<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
FORM 10-K
[Mark One]
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1993
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number 1-10040
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CYPRUS AMAX MINERALS COMPANY
(Exact name of registrant as specified in its charter)
Delaware 36-2684040
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
9100 East Mineral Circle
Englewood, Colorado 80112
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code: 303-643-5000
--------------
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
------------------- ---------------------
Common Stock, without par value New York Stock Exchange
Preferred Share Purchase Rights New York Stock Exchange
9 7/8% Notes due June 13, 2001 New York Stock Exchange
14 1/2% Notes due December 1, 1994 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 ]
Aggregate market value of voting stock held by non-affiliates, based on a
closing price of $32 5/8 as of March 21, 1994, was approximately $2,982,396,000.
Number of shares of common stock outstanding as of March 21, 1994, was
91,996,067.
DOCUMENTS INCORPORATED BY REFERENCE
1993 Annual Report to Shareholders (Parts I, II and IV). Proxy Statement for
the 1994 Annual Meeting to be filed within 120 days after the fiscal year
(Part III).
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<PAGE>
CYPRUS AMAX MINERALS COMPANY
PART I
Items 1 and 2. Business and Properties
On November 15, 1993, AMAX Inc. (Amax) merged with and into Cyprus Minerals
Company (Cyprus) to create one of the world's largest natural resource
companies. Cyprus Amax is a diversified mining company engaged, directly or
through its subsidiaries and affiliates, in the exploration for and extraction,
processing, and marketing of mineral resources. Cyprus Amax operates in three
principal industry segments: Coal; Copper; and Other (which includes lithium,
gas, iron ore, gold, and exploration). Cyprus Amax is among the world's largest
producers of copper, molybdenum, and lithium, and is one of the nation's largest
coal producers. Cyprus Amax also produces gas, gold and iron ore. Cyprus Amax
was incorporated in Delaware in 1969 and operates primarily in the United
States. As of December 31, 1993, Cyprus Amax employed approximately 10,750
employees. Its principal office is located at 9100 East Mineral Circle,
Englewood, Colorado 80112.
A description of Cyprus Amax's major properties and operations is set forth
below. Except as otherwise stated, tonnage data are expressed in short tons of
2,000 pounds and all ounce data are troy ounces of 31.103 grams. Except as
otherwise stated, the term "reserves" when used herein refers to proved and
probable reserves for copper, molybdenum, gold, and coal, and proved reserves
for lithium and iron ore. The term "reserves" as it relates to petroleum and
natural gas is defined separately in the applicable sections of this report.
Reserve estimates were prepared by Cyprus Amax's engineers. Information
regarding Cyprus Amax's mineral reserves and selected operating statistics and
supplemental information on petroleum and natural gas activities are
incorporated by reference from pages 62 through 64 of the 1993 Annual Report to
Shareholders (1993 Annual Report). In addition, data related to Cyprus Amax's
industry segments and foreign and domestic operations and export sales are
incorporated by reference from "Management's Discussion and Analysis of Results
of Operations and Financial Condition" (Management's Discussion), pages 28
through 37 in the 1993 Annual Report, and from Note 18 to the Financial
Statements on pages 59 and 60 in the 1993 Annual Report. Except as otherwise
stated, Cyprus Amax has access to its properties and sources of power adequate
to carry on its business currently as conducted.
The term Cyprus Amax when used herein may refer collectively to the parent
Cyprus Amax Minerals Company and its subsidiaries and affiliates, or to one or
more of them, depending upon the context.
COAL SEGMENT
Cyprus Amax mines, cleans, markets, and sells coal to electric utilities and
industrial users. The following table shows capacity, quality characteristics
and reserves for Cyprus Amax's coal operations for 1993. Sixty-four percent of
year-end 1993 domestic reserves are compliance quality (less than 1.2 pounds of
SO2 per million Btus contained) while 16 percent are low in sulfur content
(less than 2.5 pounds of SO2 per million Btus contained).
<TABLE>
<CAPTION>
Year-End 1993 Reserves/(1)/
(Millions of Tons)
Annual -----------------------------
Coal Capacity Average Average Average Mineable with Require
Business (Millions Btu Contained Recovery Existing New
Unit Type of Tons) per Pound Sulfur % % Facilities Facilities Total
- -------- ----------- -------- ------------- --------- -------------- ---------- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Pennsylvania underground 8-9 13,000-13,200 1.2-3.0 70-90 215 0 215
West Virginia surface and 7 11,700-14,000 0.6-1.8 60-100 85 58 143
underground
Kentucky surface and 6-7 11,300-13,000 0.8-1.7 65-100 180 0 180
underground
Midwest surface and 9-12 11,000-11,500 0.6-4.0 65-100 153 809 962
underground
Wyoming surface 38 8,270-8,515 0.3-0.4 100 887 0 887
Colorado underground 11 10,600-11,250 0.4-0.6 100 157 0 157
Utah underground 4 11,400-12,000 0.5-0.6 90-100 24 113 137
----- --- -----
1,701 980 2,681
===== === =====
</TABLE>
/(1)/ Coal reserves include proved and probable mineral reserves measured on
a clean recoverable basis.
1
<PAGE>
In 1993 Cyprus Amax produced 26.9 million tons of coal and sold 27.7 million
tons. These amounts include 6.4 million tons and 6.5 million tons of production
and shipments, respectively, from Amax operations in the 47 days following the
merger. In addition, Cyprus Amax's share (approximately 40 percent) of Oakbridge
Limited after the second quarter 1993 acquisition of McIlwraith McEacharn Ltd.
represented 2.3 million tons of production and 2.9 million tons of shipments.
Production from Cyprus Amax's coal operations and average selling prices are
shown in the table below:
<TABLE>
<CAPTION>
Average Sales Price
--------------------------
Coal Production Contract Spot
Business ----------------- ------------ ------------
Unit 1993 1992 1993 1992 1993 1992
- -------- -------- ------- ----- ----- ----- -----
(Millions of Tons) ($/Ton) ($/Ton)
<S> <C> <C> <C> <C> <C> <C>
Pennsylvania 4.9 3.3 27.19 27.57 22.75 24.15
West Virginia 1.8 1.6 29.44 29.76 22.31 19.42
Kentucky 4.5 4.7 32.51 33.30 22.79 16.18
Midwest 1.3 - 33.72 - 22.25 -
Wyoming 4.5 - 7.51 - 3.28 -
Colorado 6.1 5.7 19.07 19.33 13.97 14.74
Utah 3.8 3.4 20.84 20.75 15.25 15.93
---- ----
26.9 18.7
Oakbridge
(Equity share) 2.3 - 23.30 - 14.51 -
---- ----
29.2 18.7
==== ====
</TABLE>
COAL OPERATIONS
Pennsylvania
The Emerald and Cumberland mines are contiguous underground operations
located in the southwestern part of Pennsylvania. Cumberland was acquired from
U.S. Steel Mining Company in May 1993. In addition to the mine, the purchase
included a preparation plant and barge loading facility on the Monongahela
River. Both mines are in the Pittsburgh coal seam utilizing the longwall mining
method and the reserves are owned by Cyprus Amax. Coal is processed through
preparation plants and is transported by rail and river barge to utilities in
the Northeast and Midwest. The hourly work forces at both mines are represented
by the United Mine Workers of America (UMWA). The majority of mining equipment
is owned but approximately one-third is leased.
West Virginia
The Kanawha River operations, located approximately 25 miles east of
Charleston, West Virginia, consist of the Stockton underground mine and the Dunn
and Armstrong Creek surface mines. The underground mine utilizes continuous
miners; the surface mines currently employ trucks, hydraulic excavators and
endloaders. The Dunn surface mine plans to deploy a dragline in the second half
of 1994. Both raw and processed coal of various qualities are marketed to
electric utilities and industrial customers; transportation primarily is by
barge. Maple Meadow mine produces high grade, low volatile metallurgical coal
from an underground mine located in Raleigh County, West Virginia. Processed
coal is transported by rail to steel mills in North America. The West Virginia
operations also include a small underground mine and preparation plant in Boone
County and a preparation plant in McDowell County. The hourly work force at all
operations is represented by the UMWA. Mining is conducted on owned property
and under private leases. Except for the dragline, which is under an operating
lease, mining equipment is owned.
2
<PAGE>
Kentucky
Mountain Coals is primarily a surface operation consisting of two adjacent
mines (Star Fire and Lost Mountain) located in eastern Kentucky. Both of these
mines are mountaintop removal operations using draglines, shovels and trucks to
extract five seams of coal. Mining operations are conducted on fee coal
properties and private coal leases, with both owned and leased equipment. A
preparation plant is used to wash a portion of the production. Almost all of
the production is dedicated to long-term contracts with two utility customers.
In addition to the surface operations, Mountain Coals has an underground mine
and preparation plant (Pine Mountain) producing approximately 800,000 tons per
year utilizing a contract miner. All the processed coal is transported by rail.
In late 1993, the hourly work force at Mountain Coals voted to be represented by
the UMWA and preliminary agreement on a contract was reached on March 23, 1994,
subject to ratification.
Midwest
Midwest operations consist of four surface mines and a large underground mine
located in southern Indiana and Illinois plus a small dragline operation in
Tennessee. The Ayrshire mine (located in Warrick County, Indiana) was idled in
December 1993 after depletion of economically mineable surface reserves in the
current pit and expiration of coal supply contracts. Reclamation of the pit has
commenced while future mining is evaluated. The Chinook mine (located in Clay
and Vigo counties of west central Indiana), the Delta mine (Williamson and
Saline Counties in Illinois) and the Minnehaha mine (Sullivan County, Indiana)
all deploy large draglines to uncover multiple seams of coal. All three mines
process coal through preparation plants and deliver coal by unit train to
utility customers under long-term supply agreements. The Sycamore surface mine
operates in Knox County, Indiana from which coal is trucked to utility and
industrial accounts. The Wabash underground mine is located in Wabash County,
Illinois. Wabash continuous miners access the Illinois #5 seam and coal is
conveyed to the surface and processed prior to shipment. The facility's major
contract customer is located ten rail miles from the mine. Hourly employees at
the Indiana and Illinois mines are represented by the UMWA. Skyline mine is
located in Sequatchie County, Tennessee. The coal is uncovered by a mid-sized
dragline and transported raw to utility and industrial customers by rail and
truck. Throughout the Midwest, surface and mineral rights are controlled
through fee ownership and private leases. Mining equipment is predominantly
owned, although a portion is leased.
Colorado
Cyprus Amax operates three underground mines in the Colorado business unit:
Twentymile, Empire and Shoshone. Mining is conducted on a combination of
private, state and federal coal leases. All operations use the longwall mining
method. The coal is shipped on a raw basis to utility and industrial plants in
the West, Midwest and Southeast. The Twentymile and Empire mines are located in
northwestern Colorado; the hourly work force at Empire is represented by the
UMWA. The Shoshone mine is located in southern Wyoming. Twentymile and
Shoshone own their production equipment and Empire leases the longwall
production equipment.
Wyoming
Cyprus Amax operates, in the Powder River Basin, two of the nation's largest
surface mines -- the Belle Ayr and Eagle Butte mines, which are located near
Gillette, Wyoming. The open pit method of mining is used at both mines with
shovels used to remove both overburden and coal. Coal is trucked to a plant for
crushing prior to shipment. Unit trains move coal to utilities in most regions
of the country with the majority sold under long-term contract. Most mining
equipment is owned. Surface rights are held through fee ownership while
reserves are primarily controlled through federal and state leases.
3
<PAGE>
Utah
The Utah business unit consists of the Plateau and Orchard Valley mines. The
Plateau operation, located near Price, Utah, mines underground reserves
utilizing a longwall mining system. Plateau owns its production equipment,
including a preparation plant, but leases coal reserves, mainly from the federal
government. Plateau sells raw and processed coal, plus a blended product.
Plateau's coal is transported from the mine by rail primarily to utility
customers in the West and to Pacific Rim markets through West Coast ports.
Cyprus Amax operates and owns 80 percent of the Orchard Valley mine in western
Colorado. The remaining 20 percent interest is owned by Mitsubishi Corporation
of Japan (15 percent) and Samsung Company Ltd. of Korea (5 percent). This
underground mine extracts coal with owned continuous mining equipment. Orchard
Valley's coal is transported from the mine by rail to utility customers in the
West and Midwest and also is exported to Pacific Rim countries.
Australia
During 1993 Cyprus acquired 100 percent ownership of McIlwraith McEacharn
Ltd. of Sydney, Australia, which owns approximately a 40 percent interest and
has the right to be the operator in Oakbridge Limited of Australia. Oakbridge
is a major independent coal producer with six mines in New South Wales which
produce approximately 12 million tons annually. Proved and probable reserves
total 359 million tons of which Cyprus Amax's equity share is 143 million.
Almost all of Oakbridge's production is exported to the Pacific Rim. Sales
generally are made through agents under long-term "evergreen" contracts. The
sales mix is approximately 70 percent steam coal and 30 percent metallurgical
product. Plans are underway to expand production to more than 15 million tons
to supply growing markets and to reduce the need for purchased blend coals.
This expansion is expected to be financed through Oakbridge borrowings and
internally generated cash flows.
Coal Marketing Arrangements
Almost all of Cyprus Amax's coal sales are steam coal to electric utilities.
Approximately 65 percent of Cyprus Amax's 1993 coal sales, including the Amax
operations for the 47 days post merger, were made under contracts with an
initial duration longer than one year (term contracts). This percentage is
expected to increase to 75 percent in 1994. These contracts are priced using a
combination of cost pass-through, base price plus cost index escalation and/or
market adjustments. While such contracts generally are more advantageous than
sales on the spot market, they can be subject to periodic renegotiation of price
and quantity. Most contracts also are subject to partial or complete suspension
by the customer or producer in the event of certain force majeure events, such
as damage to the customer's plant or work stoppages.
At December 31, 1993, Cyprus Amax had term contracts covering an aggregate of
approximately 600 million tons, including 56 million tons to be delivered in
1994. Less than six percent of contracted coal tonnage is under agreements
which expire before 1998; the remainder is committed under contracts which
expire between 1998 and 2020. To maintain current realized prices as contracts
expire, Cyprus Amax will need to sign new contracts, extend existing contracts
or make additional spot market sales at prices above current spot market prices.
During 1993 sales primarily from Kentucky operations to two utilities accounted
for 21 percent of coal revenue; one for 13 percent and the other for eight
percent. These contracts expire in 1995 and 1998, respectively.
Eastern Markets. Shipment levels at Cyprus Amax's Pennsylvania, Kentucky
----------------
and West Virginia units remained steady during 1993. Overall, Central
Appalachian coal production dropped significantly due to a prolonged labor
strike by the UMWA which affected selected Bituminous Coal Operators Association
members during 1993. Cyprus Amax operations were not affected directly by the
strike. As utilities continue to test and evaluate low sulfur coals in
preparation for compliance with the Clean Air Act Amendments of 1990 (see "Coal-
- -Clean Air Act Amendments of 1990") the future demand for low
4
<PAGE>
sulfur coals such as those produced at certain Eastern and Western Cyprus Amax
units is expected to continue to strengthen. During the coming year, several
Eastern utilities affected by the Clean Air Act Amendments are expected to
formalize term commitments for lower sulfur coals from these regions.
Midwest Markets. Shipments in 1993 from Cyprus Amax's Midwest unit declined
----------------
from 1992 levels due primarily to temporary reductions of contract deliveries to
one major Midwestern customer and the temporary closure of one mine. Despite
the flooding in the Midwest, the overall market for coal in this region
stabilized in 1993 as economic conditions improved and the demand for electric
energy increased over 3% with a return of more normal temperatures.
Overall coal demand from the Midwest is expected to decline over the next
several years due to continuing uncertainties over the long-term suitability of
high sulfur coals produced in Illinois and Indiana. These uncertainties result
from provisions of the Clean Air Act Amendments of 1990, state regulatory
requirements and other proposed legislation which would require utilities to
lower emissions levels (see "Coal--Clean Air Act Amendments of 1990"). However,
coal is, and is expected to continue to be, the major energy source for
generating electrical power in the Midwest. Cyprus Amax holds several long-term
contracts with terms extending beyond 2000 that call for deliveries to major
regional utility plants. These contracts provide a tonnage base for supporting
operating levels at Cyprus Amax's Midwestern unit through at least 2002.
Western Markets. Shipments in 1993 from Cyprus Amax's Colorado, Wyoming and
----------------
Utah units collectively increased from 1992 levels as a result of improved spot
and long-term market demand. Overall, interest by electric utilities in Powder
River Basin coal as well as higher Btu, low sulfur Colorado coals, continued to
strengthen in 1993. In addition to traditional market activity, several
electric utilities not currently committed to purchase coal from these regions
are conducting test burns of these low sulfur coals as a potential means of
complying with more stringent emissions standards. Cyprus Amax will continue to
pursue new long-term business with these utilities. Although the Powder River
Basin historically has been affected by overcapacity, Cyprus Amax's seven major
long-term coal supply agreements provide a production base for the Wyoming unit.
These contracts expire between 1998 and 2020 with over 50 percent of the annual
tonnage committed until 2013.
Clean Air Act Amendments of 1990. Title IV of the Clean Air Act Amendments
---------------------------------
of 1990 is intended to reduce acid precipitation by mandating reductions in
sulfur and nitrous oxides from electric generating stations. The law adopted a
goal of achieving, by the year 2000, nationwide reductions of 10 million tons of
sulfur dioxide and 2 million tons of nitrous oxides from 1980 levels. Phase I
will affect 110 power plants in the Midwest, the Southeast and the East starting
January 1, 1995. Phase II, beginning January 1, 2000, will affect almost all
power plants in the United States. While the base emissions standard under
Phase I is 2.5 pounds of sulfur dioxide for every million Btus of fuel burned
and is reduced to 1.2 pounds per million Btus under Phase II, the actual sulfur
content of coal required by utilities may vary widely due to various options
available to utilities to comply with the Clean Air Act Amendments. These
include installing emissions controls (scrubbers) on existing facilities,
switching to alternative fuels, closing facilities, and/or buying and selling
emissions allowances.
The compliance strategies which utilities will follow cannot be predicted
with certainty due to the multiple options available, the extended compliance
time frames and the unique characteristics of each utility system. Cyprus Amax
believes, however, that its overall business and financial condition will not be
affected materially by the Clean Air Act Amendments because of its diverse
portfolio of mines and products, shipments to plants with scrubbers in place and
strategic steps taken over the last several years in anticipation of the
enactment of acid precipitation legislation. The Amendments are expected to
increase the demand for and value of Cyprus Amax's low sulfur reserves in the
Powder River Basin, Colorado, Utah, and central Appalachia since many utilities
are expected to comply with the new emissions standards by switching to lower
sulfur coal. The effects on Cyprus Amax's Illinois Basin high sulfur reserves
cannot be predicted with any degree of certainty until utility compliance plans
become more firm. Approximately 25 percent of Cyprus Amax's Midwest shipments
are to plants that are not
5
<PAGE>
materially adversely affected by the Clean Air Act Amendments because they
already have scrubbers in place. An additional 40 to 50 percent are committed
to regional utilities which Cyprus Amax believes have a high probability of
continuing use of Cyprus Amax coals through at least Phase I.
6
<PAGE>
COPPER SEGMENT
Cyprus Amax explores for, mines, processes, and markets copper and molybdenum
and certain other by-product minerals. Production information at Cyprus Amax's
principal mine operations in the Copper segment is summarized in the following
tables for the years 1992 and 1993. The 1993 year-end ore reserve information is
as follows:
<TABLE>
<CAPTION>
Ore Reserves December 31, 1993
- ------------ --------------------------------------------------
Mineable Ore
Reserves/(1)(2)/ Average Grade
------------------ ----------------------------
(Millions of Tons) Copper Molybdenum
------- ------------
Operation (%) (%)
---------
<S> <C> <C> <C>
Bagdad 1,188.4 .37 .020
Sierrita/Twin Buttes 936.0 .29 .032
Miami 284.2 .45 -
Casa Grande 22.0 .67 -
Pinos Altos .2 6.01 -
Mineral Park 67.4 .23 -
Henderson 180.5 - .23
Climax 135.9 - .22
------------
2,814.6
============
- ------------
</TABLE>
/(1)/ Copper and molybdenum reserves include proved and probable reserves.
/(2)/ Extraction and processing losses have been taken into account in the
calculation of mineable ore reserves shown.
<TABLE>
<CAPTION>
Mine Statistics 1993 1992
- --------------- ------------------------------------------------ -----------------------------------------------------
Material Ore Stripping Material Ore Stripping
Mined/(1)/ Mined Ratio/(2)/ Mined/(1)/ Mined Ratio/(2)/
---------- ------ ---------- ---------- ----- -----------
(Millions of Tons) (Millions of Tons)
Operation
---------
<S> <C> <C> <C> <C> <C> <C>
Bagdad 66.0 27.8 1.38 52.2 29.0 .80
Sierrita/Twin Buttes 70.9 35.4 1.00 74.7 38.6 .94
Miami 61.4 28.8 1.14 51.6 28.2 .83
Thompson Creek - - - 17.7 8.1 1.19
Pinos Altos .1 .1 - .1 .1 -
Henderson/(3)/ .5 .5 - - - -
Climax/(3)/ - - - - - -
----- ----- ----- -----
Total 198.9 92.6 196.3 104.0
===== ===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
Mill Statistics 1993 1992
- ---------------------- -------------------------------------- ---------------------------------------
Ore Grade Ore Grade
------------------- -------------------
Ore Milled/(4)/ Copper Molybdenum Ore Milled/(4)/ Copper Molybdenum
----------------- ------ ---------- ----------------- ------ ----------
(Millions of Tons) (Percent) (Millions of Tons) (Percent)
Operation
---------
<S> <C> <C> <C> <C> <C> <C>
Bagdad 26.1 .56 .024 27.9 .42 .023
Sierrita/Twin Buttes 36.0 .39 .037 35.5 .39 .032
Miami - .34 - - .42 -
Thompson Creek - - - 8.2 - .101
Pinos Altos .1 6.25 - .1 7.87 -
Henderson/(3)/ .5 - .29 - - -
Climax/(3)/ - - - - - -
----- -----
Total 62.7 71.7
===== =====
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
Production 1993 1992
- ---------- --------------------------- ----------------------------
Copper Molybdenum Copper Molybdenum
------ ---------- ------ ----------
(Millions of Pounds) (Millions of Pounds)
Operation
---------
<S> <C> <C> <C> <C>
Bagdad 230.8 7.8 219.6 10.0
Sierrita/Twin Buttes 264.2 18.1 288.5 15.4
Miami 112.7 - 125.9 -
Thompson Creek - - - 14.9
Casa Grande/(5)/ .3 - .1 -
Pinos Altos 16.4 - 6.8 -
Mineral Park 3.0 - 4.0 -
Henderson/(3)/ - 2.9 - -
Climax/(3)/ - - - -
Selwyn/(6)/ 4.2 - 17.4 -
----- ---- ----- ----
Total 631.6 28.8 662.3 40.3
===== ==== ===== ====
</TABLE>
- ------------
/(1)/ Includes ore mined and waste on a wet short ton basis.
/(2)/ Represents the ratio of waste to ore mined.
/(3)/ For the period November 15 to December 31, 1993 only.
/(4)/ Includes ore milled on a dry short ton basis.
/(5)/ Includes roaster loss netted against underground leach production.
/(6)/ By-product production from a gold mine which was sold in 1993.
Climax Metals Copper/Molybdenum Operations
In 1993 Cyprus Amax produced 627 million pounds of copper and 29 million
pounds of molybdenum from its copper and molybdenum operations in the United
States, including the Amax operations for the 47-day period following the
merger. In addition, 4 million pounds of by-product copper were produced at the
Selwyn gold operation in Australia prior to its sale in the second quarter of
1993. During 1993 a significant fleet modernization program was completed at
Bagdad, Sierrita and Miami which included the purchase of thirty-four 240-ton
trucks, four 53-cubic yard shovels and computerized mine dispatch systems.
Bagdad
At the Bagdad mine in northwestern Arizona, Cyprus Amax mines copper sulfide
ore and produces copper concentrates with significant molybdenum and minor
silver by-products. The operation consists of an open pit mine, an
approximately 85,000 ton per day expanded sulfide ore concentrator producing
copper and molybdenum concentrates, and an oxide and low grade sulfide ore dump
leaching system with a solvent extraction-electrowinning (SX-EW) plant producing
copper cathode. A 13 percent expansion of the mill at Bagdad and a 25 percent
expansion of the SX-EW operation to 30 million pounds annually of copper were
completed in late 1993. In 1993 Bagdad produced 24.6 million pounds of
electrowon copper cathode, or 10.7 percent of its total copper production.
Cyprus owns the mine and all production equipment and holds the tailings areas
primarily under Arizona commercial leases. In 1993 the Bagdad concentrator
milled approximately 26 million tons of ore, down 1.8 million tons from 1992 due
to the tie-in of certain expansion equipment.
8
<PAGE>
Sierrita/Twin Buttes
Cyprus Amax operates its adjacent Sierrita and Twin Buttes mines in south
central Arizona as one consolidated operation. Cyprus Amax owns the Sierrita
copper and molybdenum mine, which consists of an open pit mine, an approximately
110,000 ton per day expanded sulfide ore concentrator, a molybdenum plant, two
molybdenum roasters, and related mining equipment. A 10 percent expansion of the
concentrator was completed in late 1993. Sierrita's facilities are located on
patented and unpatented mining claims and fee land owned by Cyprus Amax. Copper
ore mined at Sierrita and the neighboring Twin Buttes mine is processed at
Sierrita into copper and molybdenum concentrates. Sierrita also uses an oxide
and low grade sulfide ore dump leaching system with a solvent extraction-
electrowinning plant to produce copper cathode. Total Sierrita/Twin Buttes
electrowon copper cathode production in 1993 totalled 21.2 million pounds, or
eight percent of its total copper production. Nearly one-half of Cyprus Amax's
molybdenum concentrate production is processed through Sierrita's on-site
roasters. The resulting molybdenum oxide and related products are packaged for
shipment to customers worldwide or transported to other facilities for further
processing.
Cyprus Amax leases the Twin Buttes open pit copper mine under a 15-year lease
entered into in March 1988. The mine is located on a combination of unpatented
mining claims and fee lands leased by Cyprus Amax. Twin Buttes ore is
transferred to Sierrita by a 6.8 mile conveyor system. Twin Buttes contributed
39 percent of the total sulfide copper concentrate production from the Sierrita
concentrator in 1993. In addition to recovering copper sulfide ore, Twin Buttes
leached copper from oxide ore in an agitation leach for processing in Twin
Buttes' SX-EW plant to produce copper cathode. The agitation leach process,
which produced 40.9 million pounds of copper cathode in 1992, was shut down in
December 1992 with the depletion of Twin Buttes oxide ore, while sulfide
production at Twin Buttes is expected to continue through mid-1994. Additional
Sierrita ore production will replace the Twin Buttes ore in the mill.
Miami
The Miami operations consist of an open pit mine producing acid soluble ore
for heap leaching operations, a SX-EW plant producing copper cathode, a smelter,
a refinery, and a rod mill. The facilities are located near Miami, Arizona, on
a combination of fee property owned by Cyprus Amax, patented and unpatented
mining and mill site claims, and private and state leases. Miami's 1993
production of 113 million pounds of copper cathode from the leaching and SX-EW
operations was below capacity of approximately 130 million pounds because of
record heavy rainfall early in 1993.
The Miami smelter expansion and modernization project was completed mid-year
1992. Only 328,000 tons of concentrate were smelted in 1992 due to shutdowns
for repairs, maintenance and modifications. The process was converted from use
of an electric furnace to utilization of an ISASMELT vessel. The new smelter
ran at a much higher throughput rate since the mid-year 1993 improvements. The
plant generally operated at about 90 percent of design capacity for the last two
quarters of 1993, except for several brief periods to permit additional
modifications. The Miami rod mill operated near capacity in 1993.
Construction continues toward the planned fourth quarter 1994 start-up of a
new electrorefinery at Miami. Upon completion, this project is expected to make
Cyprus Amax self-sufficient in copper refining.
Henderson
Cyprus Amax owns the underground Henderson mine near Empire, Colorado. The
operation consists of an underground mine where block caving techniques are
employed to extract molybdenite ore
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which is transported by rail ten miles underground and then five miles along the
surface to a concentrator facility. The concentrator is capable of operating at
a rate of 28,000 tons per day, producing molybdenum concentrates containing up
to 58 percent molybdenum. Both the mine and mill are located on fee land owned
by Cyprus Amax. Most of the concentrates are shipped to the Ft. Madison
roasting and chemicals processing facility where a number of different
metallurgical metals and chemical products are made for final sale to customers.
A portion of Henderson's production is sold directly to customers as molybdenum
sulfide. For the full year 1993, Henderson produced 4.5 million tons of ore
containing 24 million pounds of molybdenum. In early 1993 Climax Molybdenum
announced that it was reducing production from the Henderson mine in response to
weak demand for molybdenum.
Climax
Cyprus Amax owns the Climax mine near Leadville, Colorado. The operation
consists of both an underground and open pit mine along with an approximately
18,000 tons per day concentrator. The Climax mine is on stand-by status pending
an improvement in molybdenum market conditions.
Thompson Creek
In late 1993 Cyprus Amax sold its Thompson Creek molybdenum mine in central
Idaho. The Thompson Creek molybdenum mine had been shut down temporarily in
December 1992 as a result of weak demand for molybdenum in the worldwide steel
business.
Other Operations
Cyprus Amax's other copper operations include the Casa Grande operation in
south central Arizona, which consists of an underground copper mine, a
potentially large open pit copper mine, and two on-site concentrate roasters
with a combined annual roasting capacity of approximately 150,000 tons of copper
concentrate. Roaster operations were suspended in the fourth quarter of 1993
with concentrates rerouted to the lower-cost Miami smelter. The facility is
located on reservation lands leased from the Tohono O'Odham Nation. Cyprus Amax
is evaluating opportunities for copper production through open pit mining and
heap leaching of the Casa Grande orebody. About 30 million pounds of SX-EW
production is planned for Casa Grande in 1994 from a heap leach pad and small
open pit. Cyprus Amax owns the Pinos Altos copper mine in southwest New Mexico.
The mine is located on a combination of unpatented mining claims and fee
properties which are owned by Cyprus Amax subject to certain reversionary
interests. The mine and mill operated at a higher level during 1993, producing
nearly 16 million pounds of copper in concentrate. In addition Cyprus Amax
operates the Mineral Park mine, which consists of copper dump leaching operation
which during 1994 will be converted into a SX-EW operation capable of producing
6 to 8 million pounds of copper per annum. The mine is located in northwest
Arizona on fee land owned by Cyprus Amax and on unpatented mining claims and
mill sites. Cyprus Amax also owns a molybdenum operation and potential copper
resource near Tonopah, Nevada, including an open pit mine, a 24,000 ton per day
concentrator and related mining equipment. The facility, located on fee land
owned by Cyprus Amax and on unpatented mining claims and mill sites, is on care-
and-maintenance status. Cyprus Amax owns and operates a rod plant located in
Chicago, Illinois. This facility is located on fee land owned by Cyprus Amax and
has the capacity to produce over 300 million pounds of high quality continuous
cast copper rod per year. In 1993 Cyprus Rod Chicago operated near capacity. In
November 1993 Cyprus Amax was the successful bidder for Sociedad Minera Cerro
Verde, S.A. ("Cerro Verde"), a producing copper mine located in southern Peru.
Cerro Verde is a large copper resource with about 200 million tons of leachable
ore reserves at 0.8 percent copper. Cyprus Amax closed the acquisition of
approximately 91.5 percent of the shares of Cerro Verde on March 21, 1994.
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Cyprus Amax leases office space in Tempe, Arizona, for copper and molybdenum
administration and sales and leases space for small sales offices in Pittsburgh,
Pennsylvania; Dusseldorf, Germany; and Tokyo, Japan.
Converter Facilities
Molybdenum Conversion Facilities. Cyprus Amax transports molybdenum
--------------------------------
concentrates to its conversion plants in the United States and Europe where they
are converted into such products as technical molybdic oxide, ferromolybdenum,
pure molybdic oxide, ammonium molybdates and molysulfide powders. Roasting
operations to convert concentrate into product currently are conducted at the
Sierrita, Arizona; Fort Madison, Iowa; and Rotterdam, Netherlands plants.
A portion of Cyprus Amax's molybdenum oxide production is shipped to its
Metec facility in New Jersey. This facility, located on fee land owned by
Cyprus Amax, includes a sublimation furnace used to produce high purity
molybdenum oxide, and hydrogen reduction furnaces used to produce molybdenum
metal.
Specialty Metals. Climax Performance Materials Corporation produces powder
----------------
and mill products of pure molybdenum, molybdenum alloys, tungsten and certain
nickel-based alloys at plants located in Coldwater, Michigan and Cleveland,
Ohio. Products manufactured at such plants are used in industrial, aerospace,
defense, and medical applications where special physical and mechanical
properties are required. These include high temperature furnaces, melting
electrodes for container and insulation glass, deep gas well tubing, tooling for
aluminum, brass, zinc, and magnesium die casting, x-ray targets and body
implants, heat dissipating devices for semi-conductors, and power amplifier
tubes.
Additional facilities include a plant in the United Kingdom that supplies
fabricated refractory metal components to the electronics, defense, aerospace,
materials processing, glass and chemical processing industries; a plant in
Forbes Road, Pennsylvania that supplies fabricated electronic components; and
the ultra-high purity metals business, located in Golden, Colorado, that
produces powders for the manufacture of sputtering targets.
A joint venture with the French group, P. Balloffet, Molytech S.A., based in
the Lyon region of France, fabricates molybdenum and other refractory mill
products for sale primarily to the electronics, aviation, nuclear, and glass
markets in Europe.
Equity Interests
Tungsten. On December 29, 1992, the shareholders of the following
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publicly-held Canadian mining companies approved an amalgamation of such
entities: (1) Canada Tungsten Mining Corporation Limited (Cyprus Amax interest
56%), owner of a scheelite (calcium tungstate) mine located at Tungsten,
Northwest Territories; (2) Canamax Resources, Inc. (Cyprus Amax interest 43%),
owner of a carbon-in-pulp gold mill facility near Wawa, Ontario and several gold
exploration properties also in Ontario, and (3) Minerex Resources Ltd. (Canada
Tungsten Mining interest 50.5%), which has a one-half joint venture interest in,
and is operator of, a heap leach gold mine near Hawthorne, Nevada. The purpose
of the amalgamation was to effect the combination of the businesses and
undertakings of the three organizations into one public company under the name
Canada Tungsten Inc. (Cyprus Amax interest 48%). Production from Canada
Tungsten's scheelite mine has been suspended since 1986 due to adverse market
conditions and low product prices. In December 1992, Canada Tungsten sold back
its leasehold interest in Climax Molybdenum's ammonium paratungstate plant at
Fort Madison, Iowa but can reacquire such interest in the event that market
conditions for tungsten products improve. Processing of ammonium paratungstate
at Fort Madison has been suspended since March 1990.
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Metals Recovery. Cyprus Amax has a 50% partnership interest with a
---------------
subsidiary of Shell Oil Company in an industrial waste recycling operation
located in Braithwaite, Louisiana. Recoverable products include vanadium,
molybdenum, alumina trihydrate, and nickel-cobalt concentrate. The
partnership's activities also include the recycling of chrome/aluminum sludge
from metal finishing.
El Abra. In October 1993 Cyprus and Lac Minerals Ltd. (Lac) announced that
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their 50/50 partnership was the successful bidder for a 51 percent interest in
the El Abra copper property in Chile. The development plan anticipates
production of 500 million pounds per year of refined copper cathodes, with
initial production to begin in 1997. On February 8, 1994, Cyprus, Lac, and
Codelco jointly announced that the closing of the acquisition has been postponed
pending resolution of certain technical matters. The technical work remaining
is to resolve variances between the recent check assays performed by Cyprus and
Lac and the original assays made in the mid-1970s. Additional work to resolve
issues raised by the variances is under way.
Copper Processing
In 1993 Cyprus Amax processed approximately 606,000 tons of Cyprus Amax
domestic copper concentrates at its own facilities, or 76 percent of its 1993
copper concentrate production. The balance of Cyprus Amax's 1993 copper
concentrate production was treated under arrangements with third parties or sold
as copper concentrates. The expanded Miami smelter will enable Cyprus Amax to
be self-sufficient in copper smelting at current mine production levels.
Copper/Molybdenum Marketing Arrangements
Cyprus Amax has the capacity to produce over 500 million pounds per year of
continuous cast rod at its Miami, Arizona and Chicago, Illinois rod mills. This
capability gives Cyprus Amax a value-added copper product and access to a
broader customer base. Approximately 10 percent of Cyprus Amax's total copper
sales were for export markets. Substantially all of Cyprus Amax's copper metal
production is committed under sales agreements with metals fabricators at prices
which fluctuate with commodity exchange quotations. Cyprus has acquired copper
put options, which will ensure a minimum average realization of $.92 per pound
(based on London Metal Exchange prices) on 150 million pounds of expected first
quarter 1994 produced copper sales, a minimum of $.78 per pound on 150 million
pounds of second quarter sales and a minimum of $.81 per pound on 301 million
pounds of third and fourth quarter sales.
Of Cyprus Amax's 647 million pounds of produced copper sales in 1993, 114
million pounds were sold as concentrate including 4 million pounds from Selwyn,
98 million pounds as cathode, and 435 million pounds as rod. Comparable figures
for 1992 were 608 million pounds of produced copper sold, of which 117 million
pounds were sold as concentrate sales including 19 million pounds from Selwyn,
114 million pounds sold as cathode, and 377 million pounds as rod.
Molybdenum is used primarily in the steel industry for corrosion resistance and
strengthening. As is customary, a substantial portion of Cyprus Amax's expected
1994 molybdenum production is committed for sale throughout the world pursuant
to annual, long-term and spot sale agreements.
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OTHER MINERALS SEGMENT
Lithium Operations
Cyprus Amax is a major producer of lithium with primary lithium production
facilities in Nevada and Chile. Lithium and lithium compounds are used in the
smelting of aluminum and in the manufacture of ceramics, glass, greases, high
performance batteries, synthetic rubber, and pharmaceuticals.
At the Silver Peak facility in Nevada, Cyprus Amax produces a lithium brine
from salt brines recovered from wells and concentrated in solar evaporation
ponds. These facilities and the related plant for chemical conversion of the
concentrated brine to lithium carbonate are situated on approximately 17,000
acres of patented and unpatented placer mining claims. Reserves at December 31,
1993, totalled 44,600 tons of elemental lithium which is equivalent to
approximately 230 million pounds of lithium carbonate. During 1993 Silver Peak
operated approximately 25 percent below its long-term production capacity,
producing 9.0 million pounds of lithium carbonate. In 1994 Silver Peak
production is expected to remain at essentially the same level of production as
1993.
Cyprus Amax owns 100 percent of a Chilean limited partnership which holds a
brine deposit and owns a lithium carbonate processing facility in northern
Chile. Reserves available to Cyprus Amax are determined by a contract with the
Chilean government. As of December 31, 1993, this amounted to 206,000 tons of
elemental lithium which is equivalent to approximately 2.2 billion pounds of
lithium carbonate. Production during 1993 was 23.0 million pounds of lithium
carbonate which was approximately 90 percent of capacity. In addition Cyprus
Amax produces potash from by-product salts generated at its brine operation in
northern Chile. Production and sales totalled 59,000 tons in 1993. All sales
are made under long-term contacts to a major Chilean chemical company.
Cyprus Amax also operates a plant in Sunbright, Virginia, for the conversion
of lithium carbonate to lithium hydroxide. The plant is located on a
combination of owned and leased land. Cyprus Amax also operates a butyllithium
production facility in New Johnsonville, Tennessee, located on fee land owned by
Cyprus Amax. Construction which will result in a 50 percent expansion at the
New Johnsonville plant continued during 1993 with start-up expected in the first
half of 1994. Cyprus Amax also owns manufacturing facilities for various
lithium chemicals and lithium metal casting located on 1,006 acres of fee and
leased land in Kings Mountain, North Carolina. An open pit mine and lithium
processing facility at Kings Mountain were shut down in 1991, and the mine is on
a care-and-maintenance status. Future production from the 146,000 tons of
elemental lithium reserves at Kings Mountain will depend on new or improved
markets or the depletion of other reserves. In addition Cyprus Amax leases
commercial property in Exton, Pennsylvania, for research and development work
and for the manufacture of various forms of lithium metal and lithium alloys.
Cyprus Amax also leases office space in Malvern, Pennsylvania, for lithium
administration and sales. Cyprus Amax will consolidate its Pennsylvania lithium
activities to Kings Mountain in 1994.
Lithium Marketing Arrangements
Cyprus Amax sells lithium carbonate, lithium hydroxide, butyllithium, lithium
chloride, and a variety of other lithium chemical, metal, and metal alloy
products to such diverse markets as aluminum smelting, ceramics, lubricants,
specialty glass, synthetic rubber, plastics, batteries, alloys, and
pharmaceuticals. The various lithium products are sold under a combination of
long and short-term contracts. Sales to one customer accounted for 18 percent
of lithium revenue in 1993.
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Gold Operations
During 1993 Cyprus produced 69,500 ounces of gold from its three gold mines:
Copperstone in Arizona, Selwyn in Australia, and Golden Cross in New Zealand.
In 1992 gold production totalled 247,600 ounces. The production decrease was
attributed to the sale of the South Pacific gold operations and closure of
Copperstone. In the merger, Cyprus Amax retained a 40 percent interest in Amax
Gold. For additional information regarding Amax Gold, see "Equity and Other."
Additionally in mid-1993 a joint stock company, in which Cyprus Amax
participates along with Russian partners, won a concession covering the Kubaka
gold deposit located in Magadan Province, Russia. Cyprus Amax holds a 45
percent interest in and is the manager of the joint stock company.
United States
The Copperstone open pit gold mine in western Arizona is located on
approximately nine square miles of unpatented lode mining claims held by Cyprus
Amax under a long-term lease. Economically extractable ore in the mine was
depleted in December 1992 and mining ceased. The processing plant ceased
operation in 1993. Reclamation of the mine and plant area has commenced in
conformance with federal and Arizona permits.
Cyprus Amax received gold production royalties during 1993 of $1.2 million,
based on a percentage of net smelter returns on certain leases at the Cannon
mine, near Wenatchee, Washington. The most recent projection available to
Cyprus Amax indicates that these royalty payments may end in 1994.
Australia
Cyprus sold its 66.7 percent interest in the Selwyn mine, in Queensland,
Australia, in April 1993.
New Zealand
Cyprus sold its 80 percent joint venture interest in the Golden Cross project
located on New Zealand's North Island in April 1993.
Gold Marketing Arrangements
Gold is traded actively on several markets throughout the world and the
market price is readily ascertainable. Cyprus sold its gold in a combination of
spot sales and a forward sales program, depending on market conditions and other
factors.
