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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, 1995
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, 1996, was approximately $4,238,753,100.
Number of Common Shares outstanding at March 7, 1996: 66,883,678 shares.
Documents Incorporated by Reference:
Document Location in 10-K
-------- ----------------
Proxy Statement for 1996 Annual Meeting Part III
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<PAGE>
PHELPS DODGE CORPORATION
1995 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 1995, the Corporation
produced 712,700 tons of copper for its own account from its worldwide mining
operations and an additional 154,900 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 of copper for the Corporation's own account from its U.S.
operations constituted over 25 percent of the copper mined in the United States
in 1995. 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 that commenced operations in October 1994, 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 also manufactures engineered products principally for
the transportation, energy and telecommunications 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 pigments for printing, coatings, plastics and
other non-rubber applications. 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 telecommunication and energy cables and specialty
conductors at its U.S. and international operations. Its international
operations comprise joint venture associations at eight majority-owned
subsidiaries operating in nine countries, and minority interests in other
international wire and cable manufacturers operating in six countries. Through
several of these companies, the Corporation is also active in the engineering
and installation of telephone lines.
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 20 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 operations, its wheel and rim business, and its wire
and cable operations.
Information about sales and earnings of international operations of the
Corporation is also included in Note 20 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, 1995,
was 15,343.
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 as rod 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 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.
In addition, the Corporation produces minor amounts of copper precipitates at
various leaching operations. 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 two SX/EW facilities, one of which is the largest in the
world. 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
through state administrative proceedings 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. Phelps Dodge Mining Company completed
construction and commenced operations at Candelaria in October 1994, and
achieved full production in 1995. The project consists of an open-pit mine,
concentrator, port and associated facilities. 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.
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.
Phelps Dodge is the leading producer of copper using the SX/EW process.
In 1995, the Corporation produced a total of 364,200 tons of cathode copper at
its SX/EW facilities, compared with 325,800 tons in 1994 and 308,200 tons in
1993. The SX/EW method is a cost-effective process of extracting copper from
certain types of ores. As used by the Corporation in conjunction with its
conventional concentrating, smelting and refining, SX/EW is a major factor in
its continuing efforts to maintain internationally competitive costs.
The Corporation initiated SX/EW production at Morenci in late 1987 and
has expanded production several times since then. During the third quarter of
1995, Phelps Dodge Mining Company completed construction and commenced
operations at its $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 has increased Phelps Dodge's share of annual
electrowon copper production capacity at Morenci by approximately 130 million
pounds to a new total of approximately 425 million pounds. The expansion
involved the development of the Southside ore deposit adjacent to the existing
open-pit mine at Morenci. The expansion included the construction of an
electrowinning tankhouse, the expansion of existing solution extraction plants,
the upgrading of infrastructure systems and the addition of mining equipment.
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; however, unless further reserves are identified, production will
decline toward the latter part of that period.
The Corporation initiated production at its 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 virtually
all of its share of its U.S. concentrate production and occasionally some
concentrate production from Candelaria, 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. During 1995, the refinery operated at capacity
producing just over 450,000 tons of electrolytic copper. This capacity is
sufficient to refine all copper produced by the Corporation for its account at
its two operating smelters. 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 1995, combined production of rod and other refined copper products from
the two plants was 654,200 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 1991 through 1995; 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 and 1995 of the
SX/EW facilities at Morenci and the 1992 expansion of 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 1995 start up of the Southside project; (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 and achievement of full production in
1995.
<PAGE>
<TABLE>
- ------------------------------------------------------------------------------------------------------------------
PHELPS DODGE COPPER PRODUCTION DATA, BY SOURCE
- ----------------------------------------------
(thousand tons)
<CAPTION>
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
MATERIAL MINED
Morenci .............................................. 261,264 240,700 219,032 203,456 198,009
Tyrone ............................................... 83,935 62,067 49,387 32,407 92,542
Chino ................................................ 115,821 105,057 108,568 103,081 103,198
Candelaria ........................................... 72,068 17,842 - - -
Ojos del Salado ...................................... 1,855 1,712 1,438 1,564 1,612
------- ------- ------- ------- -------
Total material mined ............................. 534,943 427,378 378,425 340,508 395,361
Less minority participants' shares .................... 92,211 74,692 69,044 64,878 64,100
------- ------- ------- ------- -------
Net Phelps Dodge share ........................... 442,732 352,686 309,381 275,630 331,261
======= ======= ======= ======= =======
MILL ORE MINED
Morenci .............................................. 44,284 45,240 46,990 46,562 44,529
Tyrone ............................................... - - - 1,293 15,708
Chino ................................................ 17,026 17,811 17,436 17,160 18,048
Candelaria ........................................... 11,439 2,685 - - -
Ojos del Salado ...................................... 1,596 1,536 1,314 1,513 1,159
------- ------- ------- ------- -------
Total mill ore mined ............................. 74,345 67,272 65,740 66,528 79,444
Less minority participants' shares .................... 14,606 13,260 12,861 12,704 12,695
------- ------- ------- ------- -------
Net Phelps Dodge share ........................... 59,739 54,012 52,879 53,824 66,749
======= ======= ======= ======= =======
GRADE OF ORE MINED - PERCENT COPPER
Morenci ............................................. 0.64 0.65 0.67 0.67 0.69
Tyrone .............................................. - - - 0.69 0.58
Chino ............................................... 0.76 0.69 0.73 0.68 0.70
Candelaria .......................................... 1.88 1.27 - - -
Ojos del Salado ..................................... 1.40 1.38 1.43 1.77 2.26
RECOVERABLE COPPER (a)
Morenci:
Concentrate ....................................... 211.6 217.3 233.3 226.5 222.8
Electrowon ........................................ 225.7 190.1 170.8 162.8 119.4
Tyrone:
Concentrate and precipitate ....................... 4.3 4.2 6.0 8.5 62.6
Electrowon ........................................ 70.4 68.9 73.5 70.2 59.5
Chino:
Concentrate and precipitate ....................... 100.6 92.7 95.6 94.9 102.2
Electrowon ........................................ 68.1 66.8 63.9 57.3 55.2
Candelaria:
Concentrate ....................................... 165.7 31.0 - - -
Ojos del Salado:
Concentrate ....................................... 19.6 18.6 16.7 24.4 20.0
Bisbee precipitate and
miscellaneous ..................................... 1.6 3.6 1.6 1.4 0.1
------- ------- ------- ------- -------
Total recoverable copper .......................... 867.6 693.2 661.4 646.0 641.8
Less minority participants' shares .................... 154.9 120.4 113.7 109.0 103.7
------- ------- ------- ------- -------
Net Phelps Dodge share ........................... 712.7 572.8 547.7 537.0 538.1
======= ======= ======= ======= =======
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
- ----------------------------------------------------------------------------------------------------------------
PHELPS DODGE METAL PRODUCTION AND DELIVERIES (a)
- ------------------------------------------------
<CAPTION>
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
COPPER (THOUSAND TONS)
Total production .............................. 867.6 693.2 661.4 646.0 641.8
Less minority participants'
shares ........................................ 154.9 120.4 113.7 109.0 103.7
------- ------- ------- ------- -------
Net Phelps Dodge share ....................... 712.7 572.8 547.7 537.0 538.1
======= ======= ======= ======= =======
Deliveries (b) 696.6 560.6 543.9 537.7 553.9
======= ======= ======= ======= =======
GOLD (THOUSAND OUNCES) (c)
Total production .............................. 151 93 85 105 85
Less partners' shares ......................... 31 28 29 38 25
------- ------- ------- ------- -------
Net Phelps Dodge share ....................... 120 65 56 67 60
======= ======= ======= ======= =======
Deliveries (b) 125 47 54 59 57
======= ======= ======= ======= =======
SILVER (THOUSAND OUNCES) (c)
Total production .............................. 2,739 1,627 1,387 1,403 1,931
Less partners' shares ......................... 545 360 273 315 314
------- ------- ------- ------- -------
Net Phelps Dodge share ....................... 2,194 1,267 1,114 1,088 1,617
======= ======= ======= ======= =======
Deliveries (b) 1,985 1,039 1,085 1,083 1,531
======= ======= ======= ======= =======
MOLYBDENUM (THOUSAND POUNDS)
Total production ............................. 2,024 969 1,200 1,729 2,078
Less minority participants'
shares ....................................... 507 226 394 528 501
------- ------- ------- ------- -------
Net Phelps Dodge share ...................... 1,517 743 806 1,201 1,577
======= ======= ======= ======= =======
Deliveries 1,328 698 905 1,129 1,566
======= ======= ======= ======= =======
SULFURIC ACID
(THOUSAND TONS) (d)
Total production .............................. 1,252.6 1,276.7 1,379.4 1,230.0 1,301.7
Less minority participant's
share ......................................... 181.3 191.5 193.9 184.4 183.0
------- ------- ------- ------- -------
Net Phelps Dodge share ....................... 1,071.3 1,085.2 1,185.5 1,045.6 1,118.7
======= ======= ======= ======= =======
Deliveries 554.3 685.2 718.4 733.7 855.7
======= ======= ======= ======= =======
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
- -------------------------------------------------------------------------------------------------------------------
<CAPTION>
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
COMEX COPPER PRICE (e) ...................... $1.35 1.07 0.85 1.03 1.05
- -------------------------------------------------------------------------------------------------------------------
PHELPS DODGE SMELTERS AND REFINERY - PRODUCTION
- -----------------------------------------------
Smelters (f)
Total copper (thousand tons) .............. 422.5 411.7 376.7 329.2 305.7
Less minority participant's share ......... 58.6 60.0 51.0 49.3 34.7
------- ------- ------- ------- -------
Net Phelps Dodge share ............... 363.9 351.7 325.7 279.9 271.0
======= ======= ======= ======= =======
Refinery (g)
Copper (thousand tons) .................... 453.0 453.8 432.4 388.1 386.0
Gold (thousand ounces) .................... 145.4 118.0 85.8 78.8 56.8
Silver (thousand ounces) .................. 3,441.5 2,672.3 3,144.7 2,377.0 2,199.1
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Footnotes to the preceding tables:
(a) Includes smelter production from custom receipts and fluxes as well
as tolling gains or losses.
(b) Excludes sales of purchased copper, silver and gold.
(c) Includes the Santa Gertrudis gold project, which was operated by
Phelps Dodge from 1991 through the 1994 second quarter.
(d) Sulfuric acid production results from smelter air quality control
operations; deliveries do not include internal usage.
(e) New York Commodity Exchange annual average spot price per pound -
cathodes.
(f) Includes production from purchased concentrates and copper smelted
for others on toll.
(g) Includes production from purchased material and copper refined for
others on toll.
- --------------------------------------------------------------------------------
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 customers in South Africa, the United States, Europe, Australia
and Asia. During 1995, the plant expanded its technical process, allowing it to
produce metallurgical-grade fluorspar for the clear glass and stainless steel
industries. Fluorspar demand continued its recovery during 1995 resulting in
improved revenues and profitability for the operation.
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. Despite a continuation of favorable base
metal prices in 1995, profitability declined as less than average ore grades
caused an increase in operating costs. Phelps Dodge received $5.7 million and
$2.9 million in dividend payments from Black Mountain in 1995 and 1994,
respectively. The 1994 dividend was the first received by the Corporation from
Black Mountain since 1991.
Phelps Dodge owns a 13.9 percent interest in Southern Peru Copper
Corporation (SPCC), which operates two copper mines, two concentrators, an SX/EW
facility, a smelter and a refinery in Peru. The Corporation's interest in SPCC
decreased from the 16.25 percent it held at the end of 1994 as a result of an
exchange offering of SPCC common shares recently consummated. SPCC's other
shareholders are ASARCO Incorporated with a 54.1 percent interest and the Cerro
Trading Company with a 17.8 percent interest. The common stock held by Phelps
Dodge, ASARCO and Cerro Trading Company is closely held and is not registered
for trading. The remaining 14.2 percent interest is publicly held. 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 1995, Phelps Dodge
received dividend payments of $13.6 million from SPCC, compared with $3.5
million in 1994, $2.9 million in 1993, $2.4 million in 1992 and $9.8 million in
1991.
Exploration & Development
- -------------------------
Phelps Dodge Exploration Corporation's primary objectives are to
increase copper reserves through discoveries, acquisitions and joint ventures
and, where appropriate, to diversify into other metals, minerals and geographic
areas. Phelps Dodge Exploration Corporation operates offices in Australia,
Canada, Chile, Mexico, Peru, South Africa, Thailand, the United States and
Zambia. During 1995, new offices were established in the Philippines and
Indonesia.
The 1995 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 $60.3 million on worldwide exploration during 1995,
compared with $40.0 million in 1994 and $43.4 million in 1993. Approximately 32
percent of the 1995 expenditures occurred in the United States, compared with 55
percent in both 1994 and 1993. The balance of exploration expenditures was spent
principally in Chile, Canada, Peru, Mexico, Australia and Zambia.
During 1995, continuing exploration efforts at existing Phelps Dodge
copper operations outlined significant additional copper resources.
In the Morenci area, a districtwide exploration program continued in
1995. Additional drilling at the Garfield deposit, located north of the Morenci
and Metcalf ore bodies, has delineated a mineral resource now estimated to
contain approximately 1 billion tons of leach material at a grade of 0.27
percent copper. The Corporation anticipates that the volume of this copper
resource may double with further drilling now under way.
Elsewhere in the United States, the Corporation continued to evaluate
its mineral resources in the Safford district in eastern Arizona. An evaluation
of the Dos Pobres deposit indicates 330 million tons of milling material with a
grade of 0.65 percent copper and 285 million tons of leachable material with a
grade of 0.39 percent copper. A feasibility study and permitting for this
resource will begin in early 1996. Other resources under study in the Safford
district include San Juan, Lone Star and the recently acquired Sanchez property.
The Safford district has the potential to add an estimated 100,000 tons of
low-cost cathode copper to the annual copper production of Phelps Dodge Mining
Company in the future.
Project permitting continued at the Seven-Up Pete joint venture's
McDonald gold project near Lincoln, Montana, with the regulatory review process
expected to be complete in 1997. 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.
