<PAGE> 1
Information contained herein is subject to completion or amendment. This
Prospectus Supplement and the accompanying Prospectus shall not constitute
an offer to sell or the solicitation of an offer to buy nor shall there be
any sale of these securities in any State in which such offer, solicitation
or sale would be unlawful prior to registration or qualification under the
securities laws of any such State.
PROSPECTUS SUPPLEMENT (Subject to Completion, Issued October 24, 1997)
(To Prospectus dated October 14, 1997)
$250,000,000
[PHELPS DODGE CORPORATION LOGO]
$ % NOTES DUE ,
$ % DEBENTURES DUE , 2027
------------------------
Interest payable May and November
------------------------
THE % NOTES DUE , (THE "NOTES") AND THE % DEBENTURES DUE
, 2027 (THE "DEBENTURES" AND, TOGETHER WITH THE NOTES, THE "OFFERED
SECURITIES") WILL MATURE ON NOVEMBER , AND NOVEMBER , 2027,
RESPECTIVELY. THE NOTES WILL NOT BE REDEEMABLE PRIOR TO MATURITY. THE DEBENTURES
WILL BE REDEEMABLE IN WHOLE OR IN PART, AT THE OPTION OF THE CORPORATION AT ANY
TIME, AT A REDEMPTION PRICE DESCRIBED HEREIN UNDER "DESCRIPTION OF THE OFFERED
SECURITIES-REDEMPTION." EACH SERIES OF OFFERED SECURITIES WILL BE REPRESENTED BY
ONE OR MORE GLOBAL SECURITIES (EACH A "REGISTERED GLOBAL SECURITY") REGISTERED
IN THE NAME OF THE DEPOSITORY TRUST COMPANY (THE "DEPOSITARY") OR ITS NOMINEE.
BENEFICIAL INTERESTS IN THE REGISTERED GLOBAL SECURITIES WILL BE SHOWN ON, AND
TRANSFERS THEREOF WILL BE EFFECTED ONLY THROUGH, RECORDS MAINTAINED BY THE
DEPOSITARY AND ITS PARTICIPANTS. SEE "DESCRIPTION OF THE OFFERED
SECURITIES-BOOK-ENTRY SYSTEM". EXCEPT AS DESCRIBED HEREIN AND IN THE
ACCOMPANYING PROSPECTUS, OFFERED SECURITIES IN DEFINITIVE FORM WILL NOT BE
ISSUED.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS TO WHICH IT
RELATES. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
PRICE OF NOTES DUE % AND ACCRUED INTEREST, IF ANY
PRICE OF DEBENTURES DUE 2027 % AND ACCRUED INTEREST, IF ANY
------------------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC(1) COMMISSIONS(2) CORPORATION (1)(3)
--------------------- --------------------- ---------------------
<S> <C> <C> <C>
Per Note.................... % % %
Total..................... $ $ $
Per Debenture............... % % %
Total..................... $ $ $
</TABLE>
- ------------
(1) Plus accrued interest, if any, from November , 1997.
(2) The Corporation has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended.
(3) Before deducting expenses payable by the Corporation estimated at
$450,000.
------------------------
The Offered Securities are offered, subject to prior sale, when, as and if
accepted by the Underwriters named herein and subject to approval of certain
legal matters by Davis Polk & Wardwell, counsel for the Underwriters. It is
expected that delivery of the Offered Securities will be made only in book-entry
form through the facilities of The Depository Trust Company on or about November
, 1997 against payment therefor in immediately available funds.
------------------------
MORGAN STANLEY DEAN WITTER
CHASE SECURITIES INC.
CITICORP SECURITIES, INC.
October , 1997
<PAGE> 2
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED IN CONNECTION
WITH ANY OFFERING MADE HEREBY TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS SUPPLEMENT OR THE
ACCOMPANYING PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
CORPORATION OR BY ANY UNDERWRITER. THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS
DO NOT CONSTITUTE AN OFFER TO SELL OR SOLICITATION OF AN OFFER TO BUY BY ANY
PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL FOR SUCH PERSON TO MAKE SUCH
AN OFFERING OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT
OR THE ACCOMPANYING PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION HEREIN OR THEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
The Corporation....................................................................... S-3
Use of Proceeds....................................................................... S-5
Recent Developments................................................................... S-5
Capitalization........................................................................ S-9
Summary Financial Information......................................................... S-10
Management's Discussion and Analysis.................................................. S-11
Description of the Offered Securities................................................. S-21
Underwriters.......................................................................... S-24
Legal Matters......................................................................... S-25
PROSPECTUS
Available Information................................................................. 2
Incorporation of Certain Documents by Reference....................................... 3
The Corporation....................................................................... 3
Use of Proceeds....................................................................... 4
Ratio of Earnings to Fixed Charges.................................................... 4
Description of Debt Securities........................................................ 4
Plan of Distribution.................................................................. 13
Legal Matters......................................................................... 15
Experts............................................................................... 15
</TABLE>
------------------------
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE OFFERED
SECURITIES. SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT IN CONNECTION WITH ANY
OFFERING OF THE OFFERED SECURITIES , AND MAY BID FOR, AND PURCHASE, THE OFFERED
SECURITIES IN THE OPEN MARKET. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITERS".
S-2
<PAGE> 3
THE CORPORATION
Phelps Dodge Corporation, incorporated under the laws of New York in 1885,
is among the world's largest producers of copper. In 1996, the Corporation
produced 770,400 tons of copper for its own account from its worldwide mining
operations and an additional 162,900 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. Unless
the context otherwise requires, "Corporation", as used in this Prospectus
Supplement, includes Phelps Dodge Corporation and its consolidated subsidiaries.
The Corporation's business consists of two segments, Phelps Dodge Mining
Company and Phelps Dodge Industries. 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. The Phelps Dodge
Industries segment includes the Corporation's specialty chemicals operations,
its wire and cable operations, and its wheel and rim business.
The following discussion is based on the Corporation's description of its
Business and Properties included in its Annual Report on Form 10-K for the year
ended December 31, 1996, and more extensive information concerning the
Corporation is contained in such report. See "Incorporation of Certain Documents
by Reference" in the accompanying Prospectus.
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, molydenum 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 Mining Company produces copper concentrates from open-pit
mines and concentrators located in Morenci, Arizona; Santa Rita, New Mexico and
near Copiapo, Chile. The Mining Company also produces copper concentrates from
two underground mines and a concentrator located near Copiapo. In addition, the
Mining Company produces electrowon copper cathode at solution
extraction/electrowinning (SX/EW) operations in Morenci, Arizona; Santa Rita,
New Mexico and Tyrone, New Mexico.
Production of copper for the Mining Company's own account from its U.S.
operations constituted more than 25 percent of the copper mined in the United
States in 1996. Much of the Mining Company's U.S. copper production, after
electrowinning or smelting and refining, together with additional copper
purchased from others, is used by the Mining Company to produce continuous-cast
copper rod, the basic feed for the electrical wire and cable industry, at its
facilities in El Paso, Texas and Norwich, Connecticut. The Corporation is the
world's largest producer of copper rod.
The Corporation owns and operates a smelter in Hidalgo County, New Mexico
and, through Chino Mines Company, owns a two-thirds interest in the Chino
smelter in Hurley, New Mexico. The Corporation 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.
The Corporation's refinery in El Paso, Texas is one of the world's largest
copper refineries. During 1996, the refinery operated at capacity producing just
over 450,000 tons of electrolytic copper.
S-3
<PAGE> 4
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 costs and quality, and specialized engineering capabilities. This
business segment includes the Corporation's specialty chemicals operations
through Columbian Chemicals Company and its subsidiaries (Columbian Chemicals);
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; and its wheel and rim operations
through Accuride Corporation and its subsidiaries (Accuride).
Columbian Chemicals, headquartered in Atlanta, Georgia, is an international
producer and marketer of carbon blacks. Columbian Chemicals 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. Columbian'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.
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 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 14 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.
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. Its
manufacturing operations consist of plants located in Inman, South Carolina;
Trenton, Georgia and Elizabeth, Fairfield, Montville and West Caldwell, New
Jersey.
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. Accuride 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. On October 6, 1997, the Corporation
announced it is seeking to sell Accuride Corporation in order to allow the
Corporation to concentrate on its significant global growth plans in mining,
wire and cable, and specialty chemicals.
S-4
<PAGE> 5
USE OF PROCEEDS
The Corporation will use most of the net proceeds from the sale of the
Offered Securities for repayment of outstanding commercial paper issued for
general corporate purposes ($169.6 million principal outstanding as of October
23, 1997 at a weighted average rate of approximately 5.55% per annum) and the
remainder for general corporate purposes, including (i) possible future
acquisitions, (ii) purchasing common shares of the Corporation and (iii) capital
expenditures. Pending such application, such proceeds will be invested in short-
term securities.
RECENT DEVELOPMENTS
On October 9, 1997, the Corporation reported consolidated earnings of
$118.6 million, or $1.96 per common share, for the third quarter of 1997 before
non-recurring, after-tax charges of $14.4 million, or 24 cents per common share,
which primarily reflected an early retirement program at Phelps Dodge Mining
Company. Net income in the 1996 third quarter was $80.2 million, or $1.22 per
common share. Earnings for the nine months ended September 30, 1997 were $390.9
million, or $6.25 per common share, before the non-recurring charges, compared
with net income of $359.6 million, or $5.40 per common share, in the
corresponding 1996 period. Net income after non-recurring charges was $104.2
million, or $1.72 per common share, in the 1997 third quarter and $376.5
million, or $6.02 per common share, for the nine months ended September 30,
1997.
1997 third quarter earnings per share exceeded the year-earlier period by
approximately 40 percent even after the effect of certain non-recurring charges.
Phelps Dodge Mining Company contributed to this increase with a record 413
million pounds of copper production and a record 421 million pounds of copper
sold from mine production, demonstrating the Mining Company's continued
significant progress in meeting its year 2002 goal of 2.2 billion pounds of
annual production. In addition, average copper prices were 11 cents per pound
higher than those in the prior-year period, which had been depressed by the
market's reaction to unauthorized transactions by a Japanese company's copper
trader. Decreased average shares outstanding resulting from the Corporation's
continuing share purchase program also contributed to the increase in earnings
per share. Partially offsetting these factors, Phelps Dodge Industries
experienced decreased earnings primarily as a result of the current economic
difficulties in Southeast Asia.
Operating income in the 1997 third quarter was $150.0 million, an increase
of $23.3 million from the corresponding 1996 period principally as a result of
higher average copper prices and higher volumes of copper sold from mine
production. Operating income of $546.7 million for the nine-month period ended
September 30, 1997 was $5.3 million less than the corresponding 1996 period
principally due to higher copper production costs, lower sales volumes of
specialty chemicals in the European market and the effects of economic
difficulties in Southeast Asia.
The COMEX spot price per pound of copper cathode, upon which the
Corporation bases its selling price for a majority of its production, averaged
$1.02 in the third quarter and $1.09 in the first nine months of 1997, compared
with 91 cents and $1.08 in the corresponding 1996 periods. From August 1 to
October 23, 1997, the COMEX price averaged 97 cents per pound, closing at 93
cents on October 23, 1997.
Depending on market circumstances, the Corporation may periodically
purchase or liquidate various copper price protection contracts for a portion of
its expected future mine production to mitigate the risk of adverse price
fluctuations. As of October 23, 1997, the Corporation had no copper price
protection contracts in place.
Cash flow provided by operating activities was $553.8 million for the first
nine months of 1997, compared with $677.1 million in the corresponding period in
1996. The decrease in 1997 cash flow is primarily due to an increase in working
capital requirements, while working capital declined in 1996.
Sales were $961.7 million in the 1997 third quarter and $3,048.4 million in
the first nine months of 1997, compared with $853.6 million and $2,816.0 million
in the corresponding 1996 periods. The 1997 increases
S-5
<PAGE> 6
principally resulted from higher average copper prices, increased copper sales
volumes, and also from increased sales of wire and cable products and wheels and
rims.
Phelps Dodge Mining Company reported operating income of $137.1 million in
the third quarter, before $20.8 million of non-recurring, pre-tax charges, which
primarily reflected its early retirement program. Operating income in the 1996
third quarter was $76.5 million. For the nine-month period ending September 30,
1997, Phelps Dodge Mining Company contributed operating income of $451.3 million
before the effects of the non-recurring charges, compared with $407.4 million in
the corresponding 1996 period. These increases reflected higher average copper
prices and higher volumes of copper sold from mine production.
Phelps Dodge Mining Company's sales of copper increased by 35,500 tons or
15 percent in the third quarter of 1997 and by 75,200 tons or 10 percent in the
first nine months of 1997 compared with the corresponding 1996 periods. The
sales volume increases principally consisted of copper purchased for resale.
Resulting sales and other operating revenues in the third quarter of 1997 were
$542.3 million, 24 percent higher than the corresponding 1996 period, while
sales and other operating revenues in the first nine months of 1997 were
$1,736.4 million, 12 percent higher than the same 1996 period.
The Phelps Dodge Mining Company share of mine production from its worldwide
operations was a record 206,400 tons of copper in the 1997 third quarter and
600,500 tons in the first nine months of 1997. This production compares with
187,900 tons in the 1996 third quarter and 573,300 tons in the first nine months
of 1996. Minority participants' shares of mine production from the Corporation's
worldwide operations were 43,800 tons of copper in the 1997 third quarter and
126,400 tons in the first nine months of 1997. This production compares with
39,100 tons in the 1996 third quarter and 121,100 tons in the first nine months
of 1996. Phelps Dodge Mining Company copper sales from mine production were a
record 210,500 tons in the 1997 third quarter and 593,000 tons in the first nine
months, compared with 194,500 tons and 573,900 tons in the corresponding 1996
periods.
On May 7, 1997, the Corporation announced plans to resume production at its
Ajo copper mine in southern Arizona where mining operations have been suspended
since 1984. Construction of a $238 million modernization of the facility is
scheduled to begin in early 1998, pending completion of environmental
permitting, with commercial production expected to begin as soon as late 1999.
When operating at full capacity, Ajo is expected to add 135 million pounds of
copper to the Corporation's annual production.