Oil and Gas Operations
General
Amax Oil and Gas is a wholly-owned subsidiary and is engaged in the
production and marketing of natural gas, crude oil and natural gas liquids.
Substantially all of the Amax Oil and Gas total reserves are located in the
United States. Approximately 91% of total domestic reserves are located in the
Amax Oil and Gas area of strategic concentration, which includes the states of
Texas, Oklahoma and Louisiana. On March 1, 1994, Cyprus Amax reached an
agreement with Union Pacific Resources Company, a subsidiary of Union Pacific
Corporation, to sell all of its stock of Amax Oil & Gas Inc., for approximately
$819 million. The sale, which has an effective date of September 30, 1993, is
expected to close by March 31, 1994, and will result in after-tax net proceeds
to Cyprus Amax of at least $650 million.
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Operations
Amax Oil and Gas is segmented into three operating units: an exploration and
production company; a plants and pipelines business; and a marketing company.
The exploration and production company is involved in approximately 3,000
productive wells, of which approximately 1,700 are operated by Amax Oil and Gas.
Amax Oil and Gas is engaged in a program to increase its proved producing
reserves through a combination of exploitation, exploration and acquisitions.
Exploitation involves development drilling, workovers, recompletions, enhanced
recovery techniques, and new stimulation procedures. Exploration and
acquisition activities are focussed on prospects which enhance Amax Oil and Gas'
position in strategic areas. During the period November 15 through December 31,
1993, Amax Oil and Gas participated in the drilling of six development wells.
The Ozona area of west Texas continued as the main focus of the development
drilling program with two wells drilled.
The plants and pipelines business processes natural gas to extract natural
gas liquids and delivers the residue gas to pipelines for sale throughout the
United States. Amax Oil and Gas owns an interest in six plants in Texas and
Oklahoma and operates five of them. From the period November 15 through
December 31, 1993, the five operated plants processed in excess of 5.6 billion
cubic feet of natural gas and extracted approximately 12.6 million gallons of
natural gas liquids, adding significantly to the value of the gas processed.
Gathering systems and pipelines owned by Amax Oil and Gas also generate revenue
from gathering and transporting third party gas and allow Amax Oil and Gas to
aggregate large volumes of gas at central points providing market flexibility
and reduced transportation rates on pipelines connected to the plants.
The marketing company, Amax Gas Marketing Inc. (AGM), a wholly-owned
subsidiary of Amax Oil and Gas, markets approximately 375 million Btus per day
of gas for Amax Oil and Gas and third parties. AGM sells natural gas under spot
sales and long-term contracts to a wide variety of gas consumers across the
country. AGM provides full service to its customers, including aggregation of
supply, arranging transportation and furnishing administrative support. AGM has
focussed on development of long-term markets in power generation and a unified
approach to marketing fuels of choice to electric utilities and major industrial
customers.
Reference is made to Appendix A to this Annual Report on Form 10-K for
additional information with respect to Amax Oil and Gas' operations for the
period November 15 through December 31, 1993.
Governmental Regulations
Amax Oil and Gas' operations in the United States have been, and will
continue to be, affected by political developments, by various domestic laws and
regulations concerning the production, gathering and transportation of crude oil
and natural gas and by regulations of various agencies regarding environmental
controls.
During 1993, the Federal Energy Regulatory Commission (FERC) continued to
issue pipeline restructuring orders implementing FERC Order 636 which will bring
fundamental change to the structure governing interstate sales and
transportation of natural gas. This Order will unbundle historic pipeline
marketing, storage and transportation roles and create an open-access
transportation network allowing the buyer and seller of natural gas to arrange
transportation and storage services on a first-come, first served basis with the
pipeline. While it is hoped that this new role of the pipeline companies will
open new marketing opportunities for Amax Oil and Gas, expected judicial
challenges to FERC Order 636 and the implementation of restructuring agreements
make it difficult to predict the ultimate effects of the Order on the gas
marketing industry.
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Iron Ore Operations
Cyprus Amax owns and operates the Northshore iron ore facilities located in
northern Minnesota. Northshore has an open pit mine with approximately 1.2
billion long tons of reserves and a crushing facility located near Babbitt,
Minnesota, on leased and fee land; processing facilities in Silver Bay,
Minnesota, located on fee land owned by Cyprus Amax; and a 47-mile railway
connecting the two operations. The processing facilities at Silver Bay include
a six million long ton per year crusher and concentrator, a pellet plant capable
of producing between 3.4 million and 4.0 million long tons per year depending on
product mix, a 115 megawatt power plant, and a port and loading facility on Lake
Superior.
Sales of iron ore pellets in 1993 were 3.3 million long tons. Cyprus Amax is
committed to sell approximately 2.5 million long tons annually to supply a major
domestic steel producer under contracts which expire at the end of 1996.
Production should be over 3.5 million long tons in 1994 as the result of
additional short-term sales contracts. During 1991 Cyprus entered into a 20-
year contract to sell 40 megawatts of excess capacity from the power plant to an
electric utility.
Talc/Barite Operations
Cyprus sold its talc operations in June 1992 and its barite operations in
January 1993. In 1992 Cyprus produced high quality, floated barite at its Paga
mine and mill located in Cartersville, Georgia, and dry ground, high quality
barite from imported ore on a toll basis in Houston, Texas.
Exploration
Cyprus Amax conducts exploration programs around its producing mines in order
to delineate additional reserves which, if discovered, would extend mine lives.
In addition, Cyprus Amax conducts exploration activities on other properties in
the United States, Chile, Peru, Canada, Australia, Mexico, Panama, Taiwan,
Russia, Guinea, and Greenland. Cyprus Amax's exploration programs focus
primarily on advanced exploration targets in copper and gold.
EQUITY AND OTHER
Amax Gold
Amax Gold Inc. ("AGI") is a 40%-owned company retained in connection with the
Amax merger. AGI is engaged in the mining and processing of gold and silver ore
and in the exploration for, and acquisition and development of, gold-bearing
properties, principally in North and South America. AGI's operating properties
currently consist of a 100 percent interest in the Sleeper mine in Humboldt
County, Nevada; a 100 percent interest in the Hayden Hill mine in Lassen County,
California; an indirect 90 percent interest in the Guanaco mine in Chile; and a
100 percent interest in the Wind Mountain mine in Washoe County, Nevada. AGI's
gold production from its operating properties totalled 210,880 ounces in 1993 at
a total average cash production cost of $388 per ounce. Cyprus Amax's share of
AGI's production from November 15, 1993, through December 31, 1993, totalled
approximately 11,000 gold ounces. AGI also owns a 100 percent interest in the
Fort Knox gold project near Fairbanks, Alaska; a 50 percent interest in the
Refugio gold project in Chile; and a 62.5 percent joint venture interest in the
Haile gold project in Lancaster County, South Carolina. AGI's share of reserves
in all its properties total approximately 7.4 million contained ounces of gold,
of which Cyprus Amax's equity share was approximately 3 million contained ounces
of gold.
AGI sells all of its refined gold to banks and other bullion dealers and
utilizes a variety of hedging techniques with the objective of mitigating the
impact of downturns in the gold market and providing adequate cash flow for
operations, while maintaining significant upside potential in a market upswing.
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Precious metal hedge contracts include forward sales contracts, spot deferred
forward sales and put and call options.
In February 1994 a commitment letter was signed between Cyprus Amax and AGI
to provide AGI with a $100 million convertible line of credit. The outstanding
indebtedness under the line of credit may be repaid by AGI with the issuance of
AGI convertible preferred stock, which in turn could be converted into AGI
common stock at $8.265 per share. In addition AGI will have the right to
convert the convertible preferred stock into AGI common stock at a maximum price
of $8.265 per share and a minimum price of $5.854 per share. Cyprus Amax will
have an option to replace the line of credit and any outstanding indebtedness
and/or preferred stock with the purchase of $100 million of AGI common stock at
a price of $8.265 per share, which represents approximately 12.1 million AGI
shares.
At December 31, 1993, loans outstanding to AGI under a demand promissory note
payable were $25 million. In February 1994 the AGI Board of Directors approved
the purchase by Cyprus Amax of three million shares of AGI's common stock at a
price of $6.888 per share to repay approximately $21 million of the above
indebtedness. This share purchase combined with the potential conversion of the
$100 million line of credit into AGI common stock could increase Cyprus Amax's
ownership of AGI's outstanding shares to slightly less than 50 percent.
Other
Cyprus sold its 40 percent equity interest in the Bismark zinc mine in
northern Mexico in March 1993.
COMPETITIVE CONDITIONS
All of Cyprus Amax's products are sold in highly competitive markets.
Marketing of Cyprus Amax's products is influenced by price, materials
substitution, product quality, transportation costs, general economic
conditions, imports, and competition in all markets. Cyprus Amax competes with
numerous other coal, copper, molybdenum, lithium, gold, gas, and iron ore
producers.
Among factors that affect competition in Cyprus Amax's coal markets are coal
quality, the cost levels of other coal producers, the cost of transportation,
government regulations including the Clean Air Act Amendments of 1990, the time
and expenditures required to develop new coal mines, taxes, the weather and the
cost of alternative fuels. Sales of coal to utilities are affected by the
demand for electricity. Coal prices are sensitive to caloric value (Btu) and
sulfur content and to a particular user's quality requirements. Coal prices
generally are less volatile than metals prices since coal typically is sold
under long-term contracts at fixed prices subject to escalation, de-escalation,
and renegotiation. In recent years an increasing amount of Cyprus Amax's coal
has been sold in spot markets. With the acquisition of the Amax properties,
exposure to the spot markets will be lessened due to a greater proportion of
contract shipments from these properties.
The copper, molybdenum, and gold markets generally are characterized by
cyclical and volatile prices, little product differentiation and strong
competition. Prices are influenced by production costs of domestic and foreign
competitors, worldwide economic conditions, the world supply/demand balance,
inventory levels, the United States dollar exchange rate, and other factors.
Copper and molybdenum prices also are affected by the market for end-use
products in, for example, the construction, automotive, durable goods, and steel
industries.
While the long-term demand for copper is growing, especially in less
developed countries, it can be affected adversely by materials substitution,
including aluminum, plastics and optical fibers. Copper is an internationally-
traded commodity, and its price is determined in the terminal markets of two
major
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metals exchanges--the Commodities Exchange, Inc. in New York City (COMEX) and
the London Metal Exchange (LME). These prices broadly reflect the worldwide
balance of copper supply and demand, but prices also are influenced by
speculative activities. For the fourth consecutive year, average copper
realizations declined due to sluggishness in world economies. In 1993 Western
world refined copper production essentially was unchanged at approximately 9.9
million short tons, and copper consumption declined less than one percent to
about 10 million short tons. The supply of copper in the world is determined
largely by the development and production decisions of those entities
controlling mines and reserves. Some major foreign producers have cost
advantages resulting from higher ore grades, lower labor rates and less
stringent environmental requirements.
Molybdenum demand depends heavily on worldwide steel industry consumption.
Beginning in 1990 steel industry demand for molybdenum softened. World
molybdenum supply declined in 1991 and 1992 but remained above demand, resulting
in prices declining to 20-year lows in late 1992 and early 1993. Molybdenum
prices gradually increased through 1993 and into the first quarter of 1994 as
demand strengthened. A substantial portion of molybdenum production is a by-
product of copper mining, and by-product production is thus relatively
insensitive to molybdenum price levels. Another important factor is
overcapacity among the limited number of primary molybdenum producers.
Competition in the sale of lithium products is based on price and quality.
Cyprus Amax produces approximately 50 percent of the western countries' supply
of lithium carbonate equivalents. Cyprus Amax has a number of western
countries' competitors in the lithium marketplace, as well as competition from
lithium products from China and the Commonwealth of Independent States (C.I.S.).
Gold prices fluctuate and may be affected by numerous factors beyond Cyprus
Amax's control, including expectations for inflation, the exchange rate of the
United States dollar, global demand, political and economic conditions, and
production costs in major gold producing regions, including South Africa and the
C.I.S. Gold prices also are affected by worldwide production levels, which have
increased in recent years, and by inventory sales by central banks of foreign
countries. In addition, the price of gold sometimes is subject to rapid short-
term changes because of speculative activities.
Amax Oil and Gas markets its natural gas, oil and natural gas liquid
production through a combination of long-term contracts and spot sales. All
material long-term contracts are for the sale of natural gas and generally
include a premium above spot market prices. In addition, the geographic
diversity of their customer base insulates Amax Oil and Gas from a decline in
demand from any single region. Amax Oil and Gas maintains a diversified
customer base including a broad spectrum of utilities, manufacturing, co-
generation, local distribution, and marketing companies.
The North American iron ore market is characterized by cyclical prices,
little product differentiation and strong competition. The majority of North
American production is dedicated to steel companies through their joint venture
ownership of iron ore operations. Prices are influenced by production costs of
domestic and foreign competitors, worldwide economic conditions, and other
factors including the demand for end use products by the automotive,
construction, and other durable goods industries.
Certain of Cyprus Amax's reserves, facilities, and markets are located in
foreign countries. Such foreign reserves, facilities, and markets may be
affected adversely by exchange controls, currency fluctuations, ownership
limitations, expropriation, taxation, and laws or policies of particular
countries, as well as the laws and policies of the United States affecting
foreign trade, investment, and taxation.
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ENVIRONMENTAL MATTERS
Laws and regulations currently in force which do or may affect Cyprus Amax's
domestic operations include the Federal Clean Water Act, the Clean Air Act of
1970 and Clean Air Amendments of 1990, the National Environmental Policy Act of
1969, the Solid Waste Disposal Act (including the Resource Conservation and
Recovery Act of 1976), the Federal Surface Mining Control and Reclamation Act,
the Toxic Substances Control Act, the Comprehensive Environmental Response,
Compensation and Liability Act (CERCLA), the environmental protection
regulations of various governmental agencies (e.g., the Environmental Protection
Agency regulations, the Bureau of Land Management surface management
regulations, Forest Service regulations, and Department of Transportation
regulations), laws and regulations with respect to permitting of land, and
various state laws and regulations concerned with mining techniques, reclamation
and remediation of mined lands and other properties, air and water pollution,
and solid waste disposal. Similar laws and regulations do or may affect Cyprus
Amax's overseas operations. Cyprus Amax expects to be able to comply with all
existing environmental laws and regulations, and such regulation will require
significant expenditures which increases Cyprus Amax's mine development and
operating costs.
Reference is made to additional information concerning environmental matters
in "Management's Discussion, Environmental," on pages 35 and 36 of the 1993
Annual Report, and the Environment discussions located on page 25 of the 1993
Annual Report, which information is incorporated herein by reference.
Item 3. Legal Proceedings
Litigation is pending in the Indiana Supreme Court and in the Marion County
Superior Court in Indiana and arbitration is pending relating to a 1990 notice
from PSI Energy Inc. of its intent to arbitrate certain matters arising under
its long-term coal sales contract concerning the Cyprus Amax Wabash mine. PSI
Energy Inc. is seeking relief regarding the contract including price relief
retroactive to January 1, 1988. While the nature and extent of the claims is
not clear, Cyprus Amax will continue to defend its position with respect to the
contract and has offsetting claims. While Cyprus Amax is not able to predict
the outcome of this matter at this time, based upon facts currently known to it,
Cyprus Amax believes it has reasonable defenses in this matter and does not
believe that the ultimate resolution of this matter will have a material adverse
effect on its financial condition.
On November 8, 1993, Cyprus Amax was notified by the United States Department
of Justice that it is under investigation for possible violations of the
antitrust laws of the United States regarding its molybdenum business. While
Cyprus Amax is unable to predict the outcome of this investigation, based upon
facts currently known to it, the resolution of this matter is not expected to
have a material adverse effect on Cyprus Amax's financial condition.
At December 31, 1993, Cyprus Amax's long-term accrual for deferred closure,
reclamation, and environmental remediation liabilities totalled approximately
$358 million which included $254 million for future reclamation, $90 million for
environmental remediation at Superfund and other sites, and $14 million for
closure of discontinued or previously sold operations. Cyprus Amax's $254
million reclamation reserve is primarily for operating facilities. Reclamation
is an ongoing activity and a cost associated with the Company's mining
operations and Cyprus Amax accrues for closure and final reclamation liabilities
on a life-of-mine basis. The coal reclamation reserve component largely is a
result of reclamation obligations incurred for replacing soils and revegetation
of mined areas as required by provisions and permits pursuant to the Surface
Mining Control and Reclamation Act. The copper and other reclamation reserve
component includes costs for site stabilization, cleanup, long-term monitoring,
and water treatment costs as expected to be required largely by state laws and
regulations as well as by
19
<PAGE>
sound environmental practice. Total reclamation costs for Cyprus Amax at the
end of current mine lives are estimated at about $500-550 million.
Cyprus Amax or its subsidiaries has been advised by the Environmental Protection
Agency ("EPA") and several State environmental agencies that it may be liable
under the Comprehensive Environmental Response, Compensation and Liability Act
or similar State laws and regulations ("Superfund"), for costs of responding to
environmental conditions at a number of sites which have been or are being
investigated by the EPA or state agencies to establish whether releases of
hazardous substances have occurred and, if so, to develop and implement
remedial actions. Cyprus Amax is named as a potentially responsible party
("PRP") or has received EPA requests for information for about 30 sites. The
reserve of approximately $90 million at December 31, 1993, for Cyprus Amax's
share of the estimated aggregate liability for the cost of remedial actions is
based upon an evaluation of, among other factors, currently available facts,
existing technology, currently enacted laws and regulations, its experience in
remediation, other companies' cleanup experience, and its status as a PRP at
each of the sites, as well as the ability of other PRPs to pay their allocated
portions. The cost range of reasonably possible outcomes for sites where costs
are estimable is from $60 million to $200 million and work on these sites is
expected to be substantially completed within the next five years, subject to
the inherent delays involved in the process. Cyprus Amax believes certain
insurance policies partially cover these claims; however, some of the insurance
carriers have denied responsibility and Cyprus Amax is litigating coverage.
Further, Cyprus Amax believes that it has other potential claims for recovery
from third parties, including the U.S. Government and other PRPs, as well as
liability offsets through lower cost remedial solutions. Generally, neither
insurance recoveries, nor other claims or offsets, have been recognized in the
liabilities reported.
Item 4. Submission of Matters to a Vote of Security Holders
Cyprus Minerals Company and AMAX Inc. held special shareholder meetings on
November 12, 1993, in New York to vote on the merger of AMAX Inc. into Cyprus
Minerals Company and the transactions contemplated under the Agreement and Plan
of Reorganization and Merger between Cyprus Minerals Company and AMAX Inc.
("Merger Agreement"). Cyprus shareholder approval was requested for the
approval of the Merger Agreement, the issuance of Cyprus common stock and of
shares of a newly-created series of Cyprus $4.00 Series A Convertible Preferred
Stock to Amax shareholders in the merger, amendment to Cyprus' Certificate of
Incorporation to create a new series of Cyprus $4.00 Series A Convertible
Preferred Stock and to change the name of Cyprus to Cyprus Amax Minerals
Company. Shareholders of Amax were asked to approve the spin-off of its
aluminum company, Alumax Inc., in a tax-free distribution of all of the
outstanding shares of Alumax common stock. In addition, Amax would distribute
approximately 28 percent of Amax Gold, Inc. to Amax shareholders in the form of
a taxable dividend. The merger and its contemplated transactions were approved
by 77 percent of the Cyprus shareholders and 75 percent of the Amax
shareholders. The vote of the Cyprus shareholders was 36,503,374 for the
proposal, 967,916 against, with 548,347 abstentions.
20
<PAGE>
Executive Officers of the Registrant
Set forth below are the names, ages and titles of the executive officers of
Cyprus Amax:
<TABLE>
<CAPTION>
Name Age Office
---- --- ------
<S> <C> <C>
Milton H. Ward 61 Co-Chairman, President, and Chief Executive
Officer
Donald P. Brown 48 President, Cyprus Amax Coal Company
Jeffrey G. Clevenger 44 President, Cyprus Climax Metals Company
Gerald J. Malys 49 Senior Vice President and Chief Financial
Officer
David H. Watkins 49 Senior Vice President, Exploration
Philip C. Wolf 46 Senior Vice President, General Counsel, and
Corporate Secretary
Francis J. Kane 35 Vice President, Investor Relations and
Treasurer
Gerard H. Peppard 50 Vice President, Human Resources
John Taraba 45 Vice President and Controller
</TABLE>
Mr. Ward was elected Chairman of the Board, President and Chief Executive
Officer on May 14, 1992, and was made Co-Chairman on November 15, 1993. Mr.
Brown was elected to his current office on May 2, 1991, and Mr. Clevenger
assumed his current position on January 27, 1993. Mr. Malys was elected Senior
Vice President effective October 31, 1988, and Chief Financial Officer effective
August 1, 1989. Mr. Watkins assumed his current office on February 1, 1994.
Mr. Wolf was elected to his current office on November 13, 1993. Mr. Kane
assumed his current office on January 11, 1994. Mr. Peppard was elected to his
current office on October 4, 1987. Mr. Taraba was elected to his current office
on October 31, 1988.
Messrs. Brown, Malys, Wolf, Peppard, and Taraba have been engaged full-time
in the business of Cyprus and its subsidiaries for more than the past five
years. Prior to joining Cyprus in May 1992, Mr. Ward had been President and
Chief Operating Officer of Freeport-McMoRan Inc. and Chairman and Chief
Executive Officer of Freeport-McMoRan Copper & Gold Inc. since 1984. Mr. Brown
has occupied various management positions in Cyprus' coal operations since 1980.
Mr. Clevenger held various management positions at Phelps Dodge Corporation
since 1979. Mr. Malys was Vice President and Corporate Controller from 1985 to
1988, and Senior Vice President Financial and Information Services from 1988 to
1989, when he assumed his current position. Prior to joining Cyprus Amax in
1994, Mr. Watkins occupied various management positions at Minnova Inc. from
1977 until 1991 when he was elected President and Director. Mr. Watkins served
as Vice President and Director at Metall Mining Corporation from 1991 until
1993. Mr. Wolf has been a member of Cyprus' law department since 1993 and
previously served as chief legal officer from 1984 through 1987. Mr. Wolf had
operating responsibility for Cyprus' talc, lithium, gold and iron ore operations
during the period from 1987 until 1993 when he assumed his current position.
Prior to joining Cyprus in 1994, Mr. Kane served as Associate Director,
Relationship Officer for Bear, Stearns & Co. Inc. since 1990. From 1989 to
1990, Mr. Kane served as Manager of Capital Markets and Exposure Management for
United Technologies Corporation. Mr. Peppard has held various management
positions in Cyprus' human resources department since 1986. Mr. Taraba held
various positions in Cyprus' financial departments from 1982 until 1988, when he
assumed his current position.
Each executive officer holds office subject to removal at any time by the
Board of Directors of Cyprus Amax.
21
<PAGE>
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters.
Information required by this item is incorporated by reference from "Stock
Market Information" on page 65 in the 1993 Annual Report.
The information required by Items 6 through 8 is incorporated by reference from
the pages in the 1993 Annual Report set forth below.
<TABLE>
<CAPTION>
Applicable Pages
in 1993
Form 10-K Item Number Annual Report
--------------------- ----------------
<S> <C> <C>
Item 6. Selected Financial Data................................ 26-27
Item 7. Management's Discussion and Analysis of Results of
Operations and Financial Condition..................... 28-37
Item 8. Financial Statements and Supplementary Data............ 39-64
a. Quarterly Results.................................. 61
b. Mineral Reserves and Selected Operating Statistics. 62
c. Supplemental Information on Petroleum and
Natural Gas Activities............................. 63-64
Item 9. Disagreements on Accounting and Financial Disclosure
Not applicable.
</TABLE>
PART III
Item 10. Directors and Executive Officers of the Registrant
The information required by this item appears in Part I of this Annual Report
on Form 10-K and in Cyprus Amax's Proxy Statement for the 1994 Annual Meeting
to be filed within 120 days after the end of the fiscal year.*
Item 11. Executive Compensation
The information required by this item appears in Cyprus Amax's Proxy
Statement for the 1994 Annual Meeting to be filed within 120 days after the end
of the fiscal year.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this item appears in Cyprus Amax's Proxy
Statement for the 1994 Annual Meeting to be filed within 120 days after the end
of the fiscal year.
Item 13. Certain Relationships and Related Transactions
The information required by this item appears in Cyprus Amax's Proxy
Statement for the 1994 Annual Meeting to be filed within 120 days after the end
of the fiscal year.
- ------------
* References in this Annual Report on Form 10-K to material contained in Cyprus
Amax's Proxy Statement for the 1994 Annual Meeting to be filed within 120
days after the fiscal year incorporate such material into this Report by
reference.
22
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following financial statements are filed as part of this Report:
1. Financial Statements included in the 1993 Annual Report and
incorporated by reference:
<TABLE>
<CAPTION>
Pages in 1993
Annual Report
-------------
<S> <C>
Report of Independent Accountants........................... 38
Consolidated Statement of Operations for each of the three
years in the period ended December 31, 1993.............. 39
Consolidated Balance Sheet at December 31, 1993 and 1992.... 40
Consolidated Statement of Cash Flows for each of the
three years in the period ended December 31, 1993........ 41
Consolidated Statement of Shareholders' Equity for each
of the three years in the period ended December 31, 1993. 42
Notes to Consolidated Financial Statements.................. 43-60
</TABLE>
<TABLE>
<CAPTION>
2. Financial Statement Schedules:
Pages in this
Form 10-K
-------------
<S> <C>
Report of Independent Accountants on Financial Statement
Schedules ....................................... 29
For the three years in the period ended December 31, 1993:
Schedule II -- Amounts Receivable from Related Parties
and Underwriters, Promoters, and
Employees Other than Related Parties.. 33
Schedule IV -- Indebtedness of and to Related
Parties - Not Current................. 34
Schedule V -- Property, Plant, and Equipment........ 35
Schedule VI -- Accumulated Depreciation, Depletion,
Amortization, and Write-Downs of
Property, Plant, and Equipment........ 36
Schedule VII -- Guarantees of Securities of Other
Issuers............................... 37
Schedule VIII -- Valuation and Qualifying Accounts and
Reserves.............................. 38
Schedule IX -- Short-Term Borrowings................. 39
Schedule X -- Supplementary Income Statement
Information........................... 39
</TABLE>
With the exception of the aforementioned financial statements and schedules,
and the information incorporated in Items 1 and 2 and Items 5 through 8, the
1993 Annual Report is not deemed to be filed as part of this Annual Report on
Form 10-K. Schedules not included in this Form 10-K have been omitted because
they are not applicable or the required information is shown in the financial
statements in the 1993 Annual Report or notes thereto. Separate financial
statements of 50 percent or less owned companies accounted for by the equity
method have been omitted since, if considered in the aggregate, they would not
constitute a significant subsidiary.
23
<PAGE>
3. The following exhibits are filed with this Annual Report on Form 10-K.
The exhibit numbers correspond to the numbers assigned in Item 601 of
Regulation S-K. The page numbers correspond to the numbers in the
sequential numbering system (used only in the manually signed copies of
this Annual Report on Form 10-K).
<TABLE>
<CAPTION>
Page in
Sequential
Exhibit Numbering
Number Document System
------- -------- ----------
<S> <C> <C>
2 Agreement and Plan of Reorganization and Merger
between Cyprus Minerals Company and AMAX Inc.,
incorporated by reference from Exhibit 1 to the
Report on Form 8-K dated May 27, 1993................. -
3 (a) Certificate of Incorporation, as amended
through the date of signing of this Annual
Report on Form 10-K, incorporated by reference
from Exhibit 3(a) to the Annual Report on
Form 10-K for the period ended December 31, 1989,
and from Exhibit 3.1 to the Report on Form 8-K
dated November 30, 1993.......................... -
Certificate of Designations of Series A Junior
Participating Preferred Stock, incorporated by
reference from Exhibit 3(a) to the Annual Report
on Form 10-K for the period ended December 31, 1988,
and from Exhibit 7 to the Report on Form 8-A/A dated
June 29, 1993.................................... -
(b) By-Laws, as amended through the date of signing
of this Annual Report on Form 10-K, incorporated by
reference from Exhibit 3(b) to the Annual Report on
Form 10-K for the period ended December 31, 1991,
and from Exhibit 3.2 to the Report on Form 8-K
dated November 30, 1993.......................... -
4 (a) Form of Indenture between Cyprus Minerals Company
and United States Trust Company, as Trustee
(including form of the Notes), incorporated by
reference from Exhibit 4(a) to the Registration
Statement on Form S-3, File No. 33-33869......... -
(b) Form of Indenture between Cyprus Minerals
Company and Ameritrust Texas National Association,
as Trustee (including form of the Debentures),
incorporated by reference from Exhibit 4.1 to the
Report on Form 8-K dated January 28, 1993........ -
(c) Rights Agreement between The Chase Manhattan
Bank, N.A. and Cyprus Minerals Company, dated
February 23, 1989, as amended through the date of
signing of this Annual Report on Form 10-K,
incorporated by reference from Exhibit 2 to the
Report on Form 8-K dated January 29, 1990; Exhibit
4 to the Report on Form 8-K dated January 29, 1990;
and from Exhibit 1 to the Report on Form 8-K dated
June 29, 1993.................................... -
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
Page in
Sequential
Exhibit Numbering
Number Document System
------- -------- ----------
<S> <C> <C>
4 (d) Certificate of Adjustment dated as of January 22,
1990, incorporated by reference from Exhibit 3 to the
Report on Form 8-K dated January 29, 1990............. -
10 Material Contracts (except for director and
executive contracts and compensatory plans and
arrangements, includes only those contracts filed
with this Annual Report on Form 10-K and does not
include other contracts which previously have been
filed by the registrant and which either remain to be
performed in whole or in part at or after the filing
of this Annual Report on Form 10-K, or were entered
into not more than two years before the date of this
Annual Report on Form 10-K).
(a) Restorative retirement plans, as amended
through the date of signing of the Annual Report
on Form 10-K, incorporated by reference from
Exhibit 10(c) to the Annual Report on Form 10-K
for the period ended December 31, 1986; Exhibit
10(c) to the Annual Report on Form 10-K for the
period ended December 31, 1989; Exhibit 10(b) to
the Annual Report on Form 10-K for the period
ended December 31, 1990; and Exhibit 10(a) to the
Annual Report on Form 10-K for the period ended
December 31, 1992...................................... -
(b) Full Retirement Benefit Plan for Certain
Salaried Employees, as amended through the date
of signing of the Annual Report on Form 10-K,
incorporated by reference from Exhibit 10(c) to
the Annual Report on Form 10-K for the period
ended December 31, 1988; Exhibit 10(c) to the
Annual Report on Form 10-K for the period ended
December 31, 1989; Exhibit 10(b) to the Annual
Report on Form 10-K for the period ended December
31, 1990; and Exhibit 10(b) to the Annual report
on Form 10-K for the period ended December 31,
1992.................................................. -
(c) Form of Employment Agreement between Cyprus Minerals
Company and each of its executive officers,
incorporated by reference from Exhibit 10(a) to
the Report on Form 8-K dated February 23, 1990........ -
(d) Cyprus Minerals Company Nonqualified Retirement
Plan for Non-Employee Directors, incorporated by
reference from Exhibit 10(c) to the Annual Report
on Form 10-K for the period ended December 31,
1990.................................................. -
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
Page in
Sequential
Exhibit Numbering
Number Document System
------- -------- ----------
<S> <C> <C>
10 (e) Consulting Agreement dated February 15, 1991,
between Calvin A. Campbell, Jr. and Cyprus
Minerals Company, incorporated by reference from
Exhibit 10(d) to the Annual Report on Form 10-K for
the period ended December 31, 1990; and Exhibit
10(e) to the Annual Report on Form 10-K for the
period ended December 31, 1992........................ -
(f) Amended and Restated Management Incentive Program
of Cyprus Minerals Company and its Participating
Subsidiaries, incorporated by reference to Exhibit 28
to the Registration Statement on Form S-8, File
No. 33-53794.......................................... -
(g) Stock Plan for Non-Employee Directors of Cyprus
Minerals Company, incorporated by reference to
Exhibit 28 to the Report on Form 10-Q for the quarter
ended September 30, 1992.............................. -
(h) Amended and Restated Stock Option Plan of Cyprus
Amax Minerals Company and its Participating
Subsidiaries, incorporated by reference to Exhibit 99
to the Registration Statement on Form S-8 dated
November 12, 1993..................................... -
(i) Contracts regarding employment between Cyprus
Minerals Company and certain executive officers....... 60
(j) Change of Control Employment Agreements between
Cyprus Amax Minerals Company and certain executive
officers.............................................. 77
(k) Cyprus Amax Minerals Company 1994 Bonus Incentive
Program............................................... 91
(l) 1994 Management Incentive Program of Cyprus Amax
Minerals Company and its Participating Subsidiaries
for Non-officer Key Employees......................... 94
(m) Cyprus Amax Minerals Company Executive Officer
Separation Policy..................................... 100
11 Statement re computation of per share earnings............ 104
13 1993 Annual Report to Shareholders........................ 106
21 Subsidiaries of the registrant............................ 181
23 Consent of Price Waterhouse............................... 185
99 Financial Statements comprising the Annual Report of the
Cyprus Amax Minerals Company Savings Plan and Trust....... *
- ------------
</TABLE>
* To be filed by amendment within 180 days of the plan's fiscal year end, in
accordance with Rule 15d-21.
26
<PAGE>
(b) The following 8-K's were filed during the last quarter of the period
covered by this Report on Form 10-K:
A current report on Form 8-K dated October 26, 1993, reporting the first
amendment to the Competitive Advance and Revolving Credit Facility
Agreement was filed on October 27, 1993. A current report on Form 8-K
dated October 26, 1993, reporting the issuance of $250,000,000 aggregate
principal amount of 6 percent Notes due October 15, 2005, was filed on
October 27, 1993. A current report on Form 8-K dated November 9, 1993,
reporting the termination by the Justice Department of the waiting period
for the Cyprus Amax merger was filed on November 9, 1993. A current
report on Form 8-K dated November 30, 1993, reporting the amendments to
Cyprus' Certificate of Incorporation and By-laws was filed on November 30,
1993.
27
<PAGE>
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 on the 23rd day of
March 1994.
Cyprus Amax Minerals Company
(Registrant)
By /s/ Gerald J. Malys
---------------------------------
Gerald J. Malys
Senior Vice President and Chief
Financial Officer
Pursuant to the 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 indicated on March 23rd, 1994.
Signatures Titles
---------- ------
/s/ Milton H. Ward Co-Chairman of the Board, Director, President, and
- ----------------------------- Chief Executive Officer
Milton H. Ward
/s/ Allen Born Co-Chairman of the Board and Director
- -----------------------------
Allen Born
/s/ Gerald J. Malys Senior Vice President and Chief Financial
- ----------------------------- Officer (Principal Financial Officer)
Gerald J. Malys
/s/ John Taraba Vice President and Controller (Principal
- ----------------------------- Accounting Officer)
John Taraba
/s/ Linda G. Alvarado Director
- -----------------------------
Linda G. Alvarado
/s/ George S. Ansell Director
- -----------------------------
George S. Ansell
/s/ William C. Bousquette Director
- -----------------------------
William C. Bousquette
/s/ Calvin A. Campbell, Jr. Director
- -----------------------------
Calvin A. Campbell, Jr.
/s/ Thomas V. Falkie Director
- -----------------------------
Thomas V. Falkie
/s/ Ann Maynard Gray Director
- -----------------------------
Ann Maynard Gray
/s/ James C. Huntington, Jr. Director
- -----------------------------
James C. Huntington, Jr.
/s/ Michael A. Morphy Director
- -----------------------------
Michael A. Morphy
/s/ Rockwell A. Schnabel Director
- -----------------------------
Rockwell A. Schnabel
/s/ Theodore M. Solso Director
- -----------------------------
Theodore M. Solso
/s/ John Hoyt Stookey Director
- -----------------------------
John Hoyt Stookey
/s/ James A. Todd, Jr. Director
- -----------------------------
James A. Todd, Jr.
/s/ Billie B. Turner Director
- -----------------------------
Billie B. Turner
28
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULES
To the Board of Directors and Shareholders of
Cyprus Amax Minerals Company:
Our audits of the consolidated financial statements referred to in our report
dated March 1, 1994, appearing on page 38 of the 1993 Annual Report to
Shareholders of Cyprus Amax Minerals Company (which report and consolidated
financial statements are incorporated by reference in this Annual Report on Form
10-K) also included an audit of the Financial Statement Schedules listed in Item
14(a) of this Form 10-K. In our opinion, these Financial Statement Schedules
present fairly, in all material respects, the information set forth therein when
read in conjunction with the related consolidated financial statements.
PRICE WATERHOUSE
Denver, Colorado
March 1, 1994
29
<PAGE>
APPENDIX A
ADDITIONAL INFORMATION CONCERNING
CYPRUS AMAX'S OIL AND GAS OPERATIONS
(Unaudited)
Introduction. Data presented in the tables below reflect the merger of Amax
into Cyprus on November 15, 1993. Prior to November 15, 1993, Amax Energy Inc.
was the holding company for Amax Oil & Gas Inc. In the first quarter 1994,
Cyprus Amax reached an agreement with Union Pacific Resources Company, a
subsidiary of Union Pacific Corporation, to sell all of its stock of Amax Oil &
Gas, Inc. The sale, which has an effective date of September 30, 1993, is
expected to close by March 31, 1994.
Reserve Data. The following table sets forth the estimated quantities of
Cyprus Amax's net proved reserves of crude oil, natural gas and natural gas
liquids as of December 31, 1993.
<TABLE>
<CAPTION>
Natural Gas
Crude Oil Natural Gas Liquids
(Thousands of (Millions of (Thousands of
barrels) cubic feet) barrels)
---------------- --------------- ----------------
<S> <C> <C> <C>
Proved Developed Reserves 7,172 375,970 29,830
Proved Undeveloped Reserves 580 48,186 4,380
----- ------- ------
Total Proved Reserves 7,752 424,156 34,210
===== ======= ======
</TABLE>
No major discovery or other favorable or adverse event has occurred since
December 31, 1993, which would cause a significant change in estimated proved
reserve data. No estimates of Cyprus Amax's total net proved oil and gas
reserves have been filed with or included in reports to any federal authority or
agency other than the Securities and Exchange Commission since January 1, 1993.
Proved oil and gas reserves are the estimated quantities of crude oil,
natural gas, condensate, and natural gas liquids which geological and
engineering data demonstrate with reasonable certainty to be recoverable in
future years from known reservoirs under existing economic and operating
conditions. Proved developed oil and gas reserves are reserves that can be
expected to be recovered through existing wells with existing equipment and
operating methods. Proved undeveloped oil and gas reserves are reserves that
are expected to be recovered from new wells on undrilled acreage, or from
existing wells where a relatively major expenditure is required for
recompletion. Estimated net proved reserves of crude oil and natural gas
reported herein are stated in terms of Cyprus Amax's net interest, after
reduction for royalties and other economic interests owned by others.
Average Sales Price and Average Production Costs. The following table sets
forth Cyprus Amax's average sales prices per unit of crude oil, natural gas and
natural gas liquids for the period November 15 through December 31, 1993.
<TABLE>
<S> <C>
Crude Oil (per barrel) /(1)(2)(3)/..................... $13.52
Natural Gas (per thousand cubic feet ("MCF") /(2)(3)/.. $ 2.15
Natural Gas Liquids (per barrel) /(2)/................. $ 9.67
</TABLE>
/(1)/ Includes condensate
/(2)/ See "Governmental Regulations" under "Other Minerals--Oil and Gas"
/(3)/ Includes hedging activity
30
<PAGE>
The following table sets forth Cyprus Amax's average production costs per
equivalent barrel of crude oil and per equivalent thousand cubic feet of natural
gas for the period November 15 through December 31, 1993. Production costs
include lifting costs and severance taxes but do not include foreign or domestic
income taxes, depreciation, depletion and amortization of capitalized
acquisitions, exploration and development, interest, general administrative,
overhead allocation or other expenses.
<TABLE>
<CAPTION>
Per equivalent Per equivalent
Barrel of Crude Oil /(1)/ MCF of Natural Gas /(2)/
------------------------- ------------------------
<S> <C>
$ 4.03 $.67
</TABLE>
/(1)/ Natural gas amounts have been converted to equivalent barrels of crude oil
based on relative energy content.
/(2)/ Crude oil amounts, including condensate and natural gas liquids, have been
converted to equivalent thousand cubic feet of natural gas based on
relative energy content.
Production Data. The net quantities of crude oil, natural gas and
natural gas liquids production attributable to Cyprus Amax's interests for the
period November 15 through December 31, 1993 were as follows:
<TABLE>
<CAPTION>
<S> <C>
Crude Oil Production (thousands of barrels)..................... 207
Natural Gas Production (millions of cubic feet)................. 6,758
Natural Gas Liquids Production (thousands of barrels) /(1)/..... 258
</TABLE>
/(1)/ Includes production of 211 (thousands of barrels) from Cyprus Amax's
ownership interests in gas processing plants.
Gross and Net Productive Wells. The table below sets forth Cyprus Amax's
gross and net productive wells as of December 31, 1993.
<TABLE>
<CAPTION>
Oil Wells Gas Wells
------------------- -------------------
Gross/(1)/ Net/(2)/ Gross/(1)/ Net/(2)/
---------- -------- ---------- --------
<S> <C> <C> <C>
636 203.35 2,376 1,200.10
</TABLE>
/(1)/ A "gross well" is a well in which a working interest is owned. The number
of gross wells is the total number of wells in which a working interest is
owned.
/(2)/ A "net well" is deemed to exist when the sum of fractional ownership
working interest in gross wells equals one. The number of net wells is
the sum of the fractional working interests owned in gross wells
expressed as whole numbers and fractions thereof.
Wells in Process of Drilling. At December 31, 1993, there were 6 gross
(4.4 net) wells in the process of drilling in which Cyprus Amax had an interest.
Productive and Dry Wells Drilled. The following table sets forth the
number of gross and net productive and dry exploratory and development wells
drilled for the period November 15 through December 31, 1993.
31
<PAGE>
<TABLE>
<CAPTION>
Gross Net
----- ---
<S> <C> <C>
Productive Exploratory Wells Drilled.. 0 0
Dry Exploratory Wells Drilled......... 0 0
Productive Development Wells Drilled.. 4 2.6
Dry Development Wells Drilled......... 2 .6
</TABLE>
Acreage Data. Undeveloped acreage in which Cyprus Amax held interests at
December 31, 1993 included fee mineral interests, acres held under oil and gas
leases and overriding royalty interests. Developed acreage, on which there is
oil and gas production in which Cyprus Amax had interests at December 31, 1993,
included fee mineral interests, acreage held under oil and gas leases and
overriding royalty interests. The developed and undeveloped acreage is
summarized as follows:
<TABLE>
<CAPTION>
Gross Acres Net Acres
----------- ---------
<S> <C> <C>
Developed Acres/(1)/.... 1,483,371 404,746
Undeveloped Acres/(2)/.. 2,580,401 719,429
--------- ---------
Total................... 4,063,772 1,124,175
========= =========
</TABLE>
/(1)/ Developed acreage is that spaced or assignable to productive wells.
