SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
1998 FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998 Commission file number 1-164
----------------- -----
ASARCO Incorporated
(Exact name of registrant as specified in its charter)
New Jersey 13-4924440
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
180 Maiden Lane, New York, N. Y. 10038
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 510-2000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Name of each exchange on
Title of each class which registered
Common Stock, without par value New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No_____
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of February 26, 1999, there were of record 39,669,569 shares of Common Stock,
without par value, outstanding, and the aggregate market value of the shares of
Common Stock (based upon the closing price of Asarco Common Stock on the New
York Stock Exchange Composite Transactions) of ASARCO Incorporated held by
nonaffiliates was approximately $0.6 billion.
PORTIONS OF THE FOLLOWING DOCUMENTS ARE INCORPORATED BY REFERENCE:
Part III: Proxy statement in connection with the Annual Meeting to be held on
April 28, 1999.
Part IV: Exhibit index is on pages C1 through C3.
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PART I
Item 1. Business
Asarco, a New Jersey corporation organized in 1899, is one of the world's
leading producers of copper and has developed one of the largest copper ore
reserve positions in the industry. Asarco also produces specialty chemicals and
aggregates. The Company's copper business includes integrated mining, smelting
and refining operations in North America and in Peru through its 54.3% owned
subsidiary, Southern Peru Copper Corporation. Enthone-OMI, Inc., a wholly owned
subsidiary, operates a worldwide specialty chemicals business focused on
functional and decorative coatings for the electronics and metal finishing
industries. American Limestone Company, a wholly owned subsidiary, produces
construction aggregates, ready-mixed concrete and agricultural limestone. The
Company also operates a custom lead smelting business, a silver mining business,
a zinc mining business and a specialty metals business. Asarco owns Encycle,
Inc., which operates a waste recycling facility and Hydrometrics, an
environmental consulting and construction firm.
In this report all tonnages are in short tons. All ounces are troy ounces.
Dollar amounts are in U.S. dollars unless otherwise indicated. "Asarco" or "the
Company" includes Asarco and subsidiaries. "Southern Peru Copper Corporation" or
"SPCC" includes that Company's subsidiaries.
Reference is made to the following Financial Statement Notes included in this
report: Investments in Note 6, and Business Segments in Note 13.
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.
Additional business information follows:
PRINCIPAL PRODUCTS AND MARKETS
COPPER
The primary domestic uses of copper are in the building and construction
industry, electrical and electronic products and, to a lesser extent, industrial
machinery and equipment, consumer products and the automotive and transportation
industries. A substantial portion of Asarco's copper sales are made under annual
contracts to industrial users.
Overview
Asarco is one of the world's leading producers of copper. In 1998, Asarco's
beneficial interest in copper mine production was 1.0 billion pounds or 4.9% of
Western World copper mine production.
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Asarco's copper business includes its integrated copper operations in North
America, which accounted for 65% of its beneficial production in 1998, and an
integrated copper business in Peru conducted through its 54.3%-owned subsidiary,
Southern Peru Copper Corporation (SPCC). The North American copper business
includes the Mission and Ray mines in Arizona; a copper smelter in Hayden,
Arizona; a copper smelter in El Paso, Texas and a copper refinery in Amarillo,
Texas. Operations at the El Paso smelter were suspended in February 1999 for
three years. Asarco also owns a 49.9% interest in Montana Resources' (MRI)
copper-molybdenum mine in Butte, Montana, and a 75% interest in the Silver Bell
copper mine in Arizona. The Company's Peruvian copper business, operated by
SPCC, includes the Toquepala and Cuajone mines, the Ilo smelter and the Ilo
refinery, all located in the southern part of Peru.
The Company's production of copper in 1998 was 5% above the 1997 production of
978 million pounds. In North America, a full year of production at the Silver
Bell mine, which began operations in July 1997, and the introduction of a new
acid cure process at the Ray mine solvent extraction/electrowinning (SX/EW)
operation, led to a 34.6 million pound increase in low-cost SX/EW copper
production, up nearly 40% over the prior year. Greater tons of ore milled,
higher ore grades and improved recoveries in the sulfide operations at Mission,
Ray and Montana Resources contributed to the increased 1998 production.
In Peru, production was lower as production at the Toquepala SX/EW plant was
more than offset by the impact of lower copper grades and disruptions, now
overcome, accompanying the integration of the new, expanded mill at Cuajone.
Copper anode production at the El Paso smelter was above 1997 levels as a result
of process improvements while production at the Hayden smelter was below 1997,
as planned, due to the biannual maintenance shutdown. Increased production
capacity at El Paso required the purchase of concentrates for the smelter to
operate efficiently. In early 1999, the Company suspended operations for a
three-year period at El Paso as current market terms for smelting and refining
fell to levels making such purchases unremunerative. These same market
conditions allowed the Company to sell its own concentrate production, which had
been treated at El Paso, on favorable terms. During the suspension, El Paso will
be maintained so that it may be returned to full operation at the end of the
three-year period.
The Company's beneficial interest in refined copper production declined in 1998
by 40.3 million pounds, principally as a result of shortages of scrap copper to
feed the Amarillo refinery. Full utilization of the increased capacity at SPCC's
Ilo refinery and the SX/EW production increases could not fully offset the lower
Amarillo production. The suspension of operations at El Paso will result in a
further curtailment at Amarillo of an additional 160 million pounds of copper in
1999.
Low-Cost Copper Expansion
The Company is taking advantage of its large ore reserve base to expand
production of low-cost copper in North America and Peru. Asarco's beneficial
interest in the production of mined copper of more than 1 billion pounds in 1998
will increase another 10% in 1999. In doing so, the Company is shifting from
higher-cost sulfide production to lower-cost SX/EW and lower-cost sulfide
production. Cash costs benefited significantly from these and other programs in
1998. Asarco's consolidated cash cost of producing copper in 1998 dropped to
under 65 cents per pound.
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Asarco's Ray Complex in Arizona produced almost 335 million pounds of copper in
1998, of which 91 million pounds came from its SX/EW operations. Total SX/EW
production at Ray increased as a result of using new leaching technology
involving higher acid concentrations in the leach dumps. The new leaching
process provides both a quicker leach cycle and higher copper recovery. An
expansion of the tankhouse, currently underway, will increase SX/EW production
an additional 12 million pounds, starting in mid-1999. Asarco's total SX/EW
production at Ray then will have grown 45% from 1996 levels to more than 100
million pounds of copper annually at a cash cost of less than 50 cents per
pound.
The Company's Silver Bell mine produced over 40 million pounds of SX/EW copper
in 1998, 17.5% above design capacity. Asarco expects to maintain Silver Bell's
SX/EW production levels at an annual rate of 40 million pounds and a cash cost
of less than 50 cents per pound.
New loading and hauling equipment at Mission increased equipment availability by
14%, reduced maintenance costs by 17% and reduced waste haulage costs by 11%.
This equipment has reduced costs at Mission by $9.5 million per year. New
equipment at Mission includes a large overland conveyor system designed to move
58 million tons of waste per year. Asarco's Mission Complex produced 255 million
pounds of copper in 1998.
New drilling, loading and hauling equipment added in late 1997 and during 1998
at Ray, Cuajone and Toquepala have provided similar benefits. Delivery of
additional similar equipment is scheduled for 1999 and 2000.
Modernization of the Hayden smelter's gas handling system and the process
control system was completed in 1998. These improvements are expected to further
increase production rates and reduce operating costs.
An expansion program at SPCC's Cuajone mine, which started up in late 1998, will
add 130 million pounds of copper per year from that mine. Total copper
production at Cuajone, starting in 1999, will increase to 446 million pounds
from the 1998 total of 316 million pounds.
SPCC has launched a new project to add 26 million pounds of SX/EW production at
its Toquepala leach dumps. Low-cost SX/EW operations at SPCC's Toquepala mine
produced 104 million pounds of refined cathode in 1998, 30% above the 80 million
pound design capacity. The expansion project, costing $48 million and expected
to be completed by the end of 1999, will bring total SX/EW production at
Toquepala to 124 million pounds, at a cash cost of less than 40 cents per pound.
SPCC also is proceeding with plans to modernize and expand its Ilo smelter,
increasing smelter capacity by 10% to 1.25 million tons of concentrates to match
SPCC's expanded mine output. When the $875 million project is complete, the Ilo
plant will be one of the world's largest, most modern smelters, with planned
sulfur capture exceeding 99%. SPCC also is expanding refined copper production
at its Ilo refinery. Annual production of refined cathode increased 17% in 1997
and increased an additional 6% to more than 543 million pounds in 1998.
Cost-Reduction Programs
The Company's strategy has been to lower costs for existing production and
increase production of lower cost copper to reduce the Company's breakeven
costs. A company-wide cost reduction program was instituted in late 1997 to
respond to lower metal prices. At Southern Peru Copper a similar program began
in the second quarter of 1998. The programs include reductions in personnel,
general and administrative expenses and purchased services and supplies as well
as equipment upgrades, and other operating improvements. Further cost reduction
programs were undertaken in early 1999.
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The Company announced late in 1998 a three-year suspension of operations at the
El Paso copper smelter. The suspension and sale of the Company's concentrates at
favorable terms should further reduce North American copper production costs in
1999.
Ore Reserves
One of the strengths of Asarco's copper business is its large copper ore reserve
position which including mineralized material at SPCC totals 5.4 billion tons at
the end of 1998. The Company's beneficial interest in its ore reserve is 3.6
billion tons containing 39.2 billion pounds of copper. Ore reserves are the key
to a mining company's future and Asarco's position, which represents a composite
operating mine life of 37 years at current production rates, is one of the best
in the industry.
Copper Market
Demand for copper in 1998 set a new record for the 13th straight year, growing
by just under 1% over the 1997 level. While copper consumption in Asia declined
12.5%, that decline was more than offset by growth of 6.1% in North America,
Europe and the rest of the Western World.
The Company expects demand growth to accelerate in 1999 and 2000 as economic
activity in Southeast Asia recovers from the recent recession affecting the
region.
Excess supplies of copper concentrates, which were accumulated during a period
of smelting capacity shortage in 1995 and 1996, have now been processed and the
resulting copper began reaching market in 1997 and 1998. This material, when
added to current mine and scrap production created a supply surplus.
Based on the Company's current analysis of supply and demand the Company
estimates that this current surplus will shift to a deficit in late 1999 and
2000. This shift should bring about an improvement in the copper market
fundamentals and sentiment.
In 1998, the copper price declined to an 11 year low. The loss reported by the
Company in 1998 reflects the low copper prices which existed throughout 1998.
SPECIALTY CHEMICALS
Enthone-OMI, Inc. is a worldwide supplier of proprietary chemicals used to
produce functional and decorative coatings on metals and plastics for the
electronics and metal finishing industries.
Enthone-OMI's worldwide operations include 14 manufacturing sites, 6 research
facilities and 19 major sales and distribution centers. Enthone-OMI's pre-tax
profit increased 5.1% to $30.9 million in 1998, before a non-recurring pre-tax
charge of $1.8 million in connection with a cost reduction program. Sales at
Enthone-OMI have grown from $98 million in 1988 to $351 million in 1998 and
earnings have increased from $3.0 million in 1988 to $30.9 million in 1998, a
compound growth rate of 26%.
Asarco's involvement in the specialty chemicals business started more than four
decades ago with the acquisition of Enthone, Inc., a small, regional company
based in New Haven, Connecticut. For thirty years, Enthone's efforts were
focused in the United States. Overseas activities were handled through
licensees. In 1988, Asarco began the investment program which has significantly
expanded the business through the acquisition of OMI International. In 1989 it
acquired the Imasa Group in Europe. Enthone-OMI has since made eight
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acquisitions including acquisition of the minority interest in Enthone-OMI
(Singapore) in 1995, and an additional interest in a joint venture in the
Peoples Republic of China in 1997. Enthone-OMI has also acquired Industrias Oxy
Metal, S.A., a Mexican specialty chemicals business, STS, a small Swiss
specialty chemicals company, and Blasberg Oberflachentechnik GmbH, a German
specialty chemicals company. In 1998, Enthone-OMI acquired Deutsche
Oberflachentechnik GmbH (DOT), another German specialty chemicals company. DOT's
product line complements Enthone-OMI's existing business and expands its
presence in Germany, the largest market in Europe. The acquisition provides
Enthone-OMI new technology which can be marketed elsewhere in the world.
Enthone-OMI has also grown internally by investing in research and product and
market development. These acquisitions and investments have made Enthone-OMI a
global leader in the specialty chemicals business.
Technical innovation and marketing effectiveness were the key factors
contributing to a fifth consecutive year of record sales and earnings for
Enthone-OMI in 1998. One such recent innovation includes use of Enthone-OMI
technology by semi-conductor chip manufacturers to produce copper circuitry on
computer chip surfaces to increase the current carrying capacity and speed of
the chips.
Also contributing to the Company's growth was a strong global market acceptance
for high performance coatings for printed circuit boards and electronic
components, new products providing improved corrosion resistance for automotive
components, and advanced technology for manufacturing semi-conductor chips.
All of Enthone-OMI's facilities are ISO 9001 or 9002 certified. The
s'Hertogenbosch, Netherlands and Norrkoping, Sweden facilities were the first to
receive ISO 14001 certification for environmental management systems.
AGGREGATES
American Limestone Company, a wholly owned subsidiary, produces construction
aggregates, ready-mixed concrete and agricultural limestone. It has 20 sales
locations in Tennessee and Virginia. Products are sold in Tennessee, Virginia,
Kentucky, North Carolina and South Carolina.
Construction aggregates are the Company's principal product. Construction
aggregates make up more than 80% of the content of asphalt paving and over 90%
of concrete. Nationally, highway construction accounts for 40% of construction
aggregate sales.
The Transportation Equity Act for the 21st Century (TEA-21) was passed in 1998
and extends through 2003. TEA-21 authorizes a total of $217 billion for highway
and mass transit programs for the period 1998-2003, including $42 billion for
mass transit programs and $175 billion for highways. It should positively affect
the markets for American Limestone's products.
American Limestone increased sales by 4.4% in 1998 and recorded its fifth
consecutive year of record earnings with pre-tax profits of $14.6 million.
American Limestone's earnings have grown at a compound annual growth rate of 9%
since 1988.
OTHER METALS
Asarco owns a 50% interest in Silver Valley Resources, Inc. which owns and
operates the Coeur and Galena mines in Wallace, Idaho. Mining resumed in 1996
after a five-year standby period when a development program successfully
identified additional higher-grade silver reserves.
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The Company also owns a 75% interest in the Troy, Montana silver-copper mine,
which currently is on standby. The Company plans to restart Troy in conjunction
with the development of the nearby Rock Creek silver-copper deposit which has
been in the permitting process since 1987. In 1997, the Company submitted a
draft supplemental environmental impact statement for Rock Creek.
The Company operates four zinc mines near Knoxville, Tennessee. It also produced
zinc as a co-product at its Black Cloud mine in Leadville, Colorado. Zinc
production in 1998 in Tennessee increased 9.2% over 1997. New Market, one of the
four Tennessee mines, has been on standby since 1996.
Suspension of operations at the Leadville mine was announced in January 1999.
Leadville had produced lead, zinc and silver since 1971. The depletion of ore
reserves forced closure of the mine. The Company is continuing an exploration
program seeking new ore reserves.
The Company operates a specialty metals business at its Globe Plant in Denver,
Colorado. The Company completed the transformation of the business from
processing of intracompany materials into a stand-alone specialty metals
operation in 1996. Profitability of the Globe Plant, which produces litharge,
bismuth compounds and high-purity metals, declined in 1998 due to curtailments
in gold exploration activity which is a major consumer of litharge used for
assaying.
The East Helena, Montana lead smelter is Asarco's only remaining custom smelting
facility. Lead bullion produced at East Helena is now sold to refineries located
outside the United States. The Company permanently closed its Omaha lead
refinery in 1997. The Company continues to work with the City of Omaha and the
State of Nebraska to convert the former plant site into a park. The custom lead
business depends on the availability of precious metal-bearing lead concentrates
from United States and South American mines. The East Helena smelter was not
profitable in 1998. Work rule changes and process improvements are being
implemented at East Helena to improve its results.
EXPLORATION
Asarco's exploration program is focused on the identification and acquisition of
advanced gold, copper and silver projects. In 1998, the Company spent $15.9
million on its mineral exploration program. Over 80% of expenditures were on
projects outside the United States, principally in French Guiana, Chile, Peru,
Bolivia and Australia. Work in the United States was mostly directed at
identifying additional reserves at the Company's operating properties.
In French Guiana, Asarco has interests in five project areas with known gold
anomalies. Drilling at the Company's 100%-owned Camp Caiman project has
identified a near-surface gold deposit within a five-mile-long, gold-in-soil
anomaly associated with a major structural zone. A resource of 9.4 million tons
of ore with a grade of 0.12 ounces of gold per ton has been identified. This
resource contains 1.1 million ounces of gold. Gold mineralization at Camp Caiman
is open-ended and the drilling program is continuing.
To assist the Company in meeting its environmental and social responsibilities
in the Camp Caiman project, an expert, independent advisory committee has been
created. The committee includes people with recognized expertise in tropical
rain forest environments. The committee is providing independent advice on
environmental and social issues associated with the Company's exploration
activities and preliminary mine planning. As a result of this advice, the
Company has modified a number of its exploration techniques.
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The Company continues to work on its promising projects at Camp Caiman and at a
silver project in Bolivia. Much of its current exploration effort is focused on
copper prospects in Chile and Peru.
ENVIRONMENT, SAFETY AND HEALTH
Environment
Environmental protection is one of Asarco's principal operating objectives. The
Company has made and will continue to make substantial investments to deal with
environmental issues associated with historical operations. The Company has also
established formal policies and codified practices and procedures to enable it
to consistently and predictably meet today's environmental standards.
The Company has adopted a comprehensive Environmental Management System (EMS).
This system integrates environmental management procedures into the operating
management systems of the Company. Under EMS, Company facilities will be audited
regularly to assure conformity with EMS requirements, employees will receive
annual environmental training and practices have been established to meet the
environmental standards required at each of the Company's operations.
In early 1998, an agreement was reached with the U.S. Environmental Protection
Agency to establish a voluntary compliance framework for most of the past issues
at the Company's copper and lead mining, smelting and refining facilities. The
agreement provides for capital projects estimated at $61.5 million at the Ray
mine and East Helena smelter. The largest project, $55.0 million to be spent
over six years, provides for the extension of an existing tunnel at the Ray mine
which diverts Mineral Creek around the Ray mine workings. The project will have
a positive effect on future operations as well as on the environment. Asarco
also paid penalties of $6.4 million to resolve past disputed issues and
committed to meet certain milestones in the implementation of EMS.
Asarco is also active in remediating former operating properties in cooperation
with state and federal government agencies. Asarco is working with the local
communities in Omaha, Nebraska and Tacoma, Washington to transform its former
industrial sites into parks and new commercial centers. A number of properties
owned by the Company, including sites in Perth Amboy and Newark, New Jersey,
have been remediated and developed for use as commercial centers. In 1998,
Asarco spent $67 million on remediation work at its historic sites.
Safety and Health
The safety and health of its employees is one of Asarco's most important
operating objectives. A Corporate Safety and Health Policy Review Committee sets
safety standards for each unit's operations, monitors performance, and
administers recognition programs. Beginning in 1997, a portion of each salaried
operating employee's incentive compensation has been directly linked to their
respective operating unit's safety and health performance.
In 1998, there were 4% fewer lost work day injuries in the Company's North
American mines and plants. Likewise, programs at the Company's operations in
Peru were successful in improving safety performance there by 9.8%. While the
programs in place have improved safety performance, management will continue to
focus attention on safety and health issues and will continue to use the
Company's extensive training, education and recognition programs with the goal
of creating an accident-free workplace.
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BACKLOG OF ORDERS
Most of the Company's copper is sold as refined metal under annual contracts or
on a spot sale basis. The balance of the Company's copper and all of its zinc
production are sold in the form of concentrates under contracts of one to three
years duration. Silver and gold are sold under monthly contracts or in spot
sales. Revenue is recognized primarily in the month product is shipped to
customers based on prices provided in sales contracts. When the price is not
determinable at the time of shipment to customers, revenue is recognized based
on prices prevailing at the time of shipment with final pricing generally
occurring within three months of shipment. Revenues with respect to these sales
are adjusted in the period of settlement to reflect final pricing and in periods
prior to settlement to reflect any decline in market prices which may occur
between shipment and settlement.
COMPETITIVE CONDITIONS
In the United States and abroad, Asarco and its foreign nonconsolidated
associated companies are subject to competition from other nonferrous metal
producers. Asarco's metal products also compete with other materials, including
aluminum, stainless steel, plastics, glass and wood.
Competition in nonferrous metals is principally on a price and service basis,
with price being by far the most important consideration. In construction
aggregates, geographic location of facilities in relation to the point of
consumption, and price are by far the most important competitive factors. In
specialty chemicals, Asarco competes against a substantial number of large and
small companies both in the United States and overseas.
EMPLOYEES
At December 31, 1998, Asarco excluding SPCC, employed about 6,500 persons, of
whom about 3,400 were covered by contracts with various unions, most of which
were affiliated with the AFL-CIO. At December 31, 1998 SPCC employed about 4,600
persons, substantially all of whom were covered by labor contracts.
ENERGY MATTERS
Asarco's energy requirements are met from a variety of sources, including fuel
oil, diesel fuel, gasoline, natural gas, coke and electric power. Asarco has a
large number of contracts of varying duration for its energy needs, typically
negotiated on an individual basis from time to time. Generally, substitute
sources are available except where requirements are guaranteed by local utility
companies. No reductions or interruptions of any operations because of energy
shortages were experienced in 1998.
ENVIRONMENTAL, SAFETY AND HEALTH MATTERS
Asarco's operations are subject to environmental regulation by various federal,
state, local, and foreign governments. Asarco's principal involvement in this
area concerns compliance by its existing and former operations with federal and
state air and water quality and solid and hazardous waste regulations. The
Company believes that its operations are currently in substantial compliance
with applicable environmental laws and regulations.
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The Company anticipates spending $36 million for environmental control capital
expenditures at its operating units in 1999. Capital expenditures by Asarco at
its operating mines, smelters and refineries in order to comply with
environmental standards in the past three years have been (in millions):
1998-$38; 1997-$68; 1996-$71. Recurring costs associated with managing hazardous
substances and environmental issues in ongoing operations, including interest on
environmental improvement bonds and other debt incurred for environmental
control facilities, reduced pre-tax earnings by (in millions):
1998-$99;1997-$113;1996-$113.
The Company is studying means of compliance with the federal Resources
Conservation and Recovery Act (RCRA) through process changes at its facilities,
where feasible, to manage the wastes not excluded from regulation. Mine
tailings, slag, and slag tailings from primary copper processing, calcium
sulfate wastewater treatment plant sludge from primary copper processing, and
slag from primary lead processing at the Company's operations are excluded from
RCRA regulation.
Asarco is subject to federal and state laws and regulations pertaining to plant
and mine safety and health conditions, including the federal Occupational Safety
and Health Act of 1970 and Mine Safety and Health Act of 1977. Asarco has made,
and is likely to continue to make, expenditures to comply with such laws and
regulations.
Environmental matters, including a discussion of the Company's reserve for
closed plants and environmental costs, are set forth in the Contingencies and
Litigation Note 8 to the Financial Statements and in Management's Discussion and
Analysis of Operations and Financial Condition and are incorporated herein by
reference. See also Item 3, Legal Proceedings, for a discussion of environmental
proceedings.
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Item 2. Properties
ASARCO Worldwide
METALS
COPPER MINES (1)
Mission; Sahuarita, Arizona
Montana Resources; Butte, Montana
Ray; Hayden, Arizona
Silver Bell; Silver Bell, Arizona
Minto; Yukon Territory, Canada
Cuajone; Peru
Toquepala; Peru
COPPER PLANTS Amarillo, Texas (Refinery) El Paso, Texas (Smelter) (2) Hayden,
Arizona (Smelter) Ray; Hayden, Arizona (SX/EW) Silver Bell; Arizona (SX/EW) Ilo;
Peru (Smelter, Refinery) Toquepala; Peru (SX/EW)
LEAD MINES (1)
Leadville; Leadville, Colorado (3)
LEAD PLANTS
East Helena, Montana (Smelter)
ZINC MINES
Coy; Jefferson County, Tennessee
Immel; Knox County, Tennessee
New Market; Jefferson County, Tennessee (2)
Young; Jefferson County, Tennessee
Leadville; Leadville, Colorado (3)
SILVER MINES (1)
Silver Valley Resources; Wallace, Idaho
Troy; Troy, Montana (2)
Leadville; Leadville, Colorado (3)
Mission; Sahuarita, Arizona
Ray; Hayden, Arizona
Montana Resources; Butte, Montana
Cuajone; Peru
Toquepala; Peru
SILVER AND GOLD PLANTS
Amarillo, Texas (Refinery)
Ilo, Peru (Refinery)
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MOLYBDENUM MINES (1)
Montana Resources; Butte, Montana
Cuajone; Peru
Toquepala; Peru
Specialty Chemicals
Enthone-OMI
North America
West Haven, Connecticut
Bridgeview, Illinois
Orange, Connecticut
Warren, Michigan
Toronto, Canada
Mexico City, Mexico
Europe
Barcelona, Spain
s-Hertogenbosch, Netherlands
Woking, United Kingdom
Milan, Italy
Marne-La-Vallee, France
Luien, Austria
Solingen, Germany
(Other, Germany)
Norrkoping, Sweden
Geneva, Switzerland
Asia
Melbourne, Australia
Tsuen Wan, Hong Kong
Singapore
Shen Zhen, People's Republic
of China
Yokohama, Japan
Taipei, Taiwan
Punang, West Malaysia
AGGREGATES
American Limestone Company, Inc.
Knoxville, Tennessee
Tri-Cities, Tennessee
Nashville, Tennessee
Abingdon, Virginia
Environmental Services
Encycle/Texas, Inc.
Corpus Christi, Texas
Hydrometrics, Inc.
Helena, Montana
Other
Specialty Metals
Denver, Colorado
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INVESTMENTS
Grupo Mexico, S.A. de C.V. (8.2% ownership)
Thirteen mines, nine metallurgical
plants throughout Mexico,
including: La Caridad and Cananea
(Copper, Lead, Zinc, Silver, Gold,
Coal, Coke, Fluorspar, Sulfuric Acid)
(1) Beneficial interest for these operations is shown in the Mineral Reserves
tables starting on page A19.
(2) On standby. The El Paso smelter is on standby effective March 1999.
(3) Closed as of January 31, 1999.
<PAGE>
A-13
Southern Peru Copper Corporation
SPCC operates two open pit mines under concessions granted by the Peruvian
government.
Silver Valley Resources
In 1995, Asarco and Coeur d'Alene Mines Corporation established Silver Valley
Resources, a corporation owned 50% by each, to consolidate the companies'
interest in the Coeur and Galena silver mines in Idaho. The Coeur mine began
production in May 1996 and the Galena mine began production in June 1997. Asarco
has an equity interest in Silver Valley Resources profits or losses in
proportion to the 50% related ownership interest.
Silver Bell
In 1996, Asarco and Mitsui & Co. Ltd., established Silver Bell L.L.C., a limited
liability corporation owned 75% by Asarco and 25% by Mitsui & Co. Asarco's
interest in Silver Bell L.L.C. profits and losses is in proportion to its 75%
related ownership interest.
Leadville
Leadville is operated by Asarco under a joint venture agreement. Asarco and its
joint venture partner share operating results in proportion to their respective
ownership interests, except that Asarco bears 100% of losses, if any in excess
of cumulative profits generated since October 1991. Asarco closed its Black
Cloud lead-zinc mine in Leadville, Colorado as of January 31, 1999.
Troy
Troy is operated by Asarco under a lease agreement. Asarco retains 75% of net
proceeds after operating expenses but before depletion, depreciation and income
taxes. The Troy mine was temporarily shut down commencing in April 1993 due to
depressed silver prices.