On September 25, 1997, the Corporation announced it had sold its 72.25
percent interest in the McDonald gold project and other associated properties to
CR Montana Corporation and Canyon Resources Corporation, the owner of CR
Montana. The purchase price included the immediate payment of $5 million with an
additional payment to the Corporation of between $95 million and $145 million
upon commencement of construction or issuance of permits necessary for the
project. The final component of the total purchase price of up to $150 million
would then be based on quarterly production payments. If any person acquires a
significant portion of, or any undivided interest in, the McDonald gold project
or the other associated properties, or an agreement that the McDonald gold
project will not be developed is reached, the Corporation will be paid an amount
equal to 72.25% of the proceeds or other consideration of such transaction, less
reasonable expenses incurred in connection with the development of the project
after the date of the Corporation's sale to CR Montana Corporation and Canyon
Resources Corporation.
Phelps Dodge Industries reported operating income of $44.0 million in the
1997 third quarter, compared with $58.8 million in the corresponding 1996
period. Operating income in the first nine months of 1997 was $149.2 million,
compared with $173.3 million in the first nine months of 1996. Third quarter
earnings were adversely affected by economic difficulties in Southeast Asia, and
by lower sales volumes of specialty chemicals and generally weaker currencies in
the European market, partially offset by continued strength in the U.S. wheel
and rim market. In addition, the year-to-date decrease in earnings reflected the
effects of a first quarter 1997 strike at Accuride's London, Ontario wheel and
rim plant.
S-6
<PAGE> 7
Phelps Dodge Industries reported sales of $419.4 million in the third
quarter and $1,312.0 million in the first nine months of 1997. Sales were $416.4
million and $1,264.9 million in the corresponding 1996 periods.
<TABLE>
<CAPTION>
THIRD QUARTER FIRST NINE MONTHS
----------------- --------------------
1997 1996 1997 1996
------- ------ -------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C>
Sales and other operating revenues:
Specialty chemicals................................... $ 101.5 105.1 316.6 327.4
Wheels and rims....................................... 78.4 71.3 247.0 235.2
Wire and cable........................................ 239.5 240.0 748.4 702.3
------ ------ ------- -------
$ 419.4 416.4 1,312.0 1,264.9
====== ====== ======= =======
Operating income:
Specialty chemicals................................... $ 15.3 19.4 51.1 64.3
Wheels and rims....................................... 14.1 9.5 33.9 33.7
Wire and cable........................................ 14.6 29.9 64.2 75.3
------ ------ ------- -------
$ 44.0 58.8 149.2 173.3
====== ====== ======= =======
</TABLE>
On May 1, 1997, Accuride and Kaiser Aluminum and Chemical Corporation
(Kaiser) formed a joint venture company to produce aluminum wheels for the
commercial transportation industry. Accuride and Kaiser each own 50 percent of
the new company. This venture replaces the prior arrangement under which Kaiser
manufactured finished aluminum wheels for Accuride.
On October 6, 1997, the Corporation announced that it is seeking to sell
Accuride Corporation in order to allow the Corporation to concentrate on its
significant global growth plans in mining, wire and cable, and specialty
chemicals.
Miscellaneous income and expense, net, decreased by $4.2 million in the
third quarter and increased by $3.5 million in the first nine months of 1997,
compared with the corresponding 1996 periods. The third quarter decrease from
the prior year principally reflected a $3.8 million decrease in interest income.
The 1997 year-to-date increase principally reflected the occurrence in the 1996
second quarter of a $7.1 million foreign exchange loss from the effect on
working capital of the devaluation of the Venezuelan Bolivar, and a $6.0 million
pre-tax, non-cash gain in the 1997 second quarter from the exchange of shares of
a cost basis investment in a wire and cable business located in Greece. The
year-to-date increase was partially offset by an $8.3 million decrease in
interest income and a $2.3 million decrease in dividends received from the
Corporation's 13.9 percent minority interest in Southern Peru Copper
Corporation. The $7.1 million 1996 second quarter foreign exchange loss from the
devaluation of the Bolivar was offset by an $8.0 million interest expense gain
that represented a remeasurement of Venezuelan local currency debt after the
devaluation.
The revolving credit agreement between the Corporation and several lenders
was amended on June 25, 1997. The agreement, as amended and restated, permits
borrowings of up to $1 billion from time to time until its scheduled maturity on
June 25, 2002. The agreement allows for two one-year renewals beyond the
scheduled maturity date if the Corporation requests and receives approval from
at least two-thirds of the lenders involved. 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 between seven and 360 days. This
agreement provides for a facility fee of six and one-half basis points (0.065
percent) on total commitments. The agreement requires the Corporation to
maintain a minimum consolidated tangible net worth of $1.1 billion and limits
indebtedness to 50 percent of total consolidated capitalization. There were no
borrowings under this agreement at either October 23, 1997 or December 31, 1996.
On August 15, 1997, under a private placement agency agreement between the
Corporation and two placement agents, the Corporation established a commercial
paper program. The agreement permits the Corporation to issue up to $1 billion
of short-term promissory notes generally known as commercial paper at any one
time. Commercial paper may bear interest or be sold at a discount, as mutually
agreed by the
S-7
<PAGE> 8
Corporation and the placement agents at the time of each issuance. There was
$169.6 million principal outstanding under this program at October 23, 1997.
The Corporation's total debt at September 30, 1997 was $921.5 million,
compared with $659.3 million at year-end 1996. The 1997 increase includes
non-recourse project financing for the expansion of the Candelaria mine, and
$174.7 million of borrowings under the Corporation's newly instituted commercial
paper program to support the Corporation's capital expenditure and share
purchase programs. The Corporation's ratio of total debt to total capitalization
was 25.9 percent at September 30, 1997, compared with 18.8 percent at December
31, 1996.
During the second quarter of 1997, the Corporation's 80-percent-owned
Chilean subsidiary, Compania Contractual Minera Candelaria (CCMC), borrowed $30
million of 12-year, dollar-denominated debt to refinance Chilean
peso-denominated debt that was prepaid in December 1996. In addition, CCMC
borrowed $58 million in the second quarter and $11 million in the third quarter
under a $150 million, 12-year dollar-denominated facility arranged in order to
partially finance CCMC's $337 million expansion project. Both of these
facilities are based on floating rates tied to six-month LIBOR and are
non-recourse to the Corporation. Under the proportional consolidation method,
the Corporation reflects 80 percent of these amounts in its financial
statements. The Corporation caused CCMC to sell the 9 percent and 11 percent
interest rate caps purchased in 1993 that were intended to limit the effect of
increases in the cost of CCMC's floating rate debt. In turn, the Corporation
caused CCMC to enter into interest rate swaps with certain financial
institutions to effectively convert all of CCMC's floating rate debt to 7.84
percent, fixed rate debt for the life of the debt. The obligations under the
interest rate swaps are non-recourse to the Corporation.
Capital outlays for Phelps Dodge Mining Company during the first nine
months of 1997 were $314.8 million, including $135.2 million for the expansion
of the Corporation's Candelaria mining operations in Chile. Capital outlays were
$126.3 million for Phelps Dodge Industries. Capital outlays in the corresponding
1996 period were $225.4 million for Phelps Dodge Mining Company and $110.6
million for Phelps Dodge Industries. The Corporation expects capital outlays for
the year 1997 to be approximately $475 million for Phelps Dodge Mining Company
(including approximately $165 million for the Candelaria expansion project) and
approximately $200 million for Phelps Dodge Industries.
On September 10, 1997, the Corporation paid a regular quarterly dividend of
50 cents per share on its common shares for the 1997 third quarter; the amount
paid for the third quarter was $30.1 million bringing total 1997 dividends paid
through September to $93.3 million.
On May 7, 1997, the Corporation announced that its board of directors had
authorized the purchase of up to an additional 6 million of its common shares,
approximately 10 percent of its then outstanding shares. This authorization
follows a 5 million share purchase program that was initiated in 1995 and
extended to 10 million shares in 1996. Under that program, 9.9 million shares
were purchased by the Corporation. During the 1997 third quarter, the
Corporation purchased 1.7 million of its common shares at a cost of $144.5
million, bringing its quarter-end shares outstanding to 59.4 million, a 16
percent reduction since the beginning of 1995 and an 8 percent reduction to date
this year. As of October 23, the Corporation has purchased approximately half of
its May 1997 authorization of 6 million shares. In 1997 through October 23, the
Corporation purchased a total of 6,086,000 of its common shares at a total cost
of $477.4 million, including 3,139,000 shares at a cost of $258.8 million under
the new 6 million share authorization. An additional 2,861,000 shares remain
authorized for purchase under the new program. There were 59,428,000 common
shares outstanding on September 30, 1997.
S-8
<PAGE> 9
CAPITALIZATION
The following table sets forth the short-term and long-term debt and total
capitalization of the Corporation at September 30, 1997, and as adjusted to give
effect to the sale of the Offered Securities (without giving effect to the
underwriting discount and the payment of expenses) and the repayment of
outstanding commercial paper.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
------------------------
ACTUAL AS ADJUSTED
-------- -----------
(UNAUDITED)
(IN MILLIONS)
<S> <C> <C>
Short-term debt:
Short-term debt..................................................... $ 258.7 $ 84.0
Current portion of long-term debt................................... 51.5 51.5
-------- --------
Total....................................................... $ 310.2 $ 135.5
-------- --------
Long-term debt:
Notes and debentures (other than the Offered Securities)............ $ 611.3 $ 611.3
Notes offered hereby................................................ --
Debentures offered hereby........................................... --
-------- --------
Total long-term debt........................................ $ 611.3 $ 861.3
Minority interests in consolidated subsidiaries....................... 70.2 70.2
Common shareholders' equity........................................... 2,573.1 2,573.1
-------- --------
Total long-term debt, minority interests in consolidated
subsidiaries, and common shareholders' equity............. $3,254.6 $ 3,504.6
-------- --------
Total Capitalization................................... $3,564.8 $ 3,640.1
======== ========
</TABLE>
S-9
<PAGE> 10
SUMMARY FINANCIAL INFORMATION
With the exception of data as to copper prices listed below, the following
financial information for each of the five years in the period ended December
31, 1996 have been derived from consolidated financial statements of the
Corporation, examined by Price Waterhouse LLP, independent accountants,
previously filed with the Securities and Exchange Commission. The summary
financial information in the table below as of and for the nine month periods
ended September 30, 1996 and 1997 is unaudited but in the opinion of management
includes all adjustments necessary for a fair presentation. The following
information should be read in conjunction with the consolidated financial
statements and related notes of the Corporation incorporated by reference. See
"Incorporation of Certain Documents by Reference" in the accompanying
Prospectus.
<TABLE>
<CAPTION>
NINE
MONTHS ENDED NINE
SEPTEMBER MONTHS ENDED YEAR ENDED DECEMBER 31,
30, SEPTEMBER 30, -------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
------------ ------------- ------- ------- ------- ------- -------
(IN MILLIONS, EXCEPT SHARE AMOUNTS AND COPPER PRICES)
<S> <C> <C> <C> <C> <C> <C> <C>
Sales and other operating
revenues........................ $3,048.4 2,816.0 3,786.6 4,185.4 3,289.2 2,595.9 2,579.3
======== ======= ======= ======= ======= ======= =======
Operating income(1)............... $ 546.7 552.0 712.9 1,100.5 400.4 326.5 420.6
Interest expense.................. (53.3) (45.0) (68.0) (65.1) (57.3) (54.5) (47.4)
Capitalized interest.............. 11.2 1.0 1.9 3.1 20.7 17.5 7.9
Miscellaneous income and expense,
net............................. 32.1 28.6 40.7 37.2 11.3 16.4 47.1
-------- ------- ------- ------- ------- ------- -------
Income before taxes, minority
interests and equity in net
earnings of affiliated
companies..................... 536.7 536.6 687.5 1,075.7 375.1 305.9 428.2
Provision for taxes on income..... (166.3) (174.4) (220.0) (322.7) (104.7) (105.9) (114.4)
Minority interests in consolidated
subsidiaries.................... (4.1) (10.3) (16.2) (12.9) (8.0) (12.1) (12.8)
Equity in net earnings of
affiliated companies............ 10.2 7.7 10.5 6.5 8.6 -- 0.6
-------- ------- ------- ------- ------- ------- -------
Income before accounting
changes....................... 376.5 359.6 461.8 746.6 271.0 187.9 301.6
Cumulative effect of accounting
changes(2)...................... -- -- -- -- -- -- (79.9)
-------- ------- ------- ------- ------- ------- -------
Net Income...................... $ 376.5 359.6 461.8 746.6 271.0 187.9 221.7
======== ======= ======= ======= ======= ======= =======
COMEX copper price per pound(3)... $ 1.09 1.08 1.06 1.35 1.07 0.85 1.03
Dividends on common shares........ 93.3 96.2 128.6 125.6 119.2 116.1 113.0
Capital outlays................... $ 444.3 338.8 513.0 404.9 355.0 387.2 270.8
At the end of each period:
Net current assets.............. $ 369.8 826.7 735.6 950.2 558.2 447.4 449.1
Total assets.................... $4,892.0 4,777.2 4,816.4 4,645.9 4,133.8 3,720.9 3,441.2
Long-term debt.................. $ 611.3 600.7 554.6 613.1 622.3 547.3 373.8
Shareholders' equity............ $2,573.1 2,703.9 2,755.9 2,677.7 2,187.6 2,022.1 1,972.4
</TABLE>
- ---------------
Notes:
(1) Operating income includes the following non-recurring charges:
In the first nine months of 1997, pre-tax charges of $20.8 million
($14.4 million after taxes or 23 cents per share) were recognized
primarily to reflect an early retirement program at Phelps Dodge
Mining Company. In 1996, operating income included a pre-tax
reclamation reserve of $10.0 million ($6.8 million after taxes or 10
cents per share) for the Court ordered rescission of a 1986 sale of
property in Maspeth, New York by the Corporation to the U.S. Postal
Service. In 1995, a pre-tax gain of $26.8 million ($16.6 million after
taxes or 24 cents per share) was recorded for the sale of Columbian
Chemicals Company's iron oxide division (MAPICO). In 1994, operating
income included non-recurring provisions for environmental costs and
asset dispositions of $157.7 million ($91.7 million after taxes or
$1.29 per share).
(2) Reflects one-time, after-tax charges in 1992 for the adoption of new
accounting methods for post retirement and post employment benefits (SFAS
No. 106 and SFAS No. 112) and income taxes (SFAS No. 109).
(3) COMEX copper price per pound is based on the New York Commodity Exchange
annual average spot price per pound of cathodes.
S-10
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS
1996 AND 1995
The following discussion is based on Management's Discussion and Analysis
included in the Corporation's Annual Report on Form 10-K for the year ending
December 31, 1996 and more extensive discussion and analysis of the Corporation
is contained therein. See "Incorporation of Certain Documents by Reference" in
the accompanying Prospectus.
