<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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, 1994
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
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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
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 $27 7/8 as of March 24, 1995, was approximately $2,569,618,000.
Number of shares of common stock outstanding as of March 24, 1995, was
92,653,081.
DOCUMENTS INCORPORATED BY REFERENCE
1994 Annual Report to Shareholders (Parts I, II and IV). Proxy Statement
for the 1995 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 Minerals Company (Cyprus Amax or the Company) 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:
Copper/Molybdenum; Coal; and Other (which includes lithium and exploration).
Cyprus Amax is a leading copper and coal producer, the world's largest producer
of molybdenum and lithium, with a significant position in gold via its 42
percent interest in Amax Gold Inc. Cyprus Amax was incorporated in Delaware in
1969 and operates primarily in the United States. As of December 31, 1994,
Cyprus Amax employed approximately 9,500 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, data are expressed in short tons of 2,000
pounds and 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. Reserve estimates
were prepared by Cyprus Amax's engineers. Information regarding Cyprus Amax's
mineral reserves and selected operating statistics are incorporated by reference
from page 53 of the 1994 Annual Report to Shareholders (1994 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 26 through 33 in the 1994 Annual
Report, and from Note 19 to the Financial Statements on pages 50 and 51 in the
1994 Annual Report. Except as otherwise stated, Cyprus Amax has physical access
to its properties and conventional sources of power adequate to carry on its
business currently as conducted.
The term Cyprus Amax or the Company 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.
1
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COPPER/MOLYBDENUM 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/Molybdenum segment is
summarized in the following tables for the years 1994 and 1993. The 1994 year-
end ore reserve information is as follows:
<TABLE>
<CAPTION>
Ore Reserves December 31, 1994
- ------------ ----------------------------------------------------------------
Saleable Product
Proven and Probable ------------------
Ore Reserves/(1)/ Average Grade Copper Molybdenum
-------------------- ---------------------- ------ ----------
(Millions Copper Molybdenum (Millions of Lbs.)
of Tons) -------- ------------
(%) (%)
<S> <C> <C> <C> <C> <C>
Operation
---------
Bagdad 1,193 .37 .020 7,145 331
Sierrita/Twin Buttes 868 .28 .029 3,989 365
Miami 278 .46 - 1,570 -
Tohono 17 .49 - 82 -
El Abra/(2)/ 448 .54 - 3,781 -
Cerro Verde 653 .66 .021 6,996 133
Pinos Altos - 5.15 - 6 -
Mineral Park 67 .23 - 201 -
Henderson 176 - .231 - 724
Climax 146 - .233 - 590
------- ------ ------
3,846 23,770 2,143
======= ====== ======
</TABLE>
- ------------
/(1)/ Mine extraction losses and dilution have been taken into account in the
calculation of mineable ore reserves shown.
/(2)/ Represents Cyprus Amax's 51 percent interest in El Abra's ore reserves.
<TABLE>
<CAPTION>
Mine Statistics 1994 1993
- --------------- ----------------------------- -----------------------------
Material Ore Stripping Material Ore Stripping
Mined/(1)/ Mined Ratio/(2)/ Mined/(1)/ Mined Ratio/(2)/
---------- ----- ---------- ---------- ----- ----------
(Millions of Tons) (Millions of Tons)
<S> <C> <C> <C> <C> <C> <C>
Operation
---------
Bagdad 66 29 1.28 66 28 1.38
Sierrita/Twin Buttes 76 40 .83 71 35 .92
Miami 83 31 1.71 61 29 1.14
Tohono 11 5 .97 - - -
Cerro Verde/(3)/ 8 3 1.75 - - -
Henderson 5 5 - 1 1 -
---- ---- ---- ---
Total 249 113 199 93
==== ==== ==== ===
</TABLE>
- ------------
/(1)/ Includes ore and waste mined on a wet short ton basis.
/(2)/ Represents the ratio of waste to ore mined.
/(3)/ Acquired March 20, 1994.
2
<PAGE>
<TABLE>
<CAPTION>
Ore Processed Statistics
- ------------------------
1994 1993
---------------------------------------- -------------------------------------------
Ore Grade Ore Grade
-------------------- -----------------------
Ore Processed Copper Molybdenum Ore Processed Copper Molybdenum
------------------ ------- ----------- ------------------ ---------- -----------
(Millions of Tons) (Percent) (Millions of Tons) (Percent)
<S> <C> <C> <C> <C> <C> <C>
Operation
---------
Bagdad - Mill 27 .42 .024 26 .56 .024
- Leach 13 .16 - 14 .18 -
Sierrita/Twin Buttes - Mill 39 .35 .041 36 .39 .037
- Leach 7 .12 - 7 .15 -
Miami - Leach 31 .39 - 29 .34 -
Tohono - Leach 5 .52 - - - -
Cerro Verde - Leach 3 1.17 - - - -
Henderson/(2)/ - Mill 5 - .301 1 - .286
---- ----
Total 130 113
==== ====
</TABLE>
<TABLE>
<CAPTION>
Production 1994 1993
- ---------- ---------------------- ---------------------
Copper Molybdenum Copper Molybdenum
------ ---------- ------ ----------
(Millions of Pounds) (Millions of Pounds)
<S> <C> <C> <C> <C>
Operation
---------
Bagdad 205 9 231 8
Sierrita/Twin Buttes 253 22 264 18
Miami 119 - 113 -
Tohono/(1)/ 24 - - -
Cerro Verde 32 - - -
Henderson/(2)/ - 26 - 3
Other/(3)/ 15 - 24 -
---- --- ---- ---
Total 648 57 632 29
==== === ==== ===
</TABLE>
- ------------
/(1)/ Includes roaster loss netted against underground leach production in 1993.
/(2)/ 1993 includes the 47-day period following the merger.
/(3)/ Includes Pinos Altos, Mineral Park and by-product production from Selwyn
in 1993.
CYPRUS CLIMAX METALS COPPER/MOLYBDENUM OPERATIONS
In 1994 Cyprus Amax produced 648 million pounds of copper and 57 million
pounds of molybdenum from its copper and molybdenum operations. During 1994 the
Company acquired the El Abra and Cerro Verde properties in South America,
continued fleet modernization at Bagdad, Sierrita, and Miami, and completed a
new electrorefinery at Miami.
Bagdad
At the Bagdad mine in northwestern Arizona, Cyprus Amax mines primarily
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 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. In 1994 Bagdad produced 31 million pounds, or 15 percent of its total
copper production, as electrowon copper cathode. In 1994, sulfide copper
production was reduced by a 25 percent lower ore grade than in 1993. In 1994
the Bagdad concentrator milled approximately 27 million tons of ore, up one
million tons from 1993 due to the phase-in of mill expansion equipment. In
early 1995 the concentrator has generally been operating above
3
<PAGE>
capacity due to various improvements. Cyprus Amax owns the mine and holds the
tailings areas primarily under Arizona state commercial leases.
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, a 110,000 ton
per day sulfide ore concentrator, a molybdenum recovery plant, and two
molybdenum roasters. Sierrita's facilities are located on patented and
unpatented mining claims and fee land owned by Cyprus Amax. Copper ore mined at
Sierrita is processed at Sierrita into copper and molybdenum concentrates.
Sierrita also uses an oxide and low grade sulfide ore dump leaching system with
an SX-EW plant to produce copper cathode. Total Sierrita/Twin Buttes electrowon
copper cathode production in 1994 totalled 30 million pounds, or 12 percent of
its total copper production. Nearly one-half of Cyprus Amax's molybdenum
concentrate production is processed through Sierrita's on-site roasters, which
are currently operating at capacity. The resulting molybdenum oxide and related
products are either 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. Material from Twin Buttes formerly was transported
to Sierrita for processing via a six-mile conveyor system; however, sulfide ore
from Twin Buttes was depleted early in 1994. Additional Sierrita ore production
is replacing the Twin Buttes ore in the mill. Currently, a small amount of
leachable material is being taken off waste dumps at Twin Buttes and trucked to
Sierrita for heap leaching.
Miami
The Miami operations consist of an open pit mine producing acid soluble ore
for heap leaching operations, an SX-EW plant producing copper cathode, a
smelter, an electrolytic refinery, and a rod plant. 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 1994 production of 119 million pounds of copper cathode from
the leaching and SX-EW operations was below capacity of approximately 130
million pounds due to lingering effects of the heavy rainfall in early 1993.
Expansion of the SX-EW plant capacity to 160 million pounds will be completed
during 1995.
The smelter operated below its capacity of 650,000 tons of copper concentrate
throughput, smelting 470,000 tons in 1994, due to continued leaks in the off-
take gas cooling hood. During January and February of 1995 the hood was
replaced which is expected to allow the smelter to be operating at design
capacity in the second quarter of 1995. Construction of the new electrorefinery
was completed and start-up occurred on schedule in the fourth quarter of 1994.
With installation of the new smelter hood and completion of construction of
the new 380 million pounds per year electrorefinery, Cyprus Amax became
self-sufficient in domestic copper smelting and refining.
The Miami rod plant operated above rated capacity during 1994, producing
about 280 million pounds of copper rod.
Cerro Verde
In March 1994 Cyprus Amax acquired approximately 91.5 percent of the common
stock of Sociedad Minera Cerro Verde S.A. (Cerro Verde) at a cost of
approximately $31 million. The Peruvian government previously owned and
operated the mine. Cerro Verde owns the underlying mining concessions which
contain over 650 million tons of reserves as well as over 15,000 acres of mining
concessions. The operation located approximately 30 kilometers southwest of
Arequipa, Peru, consists
4
<PAGE>
of two open pits, the Cerro Verde and the Santa Rosa, a heap leach operation and
an SX-EW plant. The mine currently has capacity to produce approximately 65
million pounds of electrowon copper cathode and is upgrading and expanding its
facilities to be able to produce at an annual rate of about 100 million pounds
of cathode. In 1994 Cerro Verde produced approximately 39 million pounds of
copper cathode for the full year, of which 32 million pounds were produced
subsequent to acquisition. In 1995 approximately 4 million tons of ore will be
processed through primary, secondary and tertiary crushers and placed on leach
pads after agglomeration. In late 1995, Cerro Verde is expected to complete a
feasibility study to determine the economic viability of constructing a
concentrator to produce copper contained in concentrate.
El Abra
In June 1994 Cyprus Amax acquired 51 percent of El Abra from Corporacion
Nacional de Cobre de Chile (Codelco) at a cost of $330 million. The remaining
49 percent was retained by Codelco, a state-owned enterprise. El Abra holds
mining concessions over more than 33,000 acres of land in the copper rich Second
Region of northern Chile. Cyprus Amax's share of identified leach reserves is
about 450 million tons. The feasibility study for the El Abra oxide project is
complete, and construction started in February 1995. Production is scheduled to
begin in early 1997 and by mid-1997 Cyprus Amax's share of annualized production
is expected to be about 250 million pounds of cathode copper. Based on drilling
to date, the project is expected to have a life of 17 years. It is anticipated
that further drilling could add reserves to this project which would increase
annual production and extend mine life. El Abra also contains sulfide ore, with
currently identified geologic resources of about 500 million tons, creating
opportunity for expansion. In addition, there is good exploration potential for
additional deposits on the mining concession.
Henderson
Cyprus Amax owns the underground Henderson mine near Empire, Colorado. The
operation consists of an underground block caving mine where molybdenite ore is
mined and transported to a conventional sulfide mill. The concentrator is
capable of operating at a rate of 28,000 tons of ore per day, producing
molybdenum sulfide 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 Company's Fort Madison roasting and chemicals
processing facility in Iowa where a number of different products are made for
final sale to customers. A portion of Henderson's production is sold directly
to customers as molybdenum sulfide. In 1994, Henderson produced 5 million tons
of ore containing 26 million pounds of molybdenum. In the last half of 1994
production from the Henderson mine was increased in response to strong customer
demand for molybdenum products, and it is now operating essentially at capacity.
Climax
Cyprus Amax owns the Climax mine near Leadville, Colorado. Historically,
the operation consisted of both an underground and open pit mine and an 18,000
ton per day concentrator. The property, owned in fee by Cyprus Amax, occupies
more than 14,000 acres. In response to increased customer demand, Cyprus Amax
recently announced it will reopen the Climax open pit mine early in the second
quarter of 1995, initially using contract mining. The mine and mill are
anticipated to produce at an annual rate of between 10 and 20 million pounds of
molybdenum. Most of Climax's concentrate production will be shipped to the Fort
Madison roasting and chemicals processing facility.
5
<PAGE>
Other Operations
Cyprus Amax's other copper operations include the Tohono operation in south
central Arizona, which consists of a test open pit producing acid soluble ore
for heap leaching and an SX-EW plant producing copper cathode. The facility is
located on reservation lands leased from the Tohono O'Odham Nation where Cyprus
Amax is investigating various alternatives for large scale copper production
through open pit mining and heap leaching technology. In 1994 Tohono produced
about 24 million pounds of copper. Tohono also has two concentrate roasters
which have been on care-and-maintenance status since the fourth quarter of 1993.
The Pinos Altos copper mine in southwest New Mexico will exhaust its ore
reserves and close during the second quarter of 1995. The mine is located on a
combination of unpatented federal mining claims and fee properties which are
owned by Cyprus Amax subject to certain reversionary interests. The mine and
mill produced nearly 15 million pounds of copper in concentrate in 1994. Cyprus
Amax operates the Mineral Park mine, which was an in-place leach and precipitate
operation converted to an SX-EW operation in 1994 capable of producing 6 to 8
million pounds of copper per annum. Production at Mineral Park commenced in
early 1995. 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 and related mining equipment. The facility, located
on fee land owned by Cyprus Amax and on unpatented federal 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 in 1994 operated at capacity to produce over 300
million pounds of high quality continuous cast copper rod.
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.
Conversion Facilities
Molybdenum Conversion Facilities. Cyprus Amax processes molybdenum
--------------------------------
concentrates at its conversion plants in the United States and Europe into such
products as technical grade molybdic oxide, ferromolybdenum, pure molybdic
oxide, ammonium molybdates and molysulfide powder. The Company operates
molybdenum roasters at the Sierrita, Arizona; Fort Madison, Iowa; and Rotterdam,
Netherlands plants. The molybdenum roasting facilities at Sierrita and Fort
Madison currently are operating at capacity.
The Fort Madison Conversion Plant is located in Fort Madison, Iowa. The
plant site occupies 90 acres of 790 acres owned tract. An additional 200 acres
is located ten miles from the plant and is utilized as a solid waste landfill.
The facilities consist of a molybdenum roaster, a sulfuric acid plant, a
metallurgical (technical oxide) packaging facility, and a chemical conversion
plant which includes a wet chemicals plant and sublimation equipment.
Molybdenum roaster capacity is currently being expanded from 33 million to 38
million pounds per year and chemical production capacity is being expanded from
12 million to 22 million pounds per year. In the chemical plant, technical grade
oxide is further refined into various high purity molybdenum chemicals for a
wide range of uses by chemical and catalyst manufacturers. Fort Madison
produces ammonium dimolybdate, pure molybdic oxide, ammonium heptamolybdate,
ammonium octamolybdate, sodium molybdate, sublimed pure oxide and molybdenum
sulfide.
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 these plants are used in industrial, aerospace,
defense, and medical applications where special physical and mechanical
properties are
6
<PAGE>
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 business units include Climax Specialty Metals Fabrication, Ltd.
(CSMF) in the United Kingdom, 10 percent owned by Murex (SKW), that supplies
fabricated refractory metal components to the electronics, defense, aerospace,
materials processing, glass and chemical processing industries, and a plant in
Forbes Road, Pennsylvania that produces fabricated electronic components.
During December 1994 Molytech SA closed its molybdenum fabricating
facilities and its operations were consolidated with CSMF. A polymer
additives business in Coldwater, Michigan, was sold in 1994. Cyprus Amax's
microelectronic materials business located in Golden, Colorado, was sold in
the first quarter of 1995.
Equity Interests
Tungsten. Cyprus Amax sold its 48 percent interest in Canada Tungsten to
--------
Aur Resources in August 1994.
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. The partnership's activities
also include the recycling of chrome/aluminum sludge from metal finishing.
Copper Processing
In 1994 Cyprus Amax processed approximately 470,000 tons of Cyprus Amax
domestic copper concentrates at its own facilities, or two-thirds of its 1994
copper concentrate production. The balance of Cyprus Amax's 1994 copper
concentrate production was treated under arrangements with third parties or sold
as copper concentrates. Construction of the new electrorefinery at Miami was
completed and start-up occurred on schedule in the fourth quarter of 1994. At
the Miami smelter, continued leaks in the gas off-take cooling hood resulted in
reduced 1994 throughput. A new hood was installed in the first quarter of 1995
which is expected to allow the smelter to operate at design capacity in the
second quarter of 1995. This, in conjunction with the new refinery, should
allow Cyprus Amax to be self-sufficient in domestic copper smelting and refining
at current mine production levels.
Copper/Molybdenum Marketing Arrangements
Cyprus Amax has the capacity to produce about 600 million pounds per year of
continuous cast copper 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
Amax continued to buy copper puts to provide price protection, which ensures a
minimum average realization on a London Metals Exchange (LME) basis of an
average of $1.05 per pound on 250 million pounds for the second half of 1995, an
average of 85 cents per pound on the remaining 1995 sales and an average of 90
cents per pound (LME basis) on about 630 million pounds for 1996. Additionally,
in December 1994, Cyprus Amax sold forward 1995 production of 90 million pounds
of copper on both the LME and COMEX with prices ranging from $1.24 (LME) to
$1.30 (COMEX) per pound and 1996 production of 46 million pounds at a price of
$1.07 (LME) per pound.
7
<PAGE>
Of Cyprus Amax's 645 million pounds of produced copper sales in 1994, 96
million pounds were sold as concentrate, 133 million pounds as cathode, and 416
million pounds as rod. Comparable figures for 1993 were 647 million pounds of
produced copper sold, of which 114 million pounds were sold as concentrate, 98
million pounds sold as cathode, and 435 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
1995 molybdenum production is committed for sale throughout the world pursuant
to annual and spot sale agreements, with most of Cyprus Amax's products priced
one quarter ahead.
8
<PAGE>
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 1994. Eighty-four percent of
year-end 1994 developed domestic coal reserves mined with existing facilities
meet the 2.5 pounds sulfur dioxide standard in 1995. Sixty-five percent of
these reserves satisfy the 1.2 pounds standard effective in 2000.
<TABLE>
<CAPTION>
Year-End 1994 Reserves
(Millions of Tons)
---------------------------------------
Annual Total
Coal Capacity Average Average Average Mineable with Require Proved
Operating (Millions Btu Contained Recovery Existing New and Probable
Unit Type of Tons) per Pound Sulfur % % Facilities Facilities Reserves
- --------------- ----------- ---------- ------------- ---------- --------- ------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Pennsylvania underground 8-9 13,000-13,200 1.2-3.0 70-90 201 69 270
West Virginia surface and 7 11,700-14,000 0.6-1.8 60-100 80 58 138
underground
Kentucky surface and 6-7 11,300-13,000 0.8-1.7 65-100 167 32 199
underground
Midwest surface and 9-12 11,000-11,500 0.6-4.0 65-100 93 707 800
underground
Wyoming surface 38 8,270-8,515 0.3-0.4 100 934 0 934
Colorado underground 11 10,600-11,250 0.4-0.6 100 110 0 110
Utah underground 4 11,400-12,000 0.5-0.6 90-100 17 70 87
----- --- -----
1,602 936 2,538
===== === =====
</TABLE>
In 1994 Cyprus Amax produced 75 million tons of coal and sold 76 million
tons. In addition, Cyprus Amax's share (approximately 40 percent) of Oakbridge
Limited represented 4 million tons of production and 5 million tons of
shipments. The increase in 1994 production over 1993 is due to the Cyprus Amax
merger, therefore 1993 results only included 47 days of merged operations.
Production from Cyprus Amax's coal operations is shown in the table below:
<TABLE>
<CAPTION>
Production
Coal ----------
Operating Unit 1994 1993
-------------- ---- ----
(Millions of Tons)
<S> <C> <C>
Pennsylvania 7 5
West Virginia 6 2
Kentucky 5 4
Midwest 9 1
Wyoming 36 5
Colorado 9 6
Utah 3 4
--- ---
Total Domestic 75 27
Oakbridge
(Equity share) 4 2
--- ---
79 29
=== ===
</TABLE>
Additionally, the average sales price for 1994 and 1993 are shown in the table
below:
<TABLE>
<CAPTION>
Average Sales Price
------------------------------
Contract Spot
-------------- --------------
1994 1993 1994 1993
----- ------- ----- -------
($/Ton) ($/Ton)
<S> <C> <C> <C> <C>
Total Domestic 18.19 22.82 12.08 17.00
Oakbridge (Equity share) 23.64 23.09 19.77 17.24
</TABLE>
9
<PAGE>
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. A multi-year program is underway to re-equip Cumberland. In October
1994 a new longwall system was commissioned to improve productivity and increase
production. Both mines are in the Pittsburgh coal seam and are mined 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 force at both mines
is represented by the United Mine Workers of America (UMWA). Several pieces of
major mining equipment, including the new Cumberland longwall, are leased. The
remainder of the mining equipment is owned.
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 restarted a dragline in mid-1994. Both raw and
processed coal of various qualities are marketed to electric utilities and
industrial customers; transportation is primarily by barge. Maple Meadow mine
produces high grade, low volatile metallurgical coal from an underground mine
located in Raleigh County, West Virginia. Processed coal from the Maple Meadow
mine is transported by rail to steel mills in North America. The West Virginia
operations also include a small 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. Mining equipment is both owned and
leased.
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, there is an underground mine and
preparation plant (Pine Mountain) producing approximately 1.4 million tons of
coal 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 a contract was ratified in May 1994.
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 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. Almost all of the
production from Chinook and Delta is dedicated under long-term contracts.
Minnehaha's coal supply contract expired at the end of 1994 and replacement
sales are being pursued in the open market. 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,
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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. The Ayrshire mine
(located in Warrich County, Indiana) is reclaiming areas that were formerly
surface mined. There are remaining reserves at this site which are being
evaluated for future mining. 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 operating 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. The Empire longwall
equipment plus a portion of the longwall and several items of mobile mining
equipment at Twentymile are leased. The remaining equipment is owned.
Wyoming
In the Powder River Basin, Cyprus Amax operates 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 and large haul trucks used to remove both overburden and coal. Coal is
crushed prior to shipment. Unit trains move coal to utilities in most regions
of the country with the majority sold under long-term contracts. Most mining
equipment is owned. Surface rights are held through fee ownership while
reserves are primarily controlled through federal and state leases.
Utah
The Utah operating unit consists of the Plateau mine located near Price,
Utah, which 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.
The Orchard Valley mine in western Colorado was closed during the third
quarter of 1994 and subsequently sold in December 1994. This mine was owned 80
percent by Cyprus Amax, 15 percent by Mitsubishi Corporation of Japan and five
percent by Samsung Company Ltd. of Korea.
Australia
During 1993 Cyprus acquired 100 percent ownership of McIlwraith McEacharn
Ltd. of Sydney, Australia, which owned approximately a 40 percent interest and
is the operator of Oakbridge Limited of Australia. Cyprus Amax increased its
interest in Oakbridge to over 42 percent in early 1995 through privatization of
the company and the purchase of minority shareholders' interests. 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 424 million tons of which Cyprus Amax's equity share is 171 million.
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Almost all of Oakbridge's production is exported to the Pacific Rim. Sales
generally are made through agents under long-term "evergreen" contracts which
provide for annual price negotiations. The sales mix is approximately 70
percent steam coal and 30 percent metallurgical product. Expansion plans are
underway to increase annual production to more than 15 million tons to supply
growing markets and to reduce the need for purchased blend coals.
Coal Marketing Arrangements
Almost all of Cyprus Amax's coal sales are steam coal to electric utilities.
Approximately 77 percent of Cyprus Amax's 1994 coal sales were made under
contracts with an initial duration of one year or longer (term contracts). This
percentage is expected to increase to 86 percent in 1995. 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 during certain force majeure
events, such as damage to the customer's plant or work stoppages. In the event
of successful enforceability challenges, price/quantity renegotiations, or the
occurrence of force majeure events, and upon the expiration of term contracts
in accordance with their terms, Cyprus Amax would be required to seek
alternative purchasers for the coal through spot market sales or replacement
contracts. Currently, the applicable spot price for much of the coal presently
subject to such contracts is below the contract price.
At December 31, 1994, Cyprus Amax had term contracts covering an aggregate of
approximately 600 million tons, including 70 million tons to be delivered in
1995. About 12 percent of contracted coal is under agreements which expire
before 1999; the remainder is committed under contracts which expire between
1999 and 2020. To maintain current average margins as contracts expire, Cyprus
Amax will need to sign new contracts, extend existing contracts, shift volume to
operations with advantageous production costs, and reduce mining costs at mines
supplying above market price contracts. In 1994 revenues from five coal supply
contracts accounted for approximately 32 percent of total coal revenues, with
the largest individual contract contributing 11 percent of coal revenues. One
of these contracts, supplied from the Kentucky operations and representing 9
percent of coal revenues, expires at the end of 1995.
Eastern Markets. Shipment levels at Cyprus Amax's Kentucky and West
----------------
Virginia units remained steady during 1994. Pennsylvania shipments increased
in line with production gains. In spite of severe winter weather in early 1994,
Central Appalachian coal production increased significantly due to the
significant reduction in 1993 production from the labor strike by the UMWA.
Cyprus Amax operations were not directly affected 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 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 1994 from Cyprus Amax's Midwest unit declined
----------------
slightly from 1993 levels due primarily to closure of the Ayrshire mine at the
end of 1993.
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
the 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
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utility plants. These contracts provide a tonnage base which supports current
operating levels at Cyprus Amax's Midwest unit through at least 2002.
Western Markets. Shipments in 1994 from Cyprus Amax's Colorado, Wyoming and
----------------
Utah units collectively increased from 1993 levels as a result of improved spot
and long-term contract market demand. However, shipments from these operations
did not fully supply all sales orders because of capacity constraints of the
various railroads. Additional railroad capacity is expected to benefit coal
deliveries by late 1995. Overall, interest by electric utilities in Powder
River Basin coal as well as higher Btu, low sulfur Colorado coals, continued to
strengthen in 1994. 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
affected 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 materially 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.
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, plastics, and pharmaceuticals.
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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, 1994, Cyprus Amax reserves amounted to
204,000 tons of elemental lithium which is equivalent to approximately 2.2
billion pounds of lithium carbonate. Production during 1994 was 24 million
pounds of lithium carbonate which was approximately 93 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 85,000 tons in
1994. All potash sales to a major Chilean chemical company are made under long-
term contacts which expire in years 1996 through 1998.
At the Silver Peak facility in Nevada, Cyprus Amax produces 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 into lithium carbonate are situated on approximately 17,000
acres of patented and unpatented placer mining claims. Reserves at December 31,
1994, totalled 42,900 tons of elemental lithium which is equivalent to
approximately 220 million pounds of lithium carbonate. During 1994 Silver Peak
operated approximately 33 percent below its long-term production capacity,
producing 8.0 million pounds of lithium carbonate. In 1995 Silver Peak
production is expected to remain at essentially the same level as 1994.
During 1994 Cyprus Amax began construction of a new lithium hydroxide
production facility at its Silver Peak operation which will replace its existing
hydroxide plant located at Sunbright, Virginia. This new plant is targeted for
completion in late 1995. Cyprus Amax will continue to operate its plant at
Sunbright, Virginia, for the conversion of lithium carbonate to lithium
hydroxide until the new facility at Silver Peak is completed. This 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. A 50 percent expansion of this plant was completed
during 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 carbonate
processing facility at Kings Mountain were shut down in 1991, and during 1994,
the lithium carbonate processing facility was dismantled. Future production
from the 146,000 tons of elemental lithium at Kings Mountain will depend on new
or improved markets, the depletion of other reserves or construction of new
processing facilities. In 1994 lithium administration and sales, research and
development, certain lithium metal and alloy production activities were moved
from leased properties in Exton and Malvern, Pennsylvania, and consolidated with
the Kings Mountain production facilities. Limited research activities continue
at the leased commercial property in Exton. The Malvern office has been
subleased.
Lithium Marketing Arrangements
Cyprus Amax sells lithium carbonate, lithium hydroxide, butyllithium, lithium
chloride, lithium bromide, 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 19 percent
of lithium revenue in 1994.
GOLD OPERATIONS
In the November 1993 Cyprus merger with Amax, Cyprus Amax retained a 40
percent interest in Amax Gold. During 1994, Cyprus Amax increased holdings to
42 percent. 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, was awarded a concession covering the
Kubaka gold deposit located in Magadan Province, Russia. Cyprus Amax is the
manager of the joint
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stock company and at December 31, 1994, Cyprus Amax had a 45 percent interest
which is expected to increase to 50 percent in early 1995.
OIL AND GAS OPERATIONS
On March 31, 1994, Cyprus Amax disposed of its Oil and Gas business through
the sale of Amax Oil and Gas to Union Pacific Resources Company. Amax Oil and
Gas was a wholly-owned subsidiary and was engaged in the production and
marketing of natural gas, crude oil, and natural gas liquids, with reserves
primarily in the United States.