/(2)/ Undeveloped acreage is acreage on which wells have not been drilled or
completed to the point which would permit the production of commercial
quantities of oil and gas, regardless of whether such acreage contains
proved reserves.
The remaining terms of oil and gas leases in which Cyprus Amax has an interest
range from one to five years. In general, leases have a primary term of three
years and are subject to possible extension by development and production.
32
<PAGE>
SCHEDULE II
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS,
PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES
For the Year Ended December 31
(Thousands of Dollars)
<TABLE>
<CAPTION>
Balance at
Deductions End of Year
Balance at ---------- -----------
Beginning Amounts Amounts Not
Name of Debtor/(1)/ of Year Additions Collected Written Off Current Current
- --------------------- ---------- ------------ ---------- ----------- ----------- -------
<S> <C> <C> <C> <C> <C> <C>
1993
Alumax Inc. ... $ - $ 38,200/2/ $ - $ - $ 38,200 $ -
========== ============ ========== =========== =========== =======
1992 $ - $ - $ - $ - $ - $ -
========== ============ ========== =========== =========== =======
1991 $ - $ - $ - $ - $ - $ -
========== ============ ========== =========== =========== =======
</TABLE>
/(1)/ Descriptions
------------
Alumax Inc. Represents amounts due under a tax disaffiliation
agreement which requires Alumax to pay or reimburse
Cyprus Amax for tax obligations arising from certain
transactions within Alumax prior to spin-off.
/(2)/ Resulted from the merger.
33
<PAGE>
SCHEDULE IV
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
INDEBTEDNESS OF AND TO RELATED PARTIES -- NOT CURRENT
For the Year Ended December 31
(Thousands of Dollars)
<TABLE>
<CAPTION>
Balance at Indebtedness of
Beginning ----------------------- Balance at
Name of Person/(1)/ of Year Additions Deductions End of Year
- ---------------------- --------------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
1993
Loan to Savings Plan $80,423 $ - $(5,401) $75,022
Amax Gold Inc./2/ $ - $25,920 $(1,176) $24,744
Oakbridge Limited $ - $13,832 $ - $13,832
======= ======= ======= =======
1992
Loan to Savings Plan $86,335 $ - $(5,912) $80,423
======= ======= ======= =======
1991
Loan to Savings Plan $93,038 $ - $(6,703) $86,335
======= ======= ======= =======
</TABLE>
/(1)/ Descriptions
------------
Loan to Savings Plan Loan outstanding under a promissory note payable.
The loan to the Savings Plan bears interest at 9 3/4
percent per annum and is serviced by Cyprus'
contributions to the Savings Plan and dividends paid
on the Cyprus common shares purchased with the
proceeds of the loan. The minimum contribution to
the Savings Plan by Cyprus must be sufficient to
amortize the loan to the Plan over a 20-year term as
provided in the promissory note. The loan to the
Savings Plan is recorded as a reduction of
Shareholders' Equity.
Amax Gold Inc. Loans outstanding under a demand promissory note
payable. Interest payable at the Federal Funds Rate
plus 3/16 percent. In February 1994 approval was
granted for Cyprus Amax to purchase Amax Gold common
stock at $6.888 per share to repay approximately $21
million of the above indebtedness.
Oakbridge Limited Subordinated loans outstanding due June 28, 1996.
Interest payable at the average daily bank bill
buying rate rounded to the nearest 1/16 percent plus
one percent payable in arrears.
/(2)/ Resulted from the merger.
34
<PAGE>
SCHEDULE V
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
PROPERTY, PLANT, AND EQUIPMENT/(1)/
For the Year Ended December 31
(Thousands of Dollars)
<TABLE>
<CAPTION>
Balance at Acquisitions Other
Beginning Additions and Sales and Changes Balance at
Classification of Year at Cost Mergers Retirements Divestitures Add(Deduct)/(2)/ End of Year
-------------- ------------ -------- ---------- ------------ ------------- ---------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
1993
Coal................. $ 904,350 $ 65,210 $1,904,015 $(19,529) $ - $ (858) $2,853,188
Copper............... 1,492,115 189,631 747,554 (29,788) (453,201) 6,318 1,952,629
Other Minerals....... 362,654 20,336 656,059 (18,593) (120,544) 3,879 903,791
Corporate and Other.. 17,253 1,574 500 (2,598) (6,214) (23) 10,492
---------- -------- ---------- -------- --------- ------- ----------
Total................ $2,776,372 $276,751 $3,308,128 $(70,508) $(579,959) $ 9,316 $5,720,100
========== ======== ========== ======== ========= ======= ==========
1992
Coal................. $ 881,925 $ 23,317 $ - $ (920) $ - $ 28 $ 904,350
Copper............... 1,410,315 95,332 - (9,523) (6,428) 2,419 1,492,115
Other Minerals....... 462,410 30,348 - (1,402) (130,151) 1,449 362,654
Corporate and Other.. 18,908 263 - (119) - (1,799) 17,253
---------- -------- ---------- -------- --------- ------- ----------
Total................ $2,773,558 $149,260 $ - $(11,964) $(136,579) $ 2,097 $2,776,372
========== ======== ========== ======== ========= ======= ==========
1991
Coal................. $ 869,040 $ 22,032 $ - $(24,727) $ - $15,580 $ 881,925
Copper............... 1,319,505 104,878 - (12,385) - (1,683) 1,410,315
Other Minerals....... 403,165 61,790 - (3,676) - 1,131 462,410
Corporate and Other.. 17,629 1,653 - (63) - (311) 18,908
---------- -------- ---------- -------- --------- ------- ----------
Total............ $2,609,339 $190,353 $ - $(40,851) $ - $14,717 $2,773,558
========== ======== ========== ======== ========= ======= ==========
</TABLE>
- ------------
/(1)/ Property acquisition costs, intangible mine development costs and certain
tangible assets which are expected to be in service for the life of the
mine are amortized on the unit-of-production basis. Mobile mining
equipment and most other assets are depreciated on a straight-line basis.
/(2)/ Other changes are due mainly to the balance sheet reclassifications and
intercompany transfers.
35
<PAGE>
SCHEDULE VI
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
ACCUMULATED DEPRECIATION, DEPLETION, AMORTIZATION,
AND WRITE-DOWNS OF PROPERTY, PLANT, AND EQUIPMENT
For the Year Ended December 31
(Thousands of Dollars)
<TABLE>
<CAPTION>
Balance at Charged to Other
Beginning Costs and Sales and Changes Balance at
Classification of Year Expenses Retirements Divestitures Add(Deduct)/(1)/ End of Year
- --------------------- ---------- --------- ------------ ------------- ----------------- -----------
<S> <C> <C> <C> <C> <C> <C>
1993
Coal................. $ 676,853 $ 54,606 $(17,382) $ - $ (386) $ 713,691
Copper............... 973,689 54,980 (19,141) (433,823) (4,056) 571,649
Other Minerals....... 142,236 24,620 (17,579) (50,891) (546) 97,840
Corporate and Other.. 8,880 517 (2,471) (3,760) (14) 3,152
---------- -------- ----------- ------------ ---------------- ----------
Total................ $1,801,658 $134,723 $(56,573) $(488,474) $ (5,002) $1,386,332
========== ======== =========== ============ ================ ==========
1992
Coal................. $ 368,789 $ 34,374 $ (560) $ - $274,250 $ 676,853
Copper............... 912,329 51,443 (7,026) (5,869) 22,812 973,689
Other Minerals....... 154,485 33,914 (714) (86,176) 40,727 142,236
Corporate and Other.. 7,549 717 (119) - 733 8,880
---------- -------- ----------- ------------ ---------------- ----------
Total................ $1,443,152 $120,448 $ (8,419) $ (92,045) $338,522 $1,801,658
========== ======== =========== ============ ================ ==========
1991
Coal................. $ 337,293 $ 37,799 $(21,899) $ - $ 15,596 $ 368,789
Copper............... 883,116 41,023 (10,370) - (1,440) 912,329
Other Minerals....... 99,024 32,721 (2,653) - 25,393 154,485
Corporate and Other.. 7,046 796 (54) - (239) 7,549
---------- -------- ----------- ------------ ---------------- ----------
Total................ $1,326,479 $112,339 $(34,976) $ - $ 39,310 $1,443,152
========== ======== =========== ============ ================ ==========
</TABLE>
Reconciliation to depreciation, depletion, and amortization:
<TABLE>
<CAPTION>
1993 1992 1991
--------- --------- ---------
<S> <C> <C> <C>
Total Charged to Costs and Expenses (shown
above) $134,723 $120,448 $112,339
Amortization of other assets 10,151 7,262 7,065
-------- -------- --------
Total shown in Consolidated Statement of
Operations $144,874 $127,710 $119,404
======== ======== ========
Reconciliation to write-downs and other
changes:
1993 1992 1991
-------- -------- --------
Total Other Changes (shown above) $ (5,002) $338,522 $ 39,310
Write-downs recorded to non-PP&E accounts - 80,675 11,388
Reclassifications and other 5,002 (8,831) (15,698)
-------- -------- --------
Total write-downs in Consolidated Statement
of Operations $ - $410,366 $ 35,000
======== ======== ========
</TABLE>
- ------------
/(1)/ Other Changes include balance sheet reclassifications, intercompany
transfers and write-downs of certain assets in 1992 and 1991.
36
<PAGE>
SCHEDULE VII
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
GUARANTEES OF SECURITIES OF OTHER ISSUERS
For the Year Ended December 31
(Thousands of Dollars)
<TABLE>
<CAPTION>
Nature of
any Default
by Issuer
of Securities
Guaranteed
Name in Principal,
of Issuer Amount Amount Interest,
of Securities Title Owned by in Sinking Fund
Guaranteed by of Issue Total Person or Treasury or
Person for of each Amount Persons of Redemption
which Class of Guaranteed for which Issuer of Provisions,
Statement is Securities and Statement Securities Nature of or Payment
Filed Guaranteed Outstanding is Filed Guaranteed Guarantee of Dividends
------------- ---------- ----------- ------------ --------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
1. Tonopah Mineral Resources Bridge $15,000 - - Loan -
Limited Liability Company Loan
and
Thompson Creek Mining
Company
2. Oakbridge Limited/(1)/ Multi-Option $18,045 - - Loan -
Facility
Agreement
</TABLE>
- ------------
/(1)/ Oakbridge Limited - Short-term loan (6 months) from ABN AMRO Australia
Limited to Oakbridge. Final loan repayment occurred on February 9, 1994
and the guarantee subsequently was cancelled.
37
<PAGE>
SCHEDULE VIII
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
For the Year Ended December 31
(Thousands of Dollars)
<TABLE>
<CAPTION>
Additions
------------------------
Charged Charged
Balance at to to Balance at
Beginning Costs and Other End of
Material and Supplies Inventory of Year Expenses Accounts Deductions Year
- ------------------------------- ---------- ------------- --------- --------------- ----------
<S> <C> <C> <C> <C> <C>
1993
Deducted from asset accounts:
Reserve for material and supplies
inventory ..................... $33,015 $ 1,439 $ (236) $(13,508)/(1)/ $20,710
======= ======= ====== ======== =======
1992
Deducted from asset accounts:
Reserve for material and supplies
inventory ..................... $23,219 $14,049/(2)/ $ 75 $ (4,328) $33,015
======= ======= ====== ======== =======
1991
Deducted from asset accounts:
Reserve for material and supplies
inventory .................... $21,698 $ 3,589 $ (299) $ (1,769) $23,219
======= ======= ====== ======== =======
Doubtful Accounts and Notes Receivable
- ----------------------------------------
1993
Deducted from asset accounts:
Reserve for doubtful accounts and
notes receivable-current $ 2,274 $ 71 $ 177 $ (775) $ 1,747
Reserve for doubtful accounts and
notes receivable-noncurrent 4,651 - 3,650 (3,069) 5,232
------- ------- ------ -------- -------
Total........................ $ 6,925 $ 71 $3,827 $ (3,844) $ 6,979
======= ======= ====== ======== =======
1992
Deducted from asset accounts:
Reserve for doubtful accounts and
notes receivable-current $ 2,358 $ 342 $ 793 $ (1,219) $ 2,274
Reserve for doubtful accounts and
notes receivable-noncurrent 16,464 2,558 571 (14,942)/(3)/ 4,651
------- ------- ------ -------- -------
Total........................ $18,822 $ 2,900 $1,364 $(16,161) $ 6,925
======= ======= ====== ======== =======
1991
Deducted from asset accounts:
Reserve for doubtful accounts and
notes receivable-current $ 5,829 $ 3,248 $ 33 $ (6,752)/(4)/ $ 2,358
Reserve for doubtful accounts and
notes receivable-noncurrent 11,606 4,471 27 360 16,464
------- ------- ------ -------- -------
Total......................... $17,435 $ 7,719 $ 60 $ (6,392) $18,822
======= ======= ====== ======== =======
------------
</TABLE>
/(1)/ Amount includes the elimination of reserves for operations sold or shut
down, $4,417; remainder represents deductions for transfers, usage,
returns, and obsolescence due to the M&S inventory reduction program.
/(2)/ Amount primarily represents increased reserve for obsolescence, $12,100.
/(3)/ Amount primarily represents the write-off of LTV receivables.
/(4)/ Amount primarily represents collection of loan from a joint venture
partner, $3,654.
38
<PAGE>
SCHEDULE IX
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
SHORT-TERM BORROWINGS
For the Year Ended December 31
(Thousands of Dollars)
<TABLE>
<CAPTION>
Maximum
Amount Average Weighted
Weighted Outstanding Amount Average
Balance at Average at Month end Outstanding Interest Rate
Category of Aggregate End of Interest During the During the During the
Short-Term Borrowings Year Rate Period Period/(1)/ Period/(2)/
- ----------------------- ------- ------------ ----------- ------------- ------------
<S> <C> <C> <C> <C> <C>
December 31, 1993:
Bank borrowings...... -- N/A -- -- N/A
December 31, 1992:
Bank borrowings...... -- N/A $55,000 $10,417 4.46%
December 31, 1991:
Bank borrowings...... -- N/A -- -- N/A
</TABLE>
- --------------
/(1)/ The average amount outstanding during the year was computed by dividing
the sum of month end outstanding principal balances by twelve.
/(2)/ Weighted average interest rate during the year was computed by dividing
total interest on short-term borrowings by the average outstanding short-
term principal balance during the year.
SCHEDULE X
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
SUPPLEMENTARY INCOME STATEMENT INFORMATION
For the Year Ended December 31
(Thousands of Dollars)
<TABLE>
<CAPTION>
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
Charged to costs and expenses:
Maintenance and repairs......... $258,221 $248,054 $259,373
Severance and production taxes.. $ 49,923 $ 43,575 $ 40,285
Property taxes.................. $ 21,225 $ 21,154 $ 19,581
</TABLE>
39
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Page in
Sequential
Exhibit Numbering
Number Document System
- ------- -------- ----------
<S> <C> <C>
2 Agreement and Plan of Reorganization and Merger between
Cyprus Minerals Company and AMAX Inc., incorporated by
reference from Exhibit 1 to the Report on Form 8-K dated
May 27, 1993............................................... -
3 (a) Certificate of Incorporation, as amended through the
date of signing of this Annual Report on Form 10-K,
incorporated by reference from Exhibit 3(a) to the
Annual Report on Form 10-K for the period ended
December 31, 1989, and from Exhibit 3.1 to the Report
on Form 8-K dated November 30, 1993................... -
Certificate of Designations of Series A Junior
Participating Preferred Stock, incorporated by
reference from Exhibit 3(a) to the Annual Report on
Form 10-K for the period ended December 31, 1988, and
from Exhibit 7 to the Report on Form 8-A/A dated June
29, 1993.............................................. -
(b) By-Laws, as amended through the date of signing of
this Annual Report on Form 10-K, incorporated by
reference from Exhibit 3(b) to the Annual Report on
Form 10-K for the period ended December 31, 1991, and
from Exhibit 3.2 to the Report on Form 8-K dated
November 30, 1993..................................... -
4 (a) Form of Indenture between Cyprus Minerals Company
and United States Trust Company, as Trustee
(including form of the Notes), incorporated by
reference from Exhibit 4(a) to the Registration
Statement on Form S-3, File No. 33-33869.............. -
(b) Form of Indenture between Cyprus Minerals Company and
Ameritrust Texas National Association, as Trustee
(including form of the Debentures), incorporated by
reference from Exhibit 4.1 to the Report on Form 8-K
dated January 28, 1993................................ -
(c) Rights Agreement between The Chase Manhattan Bank,
N.A. and Cyprus Minerals Company, dated February 23,
1989, as amended through the date of signing of this
Annual Report on Form 10-K, incorporated by reference
from Exhibit 2 to the Report on Form 8-K dated
January 29, 1990; Exhibit 4 to the Report on Form 8-K
dated January 29, 1990; and from Exhibit 1 to the
Report on Form 8-K dated June 29, 1993................ -
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
Page in
Sequential
Exhibit Numbering
Number Document System
- ------- -------- ----------
<S> <C> <C>
4 (d) Certificate of Adjustment dated as of January 22,
1990, incorporated by reference from Exhibit 3 to
the Report on Form 8-K dated January 29, 1990......... -
10 Material Contracts (except for director and executive
contracts and compensatory plans and arrangements,
includes only those contracts filed with this Annual
Report on Form 10-K and does not include other contracts
which previously have been filed by the registrant and
which either remain to be performed in whole or in part
at or after the filing of this Annual Report on Form 10-K,
or were entered into not more than two years before the
date of this Annual Report on Form 10-K).
(a) Restorative retirement plans, as amended through
the date of signing of the Annual Report on Form
10-K, incorporated by reference from Exhibit 10(c)
to the Annual Report on Form 10-K for the period
ended December 31, 1986; Exhibit 10(c) to the
Annual Report on Form 10-K for the period ended
December 31, 1989; Exhibit 10(b) to the Annual
Report on Form 10-K for the period ended December
31, 1990; and Exhibit 10(a) to the Annual Report
on Form 10-K for the period ended December 31, 1992... -
(b) Full Retirement Benefit Plan for Certain Salaried
Employees, as amended through the date of signing
of the Annual Report on Form 10-K, incorporated by
reference from Exhibit 10(c) to the Annual Report on
Form 10-K for the period ended December 31, 1988;
Exhibit 10(c) to the Annual Report on Form 10-K for
the period ended December 31, 1989; and Exhibit 10(b)
to the Annual Report on Form 10-K for the period
ended December 31, 1990; and Exhibit 10(b) to the
Annual Report on Form 10-K for the period ended
December 31, 1992..................................... -
(c) Form of Employment Agreement between Cyprus Minerals
Company and each of its executive officers,
incorporated by reference from Exhibit 10(a) to the
Report on Form 8-K dated February 23, 1990;........... -
(d) Cyprus Minerals Company Nonqualified Retirement Plan
for Non-Employee Directors, incorporated by reference
from Exhibit 10(c) to the Annual Report on Form 10-K
for the period ended December 31, 1990................ -
</TABLE>
41
<PAGE>
<TABLE>
<CAPTION>
Page in
Sequential
Exhibit Numbering
Number Document System
- ------- -------- ----------
<S> <C> <C>
10 (e) Consulting Agreement dated February 15, 1991,
between Calvin A. Campbell, Jr. and Cyprus Minerals
Company, incorporated by reference from Exhibit 10(d)
to the Annual Report on Form 10-K for the period ended
December 31, 1990; and Exhibit 10(e) to the Annual
Report on Form 10-K for the period ended December 31,
1992.................................................. -
(f) Amended and Restated Management Incentive Program of
Cyprus Minerals Company and its Participating
Subsidiaries, incorporated by reference to Exhibit 28
to the Registration Statement on Form S-8, File No.
33-53794.............................................. -
(g) Stock Plan for Non-Employee Directors of Cyprus
Minerals Company, incorporated by reference to Exhibit
28 to the Report on Form 10-Q for the quarter ended
September 30, 1992.................................... -
(h) Amended and Restated Stock Option Plan of Cyprus Amax
Minerals Company and its Participating Subsidiaries,
incorporated by reference to Exhibit 99 to the
Registration Statement on Form S-8 dated November 12,
1993.................................................. -
(i) Contracts regarding employment between Cyprus Minerals
Company and certain executive officers................ 60
(j) Change of Control Employment Agreements between Cyprus
Amax Minerals Company and certain executive officers.. 77
(k) Cyprus Amax Minerals Company 1994 Bonus Incentive
Program............................................... 91
(l) 1994 Management Incentive Program of Cyprus Amax
Minerals Company and its Participating Subsidiaries
for Non-officer Key Employees......................... 94
(m) Cyprus Amax Minerals Company Executive Officer
Separation Policy..................................... 100
11 Statement re computation of per share earnings............. 104
13 1993 Annual Report to Shareholders......................... 106
21 Subsidiaries of the registrant............................. 181
23 Consent of Price Waterhouse................................ 185
99 Financial Statements comprising the Annual Report of the
Cyprus Amax Minerals Company Savings Plan and Trust........ *
</TABLE>
- ------------
* To be filed by amendment within 180 days of the plan's fiscal year end, in
accordance with Rule 15d-21.
42
<PAGE>
(b) The following 8-K's were filed during the last quarter of the period
covered by this Report on Form 10-K:
A current report on Form 8-K dated October 26, 1993, reporting the first
amendment to the Competitive Advance and Revolving Credit Facility
Agreement was filed on October 27, 1993. A current report on Form 8-K
dated October 26, 1993, reporting the issuance of $250,000,000 aggregate
principal amount of 6 5/8 percent Notes due October 15, 2005, was filed
on October 27, 1993. A current report on Form 8-K dated November 9,
1993, reporting the termination by the Justice Department of the waiting
period for the Cyprus Amax merger was filed on November 9, 1993. A
current report on Form 8-K dated November 30, 1993, reporting the
amendments to Cyprus' Certificate of Incorporation and By-laws was filed
on November 30, 1993.
43
<PAGE>
EXHIBIT 10(i)
CYPRUS AMAX MINERALS COMPANY
MATERIAL CONTRACTS
EMPLOYMENT AGREEMENTS
In 1994 Cyprus Amax entered into an Employment Agreement with Mr. Ward, Co-
Chairman, President, and Chief Executive Officer, which follows.
In November 1993 Cyprus Amax entered into an Employment Agreement with Mr.
Born, Co-Chairman of the Board, which follows.
In late 1993 Cyprus Amax entered into Employment Agreements in the form which
follows with six (6) executive officers.
44
<PAGE>
EXHIBIT 10(i)
CYPRUS AMAX MINERALS COMPANY
AGREEMENT
This Employment Agreement (the "Agreement") is entered into as of this 10th day
of February, 1994, by and between Cyprus Amax Minerals Company (the "Company"),
a Delaware corporation, and Milton H. Ward ("Mr. Ward").
Recitals
Whereas, Mr. Ward and the Company have extinguished their Employment Agreement
dated as of May 14, 1992; and
Whereas, the Board of Directors of the Company has decided that it is desirable
to retain for the Company the benefit of Mr. Ward's services as Chairman or Co-
Chairman of the Board of Directors of the Company, and President and Chief
Executive Officer of the Company and to contract with him regarding the same;
and
Whereas, Mr. Ward desires to contract formally with the Company with respect to
his employment as Chairman or Co-Chairman of the Board of Directors of the
Company and as President and Chief Executive Officer of the Company;
Now, therefore, in consideration of the undertakings and the payments herein set
forth, the Company and Mr. Ward mutually agree as follows:
1. Engagement. The Company hereby agrees to engage Mr. Ward as an employee of
the Company to serve as Chairman of the Board of Directors of the Company until
the earlier of November 15, 1995 or until Allen Born ceases to be Co-Chairman
and thereafter to serve as Chairman and also to serve as President and Chief
Executive Officer of the Company, and to continue his engagement as an employee
during the term of employment set forth in Section 3 of this Agreement, and Mr.
Ward hereby agrees to accept such employment upon the terms and conditions set
forth herein.
2. Compensation. For all services rendered to the Company during the term of
this Agreement, Mr. Ward shall receive a salary (the "Salary") at an annual rate
not less than the higher of: (i) $825,000.00; or (ii) Mr. Ward's then current
Base Salary. Such Salary shall be paid to Mr. Ward on the same dates and in the
same increments as salaries are paid to other employees in accordance with
established Company practices.
"Base Salary" as used in this Agreement shall mean, as of any date of
determination, the annual rate of compensation being paid to Mr. Ward for
services performed by Mr. Ward for the Company, excluding amounts payable to Mr.
Ward or for his account under Company benefit plans or programs (including
without limitation retirement, savings, vacation, life insurance, medical,
dental and disability plans of programs) or under Company special compensation
plans or programs (including without limitation bonus and stock option of stock
grant plans of programs). Any increase in Base Salary shall become effective at
such time as the Board of Directors in its sole discretion shall determine.
45
<PAGE>
Mr. Ward shall be eligible to participate in each generally applicable Company
benefit plan or program (including without limitation retirement, savings,
vacation, life insurance, medical, dental and disability plans or programs; and
in each Company special compensation plan or program (including without
limitation bonus and stock option or stock grant plans of programs, to the
extent provided by the terms and conditions of each plan or program. In
particular, Mr. Ward's target cash bonus each year shall be 100 percent of his
then current Base salary, to be based upon accomplishment of objectives to be
agreed between Mr. Ward and the Board of Directors. Except as provided in
Section 3(B), nothing in this Agreement is intended to limit the discretion of
the Company of the Board or the Board of Directors in administration of the
special compensation plans of any future plans or programs.
3. Term. Unless terminated earlier pursuant to the terms of this Section 3, and
except for provisions of this Agreement which by their terms survive termination
of this Agreement, the term of this agreement shall be forty two months,
terminating on August 1, 1997.
A. Termination.
(i) Termination of Employment by Company for Breach of Covenant.
Termination by Mr. Ward's Resignation, Retirement, Disability, or Death. Mr.
Ward's employment and this Agreement may be terminated by the action of the
Board of Directors of the Company upon 30 days' written notice specifying that
the basis for termination is a breach of any of his covenants in Section 4 of
this Agreement. In the event of termination of employment by the action of the
Board of Directors of the Company for such breach, or in the event of Mr. Ward's
(a) resignation, (b) retirement (as defined in the Company's benefits plans or
payroll practices), (c) death, or (d) disability (which shall be deemed to
include only an incapacitating condition which in the Company's reasonable
judgment will materially and adversely interfere with Mr. Ward's performance of
his assigned duties for a period in excess of six months), then, as of the date
of such termination for breach of covenant, resignation, retirement, death, or
determination of disability, the Company shall no longer have any further
obligation to pay the Salary otherwise required by Section 2 of this Agreement.
(ii) Termination of Employment for Any Other Reason. Mr. Ward's
employment and this Agreement may be terminated by action of the Board of
Directors upon 30 days' written notice specifying that the basis for termination
is any reason other than (a) resignation, (b) retirement, (c) death, (d)
disability, or (e) termination for breach of covenant (all as defined in Section
3(A)(i) of this Agreement), which reasons may include without limitation the
Board of Directors' choice of another executive to perform Mr. Ward's duties, or
the reorganization of the Company or its management.
(iii) No Other Rights of Termination. This Agreement can be
terminated by the Company or the Board of Directors only as provided in Section
3(A)(i) and (ii) above.
B. Benefits upon Termination. In the event Mr. Ward's employment is
terminated by the Company due to death or disability (as defined in Section
3(A)(i); or by action of the Board of Directors pursuant to Section 3(A)(ii); or
in the event that Mr. Ward chooses to terminate his employment within 30 days
after any one or more of the following changes by the Company or the Board of
Directors in his terms of employment: a reduction in base salary below
$825,000.00, or an action of the Board of Directors pursuant to which Mr. Ward
ceases to serve as Co-Chairman or Chairman of the Board, President and Chief
Executive Officer:
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(i) The Company shall pay Mr. Ward, immediately upon termination of
Mr. Ward's employment:
(a) a lump sum amount which shall be computed on the basis of
the definition of actuarial equivalent specified in the Retirement Plan for
Salaried Employees of Cyprus Amax Minerals Company ("Retirement Plan"), equal to
the additional retirement benefit that would have been received by Mr. Ward
under the Retirement Plan, and
(b) the full benefit that would have been received under the
Cyprus Amax Minerals Company Full Retirement Benefit Plan for Certain Salaried
Employees, Cyprus Amax Minerals Company Restorative Benefits Plan for Salaried
Employees, and Cyprus Amax Minerals Company 415 Limitation Plan for Salaried
Employees, or such benefits under successor plans, if applicable, in each case
calculated for all purposes as if Mr. Ward had remained in the employment of the
Company until August 1, 1997 and as if Mr. Ward retired as of that date and
elected to receive payment immediately upon termination. Such calculation of
benefit shall be based on the higher of the average of the final five complete
calendar years of Mr. Ward's compensation preceding termination or Mr. Ward's
compensation for the calendar year preceding the year of termination, as the
term "compensation" is defined in the applicable plans, plus in either case the
value in each year of any and all restricted stock granted to Mr. Ward pursuant
to Section 3(B), of the now ineffective Employment Agreement dated as of May 14,
1992 between Mr. Ward and Cyprus Minerals Company valued as of the date of
vesting. For purposes of computing the additional benefit under the Full
Retirement Benefit Plan, the additional Full Retirement Benefit Plan credited
service computation will include the additional period of Benefit Service deemed
to have been credited under the Retirement Plan for purposes of computing the
additional benefits under the Retirement Plan.
(ii) The Company shall also pay to Mr. Ward, immediately upon
termination of Mr. Ward's employment, a cash payment equal to the amount of his
then current Base Salary from the date of termination until August 1, 1997, plus
a bonus payment both for the period prior to termination of employment in
respect of which no bonus has yet been paid and for the period from the date of
termination until August 1, 1997, calculated at the average of the annual bonus
payments previously paid to him. Such payments shall be in lieu of any and all
payments to which Mr. Ward would otherwise be entitled under the Salaried and
Non-Represented Hourly Severance Plan or any successor plan.
(iii) Mr. Ward shall be entitled to outplacement services provided by
a firm of Mr. Ward's choice at a cost to the Company of up to fifteen percent of
then current Base Salary plus one year of bonus computed as provided in Section
3(B)(ii). Further, commencing upon termination, Mr. Ward shall be entitled to
receive any and all welfare benefits applicable to retirees, as though Mr. Ward
had been eligible to retire and had retired as of the termination date at the
age and with the years of service used to calculate the additional retirement
benefit, pursuant to Section 3(B)(i) above.
(iv) This Section 3(B) shall not in any way duplicate any benefit,
or alter the manner in which or time at which benefits are paid, pursuant to any
qualified plans maintained by the Company.
In the event that benefits are paid to Mr. Ward under Section
3(B)(i)(b) of this Agreement, this Agreement shall, effective as of the date
payment is made to Mr. Ward under this Agreement, operate as an amendment of
each of the Cyprus Amax Minerals Company Full Retirement Benefit Plan for
Certain Salaried Employees, the Cyprus Amax Company Restorative Benefits Plan
for Salaried Employees, and the Cyprus Amax Minerals Company 415 Limitation Plan
47
<PAGE>
for Salaried Employees, which amendment provides that payment of such benefits
under this agreement, to the extent such payments are equal to or in excess of
the benefits accrued and payable under the respective Plan as of the date of Mr.
Ward's termination of employment triggering such payment of benefits under this
Agreement, constitute payment and satisfaction in full of any obligation the
Company may have to pay benefits under the respective Plan.
(v) To the extent legal counsel designated by the Company (which
counsel may or may not be an employee of the Company) shall have determined that
in his or her opinion to do so would neither (a) conflict, in effect, with the
Management Incentive Program or any successor plan nor (b) violate or create any
valid claim under any law or regulation (including any rule of any securities
market) applicable to either the Company or Mr. Ward, the Company shall permit
Mr. Ward to exercise stock options granted pursuant to the Program, or any
successor plan, or stock appreciation rights, if any, granted in tandem with
those options, for a period which shall end three years following such date of
termination. Unless the matters shall have already been determined in a manner
which the Company deems dispositive, if the Company gives notice of termination
to Mr. Ward under Section 3(A)(ii) of this Agreement or receives notice of
termination from Mr. Ward under Section 3(B) of this Agreement, the Company
shall promptly request legal counsel to determine the matters specified in the
preceding sentence and no payment, if any, shall be made to Mr. Ward pursuant to
this paragraph (v) until such determination shall have been received by the
Company.
C. Survival. Notwithstanding the first textual paragraph of this Section
3, together with other Sections of this Agreement to the extent cross referenced
therein, shall survive termination of this Agreement when it expires on August
1, 1997.
Notwithstanding the first textual paragraph of this Section 3, Section 3(B),
together with other Sections of this Agreement to the extent cross reference
thereas, shall survive any termination of this Agreement by the Company pursuant
to 3(A)(ii).
Following such termination, the referenced provisions shall remain in effect
until the Company and Mr. Ward may otherwise mutually agree.
4. Mr. Ward's Covenants. While employed by the Company pursuant to this
Agreement, Mr. Ward agrees to perform faithfully and competently the duties of
Co-Chairman or Chairman of the Board of Directors, President and Chief Executive
Officer of the Company, and such other duties as may be requested by the Board
of Directors, which duties shall be commensurate generally with his duties as of
the date of this Agreement, and to perform such services as typically are
performed by persons holding such positions in comparable companies. Mr. Ward
agrees to devote his full time and all of his attention and skill faithfully,
diligently, and loyalty to the proper performance of his duties hereunder. Mr.
Ward agrees to comply with all applicable laws and regulations materially
affecting his position of which he is aware and to follow all lawful directions
of the Company's Board of Directors. During the term of this Agreement, Mr.
Ward agrees not to serve in any capacity with another company, partnership, or
organization, or to retain any fees, income, profit, or compensation therefrom,
if such activities would violate any conflict-of-interest policy adopted by the
Company or if such company, partnership, or organization is a competitor of the
Company in any of its operations.
Mr. Ward agrees that he will not divulge or appropriate for his own use, or for
the use of any third party, any confidential, proprietary or sensitive
information of a material nature (including without limitation, trade secrets,
know-how, technical data including computer programs, financial data, customer
or vendor lists, personnel information, planning data and projections, and any
information
48
<PAGE>
received from third parties under disclosure restrictions), discovered,
developed, or obtained by him during the course of his employment, concerning
methods, processes, designs, equipment, and operating procedures of the Company,
which confidentiality requirement shall survive the termination of this
Agreement and Mr. Ward's employment hereunder for a period of three years. Mr.
Ward hereby acknowledges the Company's right to possession of and title in and
to all papers, documents, or other materials prepared by Mr. Ward or provided to
him by reason of his employment by the Company. Upon termination of his
employment, Mr. Ward shall promptly deliver to the Company all materials
relating to the business of the Company which are in his possession or are under
his control.
The Company and Mr. Ward agree that the remedies available at law for any breach
by Mr. Ward of his covenants in this Section 4 will be inadequate and that the
Company also shall be entitled to injunctive relief in any action brought to
enforce those covenants.
5. Successors. This Agreement, and the rights and obligations created hereby,
shall be binding upon and shall inure to the benefit of Cyprus Amax Minerals
Company and all of its successors and assigns (whether by merger or otherwise).
6. Attorney's Fees and Interest. The Company shall reimburse Mr. Ward for any
and all reasonable attorney's fees and expenses incurred by Mr. Ward in
litigation in respect of this Agreement in which a final determination is made
that the Company has breached any provision of the Agreement, and shall pay to
Mr. Ward any and all prejudgment interest awarded for delayed payments by the
Company under the Agreement.
7. No Duplication of Payments. The payments provided in sections 3(B)(i),
(ii) and (iii) hereof are not intended to be in addition to similar payments and
benefits made under any other agreement, including any employment agreement
covering a change of control. Accordingly, in such circumstances Mr. Ward shall
be entitled to the larger of the payments and the better of the benefits under
this Agreement or any other employment agreement but not to both.
8. Miscellaneous.
(a) The Agreement shall supersede any and all prior agreements of
contracts between Mr. Ward and the Company concerning the subject matter hereof,
including without limitation that letter agreement dated as of May 9, 1992 and
that Employment Agreement dated as of May 14, 1992 between the parties hereto.
(b) This Agreement may be rescinded, revoked, or amended only by a written
instrument signed by both parties, with the approval of the Board of Directors.
The failure of either party to insist upon strict compliance with any of the
terms, conditions, and covenants hereof shall not be deemed a waiver of that or
any similar right or power at any subsequent time.
(c) The Company may withhold from any amounts payable under this Agreement
such federal, state or local taxes as shall be required to be withheld pursuant
to any applicable law or regulation.
(d) Nothing in this Agreement shall be interpreted to limit the right of
the Company to amend or terminate any existing or future benefit plan or
program.
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<PAGE>
(e) Any written notice required or permitted to be given hereunder is
sufficient if sent by registered mail or delivered by hand, to the Company at
its main place of business, or to Mr. Ward at his home address as reflected in
Company records.
(f) The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement.
(g) This Agreement is to be governed and construed in accordance with the
laws of the state of Colorado, excluding any conflict of laws or provisions
thereof which would cause the laws of any other state to be applicable hereto.
IN WITNESS WHEREOF, Mr. Ward has signed this Agreement, and the Company has
caused its duly authorized representative to sign this Agreement, in each case
as of the date first written above.
CYPRUS AMAX MINERALS COMPANY
By:
-----------------------------------------
Thomas V. Falkie
Chairman, Compensation and Benefits
Committee
--------------------------------------
Milton H. Ward
50
<PAGE>
EXHIBIT 10(i)
CYPRUS AMAX MINERALS COMPANY
AGREEMENT
---------
THIS AGREEMENT made as of November 15, 1993 between Mr. Allen Born ("Mr.
Born") and Cyprus Amax Minerals Company ("Cyprus Amax"), a Delaware corporation.
WITNESSETH:
-----------
WHEREAS, Cyprus Minerals Company and Amax, Inc. merged effective November
15, 1993 and the merged entity is named Cyprus Amax Minerals Company; and
WHEREAS, Mr. Born was, among other positions, Chairman of Amax, Inc.; and
WHEREAS, Cyprus Amax desires that, for two years, Mr. Born serve as the Co-
Chairman of its Board of Directors and Chair the Executive Committee of its
Board, and that he further serve on the Board as Vice Chairman for the balance
of his current term; and
WHEREAS, Cyprus Amax also desires that Mr. Born serve as a consultant
commencing on the date hereof to assist during the integration of Cyprus
Minerals Company and Amax, Inc. and their transition to one entity;
NOW, THEREFORE, in consideration of the mutual promises contained herein,
the parties hereto agree as follows:
1. Scope of Work.
-------------
Mr. Born agrees to serve for two (2) years from November 15, 1993 as Co-
Chairman of the Cyprus Amax Board and Chairman of its Executive Committee
and thereafter to serve for the balance of his current term (which ends at
the Annual Meeting in 1996) as Vice Chairman of the Cyprus Amax Board. Mr.
Born further agrees to serve as a consultant to Cyprus Amax by rendering
consulting services as requested from time to time by the Board of
Directors of Cyprus Amax or by the President and Chief Executive Officer of
Cyprus Amax. Such services may include review of, and advice and counsel
on, organizational and operational matters, investment proposals, investor
and shareholder relations matters and other specific matters as requested.
Such services also may include advice pertaining to the integration into
Cyprus Amax of the businesses, operations and personnel which came from
Amax, Inc. Mr. Born personally will provide the services requested in a
timely, professional manner. It is anticipated that Mr. Born shall devote
such time as reasonably is required to perform the services requested of
him.
2. Term of Agreement.
-----------------
This agreement shall be for a term of three (3) years and shall expire on
November 15, 1996. This Agreement may be terminated prior to the
expiration of such date as follows:
a. Automatically, upon Mr. Born's death or disability which renders Mr.
Born incapable of performing his duties hereunder, in which event the
obligations of Cyprus Amax hereunder shall cease, except that Cyprus
Amax agrees to pay any unreimbursed expenses
51
<PAGE>
incurred by him pursuant to Paragraph 5 of this Agreement, to Mr. Born
or Mr. Born's estate within thirty (30) days of such event, and also
agrees to pay the installment of any compensation due Mr. Born for the
month in which his death or disability occurs.
b. By Mr. Born upon ninety (90) days' written notice to Cyprus Amax in
which event there will be no further payments hereunder after the
expiration of such ninety (90) day period and no termination pay.
c. By Cyprus Amax's Board of Directors according to the provisions of
Paragraph 7.
3. Base Compensation.
-----------------
Cyprus Amax shall pay to Mr. Born three hundred thousand dollars ($300,000)
annually for each of the three (3) years of this agreement. These payments
shall be made in monthly installments of one twelfth (1/12) of the annual
compensation and shall be paid in advance on the first business day of each
calendar month.
4. Additional Compensation.
-----------------------
In addition to the base compensation provided for under Paragraph 3, Mr.
Born shall be entitled to receive director's fees paid to all non-employee
members of the Board of Directors of Cyprus Amax, and to participate in any
and all benefit plans applicable to non-employee directors of Cyprus Amax.
The compensation, benefits and expenses provided for in Paragraphs 3, 4,
and 5 herein shall constitute the entire obligation of Cyprus Amax to Mr.
Born and he shall be due no further compensation, benefits, or expenses.
5. Expenses.
--------
During the period that Mr. Born serves as Co-Chairman or Vice Chairman, he
will be provided an office and secretarial services in the Cyprus Amax
offices. At the end of this period, if Mr. Born is serving as a Director,
a discussion will be held with the Board of Directors of the Company to
seek their approval to continue providing such space and services. In
addition, Cyprus Amax shall reimburse Mr. Born or shall pay directly on
behalf of Mr. Born all reasonable and proper expenses incurred or paid by
Mr. Born in connection with the performance of his services under this
Agreement. As part of this, Mr. Born shall be entitled to first class air
travel and all expenses shall be paid promptly upon the presentation to
Cyprus Amax of expense statements or vouchers and such supporting
information as Cyprus Amax reasonably may request.
6. Non-Competition.
---------------
Mr. Born agrees that during the term of this Agreement he will not accept
any employment or consulting work from any other company engaged in any
aspect of the minerals business, provided, however, Mr. Born shall be
permitted to retain his current positions in Alumax Inc.
7. Co-Chairman or Vice Chairman of the Board.
-----------------------------------------
The Board of Directors may elect to terminate this Agreement by removing
Mr. Born from the position of Co-Chairman or Vice Chairman, in which case
the Agreement shall terminate immediately and Cyprus Amax shall pay to Mr.