Phelps Dodge reported 1996 consolidated net income of $461.8 million, or
$6.97 per common share. This amount compares with 1995 net income of $746.6
million, or $10.65 per common share. The 1996 amount includes an after-tax
charge of approximately $10.7 million, or 16 cents per share, resulting from a
1996 fourth quarter reclamation provision and interest charges related to a
Court ordered rescission of a 1986 sale of property. The 1995 amount includes an
after-tax gain of $16.6 million, or 24 cents per share, from the sale of
Columbian Chemicals Company's MAPICO division.
A significant factor influencing the Corporation's 1996 results compared to
1995 was the lower 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 $1.06 in 1996, compared
with $1.35 in 1995.
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. In 1996, the Corporation's share of annual production was approximately
1.5 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, would have caused a variation in annual operating income
before taxes of approximately $15 million.
Depending on market circumstances, the Corporation may periodically
purchase or sell various copper option contracts to mitigate the risk of adverse
price fluctuations on a portion of its expected future mine production. With
respect to 1996 production, the Corporation had contracts that provided a
combination of minimum and maximum quarterly average London Metal Exchange (LME)
prices for 185 million pounds of third quarter copper production that resulted
in payments of $3.1 million to Phelps Dodge. Similar contracts ensuring minimum
prices for 790 million pounds of 1996 copper production expired without payment
to Phelps Dodge. During the 1996 third quarter, the Corporation sold copper
price protection contracts that covered 94 million pounds of anticipated
production in the fourth quarter of 1996 and 85 million pounds of anticipated
production in the first quarter of 1997. This resulted in immediate cash
payments to the Corporation of $15.6 million. Consequently, $8.8 million for
1996 fourth quarter contracts was recognized in income during the fourth quarter
and $6.8 million for 1997 first quarter contracts was recognized in income
during the 1997 first quarter.
During 1995, the Corporation had contracts that provided minimum quarterly
average LME prices of 80 cents per pound for approximately 640 million pounds of
copper that 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.
The Corporation's objective and practice is to sell its copper at a price
based on the COMEX average price in the month of shipment. However, a few
customers request a firm price as of a specified date prior to or during the
month of shipment. In such transactions, the Corporation usually hedges such
sales commitments by entering into copper futures and copper swap contracts that
approximate the shipment quantities and periods involved. The copper futures
contracts are then liquidated during the month of shipment which generally
results in the realization of the COMEX average monthly price for copper
shipped. This liquidation process involves the use of offsetting futures
contracts. Therefore, the notional value, which represents the absolute sum of
all outstanding copper futures contracts, is not an accurate measurement of risk
to the Corporation from the use of such derivative financial instruments. Swap
contracts are settled at the COMEX
S-11
<PAGE> 12
average monthly price in the month copper is shipped. At December 31, 1996, the
Corporation had futures and swap hedge contracts in place for approximately 149
million pounds of copper with an approximate net value of $143 million and an
aggregate notional value of approximately $156 million. The Corporation had
deferred unrecognized gains of $2.3 million on its futures and swap contracts at
December 31, 1996. With respect to 1995, at year end the Corporation had futures
and swap hedge contracts in place for approximately 104 million pounds of copper
with an approximate net value of $125 million and an aggregate notional value of
approximately $125 million. At December 31, 1995, the Corporation had deferred
unrecognized losses on its futures and swap contracts of $2.4 million as the
offsetting customer transactions had not matured.
The Corporation periodically enters into forward exchange and currency
option contracts to hedge certain recorded transactions, 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 1996, recorded, committed and anticipated
foreign currency transactions that the Corporation had hedged did not exceed
$166 million and totaled $141 million at year end. The Corporation did not have
any deferred unrecognized gains or losses on its foreign exchange contracts at
December 31, 1996, or December 31, 1995. Notes 1 and 19 to the Consolidated
Financial Statements set forth in the Corporation's 1996 Annual Report on Form
10-K (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 1996 revenues were $3,786.6 million, compared with $4,185.4
million in 1995. The 1996 decrease was a result of lower average copper prices
and lower sales volumes of wheels and rims. The decrease was partially offset by
higher sales volumes of copper, carbon black and wire and cable products.
Phelps Dodge's results for 1996 and 1995 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 specialty chemicals 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.
S-12
<PAGE> 13
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.
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Copper (from own mines -- thousand tons)*
Production............................................................ 770.4 712.7
Deliveries............................................................ 771.6 696.6
COMEX average spot copper price per pound -- cathodes................... $ 1.06 1.35
(MILLIONS OF DOLLARS)
Sales and other operating revenues...................................... $2,091.1 2,488.7
Operating income........................................................ $ 526.6 896.8
</TABLE>
- ---------------
* 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 1996 and
1995 were 76,500 tons and 65,600 tons produced at Morenci for the account of
Sumitomo, 56,200 tons and 56,200 tons produced at Chino for the account of
Heisei and 30,200 tons and 33,100 tons at Candelaria for the account of SMMA
Candelaria, Inc.
Phelps Dodge Mining Company reported 1996 operating income of $526.6
million which included a pre-tax charge of $10.0 million resulting from a fourth
quarter reclamation provision related to a Court ordered rescission of a 1986
sale of property. This compares with 1995 operating income of $896.8 million.
The decrease in 1996 operating income reflected lower average copper prices,
partially offset by higher volumes of copper sold from mine production. Unit
production costs of copper in 1996 were slightly higher than in 1995,
principally as a result of increased depreciation charges from recent capital
projects, increased mining expenses and costs associated with a maintenance
overhaul at the Hidalgo smelter. Unit production costs of copper generally
continued to reflect high levels of production, ongoing cost containment
programs and increasing amounts of copper obtained through the solution
extraction/electrowinning (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.
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
owns a 20 percent interest. The project consists of an open-pit mine,
concentrator, port and associated facilities. On May 1, 1996, the Corporation
announced plans to expand concentrator throughput at Candelaria. At full
capacity, the $337 million expansion (the Corporation's share will be $270
million with the remainder provided by its co-participant) will result in annual
copper production of 400 million to 450 million pounds during the first few
years of the post-expansion mine life; the average ore grade is expected to
drop, with a corresponding decrease in production, in subsequent years. The
expansion will include increased mining activity, the installation of a
S-13
<PAGE> 14
second semi-autogenous (SAG) mill line and new and expanded concentrating
facilities, and the addition of more than 200 employees. Construction began in
the third quarter of 1996 with new production scheduled to come on line by
mid-1998. As a result of the expansion, the estimated mine life of Candelaria
will be reduced from 35 years of production to 19 years.
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) 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 two-year
period ended December 31, 1996, 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. In 1996, the Corporation
produced a total of 408,000 tons of cathode copper at its SX/EW facilities,
compared with 364,200 tons in 1995. 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 expects to operate the Burro Chief SX/EW plant near Tyrone,
New Mexico, for at least the next 10 years. Exploration continues in an effort
to identify further mineral resources.
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.
In 1996, operations outside the United States provided 8 percent of Phelps
Dodge Mining Company's sales, compared with 10 percent in 1995. During the year,
operations outside the United States contributed 8 percent of the segment's
operating income, compared with 19 percent in 1995.
In December 1996, the United States District Court of the Eastern District
of New York ruled that the 1986 sale of property in Maspeth, New York, by the
Corporation to the United States Postal Service is to be rescinded. The Court
ordered the Corporation to return the $14.8 million originally paid by the
Postal Service for the property and to pay interest on the sales price for a
portion of the time since that sale. The Corporation recorded interest charges
of $5.9 million and reclamation reserves of $10.0 million in the 1996 fourth
quarter. This reclamation provision was estimated based on the Corporation's
experience at other Corporate-owned properties.
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 specialty chemicals operations
through Columbian Chemicals Company and its subsidiaries (Columbian Chemicals or
Columbian); its wheel and rim operations through Accuride Corporation and its
subsidiaries (Accuride); and
S-14
<PAGE> 15
its wire and cable and specialty conductor operations through Phelps Dodge
International Corporation and Phelps Dodge Magnet Wire Company and their
subsidiaries and affiliates.
<TABLE>
<CAPTION>
1996 1995
-------- --------
(MILLIONS OF DOLLARS)
<S> <C> <C>
Sales and other operating revenues:
Specialty chemicals................................................... $ 437.0 420.8
Wheels and rims....................................................... 307.8 357.8
Wire and cable........................................................ 950.7 918.1
-------- --------
$1,695.5 $1,696.7
======== ========
Operating Income:
Specialty chemicals................................................... $ 79.8 103.9
Wheels and rims....................................................... 41.4 45.6
Wire and cable........................................................ 104.6 93.8
-------- --------
$ 225.8 243.3
======== ========
</TABLE>
Phelps Dodge Industries reported 1996 operating income of $225.8 million,
compared with operating income in 1995 that was $216.5 million before a pre-tax
gain of $26.8 million from the sale of Columbian Chemicals Company's synthetic
iron oxide division (MAPICO). Increased 1996 operating income primarily
reflected the benefits of manufacturing cost reduction programs instituted
during 1995, higher sales volumes in the wire and cable business, and continued
strength in the specialty chemicals business. 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 decline in sales volumes
in the 1995 fourth quarter that continued into 1996).
Columbian Chemicals' 1996 earnings were higher than in 1995 (excluding the
$26.8 million pre-tax gain from the sale of MAPICO) as a result of increased
carbon black sales and production volumes. North American volumes continued to
grow in both the basic rubber black and industrial black product lines. Only
limited growth was achieved in the European rubber market; however, significant
growth continued in the European specialty market. Raw material costs increased
throughout the year resulting in tighter margins. Major capital projects to
expand existing North American and European facilities are under way and
resulted in a record level of annual capital investment in 1996. Several major
expansion projects are expected to be completed during 1997.
Accuride's 1996 earnings fell below 1995 earnings primarily due to an 18
percent drop in overall sales volumes, partially offset by higher prices. North
American demand for heavy trucks and trailers were the major contributors to the
drop in sales volumes. Demand for specialty products, such as light wheels for
smaller trucks and sport utility vehicles, increased partially offsetting the
effects of the downturn in the heavy truck and trailer markets.
Earnings in the wire and cable business increased in 1996 over 1995 as a
result of higher magnet wire sales volumes and margins in North America,
favorable results of aluminum tolling in Thailand and the 1996 second quarter
acquisition of Nesor Alloy Corporation, a leading manufacturer of high
performance conductors for the general electronics and aerospace industries. New
customers were attracted in North America by the Phelps Dodge Magnet Wire
Company expansion of its El Paso plant and the announcement of its new plant
under construction in Monterrey, Mexico. European demand for magnet wire
products also was strong in the latter half of 1996 after a slow start. The
increase in earnings in 1996 came about despite the continuation of economic
difficulties in Venezuela.
In May 1996, Phelps Dodge acquired Nesor Alloy Corporation for
approximately $35 million. In addition, Phelps Dodge increased its ownership
interest in Metal Fabricators of Zambia Limited (ZAMEFA) from 20 percent to 51
percent. The Corporation's interests in these companies are managed by Phelps
Dodge International Corporation, a wholly owned subsidiary.
S-15
<PAGE> 16
On August 7, 1996, the Corporation announced plans to construct a magnet
wire manufacturing plant in Monterrey, Mexico. Construction of the $42.0 million
project began in 1996 with commercial production expected in early 1998.
In response to demand by Japanese-owned 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 through early 1996.
In March 1994, Phelps Dodge Magnet Wire Company acquired a plant that
manufactures fine-gauge magnet wire in Laurinburg, North Carolina, from Rea
Magnet Wire Company, Inc. (Rea), and a magnet wire manufacturing plant in El
Paso, Texas, from Texas Magnet Wire Company, an affiliate of Rea and Fujikura
International, Inc. The El Paso facility was expanded in 1996 doubling its
previous capacity. The capacity of the Laurinburg facility is also expected to
double upon completion in 1999 of a current plant expansion program.
In 1996, operations outside the United States provided 50 percent of Phelps
Dodge Industries' sales, compared with 51 percent in 1995. During the year,
operations outside the United States contributed 57 percent of the segment's
operating income, compared with 53 percent in 1995 (after excluding from U.S.
earnings the $26.8 million pre-tax gain on the sale of Columbian Chemicals'
MAPICO division).
OTHER MATTERS RELATING TO THE STATEMENT OF CONSOLIDATED OPERATIONS
The Corporation's 1996 exploration and research and development expenses
were $83.9 million, compared with $73.2 million in 1995. The increase in 1996
primarily resulted from increased exploration expenditures at the Corporation's
U.S. mining operations.
The Corporation reported net interest expense in 1996 of $66.1 million,
compared with $62.0 million in 1995. Increased 1996 interest expenses
principally resulted from a $5.9 million interest charge resulting from the 1996
Court ordered rescission of a 1986 sale of property. Included in the 1996 and
1995 amounts were foreign currency exchange gains of $8.0 million and $8.1
million, respectively, reflecting the remeasurement of Venezuelan local currency
debt after major devaluations of the Bolivar.
The Corporation's 1996 miscellaneous income, net of miscellaneous expense,
was $40.7 million, compared with $37.2 million in 1995. The increase in 1996
primarily resulted from an increase of $2.8 million in dividends received from
the Corporation's 13.9 percent minority interest in Southern Peru Copper
Corporation.
For the year ended December 31, 1996, the Corporation recorded a provision
for taxes of $220.0 million (an effective rate of approximately 32.0 percent).
This compares with a 1995 provision for taxes of $322.7 million (an effective
rate of approximately 30.0 percent). The 1996 effective rate was higher than
1995 primarily due to the effect of a change in the income mix between U.S. and
international operations. (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 substantial
proposed adjustments from the Internal Revenue Service relating to the
Corporation's federal income tax liability for the years 1990 and 1991 and has
filed a protest with the appropriate authorities. These years are currently
under consideration by the appeals division of the Internal Revenue Service.
Management believes that it has made adequate provision so that 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.
However, settlement of these issues could involve material tax and interest
payments with respect to the open years, a substantial part of which would
involve timing differences. The Corporation does not agree with these proposed
adjustments and expects either to substantially settle them with the Internal
Revenue Service or litigate the issues involved.
