SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 11-K
---------
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 1997
-----------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ____________________ to _____________________
Commission file number 1-82
----
PHELPS DODGE EMPLOYEE SAVINGS PLAN
----------------------------------
PHELPS DODGE CORPORATION
------------------------
2600 North Central Avenue
Phoenix, Arizona 85004-3089
<PAGE>
SIGNATURES
----------
The Plan. Pursuant to the requirements of the Securities Exchange Act of 1934,
the Committee has duly caused this Annual Report to be signed by the undersigned
hereunto duly authorized.
PHELPS DODGE EMPLOYEE SAVINGS PLAN
Date: June 26, 1998 By: /s/ R. G. Peru
------------------------------- -------------------------------------
Ramiro G. Peru, Chairman
Benefits Administration Committee
-2-
<PAGE>
Phelps Dodge Employee Savings Plan
Index
December 31, 1997 and 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Page
<S> <C>
Report of Independent Accountants 5
Statement of Net Assets Available for Benefits, with Fund Information 6
Statement of Changes in Net Assets Available for Benefits, with Fund Information 8
Notes to Financial Statements 10
Supplemental Information:*
I. Schedule of Assets Held for Investment Purposes at December 31, 1997 18
II. Schedule of Reportable Transactions for Year Ended December 31, 1997 19
* Other schedules required by Section 2520.103-10 of the Department of Labor Rules
and Regulations for Reporting and Disclosure under ERISA have been omitted
because they are not applicable
</TABLE>
- 4 -
<PAGE>
Report of Independent Accountants
To the Benefits Administration Committee and Participants
of the Phelps Dodge Employee Savings Plan
In our opinion, the financial statements listed in the accompanying index
present fairly, in all material respects, the net assets available for benefits
of the Phelps Dodge Employee Savings Plan at December 31, 1997 and 1996, and the
changes in net assets available for benefits for the years then ended, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Benefits Administration Committee (the
Committee); our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by the Committee, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
Our audits were performed for the purpose of forming an opinion on the basic
financial statements taken as a whole. The additional information included in
Schedules I and II is presented for purposes of additional analysis and is not a
required part of the basic financial statements but is additional information
required by ERISA. The Fund Information in the statement of net assets available
for benefits and the statement of changes in net assets available for benefits
is presented for purposes of additional analysis rather than to present the net
assets available for plan benefits and changes in net assets available for
benefits of each fund. Schedules I and II and the Fund Information have been
subjected to the auditing procedures applied in the audits of the basic
financial statements and, in our opinion, are fairly stated in all material
respects in relation to the basic financial statements taken as a whole.
Price Waterhouse LLP
Phoenix, Arizona
June 24, 1998
- 5 -
<PAGE>
Phelps Dodge Employee Savings Plan
Statement of Net Assets Available for Benefits, with Fund Information
December 31, 1997
(in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Money Interest Equity
Market Income Balanced Income S&P 500 Growth
Assets Fund Fund Fund Fund Index Fund Stock Fund
- --------------------------------- --------- --------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Investments, at current value
(cost basis $292,241):
Common Stocks
Mutual Funds $ 34,698 $ 4,013 $ 69,032 $ 12,770 $ 85,400
Guaranteed Investment
Contracts $ 44,576
Loans to Participants
--------- --------- --------- --------- --------- ---------
34,698 44,576 4,013 69,032 12,770 85,400
--------- --------- --------- --------- --------- ---------
Receivables:
Loan Repayments 78 105 6 125 21 159
Employee Contributions 129 165 18 231 66 338
Employer Contributions 1,553 1,304 185 1,950 600 2,568
--------- --------- --------- --------- --------- ---------
1,760 1,574 209 2,306 687 3,065
--------- --------- --------- --------- --------- ---------
Net assets available for benefits $ 36,458 $ 46,150 $ 4,222 $ 71,338 $ 13,457 $ 88,465
========= ========= ========= ========= ========= =========
<CAPTION>
Phelps Occidental
Dodge Petroleum
International Small Cap Common Common Stock
Assets Equity Fund Equity Fund Stock Fund Fund Loan Fund Total
- --------------------------------- ----------- ----------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Investments, at current value
(cost basis $292,241):
Common Stocks $ 42,835 $ 269 $ 43,104
Mutual Funds $ 5,024 $ 6,789 217,726
Guaranteed Investment
Contracts 44,576
