Item 3. Legal Proceedings
I. In October 1980, the Corporation, the American Mining Congress, and several mining and energy development companies filed a petition in the U.S. Court of Appeals for the District of Columbia for review of EPA's August 1980 regulations (45 Fed. Reg. 52,729 and 52,735) relating to the prevention of significant deterioration (PSD) of air quality. In February 1982, the industry petitioners and EPA entered into a settlement agreement pursuant to which EPA would propose amendments to the PSD and particulate matter regulations. The court of appeals stayed the petition for review, pending implementation of the settlement agreement.
In August 1983, EPA proposed regulations (48 Fed. Reg. 38,742) which, if adopted, would have substantially implemented the settlement agreement dealing with fugitive emissions, but on October 26, 1984, EPA promulgated final regulations inconsistent with the August 1983 proposal. In December 1984, the Corporation, the American Mining Congress and several mining and energy development companies filed a petition (No. 84-1609) in the U.S. Court of Appeals for the District of Columbia for review of the October 26, 1984, regulations, asserting that the terms of the February 1982 settlement agreement had not been carried out. The court stayed the petition pending the outcome of further EPA rulemakings.
The further EPA rulemakings also have been challenged by the American Mining Congress and others in federal court actions filed in 1989 and 1993. All of the pre-1993 cases are being held in abeyance at the request of the parties. Currently before the court in the 1993 case is a joint motion by the American Mining Congress and EPA to hold that case in abeyance while the parties engage in settlement discussions that could resolve some of the contested issues. Also, on October 7, 1993, the American Mining Congress filed with the Administrator of EPA a petition for reconsideration of yet another related rulemaking (58 Fed. Reg. 31,622). EPA's response to the petition also could resolve some of the contested issues in the stayed lawsuits.
II. Reference is made to the discussion of "Copper Operations" in this report for information regarding proceedings that pertain to water used by the Corporation's Morenci, Arizona operations.
A. The following state water rights adjudication proceedings are pending in Arizona Superior Court:
1. In re the General Adjudication of All Rights to Use Water in the Little Colorado River System and Source, No. 6417 (Superior Court of Arizona, Apache County).
(a) Petition was filed by the Corporation on or about February 17, 1978, and process has been served on all potential claimants. Virtually all statements of claimant have been filed.
(b) The principal parties, in addition to the Corporation, are the State of Arizona, the Navajo Tribe of Indians, the Hopi Indian Tribe, the San Juan Southern Paiute group of Indians and the United States on its own behalf and on behalf of those Indian tribes. In this adjudication and in the adjudications reported in items 2.(a), (b) and (c) below, the United States and the Indian tribes seek to have determined and quantified their rights to use water arising under federal law on the basis that, when the Indian reservations and other federal reservations were established by the United States, water was reserved from appropriation under state law for the use of those reservations.
(c) This proceeding could affect, among other things, the Corporation's rights to impound water in Show Low Lake and Blue Ridge Reservoir and to transport this water into the Salt River and Verde River watersheds for exchange with the Salt River Valley Water Users' Association. The Corporation has filed statements of claimant for these and other water claims. The legal issues and procedures in this adjudication are presently being defined. Trial of the Corporation's Show Low Lake water rights under state law will likely be held during 1994.
2. In re the General Adjudication of All Rights to Use Water in the Gila River System and Source, Nos. W-1 (Salt River), W-2 (Verde River), W-3 (Gila River) and W-4 (San Pedro River) (Superior Court of Arizona, Maricopa County). As a result of consolidation proceedings, this action now includes general adjudication proceedings with respect to the following three principal river systems and sources:
(a) The Gila River System and Source Adjudication:
(i) Petition was filed by the Corporation on February 17, 1978. Process has been served on water claimants in the upper and lower reaches of the watershed and virtually all statements of claimant have been filed.
(ii) The principal parties, in addition to the Corporation, are the Gila Valley Irrigation District, the San Carlos Irrigation and Drainage District, the State of Arizona, the San Carlos Apache Tribe, the Gila River Indian Community and the United States on its own behalf and on behalf of the tribe and the community.
(iii) This proceeding could affect, among other things, the Corporation's claim to the approximately 3,000 acre-feet of water that it diverts annually from Eagle Creek, Chase Creek or the San Francisco River and its claims to percolating groundwater that is pumped from wells located north of its Morenci Branch operations in the Mud Springs and Bee Canyon areas and in the vicinity of the New Cor- nelia Branch at Ajo. The Corporation has filed statements of claimant with respect to waters that it diverts from these sources.
(iv) By a letter agreement dated September 7, 1990, the Corporation and the San Carlos Apache Tribe agreed upon principles to settle the water claims of that Tribe. Legislation authorizing that settlement was enacted into law on October 30, 1992. A comprehensive settlement agreement is presently being negotiated. The settlement will become effective if it is approved by the Arizona Superior Court and certain conditions are met by December 31, 1994.
(b) The Salt River System and Source Adjudication:
(i) Petition was filed by the Salt River Valley Water Users' Association on or about April 25, 1974. Process has been served, and statements of claimant have been filed by virtually all claimants.
(ii) Principal parties, in addition to the Corporation, include the petitioner, the State of Arizona and the United States, on its own behalf and on behalf of various Indian tribes and communities including the White Mountain Apache Tribe, the San Carlos Apache Tribe, the Fort McDowell Mohave-Apache Indian Community, the Salt River Pima-Maricopa Indian Community and the Gila River Indian Community.
(iii) The Corporation has filed a statement of claimant to assert its interest in the water exchange agreement with the Salt River Valley Water Users' Association by virtue of which it diverts from the Black River water claimed by the Association and repays the Association with water impounded in Show Low Lake and Blue Ridge Reservoir on the Little Colorado River Watershed, and to assert its interest in "water credits" to which the Corporation is entitled as a result of its construction of the Horseshoe Dam on the Verde River.
(iv) The Salt River Pima-Maricopa Indian Community, Salt River Valley Water Users' Association, the principal Salt River Valley Cities, the State of Arizona and others have negotiated a settlement as among themselves for the Verde and Salt River system. The settlement has been approved by Congress, the President and the Arizona Superior Court. Under the settlement, the Salt River Pima-Maricopa Indian Community waived all water claims it has against all other water claimants (including the Corporation) in Arizona.
(v) Active proceedings with respect to other claimants have not yet commenced in this adjudication.
(c) The Verde River System and Source Adjudication:
(i) Petition was filed by the Salt River Valley Water Users' Association on or about February 24, 1976, and process has been served. Virtually all statements of claimant have been filed.
(ii) The principal parties, in addition to the Corporation, are the petitioner, the Fort McDowell Mohave-Apache Indian Community, the Payson Community of Yavapai Apache Indians, the Salt River Pima-Maricopa Indian Community, the Gila River Indian Community, the United States on its own behalf and on behalf of those Indian com- munities, and the State of Arizona.
(iii) This proceeding could affect, among other things, the Corporation's Horseshoe Dam "water credits" with the Salt River Valley Water Users' Association resulting from its construction of the Horseshoe Dam on the Verde River. (See the Black River water exchange referred to in Paragraph II.A. 2.(b)(iii) above.) The Corporation has filed statements of claimant with respect to Horseshoe Dam and water claims associated with the former operations of the United Verde Branch.
(iv) The Fort McDowell Mohave-Apache Indian Community, Salt River Valley Water Users' Association, the principal Salt River Valley Cities, the State of Arizona and others have negotiated a settlement as among themselves for the Verde River system. This settlement has been approved by Congress, the President and the Arizona Superior Court. Under this settlement, the Fort McDowell Mohave-Apache Indian Community waived all water claims it has against all other water claimants (including the Corporation) in Arizona.
B. The following proceedings involving water rights adjudication are pending in the U.S. District Court for the District of Arizona:
1. On June 29, 1988, the Gila River Indian Community filed a complaint-in-intervention in United States v. Gila Valley Irrigation District, et al., Globe Equity No. 59 (D. Ariz.). The underlying action was initiated by the United States in October 1925 to determine conflicting claims to water rights in certain portions of the Gila River watershed. Although the Corporation was named and served as a defendant in that action, it was dismissed without prejudice as a de- fendant in March 1935. In June 1935, the Court entered a decree setting forth the water rights of numerous parties, but not those of the Corporation. The Court retained, and still has, jurisdiction of the case. The complaint-in-intervention does not name the Corporation as a defendant; however, it does name the Gila Valley Irrigation District as a defendant. Therefore, the complaint-in-intervention could affect the approximately 3,000 acre-feet of water that the Corporation diverts annually from Eagle Creek, Chase Creek or the San Francisco River pursuant to the agreement between the Corporation and the Gila Valley Irrigation District. In April 1990, the Court entered Findings of Fact and Conclusions of Law on four of the counts in the complaint-in-intervention. Trial on additional issues (primarily is- sues raised by plaintiff-in-intervention San Carlos Apache Tribe) was conducted in November 1991. In November 1992, after submission of post-trial briefs, the Court entered a judgment on the additional issues. The Corporation believes that neither the Findings of Fact or the Conclusions of Law entered in 1990 nor the judgment entered in 1992 should affect the 3,000 acre feet of water that the Corporation diverts annually pursuant to the agreement with the Gila Valley Irrigation District. An appeal of the 1992 judgment, however, has been noticed by the Gila Valley Irrigation District and others.
The major users on the mainstream of the Gila River (decreed right holders) are engaged in continuing mandatory settlement discussions under the supervision of the Court. It will be several months before the likelihood of any comprehensive settlement can be ascertained.
2. On December 30, 1982, the Gila River Indian Community initiated an action styled Gila River Indian Community v. Gila Valley Irrigation District, et al., No. CIA 82-2185 (D. Ariz.), complaining about allegedly improper uses by approximately 17,000 named defendants of "water from within the Gila River watershed." The Corporation was named as a defendant in the complaint, but it has not yet been served with process. The complaint seeks an injunction restraining future uses of water that interfere with the alleged prior rights of the Gila River Indian Community as well as compensatory and punitive damages in an unspecified amount.
3. Prior to December 1982, various Indian tribes filed several suits in the U.S. District Court for the District of Arizona claiming prior and paramount rights to use waters which are presently being used by many water users, including the Corporation, and claiming damages for prior use in derogation of their allegedly paramount rights. These federal proceedings have been stayed pending final adjudication in the state courts.
III. Prior to the mid-1960s, a predecessor of Phelps Dodge Industries, Inc. (PDI), a subsidiary of the Corporation, manufactured and sold some cable and wire products that were insulated with material containing as- bestos. PDI believes that the use of these products did not result in sig- nificant releases of airborne asbestos fibers. PDI and the Corporation are collectively referred to herein as PDI.
Since October 1991, PDI has been served with 26 complaints naming it as a defendant in the Ingalls Shipyard asbestos litigation pending in Pasca- goula, Mississippi. These cases involved about 12,503 claimants, each seeking from $2 million to $20 million in compensatory and punitive damages from approximately 100 to 150 defendants. By Order dated April 21, 1993, PDI was dismissed without prejudice from the consolidated action encaptioned Abrams, et al. v. GAF Corporation, et al., No. 88-5422(2). As a result, ap- proximately 6,562 of the claims against PDI were dismissed. Subsequently, PDI was dismissed from another 14 lawsuits pending in Mississippi during 1993, thus bringing to 9,806 the total number of claims dismissed in that jurisdiction during 1993. In addition to the claims dismissed in Mississippi, 605 other claims against PDI brought in federal and state courts in Alabama, Arkansas, California, Louisiana, Michigan, New Jersey, Ohio, Pennsylvania and Washington were dismissed during 1993.
As of December 31, 1993, approximately 2,697 claims were pending against PDI in Mississippi. In addition, PDI is currently defending 347 claims in 12 other jurisdictions. In these various proceedings, plaintiffs allege bodily injury or death from exposure to asbestos and claim damages based on theories of strict liability and negligence. PDI is vigorously contesting and defending these cases.
IV. Claims under CERCLA and related state acts involving the Corporation have been raised with respect to the remediation of 34 waste disposal and other sites. Most are sites where the Corporation has received information requests or other indications that the Corporation may be a Potentially Responsible Party (PRP) under CERCLA. CERCLA is intended to expedite the remediation of hazardous substances without regard to fault. Responsible parties for each site include present and former owners, operators, transporters, and generators of the substances at the site. Liability is strict, joint and several. Because of the ambiguity of the regulations, the difficulty of identifying the responsible parties for any particular site, the complexity of allocating the remediation costs among them, the uncertainty as to the most desirable remediation techniques and the amount of remediation costs, and the time period during which such costs may be incurred, the Corporation is unable to reasonably estimate the full cost of compliance with CERCLA or equivalent state statutes.