IRON ORE/TALC
On September 30, 1994, Cyprus Amax sold its Northshore iron ore mine and
processing facilities and the adjacent power plant to Cleveland-Cliffs Inc.
These facilities are located in northern Minnesota. During 1994, Cyprus Amax's
iron ore operations produced 269 thousand tons of iron ore pellets and sold 380
thousand tons.
Cyprus also sold its talc operations in June 1992 and its barite operations in
January 1993.
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, and Russia.
Cyprus Amax's exploration programs focus primarily on advanced exploration
targets in copper and gold. (See "Equity and Other" for discussion of Cyprus
Amax's exploration joint venture agreement with Amax Gold Inc.)
EQUITY AND OTHER
AMAX GOLD
Cyprus Amax owns 42 percent of Amax Gold Inc. (AGI) and holds rights which
enable Cyprus Amax to increase its ownership. During 1994 Cyprus Amax purchased
an additional three million shares of AGI for approximately $21 million, which
AGI used to retire debt owed to Cyprus Amax. 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, Central 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 nearly 241,000 ounces in 1994 at a total average
cash cost of $340 per ounce. Cyprus Amax's equity share of AGI's gold
production for the year ended December 31, 1994, totalled approximately 98,000
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 operating and
development properties total approximately 7 million contained ounces of gold,
of which Cyprus Amax's equity share was approximately 3 million contained ounces
of gold.
AGI arranged $85 million in joint financing with its project partner, Bema
Gold, to build the Refugio mine near Copiapo, in Chile. Amax Gold and Bema
entered into a fixed-price, turnkey contract in October 1994 for development
of over a 200,000-ounces-per-year heap leach operation. The project is under
construction with start-up scheduled for early 1996.
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During 1994 Cyprus Amax agreed to provide AGI with a $100 million convertible
line of credit. Any 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 by Cyprus Amax 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 million AGI shares.
In February 1995, Cyprus Amax signed a commitment letter whereby the Company
will provide AGI with an additional $80 million in revolving credits which may
be repaid with the issuance of AGI Convertible Preferred Stock. Both companies
have conversion rights that permit conversion of the line of credit into Amax
Gold Common Stock, with Cyprus Amax's conversion right at $5.362 per share and
Amax Gold's conversion right at $4.196 per share. This new revolving credit is
subject to approval by the shareholders of Amax Gold. In March 1995, AGI
arranged to borrow up to $40 million under the $80 million line of credit during
the period prior to receipt of shareholder approval. Under this temporary
arrangement, the equity features of the credit line are suspended and the loan
is secured by a 20% interest in AGI's Fort Knox project. If shareholder
approval is not received, AGI will have until October 15, 1995 to repay the
loan. As of March 24, 1995, AGI had borrowed $5 million under this temporary
arrangement.
At December 31, 1994, no amounts were outstanding under either line of
credit, however AGI is using the majority of the $100 million line of credit to
support its guaranty on third party indebtedness. Potential conversion of the
$180 million lines of credit into AGI common stock would increase Cyprus Amax's
ownership of AGI's outstanding shares to approximately 57 percent.
In January 1995, AGI's board of directors approved construction of the Fort
Knox gold mine in Alaska. Plans call for the construction of a 36,000-tons-per-
day mill to produce approximately 350,000 ounces of gold per year in the mine's
first five years of production. Start-up is scheduled for late 1996, and
financing efforts are underway.
In 1994, Cyprus Amax established an exploration joint venture agreement to
explore for gold with AGI. The agreement provides to Cyprus Amax a 75 percent
interest and to AGI a 25 percent interest in the program. Each party funds work
in proportion to its interest, with Cyprus Amax providing staffing and
management. Properties held by the parties prior to January 1, 1994, are
excluded from the joint venture. The initial term of the exploration joint
venture is two years, after which the agreement will terminate unless Cyprus
Amax and AGI mutually agree to extend the agreement. Pursuant to the joint
venture, Cyprus Amax has the first right to acquire any non-gold property
covered by the exploration joint venture whereas Amax Gold has the first right
to any gold property. Additionally, Cyprus Amax granted AGI an option to
acquire Cerro Quema, an advanced-stage exploration property in Panama. AGI is
conducting a feasibility study, which should be completed early in 1995.
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.
Gold hedge contracts include forward sales contracts, spot deferred forward
sales, and put and call options.
OTHER
Cyprus Amax also holds a 45 percent equity interest in the Kubaka gold
project in the Magadan region of Russia, which is expected to increase to 50
percent in 1995.
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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 copper, molybdenum, coal, lithium, and gold producers.
Copper, molybdenum, and gold sales 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 demand for end-use products in, for
example, the construction, automotive, durable goods, and steel industries.
While the long-term demand for copper appears to be growing, especially in
less developed countries, it can be affected adversely by substitution of
materials such as aluminum, plastics, and optical fibers. Copper is an
internationally-traded commodity, and its price is determined in the terminal
markets of two major 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. COMEX copper prices averaged $1.07 per
pound in 1994, up 22 cents per pound from 1993. In 1994 Western world refined
copper supply increased by one percent to about 10.6 million short tons, and
copper demand rose by more than 5 percent to about 11 million tons. The supply
of copper in the world is determined largely by 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 the first three quarters of 1994 as
demand slowly strengthened in response to improving worldwide economic
conditions. Prices rose rapidly to 15-year highs during the fourth quarter of
1994 as the result of accelerated demand, reduced exports from Chinese
producers, and producer inventory reductions earlier in the year. Cyprus Amax
has responded to increased customer demand by increasing production at its
Henderson mine and has announced the reopening of its Climax surface mine early
in the second quarter of 1995. A substantial portion of world molybdenum
production is a by-product of copper mining, which is relatively insensitive
to molybdenum price levels.
Among factors that affect competition in Cyprus Amax's coal markets are coal
quality, the cost levels of other coal producers, the cost and availability 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 term contracts at fixed prices subject to escalation, de-
escalation, and renegotiation. In line with increases in coal production, an
increasing amount of Cyprus Amax's coal is now being sold in spot markets or
under shorter term contracts.
Competition in the sale of lithium products is based on price and quality.
Cyprus Amax produces approximately 50 percent of the world's supply of lithium
carbonate. Cyprus Amax has a number of competitors from western countries in
the lithium marketplace, as well as competition from lithium products from China
and the Commonwealth of Independent States (C.I.S.).
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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 and other world currencies, 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.
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.
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 Act 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 in all
material respects with all existing environmental laws and regulations. Current
and future regulations do and may require significant expenditures for
compliance which may increase Cyprus Amax's mine development and operating
costs.
Reference is made to additional information concerning environmental matters
in "Management's Discussion, Environmental," on pages 31 and 32 of the 1994
Annual Report, and the Environmental discussions located on page 22 of the 1994
Annual Report, which information is incorporated herein by reference.
ITEM 3. LEGAL PROCEEDINGS
Arbitration is pending relating to the Public Service of Indiana long-term
coal sales contract at the Cyprus Amax Wabash mine. By agreements signed in
July and October 1994, the Company and Public Service of Indiana have resolved
all of the outstanding claims for damages relating to past coal sales. The
Company will continue to defend its position in arbitration and the limited
litigation. 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 any remaining matters 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.
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In April 1994 Cyprus Amax was notified by the Department of Justice that the
government will seek civil penalties for alleged violations of the Federal Clean
Water Act in the operation of Cyprus Amax's Bagdad, Miami, and Sierrita mines
located in Arizona. These governmental actions relate to findings of violations
and orders issued by the Environmental Protection Agency (EPA) to these
operations in late 1992 and early 1993. The violations are alleged to have
occurred between April 1989 and January 1993. The relief sought by the EPA
under these findings of violation and orders was penalties and corrective action
to comply with the Clean Water Act. Mine management, in cooperation with the
EPA and the Arizona Department of Environmental Quality, have ongoing and
substantial programs which address the circumstances of the alleged water
quality violations. Based upon information currently known to it, management
expects to resolve this matter in the near-term.
In January 1995 Cyprus Foote Mineral Company (Cyprus Foote) agreed to sign a
Consent Order with the state of Ohio and Shieldalloy Metallurgical Corporation
(Shieldalloy) related to alleged contamination of Shieldalloy's Cambridge, Ohio,
operating site with slag containing elevated levels of naturally occurring
radionuclides. The slag is alleged to have been produced from Foote Mineral
Company's (FMC) operation of the Cambridge ferroalloy plant from the early 1950s
to 1987 when the plant was sold by FMC to Shieldalloy. FMC's sale of the
ferroalloy facility to Shieldalloy predated Cyprus' 1988 acquisition of FMC's
stock. The Consent Order requires Cyprus Foote to participate with Shieldalloy
in funding the development of a remedial investigation and feasibility study to
be completed in early 1996.
Cyprus Amax received an EPA Unilateral Order in 1994 pursuant to Section 106
of CERCLA requiring it to participate in a cleanup of hazardous materials
contamination of soils in the city of Bartlesville, Oklahoma, as well as to
participate in funding a remedial investigation and feasibility study. A Cyprus
Amax subsidiary built and operated a zinc smelter near Bartlesville in the early
1900s. Cyprus Amax is one of several identified potentially responsible parties
(PRPs) at this site and is participating in a PRP group, which includes the city
of Bartlesville, in an effort to minimize its immediate costs to comply with the
EPA order. 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.
In late 1994 Cyprus Amax, along with a number of other PRPs, received a
Unilateral Administrative Order for Removal Action pursuant to Section 106 of
CERCLA with regard to materials stockpiled at the Colorado School of Mines
Research Institute Creekside Superfund site, located in Golden, Colorado. The
EPA alleges that these materials result from various research operations at the
facility and that Cyprus Amax contributed materials to the site for research.
Cyprus Amax is participating with the state of Colorado and a number of other
entities in completing a remedial investigation and feasibility study for this
site.
In 1994 Cyprus Amax received several Orders from the Bureau of Land
Management (BLM) in Roswell, New Mexico, alleging Cyprus Amax's continuing
responsibility for closure and reclamation of the Horizon Potash Mine near
Carlsbad, New Mexico. Amax sold its interest in the mine in 1991 to Horizon
Gold Corp. (Horizon), and Horizon abandoned the site in 1993. Cyprus Amax is
vigorously pursuing its legal defenses to this potential liability and has held
discussions with the BLM as to possible settlement.
In addition to the previously mentioned actions, Cyprus Amax or its
subsidiaries have been advised by the EPA and several state environmental
agencies that they may be liable under the CERCLA or similar state laws and
regulations for costs of responding to environmental conditions at a number of
sites which have been or are being investigated by the EPA or states to
establish whether releases of hazardous substances have occurred and, if so, to
develop and implement remedial actions. Cyprus Amax is named as a PRP or has
received EPA requests for information for about 35 sites (including the sites
discussed previously). For all sites, Cyprus Amax had an aggregate reserve of
approximately $108 million at
19
<PAGE>
December 31, 1994, for its share of the estimated liability. Liability estimates
are based on an evaluation of, among other factors, currently available facts,
existing technology, presently enacted laws and regulations, Cyprus Amax's
experience in remediation, other companies' remediation experience, Cyprus
Amax's status as a PRP, and the ability of other PRPs to pay their allocated
portions. The cost range of reasonably possible outcomes for all sites is
estimated to be from $70 million to $230 million, and work on the sites is
expected to be substantially completed within the next five years, subject to
the inherent delays involved in the process. Remediation costs that could not be
reasonably estimated at December 31, 1994, 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.
However, neither insurance recoveries nor other claims or offsets have been
recognized in the financial statements unless such offsets are considered
probable of realization.
At December 31, 1994, Cyprus Amax's accruals for deferred closure, shutdown
of closed operations, and reclamation totalled approximately $296 million.
Reclamation is an ongoing activity and a cost associated with Cyprus Amax's
mining operations, and accruals for closure and final reclamation liabilities
are established on a life of mine basis. The coal reclamation reserve component
(about $145 million) is largely 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 metals
(Cyprus Climax and Cyprus Foote) reclamation reserve component (about $151
million) 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 sound environmental practice. Total coal and metals
reclamation costs for Cyprus Amax at the end of current mine lives are estimated
at about $550 million.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the quarter ended
December 31, 1994.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
Set forth below are the names, ages and titles of the executive officers of
Cyprus Amax as of March 24, 1995:
<TABLE>
<CAPTION>
Name Age Office
- --------------------------- --- ----------------------------------------------
<S> <C> <C>
Milton H. Ward 62 Co-Chairman, President, and Chief Executive
Officer
Jeffrey G. Clevenger 45 Senior Vice President; President, Cyprus
Climax Metals Company
Gerald J. Malys 50 Senior Vice President and Chief Financial
Officer
Garold R. Spindler 47 Senior Vice President; President, Cyprus Amax
Coal Company
David H. Watkins 50 Senior Vice President, Exploration
Philip C. Wolf 47 Senior Vice President, General Counsel, and
Corporate Secretary
Robin J. Hickson 51 Vice President; President, Cyprus Amax
Engineering and Development Company
Francis J. Kane 36 Vice President, Investor Relations and
Treasurer
Gerard H. Peppard 51 Vice President, Human Resources
John Taraba 46 Vice President and Controller
</TABLE>
20
<PAGE>
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.
Clevenger was elected to his current position on January 27, 1993, and Mr.
Malys was elected Senior Vice President effective October 31, 1988, and Chief
Financial Officer effective August 1, 1989. Mr. Spindler was elected to his
current office on January 3, 1995, and Mr. Watkins assumed his current office on
February 1, 1994. Mr. Wolf was elected to his current office on November 13,
1993. Mr. Hickson was appointed to his current office on November 20, 1994. 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. Malys, Wolf, Peppard, and Taraba have been engaged full-time in the
business of Cyprus Amax 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. 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 Coal, Mr. Spindler had been
associated with Pittston Coal Company, serving as President and Chief Executive
Officer since 1990. 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 Amax's 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. Mr. Hickson joined Cyprus Amax
in 1993 as Senior Vice President of Cyprus Climax Metals Company. Before joining
Cyprus Amax, Mr. Hickson was President of Freeport McMoRan's Research and
Engineering Company. Prior to joining Cyprus Amax 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 Amax's 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 STOCK AND RELATED STOCKHOLDER
MATTERS.
Information required by this item is incorporated by reference from "Stock
Market Information" on page 54 in the 1994 Annual Report.
THE INFORMATION REQUIRED BY ITEMS 6 THROUGH 8 IS INCORPORATED BY REFERENCE FROM
THE PAGES OF THE COMPANY'S 1994 ANNUAL REPORT SET FORTH BELOW.
<TABLE>
<CAPTION>
Applicable Pages
in 1994
Form 10-K Item Number Annual Report
--------------------- -----------------
<S> <C> <C>
ITEM 6. SELECTED FINANCIAL DATA...................................... 24-25
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION........................... 26-33
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.................. 34-53
a. Quarterly Results........................................ 52
b. Mineral Reserves and Selected Operating Statistics....... 53
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
</TABLE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information about the Directors of the Company required by this item is
located in Cyprus Amax's Proxy Statement for the 1995 Annual Meeting to be filed
within 120 days after the end of the fiscal year. Information about the
Executive Officers of the Company required by this item appears in Part I of
this Annual Report on Form 10-K.*
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item appears in Cyprus Amax's Proxy
Statement for the 1995 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 1995 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 1995 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 1995 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 1994 Annual Report and
incorporated by reference:
<TABLE>
<CAPTION>
Pages in 1994
Annual Report
-------------
<S> <C>
Report of Independent Accountants.......................... 23
Consolidated Statement of Operations for each of
the three years in the period ended December 31, 1994.... 34
Consolidated Balance Sheet at December 31, 1994 and 1993... 35
Consolidated Statement of Cash Flows for each of
the three years in the period ended December 31, 1994.... 36
Consolidated Statement of Shareholders' Equity
for each of the three years in the period ended
December 31, 1994........................................ 37
Notes to Consolidated Financial Statements................. 38-51
2. Financial Statement Schedules:
Pages in this
Form 10-K
-------------
Report of Independent Accountants on Financial Statement
Schedules................................................ 30
For the three years in the period ended December 31, 1994:
Schedule VIII -- Valuation and Qualifying Accounts and
Reserves................................................. 31
</TABLE>
With the exception of the aforementioned financial statements and schedule,
and the information incorporated in Items 1 and 2 and Items 5 through 8, the
1994 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 1994 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.
<TABLE>
<CAPTION>
Exhibit
Number Document
- ------- --------
<S> <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.
(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), relating to the 10 1/8 percent
Notes due 2002, 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), relating to the
8 3/8 percent Debentures due 2023 and 6 5/8 percent
Notes due 2005, incorporated by reference from
Exhibit 4.1 to the Report on Form 8-K dated
January 28, 1993, and Exhibit 4.2 to the Report
on Form 8-K dated October 21, 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>
Exhibit
Number Document
- ------- --------
<S> <C>
(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.
(e) 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.
(f) Certain instruments with respect to long-term debt
of the Registrant have not been filed as Exhibits to
this Report since the total amount of securities
authorized under any such instrument does not exceed
10 percent of the total assets of the Registrant and its
subsidiaries on a consolidated basis. The Registrant agrees
to furnish a copy of each such instrument to the Securities
and Exchange Commission upon request.
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) Cyprus Amax Minerals Company 1995 Bonus Incentive
Program, filed herewith.
(b) Deferred Compensation Plan for Selected Employees of
Cyprus Amax Minerals Company, filed herewith.
(c) Deferred Compensation Plan for Non-Employee Directors
of Cyprus Amax Minerals Company, filed herewith.
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Document
- ------- --------
<S> <C>
(d) 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; and including the additional amendments
filed with this Report.
(e) 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; and including the additional
amendments filed with this Report.
(f) Excess Defined Contribution Plan, as restated
through the date of signing of this Annual
Report on Form 10-K, filed herewith.
(g) Stock Purchase Agreement dated March 1, 1994,
between Amax Coal Company and Union Pacific Resources
Company, incorporated by reference from Exhibit 7(c-2)
to the Report on Form 8-K dated March 31, 1994.
(h) Amended and Restated 1988 Stock Option Plan of Cyprus
Amax Minerals Company, 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, incorporated
by reference from Exhibit 10(i) to the Annual Report
on Form 10-K for the period ended December 31, 1993.
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Document
- ------- --------
<S> <C>
(j) Change of Control Employment Agreements between Cyprus
Amax Minerals Company and certain executive officers,
incorporated by reference from Exhibit 10(j) to
the Annual Report on Form 10-K for the period ended
December 31, 1993.
(k) 1994 Management Incentive Program of Cyprus Amax
Minerals Company and its Participating Subsidiaries,
incorporated by reference from Exhibit 10(l) to
the Annual Report on Form 10-K for the period ended
December 31, 1993.
(l) Cyprus Amax Minerals Company Executive Officer
Separation Policy, incorporated by reference from
Exhibit 10(m) to the Annual Report on Form 10-K
for the period ended December 31, 1993.
(m) Cyprus Amax Minerals Company 1994 Bonus Incentive
Program, incorporated by reference from Exhibit
10(k) to the Annual Report on Form 10-K for
the period ended December 31, 1993.
(n) 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.
(o) 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.
(p) 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.
11 Statement re computation of per share earnings.
13 1994 Annual Report to Shareholders.
21 Subsidiaries of the Registrant.
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Document
- ------- --------
<S> <C>
23 Consent of Price Waterhouse LLP.
27 Financial Data Schedule.
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.
(b) The following 8-K's were filed during the last quarter of the period
covered by this Report on Form 10-K:
No Report on Form 8-K was filed during the last quarter of the period
covered by this Report on Form 10-K.
28
<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 24 DAY OF MARCH
1995.
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 24, 1995.
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/ 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
29
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
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 February 17, 1995, appearing on page 23 of the 1994 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 Schedule listed in Item
14(a) of this Form 10-K. In our opinion, this Financial Statement Schedule
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.
/s/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
Denver, Colorado
February 17, 1995
30
<PAGE>
SCHEDULE VIII
CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
FOR THE YEAR ENDED DECEMBER 31
(MILLIONS 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>
1994
Deducted from asset accounts:
Reserve for material and supplies
inventory................................. $ 21 $ 1 $ 7 $ (6) $ 23
==== ===== ==== ====== ====
1993
Deducted from asset accounts:
Reserve for material and supplies
inventory................................. $ 33 $ 1 $ - $ (13)/(1)/ $ 21
==== ===== ==== ====== ====
1992
Deducted from asset accounts:
Reserve for material and supplies
inventory................................. $ 23 $ 14/(2)/ $ - $ (4) $ 33
==== ===== ==== ====== ====
DOUBTFUL ACCOUNTS AND NOTES RECEIVABLE
- --------------------------------------
1994
Deducted from asset accounts:
Reserve for doubtful accounts and
notes receivable-current.................. $ 2 $ - $ 3 $ - $ 5
Reserve for doubtful accounts and
notes receivable-noncurrent............... 5 - 1 (1) 5
---- ----- ---- ------ ----
Total.................................... $ 7 $ - $ 4 $ (1) $ 10
==== ===== ==== ====== ====
1993
Deducted from asset accounts:
Reserve for doubtful accounts and
notes receivable-current.................. $ 2 $ - $ 1 $ (1) $ 2
Reserve for doubtful accounts and
notes receivable-noncurrent............... 5 - 3 (3) 5
---- ----- ---- ------ ----
Total.................................... $ 7 $ - $ 4 $ (4) $ 7
==== ===== ==== ====== ====
1992
Deducted from asset accounts:
Reserve for doubtful accounts and
notes receivable-current.................. $ 2 $ - $ 1 $ (1) $ 2
Reserve for doubtful accounts and
notes receivable-noncurrent............... 17 3 - (15)/(3)/ 5
---- ----- ---- ------ ----
Total.................................... $ 19 $ 3 $ 1 $ (16) $ 7
==== ===== ==== ====== ----
</TABLE>
- ------------
/(1)/ Amount includes the elimination of reserves for operations sold or shut
down, $4 million; 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
million.
/(3)/ Amount primarily represents the write-off of LTV receivables.
31
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Document
- ------- --------
<S> <C>
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) Cyprus Amax Minerals Company 1995 Bonus Incentive
Program, filed herewith.
(b) Deferred Compensation Plan for Selected Employees
of Cyprus Amax Minerals Company, filed herewith.
(c) Deferred Compensation Plan for Non-Employee
Directors of Cyprus Amax Minerals Company, filed
herewith.
(d) 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; and including the additional amendments filed with
this Report.
(e) 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; and including the additional amendments
filed with this Report.
(f) Excess Defined Contribution Plan, as restated through
the date of signing of this Annual Report on Form 10-K,
filed herewith.
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Document
- ------- --------
<S> <C>
11 Statement re computation of per share earnings.
13 1994 Annual Report to Shareholders.
21 Subsidiaries of the Registrant.
23 Consent of Price Waterhouse LLP.
27 Financial Data Schedule.
</TABLE>
- ------------
(b) The following 8-K's were filed during the last quarter of the period
covered by this Report on Form 10-K:
No Report on Form 8-K was filed during the last quarter of the period
covered by this Report on Form 10-K.
33
<PAGE>
EXHIBIT 10(a)
CYPRUS AMAX MINERALS COMPANY
MATERIAL CONTRACTS
1995 BONUS INCENTIVE PROGRAM
34
<PAGE>
CYPRUS AMAX MINERALS COMPANY
1995 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, 1995 through December 31, 1995 with payment of bonuses to
be made the first quarter of 1996.
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.
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 1995 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:
35
<PAGE>
<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>
36
<PAGE>
EXHIBIT 10(b)
CYPRUS AMAX MINERALS COMPANY
MATERIAL CONTRACTS
DEFERRED COMPENSATION PLAN BETWEEN
CYPRUS AMAX MINERALS COMPANY AND SELECTED EMPLOYEES
37
<PAGE>
CYPRUS AMAX MINERALS COMPANY
DEFERRED COMPENSATION PLAN
1. Purpose. The purpose of the Cyprus Amax Minerals Company Deferred
Compensation Plan is to provide a means for selected employees to defer
compensation to future years.
2. Definitions. For purposes of this Plan, the following definitions shall
apply:
2.1 "Change of Control" shall mean the occurrence of 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 35% or more of
either (A) the then outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (B) the combined voting power of the then
outstanding voting securities of the Company entitled to vote generally in the
election of 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) of this section (2.1).
(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
38
<PAGE>
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.
2.2. "Committee" means the Compensation and Benefits Committee of the Board
----------
of Directors of Cyprus Amax Minerals Company.
2.3. "Company" shall mean Cyprus Amax Minerals Company and any subsidiary
---------
or affiliate approved for participation in this Plan by the Committee.
2.4. "Deferrable Compensation" which shall be an amount of no less than
-------------------------
$10,000 annually, shall mean (i) any base salary payable, (ii) any bonus payable
pursuant to the Company's Annual Incentive Plan; (iii) any other component of a
Participant's compensation the payment of which the Committee has approved to be
deferred, but not more than an amount which would reduce the Participant's
recognized compensation under the retirement plan and the Savings Plan to no
less than the 401(a) (17) limit of the Internal Revenue Code.
2.5. "Deferred Account" shall be as defined in Section 4.2 of this Plan.
------------------
2.6. "Deferred Compensation" shall mean Deferrable Compensation, the
-----------------------
payment of which has been deferred by a Participant.
2.7. "Deferral Period" shall mean the period designated on the Election To
-----------------
Defer Payment form(s) by a Participant during which payment of Deferred
Compensation is to be deferred.
2.8. "Investment Direction" shall mean the choice of investments made upon
----------------------
the election to defer compensation, which direction may be modified quarterly.
2.9. "Participant" shall mean a person who is an officer of the Company,
-------------
and any other person employed by the Company on a full-time basis and
compensated for such employment by a regular salary who is one of the key
personnel of the Company and whose compensation exceeds the 401(a) (17) limit of
the Internal Revenue Code by an amount equal to or in excess of $10,000.
2.10. "Plan" shall mean this Deferred Compensation Plan as it may be
------
amended from time to time.
2.11. "Termination Date" shall mean the date of severance of a
------------------
Participant's employment with the Company, whether by death, retirement,
disability (as determined by the Committee), resignation, or otherwise.
3. Administration. This Plan shall be administered by the Committee which,
subject to the provisions of the Plan, shall have the authority, power and duty
to (i) approve the employees who are to participate in the Plan, (ii) determine
the form and type of compensation eligible for deferral under the Plan and the
terms and conditions applicable to each deferral of compensation, (iii)
interpret the Plan, (iv) make any other determinations that it believes
necessary or advisable for the administration of the Plan, and (v) establish
rules, regulations and forms of agreements and other instruments relating to the
Plan not inconsistent with the Plan. In its discretion, the Committee may
delegate all or any part of its authority hereunder and other administrative
duties of the Committee to an employee or a committee composed of employees
and/or directors of the Company and all reference to the Committee in this Plan
shall be deemed to include any such delegate to the extent authorized by such
delegation. Decisions and determinations made by the Committee or an employee
or committee of employees acting within the scope of authority delegated by the
Committee shall be final and binding upon all persons.
39
<PAGE>
4. Establishment of Special Ledger
4.1 Special Ledger; Deferred Account. The Company shall establish an
appropriate record, hereinafter called the "Special Ledger," and from time to
time shall enter therein the name of each Participant and the amount to be
credited to the Participant's Deferred Account. Compensation to be deferred
under the Plan shall be credited to the Participant's Deferred Account, in
accordance with the terms of this Plan.
4.2 Deferred Account. A Participant's Deferred Account shall consist of
an amount of money credited to such account by reason of the Participant's
election to defer Deferrable Compensation, as follows:
(a) Principal. If a Participant elects to defer Deferrable
Compensation, the Participant's Deferred Account shall be credited with the
amount of such Deferrable Compensation on the date on which it would have been
paid but for said deferral. Subject to Section 7.2, the Company will invest the
Deferred Compensation according to the Investment Direction elected by the
Participant on the date the Deferred Compensation is credited to the
Participant's Deferred Account, unless the mutual fund elected by the
Participant is not open for contributions on said date in which case the
investment will be made as soon as the mutual fund opens for new contributions.
(b) Earnings/Losses. The Participant's Deferred Account shall be
credited with the amount of earnings or losses on the investments selected by
the Participant which were made available by the Company.
4.3 Statements. The Committee shall cause to be delivered at least
quarterly to each Participant a statement of the Participant's account setting
forth the balance as of a stated date, deferrals made since the date of the
prior statement, and investment activity since the date of the prior statement.
5. Deferral of Compensation
5.1 Election to Defer; Deferral Period. Each Participant receiving
Deferrable Compensation may, within the period specified by the Committee, make
an irrevocable election to defer receipt of all or any part of payment of such
compensation. The procedure for such election is set forth in subparagraph 5.2,
below. A Participant may elect to receive Deferrable Compensation and all
accretions thereto over a number of years, not to exceed 10, as selected by the
Participant, the first payment being made in the month after the event or date
elected in the Election to Defer Payment Form or as a lump sum payment.
5.2 Notice of Election to Defer. Each Participant shall, within the
period specified in subparagraph 5.3, below, notify the Company in writing of an
election to defer the receipt of all or any part of payment of Deferrable
Compensation. Each such notice shall state;
(a) the amount or percentage of the Deferrable Compensation to be
deferred (the "Deferred Compensation");
(b) the date on which, or the event following which, payment is to
commence;
(c) the Investment Direction for the Deferred Compensation;
(d) the number of years and schedule elected for payment.