Mission
A portion of the mine is held under long-term leases in which the lessors have
retained a royalty interest.
Investments
In 1997, Asarco sold all of its unrestricted shares of Grupo Mexico, S.A. de
C.V., which operates thirteen mines under concessions granted by the Mexican
government. Asarco currently owns 8.2% of Grupo Mexico, all of which a third
party has an option to purchase at a fixed price expiring in August 2001.
<PAGE>
A-14
The following production information is provided:
<TABLE>
<CAPTION>
MILL PRODUCTION 1998 1997 1996
- --------------- ---- ---- ----
Ore Milled Avg Mill Ore Milled Avg Mill Ore Milled Avg Mill
(000s Recovery (000s Recovery (000s Recovery
Tons) Rate Tons) Rate Tons) Rate
(%) (%) (%)
--------------- -------------- -------------- --------------- -------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
North America
Mission 14,754 81.9 14,822 83.8 15,192 85.9
Mission South 7,343 83.4 7,341 83.0 7,616 82.5
Hayden
Concentrator 9,404 81.8 8,295 80.8 8,975 81.5
Ray
Concentrator 9,665 85.9 11,223 82.3 12,687 82.4
Montana
Resources 19,306 85.4 15,219 89.8 15,990 87.2
Leadville (a) 202 91.7 202 88.6 131 95.1
Sweetwater (b) 955 98.5 1,403 98.4 1,271 98.3
West Fork (b) 681 96.8 1,025 96.8 1,007 97.2
Tennessee 2,271 91.8 2,173 91.4 2,823 92.4
Peru (c)
Toquepala 18,011 85.7 18,998 87.9 18,609 84.2
Cuajone 21,699 80.4 21,719 87.0 21,249 81.7
Productive Capacity (d)
<CAPTION>
Defined Defined
Smelters Capacity Refineries Capacity
-------- -------- ---------- --------
<S> <C> <C> <C>
Anode Copper (tons) Copper (tons)
North America
El Paso 115,000 Amarillo 483,000
Hayden 218,000 Ray (SX-EW) 45,000
-------
Total 333,000 Silver Bell, L.L.C. (SX-EW) 18,000
Peru (c)
Ilo 270,000
Blister Copper(tons) Toquepala (SX/EW) 50,000
Total 866,000
Peru (c)
Ilo 320,000 Silver (000s ounces)
Amarillo 60,000
Lead Bullion (tons) Gold (ounces)
East Helena 75,000 Amarillo 600,000
<FN>
(a) Asarco closed its Black Cloud mine in Leadville, Colorado as of January
31, 1999.
(b) Asarco sold its Missouri Lead Division on September 1, 1998.
(c) Asarco consolidated SPCC effective January 1, 1995. The minority
interest in SPCC, represented by Labor Shares in its Peruvian Branch,
results in Asarco having a beneficial interest which is less than its
equity interest in SPCC. Asarco's beneficial interest in SPCC was 53.2%
at December 1998, 53.0% at December 1997 and 52.6% at December 1996.
(See Note 2 of the Financial Statements)
(d) Asarco's estimate of actual capacity under normal operating conditions
with allowance for normal downtime for repairs and maintenance and
based on the average metal content of input material for the three
years shown. No adjustment is made for shutdowns or production
curtailments due to strikes or air quality emissions restraints.
</FN>
</TABLE>
<PAGE>
A-15
<TABLE>
METAL PRODUCTION STATISTICS
<CAPTION>
COPPER Mineral Average
Reserves Mineral Metal Production
Asarco (000s Content Contained Metal
Int. Tons) (%) (000s Pounds)
---------------------------------------------------
(%) 12/31/98 12/31/98 1998 1997 1996
----- -------- -------- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
MINES
North America
Mission Complex 100 494,557 .70 255,100 252,300 261,200
Ray 100 951,016 .60 244,100 230,700 273,200
Ray leachable 100 177,546 .45 90,700 73,400 70,200
Montana Resources 49.9 514,470 .32 98,400 91,400 104,800
Silver Bell L.L.C. 75(a) 169,857 .38 42,300 19,300 4,800
Troy (b) 75 12,000 .64 - - -
Minto 86.7 7,176 2.13 - - -
--------------------------------------------------
Total North America 730,600 667,100 714,200
--------------------------------------------------
Peru (c)
Toquepala-sulfide 53.2(d) 295,285 .83 246,800 246,800 252,900
-leachable 53.2(d) 725,006 .19 93,700 87,900 88,600
Cuajone-sulfide 53.2(d) 1,400,632 .64 315,600 340,600 332,000
-leachable 53.2(d) 68,739 .49 10,300 10,200 4,600
---------------------------------------------------
Total Peru 666,400 685,500 678,100
---------------------------------------------------
Total Production 1,397,000 1,352,600 1,392,300
--------------------------------------------------
Asarco Beneficial Production
1,025,200 978,300 1,015,900
--------------------------------------------------
SMELTERS
North America
El Paso (b) 100 256,300 239,500 230,000
Hayden 100 381,800 423,900 429,800
Peru
Ilo 53.2(d) 647,800 638,700 633,600
--------------------------------------------------
Total Production 1,285,900 1,302,100 1,293,400
--------------------------------------------------
Asarco Beneficial Production
982,700 1,001,900 991,800
--------------------------------------------------
REFINERIES
North America
Amarillo 100 887,000 984,600 945,600
Ray (SX/EW) 100 90,700 73,400 70,200
Silver Bell L.L.C. (SX/EW) 75(a) 42,300 18,200 -
Peru
Ilo 53.2(d) 543,400 513,300 439,600
Toquepala (SX/EW) 53.2(d) 104,000 98,100 93,200
--------------------------------------------------
Total Production 1,667,400 1,687,600 1,548,600
--------------------------------------------------
Asarco Beneficial Production
1,353,900 1,394,200 1,295,000
--------------------------------------------------
<FN>
(a) Asarco's interest in Silver Bell was 100% until February 1996 when
Asarco sold a 25% interest to Mitsui & Co., Ltd. Silver Bell L.L.C.
commenced SX/EW operations in July 1997.
(b) Troy is currently on standby. The El Paso smelter is on standby
effective March 1999.
(c) In addition to the proven and probable ore reserves, SPCC is
evaluating 539 million tons of mineralized material with an
average copper grade of 0.62%.
(d) Asarco consolidated SPCC effective January 1, 1995. The minority
interest in SPCC, represented by Labor Shares in its Peruvian Branch,
results in Asarco having a beneficial interest which is less than its
equity interest in SPCC. Asarco's beneficial interest in SPCC was 53.2%
at December 1998,53.0% at December 1997 and 52.6% at December 1996.
(See Note 2 of the Financial Statements)
</FN>
</TABLE>
<PAGE>
A-16
<TABLE>
METAL PRODUCTION STATISTICS (continued)
LEAD
<CAPTION>
Mineral Average
Reserves Mineral Metal Production
Asarco (000s Tons) Content Contained Metal
Int. (%) (000s Pounds)
-----------------------------------------------
(%) 12/31/98 12/31/98 1998 1997 1996
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
MINES
Leadville (a) 100 323 3.49 7,800 9,500 6,500
Sweetwater (b) 100 83,100 113,900 106,900
West Fork (b) 100 66,300 107,600 107,100
---------------------------------------------
Total Production 157,200 231,000 220,500
---------------------------------------------
Asarco Beneficial Production (a)
157,200 231,000 217,900
---------------------------------------------
SMELTERS
East Helena 100 134,500 116,600 124,900
Glover (b) 100 162,300 254,200 243,300
---------------------------------------------
Total Production 296,800 370,800 368,200
---------------------------------------------
REFINERIES
Omaha (c) 100 - - 51,400
Glover (b) 100 162,300 254,200 243,300
---------------------------------------------
Total Production 162,300 254,200 294,700
---------------------------------------------
<FN>
(a) Asarco closed its Black Cloud mine in Leadville, Colorado as of January 31,
1999. 1996 beneficial production reflects Asarco's beneficial interest in
Leadville at 60.3%.
(b) Asarco sold its Missouri Lead Division on September 1, 1998.
(c) Asarco ceased refining lead at its Omaha, Nebraska refinery in June 1996.
</FN>
</TABLE>
<PAGE>
A-17
<TABLE>
METAL PRODUCTION STATISTICS (continued)
<CAPTION>
Mineral Average
Reserves Mineral Metal Production
Asarco (000s Tons) Content Contained Metal
Int. (%) (000s Pounds)
---------------------------------------
ZINC (%) 12/31/98 12/31/98 1998 1997 1996
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
MINES
Leadville (a) 100 323 12.19 25,800 23,600 18,300
Sweetwater (b) 100 1,500 2,700 13,800
West Fork (b) 100 16,600 14,700 14,400
Tennessee 100 5,562 3.08 114,600 104,900 132,700
---------------------------------------
Total Production 158,500 145,900 179,200
---------------------------------------
Asarco Beneficial Production(a) 158,500 145,900 171,900
---------------------------------------
MOLYBDENUM 1998 1997 1996
---------------------------------------
MINES
North America
Mission 100 494,557 .02 - - 847
Montana Resources 49.9 514,470 .03 9,932 10,257 10,966
---------------------------------------
Total North America 9,932 10,257 11,813
---------------------------------------
Peru (d)
Toquepala 53.2(c) 295,285 .04 6,039 6,066 4,483
Cuajone 53.2(c) 1,400,632 .02 3,520 3,329 4,257
---------------------------------------
Total Peru 9,559 9,395 8,740
---------------------------------------
Total Production 19,491 19,652 20,553
---------------------------------------
Asarco Beneficial Production 10,041 10,080 10,900
---------------------------------------
<FN>
(a) Asarco closed its Black Cloud mine in Leadville, Colorado as of January
31, 1999. 1996 beneficial production reflects Asarco's beneficial
interest in Leadville at 60.3%.
(b) Asarco sold its Missouri Lead Division on September 1, 1998.
(c) Asarco consolidated SPCC effective January 1, 1995. The minority
interest in SPCC, represented by Labor Shares in its Peruvian Branch,
results in Asarco having a beneficial interest which is less than its
equity interest in SPCC. Asarco's beneficial interest in SPCC was 53.2%
at December 1998, 53.0% at December 1997 and 52.6% at December 1996.
(d) In addition to the proven and probable ore reserves, SPCC is
evaluating 539 million tons of mineralized material with an average
molybdenum grade of 0.03%.
</FN>
</TABLE>
<PAGE>
A-18
<TABLE>
METAL PRODUCTION STATISTICS (continued)
<CAPTION>
SILVER
Mineral Average
Reserves Mineral Metal Production
Asarco (000s Tons) Content Contained Metal
Int. (oz/Ton) (000s troy ounces)
-----------------------------------------
(%) 12/31/98 12/31/98 1998 1997 1996
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
MINES
North America
Silver Valley Resources 50 1,790 17.50 3,560 3,436 1,651
Leadville (a) 100 323 2.77 283 250 176
Mission 100 494,557 .17 2,551 2,169 1,981
Montana Resources 49.9 514,470 .07 1,038 858 822
Ray 100 659 424 480
Sweetwater (b) 100 55 83 176
West Fork (b) 100 162 171 175
Troy (c) 75 12,000 1.42 - - -
Minto 86.7 7,176 .27 - - -
-----------------------------------------
Total North America 8,308 7,391 5,461
Peru
Toquepala 53.2(d) 1,422 1,474 1,412
Cuajone 53.2(d) 1,468 1,671 1,685
-----------------------------------------
Total Peru 2,890 3,145 3,097
-----------------------------------------
Other
San Bartolome 100 9,700 5.10 - - -
-----------------------------------------
Total Production 11,198 10,536 8,558
-----------------------------------------
Asarco Beneficial Production 7,546 6,901 5,778
-----------------------------------------
REFINERIES
North America
Amarillo 100 23,594 20,330 30,842
Peru
Ilo 53.2(d) 2,735 2,462 2,218
-----------------------------------------
Total Production 26,329 22,792 33,060
-----------------------------------------
Asarco Beneficial Production 25,049 21,629 32,004
<FN>
-----------------------------------------
(a) Asarco closed its Black Cloud mine in Leadville, Colorado as of
January 31, 1999.
(b) Asarco sold its Missouri Lead Division on September 1, 1998.
(c) Troy is currently on standby.
(d) Asarco consolidated SPCC effective January 1, 1995. The minority
interest in SPCC, represented by Labor Shares in its Peruvian Branch,
results in Asarco having a beneficial interest which is less than its
equity interest in SPCC. Asarco's beneficial interest in SPCC was 53.2%
at December 1998, 53.0% at December 1997 and 52.6% at December 1996.
</FN>
</TABLE>
<PAGE>
A-19
All mineral reserves represent 100% of the reserves for that mine and the
percentage ownership of Asarco is separately indicated. All mineral reserves are
at December 31, 1998. Reserves are estimated quantities of proven and probable
ore that under present and anticipated conditions may be economically mined and
processed for the extraction of their mineral content. Controlled mineral
deposits include those owned, directly or indirectly through subsidiaries,
partnerships or joint ventures, optioned, leased, or held under government
concession.
All production figures represent entire amounts of operations, including those
under lease, joint venture, government concessions or operated by subsidiaries.
Other Operations
The principal activities included in the business segment entitled "All Other"
are those of Encycle/Texas, Inc. and Hydrometrics, Inc., wholly-owned
subsidiaries in the environmental services business, a specialty metals
business, and income and expenses associated with facilities previously operated
by the Company. None of these operations constitutes a significant portion of
the total operations of the Company.
Item 3. Legal Proceedings
Reference is made to the Contingencies and Litigation Note 8 to the Financial
Statements incorporated herein by reference. The following is additional detail
with respect to the litigation referred to in Note 8.
Environmental
In March 1995, the Environmental Protection Agency (EPA) issued a Record of
Decision (ROD) for the Company's Tacoma smelter site in Tacoma, Washington,
under the Comprehensive Environmental Response, Compensation and Liability Act
of 1980 (CERCLA or Superfund). The smelter site is part of the Commencement Bay
Superfund site. The ROD calls for excavation and disposal of soils, and
demolition debris in an on-site containment facility, capping of the site,
demolition of remaining buildings, replacement of the surface water drainage
system, and diversion of groundwater and off-site surface water. A Consent
Decree between the Company and the EPA to carry out the ROD was approved by the
United States District Court in 1997. Remediation pursuant to the Consent Decree
is proceeding.
At Ruston, Washington, an area which is also part of the Commencement Bay
Superfund site, in 1995, a Consent Decree between the Company and EPA was
approved by the United States District Court in Tacoma, Washington, pursuant to
which the Company agreed to sample and, if necessary, remediate the residential
area surrounding the Tacoma smelter site. To date, approximately 575 residential
and right-of-way properties have been remediated. The Company is currently
working with EPA on a proposed plan for the remediation of off-shore sediments
in this area. Remaining issues at the Commencement Bay Superfund site, which has
hundreds of potentially responsible parties (PRPs), will not be addressed until
additional studies are completed.
In 1994, at the Bunker Hill Superfund site in Idaho, the Company and two other
mining companies entered into a Consent Decree with the EPA which was approved
by the United States District Court. The companies have remediated approximately
1,421 residential properties as well as other areas, commercial properties, and
rights of way. Remediation of additional yards and other properties continues.
In 1996, the United States government filed an action in United States District
Court in Boise, Idaho, against the Company and three other mining companies
under CERCLA and the federal Clean Water Act (CWA) for alleged natural resource
damages to the Coeur d'Alene River Basin in Idaho. The government contends that
the defendants are liable for damages to natural resources in a 1,500 square
<PAGE>
A-20
mile area caused by mining and related activities that they and others undertook
over approximately the period between the mid-1800s and the mid-1960s. The
action also seeks a declaration that defendants are liable for restoration of
the area. The Company believes, and has been advised by outside legal counsel,
that it has strong legal defenses to the lawsuit. In 1996, the court granted a
motion to consolidate this case with a prior similar lawsuit filed by the Coeur
d'Alene Tribe. In 1997, the United States filed a motion to add to the lawsuit
several companies, including certain subsidiaries of the Company. In 1998, the
EPA commenced a Remedial Investigation/Feasibility Study to assist in developing
a comprehensive remediation plan for the Coeur d'Alene River Basin. In 1998, the
court rejected the government's position that its evaluation of injury and
restoration plan must be upheld unless the administrative record shows it to be
arbitrary and capricious or otherwise not in accordance with law.
In 1997, the Nebraska Department of Environmental Quality approved a Remedial
Action Work Plan submitted by the Company for remediation of the site of the
Company's former Omaha, Nebraska, lead refinery, which had suspended operations
in June 1996.
Demolition of the plant buildings and remediation activities will continue in
1999.
In 1994, at the Leadville Superfund site in Colorado, a Consent Decree with the
EPA and other potentially responsible parties was approved by the United States
District Court. The Consent Decree resolved many of the liability issues at the
site. Final remedy selection must await the issuance of the ROD which is
expected in 1999. Remaining issues at Leadville will not be addressed until
additional studies are completed.
In 1998, at the East Helena Superfund site in Montana, the Company completed the
remediation of approximately 14 residences and other community properties. This
brings the total number of residential and other properties remediated to date
to 578. Additional properties are expected to require remediation.
Pursuant to a Unilateral Administrative Order issued in 1996, the Company and
the other PRPs are implementing the remedy specified in the 1994 Record of
Decision of the Mine Operable Unit of the Butte, Montana, Superfund site.
In 1998, at the Globe proposed Superfund site in Denver, Colorado, the Company
completed the remediation of approximately 118 properties, including residences,
commercial properties, and open spaces pursuant to a Consent Decree with the
State of Colorado and a settlement of a lawsuit reached in 1993. This brings the
total number of properties remediated through 1998 to approximately 671.
Remediation has also started at the plant site itself. Remediation of additional
non-residential properties and the plant site will continue for the next several
years.
In 1995, the Company completed and presented to the Washington Department of
Ecology (Ecology) a remedial investigation and feasibility study report of the
Company's former smelter site in Everett, Washington. In early 1997, Ecology
issued an Enforcement Order to the Company pursuant to which the Company is
performing additional studies and other activities at the site. Ecology has
proposed issuance of an expensive and costly remediation plan in 1999 and has
stated its intention that Asarco will carry out or pay for the plan. In July
1998, the Company filed suit in state court in Thurston County, Washington,
challenging on constitutional and other grounds the applicability of certain
state environmental laws to alleged obligations of the Company to remediate or
pay for the remediation plan. Also in 1998, the County of Snohomish filed a
lawsuit in state court in Snohomish County, Washington, seeking damages for the
cost of remediating certain county-owned property located near the former
smelter site. This case has been removed by the Company to federal court in
Seattle.
Pursuant to a 1997 Administrative Consent Order, the Company is investigating
and will remediate as necessary residential areas and the former zinc smelter
that a subsidiary of the Company operated prior to 1964 at the Circle Smelting
site in Beckemeyer, Illinois.
<PAGE>
A-21
In 1997, the Company entered into an Administrative Order on Consent to conduct
an Engineering Evaluation/Cost Analysis (EE/CA) for the portal discharge from
the Company's former Gem mine in the Coeur D'Alene River Basin in Idaho, which
drains to a tributary of the Coeur d'Alene River. The Company has agreed to
implement the remedy selected by the EE/CA process.
On January 23, 1998, the Company, the United States Department of Justice and
EPA signed multi-region voluntary agreements covering many environmental issues
affecting the Company's United States operations. Two consent decrees containing
the agreements were filed in the United States District Courts in Phoenix,
Arizona, and Helena, Montana, and approved by those courts in May 1998. The
agreements include a commitment to undertake capital expenditures over a period
of six years estimated at $61.5 million, principally at the Company's Ray
complex, and cover a number of operational changes to resolve disputed
compliance issues at the Company's Ray mine and East Helena smelter. The Company
agreed to undertake an environmental remediation investigation at its East
Helena plant over a period of two years or more and subsequently to undertake
such remediation programs as are identified by the investigation's results. A
significant aspect of the agreements is an Asarco-initiated Environmental
Management System, which combines operational and environmental systems,
policies and practices. The Company paid penalties of $6.4 million applicable to
past issues at Ray and East Helena without an admission of wrongdoing or
liability.
The Company and certain of its subsidiaries are cooperating with environmental
authorities to undertake studies of certain other sites and remediate where
necessary.
In addition to the sites described above, the Company and certain subsidiaries
received notices of potential liability pursuant to CERCLA and various similar
state laws from the EPA or other federal and state agencies regarding numerous
other sites. At certain of those sites the Company's liability will likely be
minor.
In 1997, the Company also received notices from EPA regarding alleged RCRA
violations at the Company's Encycle/Texas facility and the CWA at the Tennessee
Mines facilities; [discussions with EPA and a state agency are ongoing.]
In 1997, the Company was sued in United States District Court in Nebraska in a
purported class action. The complaint was brought on behalf of various classes
comprised of in excess of 80,000 individuals living or owning property within
approximately five miles of the Company's former Omaha plant. The action asserts
claims of trespass, nuisance, negligence, strict liability, unjust enrichment,
medical monitoring, and under CERCLA due to the alleged contamination of soils
by airborne releases from the plant, and seeks compensatory damages for
diminution in property value and loss of use, punitive damages, a declaration of
liability for future response costs, and creation of a medical monitoring fund.
In December 1998, the lawsuit was dismissed for lack of subject matter
jurisdiction. In January 1999, plaintiffs filed an amended complaint, with leave
of court, which amended complaint is being challenged by the Company.
In 1997, the Company was sued in state court in Denver, Colorado, in a purported
class action brought on behalf of property owners and other persons residing in
approximately 300 homes located within one mile of the Company's Globe plant.
The action asserts claims of trespass, private nuisance, negligence, and strict
liability allegedly due to the contamination of properties by emissions from the
plant, and seeks compensatory damages for diminution in property value and loss
of use, as well as punitive damages. In December 1998, the court certified the
lawsuit to proceed as a class action.
<PAGE>
A-22
At the Company's East Helena , Montana, plant the government alleges that from
1991 to 1994 the Company violated the CWA by discharging metals in waste water
to the public sewer in violation of categorical pre-treatment limits. In
separate lawsuits filed in 1998, both EPA and the Company have asked the federal
court in Helena, Montana to resolve this dispute.
In 1996, a citizens' suit was brought against the Company alleging water
discharge permit violations under the CWA and violations of RCRA at the
Company's Omaha, Nebraska, lead refinery. The Company is cooperating with the
Nebraska Department of Environmental Quality and voluntarily remediating the
site and, therefore, believes that the lawsuit is without merit and is
vigorously defending it.
In 1998, the Company received a "60-day notice" under the federal Clean Air Act
on behalf of a Hayden, Arizona, resident and a local environmental group. The
notice states the senders' intent to commence a civil action in United States
District Court for the District of Arizona for civil penalties for alleged
violations of the Act at the Company's Hayden smelter.
In 1995, the Company was sued in federal court in Tacoma, Washington, by a
retirement home with 200 residents and 21 acres of property seeking damages for
diminution of property value, response costs, and attorneys' fees. In 1996, the
suit was dismissed on the grounds that plaintiffs claims were barred by lack of
subject matter jurisdiction, lack of actual and substantial damages, or by the
applicable statute of limitations. The ruling was affirmed on appeal in 1998
concluding the litigation.
Texas Litigation
In 1994, the Company and one of its wholly-owned subsidiaries, Encycle/Texas,
Inc., were sued in state court in Nueces County, Texas, in three purported class
actions on behalf of persons residing in neighborhoods around the Company's
Corpus Christi, Texas, property. These actions seek compensatory and punitive
damages for diminution of property values, annoyance, loss of use and enjoyment,
loss of income from commercial uses, remediation costs, emotional distress, and
medical monitoring due to alleged contamination of plaintiffs' properties by
metals emitted from the Corpus Christi facility. In 1994, two additional suits
alleging contamination of plaintiffs' properties by metals emitted from the
Corpus Christi facility were filed against the Company and two of its
wholly-owned subsidiaries, Encycle, Inc. and Encycle/Texas, Inc., and several
other defendants in state court in Duval County, Texas. In this one suit, 290
plaintiffs who resided and owned property near the Corpus Christi facility seek
compensatory and punitive damages for diminution in property values, personal
injuries, mental anguish, lost wages, medical expenses, and medical monitoring.
In the second suit, two plaintiffs who owned and operated a business near the
Corpus Christi facility seek compensatory and punitive damages for diminution of
property value and loss of profits.
In 1993, the State of Texas notified the Company that it and ten others persons
are Potentially Responsible Parties (PRPs) with respect to the Col-Tex Refinery
State Superfund site in Mitchell County, Texas, where the Company stored diesel
fuel in the mid-1970's. In 1996, the State of Texas notified the Company that it
is no longer considered a PRP and that it has dismissed this claim.
Nevertheless, the Company has also been named as one of several defendants in 14
lawsuits filed by or on behalf of approximately 372 persons who have lived or
owned property near the Col-Tex Refinery site seeking compensatory and punitive
damages for alleged wrongful death, personal injury, and property damage. In
1997, the Company was dismissed from three of those lawsuits involving
approximately 170 individuals.
In 1994, the Company received notice from the State of Texas that it is a PRP
for remediation of the site of a former pesticide manufacturing plant in Hunt
County, Texas, owned and operated by a former customer of the Company. In
addition, the Company has been named as one of a number of defendants in nine
<PAGE>
A-23
lawsuits filed in various Texas state courts by or on behalf of approximately
2,281 individuals who live or lived near the site for compensatory and punitive
damages, including damages for alleged personal injuries and property damage,
due to alleged exposure to arsenic products that the Company sold to the
manufacturer at the site. The bankruptcy filing of the owner of the former
pesticide plant has resulted in all of these actions being removed to federal
court and transferred to the United States District Court for the Northern
District of Texas. Also, in 1995, the Company was named as a third-party
defendant in a suit, pending in the United States District Court for the
Northern District of Texas, for contribution under CERCLA and Texas state law
involving approximately 15 parties alleged to be responsible for remediation of
a railroad property adjacent to the site.
In 1997, the Company and five other defendants, mostly metal companies, were
sued in state court in El Paso County, Texas, by approximately 360 plaintiffs,
including approximately 200 minors, seeking compensatory and punitive damages
for alleged personal injury, death, and property damage resulting from toxic
chemical discharges into the air, water, and soil from the defendants'
facilities in El Paso.
In 1996, a lawsuit was filed in state court in San Patricio County, Texas,
against Asarco and two of its wholly-owned subsidiaries, Encycle, Inc. and
Encycle/Texas Inc., and ten other defendants by approximately 679 plaintiffs who
allegedly own property and reside near a landfill in Sinton, Texas. Plaintiffs
seek compensatory and punitive damages for personal injury and property damage
allegedly caused by defendants' disposal of toxic and hazardous wastes at the
landfill. In 1997, a similar lawsuit was filed on behalf of 23 additional
plaintiffs. The landfill at issue is the same one that was the subject of a
previous lawsuit in Duval County, Texas, by nearby residents, settlement of
which was reported on Form 10-K for 1995. In return for a settlement payment, a
co-defendant has agreed to indemnify the Company, and its subsidiaries against
any judgment in these cases.
Product Litigation
The Company and two subsidiaries, as of December 31, 1998, are defendants in
1,126 asbestos personal injury lawsuits brought by 10,321 primary and 4,588
secondary plaintiffs. In certain of these lawsuits, against the Company and its
wholly-owned subsidiary Lac d'Amiante du Quebec, Ltee (LAQ), plaintiffs , who
are employees of other companies, allege death or injury resulting from alleged
exposure to asbestos fiber supplied by LAQ and other suppliers to their
employers' manufacturing operations. The plaintiffs allege a broad range of
respiratory and other injuries, including disabling lung changes, asbestosis,
cancer, and mesothelioma, and typically allege theories of strict liability,
negligence, breach of warranty, misrepresentation, ultra hazardous activity and
conduct, conspiracy, concert of action, market share or enterprise liability,
and alternative liability. The thrust of the litigation is that the defendants
failed to warn the primary plaintiffs of the possible hazards associated with
inhalation of asbestos fibers while working with or being exposed to such
fibers.