Internationally, the Corporation increased exploration efforts in Peru,
where it acquired and began initial evaluation of copper resources at the Chapi
prospect near Arequipa. Phelps Dodge controls 70 percent of the property, while
local interests share the remaining 30 percent. In addition, Phelps Dodge
Exploration Corporation has entered into a number of joint venture associations
with mining and exploration companies to evaluate selected mineral opportunities
in various countries.
Phelps Dodge is also evaluating the Piedras Verdes property in Sonora,
Mexico. The Corporation acquired a 70 percent interest in this property in 1995;
the remaining 30 percent interest is held by Azco Mining, Inc. In Zambia, the
Corporation completed a preliminary feasibility study of copper resources in the
Lumwana region. The initial evaluation will be complete in 1996.
Ore Reserves
- ------------
Ore reserves at each of Phelps Dodge's copper operations and at Dos
Pobres have been estimated as follows:
- -------------------------------------------------------------------------------
Estimated at December 31, 1995
------------------------------
Milling Leaching
Reserves Reserves Phelps
---------------- ---------------- Dodge
Million % Million % Interest
Tons Copper Tons Copper (%)
---- ------ ---- ------ -----
Morenci ........... 430.5 0.72 1,094.5 0.31 85.0
Chino ............. 297.5 0.67 662.6 0.24 66.7
Tyrone ............ - - 170.6 0.36 100.0
Candelaria ........ 384.4 1.07 - - 80.0
Dos Pobres ........ 330.0 0.65 285.0 0.39 100.0
Ojos del Salado ... 13.7 1.32 - - 100.0
- ----------------
The Candelaria and Ojos del Salado deposits are estimated to contain,
respectively, 0.007 ounces and 0.008 ounces of gold per ton.
Estimated at December 31, 1994
------------------------------
Milling Leaching
Reserves Reserves Phelps
---------------- ---------------- Dodge
Million % Million % Interest
Tons Copper Tons Copper (%)
---- ------ ---- ------ -----
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
Dos Pobres.........
Ojos del Salado ... 16.2 1.33 - - 100.0
- --------------------------------------------------------------------------------
The Corporation's estimated share of aggregate ore reserves at the above
named properties at December 31 is as follows:
- --------------------------------------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
Milling reserves (billion tons) ....... 1.2 1.0 0.9 1.0 1.1
Leaching reserves (billion tons) ...... 1.8 1.7 1.2 1.0 1.1
Commercially recoverable copper
(million tons) ...................... 12.3 10.6 10.1 10.5 10.8
- --------------------------------------------------------------------------------
Ore reserves at each of Phelps Dodge's other mining operations and
investments at year-end 1995 are estimated as follows:
<TABLE>
- -------------------------------------------------------------------------------------------------------------------
<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 12.2 2.3 0.51 5.7 2.9 - 44.60
Southern Peru
Copper
Corporation * 1,294.4 - 0.74 - - - 13.90
Phelps Dodge
Mining Limited 20.8 - - - - 17.23 100.00
- ----------------
* Southern Peru Copper Corporation deposits also contain approximately 155
million tons of leach material at a grade of 0.27 percent copper.
- -------------------------------------------------------------------------------------------------------------------
</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 samplings 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, Tyrone and Dos Pobres. 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.
<PAGE>
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, 1995:
<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
Garfield Arizona - - 1,000 0.27 - 85.00
Lone Star Arizona - - 1,600 0.38 - 100.00
Sanchez Arizona - - 230 0.29 - 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
Piedras Verdes Mexico - - 150 0.41 - 70.00
Black Mountain * South Africa 20 - - - - 44.60
- ------------------
* The Black Mountain deposit contains an estimated 6.3 percent lead,
1.16 percent zinc, 0.71 percent copper and 1.81 ounces of silver per
ton.
- -------------------------------------------------------------------------------------------------------------------
</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
- ---------------------
A majority 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 55 percent of Phelps Dodge Mining
Company's sales in 1995. Phelps Dodge also sells its copper as concentrate and
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 copper 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 19 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
four other U.S. primary producers, as well as numerous foreign producers, metal
merchants, custom refiners and scrap dealers. Some major producers outside the
United States have cost advantages resulting from richer ore grades, lower labor
rates and in some cases 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 international 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.
A slowing world economy and higher exports from formerly socialist
countries resulted in modest surpluses in 1991 and 1992. As a result, the COMEX
price decreased 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 caused average copper prices to decline to 85 cents per pound
in 1993. In 1994, excess inventories that accumulated after 1992 were liquidated
as copper consumption increased 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.
In 1995, the price of copper as reported on COMEX averaged $1.35 per
pound of copper cathode, 28 cents more than the 1994 average price. The price
increase was attributable to the strong growth in demand during 1994, which
reduced copper inventories to low levels in 1995. However, worldwide copper
consumption rose by only 1.7 percent in 1995. In the United States, inventory
adjustments in copper-intensive sectors such as construction and transportation
negatively impacted consumption. In addition, a second year of improvement in
European consumption was partially offset by the faltering recovery in Japan, a
sharp contraction of economic activity in Taiwan, and signs of slowed growth in
South Korea. At the same time, copper production increased significantly. Even
in light of the modest consumption growth and significant production growth, a
modest deficit of copper still existed in 1995. In 1996 through March 7, the
COMEX price averaged $1.17 per pound reflecting increasing inventory levels.
Costs
- -----
The Corporation's unit production costs of copper in 1995 were
approximately the same as those in 1994 generally reflecting continued high
levels of production, the first full year effects of low cost Candelaria
production, the cost containment programs put into place over the last few years
and significant amounts of copper obtained through the SX/EW process, including
the start up of the Southside SX/EW project at the Morenci mine in the 1995
third quarter, 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. On December 15, 1995, EPA signed a draft supplemental rule to RCRA
Subtitle C, creating Phase IV Land Disposal Restrictions which may expand the
class of waste subject to "hazardous waste" regulation under RCRA Subtitle C.
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 and, therefore, it is not possible to estimate
such costs. 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 began in 1995 and, until completed, it will not be possible to
determine the nature, extent, cost, and timing of remedial work which will be
required under the AOC, although remedial work is expected to be required.
In 1993 and 1994, the New Mexico and Arizona legislatures, respectively,
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 1996 and
from $20 million to $25 million in 1997; $13 million was spent on such programs
in 1995. The Corporation also anticipates making significant capital and other
expenditures beyond 1997 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 1995, 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
bills was enacted into law. However, mining law amendments were added to the
1996 budget bill, which is still the subject of negotiation between the Congress
and the President. The amendments contained in the budget bill (i) impose a 5
percent net proceeds royalty on minerals extracted from federal lands, (ii)
require payment of fair market value for patenting federal lands, (iii) make
permanent the existing claim maintenance fee and double the fee in the future,
and (iv) require that patented lands used for non-mining purposes revert to the
federal government. 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 the amendments would result in additional expenses in the
development and operation of new mines on federal lands.
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
companies that manufacture engineered products principally for the
transportation, energy and telecommunications sectors worldwide. 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 operations through
Columbian Chemicals Company and its subsidiaries (Columbian Chemicals); its
wheel and rim operations through Accuride Corporation and its subsidiaries
(Accuride); and its U.S. and international wire and cable and specialty
conductor operations through Phelps Dodge International Corporation and Phelps
Dodge Magnet Wire Company and their subsidiaries and affiliates.
Operations
- ----------
Columbian Chemicals, headquartered in Atlanta, Georgia, is an
international producer and marketer of carbon blacks. The company produces a
full range of rubber and industrial carbon blacks in 11 plants worldwide, with
approximately one-half of its production in North America and the other half at
facilities in the United Kingdom, Germany, Italy, Spain, Hungary (owned 60
percent by Columbian Chemicals), and the Philippines (owned 88.2 percent by
Columbian Chemicals). 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 start up of the
Hungarian plant in late 1993, the Spanish plant improves Columbian's position in
Europe and increases the company's ability to service its key international
customers. The company also maintains sales offices in ten countries and makes
use of distributors worldwide. 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. In addition, the company sold its
synthetic iron oxide plant (MAPICO) during the 1995 first quarter. This
operation was peripheral to Columbian's core business.
Extensive research, development and engineering is performed by
Columbian at four 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. 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 telecommunication and energy cables and specialty
conductors for international markets through U.S. operations and joint venture
associations in 15 other 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. The Corporation has minority interests in
companies located in Hong Kong, Thailand, China 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.
Phelps Dodge International Corporation also manages U.S. operations that
manufacture and market specialty high-performance conductors for the aerospace,
automotive, biomedical, computer and consumer electronics markets. The principal
products are highly engineered conductors of copper and copper alloy wire
electroplated with silver, tin or nickel for sophisticated, specialty product
niches. These manufacturing operations consist of plants located in Inman, South
Carolina, and Trenton, Georgia.
See Note 20 to the Consolidated Financial Statements for information
concerning Phelps Dodge Industries' sales by its carbon black, wheel and rim,
and wire and cable operations.
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 start up 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 three 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 telecommunication and energy 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 South
America. The Corporation's specialty high-performance conductors are primarily
sold to intermediators (insulators, assemblers, subcontractors and
distributors). More than half of these products are ultimately sold to
commercial and military aerospace companies for use in airframes, avionics,
space electronics, radar systems and ground control electronics. Specialty
high-performance conductors are also used in appliances, instrumentation,
computers, telecommunications, military electronics, medical equipment and other
products. The Corporation has one primary U.S. competitor in the specialty
conductor market; however, in those few markets where it competes for high
volume products, it faces competition from several U.S. fabricators.
Raw Materials
- -------------
Carbon black primarily 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.
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
telecommunication and energy cable companies are copper, copper alloy, aluminum,
copper-clad steel and various electrical insulating materials. The specialty
conductor product line is usually plated with silver, nickel or tin. 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.
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 $20 million in 1996 and from $5 million
to $10 million in 1997; $8 million was spent on these programs in 1995. The
Corporation also anticipates making significant capital and other expenditures
beyond 1997 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.")
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 360 employees at its Hopkinsville, Kentucky,
plant that expires on October 11, 1996. Columbian Chemicals has three-year
agreements covering approximately 100 employees at its El Dorado, Arkansas, and
Marshall, West Virginia, plants that expire on March 31, 1996, and June 15,
1996, respectively. Columbian Chemicals also has agreements at its operations in
England and Germany that expire on May 8, 1996, and June 30, 1996, respectively.
Phelps Dodge International Corporation has agreements expiring in 1996 at
associate company plants in Venezuela and El Salvador.
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 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 Phelps Dodge International Corporation. Expenditures for all
of these research and development programs, together with contributions to
industry and government-supported programs, totaled $15.8 million in 1995,
compared with $15.9 million in 1994 and $16.3 million in 1993.
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, 1995, the Corporation had reserves of $144.1 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 "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 1996 and 1997, and the expenditures for those programs in 1995,
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 1995 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 were also challenged by the American Mining
Congress and others in federal court actions filed in 1989 and 1993. The U.S.
Court of Appeals for the District of Columbia Circuit decided two of the appeals
in 1995. In National Mining Association v. EPA, 59 F.3d 1351 (D.C. Cir. 1995),
the court agreed with EPA that, under the federal hazardous air pollutants
program, collocated facilities should be considered as part of the same emitting
"source" and fugitive emissions must be counted when determining whether a
source is a "major source." The court agreed with the industry petitioners that
a source could avoid "major source" status by using effective air pollution
controls, even if the controls are not "federally enforceable."
In Chemical Manufacturers Association et al. v. EPA, No. 89-1514, Slip
op. (D.C. Cir. 1995), the court agreed with the industry petitioners and vacated
and remanded EPA's rules which did not allow facilities to consider air
pollution controls when determining whether a permit is needed for new or
increased emissions of criteria pollutants, unless the controls were "federally
enforceable." In response, EPA has asserted that its rules nevertheless remain
in effect and that it may cure the defect in the rules merely by issuing written
guidance in the near future. The industry petitioners have requested the court
to enforce its original mandate against the agency.
The effect of these decisions on the Corporation's facilities will vary
on a case-by-case basis. They will have no effect on some facilities; they may
cause some facilities to be regulated as "major sources" under one or more
federal programs; and they may allow some sources to avoid regulation as "major
sources" by using air pollution controls that are enforceable under federal,
state or local laws.
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 second
one-year extension to that law so that the settlement will become
effective if it is approved by the Arizona Superior Court and
certain conditions are met by December 31, 1996.
(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's rulings entered April 14, 1995, regarding
water quality, limitations on industrial uses, the definition of subflow
and the plaintiff-in-intervention's right to natural flows from the Gila
River, 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.
Additional issues remain, some of which may go to trial
during 1996.
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 its 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 16,350 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 197 claims against PDI were dismissed in 1995. During that
year, 2,559 new asbestos-related claims were filed against PDI in ten states. As
of December 31, 1995, a total of 2,701 asbestos-related claims were pending
against PDI in 15 jurisdictions. PDI is vigorously contesting and defending
these asbestos-related claims.
In December 1995, Phelps Dodge and its insurers executed an agreement
embodying a cost sharing arrangement for defense and indemnity costs arising out
of the asbestos litigation.
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. While additional costs to the Corporation are reasonably
possible, that cost is not expected to exceed $10.0 million.
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
No matters were submitted during the fourth quarter of 1995 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, 1996, the executive
officers of Phelps Dodge Corporation were as follows:
Age at Officer of the
Name 3/1/96 Position Corporation since
---- ------ -------- -----------------
Douglas C. Yearley 60 Chairman of the Board,
President and Chief
Executive Officer 1981
Manuel J. Iraola 47 Senior Vice President 1995
Thomas M. St. Clair 60 Senior Vice President and
Chief Financial Officer 1989
J. Steven Whisler 41 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.
<PAGE>
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>
1995 1994 (a) 1993 1992 1991
---- -------- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Sales and other
operating revenues ........ $ 4,185.4 3,289.2 2,595.9 2,579.3 2,434.3
Income before cumulative
effect of accounting
changes (b) .............. $ 746.6 271.0 187.9 301.6 272.9
Per common share (c) ..... $ 10.65 3.81 2.66 4.28 3.93
Cumulative effect of
accounting changes (d) .... $ - - - (79.9) -
Per common share (c) ..... $ - - - (1.13) -
Net income (b) ............. $ 746.6 271.0 187.9 221.7 272.9
Per common share (c) ..... $ 10.65 3.81 2.66 3.15 3.93
Total assets ............... $ 4,645.9 4,133.8 3,720.9 3,441.2 3,051.2
Long-term debt ............. $ 613.1 622.3 547.3 373.8 382.0
Dividends per common
share: (c) ................ $ 1.80 1.69 1.65 1.61 1.50
(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 (SFAS
No. 106 and SFAS No. 112) and income taxes (SFAS No. 109).
