offer for Asarco's
common shares, benefits under certain employee benefit plans amounting to $24.0
million will become payable. Other merger related fees, payable upon completion
of a merger transaction are estimated to be approximately $9.5 million.
11
<PAGE>
Part I Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company reported a net loss of $5.1 million, or 13 cents per common share,
for the quarter ended September 30, 1999, compared with a net loss of $15.6
million, or 39 cents per common share, for the quarter ended September 30, 1998.
Results for the third quarter of 1999 include $26.1 million in pre-tax charges
to reflect the effect of a sale of the Troy mine and an advanced stage
exploration project in Montana and two legal settlements concluded by the
Company, and a $10.2 million pre-tax gain from an exchange of the Company's
investment in Silver Valley Resources and other assets for an ownership interest
in Coeur D'Alene Mines. Third quarter results also include $45.0 million
received from Cyprus Amax for termination of a merger agreement partially offset
by $11.4 million in merger related costs.
For the nine month period ended September 30, 1999, the Company reported a net
loss of $61.4 million or $1.55 per share, compared with a net loss of $61.9
million, or $1.56 per share, for the nine months ended September 30, 1998. Lower
copper prices in 1999, which reduced earnings by approximately $54 million were
offset by receipt of the merger termination fee described above and the benefits
from the Company's cost reduction program, which are estimated to have improved
results by approximately $28 million.
The average price for copper on the New York Commodity Exchange (COMEX) and the
London Metal Exchange (LME) was 78 cents and 76 cents per pound, respectively in
the third quarter of 1999, and 75 cents and 74 cents per pound, respectively in
the third quarter of 1998.
On September 9, 1999, the Company concluded an agreement to acquire 7.125
million newly issued common shares of Coeur d'Alene Mines, or a fully diluted
19.3% common stock interest. In exchange for this interest, the Company
contributed the following: its investment in Silver Valley Resources
Corporation, which operates the Coeur and Galena silver mines; Asarco's
wholly-owned subsidiary, Empresa Minera Manquiri S.A., which owns an advanced
Bolivian silver exploration project; 1.5 million shares and warrants,
representing an approximate 5% interest in Pan American Silver Corporation of
Vancouver, British Columbia; and a 20% net profits interest in the Quiruvilca
silver mine in Peru operated by Pan American Silver. The Company recorded a
pre-tax gain of $10.2 million as a result of the transaction.
On July 15, 1999, the Company and Cyprus Amax Minerals Company ("Cyprus Amax")
announced an agreement for the combination of the two companies in a
merger-of-equals transaction. Phelps Dodge Corporation ("Phelps Dodge")
subsequently announced a hostile exchange offer for both Asarco and Cyprus Amax.
Cyprus Amax terminated the merger agreement with Asarco on September 30, 1999
and agreed to merge with Phelps Dodge. In accordance with the terms of the
Asarco/Cyprus Amax merger agreement, Cyprus Amax paid Asarco a $45.0 million
termination fee.
12
<PAGE>
On September 27, 1999, Grupo Mexico, S.A. de C.V. ("Grupo Mexico") a Mexican
mining and rail conglomerate, made an unsolicited cash offer for Asarco. On
October 6, 1999 the Board of Directors of Asarco announced that it had accepted
an offer from Phelps Dodge Corporation to acquire Asarco common shares for cash
and stock of Phelps Dodge. On October 25, 1999, Asarco terminated its agreement
with Phelps Dodge and announced that it had signed a definitive merger agreement
with Group Mexico under which Grupo Mexico will acquire all of the outstanding
shares of the Company's common stock for $29.75 in cash. A termination fee of
$30 million was paid to Phelps Dodge as a result of the termination of that
agreement.
As a result of the series of events described above, Asarco recorded $11.4
million of investment banking, legal and other merger related costs in the third
quarter of 1999.
As of November 10, 1999, 35,780,174 of Asarco Common Stock had been tendered
under the terms of the Grupo Mexico offer, which when added to the shares
already owned by Grupo Mexico, represent approximately 89.5% of the shares of
Asarco common stock. Grupo Mexico can effect a merger without a shareholder vote
if it owns at least 90% of the outstanding Asarco shares. Grupo Mexico has
extended the expiration of its offer for Asarco through Friday, November 12,
1999.
Concurrent with the consummation of Grupo Mexico's tender offer for Asarco's
common shares, benefits under certain employee benefit plans amounting to $24.0
million will become payable. Other merger related fees, payable upon completion
of a merger transaction are estimated to be approximately $9.5 million.
The Company's beneficial interest in mined copper production totaled 240.9
million pounds in the third quarter of 1999 compared with 264.5 million pounds
in the third quarter of 1998. Lower copper production at the Mission and Ray
copper mines was partially offset by higher production at Southern Peru Copper
Corporation (SPCC) operations. Mined copper production in the third quarter of
1999 at SPCC increased by 16% compared with the third quarter of last year due
to the Cuajone mine expansion, which was completed in the first quarter of 1999.
The Company's specialty chemicals business, Enthone-OMI Inc., had pre-tax
profits of $7.8 million in the third quarter of 1999, an increase from $6.9
million in the third quarter of 1998 mostly as a result of higher sales in Asia.
Pre-tax profits for the Company's aggregates business were $5.2 million in the
third quarter of 1999 compared with $4.9 million in the third quarter of the
prior year. The increase was primarily due to higher sales volume as a result of
strong demand for construction materials.
Sales: Sales of products and services were $504.1 million in the third quarter
of 1999, compared with $545.6 million in the same period of 1998. Sales for the
nine month period ended September 30, 1999 were $1,470.1 million compared with
$1,731.3 million for the same period of 1998.
The third quarter decrease is primarily due to lower metal sales volume, which
reflects SPCC's additional sales of blister copper produced from purchased
concentrates in the prior year, the curtailment of the Company's copper refinery
in Amarillo, Texas and the sale of the Missouri Lead Division. The nine month
decrease is primarily due to lower metals prices in addition to the lower metals
sales volume.
13
<PAGE>
<TABLE>
Metal sales volumes and prices for the three month and nine month periods ended
September 30, 1999 and 1998 were as follows:
<CAPTION>
Metal Sales Volume: Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
------ ------ ------ ------
<S> <C> <C> <C> <C>
Copper (000s pounds)
Asarco 233,700 281,500 865,200 906,400
SPCC (1) 199,000 215,900 548,900 553,100
------------ ------------ --------------- ----------------
Consolidated 432,700 497,400 1,414,100 1,459,500
Asarco Beneficial Interest(2) 336,800 393,600 1,148,900 1,192,700
Silver (000s ounces)
Asarco 2,615 2,125 11,283 13,043
SPCC (1) 987 910 2,294 2,428
------------ ------------ --------------- ----------------
Consolidated 3,602 3,035 13,577 15,471
Asarco Beneficial Interest(2) 3,141 2,609 12,505 14,335
Zinc (000s pounds) (3)
Asarco 24,300 46,000 95,000 121,000
Molybdenum (000s pounds) (3)
Asarco 963 1,309 2,853 4,028
SPCC (1) 3,018 2,450 8,570 8,030
------------ ------------ --------------- ----------------
Consolidated 3,981 3,759 11,423 12,058
Asarco Beneficial Interest(2) 2,572 2,613 7,420 8,299
(1) SPCC presented at 100%.
(2) The Company's equity interest in SPCC at both September 30, 1999 and
1998, was 54.3%. The Company's beneficial interest in the operations
of SPCC, net of the remaining labor shares interest, was 53.3% at both
Sept 30, 1999 and 1998.
(3) The Company's zinc and molybdenum production is sold in the form of
concentrates. Volume represents pounds of zinc and molybdenum metal
contained in those concentrates.
</TABLE>
Average Metal Prices:
Prices for the Company's metals are established principally on the New York
Commodity Exchange (COMEX) or the London Metal Exchange (LME).
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
------ ------ ------ ------
Copper (per pound - COMEX) $0.78 $0.75 $0.70 $0.77
Copper (per pound - LME) $0.76 $0.74 $0.69 $0.77
Silver (per ounce - COMEX) $5.24 $5.18 $5.21 $5.70
Zinc (per pound - LME) $0.51 $0.46 $0.48 $0.48
Molybdenum (per pound -
Metals Week Dealer Oxide) $2.63 $3.20 $2.61 $3.65
14
<PAGE>
Derivative Instruments: The Company uses derivative instruments to manage its
exposure to market risk from changes in commodity prices, interest rates or the
value of its assets and liabilities. Derivative instruments which are designated
as hedges must be deemed effective at reducing the risk associated with the
exposure being hedged and must be designated as a hedge at the inception of the
contract.
HEDGING:
Metal Futures Contracts: The majority of the Company's activities involving
metal futures contracts are designed to match the price realized for the
Company's metal production as closely as possible to the average monthly price
of the metal on the COMEX or LME during the month the Company makes shipments to
customers. For instance, sales contracts with customers may provide for pricing
in a month other than the month of shipment. In cases where pricing is
established in a month later than the month of shipment, the Company will sell
forward an equivalent amount of metal to the month that the price with the
customer is established. The gain or loss on these forward contracts is offset
with a lower or higher price on the customer invoice. Metal futures contracts
are also used to hedge the price of metals purchased by the Company from third
parties. Gains and losses on the liquidation of futures contracts are included
in earnings at the same time revenue from the related sale transactions is
recognized.
At September 30, 1999 and December 31,1998, the Company's Aggregate metal
futures contract positions were as follows:
(in thousands)
Notional Unrealized
Weight Values Gain (Loss)
----------------------------------- --------------------
September 30,1999
-------------------
Copper (pounds) 101,022 $ 74,938 $ 5,084
Silver (ounces) 2,740 $ 14,418 $ (231)
Gold (ounces) 12 $5,856 $ 2,202
Lead (pounds) 1,708 $ 454 $ 60
Nickel (pounds) 1,030 $2,863 $ (523)
December 31,1998
- -------------------
Copper (pounds) 71,860 $ 48,207 $ 1,457
Silver (ounces) 5,630 $ 28,078 $ (184)
Gold (ounces) 32 $9,374 $ 206
Lead (pounds) 3,362 $ 742 $ (13)
Nickel (pounds) - - -
In the preceding table notional values represent the purchase or sales price of
the metal under contract. The unrealized gain or loss, if any, is the increase
or decrease in the value of the contract as of the date indicated.
The effect of a hypothetical 10 percent unfavorable change in metal prices on
the Company's September 30, 1999 positions would be a loss of $5.4 offset by a
corresponding gain on the related customer contracts being hedged. Since the
notional value displayed in the table above represents the absolute sum of all
outstanding futures contracts, it is not an accurate measure of risk to the
Company from these transactions.
15
<PAGE>
Price Protection: Depending on the market fundamentals of a metal and other
conditions, the Company may purchase put options or create synthetic put options
to reduce or eliminate the risk of metal price declines below the option strike
price on a portion of its anticipated future production. Synthetic put options
consist of a call option and a forward sale of the same quantity of metal. These
put options establish a minimum sales price for the production covered by such
put options and permit the Company to participate in price increases above the
option price. The cost of options is amortized on a straight-line basis during
the period in which the options are exercisable. Depending upon market
conditions, the Company may either sell options it holds or exercise the options
at maturity. Gains or losses from the sale or exercise of options, net of
unamortized acquisition costs, are recognized in the period in which the
underlying production is sold. At September 30, 1999, the Company held put
options covering 77.9 million pounds of copper exercisable in the fourth quarter
of 1999 at an average strike price of 76 cents per pound. The carrying value of
the put options was $1.6 million. At December 31, 1998, the Company did not hold
any put options.
Earnings include pre-tax gains of $11.0 million for the nine month period ended
September 30, 1998, from option sales and exercises related to copper sold in
the first half of 1998, including the Company's beneficial interest in SPCC's
price protection program. There were no pre-tax gains or losses from price
protection programs in the nine month period ended September 30, 1999.