In other such asbestos lawsuits plaintiffs claim exposure to asbestos products
(such as insulation and brake linings) manufactured by others. These cases
typically allege a failure to warn of possible health hazards associated with
those products and proceed on theories similar to those asserted in the cases
alleging exposure to LAQ fiber. In many such cases LAQ and Asarco, having never
manufactured such products, have obtained dismissals.
Such asbestos cases also include, as of December 31, 1998, 25 cases brought by
4,147 primary plaintiffs against Capco Pipe Company, Inc. (Capco), another
wholly-owned subsidiary of the Company.
In 1991, the Judicial Panel on Multidistrict Litigation transferred all asbestos
cases pending in federal court to a multi-district litigation (MDL 875) in the
<PAGE>
A-24
United States District Court for the Eastern District of Pennsylvania for
coordinated and consolidated pretrial proceedings. Cases containing less than
one percent of LAQ's primary plaintiffs are affected by this action.
In 1996, LAQ and nine former managerial and supervisory employees of Capco were
sued in two separate state court actions in Alabama by 53 former Capco employees
seeking substantial compensatory and punitive damages for injuries and death
allegedly caused by workplace exposure to asbestos on theories of product
liability and negligence. Since that time, eight additional former Capco
employees have been added to the litigation as plaintiffs and Capco was added as
a defendant with respect to one plaintiff not alleged to have been a Capco
employee. LAQ settled the claims of three plaintiffs in 1998. Also in 1998, LAQ
and nine former managerial and supervisory employees of Capco were sued in
another Alabama state court action by five former Capco employees seeking
substantial compensatory and punitive damages for injuries allegedly caused by
workplace exposure to asbestos. This action was brought under the same theories
set forth in the earlier Capco plant worker cases.
In 1996, Asarco was served with a complaint in a purported class action filed in
state court in West Virginia that also names as defendants LAQ and 49 other
companies. The action is allegedly brought on behalf of a class of over 50,000
persons who were exposed to asbestos at West Virginia work sites and who are
allegedly at increased risk of developing cancer. The case seeks the
establishment of a medical monitoring fund. The case was subsequently removed to
federal court by three of the defendants and was thereafter transferred to MDL
875. In 1998, LAQ and Asarco were named in a purported class action filed in
state court in Charleston, West Virginia, against 69 asbestos and tobacco
entities. The complaint seeks compensatory and punitive damages and requests an
order certifying a class on behalf of persons having claims for personal injury
or death arising from exposure to asbestos fibers and cigarette smoke. In 1998,
Asarco was served by defendant Owens-Corning with a writ to join over 360
additional defendants, including LAQ and Asarco, in a medical monitoring class
action filed in 1996 in Pennsylvania state court.
As of December 31, 1998, LAQ, Asarco, and Capco have settled or been dismissed
from a total of approximately 9,821 asbestos personal injury lawsuits brought by
approximately 106,246 primary and 60,273 secondary plaintiffs.
Other Litigation
In 1993, the Company was sued by two of its liability insurers, the Insurance
Company of North America and California Union Insurance Company, in state court
in New Brunswick, New Jersey, for a declaration that the insurers have no
insurance obligation for environmental matters for which the Company is seeking
coverage. The plaintiff insurance companies also included Asarco's other
liability insurers in the lawsuit, and those insurers have sought similar
declaratory relief. Asarco has filed cross claims and counterclaims in this
lawsuit seeking a court declaration that insurance coverage of its environmental
matters does exist. The Company has settled with certain of these insurers, and
in January 1997 summary judgment dismissing Asarco's claims was granted in favor
of most other insurers. The litigation continues as to the remaining insurers
and the Company has appealed the granting of summary judgment.
In 1998, the Company received citations from the federal Occupational Safety and
Health Administration alleging safety and health violations at its East Helena,
Montana, plant. Total proposed penalties are $247,000. The Company has contested
some of the allegations and has reached a partial settlement on certain issues.
<PAGE>
A-25
Opinion of Management
The opinion of management regarding the outcome of legal proceedings and
environmental contingencies, set forth in the Contingencies and Litigation Note
8 to the Financial Statements, is based on considerations including experience
relating to previous court judgments and settlements and remediation costs and
terms. The financial viability of other potentially responsible parties has been
considered when relevant and no credit has been assumed for any potential
insurance recoveries when not deemed probable. The Company considered such
factors in establishing its environmental reserve in December of 1990 and in
determining modifications to its reserve thereafter.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
<PAGE>
A-26
<TABLE>
EXECUTIVE OFFICERS OF ASARCO AND BUSINESS EXPERIENCE DURING THE PAST FIVE YEARS
(As of February 26, 1999)
<CAPTION>
Officer
Name Office and Experience Age Since
- ---- --------------------- --- -----
<S> <C> <C> <C> <C>
Richard de J. Osborne 1998-1999 Chairman of the Board and Chief 64 1975
Executive Officer
1994-1998 Chairman of the Board, President and
Chief Executive Officer
Francis R. McAllister 1998-1999 President and Chief Operating Officer 56 1978
1994-1998 Executive Vice President, Copper
Operations
Kevin R. Morano 1998-1999 Executive Vice President and 45 1993
Chief Financial Officer
1994-1998 Vice President, Finance and Chief
Financial Officer
Augustus B. Kinsolving 1996-1999 Vice President and General Counsel 59 1983
1994-1995 Vice President, General Counsel
and Secretary
Robert J. Muth 1994-1999 Vice President, Government and 65 1977
Public Affairs
William L. Paul 1997-1999 Vice President, Commercial 48 1996
1994-1996 Manager, Omaha Plant
Gerald D. Van Voorhis 1994-1999 Vice President, Exploration 60 1992
Michael O. Varner 1994-1999 Vice President, Environmental 57 1993
Operations
David B. Woodbury 1994-1999 Vice President, Human Resources 58 1993
Robert Ferri 1995-1999 Secretary 51 1995
1994-1995 Associate General Counsel
Christopher F. Schultz 1997-1999 Treasurer 47 1997
1994-1997 Assistant Treasurer
William Dowd 1995-1999 Controller 49 1995
1994-1995 Assistant Controller
James L. Wiers 1994-1999 General Auditor 54 1987
</TABLE>
<PAGE>
A-27
PART II
Item 5 - Market for Registrant's Common Stock and Related Stockholder Matters
At December 31, 1998, there were 7,054 common stockholders of record. The
principal market for Asarco's Common Stock is the New York Stock Exchange. The
Stock Exchange symbol for Asarco's common stock is AR. High and low stock prices
and dividends for last two years were:
<TABLE>
<CAPTION>
1998 1997
------------------------------------------------------ -----------------------------------------------------
QUARTERS 1st 2nd 3rd 4th Year 1st 2nd 3rd 4th Year
------------------------------------------------------ -----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Dividends paid
per common share .20 .20 .20 .10 .70 .20 .20 .20 .20 .80
Stock market price:
High 26 11/16 27 1/2 23 3/4 23 27 1/2 32 1/2 32 1/4 34 31 7/8 34
Low 20 7/8 21 1/2 15 15/16 15 1/16 15 1/16 25 1/8 26 1/2 30 21 3/4 21 3/4
</TABLE>
Item 6 - Selected Financial Data
<TABLE>
<CAPTION>
FIVE-YEAR SELECTED FINANCIAL AND STATISTICAL DATA
(in millions, except per share and employee data)
1998 1997 1996 1995(f) 1994
---- ---- ---- ------- ----
<S> <C> <C> <C> <C> <C>
Consolidated Statement of Earnings
Sales .......................................... $ 2,233 $ 2,721 $ 2,717 $ 3,198 $ 2,032
Operating income (loss) ........................ (118)(a) 275(b) 303(d) 487(g) 18(h)
Earnings (loss) before minority interests
(104) 234 226 299 65
Minority interests ............................. (27) (91) (88) (130) (1)
Net earnings (loss) ............................ (131) 143(c) 138(e) 169 64(i)
Per common share:
Net earnings (loss) - Basic .................. $ (3.29) $ 3.42 $ 3.24 $ 4.00 $ 1.53
Net earnings (loss) - Diluted ................ $ (3.29) $ 3.42 $ 3.23 $ 3.98 $ 1.52
Dividends to common stockholders ............... $ 0.70 $ 0.80 $ 0.80 $ 0.70 $ 0.40
Consolidated Statement of Cash Flows
Cash provided from (used for)
operating activities .......................... $ 62 $ 321 $ 267 $ 489 $ (10)
Dividends to common stockholders ............... 28 34 34 30 17
Capital expenditures ........................... 371 322 286 338 98
Depreciation and depletion ..................... 145 131 119 119 83
Consolidated Balance Sheet
Total assets ................................... $ 4,024 $ 4,110 $ 4,120 $ 4,327 $ 3,291
Inventories - replacement cost in excess of LIFO
inventory costs .............................. 74 86 115 137 143
Total cash and marketable securities ........... 216 416 193 281 18
Long-term debt ................................. 1,015 850 759 1,063 915
Common stockholders' equity .................... 1,525 1,694 1,737 1,707 1,517
Common Stock
Common shares outstanding ...................... 39.7 39.7 42.8 42.6 42.1
Price-high ..................................... $ 27 1/2 $ 34 $35 7/8 $36 1/2 $34 7/8
-low ...................................... $15 1/16 $21 3/4 $23 3/4 $24 3/8 $21 3/8
Book value per common share .................... $ 38.45 $ 42.71 $ 40.56 $ 40.11 $ 36.04
Price/Earnings ratio ........................... -- 6.56 7.68 8.01 18.65
Dividends to common stockholders as a percent of
earnings ..................................... -- 23.4% 24.7% 17.5% 26.2%
Financial Ratios
Current assets to current liabilities
1.9 2.3 1.8 1.9 1.6
Debt as a % of capitalization .................. 33.7% 28.3% 26.7% 34.1% 38.1%
Debt as a % of capitalization, net
of excess cash ................................ 30.0% 20.2% 24.1% 32.1% 38.1%
Employees (at year-end) ........................ 11,100 11,800 11,800 12,200 8,000
<PAGE>
A-28
<FN>
Notes to Five-Year Selected Financial and Statistical Data
(a) Includes charges in the first quarter of $20.0 to reflect the effect of the
sale of the Missouri Lead Division and $10.0 related to SPCC's $30 million
cost reduction program. The fourth quarter includes charges of $9.5 for the
three year suspension of operations at the Company's copper smelter in El
Paso, Texas, $9.8 to write down the book value and provide for the closure
costs of the Company's Black Cloud lead-zinc mine in Leadville, Colorado,
$10.9 for the transfer of SPCC's ownership of the Ilo townsite to its
worker occupants and the city of Ilo, Peru, and $7.7 to increase reserves
for certain employee benefit plans and for severance and other costs
related to the Company's cost reduction program. The fourth quarter also
includes a charge of $33.2 ($54.0 in charges offset by $20.8 in anticipated
insurance and other recoveries) to increase reserves for closed plants and
environmental matters.
(b) Environmental charges of $22.1 in 1997 includes third quarter charges of
$30.0 offset entirely by anticipated insurance recoveries.
(c) Includes a $47.6 after-tax gain ($73.3 pre-tax) from the sale of shares of
Grupo Mexico.
(d) Includes a $15.0 charge ($67.7 in charges offset by $52.7 in insurance
settlements and other recoveries) for closed plant and environmental
matters.
(e) Includes a $39.0 after-tax gain ($60.1 pre-tax) from the sale of the
Company's remaining interest in MIM and a $7.2 after-tax gain ($11.1
pre-tax) from the sale of a 25% interest in the Company's Silver Bell
project.
(f) On April 5, 1995, the Company acquired an additional 10.7% interest in
Southern Peru Copper Corporation (SPCC) for $116.4 increasing its ownership
from 52.3% to 63%. The additional shares acquired enabled the Company to
elect a majority of the directors of SPCC. As a result, the Company has
consolidated SPCC in its financial statements based on its 52.3% ownership,
effective January 1, 1995, and 63% ownership, effective April 5, 1995. The
Company previously accounted for its investment in SPCC by the equity
method.
(g) Includes a $139.4 charge to add to the Company's reserve for closed plant
and environmental matters, to provide for asset impairments and plant
closures and to write down certain in-process inventory to net realizable
value.
(h) Includes a $65.5 pre-tax charge to add to the Company's reserve for closed
plant and environmental matters.
(i) Includes a $31.9 after-tax gain ($58.5 pre-tax) from the sale of the
Company's remaining interest in Asarco Australia Limited.
</FN>
</TABLE>
Item 7 - Management's Discussion and Analysis of Financial Condition and Results
of Operations
1998 was a difficult year for Asarco. However, despite its poor financial
results the Company was successful in improving its cost structure and operating
efficiency and made progress on several of its important strategic objectives.
The Company reported a net loss for 1998 of $130.6 million, or $3.29 per share.
Results for 1998 include after-tax charges totaling $60.7 million or $1.53 per
share, principally for asset write-downs, an increase in reserves for
environmental liabilities and severance and employee benefit costs.
Net earnings in 1997 and 1996 were $143.4 million and $138.3 million,
respectively. Results for 1997 included after-tax gains totaling $47.6 million
($73.3 million pre-tax), or $1.13 per share, from the sale of shares of Grupo
Mexico, S.A. de C.V. (Grupo Mexico), Mexico's largest mining company. Results
for 1996 included an after-tax gain of $39.0 million ($60.1 million pre-tax)
from the sale of the Company's interest in MIM Holdings Limited (MIM), an
Australian based mining company, and a $7.2 million after-tax gain ($11.1
million pre-tax) from the sale of a 25% interest in the Company's Silver Bell
project.
<PAGE>
A-29
The Company's earnings are heavily influenced by the prices for its metals as
established on United States and international commodity exchanges. The loss
reported by the Company in 1998 reflects the low copper prices which existed
throughout 1998.
In 1998, the copper price declined to an 11 year low. In response to the lower
prices, the Company initiated a cost reduction program which has been successful
in reducing costs and mitigating part of the effect of low copper prices on the
Company's operating results. Southern Peru Copper Corporation (SPCC), a 54.3%
owned subsidiary, also instituted a similar cost reduction program. Both cost
reduction programs included staff reductions, operational improvements, and
reductions in purchased services.
In the fourth quarter of 1998, the Company announced a three year suspension of
operations at its copper smelter located in El Paso, Texas. Increased production
capacity at El Paso had required the purchase of concentrates for the smelter to
operate efficiently. Current market terms for smelting and refining fell to
levels making such purchases unremunerative. The lower terms were the result of
a worldwide shortage of copper concentrates, particularly in the southwest
United States. These same market conditions allowed the Company to sell its own
concentrate production, which would have been treated at El Paso, on favorable
terms for a three year period. During the suspension, El Paso will be maintained
so that it may be returned to full operations at the end of the three year
period. The workforce will be reduced by approximately 370 employees as a result
of the suspension.
In January 1999, the Company announced the closure of its Black Cloud lead-zinc
mine in Leadville, Colorado due to the depletion of ore reserves. The Company is
continuing an exploration program at Leadville seeking new ore reserves. The
closure resulted in the termination of approximately 100 employees. The Company
wrote down its investment in the mine and accrued closure costs in the fourth
quarter of 1998.
Included among the Company's important achievements in 1998 were:
o In the fourth quarter of 1997, the Company announced the implementation of
a Company wide cost reduction program designed to improve annual operating
results by $50 million. SPCC instituted its own $30 million cost reduction
program in the first quarter of 1998. These programs are estimated to have
benefited the Company's 1998 pre-tax results by approximately $72 million.
o The Company's beneficial interest in mined copper production grew nearly
5.0% to one billion pounds. At the same time, the Company reduced its cash
cost of producing copper by almost 5 cents per pound in 1998 to just under
65 cents.
o The Company's North American copper operations increased the production of
low-cost solvent extraction/electrowinning (SX/EW) copper by nearly 40%.
Use of a new leaching technology at the Company's Ray Mine in Arizona led
to a 24% increase in its SX/EW production. The balance of the increase was
attributable to a full year's production at the Company's 75% owned Silver
Bell SX/EW facility which commenced operations in mid-1997.
o In September 1998, the Company sold its Missouri Lead Division (MLD), an
integrated lead mining business. The Company realized in excess of $55
million from the sale and retains a royalty interest in the properties.
MLD's ore reserves were limited and presented little opportunity for
expansion. The sale enabled the Company to concentrate its resources on its
core businesses.
<PAGE>
A-30
o Profits at Enthone-OMI, the Company's specialty chemicals business grew
5.0% in 1998 to $30.9 million. In addition, Enthone-OMI acquired Deutsche
Oberflachentechnik GmbH (DOT) in April 1998. The acquisition, which
benefited earnings in 1998, significantly expands Enthone-OMI's marketing
and technology position in the important German specialty chemicals market.
o American Limestone, through which the Company conducts its aggregates
business, had a 5.8% increase in profits in 1998 to $14.6 million,
representing American Limestone's fifth year in a row of record profits.
o SPCC substantially completed the $245 million expansion of the Cuajone mine
in the fourth quarter of 1998. The concentrator now has the capacity to
treat 96,000 tons of ore per day. The expansion will add 130 million pounds
of copper production annually.
Sales: Sales were $2.2 billion in 1998 and $2.7 billion in 1997 and 1996. The
decrease in sales in 1998 is due to the reduction in metal prices, principally
copper. Higher copper, specialty chemicals and aggregates sales volumes were
offset by lower refined lead sales volumes due to the sale of MLD in the third
quarter of 1998. In 1997, sales reflect higher copper, specialty chemicals and
aggregates sales volumes offset by the lower metal prices in 1997 compared to
1996 and lower lead and silver sales volumes due to the termination of refining
operations at the Omaha, Nebraska refinery in June 1996.
<TABLE>
Price/volume data:
<CAPTION>
Average Metal Prices 1998 1997 1996
-------------------- ---- ---- ----
<S> <C> <C> <C>
Copper (per pound - COMEX) ........ $ 0.75 $ 1.04 $ 1.06
Copper (per pound - LME) .......... 0.75 1.03 1.04
Lead (per pound - LME) ............ 0.24 0.28 0.35
Silver (per ounce - Handy & Harman) 5.53 4.89 5.18
Zinc (per pound - LME) ............ 0.46 0.60 0.47
Molybdenum (per pound - Metals
Week Dealer Oxide) . 3.31 4.18 3.61
</TABLE>
<PAGE>
A-31
<TABLE>
<CAPTION>
Metal Sales Volume (1)(2) 1998 1997 1996
------------------------- ---- ---- ----
<S> <C> <C> <C>
Copper... (000s pounds)
Asarco ................... 1,188,800 1,113,300 1,103,700
SPCC ..................... 752,100 744,000 694,300
--------- --------- ---------
Consolidated ............. 1,940,900 1,857,300 1,798,000
Asarco Beneficial Interest 1,578,300 1,502,800 1,467,500
Lead ... (000s pounds)
Asarco ................... 159,400 255,000 295,800
Silver .. (000s ounces)
Asarco ................... 16,263 19,350 26,955
SPCC ..................... 3,288 3,086 3,110
--------- --------- ---------
Consolidated ............. 19,551 22,436 30,065
Asarco Beneficial Interest 18,013 20,978 28,584
Zinc .......(000s pounds) (3)
Asarco ................... 151,200 146,000 200,500
Molybdenum (000s pounds) (3)
Asarco ................... 4,950 5,346 6,470
SPCC ..................... 9,677 9,398 8,813
--------- --------- ---------
Consolidated ............. 14,627 14,744 15,283
Asarco Beneficial Interest 10,096 10,307 11,088
<FN>
(1) SPCC presented at 100%. The Company's equity interest in SPCC
at December 31, 1998 was 54.3% and 54.1% at December 31, 1997
and 1996 and its voting interest was 63.1%, 63.1% and 62.6% at
December 31, 1998, 1997 and 1996, respectively. The Company's
beneficial economic interest in the operations of SPCC, net of
the remaining labor shares interest, was 53.2%, 53.0% and
52.6% at December 31, 1998, 1997 and 1996, respectively.
(2) Effective February 1996, Asarco's beneficial interest in
Silver Bell L.L.C. is 75%.
(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.
</FN>
</TABLE>
Most of the Company's copper is sold as refined metal under annual contracts or
on a spot sale basis. The balance of the Company's copper and all of its zinc
production are sold in the form of concentrates under contracts of one to three
years duration. Silver and gold are sold under monthly contracts or in spot
sales. Revenue is recognized primarily in the month product is shipped to
customers based on prices provided in sales contracts. When the price is not
determinable at the time of shipment to customers, revenue is recognized based
on prices prevailing at the time of shipment with final pricing generally
occurring within three months of shipment. Revenues with respect to these sales
are adjusted in the period of settlement to reflect final pricing and in periods
prior to settlement to reflect any decline in market prices which may occur
between shipment and settlement.
<PAGE>
A-32
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 close as possible to the average monthly market
price during the month the Company makes shipments to customers. Sales contracts
with customers may provide for pricing in a month other than the month of
shipment. For instance, 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 are recognized.
At December 31, 1998 and 1997, the Company's aggregate metal futures contract
positions were as follows:
(in thousands)
<TABLE>
<CAPTION>
Notional Unrealized
Weight Values Gain (Loss)
------ ------ -----------
<S> <C> <C> <C>
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)
1997
Copper (pounds) ............... 74,950 $60,180 $ 2,194
Silver (ounces) ............... 4,300 $23,664 $(2,085)
Gold . (ounces) ............... 15 $ 4,320 $ (3)
Lead ..(pounds) ............... 23,698 $ 6,914 $ (838)
</TABLE>
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.
In the event of a hypothetical 10 percent unfavorable change in the metals
prices on the Company's December 31, 1998 positions, the Company would incur a
loss of $2.8 million including the unrealized gain or loss displayed in the
table above. However, any such additional loss would be 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.
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
<PAGE>
A-33
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. Earnings include gains from option sales and
exercises, primarily related to copper, of $11.0 million in 1998, $25.8 million
in 1997 and $27.1 million in 1996.
At December 31, 1998, the Company did not hold any put options.
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 December 31, 1998 and 1997, the Company had entered
into the following fuel swap agreements:
<TABLE>
<CAPTION>
Weighted
Average
Quantity Contract
Fuel Type Period (Barrels) Price
- --------- ------ --------- -----
<S> <C> <C> <C>
1998
Residual Oil ............ 1/99-9/99 1,095,000 $ 9.84
Diesel Fuel ............. 1/99-9/99 564,000 $ 15.35
1997
Residual Oil ............ 1/98-12/98 540,000 $ 13.57
Diesel Fuel ............. 1/98-12/98 200,500 $ 21.17
</TABLE>
In the event of a hypothetical 10 percent decrease in the respective oil prices
on the Company's December 31, 1998 positions, the Company would incur higher
production costs of approximately $3.4 million over the life of the contracts
than it would have incurred had the exposure not been hedged.
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 three swap agreements, expiring between
1998 and 2000, with an aggregate notional amount of $115.0 million. During 1998,
two of the interest rate swaps with an aggregate notional amount of $100.0
million expired. At December 31, 1998, the effect of the one remaining interest
rate swap agreement with an aggregate notional amount of $15.0 million is 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 $0.4 million in 1998, $0.6 million in
1997 and $0.7 million in 1996 had the Company not hedged its exposure.
In the event of a hypothetical decrease of 1% in the prevailing interest rate,
the Company would incur higher interest expense of approximately $0.3 million
over the remaining life of the contract than it would have incurred 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. Earnings include losses of $0.2 million in
<PAGE>
A-34
1998 and gains of $0.5 million in 1997 from the sale or exercise of call
options. Earnings also include losses of $1.9 million in 1998, gains of $3.6
million in 1997 and losses of $0.1 million in 1996 from mark to market
adjustments. At December 31, 1998, the Company did not hold any call options.
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 December 31, 1998 and 1997, such
futures positions were not material.
Cost of Products and Services: Cost of products and services was $2.0 billion in
1998 and $2.1 billion in 1997 and 1996. In 1998, cost of products and services
includes a $9.5 million provision for costs associated with the three year
suspension of operations at the Company's copper smelter in El Paso, Texas, $9.3
million for the closure of the Company's Black Cloud lead-zinc mine in
Leadville, Colorado, $1.1 million for the transfer of SPCC's ownership of the
Ilo townsite to its worker occupants and the city of Ilo, Peru, and $13.3
million to increase reserves for certain employee benefit plans and for
severance and other costs in connection with the Company's cost reduction
programs. In addition, 1998 reflects a decrease in costs due to the sale of MLD
in the third quarter of 1998 and lower production costs as a result of the
Company's cost reduction programs partially offset by increased copper,
specialty chemicals and aggregates sales volume.
In 1997, cost of products and services reflects higher sales volumes of copper
produced from purchased concentrates at SPCC, higher power costs at SPCC and
increased specialty chemicals and aggregates sales volumes offset by lower
purchases of refined copper to meet customer commitments and lower lead and
silver sales volumes due to the termination of refining operations at the
Company's Omaha, Nebraska refinery in June 1996.
Cost of products and services was reduced by $1.6 million in 1998, $16.7 million
in 1997 and $5.3 million in 1996 as a result of the liquidation of a portion of
the Company's LIFO inventories, principally as a result of the sale or
disposition of operations.
As a result of its $1 billion expansion program, SPCC's electric power
requirements will increase significantly requiring the construction of
substantial additional generating capacity. In the second quarter of 1997, SPCC
sold its existing power plant to an independent power company. In connection
with the sale, a power purchase agreement was also completed, under which SPCC
agreed to purchase its power needs for the next twenty years. Under the
agreement, SPCC's cost of power will increase somewhat from its 1996 level,
however, SPCC will avoid the significant capital expenditures that would be
required to meet the needs of expanded operations.
Other Expenses: Selling, administrative and other expenses were $144.3 million
in 1998, $137.7 million in 1997, and $132.8 million in 1996. The year over year
increases are primarily due to an increase in selling expenses related to the
specialty chemicals business, partially offset by a reduction in corporate
administrative costs.
Depreciation and depletion expense was $144.6 million in 1998, $130.8 million in
1997, and $118.6 million in 1996. In 1998, the higher depreciation is primarily
related to the use of the additional mine equipment which was part of the
expansion of the Cuajone mine in Peru. The increase in 1997 over 1996 reflects a
full year's depreciation of the sulfuric acid plant and additional assets
related to the Cuajone and Toquepala mines in Peru, and the SX/EW facility at
the Company's 75% owned Silver Bell mine in Arizona, which commenced operations
in July 1997.
<PAGE>
A-35
Research and exploration expense was $27.0 million in 1998, $43.2 million in
1997 and $37.6 million in 1996. The reduction in 1998 reflects lower spending
for domestic and foreign exploration as part of the Company's cost reduction
program, and the capitalization of expenses in 1998 with respect to certain
identified mineral resources. The higher spending levels in 1997 and 1996
reflect exploration expenditures on projects in French Guiana, Peru and Chile.
Asset dispositions and impairments include $20.0 million to reflect the effect
of the sale of MLD, $0.5 million to write down the property value of the Black
Cloud lead-zinc mine in Leadville, Colorado and $9.8 million for the transfer of
SPCC's ownership of the Ilo townsite to its worker occupants and the city of
Ilo, Peru.
The Company applies the American Institute of Certified Public Accountants'
Statement of Position 96-1, "Environmental Remediation Liabilities" (SOP 96-1),
which provides authoritative accounting guidance with regard to recognizing,
measuring and disclosing environmental liabilities. Environmental and other
closed plant charges, including mine reclamation costs for active and closed
properties, were $42.1 million in 1998 ($62.9 million in charges offset by $20.8
million in anticipated insurance and other recoveries), $22.1 million in 1997
($52.3 million in charges offset by $30.2 million in anticipated insurance and
other recoveries), and $16.7 million in 1996 ($69.4 million in charges offset by
$52.7 million in anticipated insurance and other recoveries) including $10.0
million for the effect of the initial application of SOP 96-1.