S-16
<PAGE> 17
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. The Corporation maintained its discount rate at 7.25
percent at December 31, 1996, as a result of long-term interest rates staying at
essentially the same rate as in 1995. Better-than-expected returns on plan
assets during 1996 increased the excess of plan assets over pension liabilities
at December 31, 1996. Other estimated postretirement benefit obligations of the
Corporation decreased by $6 million as a result of a decrease in the assumed
annual rate of increase in the per capita cost of covered health care benefits
over the next 12 years averaging 0.6 percent per year. 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 1996, the Corporation had cash and short-term investments of
$470.1 million, compared with $608.5 million at the beginning of the year. The
Corporation's operating activities provided $837.5 million of cash during the
year which was used along with a portion of existing cash balances to fund its
investing activities, dividend payments on its common stock and purchases of its
common stock.
Investing activities during 1996 included capital expenditures of $513.0
million, compared with $404.9 million in 1995. The 1996 capital expenditures
included $76 million for the expansion of Candelaria. Investing activities in
1996 also included approximately $35 million for the acquisition of Nesor. 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 from the divestiture of Columbian Chemicals Company's synthetic iron
oxide facility (MAPICO).
The $3.0 million increase in dividend payments on the Corporation's common
shares, from $125.6 million in 1995 to $128.6 million in 1996, principally
resulted from an 11 percent increase in the quarterly dividend rate in the 1996
second quarter (from 45 cents per common share to 50 cents per common share),
partially offset by the effect of the reduced number of common shares
outstanding.
The Corporation purchased 4,297,300 of its common shares in 1996 at a total
cost of $273.2 million. There were 64,711,000 common shares outstanding on
December 31, 1996. On March 6, 1996, the Corporation announced that its current
share purchase authorization had been increased from 5 million shares (buy back
program authorized on March 7, 1995) to a total of 10 million shares. The
Corporation will continue to make purchases in the open market as circumstances
warrant, and will also consider purchasing shares in privately negotiated
transactions.
The Corporation's total debt was $659.3 million at December 31, 1996,
compared with $696.5 million at the end of 1995. Total debt decreased primarily
as a result of the prepayment of Candelaria's Chilean peso-denominated debt (see
below). The ratio of total debt to total capitalization was 18.8 percent at the
end of 1996, compared with 20.2 percent at the end of 1995.
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. This floating rate peso-denominated debt was prepaid in December
1996 at a cost of $37.6 million including exchange losses and prepayment
penalties. The agreements provide for a nine and one-half year repayment period,
starting 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.
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In the 1997 first quarter, CCMC entered into agreements with certain
lenders to provide up to $185 million of floating rate dollar-denominated debt
financing for the expansion of the Candelaria mine. At the same time, CCMC
entered into an agreement with a lender to provide $30 million of floating rate
dollar-denominated debt financing to refinance the Chilean peso debt that was
prepaid in December 1996. These borrowings will be non-recourse to Phelps Dodge,
which will reflect only 80 percent of any borrowings and related financing
charges under these agreements in its consolidated financial statements. The
agreements provide for a 10-year repayment period starting in 1998.
During 1993, the Corporation's 60-percent-owned Hungarian subsidiary,
Columbian Tiszai Carbon Ltd. (CTC), 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 were without recourse to Columbian
Chemicals Company since the satisfaction of completion agreements with the two
lenders in 1996. In the 1997 first quarter, CTC refinanced the loans with local
banks at more advantageous interest rates and better terms. These new facilities
are without recourse to Columbian Chemicals Company.
The Corporation had other lines of credit totaling $100.0 million at
December 31, 1996, and December 31, 1995. 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, 1996, or December
31, 1995.
The Corporation had $66.5 million in short-term borrowings, all by its
international operations, at December 31, 1996, compared with $66.6 million at
December 31, 1995. The weighted average interest rate on this debt at December
31, 1996, and December 31, 1995, was 15.3 percent and 18.5 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, 1996, or December 31, 1995.
The current portion of the Corporation's long-term debt, scheduled for
payment in 1997, is $38.2 million including $14.0 million for its international
manufacturing operations and $24.2 million primarily for its international
mining operations.
During 1996, decreases in current assets (exclusive of cash and short-term
investments and adjustments for foreign currency exchange rate changes) together
with increases in current liabilities (exclusive of current debt and adjustments
for foreign currency exchange rate changes) resulted in a $64.0 million decrease
in net working capital. This decrease in net working capital resulted
principally from a $10.7 million decrease in prepaid expenses, a $38.3 million
increase in accounts payable and a $10.0 million increase in accrued expenses.
The $10.7 million decrease in prepaid expenses was primarily the result of
decreases in hedging and deferred income for 1997 first quarter copper price
protection contracts that were sold during the 1996 third quarter. The $38.3
million increase in accounts payable was attributable to timing of raw materials
and equipment purchases. The accrued expense increase was primarily a result of
accruals for contractor expenses for the Candelaria expansion project.
During 1995, increases in current assets (exclusive of cash and short-term
investments and adjustments for foreign currency exchange rate changes) together
with decreases in current liabilities (exclusive of current debt and adjustments
for foreign currency exchange rate changes) resulted in an $84.2 million
increase in net working capital. This increase 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
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<PAGE> 19
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).
ENVIRONMENTAL AND CERTAIN REGULATORY 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 37 sites.
For further information about these proceedings, see Item 3. Legal Proceedings,
Part III, beginning on page 29 of the Corporation's Annual Report on Form 10-K
for the year ended December 31, 1996.
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, 1996, the Corporation had reserves of $117.0 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 lowest 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
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<PAGE> 20
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 beginning on page 15 and
Environmental Matters on page 22 in each case in the Corporation's Annual Report
on Form 10-K for the year ended December 31, 1996. The estimates given in those
discussions of the capital expenditures for programs to comply with applicable
environmental laws and regulations in 1997 and 1998, and the expenditures for
those programs in 1996, 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 adopted rules
for the Arizona program in January 1997, and the Corporation's operations began
submitting the required reclamation plans in early 1997. 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. Also, mining law amendments were added to the 1996
budget reconciliation bill, which was vetoed by the President. Among other
things, the amendments contained in the 1996 bill would have imposed a 5 percent
net proceeds royalty on minerals extracted from federal lands, required payment
of fair market value for patenting federal lands, and required that patented
lands used for non-mining purposes revert to the federal government. Several of
these same concepts likely will be pursued legislatively in 1997. The Secretary
of the Interior also recently ordered the Bureau of Land Management (BLM) to
form a task force to review BLM's hardrock mining surface management regulations
and propose revisions to expand environmental and reclamation requirements,
among other things. 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.
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<PAGE> 21
DESCRIPTION OF THE OFFERED SECURITIES
GENERAL
The Offered Securities will be issued under an Indenture, dated as of
September 22, 1997, between the Corporation and The Chase Manhattan Bank, as
Trustee, as supplemented from time to time (the "Indenture"). The form of the
Indenture is filed as an exhibit to the Registration Statement of which the
accompanying Prospectus is a part. The following summary of certain provisions
of the Indenture and of the Offered Securities (referred to in the accompanying
Prospectus as the "Debt Securities") supplements, and to the extent inconsistent
therewith replaces, the summaries of certain provisions of the Debt Securities
set forth in the accompanying Prospectus, to which reference is hereby made.
Such summary does not purport to be complete and is subject to, and is qualified
in its entirety by reference to, all provisions of the Indenture, including the
definitions therein of certain terms.
The Notes offered hereby will be limited to $ aggregate principal
amount and will mature on November , . Each Note will bear interest at
the rate of % per annum, computed on the basis of a 360-day year of twelve
30-day months, from November , 1997 or from the most recent interest payment
date to which interest has been paid or provided for, payable semiannually on
May and November of each year, beginning on May , 1998. Interest payable
on any Note which is punctually paid or duly provided for on any interest
payment date shall be paid to the person in whose name such Note is registered
at the close of business on the May or November , as the case may be,
preceding such interest payment date.
The Debentures offered hereby will be limited to $ aggregate
principal amount and will mature on November , 2027. Each Debenture will bear
interest at the rate of % per annum, computed on the basis of a 360-day
year of twelve 30-day months, from November , 1997 or from the most recent
interest payment date to which interest has been paid or provided for, payable
semiannually on May and November of each year, beginning on May , 1998.
Interest payable on any Debenture which is punctually paid or duly provided for
on any interest payment date shall be paid to the person in whose name such
Debenture is registered at the close of business on the May or November , as
the case may be, preceding such interest payment date.
The Offered Securities will be subject to defeasance and covenant
defeasance as provided in the accompanying Prospectus.
REDEMPTION
The Notes will not be redeemable prior to maturity and will not be entitled
to any sinking fund.
The Debentures will be redeemable in whole or in part, at the option of the
Corporation at any time, at a redemption price equal to the greater of (i) 100%
of their principal amount or (ii) the sum of the present values of the remaining
scheduled payments of principal and interest thereon discounted to the date of
redemption on a semiannual basis (assuming a 360-day year consisting of twelve
30-day months) at the Treasury Yield plus basis points, plus in the case of
each clause (i) and (ii) accrued interest to the date of redemption.
"Treasury Yield" means, with respect to any redemption date, the rate per
annum equal to the semiannual equivalent yield to maturity of the Comparable
Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed as
a percentage of its principal amount) equal to the Comparable Treasury Price for
such redemption date.
"Comparable Treasury Issue" means the United States Treasury security
selected by the Independent Investment Banker as having a maturity comparable to
the remaining term of the Debentures that would be utilized, at the time of
selection and in accordance with customary financial practice, in pricing new
issues of corporate debt securities of comparable maturity to the remaining term
of the Debentures. "Independent Investment Banker" means an independent
investment banking institution of international standing appointed by the
Corporation.
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<PAGE> 22
"Comparable Treasury Price" means with respect to any redemption date, (i)
the average of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) on the third
business day preceding such redemption date, as set forth in the daily
statistical release (or any successor release) published by the Federal Reserve
Bank of New York and designated "Composite 3:30 p.m. Quotations for U.S.
Government Securities" or (ii) if such release (or any successor release) is not
published or does not contain such prices on such business day, (A) the average
of the Reference Treasury Dealer Quotations for such redemption date, after
excluding the highest and lowest such Reference Treasury Dealer Quotations, or
(B) if the Independent Investment Banker obtains fewer than four such Reference
Treasury Dealer Quotations, the average of all such Quotations. "Reference
Treasury Dealer Quotations" means with respect to each Reference Treasury Dealer
and any redemption date, the average as determined by the Independent Investment
Banker, of the bid and asked prices for the Comparable Treasury Issue (expressed
in each case as a percentage of its principal amount) quoted in writing to the
Independent Investment Banker by such Reference Treasury Dealer at 5:00 p.m. on
the third business day preceding such redemption date.
"Reference Treasury Dealer" means a primary U.S. Government securities
dealer in New York City selected by the Independent Investment Banker after
consultation with the Corporation.
Holders of the Debentures to be redeemed will receive notice thereof by
first-class mail at least 30 and not more than 60 days prior to the date fixed
for redemption.
The Debentures will not be entitled to any sinking fund.
BOOK-ENTRY SYSTEM
The Offered Securities will be represented by Registered Global Securities
registered in the name of Cede & Co., as a nominee of The Depository Trust
Company (the "Depositary"). Except as described in the accompanying Prospectus,
Offered Securities in definitive form will not be issued. The Depositary has
advised the Corporation as follows: Depositary is a limited-purpose trust
company organized under the New York Banking Law, a "banking organization"
within the meaning of the New York Banking Law, a member of the Federal Reserve
System, a "clearing corporation" within the meaning of the New York Uniform
Commercial Code and a "clearing agency" registered pursuant to the provisions of
Section 17A of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). Depositary holds securities that its participants ("Participants")
deposit with Depositary. Depositary also facilitates the settlement among
Participants of securities transactions, such as transfers and pledges, in
deposited securities through electronic computerized book-entry changes in
Participants' accounts, thereby eliminating the need for physical movement of
securities certificates. Participants in Depositary include securities brokers
and dealers, banks, trust companies, clearing corporations and certain other
organizations ("Direct Participants"). Depositary is owned by a number of its
Participants and by the New York Stock Exchange, the American Stock Exchange,
Inc., and the National Association of Securities Dealers, Inc. Access to the
Depositary system is also available to others, such as securities brokers and
dealers, banks and trust companies that clear transactions through or maintain a
direct or indirect custodial relationship with a Direct Participant either
directly or indirectly ("Indirect Participants"). The rules applicable to
Depositary and its Participants are on file with the Securities and Exchange
Commission.
Purchases of Offered Securities under the Depositary's system must be made
by or through Direct Participants, which will receive a credit for such Offered
Securities on the Depositary's records. The ownership interest of each actual
purchaser of each Offered Security represented by a Registered Global Security
("Beneficial Owner") is in turn to be recorded on the Direct and Indirect
Participants' records. Beneficial Owners will not receive written confirmation
from the Depositary of their purchase, but Beneficial Owners are expected to
receive written confirmations providing details of the transaction, as well as
periodic statements of their holdings, from the Direct or Indirect Participants
through which such Beneficial Owners entered into the transaction. Transfers of
ownership interests in a Registered Global Security representing Offered
Securities are to be accomplished by entries made on the books of Participants
acting on behalf of Beneficial Owners. Beneficial Owners of a Registered Global
Security representing Offered Securities will not receive Offered Securities in
definitive form representing their ownership interest therein, except in the
event
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that use of the book-entry system for such Offered Securities is discontinued or
upon the occurrence of certain other events described herein.
To facilitate subsequent transfers, all Registered Global Securities
representing Offered Securities which are deposited with the Depositary are
registered in the name of the Depositary's nominee, Cede & Co. The deposit of
Registered Global Securities with the Depositary and their registration in the
name of Cede & Co. effect no change in beneficial ownership. The Depositary has
no knowledge of the actual beneficial owners of the Registered Global Securities
representing the Offered Securities: the Depositary's records reflect only the
identity of the Direct Participants to whose accounts such Offered Securities
are credited, which may or may not be the Beneficial Owners. The Participants
will remain responsible for keeping account of their holdings on behalf of their
customers.
Conveyance of notices and other communications by the Depositary to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct
Participants and Indirect Participants to Beneficial Owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements as
may be in effect from time to time.
Neither the Depositary nor Cede & Co. will consent or vote with respect to
the Registered Global Security representing the Offered Securities. Under its
usual procedures, the Depositary mails an omnibus proxy (an "Omnibus Proxy") to
the Corporation as soon as possible after the applicable record date. The
Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct
Participants to whose accounts the Offered Securities are credited on the
applicable record date (identified in a listing attached to the Omnibus Proxy).
