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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994
COMMISSION FILE NUMBER 1-82
PHELPS DODGE CORPORATION
(A NEW YORK CORPORATION)
13-1808503
(I.R.S. EMPLOYER IDENTIFICATION NO.)
2600 N. CENTRAL AVENUE, PHOENIX, AZ 85004-3089
REGISTRANT'S TELEPHONE NUMBER: (602) 234-8100
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Name of each exchange
Title of each class on which registered
------------------- ----------------------
Common Shares, $6.25 par value per share New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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]
The aggregate market value of Common Shares of the issuer held by nonaffiliates
at March 7, 1995, was approximately $3,780,581,100.
Number of Common Shares outstanding at March 7, 1995: 70,665,067 shares.
Documents Incorporated by Reference:
Document Location in 10-K
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Proxy Statement for 1995 Annual Meeting Part III
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<PAGE>
PHELPS DODGE CORPORATION
1994 Annual Report on Form 10-K
Part I
Items 1. and 2. Business and Properties
- ---------------------------------------
Phelps Dodge Corporation, incorporated under the laws of New York in
1885, is among the world's largest producers of copper. In 1994, the Corporation
produced 572,800 tons of copper for its own account from its worldwide mining
operations and an additional 120,400 tons of copper for the accounts of minority
interest owners. Gold, silver, molybdenum, copper chemicals and sulfuric acid
are also produced as by-products of the Corporation's copper operations.
Production for the Corporation's own account from its U.S. operations
constituted over 25 percent of the copper mined in the United States in 1994.
Much of the Corporation's U.S. copper production, after electrowinning or
smelting and refining, together with additional copper purchased from others, is
used by the Corporation to produce continuous cast copper rod, the basic feed
for the electrical wire and cable industry. The Corporation is the world's
largest producer of copper rod.
Phelps Dodge's international mining interests include Candelaria, its
major new copper mine in Chile, and other operations in Chile, South Africa and
Peru. These operations produce a variety of metals and minerals including
copper, gold, fluorspar, silver, lead and zinc. Phelps Dodge also explores for
metals and minerals throughout the world.
The Corporation manufactures engineered products principally for the
transportation and electrical sectors through a group of industrial companies.
Columbian Chemicals Company is among the world's largest producers of carbon
black, a reinforcing agent in natural and synthetic rubber that increases the
service life of tires, hoses, belting and other products, for the rubber
industry. It also produces specialty carbon black for other industrial
applications such as printing pigments, coatings, plastics and other non-rubber
applications. In addition, Columbian Chemicals is a producer of synthetic iron
oxide, used as an inorganic colorant in paints, building products, cosmetics and
plastics. Accuride Corporation is the largest North American manufacturer of
steel wheels and rims for medium and heavy trucks, trailers and buses. Phelps
Dodge Magnet Wire Company, the world's largest manufacturer of magnet wire,
produces magnet wire and other copper products for sale principally to original
equipment manufacturers for use in electrical motors, generators, transformers
and other products. Phelps Dodge International Corporation manufactures
electrical and telecommunication cables for international markets in joint
venture associations at eight majority owned subsidiaries operating in nine
countries, and has minority interests in other international wire and cable
manufacturers operating in five countries. Through several of these companies,
the Corporation is also active in the engineering and installation of telephone
lines. Hudson International Conductors manufactures specialty high-performance
conductors and alloys principally for the aerospace and electronics industries.
The discussion of the business and properties of the Corporation
contained below in Items 1 and 2 of this report is based on the Corporation's
two business segments: (i) Phelps Dodge Mining Company and (ii) Phelps Dodge
Industries. These are more fully described in Note 22 to the Consolidated
Financial Statements which also sets forth financial information about such
segments.
(i) The Phelps Dodge Mining Company segment includes the
Corporation's worldwide copper operations from mining through rod
production, marketing and sales, other mining operations and
investments, and worldwide mineral exploration and development
programs.
(ii) The Phelps Dodge Industries segment includes the Corporation's
carbon black and synthetic iron oxide operations, its wheel and
rim business, and its magnet wire, specialty conductor and cable
operations.
Information about sales and earnings of foreign operations of the
Corporation is also included in Note 22 to the Consolidated Financial
Statements.
Unless the context otherwise requires, "Corporation" and "Phelps Dodge"
as used herein mean Phelps Dodge Corporation and its consolidated subsidiaries.
All references to tons in this report are to short tons and references to ounces
are to troy ounces.
The number of persons employed by the Corporation on December 31, 1994,
was 15,498.
PHELPS DODGE MINING COMPANY
- ---------------------------
Phelps Dodge Mining Company is an international business comprising a
group of companies involved in vertically integrated copper operations including
mining, concentrating, electrowinning, smelting and refining, rod production,
marketing and sales, and related activities. Copper is sold primarily to others
as rod, cathode or concentrates, and to the Phelps Dodge Industries segment. In
addition, Phelps Dodge Mining Company at times smelts and refines copper and
produces copper rod for others on a toll basis. Phelps Dodge Mining Company also
produces gold, silver, molybdenum and copper chemicals, principally as
by-products, and sulfuric acid from its air quality control facilities. This
segment also includes the Corporation's other mining operations and investments
(including fluorspar, silver, lead and zinc operations) and its worldwide
mineral exploration and development programs.
Properties, Facilities and Production
- -------------------------------------
Copper Operations
-----------------
Phelps Dodge produces copper concentrates from open-pit mines and
concentrators located in Morenci, Arizona; Santa Rita, New Mexico; and near
Copiapo, Chile. The Corporation also produces copper concentrates from two
underground mines and a concentrator located near Copiapo through Ojos del
Salado which is a wholly owned Chilean subsidiary of Phelps Dodge Corporation.
The Corporation produces copper precipitates from leaching operations at Santa
Rita, Tyrone and, to a modest extent, Bisbee, Arizona. Precipitates, like
concentrates, must be smelted and then electrolytically refined.
The Corporation produces electrowon copper from mine-for-leach and
solution extraction/electrowinning (SX/EW) operations in Tyrone, New Mexico. The
Corporation produced copper concentrates at Tyrone until February 1992 when
concentrator operations were indefinitely suspended because the higher grade ore
reserves were substantially depleted. In addition to the Tyrone operation, the
Corporation produces electrowon copper from SX/EW plants at Morenci, Arizona,
and Santa Rita, New Mexico.
The Morenci complex in southeastern Arizona comprises an open-pit mine,
two concentrators and the world's largest SX/EW facility. The Corporation owns
an 85 percent undivided interest in the Morenci complex; the remaining 15
percent interest is owned by Sumitomo Metal Mining Arizona, Inc. (Sumitomo), a
jointly owned subsidiary of Sumitomo Metal Mining Co., Ltd. and Sumitomo
Corporation. Phelps Dodge is the operator of the Morenci properties. Sumitomo
takes in kind its share of Morenci production. The Morenci complex is the
largest copper producing operation in North America.
The allocation of available supplies of water among water users has for
several years been the subject of litigation in Arizona, where the amounts
claimed exceed supplies. Morenci water rights were established many years ago by
agreements and judicial decrees. Nevertheless, in recent years various Indian
tribes in Arizona have filed suits in federal court claiming prior and paramount
rights to use waters that are presently being used by many water users,
including the Corporation, and damages for prior use in derogation of their
allegedly paramount rights. In addition, state proceedings are currently under
way to adjudicate water rights on two principal watersheds in Arizona - the Gila
River watershed and the Little Colorado watershed. These suits and adjudication
proceedings could adversely affect the water supplies for the Morenci operation
and other prospective producing properties of the Corporation in Arizona. See
"Legal Proceedings" for information concerning the status of these proceedings
and other legal proceedings that might affect the Corporation's rights to use
water.
The open-pit copper mine, concentrator and SX/EW facility in Santa
Rita, New Mexico, and a smelter in Hurley, New Mexico, are owned by Chino Mines
Company (Chino), a general partnership in which the Corporation holds a
two-thirds partnership interest. Heisei Minerals Corporation (Heisei), a
subsidiary of Mitsubishi Corporation and Mitsubishi Materials Corporation, owns
the remaining one-third interest in Chino. Phelps Dodge manages the Chino
operations.
Candelaria, Phelps Dodge's newest mine, is located near Copiapo in the
Atacama Desert of northern Chile. Discovered in 1987 by the Phelps Dodge
exploration group, Candelaria has estimated ore reserves of 399.1 million tons
at an average grade of 1.1 percent copper and containing 3 million ounces of
gold. Phelps Dodge owns an 80 percent interest in Candelaria (through PD
Candelaria, Inc., a wholly owned subsidiary of the Corporation), with a jointly
owned subsidiary of Sumitomo Metal Mining Co., Ltd. and Sumitomo Corporation,
both of Japan, owning the remaining 20 percent interest.
Phelps Dodge Mining Company completed construction and commenced
operations at Candelaria in October 1994, and anticipates full production in
1995. The project consists of an open-pit mine, concentrator, port and
associated facilities. Candelaria, which is operated by Phelps Dodge, is
expected to produce more than 130,000 tons of copper and 80,000 ounces of gold
annually over the estimated 34-year mine life.
The Tyrone mine-for-leach operation near Silver City, New Mexico, is
wholly owned by Phelps Dodge Corporation. The SX/EW plant at Tyrone is owned and
operated by Burro Chief Copper Company (Burro Chief), a wholly owned subsidiary
of the Corporation. Burro Chief also operates the SX/EW plant at Santa Rita,
which is owned by Chino. In 1994, continuous mining resumed at Tyrone when the
operation returned to a seven-day-a-week, 24-hour-a-day schedule.
Phelps Dodge is the leading producer of copper using the SX/EW process.
Copper produced by SX/EW accounted for 47 percent of the Corporation's total
production in 1994, compared with 47 percent in 1993 and 45 percent in 1992. The
SX/EW method of copper production results in lower overall unit costs than
conventional concentrating, smelting and refining and is a major factor in the
Corporation's continuing efforts to maintain internationally competitive costs.
The Corporation initiated SX/EW production at its Burro Chief plant
near Tyrone in 1984. In early 1992, the Corporation completed a fourth expansion
of the plant that increased its production capacity to 70,000 tons of cathode
copper per year. The Corporation expects to operate the plant for the next 10
years or more.
The Corporation initiated SX/EW production at Morenci in late 1987.
With the completion of the Northwest Extension project in May 1992, Morenci's
SX/EW facilities have an annual production capacity of 170,000 tons of cathode
copper. During 1994, engineering and construction activities commenced at Phelps
Dodge Mining Company's $200 million Southside project (the Corporation's share
will be $170 million with the remainder provided by its co-participant,
Sumitomo) at its Morenci mine. This project, which will increase Phelps Dodge's
share of annual electrowon copper production capacity by approximately 130
million pounds, is expected to be in production in 1995. The expansion involves
the development of the Southside ore deposit, a sulfide and oxide resource of
150 million tons at a grade of 0.39 percent copper, adjacent to the existing
open-pit mine at Morenci. The expansion will include the construction of an
electrowinning tankhouse, the expansion of existing solution extraction plants,
the upgrading of infrastructure systems and the purchase of mining equipment.
The Corporation initiated production at its Chino SX/EW plant at Santa
Rita in August 1988. The Corporation completed its first expansion of this plant
in April 1993, increasing design capacity to 60,000 tons of cathode copper per
year.
The Corporation owns and operates a smelter in Hidalgo County, New
Mexico, and, through Chino Mines Company, owns a two-thirds interest in and
operates the Chino smelter in Hurley, New Mexico. Phelps Dodge smelts its share
of its U.S. concentrate production and serves as a custom smelter for other
mining companies. It also refines its share of its anode copper production. In
addition, the Corporation purchases concentrates to keep its smelters operating
at efficient levels. Such purchases are expected to continue whenever the
smelting capacity of the Hidalgo and Chino smelters exceeds Phelps Dodge Mining
Company's share of its concentrate production.
The Corporation's refinery in El Paso, Texas, is one of the world's
largest copper refineries, having the capacity to produce approximately 430,000
tons of electrolytic copper annually. This capacity is sufficient to refine all
copper produced by the Corporation for its account at its two operating
smelters. During 1994, refinery production exceeded design capacity. The El Paso
refinery also produces gold, silver and copper sulfate and recovers small
amounts of selenium, platinum and palladium as by-products of the copper
refining process.
Phelps Dodge is the world's largest producer of continuous cast copper
rod, the basic feed for the electrical wire and cable industry. Most of the
Corporation's refined copper, and additional copper purchased by the
Corporation, is converted into rod at its continuous cast copper rod facilities
in El Paso, Texas, and Norwich, Connecticut. The two plants have a collective
annual capacity to convert more than 650,000 tons of refined copper into rod.
During 1994, combined production of rod and other refined copper products from
the two plants was 683,500 tons. In addition, an Elizabeth, New Jersey, plant
fabricates specialty copper and copper alloy products for use in the aerospace,
automotive, transportation and semiconductor industries.
The following tables give the Corporation's worldwide copper
production by source for the years 1990 through 1994; aggregate production and
delivery (sales) data for copper, gold, silver, molybdenum and sulfuric acid
from these sources for the same years; annual average copper prices; and
production from the Corporation's smelters and refinery. Major changes in
operations during the five-year period included (1) increases in capacity in
1992 of the SX/EW facilities at Morenci and at the Burro Chief plant at Tyrone;
(2) indefinite suspension of concentrator operations at Tyrone in February 1992;
(3) expansion of the mill at Ojos del Salado in 1991 from 1,900 to 3,850 tons of
ore per day; (4) commissioning of the Santa Gertrudis gold mine in May 1991 and
the subsequent sale of the Corporation's interest in the property in the 1994
second quarter; (5) at Morenci, completion in 1992 of the Northwest Extension
and the 1990 reentry into the Metcalf area; (6) expansion of Chino's SX/EW plant
at Santa Rita in April 1993; (7) severe flooding problems at Ojos del Salado's
Santos mine in 1993 that resulted in reduced production of copper concentrate;
and (8) commencement of operations at Candelaria in the 1994 fourth quarter.
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<TABLE>
PHELPS DODGE COPPER PRODUCTION DATA, BY SOURCE
- ----------------------------------------------
(thousand tons)
<CAPTION>
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
MATERIAL MINED
Morenci ................................................ 240,700 219,032 203,456 198,009 144,211
Tyrone ................................................. 62,067 49,387 32,407 92,542 84,183
Chino .................................................. 105,057 108,568 103,081 103,198 100,339
Candelaria (a) ......................................... 17,842 -- -- -- --
Ojos del Salado ........................................ 1,712 1,438 1,564 1,612 897
------- ------- ------- ------- -------
Total material mined .................................... 427,378 378,425 340,508 395,361 329,630
Less minority participants' shares ...................... 74,692 69,044 64,878 64,100 55,078
------- ------- ------- ------- -------
Net Phelps Dodge share .................................. 352,686 309,381 275,630 331,261 274,552
======= ======= ======= ======= =======
MILL ORE MINED
Morenci ................................................ 45,240 46,990 46,562 44,529 43,107
Tyrone ................................................. -- -- 1,293 15,708 16,397
Chino .................................................. 17,811 17,436 17,160 18,048 16,924
Candelaria (a) ......................................... 2,685 -- -- -- --
Ojos del Salado ........................................ 1,536 1,314 1,513 1,159 791
------- ------- ------- ------- -------
Total mill ore mined .................................... 67,272 65,740 66,528 79,444 77,219
Less minority participants' shares ...................... 13,260 12,861 12,704 12,695 12,107
------- ------- ------- ------- -------
Net Phelps Dodge share .................................. 54,012 52,879 53,824 66,749 65,112
======= ======= ======= ======= =======
GRADE OF ORE MINED - PERCENT COPPER
Morenci ................................................ 0.65 0.67 0.67 0.69 0.74
Tyrone ................................................. -- -- 0.69 0.58 0.79
Chino .................................................. 0.69 0.73 0.68 0.70 0.67
Candelaria ............................................. 1.27 -- -- -- --
Ojos del Salado ........................................ 1.38 1.43 1.77 2.26 1.86
RECOVERABLE COPPER (b)
Morenci:
Concentrate and precipitate ........................... 217.3 233.3 226.5 222.8 235.3
Electrowon ............................................ 190.1 170.8 162.8 119.4 100.4
Tyrone:
Concentrate and precipitate ........................... 4.2 6.0 8.5 62.6 102.8
Electrowon ............................................ 68.9 73.5 70.2 59.5 56.5
Chino:
Concentrate and precipitate ........................... 92.7 95.6 94.9 102.2 98.5
Electrowon ............................................ 66.8 63.9 57.3 55.2 47.9
Candelaria:
Concentrate (a) ....................................... 31.0 -- -- -- --
Ojos del Salado:
Concentrate ........................................... 18.6 16.7 24.4 20.0 12.3
Bisbee precipitate and
miscellaneous ........................................ 3.6 1.6 1.4 0.1 5.8
------- ------- ------- ------- -------
Total recoverable copper ................................ 693.2 661.4 646.0 641.8 659.5
Less minority participants' shares ...................... 120.4 113.7 109.0 103.7 98.8
------- ------- ------- ------- -------
Net Phelps Dodge share .................................. 572.8 547.7 537.0 538.1 560.7
======= ======= ======= ======= =======
</TABLE>
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- ----------------------------------------------------------------------------
<TABLE>
PHELPS DODGE METAL PRODUCTION AND DELIVERIES (b)
- ------------------------------------------------
<CAPTION>
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
COPPER (THOUSAND TONS)
Total production .................................. 693.2 661.4 646.0 641.8 659.5
Less minority participants'
shares ........................................... 120.4 113.7 109.0 103.7 98.8
----- ----- ----- ----- -----
Net Phelps Dodge share ........................... 572.8 547.7 537.0 538.1 560.7
===== ===== ===== ===== =====
Deliveries (c) .................................... 560.6 543.9 537.7 553.9 556.7
===== ===== ===== ===== =====
GOLD (THOUSAND OUNCES) (d)
Total production .................................. 93 85 105 85 60
Less partners' shares ............................. 28 29 38 25 10
----- ----- ----- ----- -----
Net Phelps Dodge share ........................... 65 56 67 60 50
===== ===== ===== ===== =====
Deliveries (c) .................................... 47 54 59 57 47
===== ===== ===== ===== =====
SILVER (THOUSAND OUNCES) (d)
Total production .................................. 1,627 1,387 1,403 1,931 2,562
Less partners' shares ............................. 360 273 315 314 288
----- ----- ----- ----- -----
Net Phelps Dodge share ........................... 1,267 1,114 1,088 1,617 2,274
===== ===== ===== ===== =====
Deliveries (c) .................................... 1,039 1,085 1,083 1,531 2,047
===== ===== ===== ===== =====
MOLYBDENUM (THOUSAND POUNDS)
Total production .................................. 969 1,200 1,729 2,078 1,237
Less minority participants'
shares ........................................... 226 394 528 501 325
----- ----- ----- ----- -----
Net Phelps Dodge share ........................... 743 806 1,201 1,577 912
===== ===== ===== ===== =====
Deliveries ........................................ 698 905 1,129 1,566 1,064
===== ===== ===== ===== =====
SULFURIC ACID
(THOUSAND TONS) (e)
Total production .................................. 1,276.7 1,379.4 1,230.0 1,301.7 1,328.8
Less minority participant's
share ............................................ 191.5 193.9 184.4 183.0 181.7
------- ------- ------- ------- -------
Net Phelps Dodge share ........................... 1,085.2 1,185.5 1,045.6 1,118.7 1,147.1
======= ======= ======= ======= =======
Deliveries ...................................... 685.2 718.4 733.7 855.7 932.8
======= ======= ======= ======= =======
</TABLE>
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<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
COMEX COPPER PRICE (f) ....................... $ 1.07 0.85 1.03 1.05 1.19
- ----------------------------------------------------------------------------
</TABLE>
<TABLE>
PHELPS DODGE SMELTERS AND REFINERY - PRODUCTION
- -----------------------------------------------
<CAPTION>
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Smelters (g)
Total copper (thousand
tons) ...................................... 411.7 376.7 329.2 305.7 323.3
Less minority
participant's share ........................ 60.0 51.0 49.3 34.7 32.9
------- ------- ------- ------- -------
Net Phelps Dodge share .................... 351.7 325.7 279.9 271.0 290.4
======= ======= ======= ======= =======
Refinery (h)
Copper (thousand tons) ...................... 453.8 432.4 388.1 386.0 423.2
Gold (thousand ounces) ...................... 118.0 85.8 78.8 56.8 55.5
Silver (thousand ounces) .................... 2,672.3 3,144.7 2,377.0 2,199.1 2,872.3
- ----------------------------------------------------------------------------
<FN>
Footnotes to the preceding tables:
(a) Candelaria production data in 1994 reflects commencement of operations in the fourth quarter.
(b) Includes smelter production from custom receipts and fluxes as well as tolling gains or losses.
(c) Excludes sales of purchased copper, silver and gold.
(d) Includes the Santa Gertrudis gold project, which was operated by Phelps Dodge from 1991 through the 1994
second quarter.
(e) Sulfuric acid production results from smelter air quality control
operations; deliveries do not include internal usage.
(f) New York Commodity Exchange annual average spot price per pound - cathodes.
(g) Includes production from purchased concentrates and copper smelted for others on toll.
(h) Includes production from purchased material and copper refined for others on toll.
</FN>
</TABLE>
- ----------------------------------------------------------------------------
Other Mining Operations and Investments
---------------------------------------
Phelps Dodge Mining (Pty.) Limited, a wholly owned subsidiary of Phelps
Dodge Corporation, operates the Witkop fluorspar mine and mill in the western
Transvaal, South Africa. The operation produces acid-grade fluorspar
concentrates for export to customers in the United States and Europe, and acid-
and metallurgical-grade fluorspar for the South African market. As fourth
quarter demand increased, annual production capacity was increased from 93,000
tons to 110,000 tons of acid-grade fluorspar, all of which has been committed
against 1995 contracts.
Black Mountain Mineral Development Company (Pty.) Limited operates a
lead-silver-zinc-copper mine and concentrator in the Cape Province of South
Africa. The operation is owned 44.6 percent by Phelps Dodge and 55.4 percent by
the Gold Fields of South Africa group. Phelps Dodge accounts for its investment
in Black Mountain on the equity basis. Higher base metal prices in 1994 resulted
in improved profitability. Phelps Dodge received a $2.9 million cash dividend
payment from Black Mountain in 1994. The 1994 dividend was the first received by
the Corporation from Black Mountain since 1991 when $1.6 million was received.
Phelps Dodge owns a 16.25 percent interest in Southern Peru Copper
Corporation (SPCC), which operates two copper mines, two concentrators, a
smelter and a refinery in Peru. The SPCC refinery was acquired from Minera Peru
in 1994. Drilling programs at SPCC's mine sites in 1994 resulted in the
identification of an estimated 1.3 billion tons of additional mineralized
material averaging 0.72 percent copper. Evaluation of this material will
continue in 1995. SPCC's other shareholders are ASARCO Incorporated with a 52.31
percent interest, affiliates of the Marmon Group, Inc. with a 20.70 percent
interest, and Newmont Mining Corporation with a 10.74 percent interest. SPCC's
results are not included in Phelps Dodge's earnings because the Corporation
accounts for its investment in SPCC on the cost basis. During 1994, Phelps Dodge
received dividend payments of $3.5 million from SPCC, compared with $2.9 million
in 1993, $2.4 million in 1992 and $9.8 million in 1991. The 1991 dividend was
the first received by the Corporation from SPCC since 1984. In November 1994,
SPCC filed a registration statement with the U.S. Securities and Exchange
Commission for the offering of 16,000,000 common shares of its stock to be
listed on the New York Stock Exchange. In February 1995, the offering was
withdrawn.
Compania Minera Santa Gertrudis, S.A. de C.V. was organized in 1989 to
develop the Santa Gertrudis gold project in Mexico. The project was commissioned
in May 1991, and in the 1994 second quarter the Corporation sold its interest in
the property.
Exploration & Development
- -------------------------
In 1994, Phelps Dodge Exploration Corporation was formed to streamline
and focus the Corporation's exploration activities. The primary objectives of
Phelps Dodge Exploration Corporation are to increase copper reserves through
discoveries, acquisitions and joint ventures, and to diversify into other
metals, minerals and geographic areas, where appropriate. Phelps Dodge
Exploration Corporation operates offices in Australia, Canada, Chile, Mexico,
Peru, South Africa, Thailand, the United States and Zambia.
The 1994 exploration program continued to place emphasis on the search
for and delineation of large scale copper, gold and other base metal deposits.
The Corporation expended $40.0 million on worldwide exploration during 1994,
compared with $43.4 million in 1993 and $34.7 million in 1992. Approximately 55
percent of the 1994 expenditures occurred in the United States, with the balance
spent principally in Chile, Canada, Peru, Mexico, Australia and Zambia. In 1993,
exploration expenditures occurring in the United States were approximately the
same as in 1994, compared with two-thirds in 1992.
During 1994, exploration efforts at existing Phelps Dodge copper
operations (principally Morenci, Chino, Tyrone and Ojos del Salado) outlined
significant additional copper resources.
In the Morenci area, a districtwide exploration program continued in
1994 in an effort to further delineate additional resources including the
Coronado and Western Copper deposits. The Coronado deposit is estimated to
contain 180 million tons of milling material at a grade of 0.69 percent copper,
and 310 million tons of leach material at a grade of 0.29 percent copper. The
Western Copper deposit is estimated to contain 530 million tons of milling
material at a grade of 0.55 percent copper, and 500 million tons of leach
material at a grade of 0.31 percent copper. In addition, a large resource of
leachable material containing 760 million tons grading 0.28 percent copper was
outlined in 1994 in the Garfield area north of the Morenci mine. Additional
drilling in this area is planned in 1995.
At the Chino mine in southwestern New Mexico, an exploration program
was completed in 1994 that resulted in the identification of significant
additional reserves including 68 million tons of ore for concentrator feed
averaging 0.58 percent copper and 657 million tons of leachable material
averaging 0.23 percent copper.
An exploration drilling program at Tyrone has identified additional
leachable mineralization of approximately 93 million tons at a grade of 0.37
percent copper.
In Chile, underground drilling at Ojos del Salado's Malaquita and
Alcaparrosa projects continues to define copper mineralization that may be used
as feed for the Ojos del Salado mill. The Alcaparrosa project, a proposed mine
located three miles from the Ojos mill, is scheduled for development beginning
in 1995, with full production anticipated in 1996. The addition of the
Alcaparrosa project will allow Ojos del Salado to maintain current levels of
production for several years. Additional targets throughout Chile are being
actively evaluated.
During 1994, Phelps Dodge continued its evaluation of copper resources
near Safford, Arizona, which include the Dos Pobres, San Juan and Lone Star
deposits. The Dos Pobres deposit contains an estimated 230 million tons of deep
lying milling material at a grade of 0.89 percent copper which is overlain by an
estimated 350 million tons of leach material at an average grade of 0.33 percent
copper. Metallurgical test work continued on Dos Pobres material throughout
1994. The Lone Star deposit contains an estimated 1.6 billion tons of leach
material at a grade of 0.38 percent copper. At the San Juan property, which is
situated between the Dos Pobres and Lone Star deposits, a large exploration
drilling project resulted in the definition of a leachable copper resource of
270 million tons grading 0.28 percent copper. Approximately 170,000 feet of
reverse circulation drilling and core drilling in 152 holes were completed over
a nine-month period, and the option to acquire the property was exercised in
September 1994.
Phelps Dodge Mining Company entered into two separate land exchange
agreements with the Bureau of Land Management during 1994. If consummated, one
of these agreements will allow the Corporation to acquire approximately 15,000
acres of public land located adjacent to its private land holdings near Safford,
Arizona, and the other will allow Phelps Dodge to acquire approximately 4,000
acres of public land located adjacent to the Morenci mine. Environmental Impact
Statements required in conjunction with both land exchanges are expected to be
completed in 1996.
Project permitting began in 1994 at the Seven-Up Pete joint venture's
McDonald gold project near Lincoln, Montana. Results of a feasibility study
estimate 205 million tons of mineralized material with an average grade of 0.025
ounces of gold per ton. The regulatory review process for project permitting is
expected to be completed within 18 to 36 months. Phelps Dodge Corporation owns a
72.25 percent interest in the Seven-Up Pete joint venture and Canyon Resources
Corporation of Golden, Colorado, holds the remaining 27.75 percent interest. An
attempt to restructure the Corporation's ownership interest in the venture by
sale was made in 1994. Although this initial attempt was unsuccessful, the
Corporation will continue to evaluate restructuring alternatives to maximize
shareholder value for this project.
In Zambia, the Corporation initiated a preliminary feasibility study to
evaluate the copper resources in the Lumwana area. Exploration activities also
continued in adjoining areas.
Ore Reserves
- ------------
Ore reserves at each of Phelps Dodge's copper operations have been
estimated as follows:
<TABLE>
- ----------------------------------------------------------------------------
<CAPTION>
Estimated at December 31, 1994
------------------------------------------------------------------------------
Milling Leaching
Reserves Reserves Phelps
---------------------- ------------------------ Dodge
Million % Million (%) Interest
Tons Copper Tons Copper (%)
---- ------ ---- ------ -----
<S> <C> <C> <C> <C> <C>
Morenci .................................. 477.7 0.72 1,193.2 0.32 85.0
Chino .................................... 315.4 0.67 720.5 0.24 66.7
Tyrone ................................... -- -- 230.2 0.35 100.0
Candelaria ............................... 399.1 1.09 -- -- 80.0
Ojos del Salado .......................... 16.2 1.33 -- -- 100.0
</TABLE>
<TABLE>
<CAPTION>
Estimated at December 31, 1993
------------------------------------------------------------------------------
Milling Leaching
Reserves Reserves Phelps
---------------------- ------------------------ Dodge
Million % Million (%) Interest
Tons Copper Tons Copper (%)
---- ------ ---- ------ -----
<S> <C> <C> <C> <C> <C>
Morenci .................................. 516.1 0.69 1,159.9 0.31 85.0
Chino .................................... 264.9 0.69 117.7 0.34 66.7
Tyrone ................................... -- -- 163.4 0.31 100.0
Candelaria ............................... 403.3 1.09 -- -- 80.0
Ojos del Salado .......................... 8.8 1.63 -- -- 100.0
- ----------------
<FN>
The Candelaria and Ojos del Salado deposits are estimated to contain,
respectively, 0.008 ounces and 0.010 ounces of gold per ton.
</FN>
</TABLE>
- ----------------------------------------------------------------------------
<TABLE>
The Corporation's estimated share of aggregate ore reserves at the
above named properties at December 31 is as follows:
- ----------------------------------------------------------------------------
<CAPTION>
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Milling reserves (billion tons) ......................... 1.0 0.9 1.0 1.1 1.2
Leaching reserves (billion tons) ........................ 1.7 1.2 1.0 1.1 1.0
Commercially recoverable copper
(million tons) ........................................ 10.6 10.1 10.5 10.8 11.8
- ----------------
<FN>
The Candelaria reserve is included on a 100 percent basis in the 1990
estimate and on an 80 percent basis in the 1991 - 1994 estimates
reflecting the acquisition by two Sumitomo companies of a 20 percent
interest in the project (representing approximately 0.8 million tons of
commercially recoverable copper) agreed to in 1991.
</FN>
</TABLE>
- ----------------------------------------------------------------------------
<TABLE>
Ore reserves at each of Phelps Dodge's other mining operations and
investments at year-end 1994 are estimated as follows:
- ----------------------------------------------------------------------------
<CAPTION>
Ore Phelps
Reserves Silver % Dodge
Million Ounces % % % Calcium Int.
Tons Per Ton Copper Lead Zinc Fluoride (%)
------ -------- ------ ---- ---- ------- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Black Mountain
Broken Hill deposit .................. 11.2 2.6 0.49 6.9 3.2 -- 44.60
Southern Peru
Copper Corporation * ................. 587.7 -- 0.79 -- -- -- 16.25
Phelps Dodge
Mining Limited ....................... 21.8 -- -- -- -- 16.50 100.00
<FN>
---------
* Southern Peru Copper Corporation deposits also contain
approximately 115 million tons of leach material at a grade of 0.28 percent
copper.
</FN>
</TABLE>
- ----------------------------------------------------------------------------
Ore reserves are those estimated quantities of ore that, under
conditions anticipated by the Corporation, may be profitably mined and processed
for extraction of their constituent values. Estimates of the Corporation's
reserves are based upon the Corporation's engineering evaluations of assay
values derived from the sampling of drill holes and other openings. In the
Corporation's opinion, the sites for such samplings are spaced sufficiently
close and the geologic characteristics of the deposits are sufficiently well
defined to render the estimates reliable. Stated tonnages and grades of ore do
not reflect waste dilution in mining or losses in processing. Leaching reserves
include copper estimated to be recoverable from leach reserves remaining to be
mined at Morenci, Chino and Tyrone. Commercially recoverable copper includes
copper estimated to be recoverable from milling and leaching reserves and from
existing stock piles of leach material at Morenci, Chino and Tyrone.
The Corporation holds various other properties containing mineral
deposits that it believes could be brought into production should market
conditions warrant. Permitting and significant capital expenditures would be
required before operations could commence at these properties. These deposits
are estimated to contain the following mineralization as of December 31, 1994:
<TABLE>
- ----------------------------------------------------------------------------
<CAPTION>
Sulfide Material Leach Material Phelps
---------------- -------------- Gold Dodge
Million % Million % Ounces Interest
Location Tons Copper Tons Copper Per Ton (%)
-------- ----- ------ ----- ------ ------- ---
<S> <C> <C> <C> <C> <C> <C> <C>
Ajo ............................... Arizona 160 0.56 -- -- -- 100.00
Cochise ........................... Arizona -- -- 210 0.40 -- 100.00
Copper Basin ...................... Arizona 70 0.53 -- -- -- 100.00
Coronado .......................... Arizona 180 0.69 310 0.29 -- 85.00
Dos Pobres ........................ Arizona 230 0.89 350 0.33 -- 100.00
Garfield .......................... Arizona -- -- 760 0.28 -- 85.00
Lone Star ......................... Arizona -- -- 1,600 0.38 -- 100.00
San Juan .......................... Arizona -- -- 270 0.28 -- 100.00
Western Copper .................... Arizona 530 0.55 500 0.31 -- 85.00
McDonald .......................... Montana -- -- 205 -- 0.025 72.25
Southern Peru
Copper Corp. ..................... Peru 1,300 0.72 -- -- -- 16.25
Black Mountain * .................. South Africa 20 -- -- -- -- 44.60
<FN>
- ------------------
* The Black Mountain deposit contains an estimated 7.56 percent lead,
3.43 percent zinc, 0.50 percent copper and 3.1 ounces of silver per ton.