Nonoperating Items: Interest expense was $67.8 million in 1998, $74.2 million in
1997 and $76.4 million in 1996. In 1998, interest expense reflects the Company's
lower borrowing rates on floating rate debt. The decrease in 1997 reflects lower
average borrowings due to the use of proceeds from the sale of the Company's
interest in MIM in the second quarter of 1996 and the sales of shares of Grupo
Mexico in the second and third quarters of 1997.
Other income was $28.8 million in 1998, $33.8 million in 1997 and $29.1 million
in 1996. The decrease in 1998 reflects lower equity earnings from Silver Valley
Resources, a 50% owned equity investment, and lower interest income, partially
offset by an insurance recovery in Peru. The increase in 1997 from 1996 reflects
a dividend from Grupo Mexico and higher equity earnings, principally from Silver
Valley Resources.
Taxes on Income: The Company's effective tax rate is lower than the statutory
rate primarily because of the percentage depletion and dividends received
deductions which are permitted for U.S. tax purposes. The effective tax rate was
lower in 1997 compared with 1998 principally due to tax incentives approved by
the Government of Peru in 1997 in connection with the expansion of SPCC's
Cuajone mine. The Company's tax expense includes substantial foreign taxes,
primarily attributable to SPCC's Peruvian Branch. Subject to certain limitations
these taxes have been applied as credits to reduce U.S. federal income tax
otherwise due.
As of December 31, 1998, the Company's recorded benefit for tax net operating
loss carryforwards was $200.8 million. The Company believes that it is more
likely than not that these carryforwards, which expire in years 2008 through
2018, will reduce future federal income taxes otherwise payable.
Cash Flows - Operating Activities: Net cash provided from operating activities
was $62.3 million in 1998 compared with $321.3 million in 1997 and $267.3
million in 1996. The decrease in 1998 from 1997 is primarily due to lower
earnings as a result of lower copper prices partially offset by the cash savings
from the Company's cost reduction programs.
<PAGE>
A-36
The increase in 1997 from 1996 is primarily a result of cash provided from
operating assets and liabilities which reflects a decrease in accounts
receivable due to the decline in copper prices during the final months of 1997
and proceeds received from insurance settlements related to environmental
liabilities.
In 1996, other cash used for operating assets and liabilities included payments
by SPCC in 1996 of income taxes and workers' participation accrued in 1995.
These uses of cash were partially offset by proceeds received from insurance
settlements related to environmental matters.
Cash Flows - Investing Activities: Net cash used for investing activities was
$188.1 million in 1998, compared with $167.3 million in 1997 and cash provided
of $93.8 million in 1996. The increase in capital expenditures in 1998 reflects
the expansion project at the Cuajone mine. Other investing activities in 1998
include proceeds from held-to-maturity securities at SPCC, proceeds from the
sale of the Company's MLD partially offset by the acquisition of DOT in April
1998.
The increase in capital expenditures in 1997 from 1996 reflects the expansion
project at the Cuajone mine. Other investing activities in 1997 included
proceeds of $322.5 million from the sales of shares of Grupo Mexico partially
offset by the investment of the proceeds from the SPCC financing activities in
held-to-maturity investments.
Other investing activities in 1996 included the sale of MIM stock, the sale of a
25% interest in the Company's Silver Bell project, and proceeds from the
maturity of held-to-maturity investments, primarily at SPCC.
The Company's planned capital expenditures in 1999 are estimated to be
approximately $375 million. Included in 1999 are expenditures related to the
modernization and expansion of SPCC's Ilo smelter, expansion of the SX/EW
facility at Toquepala and completion of the Cuajone mine expansion.
Liquidity and Capital Resources: At December 31, 1998, the Company's debt as a
percentage of total capitalization (the total of debt, minority interests and
equity) was 33.7%, compared with 28.3% at the end of 1997 and 26.7% at the end
of 1996. Consolidated debt at the end of 1998, including the debt of SPCC, none
of which is guaranteed by Asarco, was $1,047.6 million, compared with $878.9
million in 1997 and $814.3 million in 1996. Additional indebtedness permitted
under the terms of the Company's most restrictive covenants was $560.4 million
at December 31, 1998. In addition, under the most restrictive covenants of
SPCC's loan agreements, SPCC would have been permitted additional indebtedness
of $874.4 million at December 31, 1998.
The increase in debt in 1998 reflects the Company's partial usage of its
revolving credit line. Debt includes the private placement by SPCC of $150.0
million of Secured Export Notes in the United States and international markets
and the sale by SPCC of $50.0 million of 8.25% bonds due 2004 to investors in
Peru during 1997. The Secured Export Notes which were issued with an average
maturity of seven years and a final maturity in 2007 were priced at par with a
coupon rate of 7.9%.
The Company has two revolving credit agreements that permit borrowings of up to
$800 million of which $150 million was drawn at December 31, 1998. One facility
for $300 million expires in May 2003 and the other facility for $500 million
expires in May 2002. The borrowings bear interest based on LIBOR, the CD rate or
the prime rate.
Under the most restrictive terms of the credit agreements, the Company must
maintain a tangible net worth, as defined, of at least $1 billion. Tangible net
worth, as defined, was $1.5 billion at December 31, 1998.
<PAGE>
A-37
In January 1998, the Company completed a refinancing of three tax exempt debt
issues and called for the redemption of the existing bonds. The aggregate
principal amount of the refinancing was $132.8 million. The refinancing is
expected to reduce the Company's annual interest costs by approximately $3.3
million. In October 1998, the Company completed a refunding of tax exempt debt
of $22.2 million, which was due to expire in December 1998. The terms of the
refunding extend the maturity of the debt to 2018 at an interest rate of 5.6%.
In November 1998, the Company sold a new tax exempt debt issue of $34.8 million
with a coupon rate of 5.85% maturing in 2033.
In 1997, SPCC entered into a $600 million, seven-year credit agreement with a
group of international financial institutions. The agreement consists of a $400
million term loan facility and a $200 million revolving credit facility. The
interest rate during the first three years of the agreement on any loans
outstanding is LIBOR plus 1.75% per annum for term loans and LIBOR plus 2.00%
for revolving credit loans. No amounts have been drawn by SPCC under this
agreement as of December 31, 1998. SPCC's loan agreements are not guaranteed by
Asarco. The funds raised in 1997, the loan facility of $600 million and
internally generated funds are expected to provide the Company with sufficient
resources to complete the $1 billion expansion program at SPCC.
Some of SPCC's financing agreements contain covenants which limit the payment of
dividends to stockholders. Under the most restrictive covenant, SPCC may pay
dividends to stockholders equal to 50% of its net income for any fiscal quarter
as long as such dividends are paid by June 30 of the following year. As a
result, at December 31, 1998, $588.4 million of SPCC's net assets included in
the Company's consolidated net assets are unavailable for the payment of
dividends.
Financing activities in 1997 included the repurchase of 3.3 million shares of
the Company's stock for approximately $100 million which reduced the number of
outstanding shares by approximately 7.7% to slightly under 40 million shares.
The Company has on file with the Securities and Exchange Commission a universal
shelf registration statement covering the future issuance of up to $300 million
in equity and debt securities. The Company has no immediate plans to issue
securities and the registration is intended to provide the Company with the
flexibility to access the capital markets when appropriate.
The Company's cash and marketable securities at December 31, 1998 were $215.8
million including $198.1 million held by SPCC. The Company expects that it will
meet its cash requirements in 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.
Dividends and Capital Stock: The Company paid dividends to common stockholders
of $27.8 million, or 70 cents per share, in 1998, $33.6 million, or 80 cents per
share, in 1997 and $34.2 million, or 80 cents per share, in 1996. In addition,
SPCC paid dividends to minority interests of $19.5 million in 1998, $49.4
million in 1997 and $58.3 million in 1996. At the end of 1998, the Company had
39,652,000 common shares issued and outstanding, compared with 39,663,000 at the
end of 1997 and 42,824,000 at the end of 1996.
Closed Plants and Environmental Matters: Reserves for closed plants and
environmental matters, including accrued mine reclamation costs for active and
closed properties, totaled $144.4 million and $146.6 million at December 31,
1998 and 1997, respectively. The Company anticipates that expenditures relating
to these reserves will be made over the next several years. Net cash
expenditures against these reserves were $67.2 million in 1998, $57.4 million in
1997, and $55.6 million in 1996.
<PAGE>
A-38
On January 23, 1998, the Company, the United States Department of Justice and
EPA announced the signing of a multi-region voluntary agreement covering a broad
range of environmental issues affecting most of the Company's United States
operations. The two consent decrees containing the agreement were filed in
United States District Courts in Phoenix, Arizona and Helena, Montana and have
been approved by both courts subsequent to public comment. Pursuant to the
agreement, which resolves numerous issues that were being negotiated and
litigated separately, the Company has paid $6.4 million in penalties and will
undertake capital construction projects estimated at $61.5 million, to be spent
over six years.
Impact of New Accounting Standards: In March 1998, the American Institute of
Certified Public Accountants' Accounting Standards Executive Committee issued
Statement of Position No. 98-1 "Accounting for the Cost of Computer Software
Developed or Obtained for Internal Use." This statement which is effective for
fiscal years beginning after December 15, 1998, provides guidance on accounting
for the costs of computer software developed or obtained for internal use. This
statement will not have a material impact on the Company's financial statements.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities." This statement
which is effective for fiscal years beginning after June 15, 1999, establishes
accounting and reporting standards for derivative instruments and hedging
activities. The Company is currently assessing the impact of this statement.
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 December
31, 1998, approximately 95% of the Company's systems and 60% of SPCC's systems
have been tested and are Y2K compliant with the remainder expected to be tested
and be Y2K compliant by the second quarter of 1999. The Company continues to
test these systems where appropriate.
As of December 31, 1998, the Company had spent approximately $1.9 million in
addition to its normal internal information technology costs in connection with
its Y2K program. The Company expects to incur additional costs of $1.1 million
including its beneficial interest in SPCC's costs to complete phases two and
three of the program.
Under the third phase of the program the Company has sent detailed information
requests to its principal customers, suppliers and service providers to
determine the status of their Y2K compliance. As of December 31, 1998, the
Company received confirmations from approximately 68% indicating that they are
or will be Y2K compliant. The Company expects to have further communications
with those who have not responded or have indicated further work was required to
achieve Y2K compliance. The third phase of the program is expected to be
completed in the first quarter of 1999. SPCC has sent surveys to its major
customers, suppliers and service providers and also expects to complete this
phase of its program in the first quarter of 1999.
<PAGE>
A-39
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 is currently identifying alternatives and will complete a
contingency plan for each of its principal operations by March 1999. The purpose
of the contingency plan is to identify possible alternatives which could be used
in the event of a disruption in the delivery of essential goods or services and
to minimize the effect of such a disruption.
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.
<PAGE>
A-40
<TABLE>
<CAPTION>
Item 8 - Financial Statements and Supplementary Data
ASARCO Incorporated
and Subsidiaries
CONSOLIDATED STATEMENT OF EARNINGS
(in thousands, except per share amounts)
For the years ended December 31, 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Sales of products and services $2,233,068 $2,721,048 $2,716,784
----------------------- ----------------------- ----------------------
Operating costs and expenses:
Cost of products and services 1,962,790 2,112,640 2,107,701
Selling, administrative and other 144,324 137,657 132,779
Depreciation and depletion 144,636 130,802 118,569
Research and exploration 26,954 43,186 37,609
Asset dispositions and impairments 30,298 - -
Environmental and other closed plant charges, net of
recoveries 42,123 22,074 16,687
----------------------- ----------------------- ----------------------
Total operating costs and expenses 2,351,125 2,446,359 2,413,345
----------------------- ----------------------- ----------------------
Operating income (loss) (118,057) 274,689 303,439
Interest expense (67,787) (74,247) (76,442)
Other income 28,847 33,845 29,084
Gain on sale of investments and other interests
- 73,281 71,158
----------------------- ----------------------- ----------------------
Earnings (loss) before taxes on income and minority
interests (156,997) 307,568 327,239
Taxes on income (benefit) (53,016) 73,571 100,572
----------------------- ----------------------- ----------------------
Earnings (loss) before minority interests
(103,981) 233,997 226,667
Minority interests in net earnings of consolidated
subsidiaries (26,659) (90,605) (88,331)
======================= ======================= ======================
Net earnings (loss) $(130,640) $ 143,392 $ 138,336
======================= ======================= ======================
Per share amounts:
Net earnings (loss):
Basic $(3.29) $3.42 $3.24
Diluted $(3.29) $3.42 $3.23
Dividends to common stockholders $ 0.70 $0.80 $0.80
Weighted average common shares outstanding:
Basic 39,655 41,903 42,711
Diluted 39,655 41,976 42,769
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
A-41
<TABLE>
ASARCO Incorporated
and Subsidiaries
CONSOLIDATED BALANCE SHEET
<CAPTION>
(Dollars in thousands)
At December 31, 1998 1997
---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 193,048 $ 210,559
Marketable securities 22,705 205,317
Accounts receivable:
Trade, net of allowance for doubtful accounts of $9,275 and $8,121
340,916 375,904
Other 68,876 71,062
Inventories 352,411 362,119
Other assets 104,809 74,967
-----------------------------------------
Total current assets 1,082,765 1,299,928
-----------------------------------------
Investments:
Available-for-sale and other at cost 121,532 126,843
Equity method 64,465 61,337
-----------------------------------------
Total investments 185,997 188,180
-----------------------------------------
Property, net 2,526,567 2,418,810
Other assets including intangibles, net 228,480 203,484
-----------------------------------------
Total Assets $4,023,809 $4,110,402
=========================================
LIABILITIES
Current liabilities:
Bank loans $ 4,963 $ 204
Current portion of long-term debt 27,676 28,712
Accounts payable:
Trade 265,912 289,234
Other 70,589 63,605
Salaries and wages 27,268 35,788
Taxes on income 84,007 62,565
Reserve for closed plant and environmental matters 53,394 44,164
Other 47,611 49,534
-----------------------------------------
Total current liabilities 581,420 573,806
-----------------------------------------
Long-term debt 1,014,942 849,991
Deferred income taxes 56,045 118,289
Reserve for closed plant and environmental matters 90,985 102,432
Postretirement benefit obligation 108,741 104,491
Other liabilities and reserves 113,754 133,609
-----------------------------------------
Total non-current liabilities 1,384,467 1,308,812
-----------------------------------------
Contingencies (Footnote 8)
MINORITY INTERESTS 533,329 533,911
-----------------------------------------
PREFERRED STOCKHOLDERS' EQUITY
Authorized - 10,000,000 shares without par value;
none issued - -
COMMON STOCKHOLDERS' EQUITY
Authorized - 80,000,000 common shares without par
value: Issued shares: 1998 and 1997 - 45,039,878 679,991 679,991
Accumulated other comprehensive income (loss), net
of tax (6,989) 3,389
Retained earnings 1,009,626 1,168,064
Treasury stock (at cost) - common shares 1998 - 5,388,155; 1997 - 5,377,339
(158,035) (157,571)
-----------------------------------------
Total common stockholders' equity 1,524,593 1,693,873
=========================================
Total Liabilities, Minority Interests,
Preferred and Common Stockholders' Equity $4,023,809 $4,110,402
=========================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
A-42
<TABLE>
ASARCO Incorporated
and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS
<CAPTION>
(Dollars in thousands)
For the years ended December 31, 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net earnings (loss) ............................................................ $(130,640) $ 143,392 $ 138,336
Adjustments to reconcile net earnings (loss) to net cash provided from (used
for) operating activities:
Depreciation and depletion ................................................... 144,636 130,802 118,569
Provision (benefit) for deferred income taxes ................................ (73,373) (12,074) 26,302
Treasury stock used for employee benefits .................................... 1,603 3,272 5,707
Undistributed equity (earnings) losses ....................................... 1,348 (3,934) (438)
Net (gain) loss on asset dispositions and
impairments ................................................................ 30,460 (69,671) (72,321)
Increase (decrease) in reserves for closed plant
and environmental matters .................................................. (2,217) (6,268) 12,807
Minority interests ........................................................... 26,659 90,605 88,331
Cash provided from (used for) operating assets and liabilities:
Accounts receivable ...................................................... 37,475 88,416 (27,200)
Inventories .............................................................. 9,735 19,376 (23,742)
Accounts payable and accrued liabilities ................................. 363 (87,981) 49,193
Other operating assets and liabilities ................................... 12,959 27,527 (41,527)
Foreign currency transaction (gains) losses .............................. 3,266 (2,196) (6,739)
--------- --------- ---------
Net cash provided from operating activities .................................... 62,274 321,266 267,278
--------- --------- ---------
INVESTING ACTIVITIES
Capital expenditures ........................................................... (370,782) (322,436) (286,474)
Sale of property and businesses ................................................ 50,638 47,426 20,109
Purchase of cost investments and businesses .................................... (40,195) (12,650) (5,800)
Sale of available-for-sale securities .......................................... 65,462 417,831 371,058
Purchase of available-for-sale securities ...................................... (75,865) (93,945) (46,513)
Proceeds from held-to-maturity investments ..................................... 245,246 1,036 42,455
Purchase of held-to-maturity investments ....................................... (62,634) (204,590) (1,002)
--------- --------- ---------
Net cash provided from (used for) investing activities
(188,130) (167,328) 93,833
--------- --------- ---------
FINANCING ACTIVITIES
Debt incurred .................................................................. 523,478 283,024 53,303
Debt repaid .................................................................... (355,371) (218,184) (360,847)
Escrow deposits(withdrawals)on long-term loans ................................. 2,311 (15,364) (10,064)
Treasury stock transactions .................................................... (2,103) (99,561) 1,146
Purchase of minority interests ................................................. (5,688) (7,272) (5,280)
Distributions to minority interests ............................................ (21,519) (49,417) (58,295)
Contributions from minority interests .......................................... -- 1,863 4,000
Dividends paid to common stockholders .......................................... (27,758) (33,604) (34,174)
--------- --------- ---------
Net cash provided from (used for) financing activities
113,350 (138,515) (410,211)
Effect of exchange rate changes on cash ........................................ (5,005) 2,728 3,108
--------- --------- ---------
Increase (decrease) in cash and cash equivalents ............................... (17,511) 18,151 (45,992)
Cash and cash equivalents at beginning of year ................................. 210,559 192,408 238,400
========= ========= =========
Cash and cash equivalents at end of year ....................................... $ 193,048 $ 210,559 $ 192,408
========= ========= =========
</TABLE>
The accompanying notes are an integral part of theses financial statements.
<PAGE>
A-43
<TABLE>
ASARCO Incorporated
and Subsidiaries
CONSOLIDATED STATEMENT OF CHANGES IN
COMMON STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME
<CAPTION>
(Dollars in thousands)
For the years ended December 31, 1998 1997 1996
- -------------------------------- ---- ---- ----
<S> <C> <C> <C>
Common stock
Balance at beginning and end of year
45,039,878 shares $ 679,991 $ 679,991 $ 679,991
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Balance at beginning of year 3,389 59,960 141,496
Current period change (10,378) (56,571) (81,536)
------------------- -------------------- ------------------
Balance at end of year (6,989) 3,389 59,960
------------------- -------------------- -----------------
Retained earnings
Balance at beginning of year 1,168,064 1,062,542 966,193
Net earnings (loss) (130,640) 143,392 138,336
Dividends paid to common stockholders (27,758) (33,604) (34,174)
Treasury stock issued at less than cost (40) (4,266) (7,813)
------------------- -------------------- ------------------
Balance at end of year 1,009,626 1,168,064 1,062,542
------------------- -------------------- ------------------
Treasury stock
Balance at beginning of year (157,571) (65,548) (80,214)
Purchased (2,517) (101,366) (568)
Used for corporate purposes 2,053 9,343 15,234
------------------- -------------------- ------------------
Balance at end of year (158,035) (157,571) (65,548)
------------------- -------------------- ------------------
1998 - 5,388,155 shares
1997 - 5,377,339 shares
1996 - 2,216,015 shares
Total common stockholders' equity $1,524,593 $1,693,873 $1,736,945
=================== ==================== ==================
- ------------------------------------------------------------------------------------------------------------------------------------
NET EARNINGS (LOSS) $ (130,640) $ 143,392 $ 138,336
OTHER COMPREHENSIVE INCOME (LOSS)
Foreign currency translation adjustments (193) (11,914) (6,247)
Unrealized gains(losses)on securities:
Unrealized holding gains(losses)
arising during period (5,444) 7,230 (56,891)
Tax (expense) benefit 1,906 (2,530) 19,912
Less: reclassification of gains
to net earnings (loss) 10,226 75,934 58,938
Tax expense (3,579) (26,577) (20,628)
=================== ==================== ==================
COMPREHENSIVE INCOME (LOSS) $ (141,018) $ 86,821 $ 56,800
=================== ==================== ==================
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
A-44
ASARCO Incorporated and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Summary of Significant Accounting Policies
Principles of Consolidation: The consolidated financial statements of Asarco
Incorporated and subsidiaries include all wholly-owned and significant
majority-owned subsidiaries. Investments over which the Company has significant
influence but does not have voting control are accounted for by the equity
method. Certain prior year amounts have been reclassified to conform to the
current year presentation.
Use of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash Equivalents: Cash equivalents include all highly liquid investments with a
maturity of three months or less, when purchased.
Marketable Securities: Marketable securities include short-term liquid
investments with a maturity of more than three months, when purchased, and are
carried at cost, which approximates market.
Inventories: Company-owned metals processed by domestic smelters and refineries
are valued at the lower of last-in, first-out (LIFO) cost or market. Southern
Peru Copper Corporation (SPCC) in-process and refined metal inventories are
valued at the lower of average cost or market. All other inventories are valued
at the lower of first-in, first-out (FIFO) or average cost or market.
Property: Assets are valued at cost or net realizable value. In accordance with
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets To Be Disposed Of," the Company reviews long-lived assets,
certain identifiable intangibles and goodwill related to those assets for
impairment whenever events or changes in circumstances indicate that the
carrying amount of the assets may not be recoverable. Any impairment loss on
such assets, as well as long-lived assets and certain identifiable intangibles
to be disposed of, is measured as the amount by which the carrying value of the
assets exceeds the fair value of the assets (less disposal costs, if
applicable).
The Company evaluates the carrying value of assets based on undiscounted future
cash flows and for its metals segment also considers expected metal prices based
on historical metal prices and price trends.
Betterments, renewals, costs of bringing new mineral properties into production,
and the cost of major development programs at existing mines are capitalized as
mineral land. Maintenance, repairs, normal development costs at existing mines,
and gains or losses on assets retired or sold are reflected in earnings as
incurred. Plant assets are depreciated over their estimated useful lives,
generally by the units-of-production method. Depreciation and depletion of mine
assets are computed generally by the units-of-production method using proven and
probable ore reserves. SPCC computes depreciation on its buildings and equipment
using the straight-line method over estimated lives from 5 to 40 years, or the
estimated life of the mine, if shorter.
Goodwill is amortized over the mine life up to a maximum of 40 years on a
units-of-production basis or up to 40 years on a straight-line basis, for
non-mining assets.
<PAGE>
A-45
Revenue Recognition: Most of the Company's copper is sold as refined metal under
annual contracts or on a spot sale basis. The balance of the Company's copper
and all of its zinc production are sold in the form of concentrates under
contracts of one to three years duration. Silver and gold are sold under monthly
contracts or in spot sales. Revenue is recognized primarily in the month product
is shipped to customers based on prices provided in sales contracts. When the
price is not determinable at the time of shipment to customers, revenue is
recognized based on prices prevailing at the time of shipment with final pricing
generally occurring within three months of shipment. Revenues with respect to
these sales are adjusted in the period of settlement to reflect final pricing
and in periods prior to settlement to reflect any decline in market prices which
may occur between shipment and settlement.
Hedging Activities: 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.
Diesel fuel swap agreements limit the effect of increases in the price of diesel
fuel. The differential to be paid or received as diesel fuel prices change is
recorded as a component of cost of sales.
Exploration: Tangible and intangible costs incurred in the search for mineral
properties are charged against earnings when incurred.
Environmental Remediation Costs: The Company provides for costs associated with
environmental remediation obligations when such costs are probable and
reasonably estimable and generally not later than completion of the remediation
feasibility study. Such accruals are adjusted as new information develops or
circumstances change and are not discounted. Recoveries of environmental
remediation costs from other parties are recorded as assets when the recovery is
deemed probable. The Company applies Statement of Position 96-1, "Environmental
Remediation Liabilities" (SOP 96-1) which provides authoritative guidance on
specific accounting issues in connection with recognizing, measuring and
disclosing environmental remediation liabilities.
Taxes on Income: Deferred income taxes reflect the future tax consequences of
differences between the tax bases of assets and liabilities and their financial
reporting amounts at each year end. No U.S. deferred income taxes have been
provided for the income tax liability which would be incurred on repatriation of
the undistributed earnings of the Company's consolidated foreign subsidiaries
and the undistributed earnings of SPCC prior to 1993 because the Company intends
indefinitely to reinvest these earnings outside the United States.
<PAGE>
A-46
Subsidiary Stock Issuance: Gains or losses arising from the sale of previously
unissued shares to an unrelated party by a subsidiary are recognized in net
earnings to the extent that the net book value of the shares owned by the parent
after the sale exceeds or is lower than the net book value per share immediately
prior to the sale of the shares by the subsidiary.
Stock Based Compensation: The Company applies the disclosure only provisions of
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation."
Impact of New Accounting Standards: In March 1998, the American Institute of
Certified Public Accountants' Accounting Standards Executive Committee issued
Statement of Position No. 98-1 "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use." This statement which is effective for
fiscal years beginning after December 15, 1998, provides guidance on accounting
for the costs of computer software developed or obtained for internal use. This
statement will not have a material impact on the Company's financial statements.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities." This statement
which is effective for fiscal years beginning after June 15, 1999, establishes
accounting and reporting standards for derivative instruments and hedging
activities. The Company is currently assessing the impact of this statement.
(2) Interest in Southern Peru Copper Corporation
Included in Consolidated Financial Statements:
On April 5, 1995, the Company acquired a 10.7% interest in SPCC for $116.4
million, increasing its ownership from 52.3% to 63.0%. The additional shares
acquired enabled the Company to elect a majority of the directors of SPCC. As a
result, the Company consolidated SPCC in its financial statements based on its
52.3% ownership, effective January 1, 1995, and 63.0% ownership, effective April
5, 1995. The Company previously accounted for its investment in SPCC by the
equity method.
Common Share Exchange Offer:
On December 29, 1995, SPCC completed an offer to exchange its common stock, par
value of $0.01 per share, for any and all labor shares of the Peruvian Branch of
SPCC. These labor shares, which are traded on the Lima Stock Exchange,
represented a 17.3% interest in the Peruvian Branch which comprises
substantially all of the operations of SPCC in Peru. The offer allowed holders
of the labor shares in the Branch to exchange four Series-1 Labor shares or five
Series-2 Labor shares for one share of common stock. Common shares are entitled
to one vote per share. In connection with the offering, the Company exchanged
its shares of SPCC for Class A shares which are entitled to five votes per
share. As a result of this transaction, Asarco's equity interest in SPCC was
reduced to approximately 54.0%, the Company's economic interest in the net
assets of SPCC, net of the remaining labor share interest was 52.3% and the
Company's voting interest in SPCC was 61.0% at December 31, 1995. The common
shares issued in exchange for the labor shares are listed on both the New York
Stock Exchange and Lima Stock Exchange. The exchange of common shares for labor
shares was accounted for by SPCC as a purchase of a minority interest.
<PAGE>
A-47
The Company's equity interest in SPCC was 54.3% at December 31, 1998 and 54.1%
at December 31, 1997 and 1996 and its voting interest was 63.1%, 63.1% and 62.6%
at December 31, 1998, 1997 and 1996, respectively. The Company's beneficial
economic interest in the operations of SPCC, net of the remaining labor shares
interest, was 53.2%, 53.0% and 52.6% at December 31, 1998, 1997 and 1996,
respectively.