With respect to these 34 sites, based on currently available information, which in many cases is preliminary and incomplete, the Corporation has no reason to believe that its ultimate responsibility for remediation costs will exceed $0.5 million at any site and believes most will be substantially under $0.1 million.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted during the fourth quarter of 1993 to a vote of security holders, through the solicitation of proxies or otherwise.
Executive Officers of Phelps Dodge Corporation
The executive officers of Phelps Dodge Corporation are elected to serve at the pleasure of its Board of Directors. As of March 1, 1994, the executive officers of Phelps Dodge Corporation were as follows:
Except as stated below, all of the above have been officers of Phelps Dodge Corporation for the past five years.
Mr. Rethore was elected Senior Vice President in July 1989. Prior to joining Phelps Dodge he had been associated with Microdot Inc., a diversified manufacturer of industrial components, for 16 years, serving as President and Chief Executive Officer of Microdot Industries (the manufacturing division of Microdot Inc.) since 1984.
Mr. St. Clair was elected Senior Vice President and Chief Financial Officer in May 1989. Prior to joining Phelps Dodge he had been associated with Koppers Company, Inc., a producer of road materials and chemicals, for 30 years, serving as Vice President, Treasurer and Chief Financial Officer since 1984.
Part II
Item 5.
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters
The information called for by Item 5 appears in Management's Discussion and Analysis.
Item 7.
Item 7. Management's Discussion and Analysis
The information called for by Item 7 appears in Management's Discussion and Analysis.
Item 8.
Item 8. Financial Statements and Supplementary Data
The information called for by Item 8 appears in the Consolidated Financial Statements and Notes thereto.
Item 9.
Item 9. Disagreements on Accounting and Financial Disclosure
Not applicable.
MANAGEMENT'S DISCUSSION AND ANALYSIS
Phelps Dodge reported 1993 consolidated net income of $187.9 million, or $2.66 per common share, including after-tax revenues of $26.0 million, or 37 cents per common share, from copper price protection arrangements. Net income in 1993 was adversely affected by the passage of the Omnibus Budget Reconciliation Act of 1993 in the third quarter that retroactively raised the maximum corporate income tax rate from 34 percent to 35 percent effective January 1, 1993. The Corporation raised its 1993 tax provision by approximately $9.0 million, or 13 cents per common share, including $3.0 million for the effect of the tax rate increase on 1993 earnings and an additional $6.0 million for deferred taxes at December 31, 1992. All per share amounts in this report reflect average shares outstanding for the respective periods after giving effect to a two-for-one stock split in May 1992.
The Corporation reported 1992 income of $301.6 million, or $4.28 per common share, before the cumulative effect of accounting changes. This 1992 income included a non-taxable gain of $36.4 million, or 52 cents per common share, on a subsidiary's stock issuance from two Sumitomo companies' acquisition of a 20 percent interest in the La Candelaria copper-gold project in Chile. Income taxes were not provided by Phelps Dodge on the $36.4 million book gain because the proceeds were indefinitely reinvested in the Chilean company. Consolidated net income for 1992 was $221.7 million, or $3.15 per common share, after recognizing the cumulative effect of accounting changes with respect to postretirement and postemployment benefits and income taxes. The Corporation reported net income of $272.9 million, or $3.93 per common share, in 1991.
The Corporation's consolidated financial results for the last three years are summarized below (in millions except per common share amounts):
Any material change in the price the Corporation receives for copper, or in its unit production costs, has a significant effect on the Corporation's results. The Corporation's present share of annual production is approximately 1.1 billion pounds of copper. Accordingly, each 1 cent per pound change in the average annual copper price received by the Corporation, or in average annual unit production costs, causes a variation in annual operating income before taxes of approximately $11 million. The New York Commodity Exchange (COMEX) spot price per pound of copper cathode, upon which the Corporation bases its selling price, averaged 85 cents in 1993, compared with $1.03 in 1992 and $1.05 in 1991. The COMEX price averaged 85 cents per pound for the first two months of 1994, closing at 87 cents per pound on March 2, 1994.
The Corporation enters into price protection arrangements from time to time, depending on market circumstances, to ensure a minimum price for a portion of its expected future mine production. With respect to 1993 production, the Corporation entered into contracts with several financial institutions that provided for a minimum average annual realized price of 95 cents per pound for 475 million pounds of copper cathode, about 44 percent of 1993 production. These contracts were based on the average London Metal Exchange (LME) price for the entire year. During 1993, the Corporation recognized revenues of $39.4 million before taxes ($26.0 million, or 37 cents per common share, after taxes) from these arrangements. With respect to 1994 production, as of December 31, 1993, the Corporation had entered into contracts with several financial institutions that provide for minimum 1994 quarterly average prices of 75 cents per pound for 214 million pounds of copper cathode. As of March 2, 1994, total production covered by such contracts had been increased to 244 million pounds of copper cathode, approximately 22 percent of the Corporation's anticipated production for 1994. These contracts are based on the average LME price each quarter.
Consolidated 1993 revenues were $2,595.9 million, compared with $2,579.3 million in 1992. Sales decreases in 1993 that resulted from lower average copper prices were more than offset by a higher volume of copper sold (including copper purchased for resale), a higher volume of wheels and rims sold, and increased sales by the international wire and cable operations (principally reflecting a late 1992 acquisition in Venezuela). A 6 percent increase in consolidated revenues from $2,434.3 million in 1991 to $2,579.3 million in 1992 also resulted from a higher volume of copper sold (including copper purchased for resale) and a higher volume of wheels and rims sold. In addition, the sales volume of wire and cable products increased in 1992 over 1991.
Three new accounting standards adopted by the Corporation in the 1992 fourth quarter were treated as though they were in effect since the beginning of that year. As a result of its decision to elect early adoption of Statement of Financial Accounting Standards (SFAS) No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," No. 109, "Accounting for Income Taxes," and No. 112, "Employers' Accounting for Postemployment Benefits," the Corporation recorded a non-recurring, after- tax transition charge of $79.9 million that was reflected in revised 1992 first quarter results. More information on the effects of these new accounting standards is included later in Management's Discussion and Analysis, and in Notes 5, 16 and 17 to the Consolidated Financial Statements. The adoption of these new standards had no effect on cash flow.
Phelps Dodge's results for 1993, 1992 and 1991 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 invest- ments, and worldwide exploration and development programs. Phelps Dodge Industries includes the Corporation's carbon black and synthetic iron oxide operations, its wheel and rim business, and its magnet wire, specialty conductor and cable operations.
Within each such segment, significant events and transactions have occurred which, as indicated in the separate discussions presented below, are material to an understanding of the particular year's results and to a comparison with results of the other periods. Note 21 to the Consolidated Financial Statements contains further information to which reference should be made for a fuller understanding of the following discussion and analysis. Statistics on reserves and production can be found in "Copper Operations" and "Ore Reserves."
RESULTS OF PHELPS DODGE MINING COMPANY
Phelps Dodge Mining Company is an international business comprising a group of companies involved in vertically integrated copper operations including mining, concentrating, electrowinning, smelting and refining, rod production, marketing and sales, and related activities. Copper is sold primarily to others as rod, cathode or concentrates, and to the Phelps Dodge Industries segment. In addition, Phelps Dodge Mining Company at times smelts and refines copper and produces copper rod for others on a toll basis. Phelps Dodge Mining Company also produces gold, silver, molybdenum and copper chemicals, principally as by-products, and sulfuric acid from its air quality control facilities. This segment also includes the Corporation's other mining operations and investments (including gold, fluorspar, silver, lead and zinc operations) and its worldwide exploration and development programs.
Phelps Dodge Mining Company recorded 1993 earnings from operations of $223.6 million, compared with $363.8 million in 1992 and $367.5 million in 1991. The decrease in operating earnings in 1993 resulted from lower average copper prices, offset in part by increased copper sales volume and the effect of price protection arrangements. Unit production costs of copper in 1993 were slightly higher than in 1992, principally as a result of increased depreciation charges from recent capital projects, slightly increased mining expenses associated with longer and steeper haulage requirements, and weather-related costs in the 1993 first quarter. Earnings in 1992 compared with 1991 were affected by slightly lower average realized copper prices and volumes of copper sold, partially offset by lower unit costs of copper production.
The stability of unit production costs for the three-year period primarily have resulted from additional production of low-cost cathode copper at solvent extraction/electrowinning (SX/EW) plants in Morenci, Arizona; Tyrone, New Mexico; and Santa Rita, New Mexico, and from the clo- sure of the higher cost concentrator operations at Tyrone. Copper produced by SX/EW accounted for 47 percent of the Corporation's total production in 1993, compared with 45 percent in 1992 and 36 percent in 1991. The SX/EW method of copper production results in lower unit costs than conventional concentrating, smelting and refining, and is a major factor in the Corporation's continuing efforts to maintain internationally competitive costs. Annual production capacity at Chino's SX/EW facility at Santa Rita was raised to 60,000 tons of cathode copper, an increase of 15,000 tons, by an expansion project completed in April 1993.
Substantial capital programs completed in 1992 also assisted in con- taining the escalation of unit production costs. Phelps Dodge Mining Company completed construction on the Northwest Extension mining project in May 1992. This project added 70,000 tons of SX/EW production capacity per year from a copper deposit adjacent to and north of the existing Morenci mine. Morenci now has an annual production capacity of 170,000 tons of cathode copper. In addition, reentry into the Metcalf area of the Morenci mine continued during the year, and the Corporation successfully completed an extension and relocation of the in-pit ore crushing and conveying systems. Each of these projects was designed and implemented to enable Phelps Dodge Mining Company to maintain its low-cost production levels.
Concentrate production at Tyrone, which historically approximated 100,000 tons of copper annually, was indefinitely suspended in February 1992 because the higher grade sulfide copper ore reserves were substantially depleted. However, in order to operate the Burro Chief SX/EW plant near Ty- rone at capacity, a mine-for-leach operation will continue. In early 1992, the Corporation completed a fourth expansion of the SX/EW plant, increasing its production capacity to 70,000 tons of cathode copper per year. The Corporation expects to operate the plant for the next 10 years or more.
Phelps Dodge Mining Company continued construction at its La Candelaria project throughout 1993. La Candelaria is a major copper-gold deposit lo- cated three miles southwest of Ojos del Salado near Copiapo in the Atacama desert of northern Chile. Discovered in 1987 by the Phelps Dodge exploration group, La Candelaria has estimated ore reserves of 403.3 million tons at an average grade of 1.09 percent copper and containing 3 million ounces of gold. Phelps Dodge owns an 80 percent interest in La Candelaria, and a jointly owned subsidiary of Sumitomo Metal Mining Co., Ltd. and Sumitomo Corporation, both of Japan, owns a 20 percent interest.
In 1993, final agreements were executed for $290 million in limited- recourse debt project financing for La Candelaria with four lenders: the Export-Import Bank of Japan with $200 million; the Overseas Private In- vestment Corporation (OPIC) with $50 million; Banco de Chile with $30 million; and Kreditanstalt fur Wiederaufbau with $10 million. The initial loan draw-down under these agreements was made in September. These borrowings are limited recourse to the Corporation prior to satisfaction of certain completion tests, and non-recourse thereafter.
Construction and pre-stripping at La Candelaria are on schedule and full production is anticipated for 1995. When completed, the $550 million project will consist of an open-pit mine, concentrator, port and associated facilities. La Candelaria, which will be operated by Phelps Dodge, is expected to produce more than 100,000 tons of copper and 80,000 ounces of gold annually over the 34-year mine life.
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 1993, Phelps Dodge Mining Company's Santa Gertrudis gold project in Mexico produced 38,221 ounces of gold, a 27 percent reduction from 1992's already reduced production levels. The 1993 production shortfalls primarily resulted from lower-than-expected ore grades and recoveries, and production losses caused by heavy rains during the first quarter. Phelps Dodge is currently evaluating alternatives for the sale of its interest in Santa Gertrudis.
RESULTS OF PHELPS DODGE INDUSTRIES
Phelps Dodge Industries is a business segment comprising a group of international companies that manufacture engineered products principally for the transportation and electrical sectors worldwide. Its operations are characterized by products with significant market share, internationally competitive cost and quality, and specialized engineering capabilities. This business segment includes the Corporation's carbon black and synthetic iron oxide operations through Columbian Chemicals Company and its subsidiaries (Columbian Chemicals); its wheel and rim operations through Accuride Corporation and its subsidiaries (Accuride); its magnet wire operations through Phelps Dodge Magnet Wire Company and its subsidiaries; its U.S. specialty conductor operations through Hudson International Conductors (Hudson); and its international wire and cable manufacturing operations through Phelps Dodge International Corporation.