Fuel Swaps: The Company may enter into fuel swap agreements to limit the effect
of increases in fuel prices on its production costs. A fuel swap establishes a
fixed price for the quantity of fuel covered by the agreement. The difference
between the published price for fuel and the price established in the contract
for the month covered by the swap is recognized as a component of cost of
products and services. As of September 30, 1999 and December 31, 1998, the
Company had entered into the following fuel swap agreements:
Weighted
Average
Contract
Fuel Type Period Quantity Price
- --------------------------------- ---------------------------------------------
September 30, 1999
- -------------------
Residual Oil (Barrels) 10/99-12/99 521,700 $11.02
Residual Oil (Barrels) 1/00-12/00 1,468,800 $12.80
Diesel Fuel (Barrels) 10/99-12/99 255,900 $17.90
Diesel Fuel (Barrels) 1/00-12/00 786,000 $19.33
Natural Gas (BTUs in millions) 10/99-6/01 3,258,900 $ 2.14
December 31, 1998
- -------------------
Residual Oil (Barrels) 1/99-9/99 1,095,000 $ 9.84
Diesel Fuel (Barrels) 1/99-9/99 564,000 $15.35
Natural Gas (BTUs in millions) - - -
The unrealized gain in the Company's fuel swap positions at September 30, 1999
was $14.6 million. The effect of a hypothetical 10 percent decrease from
September 30, 1999 fuel prices would be to reduce the unrealized gain on fuel
swaps by $6.6 million.
16
<PAGE>
Interest Rate Swaps: The Company may enter into interest rate swap agreements to
limit the effect of interest rates on any floating rate debt. The differential
to be paid or received as interest rates change is recorded in interest expense.
During 1995, the Company entered into a swap agreement with an aggregate
notional amount of $15.0 million to limit the interest rate exposure on its
$15.0 million, 5 year term loan to 6.8%. Interest expense would have been lower
by $48,000 and $87,000 in the quarters ended September 30, 1999 and 1998,
respectively, had the Company not hedged its exposure.
The effect of a hypothetical decrease of 1% in the prevailing interest rate
would be to increase interest expense by approximately $100,000 over the
remaining life of the contract over what it would have been had the exposure not
been hedged.
TRADING:
Price protection programs utilizing synthetic puts may be implemented in steps.
In cases where the step approach is used, the Company's objective is to take
advantage of current market conditions to minimize its cost of the synthetic
put. Until a synthetic put is completed, any calls not matched with a forward
sale are considered trading activities and are marked to market with the gain or
loss, if any, recorded in earnings. At September 30, 1999, the Company did not
hold any call options. Earnings for the quarter ended September 30, 1998
included pre-tax losses of $0.2 million of unrealized mark to market losses.
The Company may hold positions in the metals futures markets for metals which it
produces but which are not related to any specific sales to customers. These
contracts are considered trading activities and are marked to market with the
gain or loss, if any, recorded in earnings. At September 30, 1999 and 1998, such
futures positions were insignificant.
Cost of Products and Services: Cost of products and services were $425.2 million
and $460.5 million for the quarters ended September 30, 1999 and 1998,
respectively and $1,280.5 million and $1,494.5 million for the nine months ended
September 30, 1999 and 1998, respectively. The third quarter and nine month
decrease in 1999 is primarily due to lower costs resulting from the curtailment
of the Company's copper refinery in Amarillo, Texas, the lower sales volume at
SPCC and the sale of the Missouri Lead Division. In addition, the nine month
decrease reflects the benefits of the Company's cost reduction program.
Other Operating Costs: Selling, administrative and other expenses were $45.9 and
$34.5 million in the third quarters of 1999 and 1998, respectively, and $118.0
million and $105.8 million for the nine months ended September 30, 1999 and
1998, respectively. The increase in the three month and nine month periods was
due to higher corporate administrative costs, which included the approval of
management incentive compensation awards in the third quarter 1999 and higher
selling expenses related to the specialty chemicals business.
Research and exploration expense was $5.8 million and $6.7 million in the third
quarters of 1999 and 1998, respectively, and $16.5 million and $21.7 million for
the nine months ended September 30, 1999 and 1998, respectively. The decrease in
the three month and nine month periods was due to lower spending in 1999 as part
of the Company's cost reduction program.
17
<PAGE>
Environmental and other closed plant charges were $8.9 million and $1.4 million
for the quarters ended September 30, 1999 and 1998, respectively, and $12.6
million and $7.4 million for the nine months ended September 30, 1999 and 1998,
respectively. The three month and nine month increases was largely due to a
legal settlement concluded by the Company.
Asset dispositions and impairments of $16.7 million for the three months ended
September 30, 1999 were due to recording the effect of the sale of the Troy mine
and an advanced stage exploration project in Montana. Asset dispositions and
impairments for the nine months ended September 30, 1998 include a $20.0 million
charge to reflect the effect of the sale of the Missouri Lead Division.
Non-operating Items: Interest expense was $18.6 million and $17.7 million for
the quarters ended September 30, 1999 and 1998, respectively, and $57.0 million
and $51.5 million in the nine months ended September 30, 1999 and 1998,
respectively. The increases in the three month and nine month periods in 1999
reflected higher borrowings partially offset by lower rates on floating rate
debt.
Other income was $46.5 million and $4.7 million for the quarters ended September
30, 1999 and 1998, respectively, and $56.1 million and $24.0 million for the
nine months ended September 30, 1999 and 1998, respectively. The increase in the
three month periods is due to the $45.0 million break-up fee paid to the Company
by Cyprus Amax and a $10.2 million gain related to the Silver Valley Resources
transaction and other assets partially offset by $11.4 million of merger related
costs and slightly lower interest income.
Taxes on Income: The increase in the rate of the consolidated tax benefit in the
third quarter of 1999 as compared to the third quarter of 1998 is primarily
attributable to the reversal of previously accrued tax liabilities resulting
from a favorable settlement of IRS audit issues.
Cash Flows:
Third quarter - Net cash provided from operating activities was $22.3 million
for the third quarter of 1999 and was due to the $45 million termination fee
received from Cyprus Amax, higher accounts payable and accrued liabilities and
lower accounts receivable, partially offset by increased inventory. In the third
quarter of 1998, net cash provided from operating activities was $16.1 million
and was caused by lower receivables, and higher payables, accrued liabilities
and minority interest.
Net cash used for investing activities was $57.1 million in the third quarter of
1999 and was due to capital expenditures partially offset by higher proceeds
from held-to-maturity investments at SPCC. In the third quarter of 1998, net
cash used for investing activities was $53.7 million principally related to
capital expenditures partially offset by proceeds from the sale of the Missouri
Lead Division.
Nine Months - Net cash provided from operating activities was $95.8 million in
the nine month period ended September 30, 1999 and was primarily due to higher
accounts payable and lower accounts receivable. In the nine months ended
September 30, 1998, net cash provided from operating activities was $81.2
million and was caused by higher payables, accrued liabilities and minority
interest, and lower inventories and receivables.
18
<PAGE>
Net cash used for investing activities was $208.9 million in the nine month
period ended September 30, 1999 and was primarily due to capital expenditures.
In the nine month period ended September 30, 1998, net cash used for investing
activities was $117.4 million principally related to capital expenditures and
the purchase of a German specialty chemicals company by Enthone-OMI Inc.,
partially offset by higher proceeds from held-to-maturity investments at SPCC
and proceeds from the sale of the Missouri Lead business.
Liquidity and Capital Resources: At September 30, 1999, the Company's debt as a
percentage of total capitalization (the total of debt, minority interests and
equity) was 36.2%, compared with 33.7% at December 31, 1998. Consolidated debt
at September 30, 1999, including the debt of SPCC, none of which is guaranteed
by Asarco, was $1,131.5 million, compared with $1,047.6 million at December 31,
1998. Additional indebtedness permitted under the terms of the Company's most
restrictive covenants was $439.3 million at September 30, 1999. In addition,
under the most restrictive covenants of SPCC's loan agreements, SPCC would have
been permitted additional indebtedness of $892.8 million at September 30, 1999.
The Company expects that it will meet its cash requirements for 1999 and beyond
from internally generated funds, cash on hand and from borrowings under its
revolving credit agreements or from additional debt or equity financing.
The Company paid dividends to common stockholders of $2.0 million or 5 cents per
share in the third quarter of 1999 and $7.9 million or 20 cents per share in the
third quarter of 1998. In addition SPCC paid dividends of $0.8 million to
minority interests in the third quarter of 1999 and $4.2 million in the third
quarter of 1998. At September 30, 1999, the Company had 39,921,000 shares issued
and outstanding, compared with 39,652,000 at December 31, 1998.
Impact of New Accounting Standards: In June 1998, the Financial Accounting
Standards Board (FASB) issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes accounting and
reporting standards for derivative instruments and hedging activities.
Initially, the statement was to be effective in fiscal years beginning after
June 15, 1999. In June 1999, the FASB issued SFAS No. 137 which defers the
effective date of SFAS No. 133 to fiscal years beginning after June 15, 2000.
The Company is currently assessing the impact of SFAS No.133.
Year 2000: The Company has implemented a three phase program to identify and
resolve Year 2000 (Y2K) issues related to the integrity and reliability of its
computerized information systems as well as computer systems embedded in its
production processes. Phase one of the Company's program which involved an
assessment of Y2K compliance of the Company's computerized information systems
and embedded computer systems has been completed. In phase two of the program
the Company is modifying or replacing all non-compliant systems. As of September
30, 1999, substantially all of the Company's systems, including SPCC's systems
have been tested and are Y2K compliant. The Company continues to test these
systems where appropriate.
As of September 30, 1999, the Company had spent approximately $3.4 million in
addition to its normal internal information technology costs in connection with
its Y2K program. Phase three of the program, which involved the Company and SPCC
sending detailed information requests to their principal customers, suppliers
and service providers to determine the status of their Y2K compliance, has been
completed. The Company and SPCC received confirmations indicating that most are
or will be Y2K compliant. The Company and SPCC will have further contact with
those who have not responded or have indicated further work was required to
achieve Y2K compliance, but none are critical to the Company's or SPCC's
operations.
19
<PAGE>
Among other things, the Company's operations depend on the availability of
utility services, principally electricity, and reliable performance by domestic
and international transportation services. A substantial disruption in any of
these services due to providers of these services failing to achieve Y2K
compliance would have an adverse impact on the Company's financial results, the
significance of which would depend on the length and severity of the disruption.
The Company has identified alternatives and has completed a contingency plan for
each of its principal operations. The purpose of the contingency plan is to
identify possible alternatives which could be used in the event of a disruption
in the delivery of essential goods or services and to minimize the effect of
such a disruption.
The above estimates and conclusions contain forward-looking statements and are
based on management's best estimate of future events. Actual results could
differ materially depending on the availability of resources and the Company's
ability to identify and correct all Y2K issues.
Cautionary Statement: Forward-looking statements in this report and in other
Company statements include statements regarding expected commencement dates of
mining or metal production operations, projected quantities of future metal
production, anticipated production rates, operating efficiencies, costs and
expenditures as well as projected demand or supply for the Company's products.
Actual results could differ materially depending upon factors including the
availability of materials, equipment, required permits or approvals and
financing, the occurrence of unusual weather or operating conditions, lower than
expected ore grades, the failure of equipment or processes to operate in
accordance with specifications, labor relations, environmental risks as well as
political and economic risk associated with foreign operations. Results of
operations are directly affected by metals prices on commodity exchanges which
can be volatile.
20
<PAGE>
PricewaterhouseCoopers LLP
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
ASARCO Incorporated:
We have reviewed the condensed consolidated balance sheet of ASARCO Incorporated
and Subsidiaries as of September 30, 1999 and the related condensed consolidated
statements of earnings and cash flows for the three month and nine month periods
ended September 30, 1999 and 1998. These financial statements are the
responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying interim condensed consolidated financial statements
for them to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet as of December 31, 1998 and the
related consolidated statements of income, retained earnings, and cash flows for
the year then ended (not presented herein) and in our report dated January 26,
1999, we expressed an unqualified opinion on those consolidated financial
statements. In our opinion, the information set forth in the accompanying
condensed consolidated balance sheet as of December 31, 1998, is fairly stated,
in all material respects, in relation to the consolidated balance sheet from
which it has been derived.
PricewaterhouseCoopers LLP
New York, New York
November 12, 1999
21
<PAGE>
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
1. Asarco and two of its wholly-owned subsidiaries, Lac d'Amiante du Quebec,
Ltee ("LAQ") and Capco Pipe Company, Inc. ("Capco"), have been named as
defendants, among numerous other defendants, in additional asbestos personal
injury lawsuits of the same general nature as the lawsuits reported on Form 10-K
for 1998 and prior years and Form 10-Q for the first and second quarters of
1999. As of September 30, 1999, there were pending against Asarco and its
subsidiaries 1,377 lawsuits brought by 5,950 primary and 1,036 secondary
plaintiffs in 27 states seeking substantial damages for personal injury or death
allegedly caused by exposure to asbestos. As of September 30, 1999, LAQ, Asarco,
and Capco have settled or have been dismissed from a total of 10,737 asbestos
personal injury lawsuits brought by approximately 114,888 primary and 64,562
secondary plaintiffs.