<TABLE>
(3) Other Income (Expense)
<CAPTION>
For the years ended December 31, 1998 1997 1996
---- ---- ----
(in millions)
<S> <C> <C> <C>
Interest income $ 18.1 $ 20.7 $ 20.0
Equity earnings 4.2 8.9 4.5
Dividends from investments 2.6 5.4 5.3
Insurance recovery-SPCC 5.3 - -
Other (1.4) (1.2) (0.7)
================= ================= ================
Total $ 28.8 $ 33.8 $ 29.1
================= ================= ================
</TABLE>
(4) Taxes on Income
Certain subsidiaries that have been consolidated for financial reporting
purposes, principally SPCC, are not includible in Asarco's consolidated federal
income tax return. The following tables combine the separate provisions for
income taxes that have been determined for each company, in accordance with SFAS
No. 109:
Earnings (loss) before taxes on income and minority interests were:
<TABLE>
<CAPTION>
For the years ended December 31, 1998 1997 1996
---- ---- ----
(in millions)
<S> <C> <C> <C>
Domestic operations $ (258.8) $ 42.9 $ 40.3
Foreign operations 101.8 264.7 286.9
=====================================================
Total $ (157.0) $ 307.6 $ 327.2
=====================================================
</TABLE>
Tax Expense (Benefit):
The components of the provision (benefit) for taxes on income were:
<TABLE>
<CAPTION>
For the years ended December 31, 1998 1997 1996
---- ---- ----
(in millions)
<S> <C> <C> <C>
U.S. Federal:
Current $ 2.7 $ 24.4 $ 3.4
Deferred (87.7) (4.8) 14.5
-------------------------------------------
U.S. Federal (85.0) 19.6 17.9
-------------------------------------------
Foreign and State:
Current 17.7 61.3 70.9
Deferred 14.3 (7.3) 11.8
-------------------------------------------
Foreign and State 32.0 54.0 82.7
===========================================
Total income tax $(53.0) $ 73.6 $100.6
===========================================
</TABLE>
<PAGE>
A-48
Total taxes paid were: 1998 - $19.1 million; 1997 - $54.2 million; 1996 - $134.4
million.
<TABLE>
Reconciliation of Statutory Income Tax Rate:
<CAPTION>
For the years ended December 31, 1998 1997 1996
----- ---- ----
<S> <C> <C> <C>
U.S. statutory income tax rate (35.0%) 35.0% 35.0%
Adjustment for entities for which no U.S. tax
is required (5.2) (2.3) (1.1)
Percentage depletion (5.8) (9.5) (9.6)
Dividends from non-includible subsidiaries 6.6 11.4 10.4
Dividends received deduction (5.3) (9.4) (8.5)
Foreign taxes 19.4 16.9 24.6
Foreign tax credit (10.6) (13.5) (20.5)
Reversal of taxes previously accrued - (2.1) -
Other 2.1 (2.6) 0.4
---------------------------------------------
Effective income tax rate (33.8%) 23.9% 30.7%
=============================================
</TABLE>
Deferred Tax Assets (Liabilities):
Temporary differences and carryforwards which give rise to deferred tax assets,
liabilities and related valuation allowances were:
<TABLE>
<CAPTION>
At December 31, 1998 1997
---- ----
(in millions)
<S> <C> <C>
Current:
Reserve for closed plant and environmental matters $ 15.2 $ 7.2
Inventories 6.0 5.3
Other 13.0 6.6
---------------------------------
Net deferred tax asset $ 34.2 $ 19.1
---------------------------------
Noncurrent:
Tax effect of regular net operating losses $ 200.8 $ 119.0
Reserve for closed plant and environmental matters 9.2 22.2
Postretirement benefit obligation 38.1 36.6
Alternative minimum tax credit carryforwards 23.7 39.8
Foreign tax credit carryforwards 23.4 26.1
Previously taxed income 7.3 6.1
Capitalized leases 16.3 21.1
Pension obligation (15.8) (17.5)
Property, plant and equipment (306.7) (314.1)
Investments - Grupo Mexico (12.8) (12.8)
Other (3.9) (7.2)
Valuation allowance for deferred tax assets (35.6) (37.6)
---------------------------------
Net deferred tax liability (56.0) (118.3)
---------------------------------
Total net deferred tax liability $ (21.8) $ (99.2)
=================================
</TABLE>
At December 31, 1998, the Company had $573.7 million of net operating loss
carryforwards which expire, if unused, in years 2008 through 2018 and $23.7
million of alternative minimum tax credits ($12.2 million available solely to
SPCC) which are not subject to expiration. The net operating loss carryforwards
are available solely to Asarco and not to SPCC. The Company believes that,
except for the SPCC credits, it is more likely than not that these carryforwards
will be available to reduce future federal income tax liabilities. Management
can and would implement tax planning strategies to prevent these carryforwards
from expiring. After recording the benefit of these carryforwards, Asarco has a
net deferred tax asset of $33.1 million at December 31, 1998. SPCC has a
separate deferred tax liability of $54.9 million, resulting in a consolidated
net deferred tax liability of $21.8 million. The Company's net operating loss
carryforwards for state purposes are not significant and, therefore, have not
been recorded as deferred tax assets.
<PAGE>
A-49
At December 31, 1998, the foreign tax credit carryforwards available to reduce
possible future U.S. income taxes amounted to approximately $23.4 million
(available solely to SPCC) all of which expire in 2000. Because of both the
expiration dates and the rules governing the order in which such credits are
applied, it is unlikely that these foreign tax credit carryforwards will be
utilized. Accordingly, the Company has recorded a valuation allowance for the
full amount of its foreign tax credit carryforwards.
The decrease in the valuation allowance of $2.0 million from 1997 to 1998 is
attributable to the utilization of foreign tax credits by SPCC in 1998.
In 1997, the Government of Peru approved a reinvestment allowance for a program
of SPCC to expand the Cuajone mine. The reinvestment allowance provided SPCC
with tax incentives in Peru and, as a result, certain U.S. tax credit
carryforwards, for which no benefit had previously been recorded, were realized.
The reduction in the effective tax rate as a result of the reinvestment
allowance for the twelve months ended December 31, 1997, lowered consolidated
tax expense by approximately $14.7 million. Pursuant to the reinvestment
allowance SPCC has received tax deductions in Peru in amounts equal to the cost
of the qualifying property (approximately $245 million). As qualifying property
is acquired, the financial statement carrying value of the qualifying property
is reduced to reflect the benefit associated with the reinvestment allowance
(approximately $73 million). As a result, financial statement depreciation
expense related to the qualifying property will be reduced over its useful life
(approximately 15 years).
U.S. deferred tax liabilities have not been provided on approximately $283.3
million in 1998 ($272.0 million in 1997 and $270.8 million in 1996) of
undistributed earnings of foreign subsidiaries and nonconsolidated companies
more than 50% owned, because assets representing those earnings are permanently
invested. It is not practicable to determine the amount of income taxes that
would be payable upon remittance of assets that represent those earnings. The
amount of foreign withholding taxes that would be payable upon remittance of
assets that represent those earnings is approximately $1.8 million in 1998 ($1.2
million in 1997 and $1.2 million in 1996).
(5) Inventories
<TABLE>
<CAPTION>
At December 31, 1998 1997
---- ----
<S> <C> <C>
(in millions)
Inventories of smelters and refineries at lower of
LIFO cost or market $ 2.3 $ 2.2
Provisional cost of metals received from suppliers
for which prices have not yet been fixed 57.9 56.7
Mine inventories at lower of FIFO cost or market 93.5 88.9
Metal inventory at lower of average cost or market 39.5 45.6
Materials and supplies at lower of average cost or market
124.9 138.2
Other 34.3 30.5
================ ===============
Total $ 352.4 $ 362.1
================ ===============
</TABLE>
Replacement cost exceeds inventories valued at LIFO cost by approximately $74.0
million in 1998 (1997-$86.4 million). Liquidation of LIFO inventories resulted
in pre-tax earnings of $1.6 million in 1998, $16.7 million in 1997 and $5.3
million in 1996.
<PAGE>
A-50
(6) Investments
In 1997 the Company sold 106.3 million shares of Grupo Mexico for proceeds of
$322.5 million, resulting in a pre-tax gain of $73.3 million ($47.6 million
after-tax). A third party has an option to purchase the remaining Grupo Mexico
shares owned by the Company for $78.9 million or $1.40 per share. This fixed
price option expires in August 2001. These shares are carried on the books of
the Company at $50.2 million.
In accordance with the provisions of SFAS No. 115, available-for-sale securities
are carried at fair value. Unrealized gains at December 31, 1998 of $1.5 million
(net of deferred taxes of $0.7 million), compared with unrealized gains of $11.6
million (net of deferred taxes of $6.3 million) at December 31, 1997, were
included as a component of accumulated comprehensive income.
The amortized cost, gross unrealized gains and losses, and fair value of
investment securities available-for-sale and other at cost investments are as
follows:
<TABLE>
<CAPTION>
At December 31, Gross Unrealized Holding
(in millions) Cost Gains (Losses) Fair Value
1998
<S> <C> <C> <C> <C>
Available-for-sale:
Equity securities $ 41.4 $ 3.5 $ (1.5) $ 43.4
Debt securities 24.4 0.3 (0.1) 24.6
Cost investments:
Grupo Mexico 50.2 - - 50.2
Other 3.3 - - 3.3
---------------- ---------------- ---------------- ----------------------
Total $ 119.3 $ 3.8 $ (1.6) $ 121.5
================ ================ ================ ======================
1997
Available-for-sale:
Equity securities $ 25.3 $ 18.0 $ (0.5) $ 42.8
Debt securities 30.3 0.4 - 30.7
Cost investments:
Grupo Mexico 50.2 - - 50.2
Other 3.1 - - 3.1
---------------- ---------------- ---------------- ----------------------
Total $ 108.9 $ 18.4 $ (0.5) $ 126.8
================ ================ ================ ======================
</TABLE>
Gross realized gains on available-for-sale securities in 1998 were $10.2
million, compared with gross realized gains of $76.0 million in 1997 and gross
realized gains of $60.1 million and losses of $1.1 million in 1996. At December
31, 1998, the debt securities have maturity dates ranging from 2000 to 2028. The
average cost method has been used to determine the realized gain or loss on
securities sold.
(7) Property
<TABLE>
<CAPTION>
At December 31, 1998 1997
---- ----
(in millions)
<S> <C> <C>
Buildings and equipment $ 3,744.0 $ 3,682.1
Capital leases-equipment 124.2 123.7
Mineral land 845.0 781.7
Land, other than mineral 70.5 70.4
Other 6.1 6.2
--------------------- ---------------------
Total property 4,789.8 4,664.1
Accumulated depreciation (2,263.2) (2,245.3)
===================== =====================
Property, net $ 2,526.6 $ 2,418.8
===================== =====================
</TABLE>
<PAGE>
A-51
Accumulated depreciation applicable to capitalized leases amounted to $90.3
million in 1998 and $81.6 million in 1997.
In the first quarter of 1998 the Company recorded a charge of $20.0 million to
write down the book value of the Company's Missouri Lead Division (MLD) in
accordance with the provisions of Statement of Financial Accounting Standards
(SFAS) No. 121. The provision reflects the effect of the sale of MLD, which was
concluded in September 1998, on the carrying value of the assets. The Company
realized approximately $55.0 million in cash as a result of the sale, and
retains a royalty interest in the property. In the fourth quarter of 1998, the
Company recorded a charge of $0.5 million in accordance with SFAS No.121 with
respect to the assets of its Black Cloud lead-zinc mine in Leadville, Colorado,
due to the depletion of its ore reserves, and also recorded a $9.8 million
charge for the transfer of SPCC's ownership of the Ilo townsite to its worker
occupants and the city of Ilo, Peru.
(8) 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 $144.4 million at December 31,
1998 and $146.6 at December 31, 1997. The Company anticipates that expenditures
relating to these reserves will be made over the next several years. Net cash
expenditures against these reserves were $67.2 million in 1998, $57.4 million in
1997, and $55.6 million in 1996, respectively.
The effect on pre-tax earnings of environmental and other closed plant charges
was $42.1 million in 1998 ($62.9 million in charges offset by $20.8 million in
anticipated insurance and other recoveries), $22.1 million in 1997 ($52.3
million in charges offset by $30.2 million in anticipated insurance and other
recoveries), and $16.7 million in 1996 ($69.4 million offset by $52.7 million in
anticipated insurance and other recoveries) including $10.0 million for the
effect of the initial application of the American Institute of Certified Public
Accountants' Statement of Position 96-1, "Environmental Remediation
Liabilities".
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 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
<PAGE>
A-52
filed by the Coeur d'Alene Tribe. 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 and certain of its subsidiaries have received notices from EPA and
the United States Forest Service that they and in most cases numerous other
parties are potentially responsible to remediate alleged hazardous substance
releases at certain sites under CERCLA. In addition, the Company and certain of
its subsidiaries are defendants in lawsuits brought under CERCLA or state laws
that seek substantial damages and remediation. Remedial action is being
undertaken by the Company at some of the sites.
Product Litigation
The Company and two subsidiaries, as of December 31, 1998, are defendants in
1,126 lawsuits brought by 10,321 primary and 4,588 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.
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.
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.
<PAGE>
A-53
(9) Debt and Available Credit Facilities
<TABLE>
<CAPTION>
Long-Term Debt
At December 31, 1998 1997
---- ----
(in millions)
<S> <C> <C>
Revolving credit agreements $ 150.0 $ -
Pollution control bonds, 1998/2033 - rates from
5.6% to 8.9% 189.8 155.0
Capital lease obligations, 1998/2007 - rates from
7.3% to 12.0% 48.3 61.8
7.0% Notes due 2001 50.0 50.0
7.375% Notes due 2003 99.7 99.7
7.875% Debentures due 2013 99.7 99.7
8.50% Debentures due 2025 149.0 149.0
6.8% term loan due 2000 15.0 15.0
6.43% EXIM Bank credit agreement 14.6 20.4
CAF credit agreement - 8.9% 19.6 27.5
7.9% Secured Export Notes due 2007 150.0 150.0
8.25% Bonds due 2004 50.0 50.0
Other 6.9 0.6
------------------ ----------------
Total debt 1,042.6 878.7
Less current portion 27.7 28.7
------------------ ----------------
Long-term debt $1,014.9 $ 850.0
================== ================
</TABLE>
Interest paid by the Company (excluding amounts capitalized of $12.5 million in
1998, $5.5 million in 1997 and $2.8 million in 1996) was $70.9 million in 1998,
$74.4 million in 1997 and $78.1 million in 1996.
Maturities of debt instruments and future minimum payments under capital leases
are:
<TABLE>
<CAPTION>
At December 31, Debt Instruments Capital Leases
---------------- --------------
(in millions)
<S> <C> <C>
1999 $ 14.4 $ 16.6
2000 44.4 27.6
2001 74.3 4.3
2002 103.9 2.6
2003 185.2 1.4
Thereafter 572.1 3.6
Less interest - (7.8)
--------------------------------- ---------------------------
Total $ 994.3 $ 48.3
================================== ===========================
</TABLE>
The Company has two revolving credit agreements that permit borrowings of up to
$800 million, of which $150 million was drawn at December 31, 1998. One facility
for $300 million expires in May 2003 and the other facility for $500 million
expires in May 2002. The borrowings bear interest based on LIBOR, the CD rate or
the prime rate. Rates may vary based upon the Company's debt rating. Facility
fees are payable on the full amount of the $300 million and $500 million
revolving credit agreements at 0.2% and 0.175% per annum, respectively.
Under the most restrictive terms of the credit agreements, the Company must
maintain a tangible net worth, as defined, of at least $1 billion. Tangible net
worth, as defined, was $1.5 billion at December 31, 1998. In accordance with the
most restrictive covenants of these agreements, additional indebtedness of
$560.4 million would have been permitted as of December 31, 1998.
In April 1997, SPCC entered into a $600 million seven-year credit agreement with
a group of international financial institutions. The agreement consists of a
$400 million term loan facility and a $200 million revolving credit facility.
The interest rate during the first three years of the agreement on any loans
outstanding is LIBOR plus 1.75% per annum for term loans and LIBOR plus 2.00%
<PAGE>
A-54
for revolving credit loans. A commitment fee of 0.5% per annum is payable on the
undrawn portion of the facility. No amounts have been drawn by SPCC under this
agreement as of December 31, 1998. Under the most restrictive covenants of
SPCC's loan agreements, additional indebtedness of $874.4 million would have
been permitted as of December 31, 1998.
In May 1997, SPCC privately placed $150 million of Secured Export Notes in the
United States and international markets. These notes were issued with an average
maturity of seven years and a final maturity in 2007 and were priced at par with
a coupon rate of 7.9%. In addition, in June 1997 SPCC sold $50 million of 8.25%
bonds due June 2004 to investors in Peru.
Some of SPCC's financing agreements contain covenants which limit the payment of
dividends to stockholders. Under the most restrictive covenant, SPCC may pay
dividends to stockholders equal to 50% of its net income for any fiscal quarter
as long as such dividends are paid by June 30 of the following year. As a
result, at December 31, 1998, $588.4 million of SPCC's net assets included in
the Company's consolidated net assets are unavailable for payment of dividends.
In July 1995, the Company entered into a term loan agreement for $15 million
maturing in August 2000. Concurrent with the term loan, the Company entered into
a five year interest rate swap agreement resulting in a fixed rate of 6.8% on
the principal amount.
In January 1998, the Company completed a refinancing of three tax exempt debt
issues and called for the redemption of the existing bonds. The aggregate
principal amount of the refinancing was $132.8 million. The refinancing is
expected to reduce the Company's annual interest costs by approximately $3.3
million. In October 1998, the Company completed a refunding of tax exempt debt
of $22.2 million, which was due to expire in December 1998. The terms of the
refunding extend the maturity of the debt to 2018 at an interest rate of 5.6%.
In November 1998, the Company completed a new tax exempt debt issue of $34.8
million with a coupon rate of 5.85% maturing in 2033.
Consolidated debt includes the debt of SPCC, none of which is guaranteed by
Asarco.
The weighted average interest rate on short term borrowings was 6.0% at December
31, 1998 and 7.4% at December 31, 1997.
(10) Commitments
The Company has entered into several sale-leaseback agreements of mining
equipment and has options to purchase this equipment. The options are at fixed
prices prior to expiration of the leases and at fair market value upon
expiration. The leasebacks have been accounted for as operating leases.
The book value and associated depreciation of the equipment sold have been
removed from the Company's property accounts. Any profit on the sale has been
deferred and will be amortized into net earnings in proportion to the rental
charged over the lease term.
<PAGE>
A-55
Minimum future rental payments under non-cancelable operating leases having
remaining terms in excess of 1 year as of December 31, 1998 for each of the next
5 years and in the aggregate are:
<TABLE>
<CAPTION>
Year Amount (in millions)
- ---- --------------------
<S> <C>
1999 $ 24.7
2000 23.5
2001 22.4
2002 19.9
2003 19.6
Thereafter 102.7
--------------------------------------
Total $212.8
======================================
</TABLE>
Total rental expense was $24.3 million in 1998, $14.6 million in 1997 and $13.3
million in 1996.
As a result of its $1 billion expansion program, SPCC's electric power
requirements will increase significantly requiring the construction of
substantial additional generating capacity. In the second quarter of 1997, SPCC
sold its existing power plant to an independent power company. In connection
with the sale, a power purchase agreement was also completed, under which SPCC
agreed to purchase its power needs for the next twenty years.
(11) Stockholders' Equity
The Company purchased 21,031 of its common shares in 1998 (3,371,618 shares in
1997 and 17,364 shares in 1996). In 1998, 10,314 common shares (210,294 shares
in 1997 and 270,474 shares in 1996) were used for employee benefit plans.
Retained earnings at December 31, 1998 includes undistributed earnings of $19.5
million for investments in 50% or less owned entities previously or currently
accounted for by the equity method.
Accumulated other comprehensive income balances were as follows:
<TABLE>
<CAPTION>
Foreign currency Accumulated other
Unrealized gain translation comprehensive
(in thousands) on securities adjustments income (loss)
---------------------------- ---------------------------- -----------------------------
<S> <C> <C> <C>
December 31, 1998
Beginning balance $ 11,654 $ (8,265) $ 3,389
Current period change (10,185) (193) (10,378)
============================ ============================ =============================
Ending balance $ 1,469 $ (8,458) $ (6,989)
============================ ============================ =============================
December 31, 1997
Beginning balance $ 56,311 $ 3,649 $ 59,960
Current period change (44,657) (11,914) (56,571)
============================ ============================ =============================
Ending balance $ 11,654 $ (8,265) $ 3,389
============================ ============================ =============================
December 31, 1996
Beginning balance $131,600 $ 9,896 $141,496
Current period change (75,289) (6,247) (81,536)
============================ ============================ =============================
Ending balance $ 56,311 $ 3,649 $ 59,960
============================ ============================ =============================
</TABLE>
Stock Options: The Company has three stockholder approved plans, the 1996 Stock
Incentive Plan, a Stock Incentive Plan prior to 1996 and a Stock Option Plan.
The 1996 Stock Incentive Plan replaced the prior Stock Incentive Plan which in
turn had replaced the Stock Option Plan. Future options can only be granted
under the 1996 Stock Incentive Plan. Unexpired options issued under prior plans
will continue to be governed by, and exercised under the Stock Option Plan and
the Stock Incentive Plan. The 1996 Stock Incentive Plan provides for the
<PAGE>
A-56
granting of nonqualified stock options, Incentive Stock Options, as defined
under the Internal Revenue Code of 1986, as amended, as well as limited rights,
restricted stock, bonuses or other compensation payable in stock, other stock
based awards and dividend equivalents. The price at which options may be granted
under the 1996 Stock Incentive Plan shall not be less than 100% of the fair
market value of the Common Stock, on the date of grant. In general, options
expire after 10 years and are not exercisable for six months from the date of
grant. Compensation cost charged against earnings for restricted stock awards
under the above plans was $1.0 million in 1998, $1.0 million in 1997 and $1.1
million in 1996. Retained earnings have been reduced by $6.9 million at December
31, 1998 ($8.4 million at December 31, 1997) for unearned compensation related
to restricted stock awards.
The Company has adopted the disclosure-only provisions of Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation."
Accordingly, no compensation cost has been recognized for awards under the 1996
Stock Incentive Plan. If compensation cost for the Company's 1996 Stock
Incentive Plan had been determined based on the fair value at the grant date for
awards in 1998, 1997, and 1996 consistent with the provisions of SFAS No. 123,
the Company's net earnings and earnings per share would have been reduced to the
pro forma amounts indicated below:
<TABLE>
<CAPTION>
(in millions, except per share amounts) 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net earnings (loss) - as reported $(130.6) $ 143.4 $ 138.3
Net earnings (loss) - pro forma $(132.9) $ 141.0 $ 136.7
Earnings (loss) per share (Basic)-as reported $ (3.29) $ 3.42 $ 3.24
Earnings (loss) per share (Diluted)-as reported $ (3.29) $ 3.42 $ 3.23
Earnings (loss) per share (Basic)- pro forma $ (3.35) $ 3.36 $ 3.20
Earnings (loss) per share (Diluted)- pro forma $ (3.35) $ 3.36 $ 3.20
For purposes of computing earnings per share, basic and diluted, the dilutive
effect of stock options on common shares outstanding is as follows:
Weighted Average Common Shares Outstanding: 1998 1997 1996
---- ---- ----
(in millions)
Basic 39.6 41.9 42.7
Dilutive effect of stock options - 0.1 0.1
------------------ --------------- ----------------
Diluted 39.6 42.0 42.8
================== =============== ================
</TABLE>
The fair value of each option grant is estimated on the date of grant using a
Black-Scholes option-pricing model with the following assumptions used for
grants in 1998: dividend yield of 3.2% (2.9% - 1997, 2.6% - 1996); expected
volatility of 33.0% (29.2% - 1997, 28.4% - 1996); risk-free interest rate of
5.63% (6.5% - 1997, 5.43% - 1996); and expected lives of 7.1 years in 1998, 7.0
in 1997 and 6.9 in 1996.
The total number of shares that may be optioned or awarded under the 1996 Stock
Incentive Plan is 317,845 shares as of December 31, 1998, (478,165 shares at
December 31, 1997) plus an additional number of shares on January 1 of each
calendar year for the 10 year duration of the 1996 Stock Incentive Plan equal to
one percent of the number of shares of the Company's common stock outstanding on
<PAGE>
A-57
the immediately preceding December 31. The weighted average remaining
contractual life of stock options outstanding as of December 31, 1998 was 6.7
years. Stock option activity over the past three years under the Stock Incentive
Plan and Stock Option Plan was:
<TABLE>
<CAPTION>
Weighted
Number of Average Option Price
Shares Price (range per share)
<S> <C> <C> <C> <C>
Outstanding at
January 1, 1996 782,969 $26.60 $20.57 to $32.57
Granted 253,000 $31.20 $31.13 to $34.38
Exercised (39,306) $26.01 $20.57 to $29.19
Canceled or expired (6,300) $25.85 $20.57 to $31.13
---------------------
Outstanding and
exercisable at
January 1, 1997 990,363 $27.81 $22.31 to $34.38
Granted 370,450 $27.49 $27.50 to $31.97
Exercised (71,815) $26.47 $22.31 to $29.19
Canceled or expired (24,600) $27.14 $22.31 to $31.13
---------------------
Outstanding at
January 1, 1998
(1,259,398 exercisable) 1,264,398 $27.88 $22.31 to $34.38
Granted 507,925 $21.67 $19.94 to $26.84
Exercised (17,394) $23.80 $22.31 to $26.13
Canceled or expired (33,680) $26.64 $21.58 to $31.13
---------------------
Outstanding at
December 31, 1998
(1,607,154 exercisable) 1,721,249 $26.12 $19.94 to $34.38
</TABLE>
In 1989, the Company adopted a Shareholder Rights Plan, which expires on August
7, 1999, and declared a dividend of one Right for each of its common shares. In
January 1998, the Company adopted a new Shareholder Rights Plan, with certain
minor modifications, for an additional ten year period effective upon the
earlier of the expiration of the existing Rights Plan or the redemption of the
existing Rights. In certain circumstances, if a person or group becomes the
beneficial owner of 15% or more of the outstanding common shares, with certain
expectations, these Rights vest and entitle the holder to certain share purchase
rights. In connection with the Rights dividend, 800,000 shares of Junior
Participating Preferred Stock were authorized for issuance upon exercise of the
Rights.
(12) Benefit Plans
Pension benefits:
The Company maintains several noncontributory, defined benefit pension plans
covering substantially all domestic employees. Benefits for salaried plans are
based on salary and years of service. Hourly plans are based on negotiated
benefits and years of service.
The Company's funding policy is to contribute amounts to the plans sufficient to
meet the minimum funding requirements set forth in the Employee Retirement
Income Security Act of 1974, plus such additional tax deductible amounts as may
be advisable under the circumstances. Plan assets are invested principally in
commingled stock funds, mutual funds and securities issued by the United States
Government.