Born within ten (10) days of such termination all amounts then owing him
plus the amount that would be owed to Mr. Born as compensation were he to
continue as a consultant for ninety (90) days subsequent to his
termination. Such payment shall be in lieu of notice and shall satisfy all
obligations of Cyprus Amax to Mr. Born.
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8. Miscellaneous.
-------------
a. This Agreement shall inure to the benefit of and be binding upon Cyprus
Amax, its successors and assigns. Unless otherwise provided for herein,
Mr. Born's rights and obligations hereunder are personal and not subject
to transfer or assignment.
b. This Agreement represents the entire understanding of the parties
hereto, supersedes any and all other and prior agreements between the
parties, and the terms and provisions of this Agreement may not be
modified or amended, except in writing.
c. This Agreement and all matters relating to it shall be governed by the
laws of the State of Colorado.
IN WITNESS WHEREOF, the undersigned have executed this Agreement the day
and year first above written.
CYPRUS AMAX MINERALS COMPANY
By:
------------------------------------
Chairman, President, and
Chief Executive Officer
ATTEST:
- ----------------------------------------
Philip C. Wolf
Senior Vice President, General Counsel
and Secretary
------------------------------------
Mr. Allen Born
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<PAGE>
EXHIBIT 10(i)
CYPRUS AMAX MINERALS COMPANY
AGREEMENT
This Agreement (the "Agreement") is entered into as of this ___ day of
_________, 1993, by and between Cyprus Minerals Company (the "Company"), a
Delaware corporation and __________________________ (the "Employee").
Recitals
--------
Whereas, the Company and the Employee are parties to an Employment Agreement
dated ____________________, 19__ (the "Employment Agreement") and an Employment
Agreement dated ________________, 19__ that is effective upon a Change of
Control of the Company (the "Change of Control Agreement"), and
Now, therefore, in consideration of the undertakings and the payments herein
set forth, the Company and the Employee mutually agree as follows:
1. Definitions. For purposes of this Agreement, the following words shall
------------
have the following meanings:
"Annual Bonus" means the target bonus payable to the Employee for the year
in question under The Salaried Incentive Plan of Cyprus Minerals Company.
"Base Salary" means as of any date of determination, the annual rate of
compensation being paid to the Employee for services performed by the Employee
for the Company, excluding amounts payable to the Employee for the account of
the Employee under Company benefit plans or programs (including, without
limitation, retirement, savings, vacation, life insurance, medical, dental and
disability plans or programs) or under Company special compensation plans or
programs (including, without limitation, bonus and stock option or stock grant
plans or programs).
"Cause" means (a) the willful and continued failure of the Employee to
perform substantially the Employee's duties with the Company or one of its
affiliates (other than any such failure resulting from incapacity due to
physical or mental illness), after a written demand for substantial performance
is delivered to the Employee by the Board of Directors of the Company or the
Chief Executive Officer of the Company which specifically identifies the manner
in which the Board or Chief Executive Officer believes that the Employee has not
substantially performed the Employee's duties, or (b) the willful engaging by
the Employee in illegal conduct or gross misconduct which is materially and
demonstrably injurious to the Company.
"Change of Control" means any of the following events:
(a) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20 percent or
more of either (i) the then outstanding shares of Common Stock of the Company
(the "Outstanding Company Common Stock") or (ii) the combined voting power of
the then outstanding voting securities of the Company entitled to vote generally
in the election of
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directors (the "Outstanding Company Voting Securities"); provided, however, that
for purposes of this subsection (a), the following acquisitions shall not
constitute a Change of Control: (i) any acquisition directly from the Company,
(ii) any acquisition by the Company, (iii) any acquisition by any employee
benefit plan (or related trust) sponsored or maintained by the Company or any
corporation controlled by the Company or (iv) any acquisition by any corporation
pursuant to a transaction which complies with clauses (A) and (B) of subsection
(c) below; or
(b) Individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority of the
Board; provided, however, that any individual becoming a director subsequent to
the date hereof whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with respect to the election
or removal of directors or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board; or
(c) consummation of a reorganization, merger or consolidation or sale
or other disposition of all or substantially all of the assets of the Company (a
"Business Combination"), in each case, unless, following such Business
Combination, either (A)(i) all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the Outstanding
Company Common Stock and Outstanding Company Voting Securities immediately prior
to such Business Combination beneficially own, directly or indirectly, more than
50 percent of, respectively, the then outstanding shares of common stock and the
combined voting power of the then outstanding voting securities entitled to vote
generally in the election of directors, as the case may be, of the corporation
resulting from such Business Combination (including, without limitation, a
corporation which as a result of such transaction owns the Company or all or
substantially all of the Company's assets either directly or through one or more
subsidiaries) in substantially the same proportions as their ownership,
immediately prior to such Business Combination of the Outstanding Company Common
Stock and Outstanding Company Voting Securities, as the case may be or (ii) at
least a majority of the members of the board of directors of the corporation
resulting from such Business Combination were members of the Incumbent Board at
the time of the execution of the initial agreement, or of the action of the
Board, providing for such Business Combination, and (B) no Person (excluding
such corporation resulting from such Business Combination, any employee benefit
plan (or related trust) of the Company or such corporation resulting from such
Business Combination) beneficially owns, directly or indirectly, 20 percent or
more of, respectively, the then outstanding shares of common stock of the
corporation resulting from such Business Combination or the combined voting
power of the then outstanding voting securities of such corporation except to
the extent that such ownership existed with respect to the Company prior to the
Business Combination; or
(d) A complete liquidation or dissolution of the Company.
"Disability" means an incapacitating condition which in the Company's
reasonable judgment will materially and adversely interfere with the Employee's
performance of assigned duties for a period in excess of six months.
"Effective Date" means date on which the merger is consummated.
"Fair Market Value" means with respect to a share of Restricted Stock the
average closing prices of Cyprus common stock on the New York Stock Exchange
Composite Index for the ten
55
<PAGE>
trading days following the consummation of the merger of AMAX Inc. with and into
the Company, and with respect to a Stock Option, Fair Market Value as provided
in the MIP as of the date of the grant.
"Good Reason" means any of the following:
(a) a material diminution in the Employee's position, authority,
duties or responsibilities;
(b) The Company's requiring the Employee to be relocated more than 50
miles; or
(c) a reduction in Base Salary of more than 10 percent or a material
reduction in Employee benefits unless such a reduction is generally applicable
to all other Officers.
"MIP" means the Amended and Restated Management Incentive Program of
Cyprus Minerals Company and its Participating Subsidiaries.
"Retirement" means termination of an Employee's employment in a manner
entitling the Employee to an immediate early or normal retirement benefit under
the Retirement Plan for Salaried Employees of Cyprus Minerals Company.
2. Restricted Stock and Stock Option Grant. The Company shall grant the
----------------------------------------
Employee a number of shares of restricted stock with a Fair Market Value of
$______________ (the "Restricted Stock") and a number of shares subject to a
nonqualified stock option such that the fair market value of such option, as
determined by the Company on the basis of an accepted financial model is
$____________ (the "Stock Option"), each on the terms set forth below. Such
grants shall be made on January 3, 1994.
(a) The Restricted Stock shall be granted pursuant to the MIP and
shall vest ratably over a 4 year period (the "Restriction Period") from the date
of grant, 25 percent per year, such vesting to occur on the first, second, third
and fourth anniversaries of the date of grant. In the event it becomes
permissible for the Company to do so, it will amend the date of the vesting of
the Restricted Stock to the anniversary of the Effective Date to the extent such
dates have not yet occurred. In the event of a termination of the Employee's
employment by the Company for Cause or by the Employee without Good Reason
during the Restriction Period, all shares of Restricted Stock granted hereunder
not previously vested shall be forfeited. In the event of a termination of the
Employee's employment by reason of death, Disability or Retirement, a
termination by the Company without Cause or by the Employee for Good Reason, or
in the event of a Change of Control, all restrictions to which the Restricted
Stock is then subject shall lapse and all shares of Restricted Stock shall be
fully vested.
(b) The Stock Option shall be granted pursuant to the MIP and shall
vest ratably over a 4 year period (the "Option Restriction Period") from the
Effective Date, becoming exercisable with respect to 25 percent of the stock
subject to the Stock Option each year, such vesting to occur on the first,
second, third and fourth anniversaries of the Effective Date. The Stock Option
shall have an exercise price equal to the Fair Market Value of the stock subject
to the Stock Option on the date of grant. In the event of a termination of the
Employee's employment by the Company for Cause or by the Employee without Good
Reason during the Option Restriction Period, the Stock Option granted hereunder
shall be forfeited with respect to those shares of stock with respect to which
the Stock Option is not then exercisable. In the event of a termination of the
Employee's employment by
56
<PAGE>
reason of death, Disability or Retirement, a termination by the Company without
Cause or by the Employee for Good Reason, or in the event of a Change of
Control, the Stock Option shall become immediately exercisable with respect to
all of the stock subject to the Stock Option, and shall remain exercisable
following such termination for the lesser of (x) three years after the date of
termination and (y) the expiration of the stock option in accordance with its
terms.
(c) In the event of a termination of the Employee's employment by
reason of death, Disability, or a termination by the Company without Cause or by
the Employee for Good Reason, which termination occurs after the Effective Date
but prior to the date of the Restricted Stock and Stock Option grants as
provided above, the Company shall, in lieu of such Restricted Stock and Stock
Option grants and the benefits specified in Section 3 (i) hereof, pay in cash to
the Employee, or to the estate of the Employee as the case may be, the amounts
provided for in Sections 2, 3(i)(a), 3(i)(b), 3(ii) as applicable, and 5 herein.
3. Benefits upon Termination. In the event the Employee's employment is
-------------------------
terminated by the Company due to death or Disability; or by the Company without
Cause or in the event that the Employee terminates employment for Good Reason:
(i) Company shall pay the Employee, immediately upon termination of the
Employee's employment:
(a) a lump sum amount which shall be computed on the basis of the
definition of actuarial equivalent specified in the Retirement Plan for Salaried
Employees of Cyprus Minerals Company ("Retirement Plan"), equal to the
additional retirement benefit that would have been received by the Employee
under the Retirement Plan, and
(b) the full benefit that would have been received under the Cyprus
Minerals Company Full Retirement Benefit Plan for Certain Salaried Employees,
Cyprus Minerals Company Restorative Benefits Plan for Salaried Employees, and
Cyprus Minerals Company 415 Limitation Plan for Salaried Employees, or such
benefits under successor plans, if applicable, in each case calculated for all
purposes as if the Employee had remained in the employment of the Company for an
additional eighteen months following the date of termination plus a period
extending until said Employee would first have been eligible to retire and
receive an immediately payable benefit under the Retirement Plan and as if the
Employee retired as of that date and elected to receive payment immediately upon
termination (provided that if the Employee is already eligible to retire under
--------
the Retirement Plan and receive an immediately payable benefit, no additional
age or years of service beyond the eighteen month period will be included for
purposes of calculating this payment). Such calculation of benefit shall be
based on the higher of the average of the final five complete calendar years of
the Employee's compensation preceding termination or the Employee's compensation
for the calendar year preceding the year of termination, as the term
"compensation" is defined in the applicable plans. For purposes of computing
the additional benefit under the Full Retirement Benefit Plan, the additional
Full Retirement Benefit Plan credited service computation will include the
additional period of Benefit Service deemed to have been credited under the
Retirement Plan for purposes of computing the additional benefits under the
Retirement Plan.
(ii) The Employee shall be entitled to outplacement services provided by
a firm of Employee's choice at a cost to the Company of up to 15 percent of the
Employee's then current Base Salary plus Annual Bonus. Further, commencing upon
termination, the Employee shall be entitled to receive any and all welfare
benefits applicable to retirees, as though the Employee had been eligible
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to retire and had retired as of the termination date at the age and with the
years of service used to calculate the additional retirement benefit, pursuant
to section above.
(iii) This Section 3 shall not in any way duplicate any benefit, or alter
the manner in which or time at which benefits are paid, pursuant to any
qualified plans maintained by the Company.
In the event that benefits are paid to the Employee under Section 3(i)(b)
of this Agreement, this Agreement shall, effective as of the date payment is
made to the Employee under this Agreement, operate as an amendment of each of
the Cyprus Minerals Company Full Retirement Benefit Plan for Certain Salaried
Employees, the Cyprus Minerals Company Restorative Benefits Plan for Salaried
Employees, and the Cyprus Minerals Company 415 Limitation Plan for Salaried
Employees, which amendment provides that payment of such benefits under this
Agreement, to the extent such payments are equal to or in excess of the benefits
accrued and payable under the respective Plan as of the date of the Employee's
termination of employment triggering such payment of benefits under this
Agreement, constitute payment and satisfaction in full of any obligation the
Company may have to pay benefits under the respective Plan.
4. Termination of Agreements. On the Effective Date, the Employment
--------------------------
Agreement and the Change of Control Agreement shall terminate and the Employee
shall have no rights and the Company shall have no obligations under the
Employment Agreement and the Change of Control Agreement, including any
provisions that purport to survive the termination of such agreements. This
Agreement shall be of no force and effect until the Effective Date.
5. Certain Additional Payments. While the Employee and the Company intend
----------------------------
that no payments made under this Agreement will be subject to Section 280G and
Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), in
the event it shall be determined that any payment or distribution by the Company
to or for the benefit of the Employee (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise, but
determined without regard to any additional payments required under this Section
5) (a "Payment") would be subject to the excise tax imposed by Section 4999 of
the Code or any interest or penalties are incurred by the Employee with respect
to such excise tax (such excise tax, together with any such interest and
penalties, are hereinafter collectively referred to as the "Excise Tax"), then
the Employee shall be entitled to receive an additional payment (a "Gross-Up
Payment") in an amount such that after payment by the Employee of all taxes
(including any interest or penalties imposed with respect to such taxes),
including, without limitation, any income taxes (and any interest and penalties
imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment,
the Employee retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments. All determinations under this Section 5 shall be
made by Price Waterhouse & Co.
6. Successors. This Agreement, and the rights and obligations created
----------
hereby, shall be binding upon and shall inure to the benefit of Cyprus Minerals
Company and all of its successors and assigns (whether by merger or otherwise).
7. Attorney's Fees and Interest. The Company shall reimburse the Employee
----------------------------
for any and all reasonable attorney's fees and expenses reasonably incurred by
the Employee in asserting the Employee's rights under this Agreement (other than
any such fees incurred with respect to a claim brought in bad faith), and shall
pay to the Employee any and all prejudgment interest awarded for delayed
payments by the Company under the Agreement.
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8. Miscellaneous.
-------------
(a) This Agreement may be rescinded, revoked, or amended only by a
written instrument signed by both parties. The failure of either party to
insist upon strict compliance with any of the terms, conditions, and covenants
hereof shall not be deemed a waiver of that or any similar right or power at any
subsequent time.
(b) The Company may withhold from any amounts payable under this
Agreement such federal, state or local taxes as shall be required to be withheld
pursuant to any applicable law or regulation.
(c) Nothing in this Agreement shall be interpreted to limit the right of
the Company to amend or terminate any existing or future benefit plan or
program.
(d) Any written notice required or permitted to be given hereunder is
sufficient if sent by registered mail or delivered by hand, to the Company at
its main place of business, or to the Employee at the home address of the
Employee as reflected in Company records.
(e) The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement.
(f) This Agreement is to be governed and construed in accordance with the
laws of the state of Colorado, excluding any conflict of laws or provisions
thereof which would cause the laws of any other state to be applicable hereto.
(g) Any reference to any plan or arrangement of the Company or its
subsidiaries shall include any successor plan or arrangement.
IN WITNESS WHEREOF, the Employee has signed this Agreement, and the Company
has caused its duly authorized representative to sign this Agreement, in each
case as of the date first written above.
CYPRUS MINERALS COMPANY
By:
-----------------------------------
EMPLOYEE
---------------------------------------
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EXHIBIT 10(j)
CYPRUS AMAX MINERALS COMPANY
MATERIAL CONTRACTS
CHANGE OF CONTROL EMPLOYMENT AGREEMENTS
Cyprus Amax Minerals Company entered into Change of Control Employment
Agreements with six (6) executive officers, ("The Employment Agreements"). The
Employment Agreements become effective upon a Change of Control (as defined
herein).
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EXHIBIT 10(j)
CYPRUS AMAX MINERALS COMPANY
EMPLOYMENT AGREEMENT
--------------------
AGREEMENT by and between Cyprus Amax Minerals Company, a Delaware corporation
(the "Company") and ____ (the "Executive"), dated as of the ________.
The Board of Directors of the Company (the "Board"), has determined that it
is in the best interests of the Company and its shareholders to assure that the
Company will have the continued dedication of the Executive, notwithstanding the
possibility, threat or occurrence of a Change of Control (as defined below) of
the Company. The Board believes it is imperative to diminish the inevitable
distraction of the Executive by virtue of the personal uncertainties and risks
created by a pending or threatened Change of Control and to encourage the
Executive's full attention and dedication to the Company currently and in the
event of any threatened or pending Change of Control, and to provide the
Executive with compensation and benefits arrangements upon a Change of Control
which ensure that the compensation and benefits expectations of the Executive
will be satisfied and which are competitive with those of other corporations.
Therefore, in order to accomplish these objectives, the Board has caused the
Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. Certain Definitions. (a) The "Effective Date" shall mean the first date
-------------------
during the Change of Control Period (as defined in Section 1(b)) on which a
Change of Control (as defined in Section 2) occurs. Anything in this Agreement
to the contrary notwithstanding, if a Change of Control occurs and if the
Executive's employment with the Company is terminated prior to the date on which
the Change of Control occurs, and if it is reasonably demonstrated by the
Executive that such termination of employment (i) was at the request of a third
party who has taken steps reasonably calculated to effect a Change of Control or
(ii) otherwise arose in connection with or anticipation of a Change of Control,
then for all purposes of this Agreement the "Effective Date" shall mean the date
immediately prior to the date of such termination of employment.
(b) The "Change of Control Period" shall mean the period commencing on the
date hereof and ending on the third anniversary of the date hereof; provided,
however, that commencing on the date one year after the date hereof, and on each
annual anniversary of such date (such date and each annual anniversary thereof
shall be hereinafter referred to as the "Renewal Date"), unless previously
terminated, the Change of Control Period shall be automatically extended so as
to terminate three years from such Renewal Date, unless at least 60 days prior
to the Renewal Date the Company shall give notice to the Executive that the
Change of Control Period shall not be so extended.
2. Change of Control. For the purpose of this Agreement, a "Change of
-----------------
Control" shall mean:
(a) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange Act) of 35% or more of
either (i) the then outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (ii) the combined voting power of the
then outstanding voting securities of the Company entitled to vote generally in
the election of directors (the
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"Outstanding Company Voting Securities"); provided, however, that for purposes
of this subsection (a), the following acquisitions shall not constitute a Change
of Control: (i) any acquisition directly from the Company, (ii) any acquisition
by the Company, (iii) any acquisition by any employee benefit plan (or related
trust) sponsored or maintained by the Company or any corporation controlled by
the Company or (iv) any acquisition by any corporation pursuant to a transaction
which complies with clauses (A) and (B) of subsection (c) of this Section 2; or
(b) Individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority of the
Board; provided, however, that any individual becoming a director subsequent to
the date hereof whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with respect to the election
or removal of directors or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board; or
(c) Consummation of a reorganization, merger or consolidation involving
the Company or any subsidiary of the Company or sale or other disposition of all
or substantially all of the assets of the Company (a "Business Combination"), in
each case, unless, following such Business Combination, either (A)(i) all or
substantially all of the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such Business Combination
beneficially own, directly or indirectly, more than 50% of, respectively, the
then outstanding shares of common stock and the combined voting power of the
then outstanding voting securities entitled to vote generally in the election
of directors, as the case may be, of the corporation resulting from such
Business Combination (including, without limitation, a corporation which as a
result of such transaction owns the Company or all or substantially all of the
Company's assets either directly or through one or more subsidiaries) in
substantially the same proportions as their ownership, immediately prior to such
Business Combination of the Outstanding Company Common Stock and Outstanding
Company Voting Securities, as the case may be or (ii) at least a majority of the
members of the board of directors of the corporation resulting from such
Business Combination were members of the Incumbent Board at the time of the
execution of the initial agreement, or of the action of the Board, providing for
such Business Combination and (B) no Person (excluding any corporation resulting
from such Business Combination or any employee benefit plan (or related trust)
of the Company or such corporation resulting from such Business Combination)
beneficially owns, directly or indirectly, 35% or more of, respectively, the
then outstanding shares of common stock of the corporation resulting from such
Business Combination or the combined voting power of the then outstanding voting
securities of such corporation except to the extent that such ownership existed
prior to the Business Combination; or
(d) A complete liquidation or dissolution of the Company.
3. Employment Period. The Company hereby agrees to continue the Executive in
-----------------
its employ, and the Executive hereby agrees to remain in the employ of the
Company subject to the terms and conditions of this Agreement, for the period
commencing on the Effective Date and ending on the third anniversary of such
date (the "Employment Period").
4. Terms of Employment. (a) Position and Duties. (i) During the
------------------- ------------ ------
Employment Period, (A) the Executive's position (including status, offices,
titles and reporting requirements), authority, duties and responsibilities shall
be at least commensurate in all material respects with the most significant of
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those held, exercised and assigned at any time during the 120-day period
immediately preceding the Effective Date and (B) the Executive's services shall
be performed at the location where the Executive was employed immediately
preceding the Effective Date or any office or location less than 50 miles from
such location.
(ii) During the Employment Period, and excluding any periods of
vacation and sick leave to which the Executive is entitled, the Executive agrees
to devote reasonable attention and time during normal business hours to the
business and affairs of the Company and, to the extent necessary to discharge
the responsibilities assigned to the Executive hereunder, to use the Executive's
reasonable best efforts to perform faithfully and efficiently such
responsibilities. During the Employment Period it shall not be a violation of
this Agreement for the Executive to (A) serve on corporate, civic or charitable
boards or committees, (B) deliver lectures, fulfill speaking engagements or
teach at educational institutions and (C) manage personal investments, so long
as such activities do not significantly interfere with the performance of the
Executive's responsibilities as an employee of the Company in accordance with
this Agreement. It is expressly understood and agreed that to the extent that
any such activities have been conducted by the Executive prior to the Effective
Date, the continued conduct of such activities (or the conduct of activities
similar in nature and scope thereto) subsequent to the Effective Date shall not
thereafter be deemed to interfere with the performance of the Executive's
responsibilities to the Company.
(b) Compensation. (i) Base Salary. During the Employment Period, the
------------ -----------
Executive shall receive an annual base salary ("Annual Base Salary"), which
shall be paid at a monthly rate, at least equal to 12 times the highest monthly
base salary paid or payable, including any base salary which has been earned but
deferred, to the Executive by the Company and its affiliated companies in
respect of the 12-month period immediately preceding the month in which the
Effective Date occurs. During the Employment Period, the Annual Base Salary
shall be reviewed no more than 12 months after the last salary increase awarded
to the Executive prior to the Effective Date and thereafter at least annually.
Any increase in Annual Base Salary shall not serve to limit or reduce any other
obligation to the Executive under this Agreement. Annual Base Salary shall not
be reduced after any such increase and the term Annual Base Salary as utilized
in this Agreement shall refer to Annual Base Salary as so increased. As used in
this Agreement, the term "affiliated companies" shall include any company
controlled by, controlling or under common control with the Company.
(ii) Annual Bonus. In addition to Annual Base Salary, the Executive
------------
shall be awarded, for each fiscal year ending during the Employment Period, an
annual bonus (the "Annual Bonus") in cash at least equal to the higher of the
Executive's target bonus under the Company's Annual Incentive Plans, or any
comparable bonus under any predecessor or successor plan, for the last full
fiscal year prior to the Effective Date (annualized in the event that the
Executive was not employed by the Company for the whole of such fiscal year)
(the "Recent Annual Bonus"). Each such Annual Bonus shall be paid no later than
the end of the third month of the fiscal year next following the fiscal year for
which the Annual Bonus is awarded, unless the Executive shall elect to defer the
receipt of such Annual Bonus.
(iii) Incentive, Savings and Retirement Plans. During the Employment
---------------------------------------
Period, the Executive shall be entitled to participate in all incentive, savings
and retirement plans, practices, policies and programs applicable generally to
other peer executives of the Company and its affiliated companies, but in no
event shall such plans, practices, policies and programs provide the Executive
with incentive opportunities (measured with respect to both regular and special
incentive opportunities, to the extent, if any, that such distinction is
applicable), savings opportunities and retirement benefit opportunities, in each
case, less favorable, in the aggregate, than the most favorable
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of those provided by the Company and its affiliated companies for the Executive
under such plans, practices, policies and programs as in effect at any time
during the 120-day period immediately preceding the Effective Date or if more
favorable to the Executive, those provided generally at any time after the
Effective Date to other peer executives of the Company and its affiliated
companies.
(iv) Welfare Benefit Plans. During the Employment Period, the
---------------------
Executive and/or the Executive's family, as the case may be, shall be eligible
for participation in and shall receive all benefits under welfare benefit plans,
practices, policies and programs provided by the Company and its affiliated
companies (including, without limitation, medical, prescription, dental,
disability, salary continuance, employee life, group life, accidental death and
travel accident insurance plans and programs) to the extent applicable generally
to other peer executives of the Company and its affiliated companies, but in no
event shall such plans, practices, policies and programs provide the Executive
with benefits which are less favorable, in the aggregate, than the most
favorable of such plans, practices, policies and programs in effect for the
Executive at any time during the 120-day period immediately preceding the
Effective Date or, if more favorable to the Executive, those provided generally
at any time after the Effective Date to other peer executives of the Company and
its affiliated companies.
(v) Expenses. During the Employment Period, the Executive shall be
--------
entitled to receive prompt reimbursement for all reasonable expenses incurred by
the Executive in accordance with the most favorable policies, practices, and
procedures of the Company and its affiliated companies in effect for the
Executive at any time during the 120-day period immediately preceding the
Effective Date or, if more favorable to the Executive, as in effect generally at
any time thereafter with respect to other peer executives of the Company and its
affiliated companies.
(vi) Fringe Benefits. During the Employment Period, the Executive
---------------
shall be entitled to fringe benefits, including, without limitation, tax and
financial planning services, payment of club dues, and, if applicable, use of an
automobile and payment of related expenses, in accordance with the most
favorable plans, practices, programs and policies of the Company and its
affiliated companies in effect for the Executive at any time during the 120-day
period immediately preceding the Effective Date or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect to other
peer executives of the Company and its affiliated companies.
(vii) Office and Support Staff. During the Employment Period, the
------------------------
Executive shall be entitled to an office or offices of a size and with
furnishings and other appointments, and to exclusive personal secretarial and
other assistance, at least equal to the most favorable of the foregoing provided
to the Executive by the Company and its affiliated companies at any time during
the 120-day period immediately preceding the Effective Date or, if more
favorable to the Executive, as provided generally at any time thereafter with
respect to other peer executives of the Company and its affiliated companies.
(viii) Vacation. During the Employment Period, the Executive shall be
--------
entitled to paid vacation in accordance with the most favorable plans, policies,
programs and practices of the Company and its affiliated companies as in effect
for the Executive at any time during the 120-day period immediately preceding
the Effective Date or, if more favorable to the Executive, as in effect
generally at any time thereafter with respect to other peer executives of the
Company and its affiliated companies.
5. Termination of Employment. (a) Death or Disability. The Executive's
------------------------- -------------------
employment shall terminate automatically upon the Executive's death during the
Employment Period. If the
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Company determines in good faith that the Disability of the Executive has
occurred during the Employment Period (pursuant to the definition of Disability
set forth below), it may give to the Executive written notice in accordance with
Section 12(b) of this Agreement of its intention to terminate the Executive's
employment. In such event, the Executive's employment with the Company shall
terminate effective on the 30th day after receipt of such notice by the
Executive (the "Disability Effective Date"), provided that, within the 30 days
after such receipt, the Executive shall not have returned to full-time
performance of the Executive's duties. For purposes of this Agreement,
"Disability" shall mean the absence of the Executive from the Executive's duties
with the Company on a full-time basis for 180 consecutive business days as a
result of incapacity due to mental or physical illness which is determined to be
total and permanent by a physician selected by the Company or its insurers and
acceptable to the Executive or the Executive's legal representative.
(b) Cause. The Company may terminate the Executive's employment during
-----
the Employment Period for Cause. For purposes of this Agreement, "Cause" shall
mean:
(i) the willful and continued failure of the Executive to perform
substantially the Executive's duties with the Company or one of its
affiliates (other than any such failure resulting from incapacity due to
physical or mental illness), after a written demand for substantial
performance is delivered to the Executive by the Board or the Chief Executive
Officer of the Company which specifically identifies the manner in which the
Board or Chief Executive Officer believes that the Executive has not
substantially performed the Executive's duties, or
(ii) the willful engaging by the Executive in illegal conduct or gross
misconduct which is materially and demonstrably injurious to the Company.
For purposes of this provision, no act or failure to act, on the part of the
Executive, shall be considered "willful" unless it is done, or omitted to be
done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon authority given pursuant to a resolution duly
adopted by the Board or upon the instructions of the Chief Executive Officer or
a senior officer of the Company or based upon the advice of counsel for the
Company shall be conclusively presumed to be done, or omitted to be done, by the
Executive in good faith and in the best interests of the Company. The cessation
of employment of the Executive shall not be deemed to be for Cause unless and
until there shall have been delivered to the Executive a copy of a resolution
duly adopted by the affirmative vote of not less than three-quarters of the
entire membership of the Board at a meeting of the Board called and held for
such purpose (after reasonable notice is provided to the Executive and the
Executive is given an opportunity, together with counsel, to be heard before the
Board), finding that, in the good faith opinion of the Board, the Executive is
guilty of the conduct described in subparagraph (i) or (ii) above, and
specifying the particulars thereof in detail.
(c) Good Reason. The Executive's employment may be terminated by the
-----------
Executive for Good Reason. For purposes of this Agreement, "Good Reason" shall
mean:
(i) the assignment to the Executive of any duties inconsistent in any
respect with the Executive's position (including status, offices, titles and
reporting requirements), authority, duties or responsibilities as
contemplated by Section 4(a) of this Agreement, or any other action by the
Company which results in a diminution in such position, authority, duties or
responsibilities, excluding for this purpose an isolated, insubstantial and
inadvertent action not taken in bad faith and which is remedied by the
Company promptly after receipt of notice thereof given by the Executive;
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(ii) any failure by the Company to comply with any of the provisions
of Section 4(b) of this Agreement, other than an isolated, insubstantial and
inadvertent failure not occurring in bad faith and which is remedied by the
Company promptly after receipt of notice thereof given by the Executive;
(iii) the Company's requiring the Executive to be based at any office
or location other than as provided in Section 4(a)(i)(B) hereof or the
Company's requiring the Executive to travel on Company business to a
substantially greater extent than required immediately prior to the Effective
Date;
(iv) any purported termination by the Company of the Executive's
employment otherwise than as expressly permitted by this Agreement; or
(v) any failure by the Company to comply with and satisfy Section
11(c) of this Agreement.
For purposes of this Section 5(c), any good faith determination of "Good Reason"
made by the Executive shall be conclusive. Anything in this Agreement to the
contrary notwithstanding, a termination by the Executive for any reason during
the 30-day period immediately following the first anniversary of the Effective
Date shall be deemed to be a termination for Good Reason for all purposes of
this Agreement.
(d) Notice of Termination. Any termination by the Company for Cause, or
---------------------
by the Executive for Good Reason, shall be communicated by Notice of Termination
to the other party hereto given in accordance with Section 12(b) of this
Agreement. For purposes of this Agreement, a "Notice of Termination" means a
written notice which (i) indicates the specific termination provision in this
Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination of
the Executive's employment under the provision so indicated and (iii) if the
Date of Termination (as defined below) is other than the date of receipt of such
notice, specifies the termination date (which date shall be not more than 30
days after the giving of such notice). The failure by the Executive or the
Company to set forth in the Notice of Termination any fact or circumstance which
contributes to a showing of Good Reason or Cause shall not waive any right of
the Executive or the Company, respectively, hereunder or preclude the Executive
or the Company, respectively, from asserting such fact or circumstance in
enforcing the Executive's or the Company's rights hereunder.
(e) Date of Termination. "Date of Termination" means (i) if the
-------------------
Executive's employment is terminated by the Company for Cause, or by the
Executive for Good Reason, the date of receipt of the Notice of Termination or
any later date specified therein, as the case may be, (ii) if the Executive's
employment is terminated by the Company other than for Cause or Disability, the
Date of Termination shall be the date on which the Company notifies the
Executive of such termination and (iii) if the Executive's employment is
terminated by reason of death or Disability, the Date of Termination shall be
the date of death of the Executive or the Disability Effective Date, as the case
may be.
6. Obligations of the Company upon Termination. (a) Good Reason; Other Than
------------------------------------------- -----------------------
for Cause, Death or Disability. If, during the Employment Period, the Company
- ------------------------------
shall terminate the Executive's employment other than for Cause or Disability or
the Executive shall terminate employment for Good Reason:
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(i) the Company shall pay to the Executive in a lump sum in cash within
30 days after the Date of Termination the aggregate of the following amounts:
A. the sum of (1) the Executive's Annual Base Salary through the
Date of Termination to the extent not theretofore paid, (2) the product of
(x) the higher of (I) the Recent Annual Bonus and (II) the Annual Bonus paid
or payable, including any bonus or portion thereof which has been earned but
deferred (and annualized for any fiscal year consisting of less than 12 full
months or during which the Executive was employed for less than 12 full
months), for the most recently completed fiscal year during the Employment
Period, if any (such higher amount being referred to as the "Highest Annual
Bonus") and (y) a fraction, the numerator of which is the number of days in
the current fiscal year through the Date of Termination, and the denominator
of which is 365 and (3) any compensation previously deferred by the Executive
(together with any accrued interest or earnings thereon) and any accrued
vacation pay, in each case to the extent not theretofore paid (the sum of the
amounts described in clauses (1), (2), and (3) shall be hereinafter referred
to as the "Accrued Obligations"); and
B. the amount equal to the product of (1) three and (2) the sum of
(x) the Executive's Annual Base Salary and (y) the Highest Annual Bonus.
(ii) to the extent not theretofore paid or provided, the Company shall
timely pay or provide to the Executive any other amounts or benefits required
to be paid or provided or which the Executive is eligible to receive under
any plan, program, policy or practice or contract or agreement of the Company
and its affiliated companies, including, without limitation, the benefits
provided by the Agreement between the Executive and the Company dated
February 10, 1994 (the "Existing Agreement") (such other amounts and benefits
shall be hereinafter referred to as the "Other Benefits").
(b) Death. If the Executive's employment is terminated by reason of the
-----
Executive's death during the Employment Period, this Agreement shall terminate
without further obligations to the Executive's legal representatives under this
Agreement, other than for payment of Accrued Obligations and the timely payment
or provision of Other Benefits. Accrued Obligations shall be paid to the
Executive's estate or beneficiary, as applicable, in a lump sum in cash within
30 days of the Date of Termination. With respect to the provision of Other
Benefits, the term Other Benefits as utilized in this Section 6(b) shall
include, without limitation, and the Executive's estate and/or beneficiaries
shall be entitled to receive, benefits at least equal to the most favorable
benefits provided by the Company and affiliated companies to the estates and
beneficiaries of peer executives of the Company and such affiliated companies
under such plans, programs, practices and policies relating to death benefits,
if any, as in effect with respect to other peer executives and their
beneficiaries at any time during the 120-day period immediately preceding the
Effective Date or, if more favorable to the Executive's estate and/or the
Executive's beneficiaries, as in effect on the date of the Executive's death
with respect to other peer executives of the Company and its affiliated
companies and their beneficiaries.
(c) Disability. If the Executive's employment is terminated by reason of
----------
the Executive's Disability during the Employment Period, this Agreement shall
terminate without further obligations to the Executive, other than for payment
of Accrued Obligations and the timely payment or provision of Other Benefits.
Accrued Obligations shall be paid to the Executive in a lump sum in cash within
30 days of the Date of Termination. With respect to the provision of Other
Benefits, the term Other Benefits as utilized in this Section 6(c) shall
include, and the Executive shall be entitled after the Disability Effective Date
to receive, disability and other benefits at least equal to the most favorable
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of those generally provided by the Company and its affiliated companies to
disabled executives and/or their families in accordance with such plans,
programs, practices and policies relating to disability, if any, as in effect
generally with respect to other peer executives and their families at any time
during the 120-day period immediately preceding the Effective Date or, if more
favorable to the Executive and/or the Executive's family, as in effect at any
time thereafter generally with respect to other peer executives of the Company
and its affiliated companies and their families.
(d) Cause; Other than for Good Reason. If the Executive's employment
---------------------------------
shall be terminated for Cause during the Employment Period, this Agreement shall
terminate without further obligations to the Executive other than the obligation
to pay to the Executive (x) his Annual Base Salary through the Date of
Termination, (y) the amount of any compensation previously deferred by the
Executive, and (z) Other Benefits, in each case to the extent theretofore
unpaid. If the Executive voluntarily terminates employment during the
Employment Period, excluding a termination for Good Reason, this Agreement shall
terminate without further obligations to the Executive, other than for Accrued
Obligations and the timely payment or provision of Other Benefits. In such
case, all Accrued Obligations shall be paid to the Executive in a lump sum in
cash within 30 days of the Date of Termination.
7. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or
-------------------------
limit the Executive's continuing or future participation in any plan, program,
policy or practice provided by the Company or any of its affiliated companies
and for which the Executive may qualify, nor, subject to Section 12(f), shall
anything herein limit or otherwise affect such rights as the Executive may have
under any contract or agreement with the Company or any of its affiliated
companies. Amounts which are vested benefits or which the Executive is
otherwise entitled to receive under any plan, policy, practice or program of or
any contract or agreement with the Company or any of its affiliated companies at
or subsequent to the Date of Termination shall be payable in accordance with
such plan, policy, practice or program or contract or agreement except as
explicitly modified by this Agreement.
8. Full Settlement. The Company's obligation to make the payments provided
---------------
for in this Agreement and otherwise to perform its obligations hereunder shall
not be affected by any set-off, counterclaim, recoupment, defense or other
claim, right or action which the Company may have against the Executive or
others. In no event shall the Executive be obligated to seek other employment
or take any other action by way of mitigation of the amounts payable to the
Executive under any of the provisions of this Agreement and such amounts shall
not be reduced whether or not the Executive obtains other employment. The
Company agrees to pay as incurred, to the full extent permitted by law, all
legal fees and expenses which the Executive may reasonably incur as a result of
any contest (regardless of the outcome thereof but not in the case of fees
incurred with respect to a claim brought in bad faith) by the Company, the
Executive or others of the validity or enforceability of, or liability under,
any provision of this Agreement or any guarantee of performance thereof
(including as a result of any contest by the Executive about the amount of any
payment pursuant to this Agreement), plus in each case interest on any delayed
payment at the applicable Federal rate provided for in Section 7872(f)(2)(A) of
the Internal Revenue Code of 1986, as amended (the "Code").
9. Certain Additional Payments by the Company.
------------------------------------------
(a) Anything in this Agreement to the contrary notwithstanding and except
as set forth below, in the event it shall be determined that any payment or
distribution by the Company to or for the benefit of the Executive (whether paid
or payable or distributed or distributable pursuant to the terms of this
Agreement or otherwise, but determined without regard to any additional payments
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<PAGE>
required under this Section 9) (a "Payment") would be subject to the excise tax
imposed by Section 4999 of the Code or any interest or penalties are incurred by
the Executive with respect to such excise tax (such excise tax, together with
any such interest and penalties, are hereinafter collectively referred to as the
"Excise Tax"), then the Executive shall be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by the
Executive of all taxes (including any interest or penalties imposed with respect
to such taxes), including, without limitation, any income taxes (and any
interest and penalties imposed with respect thereto) and Excise Tax imposed upon
the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment
equal to the Excise Tax imposed upon the Payments. Notwithstanding the
foregoing provisions of this Section 9(a), if it shall be determined that the
Executive is entitled to a Gross-Up Payment, but that the Executive, after
taking into account the Payments and the Gross-Up Payment, would not receive a
net after-tax benefit of at least $50,000 (taking into account both income taxes
and any Excise Tax) as compared to the net after-tax proceeds to the Executive
resulting from an elimination of the Gross-Up Payment and a reduction of the
Payments, in the aggregate, to an amount (the "Reduced Amount") such that the
receipt of Payments would not give rise to any Excise Tax, then no Gross-Up
Payment shall be made to the Executive and the Payments, in the aggregate, shall
be reduced to the Reduced Amount.
(b) Subject to the provisions of Section 9(c), all determinations
required to be made under this Section 9, including whether and when a Gross-Up
Payment is required and the amount of such Gross-Up Payment and the assumptions
to be utilized in arriving at such determination, shall be made by Price
Waterhouse & Co. or such other certified public accounting firm as may be
designated by the Executive (the "Accounting Firm") which shall provide detailed
supporting calculations both to the Company and the Executive within 15 business
days of the receipt of notice from the Executive that there has been a Payment,
or such earlier time as is requested by the Company. In the event that the
Accounting Firm is serving as accountant or auditor for the individual, entity
or group effecting the Change of Control, the Executive shall appoint another
nationally recognized accounting firm to make the determinations required
hereunder (which accounting firm shall then be referred to as the Accounting
Firm hereunder). All fees and expenses of the Accounting Firm shall be borne
solely by the Company. Any Gross-Up Payment, as determined pursuant to this
Section 9, shall be paid by the Company to the Executive within five days of the
receipt of the Accounting Firm's determination. Any determination by the
Accounting Firm shall be binding upon the Company and the Executive. As a
result of the uncertainty in the application of Section 4999 of the Code at the
time of the initial determination by the Accounting Firm hereunder, it is
possible that Gross-Up Payments which will not have been made by the Company
should have been made ("Underpayment"), consistent with the calculations
required to be made hereunder. In the event that the Company exhausts its
remedies pursuant to Section 9(c) and the Executive thereafter is required to
make a payment of any Excise Tax, the Accounting Firm shall determine the amount
of the Underpayment that has occurred and any such Underpayment shall be
promptly paid by the Company to or for the benefit of the Executive.
(c) The Executive shall notify the Company in writing of any claim by the
Internal Revenue Service that, if successful, would require the payment by the
Company of the Gross-Up Payment. Such notification shall be given as soon as
practicable but no later than ten business days after the Executive is informed
in writing of such claim and shall apprise the Company of the nature of such
claim and the date on which such claim is requested to be paid. The Executive
shall not pay such claim prior to the expiration of the 30-day period following
the date on which it gives such notice to the Company (or such shorter period
ending on the date that any payment of taxes with respect to such claim is due).