</FN>
</TABLE>
- ----------------------------------------------------------------------------
Ownership of Real Property
- --------------------------
The Corporation owns substantially all the lands on which its copper
mines, concentrators, SX/EW facilities, smelters, refinery and rod mills are
located and holds the rest under lease. The Chino Mines partnership owns
substantially all the lands on which its copper mine, concentrator, SX/EW
facility and smelter are located and holds the rest under lease.
Sales and Competition
- ---------------------
Most of Phelps Dodge's copper, and additional copper purchased by the
Corporation, is cast into rod. Rod sales to outside wire and cable manufacturers
constituted approximately two-thirds of Phelps Dodge Mining Company's sales in
1994. Phelps Dodge also sells a portion of its copper as cathode. Sales of rod
and cathode are made directly to wire and cable fabricators and brass mills
under contracts principally of a one-year duration. Phelps Dodge rod also is
used by the Corporation's magnet wire, bare wire and specialty conductor
operations.
The Corporation sells its copper rod and cathode on the basis of
premiums, which are announced from time to time by the Corporation, over New
York Commodity Exchange (COMEX) prices. It also sells some forms of copper on
the basis of prices published by the Corporation and sells concentrates based on
the prices on the COMEX or the London Metal Exchange (LME). From time to time,
Phelps Dodge engages in hedging programs designed to enable the Corporation to
realize current average prices for metal delivered or committed to be delivered.
Other price protection arrangements also may be entered into from time to time,
depending on market circumstances, to ensure a minimum price for a portion of
the Corporation's expected future mine production (see Management's Discussion
and Analysis and Notes 1 and 21 to the Consolidated Financial Statements for a
further discussion of such arrangements).
Most of the refined copper sold by Phelps Dodge is incorporated into
electrical wire and cable products worldwide for use in the construction,
electric utility, communications and transportation industries. It is also used
in industrial machinery and equipment, consumer products and a variety of other
electrical and electronic applications.
In the sale of copper as rod, cathode and concentrates, the Corporation
competes, directly or indirectly, with many other sellers, including at least
five other U.S. primary producers, as well as numerous foreign producers, metal
merchants, custom refiners and scrap dealers. Some major foreign producers have
cost advantages resulting from richer ore grades, lower labor rates and a lack
of strict regulatory requirements. The Corporation believes that its ongoing
programs to contain costs and improve productivity in its copper operations have
significantly narrowed these cost advantages and have placed the Corporation in
a favorable competitive position with respect to a number of its U.S. and
foreign competitors.
The Corporation's copper also competes with other materials, such as
aluminum, plastics, stainless steel and fiber optics, that can be substituted
for copper in certain applications.
The Corporation's principal methods of competing include pricing,
product quality, customer service and dependability of supply.
Prices, Supply and Consumption
- ------------------------------
Copper is an internationally traded commodity, and its prices are
effectively determined by the two major metals exchanges -- the New York
Commodity Exchange (COMEX) and the London Metal Exchange (LME). The prices on
these exchanges generally reflect the worldwide balance of copper supply and
demand, but are also influenced significantly from time to time by speculative
actions and by currency exchange values. The average annual COMEX price was
$1.25 in 1989, reflecting substantial reductions in excess inventories in 1987
and 1988. A slowing world economy and higher exports from formerly socialist
countries resulted in a more balanced market in 1990 and modest surpluses in
1991 and 1992. As a result, the COMEX price was lower in 1990 than in 1989,
averaging $1.19 for the year. The COMEX price continued to decrease in 1991
resulting in an annual average price per pound of $1.05, and decreased further
in 1992 to an annual average price per pound of $1.03. Excess inventories that
accumulated since 1992 resulted in substantially lower copper prices in 1993;
the 1993 annual average price per pound was 85 cents. In 1994, excess
inventories that accumulated after 1992 were liquidated as copper consumption
surged reflecting solid economic growth in the United States, the beginning of
an economic recovery in Europe and continued strong demand from the Pacific Rim
region, excluding Japan. As a result, the 1994 annual average price per pound
increased to $1.07.
Costs
- -----
Unit production costs of copper in 1994 were slightly lower than in
1993, principally as a result of the first effects of low cost Candelaria
production in the fourth quarter of 1994. Unit production costs of copper
generally continued to reflect high levels of production, the cost containment
programs put into place over the last few years and significant amounts of
copper obtained through the SX/EW process at favorable incremental costs.
Energy Supplies
- ---------------
The principal sources of energy for the Corporation's copper operations
are natural gas, petroleum products, waste heat generated in the smelting
processes and electricity purchased from public utilities. Each of the
Corporation's mine power plants and smelters uses natural gas as its primary
fuel, and each is capable of being converted to use oil as a substitute fuel.
The Corporation has experienced no difficulty in recent years in obtaining
adequate fuel to maintain production.
Environmental and Other Regulatory Matters
- ------------------------------------------
Federal and state environmental laws and regulations affect many
aspects of the Corporation's mining operations. The federal Clean Air Act of
1970, as amended (the Clean Air Act), and regulations thereunder to date have
had the most significant impact, particularly on the Corporation's smelters.
The "solid wastes" of the Corporation's copper operations may be
subject to regulation under the federal Resource Conservation and Recovery Act
(RCRA) and related state laws and, to the extent these wastes affect surface
waters, under the federal Clean Water Act and relevant state water quality laws.
Mining wastes were exempted from the federal "hazardous waste" regulations under
Subtitle C of RCRA pending study by the Environmental Protection Agency (EPA)
and promulgation of regulations governing hazardous mining waste. As a result of
that study, EPA determined in 1986 that "extraction" and "beneficiation" wastes
did not warrant "hazardous waste" regulation under Subtitle C of RCRA, but
instead should be regulated as "solid waste" under Subtitle D of RCRA. EPA
determined in 1991 that 20 mineral "processing" wastes also should be regulated
as "solid waste" under RCRA Subtitle D, rather than be regulated as "hazardous
waste" under RCRA Subtitle C. Only three of the 20 wastes are copper
"processing" wastes. Therefore, the generation and management of any other
mineral smelting and refining waste could be subject to "hazardous waste"
regulation if the waste exhibits a hazardous waste characteristic or if EPA
specifically designates it as a "listed hazardous waste." These changes were
effective in many states, including Arizona, New Mexico and Texas, by the end of
1991. The Corporation has taken steps to address the potential regulation as
"hazardous waste" of any of its wastes which no longer meet the definition of
exempt mineral "processing" wastes. RCRA Subtitle D rules governing mineral
"extraction" and "beneficiation" wastes and "processing" wastes that are exempt
from RCRA Subtitle C have not yet been promulgated by EPA, Arizona or New
Mexico. The Corporation cannot yet estimate the impact of such mining waste
regulations on its operations.
The Corporation's copper operations are also subject to federal and
state laws and regulations protecting both surface water and groundwater
quality. The Corporation possesses, has applied for, or is in the process of
applying for the necessary permits or other governmental approvals presently
required under these rules and regulations.
At the Hidalgo smelter at Playas, New Mexico, in accordance with the
discharge plan approved by the New Mexico Environment Department (NMED), the
Corporation continues to monitor and report to NMED regarding groundwater
quality in the vicinity of the smelter's compacted, clay-lined evaporation pond.
The Corporation is continuing its efforts to assess the effect on groundwater
quality from operation of the evaporation pond and will continue to investigate
and implement appropriate technologies and contingency plans to mitigate any
adverse effect. The Corporation had also agreed during the term of an earlier
discharge plan to cease discharging acidic solutions to the evaporation pond as
presently constructed, to neutralize or remove the acidic solutions present in
the evaporation pond, and to commence a groundwater remediation program for any
existing contamination. Accordingly, a neutralization facility, a series of
lined impoundments, and a series of pumpback wells have been installed and are
operated to begin remediation of groundwater adversely affected by past
operation of the evaporation pond and to prevent future contamination.
Effective September 27, 1989, Arizona adopted regulations for its
aquifer protection permit (APP) program, which replaced the then existing
Arizona groundwater quality protection permit regulations. The Corporation is in
compliance with the APP regulations, pursuant to the transition provisions for
existing facilities under those regulations. The APP regulations require permits
for new facilities, activities and structures for mining, concentrating and
smelting. The APP may require mitigation and discharge reduction or elimination.
APP applications for existing facilities deemed to be in compliance with the new
regulations are not required until requested by the State or unless a major
modification at the facility alters the existing discharge characteristics. The
Corporation has conducted groundwater studies and submitted APP applications for
a closed tailing pile in Clarkdale, Arizona, and certain facilities at its
Copper Queen branch in Bisbee, Arizona, pursuant to a request by the Arizona
Department of Environmental Quality (ADEQ). ADEQ has requested and the
Corporation will submit to ADEQ in the future an application covering other
facilities at the Copper Queen branch. Also, ADEQ has published a list of
site-specific application deadlines for all existing facilities known to ADEQ.
The list includes several of the Corporation's properties, which were assigned
deadlines ranging to October 30, 1996. It is not known what the APP requirements
for the listed facilities will be. The Corporation is likely to continue to have
to make expenditures to comply with the APP program and regulations.
On December 23, 1994, Chino Mines Company (CMC), which is two-thirds
owned by Phelps Dodge Corporation and is located near Silver City, New Mexico,
entered into an Administrative Order on Consent (AOC) with the New Mexico
Environment Department that will require CMC to study the environmental impacts
and potential health risks associated with portions of the CMC property affected
by historical mining operations. Phelps Dodge acquired CMC at the end of 1986.
Those studies will begin in 1995 and, until completed, it will not be possible
to determine the nature, extent, cost, and timing of all remedial work which
will be required under the AOC.
In 1993 and 1994, the New Mexico and Arizona legislatures passed laws
requiring the reclamation of mined lands in those states. The New Mexico Mining
Commission adopted rules for the New Mexico program during 1994, and the
Corporation's operations began submitting the required permit applications in
December 1994. The Arizona State Mine Inspector has been directed to adopt rules
implementing the Arizona law by June 30, 1996. These laws and regulations will
likely increase the Corporation's regulatory obligations and compliance costs
with respect to mine closure and reclamation. At this time, it is not possible
to quantify the impact of the new laws and regulations on the Corporation.
The 1990 Amendments to the federal Clean Air Act require EPA to develop
and implement many new requirements, and they allow states to establish new
programs to implement some of the new requirements, such as the requirements for
operating permits under Title V of the 1990 Amendments and hazardous air
pollutants under Title III of the 1990 Amendments. Because EPA has not yet
adopted or implemented all of the changes required by Congress, the air quality
laws will continue to expand and change in coming years as EPA develops new
requirements and then implements them or allows the states to implement them.
Nevertheless, most states have made or are in the process of making certain
required changes to their laws regarding Title V. In response to these new laws,
several of the Corporation's subsidiaries already have submitted or are in the
process of preparing applications for Title V operating permits. These programs
will likely increase the Corporation's regulatory obligations and compliance
costs. These costs could include implementation of maximum achievable control
technology for any of the Corporation's facilities that is determined to be a
major source of federal hazardous air pollutants. Until more of the implementing
regulations are adopted, and more experience with the new programs is gained, it
is not possible to determine the impact of the new requirements on the
Corporation.
The Corporation estimates that its share of capital expenditures for
programs to comply with applicable environmental laws and regulations that
affect its mining operations will total approximately $25 million in 1995 and
from $20 million to $25 million in 1996; $22 million was spent on such programs
in 1994. The Corporation also anticipates making significant capital and other
expenditures beyond 1996 for continued compliance with such laws and
regulations. In light of the frequent changes in such laws and regulations and
the uncertainty inherent in this area, the Corporation is unable to estimate
accurately the total amount of such expenditures over the longer term, but it
may be substantial. (See the discussion of "OTHER ENVIRONMENTAL MATTERS.")
In 1994, legislation was introduced in both the U.S. House of
Representatives and the U.S. Senate to amend the Mining Law of 1872. None of the
1994 bills was enacted into law. However, legislation to amend the Mining Law is
expected to be introduced again in 1995. If enacted, the 1995 legislation is
expected to impose royalties on minerals extracted from federal lands, to
require fair market value for patenting federal lands, and to establish
operation and reclamation standards for mining on federal lands. While the
effect of such changes on Phelps Dodge's current operations and other currently
owned mineral resources on private lands would be minimal, passage of such
legislation would result in significant additional capital expenditures and
operating expenses in the development and operation of new mines on federal
lands. The resulting additional costs and delays in the development of such
mines would seriously impact future exploration and development on federal lands
in the United States.
The Corporation is also subject to federal and state laws and
regulations pertaining to plant and mine safety and health conditions, including
the Occupational Safety and Health Act of 1970 and the Mine Safety and Health
Act of 1977. In particular, present and proposed regulations govern worker
exposure to a number of substances and conditions present in work environments,
including dust, mist, fumes, heat and noise. The Corporation has made and is
likely to continue to have to make expenditures to comply with such legislation
and regulations.
Phelps Dodge does not expect that the additional capital and operating
costs associated with achieving compliance with the various environmental,
health and safety laws and regulations will adversely affect its competitive
position relative to other U.S. copper producers, which are subject to
comparable requirements. However, because copper is an internationally traded
commodity, these costs could significantly affect the Corporation in its efforts
to compete globally with those foreign producers that are not subject to such
stringent requirements.
Labor Matters
- -------------
Employees in Phelps Dodge Mining Company's Arizona operations, El Paso
refinery, Hidalgo smelter, Burro Chief Copper Company and Norwich rod mill, and
certain employees at Chino are not represented by any unions. In addition, in
December 1994 employees in the Tyrone, New Mexico, operations decertified their
union representation. The labor contract at the El Paso rod mill expires on May
29, 1998. Most employees at Chino are covered by three-year labor agreements
that expire on June 30, 1996. In Chile, most employees at Ojos del Salado are
covered by two-year labor agreements that expire on June 13, 1996, while the
mine division employees at Candelaria are covered by two-year labor agreements
that expire on October 31, 1996.
PHELPS DODGE INDUSTRIES
- -----------------------
Phelps Dodge Industries is a business segment comprising a group of
international companies that manufacture engineered products principally for the
transportation and electrical sectors. Its operations are characterized by
products with significant market share, internationally competitive cost and
quality, and specialized engineering capabilities. This business segment
includes the Corporation's carbon black and synthetic iron oxide operations
through Columbian Chemicals Company and its subsidiaries (Columbian Chemicals);
its wheel and rim operations through Accuride Corporation and its subsidiaries
(Accuride); its magnet wire operations through Phelps Dodge Magnet Wire Company
and its subsidiaries; its international wire and cable manufacturing operations
through Phelps Dodge International Corporation; and its specialty conductor
operations through Hudson International Conductors (Hudson).
Operations
- ----------
Columbian Chemicals, headquartered in Atlanta, Georgia, is an
international producer and marketer of carbon blacks and synthetic iron oxides.
The company produces a full range of rubber and industrial carbon blacks in 11
plants worldwide, with approximately 60 percent of its production in North
America and the other 40 percent at facilities in the United Kingdom, Germany,
Italy, Hungary (owned 60 percent by Columbian Chemicals), the Philippines (owned
88.2 percent by Columbian Chemicals), and Spain. Columbian's rubber carbon
blacks improve the tread wear and durability of tires, and extend the service
life of many rubber products such as belts and hoses. The company's industrial
carbon blacks are used in such diverse applications as pigmentation of coatings,
inks and plastics; ultraviolet stabilization of plastics; and as conductive
insulation for wire and cable. The Hungarian plant began production in December
1993. It is owned by Columbian Tiszai Carbon Ltd. which in turn is owned 60
percent by Columbian Chemicals and 40 percent by Tiszai Vegyi Kombinat Rt., the
largest petrochemical company in Hungary. The plant in Santander, Spain, was
acquired in 1994 from Repsol Quimica S.A. and is wholly owned by the
Corporation. Coupled with the startup of the Hungarian plant in late 1993, the
acquisition improves the company's ability to service its key international
customers. The company also maintains sales offices in France and Japan. One of
the company's carbon black plants in Germany, the Hamburg plant, was closed in
1994 as a result of its high cost structure and environmental restrictions.
Synthetic iron oxides are produced by Columbian Chemicals at its plant
in St. Louis, Missouri. These products are used widely for pigmentation of
building products, paints, inks, plastics and toners; specialized grades are
used for a new line of toners and for catalysts used by the chemical industry.
Extensive research, development and engineering is performed by
Columbian at five locations. The company's Technology Center at Swartz,
Louisiana, is responsible for studies specific to both industrial and rubber
applications of carbon black. Carbon black product and process development at
the Technology Center is supported by development work at the company's North
Bend, Louisiana, and Hamilton, Ontario, plants. The European Central Laboratory
at Avonmouth, United Kingdom, provides technical support for Columbian's
European operations. Synthetic iron oxide development work is done at the plant
in St. Louis, Missouri. Columbian Chemicals also licenses rubber carbon
technology to other carbon black manufacturing companies in various countries.
Accuride Corporation, headquartered in Henderson, Kentucky,
manufactures and markets wheels and rims for commercial trucks, trailers and
buses. Accuride produces a wide range of steel tubeless and tube-type disc
wheels and demountable rims for the mounting systems of medium and heavy duty
trucks, trailers and buses, as well as wheels for commercial light trucks. The
company also offers a line of forged aluminum wheels for medium and heavy duty
trucks, trailers and buses. This broad product line is sold at the North
American original equipment manufacturer level and is marketed through a U.S.
and international distribution network. Accuride operates a manufacturing
facility and a design and test center in Henderson, Kentucky; a manufacturing
facility in London, Ontario, Canada; and a customer service center in Taylor,
Michigan. In addition, Accuride and The Goodyear Tire and Rubber Company of
Akron, Ohio, each own 50 percent of AOT Inc., a commercial tire and wheel
assembly facility located in Springfield, Ohio, that services the two plants of
Navistar International Transportation Corporation.
Phelps Dodge Magnet Wire Company, headquartered in Fort Wayne, Indiana,
is an international producer of magnet wire, the insulated conductor used in
most electrical systems. Its products are manufactured in the United States at
plants in Fort Wayne, Indiana; Hopkinsville, Kentucky; Laurinburg, North
Carolina; and El Paso, Texas. The plant in North Carolina was added in March
1994 when Phelps Dodge Magnet Wire Company acquired certain assets of a
fine-gauge magnet wire manufacturing plant from Rea Magnet Wire Company, Inc.
(Rea). The plant in Texas was also added in March 1994 with the acquisition of
certain assets of Texas Magnet Wire Company, a joint venture of Rea and Fujikura
International, Inc. Phelps Dodge Magnet Wire Company also manufactures its
products at a plant in Mureck, Austria. The Austrian operation is a joint
venture with Eldra Elektrodraht-Erzeugung GmbH, a leading European magnet wire
manufacturer. Phelps Dodge owns a 51 percent interest in the venture; Eldra
Elektrodraht-Erzeugung GmbH owns the remaining 49 percent. In addition, the
company and Sumitomo Electric Industries, Ltd. each own a 50 percent interest in
SPD Magnet Wire Company, a joint venture established in 1990 that operates a
magnet wire plant in Edmonton, Kentucky. These plants draw and insulate copper
and aluminum wire which is sold as magnet wire to original equipment
manufacturers for use in electric motors, generators, transformers, televisions,
automobiles and a variety of small electrical appliances. Magnet wire is also
sold to electrical equipment repair shops through a network of distributors.
The Corporation has interests in companies that are primarily involved
in the manufacture of electrical and telecommunication cables in joint venture
associations in 14 countries. The Corporation's interests in these companies are
managed by Phelps Dodge International Corporation, a wholly owned subsidiary
headquartered in Coral Gables, Florida, which also provides management,
marketing assistance, technical support and engineering and purchasing services
to these companies. Through these companies, the Corporation is also active in
the engineering and installation of telephone lines. In order to supply the
increasing demand for copper rod in certain countries, five of the Corporation's
international wire and cable companies have continuous cast copper rod
facilities. The Corporation has majority interests in companies operating in
nine countries -- Chile, Costa Rica, Ecuador, El Salvador, Guatemala, Honduras,
Panama, Thailand and Venezuela. In December 1992, Phelps Dodge, through its 80
percent owned Venezuelan associate company, Alambres y Cables Venezolanos, C.A.
(ALCAVE), acquired three Venezuelan companies. These companies, which operate as
a group, together with ALCAVE constitute one of the largest manufacturers of
electrical and telecommunication copper and aluminum wires and cables in
Venezuela and the Andean Region. The Corporation has minority interests in
companies located in Hong Kong, Thailand and the Philippines, accounted for on
the equity basis, and in companies located in Greece, India and Zambia,
accounted for on the cost basis. In December 1994, the Corporation sold its 40
percent interest in its Mexican associate company, CONELEC S.A. de C.V.
Hudson International Conductors manufactures and markets specialty
high-performance conductors for the aerospace, automotive, biomedical, computer
and consumer electronics markets. Its principal products are highly engineered
conductors of copper and copper alloy wire electroplated with silver, tin or
nickel for sophisticated, specialty product niches. Hudson's manufacturing
operations consist of plants located in Inman, South Carolina, and Trenton,
Georgia. Hudson also maintains a warehouse and sales office in Irvine,
California, and sales offices in Europe and Japan.
In response to unfavorable changes in market conditions in recent
years, Hudson closed conductor manufacturing facilities in Ossining and Walden,
New York, in 1993. In addition, Hudson's 1994 earnings reflected a pre-tax
provision of $20.0 million for the impairment of value resulting from continued
unfavorable market conditions, particularly in the defense sector, that are now
considered permanent. The Corporation is currently evaluating alternatives for
the restructuring of Hudson.
See Note 22 to the Consolidated Financial Statements for information
concerning Phelps Dodge Industries' sales to customers in the transportation and
electrical industries.
Competition and Markets
- -----------------------
The principal competitive factors in the various markets in which
Phelps Dodge Industries competes are price, product quality, customer service,
dependability of supply, delivery lead time, breadth of product line and
research and development.
Columbian Chemicals is among the world's largest producers of carbon
black. Approximately 90 percent of the carbon black produced by Columbian
Chemicals is used in rubber applications, 75 percent of which is used in the
tire industry. The major tire manufacturers in the United States and Western
Europe account for a substantial portion of Columbian Chemicals' carbon black
sales. In addition, Columbian Chemicals maintains a strong competitive position
in mechanical rubber goods markets based on its commitment to quality and
service. The Corporation is not aware of any product that could be substituted
for carbon black to a significant extent in any of its principal applications.
Including Columbian Chemicals, there are a total of six carbon black producers
in the United States, two in Canada and three major producers in Western Europe.
The carbon black industry is highly competitive, particularly in the U.S. rubber
black market. The company has expanded its production and marketing position by
entry into the emerging market in Central Europe through the startup of
operations of Columbian Tiszai Carbon Ltd. in Hungary in late 1993, and further
enhanced its presence in international markets through the acquisition of a
carbon black plant in Spain in late 1994.
The Corporation believes that Accuride is the largest producer of rim
and wheel products for commercial trucks, trailers and buses in North America.
Accuride's sales are primarily in the United States, where a majority of the
truck, trailer and bus manufacturers are located, and in Canada. The demand for
its products fluctuates with the level of original equipment truck, trailer and
bus manufacturing activity. In the last five years, Accuride's 10 largest
customers have accounted for approximately 65 percent of its total sales.
Accuride principally competes with five U.S. companies and one major foreign
company.
With the 1994 acquisition of plants in El Paso, Texas, and Laurinburg,
North Carolina, the Corporation believes that Phelps Dodge Magnet Wire Company
is the world's largest manufacturer of magnet wire. It principally competes with
four U.S. manufacturers. The company also has expanded its production and
marketing position by acquiring a majority interest in a magnet wire
manufacturing company in Austria primarily to serve the operations in Europe of
its U.S. customers.
The Corporation's international wire and cable companies sell a
majority of their products to contractors, distributors, and public and private
utilities. Their products are used in lighting, power distribution,
telecommunications and other electrical applications. In addition, the companies
provide engineering and installation of telephone lines in Central and South
America.
Hudson is engaged in the manufacture of specialty high-performance
conductors. Hudson's primary customers are intermediators (insulators,
assemblers, subcontractors and distributors). More than half of Hudson's
products are ultimately sold to commercial and military aerospace companies for
use in airframes, avionics, space electronics, radar systems and ground control
electronics. Hudson's products are also used in appliances, instrumentation,
computers, telecommunications, military electronics, medical equipment and other
products. Hudson has one primary U.S. competitor in the specialty conductor
market; however, in those few markets where Hudson competes for high volume
products, the company faces competition from several U.S. fabricators.
Raw Materials
- -------------
Carbon black is produced from heavy residual oil, a by-product of the
crude oil refining process. Columbian Chemicals purchases substantially all of
its feedstock on a spot basis at prices that fluctuate with world oil prices.
The cost of feedstock is a significant factor in the cost of carbon black. To
achieve satisfactory financial results during periods of increasing oil prices,
Columbian Chemicals must be able to pass through to customers any increase in
its feedstock costs. The principal raw material for the production of synthetic
iron oxide is copperas.
Accuride manufactures a majority of its products from either flat roll
or section steel, except for certain finished aluminum products manufactured to
its specifications and designs by a third party.
The principal raw materials used by Phelps Dodge Magnet Wire Company's
manufacturing operations are copper, aluminum and various electrical insulating
materials.
The principal raw materials used by the Corporation's international
wire and cable companies are copper, aluminum and various electrical insulating
materials. A majority of the materials used by these companies is purchased from
others.
Phelps Dodge Magnet Wire Company acquires most of its copper from the
Corporation. Phelps Dodge Industries purchases its residual oil feedstock and
other raw materials from various other suppliers. It does not believe that the
loss of any one supplier would have a material adverse effect on its financial
conditions or on the results of its operations.
Hudson's principal specialty conductor product line is composed of
copper, copper alloy, aluminum and copper-clad steel, usually plated with
silver, nickel or tin.
Energy
- ------
Phelps Dodge Industries' operations generally use purchased electricity
and natural gas as their principal sources of energy. Phelps Dodge Magnet Wire
Company's principal manufacturing equipment that uses natural gas is also
equipped to burn alternative fuels.
Environmental Matters
- ---------------------
Environmental laws and regulations affect many aspects of the
Corporation's industrial operations. Phelps Dodge Industries estimates that its
capital expenditures for programs to comply with applicable environmental laws
and regulations will total approximately $10 million in 1995 and from $5 million
to $10 million in 1996; $3 million was spent on these programs in 1994. The
Corporation also anticipates making significant capital and other expenditures
beyond 1996 for continued compliance with such laws and regulations. In light of
the frequent changes in such laws and regulations and the inherent uncertainty
in this area, the Corporation is unable to estimate accurately the total amount
of such expenditures over the longer term, but it may be substantial.
(See the discussion of "OTHER ENVIRONMENTAL MATTERS.")
Labor Agreements
- ----------------
Phelps Dodge Industries has labor agreements covering most of its U.S.
and international plants. Phelps Dodge Magnet Wire Company has a three-year
agreement covering approximately 340 employees at its Fort Wayne, Indiana, plant
that expires on May 1, 1995. Columbian Chemicals has a three-year agreement
covering approximately 80 employees at its Hamilton, Ontario, Canada, plant that
expires on September 30, 1995, and a three-year agreement covering approximately
20 employees at its Hickok, Kansas, plant that expires on December 31, 1995.
Columbian Chemicals has agreements at its operations in the Philippines, Italy
and Spain that have expired and are being negotiated currently. Phelps Dodge
International Corporation has agreements expiring in 1995 at associate company
plants in Venezuela and Chile.
Ownership of Real Property
- --------------------------
Phelps Dodge Industries owns all of its plants and the land on which
they are located except for the facilities of Accuride at Henderson, which are
leased, and the land, which also is leased, on which five international plants
are located.
RESEARCH AND DEVELOPMENT
- ------------------------
The Corporation conducts research and development programs relating to
exploration for minerals, recovery of metals from ores, concentrates and
solutions, smelting and refining of copper, and metal processing and product
development. It also conducts research and development programs related to its
carbon black and synthetic iron oxide products through its Columbian Chemicals
subsidiary, its wheel and rim products through its Accuride subsidiary, its wire
insulating processes and materials through Phelps Dodge Magnet Wire Company, and
conductor materials and processes through Hudson International Conductors.
Expenditures for all of these research and development programs, together with
contributions to industry and government-supported programs, totaled $15.9
million in 1994, compared with $16.3 million in 1993 and $17.9 million in 1992.
OTHER ENVIRONMENTAL MATTERS
- ---------------------------
The Corporation is subject to federal, state and local environmental
laws, rules and regulations, including the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 (CERCLA or Superfund), as amended by the
Superfund Amendments and Reauthorization Act of 1986. Under Superfund, the
Environmental Protection Agency (EPA) has identified approximately 35,000 sites
throughout the United States for review, ranking and possible inclusion on the
National Priorities List (NPL) for possible response. Among the sites
identified, EPA has included 13 sites owned by the Corporation. The Corporation
believes that most, if not all, of its sites so identified will not qualify for
listing on the NPL.
In addition, the Corporation may be required to remove hazardous waste
or remediate the alleged effects of hazardous substances on the environment
associated with past disposal practices at sites not owned by the Corporation.
The Corporation has received notice that it is a potentially responsible party
from EPA and/or individual states under CERCLA or a state equivalent and is
participating in environmental assessment and remediation activity at 36 sites.
For further information about these proceedings, see Item 3. Legal Proceedings,
Part IV.
At December 31, 1994, the Corporation had reserves of $168.9 million
for remediation of certain of the sites referred to above and other
environmental costs in accordance with its policy to record liabilities for
environmental expenditures when it is probable that obligations have been
incurred and the costs reasonably can be estimated. The Corporation's estimates
of these costs are based upon currently available facts, existing technology,
and presently enacted laws and regulations. Where the available information is
sufficient to estimate the amount of liability, that estimate has been used;
where the information is only sufficient to establish a range of probable
liability and no point within the range is more likely than any other, the lower
end of the range has been used.
The amounts of these liabilities are very difficult to estimate due to
such factors as the unknown extent of the remedial actions that may be required
and, in the case of sites not owned by the Corporation, the unknown extent of
the Corporation's probable liability in proportion to the probable liability of
other parties. Moreover, the Corporation has other probable environmental
liabilities that in its judgment cannot reasonably be estimated, and losses
attributable to remediation costs are reasonably possible at other sites. The
Corporation cannot now estimate the total additional loss it may incur for such
environmental liabilities, but such loss could be substantial.
The possibility of recovery of some of the environmental remediation
costs from insurance companies or other parties exists; however, the Corporation
does not recognize these recoveries in its financial statements until they
become probable.
The Corporation's operations are subject to myriad environmental laws
and regulations in jurisdictions both in the United States and in other
countries in which it does business. For further discussion of these laws and
regulations, please see the preceding discussions of "Environmental and Other
Regulatory Matters" and "Environmental Matters." The estimates given in those
discussions of the capital expenditures for programs to comply with applicable
environmental laws and regulations in 1995 and 1996, and the expenditures for
those programs in 1994, are separate from the reserves and estimates described
above.
The Environmental, Health and Safety Committee of the Board of
Directors, comprising six non-employee directors, was established in 1991. The
Committee met three times in 1994 to review, among other things, the
Corporation's policies with respect to environmental, health and safety matters,
and the adequacy of management's programs for implementing those policies. The
Committee reports on such reviews and makes recommendations with respect to
those policies to the Board of Directors and to management.
Item 3. Legal Proceedings
- --------------------------
I. The Corporation is participating, either directly as a party or as a
member of certain trade associations, in several legal challenges to air quality
rules or guidance documents issued by EPA. This litigation primarily involves
the establishment or amendment of national ambient air quality standards, the
requirements for the construction or major modification of major sources of
criteria pollutants, Title V operating permits, and the status of fugitive
emissions under the Title V and federal hazardous air pollutants programs.
In August 1983, EPA proposed regulations (48 Fed. Reg. 38,742) which,
if adopted, would have substantially implemented a February 1982 settlement
agreement dealing with fugitive emissions, but on October 26, 1984, EPA
promulgated final regulations inconsistent with the August 1983 proposal. In
December 1984, the Corporation, the American Mining Congress and several mining
and energy development companies filed a petition (No. 84-1609) in the U.S.
Court of Appeals for the District of Columbia for review of the October 26,
1984, regulations, asserting that the terms of the settlement agreement, to
which they were party, had not been carried out. The court stayed the petition
pending the outcome of further EPA rulemakings.
The further EPA rulemakings also have been challenged by the American
Mining Congress and others in federal court actions filed in 1989 and 1993. All
of the pre-1993 cases are being held in abeyance at the request of the parties.
Currently before the court in the 1993 case is a joint motion by the American
Mining Congress and EPA to hold that case in abeyance while the parties engage
in settlement discussions that could resolve some of the contested issues. Also,
on October 7, 1993, the American Mining Congress filed with the Administrator of
EPA a petition for reconsideration of yet another related rulemaking (58 Fed.
Reg. 31,622). EPA's response to the petition also could resolve some of the
contested issues in the stayed lawsuits.
II. Reference is made to Part I, Items 1 and 2 of this report for
information regarding proceedings that pertain to water used by the
Corporation's Morenci, Arizona operations.
A. The following state water rights adjudication
proceedings are pending in Arizona Superior Court:
1. In re the General Adjudication of All Rights to
Use Water in the Little Colorado River System and Source,
No. 6417 (Superior Court of Arizona, Apache County).
(a) Petition was filed by the Corporation on or
about February 17, 1978, and process has been served on all
potential claimants. Virtually all statements of claimant have been
filed.
(b) The principal parties, in addition to the
Corporation, are the State of Arizona, the Navajo Tribe of Indians,
the Hopi Indian Tribe, the San Juan Southern Paiute group of
Indians and the United States on its own behalf and on behalf of
those Indian tribes. In this adjudication and in the adjudications
reported in items 2.(a), (b) and (c) below, the United States and
the Indian tribes seek to have determined and quantified their
rights to use water arising under federal law on the basis that,
when the Indian reservations and other federal reservations were
established by the United States, water was reserved from
appropriation under state law for the use of those reservations.