Loans to Participants $ 15,551 15,551
--------- --------- --------- --------- --------- ---------
5,024 6,789 42,835 269 15,551 320,957
--------- --------- --------- --------- --------- ---------
Receivables:
Loan Repayments 6 8 100 (608)
Employee Contributions 29 42 221 1,239
Employer Contributions 283 391 1,547 10,381
--------- --------- --------- --------- --------- ---------
318 441 1,868 - (608) 11,620
--------- --------- --------- --------- --------- ---------
Net assets available for benefits $ 5,342 $ 7,230 $ 44,703 $ 269 $ 14,943 $ 332,577
========= ========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 6 -
<PAGE>
Phelps Dodge Employee Savings Plan
Statement of Net Assets Available for Benefits, with Fund Information
December 31, 1996
(in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Money Interest Equity
Market Income Balanced Income S&P 500 Growth
Assets Fund Fund Fund Fund Index Fund Stock Fund
- --------------------------------- --------- --------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Investments, at current value
(cost basis $261,821):
Common Stocks
Mutual Funds $ 29,930 $ 1,620 $ 51,044 $ 3,675 $ 68,482
Guaranteed Investment
Contracts $ 49,793
Loans to Participants
--------- --------- --------- --------- --------- ---------
29,930 49,793 1,620 51,044 3,675 68,482
--------- --------- --------- --------- --------- ---------
Receivables:
Loan Repayments 75 92 2 82 8 138
Employee Contributions 134 176 10 204 27 316
Employer Contributions 1,242 1,457 89 1,768 266 2,483
--------- --------- --------- --------- --------- ---------
1,451 1,725 101 2,054 301 2,937
--------- --------- --------- --------- --------- ---------
Net assets available for benefits $ 31,381 $ 51,518 $ 1,721 $ 53,098 $ 3,976 $ 71,419
========= ========= ========= ========= ========= =========
<CAPTION>
Phelps Occidental
Small Cap Dodge Petroleum
International Equity Common Common
Assets Equity Fund Fund Stock Fund Stock Fund Loan Fund Total
- --------------------------------- ----------- --------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Investments, at current value
(cost basis $261,821):
Common Stocks $ 46,344 $ 228 $ 46,572
Mutual Funds $ 2,954 $ 4,311 162,016
Guaranteed Investment
Contracts 49,793
Loans to Participants $ 15,139 15,139
--------- --------- --------- --------- --------- ---------
2,954 4,311 46,344 228 15,139 273,520
--------- --------- --------- --------- --------- ---------
Receivables:
Loan Repayments 4 8 83 (492)
Employee Contributions 20 31 194 1,112
Employer Contributions 211 297 1,515 9,328
--------- --------- --------- --------- --------- ---------
235 336 1,792 - (492) 10,440
--------- --------- --------- --------- --------- ---------
Net assets available for benefits $ 3,189 $ 4,647 $ 48,136 $ 228 $ 14,647 $ 283,960
========= ========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 7 -
<PAGE>
Phelps Dodge Employee Savings Plan
Statement of Changes in Net Assets Available for Benefits, with Fund Information
December 31, 1997
(in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Money Interest Equity
Market Income Balanced Income S&P 500 Growth
Assets Fund Fund Fund Fund Index Fund Stock Fund
- --------------------------------- --------- --------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Additions to net assets attributed to:
Investment income:
Realized gains on investments $ 80 $ 2,265 $ 314 $ 2,155
Change in unrealized
appreciation (depreciation) 17 9,890 1,749 10,370
Dividends $ 1,872 437 3,813 5,558
Interest $ 3,218 8 93 23 121
--------- --------- --------- --------- --------- ---------
1,872 3,218 542 16,061 2,086 18,204
--------- --------- --------- --------- --------- ---------
Contributions:
Employee 1,759 2,320 235 3,168 775 4,738
Employer 2,144 2,046 242 2,844 782 3,880
--------- --------- --------- --------- --------- ---------
3,903 4,366 477 6,012 1,557 8,618
--------- --------- --------- --------- --------- ---------
Total additions 5,775 7,584 1,019 22,073 3,643 26,822
--------- --------- --------- --------- --------- ---------
Deductions from net assets attributed to:
Distributions to participants
and beneficiaries (7,162) (5,193) (127) (3,119) (493) (4,370)
Other charges, net 1 (9)
Loans to participants,
net of repayments 4 245 1 (175) (8) (188)
Fund exchanges, net 6,459 (7,995) 1,608 (539) 6,339 (5,218)
--------- --------- --------- --------- --------- ---------
Total deductions (698) (12,952) 1,482 (3,833) 5,838 (9,776)
--------- --------- --------- --------- --------- ---------
Increase(decrease) in net
assets during the year 5,077 (5,368) 2,501 18,240 9,481 17,046
Net assets available for benefits:
Beginning of year 31,381 51,518 1,721 53,098 3,976 71,419
--------- --------- --------- --------- --------- ---------
End of year $ 36,458 $ 46,150 $ 4,222 $ 71,338 $ 13,457 $ 88,465
========= ========= ========= ========= ========= =========