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.
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
- ---------------------------------------------
Phelps Dodge reported 1995 consolidated net income of $746.6 million, or $10.65
per common share. This amount compares with 1994 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, that reduced reported 1994
net income to $271.0 million, or $3.81 per common share. The 1994 non-recurring
charges primarily reflected additional provisions for estimated future costs
associated with environmental matters and for estimated losses on the
disposition of certain operating facilities. Note 2 to the Consolidated
Financial Statements contains further information to which reference should be
made for a fuller understanding of the 1994 non-recurring charges.
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. As a
result, the Corporation raised its 1993 tax provision by approximately $9.0
million, or 13 cents per common share.
The Corporation's consolidated financial results for the last three
years are summarized below (in millions except per common share amounts):
- --------------------------------------------------------------------------------
1995 1994 1993
---- ---- ----
Sales and other operating revenues ........ $ 4,185.4 3,289.2 2,595.9
Operating income .......................... $ 1,100.5 400.4 326.5
Net income ................................ $ 746.6 271.0 187.9
Net income per common share ............... $ 10.65 3.81 2.66
- --------------------------------------------------------------------------------
A significant factor influencing the Corporation's 1995 results was the
improved price of copper, the Corporation's principal product. The New York
Commodity Exchange (COMEX) spot price per pound of copper cathode, upon which
the Corporation bases its selling price, averaged $1.35 in 1995, compared with
$1.07 in 1994 and 85 cents in 1993. The COMEX price averaged $1.17 per pound for
the first two months of 1996, and closed at $1.18 on March 7, 1996.
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
1.4 billion pounds of copper. 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 $14 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. With respect to 1995 production, the
Corporation had contracts that provided minimum quarterly average London Metal
Exchange (LME) prices of 80 cents per pound for approximately 640 million pounds
of copper. These contracts expired on December 31, 1995, without payment to
Phelps Dodge. In addition, the Corporation had contracts that provided minimum
(approximately 95 cents) and maximum (approximately $1.33) LME prices per pound
for approximately 650 million pounds of copper. These contracts expired on
December 31, 1995, with Phelps Dodge making payments totaling $1.3 million to
the financial institutions involved. During 1994, contracts that provided the
Corporation with minimum average LME copper prices of 75 cents per pound for
about 21 percent of that year's production expired without payment to Phelps
Dodge. During 1993, the Corporation received revenues of $39.4 million before
taxes ($26.0 million, or 37 cents per common share, after taxes) from similar
arrangements.
With respect to 1996 production, as of March 7, 1996, the Corporation
had entered into contracts with several financial institutions that provide for
a combination of minimum and maximum prices based on the quarterly average LME
price. These contracts are summarized in the following table:
- --------------------------------------------------------------------------------
Contracts Providing Contracts Providing Minimum
Minimum Prices and Maximum Prices
-------------- ------------------
Copper Cathode Copper Price (LME) Cathode
Price Pounds ----------------- Pounds
(LME) (millions) Minimum Maximum (millions)
----- ---------- ------- ------- ----------
First Quarter ........ $0.95 170 $0.95 $1.47 170
Second Quarter ....... $0.95 90 $0.95 $1.42 170
Third Quarter ........ $0.95 40 $0.90 $1.40 145
Fourth Quarter ....... - $0.95 $1.36 190
------ -----
300 675
====== =====
- ----------------
Note: If average quarterly LME prices exceed the maximum prices, Phelps Dodge
will be obligated to pay the difference to the financial institutions
involved; if average quarterly LME prices fall below the minimum prices,
the financial institutions will be obligated to pay Phelps Dodge the
difference.
- -------------------------------------------------------------------------------
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 equivalent dollar cash flows resulting from transactions
denominated in foreign currencies will be adversely affected by changes in
exchange rates. During 1995, recorded and anticipated foreign currency
transactions that the Corporation had hedged did not exceed $85 million and
totaled $73 million at year end. The Corporation did not have any deferred
unrealized gains or losses on its foreign exchange contracts at December 31,
1995, compared with deferred unrealized losses of $0.9 million at December 31,
1994. Notes 1 and 19 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 1995 revenues were $4,185.4 million, compared with $3,289.2
million in 1994. This increase principally resulted from higher average copper
prices, increased volumes of copper sold from mine production, and higher prices
and sales volumes for carbon black, wheels and rims, and wire and cable
products. The increase in consolidated revenues from $2,595.9 million in 1993 to
$3,289.2 million in 1994 primarily resulted from higher average copper prices
and higher sales volumes of copper (including copper purchased for resale),
wheels and rims, wire and cable products (including magnet wire sales from two
U.S. plants acquired in early 1994) and carbon black.
Phelps Dodge's results for 1995, 1994 and 1993 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 operations, its wheel and rim business, and its
wire 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 20 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 as rod 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 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.
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1995 1994 1993
---- ---- ----
Copper (from own mines - thousand tons) *
Production .............................. 712.7 572.8 547.7
Deliveries .............................. 696.6 560.6 543.9
COMEX average spot copper price
per pound - cathodes .................... $ 1.35 1.07 0.85
(millions of dollars)
Sales and other operating revenues ......... $ 2,488.7 1,820.7 1,320.3
Operating income ........................... $ 896.8 326.4 227.2
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* 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), (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 indirect
subsidiary of Sumitomo Metal Mining Co., Ltd. and Sumitomo Corporation.
Excluded production amounts for 1995, 1994 and 1993 were 65,600 tons,
61,000 tons and 60,500 tons produced at Morenci for the account of
Sumitomo and 56,200 tons, 53,200 tons and 53,200 tons produced at Chino
for the account of Heisei. Excluded production amounts for 1995 and 1994
at Candelaria for the account of Sumitomo were 33,100 tons and 6,200
tons.
- --------------------------------------------------------------------------------
Phelps Dodge Mining Company reported 1995 operating income of $896.8
million. This compares with 1994 operating income of $420.8 million, which was
reduced to $326.4 million after reflecting $94.4 million of fourth quarter
non-recurring pre-tax charges applicable to its operations, and $227.2 million
in 1993. The increase in 1995 operating earnings resulted from higher average
copper prices and higher volumes of copper sold from mine production, especially
from Candelaria which commenced operation in the 1994 fourth quarter. Unit
production costs for 1995 were approximately the same as those in 1994 as
certain costs associated with higher copper prices were offset by the favorable
effects of higher-than-average ore grades mined at Candelaria and the start up
of the Southside solution extraction/electrowinning (SX/EW) project at the
Morenci mine. The increase in operating earnings in 1994 compared with 1993 also
resulted from higher average copper prices and sales volumes of copper sold from
mine production.
The Candelaria mine is located near Copiapo in the Atacama Desert of
northern Chile. Phelps Dodge Mining Company completed construction and commenced
operations at Candelaria in October 1994, and achieved full production in 1995.
Phelps Dodge owns an 80 percent interest in Candelaria and a jointly owned
indirect subsidiary of Sumitomo Metal Mining Co., Ltd. and Sumitomo Corporation,
both of Japan, owns a 20 percent interest. The project consists of an open-pit
mine, concentrator, port and associated facilities.
During the third quarter of 1995, Phelps Dodge Mining Company completed
construction and commenced operations at its $200 million Southside project (the
Corporation's share was $170 million with the remainder provided by its
co-participant, Sumitomo) at its Morenci mine in southeastern Arizona. This
project has increased Phelps Dodge's share of annual electrowon copper
production capacity by approximately 130 million pounds. The expansion involved
the development of the Southside ore deposit adjacent to the existing open-pit
mine at Morenci. The expansion included the construction of an electrowinning
tankhouse, the expansion of existing solution extraction plants, the upgrading
of infrastructure systems and the addition of mining equipment.
Copper unit production costs generally have been stable for the
three-year period ended December 31, 1995, primarily as a result of high levels
of production of low-cost cathode copper at 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. In 1995,
the Corporation produced a total of 364,200 tons of cathode copper at its SX/EW
facilities, compared with 325,800 tons in 1994 and 308,200 tons in 1993. The
SX/EW method is a cost-effective process of extracting copper from certain types
of ores. As used by the Corporation in conjunction with its conventional
concentrating, smelting and refining, SX/EW is a major factor in its continuing
efforts to maintain internationally competitive costs.
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 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;
however, unless further reserves are identified, production will decline toward
the latter part of that period.
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 companies
that manufacture engineered products principally for the transportation, energy
and telecommunications sectors worldwide. 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 operations through Columbian Chemicals
Company and its subsidiaries (Columbian Chemicals); its wheel and rim operations
through Accuride Corporation and its subsidiaries (Accuride); and its wire and
cable and specialty conductor operations through Phelps Dodge International
Corporation and Phelps Dodge Magnet Wire Company and their subsidiaries and
affiliates.
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1995 1994 1993
---- ---- ----
(millions of dollars)
Sales and other operating revenues ..... $ 1,696.7 1,468.5 1,275.6
Operating income ....................... $ 243.3 106.1 129.1
- --------------------------------------------------------------------------------
Phelps Dodge Industries reported 1995 operating income of $243.3 million
including a pre-tax gain of $26.8 million from the sale of Columbian Chemicals
Company's synthetic iron oxide division (MAPICO), compared with 1994 operating
income of $150.7 million that was reduced to $106.1 million by $44.6 million of
1994 fourth quarter non-recurring pre-tax charges applicable to its facilities.
Operating income in 1993 was $129.1 million. Higher 1995 operating earnings
primarily reflected continued excellent results in the carbon black business
which saw higher average worldwide prices and higher sales volumes both in the
United States and Europe, especially from new operations in Hungary and recently
acquired operations in Spain. Increased 1995 operating income also reflected
higher prices and sales volumes in the wire and cable businesses and in the
wheel and rim business (which experienced a modest decline in sales volumes in
the 1995 fourth quarter). Earnings increases in 1994 over 1993 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' 1995 earnings were higher than in 1994 primarily
because of higher sales in both North America, as overall capacity continued to
tighten in the industry, and Europe. Margins in North America were favorably
affected by high operating rates and improved prices. European sales volumes and
prices improved during the course of the year as European economies continued to
recover from the recent recession. Columbian Chemicals' 1994 earnings were
higher than in 1993 primarily because of higher sales volumes and prices in
North America and Europe. The 1994 earnings were 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 1994 fourth quarter
reserve discussed in Note 2 to the Consolidated Financial Statements.
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 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 sufficient to supply the entire Hungarian carbon black market. In
excess of 80 percent of CTC's production is exported. Columbian Chemicals holds
a 60 percent interest in CTC; TVK, Hungary's largest petrochemical company,
holds the remaining 40 percent interest.
Accuride's 1995 earnings exceeded its 1994 earnings principally as a
result of higher sales volumes and prices. North American demand for light,
medium and heavy trucks and trailers continued to be strong for most of 1995.
Industry build rates for commercial light trucks, heavy trucks and trailers,
which were at near-record levels for most of 1994 and 1995, began to decrease in
the 1995 fourth quarter. This late-1995 decrease in new and backlogged orders
may be an indication of a predicted cyclical softening of this market. The
increase in 1994 earnings over those in 1993 resulted from a 16 percent increase
in sales volume of wheels, rims and components in response to strong demand.
Higher 1995 earnings from Phelps Dodge Magnet Wire were primarily the
result of an increase in sales volumes and improved margins. In addition to an
increase in selling prices, margins also benefited from producing at capacity
and the effects of certain cost reduction programs. Earnings in 1994 exceeded
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 1994. Sales
volumes benefited from the acquisition in early 1994 of two U.S. magnet wire
facilities.
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. The capacity of the Laurinburg and El Paso facilities is
expected to increase by 60 percent and 100 percent, respectively, upon
completion of plant expansion projects currently under way.
In response to 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 has increased by 75 percent after new equipment was 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 1995 earnings of Phelps Dodge International Corporation were higher
than those in 1994 primarily as a result of higher sales volumes and prices.
Earnings increased despite the continuation of the economic difficulties in
Venezuela and the opening of traditionally local Latin American markets to
global competition. Sales volumes benefited from the continued growth of the
telephone cable and energy cable markets in Thailand while the Venezuelan
business benefited from increased demand for energy cable from that country's
oil industry. Earnings for the U.S. specialty conductor business also improved
in 1995 as manufacturing cost reduction programs and an administrative
reorganization began to take effect. Earnings in 1994 were lower than 1993
earnings primarily because of the economic difficulties in Venezuela and
economic slowdowns 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. Earnings in 1994 also reflected a pre-tax
provision of $20.0 million for the impairment of value of the Corporation's
wholly owned U.S. specialty conductor operations. This charge reflected an
unfavorable change in market conditions, particularly in the defense sector,
that is now considered permanent. The loss on the sale of CONELEC and the
provision for impairment of value of the specialty conductor business are
included in the 1994 fourth quarter reserve 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. Earnings in 1993 reflected
the integration of a group of Venezuelan wire and cable manufacturing companies
acquired in late 1992, and the continued growth of telephone cable, power cable
and commercial wire sales in other markets.
In 1995, operations outside the United States provided 51 percent of
Phelps Dodge Industries' sales, compared with 48 percent in 1994 and 51 percent
in 1993. During the year, operations outside the United States contributed 53
percent of the segment's operating income (after excluding from U.S. earnings
the $26.8 million pre-tax gain on the sale of Columbian Chemicals Company's
MAPICO division), compared with 52 percent in 1994 and 66 percent in 1993.