Phelps Dodge Industries recorded earnings from operations of $120.6 million in 1993, compared with $75.2 million in 1992 and $76.3 million in 1991. Earnings increases in 1993 were attributable to economic recovery in North America, particularly in the automotive sector, offsetting continued weakness in the European economies. Over 80 percent of the improvement came from the wheel and rim, magnet wire and carbon black businesses.
Columbian Chemicals' 1993 earnings were higher than in 1992 primarily because of higher margins in North America that offset weak sales volumes in Europe. Columbian Chemicals' 1992 earnings were lower than in 1991 pri- marily because of lower industrial carbon black margins and lower earnings in Europe. Demand for rubber carbon black in the United States, however, strengthened in 1992. The 1991 results of Columbian Chemicals reflected weak demand in the North American automotive sector in the form of lower margins for carbon black, especially for rubber applications.
In late 1993, Columbian Chemicals and its joint venture partner, Tiszai Vegyi Kombinat (TVK), began operation through Columbian Tiszai Carbon Ltd. (CTC) of the first carbon black manufacturing plant in Hungary. Located in the northeastern Hungarian city of Tiszaujvaros, CTC has an annual production capacity of 55,000 tons of carbon black, more than enough to supply the entire Hungarian carbon black market. The remaining production, nearly 70 percent, will be exported. Financing for CTC was arranged through the Overseas Private Investment Corporation (OPIC) and the European Bank for Reconstruction and Development (EBRD). It is the first project in Hungary to benefit from a direct loan by OPIC. Columbian Chemicals holds a 60 percent interest in CTC; TVK, Hungary's largest petrochemical company, holds the remaining 40 percent interest.
Accuride increased its 1993 sales volume of steel wheels, rims and components by 18 percent over 1992 as a result of strong North American demand for medium and heavy trucks and trailers. In addition, Accuride experienced higher margins in 1993 resulting from improved productivity and lower unit production costs. Accuride's 1992 earnings also reflected both improved demand and improved margins over the prior year. Accuride's 1992 sales of wheels and rims were up approximately 22 percent as the truck and trailer industry began to recover from the 10-year lows experienced in 1991. The margin improvement resulted from productivity increases and cost reductions attributable to the company's $48 million modernization program initiated in 1990. This margin improvement was achieved notwithstanding lower average selling prices for steel wheels and rims resulting from con- tinued competitive pricing pressures in an industry that still has some excess capacity.
Phelps Dodge Magnet Wire Company's 1993 earnings exceeded its 1992 earnings as a result of sales volume increases and improved margins in North America. Phelps Dodge Magnet Wire Company experienced steady volume growth during 1992 over 1991, and benefited from productivity gains and cost savings initiatives. Operating margins in 1992, however, were relatively flat as a result of intense competitive pressures.
In March 1993, Phelps Dodge Magnet Wire Company expanded its international presence with the acquisition of Elektrodraht Mureck, Phelps Dodge Eldra GmbH. The magnet wire joint venture with Eldra Elektrodraht- Erzeugung GmbH, a leading European magnet wire manufacturer, is located in Mureck, Austria. Phelps Dodge holds a 51 percent interest in the company; Eldra Elektrodraht-Erzeugung GmbH holds the remaining 49 percent. In March 1994, Phelps Dodge Magnet Wire Company acquired a fine wire manufacturing plant in Laurinburg, North Carolina, from Rea Magnet Wire Company, Inc., and a magnet wire manufacturing plant in El Paso, Texas, from Texas Magnet Wire Company, an affiliate of Rea and Fujikura International, Inc.
In 1993, the Corporation's international wire and cable business experienced increased earnings, primarily from the integration of a group of Venezuelan wire and cable manufacturing companies acquired in late 1992, and the continued growth of telephone and power cable and commercial wire sales in other markets. These increases in 1993 earnings were offset in part by lower sales volumes in Thailand where certain large-scale utility projects were delayed by the Thai government. In 1992, the Corporation's international wire and cable business enjoyed improved operating earnings over 1991 primarily because of volume improvements in Chile and Thailand and an expanding telephone service installation business in Central and South America. Some margin deterioration was experienced, however, resulting from tariff reductions and increased competition. The 1991 results of the Corporation's majority-owned international wire and cable manufacturing com- panies benefited from continued recovery in international markets for wire and cable, especially in Chile and Thailand where these affiliates showed significant increases in sales.
In December 1992, Phelps Dodge, through its 87 percent owned Venezuelan associate company, Alambres y Cables Venezolanos, C.A. (ALCAVE), acquired three Venezuelan companies. These companies, which operate as a group, together with ALCAVE constitute one of the largest manufacturers of electrical and telecommunication copper and aluminum wires and cables in Venezuela and the Andean Region.
Phelps Dodge Industries' 1992 earnings reflected a $5.0 million reserve at Hudson for the consolidation of its conductor operations in Ossining and Walden, New York, into its expanded Inman, South Carolina, facility. The consolidation, which was initiated in response to changes in market conditions, especially in the defense sector, was completed in 1993. Continued weak market conditions in the defense sector resulted in a 1993 earnings performance at Hudson that was below expectations.
In 1993, operations outside the United States provided 51 percent of Phelps Dodge Industries' sales, compared with 48 percent in 1992 and 45 percent in 1991. During the year, operations outside the United States con- tributed 63 percent of the segment's earnings from operations, compared with 82 percent in 1992 and 69 percent in 1991.
OTHER MATTERS RELATING TO THE STATEMENT OF CONSOLIDATED OPERATIONS
The Corporation reported net interest expense in 1993 of $37.0 million, com- pared with $39.5 million in 1992 and $39.1 million in 1991. Reported net interest expense has remained relatively constant over the three-year period despite a $158.7 million increase in debt in 1993. This has resulted from the capitalization of interest charges during the construction and development of two major projects -- the La Candelaria copper-gold project in Chile and the carbon black project in Hungary.
The Corporation's 1993 miscellaneous income, net of miscellaneous expense, was $16.4 million, compared with $10.7 million in 1992 and $28.4 million in 1991. A major factor in miscellaneous income and expense fluctuations over the past three years has been the receipt of dividends from the Corporation's 16.25 percent minority interest in Southern Peru Copper Corporation. The Corporation received pre-tax dividends of $2.9 million in 1993, $2.4 million in 1992, and $9.8 million in 1991.
For the year ended December 31, 1993, the Corporation recorded a provision for taxes of $105.9 million (an effective rate of approximately 36.0 percent). This compares with a 1992 provision for taxes of $114.4 million (an effective rate of approximately 27.5 percent) and a 1991 provision of $131.4 million (an effective rate of approximately 32.5 percent). The 1993 effective rate was adversely affected by the passage of the Omnibus Budget Reconciliation Act of 1993 that retroactively raised the maximum corporate tax rate from 34 percent to 35 percent effective January 1, 1993. In addition to the effect of the increase in the maximum tax rate, the Corporation provided an additional $6.0 million for deferred taxes on temporary differences existing at December 31, 1992. The principal factor in the lower 1992 effective rate was a non-taxable gain of $36.4 million on a subsidiary's stock issuance from two Sumitomo companies' acquisition of a 20 percent interest in the La Candelaria copper-gold project in Chile. (See Note 5 to the Consolidated Financial Statements for a reconciliation of the Corporation's effective tax rates to statutory rates.)
On February 15, 1994, the Corporation received an examination report from the Internal Revenue Service proposing increases to the Corporation's federal income tax liabilities for the years 1988 and 1989. The Corporation is currently preparing its response to this report and intends to protest all material unagreed adjustments. Management believes it has made adequate provision so that the final resolution of the issues involved, including their application to subsequent periods, will not have a material adverse effect on the consolidated financial position or operating results of the Corporation.
On January 25, 1993, the U.S. Supreme Court ruled in favor of the government in U.S. vs. Hill, U.S. Supreme Court, No. 91-1421, reversing a decision that had permitted a favorable approach to the computation of the depletion preference for purposes of determining the alternative minimum tax liability. As a result of this decision, the Corporation amended its 1991 tax return and paid additional federal income taxes of approximately $26.6 million in February 1993. This ruling does not affect the net income of the Corporation, but does affect the timing of its tax payments.
Under current financial accounting standards, any significant year-to- year movement in the rate of interest on long-term, high-quality corporate bonds necessitates a change in the discount rate used to calculate the actuarial present value of the Corporation's accumulated pension and other postretirement benefit obligations. As a result of the 1993 decline in long-term interest rates, the Corporation reduced its discount rate from 8.5 percent at December 31, 1992, to 7.25 percent at December 31, 1993. The Corporation's estimated pension obligations increased by a net $60 million primarily as a result of this discount rate reduction offset in part by a reduction in the assumed rate of increase in compensation levels from 5 percent to 4 percent. Other estimated postretirement benefit obligations of the Corporation increased by a net $14 million. The effect of the reduced discount rate on this estimated obligation was mostly offset by a 1 percentage point reduction for each year in the assumed annual rate of increase in the per capita cost of covered health care benefits. The increases in these estimated obligations did not affect the earnings reported by the Corporation in 1993. In accordance with applicable accounting standards, the Corporation will amortize such increases beginning in 1994 and continuing in subsequent years. The combined incremental expense will not be significant in 1994. For a further discussion of these issues, please see Notes 15 and 16 to the Consolidated Financial Statements.
CHANGES IN FINANCIAL CONDITION; CAPITALIZATION
At the end of 1993, the Corporation had cash and short-term investments of $255.8 million, compared with $251.2 million at the beginning of the year. The Corporation's operating activities provided $385.0 million of cash during the year which was more than adequate to cover dividend payments on its common stock and its routine investing activities. The cash used for the Corporation's capital expenditures at its La Candelaria copper-gold project ($189.8 million) and its carbon black project in Hungary ($33.6 million) were mostly provided by limited-recourse debt project financings ($198.2 million).
Investing activities during 1993 included capital expenditures of $387.2 million, compared with $270.8 million in 1992, and acquisitions and investments in subsidiaries of $3.8 million, compared with $58.6 million in 1992. The $116.4 million increase in capital expenditures principally resulted from the Corporation's La Candelaria copper-gold project and Hungarian carbon black project. The decrease in investment in subsidiaries primarily reflected the 1992 acquisition of a group of wire and cable manufacturing companies in Venezuela. Investing activities in 1993 included cash proceeds of $6.7 million from the 1992 acquisition by two Sumitomo companies of a 20 percent interest in La Candelaria; that transaction also resulted in $41.9 million in cash proceeds in 1992 (see Note 3 to the Consolidated Financial Statements).
The Corporation's total debt was $647.2 million at December 31, 1993 (including $82.7 million of foreign short-term borrowings), compared with $488.5 million at the end of 1992 (including $72.5 million of foreign short- term borrowings). The increase in total debt during the year principally resulted from limited-recourse project financings for La Candelaria, $164.7 million, and the carbon black project in Hungary, $33.5 million. The ratio of total debt to total capitalization was 23.7 percent at the end of 1993, compared with 19.4 percent at the end of 1992.
On May 6, 1992, the Board of Directors declared a two-for-one stock split and a 10 percent increase in the Corporation's quarterly cash dividend, to 41.25 cents per share from 37.5 cents per share on a post-stock split basis (equivalent to 82.5 cents per share from 75 cents per share on a pre-stock split basis). The stock split, in the form of a 100 percent stock dividend, and the cash dividend were both payable June 8, 1992, to common shareholders of record at the close of business on May 18, 1992. As a result of the stock split, the Corporation's outstanding shares increased from approximately 35 million to approximately 70 million. This was reflected on the Consolidated Balance Sheet as an increase in "Common shares, par value $6.25" of approximately $219 million, with an offsetting charge to "Capital in excess of par value." The $3.1 million increase in dividend payments on the Corporation's common shares, from $113.0 million in 1992 to $116.1 million in 1993, principally resulted from the 10 percent increase in the dividend rate in the 1992 second quarter (from a quarterly rate of 37.5 cents per share to 41.25 cents per share).
During the second quarter of 1993, final agreements were executed with a group of lenders for $290 million of 13-year debt financing for the La Candelaria project. These borrowings are limited recourse to the Corporation prior to satisfaction of certain completion tests, and non- recourse thereafter. The $290 million includes $200 million of floating rate dollar debt, $60 million of fixed rate dollar debt, and $30 million of floating rate debt denominated in Chilean pesos. The agreements provide for a three and one-half year draw-down period and a nine and one-half year repayment period. As of December 31, 1993, $205.7 million had been drawn down under these agreements. As the Corporation consolidates its interest in majority owned mining joint ventures using the proportional consolidation method, only 80 percent of this debt and related financing charges have been reflected in the Corporation's consolidated financial statements. The Corporation also caused the project to enter into an interest rate protection agreement with certain financial institutions to limit the effect of increases in the cost of the $200 million of floating rate debt. Under the terms of the agreement, the project will receive payments from these institutions if the six-month London Interbank Offered Rate (LIBOR) exceeds 9 percent prior to December 31, 2001, and 11 percent during the two years ending December 31, 2003.