(c) This proceeding could affect, among other
things, the Corporation's rights to impound water in Show Low Lake
and Blue Ridge Reservoir and to transport this water into the Salt
River and Verde River watersheds for exchange with the Salt River
Valley Water Users' Association. The Corporation has filed
statements of claimant for these and other water claims. This
litigation is stayed pending the outcome of current settlement
negotiations. The Court has not set a final schedule of cases to go
to trial, should the litigation resume.
2. In re the General Adjudication of All Rights to Use
Water in the Gila River System and Source, Nos. W-1 (Salt River), W-2
(Verde River), W-3 (Gila River) and W-4 (San Pedro River) (Superior
Court of Arizona, Maricopa County). As a result of consolidation
proceedings, this action now includes general adjudication proceedings
with respect to the following three principal river systems and
sources:
(a) The Gila River System and Source Adjudication:
(i) Petition was filed by the
Corporation on February 17, 1978. Process has been
served on water claimants in the upper and lower reaches of
the watershed and virtually all statements of claimant have
been filed.
(ii) The principal parties,
in addition to the Corporation, are the Gila Valley
Irrigation District, the San Carlos Irrigation and Drainage
District, the State of Arizona, the San Carlos Apache Tribe,
the Gila River Indian Community and the United States on its
own behalf and on behalf of the tribe and the community.
(iii) This proceeding could
affect, among other things, the Corporation's claim to
the approximately 3,000 acre-feet of water that it diverts
annually from Eagle Creek, Chase Creek or the San Francisco
River and its claims to percolating groundwater that is pumped
from wells located north of its Morenci Branch operations in
the Mud Springs and Bee Canyon areas and in the vicinity of
the New Cornelia Branch at Ajo. The Corporation has filed
statements of claimant with respect to waters that it diverts
from these sources.
(iv) By a letter agreement
dated September 7, 1990, the Corporation and the San
Carlos Apache Tribe agreed upon principles to settle the water
claims of that Tribe. Legislation authorizing that settlement
was enacted into law on October 30, 1992. A comprehensive
settlement agreement is presently being negotiated. Congress
has approved a one year extension so that the settlement will
become effective if it is approved by the Arizona Superior
Court and certain conditions are met by December 31, 1995.
(b) The Salt River System and Source Adjudication:
(i) Petition was filed by the
Salt River Valley Water Users' Association on or
about April 25, 1974. Process has been served, and statements
of claimant have been filed by virtually all claimants.
(ii) Principal parties,
in addition to the Corporation, include the petitioner, the
State of Arizona and the United States, on its own behalf and
on behalf of various Indian tribes and communities including
the White Mountain Apache Tribe, the San Carlos Apache Tribe,
the Fort McDowell Mohave-Apache Indian Community, the Salt
River Pima-Maricopa Indian Community and the Gila River Indian
Community.
(iii) The Corporation has filed
a statement of claimant to assert its interest in the
water exchange agreement with the Salt River Valley Water
Users' Association by virtue of which it diverts from the
Black River water claimed by the Association and repays the
Association with water impounded in Show Low Lake and Blue
Ridge Reservoir on the Little Colorado River Watershed, and to
assert its interest in "water credits" to which the
Corporation is entitled as a result of its construction of the
Horseshoe Dam on the Verde River.
(iv) The Salt River Pima-Maricopa
Indian Community, Salt River Valley Water Users'
Association, the principal Salt River Valley Cities, the State
of Arizona and others have negotiated a settlement as among
themselves for the Verde and Salt River system. The settlement
has been approved by Congress, the President and the Arizona
Superior Court. Under the settlement, the Salt River
Pima-Maricopa Indian Community waived all water claims it has
against all other water claimants (including the Corporation)
in Arizona.
(v) Active proceedings with
respect to other claimants have not yet commenced in
this adjudication.
(c) The Verde River System and Source Adjudication:
(i) Petition was filed by the
Salt River Valley Water Users' Association on or
about February 24, 1976, and process has been served.
Virtually all statements of claimant have been filed.
(ii) The principal parties,
in addition to the Corporation, are the petitioner, the
Fort McDowell Mohave-Apache Indian Community, the Payson
Community of Yavapai Apache Indians, the Salt River
Pima-Maricopa Indian Community, the Gila River Indian
Community, the United States on its own behalf and on behalf
of those Indian communities, and the State of Arizona.
(iii) This proceeding could
affect, among other things, the Corporation's Horseshoe
Dam "water credits" with the Salt River Valley Water Users'
Association resulting from its construction of the Horseshoe
Dam on the Verde River. (See the Black River water exchange
referred to in Paragraph II.A. 2.(b)(iii) above.) The
Corporation has filed statements of claimant with respect to
Horseshoe Dam and water claims associated with the former
operations of the United Verde Branch.
(iv) The Fort McDowell Mohave-
Apache Indian Community, Salt River Valley Water
Users' Association, the principal Salt River Valley Cities,
the State of Arizona and others have negotiated a settlement
as among themselves for the Verde River system. This
settlement has been approved by Congress, the President and
the Arizona Superior Court. Under this settlement, the Fort
McDowell Mohave-Apache Indian Community waived all water
claims it has against all other water claimants (including the
Corporation) in Arizona.
B. The following proceedings involving water rights
adjudication are pending in the U.S. District Court for
the District of Arizona:
1. On June 29, 1988, the Gila River Indian Community
filed a complaint-in-intervention in United States v. Gila Valley
Irrigation District, et al., Globe Equity No. 59 (D. Ariz.). The
underlying action was initiated by the United States in October 1925 to
determine conflicting claims to water rights in certain portions of the
Gila River watershed. Although the Corporation was named and served as
a defendant in that action, it was dismissed without prejudice as a
defendant in March 1935. In June 1935, the Court entered a decree
setting forth the water rights of numerous parties, but not those of
the Corporation. The Court retained, and still has, jurisdiction of the
case. The complaint-in-intervention does not name the Corporation as a
defendant; however, it does name the Gila Valley Irrigation District as
a defendant. Therefore, the complaint-in-intervention could affect the
approximately 3,000 acre-feet of water that the Corporation diverts
annually from Eagle Creek, Chase Creek or the San Francisco River
pursuant to the agreement between the Corporation and the Gila Valley
Irrigation District. In April 1990, the Court entered Findings of Fact
and Conclusions of Law on four of the counts in the
complaint-in-intervention. Trial on additional issues (primarily issues
raised by plaintiff-in-intervention San Carlos Apache Tribe) was
conducted in November 1991. In November 1992, after submission of
post-trial briefs, the Court entered a judgment on the additional
issues. The Corporation believes that neither the Findings of Fact or
the Conclusions of Law entered in 1990 nor the judgment entered in 1992
should affect the 3,000 acre-feet of water that the Corporation diverts
annually pursuant to the agreement with the Gila Valley Irrigation
District. An appeal of the 1992 judgment, however, has been noticed by
the Gila Valley Irrigation District and others.
The major users on the mainstream of the Gila River
(decreed right holders) had engaged in continuing mandatory settlement
discussions under the supervision of the Court until those discussions
terminated during the summer of 1994. Some remaining issues were tried
in November, 1994. The Court has not yet ruled on those issues. If the
Court limits its ruling to the issues as they were framed for the 1994
trial, there should be no direct impact on the Corporation.
Additional issues remain, some of which may go to trial
during 1995.
2. On December 30, 1982, the Gila River Indian Community
initiated an action styled Gila River Indian Community v. Gila Valley
Irrigation District, et al., No. CIA 82-2185 (D. Ariz.), complaining
about allegedly improper uses by approximately 17,000 named defendants
of "water from within the Gila River watershed." The Corporation was
named as a defendant in the complaint, but it has not yet been served
with process. The complaint seeks an injunction restraining future uses
of water that interfere with the alleged prior rights of the Gila River
Indian Community as well as compensatory and punitive damages in an
unspecified amount.
3. Prior to December 1982, various Indian tribes filed
several suits in the U.S. District Court for the District of Arizona
claiming prior and paramount rights to use waters which are presently
being used by many water users, including the Corporation, and claiming
damages for prior use in derogation of their allegedly paramount
rights. These federal proceedings have been stayed pending final
adjudication in the state courts.
III. Prior to the mid-1960s, a predecessor of Phelps Dodge Industries,
Inc. (PDI), a subsidiary of the Corporation, manufactured and sold some cable
and wire products that were insulated with material containing asbestos. PDI
believes that the use of these products did not result in significant releases
of airborne asbestos fibers. PDI and the Corporation are collectively referred
to below as PDI.
Since the late 1980s, PDI has been served with complaints in
asbestos-related actions filed on behalf of over 13,500 claimants. In these
proceedings, plaintiffs have alleged bodily injury or death caused by purported
exposure to asbestos and have claimed damages based on theories of strict
liability and negligence. Over 12,500 of those claimants were participants in
the Ingalls Shipyard asbestos litigation filed in Pascagoula, Mississippi. Each
claimant in that litigation sought from $2 million to $20 million in
compensatory and punitive damages from a group of approximately 100 to 150
defendants, which included PDI. During 1993 and 1994, PDI was successful in
obtaining dismissal of all claims against it in Mississippi with the exception
of one wrongful death claim.
A total of 2,802 claims against PDI were dismissed in 1994. During that
year, 93 new asbestos-related claims were filed against PDI in eight states. As
of December 31, 1994, a total of 336 asbestos-related claims were being defended
by PDI in 14 jurisdictions. PDI is vigorously contesting and defending these
asbestos-related claims.
IV. Claims under CERCLA and related state acts involving the
Corporation have been raised with respect to the remediation of 36 waste
disposal and other sites. Most are sites where the Corporation has received
information requests or other indications that the Corporation may be a
Potentially Responsible Party (PRP) under CERCLA. CERCLA is intended to expedite
the remediation of hazardous substances without regard to fault. Responsible
parties for each site include present and former owners, operators,
transporters, and generators of the substances at the site. Liability is strict,
joint and several. Because of the ambiguity of the regulations, the difficulty
of identifying the responsible parties for any particular site, the complexity
of allocating the remediation costs among them, the uncertainty as to the most
desirable remediation techniques and amount of remediation costs, and the time
period during which such costs may be incurred, the Corporation is unable to
reasonably estimate the full cost of compliance with CERCLA or equivalent state
statutes.
With respect to these 36 sites, based on currently available
information, which in many cases is preliminary and incomplete, the Corporation
has no reason to believe that its ultimate responsibility for remediation costs
will exceed $1.0 million at any site and believes most will be substantially
under $0.1 million.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted during the fourth quarter of 1994 to a
vote of security holders, through the solicitation of
proxies or otherwise.
Executive Officers of Phelps Dodge Corporation
- ----------------------------------------------
The executive officers of Phelps Dodge Corporation are elected to serve
at the pleasure of its Board of Directors. As of March 1, 1995, the executive
officers of Phelps Dodge Corporation were as follows:
Age at Officer of the
Name 3/1/95 Position Corporation since
---- ------ -------- -----------------
Douglas C. Yearley 59 Chairman of the Board,
President and
Chief Executive Officer 1981
Manuel J. Iraola 46 Senior Vice President 1995
Patrick J. Ryan 58 Senior Vice President 1981
Thomas M. St. Clair 59 Senior Vice President and
Chief Financial Officer 1989
J. Steven Whisler 40 Senior Vice President 1987
Except as stated below, all of the above have been officers of Phelps
Dodge Corporation for the past five years.
Mr. Iraola was elected Senior Vice President in January 1995. Prior to
his election, Mr. Iraola was President of Phelps Dodge International
Corporation, the largest Phelps Dodge Industries' company, a position he held
since 1992. Prior to that time, he was Senior Vice President and Chief Financial
Officer of Columbian Chemicals Company, acquired by Phelps Dodge in 1986.
Part II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
- --------------------------------------------------------------------------
The information called for by Item 5 appears in Management's Discussion
and Analysis in this report.
<TABLE>
Item 6. Selected Financial Data
- --------------------------------
(In millions except per share amounts)
<CAPTION>
1994 (a) 1993 1992 1991 1990
-------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Sales and other
operating revenues $ 3,289.2 2,595.9 2,579.3 2,434.3 2,635.7
Income before cumulative
effect of accounting
changes (b) $ 271.0 187.9 301.6 272.9 454.9
Per common share (c) $ 3.81 2.66 4.28 3.93 6.56
Cumulative effect of
accounting changes (d) $ -- -- (79.9) -- --
Per common share (c) $ -- -- (1.13) -- --
Net income (b) $ 271.0 187.9 221.7 272.9 454.9
Per common share (c) $ 3.81 2.66 3.15 3.93 6.56
Total assets $ 4,133.8 3,720.9 3,441.2 3,051.2 2,827.4
Long-term debt $ 622.3 547.3 373.8 382.0 403.5
Dividends per common
share: (c) $ 1.69 1.65 1.61 1.50 1.50
<FN>
(a) Reported 1994 net income of $271.0 million ($3.81 per common share)
includes income of $362.7 million ($5.10 per common share) less
non-recurring after-tax charges in the fourth quarter totaling $91.7
million ($1.29 per common share) reflecting additional provisions for
estimated future costs associated with environmental matters and
estimated losses on the disposition of certain operating facilities.
(b) 1992 includes a non-taxable gain of $36.4 million (52 cents per common
share) on a subsidiary's stock issuance from two Sumitomo companies'
acquisition of a 20 percent interest in the Candelaria copper project
in Chile.
(c) All per share amounts reflect average shares outstanding for the
respective periods after giving effect to a two-for-one stock split in
May 1992.
(d) Includes one-time, after-tax charges in 1992 for the adoption of new
accounting methods for postretirement and postemployment benefits and
income taxes (see Notes 6, 17 and 18 to the Consolidated Financial
Statements for a description of these accounting changes).
Note: See Management's Discussion and Analysis for a discussion of the effect
on the Corporation's results of material changes in the price the
Corporation receives for copper or in its unit production costs.
</FN>
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
- ---------------------------------------------
Phelps Dodge reported 1994 consolidated net income of $271.0 million, or $3.81
per common share. This amount included income of $362.7 million, or $5.10 per
common share, less non-recurring after-tax charges in the fourth quarter of
$91.7 million, or $1.29 per common share. The non-recurring charges included
additional provisions of $98.7 million before taxes for estimated future costs
associated with environmental matters comprising $88.9 million applicable to
Phelps Dodge Mining Company, $8.6 million applicable to Phelps Dodge Industries
and $1.2 million applicable to Corporate and other, and $41.5 million before
taxes for estimated losses on the disposition of certain operating facilities.
The non-recurring charge for asset dispositions included $36.0 million before
taxes for Phelps Dodge Industries, comprising a provision of $20.0 million for
the impairment of value of Hudson International Conductors, a loss of $7.0
million on the sale of the Corporation's 40 percent interest in its Mexican
associate company (CONELEC S.A. de C.V.) and a provision of $9.0 million for the
closure of Columbian Chemicals Company's carbon black plant in Hamburg, Germany.
The non-recurring charge for asset dispositions also included $5.5 million
before taxes for Phelps Dodge Mining Company issues.
The decision to take these charges was unrelated to management's
outlook for copper or other market factors. The charges relating to the
disposition of certain operating facilities resulted from management's efforts
to assess all of the Corporation's operations relative to internationally
competitive quality and cost criteria. The operations identified were peripheral
to the Corporation's business and their disposition should not have any adverse
effect on the company's future earnings potential. The charges relating to
environmental matters resulted from a reassessment of future environmental
obligations based on currently available facts, existing technology and
presently enacted laws and regulations. These environmental charges resulted in
part from an agreement between Chino Mines Company, which is two-thirds owned by
Phelps Dodge Corporation, and the New Mexico Environment Department in late 1994
under which the Corporation's estimate of certain of its environmental
obligations has become clearer. The identification of these charges is
consistent with the Corporation's policy of recording environmental obligations
in a timely manner. As a result of this 1994 environmental charge and balances
remaining from previously provided charges for environmental costs, the
Corporation's reserves for such costs totaled approximately $169 million at
December 31, 1994. Notes 1 and 20 to the Consolidated Financial Statements
contain further information to which reference should be made for a fuller
understanding of the Corporation's policy for recording environmental
obligations.
The Corporation reported 1993 consolidated net income of $187.9
million, or $2.66 per common share, including after-tax revenues of $26.0
million, or 37 cents per common share, from copper price protection
arrangements. Net income in 1993 was adversely affected by the passage of the
Omnibus Budget Reconciliation Act of 1993 in the third quarter that
retroactively raised the maximum corporate income tax rate from 34 percent to 35
percent effective January 1, 1993. The Corporation raised its 1993 tax provision
by approximately $9.0 million, or 13 cents per common share, including $3.0
million for the effect of the tax rate increase on 1993 earnings and an
additional $6.0 million for prior years deferred taxes at December 31, 1992.
The Corporation reported 1992 income of $301.6 million, or $4.28 per
common share, before the cumulative effect of accounting changes. This 1992
income included a non-taxable gain of $36.4 million, or 52 cents per common
share, on a subsidiary's stock issuance in connection with two Sumitomo
companies' acquisition of a 20 percent interest in the Candelaria copper project
in Chile. Income taxes were not provided by Phelps Dodge on the $36.4 million
book gain because the proceeds were indefinitely reinvested in the Chilean
company. Consolidated net income for 1992 was $221.7 million, or $3.15 per
common share, after recognizing the cumulative effect of accounting changes with
respect to postretirement and postemployment benefits and income taxes.
All per share amounts in this report reflect average shares outstanding
for the respective periods after giving effect to a two-for-one stock split in
May 1992.
The Corporation's consolidated financial results for the last three
years are summarized below (in millions except per common share amounts):
<TABLE>
- ----------------------------------------------------------------------------
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Sales and other operating revenues ................................... $3,289.2 2,595.9 2,579.3
Operating income * ................................................... 400.4 326.5 420.6
Earnings before cumulative effect of
accounting changes .................................................. 271.0 187.9 301.6
Cumulative effect of accounting changes .............................. -- -- (79.9)
Net income ........................................................... 271.0 187.9 221.7
Per common share:
Before cumulative effect of accounting
changes .......................................................... 3.81 2.66 4.28
Cumulative effect of accounting
changes .......................................................... -- -- (1.13)
Net income ........................................................ 3.81 2.66 3.15
<FN>
- ----------------
* Beginning in 1994, minority interests in the income of
consolidated subsidiaries have been excluded from operating
income whereas prior to 1994 they were included therein. For
comparative purposes, prior period amounts have been
reclassified to conform to the current year presentation.
</FN>
</TABLE>
- ----------------------------------------------------------------------------
A significant factor influencing the Corporation's 1994 results was the
improved price of copper, the Corporation's principal product. Any material
change in the price the Corporation receives for copper, or in its unit
production costs, has a significant effect on the Corporation's results. The
Corporation's present share of annual production is approximately 1.3 billion
pounds of copper including 200 million pounds from Candelaria which began
operations in the 1994 fourth quarter. Accordingly, each 1 cent per pound change
in the average annual copper price received by the Corporation, or in average
annual unit production costs, causes a variation in annual operating income
before taxes of approximately $13 million. The Corporation's share of estimated
annual copper production capacity will increase by approximately 130 million
pounds as a result of the Southside expansion at the Corporation's Morenci mine
in southeastern Arizona, with startup scheduled in 1995. This increase will add
approximately $1.3 million to the variation in annual pre-tax operating income
from each 1 cent per pound change in average realized copper prices or average
unit production costs.
The New York Commodity Exchange (COMEX) spot price per pound of copper
cathode, upon which the Corporation bases its selling price, averaged $1.07 in
1994, compared with 85 cents in 1993 and $1.03 in 1992. The COMEX price averaged
$1.37 per pound for the first two months of 1995, and closed at that price on
March 7, 1995.
The Corporation enters into price protection arrangements from time to
time, depending on market circumstances, to ensure a minimum price for a portion
of its expected future mine production. With respect to 1994 production, the
Corporation entered into contracts with several financial institutions that
provided for minimum 1994 quarterly average prices of 75 cents per pound for 244
million pounds of copper cathode, about 21 percent of 1994 production. These
contracts were based on the average London Metal Exchange (LME) price each
quarter and expired at December 31, 1994, without payment to Phelps Dodge.
During 1993, the Corporation recognized revenues of $39.4 million before taxes
($26.0 million, or 37 cents per common share, after taxes) from similar
arrangements.
With respect to 1995 production, as of December 31, 1994, the
Corporation had entered into annual contracts with several financial
institutions that provide for minimum 1995 quarterly average prices of 80 cents
per pound for approximately 640 million pounds of copper cathode. These
contracts are based on the average LME price each quarter. In addition, the
Corporation had entered into annual contracts that effectively ensure minimum
(approximately 95 cents) and maximum (approximately $1.33) prices per pound for
approximately 650 million pounds of copper cathode. The minimum prices are based
on quarterly average LME prices for approximately 370 million pounds and on the
annual average LME price for the remainder. The maximum prices are based on the
annual average LME price for all 650 million pounds. Approximately 95 percent of
the Corporation's expected 1995 copper production has been protected under these
contracts.
With respect to 1996 production, as of March 7, 1995, the Corporation
had entered into contracts with several financial institutions that provide for
a minimum 1996 first quarter average price of 95 cents per pound for
approximately 170 million pounds of copper cathode. These contracts are based on
the average LME price for the quarter. In addition, the Corporation had entered
into contracts that effectively ensure minimum (approximately 95 cents) and
maximum (approximately $1.47) prices per pound for the 1996 first quarter for
approximately 65 million pounds of copper cathode. The minimum and maximum
prices are based on the quarterly average LME price. Approximately 65 percent of
the Corporation's expected 1996 first quarter copper production has been
protected under these contracts.
The Corporation periodically enters into forward exchange contracts to
hedge certain recorded transactions denominated in foreign currencies and enters
into currency option contracts to hedge certain firm commitments and other
anticipated foreign currency transactions. The Corporation does not hold these
financial instruments for trading purposes. The objective of the Corporation's
foreign currency hedging activities is to protect the Corporation from the risk
that the eventual dollar cash flows resulting from transactions denominated in
foreign currencies will be adversely affected by changes in exchange rates.
During 1994, recorded and anticipated foreign currency transactions that the
Corporation had hedged did not exceed $127 million and totaled $95 million at
year end. Notes 1 and 21 to the Consolidated Financial Statements contain
further information to which reference should be made for a fuller understanding
of the Corporation's policy for hedging foreign currency transactions.
Consolidated 1994 revenues were $3,289.2 million, compared with
$2,595.9 million in 1993. This increase principally resulted from higher average
copper prices, higher sales volumes of copper (including copper purchased for
resale), wheels and rims, wire and cable products (including magnet wire sales
from two recently acquired U.S. plants) and carbon black. The increase in
consolidated revenues from $2,579.3 million in 1992 to $2,595.9 million in 1993
primarily resulted from higher sales volumes of copper (including copper
purchased for resale) and wheels and rims, and increased sales by the
international wire and cable operations (principally reflecting a late 1992
acquisition in Venezuela). These sales volume increases more than offset an 18
cents per pound decrease in the average COMEX copper price from 1992 to 1993.
Three accounting standards adopted by the Corporation in the 1992
fourth quarter were treated as though they had been in effect since the
beginning of that year. As a result of its decision to elect early adoption of
Statement of Financial Accounting Standards (SFAS) No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions," No. 109,
"Accounting for Income Taxes," and No. 112, "Employers' Accounting for
Postemployment Benefits," the Corporation recorded a non-recurring, after-tax
transition charge of $79.9 million that was reflected in revised 1992 first
quarter results. More information on the effects of these accounting standards
is included later in Management's Discussion and Analysis, and in Notes 6, 17
and 18 to the Consolidated Financial Statements. The adoption of these standards
had no effect on cash flow.
Phelps Dodge's results for 1994, 1993 and 1992 can be meaningfully
compared by separate reference to its reporting segments, Phelps Dodge Mining
Company and Phelps Dodge Industries. Phelps Dodge Mining Company includes the
Corporation's worldwide copper operations from mining through rod production,
marketing and sales, other mining operations and investments, and worldwide
mineral exploration and development programs. Phelps Dodge Industries includes
the Corporation's carbon black and synthetic iron oxide operations, its wheel
and rim business, and its magnet wire, specialty conductor and cable operations.
Within each such segment, significant events and transactions have
occurred which, as indicated in the separate discussions presented below, are
material to an understanding of the particular year's results and to a
comparison with results of the other periods. Note 22 to the Consolidated
Financial Statements contains further information to which reference should be
made for a fuller understanding of the following discussion and analysis.
Statistics on reserves and production can be found in Part I, Items 1 and 2 of
this report.
RESULTS OF PHELPS DODGE MINING COMPANY
Phelps Dodge Mining Company is an international business comprising a group of
companies involved in vertically integrated copper operations including mining,
concentrating, electrowinning, smelting and refining, rod production, marketing
and sales, and related activities. Copper is sold primarily to others as rod,
cathode or concentrates, and to the Phelps Dodge Industries segment. In
addition, Phelps Dodge Mining Company at times smelts and refines copper and
produces copper rod for others on a toll basis. Phelps Dodge Mining Company also
produces gold, silver, molybdenum and copper chemicals, principally as
by-products, and sulfuric acid from its air quality control facilities. This
segment also includes the Corporation's other mining operations and investments
(including fluorspar, silver, lead and zinc operations) and its worldwide
mineral exploration and development programs.
<TABLE>
- ----------------------------------------------------------------------------
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Copper (from own mines - thousand tons) *
Production 572.8 547.7 537.0
Deliveries 560.6 543.9 537.7
COMEX average spot copper price
per pound - cathodes $1.07 0.85 1.03
(millions of dollars)
Sales and other operating revenues $1,820.7 1,320.3 1,397.7
Operating income ** 326.4 227.2 366.0
<FN>
- ----------------
* The Corporation's worldwide copper production and deliveries shown in the
above table exclude the amounts attributable to (i) the 15 percent undivided
interest in the Morenci, Arizona, copper mining complex held by Sumitomo
Metal Mining Arizona, Inc. (Sumitomo) and (ii) the one-third partnership
interest in Chino Mines Company in New Mexico held by Heisei Minerals
Corporation (Heisei), and (iii) the 20 percent interest in Candelaria held by
SMMA Candelaria, Inc., a jointly owned subsidiary of Sumitomo Metal Mining
Co., Ltd. and Sumitomo Corporation. Excluded production amounts for 1994,
1993 and 1992 were 61,000 tons, 60,500 tons and 58,200 tons produced at
Morenci for the account of Sumitomo and 53,200 tons, 53,200 tons and 50,800
tons produced at Chino for the account of Heisei. Excluded production amounts
for 1994 at Candelaria for the account of Sumitomo were 6,200 tons.
** Beginning in 1994, minority interests in the income of consolidated
subsidiaries have been excluded from operating income whereas prior to 1994
they were included therein. For comparative purposes, prior period amounts
have been reclassified to conform to the current year presentation.
</FN>
</TABLE>
- ----------------------------------------------------------------------------
Phelps Dodge Mining Company recorded 1994 operating income of $420.8
million, which, after reflecting $94.4 million of fourth quarter non-recurring
pre-tax charges applicable to its operations, was reduced to $326.4 million.
This compares with $227.2 million in 1993 and $366.0 million in 1992. The
increase in operating earnings in 1994 resulted from higher average copper
prices and sales volumes of copper sold from mine production. Higher copper
production and sales volumes and slightly lower unit production costs in 1994
included the effects of the commencement of production at the newest Phelps
Dodge mine, Candelaria, in the 1994 fourth quarter. Earnings in 1993 compared
with 1992 were affected by lower average realized copper prices and higher unit
costs of copper production, offset in part by an increase in the volume of
copper sold and the favorable effect of price protection arrangements.
The Candelaria mine is located near Copiapo in the Atacama Desert of
northern Chile. Discovered in 1987 by the Phelps Dodge exploration group,
Candelaria has estimated ore reserves of 399.1 million tons at an average grade
of 1.1 percent copper and containing 3 million ounces of gold. Phelps Dodge owns
an 80 percent interest in Candelaria and a jointly owned subsidiary of Sumitomo
Metal Mining Co., Ltd. and Sumitomo Corporation, both of Japan, owns a 20
percent interest. Phelps Dodge Mining Company completed construction and
commenced operations at Candelaria in October 1994, and anticipates full
production in 1995. The project consists of an open-pit mine, concentrator, port
and associated facilities. Candelaria, which is operated by Phelps Dodge, is
expected to produce more than 130,000 tons of copper and 80,000 ounces of gold
annually over the estimated 34-year mine life.
Copper unit production costs have been generally stable for the
three-year period ended December 31, 1994, primarily as a result of high levels
of production of low-cost cathode copper at solution extraction/electrowinning
(SX/EW) plants in Morenci, Arizona; Tyrone, New Mexico; and Santa Rita, New
Mexico; and as a result of the closure of the higher cost concentrator
operations at Tyrone in February 1992. Copper produced by SX/EW accounted for 47
percent of the Corporation's total production in 1994, compared with 47 percent
in 1993 and 45 percent in 1992. The SX/EW method of copper production results in
lower unit costs than conventional concentrating, smelting and refining, and is
a major factor in the Corporation's continuing efforts to maintain
internationally competitive costs.
During 1994, Phelps Dodge Mining Company commenced engineering and
construction activities related to a $200 million expansion (the Corporation's
share will be $170 million with the remainder provided by its co-participant,
Sumitomo Metal Mining Arizona, Inc.) of its Morenci mine in southeastern
Arizona. This project, which will increase Phelps Dodge's share of annual
electrowon copper production capacity by approximately 130 million pounds, is
expected to be in production in 1995. The expansion involves the development of
Southside, a mineral deposit adjacent to the existing open-pit mine at Morenci.
Southside contains sulfide and oxide ore reserves of 150 million tons grading
0.39 percent copper. The expansion will include the construction of an
electrowinning tankhouse, the expansion of existing solution extraction plants,
the upgrading of infrastructure systems and the purchase of mining equipment.
Concentrate production at Tyrone, which historically approximated
100,000 tons of copper annually, was indefinitely suspended in February 1992
because the higher grade sulfide copper ore reserves were substantially
depleted. However, in order to operate the Burro Chief SX/EW plant near Tyrone
at capacity, the Corporation has undertaken mine-for-leach operations. In 1994,
continuous mining resumed at Tyrone when the operation returned to a
seven-day-a-week, 24-hour-a-day schedule. In early 1992, the Corporation
completed a fourth expansion of the SX/EW plant, increasing its production
capacity to 70,000 tons of cathode copper per year. The Corporation expects to
operate the plant for the next 10 years or more.
The Corporation has additional sources of copper that could be placed
in production should market circumstances warrant. Permitting and significant
capital expenditures would be required, however, to develop such additional
production capacity.
RESULTS OF PHELPS DODGE INDUSTRIES
Phelps Dodge Industries is a business segment comprising a group of
international companies that manufacture engineered products principally for the
transportation and electrical sectors. Its operations are characterized by
products with significant market share, internationally competitive cost and
quality, and specialized engineering capabilities. This business segment
includes the Corporation's carbon black and synthetic iron oxide operations
through Columbian Chemicals Company and its subsidiaries (Columbian Chemicals);
its wheel and rim operations through Accuride Corporation and its subsidiaries
(Accuride); its magnet wire operations through Phelps Dodge Magnet Wire Company
and its subsidiaries; its international wire and cable manufacturing operations
through Phelps Dodge International Corporation; and its U.S. specialty conductor
operations through Hudson International Conductors (Hudson).
- ----------------------------------------------------------------------------
1994 1993 1992
---- ---- ----
(millions of dollars)
Sales and other operating revenues ........ $1,468.5 1,275.6 1,181.6
Operating income * ........................ 106.1 129.1 85.2
- -------------
* Beginning in 1994, minority interests in the income of
consolidated subsidiaries have been excluded from operating
income whereas prior to 1994 they were included therein. For
comparative purposes, prior period amounts have been
reclassified to conform to the current year presentation.
- ----------------------------------------------------------------------------
Phelps Dodge Industries recorded 1994 operating income of $150.7
million which, after reflecting $44.6 million of non-recurring pre-tax charges
applicable to its facilities, was reduced to $106.1 million. This compares with
$129.1 million in 1993 and $85.2 million in 1992. Earnings increases in 1994
were attributable to the continuing economic recovery in North America,
particularly in the automotive sector, as well as improved economic conditions
in Europe. This resulted in higher sales volumes of wheels and rims, magnet wire
and carbon black.
Columbian Chemicals' 1994 earnings were higher than in 1993 primarily
because of higher sales in both North America, as overall capacity tightened in
the industry, and Europe. European sales volumes and prices improved during the
course of the year as European economies began to recover from the recent
recession. The earnings increase was offset in part by a non-recurring pre-tax
provision of approximately $9.0 million for the closure of its plant in Hamburg,
Germany, reflecting that plant's high cost structure and environmental
restrictions. This charge was included in the $157.7 million consolidated
pre-tax provision discussed in Note 2 to the Consolidated Financial Statements.
Columbian Chemicals' 1993 earnings were higher than in 1992 primarily because of
higher margins in North America that more than offset weak sales volumes in
Europe.
In December 1994, Columbian Chemicals, through its wholly owned
subsidiary, Columbian Carbon Spain, S.A., acquired for approximately $25 million
the assets of a carbon black plant in Santander, Spain, from Repsol Quimica S.A.
The acquisition of this plant, which has a current annual production capacity of
approximately 45,000 tons of carbon black, increases the presence of Phelps
Dodge Industries in the European market and extends the ability of Columbian
Chemicals to serve customers in Spain and Portugal.
In late 1993, Columbian Chemicals and its joint venture partner, Tiszai
Vegyi Kombinat (TVK), began operation through Columbian Tiszai Carbon Ltd. (CTC)
of the first carbon black manufacturing plant in Hungary. Located in the
northeastern Hungarian city of Tiszaujvaros, CTC has an annual production
capacity of 55,000 tons of carbon black, more than enough to supply the entire
Hungarian carbon black market. The remaining production, nearly 70 percent, is
exported. Financing for CTC was arranged through the Overseas Private Investment
Corporation (OPIC) and the European Bank for Reconstruction and Development
(EBRD). It is the first project in Hungary to benefit from a direct loan by
OPIC. Columbian Chemicals holds a 60 percent interest in CTC; TVK, Hungary's
largest petrochemical company, holds the remaining 40 percent interest.