2. With respect to the citizens' suit brought against the Company alleging
violations of the Clean Water Act ("CWA") and Resource Conservation and Recovery
Act ("RCRA") at the Company's former Omaha plant, reported on Form 10-K for 1998
and prior years, in April 1999 the court entered summary judgment dismissing the
CWA claims. A trial of the RCRA claims was held in June 1999, and the court
rendered a verdict in favor of the Company. Plaintiffs have appealed only the
summary judgment.
3. With respect to the class action brought against the Company on behalf of
persons residing near the Company's Globe plant in Denver, Colorado, reported on
Form 10-K for 1998, in August 1999, the Company and the class representatives
executed a settlement agreement which is subject to approval by the court.
4. With respect to the consent decree among the Company, the United States
Department of Justice, the United States Environmental Protection Agency
("EPA"), and the Texas Natural Resources Conservation Commission reported on
Form 10-Q for the first and second quarters of 1999, in October 1999, the decree
was approved by the federal district court. Two of the plaintiffs in the
lawsuits arising out of the operations of the Company's former Corpus Christi
zinc refinery and the operations of its subsidiaries Encycle, Inc. and
Encycle/Texas, Inc., reported on Form 10-K for 1998, have filed a motion to
intervene in the consent decree proceedings in the federal district court. They
ask the court to reconsider its order approving the decree and for monetary and
other relief. The Company and the U.S. Government are opposing the motion. The
court previously rejected these same plaintiffs' request to intervene in the
proceedings.
5. In September 1999, the Company was named along with 16 other defendants in
two complaints filed in state court in Maryland. One complaint was filed on
behalf of eight minors alleging personal injury due to exposure to lead in the
form of lead-based paint and tetraethyl lead in gasoline. Plaintiffs seek
compensatory and punitive damages. The other case is a purported class action
against the same defendants brought on behalf of owners and occupants of single
family houses in Maryland built before 1979. Plaintiffs seek to recover the cost
of detecting, monitoring, and, where necessary, removing residential lead-based
paint, and compensatory and punitive damages.
22
<PAGE>
6. The Company and its directors have been named in one purported class action
in Delaware Chancery Court and four purported class actions in the Chancery
Division of the Superior Court of New Jersey allegedly on behalf of shareholders
who allege that the directors breached their fiduciary duties to the
shareholders by refusing to consider a tender offer from a subsidiary of Phelps
Dodge Corporation. Phelps Dodge, in its capacity as a shareholder of the
Company, filed similar actions in both Delaware and New Jersey. The plaintiffs
in all of the actions seek to compel the directors to consider the Phelps Dodge
tender offer as well as money damages and attorneys fees. Subsequent to the
filing of the lawsuits, an amended Phelps Dodge tender was terminated and
withdrawn and the Company agreed to a merger offer at a higher price from Grupo
Mexico, S.A. de C.V.
7. On November 9, 1999, an action was commenced against the Company in Federal
court in the Southern District of New York by Cyprus Amax Minerals Company
("Cyprus"), a subsidiary of Phelps Dodge Corporation ("Phelps Dodge"). The
Company and Cyprus were formerly parties to a Merger Agreement, dated July 15,
1999, and amended September 27, 1999 (the "Cyprus Merger Agreement"). On
September 30, 1999, Cyprus terminated the Cyprus Merger Agreement in order to
enter into a merger agreement with Phelps Dodge and paid Asarco a $45 million
termination fee. Phelps Dodge subsequently acquired control of and a substantial
majority of the common shares of Cyprus. On October 5, 1999, the Company entered
into a merger agreement with Phelps Dodge (the "Phelps Dodge Merger Agreement").
On October 25, 1999, Asarco terminated the Phelps Dodge Merger Agreement, paid
Phelps Dodge a $30 million termination fee and entered into a merger agreement
with Grupo Mexico, S.A. de C.V. The action seeks damages of not less than $90
million, plus attorneys' fees and interest, based on claims allegedly arising
from the foregoing series of events. Asarco intends to defend the lawsuit
vigorously.
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Item 6 - Exhibits and Reports on Form 8-K
(a) The following Exhibits are filed as part of this report:
Exhibits
2. Plan of Acquisition, Reorganization, Arrangement, Liquidation or
Succession
Agreement and Plan of Merger, dated as of October 25, 1999, among
ASARCO Incorporated, Grupo Mexico, S.A. de C.V. and ASMEX
Corporation. (Filed as an Exhibit to the Company's Amendment No.
3 to Schedule 14D-9 filed on October 25, 1999 and incorporated
herein by reference.) The Registrant agrees to furnish to the
Commission, upon request, a copy of any omitted schedules.
4. Instruments Defining the Rights of Security Holders, including
Debentures
(a) Amendment Number Three, dated as of July 15,1999, to Rights
Agreement dated as of July 26,1989, between ASARCO
Incorporated and The Bank of New York, as Rights Agent.
(Filed as an Exhibit to the Company's Amendment No. 3 to
Form 8-A filed on July 22, 1999 and incorporated herein by
reference.)
(b) Amendment Number One, dated as of July 15, 1999, to Rights
Agreement, dated as of January 28, 1998, between Asarco
Incorporated and The Bank of New York, as Rights Agent.
(Filed as an Exhibit to the Company's Amendment No. 3 to
Form 8-A filed on July 22, 1999 and incorporated herein by
reference.)
(c) Amendment Number Two, dated as of October 5, 1999, to Rights
Agreement, dated as of January 28, 1998, between ASARCO
Incorporated and The Bank of New York, as Rights Agent.
(Filed as an Exhibit to the Company's Amendment No. 4 to
Form 8-A filed on November 8, 1999 and incorporated herein
by reference.)
(d) Amendment Number Three, dated as of October 25, 1999, to
Rights Agreement, dated as of January 28, 1998, between
ASARCO Incorporated and The Bank of New York, as Rights
Agent. (Filed as an Exhibit to the Company's Amendment No. 4
to Form 8-A filed on November 8, 1999 and incorporated
herein by reference.)
10. Material Contracts
(a)Supplemental Pension Plan for Designated Mid-Career
Officers, as amended through October 8, 1999
(b)Compensation Deferral Plan, as amended through October 8,
1999
(c)Supplemental Retirement Plan, as amended through
October 8, 1999
24
<PAGE>
12. Statement re Computation of Consolidated Ratio of Earnings to
Fixed Charges and Combined Fixed Charges and Preferred Share
Dividend Requirements
15. Independent Accountants' Awareness Letter
(b) Reports on Form 8-K:
1. Report on Form 8-K filed on July 20, 1999, containing a press
release dated July 15, 1999, announcing an agreement between
Cyprus Amax Minerals Company and ASARCO Incorporated for the
combination of both companies in a merger-of-equals transaction.
2. Report on Form 8-K filed on September 7, 1999, enclosing a joint
press release of ASARCO Incorporated and Cyprus Amax Minerals
Company dated September 7, 1999, urging shareholders to vote for
their proposed merger on September 30, 1999.
3. Report on Form 8-K filed September 20, 1999, announcing the
filing of a lawsuit by ASARCO Incorporated against Phelps Dodge
Corporation in the U.S. District Court, Southern District of New
York, charging that Phelps Dodge Corporation's unsolicited
takeover attempt of ASARCO Incorporated and Cyprus Amax Minerals
Company violates the antitrust laws of the United States. A copy
of the complaint and related press release are also enclosed.
4. Report on Form 8-K filed September 28, 1999, enclosing Amendment
No.1 dated September 27, 1999, amending the agreement and Plan of
Merger, dated as of July 15, 1999, among ASARCO Cyprus
Incorporated, ACO Acquisition Corporation, CAM Acquisition
Corporation, ASARCO Incorporated and Cyprus Amax Minerals
Company, enabling the parties to explore alternatives to their
Merger Agreement until October 5, 1999. A copy of the related
press release is also enclosed.
5. Report on Form 8-K filed October 6, 1999, enclosing an Agreement
and Plan of Merger between ASARCO Incorporated, Phelps Dodge
Corporation and AAV Corporation dated October 5, 1999, and the
related press release.
6. Report on Form 8-K filed October 7, 1999, enclosing a press
release issued by Southern Peru Copper Corporation dated October
7, 1999, which announces significant new mineralization at its
Toquepala Mine.
25
<PAGE>
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ASARCO Incorporated
(Registrant)
Date: November 12, 1999 /s/ William Dowd
William Dowd
Vice President and
Chief Financial Officer
Date: November 12, 1999 /s/ Edward J. Melando
Edward J. Melando
Controller
26
<PAGE>
<TABLE>
<CAPTION>
Exhibit Index
Exhibits Page No.
<S> <C>
2. Plan of Acquisition, Reorganization, Arrangement, Liquidation or
Succession
Agreement and Plan of Merger, dated as of October 25, 1999, among
ASARCO Incorporated, Grupo Mexico, S.A. de C.V. and ASMEX Corporation.
(Filed as an Exhibit to the Company's Amendment No. 3 to Schedule
14D-9 filed on October 25, 1999 and incorporated herein by reference.)
The Registrant agrees to furnish to the Commission, upon request, a
copy of any omitted schedules.
4. Instruments Defining the Rights of Security Holders, including
Debentures
(a) Amendment Number Three, dated as of July 15,1999, to Rights
Agreement dated as of July 26,1989, between ASARCO Incorporated
and The Bank of New York, as Rights Agent. (Filed as an Exhibit
to the Company's Amendment No. 3 to Form 8-A filed on July 22,
1999 and incorporated herein by reference.)
(b) Amendment Number One, dated as of July 15, 1999, to Rights
Agreement, dated as of January 28, 1998, between Asarco
Incorporated and The Bank of New York, as Rights Agent. (Filed as
an Exhibit to the Company's Amendment No. 3 to Form 8-A filed on
July 22, 1999 and incorporated herein by reference.)
(c) Amendment Number Two, dated as of October 5, 1999, to Rights
Agreement, dated as of January 28, 1998, between ASARCO
Incorporated and The Bank of New York, as Rights Agent. (Filed as
an Exhibit to the Company's Amendment No. 4 to Form 8-A filed on
November 8, 1999 and incorporated herein by reference.)
(d) Amendment Number Three, dated as of October 25, 1999, to Rights
Agreement, dated as of January 28, 1998, between ASARCO
Incorporated and The Bank of New York, as Rights Agent. (Filed as
an Exhibit to the Company's Amendment No. 4 to Form 8-A filed on
November 8, 1999 and incorporated herein by reference.)
10. Material Contracts
(a) Supplemental Pension Plan for Designated Mid-Career Officers,
as amended through October 8, 1999 28-36
(b) Compensation Deferral Plan, as amended through October 8, 1999 37-43
(c) Supplemental Retirement Plan, as amended through October 8, 1999 44-50
12. Statement re Computation of Consolidated Ratio of Earnings to Fixed
Charges and Combined Fixed Charges and Preferred Share Dividend
Requirements 51
15. Independent Accountants' Awareness Letter 52
</TABLE>
27
<PAGE>
Exhibit 10(a)
ASARCO Incorporated
SUPPLEMENTAL PENSION PLAN
FOR DESIGNATED MID-CAREER OFFICERS
(As Amended through October 8, 1999)
WHEREAS, the Organization and Compensation Committee (the "Committee") of
the Board of Directors of ASARCO Incorporated (the "Company" or "Asarco") has
been advised by its independent compensation consultants that executive officers
who join or have joined the Company in mid-career, and subsequently serve as
vice president or higher rank for ten or more years, usually do not have
sufficient time before retirement to accrue benefits under existing pension
plans of the Company adequate to their needs or appropriate to reflect their
experience or employment responsibilities, and that a supplemental retirement
benefits plan for such persons should be adopted to remove these inequities, to
encourage the continued association of these executives with the Company, and to
assure that the Company is able to attract and retain executives with valuable
prior experience; and
WHEREAS, the Committee has recommended the adoption of, and the Board of
Directors has approved and decided to adopt, the ASARCO Incorporated
Supplemental Pension Plan for Designated Mid-Career Officers (the "Plan") to
permit the Company to provide supplemental retirement benefits to key officers
identified by the Committee who otherwise would receive retirement benefits
which would not reflect their experience prior to employment with the Company or
would not be appropriate for the position of responsibility which they hold with
the Company.