During 1993, the Corporation's 60 percent owned Hungarian subsidiary, Columbian Tiszai Carbon Ltd., borrowed $33.5 million under facilities from the Overseas Private Investment Corporation (OPIC) and the European Bank for Reconstruction and Development (EBRD) to finance construction of a carbon black manufacturing plant. Both facilities are with recourse to the Corporation prior to satisfaction of certain completion tests, and non- recourse thereafter. The OPIC facility is a $24.5 million fixed rate dollar borrowing bearing interest rates of between 8.01 percent and 9.15 percent, while the EBRD $9.0 million loan is a floating rate dollar borrowing. These borrowings mature in the years 1995 through 2001.
In February 1993, the Corporation sold $90 million of 6.5 percent refunding bonds due April 1, 2013. The proceeds from the sale of these bonds were used to repay the Corporation's 7 percent Installment Sale Obligations due in the years 1993 through 2003 ($90.0 million) on April 1, 1993.
The Corporation filed a shelf registration statement with the Securities and Exchange Commission on December 6, 1991, for up to $250 million of debt securities to be issued from time to time in one or more se- ries to refinance debt and for general corporate purposes. During the 1992 first quarter, the Corporation sold $100 million of 10-year notes bearing a coupon of 7.75 percent, maturing January 1, 2002, and $50 million of 7.96 percent notes due in the years 1998 through 2000. The proceeds from the sales of these notes, together with a small amount of cash from the Corporation, were used to retire $154.8 million of higher interest rate debt of the Corporation during the 1992 first quarter.
On January 19, 1994, the Corporation issued $81.1 million of 5.45 percent obligations due in 2009. The proceeds from the issue are being used to retire the Corporation's 5.75 percent to 6.25 percent Series A and B notes due in the years 1994 through 2004.
The Corporation entered into a new revolving credit agreement with several lenders on June 30, 1993, at which time it terminated its then existing credit agreement. The new agreement permits borrowings of up to $200 million from time to time until its maturity on June 30, 1998. Interest is payable at a fluctuating rate based on the agent bank's prime rate or a fixed rate, based on the Eurodollar Interbank Offered Rate or at fixed rates offered independently by the several lenders, for maturities of from seven to 360 days. This agreement provides for a facility fee of three-sixteenths of 1 percent of total commitments. The agreement requires the Corporation to maintain a minimum consolidated tangible net worth of $1.1 billion and limits indebtedness to 40 percent of total consolidated capitalization. There were no borrowings under the current or the previous agreement at either December 31, 1993, or December 31, 1992.
The Corporation has other lines of credit totaling $90.5 million that are subject to agreement as to availability, terms and amount. The Corporation pays a fee at the rate of three-eighths of 1 percent for $12.5 million of these lines. There were no borrowings outstanding under these lines of credit at either December 31, 1993, or December 31, 1992.
Accuride Canada Inc. has a revolving credit facility that permits borrowings of up to U.S. $25.0 million. Interest on these borrowings is payable at a fluctuating rate based on the agent bank's Base Rate Canada, or a fixed rate based on LIBOR, for maturities of one to six months. The $25.0 million commitment under this facility extends through June 1994, afterwhich the commitment is determined using a specified borrowing base calculation. At December 31, 1993, borrowings outstanding under this facility totaled $6.0 million, compared with $28.7 million at the beginning of the year.
The current portion of the Corporation's long-term debt, scheduled for payment in 1994, is $17.2 million, including $13.7 million for its international manufacturing operations and $3.5 million on its air quality control obligations.
During 1993, net working capital (exclusive of cash and short-term investments and current debt) decreased $7.3 million. This decrease principally resulted from a $20.6 million decrease in accrued income taxes and a $2.8 million increase in deferred income tax assets, partially offset by a $16.1 million net increase in accounts payable and accrued expenses. The $20.6 million decrease in accrued income taxes in 1993 was the result of approximately $26.6 million in additional federal income taxes paid with the Corporation's amended 1991 income tax return. The $16.1 million net increase in accounts payable and accrued expenses in 1993 principally resulted from improved vendor credit terms and increased accruals resulting from improved business in North America.
During 1992, net working capital (exclusive of cash and short-term investments and current debt) increased $20.3 million. This increase principally resulted from a $40.4 million increase in accounts receivable, partially offset by a $20.2 million increase in accrued expenses. The $40.4 million increase in accounts receivable in 1992 was the result of approximately $16.0 million of acquired receivables from the acquisition of a group of Venezuelan wire and cable manufacturing companies, approximately $11.0 million due from the minority participants in the La Candelaria project for their portion of certain development costs, and generally higher sales in November and December of 1992 compared with the same period in 1991. The $20.2 million increase in accrued expenses in 1992 principally resulted from increased activity at La Candelaria, the acquisition of a group of Venezuelan wire and cable manufacturing companies, and the adoption of new accounting standards for postretirement and postemployment benefits.
The Corporation expects capital outlays in 1994 to be approximately $215.0 million for Phelps Dodge Mining Company, including $110.0 million for the Corporation's 80 percent share of the La Candelaria project, and approximately $75.0 million for Phelps Dodge Industries. The La Candelaria outlays will be funded from the debt commitments for this project referred to above and by Phelps Dodge and the Sumitomo companies. The other capital outlays will be funded from cash reserves and operating cash flow or, if necessary, from other borrowings.
The Corporation is subject to federal, state and local environmental laws, rules and regulations, including the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA or Superfund), as amended by the Superfund Amendments and Reauthorization Act of 1986. Under Superfund, the Environmental Protection Agency (EPA) has identified approximately 35,000 sites throughout the United States for review, ranking and possible inclusion on the National Priorities List (NPL) for possible response. Among the sites identified, EPA has included 13 sites owned by the Corporation. The Corporation believes that most, if not all, of its sites so identified will not qualify for listing on the NPL.
In addition, the Corporation may be required to remove hazardous waste or remediate the alleged effects of hazardous waste on the environment associated with past disposal practices at sites not owned by the Corpora- tion. The Corporation has received notice that it is a Potentially Responsible Party (PRP) from EPA and/or individual states under CERCLA or a state equivalent and is participating in environmental assessment and remediation activity at 34 sites. For further information about these proceedings, see Item 3. Legal Proceedings, Part IV.
At December 31, 1993, the Corporation had reserves of $74.0 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 can reasonably be estimated. The Corporation's estimates of these costs are based upon currently available facts, existing technology, and presently enacted laws and regulations. Where the available information is sufficient to estimate the amount of liability, that estimate has been used; where the information is only sufficient to establish a range of probable liability and no point within the range is more likely than any other, the lower end of the range has been used.
The amounts of these liabilities are very difficult to estimate due to such factors as the unknown extent of the remedial actions that may be re- quired and, in the case of sites not owned by the Corporation, the unknown extent of the Corporation's probable liability in proportion to the probable liability of other parties. Moreover, the Corporation has other probable environmental liabilities that cannot in its judgment reasonably be estimated, and losses attributable to remediation costs are reasonably possible at other sites. The Corporation cannot now estimate the total additional loss it may incur for such environmental liabilities, but such loss could be substantial.
The possibility of recovery of some of the environmental remediation costs from insurance companies or other parties exists; however, the Corporation does not recognize these recoveries in its financial statements until they become probable.
The Corporation's operations are subject to myriad environmental laws and regulations in jurisdictions both in the United States and in other countries in which it does business. For further discussion of these laws and regulations, please see "Environmental and Other Regulatory Matters" and "Environmental Matters." The estimates given in those discussions of the capital expenditures for programs to comply with applicable environmental laws and regulations in 1994 and 1995, and the expenditures for those programs in 1993, are separate from the reserves and estimates described above.
Bills have been proposed in both the U.S. House of Representatives and the U.S. Senate that would amend the Mining Law of 1872. The proposed amendments would impose royalties on mining operations on unpatented lands; restrict access to public lands for exploration, development and mining activities; and impose more stringent environmental protection requirements. While the effect on Phelps Dodge's current operations and other currently owned mineral resources would be minimal, adoption of either of the proposed bills in their current form would result in significant additional capital expenditures and operating expenses in the development and operation of new mines on federal lands. The resulting additional restrictions and delays in the development of such mines would seriously impact future exploration and development on federal lands in the United States.
In 1993, the New Mexico legislature passed the New Mexico Mining Act. The Act requires that operators of new and existing mining operations, as well as exploration activities, submit permit applications and reclamation plans for their operations and provide sufficient financial assurance until reclamation or post-mining land use goals are met. Regulations to implement the Act are due by June 18, 1994. The Act will increase the Corporation's regulatory and compliance costs for its New Mexico operations, but until the implementing regulations are adopted it is not possible to determine the impact of the new requirements on the Corporation.
During 1993, the Corporation purchased 130,000 of its common shares under its current 4 million common share buy-back program initiated in September 1989 (numbers of shares have been revised to give effect to the two-for-one stock split in May 1992). Under this program, the Corporation from time to time makes purchases in the open market and also considers purchasing common shares in negotiated transactions. From November 1988 through December 31, 1993, the Corporation purchased a total of 6,945,000 common shares -- 2,373,000 shares under the current program and the balance under the now superseded program begun in November 1988. These purchased shares were restored to the treasury. There were 70,531,081 common shares outstanding at December 31, 1993.
During 1992, the Corporation elected early adoption of Statement of Financial Accounting Standards (SFAS) No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," No. 109, "Accounting for Income Taxes," and No. 112, "Employers' Accounting for Postemployment Benefits." All three standards have been treated as though they were in effect since January 1, 1992. The cumulative effects of the accounting changes required by these standards have been reflected in revised 1992 first quarter results. Adoption of the standards also requires recognition of certain ongoing operating costs in excess of those recorded under previously used accounting methods. For example, as a result of the new tax standard, Phelps Dodge increased the book value of certain purchased assets at Chino Mines Company, Columbian Chemicals Company, Accuride Corporation and Hudson International Conductors by $90.9 million as of January 1, 1992, with a corresponding increase in deferred tax liabilities. As a result, earnings from operations were reduced by $7.3 million for incremental 1992 depreciation and other expenses; net income was not affected because the tax provision was reduced by a corresponding amount.
The combined cumulative effect of accounting changes from the adoption of these three new accounting standards was a one-time transition charge of $111.1 million before taxes ($79.9 million, or $1.13 per common share, after taxes). With respect to the Corporation's liability for postretirement benefits, if the Corporation's inflation assumptions prove to be incorrect, its estimates could be significantly different (for example, an increase in the medical inflation rate of 1 percent could result in an increase of as much as $12 million in the obligation). The adoption of these standards has had no effect on cash flow and has not affected adversely in any material respect the position of the Corporation under its debt agreements. The disclosures for these accounting changes are included in Note 16 for SFAS No. 106, Note 5 for SFAS No. 109 and Note 17 for SFAS No. 112.
CAPITAL OUTLAYS
The Corporation's capital outlays in each of the past three years are set forth in the following table. These capital outlays are exclusive of capitalized interest and the portions of the expenditures at Morenci, Chino and La Candelaria payable by minority interest holders.
DIVIDENDS AND MARKET PRICE RANGES
Phelps Dodge's common shares are listed on the New York Stock Exchange, the principal market on which they are traded. At March 2, 1994, there were 9,606 holders of record of the Corporation's common shares. The Corporation paid quarterly dividends of 37.5 cents on each common share throughout 1991 and in the 1992 first quarter (dividend amounts have been revised to give effect to the May 1992 two-for-one stock split). In the 1992 second quarter, the quarterly dividend was increased 10 percent to 41.25 cents on each common share and has continued at that rate.
The table below sets forth the high and low prices per common share (composite quotation) in the periods indicated.
INFLATION
During the last three years, the principal impact of general inflation upon the financial results of the Corporation has been on unit production costs, especially energy and supply costs, at the Corporation's mining and industrial operations. In considering the impact of changing prices on the financial results of the Corporation, it is important to recognize that the selling price of the Corporation's principal product, copper, does not necessarily parallel the rate of inflation or deflation.