Accuride increased its 1994 sales volume of wheels, rims and components
by 16 percent over 1993 as a result of strong North American demand for light,
medium and heavy trucks and trailers. Industry build rates for commercial light
trucks, heavy trucks and trailers remained at near record levels for most of
1994. Accuride's 1993 earnings reflected both improved demand and improved
productivity over the prior year. Accuride's 1993 sales of wheels and rims were
up over 1992 sales by approximately 18 percent as the truck and trailer industry
continued to recover from the 10-year lows experienced in 1991. Improved
productivity primarily resulted from the company's $48 million modernization
program initiated in 1990.
Phelps Dodge Magnet Wire Company's 1994 earnings exceeded its 1993
earnings as a result of sales volume increases and improved margins in North
America. Demand in the housing, automotive and major home appliance industries
allowed the company to operate at capacity throughout the year. Sales volumes
benefited from the acquisition in early 1994 of two U.S. magnet wire facilities.
Phelps Dodge Magnet Wire Company experienced steady volume growth during 1993
over 1992, and margins benefited from productivity gains and cost savings
initiatives.
In March 1994, Phelps Dodge Magnet Wire Company acquired for
approximately $52.0 million certain assets of a plant that manufactures
fine-gauge magnet wire in Laurinburg, North Carolina, from Rea Magnet Wire
Company, Inc. (Rea), and certain assets of a magnet wire manufacturing plant in
El Paso, Texas, from Texas Magnet Wire Company, an affiliate of Rea and Fujikura
International, Inc.
In response to strong demand by Japanese subsidiary companies located
in North America, SPD Magnet Wire Company, a joint venture of Phelps Dodge
Magnet Wire Company and Sumitomo Electric Industries, Ltd., each owning a 50
percent interest, expanded its plant in Edmonton, Kentucky. The capacity of this
facility is expected to increase by 75 percent when the new equipment is
installed in late 1995.
In March 1993, Phelps Dodge Magnet Wire Company expanded its
international presence with the acquisition of Elektrodraht Mureck, Phelps Dodge
Eldra GmbH. The magnet wire joint venture with Eldra Elektrodraht-Erzeugung
GmbH, a leading European magnet wire manufacturer, is located in Mureck,
Austria. Phelps Dodge holds a 51 percent interest in the company; Eldra
Elektrodraht-Erzeugung GmbH holds the remaining 49 percent.
The 1994 earnings of Phelps Dodge International Corporation were lower
than in 1993 primarily because of the financial crisis in Venezuela and economic
slowdown in Mexico and Chile. These conditions resulted in additional costs
associated with complying with strict foreign exchange controls instituted in
June 1994 by the Venezuelan government, and a pre-tax loss of $7.0 million on
the sale of the Corporation's 40 percent interest in its Mexican associate
company, CONELEC S.A. de C.V. The loss on this sale is included in the $157.7
million consolidated pre-tax provision discussed in Note 2 to the Consolidated
Financial Statements. The effect of these charges on earnings was offset in part
by higher sales volumes, particularly in Thailand where earnings benefited from
strong demand for telephone cables. In 1993, the Corporation's international
wire and cable business experienced increased earnings over 1992, primarily from
the integration of a group of Venezuelan wire and cable manufacturing companies
acquired in late 1992, and the continued growth of telephone and power cable and
commercial wire sales in other markets. These increases in 1993 earnings were
offset in part by lower sales volumes in Thailand where certain large-scale
utility projects were delayed by the Thai government. The 1992 results of the
Corporation's majority-owned international wire and cable manufacturing
companies benefited from volume improvements in Chile and Thailand and an
expanding telephone service installation business in Central and South America.
Some margin deterioration was experienced, however, resulting from tariff
reductions and increased competition.
Phelps Dodge Industries' 1994 earnings also reflected a pre-tax
provision of $20.0 million for the impairment of value of Hudson International
Conductors, its wholly owned U.S. specialty conductor operations. This charge
reflects the unfavorable change in market conditions for Hudson, particularly in
the defense sector, that is now considered permanent. The Corporation is
currently evaluating alternatives for the restructuring of Hudson.
In 1994, operations outside the United States provided 48 percent of
Phelps Dodge Industries' sales, compared with 51 percent in 1993 and 48 percent
in 1992. During the year, operations outside the United States contributed 52
percent of the segment's operating income, compared with 66 percent in 1993 and
87 percent in 1992.
OTHER MATTERS RELATING TO THE STATEMENT OF CONSOLIDATED OPERATIONS
The Corporation reported net interest expense in 1994 of $36.6 million, compared
with $37.0 million in 1993 and $39.5 million in 1992. Reported net interest
expense has remained relatively constant over the three-year period despite a
$49.7 million increase in debt in 1994 and a $158.7 million increase in debt in
1993. This has resulted from the capitalization of interest charges (totaling
$20.7 million in 1994, compared with $17.5 million in 1993 and $7.9 million in
1992) primarily relating to the construction and development of two major
projects -- the Candelaria copper project in Chile and the carbon black project
in Hungary. Capitalization of interest charges for Candelaria ceased in the 1994
fourth quarter as a result of substantial completion of construction and
development of the project. Capitalization of interest charges for the carbon
black plant in Hungary ceased at the end of 1993. Net interest expense in 1995
is expected to increase significantly with the cessation of capitalization on
these projects.
The Corporation's 1994 miscellaneous income, net of miscellaneous
expense, was $9.4 million, compared with $16.4 million in 1993 and $10.7 million
in 1992. The decrease in 1994 principally reflected losses of $6.3 million from
changes in currency exchange rates, especially in countries with highly
inflationary economies (particularly Venezuela).
For the year ended December 31, 1994, the Corporation recorded a
provision for taxes of $104.7 million (an effective rate of approximately 27.9
percent). This compares with a 1993 provision for taxes of $105.9 million (an
effective rate of approximately 34.6 percent) and a 1992 provision of $114.4
million (an effective rate of approximately 26.7 percent). The 1994 effective
rate was lower than 1993 primarily as a result of an increase in the tax benefit
for percentage depletion resulting in large part from higher average realized
copper prices. The 1993 effective rate was adversely affected by the passage of
the Omnibus Budget Reconciliation Act of 1993 that retroactively raised the
maximum U.S. corporate tax rate from 34 percent to 35 percent effective January
1, 1993. In addition to the effect of the increase in the maximum tax rate on
1993 earnings, the Corporation was required to provide an additional $6.0
million for deferred taxes on temporary differences existing at December 31,
1992. The lower 1992 effective rate reflected a non-taxable gain of $36.4
million on a subsidiary's stock issuance in connection with the acquisition of a
20 percent interest in the Candelaria project by two Sumitomo companies. (See
Note 6 to the Consolidated Financial Statements for a reconciliation of the
Corporation's effective tax rates to statutory rates.)
The Corporation's federal income tax returns for the years 1990 and
1991 are currently under examination. The Corporation has received proposed
assessments from the Internal Revenue Service, relating to the Corporation's
federal income tax liability for the years 1988 and 1989, and from the State of
New Mexico relating to the Corporation's New Mexico state income tax liability
for the years 1989 and 1990. The Corporation is contesting both of these
proposals. Management believes that it has made adequate provision so that the
final resolution of the issues involved, including application of those
determinations to subsequent open years, will not have a material adverse effect
on the consolidated financial condition or results of operations of the
Corporation.
On January 25, 1993, the U.S. Supreme Court ruled in favor of the
government in U.S. vs. Hill, U.S. Supreme Court, No. 91-1421, reversing a
decision that had permitted a favorable approach to the computation of the
depletion preference for purposes of determining the alternative minimum tax
liability. As a result of this decision, the Corporation amended its 1991 tax
return and paid additional federal income taxes of approximately $26.6 million
in February 1993. This ruling does not affect the net income of the Corporation,
but does affect the timing of its tax payments.
Under current financial accounting standards, any significant
year-to-year movement in the rate of interest on long-term, high-quality
corporate bonds necessitates a change in the discount rate used to calculate the
actuarial present value of the Corporation's accumulated pension and other
postretirement benefit obligations. As a result of the 1994 increase in
long-term interest rates, the Corporation increased its discount rate from 7.25
percent at December 31, 1993, to 8.5 percent at December 31, 1994. The
Corporation's estimated pension obligations decreased by a net $45 million
primarily as a result of this discount rate increase. Other estimated
postretirement benefit obligations of the Corporation decreased by a net $5
million. The effect of the increased discount rate on this estimated obligation
was mostly offset by a 1 percentage point increase for each year in the assumed
annual rate of increase in the per capita cost of covered health care benefits.
The decreases in these estimated obligations did not affect the earnings
reported by the Corporation in 1994. In accordance with applicable accounting
standards, the Corporation will amortize such decreases beginning in 1995 and
continuing in subsequent years. The combined incremental income will not be
significant in 1995. For a further discussion of these issues, see Notes 16 and
17 to the Consolidated Financial Statements.
CHANGES IN FINANCIAL CONDITION; CAPITALIZATION
At the end of 1994, the Corporation had cash and short-term investments of
$286.9 million, compared with $255.8 million at the beginning of the year. The
Corporation's operating activities provided $542.6 million of cash during the
year which was adequate to cover dividend payments on its common stock and its
investing activities. The cash used for the Corporation's capital expenditures
at its Candelaria copper project ($137.9 million) was partially provided by
limited-recourse debt project financing ($67.3 million in 1994).
Investing activities during 1994 included capital expenditures of
$355.0 million, compared with $387.2 million in 1993, and acquisitions and
investments in subsidiaries of $77.3 million, compared with $3.8 million in
1993. The $32.2 million decrease in capital expenditures principally reflected
higher 1993 spending on the Candelaria project, substantially completed in
September 1994, and the Hungarian carbon black plant, completed in late 1993.
These decreases in spending in 1994 were partially offset by increased spending
on Phelps Dodge Mining Company's Southside expansion at its Morenci mine.
Investments in subsidiaries in 1994 included the acquisition of two U.S. magnet
wire facilities for approximately $52.0 million and the acquisition of a carbon
black plant in Spain for approximately $25.0 million. Investing activities in
1994 also included cash proceeds of $15.0 million from the divestiture of the
Corporation's 40 percent interest in its Mexican associate company, CONELEC S.A.
de C.V., and $8.0 million from the issuance of shares of the Corporation's
majority-owned affiliate in Venezuela. Investing activities in 1993 included
cash proceeds of $6.7 million from the 1992 acquisition by two Sumitomo
companies of a 20 percent interest in Candelaria; that transaction also resulted
in $41.9 million of cash proceeds in 1992 (see Note 4 to the Consolidated
Financial Statements). Investing activities in 1992 also included $58.6 million
in investments in subsidiaries principally from the acquisition of a group of
wire and cable manufacturing companies in Venezuela.
The Corporation's total debt was $696.9 million at December 31, 1994
(including $49.3 million of foreign short-term borrowings), compared with $647.2
million at the end of 1993 (including $82.7 million of foreign short-term
borrowings). The increase in total debt during the year principally resulted
from limited-recourse project financings for Candelaria of $67.3 million offset
by payments on the Corporation's foreign long-term debt and short-term
borrowings. The ratio of total debt to total capitalization was 23.6 percent at
the end of 1994, compared with 23.7 percent at the end of 1993.
The $6.2 million increase in dividend payments on the Corporation's
common shares, from $113.0 million in 1992 to $119.2 million in 1994,
principally resulted from a 10 percent increase in the dividend rate in the 1992
second quarter (from a quarterly rate of 37.5 cents per common share to 41.25
cents per common share) and a 9 percent increase in the dividend rate in the
1994 fourth quarter (from 41.25 cents per common share to 45 cents per common
share).
During the second quarter of 1993, final agreements were executed with
a group of lenders for $290 million of 13-year debt financing for the Candelaria
project. These borrowings are limited recourse to the Corporation prior to
satisfaction of certain completion tests, and non-recourse thereafter. The $290
million includes $200 million of floating rate dollar denominated debt, $60
million of fixed rate dollar denominated debt, and $30 million of floating rate
debt denominated in Chilean pesos. As of December 31, 1994, all $290 million
available under the project financing agreements had been drawn down. The
agreements provide for a nine and one-half year repayment period, which starts
in 1997. As the Corporation consolidates its interest in majority owned mining
joint ventures using the proportional consolidation method, only 80 percent of
this debt and related financing charges have been reflected in the Corporation's
consolidated financial statements. The Corporation also caused the project to
enter into an interest rate protection agreement with certain financial
institutions to limit the effect of increases in the cost of the $200 million of
floating rate debt. Under the terms of the agreement, the project will receive
payments from these institutions if the six-month London Interbank Offered Rate
(LIBOR) exceeds 9 percent prior to December 31, 2001, and 11 percent during the
two subsequent years ending December 31, 2003.
During 1993, the Corporation's 60 percent owned Hungarian subsidiary,
Columbian Tiszai Carbon Ltd., borrowed $33.5 million under facilities from the
Overseas Private Investment Corporation (OPIC) and the European Bank for
Reconstruction and Development (EBRD) to finance construction of a carbon black
manufacturing plant. Both facilities are with recourse to Columbian Chemicals
Company prior to satisfaction of certain completion tests, and non-recourse
thereafter. These completion tests had not yet been satisfied as of December 31,
1994. The OPIC facility is a $24.5 million fixed rate dollar borrowing bearing
interest rates of between 8.01 percent and 9.15 percent, while the EBRD $9.0
million loan is a floating rate dollar borrowing. These borrowings mature in the
years 1995 through 2001.
On January 19, 1994, the Corporation issued $81.1 million of 5.45
percent obligations due in 2009. The proceeds from the issue were used to retire
the Corporation's 5.75 percent to 6.25 percent Series A and B notes due in the
years 1994 through 2004.
In February 1993, the Corporation sold $90 million of 6.5 percent
refunding bonds due April 1, 2013. The proceeds from the sale of these bonds
were used in April 1993 to repay the Corporation's 7 percent Installment Sale
Obligations due in the years 1993 through 2003.
The Corporation entered into a new revolving credit agreement with
several lenders on June 30, 1993, at which time it terminated its then existing
credit agreement. The agreement was amended on October 31, 1994. The new
agreement, as amended, permits borrowings of up to $200 million from time to
time until its maturity on October 31, 1999. Interest is payable at a
fluctuating rate based on the agent bank's prime rate or a fixed rate, based on
the Eurodollar Interbank Offered Rate or at fixed rates offered independently by
the several lenders, for maturities of from seven to 360 days. This agreement
provides for a facility fee of one-eighth of 1 percent of total commitments. The
agreement requires the Corporation to maintain a minimum consolidated tangible
net worth of $1.1 billion and limits indebtedness to 40 percent of total
consolidated capitalization. There were no borrowings under the current or the
previous agreement at either December 31, 1994, or December 31, 1993.
The Corporation has other lines of credit totaling $100.0 million at
December 31, 1994, compared with $90.5 million at December 31, 1993. These
facilities are subject to agreement as to availability, terms and amount. There
were no borrowings outstanding under these lines of credit at either December
31, 1994, or December 31, 1993.
The Corporation had $49.3 million in short-term borrowings, all by its
international operations, at December 31, 1994, compared with $82.7 million at
December 31, 1993. The weighted average interest rate on this debt at December
31, 1994, and December 31, 1993 was 14.9 percent and 9.9 percent, respectively.
Accuride Canada Inc. has a revolving credit facility that permits
borrowings of up to U.S. $25.0 million. Interest on these borrowings is payable
at a fluctuating rate based on the agent bank's Base Rate Canada, or a fixed
rate based on LIBOR, for maturities of one to six months. The commitment under
this facility is determined using a specified borrowing base calculation. At
December 31, 1994, there were no borrowings outstanding under this facility,
compared with $6.0 million at the beginning of the year.
The current portion of the Corporation's long-term debt, scheduled for
payment in 1995, is $25.3 million including $19.2 million for its international
manufacturing operations, $2.4 million for its international mining operations
and $3.7 million for other Corporate obligations.
During 1994, increases in current assets (exclusive of cash and
short-term investments) outweighed increases in current liabilities (exclusive
of current debt) by $36.0 million. This change in net working capital
principally resulted from a $138.6 million increase in accounts receivable and a
$35.4 million increase in inventories, partially offset by a $110.3 million
increase in accounts payable and accrued expenses and a $32.2 million increase
in accrued income taxes. The $138.6 million increase in accounts receivable was
primarily the result of higher copper sales prices and volumes in 1994 and
higher sales volumes of carbon black, magnet wire and wheels and rims. The $35.4
million increase in inventories was attributable to higher inventories of
copper, silver and gold at Phelps Dodge Mining Company and higher inventories of
aluminum and other raw materials at Phelps Dodge Industries, especially in
Thailand. The $110.3 million increase in accounts payable and accrued expenses
principally resulted from the timing of raw material and equipment purchases.
The $32.2 million increase in accrued income taxes primarily resulted from
higher pre-tax income in 1994 and a lower year-end balance at December 31, 1993
due to $26.6 million of additional federal income taxes paid during 1993 with
the Corporation's amended 1991 income tax return.
During 1993, increases in current assets (exclusive of cash and
short-term investments) together with decreases in current liabilities
(exclusive of current debt) resulted in a $7.3 million change in net working
capital. This change principally resulted from a $20.6 million decrease in
accrued income taxes and a $2.8 million increase in deferred income tax assets,
partially offset by a $16.1 million increase in accounts payable and accrued
expenses. The $20.6 million decrease in accrued income taxes in 1993 was the
result of approximately $26.6 million in additional federal income taxes paid
with the Corporation's amended 1991 income tax return. The $16.1 million net
increase in accounts payable and accrued expenses in 1993 principally resulted
from improved vendor credit terms and increased accruals resulting from improved
business in North America.
The Corporation expects capital outlays in 1995 to be approximately
$250 million for Phelps Dodge Mining Company and approximately $100 million for
Phelps Dodge Industries. These capital outlays will be funded from cash reserves
and operating cash flow or, if necessary, from other borrowings.
The Corporation is subject to federal, state and local environmental
laws, rules and regulations, including the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 (CERCLA or Superfund), as amended by the
Superfund Amendments and Reauthorization Act of 1986. Under Superfund, the
Environmental Protection Agency (EPA) has identified approximately 35,000 sites
throughout the United States for review, ranking and possible inclusion on the
National Priorities List (NPL) for possible response. Among the sites
identified, EPA has included 13 sites owned by the Corporation. The Corporation
believes that most, if not all, of its sites so identified will not qualify for
listing on the NPL.
In addition, the Corporation may be required to remove hazardous waste
or remediate the alleged effects of hazardous substances on the environment
associated with past disposal practices at sites not owned by the Corporation.
The Corporation has received notice that it is a potentially responsible party
from EPA and/or individual states under CERCLA or a state equivalent and is
participating in environmental assessment and remediation activity at 36 sites.
For further information about these proceedings, see Item 3. Legal Proceedings,
Part IV.
The 1990 Amendments to the federal Clean Air Act require EPA to develop
and implement many new requirements, and they allow states to establish new
programs to implement some of the new requirements, such as the requirements for
operating permits under Title V of the 1990 Amendments and hazardous air
pollutants under Title III of the 1990 Amendments. Because EPA has not yet
adopted or implemented all of the changes required by Congress, the air quality
laws will continue to expand and change in coming years as EPA develops new
requirements and then implements them or allows the states to implement them.
Nevertheless, most states have made or are in the process of making certain
required changes to their laws regarding Title V. In response to these new laws,
several of the Corporation's subsidiaries already have submitted or are in the
process of preparing applications for Title V operating permits. These programs
will likely increase the Corporation's regulatory obligations and compliance
costs. These costs could include implementation of maximum achievable control
technology for any of the Corporation's facilities that is determined to be a
major source of federal hazardous air pollutants. Until more of the implementing
regulations are adopted, and more experience with the new programs is gained, it
is not possible to determine the impact of the new requirements on the
Corporation.
At December 31, 1994, the Corporation had reserves of $168.9 million
for remediation of certain of the sites referred to above and other
environmental costs in accordance with its policy to record liabilities for
environmental expenditures when it is probable that obligations have been
incurred and the costs can reasonably be estimated. The Corporation's estimates
of these costs are based upon currently available facts, existing technology,
and presently enacted laws and regulations. Where the available information is
sufficient to estimate the amount of liability, that estimate has been used;
where the information is only sufficient to establish a range of probable
liability and no point within the range is more likely than any other, the lower
end of the range has been used.
The amounts of the Corporation's liabilities for remedial activities
are very difficult to estimate due to such factors as the unknown extent of the
remedial actions that may be required and, in the case of sites not owned by the
Corporation, the unknown extent of the Corporation's probable liability in
proportion to the probable liability of other parties. The Corporation has
probable environmental liabilities that in its judgment cannot reasonably be
estimated, and losses attributable to remediation costs are reasonably possible
at other sites. The Corporation cannot now estimate the total additional loss it
may incur for such environmental liabilities, but such loss could be
substantial.
The possibility of recovery of some of the environmental remediation
costs from insurance companies or other parties exists; however, the Corporation
does not recognize these recoveries in its financial statements until they
become probable.
The Corporation's operations are subject to myriad environmental laws
and regulations in jurisdictions both in the United States and in other
countries in which it does business. For further discussion of these laws and
regulations, please see "Environmental and Other Regulatory Matters" and
"Environmental Matters" in Part I, Items 1 and 2 of this report. The estimates
given in those discussions of the capital expenditures for programs to comply
with applicable environmental laws and regulations in 1995 and 1996, and the
expenditures for those programs in 1994, are separate from the reserves and
estimates described above.
In 1994, legislation was introduced in both the U.S. House of
Representatives and the U.S. Senate to amend the Mining Law of 1872. None of the
1994 bills was enacted into law. However, legislation to amend the Mining Law is
expected to be introduced again in 1995. If enacted, the 1995 legislation is
expected to impose royalties on minerals extracted from federal lands, to
require fair market value for patenting federal lands, and to establish
operation and reclamation standards for mining on federal lands. While the
effect of such changes on Phelps Dodge's current operations and other currently
owned mineral resources on private lands would be minimal, passage of such
legislation would result in significant additional capital expenditures and
operating expenses in the development and operation of new mines on federal
lands. The resulting additional costs and delays in the development of such
mines would seriously impact future exploration and development on federal lands
in the United States.
On December 23, 1994, Chino Mines Company (CMC), which is two-thirds
owned by Phelps Dodge Corporation and is located near Silver City, New Mexico,
entered into an Administrative Order on Consent (AOC) with the New Mexico
Environment Department that will require CMC to study the environmental impacts
and potential health risks associated with portions of the CMC property affected
by historical mining operations. Phelps Dodge acquired CMC at the end of 1986.
Those studies will begin in 1995 and, until completed, it will not be possible
to determine the nature, extent, cost, and timing of all remedial work which
will be required under the AOC.
In 1993 and 1994, the New Mexico and Arizona legislatures passed laws
requiring the reclamation of mined lands in those states. The New Mexico Mining
Commission adopted rules for the New Mexico program during 1994, and the
Corporation's operations began submitting the required permit applications in
December 1994. The Arizona State Mine Inspector has been directed to adopt rules
implementing the Arizona law by June 30, 1996. These laws and regulations will
likely increase the Corporation's regulatory obligations and compliance costs
with respect to mine closure and reclamation. At this time, it is not possible
to quantify the impact of the new laws and regulations on the Corporation.
During 1994, the Corporation purchased 76,000 of its common shares
under a 4 million common share buy-back program initiated in September 1989
(numbers of shares have been revised to give effect to the two-for-one stock
split in May 1992). The Corporation purchased an additional 85,000 shares in
1995 through March 6, bringing total common shares purchased under this program
to 2,534,000 at that date. These purchased shares have been restored to the
treasury. There were 70,672,000 common shares outstanding at December 31, 1994.
On March 7, 1995, the Corporation announced that its Board of Directors
had authorized a new common share buy-back program that supersedes the 1989
program. Under the new program, the Corporation has been authorized to purchase
up to 5 million of its common shares. The Corporation will make purchases in the
open market as circumstances warrant, and will also consider purchasing shares
in privately negotiated transactions.
During 1992, the Corporation elected early adoption of Statement of
Financial Accounting Standards (SFAS) No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," No. 109, "Accounting for Income
Taxes," and No. 112, "Employers' Accounting for Postemployment Benefits." All
three standards have been treated as though they were in effect since January 1,
1992. The cumulative effects of the accounting changes required by these
standards have been reflected in revised 1992 first quarter results. Adoption of
the standards also requires recognition of certain ongoing operating costs in
excess of those recorded under previously used accounting methods. For example,
as a result of the new tax standard, Phelps Dodge increased the book value of
certain purchased assets at Chino Mines Company, Columbian Chemicals Company,
Accuride Corporation and Hudson International Conductors by $90.9 million as of
January 1, 1992, with a corresponding increase in deferred tax liabilities. As a
result, earnings from operations were reduced by $7.3 million for incremental
1992 depreciation and other expenses; net income was not affected because the
tax provision was reduced by a corresponding amount.
The combined cumulative effect of accounting changes from the adoption
of these three accounting standards was a one-time transition charge of $111.1
million before taxes ($79.9 million, or $1.13 per common share, after taxes).
With respect to the Corporation's liability for postretirement benefits, if the
Corporation's inflation assumptions prove to be incorrect, its estimates could
be significantly different (for example, an increase in the medical inflation
rate of 1 percent could result in an increase of as much as $13.0 million in the
obligation). The adoption of these standards has had no effect on cash flow and
has not affected adversely in any material respect the position of the
Corporation under its debt agreements. The disclosures for these accounting
changes are included in Note 17 for SFAS No. 106, Note 6 for SFAS No. 109 and
Note 18 for SFAS No. 112.
CAPITAL OUTLAYS
The Corporation's capital outlays in each of the past three years are set forth
in the following table. These capital outlays are exclusive of capitalized
interest and the portions of the expenditures at Morenci, Chino and Candelaria
payable by minority interest holders.
- ----------------------------------------------------------------------------
1994 1993 1992
---- ---- ----
(millions of dollars)
Phelps Dodge Mining Company:
Candelaria .............................. $137.9 189.8 53.6
Other ................................... 161.3 95.6 146.9
------ ----- -----
299.2 285.4 200.5
Phelps Dodge Industries ................... 55.1 101.2 69.7
Corporate and other ....................... 0.7 0.6 0.6
------ ----- -----
$355.0 387.2 270.8
====== ===== =====
- ----------------------------------------------------------------------------
INFLATION
During the last three years, the principal impact of general inflation upon the
financial results of the Corporation has been on unit production costs,
especially energy and supply costs, at the Corporation's mining and industrial
operations. In considering the impact of changing prices on the financial
results of the Corporation, it is important to recognize that the selling price
of the Corporation's principal product, copper, does not necessarily parallel
the rate of inflation or deflation.
DIVIDENDS AND MARKET PRICE RANGES
Phelps Dodge's common shares are listed on the New York Stock Exchange, the
principal market on which they are traded. At March 7, 1995, there were 9,245
holders of record of the Corporation's common shares. The Corporation paid
quarterly dividends of 37.5 cents on each common share throughout 1991 and in
the 1992 first quarter (dividend amounts have been revised to give effect to the
May 1992 two-for-one stock split). In the 1992 second quarter, the quarterly
dividend was increased 10 percent to 41.25 cents on each common share. In the
1994 fourth quarter, the quarterly dividend was increased 9 percent to 45 cents
on each common share and has continued at that rate.
The table below sets forth the high and low prices per common share
(composite quotation) in the periods indicated.
- ----------------------------------------------------------------------------
Market Price Ranges*
----------------------------------------
1994 1993 1992
---- ---- ----
High Low High Low High Low
---- ---- ---- ---- ---- ----
First Quarter ........... $ 59.50 47.63 55.63 47.75 43.00 32.00
Second Quarter .......... 60.88 50.50 50.75 41.50 50.50 39.50
Third Quarter ........... 65.00 55.88 49.25 39.13 53.00 45.00
Fourth Quarter .......... 64.00 54.38 50.88 40.00 49.25 41.38
- ---------------
* The market price ranges reflect actual share prices as reported for
each day's trading; they have been revised for the respective periods
to give effect to the May 1992 two-for-one stock split.
- ----------------------------------------------------------------------------
QUARTERLY FINANCIAL DATA
(In millions except per common share amounts)
- ----------------------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
1994 (a)
- --------
Sales and other operating revenues ..... $694.3 780.4 813.7 1,000.8
Operating income ....................... 81.1 94.5 139.1 85.7
Net income ............................. 48.6 64.6 94.2 63.6
Net income per common share ............ 0.69 0.91 1.33 0.89
1993
Sales and other operating revenues ..... $666.7 629.8 646.7 652.7
Operating income (b) ................... 98.1 81.0 76.9 70.5
Net income ............................. 60.3 46.3 39.7 41.6
Net income per common share ............ 0.85 0.66 0.56 0.59
- ---------------
(a) The 1994 fourth quarter includes a non-recurring pre-tax
provision for environmental costs and asset dispositions of
$140.2 million in operating income with an after-tax effect of
$91.7 million, or $1.29 per common share, on net income. The
1994 second quarter operating income includes a non-recurring
pre-tax provision of $17.5 million for the sale of the
Corporation's interest in the Santa Gertrudis gold property in
Mexico and the Olinghouse gold property in Nevada. The
combined loss had an after-tax effect of $11.2 million, or 16
cents per common share, on net income.
(b) Beginning in 1994, minority interests in the income of
consolidated subsidiaries have been excluded from operating
income whereas prior to 1994 they were included therein. For
comparative purposes, prior period amounts have been
reclassified to conform to the current year presentation.
- ----------------------------------------------------------------------------
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ----------------------------------------------------
PHELPS DODGE CORPORATION AND CONSOLIDATED SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
The consolidated balance sheet at December 31, 1994 and 1993, and the
related consolidated statements of operations and of cash flows for each of the
three years in the period ended December 31, 1994, and notes thereto, together
with the report thereon of Price Waterhouse LLP dated January 23, 1995, follow.
The additional financial data referred to below should be read in conjunction
with these financial statements. Schedules not included with these additional
financial data have been omitted because they are not applicable or the required
information is shown in the financial statements or notes thereto. The
individual financial statements of the Corporation have been omitted because the
Corporation is primarily an operating company and all subsidiaries included in
the consolidated financial statements, in the aggregate, do not have minority
equity interests and/or indebtedness to any person other than the Corporation or
its consolidated subsidiaries in amounts which together exceed 5 percent of
total consolidated assets at December 31, 1994. Separate financial statements of
subsidiaries not consolidated and 50 percent or less owned persons accounted for
by the equity method, other than those for which summarized financial
information is provided in Note 3 to the Consolidated Financial Statements, have
been omitted because, if considered in the aggregate, such subsidiaries and 50
percent or less owned persons would not constitute a significant subsidiary.
ADDITIONAL FINANCIAL DATA
Financial statement schedule for the years ended December 31, 1994,
1993 and 1992:
VIII - Valuation and qualifying accounts and reserves.
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULES
To the Board of Directors of Phelps Dodge Corporation
Our audits of the consolidated financial statements referred to in our report
dated January 23, 1995, appearing in this report also included an audit of the
Financial Statement Schedule listed in the foregoing index titled "Additional
Financial Data." 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.
PRICE WATERHOUSE LLP
Phoenix, Arizona
January 23, 1995
REPORT OF MANAGEMENT
The management of Phelps Dodge Corporation is responsible for preparing the
consolidated financial statements presented in this annual report and for their
integrity and objectivity. The statements have been prepared in accordance with
generally accepted accounting principles appropriate in the circumstances, and
include amounts that are based on management's best estimates and judgments.
Management has also prepared the other information in this annual report and is
responsible for its accuracy and consistency with the financial statements.
Management maintains a system of internal controls, including internal
accounting controls, which in management's opinion provides reasonable assurance
that assets are safeguarded and that transactions are properly recorded and
executed in accordance with management's authorization. The system includes
formal policies and procedures that are communicated to employees with
significant roles in the financial reporting process and updated as necessary.
The system also includes the careful selection and training of qualified
personnel, an organization that provides a segregation of responsibilities and a
program of internal audits that independently assesses the effectiveness of
internal controls and recommends possible improvements.
The Audit Committee, consisting of seven non-employee directors, meets
at least three times a year to review, among other matters, internal control
conditions and internal and external audit plans and results. It meets
periodically with senior officers, internal auditors and independent accountants
to review the adequacy and reliability of the Corporation's accounting,
financial reporting and internal controls.
The consolidated financial statements have also been audited by Price
Waterhouse LLP, our independent accountants, whose appointment was ratified by
the shareholders. The Price Waterhouse LLP examination included a study and
evaluation of internal accounting controls to establish a basis for reliance
thereon in determining the nature, extent and timing of audit tests applied in
the examination of the financial statements.
Management also recognizes its responsibility for fostering a strong
ethical climate so that the Corporation's affairs are conducted according to the
highest standards of personal and corporate conduct. This responsibility is
characterized and reflected in the Corporation's code of business ethics and
policies, which is distributed throughout the Corporation. The code of conduct
addresses, among other things, the necessity of ensuring open communication
within the Corporation; potential conflicts of interest; compliance with all
applicable laws, including those relating to financial disclosure; and the
confidentiality of proprietary information. The Corporation maintains a
systematic program to assess compliance with these policies.
<PAGE>
<AUDIT-REPORT>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Phelps Dodge Corporation
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, of retained earnings and of cash flows
present fairly, in all material respects, the financial position of Phelps Dodge
Corporation 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
Corporation'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 described in Note 1 to the Consolidated Financial Statements, the Corporation
changed its method of accounting for postretirement and postemployment benefits
and income taxes effective January 1, 1992.