<PAGE>
A-58
The components of net periodic benefit costs are as follows:
<TABLE>
<CAPTION>
For the years ended December 31, 1998 1997 1996
---- ---- ----
(in millions)
<S> <C> <C> <C>
Service cost $ 9.7 $ 9.1 $ 8.6
Interest cost 14.0 12.6 11.0
Expected return on plan assets (20.2) (17.0) (13.9)
Amortization of prior service cost 2.3 2.2 1.6
Amortization of transitional obligation 0.5 0.5 0.5
Recognized actuarial loss - 0.3 0.7
--------------- -------------- ---------------
Net periodic benefit cost $ 6.3 $ 7.7 $ 8.5
============== ============== ===============
</TABLE>
The change in benefit obligation and plan assets and a reconciliation of funded
status are as follows:
<TABLE>
<CAPTION>
At December 31, 1998 1997
---- ----
(in millions)
<S> <C> <C>
Change in Benefit Obligation
Projected benefit obligation at beginning of year $ 202.9 $ 181.3
Service cost 9.7 9.1
Interest cost 14.0 12.6
Plan amendments 1.1 3.1
Benefits paid (5.9) (7.0)
Actuarial loss 0.8 3.8
--------------------------------
Projected benefit obligation at end of year $ 222.6 $ 202.9
================================
Change in Plan Assets
Fair value of plan assets at beginning of year $ 226.3 $ 178.1
Actual return on plan assets 37.2 41.5
Plan amendment - 2.5
Employer contributions 1.5 11.7
Benefits paid (5.9) (7.0)
Administrative expenses (1.0) (0.5)
--------------------------------
Fair value of plan assets at end of year $ 258.1 $ 226.3
================================
Reconciliation of Funded Status
Funded status $ 35.5 $ 23.4
Unrecognized actuarial gain (27.1) (11.9)
Unrecognized transition obligation 1.9 2.4
Unrecognized prior service cost 15.2 16.4
================================
Net amount of asset reflected in consolidated
balance sheet $ 25.5 $ 30.3
================================
Weighted Average Assumptions
Discount rate 7.0% 7.0%
Expected long-term rate of return on plan
assets 10.0% 10.0%
Rate of compensation increase 4.0% 4.0%
</TABLE>
Postretirement benefits:
Noncontributory postretirement health care coverage under the Asarco Health Plan
is provided to substantially all U.S. retirees not eligible for Medicare. A cost
sharing Medicare supplement plan is available for retired salaried employees and
life insurance coverage is provided to substantially all retirees.
<PAGE>
A-59
The components of net periodic benefit costs are as follows:
<TABLE>
<CAPTION>
For the years ended December 31, 1998 1997 1996
----- ---- ----
(in millions)
<S> <C> <C> <C>
Service cost $ 3.5 $ 3.6 $ 3.5
Interest cost 8.6 8.2 8.1
Amortization of prior service cost (0.1) 0.1 0.1
Recognized actuarial loss 1.4 1.2 1.3
====================================================
Net periodic benefit cost $ 13.4 $ 13.1 $ 13.0
====================================================
</TABLE>
The change in benefit obligation and plan assets and a reconciliation of funded
status are as follows:
<TABLE>
<CAPTION>
At December 31, 1998 1997
---- ----
(in millions)
Change in Benefit Obligation
<S> <C> <C>
Benefit obligation at beginning of year $ 124.4 $ 122.7
Service cost 3.5 3.6
Interest cost 8.6 8.2
Plan amendments (1.7) 0.7
Benefits paid (8.9) (8.0)
Actuarial (gain) loss 5.3 (2.8)
=====================================
Benefit obligation at end of year $ 131.2 $ 124.4
=====================================
Reconciliation of Funded Status
Funded status $(131.2) $(124.4)
Unrecognized actuarial loss 23.5 19.3
Unrecognized prior service cost (1.0) 0.6
-------------------------------------
Postretirement benefit obligation reflected in
consolidated balance sheet $(108.7) $(104.5)
=====================================
Weighted Average Assumptions
Discount rate 7.0% 7.0%
Expected long-term rate of return on plan assets N/A N/A
Rate of compensation increase 4.0% 4.0%
</TABLE>
The annual assumed rate of increase in the per capita cost of covered benefits
(i.e., health care cost trend rate) is assumed to be 5.0% in 1999 and
thereafter. The health care cost trend rate assumption has a significant effect
on the amounts reported. For example, increasing the assumed health care cost
trend rates by one percentage point would increase the accumulated
postretirement benefit obligation by $12.5 million and the service and interest
cost components of net periodic postretirement benefit costs by $1.4 million for
1998. Decreasing the assumed health care cost trend rates by one percentage
point in each year would decrease the accumulated postretirement benefit
obligation and the service and interest cost components of net periodic
postretirement benefit costs for 1998 by $11.2 million and $1.2 million
respectively. The discount rate used in determining the accumulated
postretirement benefit obligation was 7% at December 31, 1998 and 1997. The
plans are unfunded.
Employee Savings Plan:
The Company maintains employee savings plans for salaried and hourly employees
which permit employees to make contributions by payroll deductions pursuant to
section 401(k) of the Internal Revenue Code. The Company matches contributions
up to 3% of compensation. In connection with the required match, the Company's
contributions charged against earnings were $4.6 million in 1998, $4.6 million
in 1997 and $4.5 million in 1996.
<PAGE>
A-60
(13) Business Segments
The Company applies SFAS No. 131, "Disclosure About Segments of an Enterprise
and Related Information." This statement establishes standards for reporting
information about operating segments and related disclosures about products and
services, geographic areas, and major customers. Prior year amounts have been
restated to conform to the current year presentation.
The Company's copper segment includes integrated mining, smelting and refining
operations in North America and in Peru, through its subsidiary, Southern Peru
Copper Corporation. The Company's lead, zinc and precious metals segment
consists of a fully integrated lead business in Missouri, which was sold in
September 1998, a custom lead smelting business, a silver mining business and a
zinc mining business.
Enthone-OMI, a wholly-owned subsidiary, operates a world-wide specialty
chemicals business focused on functional and decorative coatings for the
electronics and metal finishing industries. American Limestone Company, a
wholly-owned subsidiary, produces construction aggregates.
The Company also maintains an active exploration effort focused on the
identification and acquisition of advanced gold, copper and silver exploration
projects. The segment labeled "All Other" includes environmental services, a
specialty metals business, and income and expenses associated with facilities
previously operated by the Company. The Company's reportable segments are
separately managed strategic business units that offer different products and
services.
The accounting policies of the segments are described in the summary of
significant accounting policies. The Company evaluates segment performance based
on operating income or loss plus the equity in the net earnings of investments
accounted for by the equity method attributable to each segment, where
applicable. Corporate and general administrative expenses are allocated among
the segments generally in proportion to operating expenses. Identifiable assets
are those directly used in the operations of each segment. Unallocated corporate
assets are principally cash, marketable securities, and investments. There can
be no assurance that operations and assets of the Company subject to the
jurisdiction of foreign governments will not be affected adversely by future
actions by such governments.
<TABLE>
<CAPTION>
Business Segments - Sales
For the years ended December 31, 1998 1997 1996
(in millions)
<S> <C> <C> <C>
By Reportable Segment
Copper $1,576 $2,022 $1,968
Lead, Zinc & Precious Metals 238 304 357
Specialty Chemicals 351 324 319
Aggregates 57 54 47
All Other 11 17 26
--------------- -------------- ---------------
Total $2,233 $2,721 $2,717
=============== ============== ===============
By Country (a)
United States $1,226 $1,501 $1,529
Japan 155 219 245
United Kingdom 139 146 153
Italy 134 166 147
Germany 100 77 54
The Netherlands 79 109 122
Foreign - Other 400 503 467
--------------- -------------- ---------------
Total $2,233 $2,721 $2,717
=============== ============== ===============
<PAGE>
A-61
<FN>
(a) Revenues are attributed to countries based on location of customer.
</FN>
</TABLE>
<TABLE>
Business Segments - Earnings
<CAPTION>
For the years ended December 31, 1998 1997 1996
(in millions)
<S> <C> <C> <C>
By Reportable Segment (a),(b)
Copper (c) $ (31) $315 $326
Lead, Zinc & Precious Metals (d) (63) (15) (11)
Specialty Chemicals(e) 29 29 24
Aggregates 15 14 10
Exploration (17) (32) (27)
All Other (f) (47) (27) (14)
--------------- -------------- ---------------
Total $(114) $284 $308
Interest and other (39) 33 23
Less: Equity Earnings (4) (9) (4)
=============== ============== ===============
Earnings before taxes on income and minority
interests $(157) $308 $327
--------------- -------------- ---------------
Depreciation and Depletion
Copper $ 124 $108 $ 99
Lead, Zinc & Precious Metals 11 17 14
Specialty Chemicals 4 3 3
Aggregates 3 3 2
All Other 3 - 1
--------------- -------------- ---------------
Total $ 145 $131 $119
=============== ============== ===============
Equity in results of non-consolidated companies
Copper $ 1 $ 1 $ 1
Lead, Zinc & Precious Metals - 3 (1)
Specialty Chemicals 3 5 4
--------------- -------------- ---------------
Total $ 4 $ 9 $ 4
=============== ============== ===============
<FN>
(a) LIFO profits of $1.6, $16.7 and $5.3 were reported in the Lead, Zinc,
and Precious Metals segment for 1998, 1997 and 1996 respectively.
(b) Includes equity in the net earnings of investees accounted for by the
equity method.
(c) 1998 includes special non-recurring charges of $9.5 in connection with
the three year suspension of operations at the Company's copper
smelter in El Paso, Texas, $10.9 associated with the transfer of
SPCC's ownership of the Ilo townsite to its worker occupants and the
City of Ilo, $10.0 in severance costs related to SPCC's $30 million
cost reduction program, and $4.7 in connection with the Company's cost
reduction program and an increase in reserves for certain employee
benefit plans.
(d) 1998 includes a charge of $20.0 to reflect the sale of MLD, special
non-recurring charges of $9.8 to write down the book value and provide
for closure costs for the Company's Black Cloud lead-zinc mine in
Leadville, Colorado and $1.7 in connection with the Company's cost
reduction program and an increase in reserves for certain employee
benefit plans.
(e) 1998 includes special non-recurring charges of $1.8 for severance in
connection with the Company's cost reduction program.
(f) The All Other segment includes a charge of $32.7 in 1998 for closed
plants and environmental matters.
</FN>
</TABLE>
<PAGE>
A-62
<TABLE>
Business Segments - Identifiable Assets
<CAPTION>
For the years ended December 31, 1998 1997 1996
---- ---- ----
(in millions)
<S> <C> <C> <C>
By Reportable Segment
Copper $ 2,979 $ 3,009 $ 2,810
Lead, Zinc & Precious Metals 344 427 401
Specialty Chemicals 335 263 272
Aggregates 36 32 32
Exploration 21 15 11
All Other 159 153 123
--------------- -------------- ---------------
Total Reportable Segments $ 3,874 $ 3,899 $ 3,649
Unallocated corporate assets 150 211 471
--------------- -------------- --------------
Total $ 4,024 $ 4,110 $ 4,120
=============== ============== ===============
Long-Lived Assets
United States $ 1,499 $ 1,547 $ 1,820
Peru 1,060 919 872
Foreign - Other 154 142 84
--------------- -------------- ---------------
Total $ 2,713 $ 2,608 $ 2,776
=============== ============== ===============
Equity Method Investments
Copper $ 2 $ 2 $ 2
Lead, Zinc & Precious Metals 9 9 5
Specialty Chemicals 53 50 53
--------------- -------------- ---------------
Total $ 64 $ 61 $ 60
=============== ============== ===============
Capital Expenditures
Copper $ 349 $ 295 $ 233
Lead, Zinc & Precious Metals 6 18 42
Specialty Chemicals 5 4 7
Aggregates 4 3 3
All Other 7 2 1
--------------- -------------- ---------------
Total $ 371 $ 322 $ 286
=============== ============== ===============
</TABLE>
(14) Financial Instruments
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 close as possible to the average monthly market
price during the month the Company makes shipments to customers. Sales contracts
with customers may provide for pricing in a month other than the month of
shipment. For instance, 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 are recognized.
<PAGE>
A-63
At December 31, 1998 and 1997, the Company's aggregate metal futures contract
positions were as follows:
<TABLE>
<CAPTION>
(in thousands)
Notional Unrealized
Weight Values Gain (Loss)
------------------------ --------------------------- -----------------------
1998
<S> <C> <C> <C>
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)
1997
Copper (pounds) 74,950 $ 60,180 $ 2,194
Silver (ounces) 4,300 $ 23,664 $(2,085)
Gold (ounces) 15 $4,320 $ (3)
Lead (pounds) 23,698 $6,914 $ (838)
</TABLE>
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.
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. Earnings include gains from option sales and
exercises, primarily related to copper, of $11.0 million in 1998, $25.8 million
in 1997 and $27.1 million in 1996.
At December 31, 1998, the Company did not hold any put options.
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 December 31, 1998 and 1997, the Company had entered
into the following fuel swap agreements:
<TABLE>
<CAPTION>
Weighted Average
Contract
Quantity Price
Fuel Type Period (Barrels)
- ------------------------------------------------ ----------------------- ----------------------- ----------------------
1998
<S> <C> <C> <C>
Residual Oil 1/99-9/99 1,095,000 $ 9.84
Diesel Fuel 1/99-9/99 564,000 $15.35
1997
Residual Oil 1/98-12/98 540,000 $13.57
Diesel Fuel 1/98-12/98 200,500 $21.17
</TABLE>
<PAGE>
A-64
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 three swap agreements, expiring between
1998 and 2000, with an aggregate notional amount of $115.0 million. During 1998,
two of the interest rate swaps with an aggregate notional amount of $100.0
million expired. At December 31, 1998, the effect of the one remaining interest
rate swap agreement with an aggregate notional amount of $15.0 million is 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 $0.4 million in 1998, $0.6 million in
1997 and $0.7 million in 1996 had the Company not hedged its exposure.
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. Earnings include losses of $0.2 million in
1998 and gains of $0.5 million in 1997 from the sale or exercise of call
options. Earnings also include losses of $1.9 million in 1998, gains of $3.6
million in 1997 and losses of $0.1 million in 1996 from mark to market
adjustments. At December 31, 1998, the Company did not hold any call options.
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 December 31, 1998 and 1997, such
futures positions were not material.
The estimated fair values of the Company's financial instruments are:
<TABLE>
<CAPTION>
At December 31, 1998 1997
(in millions) Carrying Fair Carrying Fair
Value Value Value Value
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents $193.0 $193.0 $ 210.6 $ 210.6
Marketable securities - held to maturity
$ 22.7 $ 22.7 $ 205.3 $ 205.3
Put options - - $ 1.3 $ 14.3
Call options - - $ 0.4 $ 0.4
Fuel Swap Agreements - $ (1.6) - $ (0.5)
Futures Contracts - $ 1.5 - $ (0.7)
Investments:
Available-for-sale securities $ 68.0 $ 68.0 $ 73.5 $ 73.5
Restricted investment in Grupo Mexico (a)
$ 50.2 $ 78.9 $ 50.2 $ 78.9
Other $ 3.3 (b) $ 3.1 (b)
Liabilities:
Long-term debt (excluding capital lease obligations)
$994.3 $960.3 $ 816.9 $ 848.3
Interest rate swaps - $ (0.3) - $ (0.6)
<PAGE>
A-65
<FN>
(a) At December 31, 1998 and 1997, 56.3 million shares of Grupo Mexico were
subject to a fixed price option which limits the sale of the shares for a
period of more than one year. The fair value shown is estimated to be
equal to the exercise price of the option.
(b) No fair value was available for these investments as they represent an
interest in companies whose stock is not publicly traded. Accordingly, it
is not practicable to determine the fair value of such securities.
</FN>
</TABLE>
The following methods and assumptions were used to estimate the fair value of
each type of financial instrument:
Cash and cash equivalents: The carrying amount approximates fair value because
of the short maturity of these instruments.
Marketable securities: The carrying amount and fair value are reported at
amortized cost, which approximates market, since these securities are short term
liquid investments.
Put and call options: Fair value is an estimate based on relevant market
information such as: volatility of similar options, futures prices and the
contracted strike price.
Available-for-sale securities, interest rate and fuel swaps, and futures
contracts: Fair value is based on quoted market prices.
Long-term debt: The fair value is based on the quoted market prices for the same
or similar issues.
<TABLE>
Unaudited Quarterly Data
(in millions, except per share data)
<CAPTION>
1998 1997
---- ----
QUARTERS 1st(b)(c) 2nd 3rd 4th(d)(e) Total 1st 2nd(f)(g) 3rd(h)(i) 4th Total
=============================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sales (a) $614.5 $571.1 $545.6 $501.8 $2,233.1 $715.6 $741.0 $661.3 $603.1 $2,721.0
Operating
Income $(29.7) $(2.8) $6.4 $(91.8) $(118.1) $106.0 $96.5 $ 53.6 $18.6 $274.7
Net earnings $(31.8) $(14.5) $(15.6) $(68.7) $(130.6) $40.6 $51.9 $ 45.8 $5.1 $143.4
Dividends paid
Per common share $0.20 $0.20 $0.20 $0.10 $0.70 $0.20 $0.20 $0.20 $0.20 $0.80
Stock market
Price:
High $26 11/16 $27 1/2 $23 3/4 $23 $27 1/2 $32 1/2 $32 1/4 $34 $31 7/8 $34
Low $20 7/8 $21 1/2 $15 15/16 $15 1/16 $15 1/16 $25 1/8 $26 1/2 $30 $21 3/4 $21 3/4
Net earnings per
share:
Basic $(0.80) $(0.37) $(0.39) $(1.73) $(3.29) $0.95 $1.21 $1.10 $0.13 $3.42
Diluted $(0.80) $(0.37) $(0.39) $(1.73) $(3.29) $0.94 $1.20 $1.09 $0.13 $3.42
<FN>
(a) Sales and cost of sales reflect a $19.0 and $31.1 decrease from
amounts previously reported in the first quarter and second quarter of
1998, respectively. These adjustments had no effect on operating
income or net earnings.
(b) Includes a $10.0 pre-tax charge related to SPCC's $30 million cost
reduction program.
(c) Includes a $20.0 pre-tax charge related to the sale of the Missouri
Lead Division.
<PAGE>
A-66
(d) Includes a $9.5 pre-tax charge for the three year suspension of
operations at the Company's copper smelter in El Paso, Texas, a $9.8
pre-tax charge to write down the book value and provide for the
closure costs of the Company's Black Cloud lead-zinc mine in
Leadville, Colorado, a $10.9 pre-tax charge for the transfer of SPCC's
ownership of the Ilo townsite to its worker occupants and the city of
Ilo, Peru, and a $7.7 pre-tax charge to increase reserves for certain
employee benefit plans and for severance and other costs in connection
with the Company's cost reduction program.
(e) Includes a $33.2 pre-tax charge ($54.0 in charges offset by $20.8 in
anticipated insurance and other recoveries) to increase the Company's
reserves for environmental remediation costs.
(f) Includes a $13.4 after-tax gain, $20.7 pre-tax, on the sale of 43.4
million shares of Grupo Mexico.
(g) Includes a $10.3 after-tax gain, $15.9 pre-tax, as a result of
liquidation of LIFO inventories.
(h) Includes a $34.2 after-tax gain, $52.6 pre-tax, on the sale of the
Company's remaining unrestricted shares in Grupo Mexico.
(i) Includes a $30.0 pre-tax charge to increase reserves for closed plant
and environmental matters, offset entirely by anticipated insurance
settlements.
</FN>
</TABLE>
Metals Price Sensitivity
Assuming that expected metal production and sales are achieved, tax and royalty
rates are unchanged, that the number of shares outstanding is unchanged and
giving no effect to results of other business segments, hedging programs or
changes in the costs of production, metal price sensitivity factors would
indicate the following estimated change in earnings per share resulting from
metal price changes in 1999. Estimates are based on 39.7 million shares
outstanding.
<TABLE>
<CAPTION>
Copper Zinc Silver Molybdenum
<S> <C> <C> <C> <C>
Change in Metal Price 1(cent)/lb. 1(cent)/lb. $1/oz $1/lb.
Annual Change in Earnings per Share 17.2(cent) 1.2(cent) 10.9(cent) 15.8(cent)
</TABLE>
<PAGE>
A-67
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of ASARCO Incorporated
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of earnings, cash flows and changes in common
stockholders' equity and comprehensive income present fairly, in all material
respects, the financial position of ASARCO Incorporated and subsidiaries
(collectively the "Company") at December 31, 1998 and 1997, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1998, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
New York, New York
January 26, 1999
<PAGE>
A-68
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None
PART III
Items 10, 11, 12 and 13.
Reference is made to Executive Officers of Asarco and Business Experience During
the Past Five Years on page A26. Information in response to the disclosure
requirements specified by these items appears under the captions and pages of
the 1999 Proxy Statement indicated below:
<TABLE>
<CAPTION>
Proxy Statement
Item Required Information Proxy Statement Section Pages
<S> <C> <C> <C>
10. Directors and Executive Election of Directors 2 - 5
Officers
11. Executive Compensation Committee Report on Executive Compensation
through Option Exercises
and Fiscal Year-End Values 10 - 16
Retirement Plans through
Employment Agreements 18 - 20
12. Security Ownership Security Ownership of Certain Beneficial
Owners through Common Stock Equivalents 6 - 9
13. Certain Relationships
Related Transactions Certain Transactions 20
The information referred to above is incorporated herein by reference.
</TABLE>
<PAGE>
A-69
PART IV
-------
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
- --------------------------------------------------------------------------------
(a) The following documents are filed as part of this report:
1. Financial Statements
The following financial statements of ASARCO Incorporated and its
subsidiaries are included at the indicated pages of the document
as stated below:
<TABLE>
<CAPTION>
Form 10-K Pages
----------------
<S> <C>
Consolidated Statement of Earnings for the years
ended December 31, 1998, 1997 and 1996 A40
Consolidated Balance Sheet at December 31,
1998 and 1997 A41
Consolidated Statement of Cash Flows for the
years ended December 31, 1998, 1997 and 1996 A42
Consolidated Statement of Changes in Common Stockholders' Equity
and Comprehensive Income for the years ended December 31, 1998,
1997 and 1996 A43
Notes to Financial Statements A44-A66
Report of Independent Accountants A67
2. Financial Statement Schedules
Form 10-K
Pages
-----
Schedule II - Valuation and qualifying
Accounts B1-B3
</TABLE>
Schedules other than those listed above are omitted, as they are not required or
are not applicable, or the required information is shown in the financial
statements or notes thereto. Columns omitted from schedules filed have been
omitted because the information is not applicable. Any other information omitted
from schedules filed has been omitted due to immateriality.
<PAGE>
A-70
3. Exhibits
Exhibit
No.
---
3. Certificate of Incorporation and By-Laws
(a) Certificate of Incorporation - restated, filed June 26, 1998
(b) By-Laws as last amended on June 26, 1991
4. Instruments defining the rights of security holders, including
indentures
(a) There are currently various separate indentures, agreements
or similar instruments under which long-term debt of Asarco
is currently outstanding. The Registrant hereby agrees to
furnish to the Commission, upon request, a copy of any of
the instruments which define the rights of holders of
long-term debt securities. None of the outstanding
instruments represent long-term debt securities in excess of
10% of the total assets of Asarco as of December 31, 1998
(b) Form of Rights Agreement dated as of July 26, 1989, between
the Company and First Chicago Trust Company of New York, as
Rights Agent, defining the rights of shareholders under a
July 1989 Shareholders' Rights plan and dividend declaration
(c) Rights Agreement Amendment dated as of September 24, 1992,
between the Company and The Bank of New York, as Successor
Rights Agent under the Rights Agreement listed above
<PAGE>
A-71
(d) Second Rights Agreement Amendment dated as of February 23,
1995, between the Company and The Bank of New York deleting
certain special conditions relating to MIM. The effect of
the amendment is to apply to MIM the same percentage
ownership conditions (15%) that apply to all other
shareholders.
(e) Form of Rights Agreement dated as of January 28, 1998,
between the Company and the Bank of New York, as Rights
Agent, defining the rights of shareholders under a January
1998 Shareholders' Rights plan and dividend declaration. The
effect of the 1998 Rights plan is to extend the 1989 Rights
plan, which expires in 1999.
(f) Indenture Agreement dated as of February 1, 1993, between
the Company and Bankers Trust Company, as Trustee, covering
the issuance of debt securities registered by the Company in
April 1992 not to exceed $250 million
(g) Indenture Agreement dated as of October 1, 1994, between the
Company and Chemical Bank, as Trustee, covering the issuance
of debt securities registered by the Company in October 1994
not to exceed $300 million
10. Material Contracts
(a) Stock Option Plan as amended through November 30, 1994
(b) Form of Amended Employment Agreement dated February 26, 1997,
between the Company and currently 11 of its executive officers,
including Messrs. R. de J. Osborne, F. R. McAllister, K. R.
Morano, R. J. Muth and A. B. Kinsolving
(c) Deferred Fee Plan for Directors, as amended through April 29,
1998
(d) Directors' Deferred Payment Plan, as amended through April 29,
1998
(e) Retirement Plan for Non-Employee Directors, as amended through
January 28, 1998. Effective December 31, 1995, the Company
terminated the plan for current and future directors.
(f) Directors' Stock Award Plan, as amended through January 27, 1993
(g) Stock Incentive Plan adopted by the Company's Shareholders on
April 25, 1990 and as amended through November 29, 1995
(h) Supplemental Pension Plan for Designated Mid-Career Officers, as
amended through April 29, 1998
(i) Incentive Compensation Plan for Senior Officers, effective
January 1, 1996
(j) 1996 Stock Incentive Plan, effective April 24, 1996
(k) Compensation Deferral Plan, as amended through April 29, 1998
(l) Supplemental Retirement Plan as amended through April 29,1998
(m) Consulting Agreement between the Company and Mr. R. de J. Osborne
dated November 24, 1998
11. Statement re Computation of Earnings Per Share
12. Statement re Computation of Ratios
21. Subsidiaries of the Registrant
23. Consent of Independent Accountants
The exhibits listed as 10(a) through (m) above are the management
contracts or compensatory plans or arrangements required to be filed
pursuant to Item 14(c) of Form 10-K.
(b) Exhibits - The exhibits to this Form 10-K are listed on the Exhibit
Index on pages C1 through C3. Copies of the following exhibits are
filed with this Form 10-K:
10(c) Deferred Fee Plan for Directors
10(d) Supplemental Pension Plan for Designated Mid-Career Officers
10(h) Directors' Deferred Payment Plan
10(k) Compensation Deferral Plan
10(l) Supplemental Retirement Plan
10(m)Consulting Agreement between the Company and Mr. R. de J. Osborne
11. Statement re Computation of Earnings Per Share
12. Statement re Computation of Ratios
21. Subsidiaries of the Registrant
23. Consent of Independent Accountants is included on page A72 of
this Annual Report on Form 10-K.
Copies of exhibits may be acquired upon written request to the Treasurer and the
payment of processing and mailing costs.
Individual financial statements of subsidiaries and 50%-or-less owned persons
accounted for by the equity method have been omitted because such subsidiaries
and 50%-or-less owned persons considered in the aggregate as a single subsidiary
would not constitute a significant subsidiary.
<PAGE>
A-72
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and
Stockholders of ASARCO Incorporated
Our audits of the consolidated financial statements referred to in our report
dated January 26, 1999 appearing in this Form 10-K on page A67 also included an
audit of the financial statement schedule which appears on pages B1 through B3
of this Form 10-K. In our opinion, this financial statement schedule presents
fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.
PricewaterhouseCoopers LLP
New York, New York
January 26, 1999
Item 14
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Prospectuses constituting
part of the Registration Statements on Form S-3 (File Nos. 33-45631, 33-55993
and 333-02359) and Form S-8 (File Nos. 2-83782, 2-67732, 33-34606, 333-16875,
333-18083, and 333-46181) of ASARCO Incorporated of our report dated January 26,
1999, on our audit of the consolidated financial statements of Asarco
Incorporated and subsidiaries, which report appears on page A67 of this Annual
Report on Form 10-K. We also consent to the incorporation by reference of our
report on our audit of the financial statement schedule, which appears above.
We also consent to the reference to our Firm as experts in the Prospectuses
referred to in the preceding paragraph only insofar as such reference relates to
our report appearing on page A67 of this Annual Report on Form 10-K and to our
report on the financial statement schedule which appears above.