PHELPS DODGE CORPORATION AND CONSOLIDATED SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
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The consolidated balance sheet at December 31, 1993 and 1992, and the related consolidated statements of operations and of cash flows for each of the three years in the period ended December 31, 1993, and notes thereto, together with the report thereon of Price Waterhouse dated January 24, 1994, appear in this report. The additional financial data referred to below should be read in conjunction with these financial statements. Schedules not included with these additional financial data have been omitted because they are not applicable or the required information is shown in the financial statements or notes thereto. The individual financial statements of the Corporation have been omitted because the Corporation is primarily an operating company and all subsidiaries included in the consolidated financial statements, in the aggregate, do not have minority equity interests and/or indebtedness to any person other than the Corporation or its consolidated subsidiaries in amounts which together exceed 5 percent of total consolidated assets at December 31, 1993. Separate financial statements of subsidiaries not consolidated and 50 percent or less owned persons accounted for by the equity method, other than those for which summarized financial information is provided in Note 2 to the Consolidated Financial Statements, have been omitted because, if considered in the aggre- gate, such subsidiaries and 50 percent or less owned persons would not constitute a significant subsidiary.
ADDITIONAL FINANCIAL DATA
Financial statement schedules for the years ended December 31, 1993, 1992 and 1991:
V - Property, plant and equipment
VI - Accumulated depreciation, depletion and amortization of property, plant and equipment
VII - Guarantees of securities of other issuers
VIII - Valuation and qualifying accounts and reserves
IX - Short-term borrowings
X - Supplementary income statement information
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULES
To the Board of Directors of Phelps Dodge Corporation
Our audits of the consolidated financial statements referred to in our report dated January 24, 1994, appearing in this report also included an audit of the Financial Statement Schedules listed in the foregoing index titled "Additional Financial Data." In our opinion, these Financial Statement Schedules present fairly, in all material respects, the information set forth therein when read in conjunction with the related con- solidated financial statements.
PRICE WATERHOUSE
Phoenix, Arizona January 24, 1994
REPORT OF MANAGEMENT
The management of Phelps Dodge Corporation is responsible for preparing the consolidated financial statements presented in this annual report and for their integrity and objectivity. The statements have been prepared in accordance with generally accepted accounting principles appropriate in the circumstances, and include amounts that are based on management's best estimates and judgments. Management has also prepared the other information in this annual report and is responsible for its accuracy and consistency with the financial statements.
Management maintains a system of internal controls, including internal accounting controls, which in management's opinion provides reasonable assurance that assets are safeguarded and that transactions are properly recorded and executed in accordance with management's authorization. The system includes formal policies and procedures that are communicated to em- ployees with significant roles in the financial reporting process and updated as necessary. The system also includes the careful selection and training of qualified personnel, an organization that provides a segregation of responsibilities and a program of internal audits that independently assesses the effectiveness of internal controls and recommends possible improvements.
The Audit Committee, consisting of six non-employee directors, meets at least three times a year to review, among other matters, internal control conditions and internal and external audit plans and results. It meets periodically with senior officers, internal auditors and independent accoun- tants to review the adequacy and reliability of the Corporation's ac- counting, financial reporting and internal controls.
The consolidated financial statements have also been audited by Price Waterhouse, our independent accountants, whose appointment was ratified by the shareholders. The Price Waterhouse examination included a study and evaluation of internal accounting controls to establish a basis for reliance thereon in determining the nature, extent and timing of audit tests applied in the examination of the financial statements.
Management also recognizes its responsibility for fostering a strong ethical climate so that the Corporation's affairs are conducted according to the highest standards of personal and corporate conduct. This responsibility is characterized and reflected in the Corporation's code of business ethics and policies, which is distributed throughout the Corporation. The code of conduct addresses, among other things, the necessity of ensuring open communication within the Corporation; potential conflicts of interest; compliance with all applicable laws, including those relating to financial disclosure; and the confidentiality of proprietary in- formation. The Corporation maintains a systematic program to assess com- pliance with these policies.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Phelps Dodge Corporation
In our opinion, the accompanying consolidated balance sheet and the related consolidated statements of operations, of retained earnings and of cash flows present fairly, in all material respects, the financial position of Phelps Dodge Corporation and its subsidiaries at December 31, 1993 and 1992, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1993, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Corporation's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant esti- mates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above.
As described in Note 1 to the Consolidated Financial Statements, the Corporation changed its method of accounting for postretirement and postemployment benefits and income taxes effective January 1, 1992.
PRICE WATERHOUSE Phoenix, Arizona January 24, 1994
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollar amounts in tables stated in thousands except as noted)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Accounting and Reporting Changes. In 1992, the Corporation elected early adoption of Statement of Financial Accounting Standards (SFAS) No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," No. 109, "Accounting for Income Taxes," and No. 112, "Employers' Accounting for Postemployment Benefits." All three standards were treated as though they were in effect since January 1, 1992. The cumulative effects of the accounting changes required by these standards were reflected in revised 1992 first quarter results. Adoption of the standards also required recognition of certain ongoing operating costs in excess of those recorded under previously used accounting methods. These costs have been allocated to each quarter of 1992 and were reflected in revised quarterly results. The adoption of these standards has had no effect on cash flow and has not affected adversely in any material respect the position of the Corporation under its debt agreements.
The combined cumulative effect of accounting changes from the adoption of these three new accounting standards was a one-time transition charge of $111.1 million before taxes ($79.9 million, or $1.13 per common share, after taxes). The disclosures for these accounting changes are included in Note 16 for SFAS No. 106, Note 5 for SFAS No. 109 and Note 17 for SFAS No. 112.
On May 6, 1992, the Board of Directors declared a two-for-one stock split effected in the form of a 100 percent stock dividend payable June 8, 1992, to common shareholders of record at the close of business on May 18, 1992. As a result of the stock split, the Corporation's outstanding shares increased from approximately 35 million to approximately 70 million. This was reflected on the Consolidated Balance Sheet as an increase in "Common shares, par value $6.25" of approximately $219 million, with an offsetting charge to "Capital in excess of par value." Per share amounts and the average number of shares outstanding have been retroactively revised for all periods presented.
Basis of Consolidation. The consolidated financial statements include the accounts of the Corporation and its majority-owned subsidiaries. Interests in mining joint ventures in which the Corporation owns more than 50 percent are reported using the proportional consolidation method. Interests in other majority-owned subsidiaries are reported using the full consolidation method; the consolidated financial statements include 100 percent of the as- sets and liabilities of these subsidiaries and the ownership interests of minority participants are recorded as "Minority interest in subsidiaries" (minority interest in the net income of these subsidiaries was not sig- nificant). All material intercompany balances and transactions are eliminated.
Investments in unconsolidated companies owned 20 percent or more are recorded on an equity basis. Investments in companies less than 20 percent owned are carried at cost.
Foreign Currency Translation. Except as noted below, the assets and liabilities of foreign subsidiaries are translated at current exchange rates while revenues and expenses are translated at average rates in effect for the period. The related translation gains and losses are included in a separate component of common shareholders' equity. For the translation of the financial statements of certain foreign subsidiaries dealing pre- dominantly in U.S. dollars and for those affiliates operating in highly inflationary economies, assets and liabilities receivable or payable in cash are translated at current exchange rates, and inventories and other non- monetary assets and liabilities are translated at historical rates. Gains and losses resulting from translation of such financial statements are in- cluded in operating results, as are gains and losses incurred on foreign currency transactions.
Statement of Cash Flows. For the purpose of preparing the Consolidated Statement of Cash Flows, the Corporation considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.
Inventories and Supplies. Inventories and supplies are stated at the lower of cost or market. Cost for substantially all inventories is determined by the last-in, first-out method (LIFO). Cost for substantially all supplies is determined by a moving-average method.
Property, Plant and Equipment. Property, plant and equipment are carried at cost. Cost of significant assets includes capitalized interest incurred during the construction and development period. Expenditures for replacements and betterments are capitalized; maintenance and repair expenditures are charged to operations as incurred.
The principal depreciation methods used are the units of production method for mining, smelting and refining operations and, for other operations, the straight-line method based upon the estimated lives of spe- cific classes or groups of depreciable assets. Upon disposal of assets depreciated on a group basis, cost less salvage is charged to accumulated depreciation.
Values for mining properties represent mainly acquisition costs or pre- 1932 engineering valuations. Depletion of mines is computed on the basis of an overall unit rate applied to the pounds of principal products sold from mine production.
Mine exploration costs and development costs to maintain production of operating mines are charged to operations as incurred. Mine development expenditures at new mines and major development expenditures at operating mines that are expected to benefit future production are capitalized and amortized on the units of production method over the estimated commercially recoverable minerals.
Environmental Expenditures. Environmental expenditures are expensed or capitalized depending upon their future economic benefits. Liabilities for such expenditures are recorded when it is probable that obligations have been incurred and the costs can be reasonably estimated. The Corporation's estimates of these costs are based upon currently available facts, existing technology, and presently enacted laws and regulations. Where the available information is sufficient to estimate the amount of liability, that estimate has been used; where the information is only sufficient to establish a range of probable liability and no point within the range is more likely than any other, the lower end of the range has been used. The possibility of recovery of some of these costs from insurance companies or other parties exists; however, the Corporation does not recognize these recoveries in its financial statements until they become probable.
Goodwill. Included in "Other assets and deferred charges" are costs in excess of the net assets of businesses acquired. These amounts are amortized on a straight-line basis over periods of 20 to 40 years.
Price Protection Programs. The Corporation may periodically use various price protection programs to ameliorate the effect of declining prices on a portion of its copper production. The costs of programs that guarantee a minimum price over a specified period are amortized on a straight-line basis over that period. Gains and losses from programs that effectively establish price ranges for future production are recognized in income during the periods affected.
Income Taxes. In addition to charging income for taxes actually paid or payable, the provision for taxes reflects deferred income taxes resulting from temporary differences in 1993 and 1992 and timing differences in 1991 between financial and taxable income. Beginning with the 1992 adoption of SFAS No. 109, the effect on deferred income taxes of a change in tax rates is recognized in income in the period that includes the enactment date. Under the accounting method used in 1991, deferred income taxes were recognized using the tax rate applicable to the year of the calculation and were not adjusted for subsequent changes in tax rates.
Pension Plans. The Corporation has trusteed, non-contributory pension plans covering substantially all of its U.S. employees and in some cases employees of international subsidiaries. The benefits are based on, in the case of certain plans, final average salary and years of service and, in the case of other plans, a fixed amount for each year of service. The Corporation's funding policy provides that payments to the pension trusts shall be at least equal to the minimum funding requirements of the Employee Retirement Income Security Act of 1974 for U.S. plans or, in the case of international subsidiaries, the minimum legal requirements in that particular country. Additional payments may also be provided by the Corporation from time to time.
Postretirement Benefits Other Than Pensions. The Corporation has several postretirement health care and life insurance benefit plans covering most of its U.S. employees and in some cases employees of international subsidiaries. Postretirement benefits vary among plans and many plans require contributions from employees. Effective January 1, 1992, the Corporation began accounting for these benefits on an accrual basis. The Corporation's funding policy provides that payments shall be at least equal to its cash basis obligation, plus additional amounts that may be approved by the Corporation from time to time to the extent that they are deductible for income tax purposes.
Postemployment Benefits. The Corporation has certain postemployment benefit plans covering most of its U.S. employees and in some cases employees of international subsidiaries. The benefit plans may provide severance, disability, supplemental health care, life insurance or other welfare benefits. Effective January 1, 1992, the Corporation began accounting for these benefits on an accrual basis. The Corporation's funding policy provides that payments shall be at least equal to its cash basis obligation, plus additional amounts that may be approved by the Corporation from time to time to the extent that they are deductible for income tax purposes.
Earnings per Share. Earnings per share amounts are computed based on the weighted average number of shares actually outstanding during the period plus the shares that would be outstanding assuming the exercise of dilutive stock options, which are considered to be common stock equivalents. The number of equivalent shares that would be issued from the exercise of stock options is computed using the treasury stock method.
Reclassification. For comparative purposes, certain prior year amounts have been reclassified to conform with the current year presentation.
2. EQUITY EARNINGS AND INVESTMENTS AND LONG-TERM RECEIVABLES Equity earnings (losses) were as follows:
Dividends were received as follows:
Investments and long-term receivables were as follows:
Retained earnings of the Corporation include undistributed earnings of equity investments of (in millions): 1993 - $54.3; 1992 - $54.7; 1991 - $59.9.
Condensed financial information for companies in which the Corporation has equity basis investments together with majority-owned foreign subsidiaries previously accounted for on an equity basis is as follows:
3. GAIN FROM SUBSIDIARY'S STOCK ISSUANCE In September 1992, a subsidiary of Sumitomo Metal Mining Co., Ltd. and Sumitomo Corporation, both of Japan, acquired a 20 percent interest in Compania Contractual Minera Candelaria, the Chilean contractual mining company that holds and is developing the La Candelaria project, for $52.8 million. Phelps Dodge, formerly the sole owner of the company, holds the remaining 80 percent interest. Phelps Dodge's share of the Sumitomo proceeds included a $40 million purchase price plus $1.9 million in closing adjustments. Deferred income taxes were not provided by Phelps Dodge on the $36.4 million book gain because the proceeds were indefinitely reinvested in the Chilean company to help fund construction and development of the project.