PRICE WATERHOUSE LLP
Phoenix, Arizona
January 23, 1995
</AUDIT-REPORT>
<PAGE>
<TABLE>
STATEMENT OF CONSOLIDATED OPERATIONS
- ------------------------------------
(In thousands except per share data)
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
SALES AND OTHER OPERATING REVENUES ......................... $ 3,289,200 2,595,900 2,579,300
----------- ----------- -----------
OPERATING COSTS AND EXPENSES
Cost of products sold ..................................... 2,375,700 1,921,800 1,841,100
Depreciation, depletion and
amortization ............................................. 195,300 187,100 162,300
Selling and general administrative
expense .................................................. 107,100 103,700 105,400
Exploration and research expense .......................... 53,000 56,800 49,900
Provision for environmental costs and
asset dispositions ....................................... 157,700 -- --
----------- ----------- -----------
2,888,800 2,269,400 2,158,700
----------- ----------- -----------
OPERATING INCOME ........................................... 400,400 326,500 420,600
Interest expense .......................................... (57,300) (54,500) (47,400)
Capitalized interest ...................................... 20,700 17,500 7,900
Gain from subsidiary's stock issuance ..................... 1,900 -- 36,400
Miscellaneous income and expense, net ..................... 9,400 16,400 10,700
----------- ----------- -----------
INCOME BEFORE TAXES, MINORITY
INTERESTS, EQUITY IN NET EARNINGS OF
AFFILIATED COMPANIES, AND CUMULATIVE
EFFECT OF ACCOUNTING CHANGES .............................. 375,100 305,900 428,200
Provision for taxes ....................................... (104,700) (105,900) (114,400)
Minority interests in consolidated
subsidiaries ............................................. (8,000) (12,100) (12,800)
Equity in net earnings of affiliated
companies ................................................ 8,600 -- 600
----------- ----------- -----------
INCOME BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGES ........................................ 271,000 187,900 301,600
Cumulative effect of accounting
changes .................................................. -- -- (79,900)
----------- ----------- -----------
NET INCOME ................................................. $ 271,000 187,900 221,700
=========== =========== ===========
EARNINGS PER SHARE
Income before cumulative effect of
accounting changes ....................................... $ 3.81 2.66 4.28
Cumulative effect of accounting
changes .................................................. -- -- (1.13)
----------- ----------- -----------
Net income ................................................ $ 3.81 2.66 3.15
=========== =========== ===========
AVERAGE NUMBER OF SHARES OUTSTANDING ....................... 71,100 70,600 70,400
<FN>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
STATEMENT OF CONSOLIDATED RETAINED EARNINGS
- -------------------------------------------
(In thousands)
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
RETAINED EARNINGS AT BEGINNING OF YEAR ..................... $ 1,618,500 1,546,700 1,438,000
Net income ................................................ 271,000 187,900 221,700
Dividends on common shares ................................ (119,200) (116,100) (113,000)
----------- ----------- -----------
RETAINED EARNINGS AT END OF YEAR ........................... $ 1,770,300 1,618,500 1,546,700
=========== =========== ===========
<FN>
See Notes to Consolidated Financial Statements.
</FN>
</TABLE>
<PAGE>
CONSOLIDATED BALANCE SHEET
- --------------------------
(In thousands except per share values)
December December
31, 31,
1994 1993
---- ----
ASSETS
Current assets:
Cash and short-term investments, at cost ....... $ 286,900 255,800
Accounts receivable, less allowance for
doubtful accounts (1994 - $11,800;
1993 - $12,200) .............................. 489,500 354,400
Inventories .................................... 266,300 225,400
Supplies ....................................... 110,700 103,300
Prepaid expenses ............................... 15,900 13,100
Deferred income taxes .......................... 38,600 35,400
----------- -----------
Current assets ................................ 1,207,900 987,400
Investments and long-term receivables .......... 82,000 115,400
Property, plant and equipment, net ............. 2,566,400 2,340,200
Other assets and deferred charges .............. 277,500 277,900
----------- -----------
$ 4,133,800 3,720,900
=========== ===========
LIABILITIES
Current liabilities:
Short-term debt ................................ $ 49,300 82,700
Current portion of long-term debt .............. 25,300 17,200
Accounts payable and accrued expenses .......... 528,500 425,800
Income taxes ................................... 46,600 14,300
----------- -----------
Current liabilities ........................... 649,700 540,000
Long-term debt ................................. 622,300 547,300
Deferred income taxes .......................... 243,600 286,000
Other liabilities and deferred credits ......... 365,300 263,300
----------- -----------
1,880,900 1,636,600
----------- -----------
COMMITMENTS AND CONTINGENCIES
(SEE NOTES 19 AND 20)
MINORITY INTERESTS IN CONSOLIDATED SUBSIDIARIES .. 65,300 62,200
----------- -----------
COMMON SHAREHOLDERS' EQUITY
Common shares, par value $6.25; 100,000
shares authorized; 70,672 outstanding
(1993 - 70,531) after deducting 4,503 shares
(1993 - 4,657) held in treasury ............... 441,700 440,800
Capital in excess of par value .................. 84,500 83,100
Retained earnings ............................... 1,770,300 1,618,500
Cumulative translation adjustments and other .... (108,900) (120,300)
----------- -----------
2,187,600 2,022,100
----------- -----------
$ 4,133,800 3,720,900
=========== ===========
See Notes to Consolidated Financial Statements.
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS
- ------------------------------------
(In thousands)
1994 1993 1992
---------- ---------- ----------
OPERATING ACTIVITIES
Net income .......................... $ 271,000 187,900 221,700
Adjustments to reconcile net income
to cash flow from operations:
Depreciation, depletion and
amortization ...................... 195,300 187,100 162,300
Deferred income taxes .............. (28,300) 29,500 19,300
Equity earnings net of dividends
received .......................... (4,400) 400 4,600
Provision for environmental costs
and asset dispositions ............ 140,200 -- --
Cumulative effect of accounting
changes ........................... -- -- 79,900
---------- ---------- ----------
Cash flow from operations ........ 573,800 404,900 487,800
Adjustments to reconcile cash flow
from operations to net cash provided
by operating activities:
Changes in current assets and
liabilities:
(Increase) decrease in accounts
receivable ...................... (138,600) (600) (40,400)
(Increase) decrease in inventories (35,400) (2,400) (6,700)
(Increase) decrease in supplies .. 1,600 (1,100) (1,700)
(Increase) decrease in prepaid
expenses ........................ (3,400) 3,000 (6,500)
(Increase) decrease in deferred
income taxes .................... (3,200) (2,800) (1,300)
Increase (decrease) in interest
payable ......................... 500 1,100 2,600
Increase (decrease) in other
accounts payable ................ 88,200 30,500 8,700
Increase (decrease) in income
taxes ........................... 32,200 (20,600) 4,800
Increase (decrease) in other
accrued expenses ................ 22,100 (14,400) 20,200
Gain from subsidiary's stock
issuance .......................... (1,900) -- (36,400)
Other adjustments, net ............. 6,700 (12,600) (400)
---------- ---------- ----------
Net cash provided by operating
activities ...................... 542,600 385,000 430,700
---------- ---------- ----------
INVESTING ACTIVITIES
Capital outlays ..................... (355,000) (387,200) (270,800)
Capitalized interest ................ (20,700) (17,500) (7,900)
Investment in subsidiaries .......... (77,300) (3,800) (58,600)
Proceeds from asset sales ........... 19,300 4,200 8,200
Proceeds from subsidiary's stock
issuance ........................... 8,000 6,700 41,900
Other ............................... (800) (3,000) --
---------- ---------- ----------
Net cash used in investing
activities ...................... (426,500) (400,600) (287,200)
---------- ---------- ----------
FINANCING ACTIVITIES
Increase in debt .................... 185,600 313,700 200,700
Payment of debt ..................... (137,100) (153,000) (187,500)
Common dividends .................... (119,200) (116,100) (113,000)
Debt issue costs .................... (7,500) (25,800) --
Purchase of common shares ........... (3,900) (5,600) --
Other ............................... (2,900) 7,000 25,000
---------- ---------- ----------
Net cash provided by (used in)
financing activities ............ (85,000) 20,200 (74,800)
---------- ---------- ----------
INCREASE IN CASH AND SHORT-TERM
INVESTMENTS ......................... 31,100 4,600 68,700
CASH AND SHORT-TERM INVESTMENTS AT
BEGINNING OF YEAR ................... 255,800 251,200 182,500
---------- ---------- ----------
CASH AND SHORT-TERM INVESTMENTS AT END
OF YEAR ............................. $ 286,900 255,800 251,200
========== ========== ==========
See Notes to Consolidated Financial Statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
(Dollar amounts in tables stated in thousands except as noted)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Accounting and Reporting Changes. In 1992, the Corporation elected early
adoption of Statement of Financial Accounting Standards (SFAS) No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions," No.
109, "Accounting for Income Taxes," and No. 112, "Employers' Accounting for
Postemployment Benefits." All three standards were treated as though they were
in effect since January 1, 1992. The cumulative effects of the accounting
changes required by these standards were reflected in revised 1992 first quarter
results. Adoption of the standards also required recognition of certain ongoing
operating costs in excess of those recorded under previously used accounting
methods. The adoption of these standards has had no effect on cash flow and has
not affected adversely in any material respect the position of the Corporation
under its debt agreements.
The combined cumulative effect of accounting changes from the adoption
of these three accounting standards was a one-time transition charge of $111.1
million before taxes ($79.9 million, or $1.13 per common share, after taxes).
The disclosures for these accounting changes are included in Note 17 for SFAS
No. 106, Note 6 for SFAS No. 109 and Note 18 for SFAS No. 112.
On May 6, 1992, the Board of Directors declared a two-for-one stock
split effected in the form of a 100 percent stock dividend payable June 8, 1992,
to common shareholders of record at the close of business on May 18, 1992. As a
result of the stock split, the Corporation's outstanding shares increased from
approximately 35 million to approximately 70 million. This was reflected on the
Consolidated Balance Sheet as an increase in "Common shares, par value $6.25" of
approximately $219 million, with an offsetting charge to "Capital in excess of
par value." Per share amounts and the average number of shares outstanding have
been retroactively revised for all periods presented.
Basis of Consolidation. The consolidated financial statements include the
accounts of the Corporation and its majority-owned subsidiaries. Interests in
mining joint ventures in which the Corporation owns more than 50 percent are
reported using the proportional consolidation method. Interests in other
majority-owned subsidiaries are reported using the full consolidation method;
the consolidated financial statements include 100 percent of the assets and
liabilities of these subsidiaries and the ownership interests of minority
participants are recorded as "Minority interests in consolidated subsidiaries."
All material intercompany balances and transactions are eliminated.
Investments in unconsolidated companies owned 20 percent or more are
recorded on an equity basis. Investments in companies less than 20 percent owned
are carried at cost.
Foreign Currency Translation. Except as noted below, the assets and liabilities
of foreign subsidiaries are translated at current exchange rates while revenues
and expenses are translated at average rates in effect for the period. The
related translation gains and losses are included in a separate component of
common shareholders' equity. For the translation of the financial statements of
certain foreign subsidiaries dealing predominantly in U.S. dollars and for those
affiliates operating in highly inflationary economies, assets and liabilities
receivable or payable in cash are translated at current exchange rates, and
inventories and other non-monetary assets and liabilities are translated at
historical rates. Gains and losses resulting from translation of such financial
statements are included in operating results, as are gains and losses incurred
on foreign currency transactions.
Statement of Cash Flows. For the purpose of preparing the Consolidated Statement
of Cash Flows, the Corporation considers all highly liquid investments with a
maturity of three months or less when purchased to be cash equivalents.
Inventories and Supplies. Inventories and supplies are stated at the lower
of cost or market. Cost for substantially all inventories is determined by the
last-in, first-out method (LIFO). Cost for substantially all supplies is
determined by a moving-average method.
Property, Plant and Equipment. Property, plant and equipment are carried at
cost. Cost of significant assets includes capitalized interest incurred during
the construction and development period. Expenditures for replacements and
betterments are capitalized; maintenance and repair expenditures are charged to
operations as incurred.
The principal depreciation methods used are the units of production
method for mining, smelting and refining operations and, for other operations,
the straight-line method based upon the estimated lives of specific classes or
groups of depreciable assets. Upon disposal of assets depreciated on a group
basis, cost less salvage is charged to accumulated depreciation.
Values for mining properties represent mainly acquisition costs or
pre-1932 engineering valuations. Depletion of mines is computed on the basis of
an overall unit rate applied to the pounds of principal products sold from mine
production.
Mine exploration costs and development costs to maintain production of
operating mines are charged to operations as incurred. Mine development
expenditures at new mines and major development expenditures at operating mines
that are expected to benefit future production are capitalized and amortized on
the units of production method over the estimated commercially recoverable
minerals.
Environmental Expenditures. Environmental expenditures are expensed or
capitalized depending upon their future economic benefits. Liabilities for such
expenditures are recorded when it is probable that obligations have been
incurred and the costs can be reasonably estimated. The Corporation's estimates
of these costs are based upon currently available facts, existing technology,
and presently enacted laws and regulations. Where the available information is
sufficient to estimate the amount of liability, that estimate has been used;
where the information is only sufficient to establish a range of probable
liability and no point within the range is more likely than any other, the lower
end of the range has been used. The possibility of recovery of some of these
costs from insurance companies or other parties exists; however, the Corporation
does not recognize these recoveries in its financial statements until they
become probable.
Goodwill. Included in "Other assets and deferred charges" are costs in excess of
the net assets of businesses acquired. These amounts are amortized on a
straight-line basis over periods of 15 to 40 years. The Corporation evaluates
its long-term assets and identifiable intangible assets for impairment when
events or changes in economic circumstances indicate the carrying amount of such
assets may not be recoverable.
Hedging Programs. The Corporation does not acquire, hold or issue derivative
financial instruments for trading purposes. Derivative financial instruments are
used to manage well defined commodity price and foreign exchange risks.
The Corporation may periodically use various price protection programs
to ameliorate the adverse effect of price fluctuations on a portion of its
copper production. The costs of programs that guarantee a minimum price over a
specified period are amortized on a straight-line basis over that period. Gains
and losses from programs that effectively establish price ranges for future
production are recognized in income during the periods affected. Any net
premiums paid for programs that effectively establish price ranges for future
production are amortized on a straight-line basis over the period the hedge is
designed to protect.
The Corporation periodically enters into forward exchange contracts to
hedge certain recorded transactions denominated in foreign currencies and enters
into currency option contracts to hedge certain firm commitments and other
anticipated foreign currency transactions. The objective of the Corporation's
foreign currency hedging program is to protect the Corporation from the risk
that the eventual dollar cash flows resulting from transactions denominated in
foreign currencies will be adversely affected by changes in exchange rates.
Deferred gains and losses on option contracts are recognized in income when the
underlying hedged transaction is recognized or when a previously anticipated
transaction is no longer expected to occur. Changes in market value of forward
exchange contracts and certain option contracts protecting anticipated
transactions are recognized in the period incurred.
The Corporation may enter into interest rate agreements to limit the
effect of increases in the interest rates on any floating rate debt. The costs
associated with such agreements are amortized to interest expense over the term
of the agreement.
Income Taxes. In addition to charging income for taxes actually paid or payable,
the provision for taxes reflects deferred income taxes resulting from changes in
temporary differences between the tax bases of assets and liabilities and their
reported amounts in the financial statements. The effect on deferred income
taxes of a change in tax rates is recognized in income in the period that
includes the enactment date.
Pension Plans. The Corporation has trusteed, non-contributory pension plans
covering substantially all of its U.S. employees and in some cases employees of
international subsidiaries. The benefits are based on, in the case of certain
plans, final average salary and years of service and, in the case of other
plans, a fixed amount for each year of service. The Corporation's funding policy
provides that payments to the pension trusts shall be at least equal to the
minimum funding requirements of the Employee Retirement Income Security Act of
1974 for U.S. plans or, in the case of international subsidiaries, the minimum
legal requirements in that particular country. Additional payments may also be
provided by the Corporation from time to time.
Postretirement Benefits Other Than Pensions. The Corporation has several
postretirement health care and life insurance benefit plans covering most of its
U.S. employees and in some cases employees of international subsidiaries.
Postretirement benefits vary among plans and many plans require contributions
from employees. Effective January 1, 1992, the Corporation began accounting for
these benefits on an accrual basis. The Corporation's funding policy provides
that payments shall be at least equal to its cash basis obligation, plus
additional amounts that may be approved by the Corporation from time to time.
Postemployment Benefits. The Corporation has certain postemployment benefit
plans covering most of its U.S. employees and in some cases employees of
international subsidiaries. The benefit plans may provide severance, disability,
supplemental health care, life insurance or other welfare benefits. Effective
January 1, 1992, the Corporation began accounting for these benefits on an
accrual basis. The Corporation's funding policy provides that payments shall be
at least equal to its cash basis obligation, plus additional amounts that may be
approved by the Corporation from time to time.
Earnings per Share. Earnings per share amounts are computed based on the
weighted average number of shares actually outstanding during the period plus
the shares that would be outstanding assuming the exercise of dilutive stock
options, which are considered to be common stock equivalents. The number of
equivalent shares that would be issued from the exercise of stock options is
computed using the treasury stock method.
Reclassification. Beginning in 1994, minority interests in the income of
consolidated subsidiaries have been excluded from operating income whereas prior
to 1994 they were included therein. For comparative purposes, these and certain
other prior year amounts have been reclassified to conform to the current year
presentation.
2. PROVISION FOR ENVIRONMENTAL COSTS AND ASSET DISPOSITIONS
In the 1994 fourth quarter, the Corporation recorded non-recurring pre-tax
charges of $140.2 million reflecting additional provisions of $98.7 million
before taxes for estimated future costs associated with environmental matters
primarily in Phelps Dodge Mining Company and $41.5 million before taxes for
estimated losses, primarily in Phelps Dodge Industries, on the disposition of
certain operating facilities. These charges reduced net income by $91.7 million,
or $1.29 per common share, after taxes.
The pre-tax charge of $98.7 million for estimated future costs
associated with environmental matters comprised $88.9 million applicable to
Phelps Dodge Mining Company, $8.6 million applicable to Phelps Dodge Industries
and $1.2 million applicable to Corporate and other. As a result of these 1994
environmental charges and balances remaining from previously provided charges
for environmental costs, the Corporation's reserves for such costs totaled
$168.9 million at December 31, 1994 (see Note 1 to the Consolidated Financial
Statements for further information concerning the Corporation's policy for
recording environmental obligations).
The pre-tax charge of $41.5 million associated with the disposition of
certain operating facilities included $36.0 million for Phelps Dodge Industries
and $5.5 million for Phelps Dodge Mining Company issues. The portion of the
charge attributable to Phelps Dodge Industries comprised a provision of $20.0
million for the impairment of value of Hudson International Conductors, a loss
of $7.0 million on the sale of the Corporation's 40 percent interest in its
Mexican associate company, CONELEC S.A. de C.V., and a provision of $9.0 million
for the closure of Columbian Chemicals Company's plant in Hamburg, Germany.
Also included in the provision for environmental costs and asset
dispositions for the full year 1994 was a second quarter provision for the sale
of Phelps Dodge Mining Company's interest in its Santa Gertrudis gold property
in Mexico and its Olinghouse gold property in Nevada. The combined net loss on
the sale of these interests was $17.5 million before taxes. This charge reduced
net income by $11.2 million, or 16 cents per common share, after taxes.
3. EQUITY EARNINGS AND INVESTMENTS AND LONG-TERM RECEIVABLES
Equity earnings (losses) were as follows:
- ----------------------------------------------------------------------------
1994 1993 1992
-------- -------- --------
International wire and cable manufacturers . $ 1,700 3,300 3,700
Black Mountain ............................. 6,000 (600) (1,600)
Santa Gertrudis ............................ (600) (3,300) (700)
Other ...................................... 1,500 600 (800)
-------- -------- --------
$ 8,600 -- 600
======== ======== ========
- ----------------------------------------------------------------------------
Dividends were received as follows:
- ----------------------------------------------------------------------------
1994 1993 1992
------ ------ ------
Equity investments:
International wire and cable
manufacturers .................................. $1,400 400 5,300
Black Mountain .................................. 2,900 -- --
------ ------ ------
$4,300 400 5,300
====== ====== ======
Cost basis investments:
Southern Peru Copper Corporation (16.25%) ....... $3,500 2,900 2,400
Other ........................................... 400 600 800
------ ------ ------
$3,900 3,500 3,200
====== ====== ======
- ----------------------------------------------------------------------------
Investments and long-term receivables were as follows:
- ----------------------------------------------------------------------------
1994 1993 1992
-------- -------- --------
Equity basis:
International wire and cable
manufacturers ............................... $ 18,500 38,300 35,500
Black Mountain ............................... 12,800 10,200 12,100
Santa Gertrudis .............................. -- 3,000 6,200
Other ........................................ 11,100 9,300 8,900
Cost basis:
Southern Peru Copper Corporation (16.25%) .... 13,200 13,200 13,200
Other ........................................ 26,400 41,400 17,900
-------- -------- --------
$ 82,000 115,400 93,800
======== ======== ========
- ----------------------------------------------------------------------------
Retained earnings of the Corporation include undistributed earnings of
equity investments of (in millions): 1994 - $58.6; 1993 - $54.3; 1992 - $54.7.
Condensed financial information for companies in which the Corporation
has equity basis investments together with majority-owned foreign subsidiaries
previously accounted for on an equity basis is as follows:
- ----------------------------------------------------------------------------
1994 1993 1992
--------- --------- ---------
Sales .......................... $ 637,200 637,200 567,300
Net income ..................... 46,000 36,700 36,100
- -------------------------------------------------------------------------------
Net current assets ............. $ 63,300 44,700 64,300
Fixed assets, net .............. 249,500 292,300 266,400
Long-term debt ................. (39,000) (64,900) (73,200)
Other assets, net .............. (2,500) 27,500 37,700
--------- --------- ---------
Net assets ..................... $ 271,300 299,600 295,200
========= ========= =========
- -------------------------------------------------------------------------------
4. GAIN FROM SUBSIDIARY'S STOCK ISSUANCE
In May 1994, certain investors acquired an 8 percent interest in Alcave, the
Corporation's majority-owned affiliate in Venezuela, for $8.0 million. As a
result of this transaction, the Corporation's ownership interest in Alcave was
reduced from 87 percent to approximately 80 percent. The Corporation recognized
a book gain of $1.9 million from this transaction.
In September 1992, a subsidiary of Sumitomo Metal Mining Co., Ltd. and
Sumitomo Corporation, both of Japan, acquired a 20 percent interest in Compania
Contractual Minera Candelaria, the Chilean contractual mining company that holds
the Candelaria project, for $52.8 million. Phelps Dodge, formerly the sole owner
of the company, holds the remaining 80 percent interest. Phelps Dodge's share of
the Sumitomo proceeds included a $40 million purchase price plus $1.9 million in
closing adjustments. Deferred income taxes were not provided by Phelps Dodge on
the $36.4 million book gain because the proceeds were indefinitely reinvested in
the Chilean company to help fund construction and development of the project.
5. MISCELLANEOUS INCOME AND EXPENSE, NET
Interest income totaled $11.0 million in 1994, principally from the
Corporation's short-term investments, compared with $10.9 million and $10.4
million in 1993 and 1992, respectively. Miscellaneous income in 1994 also
included a pre-tax $3.5 million dividend on its 16.25 percent minority interest
in Southern Peru Copper Corporation, compared with $2.9 million and $2.4 million
in 1993 and 1992, respectively. Losses from changes in currency exchange rates,
especially in countries with highly inflationary economies (particularly
Venezuela), amounted to $6.3 million in 1994, compared with a gain of $0.1
million in 1993 and a loss of $0.7 million in 1992.
6. INCOME TAXES
As discussed in Note 1 to the Consolidated Financial Statements, the Corporation
elected early adoption of SFAS No. 109, "Accounting for Income Taxes," as of
January 1, 1992. SFAS No. 109 mandates an asset and liability approach for
financial accounting and reporting of income taxes. One of the principal
requirements of the standard is that changes in tax rates and laws be reflected
in income from operations in the period such changes are enacted. Under the
Corporation's previous accounting method, such changes were reflected over time.
The new standard also requires balance sheet classification of deferred income
taxes according to the balance sheet classification of the asset or liability to
which the temporary difference is related. The cumulative effect on prior years
of this change in accounting principle was a one-time transition charge of $10.0
million, or 14 cents per share. This charge was combined with the cumulative
effect of other accounting changes (see Notes 17 and 18) and reported separately
in the Consolidated Statement of Operations for the year ended December 31,
1992.
One of the more significant effects of the standard on the Corporation
is the treatment of deferred income taxes resulting from prior business
combinations. As a result of the standard, Phelps Dodge increased the book value
of certain purchased assets at Chino Mines Company, Columbian Chemicals Company,
Accuride Corporation and Hudson International Conductors by $90.9 million as of
January 1, 1992, with a corresponding increase in deferred income tax
liabilities.
Geographic sources of income before taxes, minority interests, equity
in net earnings of affiliated companies, and cumulative effect of accounting
changes for the years ended December 31 were as follows:
- ----------------------------------------------------------------------------
1994 1993 1992
-------- -------- --------
United States ............... $298,900 258,200 352,500
Foreign ..................... 76,200 47,700 75,700
-------- -------- --------
$375,100 305,900 428,200
======== ======== ========
- ----------------------------------------------------------------------------
The provisions for income taxes for the years ended December 31 were as
follows:
- ----------------------------------------------------------------------------
1994 1993 1992
--------- --------- ---------
Currently payable:
Federal ................... $ 94,000 49,900 62,600
State ..................... 14,000 8,400 6,800
Foreign ................... 25,000 18,100 25,700
--------- --------- ---------
133,000 76,400 95,100
--------- --------- ---------
Deferred:
Federal ................... (27,100) 24,700 16,600
State ..................... (2,500) 2,700 4,900
Foreign ................... 1,300 2,100 (2,200)
--------- --------- ---------
(28,300) 29,500 19,300
--------- --------- ---------
$ 104,700 105,900 114,400
========= ========= =========
- ----------------------------------------------------------------------------
A reconciliation of the U.S. statutory tax rate to the Corporation's
effective tax rate is as follows:
- ----------------------------------------------------------------------------
1994 1993 1992
----- ----- -----
Statutory tax rate ............................... 35.0% 35.0 34.0
Depletion ........................................ (10.6) (4.7) (8.0)
State and local income taxes ..................... 2.0 2.5 1.9
Rate increase effect on existing temporary
differences ..................................... -- 2.0 --
Non-taxable gain ................................. -- -- (3.0)
Other items, net ................................. 1.5 (0.2) 1.8
----- ----- -----
Effective tax rate ............................... 27.9% 34.6 26.7
===== ===== =====
- ----------------------------------------------------------------------------
The Corporation paid federal, state, local and foreign income taxes of
approximately $114 million in 1994, compared with approximately $113 million in
1993 and approximately $85 million in 1992. As of December 31, 1994, the
Corporation had alternative minimum tax credits of approximately $119 million
available for carryforward for federal income tax purposes. These credits can be
carried forward indefinitely, but may only be used to the extent the regular tax
exceeds the alternative minimum tax. The Corporation also has regular foreign
tax credit and alternative minimum foreign tax credit carryforwards for federal
income tax purposes of approximately $6 million and $31 million, which begin to
expire in 1995.
The Corporation's federal income tax returns for the years 1990 and
1991 are currently under examination. The Corporation has received proposed
assessments from the Internal Revenue Service, relating to the Corporation's
federal income tax liability for the years 1988 and 1989, and from the State of
New Mexico relating to the Corporation's New Mexico state income tax liability
for the years 1989 and 1990. The Corporation is contesting both of these
proposals. Management believes that it has made adequate provision so that the
final resolution of the issues involved, including application of those
determinations to subsequent open years, will not have a material adverse effect
on the consolidated financial condition or results of operations of the
Corporation.
Deferred income tax assets and (liabilities) comprised the following at
December 31:
- ----------------------------------------------------------------------------
1994 1993
---------- ----------
Minimum tax credits ............................ $ 119,000 110,300
Postretirement and postemployment benefits ..... 49,300 46,200
Reserves ....................................... 85,800 41,300
Mining costs ................................... 19,800 --
Other .......................................... 13,100 8,200
---------- ----------
Deferred tax assets .......................... 287,000 206,000
---------- ----------
Depreciation ................................... (452,000) (426,000)
Mining properties .............................. (13,500) (10,600)
Exploration and mine development costs ......... (8,800) (10,100)
Pensions ....................................... (15,500) (7,400)
Inventories .................................... (2,200) (2,500)
---------- ----------
Deferred tax liabilities ..................... (492,000) (456,600)
---------- ----------
$ (205,000) (250,600)
========== ==========
- ----------------------------------------------------------------------------
Income taxes have not been provided on the Corporation's share ($236
million) of undistributed earnings of those manufacturing and mining interests
abroad over which the Corporation has sufficient influence to control the
distribution of such earnings and has determined that such earnings have been
reinvested indefinitely. These earnings could become subject to additional tax
if they were remitted as dividends, if foreign earnings were lent to the
Corporation or a U.S. affiliate, or if the Corporation should sell its stock in
the subsidiaries. It is not practicable to estimate the amount of additional
U.S. tax that might be payable on the foreign earnings; however, the Corporation
believes that U.S. foreign tax credits would largely eliminate any U.S. tax.
Additional foreign withholding taxes which would be payable if all of the
earnings were remitted as dividends are estimated to be $31.5 million.
7. INVENTORIES AND SUPPLIES
Inventories are as follows (in millions):
- ----------------------------------------------------------------------------
Phelps Phelps
Dodge Dodge
Mining Industries Total
------ ---------- -----
1994:
Metals and other raw materials ............. $ 98.4 78.2 176.6
Work in process ............................ 2.1 13.2 15.3
Finished manufactured goods ................ -- 69.4 69.4
Other ...................................... 4.3 0.7 5.0
------- ------ ------
$104.8 161.5 266.3
====== ====== ======
1993:
Metals and other raw materials ............. $ 73.0 69.2 142.2
Work in process ............................ 2.0 14.1 16.1
Finished manufactured goods ................ -- 62.4 62.4
Other ...................................... 4.7 -- 4.7
------- ------ ------
$ 79.7 145.7 225.4
======= ====== ======
- ----------------------------------------------------------------------------
Inventories valued by the last-in, first-out method would have been
greater if valued at current costs by approximately $111 million and $101
million at December 31, 1994 and 1993, respectively.
Supplies in the amount of $110.7 million and $103.3 million at December
31, 1994 and 1993, respectively, are stated net of a reserve for obsolescence of
$14.0 million and $12.7 million, respectively.
8. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment comprise the following (in millions):
- ----------------------------------------------------------------------------
1994 1993
-------- --------
Buildings, machinery and equipment ................ $4,060.9 3,717.5
Mining properties ................................. 129.1 129.6
Capitalized mine development ...................... 283.9 267.7
Land and water rights ............................. 72.5 63.3
-------- --------
4,546.4 4,178.1
Less accumulated depreciation, depletion
and amortization ................................. 1,980.0 1,837.9
-------- --------
$2,566.4 2,340.2
======== ========
- -------------------------------------------------------------------------------
The net increases in property, plant and equipment of $226.2 million in
1994 and $231.6 million in 1993 are summarized below (in millions):
- ----------------------------------------------------------------------------
1994 1993
-------- --------
Balance at beginning of year ...................... $2,340.2 2,108.6
-------- --------
Capital expenditures .............................. 355.0 387.2
Depreciation, depletion and amortization .......... (190.2) (181.6)
Property, plant and equipment of acquired
companies ........................................ 69.8 23.7
Currency translation adjustments and other ........ (8.4) 2.3
-------- --------
226.2 231.6
-------- --------
Balance at end of year ............................ $2,566.4 2,340.2
======== ========
- ----------------------------------------------------------------------------
9. OTHER ASSETS AND DEFERRED CHARGES
Other assets and deferred charges are as follows (in millions):
- ----------------------------------------------------------------------------
1994 1993
------ ------
Goodwill, less accumulated amortization
(1994 - $30.1; 1993 - $29.8) * ..................... $125.2 142.1
Employee benefit plans .............................. 92.6 82.0
Debt issue costs .................................... 32.8 26.9
Intangible pension asset ............................ 18.0 17.0
Other intangible assets ............................. 4.1 4.5
Other ............................................... 4.8 5.4
------ ------
$277.5 277.9
====== ======
- ------------
* During 1994, goodwill was reduced by $13.7 million for the impairment
of value of Hudson International Conductors (another $6.3 million was
charged directly to fixed assets for a total write-down of $20.0
million). This charge reflects the unfavorable change in market
conditions for Hudson, particularly in the defense sector, that is now
considered permanent. The Corporation is currently evaluating
alternatives for the restructuring of Hudson.
- ----------------------------------------------------------------------------
10. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses are as follows (in millions):
- ----------------------------------------------------------------------------
1994 1993
------ -----
Accounts payable .................................... $303.5 218.6
Employee benefit plans .............................. 39.5 38.9
Insurance and loss reserves ......................... 11.4 29.5
Salaries, wages and other compensation .............. 30.3 25.4
Environmental reserves .............................. 42.1 24.0
Smelting, refining and freight ...................... 15.1 16.2
Other accrued taxes ................................. 14.6 14.2
Shutdown, relocation and restructuring .............. 11.4 13.9
Interest * .......................................... 12.4 12.7
Candelaria development .............................. 6.8 8.0
Returnable containers ............................... 4.9 5.0
Other ............................................... 36.5 19.4
------ -----
$528.5 425.8
====== =====
- ------------
* Interest paid by the Corporation in 1994 was $58.5 million, compared with
$54.9 million in 1993 and $44.1 million in 1992.
- ----------------------------------------------------------------------------
11. OTHER LIABILITIES AND DEFERRED CREDITS
Other liabilities and deferred credits are as follows (in millions):
- ----------------------------------------------------------------------------
1994 1993
------ -----
Postretirement and postemployment benefit plans
(see Notes 17 and 18) .................................. $139.4 129.9
Other employee benefit plans ............................ 63.9 67.6
Environmental reserves .................................. 124.9 50.0
Shutdown, relocation and restructuring .................. 13.1 9.3
Insurance and loss reserves ............................. 20.9 4.0
Other ................................................... 3.1 2.5
------ -----
$365.3 263.3
====== =====
- ----------------------------------------------------------------------------
12. LONG-TERM DEBT AND OTHER FINANCING
Long-term debt due after one year is summarized below (in millions):
- ----------------------------------------------------------------------------
1994 1993
------ -----
7.75% Notes due 2002 ...................................... $100.0 100.0
7.96% Notes due 1998-2000 ................................. 50.0 50.0
Air Quality Control Obligations:
5.45% Notes due 2009 ..................................... 81.1 --
5.75% to 6.25% Series A and B notes due 1995-2004 ........ -- 81.1
6.50% Installment sale obligations due 2013 .............. 90.0 90.0
Candelaria ................................................ 235.4 164.7
Ojos del Salado ........................................... 8.0 --
Columbian Tiszai Carbon Ltd ............................... 30.0 33.5
Columbian Carbon Spain, S.A ............................... 13.0 --
Phelps Dodge International ................................ 11.3 14.4
Accuride Canada ........................................... -- 6.0
Other ..................................................... 3.5 7.6
------ -----
$622.3 547.3
====== =====
- ----------------------------------------------------------------------------
Annual maturities of debt outstanding at December 31, 1994, are as follows
(in millions): 1995 - $25.3; 1996 - $16.8; 1997 - $37.7; 1998 - $50.9; 1999 -
$55.4.