OTHER MATTERS RELATING TO THE STATEMENT OF CONSOLIDATED OPERATIONS
The Corporation reported net interest expense in 1995 of $62.0 million, compared
with $36.6 million in 1994 and $37.0 million in 1993. Increased 1995 net
interest expense principally resulted from the cessation of capitalization of
interest costs for the Candelaria project in Chile reflecting the substantial
completion of construction and development in the 1994 fourth quarter. The 1995
increase also reflected interest expense on second half 1994 borrowings at
Candelaria that remain outstanding, and interest expense on increased short-term
borrowings at the Corporation's international wire and cable operations to
finance working capital requirements. Partially offsetting the 1995 increases
were foreign currency exchange gains of $8.1 million reflecting the
remeasurement of Venezuelan local currency debt after a major devaluation of the
Bolivar. Reported net interest expense remained relatively constant between 1994
and 1993 despite a $49.7 million increase in debt in 1994 and a $158.7 million
increase in debt in 1993. This resulted from the capitalization of interest
charges (totaling $20.7 million in 1994, compared with $17.5 million in 1993)
primarily relating to the construction and development of two major projects --
Candelaria and the carbon black project in Hungary. Capitalization of interest
charges for the carbon black plant in Hungary ceased at the end of 1993.
The Corporation's 1995 miscellaneous income, net of miscellaneous
expense, was $37.2 million, compared with $11.3 million in 1994 and $16.4
million in 1993. The increase in 1995 primarily resulted from higher interest
income earned on cash and short-term investments. Miscellaneous income in 1995
also included an increase of $10.1 million in dividends received from the
Corporation's 13.9 percent minority interest in Southern Peru Copper
Corporation. The decrease in 1994 from 1993 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, 1995, the Corporation recorded a
provision for taxes of $322.7 million (an effective rate of approximately 30.0
percent). This compares with a 1994 provision for taxes of $104.7 million (an
effective rate of approximately 27.9 percent) and a 1993 provision of $105.9
million (an effective rate of approximately 34.6 percent). The 1995 effective
rate was higher than 1994 primarily as a result of a decrease in the tax benefit
for percentage depletion. Despite higher average realized copper prices in 1995,
the benefit from the Corporation's allowable deduction for percentage depletion
decreased from 1994 due to the first full year of operating results at
Candelaria which are not subject to percentage depletion. The 1994 effective
rate was lower than the 1993 effective rate 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. (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 1992, 1993
and 1994 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 1990 and 1991 and will contest those
proposals with the appropriate authorities. The Corporation has reached a
tentative agreement with the Internal Revenue Service to settle the proposed
assessment relating to the Corporation's federal income tax liability for the
years 1988 and 1989. 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. It is possible, however, that settlement of these issues may have a
material effect on the timing and extent 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 1995 decrease in
long-term interest rates, the Corporation decreased its discount rate from 8.5
percent at December 31, 1994, to 7.25 percent at December 31, 1995. The
Corporation's estimated pension obligations increased by a net $68 million
primarily as a result of this discount rate decrease. The effect of the
decreased discount rate on these pension obligations was offset mostly by
better-than-expected returns on plan assets. Other estimated postretirement
benefit obligations of the Corporation increased by a net $14 million as a
result of the discount rate decrease. The effect of the decreased discount rate
on this estimated obligation was offset mostly by a 1 percentage point decrease
for each year in the assumed annual rate of increase in the per capita cost of
covered health care benefits. For a further discussion of these issues, see
Notes 15 and 16 to the Consolidated Financial Statements.
CHANGES IN FINANCIAL CONDITION; CAPITALIZATION
At the end of 1995, the Corporation had cash and short-term investments of
$608.5 million, compared with $286.9 million at the beginning of the year. The
Corporation's operating activities provided $959.0 million of cash during the
year which was more than adequate to cover dividend payments on its common stock
and its investing activities.
The Corporation also used cash provided by operating activities to
purchase 2,760,600 of its common shares at a total cost of $163 million,
including 2,675,600 shares under a 5 million share buy-back program authorized
on March 7, 1995, and 85,000 shares under the superseded program. There were
68,593,300 common shares outstanding on December 31, 1995. On March 6, 1996, the
Corporation announced that its current share purchase authorization had been
increased from 5 million shares to a total of 10 million shares. Through March
7, 1996, the Corporation purchased a total of 4,424,900 of its common shares
under the program, leaving an additional 5,575,100 shares authorized for
purchase. The Corporation will continue to make purchases in the open market as
circumstances warrant, and will also consider purchasing shares in privately
negotiated transactions.
Investing activities during 1995 included capital expenditures of $404.9
million, compared with $355.0 million in 1994 and $387.2 million in 1993. The
1995 capital expenditures included $40 million for certain mining properties
owned by Azco Mining, Inc. and its subsidiaries, comprising the Sanchez property
in southeastern Arizona and a 70 percent interest in the Piedras Verdes property
in Mexico. Investing activities in 1995 also included cash proceeds of $45.0
million for the divestiture of Columbian Chemicals Company's synthetic iron
oxide facility (MAPICO). The $32.2 million decrease in 1994 capital expenditures
from 1993 principally reflected higher 1993 spending on the Candelaria project,
substantially completed in October 1994, and the Hungarian carbon black plant,
substantially completed in late 1993. These 1994 decreases in spending were
offset partially 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.
The Corporation expects capital outlays in 1996 to be approximately $300
million for Phelps Dodge Mining Company and approximately $125 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 $6.4 million increase in dividend payments on the Corporation's
common shares, from $119.2 million in 1994 to $125.6 million in 1995,
principally resulted from 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).
The Corporation's total debt was $696.5 million at December 31, 1995
(including $66.6 million of foreign short-term borrowings), compared with $696.9
million at the end of 1994 (including $49.3 million of foreign short-term
borrowings). Total debt remained virtually unchanged as short-term borrowings at
the Corporation's international wire and cable operations to finance working
capital requirements were offset by payments on the Corporation's foreign
long-term debt. The ratio of total debt to total capitalization was 20.2 percent
at the end of 1995, compared with 23.6 percent at the end of 1994.
During the 1995 second quarter, the Corporation's majority-owned
subsidiary, Compania Contractual Minera Candelaria (CCMC), satisfied all
operating, financial, construction and legal tests and conditions as set forth
in the completion agreement associated with the $290.0 million project financing
of its Candelaria mine in Chile. Borrowings under these debt facilities are now
non-recourse to Phelps Dodge. Financing agreements for the $290 million debt
were executed during 1993. The debt carries a 13-year maturity, and comprises
$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. 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 CCMC 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 until satisfaction of certain completion tests, and non-recourse
thereafter.
During 1994, the Corporation issued $81.1 million of tax-exempt,
unsecured 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 tax-exempt,
unsecured 6.50 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.
An existing revolving credit agreement between the Corporation and
several lenders was amended on October 31, 1994. The 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 this agreement at either December
31, 1995, or December 31, 1994.
The Corporation had other lines of credit totaling $100.0 million at
December 31, 1995, and December 31, 1994. 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, 1995, or December
31, 1994.
The Corporation had $66.6 million in short-term borrowings, all by its
international operations, at December 31, 1995, compared with $49.3 million at
December 31, 1994. The weighted average interest rate on this debt at December
31, 1995, and December 31, 1994, was 18.5 percent and 14.9 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 week to six months. This facility,
which is subject to renewal annually, provides for a standby fee of one-eighth
of 1 percent of the $25.0 million. There were no borrowings outstanding under
this facility at either December 31, 1995, or December 31, 1994.
The current portion of the Corporation's long-term debt, scheduled for
payment in 1996, is $16.8 million including $13.7 million for its international
manufacturing operations, $2.2 million for its mining operations and $0.9
million for other Corporate obligations.
During 1995, increases in current assets (exclusive of cash and
short-term investments) together with decreases in current liabilities
(exclusive of current debt) resulted in an $84.2 million change in net working
capital (exclusive of adjustments for foreign currency exchange rate changes).
This change principally resulted from a $55.5 million decrease in accounts
payable, a $29.5 million decrease in accrued income taxes, a $15.8 million
increase in inventories and an $11.9 million increase in supplies, partially
offset by a $36.8 million increase in accrued expenses. The $55.5 million
decrease in accounts payable primarily resulted from lower copper concentrate
purchase requirements by Phelps Dodge Mining Company's smelter operations and
the timing of raw material purchases by the Phelps Dodge Industries businesses.
The $29.5 million decrease in accrued income taxes was principally the result of
approximately $22 million in additional federal income taxes paid in the first
quarter of 1995 with the Corporation's 1994 income tax return. The $15.8 million
increase in inventories was attributable to higher inventories of copper at
Phelps Dodge Mining Company, partially offset by lower inventories at Accuride.
The $11.9 million increase in supplies was the result of increases at Candelaria
and Accuride. The $36.8 million increase in accrued expenses primarily resulted
from higher accruals for copper conversion and freight charges and accruals for
certain costs associated with higher copper prices at Phelps Dodge Mining
Company (higher conversion and freight accruals are due to the higher copper
inventory balances at the end of 1995), and an increase in the current portion
of Corporate-wide pension liabilities due to an increase in expected plan
funding in 1996 resulting from certain provisions of the recently enacted
General Agreement on Tariffs and Trade (GATT).
During 1994, increases in current assets (exclusive of cash and
short-term investments) exceeded increases in current liabilities (exclusive of
current debt) by $36.0 million. This change in net working capital (exclusive of
adjustments for foreign currency exchange rate changes) 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.
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, 1995, the Corporation had reserves of $144.1 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 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 1996 and 1997, and the
expenditures for those programs in 1995, are separate from the reserves and
estimates described above.
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 began in 1995 and, until completed, it will not be possible to
determine the nature, extent, cost, and timing of remedial work which will be
required under the AOC, although remedial work is expected to be required.
In 1993 and 1994, the New Mexico and Arizona legislatures, respectively,
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.
In 1995, 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
bills was enacted into law. However, mining law amendments were added to the
1996 budget bill, which is still the subject of negotiation between the Congress
and the President. The amendments contained in the budget bill (i) impose a 5
percent net proceeds royalty on minerals extracted from federal lands, (ii)
require payment of fair market value for patenting federal lands, (iii) make
permanent the existing claim maintenance fee and double the fee in the future,
and (iv) require that patented lands used for non-mining purposes revert to the
federal government. 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 the amendments would result in additional expenses in the
development and operation of new mines on federal lands.
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.
- --------------------------------------------------------------------------------
1995 1994 1993
---- ---- ----
(millions of dollars)
Phelps Dodge Mining Company:
Southside project (Morenci mine) ..... $ 112.6 49.6 -
Azco acquisition ..................... 40.2 - -
Candelaria ........................... 15.1 137.9 189.8
Other ................................ 153.7 111.7 95.6
------- ------- -------
321.6 299.2 285.4
Phelps Dodge Industries ................ 82.3 55.1 101.2
Corporate and other .................... 1.0 0.7 0.6
------- ------- -------
$ 404.9 355.0 387.2
======= ======= =======
- --------------------------------------------------------------------------------
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 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.
<PAGE>
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 6, 1996, there were 11,894
holders of record of the Corporation's common shares. The Corporation paid
quarterly dividends of 41.25 cents on each common share throughout 1993 and for
the first three quarters of 1994. 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, low and closing prices per common
share (composite quotation) in the periods indicated.
- --------------------------------------------------------------------------------
Market Price Ranges *
- ---------------------
High Low Close
---- ---- ----
1995:
- ----
First Quarter .... $ 63.00 51.88 56.88
Second Quarter ... 60.25 52.50 59.00
Third Quarter .... 70.50 58.50 62.75
Fourth Quarter ... 69.50 59.75 62.25
1994:
- ----
First Quarter .... $ 59.50 47.63 52.25
Second Quarter ... 60.88 50.50 57.00
Third Quarter .... 65.00 55.88 62.00
Fourth Quarter ... 64.00 54.38 61.88
1993:
- ----
First Quarter .... $ 55.63 47.75 50.38
Second Quarter ... 50.75 41.50 44.63
Third Quarter .... 49.25 39.13 39.75
Fourth Quarter ... 50.88 40.00 48.75
- ---------------
* The market price ranges reflect actual share prices as reported for each day's
trading.
- --------------------------------------------------------------------------------
<PAGE>
<TABLE>
QUARTERLY FINANCIAL DATA
(In millions except per common share amounts)
- -------------------------------------------------------------------------------------------------------------------
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
<S> <C> <C> <C> <C>
1995 (a)
- ----
Sales and other operating revenues ..... $ 1,033.5 1,024.2 1,076.7 1,051.0
Operating income ....................... 271.3 239.1 311.4 278.7
Net income ............................. 185.3 159.5 211.8 190.0
Net income per common share ............ 2.61 2.28 3.03 2.73
1994 (b)
- ----
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
- ---------------
(a) Operating income in the 1995 first quarter included a $26.8
million pre-tax gain from the sale of Columbian Chemicals
Company's MAPICO division. MAPICO produces synthetic iron oxides
at a plant in St. Louis, Missouri, and was peripheral to
Columbian's core business. The gain on the sale of these assets
was $16.6 million after taxes, or 24 cents per common share.
(b) The 1994 fourth quarter included 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 included 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.
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
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, 1995 and 1994, and the
related consolidated statements of income, of cash flows and of common
shareholders' equity for each of the three years in the period ended December
31, 1995, and notes thereto, together with the report thereon of Price
Waterhouse LLP dated January 22, 1996, 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, 1995. 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, 1995, 1994 and
1993:
VIII - Valuation and qualifying accounts and reserves.
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors of Phelps Dodge Corporation
Our audits of the consolidated financial statements referred to in our report
dated January 22, 1996 appearing on page 54 of 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 22, 1996
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 also has 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, currently consisting of six 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 income, of cash flows and of common shareholders'
equity present fairly, in all material respects, the financial position of
Phelps Dodge Corporation and its subsidiaries at December 31, 1995 and 1994, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 1995, 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.