40
<PAGE>
5.3 Time of Notice of Election to Defer. Written notice of election to
defer all or any part of Deferrable Compensation in an amount of (no less than
$10,000) must be given to the Company by a Participant within the following time
periods:
<TABLE>
<CAPTION>
Compensation Notice Required
-------------------------- ---------------------------------------------------
<S> <C>
Base Salary For the 1994 calendar year, on or before May 31,
1994. For all subsequent calendar years, on or
before December 1 of the calendar year prior to
the year in which earned.
Annual Incentive Awards For the 1994 calendar year, on or before May 31,
1994. For all subsequent calendar years, before
the last day of the year preceding the year in
which earned.
Other As specified by the Committee.
</TABLE>
5.4 Distribution on Termination of Employment. The payment of all
Deferred Compensation and accretions thereto credited the Participant's Deferred
Account shall be made after the Termination Date pursuant to the schedule
selected by the Participant unless the Committee in its absolute discretion,
provides for a different payment schedule not longer than the schedule
originally selected by the Participant.
5.5 Hardship; Discretionary Revision of Payments. If the Committee
determines that payment of Deferred Compensation in accordance with the schedule
of payments designated by the Participant would, for whatever reason, result in
a gross hardship on the Participant or the estate or the beneficiary or
beneficiaries of the Participant, the Committee, upon a showing of such gross
hardship by the Participant or the Participant's beneficiary or beneficiaries or
legal representative, in its absolute discretion, may revise such schedule of
payments to the extent necessary to alleviate the hardship.
6. Payment of Deferred Compensation
6.1 Amount and Time of Payment. Unless the Participant has selected a
different payment schedule or formula which has been approved by the Committee,
or has selected a lump sum payment, with respect to each deferral, the amount to
be paid to a Participant in any year during the payout period specified in the
Participant's election shall be paid in annual installments computed by
multiplying the amount credited to the Deferred Account by a fraction, the
numerator of which is one and the denominator of which is the number of years
remaining in the applicable payment period.
6.2 Change of Control. In the event of a Change of Control, the Committee
shall cause the Participant's Deferred Account to be distributed within thirty
days (30) of said event.
7. General Provisions
7.1 Assignment. No Participant's interest in any Deferred Account is
assignable, either by voluntary or involuntary assignment or by operation of
law. No part of any Deferred Compensation may be paid over, loaned, sold,
assigned, transferred, discounted, pledged as collateral for a loan, or in any
other way encumbered until the end of the Deferral Period with respect to such
Deferred Compensation.
41
<PAGE>
7.2 Unsegregated Funds. The Company shall be under no obligation to
segregate any deferred funds during the Deferral Period and an election to defer
Compensation hereunder shall constitute an acknowledgment and agreement by the
Participant that such unsegregated funds belong absolutely and unconditionally
to the Company and are subject to the claims of the Company's general creditors
during the Deferral Period. Nothing herein contained shall be construed as
creating any trust, expressed or implied, for the benefit of any Participant.
7.3 Appointment of Beneficiary. Subject to applicable law, each
Participant may appoint a beneficiary or beneficiaries to receive payments to be
made of Deferred Compensation, if any, after the Participant's death. In the
absence of such appointment, all such amounts shall be paid to the Participant's
estate. The appointment shall be made on a form to be supplied by the Committee
and may be revoked or superseded at any time. Payments to a beneficiary or
beneficiaries shall be made in accordance with a schedule designated by the
Participant.
7.4 Reservation of Rights. Nothing in this Plan shall be construed to (a)
give any employee any right to defer compensation other than as expressly
authorized and permitted by the Committee, (b) limit in any way the right of the
Company to terminate a Participant's employment with the Company, or (c) be
evidence of any agreement or understanding, expressed or implied, that the
Company will employ a Participant at any particular rate of remuneration.
7.5 Amendment or Termination. The Committee may, at any time, terminate
or amend this Plan provided that any such termination or amendment shall not
affect the rights of Participants or beneficiaries of Participants to payments
of amounts standing to the credit of Participants in the Special Ledger at the
time of such amendment or termination. In the event of termination of this
Plan, the Committee, in its absolute discretion, may establish classes of
Participants and/or beneficiaries and apply different payment rules to such
classes.
7.6 Relationship to Qualified Plans. Deferred Compensation shall be
limited to the extent administratively practicable so that the creditable
compensation used in computing benefits under the Company's retirement plan and
the Savings Plan will not be reduced below the 401(a)(17) limit of the Internal
Revenue Code.
7.7 Withholding. The Company shall have the right to deduct or withhold
from any and all deferrals and from all payments of Deferred Compensation any
taxes required by law to be withheld from an employee with respect to such
payments.
7.8 Change in Employment or Law. The Committee may, in its absolute
discretion, make appropriate adjustments with respect to the terms of the Plan
and its applicability to Participants including termination of individual
deferral agreements, or dilution or suspension of any provision of such
agreements in the event (i) of a discontinuance by the Company of a
Participant's employment with the Company resulting from an event such as the
merger, sale or consolidation of the Company, and (ii) any of the anticipated
benefits of deferral pursuant to this Plan or any provision hereof are altered
by reason of any interpretation of or change in law, policy or regulation.
7.9 Effective Date. This Plan shall be effective as of May 5, 1994.
42
<PAGE>
EXHIBIT 10(c)
CYPRUS AMAX MINERALS COMPANY
MATERIAL CONTRACTS
DEFERRED COMPENSATION PLAN BETWEEN
CYPRUS AMAX MINERALS COMPANY AND NON-EMPLOYEE DIRECTORS
43
<PAGE>
CYPRUS AMAX MINERALS COMPANY
_______________________________________________________________________________
NON-EMPLOYEE DIRECTORS' DEFERRED COMPENSATION PLAN
_______________________________________________________________________________
44
<PAGE>
CYPRUS AMAX MINERALS COMPANY
<TABLE>
<CAPTION>
______________________________________________________________________________
NON-EMPLOYEE DIRECTORS' DEFERRED COMPENSATION PLAN
_______________________________________________________________________________
<S> <C> <C>
Page
----
1. Purpose....................................................... 1
2. Definitions................................................... 1
3. Participation................................................. 4
(a) Plan is Voluntary...................................... 4
(b) Filing of Application.................................. 4
(c) Revoking or Modifying an Application................... 5
(d) Designation of Beneficiary............................. 6
4. Accrual of Benefits........................................... 6
(a) Deferred Compensation.................................. 6
(b) Earnings............................................... 6
(c) Vesting................................................ 7
5. Distribution of Benefits...................................... 7
(a) Time of Distribution................................... 7
(b) Payment Upon Death..................................... 8
(c) Methods of Payment..................................... 8
6. The Administrator............................................. 8
(a) Appointment............................................ 8
(b) Rights and Duties...................................... 8
(c) Quarterly Reports...................................... 9
(d) Information............................................ 9
(e) Compensation, Indemnity and Liability................. 9
7. Amendment and Discontinuance.................................. 10
(a) Amendments............................................. 10
(b) Discontinuance of Plan................................. 10
8. General Provisions............................................ 10
(a) No Interest in Assets.................................. 10
(b) Restriction Against Assignment......................... 11
(c) Receipt or Release..................................... 11
(d) Payment on Behalf of Minor............................. 11
(e) Forfeiture............................................. 11
(f) Withholding............................................ 12
(g) Governing Law.......................................... 12
(h) Captions............................................... 12
(i) Successors and Assigns................................. 12
(j) Effective Date......................................... 12
</TABLE>
45
<PAGE>
NON-EMPLOYEE DIRECTORS' DEFERRED COMPENSATION PLAN
1. Purpose
-------
The purpose of this Non-Employee Directors' Deferred Compensation Plan (the
"Plan") is to assist Cyprus Amax Minerals Company (the "Company") in recruiting
qualified individuals to serve as non-employee members of the Board of Directors
of the Company and to provide an incentive to such persons to continue to serve
the Company in that capacity.
2. Definitions
-----------
Whenever the following terms are used herein, with the first letter
capitalized, they shall have the meanings specified below:
(a) "Account" means the account maintained by the Administrator for each
Participant which is to be credited, as hereinafter set forth, with Stock or
other Investments equal in value to the amount of the Participant's Compensation
which is deferred pursuant to this Plan, together with the earnings thereon as
provided for herein.
(b) "Administrator" means the Vice President, Human Resources appointed by
the Board of Directors to administer the Plan.
(c) "Beneficiary" or "Beneficiaries" means the person or persons (including
without limitation, any trustee) last designated by a Participant to receive the
benefits specified hereunder, in the event of the Participant's death, or if
there is no designated Beneficiary or surviving Beneficiary, the Participant's
estate.
(d) "Board" means the Company's Board of Directors.
(e) "Board Member" shall mean a member of the Board who is not an employee
of the Company or its subsidiaries or affiliates.
(f) "Change of Control" shall mean the occurrence of any of the following
events:
(i) 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 (A) the then outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") or (B) the combined voting power of the then
outstanding voting securities of the Company entitled to vote generally in the
election of directors (the "Outstanding Company Voting Securities"); provided,
however, that for purposes of this subsection (i), the following acquisitions
shall not constitute a Change of Control: (A) any acquisition directly from the
Company, (B) any acquisition by the Company, (C) any acquisition by any employee
benefit plan (or related trust) sponsored or maintained by the Company or any
corporation controlled by the Company or (D) any acquisition by any corporation
pursuant to a transaction which complies with clauses (A) and (B) of subsection
(iii) of this section (f).
(ii) 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
46
<PAGE>
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
(iii) 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)(1) 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 (2) 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
(iv) A complete liquidation or dissolution of the Company.
(g) "Change of Control Stock Value" shall mean the value of a share of
Stock determined as follows:
(i) if the Change of Control results from an event described in clause
(iii) of the Change of Control definition, the highest per share price paid for
shares of Stock of the Company in the transaction resulting in the Change of
Control;
(ii) if the Change of Control results from an event described in
clauses (i) or (ii) of the Change of Control definition and no event described
in clauses (iii) or (iv) of the Change of Control definition has occurred in
connection with such Change of Control, the highest sale price of a share of
Stock on any trading day during the sixty consecutive trading days immediately
preceding the date of such Change of Control as reported on the New York Stock
Exchange Composite Tape and published in the Wall Street Journal; or
(iii) if the Change of Control results from an event described in
clause (iv) of the Change of Control definition, the price per share received by
holders of Stock in the transaction described in such clause (iv).
47
<PAGE>
(h) "Company" means Cyprus Amax Minerals Company, a Delaware corporation,
or any successor corporation.
(i) "Compensation" means for any Plan Year all retainer, meeting, committee
and chair fees payable in cash to a Board Member for service on the Board, or
any other amounts payable for any services rendered to the Company as an
independent contractor while serving as a Board Member, before any reduction
pursuant to this Plan.
(j) "Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time. References to any provision of the Exchange Act shall be
deemed to include successor provisions thereto and regulations thereunder.
(k) "Investments" means an investment option, other than Stock, made
available under the Plan, specifically T. Rowe Price Funds. A Participant may
modify his or her Investment elections quarterly.
(l) "Participant" means any Board Member who actually participates in this
Plan in any Plan Year and who is entitled to a benefit hereunder.
(m) "Plan Year" shall mean each year beginning on the first day of January
and ending on the 31st day of December, commencing with an initial short Plan
Year beginning on May 5, 1994.
(n) "Stock" means the Company's Common Stock, without par value.
3. Participation
-------------
(a) Plan is Voluntary
-----------------
Participation in the Plan is voluntary.
(b) Filing of Application
---------------------
To participate in the Plan for any Plan Year a Board Member must file a
written application with the Administrator. The application for participation
shall signify the Board Member's acceptance of the benefits and terms of the
Plan and state the portion of his or her Compensation that he or she elects to
defer, whether such deferrals shall be credited to his or her Account as Stock
or other Investments and the time when the Board Member desires distribution of
his or her benefits under the Plan. A Board Member electing to participate in
the Plan for any Plan Year must file the application according to the following
schedule:
(i) with respect to any or all Compensation to be credited to his or
her Account as Stock, the Board Member must notify the Administrator at least
six months prior to the date on which such election is to be effective, but in
no event later than December 31 immediately preceding such Plan Year; and
(ii) with respect to any or all Compensation to be credited to his or
her Account as other Investments, the Board Member must notify the Administrator
no later than December 31 immediately preceding such Plan Year.
48
<PAGE>
The Administrator shall notify each Board Member of his or her prospective
eligibility to participate in the Plan at least thirty days prior to December
31.
Notwithstanding Section 3(b)(ii) above, for purposes of the 1995 Plan Year
only, a Board Member electing to defer that part of his or her Compensation,
which constitutes other amounts payable for any services rendered to the Company
as an independent contractor while serving as a Board Member, to be credited to
his or her Account as other Investments shall have the right to notify the
Administrator at any time prior to the date the Board Member earns said amounts.
Notwithstanding any other provision of this Section, during the Plan Year
in which a person first becomes a Board Member, the new Board Member may elect
within thirty days after the date he or she becomes a Board Member to (i) defer
any or all Compensation earned for the remainder of that Plan Year for services
to be performed subsequent to his or her election to be credited to his or her
Account as other Investments or (ii) defer any or all Compensation earned more
than six months after the date of such election to be credited to his or her
Account as Stock.
(c) Revoking or Modifying an Application
------------------------------------
A Board Member may revoke or change his or her election to defer
Compensation for future Plan Years according to the following schedule:
(i) with respect to a revocation or change which affects a Board
Member's election to have any or all Compensation credited to his or her Account
as Stock, the Board Member must notify the Administrator of such revocation or
change at least six months prior to the date on which such revocation or change
is to be effective, but in no event later than December 31 prior to the Plan
Year in which the revocation or change shall become effective; and
(ii) with respect to a revocation or change which affects a Board
Member's election to have any or all Compensation credited to his or her Account
as other Investments, the Board Member must notify the Administrator of such
revocation or change no later than December 31 prior to the Plan Year to which
the revocation or change relates.
(d) Designation of Beneficiary
--------------------------
Upon forms provided by the Administrator, each Participant shall designate
the Beneficiary or Beneficiaries to receive the amounts distributable in the
event of such Participant's death. A Participant may from time to time change
the designated Beneficiary or Beneficiaries, without the consent of such
Beneficiary or Beneficiaries, by filing a new designation in writing with the
Administrator. The Company and the Administrator may rely upon the Beneficiary
designation last filed in accordance with the terms of the Plan.
4. Accrual of Benefits
-------------------
(a) Deferred Compensation
---------------------
Each Board Member who elects to participate in this Plan for any Plan Year
must irrevocably elect to defer the receipt of all or a specified percentage of
his or her Compensation in accordance with the terms of Section 3(b). Said
amount shall be credited to such Board Member's Account in accordance with
Section 4(b) and shall be paid in accordance with Section 5.
49
<PAGE>
(b) Earnings
--------
The amount of Compensation that each Participant elects to defer under this
Plan shall increase or decrease in value during the period of deferral based on
the market value of Stock or on the value of Investments, including earnings
thereon. On the date the Plan is credited with the deferred Compensation of a
Participant, the Participant's Account shall be credited with cash or a number
of shares of Stock (including fractions) having a value equal to the amount of
the Participant's Compensation deferred on that date. The date the Plan is
credited with the deferred Compensation of a Participant shall be the date of
the Board meeting for regularly scheduled meetings and shall be the date of the
meeting(s) for other than regular Board meetings. The value of Stock shall be
determined using the closing market price of the Stock on the Composite Tape of
the New York Stock Exchange for that date. If the Composite Tape is not
operating on such date, or Stock is not traded there on such date, the value
shall be computed using the closing price on the next business day on which such
Stock was traded thereon.
Whenever dividends are paid with respect to shares of Stock, each
Participant's Account shall be credited with additional shares of Stock
(including fractions) equal in value to the amount of the dividend paid on a
single share of Stock multiplied by the number of shares of Stock (including
fractions) credited to a Participant's Account as of the record date for
dividend purposes. For purposes of crediting dividends, the value of Stock
shall be determined as of the day dividends are actually paid on Stock and in
the same manner as is used for crediting deferred Compensation to Accounts.
To the extent that a Participant's Account is credited with other
Investments, the Account shall be adjusted from time to time to reflect changes
in value, including earnings.
The number of shares of Stock in each Participant's Account shall be
appropriately adjusted and modified upon the occurrence of any stock split,
reverse stock split, stock dividend, or stock consolidation. Notwithstanding
any provision of the Plan to the contrary, in the event of a Change of Control,
all shares of Stock credited to a Participant's Account shall be converted into
cash in an amount equal to the product of (i) the Change of Control Stock Value,
multiplied by (ii) the number of shares of Stock that have been credited to each
Participant's Account as of the date of the Change of Control. The amount of
cash resulting from the foregoing conversion of shares of Stock in a
Participant's Account shall, at the election of the Participant made on a form
approved by the Administrator, be credited to such Participant's Account or paid
out in a lump sum no later than fifteen days after the date of the Change of
Control. In the event of a Change of Control, the value of any other
Investments in a Participant's Account shall be converted to cash, and at the
election of the Participant made on a form approved by the Administrator, be
credited to such Participant's Account or paid out in a lump sum, no later than
fifteen days after the date of the Change of Control, and income shall be
credited to a Participant's Account from the date of the Change of Control to
the date of distribution at the prime rate of Chemical Bank, N.A. as in effect
from time to time during such period. If cash is credited to a Participant's
Account under this paragraph, income shall be credited thereto from the date of
the Change of Control to the date of distribution at the prime rate of Chemical
Bank, N.A. as in effect from time to time during such period.
(c) Vesting
-------
The interest of each Participant in any benefit accrued hereunder shall be
fully vested and nonforfeitable at all times.
50
<PAGE>
5. Distribution of Benefits
------------------------
(a) Time of Distribution
--------------------
A Participant may elect to have the balance of his or her Account
distributed to him or her on or commencing (i) as soon as reasonably possible
after the Participant ceases to be a Board Member, or (ii) on the January 1
occurring a stated number of years after the Participant ceases to be a Board
Member, in either case, in a lump sum or in up to ten annual installments, as
elected by the Participant. Such an election shall be made on the application
filed pursuant to Section 3(b) and shall be irrevocable once made. However, a
Participant may elect a different distribution date(s) for Compensation deferred
in subsequent years by filing a change of deferral election as provided in
Section 3(b).
(b) Payment Upon Death
------------------
Notwithstanding any election under Section 5(a), if a Participant dies
prior to distribution of his or her Account, the balance of the credit of the
Participant's Account as of the date of death shall be paid, as soon as
reasonably possible thereafter, to the Participant's Beneficiary or
Beneficiaries.
(c) Methods of Payment
------------------
Lump sum distributions under the Plan shall consist of shares of Stock
equal to the number of whole shares of Stock credited to the Participant's
Account on the date as of which the distribution occurs and a cash payment for
any fraction of a share. Installment distributions under the Plan with respect
to Stock shall consist of shares of Stock equal to the number of whole shares of
Stock obtained by multiplying (i) a fraction, the numerator of which is 1 and
the denominator of which is the number of years remaining in the deferral period
by (ii) the number of shares of Stock credited to the Participant's Account on
the date as of which the distribution occurs, and a cash payment for any
fraction of a share. The portion of the Account of any Participant credited
with other Investments shall be paid in cash, either in a lump sum or
installment distributions, which shall be calculated in the same manner as
stated above. Each Participant, or Beneficiary, agrees that prior to
distribution of any benefit under the Plan he or she will make such
representations and execute such documents as are deemed by the Administrator
necessary to comply with applicable securities laws.
6. The Administrator
-----------------
(a) Appointment
-----------
An Administrator shall be appointed by the Board of Directors to administer
the Plan as provided herein.
(b) Rights and Duties
-----------------
The Administrator, on behalf of the Participants and their Beneficiaries,
shall enforce the Plan in accordance with its terms, shall be charged with the
general administration of the Plan, and shall have all powers necessary to
accomplish those purposes, including, but not by way of limitation, the
following:
(i) to compute and certify the amount and kind of benefits payable to
Participants and their Beneficiaries;
51
<PAGE>
(ii) to maintain or to designate any person or entity to maintain all
the necessary records for the administration of the Plan;
(iii) to make and publish such rules for the regulation of the Plan
as are not inconsistent with the terms hereof; and
(iv) to provide for disclosure of such information and filing or
provision of such reports and statements to participants or Beneficiaries under
this Plan as the Administrator deems appropriate.
All actions of the Administrator shall be conclusive on all persons
interested in the Plan except to the extent otherwise specifically indicated
herein. The Administrator may appoint a plan administrator and agents, and
delegate thereto such powers and duties in connection with the administration of
the Plan as the Administrator may from time to time prescribe.
(c) Quarterly Reports
-----------------
The Administrator shall furnish each Participant with a quarterly report
indicating the number of shares of Stock and/or other Investments credited to
his or her Account as of the end of the preceding calendar quarter.
(d) Information
-----------
To enable the Administrator to perform his or her functions, the Company
shall supply full and timely information to the Administrator on all matters
relating to the Compensation of all Participants, their status as Board Members,
their contributions, and such other pertinent facts as the Administrator may
require.
(e) Compensation, Indemnity and Liability
-------------------------------------
The Administrator shall serve without bond, except as otherwise required by
law, and without compensation for his or her services hereunder. All expenses
of the Administrator shall be paid by the Company and the Company shall furnish
the Administrator with such clerical and other assistance as is necessary in the
performance of his or her duties.
The Administrator shall not be liable for any act or omission on his or her
part. The Company shall indemnify and hold harmless the Administrator against
any and all expenses and liabilities arising out of his or her administration of
the Plan.
7. Amendment and Discontinuance
----------------------------
(a) Amendments
----------
The Board shall have the right to amend the Plan from time to time, and to
amend or cancel any amendments; provided, however, that no amendment shall
-----------------
reduce any amount already credited to a Participant's Account as of the
effective date of such amendment.
52
<PAGE>
(b) Discontinuance of Plan
----------------------
It is the expectation of the Company that the Plan will be continued
indefinitely, but continuance of the Plan is not assumed as a contractual
obligation of the Company, and the right is reserved by the Company at any time
to reduce, suspend, or discontinue the Plan; provided, however, the Company
-----------------
shall in no event have the power to reduce the amount already credited to a
Participant's Account as of the effective date of any such reduction, suspension
or discontinuance nor to discontinue the crediting of earnings on such amounts
subsequent to said date. In the event of a reduction, suspension or
discontinuance of the Plan, the payment of benefits accrued hereunder shall
continue to be made in accordance with the provisions of the Plan.
8. General Provisions
------------------
(a) No Interest in Assets
---------------------
No Participant or any other person shall have any interest in any shares of
Stock or other Investments credited to his or her Account or in any specific
asset of the Company by reason of any amount credited to him or her hereunder,
nor any rights to receive any distribution under the Plan except as and to the
extent expressly provided in the Plan. There shall be no funding of any
benefits which may become payable hereunder. No trust shall be created in
connection with or by the execution or adoption of this Plan. Any benefits
which become payable hereunder shall be paid from the general assets of the
Company. Nothing in the Plan shall be deemed to give any Board Member any right
to participate in the Plan, except in accordance with the provisions of the
Plan.
(b) Restriction Against Assignment
------------------------------
The Company shall pay all amounts payable hereunder only to the person or
persons designated by the Plan and not to any other person or corporation. No
part of a Participant's Account shall be liable for the debts, contracts, or
engagements of any Participant, his or her Beneficiaries, or successors in
interest, nor shall it be subject to execution by levy, attachment or
garnishment or by any other legal or equitable proceeding, nor shall any such
person have any right to alienate, anticipate, commute, pledge, encumber, or
assign any benefits or payments hereunder in any manner whatsoever.
(c) Receipt or Release
------------------
Any payment to any Participant or his or her Beneficiaries in accordance
with the provisions of the Plan shall, to the extent thereof, be in full
satisfaction of all claims against the Administrator and the Company and the
Administrator may require such Participant or Beneficiaries, as a condition
precedent to such payment, to execute a receipt and release to such effect.
(d) Payment on Behalf of Minor
--------------------------
In the event any amount becomes payable under the Plan to a minor or a
person who, in the sole judgment of the Administrator, is considered by reason
of physical or mental condition to be unable to give a valid receipt therefor,
the Administrator may direct that such payment be made to any person found by
the Administrator, in his or her sole judgment, to have assumed the care of such
minor or other person. Any payment made pursuant to such determination shall
constitute a full release and discharge of the Administrator and the Company.
53
<PAGE>
(e) Forfeiture
----------
Any payment or distribution to a Participant under the Plan which is not
claimed by the Participant, Beneficiaries, or other person entitled thereto
within three years after becoming payable shall be forfeited and canceled and
shall remain with the Company and no other person shall have any right thereto
or interest therein. The Company shall not have any duty to give notice that
amounts are payable under the Plan to any person other than the Participant and
the designated Beneficiary or Beneficiaries.
(f) Withholding
-----------
The Company may deduct from the amount of all distributions or deferrals
under the Plan any taxes required to be withheld by the Federal or any state or
local government.
(g) Governing Law
-------------
This Plan shall be construed, administered and enforced according to the
laws of the state of Colorado.
(h) Captions
--------
Captions in this Plan are not part of the provisions hereof and shall have
no force or effect.
(i) Successors and Assigns
----------------------
This Plan shall inure to the benefit of, and be binding upon, the parties
hereto and their successors and assigns.
(j) Effective Date
--------------
This Plan shall become effective as of May 5, 1994.
54
<PAGE>
EXHIBIT 10(d)
CYPRUS AMAX MINERALS COMPANY
MATERIAL CONTRACTS
FULL RETIREMENT BENEFIT PLAN FOR
CERTAIN SALARIED EMPLOYEES
55
<PAGE>
AMENDMENT NUMBER 7 TO THE
-------------------------
CYPRUS MINERALS COMPANY
-----------------------
FULL RETIREMENT BENEFIT PLAN FOR
--------------------------------
CERTAIN SALARIED EMPLOYEES
--------------------------
THIS AMENDMENT is made this 27th day of September, 1993, by the
Retirement Plan Committee of the Cyprus Minerals Company Full Retirement Benefit
Plan for Certain Salaried Employees (the "Committee").
RECITALS
--------
WHEREAS, Section 7.1 of the Cyprus Minerals Company Full Retirement
Benefit Plan for Certain Salaried Employees (the "Plan") provides in part as
follows:
". . . the right is reserved to amend . . .the Plan"
AMENDMENT
---------
NOW, THEREFORE, the Plan is amended as follows:
1. Section 4.4 of the Plan is amended in its entirety as follows:
4.4 Change in Control: In the event of a Change in Control, each
-----------------
Eligible Employee shall be fully vested in the benefit payable under this
section 4.4. The benefit payable under this section 4.4 will be the
actuarial equivalent, computed on the basis of the assumptions specified in
the Retirement Plan for such purpose, of an annual benefit payable for the
life of the Eligible Employee equal to the amount by which the Eligible
Employee's Accrued Benefit under the Retirement Plan would be increased if
the Eligible Employee's Period of Benefit Service under the Retirement Plan
were increased by the Full Retirement Benefit Plan Credited Service
credited under section 1.5 as of the date the Change in Control was deemed
to have occurred. For purposes of computing the Eligible Employee's Full
Retirement Benefit Plan Credited Service under section 1.5, the Eligible
Employee will be deemed to have terminated employment as of the date the
Change in Control was deemed to have occurred. Such benefit shall be paid
in the form of a lump sum as soon as administratively feasible after the
Change in Control is deemed to have occurred and, if the payment date is
before the date the Eligible Employee attains age 62, shall be reduced by
5% per year for each full year and proportionally for each fractional year
by which the payment date precedes the date that Eligible Employee would
attain age 62.
In the event of a Change in Control, each Eligible Employee who is not
vested under the Retirement Plan, will be paid from this Plan the benefit
that individual would have been entitled to receive from the Retirement
Plan as of the date of Change in Control. For purposes of computing the
benefit accrued under the Retirement Plan but paid from this Plan, the
Eligible Employee will be deemed to have terminated employment as of the
date the Change in Control was deemed to have occurred. Such benefit shall
be paid in the form of a lump sum as soon as administratively feasible
after the Change in Control is deemed to have occurred, and if the payment
date is before the date the Eligible Employee attains Normal Retirement
Age, such benefit shall be reduced in accordance with the provisions of the
Retirement Plan governing payment of benefits before Normal Retirement Age.
56
<PAGE>
In the event of the merger between Cyprus Minerals Company and Amax Inc.
(The "Merger"), no immediate payment will be made to any Eligible Employee
as a consequence of said Merger. Payment will be made only upon an
Eligible Employee's termination of employment following the Merger.
2. Any inconsistent provisions of the Plan shall be read consistent
with this Amendment.
3. Except as amended above, each and every other provision of the
Plan is affirmed and readopted.
4. The effective date of this amendment shall be September 7, 1993.
IN WITNESS WHEREOF, the undersigned have executed this Amendment as of
the date first above written.