During 1993, the Corporation refunded its 7 percent installment sale
obligations due in the years 1994 through 2004 through the issuance of $90
million of 6.50 percent obligations due 2013. On January 19, 1994, the
Corporation issued $81.1 million of 5.45 percent obligations due 2009; the
proceeds from the issue were used to retire its 5.75 percent to 6.25 percent
Series A and B notes due in the years 1994 through 2004 on March 1, 1994.
The Corporation entered into a new revolving credit agreement with
several lenders on June 30, 1993, at which time it terminated its then existing
credit agreement. The agreement was amended on October 31, 1994. The new
agreement, as amended, permits borrowings of up to $200 million from time to
time until its maturity on October 31, 1999. Interest is payable at a
fluctuating rate based on the agent bank's prime rate or a fixed rate, based on
the Eurodollar Interbank Offered Rate or at fixed rates offered independently by
the several lenders, for maturities of from seven to 360 days. This agreement
provides for a facility fee of one-eighth of 1 percent of total commitments. The
agreement requires the Corporation to maintain a minimum consolidated tangible
net worth of $1.1 billion and limits indebtedness to 40 percent of total
consolidated capitalization. There were no borrowings under the current or the
previous agreement at either December 31, 1994, or December 31, 1993.
The Corporation had other lines of credit totaling $100.0 million at
December 31, 1994, compared with $90.5 million at December 31, 1993. These
facilities are subject to agreement as to availability, terms and amount. There
were no borrowings outstanding under these lines of credit at either December
31, 1994, or December 31, 1993.
The Corporation had $49.3 million in short-term borrowings, all by its
international operations, at December 31, 1994, compared with $82.7 million at
December 31, 1993. The weighted average interest rate on this debt at December
31, 1994, and December 31, 1993, was 14.9 percent and 9.9 percent, respectively.
As of December 31, 1994, the Corporation's 80 percent owned Compania
Contractual Minera Candelaria subsidiary had drawn down all $290 million under
its limited-recourse debt project financing agreements to finance construction
of the Candelaria copper project in Chile. Under the proportional consolidation
method, the Corporation reflects 80 percent of this amount in its financial
statements. These borrowings are limited recourse to the Corporation prior to
satisfaction of certain completion tests, and non-recourse thereafter. This $290
million of 13-year financing includes $200 million of floating rate dollar
denominated debt (with a rate based on the six-month London Interbank Offered
Rate (LIBOR)), $60 million of fixed rate dollar denominated debt, and $30
million of floating rate debt denominated in Chilean pesos (with a rate based on
the 90-day Tasa Activa Bancaria), with a nine and one-half year repayment period
that starts in 1997.
The Corporation also caused Candelaria to enter into an interest rate
protection agreement with certain financial institutions to limit the effect of
increases in the cost of the $200 million of floating rate dollar denominated
debt. Under the terms of the agreement, the project will receive payments from
these institutions if the six-month LIBOR exceeds 9 percent prior to December
31, 2001, and 11 percent during the two subsequent years ending December 31,
2003.
In December 1994, Columbian Chemicals, through its wholly owned
subsidiary, Columbian Carbon Spain, S.A., acquired for approximately $25 million
the assets of a carbon black plant in Santander, Spain; $13 million of the
purchase price was financed through borrowings from Barclays Bank, S.A. This
facility is floating rate debt denominated in Spanish pesetas and matures in the
years 1995 through 2000. These borrowings are fully with recourse to the
Corporation.
In December 1994, Phelps Dodge Mining Company, through its wholly owned
subsidiary, Compania Contractual Minera Ojos del Salado S.A. de C.V., borrowed
$10.4 million under facilities from the Bank of Nova Scotia to fund working
capital requirements and capital expenditures. This facility is floating rate
dollar denominated debt and matures in the years 1995 through 1999. These
borrowings are with recourse to the Corporation except in the event of political
force majeure.
The Corporation's 60 percent owned Hungarian subsidiary, Columbian
Tiszai Carbon Ltd., has borrowed $33.5 million under facilities from the
Overseas Private Investment Corporation (OPIC) and the European Bank for
Reconstruction and Development (EBRD) to finance construction of a carbon black
manufacturing plant. Both facilities are with recourse to Columbian Chemicals
Company prior to satisfaction of certain completion tests, and non-recourse
thereafter. The OPIC facility is a $24.5 million fixed rate dollar borrowing
bearing interest rates of between 8.01 percent and 9.15 percent, while the EBRD
$9 million loan is a floating rate dollar borrowing. These borrowings mature in
the years 1995 through 2001.
13. SHAREHOLDERS' EQUITY
Changes in common shareholders' capital accounts are summarized below:
- ----------------------------------------------------------------------------
Common Shares
------------- Capital in
Shares Par value excess of
(000s) $6.25 par value
------- --------- ----------
Balance at December 31, 1991 ......... 34,811 $ 217,500 $ 281,000
Adjustment for two-for-one stock
split .............................. 35,019 218,900 (218,900)
Stock options exercised ............. 535 3,300 17,900
Restricted shares activity
and other .......................... 9 100 600
--------- --------- ---------
Balance at December 31, 1992 ......... 70,374 439,800 80,600
Stock options exercised ............. 236 1,500 5,300
Shares purchased .................... (130) (800) (4,700)
Restricted shares granted ........... 51 300 1,900
--------- --------- ---------
Balance at December 31, 1993 ......... 70,531 440,800 83,100
Stock options exercised ............. 216 1,400 4,600
Shares purchased .................... (76) (500) (3,400)
Restricted shares granted ........... 14 100 700
Restricted shares terminated ........ (13) (100) (500)
--------- --------- ---------
Balance at December 31, 1994 ......... 70,672 $ 441,700 $ 84,500
========= ========= =========
- ----------------------------------------------------------------------------
In 1988, the Corporation adopted a Preferred Share Purchase Rights Plan
and declared a dividend of one right on each of its common shares. In certain
circumstances, if a person or group of persons acquires or tenders for 20
percent or more of the Corporation's outstanding common shares, these rights
vest and entitle the holder to certain share purchase rights. Until 10 days
after vesting, the rights may be modified or redeemed by the Board of Directors.
During 1994, the Corporation purchased 76,000 of its common shares
under a 4 million common share buy-back program initiated in September 1989
(numbers of shares have been revised to give effect to the two-for-one stock
split in May 1992). The Corporation purchased a total of 2,449,000 of its common
shares under this program through December 31, 1994. These purchased shares were
restored to the treasury.
The Corporation has 6,000,000 authorized preferred shares with a par value
of $1.00 each; no shares were outstanding at either December 31, 1994, or
December 31, 1993.
14. STOCK OPTION PLANS; RESTRICTED STOCK
Executives and other key employees have been granted options to purchase common
shares under stock option plans adopted in 1979, 1987 and 1993. In each case,
the option price equals the fair market value of the common shares on the day of
the grant. The options include limited stock appreciation rights under which an
optionee has the right, in the event common shares are purchased pursuant to a
third party tender offer or in the event a merger or similar transaction in
which the Corporation shall not survive as a publicly held corporation is
approved by the Corporation's shareholders, to relinquish the option and to
receive from the Corporation an amount per share equal to the excess of the
price payable for a common share in such offer or transaction over the option
price per share.
The 1993 plan provides (and the 1987 plan provided) for "reload" option
grants to executives and other key employees. If an optionee exercises an option
under the 1993 or 1987 plan with already-owned shares of the Corporation, the
optionee receives a reload option that restores the option opportunity on a
number of common shares equal to the number of shares used to exercise the
original option. A reload option has the same terms as the original option
except that it has an exercise price per share equal to the fair market value of
a common share on the date the reload option is granted and is exercisable six
months after the date of grant.
The 1993 plan provides (and the 1987 plan provided) for the issuance to
executives and other key employees, without any payment by them, of common
shares subject to certain restrictions (Restricted Stock). The 1993 plan limits
the award of Restricted Stock to 1,000,000 shares.
Under a stock option plan adopted in 1989, options to purchase common
shares have been granted to directors who have not been employees of the
Corporation or its subsidiaries for one year or are not eligible to participate
in any plan of the Corporation or its subsidiaries entitling participants to
acquire stock, stock options or stock appreciation rights.
At December 31, 1994, options for 886 shares, 905,791 shares, 40,555
shares and 303,479 shares were exercisable under the 1979 plan, the 1987 plan,
the 1989 plan and the 1993 plan, respectively, at average prices of $9.76,
$38.90, $34.84 and $46.02 per share. In addition, 12,800 shares of Restricted
Stock issued under the 1987 plan and 55,226 shares of Restricted Stock issued
under the 1993 plan were outstanding at December 31, 1994. Also at December 31,
1994, 3,538,430 shares were available for option grants (including 947,774
shares as restricted stock awards) under the 1993 plan (plus an additional
734,505 shares that may be issued as reload options) and 102,735 shares were
available for option grants under the 1989 plan. These amounts are subject to
future adjustment. No further options may be granted under the 1987 plan or the
1979 plan.
Changes during 1992, 1993 and 1994 in options outstanding for the
combined plans were as follows:
- ----------------------------------------------------------------------------
Average option
Shares price per share
------ -----------
Outstanding at December 31, 1991
(before stock split) ............................. 1,077,974 $ 56.38
Granted ....................................... 83,633 78.87
Exercised ..................................... (287,901) 52.02
Expired or terminated ......................... (2,668) 57.24
Adjustment for two-for-one stock split .......... 871,038 N/A
Post-stock split:
Granted ....................................... 772,157 47.27
Exercised ..................................... (496,161) 29.75
Expired or terminated ......................... (42,222) 30.28
--------
Outstanding at December 31, 1992
(after stock split) .............................. 1,975,850 36.78
Granted ......................................... 831,896 45.11
Exercised ....................................... (377,203) 28.03
Expired or terminated ........................... (50,982) 41.37
---------
Outstanding at December 31, 1993
(after stock split) .............................. 2,379,561 40.88
Granted ......................................... 961,087 58.35
Exercised ....................................... (479,660) 37.32
Expired or terminated ........................... (28,802) 44.34
---------
Outstanding at December 31, 1994
(after stock split) .............................. 2,832,186 47.38
=========
- ----------------------------------------------------------------------------
Changes during 1992, 1993 and 1994 in Restricted Stock were as follows:
- ----------------------------------------------------------------------------
Shares
------
Outstanding at December 31, 1991 ............................ 52,300
Adjustment for two-for-one stock split .................... 46,200
Granted ................................................... 16,900
Terminated ................................................ (3,600)
Released .................................................. (32,200)
--------
Outstanding at December 31, 1992 ............................ 79,600
Granted ................................................... 51,000
Released .................................................. (30,400)
--------
Outstanding at December 31, 1993 ............................ 100,200
Granted ................................................... 14,226
Terminated ................................................ (13,000)
Released .................................................. (33,400)
--------
Outstanding at December 31, 1994 ............................ 68,026
========
- ----------------------------------------------------------------------------
15. CUMULATIVE TRANSLATION ADJUSTMENTS
Changes in the cumulative translation adjustments account during 1992, 1993 and
1994 are summarized below (in millions):
- ----------------------------------------------------------------------------
Cumulative translation
adjustments account
-------------------
Balance at December 31, 1991 ............................... $ (71.1)
Aggregate adjustment for 1992 ............................ (17.9)
-------
Balance at December 31, 1992 ............................... (89.0)
Aggregate adjustment for 1993 ............................ (12.2)
-------
Balance at December 31, 1993 ............................... (101.2)
Aggregate adjustment for 1994 ............................ 7.4
-------
Balance at December 31, 1994 ............................... $ (93.8)
=======
- ----------------------------------------------------------------------------
16. PENSION PLANS
The Corporation has several non-contributory employee defined benefit pension
plans covering substantially all U.S. employees. Employees covered under the
salaried defined benefit pension plans are eligible to participate upon the
completion of one year of service, and benefits are based upon final average
salary and years of service. Employees covered under the remaining plans are
generally eligible to participate at the time of employment, and benefits are
generally based on a fixed amount for each year of service. Employees are vested
in the plans after five years of service. The Corporation also maintains pension
plans for certain employees of international subsidiaries following the legal
requirements in those countries.
In a number of these plans, the plan assets exceed the accumulated
benefit obligations (overfunded plans) and in the remainder of the plans, the
accumulated benefit obligations exceed the plan assets (underfunded plans).
The status of employee pension benefit plans at December 31 is
summarized below (in millions):
<TABLE>
- ----------------------------------------------------------------------------
<CAPTION>
Overfunded Underfunded
Plans Plans
----------- -----------
1994 1993 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Actuarial present value of projected
benefit obligation, based on employment
service to date and current salary levels:
Vested employees ............................................. $ 254 278 205 226
Non-vested employees ......................................... 14 12 17 17
------ ------ ------ ------
Accumulated benefit obligation ............................... 268 290 222 243
Additional amounts related to projected
salary increases ............................................ 31 24 7 9
------ ------ ------ ------
Total projected benefit obligation ........................... 299 314 229 252
Plan assets at fair value ...................................... 357 371 176 184
------ ------ ------ ------
Projected pension benefit obligation in
excess of (less than) plan assets ............................. (58) (57) 53 68
Unamortized net asset (liability)
existing at January 1, 1985 .................................. 13 19 (4) (6)
Unrecognized prior service cost ................................ (15) (13) (13) (11)
Unrecognized net loss from
actuarial experience .......................................... (10) (7) (17) (28)
------ ------ ------ ------
Accrued (prepaid) pension cost ................................. $ (70) (58) 19 23
====== ====== ====== ======
</TABLE>
- ----------------------------------------------------------------------------
The Corporation's pension plans were valued between November 1, 1993,
and January 1, 1994, and the obligations were projected to, and the assets were
valued as of, the end of 1994. The majority of plan assets are invested in a
diversified portfolio of stocks, bonds and cash or cash equivalents. A small
portion of the plan assets is invested in pooled real estate and other private
corporate investment funds.
The components of net periodic pension cost were as follows (in
millions):
- ----------------------------------------------------------------------------
1994 1993 1992
------ ------ ------
Benefits earned during the year ................... $ 12.6 10.8 9.8
Interest accrued on projected benefit
obligation ....................................... 40.1 40.8 39.5
Return on assets - actual ......................... (0.4) (68.0) (63.2)
- unrecognized gain (loss) ....... (51.2) 17.5 15.7
Net amortization .................................. 1.2 0.5 0.3
------ ------ ------
Net periodic pension cost for the year ......... $ 2.3 1.6 2.1
====== ====== ======
- ----------------------------------------------------------------------------
Assumptions used to develop the net periodic pension cost included a
7.25 percent discount rate in 1994, compared with a discount rate of 8.5 percent
in 1993 and 1992. An expected long-term rate of return on assets of 9.5 percent
and a rate of increase in compensation levels of 4 percent were used for 1994,
compared with rates of 10 percent and 5 percent, respectively, for both 1993 and
1992. For the valuation of pension obligations, the discount rate at the end of
1994 was 8.5 percent, increased from 7.25 percent in 1993 and equivalent to the
discount rate at the end of 1992, and the rate of increase in compensation
levels was 4 percent, the same as 1993 and a reduction from 5 percent in 1992.
The Corporation recognizes a minimum liability in its financial
statements for its underfunded plans. "Other liabilities and deferred credits"
at December 31, 1994, included $40 million relating to this minimum liability,
compared with $43 million at December 31, 1993. This amount was offset by an $18
million intangible asset, a $13 million reduction in "Common Shareholders'
Equity" and a $9 million deferred tax benefit at December 31, 1994, compared
with a $17 million intangible asset, a $16 million reduction in "Common
Shareholders' Equity" and a $10 million deferred tax benefit at December 31,
1993.
The Corporation intends to fund at least the minimum amount required
under the Employee Retirement Income Security Act of 1974 for U.S. plans or, in
the case of international subsidiaries, the minimum legal requirements in that
particular country. The excess of amounts accrued over minimum funding
requirements, together with such excess amounts accrued in prior years, have
been included in "Other liabilities and deferred credits." The anticipated
funding for the current year is included in "Accounts payable and accrued
expenses."
17. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
As discussed in Note 1 to the Consolidated Financial Statements, the Corporation
elected early adoption of SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," as of January 1, 1992. SFAS No.
106 requires recognition of postretirement medical and life insurance benefits
on an accrual rather than cash basis. One of the principal requirements of the
method is that the expected cost of providing such postretirement benefits be
accrued during the years employees render the necessary service. Under the
Corporation's previous accounting method, such benefits were accounted for on a
cash basis. In 1992, the Corporation elected to recognize immediately the
cumulative obligation for benefits attributable to service of retired and active
employees prior to 1992 rather than amortizing the cumulative obligation over
future service periods. This election resulted in a one-time 1992 transition
charge of $105.5 million before taxes ($66.4 million, or 94 cents per common
share, after taxes). This charge was combined with the cumulative effect of
other accounting changes (see Notes 6 and 18) and reported separately in the
Consolidated Statement of Operations for the year ended December 31, 1992.
Substantially all of the Corporation's U.S. employees who retire from
active service on or after normal retirement age of 65 are eligible for life
insurance benefits. The Corporation also provides postretirement life insurance
for employees of international subsidiaries in some cases. Life insurance
benefits are also available under certain early retirement programs or pursuant
to the terms of certain collective bargaining agreements. The majority of the
costs of such benefits were paid out of a previously established fund maintained
by an insurance company; however, a portion was paid through an insured
contract. Health care insurance benefits are also provided for many employees
retiring from active service. The coverage is provided on a non-contributory
basis for certain groups of employees and on a contributory basis for other
groups. The majority of these benefits are paid by the Corporation.
The status of employee postretirement benefit plans at December 31 is
summarized below (in millions):
- ----------------------------------------------------------------------------
1994 1993
----- -----
Accumulated Postretirement Benefit Obligation:
Retirees .............................................. $ 69 69
Fully eligible active plan participants ............... 8 18
Other active plan participants ........................ 56 49
----- -----
Total accumulated postretirement benefit
obligation ........................................... 133 136
Plan assets at fair value ............................... 11 11
----- -----
Accumulated postretirement benefit obligation in
excess of plan assets .................................. 122 125
Unrecognized prior service cost ......................... 5 9
Unrecognized net gain (loss) from actuarial
experience ............................................. 1 (13)
----- -----
Accrued postretirement benefit cost ..................... $ 128 121
===== =====
- ----------------------------------------------------------------------------
The components of net periodic postretirement benefit cost were as
follows (in millions):
- ----------------------------------------------------------------------------
1994 1993 1992
----- ----- -----
Benefits attributed to service during
the year ........................................ $ 4 3 4
Interest cost on accumulated postretirement
benefit obligation .............................. 10 10 10
Return on assets - actual ........................ (1) (1) (1)
Net amortization ................................. (1) (1) --
----- ----- -----
Net periodic postretirement benefit cost
for the year .................................... $ 12 11 13
===== ===== =====
- ----------------------------------------------------------------------------
For 1994 measurement purposes, annual rates of increase in the per
capita cost of covered health care benefits were assumed to average 11 percent
for 1995 decreasing gradually to 6.3 percent by 2010 and remaining at that level
thereafter. For 1993 measurement purposes, annual rates of increase in the per
capita cost of covered health care benefits were assumed to average 11 percent
for 1994 decreasing gradually to 5.3 percent by 2010 and remaining at that level
thereafter. The health care cost trend rate assumption has a significant effect
on the amounts reported. To illustrate, increasing the assumed health care cost
trend rates by 1 percentage point in each year would increase the accumulated
postretirement benefit obligation as of December 31, 1994, by approximately
$13.0 million and the aggregate of the service and interest cost components of
net periodic postretirement benefit cost for the year then ended by
approximately $1 million.
The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 8.5 percent for 1994, compared with 7.25
percent used for 1993. The expected long-term rate of return on plan assets was
8 percent for both years. Assumptions used to develop net periodic
postretirement benefit cost included a 7.25 percent discount rate in 1994,
compared with a discount rate of 8.5 percent in 1993 and 1992.
18. POSTEMPLOYMENT BENEFITS
As discussed in Note 1 to the Consolidated Financial Statements, the Corporation
elected early adoption of SFAS No. 112, "Employers' Accounting for
Postemployment Benefits," as of January 1, 1992. SFAS No. 112 prescribes
accounting methods for employers who provide certain benefits to former or
inactive employees after employment but before retirement. Adoption of this
standard resulted in a one-time 1992 transition charge of $5.6 million before
taxes ($3.5 million, or 5 cents per common share, after taxes).
19. COMMITMENTS
Rent expense for the years 1994, 1993 and 1992 was (in millions): $23.5, $26.6
and $25.1, respectively. Future minimum lease payments for all noncancelable
operating leases having a remaining term in excess of one year totaled $69.2
million at December 31, 1994. These commitments for future periods are as
follows (in millions): 1995 - $15.0; 1996 - $13.4; 1997 - $10.1; 1998 - $7.9;
1999 - $6.7; 2000 and thereafter - $16.1 million.
The Corporation enters into price protection arrangements from time to
time, depending on market circumstances, to ensure a minimum price for a portion
of its expected future mine production. See Note 21 to the Consolidated
Financial Statements to which reference should be made for a fuller
understanding of these arrangements with respect to expected 1995 production.
20. CONTINGENCIES
The Corporation is from time to time involved in various legal proceedings of a
character normally incident to its past and present businesses. Management does
not believe that the outcome of these proceedings will have a material adverse
effect on the financial condition or results of operations of the Corporation on
a consolidated basis.
The Corporation is subject to federal, state and local environmental
laws, rules and regulations, including the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 (CERCLA or Superfund), as amended by the
Superfund Amendments and Reauthorization Act of 1986. Under Superfund, the
Environmental Protection Agency (EPA) has identified approximately 35,000 sites
throughout the United States for review, ranking and possible inclusion on the
National Priorities List (NPL) for possible response. Among the sites
identified, EPA has included 13 sites owned by the Corporation. The Corporation
believes that most, if not all, of its sites so identified will not qualify for
listing on the NPL.
In addition, the Corporation may be required to remove hazardous waste
or remediate the alleged effects of hazardous substances on the environment
associated with past disposal practices at sites not owned by the Corporation.
The Corporation has received notice that it is a potentially responsible party
from EPA and/or individual states under CERCLA or a state equivalent and is
participating in environmental assessment and remediation activity at 36 sites.
The amounts of the Corporation's liabilities for remedial activities
are very difficult to estimate due to such factors as the unknown extent of the
remedial actions that may be required and, in the case of sites not owned by the
Corporation, the unknown extent of the Corporation's probable liability in
proportion to the probable liability of other parties. The Corporation has
probable environmental liabilities that in its judgment cannot reasonably be
estimated, and losses attributable to remediation costs are reasonably possible
at other sites. The Corporation cannot now estimate the total additional loss it
may incur for such environmental liabilities, but such loss could be substantial
(see Notes 1 and 2 to the Consolidated Financial Statements for further
information concerning the Corporation's environmental obligations).
The possibility of recovery of some of the environmental remediation
costs from insurance companies or other parties exists; however, the Corporation
does not recognize these recoveries in its financial statements until they
become probable.
21. DERIVATIVE FINANCIAL INSTRUMENTS HELD FOR PURPOSES OTHER THAN TRADING AND
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Corporation does not acquire, hold or issue derivative financial instruments
for trading purposes. Derivative financial instruments are used to manage well
defined commodity price, foreign exchange and, to a lesser extent, interest rate
risks, that arise out of the Corporation's core business activities. The fair
values of the Corporation's derivative financial instruments, as summarized in
the table that follows, are based on quoted market prices for similar financial
instruments. A summary of derivative financial instruments held by the
Corporation is as follows:
COPPER PRICE PROTECTION AGREEMENTS - The Corporation may periodically use
various price protection programs to ameliorate the adverse effect of price
fluctuations on its copper production. The Corporation's current strategy
includes a combination of option contracts with several financial institutions
to ensure a minimum price for a portion of its expected copper production.
Approximately 95 percent of the Corporation's anticipated copper production for
1995 has been protected under such arrangements. Certain of these agreements
provide for minimum 1995 quarterly average prices of 80 cents per pound for
approximately 640 million pounds of copper cathode. These contracts are based on
the average London Metal Exchange (LME) price each quarter. Similar contracts
for 1994 covering approximately 244 million pounds of copper cathode expired as
of December 31, 1994, without payment to the Corporation. In addition, other
contracts effectively ensure minimum (approximately 95 cents) and maximum
(approximately $1.33) prices per pound during 1995 for approximately 650 million
pounds of copper cathode. The minimum prices are based on quarterly average LME
prices for approximately 370 million pounds and on the annual average LME price
for the remainder. The maximum prices are based on the annual average LME price
for all 650 million pounds.
FOREIGN EXCHANGE CONTRACTS - The Corporation periodically enters into forward
exchange contracts to hedge certain recorded transactions denominated in foreign
currencies and enters into currency option contracts to hedge certain firm
commitments and other anticipated foreign currency transactions. The objective
of the Corporation's foreign currency hedging activities is to protect the
Corporation from the risk that the eventual dollar cash flows resulting from
transactions denominated in foreign currencies will be adversely affected by
changes in exchange rates. In hedging one transaction, the Corporation's foreign
exchange hedging strategy may, in certain circumstances, require the use of a
number of offsetting currency option contracts to minimize the cost of the
underlying hedge. Thus, the notional principal amount, which represents the
arithmetic sum of all outstanding foreign currency hedging instruments, is not a
measurement of risk to the Corporation from the use of derivative financial
instruments. At December 31, 1994, the Corporation had protection in place for
approximately $95 million of recorded and anticipated foreign currency
transactions through the use of forward exchange contracts and currency option
contracts with an aggregate notional principal amount of approximately $306
million. The forward exchange contracts and currency option contracts acquired
by the Corporation have maturities of less than one year. Deferred unrealized
losses were approximately $0.9 million at December 31, 1994.
INTEREST RATE PROTECTION AGREEMENT - The Corporation has caused its Candelaria
copper project in Chile to enter into an interest rate protection agreement with
certain financial institutions to limit the effect of increases in the interest
rate on its $200 million floating rate dollar denominated debt. Under the terms
of the agreement, the project will receive payments from these institutions if
the six-month London Interbank Offered Rate (LIBOR) exceeds 9 percent prior to
December 31, 2001, and 11 percent during the two subsequent years ending
December 31, 2003.
CREDIT RISK - The Corporation is exposed to credit loss in the event of
nonperformance by counterparties to its price protection, forward foreign
exchange and interest rate protection agreements. To minimize the risk of credit
loss, the Corporation deals only with highly rated financial institutions and
monitors the credit worthiness of these institutions on a continuing basis. The
Corporation does not anticipate nonperformance by any of these counterparties.
The methods and assumptions used to estimate the fair value of each
class of financial instrument for which it is practicable to estimate a value
are as follows:
Cash and short-term investments -- the carrying amount is a reasonable
estimate of the fair value because of the short maturity of those
instruments.
Investments and long-term receivables -- the fair values of some
investments are estimated based on quoted market prices for those or
similar investments. The fair values of other types of loans are
estimated by discounting the future cash flows using the current rates
at which similar loans would be made with similar credit ratings and
for the same remaining maturities.
Long-term debt -- the fair value of the Corporation's long-term debt is
estimated based on the quoted market prices for the same or similar
issues or on the current notes offered to the Corporation for debt of
the same remaining maturities.
Standby letters of credit and financial guarantees -- the fair values
of guarantees and letters of credit are based on fees currently charged
for similar agreements or on the estimated cost to terminate them or
otherwise settle the obligations with the counterparties at the
reporting date. The Corporation has guaranteed the borrowings of
certain subsidiaries totaling $292.3 million. These guarantees include
project financings for the Candelaria copper project in Chile and the
Hungarian carbon black project; upon the satisfaction of completion
requirements, those borrowings become non-recourse to the Corporation.
There is no market for these guarantees and they were issued without
explicit cost. Therefore, it is not practicable to establish their fair
value.
The estimated fair values of the Corporation's financial instruments as
of December 31, 1994, are as follows (in millions):
- -------------------------------------------------------------------------------
Carrying Fair
Amount Value
-------- -----
Cash and short-term investments .......................... $286.9 286.9
Price protection arrangements
(copper price guarantees) ............................... 8.1 (16.4)
Investments and long-term receivables (including
amounts due within one year) for which it is practicable
to estimate fair value *................................. 28.4 29.0
Long-term debt (including amounts due
within one year) ........................................ 647.6 622.6
Interest rate protection agreements ...................... 2.5 4.0
Foreign currency exchange contracts ...................... 0.5 (0.6)
- -----
* It is not practicable to estimate the fair value of investments in
certain untraded foreign companies carried at historic cost. The
Corporation's largest cost basis investment is its 16.25 percent
interest in Southern Peru Copper Corporation (SPCC), which is carried
at a book value of $13.2 million. For the year ended December 31, 1994,
SPCC reported total assets of $968.5 million, common stockholders' equity
of $634.8 million, revenues of $701.7 million and net income of $91.2
million. In November 1994, SPCC filed a rgistration statement with the
U. S. Securities and Exchange Commission for the offering of 16 million
common shares of its stock to be listed on the New York Stock Exchange;
however, in February 1995, the offering was withdrawn.
- ----------------------------------------------------------------------------
22. BUSINESS SEGMENT DATA
The Corporation's business consists of two segments, Phelps Dodge Mining Company
and Phelps Dodge Industries. The principal activities of each segment are
described below, and the accompanying tables present results of operations and
other financial information by segment and by significant geographic area.
Phelps Dodge Mining Company is an international business comprising a
group of companies involved in vertically integrated copper operations including
mining, concentrating, electrowinning, smelting and refining, rod production,
marketing and sales, and related activities. Copper is sold primarily to others
as rod, cathode or concentrates, and to the Phelps Dodge Industries segment. In
addition, Phelps Dodge Mining Company at times smelts and refines copper and
produces copper rod for others on a toll basis, and produces gold, silver,
molybdenum and copper chemicals, principally as by-products, and sulfuric acid
from its air quality control facilities. This segment also includes the
Corporation's other mining operations and investments (including fluorspar,
silver, lead and zinc operations) and its worldwide mineral exploration and
development programs.
Phelps Dodge Industries is a business segment comprising a group of
international companies that manufacture engineered products principally for the
transportation and electrical sectors. Its operations are characterized by
products with significant market share, internationally competitive cost and
quality, and specialized engineering capabilities. This business segment
includes the Corporation's carbon black and synthetic iron oxide operations
through Columbian Chemicals Company and its subsidiaries; its wheel and rim
operations through Accuride Corporation and its subsidiaries; its magnet wire
operations through Phelps Dodge Magnet Wire Company and its subsidiaries; its
international wire and cable manufacturing operations through Phelps Dodge
International Corporation and its U.S. specialty conductor operations through
Hudson International Conductors. The major portion of the sales of this segment
is to customers primarily involved in the transportation industry ($642.0
million or 44 percent in 1994, compared with $602.3 million or 47 percent in
1993 and $528.0 million or 45 percent in 1992) and the electrical industry
($714.7 million or 49 percent in 1994, compared with $566.2 million or 44
percent in 1993 and $544.3 million or 46 percent in 1992).
The Corporation's total 1994 sales include exports of $76.2 million
from U.S. operations to unaffiliated foreign customers, including products sold
through U.S. brokers, compared with $60.3 million in 1993 and $86.5 million in
1992. Intersegment sales reflect the transfer of copper from Phelps Dodge Mining
Company to Phelps Dodge Industries at the same prices charged to outside
customers.
A summary of segment data by business segment for the years 1994, 1993
and 1992 is as follows (see Note 2 to the Consolidated Financial Statements for
the effect of 1994 provisions for environmental costs and asset dispositions on
operating income).
<TABLE>
- ----------------------------------------------------------------------------
<CAPTION>
Phelps Phelps
Dodge Dodge Corporate
Mining Industries and Other Total
------ ---------- --------- -----
<S> <C> <C> <C> <C>
1994
Sales and other operating revenues:
Unaffiliated customers ............................ $ 1,820,700 1,468,500 -- 3,289,200
Intersegment ...................................... 218,500 1,700 -- 220,200
Operating income (loss) ............................. 326,400 106,100 (32,100) 400,400
Identifiable assets at
December 31 ........................................ 2,450,200 1,423,200 260,400 4,133,800
Depreciation, depletion and
amortization ....................................... 105,100 89,100 1,100 195,300
Capital outlays ..................................... 299,200 55,100 700 355,000
Equity earnings ..................................... 5,600 3,000 -- 8,600
- ------------------------------------------------------------------------------------------------------------------------------------
1993
Sales and other operating revenues:
Unaffiliated customers ............................ $ 1,320,300 1,275,600 -- 2,595,900
Intersegment ...................................... 171,000 2,700 -- 173,700
Operating income (loss) ............................. 227,200 129,100 (29,800) 326,500
Identifiable assets at
December 31 ........................................ 2,105,500 1,335,700 279,700 3,720,900
Depreciation, depletion and
amortization ....................................... 104,900 81,100 1,100 187,100
Capital outlays ..................................... 285,400 101,200 600 387,200
Equity earnings (losses) ............................ (3,500) 3,500 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
1992
Sales and other operating revenues:
Unaffiliated customers ............................ $ 1,397,700 1,181,600 -- 2,579,300
Intersegment ...................................... 148,400 900 -- 149,300
Operating income (loss) ............................. 366,000 85,200 (30,600) 420,600
Identifiable assets at
December 31 ........................................ 1,910,100 1,282,100 249,000 3,441,200
Depreciation, depletion and
amortization ....................................... 91,600 69,500 1,200 162,300
Capital outlays ..................................... 200,500 69,700 600 270,800
Equity earnings (losses) ............................ (2,200) 2,800 -- 600
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
A summary of segment data by significant geographic area for the years
1994, 1993 and 1992 is as follows:
- -------------------------------------------------------------------------------
1994 1993 1992
---- ---- ----
SALES AND OTHER OPERATING REVENUES:
Unaffiliated customers
United States and Canada ........... $ 2,659,600 2,069,300 2,095,500
Latin America ...................... 346,700 274,000 222,900
Other .............................. 282,900 252,600 260,900
----------- ----------- -----------
$ 3,289,200 2,595,900 2,579,300
=========== =========== ===========
Intergeographic areas
United States and Canada ........... $ 8,000 8,000 6,200
Latin America ...................... -- -- --
Other .............................. -- -- --
----------- ----------- -----------
$ 8,000 8,000 6,200
=========== =========== ===========
OPERATING INCOME:
United States and Canada ............ $ 359,800 282,000 347,100
Latin America ....................... 30,000 17,700 38,600
Other ............................... 10,600 26,800 34,900
----------- ----------- -----------
$ 400,400 326,500 420,600
=========== =========== ===========
IDENTIFIABLE ASSETS AT DECEMBER 31:
United States and Canada ............ $ 2,973,800 2,751,600 2,771,000
Latin America ....................... 798,200 653,300 402,400
Other ............................... 361,800 316,000 267,800
----------- ----------- -----------
$ 4,133,800 3,720,900 3,441,200
=========== =========== ===========
- --------------------------------------------------------------------------------
Item 9. Disagreements on Accounting and Financial Disclosure
- -------------------------------------------------------------
Not applicable.