PRICE WATERHOUSE LLP
Phoenix, Arizona
January 22, 1996
</AUDIT-REPORT>
<PAGE>
<TABLE>
STATEMENT OF CONSOLIDATED INCOME
- --------------------------------
(In thousands except per share data)
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
SALES AND OTHER OPERATING REVENUES ....... $ 4,185,400 3,289,200 2,595,900
--------- --------- ---------
OPERATING COSTS AND EXPENSES
Cost of products sold ................... 2,691,400 2,375,700 1,921,800
Depreciation, depletion and
amortization ........................... 223,500 195,300 187,100
Selling and general administrative
expense ................................ 123,600 107,100 103,700
Exploration and research expense ........ 73,200 53,000 56,800
Provision for environmental costs and
(gains) losses on asset dispositions ... (26,800) 157,700 -
--------- --------- ---------
3,084,900 2,888,800 2,269,400
--------- --------- ---------
OPERATING INCOME ......................... 1,100,500 400,400 326,500
Interest expense ........................ (65,100) (57,300) (54,500)
Capitalized interest .................... 3,100 20,700 17,500
Miscellaneous income and expense, net ... 37,200 11,300 16,400
--------- --------- ---------
INCOME BEFORE TAXES, MINORITY
INTERESTS AND EQUITY IN NET EARNINGS
OF AFFILIATED COMPANIES ................. 1,075,700 375,100 305,900
Provision for taxes ..................... (322,700) (104,700) (105,900)
Minority interests in consolidated
subsidiaries ........................... (12,900) (8,000) (12,100)
Equity in net earnings of affiliated
companies .............................. 6,500 8,600 -
--------- --------- ---------
NET INCOME ............................... $ 746,600 271,000 187,900
========= ========= =========
EARNINGS PER SHARE ....................... $ 10.65 3.81 2.66
AVERAGE NUMBER OF SHARES OUTSTANDING ..... 70,100 71,100 70,600
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
CONSOLIDATED BALANCE SHEET
- --------------------------
(In thousands except per share values)
December December
31, 31,
1995 1994
---- ----
ASSETS
Current assets:
Cash and short-term investments, at cost ....... $ 608,500 286,900
Accounts receivable, less allowance for
doubtful accounts (1995 - $12,000;
1994 - $11,800) .............................. 483,700 489,500
Inventories .................................... 281,500 266,300
Supplies ....................................... 121,400 110,700
Prepaid expenses ............................... 15,500 15,900
Deferred income taxes .......................... 44,600 38,600
--------- ---------
Current assets ................................ 1,555,200 1,207,900
Investments and long-term accounts receivable .. 79,000 82,000
Property, plant and equipment, net ............. 2,728,700 2,566,400
Other assets and deferred charges .............. 283,000 277,500
--------- ---------
$ 4,645,900 4,133,800
========= =========
LIABILITIES
Current liabilities:
Short-term debt ................................ $ 66,600 49,300
Current portion of long-term debt .............. 16,800 25,300
Accounts payable and accrued expenses .......... 504,800 528,500
Income taxes ................................... 16,800 46,600
--------- ---------
Current liabilities ........................... 605,000 649,700
Long-term debt ................................. 613,100 622,300
Deferred income taxes .......................... 358,100 243,600
Other liabilities and deferred credits ......... 318,700 365,300
--------- ---------
1,894,900 1,880,900
--------- ---------
COMMITMENTS AND CONTINGENCIES
(SEE NOTES 17 AND 18)
MINORITY INTERESTS IN CONSOLIDATED SUBSIDIARIES .. 73,300 65,300
--------- ---------
COMMON SHAREHOLDERS' EQUITY
Common shares, par value $6.25; 100,000
shares authorized; 68,593 outstanding
(1994 - 70,672) after deducting 6,595 shares
(1994 - 4,503) held in treasury ............... 428,700 441,700
Capital in excess of par value .................. - 84,500
Retained earnings ............................... 2,360,100 1,770,300
Cumulative translation adjustments .............. (93,900) (93,800)
Other ........................................... (17,200) (15,100)
--------- ---------
2,677,700 2,187,600
--------- ---------
$ 4,645,900 4,133,800
========= =========
See Notes to Consolidated Financial Statements.
<PAGE>
<TABLE>
CONSOLIDATED STATEMENT OF CASH FLOWS
- ------------------------------------
(In thousands)
<CAPTION>
1995 1994 1993
--------- -------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income ..................................................... $ 746,600 271,000 187,900
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation, depletion and amortization ...................... 223,500 195,300 187,100
Deferred income taxes ......................................... 107,600 (28,300) 29,500
Equity earnings net of dividends received ..................... (400) (4,400) 400
Provision for environmental costs and asset dispositions ...... - 140,200 -
Changes in current assets and liabilities:
(Increase) decrease in accounts receivable .................. (2,300) (138,600) (600)
(Increase) decrease in inventories .......................... (15,800) (35,400) (2,400)
(Increase) decrease in supplies ............................. (11,900) 1,600 (1,100)
(Increase) decrease in prepaid expenses ..................... 100 (3,400) 3,000
(Increase) decrease in deferred income taxes ................ (6,000) (3,200) (2,800)
Increase (decrease) in interest payable ..................... (100) 500 1,100
Increase (decrease) in other accounts payable ............... (55,500) 88,200 30,500
Increase (decrease) in income taxes ......................... (29,500) 32,200 (20,600)
Increase (decrease) in other accrued expenses ............... 36,800 22,100 (14,400)
(Gains) losses on asset dispositions .......................... (26,800) 17,500 -
Other adjustments, net ........................................ (7,300) (12,700) (12,600)
--------- -------- --------
Net cash provided by operating activities ................... 959,000 542,600 385,000
--------- -------- --------
INVESTING ACTIVITIES
Capital outlays ................................................ (404,900) (355,000) (387,200)
Capitalized interest ........................................... (3,100) (20,700) (17,500)
Investment in subsidiaries ..................................... (300) (77,300) (3,800)
Proceeds from asset sales ...................................... 40,900 19,300 4,200
Other .......................................................... - 7,200 3,700
--------- -------- --------
Net cash used in investing activities ....................... (367,400) (426,500) (400,600)
--------- -------- --------
FINANCING ACTIVITIES
Increase in debt ............................................... 30,800 185,600 313,700
Payment of debt ................................................ (22,800) (137,100) (153,000)
Common dividends ............................................... (125,600) (119,200) (116,100)
Purchase of common shares ...................................... (162,700) (3,900) (5,600)
Debt issue costs ............................................... - (7,500) (25,800)
Other .......................................................... 10,300 (2,900) 7,000
--------- -------- --------
Net cash provided by (used in) financing activities ......... (270,000) (85,000) 20,200
--------- -------- --------
INCREASE IN CASH AND SHORT-TERM INVESTMENTS ..................... 321,600 31,100 4,600
CASH AND SHORT-TERM INVESTMENTS AT BEGINNING OF YEAR ............ 286,900 255,800 251,200
--------- -------- --------
CASH AND SHORT-TERM INVESTMENTS AT END OF YEAR .................. $ 608,500 286,900 255,800
========= ======== ========
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
STATEMENT OF COMMON SHAREHOLDERS' EQUITY
- ----------------------------------------
(In thousands)
<CAPTION>
Common Shares Cumulative
------------- Capital in Translation Common
Number At Par Excess of Retained Adjustments Shareholders'
of Shares Value Par Value Earnings and Other Equity
--------- ----- --------- -------- --------- ------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1992 ............ 70,374 $ 439,800 $ 80,600 $ 1,546,700 ($ 94,700) $1,972,400
Stock options exercised ............... 236 1,500 2,100 3,600
Tax benefit from stock options ........ 3,200 3,200
Common shares purchased ............... (130) (800) (4,800) (5,600)
Restricted shares issued, net ......... 51 300 2,000 (1,400) 900
Net income ............................ 187,900 187,900
Dividends on common shares ............ (116,100) (116,100)
Translation adjustment ................ (12,200) (12,200)
Additional pension liability .......... (12,000) (12,000)
-------- --------- --------- ----------- --------- ----------
BALANCE AT DECEMBER 31, 1993 ............ 70,531 440,800 83,100 1,618,500 (120,300) 2,022,100
Stock options exercised ............... 216 1,400 700 2,100
Tax benefit from stock options ........ 3,900 3,900
Common shares purchased ............... (76) (500) (3,400) (3,900)
Restricted shares issued, net ......... 14 100 700 700 1,500
Restricted shares terminated .......... (13) (100) (500) 600 -
Net income ............................ 271,000 271,000
Dividends on common shares ............ (119,200) (119,200)
Translation adjustment ................ 7,400 7,400
Additional pension liability .......... 3,000 3,000
Other ................................. (300) (300)
-------- --------- --------- ----------- --------- ----------
BALANCE AT DECEMBER 31, 1994 ............ 70,672 441,700 84,500 1,770,300 (108,900) 2,187,600
Stock options exercised ............... 455 2,800 10,000 12,800
Tax benefit from stock options ........ 6,100 6,100
Common shares purchased ............... (2,761) (17,300) (114,200) (31,200) (162,700)
Restricted shares issued, net ......... 186 1,200 11,200 (10,800) 1,600
Employee stock bonus award ............ 41 300 2,400 2,700
Net income ............................ 746,600 746,600
Dividends on common shares ............ (125,600) (125,600)
Translation adjustment ................ (100) (100)
Additional pension liability .......... 8,000 8,000
Other ................................. 700 700
-------- --------- --------- ----------- --------- ----------
BALANCE AT DECEMBER 31, 1995 ............ 68,593 $ 428,700 $ - $ 2,360,100 ($111,100) $2,677,700
======== ========= ========= =========== ========= ==========
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ------------------------------------------
(Dollar amounts in tables stated in thousands except as noted)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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.
Management's Estimates and Assumptions. The preparation of financial statements
in conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
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 method used for mining, smelting and refining
operations is the units of production method. Buildings, machinery and equipment
for other operations are depreciated using the straight-line method over
estimated lives of five to 40 years, or the estimated life of the operation if
shorter. 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 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 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
for impairment its long-term assets to be held and used and its identifiable
intangible assets when events or changes in economic circumstances indicate the
carrying amount of such assets may not be recoverable. Long-term assets to be
disposed of are carried at the lower of cost or fair value less the costs of
disposal.
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 mitigate the risk of adverse 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 equivalent 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.
Stock Compensation. The Corporation has elected early adoption of Statement of
Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based
Compensation." In accordance with the provisions of SFAS No. 123, the
Corporation applies APB Opinion 25 and related Interpretations in accounting for
its stock option plans and, accordingly, does not recognize compensation cost.
Note 14 to the Consolidated Financial Statements contains a summary of the pro
forma effects to reported net income and earnings per share for 1995, 1994 and
1993 if the Corporation had elected to recognize compensation cost based on the
fair value of the options granted at grant date as prescribed by SFAS No. 123.
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. The Corporation accounts 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. The
Corporation accounts 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. Note 14 to the Consolidated Financial
Statements contains a summary of the pro forma effects to reported earnings per
share for 1995, 1994 and 1993 if the Corporation had elected to recognize
compensation cost in accordance with SFAS No. 123, "Accounting for Stock-Based
Compensation."
Reclassification. For comparative purposes, certain prior year amounts have been
reclassified to conform with the current year presentation.
2. PROVISION FOR ENVIRONMENTAL COSTS AND ASSET DISPOSITIONS
During the 1995 first quarter, the Corporation recognized a $26.8 million gain
before taxes from the sale of Columbian Chemicals Company's synthetic iron oxide
facility in St. Louis, Missouri (MAPICO). This gain increased net income by
$16.6 million, or 24 cents per common share, after taxes. MAPICO was peripheral
to Columbian's core business.
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
$144.1 million and $168.9 million at December 31, 1995, and December 31, 1994,
respectively (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:
- --------------------------------------------------------------------------------
1995 1994 1993
---- ---- ----
International wire and cable
manufacturers .......................... $ 1,000 1,700 3,300
Black Mountain .......................... 4,500 6,000 (600)
Santa Gertrudis ......................... - (600) (3,300)
Other ................................... 1,000 1,500 600
------- ------- -------
$ 6,500 8,600 -
======= ======= =======
- --------------------------------------------------------------------------------
Dividends were received as follows:
- --------------------------------------------------------------------------------
1995 1994 1993
---- ---- ----
Equity investments:
International wire and cable
manufacturers ......................... $ 300 1,400 400
Black Mountain ......................... 5,700 2,900 -
Other .................................. 100 - -
------- ------- -------
$ 6,100 4,300 400
======= ======= =======
Cost basis investments:
Southern Peru Copper
Corporation (13.9%) ................... $ 13,600 3,500 2,900
Other .................................. 300 400 600
------- ------- -------
$ 13,900 3,900 3,500
======= ======= =======
- --------------------------------------------------------------------------------
<PAGE>
Investments and long-term receivables were as follows:
- --------------------------------------------------------------------------------
1995 1994 1993
---- ---- ----
Equity basis:
International wire and cable
manufacturers ........................ $ 18,200 18,500 38,300
Black Mountain ........................ 11,300 12,800 10,200
Santa Gertrudis ....................... - - 3,000
Other ................................. 12,200 11,100 9,300
Cost basis:
Southern Peru Copper
Corporation (13.9%) ................... 13,200 13,200 13,200
Other ................................. 24,100 26,400 41,400
------- ------- -------
$ 79,000 82,000 115,400
======= ======= =======
- --------------------------------------------------------------------------------
Retained earnings of the Corporation include undistributed earnings of
equity investments of (in millions): 1995 - $59.0; 1994 - $58.6; 1993 - $54.3.
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:
- --------------------------------------------------------------------------------
1995 1994 1993
---- ---- ----
Sales ................................ $ 771,200 637,200 637,200
Net income ........................... 42,000 46,000 36,700
- --------------------------------------------------------------------------------
Net current assets ................... $ 66,600 63,300 44,700
Fixed assets, net .................... 259,100 249,500 292,300
Long-term debt ....................... (40,500) (39,000) (64,900)
Other assets, net .................... (3,900) (2,500) 27,500
-------- -------- --------
Net assets ........................... $ 281,300 271,300 299,600
======== ======== ========
- --------------------------------------------------------------------------------
4. INTEREST EXPENSE, NET OF AMOUNT CAPITALIZED
The Corporation reported net interest expense in 1995 of $62.0 million, compared
with $36.6 million in 1994 and $37.0 million in 1993. Increased 1995 net
interest expense principally resulted from the cessation of capitalization of
interest costs for the Candelaria project in Chile reflecting the substantial
completion of construction and development in the 1994 fourth quarter. Also
included in 1995 interest expense were foreign currency exchange gains of $8.1
million reflecting the remeasurement of Venezuelan local currency debt after a
major devaluation of the Bolivar.