NOW, THEREFORE, the Company hereby adopts the Plan effective November 24,
1987.
1. DEFINITIONS.
1.1 Benefit Commencement Date. Except as provided in Sections 3.1, 3.3 and
6, the date on which benefits are scheduled to commence under the
Pension Plan.
1.2 Board. The Board of Directors of ASARCO Incorporated.
1.3 Company. ASARCO Incorporated.
1.4 Compensation. Compensation shall be as defined under the Pension Plan.
1.5 Committee. The Organization and Compensation Committee of the Board.
1.6 Disability. Permanent and total disability as defined in the Pension
Plan.
1.7 Executive. An officer of the Company holding a rank of Vice President
or higher who is determined by the Committee in its sole discretion to
be a person who when first employed by the Company already had prior
business or professional experience which was valuable to the Company
and relevant to the position for which he was employed. This term
shall also include the Executive's spouse in the event benefit
payments, as described hereinafter, have commenced under the Plan to
such spouse. The terms Executive or Participant shall have identical
meanings in this Plan.
1.8 Final Compensation Rate. The average of the sixty highest consecutive
monthly amounts of the Executive's basic compensation and incentive
bonuses, in the one hundred twenty months preceding his retirement or
termination of employment prior to age 65.
1.9 Pension Plan. The Retirement Benefit Plan for Salaried Employees of
ASARCO Incorporated.
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<PAGE>
1.10 Primary Insurance Amount. The Executive's Primary Insurance Amount for
social security purposes, determined on the basis of the Executive's
actual compensation with respect to years of employment with the
Company. With respect to years of employment, if any, prior to
employment with the Company, the Committee shall estimate the
Executive's income that is treated as wages for purposes of the Social
Security Act. If the Executive's employment with the Company is
terminated prior to age 65, for years following termination of
employment, it shall be assumed for purposes of calculating the
Primary Insurance Amount that the Executive earns compensation so as
to accrue maximum Social Security benefits.
2. SUPPLEMENTAL BENEFIT. All supplemental benefits under the Plan shall be
determined according to this Section 2.
2.1 Net Annual Benefit. The base annual benefit payable to the
Executive on or after age 65 shall be determined by multiplying his
annualized Final Compensation Rate by 0.55 (fifty-five percent). This
amount shall be reduced by the sum of (i) the annual amount of any
benefits accrued as of the Benefit Commencement Date (other than
benefits attributable to pre- or post-tax contributions made by the
Executive) which are payable, which have been paid or which will
become payable to the Executive from any defined benefit, money
purchase or other pension benefit plan (whether qualified or
nonqualified) maintained by the Company or any other employer at any
time, (ii) the annual amount of any benefits payable, paid or to be
paid on account of Disability under a plan maintained by the Company
or any other employer at any time, and (iii) his annual Primary
Insurance Amount. In the event the Executive has received, is
receiving, or is scheduled to receive benefits from another such
pension or disability plan in any form other than a single life
annuity (including a single sum distribution or a variable annuity) or
at a time other than when benefits commence under this Plan, the
benefits to be taken into account under (i) and (ii) above shall be
determined in good faith by the Company based on actuarial assumptions
and factors reasonably utilized under the Pension Plan as of the date
of determination, or to the extent such factors or assumptions do not
contemplate a particular situation which arises under this Plan, based
upon the factors applied by the Pension Benefit Guaranty Corporation
for purposes of determining the present value of benefits upon
termination of a plan with insufficient assets. In the event of a
controversy concerning the calculation of benefits described in (i) or
(ii) above, the Committee shall in good faith determine the amount of
benefits pursuant to Section 5 of the Plan. The benefit remaining
after this reduction shall constitute the Executive's Net Annual
Benefit.
2.2 Form and Timing of Payment.
(a) Except as otherwise provided herein, the benefit shall be
payable to the Executive in a lump sum, payable on January 15 of
the year immediately following the Benefit Commencement Date, and
calculated as set forth in Section 2.3. Alternatively, an
Executive may elect, at least twelve (12) months prior to his
Benefit Commencement Date, to receive all or a portion of the
benefit payable hereunder on such Benefit Commencement Date. In
the event of a Change of Control (as defined below) the benefit
shall be payable as soon as practicable following the Change of
Control and the lump sum shall be calculated as set forth in
Sections 2.3 and 6 below.
29
<PAGE>
(b) An Executive may elect prior to the Benefit Commencement Date
to defer (for a period not to exceed twenty (20) years) all or
part (but not less than $50,000) of a lump sum payment under the
Plan (the "Deferral Amount") to a future date or to convert the
Deferral Amount to a series of scheduled installments. Such an
election must be made at least twelve (12) months prior to the
date payment would be made under Section 2.2(a), except in the
event of termination by reason of Disability, in which case the
election may be made at any time prior to the Benefit
Commencement Date. Any such election may be amended to
accelerate, further defer (except as otherwise provided with
respect to a Surviving Spouse in Section 2.2(j)) or to change the
form of payment of all or part of the Deferral Amount, if amended
in accordance with the provisions of Section 2.2(h). The Deferral
Amount shall be deemed invested, as of the Benefit Commencement
Date, in accordance with an election to be made by the Executive
under rules established by the Committee. The Company will
attempt to follow the Executive's elections, but will not be
required to do so. Regardless of whether the Executive's
elections are followed, the Deferral Amount shall be credited
with deemed earnings, gains, losses, expenses and changes in the
fair market value of such Deferral Amount as if the Company had
followed such investment designations.
(c) The election of a deemed investment option is the sole
responsibility of each Executive. Neither the Company, nor the
Committee, nor any trustee of any trust that may be established
in connection with the Plan are authorized or permitted to advise
(or shall have any liability with respect to) an Executive as to
the election of any option or the manner in which his Deferral
Amount shall be deemed to be invested. Except for an Executive
who elects annuity payments pursuant to paragraph (e) below,
absent an election to defer pursuant to paragraph (b) above, all
unpaid benefit amounts shall be deemed invested as of the Benefit
Commencement Date in the Vanguard Money Market Reserve -- Prime
Portfolio (or other comparable money market fund selected by the
Company), until paid to the Executive pursuant to paragraph (a)
above.
(d) All deemed investments of Deferral Amounts including
provisions for transfers among investment vehicles will be in
accordance with rules established by the Committee.
(e) Notwithstanding paragraphs (a) and (b) above, an Executive
may elect in writing to receive single life annuity payments
under the Plan at approximately the same time as payments are to
be made to the Executive under the Pension Plan. Such an election
must be made at least twelve (12) months prior to the Benefit
Commencement Date, except in the event of termination by reason
of Disability, in which case the election may be made at anytime
prior to the Benefit Commencement Date. Any such election may be
changed, provided that no such change shall be given effect
unless it is made in writing at least twelve (12) months prior to
the Benefit Commencement Date.
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<PAGE>
(f) At any time subsequent to an Executive's Benefit Commencement
Date, an Executive who made an election pursuant to Section
2.2(b) may request a payment of all or a portion of the value of
his Deferral Amount not yet payable. Such a request shall be
approved by the Committee only upon a finding that the Executive
has suffered a severe financial hardship which has resulted from
events beyond the Executive's control ("Hardship Event"), and
only in the amount reasonably needed to satisfy such Hardship
Event. Whether a Hardship Event has occurred shall be determined
in accordance with Treasury Regulation Sections 1.457-2(h)(4) and
(5). In the event such a payment is approved, payment of the
approved amount from the Deferral Amount shall be made as soon as
practicable to the Executive.
(g) At any time subsequent to an Executive's Benefit Commencement
Date, an Executive who made an election pursuant to Section
2.2(b) may elect the acceleration of payment of all or a portion
of the value of any Deferral Amount not yet payable subject to a
6% penalty of the amount accelerated. Payment of such amount,
less such penalty (which shall be forfeited), shall be paid in
cash in a single lump sum as soon as practicable.
(h) At any time subsequent to the Benefit Commencement Date, an
Executive who has made an election pursuant to Section 2.2(b) may
file an election to amend such prior election affecting any
Deferral Amount payable at least 12 months subsequent to such
amendment, either to accelerate, further defer or to change the
form of payment of such Deferral Amount, provided no such
election may accelerate any payment to a date earlier than 12
months from the date of amendment. The amended form of payment
may be a single sum payment of any Deferral Amounts not yet due
and payable or annual installments of any such Deferral Amounts,
or a combination thereof, provided no payments may be extended
longer than the time specified in Section 2.2(b).
(i) Upon the death of an Executive who has elected an annuity
form of payment pursuant to Section 2.2(e) above, the Executive's
surviving spouse, if any, at the date of death ("Surviving
Spouse") shall receive 50% of the Net Annual Benefit described in
Section 2.1 above and as adjusted as provided in Section 3.3, if
applicable, for life.
(j) Upon the death of an Executive in all other events, the
Executive's Surviving Spouse, shall receive any benefits due to
the Executive under this Plan as adjusted as provided in Section
3.3, at the same time as provided under paragraph (a) above,
except a valid election under paragraph (b) above shall survive
the death of the Executive. In such case, the Surviving Spouse
shall have the same rights as are provided to the Executive
pursuant to this Section 2 except that further deferrals will not
be permitted. The Executive may designate a contingent
beneficiary by giving written notice to the Company. If the
Executive has no Surviving Spouse, any remaining benefits payable
shall be paid as soon as practicable in a single sum to his
contingent beneficiary, or if none, to his estate.
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<PAGE>
(k) In the case of any payment pursuant to this Section 2.2 of
less than the total value of a Deferral Amount, the Committee
will make reasonable efforts to follow any instructions received
from the Executive indicating from which deemed investments any
such distribution is first to come. In the absence of
instructions, distributions shall be made on a pro rata basis
from all the deemed investments currently elected by the
Executive pursuant to Section 2.2(b) with respect to the Deferral
Amount.
2.3 Calculation of Lump Sum. The amount of the lump sum described in
Section 2.2(a) shall be the present value of the benefits payable under the
Plan, determined by using the following actuarial assumptions for the
Executive:
(a) Discount Rate. The discount rate used in computing the
present value of benefits payable under the Plan is the yield on
10-year treasury notes on the Benefit Commencement Date, or if a
legal holiday, the first business day immediately following the
Benefit Commencement Date. However, at any time during a thirteen
month period ending with the Benefit Commencement Date, the
Executive may designate an alternative date for fixing the
interest rate used to calculate the present value of the lump sum
distribution. The designation must be in writing, and the date
designated must be within seven calendar days of the date the
designation is received by the Company. The designation of the
discount rate, once made, may not be changed for any reason.
Notwithstanding the foregoing, if an Executive designates an
Alternative Date under this subsection in contemplation of
commencing benefits under the Pension Plan, such designation will
survive a subsequent postponement of the commencement of benefits
under the Pension Plan by such Executive, except that, if the
yield on 10-year treasury notes on the Benefit Commencement Date
is higher than on the Alternative Date, the yield on the Benefit
Commencement Date will be used.
(b) Mortality Table. The Mortality Table used will be that
contained in U.S. Internal Revenue Service Revenue Ruling 95-6 or
any succeeding Revenue Ruling issued by the Internal Revenue
Service for use in applying the provisions of sections 415 and
417(e) of the Internal Revenue Code.
2.4 Eligibility for Benefit. Except as provided under Section 3.3 and
Section 6 no benefit shall be payable unless the Executive shall have been
in the employ of the Company as a Vice President or officer of higher rank
for a period of at least 10 years on his Benefit Commencement Date.
3. TERMINATION OF EMPLOYMENT PRIOR TO AGE 65. If the Executive terminates
employment prior to age 65, for any reason, his rights and benefits under
the Plan will be determined in accordance with this Section 3.
3.1 Benefit Commencement. Except as provided in Section 6 upon a Change of
Control, the Benefit Commencement Date shall be as defined in Section 1
(and the Executive shall have no right to elect any other date); provided,
however, that at the option of the Company, the Company may require that
the Benefit Commencement Date shall be the last day of the month in which
the Executive reaches his 65th birthday, if later than the date benefits
would otherwise commence hereunder. The option provided to the Company
herein shall not be exercised unreasonably or in bad faith.