PricewaterhouseCoopers LLP
New York, New York
March 10, 1999
<PAGE>
A-73
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Date: February 26, 1999
ASARCO Incorporated
(Registrant)
By_/s/ Richard de J. Osborne
(Richard de J. Osborne,
Chairman of the Board and
Chief Executive Officer)
Pursuant to requirements of the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
a) Principal Executive Officer:
/s/ Richard de J. Osborne Chairman of the Board
(Richard de J. Osborne)
(b) Principal Financial Officer:
/s/ Kevin R. Morano Executive Vice President and
(Kevin R. Morano) Chief Financial Officer
(c) Principal Accounting Officer:
/s/ William Dowd Controller
(William Dowd)
(d) Directors:
/s/ Richard de J. Osborne /s/ Willard C. Butcher
(Richard de J. Osborne) (Willard C. Butcher)
/s/ Vincent A. Calarco /s/ James C. Cotting
(Vincent A. Calarco) (James C. Cotting)
/s/ David C. Garfield /s/ E. Gordon Gee
(David C. Garfield) (E. Gordon Gee)
/s/ James W. Kinnear III /s/ Francis R. McAllister
(James W. Kinnear III) (Francis R. McAllister)
/s/ Kevin R. Morano /s/ Martha T. Muse
(Kevin R. Morano) (Martha T. Muse)
/s/ Michael T. Nelligan /s/ John D. Ong
(Michael T. Nelligan) (John D. Ong)
/s/ Manuel T. Pacheco /s/ James Wood
(Manuel T. Pacheco) (James Wood)
Date: February 26, 1999
<PAGE>
B-1
<TABLE>
ASARCO Incorporated
AND SUBSIDIARIES
Schedule II - Valuation and Qualifying Accounts
FOR THE YEAR 1998
(in thousands)
<CAPTION>
Column A Column B Column C Column D Column E
-------- -------- -------- -------- --------
Additions Deductions
--------------------------------------------------------------------------
Charged to
Balance at costs/expenses Charged Balance at
beginning or (credited) to other end of
Description of period to income Description accounts Description Amount period
- ----------- --------- --------- ----------- -------- ----------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Accounts and
notes written
Deducted from assets off, net of
on Balance Sheet: recoveries $1,236
Allowance for Opening Foreign
doubtful accounts balance from currency
acquisition translation
$8,121 $1,503 of new units $739 adjustment $(148) $9,275
====== ====== ===== ====== ======
Net amount
transferred
from noncurrent
Current portion reserve for
of reserves for closed plants
closed plants and and Current
environmental environmental charges to
matters $44,164 matters $76,430 reserves $67,200 $53,394
======= ======= ======= =======
Non-current portion
of reserves for Net amount
closed plants an transferred
environmental to current
matters $102,432 $64,983 liabilities $76,430 $90,985
======== ======= ======= =======
Included in caption
"Other liabilities Charges
and reserves" on Increase in against the
Balance Sheet the reserve for reserve for
Other $43,757 $16,219 Major Repairs Major Repairs $6,929 $53,047
======= ======== ======= =======
</TABLE>
<PAGE>
B-2
<TABLE>
ASARCO Incorporated
AND SUBSIDIARIES
Schedule II - Valuation and Qualifying Accounts
FOR THE YEAR 1997
(in thousands)
<CAPTION>
Column A Column B Column C Column D Column E
-------- -------- -------- -------- -------
Additions Deductions
------------------------------------------------------------------------
Charged to
Balance at costs/expenses or Charged Balance at
beginning (credited) to other end of
Description of period to income Description accounts Description Amount period
- ----------- --------- --------- ----------- -------- ----------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Accounts and
notes written
Deducted from assets off, net of
on Balance Sheet: recoveries $1,432
Foreign
Allowance for currency
doubtful accounts translation
$8,129 $1,921 adjustment $497 $8,121
====== ====== ==== ======
Net amount
transferred from
noncurrent
Current portion of reserve for
reserves for closed closed plants
plants and and Current
environmental environmental charges to
matters $38,762 matters $62,799 reserves $57,397 $44,164
======= ======= ======= =======
Non-current portion
of reserves for Net amount
closed plants and transferred to
environmental current
matters $112,342 $52,889 liabilities $62,799 $102,432
======== ======= ======= ========
Included in caption
"Other liabilities Charges
and reserves" on against the
Balance Sheet Increase in the reserve
------------- reserve for for
Other $36,938 $7,590 Major Repairs Major Repairs $771 $43,757
======= ====== ==== =======
</TABLE>
<PAGE>
B-3
<TABLE>
ASARCO Incorporated
AND SUBSIDIARIES
Schedule II - Valuation and Qualifying Accounts
FOR THE YEAR 1996
(in thousands)
<CAPTION>
Column A Column B Column C Column D Column E
-------- -------- -------- -------- --------
Additions Deductions
--------------------------------------------------------------------------------------------
Charged to
Balance at costs/expenses Charged Balance at
beginning or (credited) to other end of
Description of period to income Description accounts Description Amount period
- ----------- --------- --------- ----------- -------- ----------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Accounts and
notes written
Deducted from assets off, net of
on Balance Sheet: recoveries $1,151
=====
Allowance for Foreign
doubtful accounts currency
translation
$7,409 $1,993 adjustment $122 $8,129
====== ===== ==== ======
Net amount
transferred
from noncurrent
Current portion of reserve for
reserves for closed plants
closed plants and and Current
environmental environmental charges to
matters $53,437 matters $40,910 reserves $55,585 $38,762
======= ======= ======= =======
Non-current portion
of reserves for Net amount
closed plants and transferred to
environmental current
matters $83,129 $70,123 liabilities $40,910 $112,342
======= ======= ======= ========
Included in caption
"Other liabilities Charges
and reserves" on Increase in the against the
Balance Sheet reserve for reserve for
Other $26,018 $13,774 Major Repairs Major Repairs $2,854 $36,938
======= ======= ====== =======
</TABLE>
<PAGE>
C-1
<TABLE>
<CAPTION>
ASARCO Incorporated
EXHIBIT INDEX
Exhibit Indexed
No. Description on Page
<S> <C> <C>
3. Certificate of Incorporation and By-Laws
(a) Certificate of Incorporation - restated, filed June 26, 1998
(Filed as an Exhibit to the Company's Report on Form 10-Q for the
quarter ended June 30, 1998 and incorporated herein by reference)
(b) By-Laws as last amended on June 26, 1991 (Filed as an Exhibit to
the Company's 1991 Annual Report on Form 10-K and incorporated
herein by reference.)
4. Instruments defining the rights of security holders, including indentures
(a) There are currently various separate indentures, agreements or
similar instruments under which long-term debt of Asarco is
currently outstanding. The Registrant hereby agrees to furnish to
the Commission, upon request, a copy of any of the instruments
which define the rights of holders of long-term debt securities.
None of the outstanding instruments represent long-term debt
securities in excess of 10% of the total assets of Asarco as of
December 31, 1998
(b) Form of Rights Agreement dated as of July 26, 1989, between the
Company and First Chicago Trust Company of New York, as Rights
Agent, defining the rights of shareholders under a July 1989
Shareholders' Rights plan and dividend declaration (Filed as an
Exhibit to the Company's report on Form 8-K filed on July 28,
1989 and incorporated herein by reference)
(c) Rights Agreement Amendment dated as of September 24, 1992,
between the Company and The Bank of New York, as Successor Rights
Agent under the Rights Agreement listed above (Filed as an
Exhibit to the Company's 1992 Annual Report on Form 10-K and
incorporated herein by reference)
(d) Second Rights Agreement Amendment dated as of February 23, 1995,
between the Company and The Bank of New York (Filed as an Exhibit
to the Company's report on Form 8-K filed on February 24, 1995,
and incorporated herein by reference)
(e) Form of Rights Agreement dated as of January 28, 1998, between
the Company and The Bank of New York, as Rights Agent, defining
the rights of shareholders' under a January 1998 Stockholders'
Rights plan and dividend declaration (filed as an Exhibit to the
Company's Form 8-K filed on March 2, 1998, and incorporated
herein by reference)
</TABLE>
<PAGE>
C-2
<TABLE>
ASARCO Incorporated
<CAPTION>
EXHIBIT INDEX
Exhibit Indexed
No. Description on Page
<S> <C> <C>
(f) Indenture Agreement dated as of February 1, 1993 between the
Company and Bankers Trust Company, as Trustee, covering the
issuance of debt securities registered by the Company in April
1992, not to exceed $250 million (Filed as an Exhibit to the
Company's 1992 Annual Report on form 10-K and incorporated herein
by reference)
(g) Indenture agreement dated as of October 1, 1994 between the
Company and Chemical Bank, as Trustee covering the issuance of
debt securities registered by the Company in October 1994, not to
exceed $300 million (Filed as an Exhibit to the Company's
registration statement on Form S-3 filed on October 12, 1994, and
incorporated herein by reference)
10. Material Contracts
(a) Stock Option Plan as last amended on November 30, 1994 (Filed as
an Exhibit to the Company's 1994 Annual Report on Form 10-K and
incorporated herein by reference)
(b) Form of Amended Employment Agreement dated February 26, 1997,
between the Company and currently 11 of its executive officers,
including Messrs. R. de J. Osborne, F.R. McAllister, K.R. Morano
and A.B. Kinsolving (Filed as an Exhibit to the Company's 1996
Annual Report on Form 10-K and incorporated herein by reference)
(c) Deferred Fee Plan for Directors, as amended through April 29,
1998 C9-C14
(d) Director's Deferred Payment Plan, as amended through April 29,
1998 C15-C20
(e) Retirement Plan for Non-Employee Directors, as amended through
January 28, 1998. Effective December 31, 1995, the Company
terminated the plan for current and future directors.
(f) Directors' Stock Award Plan, as amended through January 27, 1993
(Filed as an Exhibit to the Company's 1992 Annual Report on Form
10-K and incorporated herein by reference)
(g) Stock Incentive Plan adopted by the Company's Shareholders on
April 25, 1990, as last amended on November 29, 1995 (Filed as an
Exhibit to the Company's 1995 Annual Report on Form 10-K and
incorporated herein by reference)
(h) Supplemental Pension Plan for Designated Mid-Career Officers, as
amended through April 29, 1998 C21-C28
(i) Incentive Compensation Plan for Senior Officers, effective
January 1, 1996 (Filed on Exhibit B to the Company's 1996 Proxy
Statement filed on March 12, 1996 and incorporated herein by
reference)
</TABLE>
<PAGE>
C-3
<TABLE>
ASARCO Incorporated
EXHIBIT INDEX
<CAPTION>
Exhibit Indexed
No. Description on Page
<S> <C> <C>
(j) 1996 Stock Incentive Plan, effective April 24, 1996 (Filed as an
Exhibit to the Company's Registration Statement on Form S-8 filed
on December 17, 1996, and incorporated herein by reference)
(k) Compensation Deferral Plan, as amended through April 29, 1998 C29-C35
(l) Supplemental Retirement Plan, as amended through April 29, 1998 C36-C41
(m) Consulting Agreement between the Company and Mr. R. de J. Osborne C42-C43
dated November 24, 1998
11. Statement re Computation of Earnings Per Share C4
12. Statement re Computation of Ratios C5
21. Subsidiaries of the Registrant C6-C8
23. Consent of Independent Accountants is included on page A72 of this
Annual Report on Form 10-K.
</TABLE>
Report on Form 11-K relating to the Savings Plan for Salaried Employees of
ASARCO Incorporated and Participating Subsidiaries is to be filed by amendment
on Form 10-K/A.
Copies of exhibits may be acquired upon written request to the Treasurer and the
payment of processing and mailing costs.
<PAGE>
C-4
Exhibit 11 Statement re Computation of Earnings per Share
This calculation is submitted in accordance with regulation S-K item 601(b)(11).
<TABLE>
Diluted Earnings per Common Share
(in thousands, except per share amounts)
<CAPTION>
For the years ended December 31,
1998 1997 1996
------------------ --------------- ----------------
<S> <C> <C> <C>
Net earnings (loss) applicable to common stock $(130,640) $143,392 $138,336
================== =============== ================
Weighted average number of common shares outstanding
39,655 41,903 42,711
Shares issuable from assumed exercise of Stock Options
- 73 58
================== =============== ================
Weighted average number of common shares outstanding, as adjusted
39,655 41,976 42,769
================== =============== ================
Diluted earnings per share:
Net earnings (loss) applicable to common stock $(3.29) $3.42 $3.23
================== =============== ================
Basic earnings per share:
Net earnings (loss) applicable to common stock $(3.29) $3.42 $3.24
================== =============== ================
</TABLE>
<PAGE>
C-5
Exhibit 12 Statement re Computation of Consolidated Ratio of Earnings to Fixed
Charges and Combined Fixed Charges and Preferred Share Dividend Requirements
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
NET EARNINGS (LOSS) $(130,640) $143,392 $138,336 $169,153 $ 64,034
Adjustments
Taxes (benefit)on Income (53,561) 72,356 99,924 122,465 9,375
Equity Earnings, Net of
Taxes (3,619) (7,706) (3,837) (1,837) (47,653)
Dividends received from
non-consolidated
companies 5,512 5,209 4,047 1,828 14,301
Total Fixed Charges 88,385 84,972 83,553 99,516 66,377
Interest Capitalized (12,530) (5,515) (2,839) (3,256) (869)
Capitalized Interest Amortized 1,547 2,113 2,274 2,949 1,727
Minority interest 26,659 90,605 88,331 129,543 809
--------- -------- -------- -------- --------
EARNINGS (LOSS) $ (78,247) $385,426 $409,789 $520,361 $108,101
========== ======== ======== ======== ========
FIXED CHARGES
Interest Expense $ 67,787 $ 74,247 $ 76,442 $ 91,954 $ 62,529
Interest Capitalized 12,530 5,515 2,839 3,256 869
Imputed Interest Expense 8,068 5,210 4,272 4,306 2,979
--------- -------- -------- -------- --------
TOTAL FIXED CHARGES $ 88,385 $ 84,972 $ 83,553 $ 99,516 $ 66,377
========= ======== ======== ======== ========
Ratio of Earnings to Fixed Charges (a) 4.5 4.9 5.2 1.6
========= ======== ======== ======== ========
<FN>
(a) For the year ended 1998 earnings were insufficient to cover fixed charges
by $166,632.
</FN>
</TABLE>
<PAGE>
C-6
Item 14. (c) Exhibit 21 Subsidiaries of the Registrant
<TABLE>
<CAPTION>
Percentage of
voting securities
owned or other
Name of Company bases of control
--------------- ----------------
PARENTS: None
Registrant: ASARCO Incorporated
CONSOLIDATED SUBSIDIARIES:
<S> <C>
Air Resources Corporation (Delaware) 100.0
American Limestone Company, Inc. (Delaware) 100.0
AR Mexican Explorations Inc. (Delaware) 100.0
Minera San Bernardo, S.A. de C.V. (Mexico) 100.0
AR Mexican Holdings, Inc. (Delaware) 100.0
AR Specialty Chemicals, S. A. de C.V. (Mexico) 100.0
Enthone-OMI de Mexico S.A. de C.V. (Mexico) 100.0
AR Silver Bell, Inc. (Delaware) 100.0
Silver Bell Mining, L.L.C. (Delaware) 75.0
AR Montana Corporation (Delaware) 100.0
Montana Resources (Montana Partnership) 49.9
Asarco Arizona, Inc. (Delaware) 100.0
Asarco Exploration Company, Inc. (New York) 100.0
Asarco Guiane Francaise S.A.R.L. 100.0
Empresa Minera Manquiri S.R.L. (Bolivia) 50.0
Asarco Exploration Company of Canada, Limited (Canada) 100.0
Asarco International Corporation (Delaware) 100.0
Asarco International Corp. FSC (Virgin Islands) 100.0
Asarco Oil and Gas Company, Inc. (New York) 100.0
Asarco Peruvian Exploration Company (Delaware) 100.0
ASARCO Santa Cruz, Inc. (Delaware) 100.0
Covington Land Company (Delaware) 100.0
CP Water Company (Arizona) 100.0
Bridgeview Management Company, Inc. (New Jersey) 100.0
Compania Minera Asarco, S.A. (Chile) 100.0
Domestic Realty Company, Inc. (Montana) 100.0
Encycle, Inc. (Delaware) 100.0
Hydrometrics, Inc. (Delaware) 100.0
Compania Hydrometrics de Mexico S.A. de C.V. 100.0
Encycle/Texas, Inc. (Delaware) 100.0
Enthone, Incorporated (New York) 100.0
Enthone-OMI, Inc. (Delaware) 100.0
Enthone-OMI (Australia) Pty. Ltd. (Victoria, Australia) 100.0
Enthone-OMI Holding GmbH (Austria) 100.0
Enthone-OMI (Benelux) B.V. (The Netherlands) 100.0
Enthone-OMI (Austria) GmbH 100.0
Enthone-OMI (France) S.A. (France) 28.5
Enthone-OMI Holdings (Deutschland)GmbH (Germany) 100.0
Deutsche Oberflachentichnik GmbH (Germany) 100.0
DOT Rechenzentrum GmbH (Germany) 100.0
L.P.W. Benelux B.V. (Netherlands) 100.0
L.P.W. Chemie GmbH (Germany) 51.0
Blasberg Oberflachentechnik GmbH (Germany) 100.0
Blasberg GTL Service and Vertriebs GmbH (Germany) 100.0
Blasberg Ytteknik AB (Sweden) 100.0
Galvano Production Chemie GmbH (Germany) 100.0
</TABLE>
<PAGE>
C-7
Form 10-K
<TABLE>
Item 14. (c) Exhibit 21 Subsidiaries of the Registrant
<CAPTION>
Percentage of
voting securities
owned or other
Name of Company bases of control
--------------- ----------------
CONSOLIDATED SUBSIDIARIES
<S> <C>
L.P.W. France SARL (France) 95.0
Riedel Oberflachentichnik GmbH (Germany) 100.0
L.P.W. Oberflachentichnik Sp.z.o.o. (Poland) 100.0
Nihon LPW K.K. (Japan) 30.0
Wunsch Chemie GmbH (Germany) 100.0
Enthone-OMI (Italia) S.A.R.L. (Italy) 51.6
Enthone-OMI Holdings (Europe) S.A.S. (France) 100.0
Enthone-OMI (Italia) S.A.R.L. (Italy) 48.4
Internacional de Manufacturas Asociadas S.A (Spain) 100.0
Imasa A.G. (Switzerland) 40.0
Enthone-OMI Holdings (U.K.) Ltd. (United Kingdom) 17.6
AMZA Ltd. (Israel) 33.3
Enthone-OMI (U.K.)Limited (United Kingdom) 100.0
Enthone-OMI (Sverige) A.B. (Sweden) 100.0
Enthone-OMI Finance N.V.(Netherlands Antilles) 100.0
Enthone-OMI (Canada) Inc. (Ontario, Canada) 100.0
IMASA B.V. (The Netherlands) 100.0
Enthone-OMI (Hong Kong) Company Limited (Hong Kong) 5.5
Enthone-OMI K.K. (Japan) 100.0
IMASA Kemi A.B. (Sweden) 100.0
Enthone-OMI Holdings (U.K) Ltd. (United Kingdom) 82.4
OMI Holdings S.A. (Switzerland) 100.0
Electroplating Engineers of Japan Ltd. (Japan) 25.0
Enthone-OMI (Suisse) S.A. (Switzerland) 100.0
OMI International Corporation (Delaware) 100.0
Enthone-OMI (Espana) S.A (Spain) 100.0
Enthone-OMI (Europe) Corporation (Delaware) 100.0
Enthone-OMI (Hong Kong) Company Limited (Hong Kong) 94.5
Hua-Mei Electroplating Technology Company, Ltd. (China) 51.0
Hua-Mei (Tianjin) Electroplating Technology Company, Ltd. 51.0
Enthone-OMI (Singapore) Pte.Ltd. (Singapore) 98.4
Enthone-OMI (Malaysia) Sdn. Bhd. (Malaysia) 100.0
Federated Metals Canada Limited (Canada) 100.0
Federated Metals Corporation (New York) 100.0
Geominerals Insurance Company, Ltd. (Bermuda) 100.0
Lac d'Amiante du Quebec, Ltee (Delaware) 100.0
LAQ Canada, Ltd. (Delaware) 100.0
Mining Development Company (Delaware) 100.0
Empresa Minera Manquiri S.R.L. (Bolivia) 50.0
Minto Explorations Ltd. (British Columbia) 55.8
Mission Exploration Company (Delaware) 100.0
Lesarco, Inc. (Phillipines) 30.0
NCBR, Inc. (Delaware) 100.0
Northern Peru Mining Corporation (Delaware) 100.0
</TABLE>
<PAGE>
C-8
Form 10-K
Item 14. (c) Exhibit 21 Subsidiaries of the Registrant
<TABLE>
<CAPTION>
Percentage of
voting securities
owned or other
Name of Company bases of control
--------------- ----------------
CONSOLIDATED SUBSIDIARIES
<S> <C>
Silver Valley Resources Corporation (Delaware) 50.0
Southern Peru Copper Corporation (Delaware) 63.1
Fomenta, S.A. (Peru) 99.5
Pegasus Travels, S.A. (Peru) 90.0
Logistics Services Incorporated (Delaware) 100.0
LSI-Peru, S.A. (Peru) 98.2
Multimines Corporation (Delaware) 100.0
Multimines Insurance Company, Ltd. (Bermuda) 100.0
Recursos e Inversiones Andinas, S.A. (Peru) 91.0
Compania Minera Los Tolmos, S.A. (Peru) 98.1
The International Metal Company (New York) 100.0
Tulipan Company, Inc. (Delaware) 63.0
</TABLE>
Not included in this listing are subsidiaries which in the aggregate would not
constitute a significant subsidiary.
<PAGE>
C-9
Exhibit 10(C)
ASARCO Incorporated
DEFERRED FEE PLAN FOR DIRECTORS
(As amended and restated as of April 29, 1998)
Section 1. Effective Date. The effective date of the Plan as originally adopted
is January 1, 1982. The effective date of the Plan as hereby amended and
restated is April 29, 1998.
Section 2. Definitions.
1. Board. The Board of Directors of ASARCO Incorporated.
2. Company. ASARCO Incorporated.
3. Deferral Amounts. All compensation deferred by a Director under the Plan.
4. Deemed Retirement Date. May 1 of the calendar year in which a Participant
reaches his Normal Retirement Date.
5. Director. Any individual serving as a member of the Board.
6. Fair Market Value. As to Company stock, Fair Market Value shall mean the
average of the high and low prices of a single share of Company common
stock as reported by the Wall Street Journal for New York Stock Exchange -
Composite Trading as of the first trading day coincident with or next
following the day as of which such value is to be determined.
7. Investment Manager. The Investment Company selected by the Company for
deemed investment of all Deferral Amounts allocated to a Participant's
Investment Subaccount.
8. Investment Subaccount. A deemed investment in those mutual funds, except
the Asarco Common Stock Fund, available under the Company's Savings Plan.
9. Normal Retirement Date. Normal Retirement Date for a Director as defined in
the corporate by-laws, currently the date of the Annual Meeting of
Stockholders next following the Director's 72nd birthday.
10. Participant. Any eligible Director or former Director with a Participant
Account balance.
11. Participant Account. A bookkeeping account established in the financial
records of the Company for each Participant. Participant accounts consist
of an Asarco Stock Subaccount and an Investment Subaccount. Participant
Accounts are credited with a Participant's Deferral Amounts, and deemed
investment earnings or losses arising therefrom based on Participant
elections pursuant to Sections 4 and 5.
12. Asarco Stock Subaccount. A phantom Asarco stock equivalent account
consisting of deemed whole shares of ASARCO Incorporated common stock and
cash.
Section 3. Eligibility. Any Non-employee Director is eligible to participate in
the Plan.
<PAGE>
C-10
Section 4. Participation. To become a Participant, a Director must file a
written election to defer either 50 percent or 100 percent of cash compensation
payable by reason of service on the Board. An amount equal to the compensation
deferred will be credited to the Participant's Participant Account as soon as
practicable after the date such compensation is otherwise payable.
An election to participate must be received by the Company prior to
January 1 of the calendar year during which the election is to be effective and
shall be irrevocable for the entire year. Notwithstanding the foregoing, a
Director may elect to become a Participant in the Plan for the calendar year in
which he first becomes eligible by filing a written election to participate
within 30 days of becoming eligible. The election will be effective on a
prospective basis and only as to remuneration not yet earned.
An election shall remain in effect for subsequent years unless amended
or terminated in writing prior to January 1 of any subsequent year. An election
can be revoked or withdrawn at any time with respect to amounts to be earned in
years subsequent to the date of revocation or withdrawal.
Section 5. Deemed Investment Provisions. The Company will establish a
Participant Account for each Participant. Each Participant Account will have an
Asarco Stock Subaccount and/or an Investment Subaccount. A Participant must
allocate his Deferral Amounts, in increments of 25 percent, to one or both of
the Subaccounts.
(a) Deferral Amounts Allocated to Asarco Stock Subaccounts
1) A Participant's Asarco Stock Subaccount shall be deemed invested in
accordance with the Participant's election in whole shares of Company
common stock which could be purchased at Fair Market Value with the
Deferral Amounts credited to a Participant's Asarco Stock Subaccount on
the last business day of each calendar quarter.
2) The Stock Subaccount also shall be credited with a bookkeeping entry
indicating the number of additional whole shares which could be purchased
at Fair Market Value with any dividends payable on the deemed shares held
in the Asarco Stock Subaccount on the day such dividends are payable to
shareholders of Company common stock.
3) Any amounts that are insufficient to permit the crediting of a whole
share of Company common stock shall be carried as a cash balance
bookkeeping entry in such Stock Subaccount. On any date on which new funds
are available for deemed investment in Company stock (either due to an
additional deferral or the availability of deemed dividends), the cash
amount will be added to any such other funds, and the maximum number of
whole shares that could be purchased at Fair Market Value will be deemed
invested. The remaining amount, if any, will be held as cash. No interest
shall be credited on any such Stock Subaccount cash balance.
4) The Asarco Stock Subaccount shall be adjusted to reflect any stock
split, stock dividend, recapitalization, merger, consolidation,
reorganization or other similar change in the Company's common stock.
(b) Deferral Amounts Allocated to Investment Subaccounts 1) At the time of the
election to participate in the Plan, the Participant must elect in writing
to have any Deferral Amounts allocated to his Investment Subaccount
invested, in increments of 5%, in one or more of the investment funds as
are provided under the Asarco Savings Plan, except, however, that the
Asarco Common Stock Fund shall not be available as a deemed investment.
Said election must total one hundred percent (100%) of his Deferral Amounts
allocated to the Investment Subaccount.
<PAGE>
C-11
2) A Participant's Investment Subaccount shall be deemed invested in
accordance with the Participant's election. The Participant's account
shall be credited with deemed earnings, gains, losses, expenses and
changes in the fair market value of such Participant's account as if the
Company had followed such investment designations.
3)Each Participant may elect that his future Investment Subaccount
deferrals be deemed invested in a proportion different from that
previously elected. Such new election shall be prospective only and shall
be made in accordance with paragraph (B)(2). Any changes in such deemed
investments must be in accordance with rules, if any, as are established
by the Company or the Investment Manager.
4) 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 available under the Investment Subaccount
may be transferred to any other fund available thereunder. Such election
will be prospective only and will be permitted in accordance with rules,
if any, as shall be established by the Company or the Investment Manager.
Section 6. Transfers. No election may be made to have amounts previously
credited to a Participant's Investment Subaccount transferred to his Stock
Subaccount. Amounts previously credited to a Participant's Stock Subaccount may
not be transferred to his Investment Subaccount, except on or after the earlier
in time of (a) one year prior to Normal Retirement Date, or (b) the actual
retirement date.
Section 7. Payment of Deferred Compensation.
(a) Retirement at Normal Retirement Date A Participant who retires at his
Normal Retirement Date will receive the entire value of his Participant
Account in cash on January 15 of the year following the year of retirement.
(b) Termination at Other than Normal Retirement Date A Participant who
terminates service as a Director at a date other than Normal Retirement
Date will receive the entire value of his Participant Account in cash on
the 15th day of the 13th month following the date of termination.