4. MISCELLANEOUS INCOME AND EXPENSE, NET Interest income totaled $10.9 million in 1993, principally from the Corporation's short-term investments, compared with $10.4 million and $12.0 million in 1992 and 1991, respectively. Miscellaneous income in 1993 also included a pre-tax $2.9 million dividend on its 16.25 percent minority interest in Southern Peru Copper Corporation, compared with $2.4 million and $9.8 million in 1992 and 1991, respectively.
5. INCOME TAXES As discussed in Note 1 to the Consolidated Financial Statements, the Corporation elected early adoption of SFAS No. 109, "Accounting for Income Taxes," as of January 1, 1992. SFAS No. 109 mandates an asset and liability approach for financial accounting and reporting of income taxes. One of the principal requirements of the new standard is that changes in tax rates and laws be reflected in income from operations in the period such changes are enacted. Under the Corporation's previous accounting method such changes were reflected over time. The new standard also requires balance sheet classification of deferred income taxes according to the balance sheet classification of the asset or liability to which the temporary difference is related. The cumulative effect on prior years of this change in accounting principle was a one-time transition charge of $10.0 million, or 14 cents per share. This charge was combined with the cumulative effect of other accounting changes (see Notes 16 and 17) and reported separately in the Consolidated Statement of Operations for the year ended December 31, 1992.
One of the more significant effects of the new standard on the Corporation is the treatment of deferred income taxes resulting from prior business combinations. As a result of the new standard, Phelps Dodge in- creased the book value of certain purchased assets at Chino Mines Company, Columbian Chemicals Company, Accuride Corporation and Hudson International Conductors by $90.9 million as of January 1, 1992, with a corresponding increase in deferred income tax liabilities.
Geographic sources of income before taxes and cumulative effect of accounting changes for the years ended December 31 were as follows:
The provisions for income taxes for the years ended December 31 were as follows:
A reconciliation of the U.S. statutory tax rate to the Corporation's effective tax rate is as follows:
The Corporation paid federal, state, local and foreign income taxes of approximately $113 million in 1993, compared with approximately $85 million in 1992 and approximately $100 million in 1991. As of December 31, 1993, the Corporation had alternative minimum tax credits of approximately $110 million available for carryforward for federal income tax purposes. These credits can be carried forward indefinitely, but may only be used to the extent the regular tax exceeds the alternative minimum tax. The Corporation also has regular foreign tax credit and alternative minimum foreign tax credit carryforwards for federal income tax purposes of approximately $6 million and $34 million, which begin to expire in 1994.
The Corporation's federal income tax returns for the years 1988 through 1989 and Arizona state income tax returns for the years 1988 through 1992 are currently under examination. The Corporation also has received a proposed assessment from the state of New Mexico relating to the Corporation's New Mexico state income tax liability for the years 1989 through 1990. Management believes that it has made adequate provision so that the final resolution of the issues involved, including application of those determinations to subsequent open years, will not have a material adverse effect on the consolidated financial condition or results of operations of the Corporation.
Deferred income tax assets and (liabilities) comprised the following at December 31:
Income taxes have not been provided on the Corporation's share ($198 million) of undistributed earnings of those manufacturing and mining interests abroad over which the Corporation has sufficient influence to control the distribution of such earnings and has determined that such earnings have been reinvested indefinitely. These earnings could become subject to additional tax if they were remitted as dividends, if foreign earnings were lent to the Corporation or a U.S. affiliate, or if the Corporation should sell its stock in the subsidiaries. It is not practicable to estimate the amount of additional U.S. tax that might be payable on the foreign earnings; however, the Corporation believes that U.S. foreign tax credits would largely eliminate any U.S. tax. Additional foreign withholding taxes which would be payable if all of the earnings were remitted as dividends are estimated to be $25.5 million.
6. INVENTORIES AND SUPPLIES Inventories are as follows (in millions):
Inventories valued by the last-in, first-out method would have been greater if valued at current costs by approximately $101 million and $106 million at December 31, 1993 and 1992, respectively.
Supplies in the amount of $103.3 million and $101.5 million at December 31, 1993 and 1992, respectively, are stated net of a reserve for obsolescence of $12.7 million and $16.7 million, respectively.
7. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment comprise the following (in millions):
The net increases in property, plant and equipment of $231.6 million in 1993 and $214.1 million in 1992 are summarized below (in millions):
8. OTHER ASSETS AND DEFERRED CHARGES Other assets and deferred charges are as follows (in millions):
9. ACCOUNTS PAYABLE AND ACCRUED EXPENSES Accounts payable and accrued expenses are as follows (in millions):
10. OTHER LIABILITIES AND DEFERRED CREDITS Other liabilities and deferred credits are as follows (in millions):
11. LONG-TERM DEBT AND OTHER FINANCING Long-term debt due after one year is summarized below (in millions):
Annual maturities of debt outstanding at December 31, 1993, are as follows (in millions): 1994 - $17.2; 1995 - $11.1; 1996 - $5.0; 1997 - $33.5; 1998 - $38.5.
The Corporation filed a shelf registration statement with the Securities and Exchange Commission on December 6, 1991, for up to $250 million of debt securities to be issued from time to time in one or more se- ries to refinance debt and for general corporate purposes. During the 1992 first quarter, the Corporation sold $100 million of 10-year notes bearing a coupon of 7.75 percent, maturing January 1, 2002, and $50 million of 7.96 percent notes due in the years 1998 through 2000. The proceeds from the sales of these notes, together with a small amount of cash from the Corporation, were used to retire $154.8 million of higher interest rate debt of the Corporation during the 1992 first quarter.
During 1993, the Corporation refunded its 7 percent installment sale obligations due in the years 1994 through 2004 through the issuance of $90 million of 6.50 percent obligations due 2013. On January 19, 1994, the Corporation issued $81.1 million of 5.45 percent obligations due 2009; the proceeds from the issue are being used to retire its 5.75 percent to 6.25 percent Series A and B notes due in the years 1994 through 2004 on March 1, 1994.
The Corporation entered into a new revolving credit agreement with several lenders on June 30, 1993, at which time it terminated its then existing credit agreement. The new agreement permits borrowings of up to $200 million from time to time until its maturity on June 30, 1998. Interest is payable at a fluctuating rate based on the agent bank's prime rate or a fixed rate, based on the Eurodollar Interbank Offered Rate or at fixed rates offered independently by the several lenders, for maturities of from seven to 360 days. This agreement provides for a facility fee of three-sixteenths of 1 percent of total commitments. The agreement requires the Corporation to maintain a minimum consolidated tangible net worth of $1.1 billion and limits indebtedness to 40 percent of total consolidated capitalization. There were no borrowings under the previous or the current agreement at either December 31, 1992, or December 31, 1993.
The Corporation has other lines of credit totaling $90.5 million which are subject to agreement as to availability, terms and amount. The Corporation pays a fee at the rate of three-eighths of 1 percent for $12.5 million of these lines. There were no borrowings outstanding under these lines of credit at either December 31, 1993, or December 31, 1992.
The Corporation had $82.7 million in short-term debt at December 31, 1993, compared with $72.5 million at December 31, 1992, reflecting borrowings by its international mining and manufacturing operations.
As of December 31, 1993, the Corporation's 80 percent owned Compania Contractual Minera Candelaria subsidiary had drawn down $205.7 million under limited-recourse debt project financing agreements to finance construction of the La Candelaria copper-gold project in Chile. Under the proportional consolidation method, the Corporation reflects $164.7 million of this amount in its financial statements. These borrowings are limited recourse to the Corporation prior to satisfaction of certain completion tests, and non- recourse thereafter. The financing arrangements for La Candelaria provide for a total of $290 million of 13-year financing including $200 million of floating rate dollar debt (with a rate based on the six-month London Interbank Offered Rate (LIBOR)), $60 million of fixed rate dollar debt, and $30 million of floating rate debt denominated in Chilean pesos (with a rate based on the 90-day Tasa Activa Bancaria), with a three and one-half year draw-down period and a nine and one-half year repayment period. These agreements were executed in June 1993, and the initial draw-down was made in September 1993.
The Corporation also caused the project to enter into an interest rate protection agreement with certain financial institutions to limit the effect of increases in the cost of the $200 million of floating rate dollar debt. Under the terms of the agreement, the project will receive payments from these institutions if the six-month LIBOR exceeds 9 percent prior to December 31, 2001, and 11 percent during the two years ending December 31, 2003.
The Corporation's 60 percent owned Hungarian subsidiary, Columbian Tiszai Carbon Ltd., has borrowed $33.5 million under facilities from the Overseas Private Investment Corporation (OPIC) and the European Bank for Reconstruction and Development (EBRD) to finance construction of a carbon black manufacturing plant. Both facilities are with recourse to the Corporation prior to satisfaction of certain completion tests, and non- recourse thereafter. The OPIC facility is a $24.5 million fixed rate dollar borrowing bearing interest rates of between 8.01 percent and 9.15 percent, while the EBRD $9 million loan is a floating rate dollar borrowing. These borrowings mature in the years 1995 through 2001.
12. SHAREHOLDERS' EQUITY Changes in common shareholders' capital accounts are summarized below:
In 1988, the Corporation adopted a Preferred Share Purchase Rights Plan and declared a dividend of one right on each of its common shares. In certain circumstances, if a person or group of persons acquires or tenders for 20 percent or more of the Corporation's outstanding common shares, these rights vest and entitle the holder to certain share purchase rights. Until 10 days after vesting, the rights may be modified or redeemed by the Board of Directors.
During 1993, the Corporation purchased 130,000 of its common shares under its current 4 million common share buy-back program initiated in September 1989 (numbers of shares have been revised to give effect to the two-for-one stock split in May 1992). Under this program the Corporation from time to time makes purchases in the open market and also considers purchasing common shares in negotiated transactions. From November 1988 through December 31, 1993, the Corporation purchased a total of 6,945,000 common shares -- 2,373,000 shares under the current program and the balance under the now superseded program begun in November 1988. These purchased shares were restored to the treasury.
The Corporation has 6,000,000 authorized preferred shares with a par value of $1.00 each; no shares were outstanding at either December 31, 1993, or December 31, 1992.
13. STOCK OPTION PLANS; RESTRICTED STOCK Executives and other key employees have been granted options to purchase common shares under stock option plans adopted in 1979, 1987 and 1993. In each case, the option price equals the fair market value of the common shares on the day of the grant. Some of the options include limited stock appreciation rights under which an optionee has the right, in the event common shares are purchased pursuant to a third party tender offer or in the event a merger or similar transaction in which the Corporation shall not survive as a publicly held corporation is approved by the Corporation's shareholders, to relinquish the option and to receive from the Corporation an amount per share equal to the excess of the price payable for a common share in such offer or transaction over the option price per share.
The 1993 plan provides (and the 1987 plan provided) for "reload" option grants to executives and other key employees. If an optionee exercises an option under the 1993 or 1987 plan with already-owned shares of the Corporation, the optionee receives a reload option that restores the option opportunity on a number of common shares equal to the number of shares used to exercise the original option. A reload option has the same terms as the original option except that it has an exercise price per share equal to the fair market value of a common share on the date the reload option is granted and is exercisable six months after the date of grant.
The 1993 plan provides (and the 1987 plan provided) for the issuance to executives and other key employees, without any payment by them, of common shares subject to certain restrictions (Restricted Stock). The 1993 plan limits the award of Restricted Stock to 1,000,000 shares.
Under a stock option plan adopted in 1989, options to purchase common shares have been granted to directors who have not been employees of the Corporation or its subsidiaries for one year or are not eligible to participate in any plan of the Corporation or its subsidiaries entitling participants to acquire stock, stock options or stock appreciation rights.
At December 31, 1993, options for 5,812 shares, 944,110 shares, 27,160 shares and 1,950 shares were exercisable under the 1979 plan, the 1987 plan, the 1989 plan and the 1993 plan, respectively, at average prices of $10.35, $37.16, $31.42 and $44.81 per share. In addition, 49,200 shares of Restricted Stock issued under the 1987 plan and 51,000 shares of Restricted Stock issued under the 1993 plan were outstanding at December 31, 1993. Also at December 31, 1993, 4,257,004 shares were available for option grants (including 949,000 shares as restricted stock awards) under the 1993 plan (plus an additional 939,110 shares that may be issued as reload options) and 113,067 shares were available for option grants under the 1989 plan. These amounts are subject to future adjustment. No further options may be granted under the 1987 plan or the 1979 plan.