If the Company notifies the Executive in writing prior to the expiration of such
period that it desires to contest such claim, the Executive shall:
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<PAGE>
(i) give the Company any information reasonably requested by the
Company relating to such claim,
(ii) take such action in connection with contesting such claim as the
Company shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such claim
by an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in order to effectively
contest such claim, and
(iv) permit the Company to participate in any proceedings relating to
such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions
of this Section 9(c), the Company shall control all proceedings taken in
connection with such contest and, at its sole option, may pursue or forgo any
and all administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim and may, at its sole option, either
direct the Executive to pay the tax claimed and sue for a refund or contest the
claim in any permissible manner, and the Executive agrees to prosecute such
contest to a determination before any administrative tribunal, in a court of
initial jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the Executive to pay
such claim and sue for a refund, the Company shall advance the amount of such
payment to the Executive, on an interest-free basis and shall indemnify and hold
the Executive harmless, on an after-tax basis, from any Excise Tax or income tax
(including interest or penalties with respect thereto) imposed with respect to
such advance or with respect to any imputed income with respect to such advance;
and further provided that any extension of the statute of limitations relating
to payment of taxes for the taxable year of the Executive with respect to which
such contested amount is claimed to be due is limited solely to such contested
amount. Furthermore, the Company's control of the contest shall be limited to
issues with respect to which a Gross-Up Payment would be payable hereunder and
the Executive shall be entitled to settle or contest, as the case may be, any
other issue raised by the Internal Revenue Service or any other taxing
authority.
(d) If, after the receipt by the Executive of an amount advanced by the
Company pursuant to Section 9(c), the Executive becomes entitled to receive any
refund with respect to such claim, the Executive shall (subject to the Company's
complying with the requirements of Section 9(c)) promptly pay to the Company the
amount of such refund (together with any interest paid or credited thereon after
taxes applicable thereto). If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 9(c), a determination is made that
the Executive shall not be entitled to any refund with respect to such claim and
the Company does not notify the Executive in writing of its intent to contest
such denial of refund prior to the expiration of 30 days after such
determination, then such advance shall be forgiven and shall not be required to
be repaid and the amount of such advance shall offset, to the extent thereof,
the amount of Gross-Up Payment required to be paid.
10. Confidential Information. The Executive shall hold in a fiduciary
------------------------
capacity for the benefit of the Company all secret or confidential information,
knowledge or data relating to the Company or any of its affiliated companies,
and their respective businesses, which shall have been obtained by the Executive
during the Executive's employment by the Company or any of its affiliated
companies and
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<PAGE>
which shall not be or become public knowledge (other than by acts by the
Executive or representatives of the Executive in violation of this Agreement).
After termination of the Executive's employment with the Company, the Executive
shall not, without the prior written consent of the Company or as may otherwise
be required by law or legal process, communicate or divulge any such
information, knowledge or data to anyone other than the Company and those
designated by it. In no event shall an asserted violation of the provisions of
this Section 10 constitute a basis for deferring or withholding any amounts
otherwise payable to the Executive under this Agreement.
11. Successors. (a) This Agreement is personal to the Executive and
----------
without the prior written consent of the Company shall not be assignable by the
Executive otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Executive's
legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon the
Company and its successors and assigns.
(c) The Company will require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially all of
the business and/or assets of the Company to assume expressly and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had taken place.
As used in this Agreement, "Company" shall mean the Company as hereinbefore
defined and any successor to its business and/or assets as aforesaid which
assumes and agrees to perform this Agreement by operation of law, or otherwise.
12. Miscellaneous. (a) This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of Delaware, without reference to
principles of conflict of laws. The captions of this Agreement are not part of
the provisions hereof and shall have no force or effect. This Agreement may not
be amended or modified otherwise than by a written agreement executed by the
parties hereto or their respective successors and legal representatives.
(b) All notices and other communications hereunder shall be in writing
and shall be given by hand delivery to the other party or by registered or
certified mail, return receipt requested, postage prepaid, addressed as follows:
If to the Executive:
-------------------
(Name)
---------------
(Address)
---------------
(Address)
---------------
If to the Company:
-----------------
Cyprus Amax Minerals Company
9100 East Mineral Circle
Englewood, Colorado 80112
Attention: General Counsel
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<PAGE>
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement.
(d) The Company may withhold from any amounts payable under this
Agreement such Federal, state, local or foreign taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon strict
compliance with any provision of this Agreement or the failure to assert any
right the Executive or the Company may have hereunder, including, without
limitation, the right of the Executive to terminate employment for Good Reason
pursuant to Section 5(c)(i)-(v) of this Agreement, shall not be deemed to be a
waiver of such provision or right or any other provision or right of this
Agreement.
(f) The Executive and the Company acknowledge that, except as may
otherwise be provided under any other written agreement between the Executive
and the Company, the employment of the Executive by the Company is "at will"
and, subject to Section 1(a) hereof, prior to the Effective Date, the
Executive's employment and/or this Agreement may be terminated by either the
Executive or the Company at any time prior to the Effective Date, in which case
the Executive shall have no further rights under this Agreement. Except as
provided herein with respect to benefits under the Existing Agreement, from and
after the Effective Date this Agreement shall supersede any other agreement
between the parties with respect to the subject matter hereof.
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand
and, pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed in its name on its behalf, all as of the
day and year first above written.
-----------------------------------
(Employee)
CYPRUS AMAX MINERALS COMPANY
By
--------------------------------
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EXHIBIT 10(k)
CYPRUS AMAX MINERALS COMPANY
1994 BONUS INCENTIVE PROGRAM
PURPOSE
- -------
Bonus programs, which are a part of Cyprus Amax's total compensation program, is
one method of recognizing the contributions of salaried employees when Cyprus
Amax Minerals Company meets its annual performance and financial objectives.
The Plan's purpose is to focus the attention of employees on the objectives of
the corporation and business units and to encourage team and individual efforts
in order to achieve the desired results.
EFFECTIVE DATE
- --------------
Effective January 1, 1994 through December 31, 1994 with payment of bonuses to
be made the first quarter of 1995.
ELIGIBILITY
- -----------
All salaried Corporate Staff employees, salaried Division Staff employees and
salaried grade 15 and above employees at the Locations are eligible to be
considered for a bonus provided:
1) Employees must be on the active payroll on December 31. Employees who
resign or are discharged for cause will not receive a bonus payment.
2) Employees hired during the year will be eligible to receive a prorated
bonus.
3) Employees terminated for reasons of retirement, death, or workforce
reduction will be eligible to receive a prorated bonus.
4) Temporary and Casual Employees are not eligible.
Employees will be eligible to participate in only one bonus plan.
DIVISION AND CORPORATE STAFF OBJECTIVES
- ---------------------------------------
Division Objectives will be established by Division Presidents for approval and
subsequent evaluation by CEO.
Corporate Staff Objectives will be established by Department Heads for approval
and subsequent evaluation by CEO.
Division Presidents and Department Heads will determine the allocation of bonus
pool dollars within their areas of responsibility.
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<PAGE>
BONUS POOL
- ----------
The actual bonus pool will be based on the Committee's evaluation of Cyprus
Amax's overall performance for the year. At the December 1994 Committee
meeting, the CEO will review the Company's performance regarding various
financial measurements as well as performance relative to more subjective
measurements such as merger integration goals achieved. Once Committee approval
is received, the CEO will allocate dollar amounts to each Division and Staff
Department based on his evaluation of their performance. The following
guidelines will generally apply to any such allocation:
<TABLE>
<CAPTION>
Corporate Division Individual
Performance Performance Performance
<S> <C> <C> <C>
Operations Officers 50% 25% 25%
Staff Officers 75% 0% 25%
Corporate Staff 75% 0% 25%
Division Line 25% 50% 25%
Division Staff 25% 50% 25%
</TABLE>
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<PAGE>
EXHIBIT 10(l)
1994 MANAGEMENT INCENTIVE PROGRAM
(STOCK OPTION PLAN)
SUMMARY OF INFORMATION AND PROSPECTUS FOR PARTICIPANTS
I. Purpose of the 1994 Management Incentive Program
The 1994 Management Incentive Program ("Program") under which all
Stock Options are granted was developed to further the interests of
Cyprus Amax Minerals Company ("Company"), its participating
subsidiaries and its shareholders by providing incentives in the form
of stock option grants to employees who contribute materially to the
success and profitability of the Company and such subsidiaries. Such
grants will recognize and reward those employees and create for them
an interest in the Company parallel to that of the shareholders, thus
enhancing the proprietary and personal interest of such persons in the
Company's continued success and progress. This Program will also
enable the Company and its subsidiaries to attract and retain key
personnel.
The Program may be amended or terminated (except as to outstanding
options) by action of the Board. The shares of Cyprus Amax common
stock to be offered by the Company pursuant to this Program may be
reacquired, purchased, or unissued shares.
The total number of shares for which options may be granted during
1994 will be 500,000 shares.
II. Basis for Grant Levels
The Compensation and Benefits Committee ("Committee") has the
discretion to determine the number of options granted to an individual
participant. The actual number of options granted to a participant
may be based on, among other factors, the grade level of the
participant's position as well as the individual's performance and
contribution to the Company.
III. Definition of Important Dates and Events Used in the Management Incentive
Program
A. Grant Date: The date established by the Committee for Stock Option
grants. The fair market value, which is the average of the high and
low Cyprus stock price on that date, establishes the exercise price of
the Stock Option. In 1994, the grant date is February 10, 1994.
Eligibility for a grant requires active employment on the date of the
grant.
B. Vesting Date: The date on which a portion of or all of the Stock
Options become exercisable. Stock Options become exercisable two
years from the date of grant.
THIS DOCUMENT CONSTITUTES PART OF A PROSPECTUS COVERING SECURITIES THAT HAVE
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933.
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C. Exercise Date: The date on which Stock Options are actually
exercised. This is defined as the date on which a properly completed
Notice of Exercise form and payment for the stock are received in
---
Corporate Compensation, Attention: Jean M. Marshall.
D. Expiration Date: The Stock Options expire ten years from the grant
date.
E. Date of Termination of Employment: If the employment of a participant
terminates for any reason other than death, disability or retirement,
the Stock Option will expire 30 days following date of termination or
earlier if the expiration date of the Stock Option falls within that
30-day period. Any Stock Options which are exercisable as of the date
of termination must be exercised during this period or they
automatically expire. Stock Options which are not exercisable as of
the date of termination of employment are cancelled as of the date of
termination.
F. Termination Due to Death: Any Stock Options which are exercisable as
of the date of death of a participant, who is an employee, may be
exercised by the beneficiary of the participant for a period of one
year from the date of death, but in no case after the expiration date
of the Stock Options.
G. Retirement: Stock Options which are exercisable as of the date of
retirement will be exercisable for a period of three years from the
date of retirement, but in no case after the expiration date of the
Stock Options. Stock Options which are not exercisable as of the date
of retirement are cancelled as of the date of retirement. If, after
retirement, a participant dies, his/her beneficiary may exercise any
remaining exercisable Stock Options during the remainder of the three-
year period plus an additional three months, but again, in no case
after the expiration date.
H. The Program does not qualify under Section 401(a) of the Internal
Revenue Code of 1986 (the "Code") and is not subject to any of the
provisions of the Employee Retirement Income Security Act of 1974.
IV. Tax Treatment of Non-Qualified Stock Options (NQSOs)
NQSOs are not taxable on the date of grant. However upon exercise,
the excess of the fair market value of the stock at exercise over the
exercise price is treated as compensation to the individual and taxed
as ordinary income. The participant's basis in the stock equals the
amount of ordinary income recognized at the time of exercise plus the
exercise price paid for the stock. When the stock is later sold, the
individual will be taxed on the difference between the fair market
value on the date of exercise (the adjusted basis of the stock) and
the selling price. This will be capital gain or loss and will be
either long-term or short-term depending on the holding period from
the date of exercise. Participants will be required to make payment
to the Company for applicable withholding taxes at or prior to
delivery of the stock. NQSOs are not considered a preference item for
AMT purposes.
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<PAGE>
V. Exercising Stock Options - Administrative Procedures
A. Corporate Organization
Processing your Stock Option exercise request involves four separate
Corporate Departments. The responsibilities of each department and
individuals authorized to process Stock Option exercises are listed
below for your information:
1) Corporate Compensation
----------------------
Contacts: Jean M. Marshall - extension 5303
Cathy Arrendale - extension 5420
Responsibilities: Primary contact for all questions regarding
Stock Options, Stock Option exercises, and status of exercises.
The Corporate Compensation Department is responsible for
maintaining all correspondence regarding Stock Options and Stock
Option exercises. The Department also receives all Stock Option
exercise forms and initiates the exercise process, checking
exercise forms for correctness and verifying that the participant
may exercise the stock as requested.
2) Corporate Law Department
------------------------
Contacts: Kathleen Gormley - extension 5824
Dale Huffman - extension 5155
Responsibilities: The Law Department assists individuals in
determining whether they have any "inside information"
(confidential Company information which if known to the public
would affect the price of Cyprus Amax stock) which may subject an
individual exercising Stock Options at that particular time to
liability under the Federal Securities Laws if shares are sold.
Most often the Law Department will contact the employee to
discuss these matters.
3) Corporate Payroll Department
----------------------------
Contacts: Veronica Driscoll - extension 5317
Julie Comstock - extension 5558
Responsibilities: The Corporate Payroll Department reverifies
that the individual may exercise the Stock Option, calculates the
taxable income and the tax liability for NQSO stock, collects the
tax liability, enters appropriate information into payroll system
for W-2 purposes, and enters the exercise information into the
computerized Stock Option tracking system.
4) Corporate Treasury Department
-----------------------------
Contact: Ruthann Moomy - extension 5055
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<PAGE>
Responsibilities: The Corporate Treasury Department orders the
stock certificate from the Company transfer agent. Once the
certificate is received, Treasury records the stock certificate
number for monitoring purposes and distributes the stock
certificate. If the participant is in Englewood, they are
notified that the certificate is ready for pickup or, if the
participant is at a field location, the stock certificate is sent
by overnight delivery to the appropriate office under
"confidential cover".
B. Administrative Procedures for Exercise of Stock Options
1. Complete a Notice of Exercise of Stock Options form (copy
enclosed). Please ensure that the following are completed: a)
Date of Grant, b) Price per Share, c) Number of Shares being
Exercised, d) Method of Payment, e) Name(s) for Stock Certificate
Registration, f) Delivery Instructions for Stock Certificate, g)
Social Security Number, h) Signature, i) Address and j) Telephone
Numbers.
2. If payment for Stock Options is made by check, make check payable
to Cyprus Amax Minerals Company for the full amount being
exercised. (Round to the nearest penny).
3. Mail exercise form and check to: Corporate Compensation
Stock Option Program
Administrator
Attention: Jean M. Marshall
9100 East Mineral Circle
Englewood, CO 80112
OR Hand deliver to either: Jean M. Marshall Mail Code 317N
--
Cathy Arrendale Mail Code 313N
4. The Payroll Department will calculate the withholding tax liability
to you at the time you exercise a Non-Qualified Stock Option and
will send you a statement showing the tax incurred. The income on
the gain as of the date of exercise and the taxes withheld (paid by
you to Cyprus Amax Minerals Company) will then be reported on your
W-2 statement at year end. The Company may require you to pay the
tax liability directly to the Company prior to delivering the stock
certificate(s). In most cases, the Company will allow a
participant who is actively employed by the Company or a
subsidiary, at the time an option is exercised, a period of two
weeks to make the tax payment.
5. When the stock certificate(s) are received, the Treasury Department
will call you for pickup if you are Englewood based, or send out
Federal Express to the mine site/office if you are field based. If
the stock certificates are to be sent directly to a lender, broker,
or other third party, please provide written delivery instructions,
including the telephone number of a person to contact, along with
your exercise form.
If you are going to be out of the office, or if you are at a field
location and plan to travel to Englewood, call the Treasury
Department. They can hold the certificate until you can personally
pick it up.
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<PAGE>
6. Normally, Stock Option exercises can be processed and stock
certificates delivered within 3-4 days for Englewood participants
or 4-5 days for field participants. However, delays in processing
can occur. Therefore, the issuance of a sell order for stock
before a participant's receipt of a stock certificate will be at
the participant's own risk. Moreover, a sale of stock following
the exercise would be inappropriate if the participant has access
to inside information (non-public, material information). If you
believe you may have access to inside information and you are
planning to buy or sell Cyprus Amax stock, you should seek advice
from the Corporate Law Department of Cyprus Amax Minerals
Company.
If there is any conflict between this summary and the 1994 Management Incentive
Program of Cyprus Amax Minerals Company and its participating subsidiaries, the
Program will govern.
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<PAGE>
EXHIBIT 10(m)
CYPRUS AMAX MINERALS COMPANY
EXECUTIVE OFFICER SEPARATION POLICY
1. SCOPE
This Policy applies to Executive Officers excluding the Chairman,
President, and Chief Executive Officer of Cyprus Amax Minerals Company
("Cyprus Amax"). Any individual covered under this Policy may be excluded
by action of the Compensation and Benefits Committee of the Board of
Directors ("Committee").
This Policy shall apply to the following incumbents and positions:
Gerald J. Malys Senior Vice President and Chief Financial Officer
Jeffrey G. Clevenger President Cyprus Climax Metals
Donald P. Brown President Cyprus Amax Coal
Philip C. Wolf Senior Vice President, General Counsel and Secretary
David H. Watkins Senior Vice President, Exploration
John Taraba Vice President and Controller
Francis J. Kane Vice President Investor Relations and Treasurer
Gerard H. Peppard Vice President Human Resources
2. TERMINATION OF EMPLOYMENT
2.1 Terminations Which Give Rise to Separation Benefits Under This Policy.
---------------------------------------------------------------------
(a) elimination of position and/or responsibilities;
(b) consolidation of department, offices or divisions;
(c) reorganization;
(d) mergers, acquisitions or abandonment of properties;
(e) a material diminution of position, authority, duties or
responsibilities;
(f) requirement to relocate more than fifty miles from current
location;
(g) reduction in base salary of more than 10 percent or a material
reduction in employee benefits unless such a reduction is
generally applicable to all other Executive Officers.
2.2 Terminations Which Do Not Give Rise to Separation Benefits Under This
---------------------------------------------------------------------
Policy.
------
(a) termination for good cause;
(b) termination for disability;
(c) termination because of retirement;
(d) termination on a voluntary basis for reasons other than 2.1(e
through g) above.
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3. SEPARATION BENEFITS
(a) If a Participant's employment is terminated in circumstances entitling
the Participant to Separation Benefits, as described in Section 2.1
above, Cyprus Amax shall pay Participant, within 10 days of
termination, a Separation Benefit equal to one (1) year of
Participant's base salary plus the Participant's Target Annual Bonus.
The Participant shall also be eligible for a prorata bonus for the
year of termination at the Committee's discretion. Provided, however,
that anyone who is a participant in another agreement or arrangement
which, upon termination, will provide benefits similar to those under
Section 3(a) of this Agreement, shall not be entitled to the benefits
under Section 3(a).
(b) The Participant shall be entitled to outplacement services provided by
a firm of Participant's choice at a cost to Cyprus Amax of up to 15
percent of the Participant's then current Base Salary plus Annual
Bonus. Further, commencing upon termination, the Participant shall be
entitled to receive medical benefits (excluding dental) and life
insurance for one (1) year following date of termination. Provided,
however, that anyone who is a participant in another agreement or
arrangement which, upon termination, will provide benefits similar to
those under Section 3(b) of this Agreement, shall not be entitled to
the benefits under Section 3(b).
4. OTHER BENEFITS PAYABLE
The Separation Benefits described in Section 3, except to the extent
provided for under any other agreement or arrangement to which the
Executive Officer is party to, shall be payable in addition to, and not in
lieu of, all other accrued or vested or earned but deferred compensation,
rights, options, or other benefits which may be owed to a Participant
following termination, including but not limited to accrued vacation,
amount of benefits payable under any bonus or other compensation plans,
stock option program, disability plan, contractual retirement benefits, or
similar successor plans.
5. BINDING OF SUCCESSORS
This Policy shall bind any successor corporation, whether direct or
indirect, by purchase, merger, consolidation, or otherwise, in the same
manner and to the same extent that Cyprus Amax would be obligated under
this Policy.
6. AMENDMENT AND TERMINATION
This Policy may be amended or terminated, at any time, by the Committee.
7. EMPLOYMENT STATUS
This Policy does not constitute a contract of employment or impose on
Cyprus Amax any obligation to retain Participant as an employee.
8. TAX WITHHOLDING
Cyprus Amax may withhold from any amounts payable under this Policy such
federal, state, or local taxes as shall be required to be withheld pursuant
to any applicable law or regulation.
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9. POLICY
This Policy shall be governed and construed in accordance with the laws of
the State of Colorado, excluding any conflict of laws or provisions thereof
which would cause the laws of any other state to be applicable thereto.
10. VALIDITY AND SEVERABILITY
The invalidity or unenforceability of any provision of this Policy shall
not affect the validity or enforceability of any other provision of the
Policy.
11. ADMINISTRATION AND CLAIMS
This Policy shall be administered by the Committee and the Committee shall
have sole discretion in carrying out its responsibilities.
82
<PAGE>
EXHIBIT 11
CYPRUS AMAX MINERALS COMPANY
Computation of Per Share Earnings
(In thousands except per share data)
<TABLE>
<CAPTION>
1993 1992 1991
--------- ----------- ---------
<S> <C> <C> <C>
Income (Loss) Before Cumulative Effect of Accounting Changes.. $ 100,169 $ (245,972) $ 42,744
Cumulative Effect of Accounting Changes/(1)/.................. - (87,597) -
--------- ---------- ---------
Net Income (Loss)............................................. 100,169 (333,569) 42,744
Preferred Stock Dividends..................................... (2,320) (11,059) (14,745)
--------- ---------- ---------
Income (Loss) Applicable to Common Shares..................... $ 97,849 $ (344,628) $ 27,999
========= ========== =========
Primary:
Average Common Shares Outstanding........................... 53,005 40,758 38,996
========= ========== =========
Fully Diluted:
Average Common Shares Outstanding........................... 53,005 40,758 38,996
Common Stock Equivalents--Options........................... 228 478 131
Conversion of Series A Preferred Stock...................... 1,236 - -
Conversion of Series B Preferred Stock...................... - 6,360 7,917
--------- ---------- ---------
Fully Diluted Average Common Shares Outstanding............. 54,469 47,596 47,044
========= ========== =========
Earnings (Loss) Per Share:
Using Average Common Shares Outstanding:
Income (Loss) Before Cumulative Effect of Accounting Changes $1.85 $(6.31) $ .72
Cumulative Effect of Accounting Changes/(1)/................ - (2.15) -
----- ------ -----
$1.85 $(8.46) $ .72
===== ====== =====
Using Fully Diluted Average Common Shares Outstanding:
Income (Loss) Before Cumulative Effect of Accounting Changes $1.84 $(5.17) .91
Cumulative Effect of Accounting Changes/(1)/................ - (1.84) -
----- ------ -----
$1.84/(2)/ $(7.01)/(2)/ $ .91/(2)/
===== ====== =====
</TABLE>
/(1)/ Includes SFAS No. 106, "Employers' Accounting For Postretirement Benefits
Other Than Pensions" and SFAS No. 112, "Employers' Accounting For
Postemployment Benefits."
/(2)/ Fully diluted earnings per share was less than three percent different
than primary earnings per share in 1993 and was anti-dilutive in 1992 and
1991.
83
<PAGE>
Cyprus Amax believes in sound environmental practice as a principle of good
business. We spent more than $44 million in 1993 for a broad range of
environmental activities. In addition to important environmental compliance
programs, we committed substantial resources to creative environmental solutions
at several operating and former mining locations.
At Miami we expanded the use of the old tailings embankments for cattle feeding.
Begun in 1989, this technique has been successful in aiding soil development and
plant growth, while reducing erosion from the steeply-sloped embankments. In
Colorado coal mining lands reclaimed by Cyprus are used by disabled hunters
under a special permit system. In Indiana and Kentucky more than 50,000 acres of
reclaimed coal mining land now serve as high-quality wildlife habitat. The
Kanawha Division of Cyprus Amax Coal Company received a 1993 Reclamation Award
from the West Virginia Division of Environmental Protection for environmental
safeguards implemented as part of construction of surface facilities for a new
underground mine. The State of Montana and the U.S. Forest Service gave special
recognition in 1993 to Cyprus Climax Metals Company for recontouring and
reclamation work at a closed exploration site in the Bitterroot Mountain Range.
In Tennessee Cyprus Foote completed a State-approved remediation plan on a 54
acre former electrolytic manganese plant waste disposal site. And at Port
Carteret in New Jersey, Cyprus Amax continued to develop waterfront commercial
warehouse space and an environmental remediation program for lands formerly used
as a copper smelting site.
Our attention to sound environmental practice is focussed not only on U.S.
locations, but also is a paramount concern at each non-U.S. exploration or
acquisition property. A detailed environmental audit and assessment, completed
to World Bank and other international standards, were an important part of our
feasibility package for the Kubaka Project in the Magadan region of Russia.
Environmental reviews also were completed for Cerro Verde in Peru and El Abra in
Chile as part of the evaluations of these potential acquisitions.
[PHOTO APPEARS HERE]
Sampling water for environmental assessment at the Kubaka project in the Magadan
region of Russia.
25
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
Selected Financial Data
<TABLE>
<CAPTION>
(In millions except as noted and per share data)
1993 1992 1991 1990 1989 1988 1987 1986
------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Consolidated Statement of Operations Data
Revenue $1,763 $1,641 $1,657 $1,866 $1,790 $1,327 $ 795 $ 811
------ ------ ------ ------ ------ ------ ------ ------
Costs and Expenses
Cost of Sales 1,333 1,286 1,323 1,423 1,241 921 628 639
Selling and Administrative Expenses 70 76 97 81 103 92 61 67
Depreciation, Depletion, and Amortization 145 128 119 118 94 64 54 56
Write-Downs -- 411 35 82 4 9 -- --
Merger and Reorganization Expenses 33 29 -- -- -- -- -- --
Exploration Expense 25 19 21 14 15 12 9 8
------ ------ ------ ------ ------ ------ ------ ------
Total Costs and Expenses 1,606 1,949 1,595 1,718 1,457 1,098 752 770
------ ------ ------ ------ ------ ------ ------ ------
Income (Loss) From Operations 157 (308) 62 148 333 229 43 41
Other Income (Expense)
Interest Income 7 3 5 8 13 6 2 4
Interest Expense (42) (19) (22) (19) (12) (15) (11) (16)
Capitalized Interest 1 3 5 -- -- -- -- --
Gain (Loss) on Equity Investments 8 (8) 4 (13) (7) (1) (1) --
------ ------ ------ ------ ------ ------ ------ ------
Income (Loss) Before Income Taxes 131 (329) 54 124 327 219 33 29
Income Tax (Provision) Benefit (31) 83 (11) (13) (92) (49) (7) (8)
------ ------ ------ ------ ------ ------ ------ ------
Income (Loss) Before Cumulative Effect
of Accounting Changes/(1)/ 100 (246) 43 111 235 170 26 21
Cumulative Effect of Accounting Changes/(2)/ -- (88) -- -- (70) -- -- --
------ ------ ------ ------ ------ ------ ------ ------
Net Income (Loss) 100 (334) 43 111 165 170 26 21
Preferred Stock Dividends (2) (11) (15) (15) (15) (6) -- --
------ ------ ------ ------ ------ ------ ------ ------
Income (Loss) Applicable to Common Shares $ 98 $ (345) $ 28 $ 96 $ 150 $ 164 $ 26 $ 21
====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
On November 15, 1993, AMAX Inc. was merged into Cyprus, and the 1993 results
included Amax for the 47-day period following the merger. The merger contributed
revenue of $140 million, and the impact on earnings was immaterial. The 1993
results also included $104 million revenue and $75 million after-tax gain from
the sale of Cyprus' LTV bankruptcy claims and $25 million after tax for indirect
merger expenses. Cyprus sold its interest in the Selwyn and Golden Cross gold
mines in the second quarter of 1993 which contributed approximately $30 million
to revenue annually and $25 million annually, respectively. The combined
earnings contribution was immaterial in 1992, and Selwyn contributed
approximately $3 million to earnings annually for the 1988-92 period. In early
1993 Cyprus sold its barite operation, which had immaterial revenue and
earnings. In mid-1992 Cyprus sold its talc operations, which contributed
approximately $80 million to annual revenue since 1988. Talc earnings were
immaterial except for after-tax write-downs of approximately $24 million in 1991
reflecting the pending sale. A copper scrap processing facility that was sold in
late 1992 had approximately $65 million in annual revenue and immaterial
earnings since its acquisition in 1989. In 1989 Cyprus made several
acquisitions, including certain talc operations and Cyprus Northshore iron ore
operations, and also disposed of its clay operations. In 1988 Cyprus acquired
the Cyprus Miami copper operations and the lithium operations, and disposed of
the limestone, barge, and calcium carbonate operations. In 1986 Cyprus acquired
its Sierrita copper/molybdenum mine.
26
<PAGE>
<TABLE>
<CAPTION>
(In millions except as noted and per share data)
1993 1992 1991 1990 1989 1988 1987 1986
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share Data
Primary Earnings (Loss) Per Common Share
Before Cumulative Effect of Accounting
Changes $ 1.85 $ (6.31) $ 0.72 $ 2.38 $ 5.67 $ 4.21 $ 0.68 $ 0.54
Cumulative Effect of Accounting Changes -- (2.15) -- -- (1.80) -- -- --
------- ------- ------- ------- ------- ------- ------- -------
Net Income (Loss) $ 1.85 $ (8.46) $ 0.72 $ 2.38 $ 3.87 $ 4.21 $ 0.68 $ 0.54
======= ======= ======= ======= ======= ======= ======= =======
Cash Dividends Per Common Share $ 0.80 $ 0.85 $ 0.80 $ 0.80 $ 0.73 $ 0.20 $ -- $ --
======= ======= ======= ======= ======= ======= ======= =======
Consolidated Balance Sheet Data
Cash and Cash Equivalents $ 96 $ 116 $ 98 $ 39 $ 44 $ 163 $ 8 $ 60
Working Capital $ 41 $ 336 $ 299 $ 336 $ 251 $ 343 $ 243 $ 235
Total Assets $ 5,625 $ 1,709 $ 1,984 $ 1,919 $ 1,841 $ 1,651 $ 1,148 $ 1,106
Long-Term Debt $ 1,278 $ 232 $ 239 $ 246 $ 108 $ 120 $ 115 $ 115
Shareholders' Equity $ 2,217 $ 923 $ 1,290 $ 1,284 $ 1,294 $ 1,204 $ 850 $ 817
======= ======= ======= ======= ======= ======= ======= =======
Other Financial Data
Book Value Per Common Share $ 22.49 $ 21.22 $ 30.23 $ 30.33 $ 28.69 $ 25.62 $ 21.95 $ 21.34
Long-Term Debt/Total Capitalization 36.6% 20.1% 15.6% 16.1% 7.7% 9.1% 12.0% 12.3%
Current Ratio 1.0:1 2.2:1 2.0:1 2.5:1 2.0:1 2.6:1 3.5:1 3.4:1
Cash Provided by Operations $ 74 $ 143 $ 285 $ 199 $ 304 $ 271 $ 62 $ 85
======= ======= ======= ======= ======= ======= ======= =======
Closing Stock Price--Common Stock/(3)/
High $36 3/8 $32 $25 3/8 $28 1/2 $33 $24 $20 $16 1/2
Low $21 1/4 $18 1/2 $17 1/2 $13 7/8 $21 3/8 $13 1/8 $ 9 3/8 $ 9 1/2
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
/(1)/Financial information reflects the after-tax charge for 1993 indirect
merger costs of $25 million, an after-tax gain of $75 million in 1993 for
the sale of LTV claims, write-downs and other provisions of $315 million in
1992, $32 million in 1991, $63 million in 1990, $3 million in 1989, and $7
million in 1988. In addition, 1992 includes an after-tax charge of $23
million for reorganization expense.
/(2)/In 1992 Cyprus adopted SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," and SFAS No. 112, "Employers'
Accounting for Postemployment Benefits." Cumulative effect adjustments are
presented net of tax. See Note 12 to the Consolidated Financial Statements.
Also in 1992 the Company adopted SFAS No. 109, "Accounting for Income
Taxes." See Note 10 to the Consolidated Financial Statements. In 1990
Cyprus adopted SFAS No. 96, "Accounting for Income Taxes," retroactive
to January 1, 1989. In adopting SFAS No. 96, Cyprus recorded a cumulative
$70 million charge for periods prior to January 1, 1989.
/(3)/Stock prices prior to June 1989 have been restated to reflect the stock
split.
27
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis
Management's Discussion and Analysis of
Results of Operations and Financial Condition
Cyprus Amax Merger
On November 15, 1993, AMAX Inc. (Amax) merged with and into Cyprus Minerals
Company (Cyprus) to create one of the world's largest mining companies with
leading or significant positions in coal, copper, molybdenum, gas, gold,
lithium, iron ore, and worldwide exploration prospects. The merged company
was renamed Cyprus Amax Minerals Company (Cyprus Amax or the Company) and is
headquartered in Englewood, Colorado.
In the merger each share of Common Stock of Amax was converted into one-half
share of Common Stock of Cyprus Amax, resulting in the issuance of 44.4
million shares. Each share of Convertible Preferred Stock of Amax was
converted into two-thirds share of Convertible Preferred Stock of Cyprus Amax,
resulting in the issuance of 4.7 million shares. Immediately prior to the
merger, Amax distributed to its common shareholders 21.8 million shares of
Amax Gold Inc. (Amax Gold) Common Stock. As a result, Cyprus Amax retained
31.3 million shares of Amax Gold or approximately 40 percent. The business
combination was accounted for as a purchase, and accordingly, the Company's
consolidated 1993 financial statements included only the results of the merged
Amax businesses for the 47-day period following the merger.
Subsequent to the merger, the Company has been moving rapidly to integrate the
two organizations. The senior management team is in place and by year end the
necessary steps were taken to realize at least half of the expected $120
million per year of savings in general and administrative expenses. Efforts
are proceeding to realize the remainder of the savings, investigate additional
opportunities to further reduce costs, to determine and implement
synergistic benefits of the merger, and to possibly sell certain non-strategic
and surplus assets to generate cash to fund strategic opportunities and reduce
debt.
Results of Operations for the Three Years
Ended December 31, 1993
Cyprus Amax reported 1993 earnings of $100.2 million, or $1.85 per share
compared with a 1992 loss of $333.6 million, or $8.46 per share, and 1991
income of $42.7 million. The 1993 results included $24.9 million of after-tax
indirect expenses resulting from the merger with Amax and $75.0 million after-
tax income from the sale of Cyprus' LTV bankruptcy claims. Results for 1992
included charges of $426.1 million for write-downs, reorganization expense,
and the cumulative effect of accounting changes, net of tax. Results for 1991
included an after-tax write-down of $31.8 million.
<TABLE>
<CAPTION>
Selected Results (In millions except per share data)
1993 1992 1991
------ ------- ------
<S> <C> <C> <C>
Revenue $1,763 $ 1,641 $1,657
Net Income (Loss) $100.2 $(333.6) $ 42.7
Earnings per Share $ 1.85 $ (8.46) $ .72
</TABLE>
The earnings improvement in 1993 compared with 1992 was due principally to the
absence of the 1992 write-downs, reorganization charge and accounting changes,
the 1993 LTV gain of $75.0 million, partially offset by $.10 per pound lower
1993 average copper realizations and indirect merger costs.
The 1992 charges to earnings included: (1) an after-tax charge of $315.0
million to recognize asset write-downs and other charges, reflecting weakened
market conditions in certain regional coal markets and the steel industry; (2)
the adoption of new accounting standards for postretirement and postemployment
benefits, resulting in an $87.6 million after-tax charge; and (3)
reorganization expense provisions totaling $23.5 million after tax primarily
for company-wide personnel reductions.
The 1993 revenue of $1,763 million was seven percent higher than 1992 revenue
of $1,641 million because of the inclusion of $140 million from the former
Amax businesses, $104 million from the sale of the LTV bankruptcy claims, and
higher iron ore revenue of $36 million from increased sales. Offsetting this
revenue increase was lower copper revenue of $85 million resulting primarily
from lower copper prices and sales, lower gold revenue of $51 million due to
the sale or closure of Cyprus' gold operations, and the absence of $47 million
in revenue from the talc and barite businesses sold in 1992. Revenue in 1992
of $1,641 million was slightly lower than 1991 revenue of $1,657 million
because of reduced copper sales and prices, lower molybdenum sales, and a
reduction of talc revenue due to the mid-year sale of the talc business,
nearly offset by higher coal revenue and increased gold sales. Revenue in 1994
is expected to increase to approximately $2.5 billion as a result of the full-
year effect of the merger with Amax, the Cumberland coal acquisition, and
additional copper revenue from higher production.
28
<PAGE>
Management's Discussion and Analysis, Cont.
The supplemental data presented herein is provided to further explain the
Company's current operating results. Special Items, which include accounting
changes, write-downs, the LTV gain, reorganization expense, and indirect
merger costs are presented net of tax benefit or provision and are not
necessarily infrequent or unusual in the mining industry.
<TABLE>
<CAPTION>
Note: Supplemental Data (In millions)
1993 1992 1991
------- ------- -------
<S> <C> <C> <C>
Special Items, Net of Tax--
Income (Loss) $ 50.1 $(426.1) $ (31.8)
Net Income Excluding
Special Items $ 50.1 $ 92.5 $ 74.5
</TABLE>
Excluding the Special Items, 1993 earnings were $50.1 million, compared with
earnings in 1992 of $92.5 million. Earnings in 1993 were lower primarily due
to average copper realizations, which decreased $.10 per pound from 1992
levels, net of price protection of $.07 per pound. Higher sales and lower
costs of produced copper and significantly higher earnings from the iron ore
operation partially offset the copper price effect. The 1993 earnings also
included $4.0 million after-tax cost, net of partial insurance claims
recoveries, resulting from record heavy rains and flooding in early 1993 at
Cyprus' Arizona copper operations.
Excluding the effects of Special Items, 1992 earnings were $92.5 million
compared with 1991 earnings of $74.5 million. The earnings improvement
reflected better results from coal operations and company-wide personnel and
cost reductions, offset in part by lower copper prices and sales of produced
copper.
Segment Results
Segment operating income is earnings before corporate overhead, interest,
equity and other, and income taxes. This discussion should be read in
conjunction with the Consolidated Financial Statements on pages 39 to 42, the
information on write-downs in Note 4 and industry segments in Note 18 to the
Consolidated Financial Statements, and the supplemental information on mineral
reserves and selected operating statistics.
<TABLE>
<CAPTION>
Summary Results (In millions)
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
Segment Operating Income (Loss)
Coal $ 142.1 $ (266.5) $ 4.0
Copper 55.0 37.8 127.3
Other 20.2 (29.3) (33.4)
-------- -------- --------
Total Segment Operating
Income (Loss) $ 217.3 $ (258.0) $ 97.9
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Note: Supplemental Data (In millions)
1993 1992 1991
------- ------- -------
<S> <C> <C> <C>
Segment Earnings Excluding
Special Items
Coal $ 40.6 $ 41.4 $ 14.3
Copper 55.0 116.0 127.3
Other 20.2 12.2 2.4
------- ------- -------
Total Segment Earnings $ 115.8 $ 169.6 $ 144.0
======= ======= =======
</TABLE>
Coal segment operating income of $142.1 million in 1993 was $408.6 million
higher than in 1992 because of the 1992 write-downs and the 1993 pretax LTV
gain of $104.4 million. Excluding the Special Items, Coal earnings were nearly
the same as higher sales and lower unit costs from higher production were
offset by lower average realizations resulting primarily from a higher
percentage of lower-priced spot market sales. Copper segment operating income
of $55.0 million was $17.2 million higher than 1992 reflecting the absence of
the 1992 write-downs and reorganization expense of $78.2 million. Excluding
the Special Items, Copper earnings declined $61.0 million primarily because of
$.10 per pound lower average copper realizations net of price protection,
partially offset by higher produced copper sales and slightly lower cost of
sales. The Other segment (lithium, gas, iron ore, gold, and exploration)
reported operating income of $20.2 million, $49.5 million higher than 1992
primarily due to the absence of the 1992 write-downs and because of higher
iron ore earnings resulting from higher production and sales.
Before the merger, about half of Cyprus' revenue was derived from the Copper
segment, while about one-third was from Coal. Cyprus Amax expects its revenue
to be about 50 percent from Coal and 40 percent from Copper, with the balance
from Other businesses. Management expects this coal diversification to reduce
its vulnerability to fluctuations in the price of copper through increased
revenue from less volatile coal prices, much of which is shipped under long-
term contracts. Because a principal portion of the purchase price was
allocated to the Amax coal operations, net additional pretax depreciation and
amortization expense of approximately $.75 per ton of total coal sales
annually will impact future combined Coal operating income. The potential
dilutive impact on Cyprus Amax earnings per share will be offset to some
degree by the significant synergies, cost savings, and other benefits. Through
actions taken as of December 31, 1993, annual savings of $60 million in
general and administrative expenses have been achieved and plans to achieve an
additional $60 million are in the process of being implemented.
29
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis (Continued)
<TABLE>
<CAPTION>
Coal
Selected Coal Data (In millions)
1993 1992 1991
------ ------- ------
<S> <C> <C> <C>
Coal Production, Tons
--Consolidated Mines 26.9 18.7 16.8
--Oakbridge (40% Share) 2.3 -- --
====== ======= ======
Coal Sales, Tons
--Eastern Mines 13.1 9.9 8.5
--Western Mines 14.6 8.9 8.8
------ ------- ------
Total Sales 27.7 18.8 17.3
====== ======= ======
--Oakbridge (40% Share) 2.9 -- --
Revenue $ 697 $ 463 $ 443
Segment Operating
Income (Loss) $142.1 $(266.5) $ 4.0
Average Sales Price, $/Ton $20.80 $ 23.88 $24.63
Unit Cost, $/Ton $18.92 $ 21.32 $22.85
</TABLE>
Coal reported segment operating income of $142.1 million for the year compared
with an operating loss of $266.5 million in 1992. The 1993 results included a
pretax gain of $104.4 million on the sale of Cyprus' LTV bankruptcy claims
and merger costs of $2.9 million. The 1992 full-year earnings included write-
downs of $304.3 million which reflected an outlook for continued weakness in
certain regional coal markets and the steel industry, primarily for the
Kentucky operations, the Empire mine in Colorado, and the LTV bankruptcy
claims.