The nominee of the Depositary, as holder of record of the Registered Global
Securities, will be entitled to receive payments of principal and interest by
wire transfer in same day funds for payment to Beneficial Owners in accordance
with customary procedures established from time to time by the Depositary. The
Depositary's practice is to credit Direct Participant's accounts on the relevant
payment date in accordance with their respective holdings shown on the
Depositary's records unless the Depositary has reason to believe that it will
not receive payment on such date. Payments by Participants to Beneficial Owners
will be governed by standing instructions and customary practices, as is the
case with securities held for the accounts of customers in bearer form or
registered in "street name," and will be the responsibility of such Participants
and not of the Depositary, the Trustee, or the Corporation, subject to any
statutory or regulatory requirements as may be in effect from time to time.
Payment of principal, premium and interest to the Depositary is the
responsibility of the Corporation or the Trustee, disbursement of such payments
to Direct Participants shall be the responsibility of the Depositary, and
disbursement of such payments to the Beneficial Owners shall be the
responsibility of Direct and Indirect Participants. Neither the Corporation nor
the Trustee will have any responsibility or liability for the disbursements of
payments in respect of ownership interests in the Offered Securities by the
Depositary or the Direct or Indirect Participants or for maintaining or
reviewing any records of the Depositary or the Direct or Indirect Participants
relating to ownership interests in the Offered Securities or the disbursement of
payments in respect thereof.
The Depositary may discontinue providing its services as securities
depository with respect to the Offered Securities at any time by giving
reasonable notice to the Corporation or the Trustee. Under such circumstances,
and in the event that a successor securities depositary is not obtained, Offered
Securities in definitive form are required to be printed and delivered. The
Corporation may decide to discontinue use of a system of book-entry transfers
through the Depositary (or a successor securities depository). In that event,
Offered Securities in definitive form will be printed and delivered.
The information in this section concerning the Depositary and the
Depositary's system has been obtained from sources that the Corporation believes
to be reliable, but is subject to any changes to the arrangements between the
Corporation and the Depositary and any changes to such procedures that may be
instituted unilaterally by the Depositary.
In the event that Offered Securities are issued in definitive form,
principal of and interest on the Offered Securities will be payable at the
office or agency of the Corporation to be maintained in the Borough of
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Manhattan, The City of New York, provided, however, that at the option of the
Corporation payment of interest may be made by check mailed to the address of
the person entitled thereto as such address shall appear in the register of
holders of Offered Securities. Transfers of Offered Securities issued in
definitive form will be registrable and the Offered Securities will be
exchangeable at such office or agency. On the date hereof, the agent for the
payment, transfer and exchange of the Offered Securities is The Chase Manhattan
Bank, acting through its corporate trust office at 450 West 33rd Street, New
York, New York 10001-2697.
SUBORDINATION
Most of the assets of the Corporation are owned by its subsidiaries and,
accordingly, the Offered Securities are effectively subordinated to all existing
and future liabilities of the Corporation's subsidiaries. At September 30, 1997,
outstanding debt of the Corporation's subsidiaries equalled $425.7 million. At
September 30, 1997, outstanding debt of the Corporation (excluding subsidiaries)
equalled $495.8 million, all of which debt ranks equally with the Offered
Securities.
UNDERWRITERS
Under the terms and conditions contained in an Underwriting Agreement,
dated the date hereof, the Underwriters named below have severally agreed to
purchase, and the Corporation has agreed to sell to them, severally, the
respective principal amount of the Offered Securities set forth opposite their
respective names below:
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT PRINCIPAL AMOUNT
NAME OF % NOTES OF % DEBENTURES
----- DUE DUE 2027
------------------ -----------------
<S> <C> <C>
Morgan Stanley & Co. Incorporated.......................... $ $
Chase Securities Inc. .....................................
Citicorp Securities, Inc. .................................
Total............................................ $ $
========== ===========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the Offered Securities are
subject to approval of certain legal matters by their counsel and to certain
other conditions. The Underwriters are committed to take and pay for all of the
Offered Securities if any are taken.
The Underwriters initially propose to offer the % Notes due
to the public at the public offering price set forth on the cover page of
this Prospectus Supplement and to certain dealers at such price less a
concession not in excess of % of the principal amount of such Notes. The
Underwriters initially propose to offer the % Debentures due 2027
to the public at the public offering price set forth on the cover page of this
Prospectus Supplement and to certain dealers at such price less a concession not
in excess of % of the principal amount of such Debentures. Any Underwriter may
allow, and such dealers may reallow, a concession not in excess of % of the
principal amount of the Offered Securities to certain other dealers. After the
initial offering of the Offered Securities, the offering price and other selling
terms may from time to time be varied by the Underwriters.
The Corporation has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as amended.
The Corporation does not intend to apply for listing of the Offered
Securities on a national securities exchange, but has been advised by the
Underwriters that they presently intend to make a market in the Offered
Securities, as permitted by applicable laws and regulations. The Underwriters
are not obligated, however, to make a market in the Offered Securities and any
such market making may be discontinued at any time at the sole discretion of the
Underwriters. Accordingly, no assurance can be given as to the liquidity of, or
trading markets for, the Offered Securities.
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<PAGE> 25
In order to facilitate the offering of the Offered Securities, the
Underwriters may engage in transactions that stabilize, maintain or otherwise
affect the price of the Offered Securities. Specifically, the Underwriters may
overallot in connection with the offering, creating a short position in the
Offered Securities for their own account. In addition, to cover overallotments
or to stabilize the price of the Offered Securities, the Underwriters may bid
for, and purchase, the Offered Securities in the open market. Finally, the
underwriting syndicate may reclaim selling concessions allowed to an underwriter
or a dealer for distributing the Offered Securities in the offering if the
syndicate repurchases previously distributed Offered Securities in transactions
to cover syndicate short positions, in stabilization transactions or otherwise.
Any of these activities may stabilize or maintain the market price of the
Offered Securities above independent market levels. The Underwriters are not
required to engage in these activities, and may end any of these activities at
any time.
The Underwriters and certain of their affiliates and associates have
engaged and may continue to engage in transactions with, and have performed and
may continue to perform, investment and commercial banking services, for the
Corporation and its subsidiaries and affiliates in the ordinary course of
business.
LEGAL MATTERS
The validity of the Notes offered hereby will be passed upon for the
Corporation by Debevoise & Plimpton, 875 Third Avenue, New York, New York 10022
and for the Underwriters by Davis Polk & Wardwell, 450 Lexington Avenue, New
York, New York 10017.
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<PAGE> 26
PROSPECTUS
Dated October 14, 1997
$500,000,000
phelps dodge logo
DEBT SECURITIES
------------------------
Phelps Dodge Corporation (the "Corporation") may from time to time offer in
one or more series its debt securities, consisting of debentures, notes and/or
other evidences of indebtedness representing unsecured obligations of the
Corporation (the "Debt Securities") in amounts, at prices and on terms to be
determined at the time of offering. The Debt Securities offered pursuant to this
Prospectus may be issued in one or more series and will be limited to U.S.
$500,000,000 aggregate principal amount (or (i) its equivalent (based on the
applicable exchange rate at the time of issue), if Debt Securities are issued
with principal amounts denominated in one or more foreign or composite
currencies or currency units as shall be designated by the Corporation, or (ii)
such greater amount, if Debt Securities are issued at an original issue
discount, as shall result in aggregate proceeds of U.S. $500,000,000 to the
Corporation). Certain specific terms of the particular Debt Securities in
respect of which this Prospectus is being delivered (the "Offered Securities")
are set forth in an accompanying Prospectus Supplement (the "Prospectus
Supplement"), including, where applicable, the specific designation, aggregate
principal amount, the denomination, maturity, premium, if any, the rate (which
may be fixed or variable), time and method of calculating payment of interest,
if any, the place or places where principal of, premium, if any, and interest,
if any, on the Offered Securities will be payable, the currency in which
principal of, premium, if any, and interest, if any, on the Offered Securities
will be payable, any terms of redemption at the option of the Corporation or the
holder, any sinking fund provisions, the initial public offering price,
conversion rights, methods of distribution and other special terms in connection
with the offering and sale of the Offered Securities, and the net proceeds to
the Corporation from such offering. The Debt Securities will be unsecured.
Unless otherwise specified in a Prospectus Supplement, the Offered Securities
will not be subordinated to any other unsecured indebtedness of the Corporation.
The Debt Securities may be denominated in United States dollars or, at the
option of the Corporation and if so specified in the applicable Prospectus
Supplement, in one or more foreign or composite currencies or currency units.
The Debt Securities may be issued in registered form or bearer form, or both. If
so specified in the applicable Prospectus Supplement, Debt Securities of a
series may be issued in whole or in part in the form of one or more temporary or
permanent global securities.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
The Corporation may sell the Debt Securities to or through underwriters,
through dealers or
agents or directly to purchasers. See "Plan of Distribution." The accompanying
Prospectus Supplement sets forth the names of any underwriters, dealers or
agents involved in the sale of the Offered Securities in respect of which this
Prospectus is being delivered and any applicable fee, commission or discount
arrangements with them.
THIS PROSPECTUS MAY NOT BE USED TO CONSUMMATE SALES OF DEBT SECURITIES UNLESS
ACCOMPANIED BY A PROSPECTUS SUPPLEMENT.
The date of this prospectus is October 14, 1997.
<PAGE> 27
CERTAIN PERSONS PARTICIPATING IN THE OFFERING OF THE DEBT SECURITIES MAY
ENGAGE IN TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF
THE DEBT SECURITIES OR ANY SECURITIES THE PRICES OF WHICH MAY BE USED TO
DETERMINE PAYMENTS ON THE DEBT SECURITIES. SPECIFICALLY, THE UNDERWRITERS OR
AGENTS SPECIFIED IN THE RELEVANT PROSPECTUS SUPPLEMENT OR PRICING SUPPLEMENT MAY
OVERALLOT IN CONNECTION WITH THE OFFERING, AND MAY BID FOR AND PURCHASE THE DEBT
SECURITIES OR ANY SECURITIES THE PRICES OF WHICH MAY BE USED TO DETERMINE
PAYMENTS ON THE DEBT SECURITIES IN THE OPEN MARKET. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "PLAN OF DISTRIBUTION" IN THIS PROSPECTUS AND "PLAN OF
DISTRIBUTION" OR "UNDERWRITING" IN THE RELEVANT PROSPECTUS SUPPLEMENT.
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus, any accompanying
Prospectus Supplement or the documents incorporated or deemed incorporated by
reference herein, and any information or representations not contained herein or
therein must not be relied upon as having been authorized by the Corporation or
by any agent, dealer or underwriter. This Prospectus and any accompanying
Prospectus Supplement do not constitute an offer to sell or a solicitation of an
offer to buy the securities in any circumstances in which such offer or
solicitation is unlawful. The delivery of this Prospectus or any Prospectus
Supplement at any time does not imply that the information herein or therein is
correct as of any time subsequent to the date of such information.
AVAILABLE INFORMATION
The Corporation is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith, files reports, proxy statements, and other information
with the Securities and Exchange Commission (the "Commission"). Such reports,
proxy statements and other information can be inspected and copied at the public
reference facilities of the Commission at Room 1024, 450 Fifth Street, N.W.,
Judiciary Plaza, Washington, D.C. 20549; and at the Commission's regional
offices at 7 World Trade Center, 13th Floor, Suite 1300, New York, New York
10048 and Suite 1400 Citicorp Center, 14th Floor, 500 West Madison Street,
Chicago, Illinois 60661. Copies of such material can be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549 at prescribed rates. Such material can also be inspected at the offices of
the New York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005.
The Commission maintains an Internet Website that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission. The address of the Commission's site is
http://www.sec.gov.
This Prospectus constitutes a part of two registration statements on Form
S-3 (together with all amendments and exhibits, the "Registration Statement")
filed by the Corporation with the Commission under the Securities Act of 1933,
as amended (the "Securities Act"). This Prospectus does not contain all the
information set forth in the Registration Statement, certain portions of which
have been omitted as permitted by the rules and regulations of the Commission.
Statements contained herein concerning the provisions of any document are not
necessarily complete and, in each instance, reference is made to the copy of
such document filed as an exhibit to the Registration Statement or otherwise
filed with the Commission. Each such statement is qualified in its entirety by
such reference. For further information with respect to the Corporation and the
Debt Securities, reference is made to the Registration Statement. The
Registration Statement may be inspected by anyone without charge at the
principal office of the Commission in Washington, D.C. and copies of all or part
of it may be obtained from the Commission upon payment of the prescribed fees.
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<PAGE> 28
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents have been filed with the Commission and are
incorporated herein by reference:
(1) The Corporation's Annual Report on Form 10-K for the year ended
December 31, 1996; and
(2) The Corporation's Quarterly Reports on Form 10-Q for the quarters
ended March 31, 1997 and June 30, 1997.
Each document or report subsequently filed by the Corporation pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date hereof and
prior to the termination of the offering of the Debt Securities shall be deemed
to be incorporated by reference into this Prospectus and to be a part of this
Prospectus from the date of filing of such document. Any statement contained
herein, or in a document all or a portion of which is incorporated or deemed to
be incorporated by reference herein, shall be deemed to be modified or
superseded for purposes of the Registration Statement and this Prospectus to the
extent that a statement contained herein or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of the Registration Statement or this Prospectus.
The Corporation will provide without charge to any person to whom this
Prospectus is delivered, on the written or oral request of such person, a copy
of any or all of the foregoing documents incorporated by reference, other than
certain exhibits to such documents. Requests should be directed to: Phelps Dodge
Corporation, 2600 N. Central Avenue, Phoenix, Arizona 85004-3014, Attention:
Secretary's Office (telephone: (602) 234-8100; facsimile: (602) 234-8076).
THE CORPORATION
The Corporation, incorporated under the laws of New York in 1885, is among
the world's largest producers of copper. In 1996, the Corporation produced
770,400 tons of copper for its own account from its worldwide mining operations
and an additional 162,900 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 more than 25 percent of the copper mined in the United
States in 1996. 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.
The Corporation's international mining interests include Candelaria, its
major copper mine in Chile, which commenced operations in October 1994, and
other operations and investments in Chile, Peru and South Africa. These
operations produce a variety of metals and minerals including copper, gold,
fluorspar, silver, lead and zinc. The Corporation also explores for metals and
minerals throughout the world.