RETIREMENT PLAN COMMITTEE
By: /s/ KEVIN LOUGHREY
------------------------
Kevin Loughrey, Chairman
By: /s/ DENNIS C. HAUGH
-----------------------
Dennis C. Haugh, Member
By: /s/ GERARD H. PEPPARD
-------------------------
Gerard H. Peppard, Member
CYPRUS MINERALS COMPANY
By: /s/ MILTON H. WARD
-------------------------
Milton H. Ward, President
57
<PAGE>
AMENDMENT NUMBER 6 TO THE
-------------------------
CYPRUS MINERALS COMPANY
-----------------------
FULL RETIREMENT BENEFIT PLAN FOR
--------------------------------
CERTAIN SALARIED EMPLOYEES
--------------------------
THIS AMENDMENT is made this 28th day of May, 1993, by the Retirement
Plan Committee of the Cyprus Minerals Company Full Retirement Benefit Plan for
Certain Salaried Employees (the "Committee").
RECITALS
--------
WHEREAS, Section 7.1 of the Cyprus Minerals Company Full Retirement
Benefit Plan for Certain Salaried Employees (the "Plan") provides in part as
follows:
". . . the right is reserved to amend . . . the Plan"
AMENDMENT
---------
NOW, THEREFORE, the Plan is amended as follows:
1. Section 4.3 of the Plan is amended in its entirety as follows:
4.3 Death Benefit: If an Eligible Employee who has completed a
-------------
Period of Vesting Service 5 years long or longer dies while employed by the
Company and before payment of any benefits under this Plan begins, a
Surviving Spouse will be paid the benefit computed under Section 4.1 that
would have been payable had the Eligible Employee retired the day before
his death, or if the Eligible Employee dies before attaining age 55, the
benefit that would have been payable to the Surviving Spouse had the
Eligible Employee survived until attaining age 55 and then retired
(disregarding any period after the Eligible Employee's death for purposes
of computing the Eligible Employee's Period of Benefit Service or Full
Retirement Benefit Plan Credited Service) with the Eligible Employee's
benefit under this Plan payable in the form of a qualified joint and
survivor annuity. If the Eligible Employee dies after attaining age 55,
payment of the Surviving Spouse's benefit will begin as of the month
following the month during which the Eligible Employee's death occurred
with the amount of the benefit adjusted as specified in Section 5.1 if
payment begins before the Eligible Employee would have attained age 62. If
the Eligible Employee dies before attaining age 55, payment of the
Surviving Spouse's benefit will begin as of the month following the month
during which the Eligible Employee would have attained age 55 with the
amount adjusted as specified in Section 5.1 for commencement of payment
before the Eligible Employee attains or would have attained age 62.
2. Any inconsistent provisions of the Plan shall be read consistent
with this Amendment.
3. Except as amended above, each and every other provision of the
Plan is affirmed and readopted.
4. The effective date of this amendment shall be January 1, 1987.
58
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Amendment as of
the date first above written.
RETIREMENT PLAN COMMITTEE
By: /s/ KEVIN LOUGHREY
------------------------
Kevin Loughrey, Chairman
By: /s/ DENNIS C. HAUGH
-----------------------
Dennis C. Haugh, Member
By: /s/ GERARD H. PEPPARD
-------------------------
Gerard H. Peppard, Member
CYPRUS MINERALS COMPANY
By: /s/ MILTON H. WARD
-------------------------
Milton H. Ward, President
59
<PAGE>
EXHIBIT 10(e)
CYPRUS AMAX MINERALS COMPANY
MATERIAL CONTRACTS
RESTORATIVE RETIREMENT PLANS
60
<PAGE>
AMENDMENT NUMBER 7 TO THE
-------------------------
CYPRUS MINERALS COMPANY
-----------------------
RESTORATIVE BENEFIT PLAN FOR SALARIED EMPLOYEES
-----------------------------------------------
THIS AMENDMENT is made this 10th day of May, 1994, by the Retirement
Plan Committee of the Cyprus Minerals Company Restorative Benefits Plan for
Salaried Employees (the "Committee").
RECITALS
--------
WHEREAS, Section 7.1 of the Cyprus Minerals Company Restorative
Benefits Plan for Salaried Employees (the "Plan") provides in part as follows:
". . . the right is reserved to amend . . . the Plan"
AMENDMENT
---------
NOW, THEREFORE, the Plan is amended as follows:
1. Article IV of the Plan is amended in its entirety as follows:
If the accrued benefit payable to a Participant, his surviving
spouse or other Beneficiary under the Retirement Plan, without regard
to Internal Revenue Code ("Code") section 415, is less than the
accrued benefit payable under the Retirement Plan which is calculated
without regard to Code sections 415 and 401(a)(17) and including in
the Participant's compensation, the fair market value as of the
vesting dates of certain grants of restricted stock designated by the
Board of Directors as intended to be included in compensation for
purposes of computing benefits payable under this Plan ("Restricted
Stock") and any compensation, included in the year of deferral, which
is deferred under any deferred compensation plan sponsored by the
Company, the Participant, his surviving spouse or other Beneficiary
shall be paid a benefit under this Plan equal to the difference
between (a) the vested accrued benefit under the Retirement Plan,
without regard to Code section 415, and (b) the vested benefit that
would have been payable under the Retirement Plan if the limitations
under Code sections 415 and 401(a)(17) had not applied and if the fair
market value as of the vesting dates of Restricted Stock and any
compensation, included in the year of deferral, which is deferred
under any deferred compensation plan sponsored by the Company, had
been included in the Participant's compensation.
2. Any inconsistent provisions of the Plan shall be read consistent
with this Amendment.
3. Except as amended above, each and every other provision of the
Plan is affirmed and readopted.
4. Except as otherwise specified above, the effective date of this
amendment shall be January 1, 1994.
61
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Amendment as of
the date first above written.
RETIREMENT PLAN COMMITTEE
By: /s/ PHILIP C. WOLF
------------------------
Philip C. Wolf, Chairman
By: /s/ FRANCIS J. KANE
-----------------------
Francis J. Kane, Member
By: /s/ GERARD H. PEPPARD
-------------------------
Gerard H. Peppard, Member
CYPRUS MINERALS COMPANY
By: /s/ MILTON H. WARD
-------------------------
Milton H. Ward, President
62
<PAGE>
AMENDMENT NUMBER 6 TO THE
-------------------------
CYPRUS MINERALS COMPANY
-----------------------
RESTORATIVE BENEFIT PLAN FOR SALARIED EMPLOYEES
-----------------------------------------------
THIS AMENDMENT is made this 27th day of September 1993, by the
Retirement Plan Committee of the Cyprus Minerals Company Restorative Benefits
Plan for Salaried Employees (the "Committee").
RECITALS
--------
WHEREAS, Section 7.1 of the Cyprus Minerals Company Restorative
Benefits Plan for Salaried Employees (the "Plan") provides in part as follows:
". . . the right is reserved to amend . . . the Plan"
AMENDMENT
---------
NOW, THEREFORE, the Plan is amended as follows:
1. Section 5.5 of the Plan is amended in its entirety as follows:
5.5 Change in Control: In the event of a Change in Control, each
-----------------
Eligible Employee shall be fully vested in the benefit payable under this
section 5.5. The benefit payable under this section 5.5 will be the
actuarial equivalent, of the benefit amount computed under Article IV of
the Plan as though the Eligible Employee terminated employment on the date
Change in Control is deemed to have occurred. Such benefit shall be paid
in the form of a lump sum as soon as administratively feasible after the
Change in Control is deemed to have occurred, and if the payment date is
before the date the Eligible Employee attains Normal Retirement Age, such
benefit shall be reduced in accordance with the provisions of the
Retirement Plan governing payment of benefits before Normal Retirement Age.
In the event of the merger between Cyprus Minerals Company and Amax Inc.
(The "Merger"), no immediate payment will be made to any Eligible Employee
as a consequence of said Merger. Payment will be made only upon an
Eligible Employee's termination of employment following the Merger.
2. Any inconsistent provisions of the Plan shall be read consistent
with this Amendment.
3. Except as amended above, each and every other provision of the
Plan is affirmed and readopted.
4. The effective date of this amendment shall be September 7, 1993.
63
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Amendment as of
the date first above written.
RETIREMENT PLAN COMMITTEE
By: /s/ KEVIN LOUGHREY
------------------------
Kevin Loughrey, Chairman
By: /s/ DENNIS C. HAUGH
-----------------------
Dennis C. Haugh, Member
By: /s/ GERARD H. PEPPARD
-------------------------
Gerard H. Peppard, Member
CYPRUS MINERALS COMPANY
By: /s/ MILTON H. WARD
-------------------------
Milton H. Ward, President
64
<PAGE>
AMENDMENT NUMBER 5 TO THE
-------------------------
CYPRUS MINERALS COMPANY
-----------------------
415 LIMITATION PLAN FOR SALARIED EMPLOYEES
------------------------------------------
THIS AMENDMENT is made this 27th day of September, 1993, by the
Retirement Plan Committee of the Cyprus Minerals Company 415 Limitation Plan for
Salaried Employees (the "Committee").
RECITALS
--------
WHEREAS, Section 6.1 of the Cyprus Minerals Company 415 Limitation
Plan for Salaried Employees (the "Plan") provides in part as follows:
". . . the right is reserved to amend . . . the Plan"
AMENDMENT
---------
NOW, THEREFORE, the Plan is amended as follows:
1. Section 5.5 of the Plan is amended in its entirety as follows:
5.5 Change in Control: In the event of a Change in Control, each
-----------------
Eligible Employee shall be fully vested in the benefit payable under this
section 5.5. The benefit payable under this section 5.5 will be the
actuarial equivalent, of the benefit amount computed under Article IV of
the Plan as though the Eligible Employee terminated employment on the date
Change in Control is deemed to have occurred. Such benefit shall be paid
in the form of a lump sum as soon as administratively feasible after the
Change in Control is deemed to have occurred, and if the payment date is
before the date the Eligible Employee attains Normal Retirement Age, such
benefit shall be reduced in accordance with the provisions of the
Retirement Plan governing payment of benefits before Normal Retirement Age.
In the event of the merger between Cyprus Minerals Company and Amax Inc.
(The "Merger"), no immediate payment will be made to any Eligible Employee
as a consequence of said Merger. Payment will be made only upon an
Eligible Employee's termination of employment following the Merger.
2. Any inconsistent provisions of the Plan shall be read consistent
with this Amendment.
3. Except as amended above, each and every other provision of the
Plan is affirmed and readopted.
4. The effective date of this amendment shall be September 7, 1993.
65
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Amendment as of
the date first above written.
RETIREMENT PLAN COMMITTEE
By: /s/ KEVIN LOUGHREY
------------------------
Kevin Loughrey, Chairman
By: /s/ DENNIS C. HAUGH
-----------------------
Dennis C. Haugh, Member
By: /s/ GERARD H. PEPPARD
-------------------------
Gerard H. Peppard, Member
CYPRUS MINERALS COMPANY
By: /s/ MILTON H. WARD
-------------------------
Milton H. Ward, President
66
<PAGE>
EXHIBIT 10(f)
CYPRUS AMAX MINERALS COMPANY
MATERIAL CONTRACTS
EXCESS DEFINED CONTRIBUTION PLAN
67
<PAGE>
THE CYPRUS AMAX MINERALS COMPANY
EXCESS DEFINED CONTRIBUTION PLAN
1. Purpose. The Cyprus Amax Minerals Company Excess Defined Contribution Plan
-------
(the "Plan") is established, effective January 1, 1994, for the purpose of
providing certain employees of Cyprus Amax Minerals Company (the "Company")
with benefits which would otherwise be provided under the Cyprus Minerals
Company Savings Plan or the Amax Inc. Thrift Plan for Salaried Employees
(the "Savings Plan") but for reductions or restrictions to such benefits
required by federal law. Specifically, this Plan will provide Participants
with supplemental benefits to compensate for loss of benefits that would
otherwise have been payable under the Savings Plan were it not for
restrictions on Participants' elective deferrals and the resulting
restrictions on Company matching contributions under section 401(a)(17) of
the Code. This program is to be unfunded and is maintained for the purpose
of providing deferred compensation for a select group of management or
highly compensated employees, all of whom receive compensation in excess of
the amount set forth in section 401(a)(17) of the Code before taking into
account deferrals under the Savings Plan.
2. Definitions.
-----------
(a) "Account" shall mean the account of Excess Before-Tax Contributions,
Excess Company Matching Contributions, and earnings thereon, credited with
respect to each Participant.
(b) "Before-Tax Contributions" shall mean the Participant's "Before-Tax
Contributions" (as such term is defined in the Savings Plan) to the Savings
Plan.
(c) "Change of Control" shall mean whatever meaning is assigned to that
term under the Cyprus Minerals Company Restorative Benefits Plan for
Salaried Employees.
(d) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(e) "Committee" shall mean the group of individuals designated by the
Company to administer the Savings Plan.
(f) "Company" shall mean the Cyprus Amax Minerals Company.
(g) "Company Matching Contributions" shall mean the Company Matching
Contributions (as such term is defined in the Savings Plan) allocated to a
Participant under the Savings Plan.
(h) "Compensation" shall have the same meaning as such term has under the
Savings Plan, including, however, amounts in excess of $150,000, as indexed
under section 401(a)(17) of the code.
(i) "Excess Before-Tax Contributions" shall mean the amount deferred by a
Participant under Section 3 hereof.
(j) "Excess Company Matching Contributions" shall mean the amount
contributed by the Company under Section 4 hereof.
68
<PAGE>
(k) "Fund" shall mean the Fund established for this Plan to which
are credited Excess Before-Tax Contributions, Excess Company Matching
Contributions, and earnings thereon, and from which benefits under the
Plan are paid, as described in Section 8 hereof.
(l) "Participant" shall mean any employee of the Company who is (1)
eligible to participate in the Savings Plan, and (2) has base
compensation in the last quarter of the calendar year before the year of
participation in an amount which equals or exceeds the amount specified
in section 401(a)(17) of the Code before taking into account deferrals
under the Savings Plan.
(m) "Plan" shall mean the Cyprus Amax Minerals Company Excess Defined
Contribution Plan as described herein and as it may be amended from
time to time.
(n) "Savings Plan" shall mean the Cyprus Minerals Company Savings
Plan and/or the Amax Inc. Thrift Plan for Salaried Employees, as they
may be amended from time to time.
(o) "Valuation Date" shall mean the last day of each calendar month,
or such other dates as the Committee determines necessary or
appropriate to value the Accounts of Participants.
3. Excess Before-Tax Contributions.
-------------------------------
(a) Each Participant may elect to make Excess Before-Tax
Contributions to the Fund in an amount equal to 1% to 16% of
Compensation over the limit specified in 401(a)(17) of the Code for
credit to his/her Account for any calendar year beginning on or after
January 1, 1994 by filing his/her election, on a form provided by the
Committee, on or before the date established by the Committee which
falls in the last quarter of the preceding calendar year. Such an
election shall be irrevocable during the calendar year for which it is
made. A Participant may continue, modify, revoke, or resume his/her
election to make Excess Before-Tax Contributions with respect to
subsequent calendar years by filing his/her written notice with the
Committee, on a form supplied by the Committee, on or before the date
established by the Committee which falls in the calendar quarter
preceding the calendar year in which the continuation, modification,
revocation, or resumption is to be effective.
(b) The amount of the Participant's Excess Before-Tax Contributions
for any calendar year shall equal to an amount elected by the
Participant which is 1% to 16% of his/her Compensation over the limit
specified in 401(a)(17) of the Code.
(c) As soon as practicable and in a manner consistent with the
administration of the Savings Plan, the Company shall deduct from each
Participant's Compensation and credit to such Participant's Account that
portion of his/her Excess Before-Tax Contributions that is determined
under Paragraph(b)(1) of this Section and attributable to Compensation
paid with respect to such month.
4. Excess Company Matching Contributions.
-------------------------------------
(a) The Company shall make an Excess Company Matching Contribution
for each calendar year on behalf of each Participant in an amount equal
to the amount of match calculated under the Savings Plan formula on
those deferrals which exceed the limit on Compensation imposed by
section 401(a)(17) of the Code.
69
<PAGE>
(b) As soon as practicable and in a manner consistent with the
Savings Plan, the Company shall credit to each Participant's Account
that portion of the Excess Company Matching Contribution that is
determined under Subsection (a) of this Section and attributable to
Compensation paid with respect to such month.
5. Vesting. A Participant's interest in his/her Account shall be fully
-------
vested.
6. Payment of Benefits. A Participant's Account shall be paid to the
-------------------
Participant in a single sum on the first day of the month following
thirty (30) days after the Participant's Total Disability (as such term
is defined in Section 2.35 of the Savings Plan), retirement or other
separation from service, or to a Participant's designated beneficiary in
a single sum on the first day of the month following thirty (30) days
after the Participant's death.
7. Change of Control. Upon a Change of Control, benefits accrued under
-----------------
this Plan shall be paid in accordance with the provisions regarding
Change of Control in the Cyprus Minerals Company Restorative Benefits
Plan for Salaried Employees.
8. Designation of Beneficiary.
--------------------------
(a) Subject to applicable law, each Participant shall have the right
to file with the Committee a written designation of one or more persons
as the beneficiary who shall be entitled to receive the amount payable
under the Plan upon his/her death. A Participant may, from time to time,
revoke or change such beneficiary designation without the consent of any
prior beneficiary by filing a new designation with the Committee. The
last such designation received by the Committee shall be controlling;
provided, however, that no designation, or change or revocation thereof,
shall be effective unless received by the Committee prior to the
Participant's death, and in no event shall it be effective as of a date
prior to such receipt.
(b) If no such beneficiary designation is in effect at the time of a
Participant's death, or if no designated beneficiary survives the
Participant, or if such designation conflicts with applicable law, the
amount, if any, payable under the Plan upon his/her death shall be made
to the Participant's estate. If the Committee is in doubt as to the
right of any person to receive any amount, the Committee may retain such
amount, which shall continue to accrue interest, until the rights
thereto are determined, or the Committee may pay such amount into any
court of appropriate jurisdiction, and such payment shall be a complete
discharge of the liability of the Plan, the Company and the Committee
therefor. Any payment made pursuant to this subsection 8(b) of the Plan
shall be made by the Committee as soon as practicable under the
circumstances.
9. The Fund.
--------
(a) All contributions and earnings thereon may be invested in any
one or a combination of six investment funds. Each Participant may
elect, on a form provided by the Committee, to invest his/her Excess
Before-Tax Contributions and the Excess Company Matching Contributions
made on his/her behalf in any one or a combination of six investment
funds. Such election must be made on or before the date established by
the Committee which falls in the last quarter of the calendar year
preceding the calendar year for which the election is effective. Such an
election shall be irrevocable during the calendar year for which it is
made. Separate Accounts shall be maintained for each Participant. These
Accounts shall represent the Participant's individual interest in the
Fund.
70
<PAGE>
The following investment categories will be offered: T. Rowe
Price Prime Reserve Fund; T. Rowe Price Spectrum Income Fund; T. Rowe
Price Equity Index Fund; T. Rowe Price Capital Appreciation Fund; T.
Rowe Price International Stock Fund; and T. Rowe Price New America
Growth Fund.
(b) The Fund shall remain an asset of the Company and shall be
subject to the claims of its general creditors. Each Participant shall
have no greater right or status than as an unsecured creditor of the
Company with respect to any amounts owed to such Participant from the
Fund.
10. Amendment and Termination. The Company reserves the right to amend
-------------------------
this Plan at any time and from time to time in any fashion, and to
terminate it at will. No amendment to or discontinuance or termination
of the Plan shall adversely affect any rights of such Participant with
respect to amounts previously credited to such Participant's Account.
11. Nonalienation of Benefits. All payments to persons entitled to benefits
-------------------------
hereunder shall be made to such persons and shall not be alienable,
transferable or otherwise assignable in anticipation of payment thereof,
in whole or in part, by the voluntary or involuntary acts of any such
persons, or by operation of law, and shall not be liable or taken for
any obligation of such person.
12. Administration.
--------------
(a) This Plan shall be administered by the Committee, which shall be
responsible for the interpretation of the Plan and establishment of the
rules and regulation governing Plan administration. Any decision or
action made or taken by the Committee, arising out of or in connection
with the construction, administration or interpretation of the Plan or
of its rules and regulations, shall be conclusive and binding upon all
Participants and former Participants unless otherwise determined by the
Company's Board of Directors. All expenses of administering the Plan
shall be paid by the Company and shall not affect the Participants'
right to or amount of benefits.
(b) Neither the Committee nor any member thereof nor the Company
shall be liable for any action or determination made in good faith with
respect to the Plan or the rights of any person under the Plan.
(c) The Committee or persons designated by it shall keep such
records as may be necessary for the administration of the Plan and shall
furnish Participants such periodic statements as it may determine to be
necessary or desirable to show their interests in the Plan.
(d) The Committee shall have the power to make such adjustments to
the terms of the Plan, and to make such interpretations of the terms of
the Plan, as are necessary to effectuate the purposes of the Plan.
13. Appeals Procedure. The Committee shall provide any Participant whose
-----------------
claim for benefits under the Plan has been denied with adequate notice
of and shall afford such Participant an opportunity for full and fair
review of such denial.
14. No Contract of Employment. Nothing contained herein shall be construed
-------------------------
as conferring upon any person the right to be employed or continue in
the employ of the Company.
71
<PAGE>
15. Withholding Taxes. The Company shall have the right to withhold taxes
-----------------
from any Excess Company Matching Contributions, Excess Before-Tax
Contribution, and any payments made pursuant to the Plan, or make such
other provisions as it deems necessary or appropriate to satisfy its
obligations to withhold federal, state, local or foreign income or
other taxes as a result of this Plan.
16. Notices. Each Participant shall be responsible for furnishing the
-------
Committee with the current and proper address for the mailing of notices
and delivery of agreements and payments. Any notice required or
permitted to be given shall be deemed given if directed to the person to
whom addressed at such address and mailed by regular United States mail,
first-class and prepaid. If any item mailed to such address is returned
as undeliverable to the addressee, mailing will be suspended until the
Participant furnishes the proper address.
17. Severability of Provisions. If any provision of this Plan shall be held
--------------------------
invalid or unenforceable, such invalidity or unenforceability shall
not affect any other provisions hereof, and this Plan shall be
construed and enforced as if such provisions had not been included.
18. Headings and Captions. The headings and captions herein are provided
---------------------
for reference and convenience only, shall not be considered part of
the Plan, and shall not be employed in the construction of the Plan.
19. Applicable Law. This plan shall be construed under the laws of the
--------------
State of Colorado, to the extent not preempted by the Employee
Retirement Income Security Act of 1974 or other federal law.
IN WITNESS WHEREOF, the foregoing Plan is adopted this 20th day of
October, 1993.
CYPRUS AMAX MINERALS COMPANY
By: /s/ G. H. PEPPARD
-------------------
G. H. Peppard
Secretary to the
Compensation and
Benefits Committee
72
<PAGE>
THE CYPRUS AMAX MINERALS COMPANY
RESTATED EXCESS DEFINED CONTRIBUTION PLAN
1. Purpose. The Cyprus Amax Minerals Company Restated Excess Defined
-------
Contribution Plan (the "Plan") is established, effective as of the
execution date of this document, for the purpose of providing certain
employees of Cyprus Amax Minerals Company (the "Company") and any
subsidiary or affiliate approved for participation in this Plan by the
Committee, with benefits which would otherwise be provided under the
Cyprus Amax Minerals Company Savings Plan or the Cyprus Amax Minerals
Company Thrift Plan for Salaried Employees (the "Savings Plan") but for
reductions or restrictions to such benefits required by federal law.
Specifically, this Plan will provide Participants with supplemental
benefits to compensate for loss of benefits that would otherwise have
been payable under the Savings Plan were it not for restrictions on
Participants' elective deferrals and the resulting restrictions on
Company matching contributions under section 401(a)(17) of the Code.
This program is to be unfunded and is maintained for the purpose of
providing deferred compensation for a select group of management or
highly compensated employees, all of whom receive compensation in excess
of the amount set forth in section 401(a)(17) of the Code before taking
into account deferrals under the Savings Plan.
2. Definitions.
-----------
(a) "Account" shall mean the account of Excess Before-Tax
Contributions, Excess Company Matching Contributions, and earnings
thereon, credited with respect to each Participant.
(b) "Before-Tax Contributions" shall mean the Participant's
"Before-Tax Contributions" (as such term is defined in the Savings
Plan) to the Savings Plan.
(c) "Change of Control" shall mean the occurrence of any of the
following events:
(i) 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 (A) the then outstanding
shares of common stock of the Company (the "Outstanding Company Common
Stock") or (B) the combined voting power of the then outstanding voting
securities of the Company entitled to vote generally in the election of
directors (the "Outstanding Company Voting Securities"); provided,
however, that for purposes of this subsection (i), the following
acquisitions shall not constitute a Change of Control: (A) any
acquisition directly from the Company, (B) any acquisition by the
Company, (C) any acquisition by any employee benefit plan (or related
trust) sponsored or maintained by the Company or any corporation
controlled by the Company, or (D) any acquisition by any corporation
pursuant to a transaction which complies with clauses (A) and (B) of
subsection (iii) of this section (C);
(ii) 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
73
<PAGE>
(iii) 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)(1) 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 (2) 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
(iv) A complete liquidation or dissolution of the Company.
(d) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(e) "Committee" shall mean the group of individuals designated by
the Company to administer the Savings Plan.
(f) "Company" shall mean the Cyprus Amax Minerals Company.
(g) "Company Matching Contributions" shall mean the Company Matching
Contributions (as such term is defined in the Savings Plan) allocated
to a Participant under the Savings Plan.
(h) "Compensation" shall have the same meaning as such term has
under the Savings Plan, including, however, amounts in excess of
$150,000, as indexed under section 401(a)(17) of the Code, and including
any amounts deferred as base salary under the Cyprus Amax Minerals
Company Deferred Compensation Plan at the time of the deferral election.
(i) "Excess Before-Tax Contributions" shall mean the amount
deferred by a Participant under Section 3 hereof.
(j) "Excess Company Matching Contributions" shall mean the amount
contributed by the Company under Section 4 hereof.
74
<PAGE>
(k) "Fund" shall mean the Fund established for this Plan to which
are credited Excess Before-Tax Contributions, Excess Company Matching
Contributions, and earnings thereon, and from which benefits under the
Plan are paid, as described in Section 8 hereof.
(l) "Participant" shall mean any employee of the Company who (1)
participates in the Savings Plan, and (2) has base compensation in the
last quarter of the calendar year before the year of participation in an
amount which equals or exceeds the amount specified in section
401(a)(17) of the Code before taking into account deferrals under the
Savings Plan.
(m) "Plan" shall mean the Cyprus Amax Minerals Company Excess Defined
Contribution Plan as described herein and as it may be amended from
time to time.
(n) "Savings Plan" shall mean the Cyprus Amax Minerals Company
Savings Plan and/or the Cyprus Amax Minerals Company Thrift Plan for
Salaried Employees, as they may be amended from time to time.
(o) "Valuation Date" shall mean the last day of each calendar month,
or such other dates as the Committee determines necessary or
appropriate to value the Accounts of Participants.
3. Excess Before-Tax Contributions.
-------------------------------
(a) Each Participant may elect to make Excess Before-Tax
Contributions to the Fund in an amount equal to 1% to 16% of
Compensation over the limit specified in 401(a)(17) of the Code for
credit to his/her Account for any calendar year beginning on or after
January 1, 1994 by filing his/her election, on a form provided by the
Committee, on or before the date established by the Committee which
falls in the last quarter of the preceding calendar year. Such an
election shall be irrevocable during the calendar year for which it is
made. A Participant may continue, modify, revoke, or resume his/her
election to make Excess Before-Tax Contributions with respect to
subsequent calendar years by filing his/her written notice with the
Committee, on a form supplied by the Committee, on or before the date
established by the Committee which falls in the calendar quarter
preceding the calendar year in which the continuation, modification,
revocation, or resumption is to be effective.
(b) The amount of the Participant's Excess Before-Tax Contributions
for any calendar year shall equal to an amount elected by the
Participant which is 1% to 16% of his/her Compensation over the limit
specified in 401(a)(17) of the Code.
(c) As soon as practicable and in a manner consistent with the
administration of the Savings Plan, the Company shall deduct from each
Participant's Compensation and credit to such Participant's Account
that portion of his/her Excess Before-Tax Contributions that is
determined under Paragraph (b)(1) of this Section and attributable to
Compensation paid with respect to such month.
4. Excess Company Matching Contributions.
-------------------------------------
(a) The Company shall make an Excess Company Matching Contribution
for each calendar year on behalf of each Participant in an amount
equal to the amount of match calculated under the Savings Plan formula
on those deferrals which exceed the limit on Compensation imposed by
section 401(a)(17) of the Code.
75
<PAGE>
(b) As soon as practicable and in a manner consistent with the
Savings Plan, the Company shall credit to each Participant's Account
that portion of the Excess Company Matching Contribution that is
determined under Subsection (a) of this Section and attributable to
Compensation paid with respect to such month.
5. Vesting. A Participant's interest in his/her Account shall be fully
-------
vested.