(c) Further Deferral Notwithstanding (a) and (b) of this section, a Participant
may elect to further defer receipt of all or a portion of his Participant
Account for a period of up to 10 years from the earlier to occur of the
Deemed Retirement Date or, if applicable, the date of termination. In order
to defer a payment of benefits under the Plan, a Participant must file a
written election at least one year in advance of the date that a 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 further elections to defer the receipt of benefits under
the Plan must also be filed at least one year prior to the scheduled
payment date. Acceleration of any benefits deferred pursuant to this
paragraph can only be made by filing a request for payment at least one
year in advance of the requested accelerated payment date.
(d) Financial Hardship of Participants At any time 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 Company only upon a finding that the
Participant has suffered a severe financial hardship which has resulted
from events beyond the Participant's control ("Hardship Event"), and only
in the amount reasonably needed to satisfy such Hardship Event. Whether a
Hardship Event has occurred shall be determined in accordance with Treasury
Regulation Sections 1.457- 2(h)(4) and (5). In the event such a payment is
approved, payment of all or a portion of the value of the Participant
Account shall be made as soon as practicable to the Participant.
<PAGE>
C-12
(e) Other Withdrawals Absent a Hardship Event or adequate prior notice (in
accordance with paragraph (c) 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.
Section 8. Designation of Beneficiary.
(a) A Participant may designate a beneficiary by giving written notice to the
Company. If no beneficiary is designated, the 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.
(b) In the event of a Participant's death before he has received all of the
benefits to which he is entitled hereunder, the value of the Participant's
Participant Account shall be paid to the estate or designated beneficiary
of the deceased Participant in one cash lump sum as soon as practicable
after the first January 15 or July 15 following such date of death, unless
the Participant has elected to continue without change the schedule for
payment of benefits, in which case the beneficiary shall have the
investment choices provided under Section 5(b) for the time of the
deferral.
(c) If a distribution is to be made to a beneficiary and such beneficiary dies
before such distribution has been made, the amount of the distribution will
be paid to the estate of the beneficiary in one lump sum.
Section 9. 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 10. Assignability. No right to receive payments hereunder shall be
transferable or assignable by a Participant or beneficiary.
Section 11. 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 12. Discretion of Company and Board. Any decision made or action taken
by the Company 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 or the Board, as the case may be,
and shall be final, conclusive and binding upon all persons.
<PAGE>
C-13
Section 13. Change of Control.
(a) Notwithstanding any other provision of this Plan, in the event of a Change
of Control (as defined below), no person that is not a Participant in the
Plan immediately prior to such Change of Control shall be permitted to be a
Participant under the Plan following such Change of Control. Upon and after
a Change of Control, this Plan may not be amended, modified or terminated
if any such amendment, modification or termination would adversely affect
any accrued benefits of a Participant or his or her rights with respect to
such accrued benefits in the Plan, unless any such amendment, modification
or termination is consented to in writing by all such Participants. Upon a
Change of Control, payment of all of the value of any and all amounts
accrued to the Participant hereunder shall be made to a Participant
immediately. For purposes of calculating such payment, a Participant's
Investment Subaccount and/or Stock Subaccount shall be valued as of the
date of the Change of Control.
(b) Participants who were receiving annual installment payments pursuant to
Section 7 as of January 28, 1998, who did not consent to the provisions of
this Section 13 within sixty (60) days of the date of notice of the January
28th amendment shall continue to receive annual installment payments as
elected pursuant to Section 7 hereof following a Change of Control.
(c) For purposes of this Plan, a "Change of Control" shall be deemed to have
occurred if:
(1) any "person", as such term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") (other
than the Company, any trustee or other fiduciary holding securities under
an employee benefit plan of the Company, or any company owned, directly or
indirectly, by the stockholders of the Company in substantially the same
proportions as their ownership of the stock of the Company), is or becomes
the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of securities of the Company representing either
31% or more of the voting power of all classes of capital stock of the
Company or 33-1/3% or more of the then outstanding common stock without par
value, of the Company;
(2) the following individuals cease for any reason to constitute a majority
of the number of Directors then serving: individuals who, on the date
hereof, constitute the Board of Directors of the Company and any new
Director (other than a Director whose initial assumption of office is in
connection with an actual or threatened election contest, including but not
limited to a consent solicitation, relating to the election of Directors of
the Company) whose appointment or election by the Board of Directors or
nomination for election by the Company's stockholders was approved or
recommended by a vote of at least two thirds (2/3) of the Directors then
still in office who either were Directors on the date hereof or whose
appointment or election or nomination for election was previously so
approved or recommended;
(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
<PAGE>
C-14
(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 14. Amendment. 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.
Section 15. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
IN WITNESS WHEREOF, the Company has caused this Amendment to its Deferred
Fee Plan for Directors to be duly adopted and executed by its duly authorized
officers and its corporate seal affixed hereto on the 29th day of April, 1998.
ASARCO Incorporated
By: /s/D.B. Woodbury
Vice President
Attest:
/s/C.D. Gonzalez
Assistant Secretary
[SEAL]
<PAGE>
C-15
Exhibit 10(d)
ASARCO Incorporated
DIRECTORS' DEFERRED PAYMENT PLAN
(As amended and restated as of April 29, 1998)
Section 1. - Effective Date. The effective date of the Plan as originally
adopted is October 25, 1995. The effective date of the Plan as hereby amended
and restated is April 29, 1998.
Section 2. - Definitions.
1. Accrual Amounts. All amounts accrued for the benefit of a Director under
the Plan.
2. Board. The Board of Directors of ASARCO Incorporated.
3. Company. ASARCO Incorporated.
4. Deemed Retirement Date. May 1 of the calendar year a participant reaches
his Normal Retirement Date.
5. Director. Any individual serving as a member of the Board.
6. Fair Market Value. As to Company stock, Fair Market Value shall mean the
average of the high and low prices of a single share of Company common
stock as reported by the Wall Street Journal for New York Stock Exchange -
Composite Trading as of the first trading day coincident with or next
following the day as of which such value is to be determined.
7. Investment Manager. The Investment Company selected by the Company for
deemed investment of all Accrual Amounts allocated to a Participant's
Investment Subaccount.
8. Investment Subaccount. A deemed investment in those mutual funds, except
the Asarco Common Stock Fund, available under the Company's Savings Plan.
9. Normal Retirement Date. Normal retirement date for a Director as defined in
the corporate by-laws, currently the date of the Annual Meeting of
Stockholders next following the Director's 72nd birthday.
10. Participant. Any eligible Director or former Director with a Participant
Account balance.
11. Participant Account. A bookkeeping account established in the financial
records of the Company for each Participant. Participant accounts consist
of an Asarco Stock Subaccount and an Investment Subaccount. Participant
Accounts are credited with a Participant's Accrual Amounts, and deemed
investment earnings or losses arising therefrom based on Participant
elections pursuant to Sections 4 and 5.
12. Asarco Stock Subaccount. A phantom Asarco stock equivalent account
consisting of deemed whole shares of ASARCO Incorporated common stock and
cash.
Section 3. - Eligibility. All non-employee Directors who are either: (a) elected
to the Board of Directors of ASARCO Incorporated after October 25, 1995 or (b)
who have not yet reached the tenth anniversary of their election as of that
date, are Participants in the Plan.
<PAGE>
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Non-employee Directors with five or more years of service as of October 25,
1995 are eligible to transfer benefits accrued under the ASARCO Incorporated
Retirement Plan for Non-Employee Directors (the Directors' Retirement Plan)
pursuant to transitional rules as provided in the Plan as originally adopted.
Section 4. - Accrual of Benefits. Each eligible Participant shall accrue a
benefit equal to 75 percent of the cash retainer paid to Directors by the
Company. Benefits will accrue on the last business day of each calendar quarter.
Each Participant will accrue benefits under the Plan for a maximum of ten years.
The accrual of benefits under the Plan by Directors who accrued benefits under
the Directors' Retirement Plan will be reduced by one year for each year of
credited service under the Directors' Retirement Plan.
At least 50 percent of all Accrual Amounts shall be credited to the Asarco
Stock Subaccount. A Director may elect in writing to have the remainder of his
Accrual Amounts credited, in additional increments of 25 percent, to either (a)
his Asarco Stock Subaccount, or (b) an Investment Subaccount, as described
below.
An election by a Director under this Section 4 must be received by the
Company prior to January 1 of the calendar year during which the election is to
be effective and shall be irrevocable for the entire year. If no election is
made, Accrual Amounts shall be allocated 100 percent to the Asarco Stock
Subaccount. An election shall remain in effect for subsequent years unless
changed prior to the January 1 of any such subsequent year.
Section 5. - Deemed Investment Provisions. The Company will establish a
Participant Account for each Participant. A Participant's Accrual Amounts will
be deemed invested in the Asarco Stock Subaccount, and if elected, the
Investment Subaccount, in accordance with his election under Section 4.
a) Accrual Amounts Allocated to Asarco Stock Subaccounts
(1) A Participant's Asarco Stock Subaccount shall be deemed invested in
accordance with the Participant's election in whole shares of Company
common stock which could be purchased at Fair Market Value with the Accrual
Amounts credited to a Participant's Asarco Stock Subaccount on the last
business day of each calendar quarter.
(2) The Asarco Stock Subaccount also shall be credited with a bookkeeping
entry indicating the number of additional whole shares which could be
purchased at Fair Market Value with any dividends payable on the deemed
shares held in the Asarco Stock Subaccount on the day such dividends are
payable to shareholders of Company common stock.
(3) Any amounts that are insufficient to permit the crediting of a whole
share of Company common stock shall be carried as a cash balance
bookkeeping entry in such Asarco Stock Subaccount. On any date on which new
funds are available for deemed investment in Company stock (either due to
an additional deferral or the availability of deemed dividends), the cash
amount will be added to any such other funds, and the maximum number of
whole shares that could be purchased at Fair Market Value will be deemed
invested. The remaining amount, if any, will be held as cash. No interest
shall be credited on any such Asarco Stock Subaccount cash balance.
(4) The Asarco Stock Subaccount shall be adjusted to reflect any stock
split, stock dividend, recapitalization, merger, consolidation,
reorganization or other similar change in the Company's common stock.
<PAGE>
C-17
b) Accrual Amounts Allocated to Investment Subaccounts
(1) At the time of the election to participate in the Plan, the Participant
must elect in writing to have any Accrual Amounts allocated to his
Investment Subaccount invested, in increments of 5%, in one or more of the
investment funds as are provided under the Asarco Savings Plan, except,
however, that the Asarco Common Stock Fund shall not be available as a
deemed investment. Said election must total one hundred percent (100%) of
his Accrual Amounts allocated to the Investment Subaccount.
(2) A Participant's Investment Subaccount shall be deemed invested in
accordance with the Participant's election. The Participant's account shall
be credited with deemed earnings, gains, losses, expenses and changes in
the fair market value of such Participant's account as if the Company had
followed such investment designations.
(3) Each Participant may elect that his future Investment Subaccount
deferrals be deemed invested in a proportion different from that previously
elected. Such new election shall be prospective only and shall be made in
accordance with paragraph (b)(2). Any changes in such deemed investments
must be in accordance with rules, if any, as are established by the Company
or the Investment Manager.
(4) 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 available under the Investment Subaccount may
be transferred to any other fund available thereunder. Such election will
be prospective only and will be permitted in accordance with rules, if any,
as shall be established by the Company or the Investment Manager.
Section 6. Transfers. No election may be made to have amounts previously
credited to a Participant's Investment Subaccount transferred to his Asarco
Stock Subaccount. Amounts previously credited to a Participant's Asarco Stock
Subaccount may not be transferred to his Investment Subaccount, except on or
after the earlier in time of (a) one year prior to normal retirement date, or
(b) the actual retirement date.
Section 7. - Payment of Deferred Compensation.
(a) Retirement at Normal Retirement Date A Participant who retires at his
Normal Retirement Date will receive the entire value of his Participant
Account in cash on January 15 of the year following the year of retirement.
(b) Termination at Other than Normal Retirement Date A Participant who
terminates service as a Director at a date other than Normal Retirement
Date will receive the entire value of his Participant Account in cash on
the 15th day of the 13th month following the date of termination.
(c) Further Deferral Notwithstanding (a) and (b) of this section, a Participant
may elect to further defer receipt of all or a portion of his Participant
Account for a period of up to 10 years from the earlier to occur of the
Deemed Retirement Date or, if applicable, the date of termination. In order
to defer a payment of benefits under the Plan, a Participant must file a
written election at least one year in advance of the date that a 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 further elections to defer the receipt of benefits under
the Plan must also be filed at least one year prior to the scheduled
payment date. Acceleration of any benefits deferred pursuant to this
paragraph can only be made by filing a request for payment at least one
year in advance of the requested accelerated payment date.
<PAGE>
C-18
(d) Financial Hardship of Participants At any time 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 Company 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.
(e) Other Withdrawals Absent a Hardship Event or adequate prior notice (in
accordance with paragraph (c) 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.
Section 8. - Designation of Beneficiary.
(a) A Participant may designate a beneficiary by giving written notice to
the Company. If no beneficiary is designated, the 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.
(b) In the event of a Participant's death before he has received all of the
benefits to which he is entitled hereunder, the value of the Participant's
Participant Account shall be paid to the estate or designated beneficiary
of the deceased Participant in one cash lump sum as soon as practicable
after the first January 15 or July 15 following such date of death, unless
the Participant has elected to continue without change the schedule for
payment of benefits, in which case the beneficiary shall have the
investment choices provided under Section 5(b) for the time of the
deferral.
(c) If the distribution is to be made to a beneficiary and such beneficiary
dies before such distribution has been made, the amount of the distribution
will be paid to the estate of the beneficiary in one lump sum.
Section 9. - Participant's Rights Unsecured. The right of any Participant to
receive future installments under the provisions of the Plan shall be
contractual in nature only; however, the amounts of such installments may be
held in a trust, the assets of which shall be subject to the claims of the
Company's general creditors in the event of bankruptcy or insolvency only. Any
installment paid from such trust shall reduce the amount of benefits owed by the
Company.
Section 10. - Assignability. No right to receive payments hereunder shall be
transferable or assignable by a Participant or beneficiary.
Section 11. - 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 12. - Discretion of Company and Board. Any decision made or action taken
by the Company 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 or the Board, as the case may be,
and shall be final, conclusive and binding upon all persons.
<PAGE>
C-19
Section 13. - Change of Control.
(a) Notwithstanding any other provision of this Plan, in the event of a Change
of Control (as defined below), no person that is not a Participant in the Plan
immediately prior to such Change of Control shall be permitted to be a
Participant under the Plan following such Change of Control. Upon and after a
Change of Control, this Plan may not be amended, modified or terminated if any
such amendment, modification or termination would adversely affect any accrued
benefits of a Participant or his or her rights with respect to such accrued
benefits in the Plan, unless any such amendment, modification or termination is
consented to in writing by all such Participants. Upon a Change of Control,
payment of all of the value of any and all amounts accrued to the Participant
hereunder shall be made to a Participant immediately. For purposes of
calculating such payment, a Participant's Investment Subaccount and/or Asarco
Stock Subaccount shall be valued as of the date of the Change of Control.
(b) Participants who were receiving annual installment payments pursuant to
Section 7 as of January 28, 1998, who did not consent to the provisions of this
Section 13 within sixty (60) days of the date of notice of the January 28th
amendment shall continue to receive annual installment payments as elected
pursuant to Section 7 hereof following a Change of Control.
(c) For purposes of this Plan, a "Change of Control" shall be deemed to have
occurred if:
(1) any "Person", as such term is used in Sections 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;
(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
<PAGE>
C-20
(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 14. - Amendment. 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.
Section 15. - Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York.
IN WITNESS WHEREOF, the Company has caused this Amendment to its
Directors' Deferred Payment Plan to be duly adopted and executed by
its duly authorized officers and its corporate seal affixed hereto on
the 29th day of April, 1998.
ASARCO Incorporated
By: /s/ D.B. Woodbury
Vice President
Attest:
/s/ C.D. Gonzalez
Assistant Secretary
[SEAL]
<PAGE>
C-21
Exhibit 10(h)
ASARCO Incorporated
SUPPLEMENTAL PENSION PLAN
FOR DESIGNATED MID-CAREER OFFICERS
(As amended through April 29, 1998)
WHEREAS, the Organization and Compensation Committee (the "Committee") of
the Board of Directors of ASARCO Incorporated (the "Company" or "Asarco") has
been advised by its independent compensation consultants that executive officers
who join or have joined the Company in mid-career, and subsequently serve as
vice president or higher rank for ten or more years, usually do not have
sufficient time before retirement to accrue benefits under existing pension
plans of the Company adequate to their needs or appropriate to reflect their
experience or employment responsibilities, and that a supplemental retirement
benefits plan for such persons should be adopted to remove these inequities, to
encourage the continued association of these executives with the Company, and to
assure that the Company is able to attract and retain executives with valuable
prior experience; and
WHEREAS, the Committee has recommended the adoption of, and the Board of
Directors has approved and decided to adopt, the ASARCO Incorporated
Supplemental Pension Plan for Designated Mid-Career Officers (the "Plan") to
permit the Company to provide supplemental retirement benefits to key officers
identified by the Committee who otherwise would receive retirement benefits
which would not reflect their experience prior to employment with the Company or
would not be appropriate for the position of responsibility which they hold with
the Company.
NOW, THEREFORE, the Company hereby adopts the Plan effective November 24,
1987.
1. DEFINITIONS.
1.1 Benefit Commencement Date. Except as provided in Sections 3.1,
3.3 and 6, the date on which benefits 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 or any individual or individuals to whom it delegates
authority.
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.
<PAGE>
C-22
1.8 Final Compensation Rate. The average of the sixty highest
consecutive monthly amounts of the Executive's Compensation 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.
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. In the event of a Change
of Control (as defined below) the benefit shall be payable as
<PAGE>
C-23
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.
(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 changed, provided
that no such change shall be given effect unless it is made in
writing at least twelve (12) months prior to the date benefits
under the Plan are payable. The Deferral Amount shall be deemed
invested 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.
(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.
(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 in cash in
a single lump sum as soon as practicable to the Executive.
<PAGE>
C-24
(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) Notwithstanding the foregoing, subsequent to an Executive's
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 as to the time or amount of any payment due and
payable at least 12 months subsequent to such amendment, and to
change the form of such payments, provided no such election may
accelerate any payment to a date earlier than 12 months from the
date of filing the election. 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 for more than 20
years following the Executive's Benefit Commencement Date.
(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 paragraphs (a) and (b)
above. In such case, the surviving spouse shall have the same
rights as are provided to the Eligible Employee pursuant to this
Section 2. If the Executive has no Surviving Spouse, any
remaining benefits payable shall be paid as soon as practicable
in a single sum to his beneficiary, or if none, to his estate.
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 (and spouse if married at the date of
determination):
(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 ("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,
<PAGE>
C-25
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. 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.
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 immediate
commencement of 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.
<PAGE>
C-26
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.
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.
(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;
<PAGE>
C-27
(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 April 29, 1998 or whose appointment or
election or nomination for election was previously so approved or
recommended;
(3) the stockholders of the Company approve a merger or
consolidation of the Company or any direct or indirect subsidiary of
the Company with any other company, other than (i) a merger or
consolidation which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or being converted into voting
securities of the surviving entity or any parent thereof) more than
50% of the combined voting power of the voting securities of the
Company or such surviving entity or any parent thereof outstanding
immediately after such merger or consolidation or (ii) a merger or
consolidation effected to implement a recapitalization of the Company
(or similar transaction) in which no "person" (as defined herein)
acquires more than 50% of the combined voting power of the Company's
then outstanding securities; or
(4) the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition
by the Company of all or substantially all of the Company's assets.
7. AMENDMENT. The Plan may not be terminated or amended except by action of
the Board, 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.
<PAGE>
C-28
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.
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 did 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 of reference only and shall not control or affect the meaning
or construction of any of its provisions.
IN WITNESS WHEREOF, the Plan, as amended through April 29, 1998, has been
adopted by the Company upon the recommendation of the Committee and the approval
of its Board of Directors.
ASARCO Incorporated
By: /s/K. R. Morano
Executive Vice President
Attest:
/s/C. D. Gonzalez
Assistant Secretary
[SEAL]
<PAGE>
C-29
Exhibit 10(k)
ASARCO Incorporated
Compensation Deferral Plan
(As Amended and Restated as of April 29, 1998)
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 29, 1998.
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, Incentive
Compensation Deferral Amounts, Employer Provided Benefit, and Special
Incentive Compensation Awards
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.
12) 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".
<PAGE>
C-30
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".
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.
<PAGE>
C-31
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).
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.
<PAGE>
C-32
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.
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 from the Company. 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). 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's 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 from the
Company. To defer a payment of benefits under the Plan, a Participant must
file a written election at least one year 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 further elections to defer the receipt of
benefits under the Plan must also be filed at least one year prior to the
scheduled payment date. Acceleration of any benefits deferred pursuant to
this paragraph can be made by filing a request for payment at least one
year in advance of the requested accelerated payment date.
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.
<PAGE>
C-33
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.
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.
<PAGE>
C-34
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 . 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;
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
<PAGE>
C-35
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 to be duly adopted and executed by its duly
authorized officers and its corporate seal affixed hereon as of the 29th
day of April, 1998.
ATTEST: ASARCO Incorporated
By: _/s/D.B. Woodbury
Vice President
Attest:
/s/C.D. Gonzalez
Assistant Secretary
[SEAL]
<PAGE>
C-36
Exhibit 10(l)
ASARCO Incorporated
SUPPLEMENTAL RETIREMENT PLAN
(As amended and restated as of April 29, 1998)
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
hereby amended and restated is April 29, 1998.
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 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")
<PAGE>
C-37
shall be eligible as to Benefits under this Plan.
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.
(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.
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 beneficiary, or if none, to his estate.
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), to defer, for a period not to
exceed twenty (20) years from the Benefit Commencement Date, the Deferral Amount
<PAGE>
C-38
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, provided that no such amendment shall be given effect unless it is made
in writing at least twelve (12) months prior to the date Benefits under the Plan
are payable, 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 changed, provided that no such
change shall be given effect unless it is made in writing at least twelve (12)
months prior to the date benefits under the Plan are payable.
(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 amount payable at least 12 months
subsequent to such amendment, 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).
Section 8. Investment of Deferral Amounts.
(a) Any Deferral Amount shall be deemed invested 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.
<PAGE>
C-39
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.
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 and Board.
Any decision made or action taken by the Company 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 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
<PAGE>
C-40
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 of all of the value of any and all amounts accrued to the
Eligible Employees hereunder shall be made to Eligible Employees immediately in
a single cash lump sum calculated using the Discount Rate and Mortality Table
set forth in Section 9. 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;
(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 value of an Eligible Employee's Deferral Amounts under the
Plan, the ASARCO Incorporated Supplemental Pension Plan for Designated
Mid-Career Officers, and the ASARCO Incorporated Compensation Deferral Plan
(collectively the "Plans") exceeds $3 million, the Eligible Employee may file a
<PAGE>
C-41
request with the Committee that the entire value of his Benefits under the Plans
be managed 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.
(b) 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.
Section 18. 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 19. Governing Law.
This Agreement shall be governed by and construed in accordance with the laws of
the State of New York.
IN WITNESS WHEREOF, the Company has caused this Amendment to its
Supplemental Retirement Plan to be duly adopted and executed by its
duly authorized officers and its corporate seal affixed hereto on the
29th day of April, 1998.
ASARCO Incorporated
By: /s/ K.R. Morano
Executive Vice President
Attest:
/s/ C.D. Gonzalez
Assistant Secretary
[SEAL]
<PAGE>
C-42
Exhibit 10(m)
ASARCO Incorporated
CONSULTING AGREEMENT BETWEEN THE COMPANY AND MR. R. de J. OSBORNE
(dated November 24, 1998)
F.R. McAllister
President & COO
Mr. Richard de J. Osborne
Chairman & Cheif Executive Officer
ASARCO Incorporated
180 Maiden Lane
New York, NY 10038
Dear Dick:
In accordance with the Company's retirement policy for its officers, you will
retire as Chairman of the Board and CEO effective April 30, 1999. The purpose of
this letter is to set forth the terms and conditions of our relationship after
your retirement. Please signify your agreement by signing this letter where
indicated below and returning it to me. The enclosed copy is for your records.
1. Consulting Arrangement. To ensure a smooth transition in the leadership of
the Company, you will, during the one-year period commencing with your
retirement, provide consulting services to the Company from time to time, as may
reasonably be requested by the then Chairman of the Board and CEO or his
designee, with respect to matters of corporate governance, Latin American
affairs and metal market analysis. The Company may request you continue to
provide these services for one additional year, under the same terms and
conditions.
In consideration of these services, the Company will pay you a consulting fee of
$4,500 per day or any portion of a day with the minimum of 23 consulting days
per year, beginning the first day of the month following your retirement.
Payments toward minimum fee will be made, as necessary, quarterly. You will also
be reimbursed for reasonable out-of-pocket expenses incurred by you with respect
to such services in accordance with the Company's expense reimbursement policy.
Consulting fees which in the aggregate exceed the minimum fee, and expense
reimbursements will be paid to you within 30 days after you submit a statement
to the Company setting forth the date(s) on which you provided consulting
services to the Company during the previous quarter, and your reimbursable
expenses for the previous month.
2. Directorship. The Company will use its reasonable best efforts to ensure that
you remain a director of the Company and the Southern Peru Copper Company during
the two-year period commencing with your retirement. As a non-employee director,
you will be entitled to compensation and benefits under the plans and
arrangements maintained by the Company and Southern Peru Copper, respectively,
for their non-employee directors generally.
3. Retiree Benefits. You and your eligible dependents may continue to
participate in the Company's medical plan, prescription drug plan, dental plan,
and vision plan, on the same basis as other participants. The annual premium to
be paid for such participation is $3,630 beginning with the date of your
retirement, to be paid quarterly as a deduction from other payments due, and to
be adjusted annually based upon the Company's per capita salaried flex plan
experience. Benefits to which you and your dependents are or may be entitled to
will be determined and provided in accordance with the terms and conditions of
the Company's applicable benefit plans. For the medical plan, you have selected
the level 1 program.
<PAGE>
C-43
4. Office and Support Staff. The Company will provide you with an office (with
furnishings and other appointments) of a type and size and secretarial
assistance of a type and extent provided by the Company to its vice presidents
generally. This office will be at the Company's offices in New York City, or, if
the Company relocates outside of New York City, at such other, comparable
location in New York City as may be mutually acceptable. For so long as you
maintain this office, the Company will (a) pay for your membership in one
luncheon club, (b) upon your request provide you with the reasonable use of the
Company car and driver, to the extent available and (c) provide you with (i)
relevant business and industry publications, (ii) a cellular telephone and (iii)
a personal computer and peripherals.
It is understood the Company will, at its cost and expense, deliver your current
office furniture, computer and personal effects to you at a location in the New
York City area specified by you.
5. Americas Society. So long as the Company maintains its membership in the
Council of the Americas and you are a director of the Americas Society, the
Company will maintain its membership in the Americas Society and will pay the
contributions in conjunction with the annual Americas tour by the Board of the
Americas Society.
6. Confidentiality. During the course of providing consulting services to the
Company, you will have access to confidential information relating to the
Company and its affiliates. You agree to treat all Confidential Information as
proprietary.
7. Miscellaneous. This agreement is personal to you and your retiree benefits
under paragraph 3 may only be assigned to your spouse. This agreement is binding
on the Company, and its successors and assignees.
This agreement supersedes any previous understandings or agreement, written or
otherwise, regarding the subject matter hereof and may only be amended in
writing.
The terms of this agreement will be constructed according to the laws of the
State of New York without regard to the conflict of laws provision thereof.
Regards,
/s/ Francis R. McAllister
Francis R. McAllister
Agreed to:
By:/s/Richard de J. Osborne
Richard de J. Osborne
Date: 11/24/98
<PAGE>
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