<CAPTION>
Phelps Occidental
Small Cap Dodge Petroleum
International Equity Common Common
Assets Equity Fund Fund Stock Fund Stock Fund Loan Fund Total
- --------------------------------- ----------- --------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Investment income:
Realized gains on investments $ 181 $ 281 $ 1,691 $ 2 $ 6,969
Change in unrealized
appreciation (depreciation) (300) (530) (5,101) 54 16,149
Dividends 391 1,132 1,311 10 14,524
Interest 12 15 43 $ 1,434 4,967
--------- --------- --------- --------- --------- ---------
284 898 (2,056) 66 1,434 42,609
--------- --------- --------- --------- --------- ---------
Contributions:
Employee 429 631 2,917 16,972
Employer 389 543 2,387 15,257
--------- --------- --------- --------- --------- ---------
818 1,174 5,304 -- -- 32,229
--------- --------- --------- --------- --------- ---------
Total additions 1,102 2,072 3,248 66 1,434 74,838
--------- --------- --------- --------- --------- ---------
Deductions from net assets attributed to:
Distributions to participants
and beneficiaries (124) (188) (4,225) (6) (1,204) (26,211)
Other charges, net (2) (10)
Loans to participants,
net of repayments 39 16 (2) 68
Fund exchanges, net 1,136 683 (2,454) (19)
--------- --------- --------- --------- --------- ---------
Total deductions 1,051 511 (6,681) (25) (1,138) (26,221)
--------- --------- --------- --------- --------- ---------
Increase(decrease) in net
assets during the year 2,153 2,583 (3,433) 41 296 48,617
Net assets available for benefits:
Beginning of year 3,189 4,647 48,136 228 14,647 283,960
--------- --------- --------- --------- --------- ---------
End of year $ 5,342 $ 7,230 $ 44,703 $ 269 $ 14,943 $ 332,577
========= ========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 8 -
<PAGE>
Phelps Dodge Employee Savings Plan
Statement of Changes in Net Assets Available for Benefits, with Fund Information
December 31, 1996
(in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Money Interest Equity
Market Income Balanced Income S&P 500 Growth
Assets Fund Fund Fund Fund Index Fund Stock Fund
- --------------------------------- --------- --------- --------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Additions to net assets attributed to:
Investment income:
Realized gains (losses) on
investments $ 2 $ 589 $ 68 $ (1,718)
Change in unrealized
appreciation (depreciation) (13) 4,667 282 (1,722)
Dividends $ 1,280 115 3,140 10,688
Interest 152 $ 2,486 3 28 6 44
--------- --------- --------- --------- --------- ---------
1,432 2,486 107 8,424 356 7,292
--------- --------- --------- --------- --------- ---------
Fund to fund transfers from
Laurinburg Savings Plan 410 1,336 -- 387 -- 500
--------- --------- --------- --------- --------- ---------
Contributions:
Employee 1,987 2,569 106 2,803 212 4,805
Employer 1,875 2,284 110 2,597 318 3,857
--------- --------- --------- --------- --------- ---------
3,862 4,853 216 5,400 530 8,662
--------- --------- --------- --------- --------- ---------
Total additions 5,704 8,675 323 14,211 886 16,454
--------- --------- --------- --------- --------- ---------
Deductions from net assets attributed to:
Distributions to participants
and beneficiaries (1,782) (3,210) (1) (2,087) (55) (2,702)
Other charges, net 11 (21) 4 2 5
Loans to participants,
net of repayments (3) 4 15 (231) (12) (338)
Fund exchanges, net 1,535 (1,898) 1,380 2,057 3,157 (8,880)
--------- --------- --------- --------- --------- ---------
Total deductions (239) (5,125) 1,398 (259) 3,090 (11,915)
--------- --------- --------- --------- --------- ---------
Increase(decrease) in net
assets during the year 5,465 3,550 1,721 13,952 3,976 4,539
Net assets available for benefits:
Beginning of year 25,916 47,968 39,146 66,880
--------- --------- --------- --------- --------- ---------
End of year $ 31,381 $ 51,518 $ 1,721 $ 53,098 $ 3,976 $ 71,419
========= ========= ========= ========= ========= =========
<CAPTION>
Phelps Occidental
Small Cap Dodge Petroleum
International Equity Common Common
Assets Equity Fund Fund Stock Fund Stock Fund Loan Fund Total
- --------------------------------- ----------- --------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Additions to net assets attributed to:
Investment income:
Realized gains (losses) on
investments $ 25 $ 20 $ 770 $ 6 $ (238)
Change in unrealized
appreciation (depreciation) 103 (15) 2,873 19 6,194
Dividends 106 291 1,335 10 16,965
Interest 5 6 35 $ 1,232 3,997
--------- --------- --------- --------- --------- ---------
239 302 5,013 35 1,232 26,918
--------- --------- --------- --------- --------- ---------
Fund to fund transfers from
Laurinburg Savings Plan -- -- -- -- 713 3,346
--------- --------- --------- --------- --------- ---------
Contributions:
Employee 253 427 2,754 15,916
Employer 249 356 2,337 13,983
--------- --------- --------- --------- --------- ---------