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<PAGE>
3.2 Benefit Adjustment. If the Executive terminates prior to age 65 for
reasons other than death or Disability, his Net Annual Benefit shall be
reduced by 33/100 of one percent (0.0033) for each month such termination
precedes the month in which he attains age 65.
3.3 Death and Disability. If the employment of the Executive with the
Company terminates prior to age 65 but after completion of at least 10
years service with the Company, whether or not as an officer, due to reason
of Disability, the Executive will be eligible for immediate commencement of
benefit payments as provided in Section 2. Further, no reduction in Net
Annual Benefits will be made under Section 3.2 above. If the employment of
the Executive with the Company terminates prior to age 65 but after
completion of at least 10 years service with the Company, whether or not as
an officer, for the reason of death, the Executive's Surviving Spouse shall
be eligible for a Net Annual Benefit equal to 50% of the Executive's Net
Annual Benefit as provided in Section 2.2 above, except that if the spouse
is more than 60 months younger than the Executive, such spouse's Net Annual
Benefit shall be reduced by 1/12 of 1% for each full month by which the
spouse is more than 60 months younger than the Executive; provided,
however, that in determining the amount of such survivor benefit, no
reduction shall be made pursuant to Section 3.2 for the early commencement
of benefits; and further provided, however, such benefits shall be paid in
accordance with Section 2.2 above.
3.4 Company Consent. Except for termination of employment under Section 3.3
above or in the event of a Change of Control (as defined below), if the
Executive voluntarily terminates employment with the Company prior to age
65 without the express, written consent of the Company, all rights of the
Executive to benefits hereunder shall thereupon terminate; it being
understood that if the Executive's employment is terminated at the
Company's request, no benefits hereunder shall be forfeited pursuant to
this Section 3.4.
4. INDEMNIFICATION. The Company shall pay any and all legal fees and expenses
incurred by the Executive in seeking to obtain or enforce any rights under
the Plan, provided that the Executive is successful in obtaining or
enforcing such rights.
5. ADMINISTRATION. Issues relating to the administration of the Plan and
payment of benefits thereunder shall be determined in good faith by the
Committee pursuant to the terms of the Plan.
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<PAGE>
6. CHANGE OF CONTROL.
(a) Notwithstanding any other provision of this Plan, in the event of
a Change of Control (as defined below), no person that is not a
Participant in the Plan immediately prior to such Change of Control
shall be permitted to be a Participant under the Plan following such
Change of Control. Upon and after a Change of Control, this Plan may
not be amended, modified or terminated if any such amendment,
modification or termination would adversely affect any accrued
benefits of a Participant or his or her rights with respect to such
accrued benefit in the Plan, unless any such amendment, modification
or termination is consented to in writing by all such Participants.
Upon a Change of Control, benefits under the Plan shall vest at a rate
of ten percent (10%) for each year the Executive served as a Vice
President or higher (prorated for partial years) and the requirements
of Sections 2.4, 3.1 and 3.4 shall be deemed waived. Upon a Change of
Control, the value of the benefits payable to an Executive under the
Plan will be determined assuming, for purposes of applying Section
3.2, that the Executive terminated on the date of the Change of
Control at age 55 or his actual age, if older, and shall be paid in a
single cash lump sum to the Executive immediately, provided that in
the case of an Executive who has not attained age 55, such amount
shall be discounted to reflect the commencement of benefits prior to
age 55 using the assumptions provided in Section 2.3. Upon a Change of
Control Executives who have designated an Investment Manager under
Section 15 of the Supplemental Retirement Plan of the Company are
permitted to request a distribution of assets in kind in lieu of a
cash lump sum.
(b) For purposes of this Plan, a "Change of Control" shall be deemed
to have occurred if:
(1) any "person", as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") (other than the Company, any trustee or other
fiduciary holding securities under an employee benefit plan of
the Company, or any company owned, directly or indirectly, by the
stockholders of the Company in substantially the same proportions
as their ownership of the stock of the Company), is or becomes
the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the
Company representing either 31% or more of the voting power of
all classes of capital stock of the Company or 33-1/3% or more of
the then outstanding common stock without par value, of the
Company;
(2) the following individuals cease for any reason to constitute
a majority of the number of directors then serving: individuals
who, on the date hereof, constitute the Board of Directors of the
Company and any new director (other than a director whose initial
assumption of office is in connection with an actual or
threatened election contest, including but not limited to a
consent solicitation, relating to the election of directors of
the Company) whose appointment or election by the Board of
Directors or nomination for election by the Company's
stockholders was approved or recommended by a vote of at least
two thirds (2/3) of the directors then still in office who either
were directors on the date hereof or whose appointment or
election or nomination for election was previously so approved or
recommended;
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(3) the stockholders of the Company approve a merger or
consolidation of the Company or any direct or indirect subsidiary
of the Company with any other company, other than (i) a merger or
consolidation which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or being converted
into voting securities of the surviving entity or any parent
thereof) more than 50% of the combined voting power of the voting
securities of the Company or such surviving entity or any parent
thereof outstanding immediately after such merger or
consolidation or (ii) a merger or consolidation effected to
implement a recapitalization of the Company (or similar
transaction) in which no "person" (as defined herein) acquires
more than 50% of the combined voting power of the Company's then
outstanding securities; or
(4) the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all of the
Company's assets.
7. AMENDMENT. The Plan may not be terminated or amended except by action of
the Board, and may not be amended to terminate or reduce or adversely
affect benefits of any Executive then participating in the Plan without the
approval of such Executive.
8. FORFEITURE. No forfeiture provisions contained herein shall survive a
Change of Control.
9. GOVERNING LAW; BINDING EFFECT. The Plan shall be governed and construed and
enforceable in accordance with the laws of the State of New York. If the
Company is consolidated or merged with or into another corporation, or if
another entity purchases all, or substantially all of the Company's assets
the surviving or acquiring corporation shall succeed to the Company's
rights and obligations under the Plan. The Plan shall inure to the benefit
of, and shall be enforceable by, the Executive's personal or legal
representatives, executors, administrators, successors, heirs, devisees,
and legatees.
10. NATURE OF OBLIGATIONS. The Company's obligations to pay benefits under the
Plan shall be contractual in nature only; however, the amounts of such
payments may be held in a trust, the assets of which shall be subject to
the claims of the Company's general creditors in the event of bankruptcy or
insolvency only. Any benefit paid from such trust shall reduce the amount
of benefits owed by the Company.
11. NOTICE. Any notice or filing required or permitted to be given to the
Company shall be sufficient if in writing and hand delivered or when sent
by Registered or Certified mail to the principal office of the Company,
directed to the attention of the Secretary of the Company. Any notice to
the Executive must be in writing and is effective when delivered or when
mailed by Registered or Certified mail, return receipt requested, postage
prepaid to the Executive or his personal representatives at his last known
address.
12. EMPLOYMENT. Nothing contained in the Plan nor any action taken hereunder
shall be construed as a contract guaranteeing the Executive continued
status as an employee. Further, if the Executive has committed willful
misconduct in office materially injurious to the Company or has been
convicted of a felony relating to conduct in office affecting the Company
constituting willful violation of criminal law, any rights of the Executive
under the Plan may be terminated by action of the Committee.
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13. VALIDITY. In the event any provision of this Plan is held invalid, void, or
unenforceable, the same shall not affect in any respect whatsoever the
validity of any other provision of this Plan. Recipients in pay status as
of January 28, 1998, who do not consent to the amendment to the Plan,
effective January 28, 1998, within sixty (60) days of the date of notice of
the amendment shall continue to receive benefits in the event of a Change
of Control under the terms of the Plan in effect on the date preceding
January 28, 1998.
14. ASSIGNMENT. The Executive may not assign, alienate, anticipate, or
otherwise encumber any rights, duties or amounts which he may be entitled
to receive under the Plan.
15. PROTECTIVE PROVISIONS. The Executive shall cooperate in good faith with the
Company in furnishing any and all information reasonably requested by the
Company in order to determine and facilitate benefit payments under the
Plan.
16. GENDER, SINGULAR AND PLURAL. All pronouns in any variations thereof shall
be deemed to refer to the masculine or feminine as the identity of the
person or persons may require. As the context may require, the singular may
be read as the plural and the plural as the singular.
17. CAPTIONS. The captions to the sections and paragraphs of the Plan are for
convenience or reference only and shall not control or affect the meaning
or construction of any of its provisions.
IN WITNESS WHEREOF, the Company has caused the Plan, as amended, to be duly
adopted and executed by its duly authorized officers and its corporate seal
affixed hereon as of October 8, 1999.
ATTEST: ASARCO Incorporated
/s/Susana D. Delanney By:/s/F.R. McAllister
Assistant Secretary Chairman of the Board
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Exhibit 10(b)
ASARCO Incorporated
Compensation Deferral Plan
(As Amended through October 8, 1999)
Section 1 - Effective Date.
The effective date of the Plan as originally adopted is February 1, 1995. The
effective date of the Plan as hereby amended and restated is April 28, 1999, as
further amended effective October 8, 1999.
Section 2 - Definitions.
1) Board - the Board of Directors of ASARCO Incorporated.
2) Code - the Internal Revenue Code of 1986, as amended.
3) Committee - the Organization and Compensation Committee of the Board or
any individual or individuals to whom authority has
been delegated hereunder by the Organization and Compensation Committee.
4) Company - ASARCO Incorporated and any subsidiary of ASARCO Incorporated
that has adopted the Plan.
5) Deferral Amounts - a Participant's Salary Deferral Amounts(including any
of such amounts further deferred under Section 6(b)), Incentive
Compensation Deferral Amounts, Employer Provided Benefit,and Special
Incentive Awards (each as defined in Section 4(b)).
6) Director - any individual serving as a member of the Board.
7) Incentive Compensation Plan - the Incentive Compensation Plan for Exempt
Salaried Employees of ASARCO Incorporated.
8) Incentive Plan - the Incentive Compensation Plan for Senior Officers of
ASARCO Incorporated.
9) Participant - an Eligible Employee, as defined in Section 3, who has a
valid election in effect under the Plan.
10) Participant Account - A bookkeeping account established in the financial
records of the Company to record the Deferral Amounts and deemed
investment earnings or losses arising therefrom based on Participant
elections pursuant to Section 5.
11) Retirement - Retirement under the Retirement Benefit Plan for Salaried
Employees of ASARCO Incorporated.
13) Savings Plan - Savings Plan of ASARCO Incorporated and Participating
Subsidiaries.
Section 3 - Eligibility.
a) Salary Deferral
For purposes of salary deferral, any employee eligible to participate in
the Savings Plan who:
1) had compensation from the Company of at least $80,000 (or such other
greater limit as may be established under Code Section 414(q)(1)(B)(1))
(the "HCE Limit") for the calendar year preceding the year for which the
election is effective, or
2) has an annualized base salary equal to or greater than the HCE Limit for
the year for which the election is effective shall be considered an
"Eligible Employee".
b) Incentive Compensation Deferral For purposes of deferrals of incentive
compensation received under the Incentive Compensation Plan and the
Incentive Plan ("Incentive Compensation Awards"), any exempt salaried
employee of the Company who meets the compensation requirements of Section
3(a)(1) or 3 (a) (2) above, shall be considered an "Eligible Employee".
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Section 4 - Participation.
a) Election to Defer
1) Salary Deferral. To become a Participant in the salary deferral
component of the Plan for a particular calendar year, an Eligible
Employee must elect, prior to the beginning of such calendar year, to
defer receipt of a percentage of his base annual salary to be earned
during the succeeding calendar year. Such an election shall be in
writing on forms prescribed by the Committee, and shall include the
percentage of base annual salary to be deferred. A Participant's
election to defer with respect to a calendar year under this
subsection (a)(1) shall continue in effect for all subsequent calendar
years until changed in accordance with subsection (d). An employee of
the Company who becomes an Eligible Employee during a calendar year
may elect to become a Participant in the Salary Deferral component of
the Plan for such calendar year by electing to defer a percentage of
his base annual salary (in accordance with Section 4(b)) within 30
days of becoming an Eligible Employee. The election will be effective
on a prospective basis beginning with the payroll period that occurs
as soon as administratively practicable following receipt of the
election by the Committee.