Part III
Items 10, 11, 12 and 13.
- -----------------------
The information called for by Part III (Items 10, 11, 12 and 13) is
incorporated herein by reference from the material included under the captions
"Election of Directors," "Beneficial Ownership of Securities," "Executive
Compensation" and "Other Matters" in Phelps Dodge Corporation's definitive proxy
statement (to be filed pursuant to Regulation 14A) for its Annual Meeting of
Shareholders to be held May 3, 1995 (the 1995 Proxy Statement), except that the
information regarding executive officers called for by Item 401 of Regulation
S-K is included in Part I of this report. The 1995 Proxy Statement is being
prepared and will be filed with the Securities and Exchange Commission and
furnished to shareholders on or about April 1, 1995.
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
- --------------------------------------------------------------------------
(a) 1. Financial Statements.
2. Financial Statement Schedules.
3. Exhibits:
3.1 Restated Certificate of Incorporation of the Corporation,
effective June 16, 1987 (incorporated by reference to Exhibit 3.1
to the Corporation's Form 10-Q for the quarter ended June 30,
1987 (SEC File No. 1-82)). Certificate of Amendment of such
Restated Certificate of Incorporation, effective August 4, 1988,
and Certificate of Amendment of such Restated Certificate of
Incorporation, effective August 9, 1988 (incorporated by
reference to Exhibits 3.1 and 3.2 to the Corporation's Form 10-Q
for the quarter ended September 30, 1988 (SEC File No. 1-82)).
Complete composite copy of the Certificate of Incorporation of
the Corporation as amended to date (incorporated by reference to
Exhibit 3.1 to the Corporation's 1992 Form 10-K (SEC File No.
1-82)).
3.2 By-Laws of the Corporation, as amended effective September 1,
1994 (incorporated by reference to Exhibit 3.2 to the
Corporation's Form 10-Q for the quarter ended September 30, 1994
(SEC File No. 1-82)).
4.1 Reference is made to Exhibits 3.1 and 3.2 above.
4.3 Rights Agreement, dated as of July 29, 1988 and Amended and
Restated as of December 6, 1989, between the Corporation and
Chemical Bank (formerly Manufacturers Hanover Trust Company),
which includes the form of Certificate of Amendment setting forth
the terms of the Junior Participating Cumulative Preferred
Shares, par value $1.00 per share, as Exhibit A, the form of
Right Certificate as Exhibit B and the Summary of Rights to
Purchase Preferred Shares as Exhibit C (incorporated by reference
to Exhibit 1 to the Corporation's Current Report on Form 8-K
filed on December 7, 1989 (SEC File No. 1-82)).
Note: Certain instruments with respect to long-term debt of the
Corporation 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
Corporation and its subsidiaries on a consolidated basis. The
Corporation agrees to furnish a copy of each such instrument upon
request of the Securities and Exchange Commission.
10. Management contracts and compensatory plans and agreements.
10.1 The Corporation's 1987 Stock Option and Restricted Stock Plan
(the 1987 Plan), as amended to and including June 3, 1992, and
form of Stock Option Agreement and form of Reload Option
Agreement, both as modified through June 3, 1992 (incorporated by
reference to Exhibit 10.2 of the Corporation's Form 10-Q for the
quarter ended June 30, 1992 (SEC File No. 1-82)). Form of
Restricted Stock letter under the 1987 Plan (incorporated by
reference to Exhibit 10.1 to the Corporation's 1990 10-K (SEC
File No. 1-82)) and the amendment thereto dated June 25, 1992
(incorporated by reference to Exhibit 10.2 to the Corporation's
1992 Form 10-K (SEC File No. 1-82)).
10.2 The Corporation's 1989 Directors Stock Option Plan (the 1989
Directors Plan), as amended to and including June 3, 1992
(incorporated by reference to Exhibit 10.3 to the Corporation's
Form 10-Q for the quarter ended June 30, 1992 (SEC File No.
1-82)). Form of Stock Option Agreement under the 1989 Directors
Plan (incorporated by reference to the Corporation's Registration
Statement on Form S-8 (Reg. No. 33-34363)).
10.3 The Corporation's 1993 Stock Option and Restricted Stock Plan
(the 1993 Plan), as amended through December 1, 1993, and form of
Restricted Stock letter under the 1993 Plan (incorporated by
reference to Exhibit 10.4 to the Corporation's 1993 Form 10-K
(SEC File No. 1-82)). Form of Stock Option Agreement and form of
Reload Option Agreement, both as amended through November 2,
1994, under the 1993 Plan.
Note: Omitted from filing pursuant to the Instruction to Item
601(b) (10) are actual Stock Option Agreements between the
Corporation and certain officers, under the 1987 Plan and the
1993 Plan, and certain Directors, under the 1989 Directors Plan,
which contain substantially similar provisions to Exhibits 10.1,
10.2 and 10.3 above.
10.4 Description of the Corporation's Incentive Compensation Plan
(incorporated by reference to Exhibit 10.5 to the Corporation's
1993 Form 10-K (SEC File No. 1-82)).
10.5 Deferred Compensation Agreement dated January 27, 1988 between
Dr. Patrick J. Ryan and the Corporation (incorporated by
reference to Exhibit 10.6 to the Corporation's 1987 Form 10-K
(SEC File No. 1-82)) and amendment to such agreement dated March
17, 1989 (incorporated by reference to Exhibit 10.7 to the
Corporation's 1988 Form 10-K (SEC File No. 1-82)).
10.6 Deferred Compensation Plan for the Directors of the Corporation,
amended and restated as of July 31, 1992 (incorporated by
reference to Exhibit 10 to the Corporation's Form 10-Q for the
quarter ended September 30, 1992 (SEC File No. 1-82)).
10.7 Form of Change-of-Control Agreement between the Corporation and
certain executives, including all of the current executive
officers to be listed in the summary compensation table to the
1995 Proxy Statement (incorporated by reference to Exhibit 10.7
to the Corporation's 1992 Form 10-K (SEC File No. 1-82)).
10.8 Form of Severance Agreement between the Corporation and certain
executives, including all of the current executive officers to be
listed in the summary compensation table to the 1995 Proxy
Statement (incorporated by reference to Exhibit 10.11 to the
Corporation's 1988 Form 10-K (SEC File No. 1-82)).
10.9 The Corporation's 1992 - 1994 Long-Term Performance Plan
(incorporated by reference to Exhibit 10.14 to the Corporation's
1991 Form 10-K (SEC File No. 1-82)).
10.10 The Corporation's Retirement Plan for Directors, effective
January 1, 1988 (incorporated by reference to Exhibit 10.13 to
the Corporation's 1987 Form 10-K (SEC File No. 1-82)).
10.11 The Corporation's Comprehensive Executive Nonqualified Retirement
and Savings Plan (the Nonqualified Plan), as amended November 7,
1990 (incorporated by reference to Exhibit 10.14 to the
Corporation's 1990 Form 10-K (SEC File No. 1-82)). Amendment,
effective January 1, 1991, to the Nonqualified Plan (incorporated
by reference to Exhibit 10.2 to the Corporation's Form 10-Q for
the quarter ended June 30, 1991 (SEC File No. 1-82)). Three
amendments, one effective as of January 1, 1991, one effective as
of November 15, 1993 (both incorporated by reference to Exhibit
10.13 of the Corporation's 1993 Form 10-K (SEC File No. 1-82)),
and one effective as of September 7, 1994, to the Nonqualified
Plan.
11 Statement re computation of per share earnings.
12 Statement re computation of ratios of total debt to total
capitalization.
21 List of Subsidiaries and Investments.
23 Consent of Price Waterhouse LLP.
24 Powers of Attorney executed by certain officers and directors
who signed this Annual Report on Form 10-K.
Note: Shareholders may obtain copies of Exhibits by making
written request to the Secretary of the Corporation and paying
copying costs of 10 cents per page, plus postage.
(b) Reports on Form 8-K:
No current Reports on Form 8-K were filed by the Corporation during the
quarter ended December 31, 1994.
<TABLE>
Schedule VIII
PHELPS DODGE CORPORATION AND CONSOLIDATED SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
- ----------------------------------------------------------------------------
(In thousands)
<CAPTION>
Additions
-----------------
Balance at Charged to Balance
beginning costs and Deduc- at end
of period expenses Other tions of period
--------- -------- ----- ----- ---------
<S> <C> <C> <C> <C> <C>
Reserve deducted in balance sheet from the asset to which applicable:
Accounts Receivable:
December 31, 1994 ...................... $12,200 1,900 -- 2,300 11,800
December 31, 1993 ...................... 10,700 1,800 600 900 12,200
December 31, 1992 ...................... 11,900 1,400 (600) 2,000 10,700
Supplies:
December 31, 1994 ...................... $12,700 700 3,100 2,500 14,000
December 31, 1993 ...................... 16,700 3,600 200 7,800 12,700
December 31, 1992 ...................... 10,400 10,400 -- 4,100 16,700
</TABLE>
<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.
PHELPS DODGE CORPORATION
---------------------------
(Registrant)
March 23, 1995 By: Thomas M. St. Clair
--------------------
Thomas M. St. Clair
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 and on the dates indicated.
Chairman of the Board, President,
Chief Executive Officer
and Director
Douglas C. Yearley (Principal Executive Officer) March 23, 1995
- -------------------
Douglas C. Yearley
Senior Vice President
and Chief Financial Officer
Thomas M. St. Clair (Principal Financial Officer) March 23, 1995
- -------------------
Thomas M. St. Clair
Vice President and Controller
Thomas M. Foster (Principal Accounting Officer) March 23, 1995
- -------------------
Thomas M. Foster
Edward L. Addison, Robert N. Burt, George C. Dillon, )
Paul W. Douglas, William A. Franke, Paul Hazen, )
Marie L. Knowles, Robert D. Krebs, Southwood J. Morcott, ) March 23, 1995
Gordon R. Parker, George L. Shinn, Directors )
By: Thomas M. St. Clair
-------------------
Thomas M. St. Clair
Attorney-in-fact
Exhibit 10.3
STOCK OPTION AGREEMENT
(1993 Stock Option Plan)
(as amended through November 2, 1994)
STOCK OPTION AGREEMENT, dated __________________, between PHELPS DODGE
CORPORATION, a New York corporation (the "Corporation"), and __________________
(the "Employee").
The Compensation and Management Development Committee of the Board of
Directors of the Corporation (such Committee, and any successor committee
appointed by the Board of Directors of the Corporation to administer the
Corporation's 1993 Stock Option and Restricted Stock Plan (the "Plan"), is
hereinafter referred to as the "Committee") has granted to the Employee (a) an
option under the Plan to purchase Common Shares of the Corporation and (b)
limited stock appreciation rights on the terms set forth below.
To evidence the option and limited stock appreciation rights so
granted, and to set forth their terms and conditions as provided in the Plan,
the Corporation and the Employee hereby agree as follows:
1. Confirmation of Grant of Option and Rights; Option Price.
The Corporation hereby evidences and confirms its grant to the Employee
of (i) an option (the "Option") to purchase _____ of the Corporation's Common
Shares at an option price of $_____ per share and (ii) limited stock
appreciation rights (the "Rights") appertaining to the Option which, if
exercisable pursuant to Section 2, shall enable the Employee to elect, in the
manner described in Section 6 hereof, to relinquish the Option with respect to
any or all of the Common Shares as to which the Option is exercisable at such
time for a cash payment from the Corporation. The amount of cash payable upon
the exercise of any Rights shall be equal to the excess of (x) the product of
(A) the price paid or payable for a Common Share of the Corporation in the
transaction described in Section 2(b) below (a "Transaction") which causes the
Rights to become exercisable multiplied by (B) the number of Common Shares with
respect to which the Employee shall have made such election, over (y) the
purchase price for that number of Common Shares. (In the event that the price
paid or payable with respect to such a Transaction is in a consideration other
than cash or in an amount not readily determinable at such time, such price
shall be determined by the Committee). The Option and the Rights granted hereby
shall be subject to the provisions of the Plan.
2. Term for Exercise.
(a) The Option shall become exercisable, subject to the provisions of
this Section 2 and Sections 3 and 4 hereof, in installments of __________ Common
Shares on the first anniversary of the date of grant of the Option, _________
Common Shares on the second anniversary and ____________ Common Shares on the
third anniversary. Unless an earlier expiration date is specified by this
Agreement (or, if applicable, in Supplement A), the Option and the Rights shall
expire at 5:00 P.M., Arizona Mountain time (such time shall hereinafter be
referred to as the "End of Business"), on the day after the tenth anniversary of
the date on which the Option was granted (the "Termination Date").
(b) Without limiting the generality of the foregoing, in the event:
(i) the Corporation's stockholders holding at least 50% (or such
greater percentage as may be required by the Certificate of Incorporation or
By-Laws of the Corporation or by law) of the voting stock of the Corporation
approve any merger, consolidation, sale of assets, liquidation or reorganization
in which the Corporation will not survive as a publicly owned corporation (such
approval hereinafter referred to as a "Merger Approval"); or
(ii) any of the Corporation's Common Shares are purchased pursuant to a
tender or exchange offer other than an offer by the Corporation, any Subsidiary
of the Corporation (as defined in the Plan and hereinafter referred to as a
"Subsidiary"), or any employee benefit plan maintained by the Corporation or a
Subsidiary (such purchase hereinafter referred to as a "Tender Purchase");
then the Option and the Rights shall become exercisable during the
period beginning on the date of the Merger Approval or Tender Purchase, as the
case may be, and ending on the thirtieth day following such date (but in no
event shall the Option or the Rights become exercisable under this paragraph
earlier than six months from the date on which the Option was granted (the
"Grant Date")). If any Rights or any portion of the Option shall be exercised,
the Rights or the Option shall thereafter remain exercisable, according to their
terms, only with respect to the number of Common Shares as to which the Rights
or the Option, as the case may be, would otherwise be exercisable less the
number of Common Shares with respect to which the Rights and the Option have
previously been exercised.
3. Who May Exercise.
During the Employee's lifetime the Option and the Rights may be
exercised only by him. If the Employee dies while in the employ of the
Corporation or one of its Subsidiaries, the Option and, if exercisable under
Section 2, the Rights may be exercised for the full number of Common Shares
specified in Section 1 hereof less the number of Common Shares for or respect to
which the Option and the Rights have previously been exercised, by the
Employee's estate, personal representative or beneficiary who acquired the right
to exercise the Option and the Rights by will or by the laws of descent and
distribution, at any time prior to the End of Business on the earlier of the
Termination Date or the fifth anniversary of the Employee's death. If the
Employee dies while he is no longer employed by the Corporation or a Subsidiary,
his Options and, if exercisable under Section 2, the Rights may be exercised for
the full number of Common Shares as to which he could have exercised them on the
date of his death, by his estate, personal representative or beneficiary who
acquired the right to exercise the Option and the Rights by will or by the laws
of descent and distribution, at any time prior to the termination date provided
by Section 4 thereof. Following the End of Business on the earlier of such
Termination Date, the fifth anniversary of the Employee's death or the
termination date provided by Section 4, as the case may be, the Option and
Rights shall expire.
4. Exercise after Termination of Employment.
If the Employee shall cease to be employed by the Corporation or a
Subsidiary other than by reason of death, Disability (as defined below),
retirement at or after the Employee's normal retirement date under any pension
or retirement plan of the Corporation or a Subsidiary (such termination being
hereafter referred to as "Normal Retirement") or the Employee's termination for
Cause (as defined in the Plan), the Option shall remain exercisable, to the
extent exercisable on the date of such termination, until the End of Business on
the earlier of the Termination Date or the date which is one month after the day
his employment ends. If the Employee's employment shall terminate due to
Disability or if the Employee shall retire at Normal Retirement, the Option
shall remain exercisable, to the extent exercisable on the date of such
termination or retirement, until the End of Business on the earlier of the
Termination Date or the fifth anniversary of the date of his termination of
employment or retirement; provided, however, that, in the event the Employee's
employment with the Corporation terminates not earlier than six months from the
Grant Date as a result of the Employee's retirement at or after the Employee's
Normal Retirement date, immediately prior to the End of Business on the date of
such retirement the Option shall become exercisable for the purchase of the full
number of Common Shares specified in Section 1 of the Agreement less the number
of Common Shares with respect to which the Option and the Rights have previously
been exercised. Disability means the inability of a Participant to perform his
duties for a period of at least 180 days due to mental or physical infirmity, as
determined pursuant to the Corporation's policies. If the Employee's employment
is terminated for Cause, all Options granted to the Employee which are then
outstanding shall be forfeited as of the effective time of such termination but
in no event later than the End of Business on such termination date. Any portion
of the Option or the Rights which is not exercisable on the date the Employee's
employment terminates for any reason other than death or Normal Retirement shall
expire at the End of Business on such termination date. Any portion of the
Option which did not expire on the date the Employee's employment terminates and
which is not exercised within the period established under this Section 4 shall
expire following the End of Business on the last day on which the Option could
have been exercised. Following termination of the Employee's employment for any
reason (including death), the Rights (i) shall remain outstanding with respect
to that number of Common Shares as to which the Option is exercisable, (ii) will
become exercisable pursuant to Section 2 as to that number of Common Shares as
to which the Option is then exercisable if a Transaction occurs while the Option
remains exercisable and (iii) shall expire at the same time as the Option
expires.
5. Restrictions on Exercise.
The Option and Rights may be exercised only with respect to full Common
Shares. No fractional shares shall be issued. The Option (and, if applicable,
the Rights) may not be exercised in whole or part:
(a) if any requisite approval or consent of any governmental authority
of any kind having jurisdiction over the exercise of options shall not have been
secured; or
(b) unless the Common Shares subject to the Option shall be effectively
listed on the New York Stock Exchange and registered under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), which listing and
registration may be upon official notice of issuance of such Common Shares.
The Corporation may require that, as a condition to any exercise of the
Option, the Employee represent to the Corporation in writing that he is
acquiring the Common Shares subject to such exercise for his own account for
investment only and not with a view to the distribution thereof.
6. Manner of Exercise.
To the extent the Option and the Rights shall be exercisable in
accordance with the terms hereof, and subject to such administrative regulations
as the Committee may have adopted:
(a) The Option may be exercised in whole or from time to time in part
by written notice to the Committee, (i) identifying the Option by Grant Date,
the option price and whether or not the Agreement includes Supplement A, (ii)
specifying the number of Common Shares with respect to which the Option is being
exercised, and (iii) accompanied by full payment of the option price for such
Common Shares (1) in United States dollars by personal check or cash, including
an assignment of the right to receive cash proceeds of the sale of Common Shares
subject to the Option, (2) in Common Shares of the Corporation owned by the
Employee for at least three months prior to the day of exercise, represented by
certificates duly endorsed to the Corporation or its nominee with any requisite
transfer tax stamps attached, the market value of which shall be equal to the
option price for the Common Shares with respect to which the Option is being
exercised, or (3) in a combination of (1) and (2) above. The market value of any
Common Shares delivered pursuant to the immediately preceding sentence shall be
the mean of the high and low prices of such Common Shares on the Consolidated
Trading Tape on the day of exercise or, if there was no such sale on such day,
on the day next preceding the day of exercise on which there was a sale.
(b) Rights may be exercised when exercisable under Section 2 in whole
or in part by written notice to the Committee, (i) identifying the Rights by
Grant Date and option price, and (ii) specifying the number of Common Shares
with respect to which such Rights are being exercised.
For valuation purposes, the day of exercise of the Option or the Rights
shall be deemed to be the day on which notice, addressed to the Committee,
either to exercise the Option in whole or in part by the payment of Common
Shares (together with duly endorsed certificates as provided above and any other
required payment) or to exercise the Rights is received at the Corporation's
principal office, except that if such notice (together with certificates and
other payment if required) is received on a Saturday or Sunday or on a holiday
observed by the Corporation's principal office, or after the End of Business on
any other day, the day of exercise shall be deemed to be the next business day.
"Written notice" shall include, without limitation, notice by telegram, telex,
cable or telecopy facsimile.
In the event that the Option or the Rights shall be exercised by a
person other than the Employee in accordance with the provisions of Section 3
hereof, such person shall furnish the Corporation with evidence satisfactory to
it of his right to exercise the same and of payment or provision for payment of
any estate, transfer, inheritance or death taxes payable with respect to the
Option or the Rights or with respect to any related Common Shares or payment.
The Corporation may require the Employee or other person exercising the Option
or the Rights to furnish or execute such documents as the Corporation shall deem
necessary to evidence such exercise, to determine whether registration is then
required under the Securities Act of 1933, as amended, or to comply with or
satisfy the requirements of the Exchange Act, or any other law.
7. Nonassignability.
Neither the Option nor the Rights are assignable or transferable except
by will or by the laws of descent and distribution to the extent contemplated by
Section 3 hereof. At the request of the Employee, Common Shares purchased on
exercise of the Option may be issued or transferred in the name of the Employee
and another person jointly with the right of survivorship.
8. Rights as Stockholder.
The Employee shall have no rights as a stockholder with respect to any
Common Shares covered by the Option until the issuance of a certificate or
certificates to him for such Common Shares. No adjustment shall be made for
dividends or other rights for which the record date is prior to the issuance of
such certificate or certificates.
9. Capital Adjustments.
The number and price of the Common Shares covered by the Option shall
be proportionately adjusted to reflect, as deemed equitable and appropriate by
the Committee, any stock dividend, stock split or share combination of, or
extraordinary cash dividend on, the Corporation's Common Shares or any
recapitalization of the Corporation. To the extent deemed equitable and
appropriate by the Committee, subject to any required action by the stockholders
of the Corporation, in any merger, consolidation, reorganization, liquidation,
dissolution, or other similar transaction, the Option shall pertain to the
securities and other property, if any, which a holder of the number of Common
Shares covered by the Option would have been entitled to receive in connection
with such event.
10. Withholding.
(a) The Corporation's obligation to deliver Common Shares upon the
exercise of the Option shall be subject to payment by the Employee of any amount
required to be withheld with respect to such exercise pursuant to any applicable
federal, state or local tax withholding requirements. The Corporation shall
withhold from any cash payable in connection with the exercise of any Rights any
amount required to be withheld pursuant to any applicable federal, state or
local tax withholding requirement (including, without limitation, FICA).
(b) Unless this Agreement includes Supplement A (making it an incentive
stock option), the Employee may elect to satisfy all or any part of his federal,
state and local tax obligations (including, without limitation, FICA) with
respect to such exercise by having the Corporation withhold from any Common
Shares otherwise deliverable to him in connection with the exercise of the
Option a number of Common Shares, or by delivering Common Shares already owned
by the Employee, having a market value equal in amount to the obligations to be
so satisfied, in accordance with procedures adopted by the Committee from time
to time. The market value of Common Shares withheld or delivered shall be the
mean of the high and low prices of such Common Shares on the Consolidated
Trading Tape on the day of exercise or, if there was no such sale on such day,
on the next preceding day on which there was a sale.
11. Governing Law.
This Agreement shall be construed and enforced in accordance with,
and governed by, the laws of the State of New York.
12. Supplements.
Attached hereto are the following supplements:
Supplement A -- Incentive Stock Option
Supplement B -- Change of Control
Supplement C -- Early Retirement
Supplement D -- Reload Option
Any such supplements so attached are incorporated herein and constitute
a part of this Agreement as though set forth in full herein. Any such supplement
may be added to this Agreement at a later date by the Committee if such
supplement does not adversely affect the rights of the Employee under this
Agreement. All capitalized terms used in such supplements without definition are
used as defined in this Agreement.
IN WITNESS WHEREOF, the Corporation and the Employee have duly executed
this Agreement as of the date set forth above.
PHELPS DODGE CORPORATION
By
__________________________
Vice President
____________________________
Employee
Supplement A
[Incentive Stock Option --
1993 Stock Option Plan]
Supplement A to the Stock Option Agreement (the "Agreement") dated
_______________ between Phelps Dodge Corporation (the "Corporation") and
_______________________ (the "Employee").
1. Term of the Option. Each incentive stock option shall expire on the
tenth anniversary of the date of its grant.
2. Disposition of Shares. If the Employee disposes of any Common Shares
received upon exercise of the Option within two years after the Option was
granted to him or within one year after the Common Shares were transferred to
him upon exercise of the Option, whether by sale, gift, or otherwise, the
Employee shall notify the Secretary of the Corporation of the number of such
Common Shares disposed of, the date on which disposed of, the manner of
disposition and the amount, if any, realized upon such disposition, and shall
promptly pay to the Corporation the amount, if any, that the Corporation
specifies in a written notice to the Employee as required to be withheld with
respect to such exercise and disposition pursuant to any applicable federal,
state or local tax withholding requirements.
3. Interpretation of Agreement. The Option is intended to be an incentive
stock option within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended.
Supplement B
[Change of Control --
1993 Stock Option Plan]
Supplement B to the Stock Option Agreement (the "Agreement") dated
____________ , between Phelps Dodge Corporation (the "Corporation") and
____________________ (the "Employee").
1. Additional Trigger Event For Exercisability. In addition to the
provisions of Section 2 of the Agreement, in the event the Employee's employment
with the Corporation or any Subsidiary terminates by reason of a Qualifying
Termination (as defined below) not earlier than six months from the date on
which the Option was granted and within two years after a Change of Control (as
defined below) of the Corporation, the Option shall become exercisable, no later
than the date of such termination, for the purchase of the full number of Common
Shares specified in Section 1 of the Agreement (or such lesser number of Shares
for which the Option would have become exercisable on or prior to the Employee's
normal retirement date under the Phelps Dodge Retirement Plan for Salaried
Employees were the Employee to retire on such date).
For the purpose of this Supplement:
(a) A "Change of Control" shall be deemed to have taken place at the time
(i) when any "person" or "group" of persons (as such terms are used in
Section 13 and 14 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")), other than the Corporation or any employee benefit plan
sponsored by the Corporation, becomes the "beneficial owner" (as such term is
used in Section 13 of the Exchange Act) of 25% or more of the total number of
the Corporation's Common Shares at the time outstanding;
(ii) of any Merger Approval (as defined in the Agreement); or
(iii) when, as the result of a tender offer, exchange offer, merger,
consolidation, sale of assets or contested election or any combination of the
foregoing transactions, the persons who were directors of the Corporation
immediately before such transaction shall cease to constitute a majority of the
Board of Directors of the Corporation or of any successor to the Corporation.
(b) A "Qualifying Termination" means a termination of the Employee's
employment with the Corporation or any Subsidiary (under circumstances where the
Employee is no longer employed by the Corporation or any Subsidiary) for any
reason other than
(i) death;
(ii) disability;
(iii) willful misconduct in the performance of the Employee's duties as an
employee which results in a material adverse effect on the Corporation's
business or reputation;
(iv) retirement under the Phelps Dodge Retirement Plan for Salaried
Employees; or
(v) a termination by the Employee unless
(1) such termination occurs more than 180 days following the time when a
Change of Control takes place and such Change of Control has not been approved
by a resolution adopted by the Board of Directors of the Corporation as
constituted immediately prior to such Change of Control or
(2) the Employee terminates his employment for one or more of the following
reasons (and the Employee has not agreed thereto in writing):
(x) the assignment to the Employee of any duties inconsistent, in a way
significantly adverse to the Employee, with his positions, duties,
responsibilities and status with the Corporation and its Subsidiaries
immediately prior to such Change of Control, or a significant reduction in the
duties and responsibilities held by the Employee immediately prior to such
Change of Control; a change in the Employee's reporting responsibilities, titles
or offices as in effect immediately prior to such Change of Control; or any
removal of the Employee from or any failure to re-elect the Employee to any
position with the Corporation or any Subsidiary that the Employee held
immediately prior to such Change of Control except in connection with the
Employee's promotion or the termination of his employment for any of the reasons
specified in paragraphs (i) through (iv) above; or
(y) a reduction by the Corporation in the Employee's base salary as in
effect immediately prior to such Change of Control; the failure by the
Corporation to continue in effect any employee benefit plan or compensation plan
in which the Employee is participating immediately prior to such Change of
Control unless the Employee is permitted to participate in other plans providing
him with substantially comparable benefits; or the taking of any action by the
Corporation which would adversely affect the Employee's participation in or
materially reduce his benefits under such plan; or
(z) the Corporation's requiring the Employee to be based anywhere other
than his location immediately prior to such Change of Control; or the
Corporation's requiring the Employee to travel on the Corporation's business to
an extent substantially more burdensome than his travel obligations immediately
prior to such Change of Control.
Supplement C
[Early Retirement --
1993 Stock Option Plan]
Supplement C to the Stock Option Agreement (the "Agreement") dated
_________________ between Phelps Dodge Corporation (the "Corporation") and
______________________ (the "Employee").
If the Employee shall cease to be employed by the Corporation or a
Subsidiary by reason of early retirement under any pension or retirement plan of
the Corporation or a subsidiary, the Option shall remain exercisable, to the
extent exercisable on the date of such termination, until the End of Business on
the earlier of the Termination Date or the fifth anniversary of the date of his
retirement.
Supplement D
[Reload Option -- 1993 Plan]
Supplement D to the Stock Option Agreement (the "Agreement") dated
________________ between Phelps Dodge Corporation (the "Corporation") and
_____________________ (the "Employee").
1. Issuance of Reload Option. In the event that the Employee exercises
this Option (a) at least six months prior to the expiration date of this Option,
(b) while still employed by the Corporation or a Subsidiary and (c) prior to the
expiration date of the Plan using, in whole or in part, Common Shares owned by
the Employee for at least three months prior to the day of exercise (the
"Exercise Date"), the Employee shall be granted a new option (the "Reload
Option") under the Plan on the Exercise Date for the number of Common Shares of
the Corporation equal to the number of Common Shares exchanged by the Employee
to exercise this Option. No Reload Option shall be granted if the Exercise Date
is (a) within six months of the expiration date of the Option, (b) a date when
the Employee is not employed by the Corporation or a Subsidiary or (c) after the
expiration date of the Plan.
2. Terms of Reload Option. The Reload Option shall be exercisable on
the same terms and conditions as apply to the Option as set forth in this
Agreement, except that (a) the Reload Option shall become exercisable in full on
the day six months after the Exercise Date, (b) the option price per share shall
be the fair market value of a Common Share on the Exercise Date, which shall be
the mean of the high and low prices of a Common Share on the Consolidated
Trading Tape on that day, or, if no sale of Common Shares is recorded on such
tape on that day, then on the next preceding day on which there was such a sale
and (c) the expiration date of the Reload Option shall be the date of expiration
of the Option under this Agreement. The Corporation may issue a new agreement to
evidence the Reload Option and, if it does, that agreement shall supersede this
Agreement in all respects insofar as the Reload Option is concerned.
3. Right of Committee to Disapprove Reload Option. Notwithstanding the
foregoing, the continuance of a Reload Option granted pursuant to this
Supplement shall be subject to the disapproval of the Committee in its sole
discretion exercised at the meeting of the Committee next following the date
such Reload Option is granted. Any Reload Options so disapproved by the
Committee shall terminate upon such disapproval.
RELOAD OPTION AGREEMENT
(1993 Stock Option Plan)
(as amended through November 2, 1994)
RELOAD OPTION AGREEMENT, dated _____________, between PHELPS DODGE
CORPORATION, a New York corporation (the "Corporation"), and _______________
(the "Employee").
The Compensation and Management Development Committee of the Board of
Directors of the Corporation (such Committee, and any successor committee
appointed by the Board of Directors of the Corporation to administer the
Corporation's 1993 Stock Option and Restricted Stock Plan (the "Plan"), is
hereinafter referred to as the "Committee") has granted to the Employee (a) an
option under the Plan to purchase Common Shares of the Corporation and (b)
limited stock appreciation rights on the terms set forth below. Such grant was
made on __________ in connection with the exercise on that date by the Employee
of an option (the "Original Option") issued under the Plan, the Phelps Dodge
1987 Stock Option and Restricted Stock Plan or the Phelps Dodge 1979 Stock
Option Plan evidenced by a Stock Option Agreement dated ____________. In
connection with such exercise, the Employee delivered to the Corporation in
payment of part or all of the exercise price of the Original Option ___________
Common Shares that he owned for at least three months prior to the date of
exercise.
To evidence the option and limited stock appreciation rights so
granted, and to set forth their terms and conditions as provided in the Plan,
the Corporation and the Employee hereby agree as follows:
1. Confirmation of Grant of Reload Option and Rights; Reload
Option Price.