<TABLE>
<CAPTION>
Note: Supplemental Data (In millions)
1993 1992 1991
------ ------- ------
<S> <C> <C> <C>
Special Items--Earnings (Loss) $101.5 $(307.9) $(10.3)
Segment Earnings Excluding
Special Items $ 40.6 $ 41.4 $ 14.3
</TABLE>
Excluding the Special Items, Coal earnings were $40.6 million in 1993 and
$41.4 million in 1992. Earnings from Cyprus' operations, excluding the
Special Items, were less than 1992 due to lower average realizations in the
West partially offset by higher production which lowered unit costs and the
contribution from Amax operations. Lower realizations were due primarily to a
higher percentage of lower priced spot market sales. In the East, lower
earnings due to poor ground conditions earlier in the year in Pennsylvania
and a supply disruption due to the effects of Midwest flooding were partially
offset by lower unit costs.
Cyprus Amax Coal has been reorganized into seven business units: in the East,
the business units are Pennsylvania, Kentucky, West Virginia, and the Midwest;
the business units in the West are Colorado, Wyoming, and Utah.
Coal production in 1993, including 6.4 million tons of production from Amax
operations, was 26.9 million tons, 8.2 million tons higher than in 1992. In
addition the 40 percent share of production from Oakbridge in Australia was
2.3 million tons. Productivity improved four percent for the combined Cyprus
and Amax operations in 1993.
In December 1993 the Ayrshire mine in Indiana was idled after depletion of
economically minable surface reserves in the current pit and expiration of
coal supply contracts. This mine provided significant earnings to Amax's coal
business prior to the merger. Final reclamation of the pit has commenced while
future mining, both surface and underground, is being evaluated.
Excluding production from Amax, production and sales volumes increased about
10 percent primarily due to the second quarter 1993 acquisition of U.S. Steel
Mining Co., Inc.'s Cumberland mine in Pennsylvania and improved eastern coal
markets. The strong markets resulted from selective strikes at other companies
and the supply disruptions caused by flooding in the Midwest. Cyprus Amax Coal
operations were not materially affected by the prolonged work stoppages
resulting from contract negotiations between the Bituminous Coal Operators
Association (BCOA) and the United Mineworkers of America (UMWA). The Company
signed a five-year contract with the UMWA at the end of 1993 on the same basic
terms and conditions as with member companies of the BCOA.
During 1994 low inventories and the extreme cold weather in the Midwest and
East are expected temporarily to keep demand strong and restrict supply
movement, softening the effect of the end of the UMWA strikes. However, in the
East the severe weather in early 1994 curtailed Cyprus Amax operations in West
Virginia, Pennsylvania, and Kentucky, resulting in the loss of approximately
one week of production. The early 1994 weather conditions affected virtually
all coal producers in the eastern U.S. In the West, some shipments were
affected by rail car shortages resulting from heavy eastern snowfalls.
Almost all of Cyprus Amax coal is sold to electric utilities. In 1994 with a
full-year contribution from the Amax properties, production is expected to
increase to about 80 million tons including Cyprus Amax's share of Oakbridge
produc-
30
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis, Cont.
tion. About 75 percent of domestic coal production is expected to be sold
during 1994 under contracts of one year or more duration.
In the fourth quarter, Cyprus Amax agreed to terms for multi-year contracts
with two utilities to supply eight million tons of coal from its western
operations, and Emerald signed a 500,000 ton per year sales contract with AEP,
a major utility, starting in October 1994. Cyprus Amax also reached agreement
with two other utilities in December 1993 to buy out multi-year contracts at
its Wyoming surface operations. One of the utilities will continue purchasing
similar quantities of coal under a new contract, but at a significantly
reduced price. The other utility had been making deficiency payments in lieu
of taking coal under its contract. The significant impact of the buy-outs on
future earnings is expected to be partly mitigated by the continued investment
in more productive mining equipment and higher sales.
During the second quarter of 1993, Cyprus successfully completed the
acquisition of McIlwraith McEacharn Ltd. of Sydney, Australia, which owns 40
percent of Oakbridge Limited, an Australian coal company currently producing
12 million tons of coal annually. At Oakbridge plans are underway to expand
production to more than 15 million tons to supply growing markets and reduce
the need for purchased coal. In addition, Cyprus purchased U.S. Steel Mining
Co., Inc.'s Cumberland mine in Pennsylvania. By combining Cumberland's
existing facilities with Cyprus' adjacent undeveloped coal reserves near its
Emerald mine, Cyprus Amax expects to continue operations for more than 20
years at current annual production levels of about 4 million tons.
As a result of the merger with Amax and acquisition of the 40 percent interest
in Oakbridge, coal reserves have increased 2.2 billion tons to 2.8 billion
tons. Reserves are comprised of approximately 64 percent compliance coal, 16
percent low sulfur coal, and the remainder high sulfur coal. This large
reserve base of compliance and low sulfur coal in addition to diverse
geographical locations provides Cyprus Amax with the resources and market
access to be a long-term competitive coal company.
The segment loss of $266.5 million in 1992 was $270.5 million less than 1991
income of $4.0 million. Excluding the Special Items, 1992 earnings were $27.1
million higher mostly due to higher production and sales which contributed to
lower unit costs partially offset by lower average realizations.
<TABLE>
<CAPTION>
Copper
Selected Copper Data (In millions)
1993 1992 1991
--------- --------- ---------
<S> <C> <C> <C>
Total Copper Production, Lbs. 632 662 644
Total Copper Sales, Lbs. 752 765 737
Produced Copper Sales, Lbs. 647 608 642
Revenue $ 832 $ 887 $ 912
Segment Operating Income $ 55.0 $ 37.8 $ 127.3
Average Copper Sales
Realization, $/Lb. $ .94 $ 1.04 $ 1.06
Cash Cost, $/Lb. $ .72 $ .73 $ .74
Full Mine Cost, $/Lb. $ .77 $ .78 $ .80
</TABLE>
The Copper segment, which includes the copper and molybdenum operations of the
merged companies, now named Cyprus Climax Metals Company (Cyprus Climax),
reported operating income of $55.0 million in 1993, $17.2 million higher than
1992 earnings of $37.8 million. The increase was attributed to $78.2 million
in write-downs and reorganization expense in 1992, higher sales of produced
copper of 39 million pounds, and slightly lower cost of sales. This increase
was partially offset by lower average copper realizations of $.10 per pound,
net of price protection of $.07 per pound, and $5.6 million pretax expense of
the record Arizona rainfall in early 1993, net of insurance recoveries to
date. Increased produced copper sales totaling 647 million pounds in 1993
resulted from higher production at the Miami smelter and higher concentrate
sales.
<TABLE>
<CAPTION>
Note: Supplemental Data (In millions)
1993 1992 1991
--------- -------- --------
<S> <C> <C> <C>
Special Items--Earnings (Loss) $ -- $ (78.2) $ --
Segment Earnings Excluding
Special Items $ 55.0 $ 116.0 $ 127.3
</TABLE>
Excluding the 1992 Special Items, 1993 earnings were $61.0 million lower
primarily because of the lower copper realizations, offset by higher sales and
slightly lower costs. The 1992 Special Items included $66.5 million for write-
downs primarily for the Thompson Creek molybdenum operation in Idaho and $11.7
million for reorganization charges.
Excluding these Special Items, earnings in 1992 were $11.3 million lower than
in 1991 because of slightly lower copper and molybdenum realizations and lower
produced copper sales.
Copper realizations in 1993 averaged $.94 per pound for the year, which was
$.09 per pound higher than the Comex average price of $.85 per pound because
of management's
31
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis (Continued)
implementation of a price protection program. Copper put options ensured a
minimum average realization of $.94 per pound, on a London Metal Exchange (LME)
basis, on 624 million pounds of sales and contributed $48 million to 1993
revenue. Cyprus Amax has entered into similar monthly price protection
arrangements which will ensure a minimum average realization of $.92 per pound
(LME basis) on 150 million pounds of expected first quarter 1994 produced copper
sales, a minimum of $.78 per pound on 150 million pounds of second quarter
sales, and a minimum of $.81 per pound on 65 million pounds of third quarter
sales.
Average Comex prices for 1993 were $.18 per pound lower than 1992 average prices
but began to strengthen at year end. Combined LME/Comex year-end copper
inventories increased by 52 percent compared with 1992 year-end levels. Western
world refined copper production was essentially unchanged at 9.9 million tons in
1993, and copper consumption declined less than one percent to 10.0 million
tons. Strong U.S. and developing country consumption was not enough to offset a
sharp decline in Europe, continued weakness in Japan, and reduced copper imports
in China. In addition, refined exports from the Eastern Bloc exceeded imports by
over 200,000 tons, contributing to a net increase in refined inventories. Demand
in the U.S. was up about nine percent and continues to be strong, currently
providing support for firming prices as Comex inventories have been steadily
declining since mid-1993. If a worldwide economic recovery begins as it already
has in the U.S., increasing demand for copper could lend support to continued
higher prices in 1994.
Changing worldwide supply and demand and related market perceptions can have a
significant impact on copper prices and, as a consequence, Copper segment
earnings can be expected to fluctuate, excluding the effect of price protection
programs. Each $.10 per pound change in Cyprus Climax's average annual copper
realization or production cost results in a change in pretax income of
approximately $70 million at expected production and sales levels. Put options
in place for 1994 would partially offset the exposure to significant price
decreases.
Copper production totaled 632 million pounds for the year compared with 662
million pounds in 1992. Total production at Sierrita/Twin Buttes was 264 million
pounds, or eight percent lower than 1992 primarily because of the exhaustion of
leach ore reserves early in 1993. Production at Miami was 113 million pounds or
13 million pounds lower than 1992 due to the effects of the early 1993 heavy
rains, but was essentially offset by an increase at Bagdad, where production
totaled 231 million pounds, due to higher ore grade and higher SX-EW production.
Although the average grade at Bagdad was one-third higher than in 1992, total
production was restrained by decreased mill recovery associated with an
unrecoverable portion of the sulfide ore and as a result of the tie-in of
certain equipment installed during the mill expansion. In addition, there were
13 million pounds less by-product copper from an Australian gold operation,
which was sold in the second quarter.
Cash production costs were $.72 per pound compared with $.73 per pound in 1992.
Mine site costs were $.04 per pound lower, but were offset partially by higher
smelting costs, principally during the first two quarters of 1993. The Arizona
mines now are realizing significant efficiencies resulting from the completed
mine fleet modernization, including thirty-four 240-ton trucks, four 53-cubic
yard shovels, and computerized mine dispatch systems. The full-year impact of
the fleet modernization will be realized in 1994. Other capital improvements and
a 25 percent reduction in the workforce at Sierrita also contributed to lower
mine costs. Full costs, including smelting, depreciation, and freight to
customers, but excluding the 1993 rain related expense and the 1992
reorganization costs, were $.77 per pound compared with $.78 per pound in 1992.
Total copper sales of 752 million pounds were 13 million pounds lower than the
765 million pounds sold in 1992. Purchases to meet the timing of sales
commitments of 98 million pounds were slightly lower than in 1992. Produced
copper sales of 647 million pounds were six percent higher as copper inventories
decreased 21 million pounds. Inventories at year end were about 25 million
pounds above normal levels, but are expected to continue to decline as Miami
smelter throughput improves.
In 1994 Cyprus Climax expects total copper production to increase to about 745
million pounds including about 45 million pounds from the Cerro Verde operation
in Peru. At Bagdad a 13 percent expansion of the sulfide copper concentrator to
85,000 tons of ore per day and a 25 percent expansion of the SX-EW operation to
30 million pounds of copper were completed in late 1993, although this will be
offset by an expected 30 percent lower ore grade. A 10 percent expansion of the
concentrator at Sierrita to 110,000 tons of ore per day is complete.
32
<PAGE>
Equipment has been ordered for expansion of the Miami SX-EW operation by about
30 percent to 160 million pounds per year by 1997. The Tohono O'Odham Nation
agreed to permit Cyprus Climax to proceed, pending further evaluations, with
potential development of a 600 million ton copper resource at Casa Grande.
About 30 million pounds of SX-EW production is planned for Casa Grande in 1994
from a test leach pad.
At Miami construction continues toward a planned fourth quarter 1994 start-up of
a new electrorefinery. Once completed, this project is expected to make Cyprus
Climax self-sufficient in refining and to lower cash costs about $.03 per pound
on refined production and $.02 per pound on total production. The newly-expanded
Miami smelter ran at a much higher throughput rate since improvements at mid-
year. The plant generally operated at about 90 percent of capacity for the last
two quarters of 1993, except for several brief periods to permit additional
modifications. The roasters at Casa Grande were shut down during the fourth
quarter of 1993, and concentrates are being processed at the lower-cost Miami
facility.
In October 1993 Cyprus was notified by Corporacion Nacional del Cobre de Chile
(Codelco) that Cyprus and its partner, Lac Minerals Ltd. (Lac), were the
successful bidders for a 51 percent interest in the El Abra copper property in
Chile. The bid contemplates development of a mine producing approximately 500
million pounds annually of refined copper cathodes beginning in the first half
of 1997, with 20 years of oxide ore production, and requiring an investment of
about $1 billion plus a payment to Codelco at closing of $404 million. On
February 8, 1994, Cyprus, Lac, and Codelco jointly announced that the closing
had been postponed pending resolution of certain technical matters. The
technical work remaining is to resolve variances between the recent check assays
performed by Cyprus and Lac and the original assays made in the mid-1970s.
Additional work to resolve issues raised by the variances is under way.
In November 1993 Cyprus Amax was also the successful bidder for Sociedad Minera
Cerro Verde, S.A. (Cerro Verde), a producing copper mine located in southern
Peru. Cerro Verde is a large copper resource with about 200 million tons of
leachable ore reserves at 0.8 percent copper. Cyprus Amax's bid included an
initial cash payment of $37 million and a commitment to further develop the
large millable reserve, currently estimated to be in excess of 440 million tons.
The leaching operation at Cerro Verde would generate approximately 100 million
pounds of annual production for over 20 years with initial cash costs of
approximately $.50 per pound. Upgrading the existing SX-EW operations will
require about $110 million in capital over the next several years. The longer
term development of a modern milling facility is subject to completion of a
favorable feasibility study. Cyprus Amax's future investment at Cerro Verde
would be conditional, based upon the feasibility study, stable copper prices, a
stable political environment, and other conditions. Cyprus Amax's interest in
the property could be up to 91.5 percent. Closing on the final agreement for
Cerro Verde is expected in the first quarter of 1994.
Molybdenum production in 1993 was 28 million pounds or 30 percent lower than the
40 million pounds in 1992. The decline was due to the suspension of operations
at Thompson Creek in late 1992, partially offset by slightly higher by-product
production from Sierrita and Bagdad, and by primary production from the
Henderson mine in Colorado for the 47-day period following the merger. The
Thompson Creek mine was sold in the fourth quarter. Cyprus Climax production for
1994 is expected to increase primarily because of the inclusion of a full year
of Henderson production. Average molybdenum realizations were essentially
unchanged in 1993 from 1992 levels. After Metals Week dealer oxide prices
reached 20-year lows in December 1992, prices began to increase very gradually
in 1993 on the basis of increased demand and reduced inventories.
<TABLE>
<CAPTION>
Other
Selected Results (In millions)
1993 1992 1991
------ ------ ------
<S> <C> <C> <C>
Segment Operating Income
(Loss) $ 20.2 $(29.3) $(33.4)
====== ====== ======
Lithium $ 22.1 $ 22.8 $ 19.8
Gas 3.0 -- --
Iron Ore 12.7 (35.9) (8.3)
Businesses Sold/Non-Operating
(Gold, Talc, Barite, Other) 7.1 2.9 (24.1)
Exploration (24.7) (19.1) (20.8)
------ ------ ------
Total $ 20.2 $(29.3) $(33.4)
====== ====== ======
</TABLE>
Other, which includes Lithium, Gas, Iron Ore, Gold, and Exploration, had
combined earnings for the year of $20.2 million compared with a loss of $29.3
million in 1992. Lithium earnings in 1993 declined modestly to $22.1 million, or
$.7 million lower than in 1992. Lithium carbonate sales were down due to the
weak economies in the
33
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis (Continued)
U.S., Far East, and Europe, which contributed to soft markets in aluminum,
ceramics, and glass. Markets for downstream value-added products experienced
increases. Gas earnings were $3.0 million for the 47-day period following the
merger. In the first quarter of 1994, Cyprus Amax reached an agreement with
Union Pacific Resources Company to sell the gas assets for approximately $819
million. Iron Ore earnings of $12.7 million improved from a $35.9 million loss
in 1992, which included a $31.0 million write-down because of continued
weakness in the steel industry. In 1993 U.S. iron ore consumption improved
about two percent while supply tightened due to a 21 percent decline in
inventories partially due to a competitor's shut down. Prices are not expected
to increase in 1994 because of continued pressure from low-cost imports. Other
earnings in 1993 also were lower as Cyprus sold its South Pacific gold
operations early in 1993 and closed its Copperstone gold operation in Arizona,
which had exhausted its economic reserves. Partially offsetting was the
absence of the 1992 charges of $10.5 million for the sale of the Talc and
Barite businesses, litigation provisions, and reorganization expense. Higher
Exploration expenditures, which totaled $24.7 million, reflected work on
advanced projects in Australia, Chile, Panama, and Russia.
<TABLE>
<CAPTION>
Note: Supplemental Data (In millions)
1993 1992 1991
------ ------ ------
<S> <C> <C> <C>
Special Items--Earnings (Loss) $ -- $(41.5) $(35.8)
Segment Earnings
Excluding Special Items $ 20.2 $ 12.2 $ 2.4
====== ====== ======
Lithium $ 22.1 $ 23.2 $ 19.8
Gas 3.0 -- --
Iron Ore 12.7 (4.9) (8.3)
Businesses Sold/Non-Operating
(Gold, Talc, Barite, Other) 7.1 13.0 11.7
Exploration (24.7) (19.1) (20.8)
------ ------ ------
Total $ 20.2 $ 12.2 $ 2.4
====== ====== ======
</TABLE>
Excluding the 1992 Special Items for the 1992 write-down and charges, Other
earnings were $8.0 million greater than 1992 earnings of $12.2 million due to
Iron Ore, which operated at a much higher production rate resulting in lower
unit costs, reflecting higher sales volumes. Because of firm sales commitments
through 1996, a two-furnace operation will continue to allow production near
1993 levels.
Segment loss of $29.3 million in 1992 decreased $4.1 million compared with
1991 primarily due to improved results at Lithium and Iron Ore. Excluding the
write-downs, Other earnings were $9.8 million greater than 1991 mostly due to
higher earnings from Lithium, a smaller loss from Iron Ore and lower
Exploration expenditures.
Corporate and Other
Corporate expense of $59.9 million in 1993 included $30.3 million of indirect
merger costs, while 1992 expense of $49.5 million included $13.6 million of
reorganization expense. Excluding these items, 1993 expense was $29.6 million
or $6.3 million lower than the 1992 expense of $35.9 million. Expenses related
to stock appreciation rights in 1993 were lower than similar expenses in 1992
accounting for most of the difference. Employee related expenses were also
lower in 1993, despite inflationary increases in wages and benefits,
reflecting the 1992 reductions in headquarters personnel and the continued
effort to eliminate unnecessary work. Corporate expenses in 1992 and 1991 were
essentially the same at about $36.0 million, as lower employee expenses in
1992 were offset by higher stock appreciation expenses.
Net interest expense of $34.4 million increased $21.1 million compared with
1992 principally because of Amax debt assumed in the merger, the issuance in
February of $150 million 8 3/8 percent Debentures due 2023 and in October of
$250 million 6 5/8 percent Notes due 2005, as well as lower capitalized
interest due to the 1992 completion of the Miami smelter expansion project.
Net interest expense in 1991 included higher capitalized interest for the full-
year effect of the Miami smelter project and the Golden Cross mine
construction.
Equity Income in 1993 included equity earnings of $3.5 million for Oakbridge,
the Australian coal investment, which resulted primarily from unrealized gains
on foreign currency hedging, partially offset by an equity loss for Amax Gold
for the period following the merger. The 1992 loss included a $4.0 million
equity loss on a Mexican zinc investment and a provision for certain
litigation and write-down of surplus properties totaling $3.1 million. The
1991 results included a gain on the sale of a silver property in Mexico.
While general inflation rates have remained steady at about three percent over
the past three years, inflation has continued to impact costs. Higher costs
for compensation, benefits, and environmental compliance, coupled with
inflation of certain supply and service costs, particularly electric power,
continue to increase mine operating costs. Prices received for Cyprus Amax's
products generally have not paralleled these cost increases. During 1993 the
Company continued specific programs to increase productivity, reduce material
and supply costs, and employ capital to more than offset these increases.
<PAGE>
Environmental
An important aspect of Cyprus Amax's continuing commitment to sound
environmental practice is the incorporation of reclamation and environmental
compliance as ongoing and integral parts of day-to-day business activities.
During 1993 Cyprus Amax spent about $44 million in operating costs and capital
expenditures for reclamation, remediation, and environmental compliance compared
with 1992 environmental expenditures of about $50 million. Cyprus Amax's
environmental expenditures in 1994 are expected to be about $100 million, with
the increase largely attributed to costs associated with environmental
remediation at former Amax locations and to upgrade facilities to maintain
compliance with Arizona's Aquifer Protection Program.
At December 31, 1993, Cyprus Amax had long-term accruals of approximately $358
million for future mine closure, reclamation, and environmental remediation
liabilities compared to $73 million at year-end 1992 for Cyprus. The significant
increase is due primarily to the liabilities assumed in the merger. The
valuation of Amax environmental liabilities was conformed to Cyprus' policy and
was based on Cyprus Amax's operating plans, new information, and interpretations
of new or existing federal and state laws and regulations. Reclamation is an
ongoing activity and a cost associated with the Company's mining operations.
Cyprus Amax accrues for closure and final reclamation liabilities on a life-of-
mine basis. Significant components of the year-end 1993 accrual include $254
million for future reclamation of mining properties, $90 million for
environmental remediation at Superfund and other sites, and $14 million for
closure of discontinued or previously sold operations.
The reserve for future reclamation of mining properties includes about $120
million for coal mines and over $130 million for copper and other mines. A
significant element of the copper reclamation reserve is $89 million for the
Climax mine. Based on new Colorado state laws and new federal stormwater
requirements, this reserve represents Cyprus Amax's best estimate of reasonable
costs for reclamation, tailings drainage, water diversion and treatment, and
general administrative holding costs over the next 10 years. Considerable cash
offsets against this liability could be realized through the sale of water
rights and other assets at the property; however, these potential revenues have
not been considered in the accrual. Cyprus Amax's reclamation and environmental
cost policy and environmental law changes in Colorado also impacted other
reserve estimates for the Henderson mine and the Mt. Emmons project. Cyprus Amax
or its subsidiaries have been advised by the Environmental Protection Agency
(EPA) and several State environmental agencies that it may be liable under the
Comprehensive Environmental Response, Compensation and Liability Act or similar
state laws and regulations (CERCLA or Superfund), for costs of correcting
environmental hazards at a number of sites which have been or are being
investigated by the EPA or State agencies to establish whether releases of
hazardous substances have occurred and, if so, to develop and implement remedial
actions. Additional discussion of Cyprus Amax's recognition of Superfund
liability totaling $90 million is presented in Note 14: Contingencies (pages 56
and 57) of this report.
Cyprus Amax has a reserve of $16 million for environmental remediation at the
Cannelton, Sault Ste. Marie, Michigan National Priority List (NPL) site. Cost
estimates for environmental remediation at this former tannery site acquired
during Amax's acquisition of Cannelton coal operations range from $7 to $30
million. The amount accrued is based upon Cyprus Amax's best estimate of costs
considering EPA's Record of Decision and transaction costs. Cyprus Amax is the
only known potentially responsible party (PRP) at this site.
Cyprus Amax has received EPA notices and requests for information under
Superfund pertaining to its activities associated with hazardous materials
contamination of soils in the City of Bartlesville, Oklahoma. An independent
Amax subsidiary built and operated a zinc smelter near Bartlesville in the early
1900s. EPA has initiated a removal action and is expected to issue a unilateral
order in early 1994 requiring Cyprus Amax to participate in this removal action,
as well as to participate in funding a remedial investigation and feasibility
study. Cyprus Amax has estimated the range of its liability at $8 to $20 million
and had reserved $8 million at December 31, 1993. Cyprus Amax is one of two
known major PRPs at this site and is participating in a PRP group, including the
City of Bartlesville, in an effort to minimize its immediate costs to comply
with EPA orders. Cyprus Amax believes it has legal defenses to EPA's assertions
of liability, that other PRPs may have liability, including the U.S. Government,
and that insurance recoveries may be available.
Cyprus Foote Mineral Company's closed Frazer, Pennsylvania, facility is listed
as a CERCLA Superfund site on the NPL as a consequence of groundwater
contamination identified at the location. Production operations at Frazer
35
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
Management's Discussion and Analysis (Continued)
ceased in 1991, and significant surface facility remediation has been
completed. In addition, extensive environmental investigations of the site
have been completed over the past six years. Further investigations are
awaiting coordination with the EPA, and until such investigations are
completed and a remediation plan agreed to, the cost of such effort is not
estimable. However, the range of cost for remedial action is from $4 to $20
million. Based on Cyprus Foote's evaluation of current information, an accrual
of $7 million for environmental remediation and building demolition existed at
year-end 1993.
Cyprus Amax and other companies, in conjunction with the Arizona Department of
Environmental Quality's Water Quality Assurance Revolving Fund program,
continued remediation and assessment of groundwater quality at Pinal Creek
near Miami, Arizona, throughout 1993. The ongoing program, initiated in 1989,
has resulted in continued improvement of subsurface water quality in the area.
Cyprus Amax's current expenditures for its portion of the remediation effort
at Pinal Creek are approximately $2 million per year and are expected to
continue at this level at least until 1996 when the assessment phase is
expected to be completed. While the adequacy of current remedial efforts and
the allocation of expenditures among responsible parties will not be known
until the assessment phase is completed, the 1993 completion of risk
assessment studies allowed further definition of probable costs for continued
study and treatment. Total study and treatment for the next five years are
estimated at $15 million, and a $10 million reserve existed as of December 31,
1993, as Cyprus Amax's share under an existing cost-sharing arrangement. The
potential for contribution from additional parties for past, present, and
future expenditures has not yet been determined. The groundwater problems
predate Cyprus' 1988 acquisition of the Miami operations.
Cyprus Amax is continuing to conduct environmental remediation at Carteret,
New Jersey, site of former copper smelting and metals refining operations
under provisions of an Administrative Consent Order (ACO) Amax first signed
with the State of New Jersey in 1988. A total reserve of $22 million existed
at December 31, 1993, as a reasonable estimate of future environmental
remediation pursuant to the remedial action plan contemplated in the ACO. A
cost range of $12 to $30 million is generally estimated for this site. Site re-
development to warehouses and possible future asset sales are expected to
significantly offset these costs; however, offsets have not been recognized in
establishing the reserve for the site.
Liquidity and Capital Resources
During 1993 $360 million was generated from operating activities and the sale
of gold assets and the LTV claims, which was sufficient to finance a major
portion of the cash requirements of $446 million for dividends, two coal
acquisitions, and a significant capital expenditure program to increase
productivity and reduce costs. Bank borrowings provided funds for the
remainder of these major requirements and provided cash to pay expenses
associated with the merger with Amax, repay Amax borrowings on a revolving
credit facility, and redeem a Cyprus long-term debenture to reduce interest
expense. Except for certain merger expenses, the business combination of
Cyprus and Amax was a non-cash transaction accomplished through the issuance
of stock and assumption of debt. As a result of the merger, the balance sheet
components changed significantly in 1993 from 1992.
Cash and cash equivalents decreased modestly from $116 million at December 31,
1992, to $96 million at December 31, 1993. Long-term debt as a percent of
total capitalization was 36.6 percent, and the ratio of current assets to
current liabilities was 1.0 to 1.0. Cash generated by operations decreased to
$74 million during 1993.
Non-cash working capital declined to a negative $56 million during 1993 from
$220 million the previous year. Inventories increased by $155 million as
additional inventories of $210 million resulting from the merger were
partially offset by reduced copper and molybdenum inventories of over $40
million and lower Cyprus material and supply inventories of $14 million, as
the result of an inventory reduction program. Receivables increased by $207
million primarily as a result of the merger and $30 million from copper put
options.
As a result of the merger, long-term debt, coal production payments, and
capital lease obligations were assumed totaling about $1.2 billion. Long-term
obligations for deferred employee and retiree benefits, principally pensions
and retiree medical and deferred closure reclamation, and environmental costs
increased $645 million because of the merger.
Capital expenditures of $277 million during 1993 were primarily for expansion
and cost reduction investments. Total capital for Copper was about $190
million, including expenditures of $65 million to complete the copper fleet
modernization, projects to expand Bagdad and Sierrita mill and SX-EW
production and initial spending on the
36
<PAGE>
SX-EW production increase at Miami totaled approximately $45 million, and
initial spending of $20 million on a refinery at Miami to significantly reduce
copper refining costs. Coal capital expenditures of $65 million included a new
truck and shovel fleet in Kentucky and other cost reduction projects. Major
capital projects in 1993 for Lithium included completion of a butyllithium
plant expansion in Tennessee and a by-product potash plant expansion at the
Chilean lithium brine facility.
Projected capital spending in 1994 is expected to be approximately $400
million, with Copper capital expenditures estimated at $240 million. Major
expenditures include about $60 million for completion of the refinery at Miami
and about $25 million for SX-EW expansion projects at Sierrita, Bagdad, Casa
Grande, and Miami. In addition, approximately $60 million, excluding the
acquisition cost, would be required for Cerro Verde, including expanding SX-EW
production and upgrading mine equipment. Cyprus Amax's future investment
including the $60 million is $375 million which is conditional based upon a
favorable feasibility study to develop a modern milling facility, stable
copper prices, a stable political environment, and other conditions. Coal
expects to spend approximately $140 million in 1994, including about $25
million at the newly acquired Cumberland mine primarily for a new longwall,
about $35 million in the Midwest primarily for continuous haulage systems and
other equipment to improve productivity, and $20 million at the Wyoming
surface mines largely for 240-ton haul trucks. In addition, potential equity
investments of about $285 million may be required in 1994 including $235
million for the El Abra project for the payment to Codelco for Cyprus Amax's
initial interest and commencement of development, about $25 million for the
Kubaka gold project in Russia, and approximately $25 million for Oakbridge.
Potential settlement of a royalty dispute with the Minerals Management Service
could require approximately $60 million, net of customer receivables, in the
first half of 1994.
Proceeds from the 1993 sale of assets generated cash of $181 million which was
primarily from the buy out of two multi-year coal contracts, the sale of
Canadian oil and gas properties, and the sale of Cyprus' gold operations in
New Zealand and Australia. The sale of Cyprus' LTV bankruptcy claims generated
additional cash of $104 million. Acquisition of the Cumberland coal mine in
Pennsylvania and the tender offer for all of the stock of McIlwraith McEacharn
Ltd. of Sydney, Australia, required cash of $138 million.
In February 1993 Cyprus issued $150 million of 8 3/8 percent Debentures due
February 1, 2023, and redeemable after February 1, 2003. Cyprus also issued in
October 1993 $250 million of 6 5/8 percent Notes due October 15, 2005, which are
not redeemable prior to maturity. Both the Debentures and Notes were issued
under the Shelf Registration of January 1993. Cyprus Amax redeemed all of its
8 1/2 percent Sinking Fund Debentures due April 15, 2001 totaling $52 million.
Cyprus Amax has $150 million 14 1/2 percent Notes due in December 1994 and
expects to fund this obligation through the sale of non-strategic assets or the
issuance of new lower cost debt or borrowings against the revolving credit
facility. These issues and redemptions are part of a program to reduce
interest expense by about $20 million annually, restructure debt maturities so
there will be no significant repayments until after the year 2000, and improve
overall financial flexibility.
In December 1993 Cyprus Amax announced the signing of a new $1 billion credit
facility with a group of 36 banks to be used for general corporate purposes,
including the attainment of Cyprus Amax's growth plans over the next several
years. The facility replaces Cyprus' $400 million facility and certain Amax
facilities. The term of the Revolving Credit Agreement is four years, and
interest rates are determined by a competitive bid process or at a fixed
margin over various indices. As of December 31, 1993, Cyprus Amax had no loans
outstanding under this agreement but drew down $248 million in January to
provide funds for Cyprus Amax's share of the expected El Abra closing payment
to Codelco and to provide funds for the anticipated Cerro Verde acquisition.
At March 1, 1994, $200 million remained outstanding.
During 1994 Cyprus expects to be able to provide sufficient funds for general
corporate purposes, including capital expenditures, acquisitions, and
financial restructuring through internally generated funds and existing or new
borrowings. On March 1, 1994, Cyprus Amax reached an agreement with Union
Pacific Resources Company, a subsidiary of Union Pacific Corporation, to sell
all of its stock of Amax Oil & Gas Inc., for approximately $819 million. The
sale, which has an effective date of September 30, 1993, is expected to close
by March 31, 1994, and will result in after-tax net proceeds to Cyprus Amax of
at least $650 million. These funds will help to provide capital needed to
continue Cyprus Amax's cost improvement and expansion programs in coal,
copper, and gold.
37
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
Report of Management
The management of Cyprus Amax Minerals Company is responsible for the
integrity and objectivity of the financial statements and other financial
information contained in this Annual Report. The financial statements were
prepared in accordance with generally accepted accounting principles and
include estimates that are based on management's best judgment.
Cyprus Amax maintains an internal control system which includes formal
policies and procedures designed to provide reasonable assurance that assets
are safeguarded and transactions are properly recorded and executed in
accordance with management's authorization. Cyprus Amax's internal audit
function, managed by Price Waterhouse, audits compliance with the internal
control system and issues reports to Cyprus Amax's management and the Audit
Committee of the Board of Directors.
Cyprus Amax's financial statements have been audited by Price Waterhouse,
whose appointment is ratified yearly by the shareholders at the annual
shareholders' meeting. Price Waterhouse conducted their audit in accordance
with generally accepted auditing standards. These standards include an
evaluation of the internal accounting controls in establishing the scope of
audit testing necessary to allow them to render an independent professional
opinion on the fairness of Cyprus Amax's financial statements.
The Audit Committee of the Board of Directors, composed solely of directors
who are not Cyprus Amax employees, meets periodically with representatives of
management and Price Waterhouse to review their work and ensure that they are
properly discharging their responsibilities.
/s/ Milton H. Ward
Milton H. Ward
Co-Chairman, President and Chief Executive Officer
(Principal Executive Officer)
/s/ Gerald J. Malys
Gerald J. Malys
Senior Vice President and
Chief Financial Officer
(Principal Financial Officer)
/s/ John Taraba
John Taraba
Vice President and Controller
(Principal Accounting Officer)
Report of Independent Accountants
To the Board of Directors and Shareholders of Cyprus Amax Minerals Company:
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of shareholders' equity, and of cash
flows present fairly, in all material respects, the financial position of
Cyprus Amax Minerals Company and its subsidiaries at December 31, 1993 and
1992, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1993, 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.
As discussed in Notes 1, 10, and 12 to the Consolidated Financial Statements,
during 1992 the Company adopted Statement of Financial Accounting Standards
No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions," No. 109, "Accounting for Income Taxes," and No. 112, "Employers'
Accounting for Postemployment Benefits," all retroactive to January 1, 1992.
/s/ PRICE WATERHOUSE
Denver, Colorado
March 1, 1994
38
<PAGE>
Consolidated Statement of Operations
<TABLE>
<CAPTION>
Year Ended December 31
(In thousands except per share data) 1993 1992 1991
---------- ---------- ----------
<S> <C> <C> <C>
Revenue $1,763,546 $1,641,373 $1,656,517
---------- ---------- ----------
Costs and Expenses
Cost of Sales 1,333,458 1,285,456 1,319,483
Selling and Administrative Expenses 69,802 76,452 92,321
Provision for Doubtful Accounts 71 398 7,719
Depreciation, Depletion, and
Amortization 144,874 127,710 119,404
Write-Downs -- 410,366 35,000
Merger and Reorganization Expenses 33,226 29,364 --
Exploration Expense 24,692 19,164 20,792
---------- ---------- ----------
Total Costs and Expenses 1,606,123 1,948,910 1,594,719
---------- ---------- ----------
Income (Loss) from Operations 157,423 (307,537) 61,798
Other Income (Expense)
Interest Income 6,744 3,353 5,422
Interest Expense (41,610) (19,774) (22,412)
Capitalized Interest 487 3,084 5,409
Gain (Loss) on Equity Investments
and Other 7,864 (7,840) 3,395
---------- ---------- ----------
Income (Loss) Before Income Taxes 130,908 (328,714) 53,612
Income Tax (Provision) Benefit (30,739) 82,742 (10,868)
---------- ---------- ----------
Income (Loss) Before Cumulative
Effect of Accounting Changes 100,169 (245,972) 42,744
Cumulative Effect of Accounting
Changes for Benefits, Net of
Tax of $29,199 -- (87,597) --
---------- ---------- ----------
Net Income (Loss) 100,169 (333,569) 42,744
Preferred Stock Dividends (2,320) (11,059) (14,745)
---------- ---------- ----------
Income (Loss) Applicable to Common
Shares $ 97,849 $ (344,628) $ 27,999
========== ========== ==========
Earnings (Loss) Per Common Share
Primary
Income (Loss) Before Cumulative
Effect of Accounting Changes $ 1.85 $ (6.31) $ .72
Cumulative Effect of Accounting
Changes for Benefits -- (2.15) --
---------- ---------- ----------
$ 1.85 $ (8.46) $ .72
========== ========== ==========
Fully Diluted/(1)/
Income (Loss) Before Cumulative
Effect of Accounting Changes $ 1.85 $ (6.31) $ .72
Cumulative Effect of Accounting
Changes for Benefits -- (2.15) --
---------- ---------- ----------
$ 1.85 $ (8.46) $ .72
========== ========== ==========
Weighted Average Common Shares
Outstanding
Primary 53,005 40,758 38,996
Fully Diluted 54,469 47,596 47,044
========== ========== ==========
</TABLE>
/(1)/Fully diluted earnings per share were less than three percent different
than primary earnings per share in 1993 and were anti-dilutive in 1992 and
1991.
The accompanying notes are an integral part of these statements.
39
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
Consolidated Balance Sheet
<TABLE>
<CAPTION>
At December 31 (In thousands except share amounts) 1993 1992
---------- ----------
<S> <C> <C>
Assets
Current Assets
Cash and Cash Equivalents $ 96,257 $ 115,846
Accounts and Notes Receivable, Net 353,752 146,270
Amounts Due from Alumax 38,200 --
Inventories 462,081 307,188
Prepaid Expenses 57,775 40,905
Deferred Income Taxes -- 10,280
---------- ----------
Total Current Assets 1,008,065 620,489
---------- ----------
Properties--At Cost, Net 4,333,768 974,714
Deferred Income Taxes 205 64,660
Other Assets 283,154 49,546
---------- ----------
Total Assets $5,625,192 $1,709,409
========== ==========
Liabilities and Shareholders' Equity
Current Liabilities
Current Portion of Long-Term Debt $ 175,251 $ 6,633
Current Portion of Production Payments 42,505 --
Accounts Payable 191,818 91,071
Accrued Payroll and Benefits 98,444 43,188
Accrued Royalties and Interest 117,537 11,226
Other Accrued Liabilities 162,698 48,236
Taxes Payable 159,205 74,366
Dividends Payable 19,859 9,449
---------- ----------
Total Current Liabilities 967,317 284,169
---------- ----------
Noncurrent Liabilities and Deferred Credits
Long-Term Debt 995,138 232,337
Production Payments 283,281 --
Capital Lease Obligations 68,426 --
Deferred Employee and Retiree Benefits 435,249 134,772
Deferred Closure, Reclamation, and Environmental 358,389 72,578
Deferred Income Taxes 171,955 20,128
Other 128,826 42,391
Commitments and Contingencies (Notes 14 and 15) -- --
---------- ----------
Total Noncurrent Liabilities and
Deferred Credits 2,441,264 502,206
---------- ----------
Shareholders' Equity
Preferred Stock, $1 Par Value, 20,000,000 Shares
Authorized:
$4.00 Series A Convertible Stock, $50 Stated
Value, 4,666,667 Authorized, 4,666,653
Issued and Outstanding in 1993 4,667 --
Common Stock, Without Par Value, 150,000,000
Shares Authorized, 96,027,224 Shares Issued in
1993 and 51,676,131 in 1992 1,063 620
Paid-In Surplus 2,961,574 1,724,960
Accumulated Deficit (570,893) (622,095)
Foreign Currency Translation Adjustment (1,603) --
---------- ----------
2,394,808 1,103,485
Treasury Stock at Cost, 4,491,112 Shares in
1993 and 4,382,911 in 1992 (103,175) (100,028)
Loan to Savings Plan (75,022) (80,423)
---------- ----------
Total Shareholders' Equity 2,216,611 923,034
---------- ----------
Total Liabilities and Shareholders' Equity $5,625,192 $1,709,409
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
40
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
Consolidated Statement of Cash Flows
<TABLE>
<CAPTION>
Year Ended December 31 (In thousands) 1993 1992 1991
--------- --------- ---------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net Income (Loss) $ 100,169 $(333,569) $ 42,744
Adjustments to Reconcile Net Income (Loss) to Net
Cash Provided by Operating Activities:
Cumulative Effect of Accounting Changes for Benefits -- 87,597 --
Depreciation, Depletion, and Amortization 144,874 127,710 119,404
Write-Downs -- 410,366 35,000
Deferred Income Taxes 20,241 (95,124) (18,213)
Gain on Sale of Assets (5,118) (371) (2,625)
Gain on Sale of LTV Claims (104,378) -- --
Issuance of Stock for Employee Benefits 8,199 7,394 7,259
Other 10,748 23,760 14,815
Changes in Assets and Liabilities Net of Effects from
Businesses Acquired/Sold:
(Increase) Decrease in Receivables (36,198) (28,479) 30,537
(Increase) Decrease in Inventories 47,468 (24,936) 4,338
(Increase) in Prepaid Expenses (24,598) (688) (1,557)
Increase (Decrease) in Current Liabilities (56,637) (7,450) 57,662
(Increase) in Other Assets (17,220) (18,391) (2,738)
(Decrease) in Other Liabilities (13,369) (4,913) (1,909)
--------- --------- ---------
Net Cash Provided by Operating Activities 74,181 142,906 284,717
--------- --------- ---------
Cash Flows from Investing Activities/(1)/
Capital Expenditures (265,880) (156,324) (177,958)
Payments for Businesses Purchased (166,819) -- --
Capitalized Interest (487) (3,084) (5,409)
Proceeds from Sale of Assets 180,978 85,151 10,908
Proceeds from Sale of LTV Claims 104,378 -- --
--------- --------- ---------
Net Cash Used for Investing Activities (147,830) (74,257) (172,459)
Cash Flows from Financing Activities/(1)/
Net Proceeds from Issuance of Long-Term Debt 394,460 -- --
Payments on Long-Term Debt (65,042) (7,021) (8,449)
Payments on Short-Term Borrowings (222,000) -- --
Production Payments (6,682) -- --
Payments on Capital Lease Obligations (989) -- --
Purchase of Treasury Stock (5,069) -- --
Proceeds from Issuance of Stock for Employee Benefits 1,829 5,873 1,244
Redemption of Preferred Stock -- (1,004)
Dividends Paid (42,447) (48,399) (45,905)
--------- --------- ---------
Net Cash Provided by (Used for) Financing
Activities 54,060 (50,551) (53,110)
--------- --------- ---------
Net Increase (Decrease) in Cash and Cash
Equivalents (19,589) 18,098 59,148
Cash and Cash Equivalents at Beginning of
Year 115,846 97,748 38,600
--------- --------- ---------
Cash and Cash Equivalents at End of Year $ 96,257 $ 115,846 $ 97,748
========= ========= =========
</TABLE>
/(1)/ For purposes of this statement, investing and financing activities are
reported on a cash basis rather than an accrual basis of accounting.