6. Payment of Benefits. Pursuant to a Participant's election, made as a
-------------------
part of the election, to defer monies under this Plan, a Participant's
Account shall be paid to the Participant in a single sum on the first
day of the month following thirty (30) days after the Participant's
Total Disability (as such term is defined in Section 2.35 of the Savings
Plan), retirement or other separation from service, or to a
Participant's designated beneficiary in a single sum on the first day of
the month following thirty (30) days after the Participant's death, or
in annual installments over a period of years, not to exceed ten (10),
elected by the Participant computed by multiplying the amount credited
to a Participant's Account by a fraction, the numerator of which is one
and the denominator of which is the number of years remaining in the
applicable payment period.
7. Change of Control. Upon a Change of Control, the Committee shall cause
-----------------
benefits accrued under this Plan to be distributed within thirty (30)
days of said event.
8. Designation of Beneficiary.
--------------------------
(a) Subject to applicable law, each participant shall have the
right to file with the Committee a written designation of one or more
persons as the beneficiary who shall be entitled to receive the amount
payable under the Plan upon his/her death. A Participant may, from time
to time, revoke or change such beneficiary designation without the
consent of any prior beneficiary by filing a new designation with the
Committee. The last such designation received by the Committee shall be
controlling; provided, however, that no designation, or change or
revocation thereof, shall be effective unless received by the Committee
prior to the Participant's death, and in no event shall it be effective
as of a date prior to such receipt.
(b) If no such beneficiary designation is in effect at the time of a
Participant's death, or if no designated beneficiary survives the
Participant, or if such designation conflicts with applicable law, the
amount, if any, payable under the Plan upon his/her death shall be made
to the Participant's estate. If the Committee is in doubt as to the
right of any person to receive any amount, the Committee may retain such
amount, which shall continue to accrue interest, until the rights
thereto are determined, or the Committee may pay such amount into any
court of appropriate jurisdiction, and such payment shall be a complete
discharge of the liability of the Plan, the Company and the Committee
therefor. Any payment made pursuant to this subsection 8(b) of the Plan
shall be made by the Committee as soon as practicable under the
circumstances.
9. The Fund.
--------
(a) All contributions and earnings thereon may be invested in any
one or a combination of investment funds. Each Participant may elect, on
a form provided by the Committee, to invest his/her Excess Before-Tax
Contributions and the Excess Company Matching Contribution made on
his/her behalf in any one or a combination of investment funds. Such
election must be made on or before the date established by the Committee
which falls in the last quarter of the calendar year preceding the
calendar year for which the election is effective. Such an election may
be
76
<PAGE>
modified on a quarterly basis. Separate Accounts shall be maintained
for each Participant. These Accounts shall represent the Participant's
individual interest in the Fund.
Any investment funds offered by T. Rowe Price will be available
for selection as the investment vehicle(s) for the Participants'
Accounts.
(b) The Fund shall remain an asset of the Company and shall be
subject to the claims of its general creditors. Each Participant shall
have no greater right or status than as an unsecured creditor of the
Company with respect to any amounts owed to such Participant from the
Fund.
10. Hardship; Discretionary Revision of Payments. If the Committee
--------------------------------------------
determines that payment of the Participant's Account in accordance with
the schedule of payments designated by the Participant would, for
whatever reason, result in a gross hardship on the Participant or the
estate or beneficiary or beneficiaries of the Participant, the
Committee, upon a showing of gross hardship by the Participant or the
Participant's beneficiary or beneficiaries or legal representative, in
its absolute discretion, may revise such schedule of payments to the
extent necessary to alleviate the hardship.
11. Amendment and Termination. The Company reserves the right to amend
-------------------------
this Plan at any time and from time to time in any fashion, and to
terminate it at will. No amendment to or discontinuance or termination
of the Plan shall adversely affect any rights of such Participant with
respect to amounts previously credited to such Participant's Account.
12. Nonalienation of Benefits. All payments to persons entitled to benefits
-------------------------
hereunder shall be made to such persons and shall not be alienable,
transferable or otherwise assignable in anticipation of payment thereof,
in whole or in part, by the voluntary or involuntary acts of any such
persons, or by operation of law, and shall not be liable or taken for
any obligation of such person.
13. Administration.
--------------
(a) This Plan shall be administered by the Committee, which shall be
responsible for the interpretation of the Plan and establishment of the
rules and regulations governing Plan administration. Any decision or
action made or taken by the Committee, arising out of or in connection
with the construction, administration or interpretation of the Plan or
of its rules and regulations, shall be conclusive and binding upon all
Participants and former Participants unless otherwise determined by the
Company's Board of Directors. All expenses of administering the Plan
shall be paid by the Company and shall not affect the Participants'
right to or amount of benefits.
(b) Neither the Committee nor any member thereof nor the Company
shall be liable for any action or determination made in good faith
with respect to the Plan or the rights of any person under the Plan.
(c) The Committee or persons designated by it shall keep such
records as may be necessary for the administration of the Plan and shall
furnish Participants such periodic statements as it may determine to be
necessary or desirable to show their interests in the Plan.
(d) The Committee shall have the power to make such adjustments to
the terms of the Plan, and to make such interpretations of the terms
of the Plan, as are necessary to effectuate the purposes of the Plan.
77
<PAGE>
14. Appeals Procedure. The Committee shall provide any Participant whose
-----------------
claim for benefits under the Plan has been denied with adequate notice
of and shall afford such Participant an opportunity for full and fair
review of such denial.
15. No Contract of Employment. Nothing contained herein shall be construed
-------------------------
as conferring upon any person the right to be employed or continue in
the employ of the Company.
16. Withholding Taxes. The Company shall have the right to withhold taxes
-----------------
from any Excess Company Matching Contributions, Excess Before-Tax
Contributions, and any payments made pursuant to the Plan, or make such
other provisions as it deems necessary or appropriate to satisfy its
obligations to withhold federal, state, local or foreign income or other
taxes as a result of this Plan.
17. Notices. Each Participant shall be responsible for furnishing the
-------
Committee with the current and proper address for the mailing of notices
and delivery of agreements and payments. Any notice required or
permitted to be given shall be deemed given if directed to the person to
whom addressed at such address and mailed by regular United States mail,
first-class and prepaid. If any item mailed to such address is returned
as undeliverable to the addressee, mailing will be suspended until the
Participant furnishes the proper address.
18. Severability of Provisions. If any provision of this Plan shall be held
--------------------------
invalid or unenforceable, such invalidity or unenforceability shall not
affect any other provisions hereof, and this Plan shall be construed and
enforced as if such provisions had not been included.
19. Headings and Captions. The headings and captions herein are provided
---------------------
for reference and convenience only, shall not be considered part of
the Plan, and shall not be employed in the construction of the Plan.
20. Applicable Law. This plan shall be construed under the laws of the
--------------
State of Colorado, to the extent not preempted by the Employee
Retirement Income Security Act of 1974 or other federal law.
IN WITNESS WHEREOF, the foregoing Plan is adopted this 13th day of
September, 1994.
CYPRUS AMAX MINERALS COMPANY
By: /s/ GERARD H. PEPPARD
----------------------
[CORPORATE SEAL]
Attest: /s/ PHILIP C. WOLF
-------------------
Secretary
78
<PAGE>
EXHIBIT 11
CYPRUS AMAX MINERALS COMPANY
COMPUTATION OF PER SHARE EARNINGS
(IN MILLIONS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Income (Loss) Before Cumulative Effect of Accounting
Changes................................................. 175 $ 100 $(246)
Cumulative Effect of Accounting Changes/(1)/............. - - (88)
------ ------ ------
Net Income (Loss)........................................ 175 100 (334)
Preferred Stock Dividends................................ (18) (2) (11)
------ ------ ------
Income (Loss) Applicable to Common Shares................ $ 157 $ 98 $(345)
Primary:
Average Common Shares Outstanding 92.4 53.0 40.8
Fully Diluted:
Average Common Shares Outstanding..................... 92.4 53.0 40.8
Common Stock Equivalents-Options...................... .4 .2 .5
Conversion of Series A Preferred Stock................ 9.6 1.3 -
Conversion of Series B Preferred Stock................ - - 6.3
====== ====== ======
Fully Diluted Average Common Shares Outstanding....... 102.4 54.5 47.6
Earnings (Loss) Per Share:
Using Average Common Shares Outstanding:
Income (Loss) Before Cumulative Effect of Accounting
Changes.............................................. $ 1.69 $1.85 $ $(6.31)
Cumulative Effect of Accounting Changes/(1)/.......... - - (2.15)
====== ====== ======
$ 1.69 $1.85 $ $(8.46)
Using Fully Diluted Average Common Shares Outstanding:
Income (Loss) Before Cumulative
Effect of Accounting Changes......................... $ 1.71 $1.84 $ $(5.17)
Cumulative Effect of Accounting
Changes/(1)/......................................... - - (1.84)
------ ------ ------
$1.71/(2)/ $1.84/(2)/ $(7.01)/(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 were anti-dilutive in 1994 and 1992 and
less than three percent different than primary earnings per share in 1993.
79
<PAGE>
ENVIRONMENTAL
SOUND ENVIRONMENTAL PRACTICE IS A COMPANY-WIDE PRIORITY
Considerable attention is given to improving environmental management systems at
Cyprus Amax. This ranges from programs of environmental awareness training for
employees at operating locations to environmental performance audits coordinated
by the corporate office. All are directed toward meeting the objectives outlined
by our company-wide environmental policy. Environmental spending topped $107
million in 1994 and is expected to exceed $120 million in 1995.
In Kentucky, the State fish and wildlife agency, along with the University of
Kentucky, worked with Cyprus Amax Coal Company at its Mountain Coals operations
to develop a 16,000-acre wildlife management area that was dedicated in 1994.
In Colorado, Cyprus Amax Coal granted to the State a permanent conservation
easement on more than 600 acres of prime winter range for elk, near Steamboat
Springs.
At international projects, environmental studies continued at El Abra in Chile,
Cerro Verde in Peru and Kubaka in the Magadan region of Russia. Cyprus Amax
routinely undertakes environmental audits and assessments at all locations to
ensure that good environmental engineering practices are incorporated at an
early stage of new mine planning and development.
[Photo Appears Here]
Before and after reclamation of tailings slopes by four-legged organic soil
builders (cows) at Miami, Arizona.
22
<PAGE>
REPORTS OF MANAGEMENT AND INDEPENDENT ACCOUNTANTS
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 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 LLP,
whose appointment is ratified by the shareholders at the annual shareholders'
meeting. Price Waterhouse LLP 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 LLP 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, 1994 and 1993, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 1994, 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 Note 1 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" and No.
112, "Employers' Accounting for Postemployment Benefits," all retroactive to
January 1, 1992.
/s/ PRICE WATERHOUSE LLP
Denver, Colorado
February 17, 1995
23
<PAGE>
SELECTED FINANCIAL DATA/(1)/
<TABLE>
<CAPTION>
(In millions except as noted and per share data) 1994 1993 1992 1991 1990 1989 1988 1987 1986
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA
REVENUE $2,788 $1,763 $1,641 $1,657 $1,866 $1,790 $1,327 $ 795 $ 811
COSTS AND EXPENSES
Cost of Sales 2,083 1,333 1,286 1,323 1,423 1,241 921 628 639
Selling and Administrative Expenses 99 70 77 97 81 103 92 61 67
Depreciation, Depletion, and Amortization 253 145 128 119 118 94 64 54 56
Write-Downs 10 - 410 35 82 4 9 - -
Merger and Reorganization Expenses 13 33 29 - - - - - -
Exploration Expense 23 25 19 21 14 15 12 9 8
Total Costs and Expenses 2,481 1,606 1,949 1,595 1,718 1,457 1,098 752 770
INCOME (LOSS) FROM OPERATIONS 307 157 (308) 62 148 333 229 43 41
Other Income (Expense)
Interest Income 17 7 3 5 8 13 6 2 4
Interest Expense (107) (42) (19) (22) (19) (12) (15) (11) (16)
Capitalized Interest 16 1 3 5 - - - - -
Gain (Loss) on Equity Investments and Other (12) 8 (8) 4 (13) (7) (1) (1) -
Income (Loss) from Continuing Operations
Before Income Taxes 221 131 (329) 54 124 327 219 33 29
Income Tax (Provision) Benefit (55) (31) 83 (11) (13) (92) (49) (7) (8)
Income (Loss) from Continuing Operations 166 100 (246) 43 111 235 170 26 21
Income from Operations of
Discontinued Oil and Gas Division,
Net of Applicable Taxes of $2 9 - - - - - - - -
Income (Loss) Before Cumulative Effect
of Accounting Changes/(2)/ 175 100 (246) 43 111 235 170 26 21
Cumulative Effect of Accounting Changes/(3)/ - - (88) - - (70) - - -
Net Income (Loss) 175 100 (334) 43 111 165 170 26 21
Preferred Stock Dividends (18) (2) (11) (15) (15) (15) (6) - -
Income (Loss) Applicable to Common Shares $ 157 $ 98 $ (345) $ 28 $ 96 $ 150 $ 164 $ 26 $ 21
</TABLE>
On November 15, 1993, Amax was merged into Cyprus, and therefore the 1994
results included a full year of Amax operations for revenue of $888 million
whereas the 1993 results included Amax for the 47-day period following the
merger. The 1994 results also included after-tax gains of $13 million for
various special items, including: (i) $21 million gain on the sale of the Iron
Ore business; (ii) $9 million gain on the sale of Cyprus Amax's interest in an
Australian exploration project; (iii) $9 million charge for workforce reduction
programs at two copper operations; and (iv) $8 million charge for a write-down
of the Orchard Valley coal mine due to closure. The merger contributed revenue
of $140 million for 1993, and the impact on earnings was immaterial, excluding
indirect merger expenses. 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 1993 which had
contributed approximately $30 million and $25 million to revenue 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 mid-1992, Cyprus sold its talc operations, which had 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. In 1988, Cyprus acquired the Cyprus Miami copper operations and the
lithium operations. In 1986, Cyprus acquired its Sierrita copper/molybdenum
mine.
24
<PAGE>
Selected Financial Data (Continued)/(1)/
<TABLE>
<CAPTION>
(In millions except as
noted and per share data) 1994 1993 1992 1991 1990 1989 1988 1987 1986
------ ------ ------ ------ ------ ----- ------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE DATA
Primary Earnings (Loss)
Per Common Share
Income (Loss) from
Continuing Operations $ 1.59 $ 1.85 $(6.31) $ 0.72 $ 2.38 $ 5.67 $ 4.21 $ 0.68 $ 0.54
Income from Operations of
Discontinued
Oil and Gas Division .10 - - - - - - - -
Cumulative Effect of
Accounting Changes - - (2.15) - - (1.80) - - -
Net Income (Loss) $ 1.69 $ 1.85 $(8.46) $ 0.72 $ 2.38 $ 3.87 $ 4.21 $ 0.68 $ 0.54
------ ------ ------ ------ ------ ------ ------ ------ ------
Cash Dividends Per Common
Share $ 0.90 $ 0.80 $ 0.85 $ 0.80 $ 0.80 $ 0.73 $ 0.20 $ - $ -
------ ------ ------ ------ ------ ------ ------ ------ ------
CONSOLIDATED BALANCE SHEET
DATA
Cash and Cash Equivalents $ 139 $ 96 $ 116 $ 98 $ 39 $ 44 $ 163 $ 8 $ 60
Working Capital $ 423 $ 41 $ 336 $ 299 $ 336 $ 251 $ 343 $ 243 $ 235
Total Assets $5,407 $5,618 $1,709 $1,984 $1,919 $1,841 $1,651 $1,148 $1,106
Long-Term Debt $1,191 $1,278 $ 232 $ 239 $ 246 $ 108 $ 120 $ 115 $ 115
Capital Lease Obligations $ 200 $ 69 $ - $ - $ - $ - $ - $ - $ -
Shareholders' Equity $2,329 $2,217 $ 923 $1,290 $1,284 $1,294 $1,204 $ 850 $ 817
------ ------ ------ ------ ------ ------ ------ ------ ------
OTHER FINANCIAL DATA
Book Value Per Common
Share $23.39 $22.49 $21.22 $30.23 $30.33 $28.69 $25.62 $21.95 $21.34
Long-Term Debt/Total
Capitalization 37.4% 37.8% 20.1% 15.6% 16.1% 7.7% 9.1% 12.0% 12.3%
Current Ratio 1.7:1 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 $ 110 $ 74 $ 143 $ 285 $ 199 $ 304 $ 271 $ 62 $ 85
------ ------ ------ ------ ------ ------ ------ ------ ------
CLOSING STOCK PRICE-COMMON
STOCK/(4)/
High $ 33-1/8 $ 36-3/8 $ 32 $ 25-3/8 $ 28-1/2 $ 33 $ 24 $ 20 $ 16-1/2
Low $ 23-7/8 $ 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)/ Selected financial data reflects nine years of information subsequent to
the Company's spin-off in July 1985.
/(2)/ Financial information reflects the after-tax gain of $13 million for
various special items for 1994, an 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.
/(3)/ 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. Also in 1992, the Company adopted SFAS No. 109,
"Accounting for Income Taxes." 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.
/(4)/ Stock prices prior to June 1989 have been restated to reflect the stock
split.
25
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
RESULTS OF OPERATIONS FOR THE THREE YEARS ENDED DECEMBER 31, 1994
Cyprus Amax reported 1994 earnings of $175 million, or $1.69 per share compared
to 1993 earnings of $100 million, or $1.85 per share and a 1992 loss of $334
million. The 1994 results included a net $13 million after-tax gain for the
following special items: (i) $21 million gain on the sale of the Iron Ore
business; (ii) $9 million gain on the sale of Cyprus Amax's interest in an
Australian exploration project; (iii) $9 million charge for workforce reduction
programs at two copper operations; and (iv) $8 million charge for a write-down
of the Orchard Valley coal mine due to closure.
The 1993 results included $25 million of after-tax indirect expenses resulting
from the merger with Amax and $75 million after-tax income from the sale of
Cyprus' LTV bankruptcy claims. Results for 1992 included after-tax charges of
$426 million for write-downs, reorganization expense, and the cumulative effect
of accounting changes.
<TABLE>
<CAPTION>
SELECTED RESULTS (In millions except per share data)
1994 1993 1992
------ ------ -------
<S> <C> <C> <C>
Revenue $2,788 $1,763 $1,641
Net Income (Loss) $ 175 $ 100 $ (334)
Earnings (Loss) per Share $1.69 $1.85 $(8.46)
NOTE: SUPPLEMENTAL DATA (In millions)
1994 1993 1992
------ ------ ------
Special Items, Net of Tax-
Income (Loss) $ 13 $ 50 $ (426)
Net Income Excluding Special Items $ 162 $ 50 $ 92
</TABLE>
Improved earnings in 1994 resulted from higher average copper realizations of
15 cents per pound, improved molybdenum results, lower copper cost of sales of 3
cents per pound, the inclusion of Amax operations for a full year and
significant improvement in Cyprus Amax's Eastern coal operations. The decline in
earnings per share reflects the impact of the shares issued to complete the
merger.
The earnings change in 1993 compared to 1992 was due principally to the
absence of the 1992 write-downs, reorganization charge and accounting changes,
and the 1993 LTV gain of $75 million, partially offset by 10 cents per pound
lower 1993 average copper realizations and indirect merger costs.
The 1992 charges to earnings included: (i) an after-tax charge of $315 million
to recognize asset write-downs and other charges, reflecting weakened market
conditions in certain regional coal markets and the steel industry; (ii) the
adoption of new accounting standards for postretirement and postemployment
benefits, resulting in an $88 million after-tax charge; and (iii) reorganization
expense provisions totalling $23 million after tax primarily for company-wide
personnel reductions.
Revenue in 1994 of $2,788 million was 58 percent higher than the 1993
revenue of $1,763 million because of the inclusion of revenue from the former
Amax operations of $888 million for a full year, higher copper realizations of
15 cents per pound, higher copper sales of 79 million pounds and increased
molybdenum realizations of $1.15 per pound, partially offset by the absence of
the $104 million sale of the LTV bankruptcy claims.
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 and $104 million from the sale of the LTV bankruptcy
claims, partially offset by lower copper revenue of $85 million due to lower
copper prices and sales.
The supplemental data presented herein is provided to explain further the
Company's current operating results. Special Items are presented net of tax and
are not necessarily infrequent or unusual in the mining industry.
CYPRUS AMAX MERGER-HISTORICAL AND CURRENT
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. 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 or AGI) 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.
Subsequent to the merger, the Company moved rapidly to integrate the two
organizations. Restructuring and cost reductions related to the merger and other
pre-merger cost reductions resulted in the elimination of more than 2,000 jobs
and reduced the workforce to approximately 9,500 employees. This has been a two-
year process, which has yielded pretax savings of $200 million a year.
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 34 to 37, the information on
write-downs in Note 4 and industry segments in Note 19 to the Consolidated
Financial Statements, and the supplemental information on mineral reserves and
selected operating statistics.
26
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
<TABLE>
<CAPTION>
SUMMARY RESULTS (in millions)
1994 1993 1992
----- ----- ------
<S> <C> <C> <C>
Segment Operating Income (Loss)
Copper/Molybdenum $ 206 $ 55 $ 38
Coal 106 142 (267)
Other 40 20 (29)
----- ----- -----
Total Segment Operating Income (Loss) $ 352 $ 217 $(258)
===== ===== =====
NOTE: SUPPLEMENTAL DATA (in millions)
1994 1993 1992
----- ----- -----
Segment Earnings Excluding Special Items
Copper/Molybdenum $ 219 $ 55 $ 116
Coal 116 41 41
Other 1 20 12
----- ----- -----
Total Segment Earnings $ 336 $ 116 $ 169
===== ===== =====
</TABLE>
The Copper/Molybdenum operating income reached $206 million, which was
$151 million higher than 1993 earnings of $55 million. Earnings improved due to
higher copper realizations, improved molybdenum results and lower copper cost of
sales, partially offset by a $13 million pretax charge for workforce reduction
programs at Miami and Bagdad during the third quarter. Coal reported segment
operating income of $106 million in 1994 compared to 1993 earnings of $142
million. The 1993 earnings included a $104 million pretax gain on the sale of
the LTV bankruptcy claims and merger costs of $3 million. Operating earnings,
excluding the 1993 special items, in 1994 were higher due primarily to the
addition of the Amax operations and significant improvement in Cyprus Amax's
eastern operations. Partially offsetting was a $10 million pretax write-down of
the Orchard Valley mine. The Other segment (lithium, iron ore, exploration, and
businesses sold/non-operating) reported operating income of $40 million compared
to $20 million in 1993. Lithium earned a record $23 million in 1994. Iron Ore
earnings were $34 million and included the $28 million pretax gain on the sale
of the business in September 1994. Exploration expense of $12 million was $13
million lower than the 1993 expense due to the $11 million pretax gain on the
sale of Cyprus Amax's interest in an Australian exploration project in the third
quarter of 1994. Partially offsetting was the absence of $7 million of Gold
income as a result of the sale of interests in two gold mines in 1993.
<TABLE>
<CAPTION>
COPPER/MOLYBDENUM
SELECTED COPPER/MOLYBDENUM DATA (In millions)
1994 1993 1992
------ ----- -----
<S> <C> <C> <C>
Revenue $1,327 $ 831 $ 887
Segment Operating Income $ 206 $ 55 $ 38
Total Copper Production, Lbs. 648 632 662
Total Copper Sales, Lbs. 831 752 765
Produced Copper Sales, Lbs. 645 647 608
Total Molybdenum Production, Lbs. 57 28 40
Total Molybdenum Sales, Lbs. 90 36 35
Produced Molybdenum Sales, Lbs. 77 36 35
Average Copper Sales
Realization, $/Lb. $ 1.09 $ .94 $1.04
Copper Cash Cost, $/Lb. $ .69 $ .72 $ .73
Copper Full Mine Cost, $/Lb. $ .77 $ .77 $ .78
Average Molybdenum
Realization, $/Lb. $ 4.05 $2.90 $2.65
</TABLE>
The Copper/Molybdenum segment reported operating income of $206 million in
1994, $151 million higher than 1993 earnings of $55 million. The increase was
attributed to higher copper realizations of 15 cents per pound, improved
molybdenum results and lower copper cost of sales of three cents per pound,
partially offset by a $13 million pretax charge for workforce reduction programs
at Miami and Bagdad during the third quarter of 1994. The workforce reductions
are projected to save approximately $10 million annually.
<TABLE>
<CAPTION>
NOTE: SUPPLEMENTAL DATA (In millions)
1994 1993 1992
------ ----- -----
<S> <C> <C> <C>
Special Items-Earnings (Loss) $ (13) $ - $ (78)
Segment Earnings Excluding
Special Items $ 219 $ 55 $ 116
</TABLE>
The 1994 Special Items were for the workforce reduction programs at Miami and
Bagdad. The 1992 Special Items included $66 million for write-downs primarily
for the Thompson Creek molybdenum operation in Idaho and $12 million for
reorganization charges.
Copper realizations in 1994 averaged $1.09 per pound for the year, which was
15 cents per pound higher than 1993. Cyprus Amax continued to buy copper puts to
provide price protection, which ensures a minimum average realization on a
London Metals Exchange (LME) basis of an average of $1.05 per pound on 250
million pounds for the second half of 1995, an average of 85 cents per pound on
the remaining 1995 sales and an average of 90 cents per pound (LME basis) on
about 600 million pounds for 1996. Additionally, in December 1994, Cyprus Amax
sold forward 1995 production of 90 million pounds of copper on both the LME and
COMEX with prices ranging from $1.24 (LME) to $1.30 (COMEX) per pound and 1996
production of 46 million pounds at a price of $1.07 (LME) per pound.
27
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
For the year, net cash costs decreased to 69 cents compared to 72 cents per
pound in 1993. The reduction was due primarily to increased by-product credits
for molybdenum and benefits from cost reduction programs, partially offset by
more representative ore grades mined at Bagdad and Sierrita in 1994 and cost
inflation. Excluding the Cerro Verde development project and the Tohono test
project, which increased average costs segment-wide by two cents per pound, full
year 1994 cash costs would have been 67 cents per pound. Cost of sales declined
three cents per pound to 78 cents in 1994. Also in 1994, the Arizona copper
mines increased mining and milling productivity (tons per manshift) by 35
percent. Domestic copper production per employee increased 17 percent including
by-product molybdenum equivalents. These improvements were a direct result of
the truck and shovel fleet modernization program, mill expansions, continued
workforce reductions and restructuring of production activities. Productivity
increases, with their associated cost reductions, helped to offset the impact of
lower ore grades at Bagdad and Sierrita in 1994 and will help mitigate the
impact of expected lower grades and higher stripping ratios in 1995.
Copper production totalled 648 million pounds for the year compared to 632
million pounds in 1993, due primarily to the addition of Cerro Verde and Tohono
production, partially offset by the effect of lower copper grades at Bagdad and
Sierrita. Copper production early in the year lagged expectations due to
lingering effects of 1993 rains at Miami and initial start-up difficulties in
expanding production at Bagdad and Sierrita. In early 1995, mill throughput at
both operations was at or above planned capacity. In 1995, Cyprus Amax expects
total copper production to increase to about 675 million pounds, even though the
Company plans to temporarily forego some production of copper to increase
molybdenum production at Sierrita.
Cyprus Amax's copper reserves of approximately 23.8 billion pounds increased
by nearly 74 percent from 13.7 billion pounds in 1993. The increase is due to
the addition of El Abra and Cerro Verde reserves. Molybdenum reserves were 2.1
billion pounds at December 31, 1994.
COMEX copper prices averaged $1.07 per pound for 1994 as prices increased
dramatically in the fourth quarter. Refined copper demand in 1994 was strong.
For the second year in a row, consumption by U.S. fabricators increased about 10
percent. In addition, strong demand growth in the United States and developing
economies of eastern Asia, a better-than-expected recovery in Europe and a
modest turnaround in Japan helped to boost refined copper consumption in the
western world by more than five percent. Equally positive for the copper markets
was the fact that refined copper production increased only about one percent in
1994. Overall, COMEX and LME combined inventories declined by about 50 percent
during the year. Year-end 1994 exchange inventories were at the lowest level
since mid-1992.
Worldwide economic growth and strong copper market fundamentals continue to
suggest a positive outlook. Western world refined copper demand is expected to
increase by three to four percent in 1995, and the world copper market should be
able to absorb probable increased growth in western production.
Total copper sales of 831 million pounds were 79 million pounds higher than
the 752 million pounds sold in 1993. Purchases of 186 million pounds to meet the
timing of sales commitments were considerably higher than in 1993. Produced
copper sales of 645 million pounds for 1994 were comparable to the 1993 produced
sales of 647 million pounds. Copper inventories at year-end were slightly higher
than the 1993 level but molybdenum inventories declined by 36 percent reflecting
strong customer demand.
Construction of a new electrorefinery at Miami was completed in October 1994,
on schedule and on budget. The refinery is expected to make Cyprus Amax self-
sufficient in refining and to lower cash costs by two cents per pound on
company-wide production, when operating at full capacity. The Miami smelter
operated essentially at design capacity when the process was uninterrupted by
leaks in the off-take gas cooling hood. A smelter turnaround began in mid-
January 1995, and full production resumed in mid-February. In addition to normal
annual maintenance, the newly designed cooling hood was installed.
At Cyprus Tohono, a test leach program is underway to evaluate the feasibility
of a large open pit and SX-EW operation to exploit the 600 million ton copper
resource. A feasibility study is expected to be completed by mid-year 1995 that
may indicate potential production of more than 100 million pounds of copper
cathode annually by the late 1990s.