502 783 5,091 -- -- 29,899
--------- --------- --------- --------- --------- ---------
Total additions 741 1,085 10,104 35 1,945 60,163
--------- --------- --------- --------- --------- ---------
Deductions from net assets attributed to:
Distributions to participants
and beneficiaries (30) (6) (2,311) (534) (12,718)
Other charges, net 4 5 (12) (6) (8)
Loans to participants,
net of repayments 28 (5) (293) 835
Fund exchanges, net 2,446 3,568 (3,317) (48)
--------- --------- --------- --------- --------- ---------
Total deductions 2,448 3,562 (5,933) (54) 301 (12,726)
--------- --------- --------- --------- --------- ---------
Increase(decrease) in net
assets during the year 3,189 4,647 4,171 (19) 2,246 47,437
Net assets available for benefits:
Beginning of year -- -- 43,965 247 12,401 236,523
--------- --------- --------- --------- --------- ---------
End of year $ 3,189 $ 4,647 $ 48,136 $ 228 $ 14,647 $ 283,960
========= ========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
- 9 -
<PAGE>
Phelps Dodge Employee Savings Plan
Notes to Financial Statements
Years Ended December 31, 1997 and 1996
- --------------------------------------------------------------------------------
1. Description of Plan
General
The Phelps Dodge Corporation Savings and Deferred Profit Sharing Plan
(the Plan), a defined contribution plan, was established by Phelps
Dodge Corporation (the Corporation) effective January 1, 1953, for the
benefit of eligible salaried employees (the Participants). Hourly
employees became eligible for the savings feature of the Plan on April
1, 1989. Subsequently, the Plan name was changed to Phelps Dodge
Employee Savings Plan. Employees at Phelps Dodge Magnet Wire's El Paso
and Laurinburg facilities became eligible to participate in the savings
feature of the Plan on April 1, 1994. Salaried employees at that El
Paso facility became eligible for the profit sharing feature of the
Plan on January 1, 1995. Salaried employees at Phelps Dodge High
Performance Conductors in West Caldwell, New Jersey, became eligible to
participate in the savings feature of the Plan on July 1, 1996 and the
profit sharing feature of the Plan on January 1, 1997. Assets from the
Laurinburg Savings Plan were merged into this Plan during November
1996.
The Plan is subject to certain provisions of the Employee Retirement
Income Security Act of 1974 (ERISA). A brief description of the Plan is
included in the following paragraphs. Participants should refer to the
Plan document for a complete description of Plan provisions.
Administration
The Plan is sponsored by the Corporation and administered by the
Benefits Administration Committee (the Committee) composed of six
employees of the Corporation who are appointed by the Corporation's
Board of Directors.
Plan assets are held by a trust (the Trust) administered by Marshall
and Ilsley Trust Company of Arizona (the Trustee or M & I).
Fees and expenses of the Trust, other than brokerage commissions and
taxes paid in connection with security transactions, and other expenses
relating to the administration of the Plan are currently paid by the
Corporation.
Investment Options
Participant investments are self-directed. The Trust is comprised of
the following investments:
Money Market Fund - mutual fund investing in high quality, short-term
cash instruments including certificates of deposit and U.S. Treasury
bills issued by banks, corporations and the U.S. government or its
agencies.
Interest Income Fund - high quality government, corporate and mortgage
backed debt and other fixed income securities.
Equity Income Fund - mutual fund investing in income-producing stocks
with expected higher returns than the overall market; a portion may be
invested in bonds or other fixed income securities, especially those
convertible to stocks.
- 10 -
<PAGE>
Phelps Dodge Employee Savings Plan
Notes to Financial Statements
Years Ended December 31, 1997 and 1996
- --------------------------------------------------------------------------------
1. Description of Plan (Continued)
Growth Stock Fund - mutual fund investing in stocks of mid-sized
companies whose stock is expected to grow faster than the overall
market.
Phelps Dodge Common Stock Fund - invests only in common stock of the
Corporation.
Effective March 15, 1996, four new investment fund options were added:
Balanced Fund - mutual fund investing in a mix of stocks, U.S. Treasury
bonds and money market cash instruments; the allocation of assets may
shift substantially from time-to-time.
S&P 500 Index Fund - mutual fund investing in stocks, primarily of the
same companies as in the S&P 500 Index.
International Equity Fund - mutual fund investing in stocks of European
and Pacific Basin companies and government securities of developed and
developing countries.
Small Cap Equity Fund - mutual fund investing in a combination of small
and mid-sized value and growth stocks.