2) Incentive Compensation Deferral. To become a participant in the
Incentive Compensation Deferral component of the Plan for a particular
calendar year, an Eligible Employee must elect, prior to the beginning
of such calendar year, to defer receipt of an amount not to exceed 100
percent of his Incentive Compensation Award, payable during the
calendar year to which the election relates. Such an election shall be
in writing on forms prescribed by the Committee. A Participant's
election to defer with respect to a calendar year under this
subsection (a)(2) shall continue in effect for all subsequent calendar
years until changed in accordance with subsection (d).
b) Deferral Amount
1) Salary Deferral. A Participant who meets the requirements of Section
4(a)(1) for a calendar year may elect to have the following amounts
(the "Salary Deferral Amount") credited to his account for such
calendar year or portion thereof during which an election is effective
(the "Deferral Period"):
a) the product of (i) the Participant's elected salary deferral
contribution percentage under this Plan (not to exceed the
maximum contribution percentage permitted under the Savings Plan)
and (ii) the lesser of the Participant's base annual salary for
such year or the Compensation Limit (as defined below); reduced
by the maximum contribution permitted for highly compensated
employees under the Savings Plan due to the limitations imposed
by Code Section 401(k)(3) or by the plan administrator for the
Savings Plan for such calendar year; and
b) the Participant's elected salary deferral contribution percentage
under the Savings Plan as in effect on January 1 of such year,
multiplied by the Participant's base annual salary in excess of
the Code Section 401(a)(17) limit, as adjusted from time to time
($160,000 in 1999) (the "Compensation Limit"); provided, however,
that the total amount of Salary Deferrals under this subsection
cannot exceed the maximum contribution percentage as may then be
permitted under the Savings Plan.
2) Incentive Compensation Deferral. The amount of a Participant's
incentive compensation deferral for a Deferral Period shall be any
whole dollar amount or whole percent of his Incentive Compensation
Award payable during the calendar year as elected by the Participant
(the "Incentive Compensation Deferral Amount"). In the event the award
payable is less than the dollar amount specified in the Participant's
election, the full amount of the award shall be deferred (subject to
Section 15).
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3) Employer Provided Benefit. With respect to each Deferral Period, the
Company shall make a deemed matching contribution equal to 50% of each
Participant's Salary Deferral Amount (each such deemed matching
contribution, an "Employer Provided Benefit"); provided, however, that
no Participant's Employer Provided Benefit with respect to a
particular year may exceed the amount by which 3% of such
Participant's base salary for such year exceeds the matching
contribution made by the Company on the Participant's behalf under the
Savings Plan for such year.
4) Special Incentive Awards. Notwithstanding anything to the contrary
herein, the Committee, in its discretion, may provide for any amounts
awarded to a Participant by the Board or the Committee as a special
incentive award under the Incentive Compensation Plan to be deferred
pursuant to the terms of this Plan and credited to a Participant's
Account, subject to the terms and limitations of the award ("Special
Incentive Awards").
c) Irrevocability of Election
Subject to the provisions of subsection (d) of this Section 4, a
deferral election hereunder shall be irrevocable.
d) Change of Election
A Participant may change prior elections with respect to Salary
Deferral or Incentive Compensation Deferral once in each calendar
year. Changes shall be in writing, on forms prescribed by the
Committee. Such change of election shall first be effective for
the calendar year beginning after the date the change is received
by the Committee.
Section 5 - Deemed Investment Provisions.
a) At the time of the election to participate in the Plan, the Participant
must elect in writing to have his Deferral Amounts deemed invested, in
increments of no less than 5%, in one or more of the investment funds as
are provided under the Savings Plan, except however, that the Asarco Common
Stock Fund shall not be available as a deemed investment. Said election
must total one hundred percent (100%) of his Deferral Amounts.
b) The Participant Accounts shall be credited with deemed earnings, gains,
losses, expenses and changes in the fair market value of such Participant
Accounts as if the Company had followed such investment designations.
c) Each Participant may elect in writing that his future Deferral Amounts be
deemed invested in a proportion different from that previously elected, but
the new election shall be prospective only and shall be made in accordance
with paragraph (b) of this Section 5. Any changes in such deemed
investments must be in accordance with rules, if any, as are established by
the Committee.
d) The election of a deemed investment option is the sole responsibility of
each Participant. Neither the Company, nor the Committee, nor any trustee
of any trust that may be established in connection with the Plan are
authorized or permitted to advise (or shall have any liability with respect
to) a Participant as to the election of any option or the manner in which
his Deferral Amounts shall be deemed to be invested.
e) Consistent with this Section 5, each Participant may elect in writing, that
a whole percentage (no less than 5%) or specific dollar amount of his
deemed investment in any fund may be transferred to any other fund
available under the Plan. Such election will be prospective only and will
be permitted in accordance with rules, if any, as are established by the
Committee.
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Section 6 - Value and Payment of Benefits.
a) Payment of Benefits
Each Participant shall receive the value of his Participant Account in cash
on January 15 of the year following the year of the Participant's normal
Retirement. If a Participant terminates service with the Company prior to
qualifying for normal Retirement, the value of his Participant Account will
be distributed in cash on the 15th day of the 13th month following the date
of termination (subject to Section 15). As an alternative to receiving
payment on the dates provided in this paragraph, a Participant may elect,
at least twelve (12) months prior to the date of his Retirement or other
termination of service with the Company (as the case may be), to receive
payment of all the value of his Participant Account on such Retirement date
or the date of other termination of service with the Company (as the case
may be). In the event of the death of a Participant before receiving the
value of his Participant Account, such distribution shall be paid to his
beneficiary or beneficiaries designated pursuant to Section 7 as soon as
practicable under the Plan.
b) Further Deferral
Notwithstanding subsection (a) of this section, a Participant who retires
from the Company, and who at the time of Retirement has a balance in his
Participant Account of at least $50,000, may elect to further defer receipt
of all or a portion of his Participant Account, but not less than $50,000
for a period of up to 20 years from his date of Retirement. The deferred
portion of a Participant's Account shall continue to constitute Deferral
Amounts and shall continue to be subject to the provisions of Section 5
above, including without limitation paragraph (b) thereof. To defer a
payment of benefits under the Plan, a Participant must file a written
election at least twelve (12) months in advance of the date that payment of
benefits under the Plan would otherwise be made. The Participant may elect
to receive the amount deferred in a single cash payment or in annual cash
installments. Any election made pursuant to this paragraph may be amended
to accelerate, further defer or to change the form of payment of all or
part of the Deferral Amounts, if amended in accordance with the provisions
of paragraph (e) hereof, but only to the extent that the Participant's
right to accelerate the payment of a Deferral Amount has not been
restricted by the terms of a Special Incentive Award.
c) Financial Hardship of Participants
Except as may otherwise be provided by the terms of a Special Incentive
Award, at any time prior to commencement of payment of benefits pursuant to
paragraph (b) of this Section 6, a Participant may request a payment of all
or a portion of the value of his Participant Account. Such a request shall
be approved by the Committee only upon a finding that the Participant has
suffered a severe financial hardship which has resulted from events beyond
the Participant's control ("Hardship Event"), and only in the amount
reasonably needed to satisfy such Hardship Event. Whether a Hardship Event
has occurred shall be determined in accordance with Treasury Regulation
Sections 1.457- 2(h)(4) and (5). In the event such a payment is approved,
payment of all or a portion of the value of the Participant Account shall
be made as soon as practicable to the Participant.
d) Other Withdrawals
Absent a Hardship Event or adequate prior notice (in accordance with
paragraph (b) above), a request for a payment of all or a portion of the
value of a Participant Account may be made by a Participant subject to a 6%
penalty of the amount of the requested payment, which penalty shall be
deducted from the requested payment. The requested payment, less such
penalty, shall be paid in cash in a single lump sum as soon as practicable
after the requested payment date.
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e) Amendment of Election
At any time subsequent to an election pursuant to paragraph (b), a
Participant may file an election to amend such prior election affecting any
Deferral Amount payable at least twelve (12) months subsequent to such
amendment, either to accelerate, further defer or to change the form of
payment, provided no such election may accelerate any payment to a date
earlier than twelve (12) months from the date of amendment. The amended
form of payment may be a single sum payment of any Deferral Amounts not yet
due and payable or annual installments of any such Deferral Amounts, or a
combination thereof, provided no payments may be extended longer than the
time specified in paragraph (b).
f) Allocation of Amounts Withdrawn
In the case of any payment pursuant to this Section 6 of less than all of
the value of a Participant Account, the Committee will make reasonable
efforts to follow any instructions received from the Participant indicating
from which deemed investments any such distribution is first to come. In
the absence of instructions, distributions shall be made on a pro rata
basis from all the deemed investments currently elected by the Participant
pursuant to Section 5 with respect to the Participant Account.
Section 7 - Designation of Beneficiary.
A Participant may designate one or more beneficiaries by giving written notice
to the Committee. If no beneficiary is so designated, the Participant's
beneficiary will be the Participant's estate. If more than one beneficiary
statement has been filed the beneficiary or beneficiaries designated in the
statement bearing the most recent date will be deemed the valid beneficiary.
Section 8 - Participant's Rights Unsecured.
The right of any Participant to receive benefits under the provisions of the
Plan shall be contractual in nature only; however, the amounts of such benefits
may be held in a trust, the assets of which shall be subject to the claims of
the Company's general creditors only in the event of bankruptcy or insolvency.
Any amounts paid to a Participant from such trust shall reduce the amount of
benefits owed by the Company.
Section 9 - Participation in Other Plans.
Nothing in this Plan will affect any right which a Participant may otherwise
have to participate in any other retirement plan or agreement which the Company
may have now or hereafter.
Section 10 - Non-Alienation of Benefits.
No right to receive payments hereunder shall be transferable or assignable by a
Participant or beneficiary.
Section 11 - Administration of the Plan.
The Plan shall be administered by the Committee. The Committee shall construe
and interpret the Plan and may adopt rules and regulations governing the
administration of the Plan, as well as exercise any duties and powers conferred
on it by the terms of the Plan. The Committee shall act by vote or written
consent of a majority of its members or otherwise as in accordance with its
general procedures as in effect from time to time.
Section 12 - Amendment or Termination of the Plan.
This Plan may at any time or from time to time be amended, modified or
terminated by the Board. No amendment, modification or termination shall,
without the consent of a Participant, adversely affect such Participant's
accruals in his Participant Account.
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Section 13 - No Entitlement to Awards or Right of Continued Employment.
Neither the establishment of the Plan nor the payment of any benefits hereunder
nor any action of the Company, a subsidiary of the Company, or the Committee
shall be held or construed to confer upon any person any legal right to be
awarded any amounts under the Incentive Plan or the Incentive Compensation Plan
or to continue in the employ of the Company or a subsidiary of the Company. The
Company and its subsidiaries expressly reserve the right to discharge any
Participant whenever the interest of any such company in its sole discretion may
so require without liability to such company or the Committee except as to any
rights which may be expressly conferred upon such Participant under the Plan.
Section 14 - Discretion of Company, Committee, and Board.
Any decision made or action taken by the Company or by the Committee or by the
Board arising out of or in connection with the construction, administration,
interpretation and effect of the Plan shall lie within the absolute discretion
of the Company, the Committee or the Board, as the case may be, and shall be
final, conclusive and binding upon all persons.
Section 15 - Tax Withholding.
There shall be deducted from all deferrals or payments made under this Plan the
amount of any taxes required to be withheld by any Federal, state, local or
foreign government, including any employment taxes required to be withheld under
Code Section 3121(v). The Participants and their beneficiaries, distributees,
and personal representatives will bear any and all Federal, foreign, state,
local or other income or other taxes imposed on amounts paid under the Plan, and
the Company may take whatever actions are necessary and proper to satisfy all
obligations of such persons for payment of all such taxes.