In June 1994, Cyprus Amax acquired a 51 percent interest in El Abra, a
significant copper deposit in Chile, at a cost of $330 million. The total
commitment to develop this world-class leachable oxide copper operation is about
$1 billion, which will include approximately $300 million of subordinated
shareholder loans from Cyprus Amax and approximately $700 million of limited
recourse debt financing to be guaranteed by Cyprus Amax until project
completion. The feasibility study is completed, and construction is underway.
This oxide project has about 450 million tons of identified leach reserves
(Cyprus Amax's share). It should produce annually about 250 million pounds of
copper (Cyprus Amax's share) beginning in mid-1997. Once developed, Cyprus Amax
expects initial cash costs over the first several years to be near 35 cents per
pound. The average cash operating costs for the first ten years are projected at
42 cents per pound. Management expects that further drilling could add reserves
to this project, creating potential to increase annual production, extend mine
life and lower average operating costs. El Abra also holds longer-term sulfide
ore production potential with currently identified resources of about 500
million tons with considerable opportunity for expansion. In addition, there is
good exploration potential for additional deposits on our concession, which
totals 33,000 acres.
In March 1994, Cyprus Amax acquired approximately 91.5 percent of the shares
of Sociedad Minera Cerro Verde, S.A. (Cerro Verde), a producing copper mine in
southern Peru, at a cost of approximately $31 million. Cerro Verde is a large
copper resource with over seven billion pounds of recoverable copper. A
modernization and expansion program, which began in 1994, is designed to
increase Cerro Verde's annual production rate to more than 100 million pounds of
copper by late 1995, at an average cash cost around 50 cents per pound.
Activities in 1994 included the replacement of the mine's mobile equipment
fleet, the construction and commissioning of a tertiary crusher and
agglomeration circuit, as well as the construction of new leach pads. Expansion
and modernization activities will continue through 1995. A feasibility
28
<PAGE>
study has commenced to evaluate the economic viability of constructing a mill
and concentrator to process the large sulfide ore reserve. The feasibility study
is scheduled for completion at the end of 1995. Cyprus Amax's future investment
at Cerro Verde is conditional, based upon the results of the feasibility study,
stable copper prices, a stable political environment, and other conditions.
Molybdenum operations earned $31 million for 1994 compared to a loss of $7
million in 1993. With the addition of the Henderson mine and increased by-
product production, production increased to 57 million pounds from 28 million
pounds, and produced sales increased to 77 million pounds from 36 million for
the year. Higher production and the optimization of operations at the Henderson
mine and all downstream operations reduced 1994 costs.
Worldwide demand for molybdenum improved during 1994. Prices for molybdenum
products increased gradually during 1994 with a substantial rise in the fourth
quarter. However, because most of Cyprus Amax's business is priced one quarter
ahead, the impact of these increases will not be realized until the first
quarter of 1995. Average realizations for all Cyprus Amax molybdenum products
are expected to increase about $3 per pound during the first quarter 1995, and
demand is expected to remain strong during 1995. Cyprus Amax is continuing to
increase production to meet growing customer demand and announced in February
1995 the reopening of the Climax mine in Colorado in the second quarter of 1995.
As the world's largest producer of molybdenum-based products, Cyprus Amax
anticipates a significant earnings improvement from higher molybdenum
realizations in 1995.
Changing worldwide supply and demand and related market perceptions can have a
significant impact on copper and molybdenum prices and, as a consequence,
Copper/Molybdenum segment earnings can be expected to fluctuate, excluding the
effect of copper 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 1995 production
and sales levels. Put options in place for 1995 would offset partially the
exposure to significant price decreases. Additionally, each $1.00 per pound
change in average annual molybdenum realization or production cost results in a
change in pretax income of approximately $80 million at expected 1995 production
and sales levels.
<TABLE>
<CAPTION>
COAL
SELECTED COAL DATA (In millions)
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Revenue $1,248 $ 697 $ 463
Segment Operating Income (Loss) $ 106 $ 142 $ (267)
Coal Production, Tons
--Consolidated Coal Mines 75 27 19
--Oakbridge (40% Share) 4 2 -
Coal Sales, Tons
--Eastern Mines 28 13 10
--Powder River Basin 36 5 -
--Western Mines 12 10 9
------ ------ ------
Total Sales 76 28 19
--Oakbridge (40% Share) 5 3 -
Average Realization, $/Ton $16.12 $20.80 $23.88
Average Cash Cost, $/Ton $12.21 $17.09 $19.26
Average Unit Cost, $/Ton $14.40 $18.92 $21.32
</TABLE>
Coal reported segment operating income of $106 million for the year compared
to operating income of $142 million in 1993. The 1994 results included a $10
million pretax write-down of the Orchard Valley mine. The 1993 results included
a pretax gain of $104 million on the sale of Cyprus' LTV bankruptcy claims and
merger costs of $3 million. The 1992 full year earnings included write-downs of
$304 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, and $4
million reorganization provision for Coal.
<TABLE>
<CAPTION>
NOTE: SUPPLEMENTAL DATA (In millions)
1994 1993 1992
------ ----- ------
<S> <C> <C> <C>
Special Items-Earnings (Loss) $ (10) $ 101 $ (308)
Segment Earnings Excluding
Special Items $ 116 $ 41 $ 41
</TABLE>
Excluding the Special Items, Coal earnings reached $116 million in 1994 and
$41 million in 1993. Operating earnings in 1994 were higher due primarily to the
addition of Amax operations and significant improvement in Cyprus Amax's Eastern
operations.
As a result of the merger, both coal production and sales of 79 million tons
and 81 million tons, respectively, in 1994 were 50 million tons higher than
1993. During 1994, Cyprus Amax set 24 monthly production records. These included
two world records at Twentymile for production from a single longwall.
Additionally, seven mines set annual production records. Productivity improved
11 percent during 1994 over 1993, with further improvements expected in 1995.
These improvements resulted from workforce reductions at all levels of the
organization, work rule and scheduling changes stemming from the increased
flexibility of the 1994 contract with the UMWA, re-deployment of haul trucks and
mobile equipment to the Powder River Basin mines, and continuing investment in
technology and automation.
29
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
Additionally, average realization and average unit cost for 1994 both
decreased from 1993 due to the inclusion of Amax Powder River Basin mines in
Wyoming, which produce low-cost subbituminous coal. These mines accounted for
nearly one-half of 1994's production. Margins, however, have been maintained due
to continual focus on cost and productivity improvements.
In general, coal markets remained strong during 1994 and should remain strong
into 1995. Utility inventories remain low, and strong demand continues for
compliance quality western coals, primarily from the Powder River Basin.
Existing constraints on railroad haulage in the West, and to a lesser extent the
East, should be alleviated by mid-to-late-1995 through the addition of
locomotives, cars, and crews.
Ninety-five percent of Cyprus Amax coal is marketed to electric utilities with
the majority of customers in the United States. During 1994, Cyprus Amax
committed to 39 contracts, ranging from two to ten years, for cumulative tons of
more than 58 million, with annual tonnage of 23 million in 1995. The Company
expects that 1995 production will increase to about 86 million tons, including
Cyprus Amax's share of Oakbridge's production. Nearly 95 percent of 1995
domestic production is committed for sale, with 75 percent to be shipped under
contracts of one year or longer.
Cyprus Amax's coal reserves totalled 2.7 billion tons (including Cyprus Amax's
share of Oakbridge) at December 31, 1994. 1.7 billion tons of domestic reserves
are developed and assigned to operating mines and are composed of approximately
65 percent compliance coal, 19 percent low sulfur coal, and the remainder high
sulfur coal. Additionally, 84 percent of the Company's developed domestic coal
reserves satisfy the 2.5 pound sulfur dioxide Phase I (low sulfur) standard of
the Clean Air Act effective in 1995, and over 65 percent satisfy the 1.2 pound
sulfur dioxide Phase II (compliance) standard effective in 2000. 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.
During 1993, Cyprus acquired all of the voting stock of McIlwraith McEacharn
Ltd. of Sydney, Australia, which owned approximately 40 percent of Oakbridge
Limited, an Australian coal company. Through operation of Oakbridge, Cyprus Amax
has a significant presence in the rapidly growing market for utility steam coal
in the Pacific Rim. Oakbridge projects expansion of its existing mines from
present production of 11 million tons to over 15 million tons by 1997. In
addition, Cyprus purchased U.S. Steel Mining Co., Inc.'s Cumberland mine in
Pennsylvania and combined Cumberland's existing facilities with Cyprus' adjacent
undeveloped coal reserves near its Emerald mine.
Earnings from Cyprus Amax's Coal operations in 1993, excluding the Special
Items, were comparable to 1992. However, there were lower average realizations
in the West partially offset by higher production and resultant lowered unit
costs and the contribution from the former 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 geologic conditions earlier in the year in
Pennsylvania and a supply disruption due to the effects of Midwest flooding were
offset partially by lower unit costs.
<TABLE>
<CAPTION>
OTHER
SELECTED RESULTS (In millions)
1994 1993 1992
----- ----- -----
<S> <C> <C> <C>
Lithium $ 23 $ 22 $ 23
Iron Ore 34 13 (36)
Businesses Sold/Non-Operating (5) 10 3
Exploration (12) (25) (19)
----- ----- -----
Segment Operating Income (Loss) $ 40 $ 20 $ (29)
===== ===== =====
</TABLE>
Other, which includes Lithium, Iron Ore, Exploration, and Businesses Sold/Non-
Operating, had combined earnings for 1994 of $40 million compared to earnings of
$20 million in 1993. Lithium earned a record $23 million in 1994, $1 million
higher than in 1993. Strengthening in the aluminum, glass and ceramics
industries resulted in increased demand for lithium carbonate during 1994. In
addition, more concentrated marketing strategies resulting in higher downstream
product sales, and the firming of economies in Europe and the Far East also
contributed to Lithium's strong 1994 results. During the year, the Lithium
division incurred a $3 million charge to earnings to reorganize its U.S.
operations and further strengthen its position as the industry leader and low-
cost producer. As a result, the U.S. workforce will be reduced by 25 percent and
operating sites consolidated from seven to three locations. Cost savings
projected from these actions are over $4 million annually, of which $2 million
were realized in 1994.
On September 30, 1994, Cyprus Amax sold its Northshore iron ore mine and
processing facilities and the adjacent power plant to Cleveland-Cliffs Inc. for
cash proceeds of $94 million and other possible contingent payments. Iron Ore
earnings were $34 million and included the $28 million pretax gain on the sale
of the business in September 1994. Iron Ore earnings in 1993 were $13 million.
Businesses Sold/Non-Operating earnings in 1994 were lower as Cyprus sold its
South Pacific gold operations in the first half of 1993 and closed its
Copperstone gold operation in Arizona, which had exhausted its economic
reserves. Also included in 1994 Other earnings is certain employee retirement
costs for certain nonoperating entities assumed as part of the Amax merger.
Exploration expense of $12 million was $13 million lower than the 1993 expense
of $25 million due to the $11 million pretax gain on the sale of our interest in
an Australian exploration project in the third quarter of 1994. Exploration
expenditures primarily related to projects in Canada, the United States, Mexico,
Panama, Peru, Chile, Australia and Guinea.
30
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
<TABLE>
<CAPTION>
NOTE: SUPPLEMENTAL DATA (In millions)
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Special Items-Earnings (Loss) $ 39 $ - $ (41)
Segment Earnings (Loss) Excluding
Special Items
Lithium $ 23 $ 22 $ 23
Iron Ore 6 13 (5)
Businesses Sold/Non-Operating (5) 10 13
Exploration (23) (25) (19)
----- ----- -----
Total $ 1 $ 20 $ 12
===== ===== =====
</TABLE>
Segment income of $20 million in 1993 increased $49 million compared to a loss
of $29 million in 1992. Results for 1992 included a $31 million charge for the
write-down of iron ore assets and $10 million of reorganization expenses.
Excluding the write-downs, Other earnings were $8 million greater than 1992
earnings of $12 million due to Iron Ore, which operated at a much higher
production rate resulting in lower unit costs, reflecting higher sales volumes.
CORPORATE AND OTHER
Corporate expenses for 1994 totalled $45 million compared to $60 million in
1993. Excluding the merger and reorganization costs of $30 million, 1993
corporate expenses totalled $30 million. Expenses increased in 1994 due to the
incremental cost of the combined Cyprus Amax entity, an increase in stock
appreciation rights and incentive compensation, and cost inflation.
Corporate expenses in 1992 were $50 million, which included $14 million of
reorganization expense. Excluding the merger and reorganization costs, 1993
expense was $6 million lower than the 1992 expense of $36 million, due primarily
to lower stock appreciation rights and lower employee related expenses.
Net interest expense of $74 million for 1994 increased $40 million compared
with 1993 reflecting the assumption of Amax's debt assumed in the merger. In
addition, capitalized interest increased $15 million versus 1993 due to El Abra
mine development and the construction of the Miami refinery. Net interest
expense in 1993 compared to 1992 increased $21 million due to: inclusion of
interest expense on the Amax debt for 47 days, issuance in February and October
1993 of $150 million, 8 3/8 percent debentures due 2023, and $250 million 6 5/8
percent notes due 2005, respectively, and lower capitalized interest due to the
1992 completion of the Miami smelter expansion project.
The loss on equity investments was $12 million in 1994 compared to equity
earnings of $8 million in 1993. Cyprus Amax's equity share in Oakbridge's and
Amax Gold's 1994 losses were $1 million and $12 million, respectively. During
1994, Amax Gold focussed on cost reductions and reduced its cash costs by 12
percent and overhead expense by 18 percent. Cyprus Amax provided a $100 million
convertible line of credit, which was approved by Amax Gold's shareholders. In
February 1995, Cyprus Amax signed a commitment letter whereby the Company will
provide AGI with an additional $80 million in revolving credits, subject to AGI
shareholder approval. Cyprus Amax also purchased an additional 3 million shares
for $21 million, increasing its ownership to 42 percent, which Amax Gold used to
retire debt. In 1994, Cyprus Amax established a joint exploration agreement to
explore for gold with Amax Gold. The agreement provides to Cyprus Amax a 75
percent interest and to Amax Gold a 25 percent interest in gold prospects
resulting from future exploration. Amax Gold has a right of first refusal from
Cyprus Amax to purchase and develop gold deposits, and Cyprus Amax has a similar
right from Amax Gold with respect to base metals. Each party funds work in
proportion to its interest, and Cyprus Amax provides staffing and management.
Additionally, at December 31, 1994, Cyprus Amax had a 45 percent interest in the
Kubaka gold project, which was increased to 50 percent in early 1995.
Equity Income in 1993 included equity earnings of $4 million for Oakbridge,
which resulted primarily from unrealized gains on foreign currency hedging, $6
million of earnings in various minor equity investments, partially offset by an
equity loss of $2 million for Amax Gold for the period following the merger.
While general inflation rates have remained steady at about three percent per
year over the past three years, inflation has continued to affect costs. Higher
costs for compensation, benefits, and environmental compliance, coupled with
inflation of certain supplies and service costs, continue to increase mine
operating costs. Most of Cyprus Amax's products are commodity and market based
and, therefore, do not perform consistent with inflation. The Company is
continuing specific programs, employing capital and leveraging purchases to more
than offset these increases, as well as establishing process innovation teams to
increase productivity and reduce costs.
DISCONTINUED OPERATIONS
Discontinued Operations included income from Oil and Gas for the first quarter
of 1994 of $7 million after-tax and a $2 million after-tax gain on the sale of
Cyprus-owned oil and gas assets. On March 31, 1994, Cyprus Amax sold its Oil and
Gas business to Union Pacific Resources Company for approximately $819 million
in gross proceeds. The allocation of the purchase price to the acquired Amax Oil
and Gas assets was adjusted so that no gain or loss was recognized on this sale.
ENVIRONMENTAL
Improving environmental performance is a continuing objective of Cyprus Amax,
and good progress has been made in the face of increasingly complex
environmental regulations. Cyprus Amax promotes sound environmental practice as
an ongoing and integral part of day-to-day business activities. During 1994,
Cyprus Amax spent approximately $107 million in operating costs and capital
expenditures for reclamation, remediation, and environmental compliance compared
to 1993 environmental expenditures of about $44 million with the increase
principally a result of the merger. Environmental expenditures in 1995 should
rise to about $120 million with the increase from 1994 largely attributable to
higher costs for environmental remediation at former Amax locations and
increased spending at Arizona copper operations for facility improvements needed
to comply with Arizona's aquifer protection program.
31
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
At December 31, 1994, Cyprus Amax had accruals of approximately $404 million
for expected future mine closure, reclamation, and environmental remediation
liabilities compared to accruals of $372 million at year-end 1993. The increase
from 1993 is primarily due to the availability of additional information to
quantify further known environmental liabilities at former Amax locations and
normal additions to the reclamation reserves from coal and metal production in
1994. Significant components of the year-end 1994 accrual include $108 million
for environmental remediation at Superfund and other sites and $296 million for
future reclamation and for closure of discontinued or previously sold
operations. The reserve for future reclamation and closure includes $145 million
for coal mines and $151 million for copper and other metals mines. A significant
element of the copper and other metals reclamation reserves is $59 million for
the Climax mine, down from $89 million at the end of 1993 due to charges to the
reserve for tailings capping work in 1994 and adjustments based on revised
business plans, which include reopening the mine. The Climax reserve amount
represents Cyprus Amax's best estimate of reasonably likely costs for
reclamation, tailings drainage, and water diversion and treatment costs at the
time of closure.
Cyprus Amax or its subsidiaries have been advised by the Environmental
Protection Agency ("EPA") and several State environmental agencies that they may
be liable under the Comprehensive Environmental Response, Compensation and
Liability Act ("CERCLA")or similar State laws and regulations ("Superfund"), for
costs of correcting environmental hazards at a number of sites which have been
or are being investigated by the EPA or States to establish whether releases of
hazardous substances have occurred and, if so, to develop and implement remedial
actions. Cyprus Amax has considered the probable liability at each of these
sites in establishing the aggregate Superfund reserves of $108 million. The
Company estimates the cost range of reasonably possible outcomes for all sites
to be $70 million to $230 million. Certain Superfund sites and mine reclamation
liabilities also are discussed in Note 15 to the Consolidated Financial
Statements.
Cyprus Amax is continuing to conduct remediation studies at the Cannelton
Tannery site under provisions of Administrative Orders on Consent from the
Environmental Protection Agency first issued to Amax in 1991. This Superfund
site, located along the St. Marys River in the city of Sault Ste. Marie,
Michigan, has elevated levels of metals in soils as a result of tannery
operations which ended in about 1958. The site was acquired with Amax's
acquisition of Cannelton coal operations and Cyprus Amax Coal Company is the
only identified potentially responsible party (PRP). Although Cyprus Amax
believes that less costly remediation of this site is possible, adequate
reserves have been established as part of the aggregate to implement the EPA's
identified remedial action.
Cyprus Foote Mineral Company's closed Frazer, Pennsylvania, facility is listed
as a CERCLA Superfund site on the EPA's National Priority List as a consequence
of groundwater contamination identified at the location. Production operations
at Frazer ceased in 1991, and since then, significant surface facility cleanup
has been completed. In addition, extensive environmental investigations of the
site are continuing. Further investigations are awaiting coordination with the
EPA, and until such investigations are completed and a remediation plan agreed
to, the cost of remediation is not reasonably estimable.
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 1994. 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 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.
Cyprus Amax is continuing to conduct environmental remediation and re-develop
the Carteret, New Jersey site, a former copper smelting and metals refining
operation, under provisions of an Administrative Consent Order ("ACO") Amax
first signed with the State of New Jersey in 1988. Significant progress was made
in 1994, and about two-thirds of the site is occupied by warehouses. Site re-
development to warehouses and possible future asset sales are expected to
significantly offset the remediation costs; however, offsets have not been
recognized in establishing the reserve.
Cyprus Amax entered into an Administrative Order on Consent and Cost
Participation Agreement in 1992 with the State of New Mexico concerning the
Tererro Mine and El Molino Mill sites near the Pecos River in New Mexico. Cyprus
Amax has initiated a stabilization and remediation program at the sites for
mining wastes resulting from the 1930s operation of the mine and mill by a
subsidiary of the former American Metal Company. As the current owner of the
property, the State has a 20 percent share of the environmental remediation
costs.
LIQUIDITY AND CAPITAL RESOURCES
Cyprus Amax continues to maintain a strong financial position with a long-term
debt to total capitalization of 37 percent, a ratio of current assets to current
liabilities of 1.7 to 1.0, and a cash balance of $139 million at December 31,
1994.
During 1994, operating activities generated $331 million before changes in
working capital and capital expenditures, and $915 million from the sale of Oil
and Gas, Iron Ore and other assets, which was sufficient to finance the cash
requirements of $101 million for dividends, $361 million for two major copper
acquisitions, capital expenditures of $359 million excluding capitalized
interest, and working capital increases of $382 million. In 1994, Cyprus Amax
acquired a 51 percent interest in El Abra for $330 million and a 91.5 percent
interest in Cerro Verde for $31 million. Also in 1994, Cyprus Amax sold its non-
core Oil and Gas business for approximately $819 million in gross proceeds and
its Northshore iron ore mine and processing facilities and the adjacent power
plant for cash proceeds of $94 million.
32
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
On December 29, 1994, Cyprus Amax closed a sale and leaseback transaction for
mobile mining equipment and a longwall mining system with proceeds of $156
million. Proceeds from this transaction were used to retire $150 million of 14
1/2 percent notes which were due in December 1994.
In June 1994, Cyprus Amax filed a universal shelf registration statement with
the Securities and Exchange Commission that will enable the Company to sell an
aggregate of up to $500 million of equity and/or debt securities. This shelf
registration statement is intended to promote Cyprus Amax's financial
flexibility and the ability to access the markets on a timely basis. As of
December 31, 1994, no securities had been offered or sold under the shelf.
Non-cash working capital increased to $284 million during 1994 from a negative
$55 million in 1993. The current portion of long-term debt decreased by $154
million primarily from the repayment of $150 million of 14 1/2 percent notes in
December 1994. Accounts payable and accrued liabilities decreased $152 million
due to a $73 million federal royalty settlement with Minerals Management
Service, and the absence of Oil and Gas and Iron Ore's payables and accrued
liabilities of $64 million.
In 1994, capital expenditures, excluding capitalized interest, totalled $359
million for expansion and cost reduction investments, development and sustaining
projects. Total capital for Copper/Molybdenum was about $234 million, excluding
El Abra and Cerro Verde acquisitions. Capital to complete the new
electrorefinery at the Miami, Arizona, mine was $60 million. The modernization
and expansion program underway at Cerro Verde totalled $36 million.
Additionally, the cost for 240-ton haul trucks for the Miami and Sierrita mines
was $16 million.
Coal capital expenditures of $116 million in 1994 included new haul trucks and
mobile equipment at Belle Ayr and Eagle Butte, a new longwall unit at
Cumberland, and initial spending on a wash plant facility and a new armored face
conveyor at Twentymile.
Projected capital spending in 1995 is expected to be approximately $600
million, with Copper/Molybdenum capital expenditures estimated at $435 million.
Major expenditures include about $200 million for continued development of the
oxide ore body at El Abra and about $80 million for the SX-EW and leach plant
expansion at Cerro Verde. The total commitment to develop the El Abra oxide ore
body is $1 billion, which will include approximately $300 million of
subordinated shareholder loans from Cyprus Amax and approximately $700 million
of limited recourse debt financing, to be guaranteed by Cyprus Amax until
project completion. Cyprus Amax's planned future commitment in Cerro Verde,
including the $80 million, is approximately $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. The
Company expects to obtain project financing for the El Abra project and the
Cerro Verde expansion in 1995, which would finance the majority of these capital
expenditures. In addition, approximately $40 million will be spent to purchase
additional new trucks, shovels and other mining equipment at the Arizona copper
mines. Coal expects to spend approximately $145 million in 1995, including about
$35 million in Wyoming primarily for new mining equipment, about $45 million in
Colorado primarily for continuous haulage systems and other equipment to improve
productivity, and $35 million in Pennsylvania primarily for longwall and
continuous miner projects. In addition, potential investments of about $60
million may be required in 1995, including a $40 million loan to Amax Gold for
new mine development and about $15 million for the Kubaka gold project in
Russia.
In December 1993, Cyprus Amax signed 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 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, 1994, Cyprus Amax had no loans outstanding under
this agreement.
During 1995, Cyprus Amax 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, including project financing for El Abra and Cerro Verde.
Cyprus Amax paid regular dividends of $.80 per common share and $4.00 per
preferred share during 1994. Cyprus Amax also paid a special dividend of ten
cents per common share in the fourth quarter reflecting its confidence in the
progress underway and its view of the strong and profitable growth ahead for the
Company.
In February 1995, Cyprus Amax signed a commitment letter whereby the Company
will provide AGI with an additional $80 million in revolving credits which may
be repaid with the issuance of AGI Convertible Preferred Stock. Both companies
have conversion rights that permit conversion of the line of credit into Amax
Gold Common Stock, with Cyprus Amax's conversion right at $5.362 per share and
Amax Gold's conversion right at $4.196 per share. This new revolving credit is
subject to approval by the shareholders of Amax Gold.
33
<PAGE>
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Year ended December 31 (In millions except per share data) 1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Revenue $2,788 $1,763 $1,641
------- ------- -------
COSTS AND EXPENSES
Cost of Sales 2,083 1,333 1,286
Selling and Administrative Expenses 99 70 77
Depreciation, Depletion, and Amortization 253 145 128
Write-Downs 10 - 410
Merger and Reorganization Expenses 13 33 29
Exploration Expense 23 25 19
------- ------- -------
TOTAL COSTS AND EXPENSES 2,481 1,606 1,949
------- ------- -------
INCOME (LOSS) FROM OPERATIONS 307 157 (308)
OTHER INCOME (EXPENSE)
Interest Income 17 7 3
Interest Expense (107) (42) (19)
Capitalized Interest 16 1 3
Gain (Loss) on Equity Investments and Other (12) 8 (8)
------- ------- -------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES 221 131 (329)
Income Tax (Provision) Benefit (55) (31) 83
------- ------- -------
INCOME (LOSS) FROM CONTINUING OPERATIONS 166 100 (246)
Income from Operations of Discontinued Oil and
Gas Division,
Net of Applicable Taxes of $2 9 - -
------- ------- -------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGES 175 100 (246)
Cumulative Effect of Accounting Changes for
Benefits, Net of Tax of $29 - - (88)
------- ------- -------
NET INCOME (LOSS) 175 100 (334)
Preferred Stock Dividends (18) (2) (11)
------- ------- -------
INCOME (LOSS) APPLICABLE TO COMMON SHARES $ 157 $ 98 $ (345)
------- ------- -------
EARNINGS (LOSS) PER COMMON SHARE
Primary and Fully Diluted/(1)/
Income (Loss) from Continuing Operations $1.59 $1.85 $(6.31)
Income from Operations of Discontinued Oil and
Gas Division, Net of Taxes .10 - -
Cumulative Effect of Accounting Changes for
Benefits, Net of Taxes - - (2.15)
------- ------- -------
$1.69 $1.85 $(8.46)
------- ------- -------
Weighted Average Common Shares Outstanding
Primary 93 53 41
Fully Diluted 102 54 48
</TABLE>
/(1)/ Fully diluted earnings per share were anti-dilutive in 1994 and 1992 and
were less than three percent different than primary earnings per share in
1993.
The accompanying notes are an integral part of these statements.
34
<PAGE>
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
At December 31 (In millions except share amounts) 1994 1993
------ ------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents $ 139 $ 96
Accounts and Notes Receivable, Net 350 385
Inventories 453 462
Prepaid Expenses 73 58
Deferred Income Taxes 26 -
------ ------
Total Current Assets 1,041 1,001
------ ------
PROPERTIES-AT COST, NET 3,925 4,334
OTHER ASSETS 441 283
------ ------
TOTAL ASSETS $5,407 $5,618
------ ------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current Portion of Long-Term Debt $ 21 $ 180
Current Portion of Production Payments 47 42
Accounts Payable 144 187
Accrued Payroll and Benefits 92 98
Accrued Royalties and Interest 36 118
Other Accrued Liabilities 142 163
Taxes Payable, Other Than Income Taxes 61 64
Income Taxes Payable 57 88
Dividends Payable 18 20
------ ------
Total Current Liabilities 618 960
------ ------
NONCURRENT LIABILITIES AND DEFERRED CREDITS
Long-Term Debt 955 995
Production Payments 236 283
Capital Lease Obligations 200 69
Deferred Employee and Retiree Benefits 405 435
Deferred Closure, Reclamation, and Environmental 368 358
Deferred Income Taxes 125 172
Other 171 129
Commitments and Contingencies (Notes 15 and 17) - -
------ ------
Total Noncurrent Liabilities and Deferred Credits 2,460 2,441
------ ------
SHAREHOLDERS' EQUITY
Preferred Stock, $1 Par Value, 20,000,000 Shares
Authorized:
$4.00 Series A Convertible Stock, $50 Stated Value,
4,666,635 Shares Issued in 1994 and 4,666,653 in 1993 5 5
Common Stock, Without Par Value, 150,000,000 Shares
Authorized,
96,026,546 Shares Issued in 1994 and 96,027,224 in 1993 1 1
Paid-In Surplus 2,962 2,962
Accumulated Deficit (496) (571)
Foreign Currency Translation Adjustment 6 (2)
------ ------
2,478 2,395
Treasury Stock at Cost, 3,460,078 Shares in 1994 and
4,491,112 in 1993 (80) (103)
Loan to Savings Plan (69) (75)
------ ------
Total Shareholders' Equity 2,329 2,217
------ ------
Total Liabilities and Shareholders' Equity $5,407 $5,618
------ ------
</TABLE>
The accompanying notes are an integral part of these statements.