The Corporation also manufactures engineered products principally for the
transportation, energy and telecommunications sectors worldwide through a group
of industrial companies. Specialty chemicals are produced through Columbian
Chemicals Company which 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. The Corporation
produces wire and cable products and specialty conductors at U.S. and
international operations through Phelps Dodge Magnet Wire Company and Phelps
Dodge International Corporation. 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
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<PAGE> 29
use in electrical motors, generators, transformers and other products. Phelps
Dodge International Corporation manufactures telecommunication and energy cables
and specialty conductors.
The Corporation's principal executive offices are located at 2600 N.
Central Avenue, Phoenix, Arizona 85004-3014, and its telephone number is (602)
234-8100. Unless the context otherwise requires, "Corporation," as used in this
Prospectus, includes Phelps Dodge Corporation and its consolidated subsidiaries.
USE OF PROCEEDS
Unless otherwise set forth in the applicable Prospectus Supplement, the
Corporation will use the net proceeds from the sale of the Debt Securities for
general corporate purposes, which may include acquisitions, purchases of its own
capital stock, reduction of the Corporation's outstanding borrowings and payment
of capital outlays. Pending such use, the proceeds may be invested temporarily
in short term marketable securities. A more detailed description of the use of
proceeds of any specific offering of Offered Securities shall be set forth in
the Prospectus Supplement pertaining to such offering.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the Corporation's ratio of earnings to fixed
charges:
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED ENDED YEAR ENDED DECEMBER 31,
JUNE 30, JUNE 30, ----------------------------------
1997 1996 1996 1995 1994** 1993 1992
---------- ---------- ---- ---- ------ ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
RATIO OF EARNINGS TO FIXED CHARGES*........ 11.0 14.2 10.1 15.6 6.6 5.6 8.4
</TABLE>
- ---------------
* For the purpose of computing the ratio of earnings to fixed charges, earnings
consist of income before income taxes, minority interests in majority-owned
subsidiaries and equity in net earnings of affiliated companies, plus the
Corporation's share of earnings of 50-percent-owned persons, distributed
earnings of less-than-50-percent-owned persons and fixed charges (excluding
capitalized interest, but including amortization of amounts previously
capitalized). Minority interests in majority-owned subsidiaries were not
deducted from earnings as all such subsidiaries had fixed charges. Fixed
charges consist of interest (including capitalized interest) on all
indebtedness, amortization of debt discount and expense, and that portion of
rental expense which the Corporation believes to be representative of
interest. A statement setting forth the computation of the unaudited ratios
of earnings to fixed charges is filed as Exhibit 12 to the Registration
Statement of which this Prospectus is a part.
** The ratio of earnings to fixed charges would have been 9.0 in 1994 before the
effect of a $157.7 million nonrecurring provision for environmental costs and
asset dispositions.
DESCRIPTION OF DEBT SECURITIES
The Debt Securities offered hereby are to be issued in one or more series
under an Indenture, dated as of September 22, 1997 (the "Indenture"), between
the Corporation and The Chase Manhattan Bank, as Trustee (the "Trustee"). The
Debt Securities offered pursuant to this Prospectus will be limited to U.S.
$500,000,000 aggregate principal amount (or (i) its equivalent (based on the
applicable exchange rate at the time of issue), if Debt Securities are issued
with principal amounts denominated in one or more foreign or composite
currencies or currency units as shall be designated by the Corporation, or (ii)
such greater amount, if Debt Securities are issued at an original issue
discount, as shall result in aggregate proceeds of U.S. $500,000,000 to the
Corporation). The statements herein relating to the Debt Securities and the
Indenture are summaries and are subject to the detailed provisions of the
Indenture. A copy of the form of Indenture is filed as an exhibit to the
Registration Statement of which this Prospectus is a part. The following
summaries of certain provisions of the Indenture do not purport to be complete
and are subject to, and are qualified in their entirety by reference to, all the
provisions of the Indenture (as amended or supplemented from time to time),
including the definitions therein of certain terms capitalized in this
Prospectus. Whenever particular Sections or defined
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<PAGE> 30
terms of the Indenture are referred to herein or in a Prospectus Supplement,
such Sections or defined terms are incorporated herein or therein by reference.
GENERAL
The Debt Securities will be unsecured obligations of the Corporation.
Unless otherwise specified in a Prospectus Supplement, the Debt Securities will
not be subordinated to any other unsecured indebtedness of the Corporation. The
Indenture does not limit the aggregate amount of Debt Securities which may be
issued thereunder, nor does it limit the incurrence or issuance of other secured
or unsecured debt of the Corporation.
Most of the assets of the Corporation are owned by its subsidiaries and,
accordingly, the Debt Securities are effectively subordinated to all existing
and future liabilities of the Corporation's subsidiaries. The Corporation's
rights and the rights of its creditors, including holders of Debt Securities, to
participate in any distribution of the assets of any subsidiary upon the
latter's liquidation, recapitalization or insolvency would be subject to the
prior claims of the subsidiary's creditors, except to the extent that the
Corporation might itself be a creditor with recognized claims against the
subsidiary. At June 30, 1997, outstanding debt of the Corporation's subsidiaries
equaled $401.1 million. At June 30, 1997, outstanding debt of the Corporation
(excluding subsidiaries) equaled $446.1 million, all of which debt would rank
equally with the Debt Securities.
Reference is made to the Prospectus Supplement which accompanies this
Prospectus for a description of the specific series of Debt Securities being
offered thereby, including (1) the title of such Debt Securities; (2) any limit
upon the aggregate principal amount of such Debt Securities; (3) the date or
dates on which the principal of and premium, if any, on such Debt Securities
will mature or the method of determining such date or dates; (4) the rate or
rates (which may be fixed or variable) at which such Debt Securities will bear
interest, if any, or the method of calculating such rate or rates; (5) the date
or dates from which interest, if any, will accrue or the method by which such
date or dates will be determined; (6) the date or dates on which interest, if
any, will be payable and the record date or dates therefor; (7) the place or
places where principal of, premium, if any, and interest, if any, on such Debt
Securities will be payable; (8) the period or periods within which, the price or
prices at which, the currency or currencies (including composite currency,
currency unit or units) in which, and the terms and conditions upon which, such
Debt Securities may be redeemed, in whole or in part, at the option of the
Corporation; (9) the obligation, if any, of the Corporation to redeem or
purchase such Debt Securities pursuant to any sinking fund or analogous
provisions or upon the happening of a specified event or at the option of a
holder thereof and the period or periods within which, the price or prices at
which and the other terms and conditions upon which, such Debt Securities shall
be redeemed or purchased, in whole or in part, pursuant to such obligations;
(10) the denominations in which such Debt Securities are authorized to be
issued; (11) the currency or currency unit for which Debt Securities may be
purchased or in which Debt Securities may be denominated and/or the currency or
currencies (including composite currency, currency unit or units) in which
principal of, premium, if any, and interest, if any, on such Debt Securities
will be payable and whether the Corporation or the holders of any such Debt
Securities may elect to receive payments in respect of such Debt Securities in a
currency or currency unit other than that in which such Debt Securities are
stated to be payable; (12) if the amount of principal of, or any premium or
interest on, any of such Debt Securities may be determined with reference to an
index or pursuant to a formula, the manner in which such amounts will be
determined; (13) if other than the principal amount thereof, the portion of the
principal amount of such Debt Securities which will be payable upon declaration
of the acceleration of the maturity thereof or the method by which such portion
shall be determined; (14) the person to whom any interest on any such Debt
Security shall be payable if other than the person in whose name such Debt
Security is registered on the applicable record date; (15) any addition to, or
modification or deletion of, any Event of Default or any covenant of the
Corporation specified in the Indenture with respect to such Debt Securities;
(16) the application, if any, of such means of defeasance or covenant defeasance
as may be specified for such Debt Securities; (17) whether such Debt Securities
are to be issued in whole or in part in the form of one or more temporary or
permanent global securities and, if so, the identity of the depositary for such
global security or securities; and (18) any other special terms pertaining to
such Debt Securities. See Section 3.1 of the
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<PAGE> 31
Indenture. Unless otherwise specified in the applicable Prospectus Supplement,
the Debt Securities will not be listed on any securities exchange.
Unless otherwise specified in the applicable Prospectus Supplement, Debt
Securities will be issued in fully registered form without coupons in
denominations of $1,000 or any integral multiples of $1,000. Where Debt
Securities of any series are issued in bearer form, the special restrictions and
considerations, including special offering restrictions and special Federal
income tax considerations, applicable to any such Debt Securities and to payment
on and transfer and exchange of such Debt Securities will be described in the
applicable Prospectus Supplement. Bearer Debt Securities will be transferable by
delivery. See Section 3.5 of the Indenture.
Debt Securities may be sold at a substantial discount below their stated
principal amount, bearing no interest or interest at a rate which at the time of
issuance is below market rates. Certain Federal income tax consequences and
special considerations applicable to any such Debt Securities will be described
in the applicable Prospectus Supplement.
If the purchase price of any of the Debt Securities is payable in one or
more foreign or composite currencies or currency units or if any Debt Securities
are denominated in one or more foreign or composite currencies or currency units
or if the principal of, premium, if any, or interest, if any, on any Debt
Securities is payable in one or more foreign or composite currencies, or
currency units, the restrictions, elections, certain Federal income tax
considerations, specific terms and other information with respect to such issue
of Debt Securities and such foreign or composite currency or currency units will
be set forth in the applicable Prospectus Supplement.
If any index is used to determine the amount of payments of principal of,
premium, if any, or interest on any series of Debt Securities, special Federal
income tax, accounting and other considerations applicable thereto will be
described in the applicable Prospectus Supplement.
The general provisions of the Indenture do not afford holders of the Debt
Securities protection in the event of a highly leveraged or other transaction
involving the Corporation that may adversely affect holders of the Debt
Securities.
PAYMENT, REGISTRATION, TRANSFER AND EXCHANGE
Unless otherwise provided in the applicable Prospectus Supplement, payments
in respect of the Debt Securities will be made in the designated currency at the
office or agency of the Corporation maintained for that purpose as the
Corporation may designate from time to time, except that, at the option of the
Corporation, interest payments, if any, on Debt Securities in registered form
may be made (i) by checks mailed to the holders of Debt Securities entitled
thereto at their registered addresses or (ii) by wire transfer to an account
maintained by the person entitled thereto as specified in the Register. See
Sections 3.7(a) and 9.2 of the Indenture. Unless otherwise indicated in an
applicable Prospectus Supplement, payment of any installment of interest on Debt
Securities in registered form will be made to the person in whose name such Debt
Security is registered at the close of business on the regular record date for
such interest. See Section 3.7(a) of the Indenture.
Payment in respect of Debt Securities in bearer form will be made in the
currency and in the manner designated in the Prospectus Supplement, subject to
any applicable laws and regulations, at such paying agencies outside the United
States as the Corporation may appoint from time to time. The paying agents
outside the United States initially appointed by the Corporation for a series of
Debt Securities will be named in the Prospectus Supplement. The Corporation may
at any time designate additional paying agents or rescind the designation of any
paying agents, except that, if Debt Securities of a series are issuable as
Registered Securities, the Corporation will be required to maintain at least one
paying agent in each Place of Payment for such series and, if Debt Securities of
a series are issuable as Bearer Securities, the Corporation will be required to
maintain a paying agent in a Place of Payment outside the United States where
Debt Securities of such series and any coupons appertaining thereto may be
presented and surrendered for payment. See Section 9.2 of the Indenture.
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<PAGE> 32
All moneys paid by the Corporation to the Trustee or a paying agent for the
payment of the principal of, or any premium or interest on, any Debt Security
which remain unclaimed at the end of two years after such principal, premium or
interest has become due and payable will be repaid to the Corporation, and the
holder of such Security thereafter may look only to the Corporation for payment
thereof. See Section 9.3 of the Indenture.
Unless otherwise provided in the applicable Prospectus Supplement, Debt
Securities in registered form will be transferable or exchangeable at the agency
of the Corporation maintained for such purpose as designated by the Corporation
from time to time. See Sections 3.5 and 9.2 of the Indenture. Debt Securities
may be transferred or exchanged without service charge, other than any tax or
other governmental charge imposed in connection therewith. See Section 3.5 of
the Indenture.
GLOBAL DEBT SECURITIES
The Debt Securities of a series may be issued in whole or in part in the
form of one or more fully registered global securities (a "Registered Global
Security"). Each Registered Global Security will be registered in the name of a
depositary (the "Depositary") or a nominee for the Depositary or nominee or a
custodian therefor and will bear a legend regarding the restrictions on
exchanges and registration of transfer thereof referred to below and any such
other matters as may be provided for pursuant to the Indenture. In such a case,
one or more Registered Global Securities will be issued in a denomination or
aggregate denominations equal to the portion of the aggregate principal amount
of outstanding Debt Securities of the series to be represented by such
Registered Global Security or Securities. See Section 3.3 of the Indenture.
Unless and until it is exchanged in whole or in part for Debt Securities in
definitive certificated form, a Registered Global Security may not be registered
for transfer or exchange except as a whole by the Depositary for such Registered
Global Security to a nominee of such Depositary or by a nominee of such
Depositary to such Depositary or another nominee of such Depositary or by such
Depositary or any such nominee to a successor Depositary for such series or a
nominee of such successor Depositary and except in the circumstances described
in the applicable Prospectus Supplement. See Section 3.5 of the Indenture.
The specific terms of the depositary arrangement with respect to any
portion of a series of Debt Securities to be represented by a Registered Global
Security will be described in the applicable Prospectus Supplement. The
Corporation expects that the following provisions will apply to depositary
arrangements.
Upon the issuance of any Registered Global Security, and the deposit of
such Registered Global Security with or on behalf of the Depositary for such
Registered Global Security, the Depositary will credit, on its book-entry
registration and transfer system, the respective principal amounts of the Debt
Securities represented by such Registered Global Security to the accounts of
institutions ("participants") that have accounts with the Depositary or its
nominee. The accounts to be credited will be designated by the underwriters or
agents engaging in the distribution of such Debt Securities or by the
Corporation, if such Debt Securities are offered and sold directly by the
Corporation. Ownership of beneficial interests in a Registered Global Security
will be limited to participants or persons that may hold interests through
participants. Ownership of beneficial interests by participants in such
Registered Global Security will be shown on, and the transfer of such beneficial
interests will be effected only through, records maintained by the Depositary
for such Registered Global Security or by its nominee. Ownership of beneficial
interests in such Registered Global Security by persons that hold through
participants will be shown on, and the transfer of such beneficial interests
within such participants will be effected only through, records maintained by
such participants. The laws of some jurisdictions require that certain
purchasers of securities take physical delivery of such securities in
certificated form. The foregoing limitations and such laws may impair the
ability to own, transfer or pledge beneficial interests in such Registered
Global Securities.