Section 16 - Change of Control.
a) Notwithstanding any other provision of this Plan, in the event of a Change
of Control (as defined below), no person that is not a Participant in the
Plan immediately prior to such Change of Control shall be permitted to be a
Participant under the Plan following such Change of Control. Upon and after
a Change of Control, this Plan may not be amended, modified or terminated
if any such amendment, modification or termination would adversely affect
any accrued benefits of a Participant or his or her rights with respect to
such accrued benefits in the Plan, unless any such amendment, modification
or termination is consented to in writing by all such Participants. Upon a
Change of Control, payment of all of the value of a Participant Account,
including any Special Incentive Award component thereof, shall be made to
the Participant immediately in a single cash lump sum without penalty. Upon
a Change of Control Participants are permitted to request a distribution of
assets in kind in lieu of a cash lump sum. For purposes of this Section 16
the term "Company" shall mean ASARCO Incorporated.
b) For purposes of this Plan, a "Change of Control" shall be deemed to have
occurred if:
1) any "person", as such term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act")
(other than the Company, any trustee or other fiduciary holding
securities under an employee benefit plan of the Company, or any
company owned, directly or indirectly, by the stockholders of the
Company in substantially the same proportions as their ownership of
the stock of the Company), is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly,
of securities of the Company representing either 31% or more of the
voting power of all classes of capital stock of the Company or 33-1/3%
or more of the then outstanding common stock, without par value, of
the Company;
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2) the following individuals cease for any reason to constitute a
majority of the number of Directors then serving: individuals who, on
the date hereof, constitute the Board of Directors of the Company and
any new director (other than a Director whose initial assumption of
office is in connection with an actual or threatened election contest,
including but not limited to a consent solicitation, relating to the
election of Directors of the Company) whose appointment or election by
the Board of Directors or nomination for election by the Company's
stockholders was approved or recommended by a vote of at least
two-thirds (2/3) of the Directors then still in office who either were
Directors on the date hereof or whose appointment or election or
nomination for election was previously so approved or recommended;
3) the stockholders of the Company approve a merger or consolidation of
the Company or any direct or indirect subsidiary of the Company with
any other company, other than (i) a merger or consolidation which
would result in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or being converted into voting securities of the surviving
entity or any parent thereof) more than 50% of the combined voting
power of the voting securities of the Company or such surviving entity
or parent thereof outstanding immediately after such merger or
consolidation or (ii) a merger or consolidation effected to implement
a recapitalization of the Company (or similar transaction) in which no
"person" (as defined herein) acquires more than 50% of the combined
voting power of the Company's then outstanding securities; or
4) the stockholders of the Company approve a plan of complete liquidation
of the Company or an agreement for the sale or disposition by the
Company of all or substantially all of the Company's assets.
Section 17 - Severability.
In the event any provision of this Plan would serve to invalidate the Plan, that
provision shall be deemed to be null and void, and the Plan shall be construed
as if it did not contain the particular provision that would make it invalid.
Section 18 - Governing Law; Binding Effect; Miscellaneous.
The Plan shall be governed and construed and enforceable in accordance with the
laws of the State of New York, except as superseded by applicable Federal law.
Where appearing in the Plan, the masculine gender shall include the feminine
gender.
IN WITNESS WHEREOF, the Company has caused the ASARCO Incorporated Compensation
Deferral Plan, as amended, to be duly adopted and executed by its duly
authorized officers and its corporate seal affixed hereon as of the 8th day of
October, 1999.
ATTEST: ASARCO Incorporated
/s/Susana D. Delanney By:/s/K.R. Morano
Assistant Secretary President
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Exhibit 10(c)
ASARCO Incorporated
SUPPLEMENTAL RETIREMENT PLAN
(As Amended through October 8, 1999)
Section 1. Effective Date.
The effective date of the Supplemental Retirement Plan (the "Plan") as
originally adopted is February 27, 1976. The effective date of the Plan as
amended and restated is September 24, 1999, as further amended effective as of
October 8, 1999.
Section 2. Definitions.
1. Benefits. The amount calculated under Section 4 for each Eligible Employee.
2. Benefit Commencement Date. Except as provided in Section 14, the date
benefits commence under the Pension Plan.
3. Board. The Board of Directors of ASARCO Incorporated.
4. Code. The Internal Revenue Code of 1986, as amended.
5. Committee. The Organization and Compensation Committee of the Board or any
individual or individuals to whom it delegates authority.
6. Company. ASARCO Incorporated.
7. Deferral Amount. Any Benefit amount, including earnings thereon, receipt of
which is deferred under Section 7.
8. Disability. Permanent and total disability as defined in the Pension Plan.
9. Eligible Employee. Any employee who meets the eligibility criteria of Section
3.
10. Investment Manager. The investment company selected by the Company, or
designated by the Company at the request of an Eligible Employee pursuant to
Section 15, for deemed investment of deferred benefits.
11. Pension Plan. The Retirement Benefit Plan for Salaried Employees of ASARCO
Incorporated.
Section 3. Eligibility.
All salaried employees of the Company or of any subsidiary specifically
designated by the Company, whose retirement benefits payable under the Pension
Plan, are reduced:
(i) due to the benefit limitations of Section 415 of the Code; or
(ii) due to the requirement of Section 401(a)(17) of the Code that
compensation in excess of the limit in effect for a particular
year thereunder may not be taken into account for Pension Plan
purposes; or
(iii)due to participation in any Company plan or program that
provides for elective pre-tax deferrals (the reductions under
this Section 3(i), (ii), and (iii) hereinafter collectively
referred to as "Code Reductions") shall be eligible as to
Benefits under this Plan.
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Section 4. Calculation of Benefits.
The Company will pay or cause to be paid to each Eligible Employee or surviving
spouse of such Eligible Employee (as defined in the Pension Plan), as the case
may be, who receives payment under the Pension Plan (for purposes of this
section 4 each a "Recipient"), a Benefit which is equivalent to the excess, if
any, of
(i) the amount such Recipient would have received under the Pension
Plan for each calendar year, taking into account all provisions
of the Pension Plan in effect and applicable from time to time to
the Recipient, except for the Code Reductions; over
(ii) the amount the Recipient is entitled to receive under the Pension
Plan for such year, taking into account the Code Reductions.
Section 5. Payment of Benefits.
(a) Except as otherwise provided herein, Benefits under the Plan shall be paid
in a lump sum, in cash, on January 15th of the year immediately following the
year of the Eligible Employee's Benefit Commencement Date. Alternatively, an
Eligible Employee may elect, at least twelve (12) months prior to his Benefit
Commencement Date, to receive all or a portion of the Benefits payable hereunder
on such Benefit Commencement Date.
(b) An Eligible Employee may elect to receive annuity payments under the Plan in
the same form and at approximately the same time as payments are to be made to
the Eligible Employee under the Pension Plan. Such an election must be made in
writing at least twelve (12) months prior to the Benefit Commencement Date,
except in the event of termination by reason of "Disability", in which case the
election may be made at any time prior to the date of termination. An election
under this subsection may be amended at any time provided that no such amendment
shall be given effect unless it is made in writing at least twelve (12) months
prior to the Benefit Commencement Date.
Section 6. Death of Employee.
Upon the death of an Eligible Employee:
(i) Who has elected an annuity form of payment pursuant to Section
5(b), the Eligible Employee's beneficiary under the Pension Plan
shall receive the Benefit described in Section 4 above, if any,
in the same form and approximately at the same time as payments
are made to such beneficiary under the Pension Plan.
(ii) Who has not elected an annuity form of payment pursuant to
Section 5(b), the Eligible Employee's surviving spouse, if any,
shall receive any Benefits at the same time as provided in
Section 5, except a valid election under Section 7 shall survive
the death of the Eligible Employee. In such case, the surviving
spouse shall have the same rights as are provided to the Eligible
Employee pursuant to Section 7 below except that further
deferrals will not be permitted. An Eligible Employee may
designate a contingent beneficiary by giving written notice to
the Company. If there is no surviving spouse, the amount payable
pursuant to this subsection shall be paid as soon as practicable
in a lump sum to the Eligible Employee's contingent beneficiary,
or if none, to his estate.
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Section 7. Deferral of Benefit Payments.
(a) If the value of the Benefits payable to an Eligible Employee is at least
$50,000, an Eligible Employee may elect at least twelve (12) months prior to the
date Benefits will be paid under Section 5(a) (except in the event of
termination by reason of Disability, in which case the election may be made at
any time prior to the Benefit Commencement Date), to defer, for a period not to
exceed twenty (20) years from the Benefit Commencement Date, the Deferral Amount
to a future date or to provide for the payment of a Deferral Amount in a series
of scheduled installments. Any election made pursuant to this subsection may be
amended to accelerate, further defer (except as otherwise provided with respect
to a surviving spouse in Section 6(ii)) or to change the form of payment of all
or part of the Deferral Amount, if amended in accordance with the provisions of
Section 7(d).
(b) At any time subsequent to the Benefit Commencement Date, an Eligible
Employee who made an election pursuant to Section 7(a) and who has suffered a
severe financial hardship which has resulted from events beyond the Eligible
Employee's control ("Hardship Event"), may request a payment of all or a portion
of the value of his Deferral Amount which is not yet payable. If such a request
shall be approved by the Committee payment of all or a portion of the value of
the Deferral Amount shall be made in cash in a single lump sum as soon as
practicable to the Eligible Employee but only in an amount reasonably needed to
satisfy such Hardship Event. Whether a Hardship Event has occurred shall be
determined in accordance with Treasury Regulation Sections 1.457- 2(h)(4) and
(5).
(c) At any time subsequent to the Benefit Commencement Date, an Eligible
Employee who made an election pursuant to Section 7(a) may elect the
acceleration of payment of all or a portion of the value of the Deferral Amount
not yet payable subject to a 6% penalty of the amount accelerated. Payment of
such amount, less such penalty (which shall be forfeited), shall be paid in cash
in a single lump sum as soon as practicable after the requested payment date.
(d) At any time subsequent to the Benefit Commencement Date, an Eligible
Employee who has made an election pursuant to Section 7(a) may file an election
to amend such prior election affecting any Deferral Amount payable at least 12
months subsequent to such amendment, either to accelerate, further defer or to
change the form of payment of such Deferral Amount, provided no such election
may accelerate any payment to a date earlier than 12 months from the date of
amendment. The amended form of payment may be a single sum payment of any
amounts not yet due and payable or annual installments of any such amounts, or a
combination thereof, provided no payments may be extended longer than the time
specified in Section 7(a).
(e) In the case of any payment pursuant to this Section 7 of less than the total
value of a Deferral Amount, the Committee will make reasonable efforts to follow
any instructions received from the Eligible Employee indicating from which
deemed investments any such distribution is first to come. In the absence of
instructions, distributions shall be made on a pro rata basis from all the
deemed investments currently elected by the Eligible Employee pursuant to
Section 8 with respect to the Deferral Amount.
46
<PAGE>
Section 8. Investment of Deferral Amounts.
(a) Any Deferral Amount shall be deemed invested, as of the Benefit Commencement
Date, in accordance with an election to be made by the Eligible Employee in such
investment vehicles as are provided under rules established by the Committee.
The Company will attempt to follow the Eligible Employee's elections, but will
not be required to do so. Regardless of whether the Eligible Employee's
elections are followed, the Deferral Amount shall be credited with deemed
earnings, gains, losses, expenses, and changes in the fair market value of such
Deferral Amount as if the Company had followed such investment designations. All
elections, amendments to elections, and provisions for transfers among
investment vehicles shall be in accordance with rules, if any, as shall be
established by the Committee.
(b) The election of a deemed investment option is the sole responsibility of
each Eligible Employee. Neither Asarco, nor the Committee that administers the
Plan, nor any trustee of any trust that may be established in connection with
the Plan are authorized or permitted to advise (or shall have any liability with
respect to) an Eligible Employee as to the election of any option or the manner
in which his Deferral Amount shall be deemed to be invested.
(c) Except for an Eligible Employee who elects annuity payments pursuant to
Section 5(b), absent an election to defer Benefits pursuant to Section 7, all
unpaid Benefit amounts shall be deemed invested as of the Benefit Commencement
Date in the Vanguard Money Market Reserve - Prime Portfolio, or other comparable
money market fund selected by the Company, until paid to the Eligible Employee
pursuant to the first sentence of Section 5(a).
Section 9. Value of Benefits.