Changes during 1991, 1992 and 1993 in options outstanding for the combined plans were as follows:
Changes during 1991, 1992 and 1993 in Restricted Stock were as follows:
14. CUMULATIVE TRANSLATION ADJUSTMENTS Changes in the cumulative translation adjustments account during 1991, 1992 and 1993 are summarized below (in millions):
15. PENSION PLANS The Corporation has several non-contributory employee defined benefit pension plans covering substantially all U.S. employees. Employees covered under the salaried defined benefit pension plans are eligible to participate upon the completion of one year of service, and benefits are based upon final average salary and years of service. Employees covered under the remaining plans are generally eligible to participate at the time of em- ployment, and benefits are generally based on a fixed amount for each year of service. All employees are vested in the plans after five years of service. The Corporation also maintains pension plans for certain employees of international subsidiaries following the legal requirements in those countries.
In a number of these plans, the plan assets exceed the projected benefit obligations (overfunded plans) and in the remainder of the plans, the projected benefit obligations exceed the plan assets (underfunded plans).
The status of employee pension benefit plans at December 31 is summarized below (in millions):
The Corporation's pension plans were valued between November 1, 1992, and January 1, 1993, and the obligations were projected to, and the assets were valued as of, the end of 1993. The majority of plan assets are invested in a diversified portfolio of stocks, bonds and cash or cash equivalents. A small portion of the plan assets is invested in pooled real estate and other private corporate investment funds.
The components of net periodic pension cost (credit) were as follows (in millions):
Assumptions used to develop the net periodic pension cost included an 8.5 percent discount rate in 1993 and 1992, compared with a discount rate of 9 percent in 1991. An expected long-term rate of return on assets of 10 percent and a rate of increase in compensation levels of 5 percent were used for all three years. For the valuation of pension obligations, the discount rate at the end of 1993 was 7.25 percent, reduced from 8.5 percent in 1992 and 1991, and the rate of increase in compensation levels was 4 percent, reduced from 5 percent in 1992 and 1991.
The Corporation recognizes a minimum liability in its financial statements for its underfunded plans. "Other liabilities and deferred credits" at December 31, 1993, included $43 million relating to this minimum liability, compared with $23 million at December 31, 1992. This amount was offset by a $17 million intangible asset, a $16 million reduction in "Common Shareholders' Equity" and a $10 million deferred tax benefit at December 31, 1993, compared with a $17 million intangible asset, a $4 million reduction in "Common Shareholders' Equity" and a $2 million deferred tax benefit at December 31, 1992.
The Corporation intends to fund at least the minimum amount required under the Employee Retirement Income Security Act of 1974 for U.S. plans or, in the case of international subsidiaries, the minimum legal requirements in that particular country. The excess of amounts accrued over minimum funding requirements, together with such excess amounts accrued in prior years, have been included in "Other liabilities and deferred credits." The anticipated funding for the current year is included in "Accounts payable and accrued expenses."
16. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS As discussed in Note 1 to Consolidated Financial Statements, the Corporation elected early adoption of SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," as of January 1, 1992. SFAS No. 106 requires recognition of postretirement medical and life insurance benefits on an accrual rather than cash basis. One of the principal requirements of the method is that the expected cost of providing such postretirement benefits be accrued during the years employees render the necessary service. Under the Corporation's previous accounting method, such benefits were accounted for on a cash basis. In 1992, the Corporation elected to recognize immediately the cumulative obligation for benefits attributable to service of retired and active employees prior to 1992 rather than amortizing the cumulative obligation over future service periods. This election resulted in a one-time 1992 transition charge of $105.5 million before taxes ($66.4 million, or 94 cents per common share, after taxes). This charge was combined with the cumulative effect of other accounting changes (see Notes 5 and 17) and reported separately in the Consolidated Statement of Operations for the year ended December 31, 1992.
Substantially all of the Corporation's U.S. employees who retire from active service on or after normal retirement age of 65 are eligible for life insurance benefits. The Corporation also provides postretirement life insurance for employees of international subsidiaries in some cases. Life insurance benefits are also available under certain early retirement programs or pursuant to the terms of certain collective bargaining agree- ments. The majority of the costs of such benefits were paid out of a previously established fund maintained by an insurance company, however, a portion was paid through an insured contract. Health care insurance benefits are also provided for many employees retiring from active service. The coverage is provided on a non-contributory basis for certain groups of employees and on a contributory basis for other groups. The majority of these benefits are paid by the Corporation.
The status of employee postretirement benefit plans at December 31 is summarized below (in millions):
The components of net periodic postretirement benefit cost (credit) were as follows (in millions):
For 1993 measurement purposes, annual rates of increase in the per capita cost of covered health care benefits were assumed to average 11 percent for 1994 decreasing gradually to 5.3 percent by 2010 and remaining at that level thereafter. For 1992 measurement purposes, annual rates of increase in the per capita cost of covered health care benefits were assumed to average 13 percent for 1993 decreasing gradually to 6.3 percent by 2010 and remaining at that level thereafter. The health care cost trend rate assumption has a significant effect on the amounts reported. To illustrate, increasing the assumed health care cost trend rates by 1 percentage point in each year would increase the accumulated postretirement benefit obligation as of December 31, 1993, by approximately $12 million and the aggregate of the service and interest cost components of net periodic postretirement benefit cost for the year then ended by approximately $1 million.
The weighted-average discount rate used in determining the accumulated postretirement benefit obligation was 7.25 percent for 1993, compared with 8.5 percent used for 1992. The expected long-term rate of return on plan assets was 8 percent for both years.
17. POSTEMPLOYMENT BENEFITS As discussed in Note 1 to the Consolidated Financial Statements, the Corporation elected early adoption of SFAS No. 112, "Employers' Accounting for Postemployment Benefits," as of January 1, 1992. SFAS No. 112 prescribes accounting methods for employers who provide certain benefits to former or inactive employees after employment but before retirement. Adoption of this standard resulted in a one-time 1992 transition charge of $5.6 million before taxes ($3.5 million, or 5 cents per common share, after taxes).
18. COMMITMENTS Rent expense for the years 1993, 1992 and 1991 was (in millions): $26.6, $25.1 and $26.4, respectively. Future minimum lease payments for all noncancelable operating leases having a remaining term in excess of one year totaled $72.1 million at December 31, 1993. These commitments for future periods are as follows (in millions): 1994 - $17.1; 1995 - $12.8; 1996 - $9.8; 1997 - $7.3; 1998 - $6.1; 1999 and thereafter - $19.0 million.
The Corporation enters into price protection arrangements from time to time, depending on market circumstances, to ensure a minimum price for a portion of its expected future mine production. With respect to 1994 production, as of December 31, 1993, the Corporation had entered into contracts with several financial institutions that provide for a minimum average quarterly realized price of 75 cents per pound for 214 million pounds of copper cathode.
19. CONTINGENCIES The Corporation is from time to time involved in various legal proceedings of a character normally incident to its past and present businesses. Management does not believe that the outcome of these proceedings will have a material adverse effect on the financial condition or results of operations of the Corporation on a consolidated basis.
The Corporation is subject to federal, state and local environmental laws, rules and regulations, including the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA or Superfund), as amended by the Superfund Amendments and Reauthorization Act of 1986. Under Superfund, the Environmental Protection Agency (EPA) has identified approximately 35,000 sites throughout the United States for review, ranking and possible inclusion on the National Priorities List (NPL) for possible response. Among the sites identified, EPA has included 13 sites owned by the Corporation. The Corporation believes that most, if not all, of its sites so identified will not qualify for listing on the NPL.
In addition, the Corporation may be required to remove hazardous waste or remediate the alleged effects of hazardous waste on the environment associated with past disposal practices at sites not owned by the Corpora- tion. The Corporation has received notice that it is a Potentially Responsible Party (PRP) from EPA and/or individual states under CERCLA or a state equivalent and is participating in environmental assessment and remediation activity at 34 sites.
At December 31, 1993, the Corporation had reserves of $74.0 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 can reasonably be estimated. The Corporation's estimates of these costs are based upon currently available facts, existing technology, and presently enacted laws and regulations. Where the available information is sufficient to estimate the amount of liability, that estimate has been used; where the information is only sufficient to establish a range of probable liability and no point within the range is more likely than any other, the lower end of the range has been used.
The amounts of these liabilities are very difficult to estimate due to such factors as the unknown extent of the remedial actions that may be re- quired and, in the case of sites not owned by the Corporation, the unknown extent of the Corporation's probable liability in proportion to the probable liability of other parties. Moreover, the Corporation has other probable environmental liabilities that cannot in its judgment 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.
As part of the Corporation's 1986 acquisition of Kennecott Santa Fe Corporation (now called Phelps Dodge Chino, Inc.), The Standard Oil Company agreed to perform the obligation of Phelps Dodge Chino, Inc. to pay the debt service on $58.5 million of pollution control bonds due 2015, issued by the Town of Hurley, New Mexico. Accordingly, the Corporation views this obligation as contingent.
The Corporation has guaranteed the debt facility undertaken by 49 percent owned Compania Minera Santa Gertrudis, S.A. de C.V. (Santa Gertrudis) to finance the development of a gold property located in Sonora, Mexico. The debt facility allows Santa Gertrudis to borrow gold under a commitment that reduces quarterly and terminates in 1996. At December 31, 1993, the available commitment stood at 38,000 ounces of gold, and this entire amount was outstanding.
20. FAIR VALUE OF FINANCIAL INSTRUMENTS The methods and assumptions used to estimate the fair value of each class of financial instrument for which it is practicable to estimate a value are as follows:
Cash and short-term investments -- the carrying amount is a reasonable estimate of the fair value because of the short matur- ity of those instruments.
Investments and long-term receivables -- the fair values of some investments are estimated based on quoted market prices for those or similar investments. The fair values of other types of loans are estimated by discounting the future cash flows using the current rates at which similar loans would be made with similar credit ratings and for the same remaining maturities. For those investments for which there are no quoted market prices, a reasonable estimate of fair value is not practicable. Additional information pertinent to the value of unquoted investments is provided below.
Long-term debt -- the fair value of the Corporation's long-term debt is estimated based on the quoted market prices for the same or similar issues or on the current notes offered to the Corporation for debt of the same remaining maturities.
Standby letters of credit and financial guarantees -- the fair values of guarantees and letters of credit are based on fees currently charged for similar agreements or on the estimated cost to terminate them or otherwise settle the obligations with the counterparties at the reporting date. The Corporation has guaranteed the borrowings of certain subsidiaries totaling $213.1 million. These guarantees include project financings for the La Candelaria copper-gold project in Chile and the Hungarian carbon black project; upon the satisfaction of completion requirements, those borrowings become non-recourse to the Corporation. There is no market for these guarantees and they were issued without explicit cost. Therefore, it is not practicable to establish their fair value.
The estimated fair values of the Corporation's financial instruments as of December 31, 1993, are as follows (in millions):
It is not practicable to estimate the fair value of investments in certain untraded foreign companies carried at historic cost. The Corporation's largest cost basis investment is its 16.25 percent interest in Southern Peru Copper Corporation, which is carried at a book value of $13.2 million. For the year ended December 31, 1993, that company reported total assets of $731.4 million, common stockholders' equity of $565.0 million, revenues of $474.0 million and net income of $194.2 million after including a $165.1 million gain from the cumulative effect of accounting changes for income taxes.
21. BUSINESS SEGMENT DATA The Corporation's business consists of two segments, Phelps Dodge Mining Company and Phelps Dodge Industries. The principal activities of each segment are described below, and the accompanying table presents results of operations and other financial information by segment.
Phelps Dodge Mining Company is an international business comprising a group of companies involved in vertically integrated copper operations including mining, concentrating, electrowinning, smelting and refining, rod production, marketing and sales, and related activities. Copper is sold primarily to others as rod, cathode or concentrates, and to the Phelps Dodge Industries segment. In addition, Phelps Dodge Mining Company at times smelts and refines copper and produces copper rod for others on a toll basis, and produces gold, silver, molybdenum and copper chemicals, prin- cipally 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 gold, fluorspar, silver, lead and zinc operations) and its worldwide exploration and development programs.
Phelps Dodge Industries is a business segment comprising a group of international companies that manufacture engineered products principally for the transportation and electrical sectors worldwide. Its operations are characterized by products with significant market share, internationally competitive cost and quality, and specialized engineering capabilities. This business segment includes the Corporation's carbon black and synthetic iron oxide operations through Columbian Chemicals Company and its subsidiaries; its wheel and rim operations through Accuride Corporation and its subsidiaries; its magnet wire operations through Phelps Dodge Magnet Wire Company and its subsidiaries; its U.S. specialty conductor operations through Hudson International Conductors; and its international wire and cable manufacturing operations through Phelps Dodge International Corpora- tion. The major portion of the sales of this segment is to customers primarily involved in the transportation industry ($602.3 million or 47 percent in 1993, compared with $528.0 million or 45 percent in 1992 and $473.6 million or 43 percent in 1991) and the electrical industry ($566.2 million or 44 percent in 1993, compared with $544.3 million or 46 percent in 1992 and $526.6 million or 47 percent in 1991).