5. MISCELLANEOUS INCOME AND EXPENSE, NET
Interest income totaled $31.5 million in 1995, principally from the
Corporation's short-term investments, compared with $11.0 million and $10.9
million in 1994 and 1993, respectively. Miscellaneous income in 1995 also
included pre-tax dividends of $13.6 million on its 13.9 percent minority
interest in Southern Peru Copper Corporation, compared with $3.5 million and
$2.9 million in 1994 and 1993, respectively. Losses from changes in currency
exchange rates, especially in Venezuela and Chile, amounted to $10.2 million in
1995, compared with losses of $6.3 million and $0.1 million in 1994 and 1993,
respectively.
6. INCOME TAXES
The Corporation reports its income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes." 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. SFAS
No. 109 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.
Geographic sources of income before taxes, minority interests and equity in
net earnings of affiliated companies for the years ended December 31 were as
follows:
- --------------------------------------------------------------------------------
1995 1994 1993
---- ---- ----
United States ................. $ 816,200 298,900 258,200
Foreign ....................... 259,500 76,200 47,700
--------- ------- -------
$ 1,075,700 375,100 305,900
========= ======= =======
- --------------------------------------------------------------------------------
The provisions for income taxes for the years ended December 31 were as
follows:
- --------------------------------------------------------------------------------
1995 1994 1993
---- ---- ----
Currently payable:
Federal ................... $ 157,800 94,000 49,900
State ..................... 23,900 14,000 8,400
Foreign ................... 38,100 25,000 18,100
--------- --------- ---------
219,800 133,000 76,400
--------- --------- ---------
Deferred:
Federal ................... 78,400 (27,100) 24,700
State ..................... 400 (2,500) 2,700
Foreign ................... 24,100 1,300 2,100
--------- --------- ---------
102,900 (28,300) 29,500
--------- --------- ---------
$ 322,700 104,700 105,900
========= ========= =========
- --------------------------------------------------------------------------------
A reconciliation of the U.S. statutory tax rate to the Corporation's
effective tax rate is as follows:
- --------------------------------------------------------------------------------
1995 1994 1993
---- ---- ----
Statutory tax rate ................. 35.0 % 35.0 35.0
Depletion .......................... (5.3) (10.6) (4.7)
State and local income taxes ....... 1.5 2.0 2.5
Rate increase effect on existing
temporary differences ............. - - 2.0
Other items, net ................... (1.2) 1.5 (0.2)
----- ----- -----
Effective tax rate 30.0 % 27.9 34.6
===== ===== =====
- --------------------------------------------------------------------------------
The Corporation paid federal, state, local and foreign income taxes of
approximately $247 million in 1995, compared with approximately $114 million in
1994 and approximately $113 million in 1993. As of December 31, 1995, the
Corporation had alternative minimum tax credits of approximately $87 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 alternative
minimum foreign tax credit carryforwards for federal income tax purposes of
approximately $30 million, which begin to expire in 1996.
The Corporation's federal income tax returns for the years 1992, 1993
and 1994 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 1990 and 1991 and will contest those
proposals with the appropriate authorities. The Corporation has reached a
tentative agreement with the Internal Revenue Service to settle the proposed
assessment relating to the Corporation's federal income tax liability for the
years 1988 and 1989. 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. It is possible, however, that settlement of these issues may have a
material effect on the timing and extent of its tax payments.
Deferred income tax assets and (liabilities) comprised the following at
December 31:
- --------------------------------------------------------------------------------
1995 1994
---- ----
Minimum tax credits .............................. $ 86,700 119,000
Postretirement and postemployment benefits ....... 52,500 49,300
Reserves ......................................... 89,600 85,800
Mining costs ..................................... 33,100 19,800
Other ............................................ 6,400 13,100
--------- ---------
Deferred tax assets ............................ 268,300 287,000
--------- ---------
Depreciation ..................................... (540,600) (452,000)
Mining properties ................................ (9,300) (13,500)
Exploration and mine development costs ........... (8,300) (8,800)
Pensions ......................................... (25,000) (15,500)
Inventories ...................................... 1,400 (2,200)
--------- ---------
Deferred tax liabilities ....................... (581,800) (492,000)
--------- ---------
$(313,500) (205,000)
========= =========
- --------------------------------------------------------------------------------
Income taxes have not been provided on the Corporation's share ($398
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 loaned to the
Corporation or a U.S. affiliate, or if the Corporation should sell its stock in
the subsidiaries. It is estimated that repatriation of these foreign earnings
would generate additional foreign tax withholding and U.S. tax, net of foreign
tax credit, in the amounts of $61 million and $31 million, respectively.
7. INVENTORIES AND SUPPLIES
Inventories at December 31 were as follows (in millions):
- --------------------------------------------------------------------------------
1995 1994
---- ----
Metals and other raw materials .................. $ 200.4 176.6
Work in process ................................. 14.6 15.3
Finished manufactured goods ..................... 61.4 69.4
Other ........................................... 5.1 5.0
------- ------
$ 281.5 266.3
======= ======
- --------------------------------------------------------------------------------
Inventories valued by the last-in, first-out method would have been
greater if valued at current costs by approximately $115 million and $111
million at December 31, 1995 and 1994, respectively.
Supplies in the amount of $121.4 million and $110.7 million at December
31, 1995 and 1994, respectively, are stated net of a reserve for obsolescence of
$10.5 million and $14.0 million, respectively.
8. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at December 31 comprised the following (in
millions):
- --------------------------------------------------------------------------------
1995 1994
---- ----
Buildings, machinery and equipment ................ $ 4,296.2 4,060.9
Mining properties ................................. 173.2 129.1
Capitalized mine development ...................... 284.8 283.9
Land and water rights ............................. 66.6 72.5
-------- -------
4,820.8 4,546.4
Less accumulated depreciation, depletion
and amortization ................................. 2,092.1 1,980.0
-------- -------
$ 2,728.7 2,566.4
======== =======
The net increases in property, plant and equipment of $162.3 million in
1995 and $226.2 million in 1994 are summarized below (in millions):
- --------------------------------------------------------------------------------
1995 1994
---- ----
Balance at beginning of year ...................... $ 2,566.4 2,340.2
-------- -------
Capital expenditures .............................. 404.9 355.0
Depreciation, depletion and amortization .......... (218.7) (190.2)
Property, plant and equipment of acquired
companies ........................................ - 69.8
Asset sales, currency translation adjustments
and other ........................................ (23.9) (8.4)
-------- -------
162.3 226.2
-------- -------
Balance at end of year ............................ $ 2,728.7 2,566.4
======== =======
- --------------------------------------------------------------------------------
9. OTHER ASSETS AND DEFERRED CHARGES
Other assets and deferred charges at December 31 were as follows (in millions):
- --------------------------------------------------------------------------------
1995 1994
---- ----
Goodwill, less accumulated amortization
(1995 - $34.5; 1994 - $30.1) ....................... $ 120.8 125.2
Employee benefit plans .............................. 108.8 95.8
Debt issue costs .................................... 29.2 32.8
Intangible pension asset ............................ 18.0 18.0
Other intangible assets ............................. 4.0 4.1
Other ............................................... 2.2 1.6
------- ------
$ 283.0 277.5
======= ======
- --------------------------------------------------------------------------------
10. ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses at December 31 were as follows (in
millions):
- --------------------------------------------------------------------------------
1995 1994
---- ----
Accounts payable .................................... $ 247.5 303.5
Employee benefit plans .............................. 55.8 39.5
Insurance and loss reserves ......................... 12.3 11.4
Salaries, wages and other compensation .............. 36.5 30.3
Environmental reserves .............................. 51.1 42.1
Smelting, refining and freight ...................... 25.9 15.1
Other accrued taxes ................................. 17.6 14.6
Shutdown, relocation and restructuring .............. 7.1 11.4
Interest * .......................................... 13.6 12.4
Candelaria development .............................. - 6.8
Returnable containers ............................... 3.3 4.9
Other ............................................... 34.1 36.5
------ ------
$ 504.8 528.5
====== ======
- ---------------
* Interest paid by the Corporation in 1995 was $70.4 million, compared with
$58.5 million in 1994 and $54.9 million in 1993.
- --------------------------------------------------------------------------------
11. OTHER LIABILITIES AND DEFERRED CREDITS
Other liabilities and deferred credits at December 31 were as follows (in
millions):
- --------------------------------------------------------------------------------
1995 1994
---- ----
Postretirement and postemployment benefit plans ......... $ 148.8 139.4
Other employee benefit plans ............................ 39.9 63.9
Environmental reserves .................................. 92.1 124.9
Shutdown, relocation and restructuring .................. 11.2 13.1
Insurance and loss reserves ............................. 20.7 20.9
Other ................................................... 6.0 3.1
------ ------
$ 318.7 365.3
====== ======
- --------------------------------------------------------------------------------
12. LONG-TERM DEBT AND OTHER FINANCING
Long-term debt at December 31 is summarized below (in millions):
- --------------------------------------------------------------------------------
1995 1994
---- ----
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 81.1
6.50% Installment sale obligations due 2013 .......... 90.0 90.0
Candelaria ............................................ 237.4 235.4
Ojos del Salado ....................................... 8.0 10.4
Columbian Tiszai Carbon Ltd. .......................... 30.0 33.5
Columbian Carbon Spain, S.A ........................... 14.1 13.0
Phelps Dodge International Corporation ................ 13.3 24.3
Other ................................................. 6.0 9.9
------- ------
Long-term debt before current portion ................. 629.9 647.6
Less current portion .................................. 16.8 25.3
------- ------
Long-term debt after current portion .................. $ 613.1 622.3
======= ======
- --------------------------------------------------------------------------------
Annual maturities of debt outstanding at December 31, 1995, are as
follows (in millions): 1996 - $16.8; 1997 - $38.5; 1998 - $51.9; 1999 - $56.1;
2000 - $48.7.
During 1994, the Corporation issued $81.1 million of tax-exempt,
unsecured 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.
An existing revolving credit agreement between the Corporation and
several lenders was amended on October 31, 1994. The 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 this agreement at either December
31, 1995, or December 31, 1994.
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 the London Interbank Offered Rate (LIBOR), for maturities of one
week to six months. This facility, which is subject to renewal annually,
provides for a standby fee of one-eighth of 1 percent of the $25.0 million.
There were no borrowings outstanding under this facility at either December 31,
1995, or December 31, 1994.
The Corporation had other lines of credit totaling $100.0 million at
December 31, 1995, and at December 31, 1994. 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, 1995, or December
31, 1994.
The Corporation had $66.6 million in short-term borrowings, all by its
international operations, at December 31, 1995, compared with $49.3 million at
December 31, 1994. The weighted average interest rate on this debt at December
31, 1995, and December 31, 1994, was 18.5 percent and 14.9 percent,
respectively.
The Corporation's 80-percent-owned Compania Contractual Minera
Candelaria (CCMC) subsidiary borrowed $290 million under its 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 became non-recourse
to the Corporation subsequent to the satisfaction of certain completion tests
during the second quarter of 1995. This $290 million of 13-year financing
comprises $200 million of floating rate dollar denominated debt (with a rate
based on the six-month 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 CCMC 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.
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 until
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, and the EBRD $9 million loan is a
fixed rate dollar borrowing bearing an interest rate of 8.30 percent. The
balances due on these borrowings mature in the years 1996 through 2001.
13. SHAREHOLDERS' EQUITY
During 1995, the Corporation purchased 2,760,600 of its common shares at a total
cost of $163 million. These purchases included 2,675,600 shares under a new 5
million share buy-back program authorized on March 7, 1995, and 85,000 shares
under the superseded program. There were 68,593,300 common shares outstanding on
December 31, 1995.
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, 1995, or
December 31, 1994.
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.
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 and an option's maximum term is ten years. Options granted vest
ratably over a three-year period. 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 Corporation has elected early adoption of Statement of Financial
Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation,"
issued in October 1995. In accordance with the provisions of SFAS No. 123, the
Corporation applies APB Opinion 25 and related Interpretations in accounting for
its stock option plans and, accordingly, does not recognize compensation cost.
If the Corporation had elected to recognize compensation cost based on the fair
value of the options granted at grant date as prescribed by SFAS No. 123, net
income and earnings per share would have been reduced to the pro forma amounts
indicated in the table below (in millions except per share amounts):
- --------------------------------------------------------------------------------
1995 1994 1993
---- ---- ----
Net income - as reported ............... $ 746.6 271.0 187.9
Net income - pro forma ................. 741.6 266.8 184.7
Earnings per share - as reported ....... 10.65 3.81 2.66
Earnings per share - pro forma ......... 10.60 3.76 2.62
- --------------------------------------------------------------------------------
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following assumptions:
Expected dividend yield 3.34%
Expected stock price volatility 22.1%
Risk-free interest rate 6.00%
Expected life of options 3 years
The weighted average fair value of options granted during 1995 is $11.04 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, 1995, options for 627,187 shares, 38,643 shares and
826,272 shares were exercisable under the 1987 plan, the 1989 plan and the 1993
plan, respectively, at average prices of $43.46, $39.82 and $52.70 per share. In
addition, 225,925 shares of Restricted Stock issued under the 1993 plan were
outstanding at December 31, 1995. Also at December 31, 1995, 2,650,259 shares
were available for option grants (including 761,258 shares as restricted stock
awards) under the 1993 plan (plus an additional 600,999 shares that may be
issued as reload options) and 92,403 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.