In addition, certain participants hold assets in the Occidental
Petroleum Common Stock Fund as a result of the transfer of assets from
the Columbian Chemicals Company plan. Participant loans are held in a
separate Loan Fund.
Contributions
A profit sharing contribution made for certain salaried and Phelps
Dodge Mercantile hourly employee participants by the Corporation (the
Company Profit Sharing Contribution) was limited to the lesser of 4
percent for the years 1996 or earlier, and 8 percent for 1997 and
thereafter, of consolidated net income of the Corporation or 7 1/2
percent of the aggregate eligible base pay of Participants and can be
made only to the extent that it does not reduce consolidated net income
below $0.50 per common share for such year after provision for payment
of preferred and preference share dividends. Profit sharing
contributions, which are included in Employer Contributions in the
Statement of Changes in Net Assets Available for Benefits, with Fund
Information, totaled $9,867,000 for 1997 and $8,885,000 for 1996.
Participants were allowed to make voluntary contributions from 1
percent to 10 percent of their base pay on an after-tax basis
(After-tax Contributions) to the Plan by payroll deduction from July 1,
1986 to March 31, 1989. Effective April 1, 1989, these voluntary
After-tax Contributions were eliminated and Participants became
eligible to make pretax contributions (Pretax Contributions), subject
to certain limitations, equal to 2 percent to 10 percent of their base
pay before March 15, 1996 and 1 percent to 10 percent after that date.
Pretax Contributions are eligible for a matching contribution from the
Corporation (Company Matching Contribution) equal to 50 percent of the
first 5 percent of the base pay deferred. All contributions are
invested in one or more of the investment funds available within the
Plan as elected by participants. Participants are fully vested in their
total account balance.
- 11 -
<PAGE>
Phelps Dodge Employee Savings Plan
Notes to Financial Statements
Years Ended December 31, 1997 and 1996
- --------------------------------------------------------------------------------
1. Description of Plan (Continued)
Distributions
Participants' interests in the Trust become distributable upon
severance of their service with the Corporation or to their
beneficiaries in the event of their death or, effective July 1, 1995,
upon attaining age 59 1/2. The distribution may be a single lump sum or
a series of substantially equal annual, quarterly or monthly cash
installments beginning no earlier than age 55 and continuing over a
period not to exceed 10 years, at the election of the Participant or
beneficiary. Distributions are generally made in cash, although
distributions from the Phelps Dodge Common Stock Fund, Occidental
Petroleum Stock Fund, Equity Income Fund and Growth Stock Fund may also
be made in shares. Effective March 15, 1996, cash distributions are
based upon the market price of the funds within two days prior to the
time of distribution. Previously, accounts were valued monthly and cash
distributions were based on the market price of funds about one month
prior to the time of distribution.
Participants may withdraw their After-tax Contributions and earnings
thereon at any time. The Plan also provides, with certain limitations,
for hardship withdrawals of employee Pretax, Company Matching and
Company Profit Sharing Contributions; however, earnings on any of these
contributions are ineligible for hardship withdrawal. Hardship
withdrawals are not granted unless other financial resources are not
reasonably available, including after-tax savings or a loan from the
Plan. All withdrawals and distributions are made in accordance with
procedures outlined in the Plan document.
Loans
Participants may borrow amounts as provided in the Plan. A maximum of
one loan, with the exception of certain grandfathered loans for
participants who transferred from the Laurinburg Plan, may be borrowed
and are repayable over a maximum of 5 years with the exception of loans
for the purchase of a primary residence which may extend to 15 years.
The minimum loan is $1,000 and the maximum loan is an amount equal to
$50,000 minus the Participants highest outstanding loan balance during
the past 12 months, limited to 50 percent of the Participant's vested
account balance. All loans bear the Trustee's prime interest rate plus
2 percent at the end of the month preceding the month in which the loan
is applied for. The prime rate at December 31, 1997 was 8.5 percent.
Loans are repaid by payroll deduction and interest is credited to
Participant accounts. Loans are secured by the Participant's previous
contributions to the Plan. Effective September 1, 1997, spousal consent
was eliminated for all inservice withdrawals and loans except where
required by law for persons with grandfathered joint and survivor
benefit options. Also effective September 1, 1997 are new loan
provisions which include new loan delinquency and default procedures to
comply with IRS regulation.
Plan Termination
The Plan may be amended or terminated at any time by the Corporation.
No such action may cause any portion of the Trust to revert to the
Corporation or to be used or diverted for any purpose other than for
the exclusive benefit of Participants or their beneficiaries.