35
<PAGE>
cONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31 (In millions) 1994 1993 1992
----- ----- -----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income (Loss) from Continuing Operations $ 166 $ 100 $(334)
Adjustments to Reconcile Net Income (Loss) to Net
Cash Provided by Continuing Operations:
Cumulative Effect of Accounting Changes - - 88
Depreciation, Depletion, and Amortization 253 145 128
Write-Downs 10 - 410
Deferred Income Taxes (30) 20 (95)
Gain on Sale of Assets and LTV Claim (43) (109) -
Issuance of Stock for Employee Benefits 20 8 7
Other, Net 39 11 24
Changes in Assets and Liabilities Net of Effects from
Businesses Acquired/Sold:
Increase in Receivables (21) (36) (28)
(Increase) Decrease in Inventories (9) 47 (25)
Increase in Prepaid Expenses (29) (25) (1)
Decrease in Current Liabilities (100) (57) (8)
Increase in Other Assets (35) (17) (18)
Decrease in Other Liabilities (70) (13) (5)
----- ----- -----
NET CASH PROVIDED BY CONTINUING OPERATIONS 151 74 143
Net Income from Discontinued Operations 9 - -
Adjustments to Reconcile Net Income to Net Cash Provided
by Discontinued Operations:
Depreciation, Depletion, and Amortization 14 - -
Changes in Assets and Liabilities (62) - -
Other (2) - -
----- ----- -----
NET CASH USED FOR DISCONTINUED OPERATIONS (41) - -
NET CASH PROVIDED BY OPERATING ACTIVITIES 110 74 143
----- ----- -----
CASH FLOWS FROM INVESTING ACTIVITIES
Capital Expenditures (359) (266) (156)
Payments for Businesses Purchased (361) (167) -
Capitalized Interest (16) - (3)
Advances and Investments to Affiliates, Net (75) - -
Proceeds from Sale of Assets and LTV Claims 915 285 85
----- ----- -----
NET CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES 104 (148) (74)
----- ----- -----
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from Sale Leaseback 156 - -
Net Proceeds from Issuance of Long-Term Debt - 394 -
Payments on Long-Term Debt (186) (65) (7)
Net Borrowings on Line of Credit 151 - -
Payments on Short-Term Borrowings (151) (222) -
Production Payments (42) (7) -
Payments on Capital Lease Obligations (5) (1) -
Purchase of Treasury Stock - (5) -
Proceeds from Issuance of Stock for Employee Benefits 7 2 5
Dividends Paid (101) (42) (49)
----- ----- -----
NET CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES (171) 54 (51)
----- ----- -----
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 43 (20) 18
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 96 116 98
----- ----- -----
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 139 $ 96 $ 116
----- ----- -----
</TABLE>
The accompanying notes are an integral part of these statements.
36
<PAGE>
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 millions) Outstanding Amount Outstanding Amount Surplus Deficit Adjustment Stock Plan
----------- ------ ----------- ------ ------- ----------- ----------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
December 31, 1991 4 $ 197 39 $1 $1,529 $(242) $ - $(108) $(86)
Net Loss (334)
Dividends
Preferred Stock, Series B (11)
Common Stock (35)
Common Stock Issued for
Employee
Benefit Plans and Exercise
of
Stock Options 8 6
Conversion and Redemption
of Preferred
Stock, Series B for Common
Shares (4) (197) 8 196
----------- ------ ---------- ------ ------- ----------- ----------- -------- -------
December 31, 1992 - - 47 1 1,725 (622) - (100) (80)
Net Income 100
Dividends
Preferred Stock, Series A (2)
Common Stock (47)
Common Stock Issued for
Employee
Benefit Plans, Exercise of
Stock Options and Change
of Control 5 5
Shares Issued in Connection
with Merger
Preferred Stock, Series A 5 5 229
Common Stock 44 1,008 (3)
Purchase of Common Stock (5)
Foreign Currency
Translation Adjustment (2)
----------- ------ ----------- ----- ------- ----------- ---------- -------- -------
DECEMBER 31, 1993 5 5 91 1 2,962 (571) (2) (103) (75)
NET INCOME 175
DIVIDENDS
PREFERRED STOCK, SERIES A (17)
COMMON STOCK (83)
COMMON STOCK ISSUED FOR
EMPLOYEE
BENEFIT PLANS, EXERCISE OF
STOCK OPTIONS AND CHANGE
OF CONTROL 1 (1) 23 6
UNREALIZED GAIN ON
SECURITIES
AVAILABLE FOR SALE 1
FOREIGN CURRENCY
TRANSLATION ADJUSTMENT 8
----------- ------ ----------- ------ ------ ----------- ---------- -------- -------
DECEMBER 31, 1994 5 $ 5 92 $1 $2,962 $(496) $ 6 $ (80) $(69)
----------- ------ ----------- ------ ------ ----------- ---------- -------- -------
</TABLE>
The accompanying notes are an integral part of these statements.
37
<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 prior year
amounts have been reclassified to conform to the current year presentation.
EARNINGS (LOSS) PER SHARE-Primary earnings per common share are determined by
dividing net income (loss) 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 (loss) 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 CASH EQUIVALENTS-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 materials and supplies inventories are
generally valued on the basis of average costs. Molybdenum inventories are
computed 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, 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 units-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. SFAS No. 106
requires the expected cost of postretirement benefits other than pensions to be
accrued during the years the employee renders service. 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. SFAS No. 112 requires the Company to expense postemployment benefits as
they are earned by the employee for services rendered. 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.
INCOME TAXES-In the second quarter of 1992, Cyprus adopted SFAS No. 109,
"Accounting for Income Taxes," retroactive to January 1, 1992. 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.
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 shareholder's 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, and
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 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 over the life of the mine. Cyprus Amax is subject to
various environmental regulations. Environmental liabilities are accrued on an
ongoing basis reflecting management's best estimates of future obligations.
38
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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.
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.
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. Transaction costs associated with the merger, primarily
for severance and change of control costs, settlement of Amax options and other
financial expenses, were $160 million in 1993, of which $25 million were
expensed.
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. Assets acquired were $3.9 billion and liabilities assumed
totalled $2.7 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.
<TABLE>
<CAPTION>
Pro Forma (Unaudited)
Year Ended December 31 (In millions) 1993 1992
------ -------
<S> <C> <C>
Revenue $2,699 $2,808
Income (Loss) Before Accounting Changes $ 30 $ (293)
Net Income (Loss) $ 30 $ (572)
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 has achieved. The 1992 results include Cyprus write-downs and other
provisions and reorganization expenses of $338 million after tax (see Note 4).
NOTE 3: BUSINESS ACQUISITIONS AND DISPOSITIONS
On September 30, 1994, Cyprus Amax sold its Northshore iron ore mine and
processing facilities and the adjacent power plant to Cleveland-Cliffs Inc. for
cash proceeds of $94 million. The terms of the sale also include possible
contingent payments to Cyprus Amax.
On June 28, 1994, Cyprus Amax acquired a 51 percent interest in Sociedad
Contractual Minera El Abra, which owns the mineral rights to the El Abra copper
deposit in Chile, for $330 million.
On March 31, 1994, Cyprus Amax sold its wholly owned subsidiary, Amax Oil &
Gas, Inc., to Union Pacific Resources Company for approximately $819 million in
gross proceeds or $680 million after-tax net proceeds. During the first quarter
of 1994, Amax Oil & Gas, Inc. reported income from discontinued operations of $9
million after tax and earnings per share of 10 cents.
On March 21, 1994, Cyprus Amax acquired approximately 91.5 percent of the
shares of Sociedad Minera Cerro Verde, S.A., which owns and operates a producing
copper mine in Peru, at a cost of approximately $31 million. Cyprus Amax's
planned future commitment in Cerro Verde is approximately $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.
During 1993, Cyprus acquired all of the voting stock of 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.
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
In the third quarter of 1994, a $13 million pretax charge for workforce
reduction programs was recorded at two copper mines. Additionally, a $10 million
pretax write-down was recorded for the anticipated closure of the Orchard Valley
coal mine.
During 1992, Cyprus reorganized to reduce corporate-wide overhead and improve
the Company's competitiveness, resulting in a pretax charge totalling $29
million. In the second quarter of 1992, Cyprus recognized pretax write-downs of
certain assets, provisions for associated liabilities, and the recording of
various other charges totalling $415 million. Due to the poor market outlook, a
pretax write-down of $182 million was recorded for the Kentucky coal operations.
Due to uncertainty of an ultimate recovery of its claim arising from the LTV
bankruptcy, Cyprus wrote off its $86 million basis in the claim. A pretax write-
down for eventual closure costs totalling $25 million, was made for the Empire
coal mine. Pretax charges of $57 million and $31 million
39
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4: REORGANIZATION COSTS AND WRITE-DOWN OF ASSETS
(CONTINUED)
were recorded at the Thompson Creek primary molybdenum mine and the Northshore
iron ore property, respectively, because of continued weakness in the worldwide
steel business. In addition, Cyprus recorded various other charges totalling $34
million pretax.
NOTE 5: INVENTORIES
Inventories detailed by component and industry segment are summarized below:
<TABLE>
<CAPTION>
At December 31 (In millions) 1994 1993
-------- -------
<S> <C> <C>
Component
Ores, Concentrates and Other
In-Process Inventories $ 193 $ 203
Finished Goods 182 166
Materials and Supplies 78 93
------- -------
$ 453 $ 462
======= =======
Industry Segment
Copper/Molybdenum $ 288 $ 295
Coal 132 107
Other 33 60
------- -------
$ 453 $ 462
======= =======
The excess of estimated replacement cost over the LIFO basis and LIFO
inventory liquidations were both $7 million.
NOTE 6: PROPERTIES
At December 31 (In millions) 1994 1993
------- -------
Copper/Molybdenum $ 2,475 $ 1,953
Coal 2,727 2,853
Other 188 914
------- -------
5,390 5,720
Less: Accumulated Depreciation,
Depletion, Amortization, and
Write-Downs (1,465) (1,386)
------- -------
Net Properties $ 3,925 $ 4,334
======= =======
Net Properties consists of the following:
Property, Plant, and Equipment $ 1,688 $ 2,147
Reserves/Mineral Rights, Sales Contracts 2,237 2,187
------- -------
Net Properties $ 3,925 $ 4,334
======= =======
Note 7: Long-Term Debt
At December 31 (In millions) 1994 1993
------- -------
14-1/2% Notes, Due 1994 $ - $ 150
10-1/8% Notes, Due 2002 150 150
9-7/8% Notes, Due 2001 300 300
8-3/8% Debentures, Due 2023 150 150
6-5/8% Notes, Due 2005 250 250
Various Pollution Control and Industrial
Development Revenue Bonds,
Interest Rates Range from 2.2% to 13.9%,
Due from 2001 through 2013 61 61
Capital Lease Obligations,
Interest Rates Range from 8.4% to 12.0%
Due from 1995 through 2005 208 74
Other 15 48
------ -------
1,134 1,183
Add: Unamortized Premium 42 61
------ -------
1,176 1,244
Less: Current Portion (21) (180)
------ -------
Long-Term Debt $1,155 $1,064
====== =======
</TABLE>
Scheduled debt maturities as of December 31, 1994 (in millions) were $14, $2,
$4, $4 and $5 for 1995, 1996, 1997, 1998 and 1999, respectively.
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 payable semi-
annually on February 1 and August 1 of each year. 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.
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 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 9 7/8 percent Note due June 13, 2001, is not redeemable prior to
maturity, and is secured by certain principal property of the Company. Interest
is paid semi-annually on June 13 and December 13.
40
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7: LONG-TERM DEBT (CONTINUED)
In June 1994, Cyprus Amax filed a universal shelf registration statement with
the Securities and Exchange Commission that will enable the Company to sell an
aggregate of up to $500 million of equity and/or debt securities. This shelf
registration statement is intended to ensure that Cyprus Amax retains financial
flexibility and the ability to access the markets on a timely basis. As of
December 31, 1994, there were no drawdowns on the shelf.
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. At December 31, 1994, the Company had no
loans outstanding under the Revolving Credit Agreement.
In March 1994, the Company retired early a $35 million Note due in 1995. In
December 1994, the Company closed a sale leaseback transaction for mobile mining
equipment and a longwall mining system with proceeds of $156 million (see Note
17). Proceeds from this transaction were used to retire $150 million of 14 1/2
percent Notes due in December 1994.
NOTE 8: PRODUCTION PAYMENTS
The production payments represent amounts payable from production from certain
coal properties. The variable interest rate is based on a margin over LIBOR.
The obligation will be paid out of coal proceeds (in millions) as follows:
<TABLE>
<CAPTION>
<S> <C>
1995 $ 47
1996 52
1997 57
1998 63
1999 64
----
$283
====
</TABLE>
NOTE 9: DERIVATIVE FINANCIAL INSTRUMENTS
Cyprus Amax's use of derivative financial instruments is principally limited to
management of commodity price risks, and is not used for trading purposes.
Occasionally, interest rate swap agreements are used to recharacterize
interest rates from fixed to floating rates or vice-versa. In the fourth quarter
of 1993, the Company entered into interest rate swap agreements, which expire in
November 1996, that effectively convert $200 million of its fixed rate
borrowings into floating rate obligations. The floating rate is reset semi-
annually. Cyprus Amax is currently paying a weighted average floating interest
rate of 6.1 percent which is 1.4 percent higher than the average fixed interest
rate would have been on the notional amount of $200 million.
The Company had sold forward 1995 production of 90 million pounds of copper,
on both the LME and COMEX with prices ranging from $1.24 to $1.30 per pound and
1996 production of 46 million pounds at a price of $1.07 (LME) per pound. Based
on copper prices at December 31, 1994, the Company would recognize $7 million
less on these forward sales.
Cyprus Amax is exposed to credit losses in the event of nonperformance by
counterparties to financial instruments, but does not expect any counterparties
to fail to meet their obligations. The Company does not obtain collateral or
other security to support financial instruments subject to credit risk but
monitors the credit standing of counterparties.
NOTE 10: FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values for financial instruments under SFAS No. 107,
"Disclosures about Fair Value of Financial Instruments," are determined at
discrete points in time based on relevant market information. These estimates
involve uncertainties and cannot be determined with precision. The estimated
fair values of the Company's financial instruments, as measured on December 31,
1994 and 1993, are as follows:
<TABLE>
<CAPTION>
1994 1993
--------------- -------------------
Carrying Fair Carrying Fair
At December 31 (In millions) Amount Value Amount Value
------- ------ --------- --------
<S> <C> <C> <C> <C>
Cash and Cash Equivalents $ 139 $ 139 $ 96 $ 96
Long-Term Receivables 63 63 47 47
Price Protection Contracts 13 (5) 3 20
Long-Term Debt (955) (942) (995) (1,026)
Production Payments (283) (283) (325) (325)
Other Financial Instruments - (29) - (16)
</TABLE>
The following methods and assumptions were used to estimate the fair value of
each class of financial instrument:
CASH AND CASH EQUIVALENTS: the carrying amounts approximate fair value because
of the short maturity of those instruments.
LONG-TERM RECEIVABLES: the fair value is estimated based on expected discounted
future cash flows.
PRICE PROTECTION CONTRACTS: are purchased to ensure against unanticipated drops
in copper prices and are composed of copper put options and copper forward
sales. The price protection contracts are reported at cost and expensed as they
expire. The fair value of the options is estimated based on the spot price,
while the fair value of the forward sales is estimated based on the quoted
market price for the contracts at December 31, 1994.
LONG-TERM DEBT: the fair value is estimated based on the quoted market prices
for the same or similar issues offered to the Company for debt of similar
maturities.
PRODUCTION PAYMENTS: the carrying amount approximates fair value based on
current market quotes for contracts with similar terms.
OTHER FINANCIAL INSTRUMENTS: include interest rate swap agreements, letters of
credit, and financial guarantees written which individually are immaterial. The
fair value of interest rate swap agreements is estimated by obtaining quotes
from financial institutions and represents the cost to buyout the swaps at
December 31, 1994 and 1993. The Company has no
41
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10: FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
plans to buyout these agreements. Letters of credit are based on fees currently
charged for similar agreements or on the estimated cost to terminate them. The
fair value of financial guarantees written is based on the estimated cost to
settle the obligations with counterparties at the reporting date.
NOTE 11: INCOME TAXES
Income (loss) before income taxes consists of the following:
<TABLE>
<CAPTION>
(In millions) 1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Domestic $ 190 $ 125 $(326)
Foreign 31 6 (3)
----- ----- -----
$ 221 $ 131 $(329)
===== ===== =====
Income tax provision (benefit) is composed of:
(In millions) 1994 1993 1992
----- ----- -----
Current-Federal $ 62 $ 1 $ 9
-State 20 5 -
-Foreign 5 5 3
----- ----- -----
87 11 12
----- ----- -----
Deferred-Federal (37) 17 (100)
-State 7 3 (26)
-Foreign - - 2
----- ----- -----
(30) 20 (124)
----- ----- -----
$ 57 $ 31 $(112)
===== ===== =====
The total income tax provision (benefit) is included in the financial
statements as follows:
(In millions) 1994 1993 1992
----- ----- -----
Income Tax Provision (Benefit) $ 55 $ 31 $ (83)
Discontinued Operations 2 - -
Cumulative Effect of
Accounting Changes - - (29)
----- ----- -----
$ 57 $ 31 $(112)
===== ===== =====
The deferred tax liabilities (assets) are comprised of the tax effect of the
following at December 31:
(In millions) 1994 1993 1992
----- ----- -----
Properties $ 717 $ 909 $ 48
Prepaid Expenses 37 25 13
Reclamation Liabilities (41) (107) (7)
Postretirement Benefit Liabilities (202) (236) (51)
Accrued Liabilities (238) (82) (27)
Net Operating Loss Carryforwards (54) (118) (47)
Minimum Tax Credits (186) (118) (83)
Investment Tax Credit Carryforwards (23) (55) -
State Tax Deduction (22) (17) 3
Other - (1) (1)
Valuation Allowance 111 16 97
----- ----- -----
$ 99 $ 216 $ (55)
===== ===== =====
</TABLE>
The deferred tax liabilities (assets) included in the financial statements are
as follows at December 31:
<TABLE>
<CAPTION>
(In millions) 1994 1993 1992
----- ----- ------
<S> <C> <C> <C>
ASSETS
Deferred Income Taxes
Current Portion $ (26) $ - $ (10)
Noncurrent Portion - - (65)
LIABILITIES
Deferred Income Taxes
Current Portion - 44 -
Noncurrent Portion 125 172 20
----- ----- -----
$ 99 $ 216 $ (55)
===== ===== =====
</TABLE>
The following is a reconciliation between the amount determined by applying the
federal statutory rate of 35 percent (34 percent for 1992) to Income (Loss)
Before Income Taxes and the Income Tax Provision (Benefit):
<TABLE>
<CAPTION>
(In millions) 1994 1993 1992
----- ----- -----
<S> <C> <C> <C>
Income Taxes at Statutory Rate $ 77 $ 46 $(112)
Increases (Decreases) Resulting from:
Percentage Depletion (35) (15) 3
Alternative Minimum Tax (1) (1) 37
State Income Taxes, Net of
Federal Benefit 13 6 (7)
Foreign Income Taxes, Net of
Credit or Federal Benefit - 5 1
Equity Investments 4 (10) -
Items Not Deductible 1 - 1
Adjustment to Prior Year (3) - (8)
Other, Net (1) - 2
----- ----- -----
Income Tax Provision (Benefit) $ 55 $ 31 $ (83)
===== ===== =====
</TABLE>
The net deferred tax liability of $99 million at December 31, 1994, is composed
of $950 million of deferred tax benefits related to future deductible temporary
differences of $2,406 million and minimum tax credit carryforwards of $186
million and investment tax credit carryforwards of $23 million, netted against
$1,147 million of tax liabilities related to future taxable temporary
differences of $2,820 million, and the valuation allowance of $111 million.
42
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 11: INCOME TAXES (CONTINUED)
At December 31, 1994, the Company had $154 million of regular tax net
operating loss carryforwards expiring from 2006 through 2008. There are no net
operating loss carryforwards for alternative minimum tax purposes.
The Company has approximately $23 million of investment tax credit
carryforwards expiring from 1995 and beyond, and $186 million of minimum tax
credit carryforwards which do not expire. A valuation allowance of $111
million has been recorded against these benefits.
The 1993 merger with Amax was a nontaxable event. 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. Purchase accounting adjustments that reduced deferred taxes by $87
million were recorded in 1994. The increase in the valuation allowance is
principally related to increased deferred tax benefits recorded as part of
purchase accounting that are not expected to be realized in the future.
NOTE 12: PREFERRED STOCK TRANSACTIONS
Holders of the Series A Convertible 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 converted 3,854,110 shares of $3.75 Convertible
Exchangeable Preferred Stock, Series B at a redemption price of $52.25 per share
to 7,759,853 shares of Common Stock. Had the conversion occurred on January 1,
1992, primary loss per share would have been $7.08 for 1992.
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, 1994.
NOTE 13: 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 millions) 1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Service Cost $ 10 $ 6 $ 6
Interest Cost 18 11 10
Actual (Gain) Loss on Plan Assets 4 (7) (5)
Deferred Loss (21) (4) (5)
Other 2 2 1
----- ----- -----
$ 13 $ 8 $ 7
===== ===== =====
</TABLE>
43
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 13: EMPLOYEE BENEFIT PLANS (CONTINUED)
The following table sets forth the funded status of the plans:
<TABLE>
<CAPTION>
1994 1993
-------------------------- --------------------------
Assets Accumulated Assets Accumulated
exceed benefits exceed benefits
accumulated exceed accumulated exceed
At December 31 (In millions) benefits assets benefits assets
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Actuarial Present Value of
Benefit Obligations:
Vested Benefit Obligation $ 31 $ 143 $ 32 $ 156
----------- ----------- ---------- ----------
Accumulated Benefit
Obligation $ 35 $ 152 $ 39 $ 173
----------- ----------- ---------- ---------
Projected Benefit Obligation $ (36) $ (171) $ (41) $ (200)
Plan Assets at Fair Value 49 121 47 142
----------- ----------- ---------- --------
Plan Assets Greater Than
(Less Than) Projected
Benefit Obligation 13 (50) 6 (58)
Unrecognized Net Loss 3 13 7 25
Unrecognized Prior Service Cost 1 8 1 9
Unrecognized Transition Credit (2) - (2) -
---------- ---------- --------- --------
Prepaid/(Accrued) Pension Cost $ 15 $ (29) $ 12 $ (24)
========== ========== ========= ========
</TABLE>
The net accrued pension obligation of $14 million and $12 million is
recorded in Accrued Payroll and Benefits on the Consolidated Balance Sheet at
December 31, 1994 and 1993, respectively.
The significant actuarial assumptions at December 31 were as follows:
<TABLE>
<CAPTION>
(In percents) 1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Rate of Increase in Future
Compensation Levels 6.75 5.50 6.50
Expected Long-Term
Rate of Return on Assets 9.00 9.00 9.00
Discount Rate 8.75 7.50 8.50
</TABLE>
Net periodic pension cost is determined using the assumptions as of the
beginning of the year, and the funded status is determined using the assumptions
as of the end of the year.
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, which are expensed when paid, are
based primarily upon hours worked and amounted to $4 million in 1994 and $1
million in 1993 and 1992.
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 amounts determined at the
discretion of management.
Net periodic postretirement benefit cost consists of the following components:
<TABLE>
<CAPTION>
(In millions) 1994 1993 1992
----- ----- -----
<S> <C> <C> <C>
Service Cost $ 5 $ 4 $ 4
Interest Cost 26 10 8
Net Amortization (1) - -
----- ----- -----
Net Periodic Postretirement
Benefit Cost $ 30 $ 14 $ 12
===== ===== =====
</TABLE>
The following table sets forth the plans' combined status reconciled with the
amount included in the Consolidated Balance Sheet:
<TABLE>
<CAPTION>
At December 31 (In millions) 1994 1993
------ ------
<S> <C> <C>
Accumulated Postretirement Benefit Obligation:
Retirees $ 253 $ 282
Fully Eligible Active Plan Participants 21 40
Other Active Plan Participants 43 68
----- -----
Total Accumulated Postretirement
Benefit Obligation 317 390
Plan Assets at Fair Value - -
----- -----
Accumulated Postretirement Benefit
Obligation in Excess of Plan Assets $ 317 $ 390
----- -----
Accumulated Postretirement Benefit
Obligation $(317) $(390)
Unrecognized Prior Service Cost (6) (16)
Unrecognized Net (Gain) Loss (52) 2
----- -----
Accrued Postretirement Benefit Cost $(375) $(404)
===== =====
</TABLE>
The accumulated postretirement benefit obligation at December 31, 1994 and
1993, consisted of a current liability of $19 million and $22 million,
respectively, included in Accrued Payroll and Benefits, and a long-term
liability of $356 million and $382 million, respectively, included in Deferred
Employee and Retiree Benefits.
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 11.5
percent for 1995 and is assumed to decrease gradually (one-half percent per
year) to six percent by the year 2006 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, 1994, by $35 million and the aggregate of
the service cost and interest cost components of net periodic postretirement
benefit cost for 1994 by $4 million.
44
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 13: EMPLOYEE BENEFIT PLANS (CONTINUED)
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation as of December 31, 1994, 1993, and 1992, was
8.75 percent, 7.5 percent, and 8.5 percent, respectively.
A purchase accounting adjustment to the postretirement benefit obligation of
former Amax companies resulted in a $38 million decrease in the accumulated
postretirement benefit obligation in 1994. The change in the discount rate
resulted in a $30 million unrecognized gain in 1994 while differences between
actuarial assumptions and actual results for factors such as health care trends
resulted in an additional $22 million of unrecognized gain.
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. The 1993 contributions to the Fund
totalled $2 million and covered both 1993 and 1994.
The Company also has a number of postemployment plans covering severance,
disability income, and continuation of health and life insurance for disabled
employees. At December 31, 1994 and 1993, the accumulated postemployment benefit
liability consisted of a current amount of $2 million and $2 million,
respectively, included in Accrued Payroll and Benefits and $28 million and $25
million, respectively, included in Deferred Employee and Retiree Benefits.
NOTE 14: 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 amount contributed for 1994 and 1993 was $7 million and
for 1992 was $8 million. The amount of interest incurred by the Savings Plan for
the Leveraged ESOP was $9 million in 1994, 1993, and 1992. The interest expense
offset of the Leveraged ESOP due to dividends on allocated and unallocated
shares was $4 million in 1994 and 1992 and $3 million in 1993. The aggregate
compensation expense related to the Savings Plan amounted to $5 million in 1994
and 1993 and $6 million in 1992.
The following table sets forth the number of shares held in the Savings Plan at
year-end:
<TABLE>
<CAPTION>
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
Allocated Shares 758,430 693,300 544,745
Committed to be Released Shares 8,909 11,713 15,925
Suspense Shares 3,089,631 3,335,902 3,575,491
</TABLE>
Amax sponsored a separate defined contribution plan (the "Amax ESOP"), which
is in part an Employee Stock Ownership Plan (ESOP) covering substantially all
salaried employees of the former Amax entities. The Amax stock held in the Amax
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 was equivalent
to the greater of the minimum number or a specified percentage of each plan
participant's contribution until the final Amax ESOP shares were allocated with
the September 1994 Company contribution. For the October through December 1994
Company contributions, the Company contributed Common Stock to the Amax ESOP
with a market value equal to seventy-five percent of the first six percent of
base pay contributed monthly by each participant. On December 31, 1994, the Amax
ESOP was merged into the Savings Plan. The number of unallocated shares in the
Amax ESOP as of December 31, 1993, was 118,972. The aggregate Company
contributions for this plan amounted to $5 million in 1994 and $1 million for
the period November 15 to December 31, 1993. Dividends on unallocated shares
were charged to expense, and dividends on allocated shares were recorded to
retained earnings.
In 1988, Cyprus adopted an ESOP covering substantially all non-represented
employees (the "Cyprus ESOP"). No contributions have been made to the Cyprus
ESOP since 1989. On December 1, 1994, the Cyprus ESOP merged into the Savings
Plan. The number of shares in the Cyprus ESOP as of December 31, 1993 and 1992,
were 386,365 and 416,604, respectively.
45
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 14: COMMON STOCK PLANS (CONTINUED)
MANAGEMENT INCENTIVE PLANS
Under the Management Incentive Program ("the Program"), key employees of Cyprus
Amax 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 Program are exercisable after completion of the
specified period of continuous employment stated in terms of the grant. All
grants outstanding at November 15, 1993, the date of the Cyprus Amax merger,
became exercisable. Unexercised options expire at the end of ten years after the
date of 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
shares issued prior to the merger were removed at the merger date.