The Corporation hereby evidences and confirms its grant to the Employee
of (i) an option (the "Reload Option") to purchase _________ of the
Corporation's Common Shares at an option price of $_____________ per share and
(ii) limited stock appreciation rights (the "Rights") appertaining to the Reload
Option which, if exercisable pursuant to Section 2, shall enable the Employee to
elect, in the manner described in Section 6 hereof, to relinquish the Reload
Option with respect to any or all of the Common Shares as to which the Reload
Option is exercisable at such time for a cash payment from the Corporation. The
amount of cash payable upon the exercise of any Rights shall be equal to the
excess of (x) the product of (A) the price paid or payable for a Common Share of
the Corporation in the transaction described in Section 2(b) below (a
"Transaction") which causes the Rights to become exercisable multiplied by (B)
the number of Common Shares with respect to which the Employee shall have made
such election, over (y) the purchase price for that number of Common Shares. (In
the event that the price paid or payable with respect to such a Transaction is
in a consideration other than cash or in an amount not readily determinable at
such time, such price shall be determined by the Committee). The Reload Option
and the Rights granted hereby shall be subject to the provisions of the Plan.
2. Term for Exercise.
(a) The Reload Option shall become exercisable, subject to the
provisions hereof, on _________, which is the date six months after the grant
date specified in Section 1. Unless an earlier expiration date is specified by
this Agreement, the Reload Option and the Rights shall expire at 5:00 P.M.,
Arizona Mountain time (such time shall hereinafter be referred to as the "End of
Business"), on___ _________, which is the expiration date of the Original Option
(the "Termination Date").
(b) In the event:
(i) the Corporation's stockholders holding at least 50% (or such
greater percentage as may be required by the Certificate of Incorporation or
By-Laws of the Corporation or by law) of the voting stock of the Corporation
approve any merger, consolidation, sale of assets, liquidation or reorganization
in which the Corporation will not survive as a publicly owned corporation (such
approval hereinafter referred to as a "Merger Approval"); or
(ii) any of the Corporation's Common Shares are purchased pursuant to a
tender or exchange offer other than an offer by the Corporation, any Subsidiary
of the Corporation (as defined in the Plan and hereinafter referred to as a
"Subsidiary"), or any employee benefit plan maintained by the Corporation or a
Subsidiary (such purchase hereinafter referred to as a "Tender Purchase");
then the Rights shall become exercisable during the period beginning on
the date of the Merger Approval or Tender Purchase, as the case may be, and
ending on the thirtieth day following such date (but in no event shall the
Rights become exercisable under this paragraph earlier than six months from the
date on which the Reload Option was granted (the "Grant Date"). If any Rights or
any portion of the Reload Option shall be exercised, the Rights or the Reload
Option shall thereafter remain exercisable, according to their terms, only with
respect to the number of Common Shares as to which the Rights or the Reload
Option, as the case may be, would otherwise be exercisable less the number of
Common Shares with respect to which the Rights and the Reload Option have
previously been exercised.
3. Who May Exercise.
During the Employee's lifetime the Reload Option and the Rights may be
exercised only by him. If the Employee dies while in the employ of the
Corporation or one of its Subsidiaries, the Reload Option and, if exercisable
under Section 2, the Rights may be exercised for the full number of Common
Shares specified in Section 1 hereof less the number of Common Shares for or
respect to which the Reload Option and the Rights have previously been
exercised, by the Employee's estate, personal representative or beneficiary who
acquired the right to exercise the Reload Option and the Rights by will or by
the laws of descent and distribution, at any time prior to the End of Business
on the earlier of the Termination Date or the fifth anniversary of the
Employee's death. If the Employee dies while he is no longer employed by the
Corporation or a Subsidiary, the Reload Option and, if exercisable under Section
2, the Rights may be exercised for the full number of Common Shares as to which
he could have exercised them on the date of his death, by his estate, personal
representative or beneficiary who acquired the right to exercise the Reload
Option and the Rights by will or by the laws of descent and distribution, at any
time prior to the termination date provided by Section 4 thereof. Following the
End of Business on the earlier of such Termination Date, fifth anniversary of
the Employee's death or the termination date provided by Section 4, as the case
may be, the Reload Option and Rights shall expire.
4. Exercise after Termination of Employment.
If the Employee shall cease to be employed by the Corporation or a
Subsidiary other than by reason of death, Disability (as defined below),
retirement at or after the Employee's normal retirement date under any pension
or retirement plan of the Corporation or a Subsidiary (such termination being
hereafter referred to as "Normal Retirement") or the Employee's termination for
Cause (as defined in the Plan), the Reload Option shall remain exercisable, to
the extent exercisable on the date of such termination, until the End of
Business on the earlier of the Termination Date or the date which is one month
after the day his employment ends. If the Employee's employment shall terminate
due to Disability or if the Employee shall retire at Normal Retirement, the
Reload Option shall remain exercisable, to the extent exercisable on the date of
such termination or retirement, until the End of Business on the earlier of the
Termination Date or the fifth anniversary of the date of his termination of
employment or retirement. Disability means the inability of a Participant to
perform his duties for a period of at least 180 days due to mental or physical
infirmity, as determined pursuant to the Corporation's policies. If the
Employee's employment is terminated for Cause, all Reload Options granted to the
Employee which are then outstanding shall be forfeited as of the effective time
of such termination but in no event later than the End of Business on such
termination date. Any portion of the Reload Option or the Rights which is not
exercisable on the date the Employee's employment terminates for any reason
other than death or Normal Retirement shall expire at the End of Business on
such termination date. Any portion of the Reload Option which did not expire on
the date the Employee's employment terminates and which is not exercised within
the period established under this Section 4 shall expire following the End of
Business on the last day on which the Reload Option could have been exercised.
Following termination of the Employee's employment for any reason (including
death), the Rights (i) shall remain outstanding with respect to that number of
Common Shares as to which the Reload Option is exercisable, (ii) will become
exercisable pursuant to Section 2 as to that number of Common Shares as to which
the Reload Option is then exercisable if a Transaction occurs while the Reload
Option remains exercisable and (iii) shall expire at the same time as the Reload
Option expires.
5. Restrictions on Exercise.
The Reload Option and Rights may be exercised only with respect to full
Common Shares. No fractional shares shall be issued. The Reload Option (and, if
applicable, the Rights) may not be exercised in whole or part:
(a) if any requisite approval or consent of any governmental authority
of any kind having jurisdiction over the exercise of options shall not have been
secured; or
(b) unless the Common Shares subject to the Reload Option shall be
effectively listed on the New York Stock Exchange and registered under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), which listing
and registration may be upon official notice of issuance of such Common Shares.
The Corporation may require that, as a condition to any exercise of the
Reload Option, the Employee represent to the Corporation in writing that he is
acquiring the Common Shares subject to such exercise for his own account for
investment only and not with a view to the distribution thereof.
6. Manner of Exercise.
To the extent the Reload Option and the Rights shall be exercisable in
accordance with the terms hereof, and subject to such administrative regulations
as the Committee may have adopted:
(a) The Reload Option may be exercised in whole or from time to time in
part by written notice to the Committee, (i) identifying the Reload Option by
Grant Date, the option price [and whether or not the Agreement includes
Supplement A], (ii) specifying the number of Common Shares with respect to which
the Reload Option is being exercised, and (iii) accompanied by full payment of
the option price for such Common Shares (1) in United States dollars by personal
check or cash, including an assignment of the right to receive cash proceeds of
the sale of Common Shares subject to the Reload Option, (2) in Common Shares of
the Corporation owned by the Employee for at least three months prior to the day
of exercise, represented by certificates duly endorsed to the Corporation or its
nominee with any requisite transfer tax stamps attached, the market value of
which shall be equal to the option price for the Common Shares with respect to
which the Reload Option is being exercised, or (3) in a combination of (1) and
(2) above. The market value of any Common Shares delivered pursuant to the
immediately preceding sentence shall be the mean of the high and low prices of
such Common Shares on the Consolidated Trading Tape on the day of exercise or,
if there was no such sale on such day, on the day next preceding the day of
exercise on which there was a sale.
(b) Rights may be exercised when exercisable under Section 2 in whole
or in part by written notice to the Committee, (i) identifying the Rights by
Grant Date and option price, and (ii) specifying the number of Common Shares
with respect to which such Rights are being exercised.
For valuation purposes, the day of exercise of the Reload Option or the
Rights shall be deemed to be the day on which notice, addressed to the
Committee, either to exercise the Reload Option in whole or in part by the
payment of Common Shares (together with duly endorsed certificates as provided
above and any other required payment) or to exercise the Rights is received at
the Corporation's principal office, except that if such notice (together with
certificates and other payment if required) is received on a Saturday or Sunday
or on a holiday observed by the Corporation's principal office, or after the End
of Business on any other day, the day of exercise shall be deemed to be the next
business day. "Written notice" shall include, without limitation, notice by
telegram, telex, cable or telecopy facsimile.
In the event that the Reload Option or the Rights shall be exercised by
a person other than the Employee in accordance with the provisions of Section 3
hereof, such person shall furnish the Corporation with evidence satisfactory to
it of his right to exercise the same and of payment or provision for payment of
any estate, transfer, inheritance or death taxes payable with respect to the
Reload Option or the Rights or with respect to any related Common Shares or
payment. The Corporation may require the Employee or other person exercising the
Reload Option or the Rights to furnish or execute such documents as the
Corporation shall deem necessary to evidence such exercise, to determine whether
registration is then required under the Securities Act of 1933, as amended, or
to comply with or satisfy the requirements of the Exchange Act, or any other
law.
7. Nonassignability.
Neither the Reload Option nor the Rights are assignable or transferable
except by will or by the laws of descent and distribution to the extent
contemplated by Section 3 hereof. At the request of the Employee, Common Shares
purchased on exercise of the Reload Option may be issued or transferred in the
name of the Employee and another person jointly with the right of survivorship.
8. Rights as Stockholder.
The Employee shall have no rights as a stockholder with respect to any
Common Shares covered by the Reload Option until the issuance of a certificate
or certificates to him for such Common Shares. No adjustment shall be made for
dividends or other rights for which the record date is prior to the issuance of
such certificate or certificates.
9. Capital Adjustments.
The number and price of the Common Shares covered by the Reload Option
shall be proportionately adjusted to reflect, as deemed equitable and
appropriate by the Committee, any stock dividend, stock split or share
combination of, or extraordinary cash dividend on, the Corporation's Common
Shares or any recapitalization of the Corporation. To the extent deemed
equitable and appropriate by the Committee, subject to any required action by
the stockholders of the Corporation, in any merger, consolidation,
reorganization, liquidation, dissolution, or other similar transaction, the
Reload Option shall pertain to the securities and other property, if any, which
a holder of the number of Common Shares covered by the Reload Option would have
been entitled to receive in connection with such event.
10. Withholding.
(a) The Corporation's obligation to deliver Common Shares upon the
exercise of the Reload Option shall be subject to payment by the Employee of any
amount required to be withheld with respect to such exercise pursuant to any
applicable federal, state or local tax withholding requirements. The Corporation
shall withhold from any cash payable in connection with the exercise of any
Rights any amount required to be withheld pursuant to any applicable federal,
state or local tax withholding requirement (including, without limitation,
FICA).
(b) [Unless this Agreement includes Supplement A (making it an
incentive stock option),] the Employee may elect to satisfy all or any part of
his federal, state and local tax obligations (including, without limitation,
FICA) with respect to such exercise by having the Corporation withhold from any
Common Shares otherwise deliverable to him in connection with the exercise of
the Reload Option a number of Common Shares, or by delivering Common Shares
already owned by the Employee, having a market value equal in amount to the
obligations to be so satisfied, in accordance with procedures adopted by the
Committee from time to time. The market value of Common Shares withheld or
delivered shall be the mean of the high and low prices of such Common Shares on
the Consolidated Trading Tape on the day of exercise or, if there was no such
sale on such day, on the next preceding day on which there was a sale.
11. Governing Law.
This Agreement shall be construed and enforced in accordance with,
and governed by, the laws of the State of New York.
12. Supplements.
Attached hereto are the following supplements:
Supplement C -- Early Retirement
Supplement D -- Reload Option
Any such supplement so attached is incorporated herein and constitutes
a part of this Agreement as though set forth in full herein. Any such supplement
may be added to this Agreement at a later date by the Committee if such
supplement does not adversely affect the rights of the Employee under this
Agreement. All capitalized terms used in such supplements without definition are
used as defined in this Agreement.
IN WITNESS WHEREOF, the Corporation and the Employee have duly executed
this Agreement as of the date set forth above.
PHELPS DODGE CORPORATION
By__________________________
Vice President
____________________________
Employee
Supplement C
[Early Retirement -- 1993 Plan]
Supplement C to the Stock Option Agreement (the "Agreement") dated
____________ between Phelps Dodge Corporation (the "Corporation") and
_______________________ (the "Employee").
If the Employee shall cease to be employed by the Corporation or a
Subsidiary by reason of early retirement under any pension or retirement plan of
the Corporation or a subsidiary, the Option shall remain exercisable, to the
extent exercisable on the date of such termination, until the End of Business on
the earlier of the Termination Date or the fifth anniversary of the date of his
retirement.
Supplement D
[Reload Option -- 1993 Plan]
Supplement D to the Stock Option Agreement (the "Agreement") dated
_________ between Phelps Dodge Corporation (the "Corporation") and
_____________________ (the "Employee").
1. Issuance of Reload Option. In the event that the Employee exercises
this Option (a) at least six months prior to the expiration date of this Option,
(b) while still employed by the Corporation or a Subsidiary and (c) prior to the
expiration date of the Plan using, in whole or in part, Common Shares owned by
the Employee for at least three months prior to the day of exercise (the
"Exercise Date"), the Employee shall be granted a new option (the "Reload
Option") under the Plan on the Exercise Date for the number of Common Shares of
the Corporation equal to the number of Common Shares exchanged by the Employee
to exercise this Option. No Reload Option shall be granted if the Exercise Date
is (a) within six months of the expiration date of the Option, (b) a date when
the Employee is not employed by the Corporation or a Subsidiary or (c) after the
expiration date of the Plan.
2. Terms of Reload Option. The Reload Option shall be exercisable on
the same terms and conditions as apply to the Option as set forth in this
Agreement, except that (a) the Reload Option shall become exercisable in full on
the day six months after the Exercise Date, (b) the option price per share shall
be the fair market value of a common share on the Exercise Date, which shall be
the mean of the high and low prices of a common share on the Consolidated
Trading Tape on that day, or, if no sale of Common Shares is recorded on such
tape on that day, then on the next preceding day on which there was such a sale
and (c) the expiration date of the Reload Option shall be the date of expiration
of the Option under this Agreement. The Corporation may issue a new agreement to
evidence the Reload Option and, if it does, that agreement shall supersede this
Agreement in all respects insofar as the Reload Option is concerned.
3. Right of Committee to Disapprove Reload Option. Notwithstanding the
foregoing, the continuance of a Reload Option granted pursuant to this
Supplement shall be subject to the disapproval of the Committee in its sole
discretion exercised at the meeting of the Committee next following the date
such Reload Option is granted. Any Reload Options so disapproved by the
Committee shall terminate upon such disapproval.
Exhibit 10.11
Approved by Board of Directors-September 7, 1994
Instrument of Amendment
Except as specifically provided otherwise herein the Comprehensive
Executive Nonqualified Retirement and Savings Plan of Phelps Dodge Corporation
(the "Nonqualified Plan") is hereby amended as set forth below, with such
amendments to be in the form and effective as of a date approved by Mr. John C.
Replogle, Vice President, Human Resources of the Corporation, as evidenced by
his written execution thereof.
1. Article II. A., Section 4.5.1 is hereby amended to provide vested
benefits after five (5) years of service.
2. Article II. A., Section 4.5.2 is hereby amended to provide that a
deferred vested benefit can begin when a participant entitled thereto has
achieved ten (10) years of service and has reached age 55.
3. The definition of "Final Average Incentive Compensation" in Article
II. A.(i) is hereby amended to exclude all incentive compensation used in
calculating a benefit under the Phelps Dodge Retirement Plan for Salaried
Employees.
4. Article II. B., Section 1.2(a) is hereby amended, effective January
1, 1994, to allow deferral elections in whole dollars as well as whole
percentages.
5. Article II. B., Section 1.2(b) is hereby amended to clarify that the
suspension period described therein is for the plan year following the plan year
for which a deferral was suspended, regardless of the date the participant
suspended such deferral.
6. Article II. B., Section 1.2 is hereby amended to clarify (1) that
deferrals may only be made out of cash portions of salary or bonus, and (2) any
deferral election with respect to bonuses shall apply to bonuses when earned,
regardless of when such bonuses are paid.
7. Article II. B., Section 1.3 is hereby amended to provide that the
maximum deferral must allow for the withholding of applicable taxes.
8. Article VI, Section 1.1 is hereby amended to provide for mandatory
funding of all salary and bonus deferrals.
9. The Nonqualified Plan is hereby amended to provide that the Benefits
Administration Committee may, under uniform and nondiscriminatory rules,
designate investment funds under Article IV.(ii).
10. The Nonqualified Plan is hereby amended to add beneficiary
designation provisions under Article II. B. comparable to those under the
Phelps Dodge Employee Savings Plan.
11. The Nonqualified Plan is hereby amended to clarify various
definitions regarding participation and eligibility under certain plan
provisions, such amendments being necessary to more clearly state the current
intent of such provisions under the plan.
12. Article II. B. (iii), Section 1.2 is hereby amended to reflect the
1992 split of the Corporation's common stock.
13. Article III. (i), Section 1.1 is hereby amended to allow
distributions in the form of a ten (10) year certain annuity.
14. Article III. (i), Section 1.2 is hereby amended to allow, under
uniform and nondiscriminatory rules established by the Benefits Administration
Committee, distributions in the form of installments.
PHELPS DODGE CORPORATION AND SUBSIDIARIES
Exhibit 11
COMPUTATION OF EARNINGS PER SHARE
(In thousands except per share amounts)
1994 1993 1992
---- ---- ----
* AVERAGE COMMON SHARES OUTSTANDING .......... 71,100 70,600 70,400
======== ======== ========
INCOME BEFORE CUMULATIVE EFFECT OF
ACCOUNTING CHANGES .......................... $271,000 187,900 301,600
Per common share ........................... $ 3.81 2.66 4.28
CUMULATIVE EFFECT OF ACCOUNTING CHANGES ...... $ -- -- (79,900)
Per common share ........................... $ -- -- (1.13)
NET INCOME ................................... $271,000 187,900 221,700
Per common share ........................... $ 3.81 2.66 3.15
- ------------------
* Average common shares outstanding have been revised for all periods
presented to give effect to the May 1992 two-for-one stock split.
PHELPS DODGE CORPORATION AND SUBSIDIARIES
Exhibit 12
COMPUTATION OF TOTAL DEBT TO TOTAL CAPITALIZATION
(Dollars in thousands)
1994 1993 1992
---- ---- ----
Short-term debt $ 49,300 82,700 72,500
Current portion of long-term debt 25,300 17,200 42,200
Long-term debt 622,300 547,300 373,800
--------- --------- ---------
Total debt 696,900 647,200 488,500
Minority interest in subsidiaries 65,300 62,200 50,800
Common shareholders' equity 2,187,600 2,022,100 1,972,400
--------- --------- ---------
Total capitalization $2,949,800 2,731,500 2,511,700
========= ========= =========
Ratio of total debt to total
capitalization 23.6% 23.7% 19.4%
========= ========= =========
PHELPS DODGE CORPORATION AND CONSOLIDATED SUBSIDIARIES
Exhibit 21
LIST OF SUBSIDIARIES AND INVESTMENTS
- ----------------------------------------------------------------------------
Registrant:
Phelps Dodge Corporation (New York). The Registrant has no parent.
Registrant's
percent of
voting power
------------
CONSOLIDATED SUBSIDIARIES:
Accuride Canada Inc. (Ontario) 100.0
Accuride Corporation (Delaware) 100.0
Aislamientos Plasticos, C.A. (Venezuela) 80.1
Alambres y Cables de Panama, S.A. (Panama) 78.1
Alambres y Cables Venezolanos, C.A. (Venezuela) 80.1
Burro Chief Copper Company (Delaware) 100.0
Cables Electricos Ecuatorianos, C.A. (Ecuador) 67.1
Cahosa, S.A. (Panama) 78.1
Cobre Cerrillos Sociedad Anonima (Chile) 90.0
Cocesa Ingenieria y Construccion, S.A. (Chile) 63.0
Columbian Carbon Deutschland GmbH (Germany) 100.0
Columbian Carbon Europa S.r.l. (Italy) 100.0
Columbian Carbon Philippines, Inc. (Philippines) 88.2
Columbian Chemicals Canada Ltd. (Ontario) 100.0
Columbian Chemicals Company (Delaware) 100.0
Columbian Chemicals Europa GmbH (Germany) 100.0
Columbian International Chemicals Corporation (Delaware) 100.0
Columbian International Trading Company (Delaware) 100.0
Columbian Technology Company (Delaware) 100.0
Columbian Tiszai Carbon Ltd. (Hungary) 60.0
Columbian (U.K.) Limited (United Kingdom) 100.0
Compania Contractual Minera Candelaria (Chile) 80.0
Compania Contractual Minera Ojos del Salado (Chile) 100.0
"CONAL" Conductores y Aluminio C.A. (Venezuela) 80.1
CONDUCEN, S.A. (Costa Rica) 75.4
Conductores Electricos de Centro America, Sociedad Anonima
(El Salvador) 57.6
Dodge & James Insurance Company, Ltd. (Bermuda) 100.0
Electroconductores de Honduras, S.A. de C.V. (Honduras) 60.5
Elektrodraht Mureck, Phelps Dodge Eldra GmbH (Austria) 51.0
Hudson Wire Company dba Hudson International Conductors
(New York) 100.0
Industria de Conductores Electricos, C.A. (Venezuela) 80.1
PD Candelaria, Inc. (Delaware) 100.0
PD Ojos del Salado, Inc. (Delaware) 100.0
Phelps Dodge Chino, Inc. (Delaware) 100.0
Phelps Dodge Industries GmbH (Austria) 100.0
Phelps Dodge Industries, Inc. (Delaware) 100.0
Phelps Dodge International Corporation (Delaware) 100.0
Phelps Dodge Mining (Pty) Limited (South Africa) 100.0
Phelps Dodge Mining Services, Inc. (Delaware) 100.0
Phelps Dodge Morenci, Inc. (Delaware) 100.0
Phelps Dodge Overseas Capital Corporation (Delaware) 100.0
Phelps Dodge Refining Corporation (New York) 100.0
Phelps Dodge Thailand Limited (Thailand) 50.2
Sevalco Limited (United Kingdom) 100.0
Seven-Up Pete Joint Venture (an Arizona partnership) 72.3
INVESTMENTS CARRIED ON AN EQUITY BASIS:
AOT Inc. (Delaware) 50.0
Black Mountain Mineral Development Company (Proprietary)
Limited (South Africa) (Parent - the Gold Fields of South
Africa group controls 55.4% of the voting stock) 44.6
Columbian Carbon Japan Ltd. (Japan) 50.0
Keystone Electric Wire and Cable Company Limited (Hong Kong) 20.0
PDTL Trading Company Limited (Thailand) 40.0
Phelps Dodge Philippines, Inc. (Philippines) 40.0
SPD Magnet Wire Company (Delaware) 50.0
Summarized financial information is provided for these and other companies (see
Note 3 to the Consolidated Financial Statements of the Corporation contained in
this Form 10-K) pursuant to Article 3 - General Instructions as to Financial
Statements.
Omitted from this listing are subsidiaries which, considered in the aggregate as
a single subsidiary, would not constitute a significant subsidiary.
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registration Statement on Form S-3 (No. 33-44380) and
in the Registration Statements on Form S-8 (Nos. 33-26442, 33-6141, 33-26443,
33-29144, 33-19012, 2-67317, 33-34363, 33-34362 and 33-62486) of Phelps Dodge
Corporation of our report dated January 23, 1995 appearing on page 58 of this
Form 10-K. We also consent to the incorporation by reference of our report on
the Financial Statement Schedule, which appears on page 56 of this Form 10-K.
PRICE WATERHOUSE LLP
Phoenix, Arizona
March 22, 1995
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints Douglas C. Yearley, Thomas M. St. Clair and William C. Tubman and each
of them his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities:
Annual Report For the Year Ended December 31, 1994 of Phelps Dodge
Corporation on Form 10-K
(1) to sign the Annual Report for the fiscal year ended
December 31, 1994 of Phelps Dodge Corporation on Form 10-K ("1994 Form
10-K") to be filed under the Securities Exchange Act of 1934, as
amended, and any and all amendments to such 1994 Form 10-K;
(2) to file such 1994 Form 10-K (and any and all such
amendments) with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission; and
(3) to take such other action as may be deemed
necessary or appropriate in connection with such 1994 Form 10-K;
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents of any of
them, or their or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 1st day of February, 1995.
Edward L. Addison
------------------------------
Edward L. Addison
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints Douglas C. Yearley, Thomas M. St. Clair and William C. Tubman and each
of them his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities:
Annual Report For the Year Ended December 31, 1994 of Phelps Dodge
Corporation on Form 10-K
(1) to sign the Annual Report for the fiscal year ended
December 31, 1994 of Phelps Dodge Corporation on Form 10-K ("1994 Form
10-K") to be filed under the Securities Exchange Act of 1934, as
amended, and any and all amendments to such 1994 Form 10-K;
(2) to file such 1994 Form 10-K (and any and all such
amendments) with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission; and
(3) to take such other action as may be deemed necessary or
appropriate in connection with such 1994 Form 10-K;
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents of any of
them, or their or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 1st day of February, 1995.
Robert N. Burt
-----------------------------
Robert N. Burt
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints Douglas C. Yearley, Thomas M. St. Clair and William C. Tubman and each
of them his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities:
Annual Report For the Year Ended December 31, 1994 of Phelps Dodge
Corporation on Form 10-K
(1) to sign the Annual Report for the fiscal year ended
December 31, 1994 of Phelps Dodge Corporation on Form 10-K ("1994 Form
10-K") to be filed under the Securities Exchange Act of 1934, as
amended, and any and all amendments to such 1994 Form 10-K;
(2) to file such 1994 Form 10-K (and any and all such
amendments) with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission; and
(3) to take such other action as may be deemed necessary or
appropriate in connection with such 1994 Form 10-K;
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents of any of
them, or their or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 1st day of February, 1995.
George C. Dillon
------------------------------
George C. Dillon
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints Douglas C. Yearley, Thomas M. St. Clair and William C. Tubman and each
of them his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities:
Annual Report For the Year Ended December 31, 1994 of Phelps Dodge
Corporation on Form 10-K
(1) to sign the Annual Report for the fiscal year ended
December 31, 1994 of Phelps Dodge Corporation on Form 10-K ("1994 Form
10-K") to be filed under the Securities Exchange Act of 1934, as
amended, and any and all amendments to such 1994 Form 10-K;
(2) to file such 1994 Form 10-K (and any and all such
amendments) with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission; and
(3) to take such other action as may be deemed necessary or
appropriate in connection with such 1994 Form 10-K;
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents of any of
them, or their or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 1st day of February, 1995.
Paul W. Douglas
------------------------------
Paul W. Douglas
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints Douglas C. Yearley, Thomas M. St. Clair and William C. Tubman and each
of them his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities:
Annual Report For the Year Ended December 31, 1994 of Phelps Dodge
Corporation on Form 10-K
(1) to sign the Annual Report for the fiscal year ended
December 31, 1994 of Phelps Dodge Corporation on Form 10-K ("1994 Form
10-K") to be filed under the Securities Exchange Act of 1934, as
amended, and any and all amendments to such 1994 Form 10-K;
(2) to file such 1994 Form 10-K (and any and all such
amendments) with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission; and
(3) to take such other action as may be deemed necessary or
appropriate in connection with such 1994 Form 10-K;
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents of any of
them, or their or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 1st day of February, 1995.
William A. Franke
------------------------------
William A. Franke
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints Douglas C. Yearley, Thomas M. St. Clair and William C. Tubman and each
of them his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities:
Annual Report For the Year Ended December 31, 1994 of Phelps Dodge
Corporation on Form 10-K
(1) to sign the Annual Report for the fiscal year ended
December 31, 1994 of Phelps Dodge Corporation on Form 10-K ("1994 Form
10-K") to be filed under the Securities Exchange Act of 1934, as
amended, and any and all amendments to such 1994 Form 10-K;
(2) to file such 1994 Form 10-K (and any and all such
amendments) with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission; and
(3) to take such other action as may be deemed necessary or
appropriate in connection with such 1994 Form 10-K;
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents of any of
them, or their or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 1st day of February, 1995.
Paul Hazen
----------------------------
Paul Hazen
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints Douglas C. Yearley, Thomas M. St. Clair and William C. Tubman and each
of them his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities:
Annual Report For the Year Ended December 31, 1994 of Phelps Dodge
Corporation on Form 10-K
(1) to sign the Annual Report for the fiscal year ended
December 31, 1994 of Phelps Dodge Corporation on Form 10-K ("1994 Form
10-K") to be filed under the Securities Exchange Act of 1934, as
amended, and any and all amendments to such 1994 Form 10-K;
(2) to file such 1994 Form 10-K (and any and all such
amendments) with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission; and
(3) to take such other action as may be deemed necessary or
appropriate in connection with such 1994 Form 10-K;
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents of any of
them, or their or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 1st day of February, 1995.
Marie L. Knowles
----------------------------
Marie L. Knowles
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints Douglas C. Yearley, Thomas M. St. Clair and William C. Tubman and each
of them his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities:
Annual Report For the Year Ended December 31, 1994 of Phelps Dodge
Corporation on Form 10-K
(1) to sign the Annual Report for the fiscal year ended
December 31, 1994 of Phelps Dodge Corporation on Form 10-K ("1994 Form
10-K") to be filed under the Securities Exchange Act of 1934, as
amended, and any and all amendments to such 1994 Form 10-K;
(2) to file such 1994 Form 10-K (and any and all such
amendments) with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission; and
(3) to take such other action as may be deemed necessary or
appropriate in connection with such 1994 Form 10-K;
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents of any of
them, or their or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 1st day of February, 1995.
Robert D. Krebs
------------------------------
Robert D. Krebs
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints Douglas C. Yearley, Thomas M. St. Clair and William C. Tubman and each
of them his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities:
Annual Report For the Year Ended December 31, 1994 of Phelps Dodge
Corporation on Form 10-K
(1) to sign the Annual Report for the fiscal year ended
December 31, 1994 of Phelps Dodge Corporation on Form 10-K ("1994 Form
10-K") to be filed under the Securities Exchange Act of 1934, as
amended, and any and all amendments to such 1994 Form 10-K;
(2) to file such 1994 Form 10-K (and any and all such
amendments) with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission; and
(3) to take such other action as may be deemed necessary or
appropriate in connection with such 1994 Form 10-K;
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents of any of
them, or their or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 1st day of February, 1995.
Southwood J. Morcott
------------------------------
Southwood J. Morcott
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints Douglas C. Yearley, Thomas M. St. Clair and William C. Tubman and each
of them his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities:
Annual Report For the Year Ended December 31, 1994 of Phelps Dodge
Corporation on Form 10-K
(1) to sign the Annual Report for the fiscal year ended
December 31, 1994 of Phelps Dodge Corporation on Form 10-K ("1994 Form
10-K") to be filed under the Securities Exchange Act of 1934, as
amended, and any and all amendments to such 1994 Form 10-K;
(2) to file such 1994 Form 10-K (and any and all such
amendments) with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission; and
(3) to take such other action as may be deemed necessary or
appropriate in connection with such 1994 Form 10-K;
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents of any of
them, or their or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 1st day of February, 1995.
Gordon R. Parker
------------------------------
Gordon R. Parker
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints Douglas C. Yearley, Thomas M. St. Clair and William C. Tubman and each
of them his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities:
Annual Report For the Year Ended December 31, 1994 of Phelps Dodge
Corporation on Form 10-K
(1) to sign the Annual Report for the fiscal year ended
December 31, 1994 of Phelps Dodge Corporation on Form 10-K ("1994 Form
10-K") to be filed under the Securities Exchange Act of 1934, as
amended, and any and all amendments to such 1994 Form 10-K;
(2) to file such 1994 Form 10-K (and any and all such
amendments) with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission; and
(3) to take such other action as may be deemed necessary or
appropriate in connection with such 1994 Form 10-K;
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents of any of
them, or their or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 1st day of February, 1995.
George L. Shinn
------------------------------
George L. Shinn
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints Thomas M. St. Clair and William C. Tubman and each of them his true and
lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities:
Annual Report For the Year Ended December 31, 1994 of Phelps Dodge
Corporation on Form 10-K
(1) to sign the Annual Report for the fiscal year ended
December 31, 1994 of Phelps Dodge Corporation on Form 10-K ("1994 Form
10-K") to be filed under the Securities Exchange Act of 1934, as
amended, and any and all amendments to such 1994 Form 10-K;
(2) to file such 1994 Form 10-K (and any and all such
amendments) with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission; and
(3) to take such other action as may be deemed necessary or
appropriate in connection with such 1994 Form 10-K;
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents of any of
them, or their or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney
this 1st day of February, 1995.
Douglas C. Yearley
------------------------------
Douglas C. Yearley
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE CONSOLIDATED BALANCE SHEET AT DECEMBER 31, 1994 AND THE
RELATED CONSOLIDATED STATEMENTS OF OPERATIONS AND OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1994 OF PHELPS DODGE CORPORATION
AND ITS SUBSIDIARIES AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<EXCHANGE-RATE> 1
<CASH> 286,900
<SECURITIES> 0
<RECEIVABLES> 501,300
<ALLOWANCES> 11,800
<INVENTORY> 266,300
<CURRENT-ASSETS> 1,207,900
<PP&E> 4,546,400
<DEPRECIATION> 1,980,000
<TOTAL-ASSETS> 4,133,800
<CURRENT-LIABILITIES> 649,700
<BONDS> 622,300
<COMMON> 441,700
0
0
<OTHER-SE> 1,745,900
<TOTAL-LIABILITY-AND-EQUITY> 4,133,800
<SALES> 3,289,200
<TOTAL-REVENUES> 3,289,200
<CGS> 2,375,700
<TOTAL-COSTS> 2,375,700
<OTHER-EXPENSES> 406,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 36,600
<INCOME-PRETAX> 375,100
<INCOME-TAX> 104,700
<INCOME-CONTINUING> 271,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 271,000
<EPS-PRIMARY> 3.81
<EPS-DILUTED> 3.81
</TABLE>