The amount of the lump sum referred to in Section 5(a) shall be the present
value of the Benefit amount determined under Section 4 (after taking into
account, if applicable, any reductions as set forth in the Pension Plan to
reflect the commencement of payments prior to age 65) by assuming that the
Eligible Employee has elected a single life annuity under the Pension Plan and
by using the following actuarial assumptions:
(a) Discount Rate. The discount rate used in computing the present value of
benefits payable under the Plan is the yield on 10-year treasury notes on the
Eligible Employee's Benefit Commencement Date, or if a legal holiday, the first
business day immediately following the Benefit Commencement Date. However, at
any time during a thirteen month period ending with the Benefit Commencement
Date, an Eligible Employee may designate an alternative date for fixing the
interest rate (the "Alternative Date") used to calculate the present value of
the lump sum distribution. The designation must be in writing, and the
Alternative Date must be within seven calendar days of the date the designation
is received by the Company. The designation of the Alternative Date for fixing
the interest rate, once made, may not be changed for any reason. Notwithstanding
the foregoing, if an Eligible Employee designates an Alternative Date under this
subsection in contemplation of commencing benefits under the Pension Plan, such
designation will survive a subsequent postponement of the commencement of
benefits under the Pension Plan by such Eligible Employee, except that, if the
yield on 10-year treasury notes on the Benefit Commencement Date is higher than
on the Alternative Date, the yield on the Benefit Commencement Date will be
used.
(b) Mortality Table. The Mortality Table used will be that contained in U.S.
Internal Revenue Service Revenue Ruling 95-6 or any succeeding Revenue Ruling
issued by the Internal Revenue Service for use in applying the provisions of
Sections 415 and 417(e) of the Internal Revenue Code.
Section 10. Employee's Rights Unsecured.
The right of any Eligible Employee to receive benefits under the provisions of
the Plan shall be contractual in nature only; however, the amounts of such
benefits may be held in a trust, the assets of which shall be subject to the
claims of the Company's general creditors in the event of bankruptcy or
insolvency only. Any amounts paid from such trust shall reduce the amount of
benefits owed by the Company.
47
<PAGE>
Section 11. Assignability.
No right or interest of the Eligible Employee under this Plan shall be subject
to voluntary or involuntary alienation, assignment or transfer of any kind.
Section 12. Participation in Other Plans.
Nothing in this Plan will affect any right which an Eligible Employee may
otherwise have to participate in any other retirement plan, or agreement, which
the Company may have now or hereafter.
Section 13. Discretion of Company, Committee and Board.
Any decision made or action taken by the Company, the Committee or by the Board
arising out of or in connection with the construction, administration,
interpretation, and effect of the Plan shall lie within the absolute discretion
of the Company, the Committee or the Board, as the case may be, and shall be
final, conclusive and binding upon all persons.
Section 14. Change of Control.
(a) Notwithstanding any other provision of this Plan, in the event of a Change
of Control (as defined below), no person that is not an Eligible Employee
immediately prior to such Change of Control shall be permitted to be an Eligible
Employee under the Plan following such Change of Control. Upon and after a
Change of Control, this Plan may not be amended, modified or terminated if any
such amendment, modification or termination would adversely affect any accrued
benefits of an Eligible Employee or his or her rights with respect to such
accrued benefits in the Plan, unless any such amendment, modification or
termination is consented to in writing by all Eligible Employees. Upon a Change
of Control, payment shall be made to Eligible Employees immediately in a single
cash lump sum of (1) the value of any and all amounts accrued to the Eligible
Employees hereunder calculated using the Discount Rate and Mortality Table set
forth in Section 9 or (2) the value of their Deferral Amounts. Additionally,
Eligible Employees who have not reached age 65 shall also receive an additional
payment to compensate for the current taxation of benefits. The amount of the
additional payment shall be calculated by multiplying the cash lump sum
calculated as set forth in this Section 14 by 16.7/100 of one percent (0.00167)
for each month that the Change of Control precedes the month in which the
Eligible Employee reaches age 65. Upon a Change of Control Eligible Employees
who have designated an Investment Manager under Section 15 hereunder are
permitted to request a distribution of assets in kind in lieu of a cash lump
sum. For purposes of this Section 14, benefits under the Pension Plan for
employees who have not attained age 55 shall be the amount determined under the
Pension Plan payable as a vested deferred benefit (as defined in the Pension
Plan) at age 55 after taking into account the discount for commencement of
payment before age 55 using the actuarial assumptions in Section 9.
(b) For purposes of this Plan, a "Change of Control" shall be deemed to have
occurred if:
(1) any "person", as such term is used in Sections 12(d) and 13(d) of
the Securities Exchange Act of 1934, as amended (the "Exchange
Act") (other than the Company, any trustee or other fiduciary
holding securities under an employee benefit plan of the Company,
or any company owned, directly or indirectly, by the stockholders
of the Company in substantially the same proportions as their
ownership of the stock of the Company), is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of the Company
representing either 31% or more of the voting power of all
classes of capital stock of the Company or 33-1/3% or more of the
then outstanding common stock without par value, of the Company;
48
<PAGE>
(2) the following individuals cease for any reason to constitute a
majority of the number of Directors then serving: individuals
who, on the date hereof, constitute the Board of Directors of the
Company and any new Director (other than a Director whose initial
assumption of office is in connection with an actual or
threatened election contest, including but not limited to a
consent solicitation, relating to the election of Directors of
the Company) whose appointment or election by the Board of
Directors or nomination for election by the Company's
stockholders was approved or recommended by a vote of at least
two thirds (2/3) of the Directors then still in office who either
were Directors on the date hereof or whose appointment or
election or nomination for election was previously so approved or
recommended;
(3) the stockholders of the Company approve a merger or consolidation
of the Company or any direct or indirect subsidiary of the
Company with any other company, other than (i) a merger or
consolidation which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or being converted
into voting securities of the surviving entity or any parent
thereof) more than 50% of the combined voting power of the voting
securities of the Company or such surviving entity or any parent
thereof outstanding immediately after such merger or
consolidation or (ii) a merger or consolidation effected to
implement a recapitalization of the Company (or similar
transaction) in which no "person" (as defined herein) acquires
more than 50% of the combined voting power of the Company's then
outstanding securities; or
(4) the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all of the
Company's assets.
Section 15. Designation of Investment Manager.
(a) If the total lump sum value of an Eligible Employee's benefits under the
Plan, the ASARCO Incorporated Supplemental Pension Plan for Designated
Mid-Career Officers, and the ASARCO Incorporated Compensation Deferral Plan
(collectively the "Plans") would as of the Eligible Employee's retirement date
exceed $3 million, the Eligible Employee may file a request with the Committee
that the entire lump sum value of any such benefits deferred under the Plans be
deemed invested in such one or more investment alternatives as are provided by
an investment manager to be designated by the Eligible Employee. Such request
may be made at any time, however, it may only be effective after the Eligible
Employee has retired or otherwise commences to receive benefits under the
Pension Plan. Approval of any such request by an Eligible Employee to designate
an investment manager under this Section 15 shall be at the sole discretion of
the Committee and, if approved, all fees related to all investment services
provided by the designated investment manager will be deducted from the value of
the Eligible Employee's accounts. The Eligible Employee designating the
investment manager will be solely responsible for the actions of the designated
investment manager and neither the Company, nor the Committee, nor any trustee
of any trust that may be established in connection with the Plans shall have any
responsibility for, or liability with respect to, review or oversight of the
performance of the designated investment manager.
Section 16. Severability.
The provisions of this Plan shall be severable, and if any one or more
provisions shall be considered or held to be invalid or unenforceable, or shall
result in a portion of the Plan being treated as a pension plan under Title I of
ERISA, the remaining provisions shall continue to be valid and enforceable.
Section 17. Cost to be Borne by Subsidiary.
If any payment under this Plan is to be made to an Eligible Employee on account
of any employee's service for a subsidiary of the Company, the cost of such
payment shall be borne in such proportions as the Company and such subsidiary
shall determine.
49
<PAGE>
Section 18. Administration.
The Plan shall be administered by the Committee. The Committee shall construe
and interpret the Plan and may adopt rules and regulations governing the
administration of the Plan, as well as exercise any duties and powers conferred
on it by the terms of the Plan. The Committee shall act by vote or written
consent of a majority of its members or otherwise as in accordance with its
general procedures as in effect from time to time.
Section 19. Amendment.
This Plan may at any time or from time to time be amended, modified,
discontinued or terminated by the Board if, in its sole discretion, such a
change is deemed necessary and desirable.
Section 20. Governing Law.
This Agreement shall be governed by and construed in accordance with the laws of
the State of New York.
IN WITNESS WHEREOF, the Company has caused the Company's Supplemental Retirement
Plan, as amended, to be duly adopted and executed by its duly authorized
officers and its corporate seal affixed hereto as of October 8, 1999.
ATTEST: ASARCO Incorporated
/s/Susana D. Delanney By:/s/F.R. McAllister
Assistant Secretary Chairman of the Board
50
<PAGE>
Exhibit 12 Statement re Computation of Consolidated Ratio of Earnings to Fixed
Charges and Combined Fixed Charges and Preferred Share Dividend Requirements
<TABLE>
<CAPTION>
Three Three Nine Nine
Months Months Months Months
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
1999 1998 1999 1998
----- ----- ----- -----
(Dollars in thousands) (Dollars in thousands)
NET EARNINGS (LOSS) $(5,060) $(15,597) $(61,441) $(61,946)
<S> <C> C> <C> <C>
Adjustments
Taxes (benefit) on Income (8,471) (943) (33,554) (16,918)
Equity Earnings (1,004) (900) (3,148) (2,805)
Dividends received from
C non-consolidated companies 1,535 1,896 2,010 3,992
Total Fixed Charges 23,486 23,707 69,805 65,595
Interest Capitalized (2,641) (2,988) (6,328) (8,264)
Capitalized Interest 382 (525) 1,097 1,189
amortized
Minority interest 5,878 9,921 9,760 25,157
------- ------- ------- -------
EARNINGS (LOSS) $ 14,105 $ 14,571 $(21,799) $ 6,000
=========== =========== =========== ===========
FIXED CHARGES
Interest Expense $ 18,639 $ 17,665 $ 56,976 $ 51,523
Interest Capitalized 2,641 2,988 6,328 8,264
Imputed Interest Expense 2,206 3,054 6,501 5,808
-------- -------- -------- --------
TOTAL FIXED CHARGES $ 23,486 $ 23,707 $ 69,805 $ 65,595
=========== =========== =========== ===========
Ratio of Earnings to Fixed Charges (a) (a) (b) (b)
===== ===== ===== =====
(a) For the quarter ended September 30, 1999 and 1998 earnings were insufficient to cover
fixed charges by $9,381 and $9,136, respectively.
(b) For the nine months ended September 30, 1999 and 1998 earnings were insufficient to
cover fixed charges by $91,604 and $59,595, respectively.
</TABLE>
51
<PAGE>
Exhibit 15 Independent Accountant's Awareness Letter
PricewaterhouseCoopers LLP
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
We are aware that our report dated November 11, 1999 on our review of the
interim financial information of ASARCO Incorporated and Subsidiaries as of
September 30, 1999 and for the three month and nine month periods ended
September 30, 1999 and 1998 and included in this Form 10-Q for the quarter ended
September 30, 1999 is incorporated by reference in the Company's Registration
Statements on Form S-8 (File Nos. 2-67732, 2-83782, 33-34606, 333-16875,
333-18083 and 333-46181) and Form S-3 (File Nos. 33-45631, 33-55993 and
333-02359). Pursuant to Rule 436(c) under the Securities Act of 1933, this
report should not be considered a part of the Registration Statements prepared
or certified by us within the meaning of Sections 7 and 11 of that Act.
PricewaterhouseCoopers LLP
New York, New York
November 12, 1999
52
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-mos
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-START> Jan-1-1999
<PERIOD-END> Sep-30-1999
<CASH> 151675
<SECURITIES> 1084
<RECEIVABLES> 388449
<ALLOWANCES> 10723
<INVENTORY> 347557
<CURRENT-ASSETS> 982777
<PP&E> 4876137
<DEPRECIATION> 2255207
<TOTAL-ASSETS> 4033235
<CURRENT-LIABILITIES> 642720
<BONDS> 0
0
0
<COMMON> 529313
<OTHER-SE> 930345
<TOTAL-LIABILITY-AND-EQUITY> 4033235
<SALES> 1470155
<TOTAL-REVENUES> 1470155
<CGS> 1280488
<TOTAL-COSTS> 1280488
<OTHER-EXPENSES> 274034
<LOSS-PROVISION> 270
<INTEREST-EXPENSE> 56976
<INCOME-PRETAX> (85235)
<INCOME-TAX> (33554)
<INCOME-CONTINUING> (51681)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (61441)
<EPS-BASIC> (1.55)
<EPS-DILUTED> (1.55)
</TABLE>