Under the 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 awards, up to a
limit of five million shares issued as statutory options.
Outstanding options granted under the 1988 Amended and Restated Stock Option
Plan (the 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, the Company may grant
in any year up to one-half percent of the number of shares of Common Stock
outstanding (plus the cumulative number of carried-forward shares) as restricted
stock awards. 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. As of December 31, 1994, 209,309
cumulative shares were awarded and 484,838 shares were authorized and unissued.
Of the awarded shares, 72,500 were issued prior to the merger and all the
restrictions were removed at the merger date. On January 3, 1995, an additional
195,800 shares were awarded.
Cyprus Amax maintains a stock plan for non-employee directors, which 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. As of December 31, 1994, 15,500
cumulative shares have been granted.
In May 1994, Cyprus Amax implemented two Deferred Compensation Plans: one for
select Executives and one for Non-Employee Directors. Under the Plan for select
Executives, participants may defer compensation including Base Salary and Annual
Incentive Awards. Under the Plan for Non-Employee Directors, participants may
elect to defer all retainer, meeting, committee and chair fees, as well as
amounts paid to Board members serving as independent contractors.
The following table summarizes the stock option activity under the management
incentive program:
<TABLE>
<CAPTION>
1994 1993 1992
------------------------- ------------------------- -------------------------
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 3,303,560 $ 8.67-$35.75 1,855,250 $ 8.67-$31.06 1,786,685 $ 8.67-$31.06
Granted 807,955 $26.00-$31.13 615,400 $24.19-$35.75 677,650 $24.75-$30.56
Assumed Amax Options - - 1,317,715 $17.72-$26.65 - -
Exercised (961,412) $ 8.67-$31.06 (393,475) $10.79-$31.06 (424,645) $ 8.67-$25.69
Cancelled (97,253) $17.72-$35.75 (91,330) $18.54-$35.75 (184,440) $20.71-$31.06
--------- --------- ---------
Outstanding at End of Year 3,052,850 $ 8.67-$35.75 3,303,560 $ 8.67-$35.75 1,855,250 $ 8.67-$31.06
--------- --------- ---------
Exercisable at End of Year 2,384,993 $ 8.67-$35.75 3,303,560 $ 8.67-$35.75 854,550 $ 8.67-$31.06
--------- --------- ---------
Available for Grant at End of Year 441,786 66,376 139,758
--------- --------- ---------
</TABLE>
46
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 15: CONTINGENCIES
Arbitration is pending relating to the Public Service of Indiana long-term coal
sales contract at the Cyprus Amax Wabash mine. By agreements signed in July and
October 1994, the Company and Public Service of Indiana have resolved all of the
outstanding claims for damages relating to past coal sales. The Company will
continue to defend its position in arbitration and the limited litigation. 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 any remaining matters 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 totalling $79 million at
December 31, 1994, primarily for reclamation, dragline leases, and insurance
programs for workers compensation, general liability, and automobiles. Cyprus
Amax had guaranteed debt totalling $24 million at December 31, 1994.
In April 1994, Cyprus Amax was notified by the Department of Justice that the
government will be seeking civil penalties for alleged violations of the Federal
Clean Water Act in the operation of Cyprus Amax's Bagdad, Miami, and Sierrita
mines located in Arizona. These governmental actions relate to findings of
violations and orders issued by the Environmental Protection Agency ("EPA") to
these operations in late 1992 and early 1993. The violations are alleged to have
occurred between April 1989 and January 1993. The relief sought by the EPA under
these findings of violation and orders was penalties and corrective action to
comply with the Clean Water Act. Mine management, in cooperation with the EPA
and the Arizona Department of Environmental Quality, have ongoing and
substantial programs which address the circumstances of the alleged water
quality violations. Based upon information currently known to it, management
expects to resolve this matter in the near term.
In January 1995, Cyprus Foote Mineral Company ("Cyprus Foote") agreed to
sign a Consent Order with the State of Ohio and Shieldalloy Metallurgical
Corporation ("Shieldalloy") related to alleged contamination of the
Shieldalloy's Cambridge Ohio operating site with slag containing elevated levels
of naturally occurring radionuclides. The slag is alleged to have been produced
from Foote Mineral Company's ("FMC") operation of the Cambridge ferroalloy plant
from the early 1950s to 1987 when the plant was sold by Foote to Shieldalloy.
FMC's sale of the ferroalloy facility to Shieldalloy predated Cyprus' 1988
acquisition of FMC's stock. The Consent Order requires Cyprus Foote to
participate with Shieldalloy in funding the development of a remedial
investigation and feasibility study to be completed in early 1996.
Cyprus Amax received an EPA Unilateral Order in 1994 pursuant to Section 106
of the Comprehensive Environmental Response, Compensation, and Liability Act
("CERCLA") requiring it to participate in a cleanup of hazardous materials
contamination of soils in the City of Bartlesville, Oklahoma, as well as to
participate in funding a remedial investigation and feasibility study. A Cyprus
Amax subsidiary built and operated a zinc smelter near Bartlesville in the early
1900s. Cyprus Amax is one of several identified potentially responsible parties
("PRPs") at this site and is participating in a PRP group, which includes the
City of Bartlesville, in an effort to minimize its immediate costs to comply
with the EPA order. 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.
In late 1994, Cyprus Amax, along with a number of other PRPs, received a
Unilateral Administrative Order for Removal Action pursuant to Section 106 of
CERCLA with regard to materials stockpiled at the Colorado School of Mines
Research Institute Creekside Superfund site, located in Golden, Colorado. The
EPA alleges that these materials result from various research operations at the
facility and that Cyprus Amax contributed materials to the site for research.
Cyprus Amax is participating with the State of Colorado and a number of other
entities in completing a remedial investigation and feasibility study for this
site.
In 1994, Cyprus Amax received several Orders from the Bureau of Land
Management ("BLM") in Roswell, New Mexico, alleging Cyprus Amax's continuing
responsibility for closure and reclamation of the Horizon Potash Mine near
Carlsbad, New Mexico. Amax sold its interest in the mine in 1991, and Horizon
abandoned the site in 1993. Cyprus Amax is vigorously pursuing its legal
defenses to this potential liability and has held discussions with the BLM as to
possible settlement.
In addition to the previously mentioned actions, Cyprus Amax or its
subsidiaries have been advised by the EPA and several State environmental
agencies that they may be liable under the CERCLA or similar State laws and
regulations for costs of responding to environmental conditions at a number of
sites which have been or are being investigated by the EPA or States to
establish whether releases of hazardous substances have occurred and, if so, to
develop and implement remedial actions. Cyprus Amax is named as a PRP or has
received EPA requests for information for about 35 sites (including the sites
discussed previously). For all sites, Cyprus Amax had an aggregate reserve of
approximately $108 million at December 31, 1994, for its share of the estimated
liability. Liability estimates are based on an evaluation of, among other
factors, currently available facts, existing technology, presently enacted laws
and regulations, Cyprus Amax's experience in remediation, other companies'
remediation experience, Cyprus Amax's status as a PRP, and the ability of other
PRPs to pay their allocated portions. The cost range of reasonably possible
outcomes for all sites is estimated to be from $70 million to $230 million, and
work on the sites is expected to be substantially completed within the next five
years, subject to the inherent delays involved in the process. Remediation costs
that could not be reasonably estimated at December 31, 1994 are not expected to
have a material impact on the financial condition and ongoing operations of the
Company. Cyprus
47
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 15: CONTINGENCIES (CONTINUED)
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.
However, neither insurance recoveries nor other claims or offsets have been
recognized in the financial statements unless such offsets are considered
probable of realization.
At December 31, 1994, Cyprus Amax's accruals for deferred closure, shutdown of
closed operations, and reclamation totalled approximately $296 million.
Reclamation is an ongoing activity and a cost associated with Cyprus Amax's
mining operations, and accruals for closure and final reclamation liabilities
are established on a life of mine basis. The coal reclamation reserve component
(about $145 million) is largely 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 metals
(Cyprus Climax and Cyprus Foote) reclamation reserve component (about $151
million) 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 sound environmental practice. Total coal and metals
reclamation costs for Cyprus Amax at the end of current mine lives are estimated
at about $550 million.
NOTE 16: RELATED PARTY TRANSACTIONS
On April 15, 1994, Cyprus Amax and Amax Gold Inc. entered into an agreement
whereby the Company will provide AGI with a $100 million double 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. 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.
As of December 31, 1994, AGI had no outstanding debt under this line of credit.
In February 1995, Cyprus Amax signed a commitment letter whereby the Company
will provide AGI with an additional $80 million in revolving credits which may
be repaid with the issuance of AGI Convertible Preferred Stock. Both companies
have conversion rights that permit conversion of the line of credit into Amax
Gold Common Stock, with Cyprus Amax's conversion right at $5.362 per share and
Amax Gold's conversion right at $4.196 per share. This new revolving credit is
subject to approval by the shareholders of Amax Gold.
Additionally, in August 1994, AGI repaid a $26 million loan from Cyprus Amax.
In January 1994, the Cyprus Amax Board of Directors approved the purchase of
three million shares of AGI Common Stock as repayment of $21 million of the
amount outstanding under the $26 million loan. AGI shareholder approval for
these transactions was received in July 1994. Following the issuance of the
stock, Cyprus Amax owns approximately 42 percent of AGI.
In 1994, Cyprus Amax established a joint exploration agreement with Amax
Gold to explore for gold. The agreement provides Cyprus Amax a 75 percent
interest and Amax Gold a 25 percent interest in the gold prospects resulting
from future exploration. Amax Gold has a right of first refusal from Cyprus Amax
to purchase and develop gold deposits, and Cyprus Amax has a similar right with
respect to base metals. Each party funds work in proportion to its interest, and
Cyprus Amax provides staffing and management.
At December 31, 1994, the subordinated loans outstanding to Oakbridge Limited
from Cyprus Amax totalled $39 million, of which $21 million is convertible to
Oakbridge Common Stock on certain terms and conditions.
On June 28, 1994, Cyprus Amax acquired a 51 percent interest in Sociedad
Contractual Minera El Abra, which owns the mineral rights to the El Abra copper
deposit in Chile, for $330 million. Development of the mine will require an
investment estimated at approximately $1 billion. Funding of the investment to
develop the oxide reserves will include approximately $300 million of
subordinated shareholder loans contributed by Cyprus Amax and approximately $700
million of limited recourse debt financing, which will be guaranteed by Cyprus
Amax until project completion. As of December 31, 1994, approximately $16
million of subordinated notes were outstanding.
48
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 17: 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 millions) 1994 1993
------ ------
<S> <C> <C>
Minimum Future Royalties $ 105 $ 115
Less Imputed Interest (32) (41)
----- -----
Present Value of Payments 73 74
Less Current Portion Included in Accrued
Royalties and Interest (7) (7)
----- -----
Long-Term Portion Included in Other
Noncurrent Liabilities and Deferred Credits $ 66 $ 67
===== =====
</TABLE>
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 millions) 1994 1993
----- -----
<S> <C> <C>
Mining Equipment $ 183 $ 51
Mine Facilities and Land 16 2
----- -----
199 53
Less Accumulated Amortization (29) (25)
----- -----
$170 $ 28
===== =====
</TABLE>
Summarized below as of December 31, 1994, are future minimum rentals and
royalties under noncancellable leases:
<TABLE>
<CAPTION>
Operating Mineral Capital
(In millions) Leases Royalties Leases
-------- --------- -------
<S> <C> <C> <C>
1995 $ 40 $ 14 $ 12
1996 34 16 43
1997 31 15 43
1998 24 14 50
1999 21 14 67
After 1999 44 54 63
----- ----- -----
Total Payments $ 194 $ 127 $ 278
Less Imputed Interest (70)
-----
Present Value of Lease Payments $ 208
Less Current Portion (8)
-----
Capital Lease Obligations $ 200
=====
</TABLE>
Rentals and mineral royalties charged to expense were as follows:
<TABLE>
<CAPTION>
(In millions) 1994 1993 1992
----- ----- -----
<S> <C> <C> <C>
Rental Expense $ 53 $ 38 $ 35
Mineral Royalties $ 47 $ 37 $ 33
</TABLE>
NOTE 18: 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 millions) 1994 1993 1992
------ ------- ------
<S> <C> <C> <C>
Interest Paid (Net of Interest
Capitalized and Interest Rate
Swap Receipts) $ 113 $ 59 $14
Income Taxes Paid, Net $ 35 $ 62 $11
Supplemental Disclosures of Non-Cash Transactions
(excluding Amax merger):
(In millions) 1994 1993 1992
------ ------- ------
Fair Value of Assets Acquired,
Other Than Cash and
Cash Equivalents $ 379 $ 188 $ -
Liabilities Assumed (18) (50) -
----- ----- ------
Cash Payments $ 361 $ 138 $ -
===== ===== ======
Sale of Businesses in Exchange
for Common Stock $ 22 $ - $ -
Purchase of AGI Common Stock
as Repayment of Notes Receivable
(Note 16) $ 21 $ - $ -
Capital Lease Obligation-
Sale Leaseback $ 144 $ - $ -
</TABLE>
49
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 19: INFORMATION BY INDUSTRY SEGMENT
Cyprus Amax operates in three principal industry segments-Copper/Molybdenum,
Coal, 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 millions) 1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Segment Revenue
Copper/Molybdenum $1,327 $ 831 $ 887
Coal 1,248 697 463
Other 213 235 291
------ ------ ------
$2,788 $1,763 $1,641
Segment Operating Income (Loss)
Copper/Molybdenum $ 206 $ 55 $ 38
Coal 106 142 (267)
Other 40 20 (29)
------ ------ ------
352 217 (258)
Corporate (45) (60) (50)
Interest, Net (74) (34) (13)
Gain (Loss) on Equity Investments (12) 8 (8)
------ ------ ------
Income (Loss) from Continuing Operations Before
Income Taxes 221 131 (329)
Income Tax (Provision) Benefit (55) (31) 83
------ ------ ------
Income (Loss) from Continuing Operations 166 100 (246)
Income from Operations of Discontinued Oil and Gas
Division, Net of Applicable Taxes of $2 9 - -
------ ------ ------
Income (Loss) Before Cumulative Effect of
Accounting Changes 175 100 (246)
Cumulative Effect of Accounting Changes/(1)/ - - (88)
------ ------ ------
Net Income (Loss) $ 175 $ 100 $ (334)
====== ====== ======
</TABLE>
/(1)/ 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.
50
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 19: INFORMATION BY INDUSTRY SEGMENT (CONTINUED)
<TABLE>
<CAPTION>
(In millions) 1994 1993 1992
------ ------ -------
<S> <C> <C> <C>
Identifiable Assets
Copper/Molybdenum $2,487 $1,857 $ 839
Coal 2,325 2,454 318
Other 266 980 326
------ ------ ------
5,078 5,291 1,483
Corporate 329 327 226
------ ------ ------
$5,407 $5,618 $1,709
====== ====== ======
Capital Expenditures
Copper/Molybdenum $ 234 $ 190 $ 95
Coal 116 65 23
Other 16 20 31
Corporate 13 2 -
------ ------ ------
$ 379 $ 277 $ 149
====== ====== ======
Depreciation, Depletion, and Amortization
Copper/Molybdenum $ 87 $ 63 $ 57
Coal 153 56 35
Other 11 25 35
Corporate 2 1 1
------ ------ ------
$ 253 $ 145 $ 128
====== ====== ======
Export Sales
Copper/Molybdenum $ 173 $ 143 $ 188
Coal 42 24 32
Other 16 16 21
------ ------ ------
$ 231 $ 183 $ 241
====== ====== ======
Financial information by geographic location for the past three years is
presented below:
(In millions) 1994 1993 1992
------ ------ ------
Revenue
Domestic $2,561 $1,688 $1,538
Foreign 227 75 103
------ ------ ------
$2,788 $1,763 $1,641
====== ====== ======
Operating Income (Loss)
Domestic $ 311 $ 205 $ (260)
Foreign 41 12 2
------ ------ ------
$ 352 $ 217 $ (258)
====== ====== ======
Identifiable Assets
Domestic $5,296 $5,495 $1,511
Foreign 111 123 198
------ ------ ------
$5,407 $5,618 $1,709
====== ====== ======
</TABLE>
51
<PAGE>
SUPPLEMENTAL FINANCIAL INFORMATION
<TABLE>
<CAPTION>
QUARTERLY RESULTS (UNAUDITED) 1994
- -------------------------------------------------------------------------------
First Second Third Fourth
(In millions except per share data) Quarter Quarter Quarter Quarter
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue $588 $ 697 $771 $ 732
Segment Operating Income $ 58 $ 73 $ 98 $ 123
Net Income $ 28 $ 32 $ 48 $ 67
Income Applicable to Common Shares $ 23 $ 28 $ 44 $ 63
===============================================================================
Earnings Per Common Share $.25 $ .30 $.47 $ .68
===============================================================================
1993
- -------------------------------------------------------------------------------
Revenue $375 $ 453 $394 $ 541
Segment Operating Income $ 30 $ 110 $ 36 $ 41
Net Income (Loss) $ 12 $ 82 $ 14 $ (8)
Income (Loss) Applicable to Common Shares $ 12 $ 82 $ 14 $ (10)
===============================================================================
Earnings (Loss) Per Common Share $.24 $1.73 $.30 $(.14)
===============================================================================
</TABLE>
Third quarter 1994 results included after-tax gains of $13 million for
various special items. In the first quarter 1994, Cyprus Amax sold its oil and
gas subsidiary with $7 million after-tax income and a $2 million after-tax
gain. The 1993 results include revenue and an after-tax gain on the sale of
Cyprus' bankruptcy claims against LTV of $16 million in the first quarter and
$59 million in the second quarter. Fourth quarter 1993 includes essentially
breakeven earnings for Amax operations and $25 million of after-tax indirect
merger costs.
52
<PAGE>
SUPPLEMENTAL FINANCIAL INFORMATION (CONTINUED)
MINERAL RESERVES AND SELECTED OPERATING STATISTICS (UNAUDITED)
The following table presents reserves information of Cyprus as of December 31,
1990-1992, Cyprus Amax as of December 31, 1993 and 1994, 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>
1994 1993 1992 1991 1990
----------- ----------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
COPPER/MOLYBDENUM
Proved and Probable Ore Reserves
Copper-United States (million
tons) 1,593 1,598 1,617 995 1,035
Average Grade (percent) .38 .38 .38 .41 .42
Copper-South America (million
tons) 1,101/(1)/ - - - -
Average Grade (percent) .61 - - - -
Molybdenum (million tons) 322 316/(2)/ 17 139 143
Average Grade (percent) .232 .228 .116 .113 .111
Copper and Molybdenum (million
tons) 830 901 945 513 454
Copper Average Grade (percent) .28 .30 .30 .31 .34
Molybdenum Average Grade
(percent) .029 .032 .032 .033 .036
Saleable Product (billion
pounds)
Copper 23.8 13.7 14.3 8.8 9.5
Molybdenum 2.1 2.0 0.8 0.8 0.8
Production
Copper (million pounds) 648 632 662 644 640
Molybdenum (million pounds) 57 28 40 36 53
Average Sales Price (per pound)
Copper $ 1.09 $ .94 $ 1.04 $ 1.06 $ 1.20
Molybdenum $ 4.05 $ 2.90 $ 2.65 $ 2.83 $ 3.10
COAL
Proved and Probable Reserves
(million tons) 2,538 2,681/(4)/ 664 745 783
Production (million tons) 75/(3)/ 27/(4)/ 19 17 16
Average Sales Price (per ton) $16.12 $20.80 $23.88 $24.63 $24.95
LITHIUM
Proved Ore Reserves Lithium
(thousand tons) 393 397 387 391 382
Production Lithium Carbonate
(million pounds) 32 32 34 32 34
List Price (per pound) Lithium
Carbonate $ 2.03 $ 1.96 $ 1.91 $ 1.83 $ 1.73
EQUITY COMPANIES/(5)/
Proved and Probable Reserves
Coal (million tons)
Oakbridge (100%) 424/(6)/ 359 - - -
Cyprus Amax Share (40%) 171 144 - - -
Gold (million contained
ounces)
Amax Gold Inc. (100%) 7.1 7.4 - - -
Cyprus Amax Share (42%) 3.0 3.0 - - -
Kubaka (100%) 2.3 2.3 - - -
Cyprus Amax Share (45%) 1.0 1.0 - - -
</TABLE>
/(1)/ Represents El Abra and Cerro Verde reserves purchased in 1994.
/(2)/ Molybdenum reserves increased because of the addition of the Amax
properties, partially offset by the sale of Thompson Creek.
/(3)/ Coal production increased in 1994 due to a full year of production from
former Amax mines.
/(4)/ The addition of over 2 billion tons to coal reserves in 1993 was due
mostly to the merger with Amax 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.
/(5)/ 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.
/(6)/ Oakbridge reserves increased due to acquiring additional leases at
Ellalong/Pelton.
53
<PAGE>
STOCK MARKET INFORMATION
STOCK MARKET INFORMATION
Cyprus Amax Common Stock is traded on the New York Stock Exchange (NYSE) under
the symbol "CYM." The ranges of actual trade prices by quarters for the Common
Stock, as reported by the NYSE, are set forth below.
<TABLE>
<CAPTION>
ACTUAL TRADE PRICES
Common Stock
----------------------------------
1994 1993
---------------- ----------------
Period High Low High Low
- ----------- ---------------- ----------------
<S> <C> <C> <C> <C>
1st Quarter $33-1/8 $26-3/8 $36-3/8 $30-3/4
2nd Quarter $31-5/8 $25-3/4 $33-1/8 $22-7/8
3rd Quarter $32-1/2 $28-3/8 $28-1/4 $23-3/8
4th Quarter $31-5/8 $23-7/8 $26-5/8 $21-1/4
</TABLE>
In addition to its Common Stock, Cyprus Amax has 4,666,478 shares of $4.00
Series A Convertible Preferred Stock outstanding as of March 1, 1995. 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 when and if declared by
the Board of Directors. Due to the limited number of shareholders, there is no
market for these shares.
During 1994, Cyprus Amax declared cash dividends amounting to $.90 and $4.00
per share on its Common Stock and Series A Convertible Preferred Stock,
respectively. 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. On February 16,
1995, the Board of Directors of Cyprus Amax declared dividends of $.20 per share
of the Common Stock for stockholders of record on April 10, 1995 and a regular
quarterly dividend of $1.00 per share of Series A Convertible Preferred Stock
for shareholders of record on February 27, 1995. 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 1995.
The closing trade price per share of the Common Stock on March 1, 1995, as
reported by the NYSE was $26 1/4. As of March 1, 1995, the number of registered
shareholders of Cyprus Amax Common Stock was approximately 48,000.
54
<PAGE>
EXHIBIT 21
CYPRUS AMAX MINERALS COMPANY
________________________________________
SUBSIDIARIES OF THE REGISTRANT
AT DECEMBER 31, 1994
<TABLE>
<CAPTION>
ORGANIZED
UNDER
COMPANY/(1)/ LAWS OF
- ------------------------------------------------------- ---------
<S> <C>
Cyprus Metals Company Delaware
Cyprus Climax Metals Company Delaware
Climax Molybdenum Company Delaware
Cyprus Molybdenum Marketing Corporation Delaware
Climax Performance Materials Corporation Delaware
Molytech S.A. France
Cyprus Amax Finance Chile Corporation Delaware
Cyprus Bagdad Copper Corporation Delaware
Cyprus Climax Metals GmbH West Germany
Cyprus Copper Marketing Corporation Delaware
Cyprus El Abra Corporation Delaware
Sociedad Contractual Minera El Abra - (51%) Chile
Cyprus Miami Mining Corporation Delaware
Cyprus Mineral Park Corporation Delaware
Cyprus Pima Mining Company - (75.01%) California
Cyprus Pinos Altos Corporation Delaware
Cyprus Rod Chicago Corporation Delaware
Cyprus Sierrita Corporation Delaware
Cyprus Tohono Corporation Delaware
Cyprus Tonopah Mining Corporation Delaware
Sociedad Minera Cerro Verde S.A. - (91.7%) Peru
Cyprus Exploration and Development Corporation Delaware
Cyprus Gold Exploration Corporation Delaware
Pinon Exploration Corporation Colorado
Cyprus Gold Company Delaware
Cyprus Copperstone Gold Corporation Delaware
Cyprus Gold Australia Corporation Delaware
Cyprus Magadan Gold Corporation Delaware
Omolon Gold Mining Company - (45%) Russia
Cyprus Specialty Metals Company Delaware
Cyprus Foote Mineral Company Pennsylvania
Minera Cyprus Chile Limitada/(2)/ Chile
Foote Mineral Company Limitada/(3)/ Chile
Sociedad Chilena de Litio Limitada/(4)/ Chile
Cyprus Mines Corporation/(5)/ Delaware
Amax Metals Recovery Inc. Delaware
Amax Realty Development, Inc. Delaware
Ametalco Inc. New York
Ametalco Limited England
Ametalco U.K. England
Climax Molybdenum U.K. Limited England
Climax Special Metals Fabrication Limited - (90%) England
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
ORGANIZED
UNDER
COMPANY/(1)/ LAWS OF
- ------------------------------------------------------ -------
<S> <C>
Climax Molybdenum B.V. Netherlands
Climax Molybdenum AB Sweden
Climax Molybdenum GmbH Germany
Climax Molybdenum Scandinavia AB Sweden
Climax Molybdenum S.R.L. Italy
Gold Hill Mining and Milling Company Colorado
Mt. Emmons Mining Company Delaware
Silver Springs Ranch, Inc. Colorado
Amax Energy Inc. Delaware
Amax Zinc (Newfoundland) Limited Delaware
Castle Oaks Corporation Colorado
Cyprus Amax Coal Company Delaware
Amax Coal Company Delaware
Amax Gold Inc. - (42%) Delaware
Yankeetown Dock Corporation - (60%) Indiana
Amax Coal Sales Company Delaware
Amax Coal West, Inc. Delaware
Amax Land Company Delaware
Ayrshire Land Company Delaware
Beech Coal Company Delaware
Cannelton Inc. Delaware
Cannelton Industries, Inc. West Virginia
Dunn Coal & Dock Company West Virginia
Maple Meadow Mining Company Delaware
Cannelton Land Company Delaware
Cannelton Sales Company Delaware
Cyprus Amax Coal Sales Corporation Delaware
Cyprus Australia Coal Company Delaware
McIlwraith McEacharn Ltd. Australia
Oakbridge Limited - (41%) Australia
Cyprus Coal Equipment Company Delaware
Cyprus Cumberland Coal Corporation Kentucky
Cyprus Cumberland Resources Corporation Delaware
Cyprus Emerald Resources Corporation Delaware
Cyprus Empire Corporation Delaware
Cyprus Freeport Resources Corporation Delaware
Cyprus Kanawha Corporation Delaware
Cyprus Mountain Coals Corporation Delaware
Cyprus Oakbridge Coal Corporation Delaware
Cyprus Orchard Valley Coal Corporation Delaware
Cyprus Shoshone Coal Corporation Delaware
Cyprus Southern Realty Corporation Kentucky
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
Grassy Cove Coal Mining Company Delaware
Meadowlark Inc. Delaware
Roaring Creek Coal Company Delaware
</TABLE>
2
<PAGE>
/(1)/ Fifty-three subsidiaries and five 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)/ Fifty percent owned by Cyprus Exploration and Development, fifty percent
owned by Cyprus Foote Mineral Company.
/(3)/ Fifty percent owned by Cyprus Foote Mineral Company, fifty percent owned
by Cyprus Specialty Metals Company.
/(4)/ Fifty-five percent owned by Cyprus Foote Mineral Company, forty-five
percent owned by Foote Mineral Company Limitada.
/(5)/ This subsidiary also conducts business under the division name Emerald
Mines Company.
3
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference of our report dated
February 17, 1995, (appearing on page 23 of the 1994 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, 1994) 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.
(f) Registration Statement on Form S-3 (No. 33-54097), as amended, with
respect to Cyprus Amax Minerals Company and Cyprus Amax Finance Corporation.
We also consent to the incorporation by reference of our report on the
Financial Statement Schedule, which appears on page 30 of this Form 10-K.
/s/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP
Denver, Colorado
March 24, 1995
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 139
<SECURITIES> 0
<RECEIVABLES> 314
<ALLOWANCES> 5
<INVENTORY> 453
<CURRENT-ASSETS> 1,041
<PP&E> 5,390
<DEPRECIATION> 1,465
<TOTAL-ASSETS> 5,407
<CURRENT-LIABILITIES> 618
<BONDS> 1,391
<COMMON> 1
0
5
<OTHER-SE> 2,323
<TOTAL-LIABILITY-AND-EQUITY> 5,407
<SALES> 2,706
<TOTAL-REVENUES> 2,788 <F1>
<CGS> 2,336
<TOTAL-COSTS> 2,435
<OTHER-EXPENSES> 46
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 74 <F2>
<INCOME-PRETAX> 221
<INCOME-TAX> 55
<INCOME-CONTINUING> 166
<DISCONTINUED> 9
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 175
<EPS-PRIMARY> 1.69
<EPS-DILUTED> 1.69
<FN>
<F1> Gain on the sale of assets, $40 million
<F2> Net of interest income, $17 million, and capitalized interest, $16 million
</TABLE>