The accompanying notes are an integral part of these statements.
41
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
Consolidated Statement of Shareholders' Equity
<TABLE>
<CAPTION>
Preferred Stock Common Stock Foreign
--------------------- -------------------- Currency Loan to
Shares Net Shares Paid-In Accumulated Translation Treasury Savings
(In thousands) Outstanding Amount Outstanding Amount Surplus Deficit Adjustment Stock Plan
----------- ------ ----------- ------ ------- ----------- ----------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
December 31, 1990 3,932 $196,600 38,934 $ 540 $1,529,933 $(239,006) $ (90) $(110,586) $(93,038)
Net Income 42,744
Dividends
Preferred Stock, Series B (14,745)
Common Stock (31,156)
Common Stock Issued for
Employee Benefit Plans
and Exercise of Stock
Options 100 (674) 2,942 6,703
Foreign Currency
Translation Adjustment 184
------- -------- ------ ------ ---------- --------- ------- --------- --------
December 31, 1991 3,932 196,600 39,034 540 1,529,259 (242,163) 94 (107,644) (86,335)
Net Loss (333,569)
Dividends
Preferred Stock, Series B (11,059)
Common Stock (35,304)
Common Stock Issued for
Employee Benefit Plans
and Exercise of Stock
Options 338 166 7,513 5,912
Non-Employee Directors 4 19 103
Conversion and
Redemption of
Preferred Stock,
Series B for
Common Shares (3,932) (196,600) 7,917 80 195,516
Foreign Currency
Translation Adjustment (94)
------- -------- ------ ------ ---------- --------- ------- --------- --------
December 31, 1992 -- -- 47,293 620 1,724,960 (622,095) -- (100,028) (80,423)
Net Income 100,169
Dividends
Preferred Stock, Series A (2,320)
Common Stock (46,647)
Common Stock Issued
for Employee Benefit
Plans, Exercise of
Stock Options and
Change of Control 222 67 5,085 5,401
Non-Employee Directors 5 7 104
Shares Issued in
Connection with Merger
Preferred Stock,
Series A 4,667 4,667 228,666
Common Stock 44,204 443 1,007,874 (3,267)
Purchase of Common
Stock (188) (5,069)
Foreign Currency
Translation Adjustment (1,603)
------- -------- ------ ------ ---------- --------- ------- --------- --------
December 31, 1993 4,667 $ 4,667 91,536 $1,063 $2,961,574 $(570,893) $(1,603) $(103,175) $(75,022)
======= ======== ====== ====== ========== ========= ======= ========= ========
</TABLE>
The accompanying notes are an integral part of these statements.
42
<PAGE>
Notes to Consolidated Financial Statements
Note 1: Summary of Significant Accounting
Policies
Principles of Consolidation--The financial statements include the accounts of
Cyprus Amax Minerals Company (Cyprus Amax or the Company) and its more than 50
percent-owned subsidiaries including the businesses of AMAX Inc. (Amax) that
merged with Cyprus Minerals Company (Cyprus) effective November 15, 1993 (see
Note 2). Investments in 20 to 50 percent-owned companies are accounted for by
the equity method. Investments in ventures where Cyprus Amax can take its
production in kind and is responsible for its pro rata share of assets and
liabilities are included on a proportionate consolidation basis. All material
intercompany balances and transactions have been eliminated. Certain 1992 and
1991 amounts have been reclassified to conform to the 1993 presentation.
Earnings Per Share--Primary earnings per common share are determined by
dividing net income as reduced by preferred stock dividends by the weighted
average number of common shares outstanding during the year. Fully diluted
earnings per share are determined by dividing net income by the weighted
average number of common shares and common stock equivalents outstanding plus
shares which would be issued upon conversion of the preferred stock.
Cash and Short-Term Investments--The Company considers all highly liquid
investments purchased with an original maturity of three months or less to be
cash equivalents. Overdrafts representing outstanding checks in excess of
funds on deposit are classified as accounts payable.
Inventories--Inventories are carried at the lower of current market value or
cost. Coal product inventories and all materials and supplies inventories are
generally valued on the basis of average costs. Molybdenum inventories are
computed primarily on a last-in, first-out (LIFO) method. The costs of all
other product inventories are determined on the first-in, first-out (FIFO)
method.
Properties--Mining and oil and gas acquisition costs, certain tangible assets,
and mine development costs incurred to expand capacity of operating mines,
develop new ore bodies, or develop mine areas substantially in advance of
current production are capitalized and generally charged to operations on the
unit-of-production method. Mobile mining equipment and most other assets are
depreciated on a straight-line basis over their estimated useful lives.
Interest costs for the construction or development of significant long-term
assets are capitalized and amortized over the related assets' estimated useful
lives or the life of the mine, whichever is shorter. Gains or losses upon
retirement or replacement of equipment and facilities are credited or charged
to income. Impairment is provided when a determination has been made that the
net book value of assets will not be recovered based on estimated future
earnings and undiscounted cash flows.
Postretirement Benefits--In December 1992 Cyprus adopted Statement of
Financial Accounting Standards (SFAS) No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," retroactive to January 1, 1992
(see Note 12). SFAS No. 106 requires the expected cost of postretirement
benefits other than pensions to be accrued during the years the employee
renders service, rather than the Company's prior practice of recording the
costs as benefits are paid. The Amax businesses also adopted SFAS No. 106 in
1992, and the liabilities were restated to fair market value as of the merger
date.
Postemployment Benefits--In December 1992 Cyprus adopted SFAS No. 112,
"Employers' Accounting for Postemployment Benefits," retroactive to January 1,
1992 (see Note 12). SFAS No. 112 requires the Company to expense
postemployment benefits as they are earned by the employee for services
rendered, rather than as they are paid. The Amax businesses adopted SFAS No.
112 as of the merger date.
Exploration--Expenditures incurred in the search for mineral deposits and the
determination of the commercial viability of such deposits are charged against
income as incurred. The successful efforts method of accounting is used for
oil and gas activities.
Income Taxes--In the second quarter of 1992, Cyprus adopted SFAS No. 109,
"Accounting for Income Taxes," retroactive to January 1, 1992 (see Note 10).
Under SFAS No. 109, deferred income taxes are determined using an asset and
liability approach. This method gives consideration to the future tax
consequences associated with differences between financial accounting and tax
basis of assets and liabilities. This method gives immediate effect to changes
in income tax laws upon enactment. The income statement effect is derived from
changes in deferred income taxes on the balance sheet. Amax had previously
adopted SFAS No. 109, and the assets and liabilities were computed on a
combined Cyprus Amax basis as of the merger date.
43
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 1: Summary of Significant Accounting Policies (Continued)
Translation of Foreign Currencies--Amounts in foreign currencies are
translated into U.S. dollars using the translation procedures specified in
SFAS No. 52. When local functional currency is translated to U.S. dollars, the
effects are recorded as a separate component of shareholders' equity. For
foreign subsidiaries with U.S. dollar functional currency, the effects of
remeasurement are included in income. Exchange gains and losses arising from
transactions denominated in a foreign currency are translated at average
exchange rates. The effects of these exchange adjustments are included in
income.
Revenue Recognition and Futures Contracts--Revenue is recorded when title
passes to the customer. Cyprus Amax uses futures and other financial
instruments as hedges in its product sales and cash management program. Gains
and losses on such transactions related to sales are matched to specific
product sales and charged or credited to sales revenue when that product is
sold. Foreign currency hedging gains or losses are credited or charged to
income.
Reclamation and Environmental Costs--Minimum standards for mine reclamation
have been established by various governmental agencies which affect certain
operations of the Company. Certain reclamation is performed and expensed on an
ongoing basis as mining operations are performed. The remaining reclamation
costs are related to mine closure and are accrued and charged against income
on a units-of-production basis during the life of the mine. Cyprus Amax is
subject to various environmental regulations. Environmental liabilities are
accrued on an ongoing basis reflecting management's estimates of future
obligations.
- --------------------------------------------------------------------------------
Note 2: Merger
On November 15, 1993, Amax merged with and into Cyprus, with Cyprus being the
surviving corporation, and was renamed Cyprus Amax Minerals Company. In the
merger, each share of Common Stock of Amax was converted into one-half share
of Common Stock of Cyprus Amax, resulting in the issuance of 44,351,093
shares, of which 147,112 shares were placed into Treasury Stock (see Note 13).
Each share of Amax $4.00 Series A Convertible Preferred Stock was converted
into two-thirds share of Convertible Preferred Stock of Cyprus Amax and into
one-third share of Preferred Stock of Alumax Inc. (Alumax), resulting in the
issuance of 4,666,653 shares of Cyprus Amax Preferred Stock. Immediately prior
to the merger, Amax distributed to its common shareholders one-half share of
Common Stock of Alumax per share of Amax Common Stock and 21.8 million shares
of Amax Gold Inc. (Amax Gold or AGI) Common Stock. As a result, Cyprus Amax
retained 31.3 million shares of Amax Gold or approximately 40 percent.
Prior to the merger, Amax was a worldwide supplier of metals and energy as
well as a manufacturer and distributor of value-added, metals-related products
and chemicals. Amax's principal businesses, prior to the spin off of Alumax,
were aluminum, coal, gas, and gold. The merger of Cyprus and Amax was
accounted for using the purchase method of accounting, and accordingly, the
results of the merged Amax businesses have been included in the accompanying
consolidated financial statements from the date of the merger.
The 44.4 million shares of Cyprus Amax Common Stock issued in the merger were
valued at $1,005 million and the 4.7 million shares of Preferred Stock were
valued at $233 million. In addition, pursuant to the merger agreement, Amax
paid Alumax $109 million just prior to the merger and settled intercompany
balances arising from transactions subsequent to December 31, 1992.
Transaction costs associated with the merger included approximately $20
million to settle Amax options, $22 million for severance and change of
control costs for executives and senior management of Amax, $80 million for
severance and change of control costs for Amax employees and expenses of
closing duplicate facilities, and $20 million in Cyprus' financial advisory,
legal, accounting, printing, and similar expenses. Prior to closing, Amax
expensed $18 million for financial advisory, legal, accounting, printing, and
similar costs.
Allocation of the purchase price for the merger was based on an estimate of
the fair market value for the assets acquired and liabilities assumed at
November 15, 1993, and is subject to final adjustment. Assets acquired were
$3.8 billion and liabilities assumed totaled $2.6 billion.
The unaudited pro forma information set forth below is presented to show
the estimated effect of the merger had it been consummated on January 1, 1992,
after giving effect to certain adjustments, including additional depreciation
and amortization of assets acquired.
44
<PAGE>
Note 2: Merger (Continued)
<TABLE>
<CAPTION>
Year Ended December 31 (In thousands) (Unaudited)
Pro Forma 1993 1992
---------- ----------
<S> <C> <C>
Revenue $2,699,018 $2,808,473
Income (Loss) Before
Accounting Changes $ 30,149 $ (292,636)
Net Income (Loss) $ 30,149 $ (571,783)
Earnings (Loss) Per Share
Before Accounting Changes $ .30 $ (3.57)
Earnings (Loss) Per Share $ .30 $ (6.85)
</TABLE>
The pro forma information is not necessarily indicative of the actual
operating results that would have occurred had the merger been consummated on
the date indicated or that may be obtained in the future. The pro forma
adjustments do not include operating efficiencies and cost savings that Cyprus
Amax expects to achieve. Through actions taken as of December 31, 1993, annual
savings of $60 million in general and administrative expenses have been
achieved and plans to achieve an additional $60 million are in the process of
being implemented. In addition, operating synergies resulting from the
combination of the businesses are being developed and implemented during 1994.
The 1992 results include write-downs and other provisions and reorganization
expenses of $338 million after tax (see Note 4). As a result of the merger,
Cyprus Amax recorded an after-tax charge of $25 million in 1993 for non-
recurring indirect expenses for the merger not reflected in the pro forma
statements. These expenses included change of control costs, severance and
outplacement for Cyprus employees terminated, and other transition expenses
incurred for the formation of Cyprus Amax.
- --------------------------------------------------------------------------------
Note 3: Business Acquisitions and Dispositions
During 1993 Cyprus acquired McIlwraith McEacharn Ltd. of Sydney, Australia,
which owns a 40 percent interest in Oakbridge Limited of Australia. Cyprus
also acquired U.S. Steel Mining Co., Inc.'s Cumberland mine in Greene County,
Pennsylvania. Both acquisitions were accounted for as purchases, and
accordingly the results of operations (which were not material) of the
acquired businesses have been consolidated from the respective dates of
acquisition. The interest in Oakbridge is accounted for under the equity
method. Cyprus also assumed debt and other liabilities associated with both
acquisitions totaling $50.7 million.
In the fourth quarter of 1993, Cyprus sold its Thompson Creek mine and mill
in Idaho which was on a standby status. In the first half of 1993, Cyprus sold
its interests in two gold mines, the Selwyn mine in Australia and the Golden
Cross mine in New Zealand. The Company also sold its beryllium and barite
assets and its 40 percent interest in the Bismark zinc mine in Mexico. The
results of the dispositions were not material to the 1993 consolidated
financial statements.
In 1992 Cyprus sold its talc business to The RTZ Corporation PLC, a
London-based international mining company.
- --------------------------------------------------------------------------------
Note 4: Reorganization Costs and Write-Down of Assets
During 1992 Cyprus reorganized to reduce corporate-wide overhead and improve
the Company's competitiveness. Pretax charges totaling $29 million were
recorded for company-wide personnel reductions and associated costs.
In the second quarter of 1992, Cyprus recognized write-downs of certain
assets, provisions for associated liabilities, and the recording of various
other charges totaling $415 million. Due to the poor market outlook for
certain regional coal markets because of oversupply and soft demand, a pretax
write-down of $182 million was recorded for the Kentucky coal operations
reflecting the reduced value of assets and mineral reserves. With Cyprus'
increasing uncertainty as to the amount or timing of an ultimate recovery of
its claim arising from the LTV bankruptcy, Cyprus wrote off its $86 million
basis in the claim. A write-down of assets and reserves, as well as a
provision for eventual closure costs totaling $25 million, was made for the
Empire coal mine in Colorado. A pretax charge of $57 million at the Thompson
Creek primary molybdenum mine in Idaho was recorded for reduced mineral
reserves, eventual mine closure costs, and the write-down of development
stripping because of continued weakness in the worldwide steel business.
Cyprus recorded a $31 million asset write-down to reflect the reduced value of
its Northshore iron ore property resulting from weak steel markets. In
addition, Cyprus recorded various other charges totaling $34 million.
In 1992 Cyprus sold its talc business and a 1991 charge of $35 million was
recorded in anticipation of the sale.
- --------------------------------------------------------------------------------
45
45
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 5: Inventories
Inventories detailed by component and industry segment are summarized
below:
<TABLE>
<CAPTION>
At December 31 (In thousands) 1993 1992
-------- --------
<S> <C> <C>
Component
Ores, Concentrates, and Other
In-Process Inventories $202,695 $131,000
Finished Goods 166,352 117,736
Materials and Supplies 93,034 58,452
-------- --------
$462,081 $307,188
======== ========
Industry Segment
Coal $107,186 $ 31,047
Copper 294,506 209,978
Other 60,389 66,163
-------- --------
$462,081 $307,188
======== ========
</TABLE>
On November 15, 1993, the Company acquired $85 million of LIFO inventory
which was restated to $112 million, reflecting fair market value at the date
of the merger. There was no excess of estimated replacement cost over the LIFO
basis at December 31, 1993.
- --------------------------------------------------------------------------------
Note 6: Properties
<TABLE>
<CAPTION>
At December 31 (In thousands) 1993 1992
----------- -----------
<S> <C> <C>
Coal $ 2,853,188 $ 904,350
Copper 1,952,629 1,492,115
Other 903,791 362,654
Corporate 10,492 17,253
----------- -----------
5,720,100 2,776,372
Less: Accumulated
Depreciation, Depletion,
Amortization, and
Write-Downs (1,386,332) (1,801,658)
----------- -----------
Net Properties $ 4,333,768 $ 974,714
=========== ===========
</TABLE>
Net Properties consist of the following:
<TABLE>
<CAPTION>
At December 31 (In thousands) 1993 1992
---------- --------
<S> <C> <C>
Property, Plant, and
Equipment $2,146,989 $680,862
Reserves/Mineral Rights,
Sales Contracts 2,186,779 293,852
---------- --------
Net Properties $4,333,768 $974,714
========== ========
</TABLE>
- --------------------------------------------------------------------------------
Note 7: Long-Term Debt
<TABLE>
<CAPTION>
At December 31 (In thousands) 1993 1992
---------- --------
<S> <C> <C>
14 1/2% Notes, Due 1994 $ 150,000 $ --
10 1/8% Notes, Due 2002 150,000 150,000
9 7/8% Notes, Due 2001 300,000 --
8 3/8% Debentures, Due 2023 150,000 --
8 1/2% Sinking Fund
Debentures, Due 2001 -- 58,000
6 5/8% Notes, Due 2005 250,000 --
Variable Rate Notes, Due 1995 35,000 --
Various Pollution Control and
Industrial Development
Revenue Bonds, Interest
Rates Range from 2.2% to
13.9%, Due from 2001
through 2013 61,000 26,000
Other 13,432 4,970
---------- --------
1,109,432 238,970
Add: Unamortized
Premium 60,957 --
---------- --------
1,170,389 238,970
Less: Current Portion (175,251) (6,633)
---------- --------
Long-Term Debt $ 995,138 $232,337
========== ========
</TABLE>
Scheduled debt maturities as of December 31, 1993, for the next five
years (in thousands) are as follows:
<TABLE>
<S> <C>
1994 $162,249
1995 $ 36,027
1996 $ 2,027
1997 $ 3,840
1998 $ 4,050
</TABLE>
46
<PAGE>
Note 7: Long-Term Debt (Continued)
In April 1990 Cyprus issued $150 million of 10 1/8 percent Notes due in
2002. In the event of both a Designated Event and a Rating Decline (as defined
in the agreement), each holder of a Note may require the Company to redeem the
holder's Notes, in whole or in part, at 100 percent of the principal amount
plus accrued interest to the date of redemption.
In February 1993 the Company issued $150 million of 8 3/8 percent
Debentures due in 2023 (the "Debentures"). The Debentures bear interest from
February 8, 1993, payable semi-annually on February 1 and August 1 of each
year, commencing August 1, 1993. The Debentures are not redeemable prior to
February 1, 2003. On and after such date, at the option of the Company, the
Debentures may be redeemed in whole or in part at 103.73 percent of the
principal amount, together with any accrued and unpaid interest, declining at
the rate of .375 percent per year to February 1, 2013, and at 100 percent
thereafter. The Debentures are general unsecured obligations of the Company
and rank senior in right of payment to all subordinated securities.
In October 1993 the Company issued $250 million of 6 5/8 percent Notes due
October 15, 2005, at a discount, priced at 99.392 percent to yield 6.70
percent. Interest on the Notes is paid semi-annually on October 15 and April
15. The Notes are not redeemable by the Company prior to maturity. A portion
of the proceeds from the Notes was used to redeem the outstanding $52 million
of the 8 1/2 percent Sinking Fund Debentures due April 15, 2001. The Debentures
were redeemed December 22, 1993, at a premium of 1.28 percent.
In November 1993 as part of the merger of Cyprus and Amax, the Company
assumed long-term debt of $742 million which increased by $66.1 million to
fair market value to reflect current interest rates. The premium will be
amortized over the term of the notes and bonds and reflected as a reduction in
interest expense. The 14 1/2 percent Notes due December 1, 1994, and the 9 7/8
percent Notes due June 13, 2001, are not redeemable prior to maturity and are
secured by certain principal property of the Company. The interest on both
notes is due semi-annually with the 14 1/2 percent Notes paid on June 1 and
December 1 and the 9 7/8 percent Notes paid on June 13 and December 13 of each
year.
In December 1993 the Company entered into a new revolving credit
agreement (the "Revolving Credit Agreement"), with a group of banks. The
Revolving Credit Agreement provides for a $1 billion line of credit with
interest rates to be determined, at the option of the Company, by a
competitive bid process or at a fixed margin over various indices. The term of
the Revolving Credit Agreement is four years. The Revolving Credit Agreement
contains certain covenants for which the Company is currently in compliance.
It replaced the previous $400 million revolving credit facility entered into
in November 1992 and certain Amax facilities. At December 31, 1993, the
Company had no loans outstanding under the Revolving Credit Agreement. In
January 1994 the Company borrowed $248 million on the Revolving Credit
Agreement with maturities ranging from one to six months. These funds were
borrowed to meet the purchase price requirements of the planned El Abra and
Cerro Verde copper acquisitions. At March 1, 1994, $200 million remained
outstanding.
In the fourth quarter of 1993, the Company entered into interest rate
swap agreements, which expire in three years, that effectively convert $200
million of fixed rate borrowings into variable rate obligations. Under the
terms of these agreements, the Company makes payments at variable rates which
are based on the London Interbank Offered Rate (LIBOR) and receives payments
at fixed interest rates, the net of which is included in interest expense.
The Company voluntarily terminated its $100 million Miami smelter project
financing agreement in November 1992.
================================================================================
Note 8: Production Payments
The production payments represent amounts payable from coal to be
produced from certain properties of Cyprus Amax Coal Company. The variable
interest rate is based on a margin over LIBOR. The obligation of Cyprus Amax
Coal under the production payment agreement is guaranteed by Cyprus Amax.
The obligation will be paid out of coal proceeds (in thousands) as follows:
<TABLE>
<S> <C>
1994 $ 42,505
1995 46,956
1996 51,874
1997 57,306
1998 63,306
1999 63,839
--------
$325,786
========
</TABLE>
================================================================================
47
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 9: Fair Value of Financial Instruments
The estimated fair values for financial instruments under SFAS No. 107,
"Disclosures About Fair Value of Financial Instruments," are made at discrete
points in time based on relevant market information. These estimates involve
uncertainties and cannot be determined with precision.
The fair value of long-term receivables is estimated based on expected
discounted future cash flows. The fair value of long-term debt is estimated
based on the quoted market prices for the same or similar issues offered to the
Company for debt of similar maturities. The price protection contracts are
composed of gas put and call options, copper put options, and oil and gas price
swaps. The fair value of the options is estimated based on the spot price, while
the fair value of the price swaps is estimated based on the quoted market price,
for the contracts at December 31, 1993. The carrying amount of production
payments approximates fair value based on current market quotes for contracts
with similar terms. The fair value of interest rate swap agreements is the
estimated amount that the Company would receive or pay to terminate the swap
agreements at December 31, 1993, taking into account current interest rates. The
fair value of lines and letters of credit is based on fees currently charged for
similar agreements or on the estimated cost to terminate them (face amount
$1,350 million and $433 million for December 31, 1993 and 1992, respectively).
The 1993 fair value of various financial guarantees of $42 million is based on
the estimated cost to settle the obligations with counterparties at the
reporting date. The carrying value of the commitment to purchase $15 million of
Chilean pesos on a forward basis is based on the market value of the contracts
at December 31, 1993.
The estimated fair values of the Company's financial instruments are as
follows:
<TABLE>
<CAPTION>
At December 31 (In thousands) 1993 1992
---------------------- --------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
--------- ----------- --------- ---------
<S> <C> <C> <C> <C>
Cash and Cash Equivalents $ 96,257 $ 96,257 $ 115,846 $ 115,846
Long-Term Receivables 46,776 46,776 6,017 6,017
Price Protection Contracts 2,749 20,035 5,189 1,250
Long-Term Debt (995,138) (1,023,357) (232,337) (252,932)
Production Payments (283,281) (283,281) -- --
Interest Rate Swap Agreements -- (154) -- --
Lines and Letters of Credit -- (3,442) -- (1,142)
Financial Guarantees Written -- (15,410) -- (18,640)
Forward Currency Contracts (137) 26 -- --
</TABLE>
------------------------------------
48
<PAGE>
Note 10: Income Taxes
(In thousands)
Income (loss) before income taxes consists of the following:
<TABLE>
<CAPTION>
1993 1992 1991
-------- --------- --------
<S> <C> <C> <C>
Domestic $124,929 $(326,091) $ 38,241
Foreign 5,979 (2,623) 15,371
-------- --------- --------
$130,908 $(328,714) $ 53,612
======== ========= ========
</TABLE>
Income tax provision (benefit) is composed of:
<TABLE>
<CAPTION>
1993 1992 1991
-------- --------- --------
<S> <C> <C> <C>
Current --Federal $ 438 $ 9,569 $ 22,007
--State 4,923 (261) 422
--Foreign 5,138 3,074 1,907
-------- --------- --------
10,499 12,382 24,336
-------- --------- --------
Deferred--Federal 16,887 (99,797) (13,834)
--State 3,370 (26,472) (92)
--Foreign (17) 1,946 458
-------- --------- --------
20,240 (124,323) (13,468)
-------- --------- --------
$ 30,739 $(111,941) $ 10,868
======== ========= ========
</TABLE>
The total income tax provision (benefit) is included in the financial
statements as follows:
<TABLE>
<CAPTION>
1993 1992 1991
-------- --------- --------
<S> <C> <C> <C>
Income Tax Provision
(Benefit) $ 30,739 $ (82,742) $ 10,868
Cumulative Effect of
Accounting Changes
for Benefits -- (29,199) --
-------- --------- --------
$ 30,739 $(111,941) $ 10,868
======== ========= ========
</TABLE>
The deferred tax liabilities (assets) are comprised of the tax effect of
the following at December 31:
<TABLE>
<CAPTION>
1993 1992 1991
--------- --------- --------
<S> <C> <C> <C>
Properties $ 980,438 $ 92,512 $213,692
Prepaid Expenses 25,056 13,146 11,333
Reclamation
Liabilities (106,841) (7,221) 208
Postretirement
Benefit Liabilities (235,745) (2,915) --
Accrued Liabilities (82,097) (27,438) (36,894)
Property Valuation
Reserves (70,675) (44,048) (22,765)
Net Operating Loss
Carryforwards (118,086) (47,167) --
Minimum Tax
Credits (118,318) (82,603) (53,865)
Investment Tax Credit
Carryforwards (55,075) -- --
Percentage Depletion -- -- (38,112)
State Tax Deduction (17,478) 2,683 (6,318)
Cumulative Effect of
Accounting Changes
for Benefits -- (47,885) --
Other (1,401) (944) (2,058)
Valuation Allowance 16,320 97,068 --
--------- --------- --------
$ 216,098 $ (54,812) $ 65,221
========= ========= ========
</TABLE>
The deferred tax liabilities (assets) included in the financial statements
are as follows at December 31:
<TABLE>
<CAPTION>
1993 1992 1991
--------- --------- --------
<S> <C> <C> <C>
Assets
Deferred Income Taxes
Current Portion $ -- $ (10,280) $ --
Noncurrent Portion (205) (64,660) --
Liabilities
Deferred Income Taxes
Current Portion 44,348 -- --
Noncurrent Portion 171,955 20,128 65,221
-------- --------- --------
$216,098 $ (54,812) $ 65,221
======== ========= ========
</TABLE>
49
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 10: Income Taxes (Continued)
The following is a reconciliation between the amount determined by applying
the federal statutory rate of 35 percent (34 percent for 1992 and 1991) to
Income (Loss) Before Income Taxes and the Income Tax Provision (Benefit):
<TABLE>
<CAPTION>
1993 1992 1991
-------- --------- --------
<S> <C> <C> <C>
Income Taxes at Statutory Rate $ 45,818 $(111,763) $ 18,228
Increases (Decreases) Resulting from:
Percentage Depletion (14,872) 2,964 (34,591)
Alternative Minimum Tax (779) 37,066 21,711
State Income Taxes, Net of Federal
Benefit 5,519 (7,136) 557
Foreign Income Taxes, Net of Credit
or Federal Benefit 4,625 1,302 (657)
Capital Loss Carryback -- -- (4,624)
Loss on Dispositions of Subsidiary
and Equity Investments (9,718) -- --
Items Not Deductible 426 849 1,123
Adjustment to Prior Year -- (7,973) 7,159
Other, Net (280) 1,949 1,962
-------- --------- --------
Income Tax Provision (Benefit) 30,739 (82,742) 10,868
-------- --------- --------
Income Taxes on Cumulative Effect of
Accounting Changes for Benefits at
Statutory Rate -- (39,710) --
State Income Taxes -- (8,175) --
Alternative Minimum Tax -- 18,686 --
-------- --------- --------
Taxes on Cumulative Effect of
Accounting Changes -- (29,199) --
-------- --------- --------
$ 30,739 $(111,941) $ 10,868
======== ========= ========
</TABLE>
--------------------------------
The Company has recorded a deferred tax liability of $216.1 million in
1993. The liability is composed of $742.1 million of deferred tax benefits
related to future deductible temporary differences of $1,574 million and minimum
tax credit carryforward of $118.3 million, netted against $1,076.5 million of
tax liabilities related to future taxable temporary differences of $2,678
million.
At December 31, 1993, the Company had $287 million of regular tax net
operating loss carryforwards expiring from 2001 through 2008. There are no net
operating loss carryforwards for alternative minimum tax purposes.
The Company has approximately $55 million of investment tax credit
carryforwards expiring from 1994 to 2000 and beyond. A valuation allowance of
$16 million has been recorded against these credits because it is expected that
a portion will expire unused.
There are $118 million of minimum tax credits which do not expire.
The valuation allowance provided in 1992 has been reduced to $16.3 million
in 1993 because Cyprus Amax will be able to utilize additional tax carryforwards
which Cyprus alone would not be able to utilize. The reduction in the valuation
allowance has not been recorded in income, but instead was accounted for as part
of the purchase accounting for the merger.
The merger with Amax was nontaxable. Therefore, the tax basis in the Amax
assets and liabilities carried over to Cyprus Amax. The purchase accounting for
Amax resulted in significant increases in temporary differences, primarily for
properties, and a corresponding increase in deferred tax liabilities.
The Omnibus Budget Reconciliation Act of 1993 increased the corporate tax
rate from 34 percent to 35 percent. The rate change has no effect on the net
recorded deferred tax accounts of Cyprus Amax. The increase in the recorded
liabilities from the rate change is offset by an increase in allowable minimum
tax credits.
50
<PAGE>
Note 10: Income Taxes (Continued)
In January 1993 the U.S. Supreme Court reversed a recent tax case (United
States v. Hill). The Company had relied on this case to reduce its tax
payments for 1990 and 1991 by approximately $42 million, which was repaid with
interest in 1993. This payment did not impact the income statement as the
Company had not previously recorded this possible benefit.
- --------------------------------------------------------------------------------
Note 11: Preferred Stock Transactions
In conjunction with the Amax merger, Cyprus Amax issued 4,666,653 shares of
$4.00 Series A Convertible Preferred Stock. Holders of the Series A Preferred
Stock have the right to convert any or all such shares into Common Stock at
any time at a conversion price of $24.30 per share. The Series A Convertible
Preferred Stock has a stated value of $50.00 per share and carries a
cumulative dividend payable quarterly. The Series A Convertible Preferred
Stock is redeemable, in whole or in part, at any time beginning at $52.40 per
share on and after December 18, 1996, and declining to $50.00 per share on and
after December 18, 2002.
In October 1992 the Company completed the conversion and redemption of all
outstanding $3.75 Convertible Exchangeable Preferred Stock, Series B
(Preferred Stock) at a redemption price of $52.25 per share. At the option of
the holder prior to the close of business on October 21, 1992, the Preferred
Stock was convertible into shares of the Company's Common Stock at a
conversion price of $24.83 per share (or approximately 2.01 shares of Common
Stock for each share of Preferred Stock). As a result, 3,854,110 shares of
Preferred Stock were converted to 7,759,853 shares of Common Stock. Fractional
shares were paid in cash. Holders of 75,889 shares of Preferred Stock had
their shares redeemed resulting in the issuance of 152,817 shares of Common
Stock. Had the conversion occurred on January 1, 1992, primary loss per share
would have been $7.08 for 1992. In an earlier transaction, 2,000 shares of
Preferred Stock were converted to 4,026 shares of Common Stock.
In 1989 the Board of Directors of Cyprus declared a dividend of one
Preferred share purchase right for each outstanding share of Common Stock in
connection with the redemption of then existing rights. Each share of Common
Stock issued in the merger was accompanied by one Preferred share purchase
right. In addition, the Rights Agreement was amended to provide that any
transaction consummated due to the merger did not result in any adjustment to
the rights and did not cause the rights to be unexercisable or unredeemable.
If the rights become exercisable following the occurrence of certain specified
events, each right will entitle the holder, within certain limitations, to
purchase two-thirds of one one-hundredth of a share of Series A Junior
Participating Preferred Stock for $93.33 subject to certain anti-dilution
adjustments. If a person or group acquires 10 percent of Common Stock, every
other holder of a right will be entitled to buy at the right's then-exercise
price a number of shares of Common Stock having a value of twice such exercise
price. After the threshold is crossed, the rights become non-redeemable,
except that, prior to the time a person or group acquires 50 percent or more
of the Common Stock, the rights other than those held by such person or group
can be exchanged at a ratio of one share of Common Stock for each right. In
the event of certain extraordinary transactions, including mergers, the rights
entitle holders to buy at the right's then-exercise price equity in the
acquiring company having a value of twice such exercise price. The rights do
not have any voting rights nor are they entitled to dividends. The rights are
redeemable by Cyprus Amax at $.0067 each until a person or group acquires 10
percent of Common Stock or until the rights expire on February 28, 1999. In
addition on May 24, 1993, the Board of Directors increased the number of
authorized shares of the Series A Junior Participating Preferred Stock from
500,000 shares to 1,500,000 shares of which none were issued or outstanding
at December 31, 1993.
- --------------------------------------------------------------------------------
51
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 12: Employee Benefit Plans
Pension Plans
Cyprus Amax has a number of defined benefit pension plans covering most
of its employees. Benefits are based on either the employee's compensation
prior to retirement or stated amounts for each year of service with the
Company. Cyprus Amax makes annual contributions to these plans in accordance
with the requirements of ERISA. Plan assets consist of cash and cash
equivalents, equity and fixed income securities, and real estate.
Net annual pension cost included the following components:
<TABLE>
<CAPTION>
Year Ended December 31
(In thousands)
1993 1992 1991
------- ------- --------
<S> <C> <C> <C>
Service Cost $ 6,327 $ 5,815 $ 4,806
Interest Cost 10,849 10,254 9,158
Actual Gain on
Plan Assets (7,363) (5,305) (18,225)
Deferred Gain (Loss) (3,762) (5,122) 9,591
Other 1,776 1,417 988
------- ------- --------
$ 7,827 $ 7,059 $ 6,318
======= ======= ========
</TABLE>
------------------------------------------------
The following table sets forth the funded status of the plans:
<TABLE>
<CAPTION>
1993 1992
------------------------- -------------------------
Assets Accumulated Assets Accumulated
exceed benefits exceed benefits
accumulated exceed accumulated exceed
At December 31 (In thousands) benefits assets benefits assets
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Actuarial Present Value of Benefit Obligations:
Vested Benefit Obligation $ 121,592 $ 65,859 $ 95,724 $ --
========= ======== ========= ========
Accumulated Benefit Obligation $ 138,896 $ 73,155 $ 108,017 $ --
========= ======== ========= ========
Projected Benefit Obligation $(153,798) $(87,071) $(120,957) $ --
Plan Assets at Fair Value 144,572 44,203 116,439 --
--------- -------- --------- --------
Plan Assets Less Than Projected
Benefit Obligation (9,226) (42,868) (4,518) --
Unrecognized Net Loss 31,992 -- 16,846 --
Unrecognized Prior Service Cost 9,852 -- 10,762 --
Unrecognized Transition Credit (1,990) -- (2,241) --
--------- -------- --------- --------
Prepaid/(Accrued) Pension Cost $ 30,628 $(42,868) $ 20,849 $ --
========= ======== ========= ========
</TABLE>
------------------------------------------------
Pension cost is recorded as a net amount of $12.2 million in Accrued
Payroll and Benefits on the Consolidated Balance Sheet at December 31, 1993. For
1992 prepaid pension cost consisted of $6.6 million included in Prepaid Expenses
and $14.2 million classified as Other Assets on the Consolidated Balance Sheet.
The addition of the Amax defined benefit plans resulted in a $98 million
increase in the projected benefit obligation while the decrease in the assumed
discount rate as indicated below caused a $16 million increase.
The assumptions used in calculating the funded status of the plans,
determined as of December 31, were:
<TABLE>
<CAPTION>
(In percent) 1993 1992
---- ----
<S> <C> <C>
Rate of Increase in Compensation Levels 5.5 6.5
Expected Long-Term Rate of Return
on Assets 9.0 9.0
Discount Rate 7.5 8.5
</TABLE>
52
<PAGE>
Note 12: Employee Benefit Plans (Continued)
Substantially all domestic employees not covered under the plans
administered by Cyprus Amax are covered under multi-employer defined benefit
plans administered by the United Mine Workers of America. Contributions by
Cyprus Amax to these multi-employer plans are based primarily upon hours
worked and amounted to $1.2 million, $.8 million, and $.7 million in 1993,
1992, and 1991, respectively.
Postretirement Benefits Other Than Pensions
In addition to the Company's defined benefit pension plans, the Company
has plans that provide postretirement medical benefits and life insurance
benefits. The medical plans provide benefits for most employees who reach
normal, or in certain cases, early retirement age while employed by the
Company. The postretirement medical plans are contributory, with annual
adjustments to retiree contributions, and contain certain other cost-sharing
features such as deductibles and coinsurance. The Company's practice is to
prefund a portion of the following year's projected medical benefit cost in the
amounts determined at the discretion of management.
During the fourth quarter of 1992, the Company adopted SFAS No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions,"
retroactive to January 1, 1992. The cumulative effect of adopting SFAS No. 106
was the establishment of a $100.0 million pretax accrual for postretirement
benefits and a charge to earnings of $75.0 million, net of tax. In addition to
the cumulative effect, the Company's 1992 postretirement health care and life
insurance expense increased $7.1 million before tax as a result of adopting
the new standard. Net periodic postretirement benefit cost consists of the
following components:
<TABLE>
<CAPTION>
(In thousands) 1993 1992
--------- ---------
<S> <C> <C>
Service Cost $ 3,930 $ 3,454
Interest Cost 9,689 8,279
--------- ---------
Net Periodic Postretirement
Benefit Cost $ 13,619 $ 11,733
========= =========
</TABLE>
The following tables sets forth the plans' combined status reconciled
with the amount included in the Consolidated Balance Sheet:
<TABLE>
<CAPTION>
At December 31 (In thousands) 1993 1992
--------- ---------
<S> <C> <C>
Accumulated Postretirement
Benefit Obligation:
Retirees $ 281,488 $ 72,489
Fully Eligible Active Plan
Participants 40,393 10,276
Other Active Plan
Participants 68,040 24,340
--------- ---------
Total Accumulated
Postretirement Benefit
Obligation 389,921 107,105
Plan Assets at Fair Value -- --
--------- ---------
Accumulated Postretirement
Benefit Obligation in Excess of
Plan Assets $ 389,921 $ 107,105
========= =========
Accumulated Postretirement
Benefit Obligation $(389,921) $(107,105)
Unrecognized Prior Service Cost (15,844) --
Unrecognized Net Loss 2,197 --
Unrecognized Transition
Obligation -- --
--------- ---------
Accrued Postretirement Benefit
Cost $(403,568) $(107,105)
========= =========
</TABLE>
The accumulated postretirement benefit obligation at December 31, 1993
and 1992, consisted of a current liability of $22.2 million and $5.6 million
included in Accrued Payroll and Benefits, respectively, and a long-term
liability of $381.4 million and $101.5 million included in Deferred Employee
and Retiree Benefits, respectively.
The weighted average annual rate of increase in the per capita cost of
covered benefits (i.e., health care cost trend rate) for the medical plan is
12 percent for 1994 and is assumed to decrease gradually (one-half per year)
to six percent by the year 2007 and remain at that level thereafter.
Increasing the assumed health care cost trend rate by one percentage point in
each year would increase the accumulated postretirement benefit obligation for
the medical plans as of December 31, 1993, by $39.5 million and the aggregate
of the service cost and interest cost components of net periodic
postretirement benefit cost for 1993 by $2.0 million.
53
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 12: Employee Benefit Plans (Continued)
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation as of December 31, 1993 and 1992, was 7.5
percent and 8.5 percent, respectively.
The merger with Amax during 1993 resulted in a $274.5 million increase in
the postretirement accumulated benefit obligation while the decrease in the
discount rate caused a $14.6 million increase.
In addition, health care and life insurance benefits of certain retirees
are covered by multi-employer benefit trusts established by the United Mine
Workers of America and the Bituminous Coal Operators Association, Inc. Current
and projected operating deficits of these trusts led to the passage of the
Coal Industry Retiree Health Benefit Act of 1992 (the "Act"). The Act
established a new multi-employer benefit trust called the United Mine Workers
of America Combined Benefit Fund (the "Fund") that will provide health and
life insurance benefits to all beneficiaries of the earlier trusts who were
receiving benefits as of July 20, 1992. The Act provides for the assignment of
beneficiaries to former employers and the allocation of any unassigned
beneficiaries to enterprises using a formula included in the legislation. The
Company has chosen to account for its obligation under the Act on a pay-as-you-
go basis in accordance with current accounting guidance. Contributions to the
Fund totaled $2.1 million and $3.9 million in 1993 and 1992, respectively.
The Company also has a number of postemployment plans covering severance,
disability income, and continuation of health and life insurance for disabled
employees. In the fourth quarter of 1992, the Company adopted SFAS No. 112,
"Employers' Accounting for Postemployment Benefits," retroactive to January 1,
1992. The cumulative effect of adopting SFAS No. 112 was the establishment of
a $16.8 million pretax accrual for postemployment benefits. At December 31,
1993, the accumulated postemployment benefit liability consists of a current
amount of $1.8 million included in Accrued Payroll and Benefits and $24.8
million included in Deferred Employee and Retiree Benefits. The increase in
the liability is primarily attributed to $8 million relating to the Amax
plans.