The Corporation's total 1993 sales include exports of $60.3 million from U.S. operations to unaffiliated foreign customers, including products sold through U.S. brokers, compared with $86.5 million in 1992 and $108.6 million in 1991. Intersegment sales reflect the transfer of copper from Phelps Dodge Mining Company to Phelps Dodge Industries at the same prices charged to outside customers.
While the Corporation has foreign operations in several geographic areas, none is significant in itself. Sales by foreign operations to unaffiliated customers totaled $677.2 million in 1993, compared with $617.2 million in 1992 and $546.7 million in 1991; intercompany sales were $72.2 million in 1993, compared with $55.0 million in 1992 and $43.3 million in 1991. Earnings from operations from foreign subsidiaries were $47.1 million in 1993 (including $0.8 million of foreign equity losses), compared with $61.1 million in 1992 (including $1.1 million of foreign equity earnings) and $48.1 million in 1991 (including $3.7 million of foreign equity earn- ings). Identifiable foreign assets totaled $1,161.9 million at year-end 1993, compared with $846.2 million at year-end 1992 and $644.6 million at year-end 1991.
Part III
Items 10, 11, 12 and 13.
The information called for by Part III (Items 10, 11, 12 and 13) is incorporated herein by reference from the material included under the captions "Election of Directors," "Beneficial Ownership of Securities," "Executive Compensation" and "Other Matters" in Phelps Dodge Corporation's definitive proxy statement (to be filed pursuant to Regulation 14A) for its Annual Meeting of Shareholders to be held May 4, 1994 (the 1994 Proxy Statement), except that the information regarding executive officers called for by Item 401 of Regulation S-K is included in Part I of this report. The 1994 Proxy Statement is being prepared and will be filed with the Securities and Exchange Commission and furnished to shareholders on or about April 1, 1994.
Part IV
Item 14.
Item 14.Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) 1. Financial Statements: Index.
2. Financial Statement Schedules: Index.
3. Exhibits:
3.1 Restated Certificate of Incorporation of the Corporation, effective June 16, 1987 (incorporated by reference to Exhibit 3.1 to the Corporation's Form 10-Q for the quarter ended June 30, 1987 (SEC File No. 1-82)). Certificate of Amendment of such Restated Certificate of Incorporation, effective August 4, 1988, and Certificate of Amendment of such Restated Certificate of Incorporation, effective August 9, 1988 (incorporated by reference to Exhibits 3.1 and 3.2 to the Corporation's Form 10-Q for the quarter ended September 30, 1988 (SEC File No. 1-82)). Complete composite copy of the Certificate of Incorporation of the Corporation as amended to date (incorporated by reference to Exhibit 3.1 to the Corporation's 1992 Form 10-K (SEC File No. 1-82)).
3.2 By-Laws of the Corporation, as amended to and including July 31, 1992 (incorporated by reference to Exhibit 3 to the Corporation's Form 10-Q for the quarter ended September 30, 1992 (SEC File No. 1-82)).
4.1 Reference is made to Exhibits 3.1 and 3.2 above.
4.2 Credit and Guaranty Agreement and Gold Overdraft Agreement, each dated as of August 9, 1990, and Amendment No. 1 to Credit and Guaranty Agreement, dated as of September 21, 1990, among Compania Minera Santa Gertrudis, S.A. de C.V. as Borrower, the Corporation as Guarantor, and Morgan Guaranty Trust Company of New York (incorporated by reference to Exhibit 4.1 to the Corporation's Form 10-Q for the quarter ended September 30, 1990 (SEC File No. 1-82)).
Note: Certain instruments with respect to long- term debt of the Corporation have not been filed as Exhibits to this Report since the total amount of securities authorized under any such instrument does not exceed 10 percent of the total assets of the Corporation and its subsidiaries on a consolidated basis. The Corporation agrees to furnish a copy of each such instrument upon request of the Securities and Exchange Commission.
4.3 Rights Agreement, dated as of July 29, 1988 and Amended and Restated as of December 6, 1989, between the Corporation and Chemical Bank (formerly Manufacturers Hanover Trust Company), which includes the form of Certificate of Amendment setting forth the terms of the Junior Participating Cumulative Preferred Shares, par value $1.00 per share, as Exhibit A, the form of Right Certificate as Exhibit B and the Summary of Rights to Purchase Preferred Shares as Exhibit C (incorporated by reference to Exhibit 1 to the Corporation's Current Report on Form 8- K filed on December 7, 1989 (SEC File No. 1- 82)).
10. Management contracts and compensatory plans and agreements.
10.1 The Corporation's 1979 Stock Option Plan (the 1979 Plan), as amended to and including June 3, 1992 (incorporated by reference to Exhibit 10.1 to the Corporation's Form 10-Q for the quarter ended June 30, 1992 (SEC File No. 1-82)). Form of Stock Option Agreements under the 1979 Plan (incorporated by reference to the Corporation's Registration Statement on Form S-8 (Reg. No. 33- 34363)). Forms of amendments dated February 12, 1991 (incorporated by reference to the Corporation's 1990 10-K (SEC File No. 1-82)) and dated June 25, 1992, to Stock Option Agreements under the 1979 Plan (incorporated by reference to Exhibit 10.1 to the Corporation's 1992 Form 10-K (SEC File No. 1-82)).
10.2 The Corporation's 1987 Stock Option and Restricted Stock Plan (the 1987 Plan), as amended to and including June 3, 1992, and form of Stock Option Agreement and form of Reload Option Agreement as modified through June 3, 1992 (incorporated by reference to Exhibit 10.2 of the Corporation's Form 10-Q for the quarter ended June 30, 1992 (SEC File No. 1-82)). Form of Restricted Stock letter under the 1987 Plan (incorporated by reference to Exhibit 10.1 to the Corporation's 1990 10-K (SEC File No. 1-82)) and the amendment thereto dated June 25, 1992 (incorporated by reference to Exhibit 10.2 to the Corporation's 1992 Form 10-K (SEC File No. 1-82)).
10.3 The Corporation's 1989 Directors Stock Option Plan (the Plan), as amended to and including June 3, 1992 (incorporated by reference to Exhibit 10.3 to the Corporation's Form 10-Q for the quarter ended June 30, 1992 (SEC File No. 1- 82)). Form of Stock Option Agreement under the Plan (incorporated by reference to the Cor- poration's Registration Statement on Form S-8 (Reg. No. 33-34363)).
Note: Omitted from filing pursuant to the Instruction to Item 601(b) (10) are actual Stock Option Agreements between the Corporation and certain officers under the Plans and certain Directors under the 1989 Directors Plan, which contain substantially similar provisions to Ex- hibits 10.1, 10.2 and 10.3 above.
10.4 The Corporation's 1993 Stock Option and Restricted Stock Plan (the 1993 Plan), as amended to and including December 1, 1993, and forms of Stock Option Agreement, Reload Option Agreement and Restricted Stock letter as currently in use under the 1993 Plan.
10.5 Description of the Corporation's Incentive Compensation Plan.
10.6 Deferred Compensation Agreement dated January 27, 1989 with Dr. Patrick J. Ryan (incorporated by reference to Exhibit 10.6 to the Corporation's 1987 Form 10-K (SEC File No. 1- 82)) and amendment to such agreement dated March 17, 1989 (incorporated by reference to Exhibit 10.7 to the Corporation's 1988 Form 10-K (SEC File No. 1-82)).
10.7 Deferred Compensation Plan for the Directors of the Corporation, amended and restated as of July 31, 1992 (incorporated by reference to Exhibit 10 to the Corporation's Form 10-Q for the quarter ended September 30, 1992 (SEC File No. 1-82)).
10.8 Form of Change-of-Control Agreement between the Corporation and certain executives, including all of the current executive officers to be listed in the summary compensation table to the 1994 Proxy Statement (incorporated by reference to Exhibit 10.7 to the Corporation's 1992 Form 10-K (SEC File No. 1-82)).
10.9 Form of Severance Agreement between the Corporation and certain executives, including all of the current executive officers to be listed in the summary compensation table to the 1994 Proxy Statement (incorporated by reference to Exhibit 10.11 to the Corporation's 1988 Form 10-K (SEC File No. 1-82)).
10.10 The Corporation's 1991 - 1993 Long-Term Performance Plan (incorporated by reference to Exhibit 10.12 to the Corporation's 1990 Form 10- K (SEC File No. 1-82)).
10.11 The Corporation's 1992 - 1994 Long-Term Performance Plan (incorporated by reference to Exhibit 10.14 to the Corporation's 1991 Form 10- K (SEC File No. 1-82)).
10.12 The Corporation's Retirement Plan for Directors, effective January 1, 1988 (incorporated by reference to Exhibit 10.13 to the Corporation's 1987 Form 10-K (SEC File No. 1-82)).
10.13 The Corporation's Comprehensive Executive Nonqualified Retirement and Savings Plan (the Nonqualified Plan), as amended November 7, 1990 (incorporated by reference to Exhibit 10.14 to the Corporation's 1990 Form 10-K (SEC File No. 1-82)). Amendment, effective January 1, 1991, to the Nonqualified Plan (incorporated by ref- erence to Exhibit 10.2 to the Corporation's Form 10-Q for the quarter ended June 30, 1991 (SEC File No. 1-82)). Two amendments, one effective as of January 1, 1991, and one effective as of November 15, 1993, to the Nonqualified Plan.
11 Statement re computation of per share earnings.
12 Statement re computation of ratios of total debt to total capitalization.
21 List of Subsidiaries and Investments.
23 Consent of Price Waterhouse.
24 Powers of Attorney executed by certain officers and directors who signed this Annual Report on Form 10-K.
Note: Shareholders may obtain copies of Exhibits by making written request to the Secretary of the Corporation and paying copying costs of 10 cents per page, plus postage.
(b) Reports on Form 8-K:
No current Reports on Form 8-K were filed by the Corporation during the quarter ended December 31, 1993.
Schedule VII
PHELPS DODGE CORPORATION AND CONSOLIDATED SUBSIDIARIES GUARANTEES OF SECURITIES OF OTHER ISSUERS - ----------------------------------------------------------------------------
(In thousands)
Name of issuer of securities Title of issue Amount owned guaranteed by of each class Total amount by person or person for which of securities guaranteed person for which statement is filed guaranteed & outstanding statement is filed - ------------------ ------------ ------------- ------------------
1. Town of Hurley, Unit Priced Demand $58,500 - New Mexico; Adjustable Pollution The Standard Control Bonds, due Oil Company 2015; agreement by subsidiary of the Corporation to pay debt service assumed by The Standard Oil Company
2. Compania Minera Santa Gertrudis, S.A. de C.V. Gold Overdraft Agreement $14,887 -
NOTE: A subsidiary of the Corporation has agreed to pay the debt service on item 1 but the obligation is viewed as the equivalent of a guarantee because the primary obligation has been assumed by The Standard Oil Company. See Note 19 to the Consolidated Financial Statements.
Nature of any default by issuer of Amount in securities guaranteed treasury of in principal, interest, issuer of sinking fund or securities Nature of redemption provisions guaranteed guarantee or repayment of dividends ---------- --------- -------------------------
1. Town of Hurley, - Bonds - New Mexico; The Standard Oil Company
2. Compania Minera Santa Gertrudis, S.A. de C.V. - Gold loan -
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
PHELPS DODGE CORPORATION ------------------------ (Registrant)
March 21, 1994 By: Thomas M. St. Clair ------------------- Thomas M. St. Clair Senior Vice President and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Chairman of the Board, President, Chief Executive Officer and Director Douglas C. Yearley (Principal Executive Officer) March 21, 1994 - ------------------ Douglas C. Yearley
Senior Vice President and Chief Financial Officer Thomas M. St. Clair (Principal Financial Officer) March 21, 1994 - ------------------- Thomas M. St. Clair
Vice President and Controller Thomas M. Foster (Principal Accounting Officer) March 21, 1994 - ---------------- Thomas M. Foster
Edward L. Addison, Robert N. Burt, ) George C. Dillon, Cleveland E. Dodge, Jr., ) Paul W. Douglas, William A. Franke, Paul Hazen, ) Robert D. Krebs, Southwood J. Morcott, ) George B. Munroe, George L. Shinn, Directors ) March 21, 1994
By: Thomas M. St. Clair ------------------- Thomas M. St. Clair Attorney-in-fact