Changes during 1993, 1994 and 1995 in options outstanding for the
combined plans were as follows:
- --------------------------------------------------------------------------------
Average option
Shares price per share
------ ----------------
Outstanding at December 31, 1992 ................ 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 ................ 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 ................ 2,832,186 47.38
Granted ....................................... 953,838 66.37
Exercised ..................................... (635,881) 38.19
Expired or terminated ......................... (110,345) 51.03
---------
Outstanding at December 31, 1995 * .............. 3,039,798 55.13
=========
- ------------
* Exercise prices for options outstanding at December 31, 1995, range from
a minimum of approximately $27 per share to a maximum of approximately
$68 per share. The average remaining maximum term of options outstanding
is approximately 8 years.
- --------------------------------------------------------------------------------
Changes during 1993, 1994 and 1995 in Restricted Stock were as follows:
- --------------------------------------------------------------------------------
Shares
------
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
Granted ......................................................... 186,516
Released ........................................................ (28,617)
--------
Outstanding at December 31, 1995 .................................. 225,925
========
- --------------------------------------------------------------------------------
15. PENSION PLANS
The Corporation has several non-contributory employee defined benefit pension
plans covering substantially all U.S. employees (the U.S. pension plans).
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):
- --------------------------------------------------------------------------------
Overfunded Underfunded
Plans Plans
------------- -------------
1995 1994 1995 1994
---- ---- ---- ----
Actuarial present value of projected benefit
obligation, based on employment service to
date and current salary levels:
Vested employees ......................... $ 335 254 194 205
Non-vested employees ..................... 18 14 17 17
----- ----- ----- -----
Accumulated benefit obligation ........... 353 268 211 222
Additional amounts related to projected
salary increases ........................ 39 31 5 7
----- ----- ----- -----
Total projected benefit obligation ....... 392 299 216 229
Plan assets at fair value .................. 448 357 178 176
----- ----- ----- -----
Projected pension benefit obligation in
excess of (less than) plan assets ......... (56) (58) 38 53
Unamortized net asset (liability)
existing at January 1, 1985 .............. 10 13 (3) (4)
Unrecognized prior service cost ............ (14) (15) (15) (13)
Unrecognized net loss from
actuarial experience ...................... (12) (10) (11) (17)
----- ----- ----- -----
Accrued (prepaid) pension cost ............. $ (72) (70) 9 19
===== ===== ===== =====
- --------------------------------------------------------------------------------
The Corporation's pension plans were valued between November 1, 1994,
and January 1, 1995, and the obligations were projected to, and the assets were
valued as of, the end of 1995. Of its 21 U.S. pension plans at December 31,
1995, eight were overfunded while 13 were underfunded. Of the Corporation's 18
U.S. pension plans at December 31, 1994, five were overfunded while 13 were
underfunded. 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):
- --------------------------------------------------------------------------------
1995 1994 1993
---- ---- ----
Benefits earned during the year ................. $ 11.2 12.6 10.8
Interest accrued on projected benefit
obligation ..................................... 42.9 40.1 40.8
Return on assets - actual ....................... (119.6) (0.4) (68.0)
- unrecognized gain (loss) ..... 66.6 (51.2) 17.5
Net amortization ................................ 1.0 1.2 0.5
------ ------ ------
Net periodic pension cost for the year ....... $ 2.1 2.3 1.6
====== ====== ======
- --------------------------------------------------------------------------------
Assumptions used to develop the net periodic pension cost included an
8.5 percent discount rate in 1995, compared with discount rates of 7.25 percent
and 8.5 percent in 1994 and 1993, respectively. 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 1995 and 1994, compared with rates of 10 percent and 5
percent, respectively, for 1993. For the valuation of pension obligations, the
discount rate at the end of 1995 was 7.25 percent, decreased from 8.5 percent in
1994 and equivalent to the discount rate at the end of 1993, and the rate of
increase in compensation levels was 4 percent, the same as 1994 and 1993.
The Corporation recognizes a minimum liability in its financial
statements for its underfunded plans. "Other liabilities and deferred credits"
at December 31, 1995, included $26 million relating to this minimum liability,
compared with $40 million at December 31, 1994. This amount was offset by an $18
million intangible asset, a $5 million reduction in "Common Shareholders'
Equity" and a $3 million deferred tax benefit at December 31, 1995, compared
with an $18 million intangible asset, a $13 million reduction in "Common
Shareholders' Equity" and a $9 million deferred tax benefit at December 31,
1994.
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."
16. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Corporation records its obligation for postretirement medical and life
insurance benefits in accordance with SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions." SFAS No. 106 requires recognition
of these benefits on an accrual 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.
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 also are 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 also are 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):
- --------------------------------------------------------------------------------
1995 1994
---- ----
Accumulated Postretirement Benefit Obligation:
Retirees .............................................. $ 80 69
Fully eligible active plan participants ............... 10 8
Other active plan participants ........................ 61 56
----- -----
Total accumulated postretirement benefit
obligation ........................................... 151 133
Plan assets at fair value ............................... 11 11
----- -----
Accumulated postretirement benefit obligation in
excess of plan assets .................................. 140 122
Unrecognized prior service cost ......................... 7 5
Unrecognized net gain (loss) from actuarial
experience ............................................. (10) 1
----- -----
Accrued postretirement benefit cost ..................... $ 137 128
===== =====
- --------------------------------------------------------------------------------
The components of net periodic postretirement benefit cost were as
follows (in millions):
- --------------------------------------------------------------------------------
1995 1994 1993
---- ---- ----
Benefits attributed to service during
the year ........................................ $ 4 4 3
Interest cost on accumulated postretirement
benefit obligation .............................. 11 10 10
Return on assets - actual ........................ (1) (1) (1)
Net amortization ................................. (1) (1) (1)
---- ---- ----
Net periodic postretirement benefit cost
for the year .................................... $ 13 12 11
==== ==== ====
- --------------------------------------------------------------------------------
For 1995 measurement purposes, annual rates of increase in the per
capita cost of covered health care benefits were assumed to average 9 percent
for 1996 decreasing gradually to 5.3 percent by 2010 and remaining at that level
thereafter. 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. 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, 1995, by approximately
$14.0 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 7.25 percent for 1995, compared with 8.5
percent used for 1994. 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 an 8.5 percent discount rate in 1995,
increased from 7.25 percent in 1994 and equivalent to the discount rate used in
1993.
17. COMMITMENTS
Rent expense for the years 1995, 1994 and 1993 was (in millions): $18.8, $23.5
and $26.6, respectively. Future minimum lease payments for all noncancelable
operating leases having a remaining term in excess of one year totaled $61.3
million at December 31, 1995. These commitments for future periods are as
follows (in millions): 1996 - $14.2; 1997 - $11.9; 1998 - $8.6; 1999 - $7.6;
2000 - $5.3; 2001 and thereafter - $13.7.
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 19 to the Consolidated
Financial Statements to which reference should be made for a fuller
understanding of these arrangements with respect to expected 1996 production.
18. 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).
In 1993 and 1994, the New Mexico and Arizona legislatures, respectively,
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.
19. 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 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 mitigate the risk of adverse price
fluctuations on its copper production. With respect to 1995 production, the
Corporation had contracts that provided minimum quarterly average London Metal
Exchange (LME) prices of 80 cents per pound for approximately 640 million pounds
of copper. These contracts expired on December 31, 1995, without payment to
Phelps Dodge. In addition, the Corporation had contracts that provided minimum
(approximately 95 cents) and maximum (approximately $1.33) LME prices per pound
for approximately 650 million pounds of copper. These contracts expired on
December 31, 1995, with Phelps Dodge making payments totaling $1.3 million to
the financial institutions involved. During 1994, contracts that provided the
Corporation with minimum average LME copper prices of 75 cents per pound for
about 21 percent of that year's production expired without payment to Phelps
Dodge. During 1993, the Corporation received revenues of $39.4 million before
taxes ($26.0 million, or 37 cents per common share, after taxes) from similar
arrangements.
With respect to 1996 production, the Corporation has entered into
contracts with several financial institutions that provide for a combination of
minimum and maximum prices based on the quarterly average LME price. These
contracts are summarized in the following table:
- ----------------------------------------------------------------------------
Contracts Providing Contracts Providing Minimum
Minimum Prices and Maximum Prices
-------------- ------------------
Copper Cathode Copper Price (LME) Cathode
Price Pounds ------------------ Pounds
(LME) (millions) Minimum Maximum (millions)
--- -------- ------- ------- --------
First Quarter ............... $ 0.95 170 $ 0.95 $ 1.47 170
Second Quarter .............. $ 0.95 90 $ 0.95 $ 1.42 170
Third Quarter ............... $ 0.95 40 $ 0.90 $ 1.40 145
Fourth Quarter .............. - $ 0.95 $ 1.36 190
----- ---
300 675
===== ===
- ----------------
Note: If average quarterly LME prices exceed the maximum prices, Phelps Dodge
will be obligated to pay the difference to the financial institutions
involved; if average quarterly LME prices fall below the minimum prices,
the financial institutions will be obligated to pay Phelps Dodge the
difference.
- --------------------------------------------------------------------------------
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 equivalent dollar cash flows
resulting from transactions denominated in foreign currencies will be adversely
affected by changes in exchange rates. In hedging a transaction, the
Corporation's foreign exchange hedging strategy may, in certain circumstances,
involve 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, 1995, the Corporation had
protection in place for approximately $73 million of recorded and anticipated
foreign currency transactions through the use of currency option contracts with
an aggregate notional principal amount of approximately $80 million. The
currency option contracts acquired by the Corporation have maturities of less
than one year. The Corporation did not have any deferred unrealized gains or
losses on its foreign exchange contracts at December 31, 1995, compared with
deferred unrealized losses of $0.9 million at December 31, 1994.
Interest Rate Protection Agreement - The Corporation has caused its
80-percent-owned 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, 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 instruments are
estimated by discounting the future cash flows using the current rates
at which similar instruments would be made with similar credit ratings
and for the same remaining maturities.
Long-term debt -- the fair value of substantially all 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 $59.4 million. There is no market for these
guarantees or standby letters of credit 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, 1995, were as follows (in millions):
- --------------------------------------------------------------------------------
Carrying Fair
Amount Value
-------- -----
Cash and short-term investments ................ $ 608.5 608.5
Price protection arrangements
(copper price guarantees) ..................... 4.7 (0.4)
Investments and long-term receivables (including
amounts due within one year) for which it is
practicable to estimate fair value * .......... 34.7 201.7
Long-term debt (including amounts due
within one year) .............................. 629.9 659.3
Interest rate protection agreements ............ 2.5 1.2
Foreign currency exchange contracts ............ 0.6 0.3
- -----------
* The Corporation's largest cost basis investment is its minority
interest in Southern Peru Copper Corporation (SPCC), which is
carried at a book value of $13.2 million. Phelps Dodge's interest in
SPCC was reduced from 16.25 percent to 13.9 percent through an
exchange offering of SPCC common shares recently completed whereby
14.2 percent of SPCC's equity capital was registered for trading on
the New York and Lima Stock Exchanges. Based on the New York Stock
Exchange closing market price of those shares as of January 5, 1996
(the first day of trading), the estimated fair value of the
Corporation's investment in SPCC is approximately $180 million.
Phelps Dodge's ownership interest in SPCC is represented by its
share of a class of SPCC common stock which is currently not
registered for trading on any public exchange.
- --------------------------------------------------------------------------------
20. 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 as rod 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 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
companies that manufacture engineered products principally for the
transportation, energy and telecommunications sectors worldwide. 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 operations through
Columbian Chemicals Company and its subsidiaries; its wheel and rim operations
through Accuride Corporation and its subsidiaries; and its wire and cable and
specialty conductor operations through Phelps Dodge International Corporation
and Phelps Dodge Magnet Wire Company and their subsidiaries and affiliates.
The Corporation's total 1995 sales included exports of $93.7 million
from U.S. operations to unaffiliated foreign customers, compared with $76.2
million in 1994 and $60.3 million in 1993. Intersegment sales reflect the
transfer of copper from Phelps Dodge Mining Company to Phelps Dodge Industries
at the same prices charged to outside customers.
The following tables give a summary of financial data by business
segment and geographic area for the years 1993 through 1995. Major unusual items
during the three-year period included (i) a 1995 pre-tax gain of $26.8 million
included in Phelps Dodge Industries' operating income from the sale by its
carbon black operations of a synthetic iron oxide facility, (ii) a 1994 pre-tax
charge of $94.4 million to Phelps Dodge Mining Company's operating income for
costs associated with environmental matters and asset dispositions, and (iii) a
1994 pre-tax charge of $44.6 million to Phelps Dodge Industries' operating
income for costs associated with environmental matters and asset dispositions,
including $17.6 million for carbon black facilities and $27.0 million for wire
and cable and specialty conductor facilities. (See Note 2 to the Consolidated
Financial Statements for a further discussion of these issues.)