- 12 -
<PAGE>
Phelps Dodge Employee Savings Plan
Notes to Financial Statements
Years Ended December 31, 1997 and 1996
- --------------------------------------------------------------------------------
2. Summary of Significant Accounting Policies
The financial statements of the Plan are prepared on the accrual basis
of accounting. Plan investments, other than Guaranteed Investment
Contracts, are presented at fair value. The fair values of common stock
and mutual fund shares are based upon the closing market price on the
valuation date. The Guaranteed Investment Contracts are valued based
upon their respective face values plus accrued interest on the
valuation date. Participant loans are valued at amounts advanced to
participants less principal payments received.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
Security transactions are recorded on a trade date basis. Expenses paid
by the Plan in connection with such transactions include brokerage
commissions and taxes which are included in the cost of securities
purchased and deducted from the proceeds of securities sold. Realized
gains (losses) resulting from the sale of investments are based upon
carrying value at the end of the prior year or the acquisition date if
later. The change in unrealized appreciation (depreciation) is
determined by comparison of the carrying value at the end of the prior
year or the acquisition date if later. Dividend income is recognized on
the ex-dividend date. Interest income is recognized as earned. Employer
and employee contributions are recognized on the accrual basis.
Benefit obligations for persons who have withdrawn from participation
in the Plan are not recorded as liabilities in the accompanying
financial statements and are as follows:
<TABLE>
<CAPTION>
December 31,
---------------------------
1997 1996
-------- --------
<S> <C> <C>
Money Market Fund $604,401 $277,004
Interest Income Fund 899,093 73,620
Balanced Fund 49,923 34,929
Equity Income Fund 406,218 424,795
S&P 500 Index Fund 109,708 18,472
Growth Stock Fund 740,329 456,030
International Equity Fund 3,226 13,241
Small Cap Equity Fund 2,574 13,377
Phelps Dodge Common Stock Fund 690,271 645,308
Loan Fund 44,703 66,948
</TABLE>
- 13 -
<PAGE>
Phelps Dodge Employee Savings Plan
Notes to Financial Statements
Years Ended December 31, 1997 and 1996
- --------------------------------------------------------------------------------
3. Investments
The following table presents the current value of investments with
separate identification of individual investments which represent 5
percent or more of net assets:
<TABLE>
<CAPTION>
December 31,
1997 1996
-------- --------
(in thousands)
<S> <C> <C>
Barclays Money Market Fund I $ 34,698 $ 31,396
Commonwealth Synthetic GIC, 6.04%
open maturity rate resets calendar quarter 33,908 34,880
Fidelity Equity Income Fund 69,032 51,044
Fidelity Magellan Fund 85,400 68,482
Phelps Dodge Corporation Common Stock 42,074 45,609
Loans to participants, 8% -12.5 %,
maturing through December 2012 15,551 15,139
Other 40,294 26,970
-------- --------
$320,957 $273,520
======== ========
</TABLE>
4. Unitized Funds
In 1996, several investment funds were unitized to allow the Trustee to
participate in late day trading. Unitization requires the establishment
and maintenance of a cash reserve to settle the sale of the units with
cash from the reserve rather than having to wait at least one business
day for the settlement of the underlying mutual fund as would normally
be the case without unitization. The value of the fund determined using
the number of units and net asset value per unit may not agree to the
statement of net assets available for benefits with fund information,
due to pending trades and in-kind distributions.
- 14 -
<PAGE>
Phelps Dodge Employee Savings Plan
Notes to Financial Statements
Years Ended December 31, 1997 and 1996
- --------------------------------------------------------------------------------
4. Unitized Funds (Continued)
The following represents the number of units and the net asset value
per unit for all unitized funds:
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
--------------------------- ---------------------------
Net Asset Net Asset
Number of Value Per Number Value Per
Units Unit of Units Unit
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Interest Income Fund 3,982,513 $ 11.187 4,234,630 $ 10.524
Balanced Fund 303,009 13.097 150,262 10.782
S&P 500 Index Fund 847,004 15.097 318,465 11.435
International Equity Fund 418,361 12.005 267,562 11.012
Small Cap Equity Fund 514,633 13.143 390,816 11.155
Phelps Dodge Common Stock Fund 654,674 65.365 669,828 68.971
</TABLE>
5. Related Party Transactions
The Trustee invests in the Corporation's common stock in accordance
with the provisions of the Plan. The following is a summary of
transactions in the Corporation's common stock:
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996
------- -------
(in thousands)
<S> <C> <C>
Cost of shares purchased $16,215 $12,000
Number of shares purchased 217 182
Proceeds from shares sold $15,046 $11,553
Number of shares sold 197 174
Value of shares distributed $ 1,271 $ 626
Number of shares distributed 20 10
</TABLE>
- 15 -
<PAGE>
Phelps Dodge Employee Savings Plan
Notes to Financial Statements
Years Ended December 31, 1997 and 1996
- --------------------------------------------------------------------------------
6. Tax Status
The Plan received a determination letter from the Internal Revenue
Service (IRS) dated September 13, 1996, which stated that the Plan met
the requirements of Section 401(a) of the Internal Revenue Code and
that the earnings of the Trust are exempt from taxation under Section
501(a) of the Code. The Plan has been amended and restated since
receiving the determination letter, and on March 6, 1998, filed for a
redetermination by the IRS that the Plan as amended and restated
continues to satisfy such requirements. The Phelps Dodge
redetermination letter is pending with the IRS. The Committee believes
that the Plan, as amended and restated and as operated, continues to
satisfy IRS requirements for tax exemption.