So long as the Depositary for a Registered Global Security, or its nominee,
is the registered owner of such Registered Global Security, such Depositary or
such nominee, as the case may be, will be considered the sole owner or holder of
the Debt Securities represented by such Registered Global Security for all
purposes under the Indenture. See Section 3.8 of the Indenture. Unless otherwise
specified in the applicable Prospectus
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<PAGE> 33
Supplement and except as specified below, owners of beneficial interests in such
Registered Global Security will not be entitled to have Debt Securities of the
series represented by such Registered Global Security registered in their names,
will not receive or be entitled to receive physical delivery of Debt Securities
of such series in certificated form and will not be considered the holders
thereof for any purposes under the Indenture. See Section 3.8 of the Indenture.
Ownership of beneficial interests in a Global Security will be limited to
participants and to persons that may hold beneficial interests through
participants. Each person owning a beneficial interest in such Registered Global
Security must rely on the procedures of the Depositary and, if such person is
not a participant, on the procedures of the participant through which such
person owns its interest, to exercise any rights of a holder under the
Indenture. The Depositary may grant proxies and otherwise authorize participants
to give or take any request, demand, authorization, direction, notice, consent,
waiver or other action which a holder is entitled to give or take under the
Indenture. The Corporation understands that, under existing industry practices,
if the Corporation requests any action of holders or any owner of a beneficial
interest in such Registered Global Security desires to give any notice or take
any action a holder is entitled to give or take under the Indenture, the
Depositary for such Registered Global Security would authorize the participants
holding the relevant beneficial interests to give such notice or take such
action, and such participants would authorize beneficial owners owning through
such participants to give such notice or take such action or would otherwise act
upon the instructions of beneficial owners owning through them.
Unless otherwise specified in the applicable Prospectus Supplement,
payments with respect to principal, premium, if any, and interest, if any, on
Debt Securities represented by a Registered Global Security registered in the
name of a Depositary or its nominee will be made to such Depositary or its
nominee, as the case may be, as the registered owner of such Registered Global
Security.
The Corporation expects that the Depositary for any Debt Securities
represented by a Registered Global Security, upon receipt of any payment of
principal, premium or interest in respect of such Registered Global Securities,
will immediately credit participants' accounts with payments in amounts
proportionate to their respective beneficial interests in the principal amount
of such Registered Global Security as shown on the records of such Depositary.
The Corporation also expects that payments by participants to owners of
beneficial interests in such Registered Global Security held through such
participants will be governed by standing instructions and customary practices,
as is now the case with the securities held for the accounts of customers
registered in "street names," and will be the responsibility of such
participants. Nevertheless, payments, transfers, exchanges and other matters
relating to beneficial interests in a Registered Global Security may be subject
to various policies and procedures adopted by the Depositary from time to time.
None of the Corporation, the Trustee or any agent of the Corporation or the
Trustee shall have any responsibility or liability for any aspect of the records
relating to or payments made on account of beneficial ownership interests of a
Registered Global Security, or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests. See Section 3.8 of the
Indenture.
Unless otherwise specified in the applicable Prospectus Supplement, if the
Depositary for any Debt Securities represented by a Registered Global Security
notifies the Company that it is unwilling or unable to continue as Depositary or
ceases to be a clearing agency registered under the Exchange Act, and a
successor Depositary registered as a clearing agency under the Exchange Act is
not appointed by the Corporation within 90 days, the Corporation will issue such
Debt Securities in definitive certificated form in exchange for such Registered
Global Security. In addition, the Corporation may at any time and in its sole
discretion determine not to have any of the Debt Securities of a series
represented by one or more Registered Global Securities and, in such event, will
issue Debt Securities of such series in definitive certificated form in exchange
for all of the Registered Global Security or Securities representing such Debt
Securities. See Section 3.5 of the Indenture.
The Debt Securities of a series may also be issued in whole or in part in
the form of one or more bearer global securities (a "Bearer Global Security")
that will be deposited with a depositary, or with a nominee for such depositary,
identified in the applicable Prospectus Supplement. Any such Bearer Global
Securities may be issued in temporary or permanent form. See Section 3.4 of the
Indenture. The specific terms and procedures, including the specific terms of
the depositary arrangement, with respect to any portion of a series
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<PAGE> 34
of Debt Securities to be represented by one or more Bearer Global Securities
will be described in the applicable Prospectus Supplement.
CONSOLIDATION, MERGER OR SALE BY THE CORPORATION
The Corporation shall not consolidate with or merge into any other
corporation or transfer or lease all or substantially all of its assets to any
person, unless (i) the person formed by or surviving any such consolidation or
merger (if other than the Corporation) or to which such transfer or lease shall
have been made is a corporation organized and existing under the laws of the
United States, any state thereof or the District of Columbia and expressly
assumes all of the obligations of the Corporation under the Debt Securities and
under the Indenture, and (ii) immediately after giving effect to such
transaction, no Default or Event of Default exists. Upon any such consolidation,
merger or sale, the successor corporation formed by such consolidation, or into
which the Corporation is merged or to which such sale is made, shall succeed to,
and be substituted for the Corporation under the Indenture and under the Debt
Securities. See Section 7.1 of the Indenture.
EVENTS OF DEFAULT, NOTICE AND CERTAIN RIGHTS ON DEFAULT
The Indenture provides that, if an Event of Default specified therein
occurs with respect to the Debt Securities of any series and is continuing, the
Trustee for such series or the holders of 25% in aggregate principal amount of
all of the outstanding Debt Securities of that series, by written notice to the
Corporation (and to the Trustee for such series, if notice is given by such
holders of Debt Securities), may declare the principal of (or, if the Debt
Securities of that series are Original Issue Discount Securities or Indexed
Securities, such portion of the principal amount specified in the Prospectus
Supplement) and accrued interest on all the Debt Securities of that series to be
due and payable. See Section 5.2 of the Indenture.
Except as otherwise provided in a Prospectus Supplement relating to the
Debt Securities of a particular series, Events of Default with respect to Debt
Securities of any series are defined in the Indenture as being: (a) default in
payment of any interest on any Debt Security of that series or any coupon
appertaining thereto or any additional amount payable with respect to Debt
Securities of such series as specified in the applicable Prospectus Supplement
when due and continuance of such default for 30 days; (b) default in payment of
principal, or premium, if any, at maturity or on redemption or otherwise, or in
the making of a mandatory sinking fund payment of any Debt Securities of that
series when due; (c) failure for 60 days after notice to the Corporation by the
Trustee for such series, or by the holders of 25% in aggregate principal amount
of the Debt Securities of such series then outstanding, to comply in any
material respect with any other agreement in the Debt Securities of that series,
in the Indenture or in any supplemental indenture or board resolution referred
to therein under which the Debt Securities of that series may have been issued;
and (d) certain events of bankruptcy, insolvency or reorganization of the
Corporation. See Section 5.1 of the Indenture. Events of Default with respect to
a specified series of Debt Securities may be added to the Indenture and, if so
added, will be described in the applicable Prospectus Supplement. See Sections
3.1 and 5.1(7) of the Indenture.
The Indenture provides that the Trustee will, within 90 days after the
occurrence of a Default with respect to the Debt Securities of any series, give
to the holders of the Debt Securities of that series notice of all Defaults
known to it unless such Default shall have been cured or waived; provided that
except in the case of a Default in payment on the Debt Securities of that
series, the Trustee may withhold the notice if and so long as a Responsible
Officer in good faith determines that withholding such notice is in the
interests of the holders of the Debt Securities of that series. See Section 6.6
of the Indenture. "Default" means any event which is, or after notice or passage
of time or both, would be, an Event of Default. See Section 1.1 of the
Indenture.
The Indenture provides that the holders of a majority in aggregate
principal amount of the outstanding Debt Securities of each series affected
(with each such series voting as a class) may, subject to certain limited
conditions, direct the time, method and place of conducting any proceeding for
any remedy available to the Trustee for such series, or exercising any trust or
power conferred on such Trustee. See Section 5.8 of the Indenture.
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The Indenture includes a covenant that the Corporation will file annually
with the Trustee a certificate as to the Corporation's compliance with all
conditions and covenants of the Indenture. See Section 9.7 of the Indenture.
The holders of a majority in aggregate principal amount outstanding of any
series of Debt Securities by written notice to the Trustee may waive, on behalf
of the holders of all Debt Securities of such series, any past Default or Event
of Default with respect to that series and its consequences except (i) a Default
or Event of Default in the payment of the principal of, premium, if any, or
interest, if any, on any Debt Security of such series or (ii) in respect of a
covenant or provision of the Indenture which cannot under the terms of the
Indenture be amended or modified without the consent of the holder of each
outstanding Debt Security of such series adversely affected. See Section 5.7 of
the Indenture.
CERTAIN COVENANTS OF THE CORPORATION
Limitation on Liens. The Indenture provides that the Corporation will not,
and will not permit any Restricted Subsidiary (as defined) to, (a) issue, assume
or guarantee any indebtedness for money borrowed ("Debt") if such Debt is
secured by a mortgage (as defined) upon, or (b) directly or indirectly secure
any outstanding Debt by a mortgage upon, any Principal Property (as defined) now
owned or hereafter acquired, without effectively providing that the Securities
shall be secured equally and ratably with such Debt, except that the foregoing
restrictions shall not apply to (i) mortgages on any Principal Property
acquired, constructed or improved by the Corporation or any Restricted
Subsidiary after the date of the Indenture to secure or provide for the payment
of the purchase price or cost thereof incurred after the date of the Indenture,
or existing mortgages on property acquired, provided such mortgages shall not
apply to any property theretofore owned by the Corporation or any Restricted
Subsidiary other than theretofore unimproved real property, (ii) mortgages on
any Principal Property acquired from a corporation merged with or into the
Corporation or a Restricted Subsidiary, (iii) mortgages to secure Debt of a
Restricted Subsidiary to the Corporation or another Restricted Subsidiary, (iv)
any extension, renewal or replacement (or successive extensions, renewals or
replacements), in whole or in part, of any mortgage referred to in the foregoing
clauses (i) to (iii), inclusive, (v) the sale or other transfer of any interest
in property of the character commonly referred to as a "production payment," and
(vi) mortgages in favor of governmental bodies to secure advance or progress
payments pursuant to any contract or statute or indebtedness incurred for the
purpose of financing the purchase price or cost of constructing or improving the
property subject thereto. See Section 9.9 of the Indenture.
Notwithstanding the foregoing, the Corporation and any Restricted
Subsidiary may, without securing the Securities, issue, assume or guarantee
secured Debt (which would otherwise be subject to the foregoing restrictions) in
an aggregate amount which, together with all other such Debt of the Corporation
and its Restricted Subsidiaries and the Attributable Debt (as defined) in
respect of Sale and Lease-Back Transactions (as defined) existing at such time
(other than Sale and Lease-Back Transactions in which the property involved
would have been permitted to be mortgaged under the preceding paragraph, or the
proceeds of which have been applied to the retirement of long-term
indebtedness), does not at the time exceed 15% of the shareholders' equity in
the Corporation as shown on the consolidated balance sheet contained in the
latest annual report to shareholders of the Corporation. See Section 9.9 of the
Indenture.
Sale and Lease-Back Transactions. (a) Sale and Lease-Back Transactions (as
defined) by the Corporation or any Restricted Subsidiary are prohibited unless
(i) the Corporation or such Restricted Subsidiary would be entitled to incur
Debt secured by a mortgage on the property to be leased without equally and
ratably securing the Securities or (ii) the Corporation applies an amount equal
to the fair value of the property sold to the retirement of long-term
indebtedness of the Corporation. Sale and Lease-Back Transactions do not include
arrangements with governmental bodies entered into for the purpose of financing
the purchase price or the cost of constructing or improving the property subject
thereto. See Section 9.10 of the Indenture.
(b) Notwithstanding the provisions of the preceding paragraph (a), the
Corporation or any Restricted Subsidiary may enter into any Sale and Lease-Back
Transaction which would otherwise be subject to the
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foregoing restrictions if the amount of the Attributable Debt in respect of Sale
and Lease-Back Transactions for such transaction, together with all secured Debt
of the Corporation and its Restricted Subsidiaries and all other Attributable
Debt in respect of Sale and Lease-Back Transactions existing at such time (other
than Sale and Lease-Back Transactions permitted because the Corporation would be
entitled to incur Debt secured by a mortgage on the property to be leased
without equally and ratably securing the Securities and other than Sale and
Lease-Back Transactions the proceeds of which have been applied in accordance
with clause (ii) of the preceding paragraph (a)), does not at the time exceed
15% of the shareholders' equity in the Corporation and its consolidated
subsidiary companies, as shown on the audited consolidated balance sheet
contained in the latest annual report to shareholders of the Corporation. See
Section 9.10 of the Indenture.
The term "Principal Property" means certain mineral properties and any
concentrator, smelter, refinery or rod mill located within the United States of
America or its territories or possessions, of the Corporation or any Restricted
Subsidiary (or any capital stock or indebtedness of any Restricted Subsidiary
which owns any such property) except any such property, facility (or Restricted
Subsidiary) which the Board of Directors by resolution declares is not of
material importance to the total business conducted by the Corporation and its
Restricted Subsidiaries as an entity. See Section 9.9 of the Indenture.
The term "Attributable Debt" means, as of any particular time, the present
value, discounted at a rate per annum equal to the weighted average of the
interest rate(s) of the outstanding Debt Securities, or, in the case of Original
Issue Discount Securities (as defined), the Yields to Maturity (as defined)
(compounded semi-annually), of the rental payments (not including amounts
payable by the lessee for maintenance, property taxes and insurance) due during
the remaining term of any lease (including any period for which such lease has
been extended or may, at the option of the lessor, be extended). See Section 9.9
of the Indenture.
The term "subsidiary" means any corporation of which at least a majority of
the stock having ordinary voting power for the election of directors of such
corporation is at the time directly or indirectly owned by the Corporation. See
Section 1.1 of the Indenture. The term "Restricted Subsidiary" means (a) any
subsidiary which owns or leases, directly or indirectly, a Principal Property,
and (b) any subsidiary which owns, directly or indirectly, any stock or
indebtedness of a Restricted Subsidiary; except that the term "Restricted
Subsidiary" shall not include (i) any subsidiary engaged primarily in financing
receivables, making loans, extending credit or other activities of a character
conducted by a finance company, or (ii) any subsidiary (A) which conducts
substantially all of its business outside the United States of America or its
territories and possessions or (B) the principal assets of which are stock or
indebtedness of corporations which conduct substantially all of their business
outside the United States of America and its territories and possessions. See
Section 9.9 of the Indenture.