<PAGE>
<TABLE>
- ------------------------------------------------------------------------------------------------------------
FINANCIAL DATA BY BUSINESS SEGMENT
(In millions)
<CAPTION>
Phelps Dodge Industries
Phelps --------------------------------
Dodge Carbon Wheels Wire Corporate
Mining Black & Rims & Cable Total & Other Total
------ ------ ------ ------- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
1995
Sales and other operating revenues:
Unaffiliated customers ......... $ 2,488.7 420.8 357.8 918.1 1,696.7 - 4,185.4
Intersegment ................... 275.0 - - 0.6 0.6 - 275.6
Operating income (loss) .......... 896.8 103.9 45.6 93.8 243.3 (39.6) 1,100.5
Identifiable assets at
December 31 ..................... 2,839.2 424.0 299.5 632.0 1,355.5 451.2 4,645.9
Depreciation, depletion and
amortization .................... 134.0 33.2 21.1 33.9 88.2 1.3 223.5
Capital outlays .................. 321.6 22.6 6.9 52.8 82.3 1.0 404.9
Equity earnings .................. 4.5 - 0.3 1.7 2.0 - 6.5
- ------------------------------------------------------------------------------------------------------------
1994
Sales and other operating revenues:
Unaffiliated customers ......... $ 1,820.7 335.0 333.6 799.9 1,468.5 - 3,289.2
Intersegment ................... 218.5 - - 1.7 1.7 - 220.2
Operating income (loss) .......... 326.4 20.0 42.3 43.8 106.1 (32.1) 400.4
Identifiable assets at
December 31 ..................... 2,450.2 439.9 341.8 621.5 1,403.2 280.4 4,133.8
Depreciation, depletion and
amortization .................... 105.1 34.1 20.5 34.5 89.1 1.1 195.3
Capital outlays .................. 299.2 19.6 6.4 29.1 55.1 0.7 355.0
Equity earnings .................. 5.6 0.3 0.3 2.4 3.0 - 8.6
- ------------------------------------------------------------------------------------------------------------
1993
Sales and other operating revenues:
Unaffiliated customers ......... $ 1,320.3 311.8 281.9 681.9 1,275.6 - 2,595.9
Intersegment ................... 171.0 - - 2.7 2.7 - 173.7
Operating income (loss) .......... 227.2 33.3 25.2 70.6 129.1 (29.8) 326.5
Identifiable assets at
December 31 ..................... 2,105.5 396.2 322.8 616.7 1,335.7 279.7 3,720.9
Depreciation, depletion and
amortization .................... 104.9 30.0 20.3 30.8 81.1 1.1 187.1
Capital outlays .................. 285.4 45.8 9.9 45.5 101.2 0.6 387.2
Equity earnings (losses) ......... (3.5) (0.3) (0.2) 4.0 3.5 - -
- ------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
FINANCIAL DATA BY GEOGRAPHIC AREA
(In millions)
- ---------------------------------------------------------------------------
1995 1994 1993
---- ---- ----
SALES AND OTHER OPERATING REVENUES:
Unaffiliated customers
United States ................... $ 3,072.6 2,485.9 1,918.7
Latin America ................... 537.3 346.7 274.0
Other ........................... 575.5 456.6 403.2
-------- ------- -------
$ 4,185.4 3,289.2 2,595.9
======== ======= =======
Intergeographic areas
United States ................... $ 13.1 19.3 17.1
Latin America ................... 23.7 - -
Other ........................... 47.9 54.4 53.6
-------- ------- -------
$ 84.7 73.7 70.7
======== ======= =======
OPERATING INCOME:
United States .................... $ 810.4 337.2 267.7
Latin America .................... 196.8 30.0 17.7
Other ............................ 93.3 33.2 41.1
-------- ------- -------
$ 1,100.5 400.4 326.5
======== ======= =======
IDENTIFIABLE ASSETS AT DECEMBER 31:
United States .................... $ 3,157.1 2,789.0 2,581.2
Latin America .................... 931.3 798.2 653.3
Other ............................ 557.5 546.6 486.4
-------- ------- -------
$ 4,645.9 4,133.8 3,720.9
======== ======= =======
- ---------------------------------------------------------------------------
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 1, 1996 (the 1996 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 1996 Proxy Statement is being
prepared and will be filed with the Securities and Exchange Commission and
furnished to shareholders on or about April 1, 1996.
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 (incorporated by reference to Exhibit 10.3 to the
Corporation's 1994 Form 10-K (SEC File No. 1-82)).
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 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)).
10.6 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 1996 Proxy
Statement (incorporated by reference to Exhibit 10.7 to the
Corporation's 1992 Form 10-K (SEC File No. 1-82)).
10.7 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 1996 Proxy Statement
(incorporated by reference to Exhibit 10.11 to the Corporation's
1988 Form 10-K (SEC File No. 1-82)).
10.8 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)).
10.9 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)). Four 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)), one effective as
of September 7, 1994 (incorporated by reference to Exhibit 10.11 of
the Corporation's 1994 Form 10-K (SEC File No. 1-82)), and one
effective June 7, 1995 (incorporated by reference to Exhibit 10.11
of the Corporation's Form 10-Q for the quarter ended June 30, 1995
(SEC File No. 1-82)).
10.10 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)).
10.11 Retirement Agreement dated as of June 20, 1995, between Dr. Patrick
J. Ryan and the Corporation (incorporated by reference to Exhibit
10.13 of the Corporation's Form 10-Q for the quarter ended June 30,
1995 (SEC File No. 1-82)).
10.12 Consulting Agreement dated as of June 20, 1995, between Dr. Patrick
J. Ryan and the Corporation (incorporated by reference to Exhibit
10.14 of the Corporation's Form 10-Q for the quarter ended June 30,
1995 (SEC File No. 1-82)).
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, 1995.
<PAGE>
<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
--------- -------- ----- ----- ---------
Reserve deducted in
balance sheet from the
asset to which applicable:
<S> <C> <C> <C> <C> <C>
Accounts Receivable:
December 31, 1995 ....... $11,800 2,000 (800) 1,000 12,000
December 31, 1994 ....... 12,200 1,900 - 2,300 11,800
December 31, 1993 ....... 10,700 1,800 600 900 12,200
Supplies:
December 31, 1995 ....... $14,000 600 200 4,300 10,500
December 31, 1994 ....... 12,700 700 3,100 2,500 14,000
December 31, 1993 ....... 16,700 3,600 200 7,800 12,700
</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 20, 1996 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 20, 1996
- -------------------
Douglas C. Yearley
Senior Vice President
and Chief Financial Officer
Thomas M. St. Clair (Principal Financial Officer) March 20, 1996
- -------------------
Thomas M. St. Clair
Vice President and Controller
Thomas M. Foster (Principal Accounting Officer) March 20, 1996
- -------------------
Thomas M. Foster
Edward L. Addison, Robert N. Burt, Paul W. Douglas, )
William A. Franke, Paul Hazen, Marie L. Knowles, ) March 20, 1996
Robert D. Krebs, Southwood J. Morcott, Gordon R. Parker,)
J. Steven Whisler, Directors )
By: Thomas M. St. Clair
-------------------
Thomas M. St. Clair
Attorney-in-fact
PHELPS DODGE CORPORATION AND SUBSIDIARIES
Exhibit 12
COMPUTATION OF TOTAL DEBT TO TOTAL CAPITALIZATION
(Dollars in thousands)
December 31,
---------------------------
1995 1994 1993
---- ---- ----
Short-term debt ................. $ 66,600 49,300 82,700
Current portion of long-term debt 16,800 25,300 17,200
Long-term debt .................. 613,100 622,300 547,300
---------- --------- ---------
Total debt ...................... 696,500 696,900 647,200
Minority interest in subsidiaries 73,300 65,300 62,200
Common shareholders' equity ..... 2,677,700 2,187,600 2,022,100
---------- --------- ---------
Total capitalization ............ $3,447,500 2,949,800 2,731,500
========== ========= =========
Ratio of total debt to total
capitalization ................. 20.2% 23.6% 23.7%
========== ========= =========
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 International (France) S.A. (France) 100.0
Columbian Carbon Philippines, Inc. (Philippines) 88.2
Columbian Carbon Spain, S.A. (Spain) 100.0
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 22, 1996 appearing on page 54 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 52 of this Form 10-K.
PRICE WATERHOUSE LLP
Phoenix, Arizona
March 20, 1996
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 Robert C. Swan 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, 1995 of Phelps Dodge
Corporation on Form 10-K
(1) to sign the Annual Report for the fiscal year ended December
31, 1995 of Phelps Dodge Corporation on Form 10-K ("1995 Form 10-K") to
be filed under the Securities Exchange Act of 1934, as amended, and any
and all amendments to such 1995 Form 10-K;
(2) to file such 1995 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 1995 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 19th day of January, 1996.
Edward L. Addison
------------------------------
Edward L. Addison
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints Douglas C. Yearley, Thomas M. St. Clair and Robert C. Swan 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, 1995 of Phelps Dodge Corporation
on Form 10-K
(1) to sign the Annual Report for the fiscal year ended December
31, 1995 of Phelps Dodge Corporation on Form 10-K ("1995 Form 10-K") to
be filed under the Securities Exchange Act of 1934, as amended, and any
and all amendments to such 1995 Form 10-K;
(2) to file such 1995 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 1995 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 18th day of January, 1996.
Robert N. Burt
----------------------------
Robert N. Burt
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints Douglas C. Yearley, Thomas M. St. Clair and Robert C. Swan 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, 1995 of Phelps Dodge Corporation
on Form 10-K
(1) to sign the Annual Report for the fiscal year ended December
31, 1995 of Phelps Dodge Corporation on Form 10-K ("1995 Form 10-K") to
be filed under the Securities Exchange Act of 1934, as amended, and any
and all amendments to such 1995 Form 10-K;
(2) to file such 1995 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 1995 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 19th day of January, 1996.
Paul W. Douglas
-----------------------------
Paul W. Douglas
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints Douglas C. Yearley, Thomas M. St. Clair and Robert C. Swan 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, 1995 of Phelps Dodge Corporation
on Form 10-K
(1) to sign the Annual Report for the fiscal year ended December
31, 1995 of Phelps Dodge Corporation on Form 10-K ("1995 Form 10-K") to
be filed under the Securities Exchange Act of 1934, as amended, and any
and all amendments to such 1995 Form 10-K;
(2) to file such 1995 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 1995 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 29th day of January, 1996.
William A. Franke
------------------------------
William A. Franke
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints Douglas C. Yearley, Thomas M. St. Clair and Robert C. Swan 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, 1995 of Phelps Dodge Corporation
on Form 10-K
(1) to sign the Annual Report for the fiscal year ended December
31, 1995 of Phelps Dodge Corporation on Form 10-K ("1995 Form 10-K") to
be filed under the Securities Exchange Act of 1934, as amended, and any
and all amendments to such 1995 Form 10-K;
(2) to file such 1995 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 1995 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 18th day of January, 1996.
Paul Hazen
------------------------------
Paul Hazen
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints Douglas C. Yearley, Thomas M. St. Clair and Robert C. Swan and each of
them her true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for her and in her name, place and stead, in
any and all capacities:
Annual Report For the Year Ended December 31, 1995 of Phelps Dodge Corporation
on Form 10-K
(1) to sign the Annual Report for the fiscal year ended December
31, 1995 of Phelps Dodge Corporation on Form 10-K ("1995 Form 10-K") to
be filed under the Securities Exchange Act of 1934, as amended, and any
and all amendments to such 1995 Form 10-K;
(2) to file such 1995 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 1995 Form 10-K;
as fully to all intents and purposes as she 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 her 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 19th day of January, 1996.
Marie L. Knowles
------------------------------
Marie L. Knowles
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints Douglas C. Yearley, Thomas M. St. Clair and Robert C. Swan 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, 1995 of Phelps Dodge Corporation
on Form 10-K
(1) to sign the Annual Report for the fiscal year ended December
31, 1995 of Phelps Dodge Corporation on Form 10-K ("1995 Form 10-K") to
be filed under the Securities Exchange Act of 1934, as amended, and any
and all amendments to such 1995 Form 10-K;
(2) to file such 1995 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 1995 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 18th day of January, 1996.
Robert D. Krebs
------------------------------
Robert D. Krebs
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints Douglas C. Yearley, Thomas M. St. Clair and Robert C. Swan 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, 1995 of Phelps Dodge Corporation
on Form 10-K
(1) to sign the Annual Report for the fiscal year ended December
31, 1995 of Phelps Dodge Corporation on Form 10-K ("1995 Form 10-K") to
be filed under the Securities Exchange Act of 1934, as amended, and any
and all amendments to such 1995 Form 10-K;
(2) to file such 1995 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 1995 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 18th day of January, 1996.
Southwood J. Morcott
------------------------------
Southwood J. Morcott
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints Douglas C. Yearley, Thomas M. St. Clair and Robert C. Swan 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, 1995 of Phelps Dodge Corporation
on Form 10-K
(1) to sign the Annual Report for the fiscal year ended December
31, 1995 of Phelps Dodge Corporation on Form 10-K ("1995 Form 10-K") to
be filed under the Securities Exchange Act of 1934, as amended, and any
and all amendments to such 1995 Form 10-K;
(2) to file such 1995 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 1995 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 25th day of January, 1996.
Gordon R. Parker
------------------------------
Gordon R. Parker
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints Douglas C. Yearley, Thomas M. St. Clair and Robert C. Swan 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, 1995 of Phelps Dodge Corporation
on Form 10-K
(1) to sign the Annual Report for the fiscal year ended December
31, 1995 of Phelps Dodge Corporation on Form 10-K ("1995 Form 10-K") to
be filed under the Securities Exchange Act of 1934, as amended, and any
and all amendments to such 1995 Form 10-K;
(2) to file such 1995 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 1995 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 18th day of January, 1996.
J. Steven Whisler
------------------------------
J. Steven Whisler
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints Thomas M. St. Clair and Robert C. Swan 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, 1995 of Phelps Dodge Corporation
on Form 10-K
(1) to sign the Annual Report for the fiscal year ended December
31, 1995 of Phelps Dodge Corporation on Form 10-K ("1995 Form 10-K") to
be filed under the Securities Exchange Act of 1934, as amended, and any
and all amendments to such 1995 Form 10-K;
(2) to file such 1995 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 1995 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 18th day of January, 1996.
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, 1995 AND THE RELATED
CONSOLIDATED STATEMENTS OF OPERATIONS AND OF CASH FLOWS FOR THE
YEAR ENDED DECEMBER 31, 1995 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-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1
<CASH> 608,500
<SECURITIES> 0
<RECEIVABLES> 495,700
<ALLOWANCES> 12,000
<INVENTORY> 281,500
<CURRENT-ASSETS> 1,555,200
<PP&E> 4,820,800
<DEPRECIATION> 2,092,100
<TOTAL-ASSETS> 4,645,900
<CURRENT-LIABILITIES> 605,000
<BONDS> 613,100
0
0
<COMMON> 428,700
<OTHER-SE> 2,249,000
<TOTAL-LIABILITY-AND-EQUITY> 4,645,900
<SALES> 4,185,400
<TOTAL-REVENUES> 4,185,400
<CGS> 2,691,400
<TOTAL-COSTS> 2,691,400
<OTHER-EXPENSES> 269,900
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 62,000
<INCOME-PRETAX> 1,075,700
<INCOME-TAX> 322,700
<INCOME-CONTINUING> 746,600
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 746,600
<EPS-PRIMARY> 10.65
<EPS-DILUTED> 10.65
</TABLE>