7. Participation in the Plan
The following is a summary of the number of participants invested in
the investment options offered by the Plan as of:
<TABLE>
<CAPTION>
December 31,
1997 1996
----- -----
<S> <C> <C>
Money Market Fund 3,876 2,666
Interest Income Fund 2,936 3,147
Balanced Fund 434 225
Equity Income Fund 3,610 3,357
S&P 500 Index Fund 1,106 463
Growth Stock Fund 4,144 3,956
International Equity Fund 631 359
Small Cap Equity Fund 809 501
Phelps Dodge Common Stock Fund 3,437 3,264
Occidental Petroleum Common Stock Fund 34 38
Loan Fund 2,440 2,460
</TABLE>
8. Realized Gains (Losses) on Investments
<TABLE>
<CAPTION>
Realized
Carrying Gains
Proceeds Value (Losses)
-------- -------- --------
<S> <C> <C> <C>
Year Ended December 31, 1997 (in thousands)
Investments:
Phelps Dodge Common Stock $ 16,317 $ 14,626 $ 1,691
Mutual Funds and other common stock 51,034 45,756 5,278
-------- -------- --------
$ 67,351 $ 60,382 $ 6,969
======== ======== ========
Year Ended December 31, 1996 (in thousands)
Investments:
Phelps Dodge Common Stock $ 12,179 $ 11,409 $ 770
Mutual Funds and other common stock 30,096 31,104 (1,008)
-------- -------- --------
$ 42,275 $ 42,513 $ (238)
======== ======== ========
</TABLE>
- 16 -
<PAGE>
Phelps Dodge Employee Savings Plan
Notes to Financial Statements
Years Ended December 31, 1997 and 1996
- --------------------------------------------------------------------------------
9. Investment in Guaranteed Investment Contracts
On August 12, 1994, Canadian and U.S. Government regulators took
control of Confederation Life Insurance Company (Confederation). Until
May 1997, the Plan's Interest Income Fund assets included a Guaranteed
Investment Contract (GIC) with Confederation. The GIC was purchased on
March 20, 1991, with an 8.59% contract rate of interest, with interest
paid annually on April 1 and principal payable at maturity, April 1,
1996. The carrying value of the GIC at the time of seizure was
$5,355,000, representing principal of $4,969,000 and accrued interest
of $386,000.
The Plan froze the Confederation GIC and did not allow any
distributions, withdrawals, loans or elective investment transfers of
this portion of the Interest Income Fund from August 12, 1994 through
May 1997. The accrual of interest on the Confederation GIC was
discontinued on the seizure date and the nonaccrual has resulted in
approximately $750,000 of interest income through the April 1, 1996
maturity date not being realized by participants or recognized in
Statement of Changes in Net Assets Available for Benefits, with Fund
Information, for the year ended December 31, 1996. Accordingly, the
Confederation GIC is included in the December 31, 1996 Statements of
Net Assets Available for Benefits, with Fund Information, at the
carrying value as of the date of seizure.
In May 1996, Canadian and U.S. regulators agreed in principle to a
split of assets to settle each country's claims separately. Final
settlement terms were carried out during April and May 1997, with 100%
of principal plus $422,000 in earnings deposited to participants'
accounts.
10. Subsequent Events
Assets of $2,136,000 from the Nesor Alloy Corporation Non-Union
Employees' Profit Sharing Plan were merged into the Plan during
February 1998 as a result of the Corporation's acquisition of Nesor
Alloy Corporation in 1996.
Effective January 1, 1998, the Plan was amended to spin-off a new plan
called the Accuride Employee Savings Plan as a result of the
Corporation's sale of Accuride Corporation effective January 1, 1998.
Assets totaling $21,116,000 at January 1, 1998 were transferred from
the Plan.
The Small Cap Equity Fund was comprised of two mutual funds, 50 percent
in the IAI Mid Cap Growth Fund (IAI) and 50 percent in the Lazard
Freres Small Cap Portfolio (Lazard). The IAI portion (50%) of the Small
Cap Equity Fund was discontinued as an investment option effective May
1, 1998. All the IAI shares were sold at the end of April 1998 and the
assets transferred to the Lazard.
During March 1998, the Benefits Administration Committee and the Senior
Management Team approved American Century Investments as the new
recordkeeper and administrator and UMB, n.a. as trustee for the Plan.