MODIFICATION OF THE INDENTURE
The Indenture contains provisions permitting the Corporation and the
Trustee to enter into one or more supplemental indentures without the consent of
the holders of any of the Debt Securities in order (i) to evidence the
succession of another corporation to the Corporation and the assumption of the
covenants of the Corporation by a successor to the Corporation; (ii) to add to
the covenants of the Corporation or surrender any right or power of the
Corporation; (iii) to add additional Events of Default with respect to any
series of Debt Securities; (iv) to add or change any provisions of the Indenture
to such extent as necessary to facilitate the issuance of Debt Securities in
bearer form; (v) to change or eliminate any provision affecting only Debt
Securities not yet issued; (vi) to secure the Debt Securities; (vii) to
establish the form or terms of Debt Securities; (viii) to evidence and provide
for successor Trustees or to add or change any provisions to such extent as
necessary to permit or facilitate the appointment of a separate Trustee or
Trustees for specific series of Debt Securities; (ix) if allowed without penalty
under applicable laws and regulations, to permit payment in respect of Debt
Securities in bearer form in the United States; (x) to correct any defect or
supplement any inconsistent provisions or to make any other provisions with
respect to matters or questions arising under the Indenture, provided that such
action does not adversely affect the interests of any holder of Debt Securities
of any series; or (xi) to cure any ambiguity or correct any mistake. See Section
8.1 of the Indenture.
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The Indenture also contains provisions permitting the Corporation and the
Trustee, with the consent of the holders of a majority in aggregate principal
amount of the outstanding Debt Securities affected by such supplemental
indenture (with the Debt Securities of each series voting as a class), to
execute supplemental indentures adding any provisions to or changing or
eliminating any of the provisions of the Indenture or any supplemental indenture
or modifying the rights of the holders of Debt Securities of such series, except
that no such supplemental indenture may, without the consent of the holder of
each Debt Security so affected, (i) change the time for payment of principal or
premium, if any, or interest on any Debt Security; (ii) reduce the principal of,
or any installment of principal of, or premium, if any, or interest on any Debt
Security, or change the manner in which the amount of any of the foregoing is
determined; (iii) reduce the interest rate, the amount of principal or the
amount of premium, if any, payable upon the redemption of any Debt Security;
(iv) reduce the amount of principal payable upon acceleration of the maturity of
any Original Issue Discount or Indexed Security; (v) change the currency
(including composite currency) or currency unit in which any Debt Security or
any premium or interest thereon is payable; (vi) impair the right to institute
suit for the enforcement of any payment on or with respect to any Debt Security;
(vii) reduce the percentage in principal amount of the outstanding Debt
Securities affected thereby the consent of whose holders is required for
modification or amendment of the Indenture or for waiver of compliance with
certain provisions of the Indenture or for waiver of certain defaults; (viii)
change the obligation of the Corporation to maintain an office or agency in the
places and for the purposes specified in the Indenture; or (ix) modify the
provisions relating to waiver of certain defaults or any of the foregoing
provisions. See Section 8.2 of the Indenture.
DEFEASANCE AND COVENANT DEFEASANCE
If indicated in the Prospectus Supplement, the Corporation may elect either
(i) to defease and be discharged from any and all obligations with respect to
the Debt Securities of or within any series (except as otherwise provided in the
Indenture) ("defeasance") or (ii) to be released from its obligations with
respect to certain covenants applicable to the Debt Securities of or within any
series ("covenant defeasance"), upon the deposit with the Trustee (or other
qualifying trustee), in trust for such purpose, of money and/or Government
Obligations which through the payment of principal and interest in accordance
with their terms will provide money in an amount sufficient, without
reinvestment, to pay the principal of and any premium or interest on such Debt
Securities to Maturity or redemption, as the case may be, and any mandatory
sinking fund or analogous payments thereon. As a condition to defeasance or
covenant defeasance, the Corporation must deliver to the Trustee an Opinion of
Counsel to the effect that the Holders of such Debt Securities will not
recognize income, gain or loss for Federal income tax purposes as a result of
such defeasance or covenant defeasance and will be subject to Federal income tax
on the same amounts and in the same manner and at the same times as would have
been the case if such defeasance or covenant defeasance had not occurred. Such
Opinion of Counsel, in the case of defeasance under clause (i) above, must refer
to and be based upon a ruling of the Internal Revenue Service or a change in
applicable Federal income tax law occurring after the date of the Indenture. In
addition, defeasance or covenant defeasance shall not result in a breach or
Default or Event of Default under the Indenture or a default under any other
material agreement or instrument to which the Corporation is a party or by which
it is bound. See Article 4 of the Indenture. If indicated in the Prospectus
Supplement, in addition to obligations of the United States or an agency or
instrumentality thereof, Government Obligations may include obligations of the
government or an agency or instrumentality of the government issuing the
currency or currency unit in which Debt Securities of such series are payable.
See Section 3.1 of the Indenture.
The Corporation may exercise its defeasance option with respect to such
Debt Securities notwithstanding its prior exercise of its covenant defeasance
option. If the Corporation exercises its defeasance option, payment of such Debt
Securities may not be accelerated because of a Default or an Event of Default.
If the Corporation exercises its covenant defeasance option, payment of such
Debt Securities may not be accelerated by reason of an Event of Default with
respect to the covenants to which such covenant defeasance is applicable.
However, if such acceleration were to occur by reason of another Event of
Default, the realizable value at the acceleration date of the money and
Government Obligations in the defeasance trust could be less than the principal
and interest then due on such Debt Securities, in that the required deposit in
the defeasance
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trust is based upon scheduled cash flow rather than market value, which will
vary depending upon interest rates and other factors.
NOTICES
Notices to holders of registered Debt Securities will be given by mail to
the addresses of such holders as they may appear in the Register. See Section
1.6 of the Indenture.
TITLE
The Corporation, the Trustee and any agent of the Corporation or the
Trustee may treat the Person in whose name a Debt Security is registered as the
absolute owner thereof (whether or not such Debt Security may be overdue) for
the purpose of receiving payment and for all other purposes. See Section 3.8 of
the Indenture.
GOVERNING LAW
The Indenture and the Debt Securities will be governed by, and construed in
accordance with, the laws of the State of New York. See Section 1.11 of the
Indenture.
THE TRUSTEE
The Chase Manhattan Bank is the Trustee under the Indenture. The
Corporation may also maintain banking and other commercial relationships with
the Trustee and its affiliates in the ordinary course of business.
PLAN OF DISTRIBUTION
The Corporation may sell any of the Debt Securities being offered hereby in
any one or more of the following ways from time to time: (i) through agents;
(ii) to or through underwriters; (iii) through dealers; and (iv) directly by the
Corporation to purchasers.
The distribution of the Debt Securities may be effected from time to time
in one or more transactions at a fixed price or prices, which may be changed, at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices.
Offers to purchase Debt Securities may be solicited by agents designated by
the Corporation from time to time. Any such agent involved in the offer or sale
of the Debt Securities in respect of which this Prospectus is delivered will be
named, and any commissions payable by the Corporation to such agent will be set
forth, in the applicable Prospectus Supplement. Unless otherwise indicated in
such Prospectus Supplement, any such agent will be acting on a reasonable best
efforts basis for the period of its appointment. Any such agent may be deemed to
be an underwriter, as that term is defined in the Securities Act, of the Debt
Securities so offered and sold.
If Debt Securities are sold by means of an underwritten offering, the
Corporation will execute an underwriting agreement with an underwriter or
underwriters at the time an agreement for such sale is reached, and the names of
the specific managing underwriter or underwriters, as well as any other
underwriters, and the terms of the transaction, including commissions, discounts
and any other compensation of the underwriters and dealers, if any, will be set
forth in the Prospectus Supplement which will be used by the underwriters to
make resales of the Debt Securities in respect of which this Prospectus is
delivered to the public. If underwriters are utilized in the sale of the Debt
Securities in respect of which this Prospectus is delivered, the Debt Securities
will be acquired by the underwriters for their own account and may be resold
from time to time in one or more transactions, including negotiated
transactions, at fixed public offering prices or at varying prices determined by
the underwriter at the time of sale. Debt Securities may be offered to the
public either through underwriting syndicates represented by managing
underwriters or directly by the managing underwriters. If any underwriter or
underwriters are utilized in the sale of the Debt Securities, unless otherwise
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indicated in the Prospectus Supplement, the underwriting agreement will provide
that the obligations of the underwriters are subject to certain conditions
precedent and that the underwriters with respect to a sale of Debt Securities
will be obligated to purchase all such Debt Securities if any are purchased.
If a dealer is utilized in the sale of the Debt Securities in respect of
which this Prospectus is delivered, the Corporation will sell such Debt
Securities to the dealer as principal. The dealer may then resell such Debt
Securities to the public at varying prices to be determined by such dealer at
the time of resale. Any such dealer may be deemed to be an underwriter, as such
term is defined in the Securities Act, of the Debt Securities so offered and
sold. The name of the dealer and the terms of the transaction will be set forth
in the Prospectus Supplement relating thereto.
Offers to purchase Debt Securities may be solicited directly by the
Corporation and the sale thereof may be made by the Corporation directly to
institutional investors or others, who may be deemed to be underwriters within
the meaning of the Securities Act with respect to any resale thereof. The terms
of any such sales will be described in the Prospectus Supplement relating
thereto.
Agents, underwriters and dealers may be entitled under relevant agreements
to indemnification or contribution by the Corporation against certain
liabilities, including liabilities under the Securities Act.
Each series of Debt Securities will be a new issue with no established
trading market. The Corporation may elect to list any series of Debt Securities
on an exchange, but the Corporation shall not be obligated to do so. It is
possible that one or more underwriters may make a market in a series of Debt
Securities, but will not be obliged to do so and may discontinue any market
making at any time without notice. Therefore, no assurance can be given as to
the liquidity of the trading market for the Debt Securities.
In order to facilitate the offering of the Debt Securities, any
underwriters or agents, as the case may be, involved in the offering of such
Debt Securities may engage in transactions that stabilize, maintain or otherwise
affect the price of the Debt Securities or any other securities the prices of
which may be used to determine payments on such Debt Securities. Specifically,
the underwriters or agents, as the case may be, may overallot in connection with
the offering, creating a short position in such Debt Securities for their own
account. In addition, to cover overallotments or to stabilize the price of such
Debt Securities or any such other securities, the underwriters or agents, as the
case may be, may bid for, and purchase, such Debt Securities or any such other
securities in the open market. Finally, in any offering of such Debt Securities
through a syndicate of underwriters, the underwriting syndicate may reclaim
selling concessions allowed to an underwriter or a dealer for distributing such
Debt Securities in the offering if the syndicate repurchases previously
distributed Debt Securities in transactions to cover syndicate short positions,
in stabilization transactions or otherwise. Any of these activities may
stabilize or maintain the market price of the Debt Securities above independent
market levels. The underwriters or agents, as the case may be, are not required
to engage in these activities, and may end any of these activities at any time.
Agents, underwriters and dealers may be customers of, engage in
transactions with, or perform services for, the Corporation and its subsidiaries
in the ordinary course of business.
Debt Securities may also be offered and sold, if so indicated in the
Prospectus Supplement, in connection with a remarketing upon their purchase, in
accordance with a redemption or repayment pursuant to their terms, or otherwise,
by one or more firms ("remarketing firms"), acting as principals for their own
accounts or as agents for the Corporation. Any remarketing firm will be
identified and the terms of its agreement, if any, with the Corporation and its
compensation will be described in the Prospectus Supplement. Remarketing firms
may be deemed to be underwriters, as such term is defined in the Securities Act,
in connection with the Debt Securities remarketed thereby. Remarketing firms may
be entitled under agreements which may be entered into with the Corporation to
indemnification or contribution by the Corporation against certain civil
liabilities, including liabilities under the Securities Act, and may be
customers of, engage in transactions with or perform services for the
Corporation in the ordinary course of business.
If so indicated in the applicable Prospectus Supplement, the Corporation
may authorize agents, underwriters or dealers to solicit offers by certain
institutions to purchase Debt Securities from the Corporation at the public
offering prices set forth in the applicable Prospectus Supplement pursuant to
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delayed delivery contracts ("Contracts") providing for payment and delivery on a
specified date or dates. A commission indicated in the applicable Prospectus
Supplement will be paid to underwriters, dealers and agents soliciting purchases
of Debt Securities pursuant to Contracts accepted by the Corporation.
LEGAL MATTERS
Unless otherwise indicated in the applicable Prospectus Supplement, the
validity of any Debt Securities offered hereby will be passed upon for the
Corporation by Debevoise & Plimpton, 875 Third Avenue, New York, New York 10022.
EXPERTS
The financial statements incorporated in this Prospectus by reference to
the Annual Report on Form 10-K of the Corporation for the year ended December
31, 1996 have been so incorporated in reliance on the report of Price Waterhouse
LLP, independent accountants, given on the authority of said firm as experts in
auditing and accounting.
With respect to the unaudited consolidated financial information of the
Corporation for the three-month periods ended March 31, 1997 and 1996 and the
six-month periods ended June 30, 1997 and 1996 incorporated by reference in this
Prospectus, Price Waterhouse LLP reported that they have applied limited
procedures in accordance with professional standards for a review of such
information. However, their separate reports dated April 9, 1997 and July 10,
1997 incorporated by reference herein, state that they did not audit and they do
not express an opinion on that unaudited consolidated financial information.
Price Waterhouse LLP has not carried out any significant or additional audit
tests beyond those which would have been necessary if their report had not been
included. Accordingly, the degree of reliance on their report on such
information should be restricted in light of the limited nature of the review
procedures applied. Price Waterhouse LLP is not subject to the liability
provisions of section 11 of the Securities Act of 1933 for their report on the
unaudited consolidated financial information because that report is not a
"report" or a "part" of the registration statement prepared or certified by
Price Waterhouse LLP within the meaning of sections 7 and 11 of the Act.
The consolidated financial statements of the Corporation included in any
subsequent Annual Report of the Corporation on Form 10-K and incorporated by
reference in this Prospectus will have been examined by the independent
accountants whose report thereon appears in such Annual Report. Such
consolidated financial statements of the Corporation shall be deemed to be
incorporated herein from the date of filing of the applicable report on Form
10-K in reliance on the reports of such independent accountants, given on the
authority of such firm as experts in auditing and accounting.
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