Note 13: Common Stock Plans
Savings Plans
Cyprus Amax sponsors a savings plan (the "Savings Plan") covering
substantially all of its non-represented employees. In February 1990 Cyprus
amended the Savings Plan to add an employee stock ownership feature (Leveraged
ESOP). The Savings Plan then acquired 4,245,810 shares of Cyprus' unissued
Common Stock at an acquisition price of $22.375 per share. The Savings Plan
financed the purchase of shares with a $95 million interest-bearing promissory
note payable to Cyprus. The loan to the Savings Plan bears interest at
9 3/4 percent per annum and is serviced by Cyprus' contribution to the Savings
Plan and dividends paid on the Cyprus common shares purchased with the
proceeds of the loan. The expense related to the Savings Plan is based upon
the shares allocated method. The minimum contribution to the Savings Plan by
Cyprus must be sufficient to amortize the loan to the Plan over a 20-year term
as provided in the promissory note. However, since adoption of the Leveraged
ESOP, Cyprus has stated its intention to contribute the greater of 75 percent
of employee matchable contributions or the minimum per the promissory note
and has done so in all subsequent periods. The amounts contributed for 1993,
1992, and 1991 were $7.2 million, $8.0 million, and $8.1 million,
respectively. The amount of interest incurred by the Savings Plan for the
Leveraged ESOP was $8.7 million, $8.9 million, and $9.1 million in 1993, 1992,
and 1991, respectively. The interest expense offset of the Leveraged ESOP due
to dividends was $3.3 million, $3.6 million, and $3.4 million in 1993, 1992,
and 1991, respectively. The aggregate compensation expense related to the
Savings Plan amounted to $5.3 million, $6.0 million, and $6.5 million in 1993,
1992, and 1991, respectively.
Amax sponsored three defined contribution savings plans which Cyprus Amax
has continued. One of the plans covers substantially all non-represented
hourly employees of the Amax entities. The second plan applies to those
represented hourly employees who are covered by collective bargaining
agreements which provide a company sponsored savings plan benefit. The Company
contributes Common Stock to each plan with a market value equal to 50 percent
of the first six percent of base pay contributed monthly by each participant.
The aggregate Company contributions for the hourly plans amounted to $.1
million for the period November 15 to year-end 1993.
54
<PAGE>
Note 13: Common Stock Plans (Continued)
The third defined contribution plan is in part an Employee Stock
Ownership Plan (ESOP) covering substantially all salaried employees of Amax
entities. In 1987 Amax terminated its defined benefit pension plan and
contributed $30 million of excess assets to the ESOP. The ESOP subsequently
purchased 1,420,118 shares of Amax Common Stock at a price of $21.125 for
allocation to participants' accounts over a period of eight years. A minimum
number of shares was established for monthly allocation in order to meet the
eight-year timeframe for allocation. The Amax stock held in the ESOP at merger
date was exchanged for Cyprus Amax, Alumax, and Amax Gold stock in accordance
with the merger agreement. The Alumax and Amax Gold stock was subsequently
traded for Cyprus Amax stock. Upon completion of the stock exchanges, 147,112
shares of Cyprus Amax stock remained to be allocated. The minimum number of
shares to be allocated monthly was adjusted to reflect an equivalent number of
Cyprus Amax shares. The monthly allocation is equivalent to the greater of the
minimum number or a specified percentage of each plan participant's
contribution. The aggregate Company contributions for the ESOP amounted to $.8
million for the period November 15 to year-end 1993.
In 1988 Cyprus adopted an ESOP covering substantially all non-represented
employees. No ESOP contributions have been made since 1989 when $5.0 million
in treasury shares were contributed.
Management Incentive Plans
In May 1992 Cyprus amended and restated its Management Incentive Program.
Under this Program, key employees of Cyprus, from time to time, may be granted
options to purchase Common Stock at fair market value as of the grant date.
These options are in the form of either incentive stock options or non-
qualified options and may be granted with stock appreciation rights (SARs).
SARs permit holders to surrender exercisable options in exchange for a
payment, in either shares or cash, determined by the amount by which the
market price of the shares on the dates the rights are exercised exceeds the
grant price.
Options granted under the amended Program are exercisable after
completion of the specified period of continuous employment, if any, stated in
the terms of the grant. All grants outstanding at November 15, 1993, the date
of the Cyprus Amax merger, are presently exercisable. Unexercised options
expire at the end of ten years after the date of the grant.
Additionally, under the Management Incentive Program certain employees
may be granted restricted shares of Common Stock. The restricted stock grants
are subject to forfeiture if the recipient fails to remain in the employ of
Cyprus Amax during the specified restriction period. The restrictions on all
issued shares were removed at the merger.
Under the amended Program, the Company may grant in any year up to 1.2
percent of the number of shares of Common Stock outstanding (plus the
cumulative number of carried-forward shares) as stock options or restricted
stock grants, up to a limit of 5 million shares issued as statutory options.
Outstanding options granted under the 1988 Amended and Restated Stock
Option Plan of Amax were exercisable for Cyprus Amax Common Stock following
the merger. Holders of these options were entitled until January 11, 1994, to
receive in cash the Change in Control Settlement Value (as defined in the
Plan) of the options. Options not settled in cash remain exercisable for
Common Stock. Unexercised options expire at the end of a specified term or 10
years from the date the Amax option was originally granted.
Under the 1993 Key Executive Long-Term Incentive Plan, key executives may
receive restricted stock awards and cash incentive payments based on the rate
of return received by investors in the Company's stock, compared to that of
its peers. A total of 236,466 shares were authorized for the Plan. Grants of
72,500 shares were issued, leaving 163,966 shares authorized but unissued. The
restrictions on all issued shares were removed at the merger.
Cyprus Amax maintains a stock plan for non-employee directors, which was
adopted in 1992. The director stock plan became effective on July 1, 1992, and
provided on that date, and in each subsequent year, each eligible director
shall be granted 500 shares of Common Stock, until a maximum of 35,000 shares
have been granted.
55
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
Notes To Consolidated Financial Statements
Note 13: Common Stock Plans (Continued)
The following table summarizes the stock option activity under the
management incentive program:
<TABLE>
<CAPTION>
1993 1992 1991
-------------------------- ------------------------- -----------------------
Number Option Price Number Option Price Number Option Price
of Shares Per Share of Shares Per Share of Shares Per Share
---------- ------------- --------- ------------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
Beginning of Year 1,855,250 $ 8.67-$31.06 1,786,685 $ 8.67-$31.06 1,599,197 $ 8.67-$31.06
Granted 615,400 $24.19-$35.75 677,650 $24.75-$30.56 429,790 $22.31-$22.63
Assumed Amax
Options 1,317,715 $17.72-$26.65 -- -- -- --
Exercised (393,475) $10.79-$31.06 (424,645) $ 8.67-$25.69 (147,852) $ 8.67-$20.71
Cancelled (91,330) $18.54-$35.75 (184,440) $20.71-$31.06 (94,450) $18.54-$25.79
--------- --------- ---------
Outstanding at
End of Year 3,303,560 $ 8.67-$35.75 1,855,250 $ 8.67-$31.06 1,786,685 $ 8.67-$31.06
========= ========= =========
Exercisable at
End of Year 3,303,560 $ 8.67-$35.75 854,550 $ 8.67-$31.06 997,195 $ 8.67-$31.06
========= ========= =========
Available for Grant
at End of Year 66,376 139,758 378,396
========= ========= =========
</TABLE>
-----------------------------------------------------
Note 14: Contingencies
Litigation and arbitration is pending relating to the Public Service of
Indiana long-term coal sales contract at the Cyprus Amax Wabash mine. The
Company will continue to defend its position with respect to the contract.
While Cyprus Amax is not able to predict the outcome of this matter at this
time, based upon facts currently known to it, Cyprus Amax does not believe
that the ultimate resolution of this matter will have a material adverse
effect on its financial condition.
On November 8, 1993, Cyprus Amax was notified by the United States
Department of Justice that it is under investigation for possible violations
of the antitrust laws of the United States regarding its molybdenum business.
While Cyprus Amax is unable to predict the outcome of this investigation, based
upon facts currently known to it, the resolution of this matter is not
expected to have a material adverse effect on the Company's financial
condition.
Cyprus Amax had outstanding letters of credit totaling $180 million at
December 31, 1993, primarily for reclamation and coal royalty disputes. Cyprus
Amax had guaranteed debt totaling $42 million at December 31, 1993, of which
$18 million was terminated in February 1994.
At December 31, 1993, Cyprus Amax's long-term accrual for deferred
closure, reclamation, and environmental remediation liabilities totaled
approximately $358 million which included $254 million for future reclamation,
$90 million for environmental remediation at Superfund and other sites, and
$14 million for closure of discontinued or previously sold operations. Cyprus
Amax's $254 million reclamation reserve is primarily for operating facilities.
Reclamation is an ongoing activity and a cost associated with the Company's
mining operations. Cyprus Amax accrues for closure and final reclamation
liabilities on a life-of-mine basis. The coal reclamation reserve component is
largely a result of reclamation obligations incurred for replacing soils and
revegetation of mined areas as
56
<PAGE>
Note 14: Contingencies (Continued)
required by provisions and permits pursuant to the Surface Mining Control and
Reclamation Act. The copper and other reclamation reserve component includes
costs for site stabilization, cleanup, long-term monitoring, and water
treatment costs expected to be required largely by state laws and regulations
as well as by sound environmental practice. Total reclamation costs for Cyprus
Amax at the end of current mine lives are estimated at about $500-550 million.
Cyprus Amax or its subsidiaries has been advised by the Environmental
Protection Agency (EPA) and several State environmental agencies that it may
be liable under the Comprehensive Environmental Response, Compensation and
Liability Act or similar state laws and regulations (Superfund), for costs of
responding to environmental conditions at a number of sites which have been or
are being investigated by the EPA or State agencies to establish whether
releases of hazardous substances have occurred and, if so, to develop and
implement remedial actions. Cyprus Amax is named as a potentially responsible
party (PRP) or has received EPA requests for information for about 30 sites.
The reserve of approximately $90 million at December 31, 1993, for Cyprus
Amax's share of the estimated aggregate liability for the cost of remedial
actions is based upon an evaluation of, among other factors, currently
available facts, existing technology, presently enacted laws and regulations,
its experience in remediation, other companies' clean-up experience, and its
status as a PRP at each of the sites, as well as the ability of other PRPs to
pay their allocated portions. The cost range of reasonably possible outcomes
for sites where costs are estimable is from $60 to $200 million and work on
these sites is expected to be substantially completed within the next five
years, subject to the inherent delays involved in the process. Costs at sites
that could not be estimated at December 31, 1993, are not expected to have a
material impact on the financial condition and ongoing operations of the
Company. Cyprus Amax believes certain insurance policies partially cover these
claims; however, some of the insurance carriers have denied responsibility and
Cyprus Amax is litigating coverage. Further, Cyprus Amax believes that it has
other potential claims for recovery from third parties, including the U.S.
Government and other PRPs, as well as liability offsets through lower cost
remedial solutions. Generally, neither insurance recoveries nor other claims
or offsets have been recognized in the liabilities reported.
- --------------------------------------------------------------------------------
Note 15: Related Party Transactions
A receivable of $38.2 million from Alumax has been recorded through purchase
accounting under a tax disaffiliation agreement consummated between Alumax and
Amax prior to the merger. Under this agreement, Alumax is responsible for the
payment of or reimbursement to Cyprus Amax for tax obligations arising from
certain transactions within Alumax prior to spin off.
At December 31, 1993, Cyprus Amax was committed to supporting Amax Gold with
financing to satisfy $34.2 million of outstanding short-term Chilean bridge
loans in the event that AGI was unable to refinance such loans on acceptable
terms. AGI is currently finalizing a refinancing of these loans on a long-term
basis with two groups of banks. These loans are expected to be initially
collateralized by a Cyprus Amax guarantee.
At December 31, 1993, loans outstanding to Amax Gold under a demand
promissory note payable were $25 million. Additionally, in February 1994
approval has been granted for Cyprus Amax to purchase Amax Gold Common Stock
at a price of $6.888 to repay approximately $21 million of the above
indebtedness, which would increase Cyprus Amax's ownership of Amax Gold's
outstanding shares to approximately 42 percent.
On February 11, 1994, Cyprus Amax signed a financing arrangement to make
available to Amax Gold $100 million in revolving credits. The outstanding
indebtedness under the line of credit may be repaid by Amax Gold with issuance
of an Amax Gold Convertible Preferred Stock. Both companies will have
conversion rights to convert the line of credit into Amax Gold Common Stock at
a maximum price of $8.265 per share and a minimum price of $5.854 per share.
The potential conversion to Common Stock could increase Cyprus Amax's
ownership of Amax Gold's outstanding shares to slightly under 50 percent.
At December 31, 1993, the subordinated loans outstanding to Oakbridge
Limited from Cyprus Amax totaled $14 million. On January 31, 1994, Cyprus Amax
advanced an additional $21 million to Oakbridge Limited which is convertible
to Oakbridge Common Stock on certain terms and conditions.
- --------------------------------------------------------------------------------
57
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 16: Leases and Mineral Royalty Obligations
Cyprus Amax leases mineral interests and various other types of properties,
including draglines, shovels, longwalls, offices, computing services, and
miscellaneous equipment. Certain of the Company's mineral leases require minimum
annual royalty payments, whereas others provide only for royalties based on
production.
Accrued minimum royalties that are not expected to be recovered from future
coal production consist of the following at December 31:
<TABLE>
<CAPTION>
(In thousands) 1993 1992
-------- --------
<S> <C> <C>
Minimum Future Royalties $114,554 $ 36,436
Less Inputed Interest (40,630) (17,212)
-------- --------
Present Value of Payments 73,924 19,224
Less Current Portion Included
in Accrued Royalties and
Interest (7,363) --
-------- --------
Long-Term Portion Included in
Other Noncurrent Liabilities
and Deferred Credits $ 66,561 $ 19,224
======== ========
</TABLE>
The increase in 1993 is a result of the merger with Amax.
The Company's property held under capital leases, included in property,
plant and equipment, and operating supplies inventory, consists of the
following:
<TABLE>
<CAPTION>
(In thousands) 1993 1992
-------- -------
<S> <C> <C>
Mining Equipment $51,311 $ --
Mine Facilities and Land 1,612 --
------- -------
52,923 --
Less Accumulated Amortization (24,701) --
------- -------
$28,222 $ --
======= =======
</TABLE>
Summarized below as of December 31, 1993, are future minimum rentals and
royalties under noncancellable leases:
<TABLE>
<CAPTION>
Operating Mineral Capital
(In thousands) Leases Royalties Leases
--------- --------- --------
<S> <C> <C> <C>
1994 $ 53,598 $ 16,440 $ 11,560
1995 43,361 14,292 11,485
1996 36,454 15,592 11,485
1997 31,717 14,838 11,485
1998 26,256 14,023 16,368
After 1998 59,197 71,749 30,240
-------- -------- --------
Total Payments $250,583 $146,934 $ 92,623
======== ========
Less Inputed Interest (18,542)
--------
Present Value of Lease Payments 74,081
Less Current Portion (5,655)
--------
Capital Lease Obligations $ 68,426
========
</TABLE>
Rentals and mineral royalties charged to expense were as follows:
<TABLE>
<CAPTION>
(In thousands) 1993 1992 1991
------- ------- -------
<S> <C> <C> <C>
Rental Expense $37,706 $34,885 $31,104
Mineral Royalties $37,329 $32,762 $37,887
</TABLE>
- --------------------------------------------------------------------------------
Note 17: Cash Flow Information
The Consolidated Statement of Cash Flows provides information about changes
in cash and cash equivalents which have a maturity of three months or less when
acquired. Net Cash Provided by Operating Activities reflects cash payments for
interest and income taxes as shown below:
<TABLE>
<CAPTION>
(In thousands) 1993 1992 1991
------- ------- -------
<S> <C> <C> <C>
Interest Paid (Net of
Interest Capitalized
and Interest Rate
Swap Receipt) $58,563 $13,672 $ 18,191
Income Taxes Paid
(Credited) $62,011 $10,538 $(15,239)
</TABLE>
- --------------------------------------------------------------------------------
58
<PAGE>
Note 18: Information by Industry Segment
Cyprus Amax operates in three principal industry segments--Coal, Copper,
and Other which supply mineral products primarily to the construction,
automobile, steel, and utility industries. The financial information for these
segments is presented below:
<TABLE>
<CAPTION>
(In thousands) 1993 1992 1991
---------- ---------- ----------
<S> <C> <C> <C>
Segment Revenue
Coal $ 696,984 $ 462,766 $ 443,268
Copper 831,744 887,334 912,230
Other 234,818 291,273 301,019
---------- ---------- ----------
$1,763,546 $1,641,373 $1,656,517
========== ========== ==========
Segment Operating Income (Loss)
Coal $ 142,081 $ (266,553) $ 4,042
Copper/1/ 55,044 37,851 127,258
Other 20,219 (29,276) (33,369)
---------- ---------- ----------
217,344 (257,978) 97,931
Corporate/1/ (59,921) (49,559) (36,133)
Interest, Net (34,379) (13,337) (11,581)
Gain (Loss) on Equity Investments 7,864 (7,840) 3,395
---------- ---------- ----------
Income (Loss) Before Income Taxes 130,908 (328,714) 53,612
Income Tax (Provision) Benefit (30,739) 82,742 (10,868)
---------- ---------- ----------
Income (Loss) Before Cumulative Effect
of Acccounting Changes 100,169 (245,972) 42,744
Cumulative Effect of Accounting
Changes/2/ -- (87,597) --
---------- ---------- ----------
Net Income (Loss) $ 100,169 $ (333,569) $ 42,744
========== ========== ==========
</TABLE>
59
<PAGE>
CYPRESS AMAX MINERALS COMPANY AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 18: Information by Industry Segment
(Continued)
<TABLE>
<CAPTION>
(In thousands) 1993 1992 1991
---------- ---------- ----------
<S> <C> <C> <C>
Identifiable
Assets
Coal $2,454,369 $ 318,454 $ 610,303
Copper/(1)/ 1,856,699 838,565 774,851
Other 979,856 325,985 464,946
---------- ---------- ----------
5,290,924 1,483,004 1,850,100
Corporate/(1)/ 334,268 226,405 134,276
---------- ---------- ----------
$5,625,192 $1,709,409 $1,984,376
========== ========== ==========
Capital
Expenditures
Coal $ 65,210 $ 23,317 $ 22,032
Copper/(1)/ 189,631 95,332 104,878
Other 20,336 30,348 61,790
Corporate/(1)/ 1,574 263 1,653
---------- ---------- ----------
$ 276,751 $ 149,260 $ 190,353
========== ========== ==========
Depreciation,
Depletion, and
Amortization
Coal $ 55,692 $ 35,173 $ 38,326
Copper/(1)/ 63,434 56,886 45,818
Other 24,766 34,621 33,981
Corporate/(1)/ 982 1,030 1,279
---------- ---------- ----------
$ 144,874 $ 127,710 $ 119,404
========== ========== ==========
Export Sales
Coal $ 23,848 $ 32,478 $ 36,407
Copper 143,739 187,856 217,764
Other 15,763 20,490 25,124
---------- ---------- ----------
$ 183,350 $ 240,824 $ 279,295
========== ========== ==========
</TABLE>
Lithium revenue, operating income, and identifiable assets were
approximately 4 percent, 10 percent, and 3 percent of the respective Company
totals for 1993. Gas revenue and income were immaterial, and identifiable assets
were about 10 percent of the Company total for 1993.
Financial information by geographic location for the past three years is
presented below:
<TABLE>
<CAPTION>
(In thousands) 1993 1992 1991
---------- ---------- ----------
<S> <C> <C> <C>
Revenue
Domestic $1,687,528 $1,537,796 $1,572,166
Foreign 76,018 103,577 84,351
---------- ---------- ----------
$1,763,546 $1,641,373 $1,656,517
========== ========== ==========
Operating
Income (Loss)
Domestic/(1)/ $ 205,409 $ (259,822) $ 87,558
Foreign 11,935 1,844 10,373
---------- ---------- ----------
$ 217,344 $ (257,978) $ 97,931
========== ========== ==========
Identifiable
Assets
Domestic $5,502,221 $1,511,310 $1,757,985
Foreign 122,971 198,099 226,391
---------- ---------- ----------
$5,625,192 $1,709,409 $1,984,376
========== ========== ==========
</TABLE>
/(1)/ Cyprus Amax's Power operation was previously included with Corporate. In
1993 it was included in the Copper segment and prior years' amounts have
been restated to reflect this change.
/(2)/ Includes Postretirement Benefits (SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions") and Postemployment Benefits
(SFAS No. 112, "Employers' Accounting for Postemployment Benefits"), net
of applicable taxes.
- --------------------------------------------------------------------------------
Note 19: Subsequent Event
On March 1, 1994, Cyprus Amax reached an agreement with Union Pacific
Resources Company, a subsidiary of Union Pacific Corporation, to sell all of its
stock of Amax Oil & Gas Inc., for approximately $819 million. The sale, which
has an effective date as of September 30, 1993, is expected to close by March
31, 1994, and will result in after-tax net proceeds to Cyprus Amax of at least
$650 million.
- --------------------------------------------------------------------------------
60
<PAGE>
Supplemental Financial Information
<TABLE>
<CAPTION>
Quarterly Results (Unaudited) 1993
- -------------------------------------------------------------------------------------------
First Second Third Fourth
(In thousands except per share data) Quarter Quarter Quarter Quarter
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue $374,687 $ 453,590 $393,607 $541,662
Segment Operating Income (Loss) $ 30,189 $ 109,957 $ 35,605 $ 41,593
Net Income (Loss) $ 11,562 $ 82,030 $ 14,264 $ (7,687)
Income (Loss) Applicable to Common Shares $ 11,562 $ 82,030 $ 14,264 $(10,007)
===========================================================================================
Earnings (Loss) Per Common Share:
Primary $ .24 $ 1.73 $ .30 $ (.14)
Fully Diluted $ .24 $ 1.73 $ .30 $ (.14)
===========================================================================================
<CAPTION>
1992
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue $398,447 $ 403,572 $431,673 $407,681
Segment Operating Income (Loss) $ 13,359 $(369,293) $ 61,930 $ 36,026
Income (Loss) Before Cumulative
Effect of Accounting Changes $ (6,429) $(293,552) $ 39,760 $ 14,249
Net Income (Loss) $(94,026) $(293,552) $ 39,760 $ 14,249
Income (Loss) Applicable to Common Shares $(97,712) $(297,238) $ 36,073 $ 14,249
===========================================================================================
Earnings (Loss) Per Common Share:
Primary $ (2.50) $ (7.60) $ .92 $ .31
Fully Diluted $ (2.50) $ (7.60) $ .83 $ .30
===========================================================================================
</TABLE>
1993 results include revenue and an after-tax gain on the sale of Cyprus'
bankruptcy claims against LTV of $16.0 million in the first quarter and $59.0
million in the second quarter. Fourth quarter 1993 includes essentially
breakeven earnings for Amax operations and $24.9 million of after-tax indirect
merger costs.
First quarter of 1992 results reflect the cumulative effect of adopting
SFAS No. 106 and SFAS No. 112 of $87.6 million after tax. In the second
quarter of 1992, results include an after-tax charge of $315.0 million for the
write-down of certain assets, provisions for associated liabilities, and
various other charges as described in Note 4.
61
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
Supplemental Information (Continued)
Mineral Reserves and Selected Operating
Statistics (Unaudited)
The following table presents reserves information of Cyprus as of
December 31, 1989-1992, Cyprus Amax as of December 31, 1993, and selected
operating statistics for the years then ended. Proved reserves represent those
reserves that, under presently anticipated conditions, will be commercially
recoverable from known mineral deposits with a high degree of certainty.
Proved and probable reserves include reserves that are less well defined than
proved reserves, but which have been indicated to exist on the basis of
geological and engineering data. Reserve estimates were prepared by Cyprus
Amax's engineers.
<TABLE>
<CAPTION>
1993 1992 1991 1990 1989
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Coal/(1)/
Proved and Probable Reserves (million tons) 2,681.0 664.1 744.9 782.6 807.3
Production (million tons) 26.9 18.7 16.8 16.2 14.2
Average Sales Price (per ton) $ 20.80 $ 23.88 $ 24.63 $ 24.95 $ 27.09
-------- -------- -------- -------- --------
Copper/Molybdenum/(2)/
Proved and Probable Ore Reserves
Copper (million tons) 1,597.5 1,616.9 995.3 1,035.0 983.1
Average Grade (percent) .38 .38 .41 .42 .44
Molybdenum (million tons) 316.3 17.3 138.9 143.2 219.4
Average Grade (percent) .228 .116 .113 .111 .115
Copper and Molybdenum (million tons) 900.8 944.7 512.6 453.7 555.7
Copper Average Grade (percent) .30 .30 .31 .34 .34
Molybdenum Average Grade (percent) .032 .032 .033 .036 .037
Saleable Product (billion pounds)
Copper 13.7 14.3 -- -- --
Molybdenum 2.0 0.8 -- -- --
Production
Copper (million pounds) 631.6 662.3 644.2 640.1 594.2
Molybdenum (million pounds) 28.2 40.3 36.1 53.2 58.0
Average Sales Price (per pound)
Copper $ .94 $ 1.04 $ 1.06 $ 1.20 $ 1.27
Molybdenum $ 2.32 $ 2.18 $ 2.35 $ 2.81 $ 3.34
-------- -------- -------- -------- --------
Lithium/(3)/
Proved Ore Reserves Lithium (thousand tons) 396.7 386.8 391.3 382.2 386.9
Production Lithium Carbonate (million pounds) 31.9 33.7 32.4 34.0 34.9
List Price (per pound) Lithium Carbonate $ 1.96 $ 1.91 $ 1.83 $ 1.73 $ 1.63
-------- -------- -------- -------- --------
Iron Ore
Proved Ore Reserves (million long tons) 1,200.3 1,209.9 1,213.8 1,219.8 1,227.9
Average Grade (percent) 24.2 24.2 24.1 24.3 24.3
Production (million long tons) 3.5 1.4 2.0 2.1 --
Average Published Price (per long ton) $ 30.72 $ 30.72 $ 30.72 $ 30.70 --
-------- -------- -------- -------- --------
Equity Companies/(4)/
Proved and Probable Reserves
Coal (million tons)
Oakbridge (100%) 358.7 -- -- -- --
Cyprus Amax Share (40%) 143.5 -- -- -- --
Gold (million contained ounces)
Amax Gold Inc. (100%) 7.4 -- -- -- --
Cyprus Amax Share (40%) 3.0 -- -- -- --
Kubaka (100%) 2.3 -- -- -- --
Cyprus Amax Share (45%) 1.0 -- -- -- --
-------- -------- -------- -------- --------
</TABLE>
Average sales price for Molybdenum represents annual averages of prices
as published in Metals Week.
Average published price for Iron Ore represents the price for 63 Iron Ore
units per long ton as published in Skillings' Mining Review.
/(1)/The addition of over 2 billion tons to coal reserves in 1993 was due mostly
to the merger with Amax on November 15, 1993, and the acquisition of the
Cumberland mine in Pennsylvania. Production from former Amax operations
was 6.4 million tons for the period November 15 through year end.
/(2)/Copper reserves, excluding production, increased by about 58 million tons
primarily for SX-EW reserves added at Mineral Park. Molybdenum reserves
increased because of the addition of the Amax properties, partially offset
by the sale of Thompson Creek.
/(3)/The additions to Lithium reserves resulted from a drilling program at the
Silver Peak, Nevada operation. Future production from reserves at the
Kings Mountain property in North Carolina will probably be based on new or
improved markets or the depletion of other reserves.
/(4)/Reserves for Equity Companies are shown at 100 percent for the operation or
company. Cyprus Amax has a beneficial ownership equivalent to its
percentage ownership in the venture which is shown on a separate line.
62
<PAGE>
SUPPLEMENTAL INFORMATION ON PETROLEUM AND NATURAL GAS ACTIVITIES (UNAUDITED)
Information required by the Financial Accounting Standards Board is given
below. The reserve quantity data and standardized measure of discounted future
net cash flows are unaudited.
Costs Incurred in producing activities are shown below and include amounts
capitalized during the period November 15 through December 31, 1993:
<TABLE>
<CAPTION>
(In millions) 1993
- --------------------------------------------------------------------------
<S> <C>
Property Acquisition
Proved $ .1
Unproved .7
=======
Exploration $ .9
Development $ 3.4
=======
- --------------------------------------------------------------------------
</TABLE>
Capitalized Costs are summarized below:
<TABLE>
<CAPTION>
At December 31 (In millions) 1993
- --------------------------------------------------------------------------
<S> <C>
Proved Properties $ 774.7
Unproved Properties 17.1
-------
791.8
Accumulated depreciation and
depletion (8.4)
-------
Net Capitalized Costs $ 783.4
=======
- --------------------------------------------------------------------------
</TABLE>
Results of Operations for the period November 15 through December 31, 1993 are
summarized below:
<TABLE>
<CAPTION>
(In millions) 1993
- --------------------------------------------------------------------------
<S> <C>
Revenue $ 21.0
Production (lifting costs) (7.4)
Exploration (.9)
Depreciation and Depletion (8.2)
Income Tax Expense (1.6)
-------
Results of Operations $ 2.9
=======
- --------------------------------------------------------------------------
</TABLE>
Reserve Quantities (Unaudited)
Proved crude oil, natural gas, and natural gas liquids reserves are the
estimated quantities of crude oil, natural gas, condensate, and natural gas
liquids which geological and engineering data demonstrate with reasonable
certainty may be recoverable in future years from known reservoirs under
existing economic and operating conditions. Proved developed crude oil,
natural gas and natural gas liquids reserves are reserves that can be expected
to be recovered through existing wells with existing equipment and operating
methods.
<TABLE>
<CAPTION>
Crude Oil (In thousands of barrels) 1993
- --------------------------------------------------------------------------
<S> <C>
Proved Developed and Undeveloped Crude
Oil Reserves
Purchase of Minerals in Place at November 15 7,959
Production (207)
-------
Balance at December 31 7,752
=======
Proved Developed Crude Oil Reserves
Balance at December 31 7,172
- --------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Natural Gas (In millions of cubic feet) 1993
- --------------------------------------------------------------------------
<S> <C>
Proved Developed and Undeveloped Natural
Gas Reserves
Purchase of Minerals in Place at November 15 430,914
Production (6,758)
-------
Balance at December 31 424,156
=======
Proved Developed Natural Gas Reserves
Balance at December 31 375,970
- --------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Natural Gas Liquids (In thousands of barrels) 1993
- --------------------------------------------------------------------------
<S> <C>
Proved Developed and Undeveloped Natural
Gas Liquids Reserves
Purchase of Minerals in Place at November 15 34,468
Production* (258)
-------
Balance at December 31 34,210
=======
Proved Developed Natural Gas Liquids Reserves
Balance at December 31 29,830
*Includes production of 211 (thousands of barrels) from Cyprus Amax's
ownership interests in gas processing plants.
- --------------------------------------------------------------------------
</TABLE>
63
<PAGE>
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
Supplemental Information on Petroleum and Natural Gas Activities (Unaudited)
(Continued)
Standardized Measure of Discounted Future Net Cash Flows and Changes
Therein Relating to Proved Crude Oil, Natural Gas and Natural Gas Liquids
Reserves (Unaudited)
These data measure the present value of estimated future net cash flows
based on year-end prices, costs, and statutory tax rates (adjusted for
permanent differences). Estimates were based on production forecasts and
assumed current levels of costs and prices. Present value is derived by
applying a 10 percent annual discount factor to future net cash flows. Changes
in the present value of future net cash flows arise primarily from purchases
and sales of reserves in place, changes to estimated proved reserves, changes
in prices and accretion of the discount on values previously recorded. The
estimates and assumptions cannot be precise and must be interpreted with
caution.
- --------------------------------------------------
Standardized Measure of Discounted Future Net Cash
Flows (Unaudited)
<TABLE>
<CAPTION>
(In millions) 1993
- --------------------------------------------------
<S> <C>
Future Cash Inflows $1,424.2
Future Production and Development Costs (534.4)
Future Income Tax Expense (203.0)
--------
Future Net Cash Flows 686.8
Discount--10% (344.1)
--------
Discounted Future Net Cash Flows $ 342.7
========
</TABLE>
- --------------------------------------------------
Changes in Discounted Future Net Cash Flows (Unaudited)
<TABLE>
<CAPTION>
(In millions) 1993
- -------------------------------------------------------
<S> <C>
Purchase of Reserves in Place at November 15 $ 356.3
Sales, Less Production Costs (13.6)
--------
Balance at December 31 $ 342.7
========
</TABLE>
- -------------------------------------------------------
64
<PAGE>
Stock Market Information
Cyprus Amax Common Stock is traded on the New York Stock Exchange (NYSE)
under the symbol "CYM." Cyprus Convertible Exchangeable Preferred Stock,
Series B was traded on the NYSE under the symbol "CYMpr." The ranges of actual
trade prices by quarters for the Common Stock and Preferred Stock, as reported
by the NYSE, are set forth below.
Actual Trade Prices
<TABLE>
<CAPTION>
Common Stock
-------------------------------------------
1993 1992
-------------------------------------------
Period High Low High Low
------------------- -------------------
<S> <C> <C> <C> <C>
1st Quarter $36 3/8 $30 3/4 $23 3/4 $18 1/2
2nd Quarter $33 1/8 $22 7/8 $28 1/2 $19
3rd Quarter $28 1/4 $23 3/8 $32 $26 5/8
4th Quarter $26 5/8 $21 1/4 $32 $25 3/4
</TABLE>
<TABLE>
<CAPTION>
Series B Preferred Stock
-------------------------------------------
1993 1992
-------------------------------------------
Period High Low High Low
--------------- -------------------
<S> <C> <C> <C> <C>
1st Quarter -- -- $52 1/4 $46
2nd Quarter -- -- $59 1/2 $49 3/4
3rd Quarter -- -- $64 3/4 $55 3/4
4th Quarter/(1)/ -- -- $63 1/2 $53 3/4
</TABLE>
/(1)/Through October 20, 1992
- --------------------------------------------------------------------------------
In addition to its Common Stock, Cyprus Amax has 4,666,653 shares of $4.00
Series A Convertible Preferred Stock outstanding as of March 1, 1994. These
shares are held by one registered shareholder. Each share of Series A
Convertible Preferred Stock carries the right to receive a dividend of $4.00
per year. Dividends are paid out of funds legally available, therefore, on
each March 1, June 1, September 1, and December 1, when, as and if declared by
the Board of Directors. Due to the limited number of shareholders, there is no
market in these shares.
During 1993 Cyprus declared cash dividends amounting to $.80 per share on
its Common Stock, and Cyprus Amax declared a regular quarterly dividend of
$1.00 per share on the Series A Convertible Preferred Stock. During 1992
Cyprus declared cash dividends amounting to $.85 and $2.8125 per share on its
Common Stock and Preferred Stock, respectively. All dividends were paid
quarterly, except for an extra dividend of $.05 which was paid in December
1992 in addition to the Company's regular quarterly dividend of $.20 per
share. On February 10, 1994, the Board of Directors of Cyprus Amax declared
dividends of $.20 per share of the Common Stock for stockholders of record on
April 11, 1994 and a regular quarterly dividend of $1.00 per share of Series A
Convertible Preferred Stock for stockholders of record on February 11, 1994.
The Board of Directors will continue to evaluate the Company's performance and
the appropriateness of dividends. It is currently anticipated that dividends
will continue to be paid during 1994.
In October 1992 the Company called for redemption of all of its outstanding
$3.75 Convertible Exchangeable Preferred Stock, Series B (Preferred Stock) at
a redemption price of $52.25 per share. At the option of the holder prior to
the close of business on October 21, 1992, the Preferred Stock was convertible
into shares of the Company's Common Stock at a conversion price of $24.83 per
share (or approximately 2.01 shares of Common Stock for each Preferred Share).
As a result, 3,854,110 shares of Preferred Stock were converted to 7,759,853
shares of Common Stock. Fractional shares were paid in cash. Holders of 75,889
shares of Preferred Stock had their shares redeemed resulting in the issuance
of 152,817 shares of Common Stock through an underwriter. On October 20, 1992,
the last day that shares of Series B Preferred Stock were quoted on the NYSE,
the last reported sales price was $58.00 per share.
The closing trade price per share of the Common Stock on March 1, 1994, as
reported by the NYSE was $29.875. As of March 1, 1994, the number of
registered shareholders of Cyprus Amax Common Stock was approximately 63,800.
65
<PAGE>
EXHIBIT 21
CYPRUS AMAX MINERALS COMPANY
----------------------------------------
SUBSIDIARIES OF THE REGISTRANT
AT DECEMBER 31, 1993
<TABLE>
<CAPTION>
Organized
Under
Company/(1)/ Laws of
- ------------------------------------------------ ---------
<S> <C>
Cyprus Amax Coal Company Delaware
Cyprus Western Coal Company Delaware
Cyprus Plateau Mining Corporation Delaware
Cyprus Yampa Valley Coal Corporation Delaware
Colorado Yampa Coal Company Delaware
Twentymile Coal Company Delaware
Cyprus Emerald Resources Corporation Delaware
Cyprus Empire Corporation Delaware
Cyprus Cumberland Coal Corporation Kentucky
Cyprus Cumberland Resources Corporation Delaware
Cyprus Coal Equipment Company Delaware
Cyprus Kanawha Corporation Delaware
Cyprus Mountain Coals Corporation Delaware
Cyprus Orchard Valley Coal Corporation - (80%) Delaware
Cyprus Shoshone Coal Corporation Delaware
Cyprus Southern Realty Corporation Kentucky
McIlwraith McEacharn Limited Australia
Cyprus Metals Company Delaware
Cyprus Climax Metals Company Delaware
Cyprus Bagdad Copper Corporation Delaware
Cyprus Casa Grande Corporation Delaware
Cyprus Copper Marketing Corporation Delaware
Cyprus Metec Corporation Delaware
Cyprus Miami Mining Corporation Delaware
Cyprus Molybdenum Marketing Corporation Delaware
Cyprus Pima Mining Company - (75.01%) California
Cyprus Pinos Altos Corporation Delaware
Cyprus Rod Chicago Corporation Delaware
Cyprus Sierrita Corporation Delaware
Cyprus Tonopah Mining Corporation Delaware
Cyprus Exploration and Development Corporation Delaware
Cyprus Gold Company Delaware
Cyprus Copperstone Gold Corporation Delaware
Cyprus Gold Australia Corporation Delaware
Cyprus Specialty Metals Company Delaware
Cyprus Foote Mineral Company Pennsylvania
Sociedad Chilena de Litio Limitada Chile
Cyprus Northshore Mining Corporation Delaware
Cyprus Silver Bay Power Corporation Delaware
Cyprus Mines Corporation/(2)/ Delaware
Cyprus Metals GmbH West Germany
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Organized
Under
Company/(1)/ Laws of
- ------------------------------------------------ ---------
<S> <C>
Amax Energy Inc. Delaware
Cyprus Amax Coal Industries Inc. Delaware
Amax Coal Company Delaware
Yankeetown Dock Corporation - (60%) Indiana
Amax Oil & Gas, Inc./(3)/ Delaware
Amax Gas Gathering Inc. Colorado
Amax Gas Marketing Inc. Colorado
Amax Oil & Gas Exploration & Production, Inc. Delaware
Amax Zinc (Newfoundland) Limited Delaware
Beaver Pipeline Company Colorado
Castle Oaks Corporation Colorado
LVO Data Systems, Inc. Delaware
Peach Ridge Pipeline Inc. Delaware
Amax Coal West, Inc. Delaware
Amax Coal Sales Company Delaware
Amax Land Company Delaware
Ayrshire Land Company Delaware
Beech Coal Company Delaware
Meadowlark Inc. Delaware
Roaring Creek Coal Company Delaware
Grassy Cove Coal Mining Company Delaware
Cannelton Inc. Delaware
Cannelton Industries, Inc. West Virginia
Maple Meadow Mining Company Delaware
Dunn Coal & Dock Company West Virginia
Cannelton Land Company Delaware
Cannelton Sales Company Delaware
Climax Metals Company Delaware
Amax Securities (Canada) Limited Canada
Canada Tungsten Inc. - (48%) Canada
Minerex Resources Inc. Canada
Climax Molybdenum Company Delaware
Climax Molybdenum Company of Michigan Michigan
Climax Molybdenum Asia Ltd. Japan
Climax Performance Materials Corporation Delaware
Molytech S.A. - (65%) France
Climax Molybdenum B.V. Netherlands
Climax Molybdenum AB Sweden
Climax Molybdenum GmbH Germany
Climax Molybdenum Scandinavia AB Sweden
Climax Molybdenum S.R.L. Italy
Climax Molybdenum France S.A.R.L. France
Gold Hill Mining and Milling Company Colorado
Missouri Lead Smelting Company Delaware
Mt. Emmons Mining Company Delaware
Silver Springs Ranch, Inc. Colorado
</TABLE>
<PAGE>
/(1)/ 67 subsidiaries and four 50 percent or less owned companies accounted for
by the equity method are not named in the Exhibit. Such subsidiaries and
affiliate companies, considered in the aggregate, do not constitute a
significant subsidiary.
/(2)/ This subsidiary also conducts business under the division name Emerald
Mines Company.
/(3)/ Sale pending.
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference of our report dated March
1, 1994, (appearing on page 38 of the 1993 Annual Report to Shareholders of
Cyprus Amax Minerals Company, which is incorporated by reference in this Annual
Report on Form 10-K for the year ended December 31, 1993) in the Prospectuses
constituting a part of each of the following Registration Statements:
(a) Registration Statements on Form S-8 (No. 33-1600, No. 33-22939 and No.
33-53792) with respect to Cyprus Amax Minerals Company Savings Plan and Trust.
(b) Registration Statements on Form S-8 (No. 33-1603, No. 33-21501 and No.
33-53794) with respect to the Management Incentive Program of Cyprus Amax
Minerals Company and its participating subsidiaries.
(c) Registration Statement on Form S-8 (No. 33-52812) with respect to the
Stock Plan for Non-Employee Directors of Cyprus Amax Minerals Company.
(d) Registration Statement on Form S-8 (No. 33-51011) with respect to the
1988 Amended and Restated Stock Option Plan of Cyprus Amax Minerals Company.
(e) Registration Statement on Form S-3 (No. 33-36413) with respect to the
Cyprus Amax Minerals Company Savings Plan and Trust.
We also consent to the incorporation by reference of our report on the
Financial Statement Schedules, which appears on page 29 of this Form 10-K.
PRICE WATERHOUSE
Denver, Colorado
March 23, 1994