The transfer of assets from M & I Trust Company to American Century
Investments is projected to be effective September 1, 1998.
- 17 -
<PAGE>
Phelps Dodge Employee Savings Plan Supplemental Information
Line 27a - Schedule of Assets Held for Investment Purposes Schedule I
December 31, 1997
(in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Description of investment including maturity
Party-in- Identity of issue, borrower, lessor or date, rate of interest, collateral, par or maturity Current
interest similar party value Cost Value
- --------- -------------------------------------- --------------------------------------------------- ------- -------
<S> <C> <C> <C> <C>
MONEY MARKET FUND
Barclay's Global Investors Barclay's Money Market Fund I $34,698 $34,698
INTEREST INCOME FUND
Lincoln National Insurance Company Guaranteed Investment Contract, 8.02% matures
December 31, 1998 3,581 3,581
Principal Mutual Insurance Company Guaranteed Investment Contract, 5.06% matures
December 31, 1998 3,043 3,043
Sun Life of Canada Insurance Company Guaranteed Investment Contract, 5.74%
matures June 20, 2000 3,884 3,884
Commonwealth Life Insurance Company Synthetic GIC
6.04% Open maturity rate resets calendar quarter 33,908 33,908
Marshall Money Market Fund 160 160
BALANCED FUND
Barclay's Global Investors PD Stagecoach Fund 3,755 3,830
Marshall Money Market Fund 183 183
EQUITY INCOME FUND
Fidelity Investment Management Company Fidelity Equity Income Fund 55,722 69,032
S&P 500 INDEX FUND
Barclay's Global Investors PD Barclay's Equity Index Fund 10,022 12,206
Marshall Money Market Fund 564 564
GROWTH STOCK FUND
Fidelity Investment Management Company Fidelity Magellan Fund 77,159 85,400
INTERNATIONAL EQUITY FUND
American Funds Group PD Euro Pacific Fund 4,832 4,786
Marshall Money Market Fund 238 238
SMALL CAP EQUITY FUND
IAI Investment Advisors Inc. IAI Midcap Growth 3,347 2,919
Lazard Freres Asset Management Lazard Small Cap 3,346 3,551
Marshall Money Market Fund 319 319
PHELPS DODGE COMMON STOCK FUND
* Marshall & Ilsley Trust Company Phelps Dodge Corporation Common Stock 36,978 42,074
Marshall Money Market Fund 761 761
OCCIDENTAL PETROLEUM COMMON STOCK FUND
* Marshall & Ilsley Trust Company Occidental Petroleum Company Common Stock 190 269
LOAN FUND
Participants Loans to Participants 0 15,551
8% - 12.5%, maturing through December 2012
-------- --------
TOTAL INVESTMENTS $276,690 $320,957
-------- --------
</TABLE>
- 18 -
<PAGE>
Phelps Dodge Employee Savings Plan Supplemental Information
Line 27d - Schedule of Reportable Transactions* Schedule II
Year ended December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Expense Current
Identity of incurred value on
party Purchase with transaction
involved Description of asset price Selling price Lease rental transaction Cost of asset date Net gain
- ----------- ----------------------- ----------- ------------- ------------ ----------- ------------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
M & I Money Market Fund
Purchases $30,526,161 $30,526,161 $ -
Sales 25,738,361 25,738,361 -
M & I Interest Income Fund
Purchases 23,504,267 23,504,267 -
Sales 25,011,073 25,011,073 -
M & I Equity Income Fund
Purchases 24,780,201 24,780,201 -
Sales 18,906,700 16,971,897 1,934,803
M & I Growth Stock Fund
Purchases 25,754,327 25,754,327 -
Sales 21,331,938 20,424,820 907,118
M & I Small Cap Fund
Purchases 17,030,044 17,030,044 -
Sales 15,425,005 14,326,474 1,098,531
M & I Barclay's Equity Index
Fund (S&P 500)
Purchases 24,719,392 24,719,392 -
Sales 17,690,119 17,503,380 186,739
M & I Phelps Dodge Common
Stock Fund
Purchases 43,877,077 43,877,077 -
Sales 42,707,779 39,567,756 3,140,023
M & I Loan Fund
Purchases 7,183,894 7,183,894 -
Sales 6,774,066 6,774,066 -
* Transactions or series of transactions in excess of 5 percent of the current value of the Plan assets as of December 31, 1996
as defined in Section 2520.103-6 of the Department of Labor Rules and Regulations for Reporting and Disclosure under ERISA.
</TABLE>
- 19 -
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 33-26442) of Phelps Dodge Corporation of our report
dated June 24, 1998 appearing on page 5 of this Form 11-K.
Price Waterhouse LLP
Phoenix, Arizona
June 26, 1998
