-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, Kbh9h2aYacSANcxqvyjNX5ZSwNa6X6mC1CVcv23pGpN93tSH+WZgpaqCh0pPVSYk NdGVok/1nT32S/VdWsVfGQ== 0000950147-94-000024.txt : 19940323 0000950147-94-000024.hdr.sgml : 19940323 ACCESSION NUMBER: 0000950147-94-000024 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19931231 FILED AS OF DATE: 19940322 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PHELPS DODGE CORP CENTRAL INDEX KEY: 0000078066 STANDARD INDUSTRIAL CLASSIFICATION: 3330 IRS NUMBER: 131808503 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 34 SEC FILE NUMBER: 001-00082 FILM NUMBER: 94517132 BUSINESS ADDRESS: STREET 1: 2600 NORTH CENTRAL AVE CITY: PHOENIX STATE: AZ ZIP: 85004 BUSINESS PHONE: 6022348100 MAIL ADDRESS: STREET 1: 2600 NORTH CENTRAL AVENUE CITY: PHOENIX STATE: AZ ZIP: 85004-3089 10-K 1 ANNUAL REPORT ============================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1993 Commission file number 1-82 PHELPS DODGE CORPORATION (a New York corporation) 13-1808503 (I.R.S. Employer Identification No.) 2600 N. Central Avenue, Phoenix, AZ 85004-3089 Registrant's telephone number: (602) 234-8100 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered Common Shares, $6.25 par value per share New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes X No _______ _______ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulations S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [x] The aggregate market value of Common Shares of the issuer held by nonaffiliates at March 2, 1994, was approximately $3,890,388,000. Number of Common Shares outstanding at March 2, 1994: 70,573,938 shares. Documents Incorporated by Reference: Document Location in 10-K Proxy Statement for 1994 Annual Meeting Part III ============================================================================ PHELPS DODGE CORPORATION 1993 Annual Report on Form 10-K Part I Items 1. and 2. Business and Properties Phelps Dodge Corporation, incorporated under the laws of New York in 1885, is one of the world's largest producers of copper. In 1993, the Corporation produced 547,700 tons of copper for its own account from its worldwide mining operations. Gold, silver, molybdenum, copper chemicals and sulfuric acid are also produced as by-products of the Corporation's copper operations. Production for the Corporation's own account from its U.S. operations constituted over 25 percent of the copper mined in the United States in 1993 (an additional 113,700 tons of copper for the accounts of minority interest owners were produced in two U.S. mines). Much of the Cor- poration's copper, after electrowinning or smelting and refining, together with additional copper purchased from others, is used by the Corporation to produce continuous cast copper rod, the basic feed for the electrical wire and cable industry. The Corporation is the world's largest producer of copper rod. Phelps Dodge's international mining interests include operations in Chile, South Africa, Mexico and Peru. The operations produce a variety of metals and minerals including copper, gold, fluorspar, silver, lead and zinc. Phelps Dodge also explores for metals and minerals throughout the world. The Corporation manufactures engineered products principally for the transportation and electrical sectors through a group of industrial companies. Columbian Chemicals Company is one of the world's largest pro- ducers of carbon black, a reinforcing agent in natural and synthetic rubber that increases the service life of tires, hoses, belting and the like, for the rubber industry. It also produces specialty carbon black for other industrial applications such as printing pigments, coatings, plastics and other non-rubber applications. In addition, Columbian Chemicals is a pro- ducer of synthetic iron oxide, used as an inorganic colorant in paints, building products, cosmetics and plastics. Accuride Corporation is the largest North American manufacturer of steel wheels and rims for medium and heavy trucks, trailers and buses. Phelps Dodge Magnet Wire Company, the largest manufacturer of magnet wire in North America, produces magnet wire and other copper products for sale principally to original equipment manu- facturers for use in electrical motors, generators, transformers and other products. Hudson International Conductors is the world's leading man- ufacturer of specialty high-performance conductors and alloys, principally for the aerospace and electronics industries. Phelps Dodge International Corporation manufactures electrical and telecommunication cables for inter- national markets in joint venture associations at eight majority owned sub- sidiaries operating in nine countries, and has minority interests in seven other international wire and cable manufacturers. Through several of these companies, the Corporation is also active in the engineering and installation of telephone lines. The discussion of the business and properties of the Corporation contained below in Items 1 and 2 of this report is based on the Corporation's two business segments: (i) Phelps Dodge Mining Company and (ii) Phelps Dodge Industries. These are more fully described in Note 21 to the Consolidated Financial Statements which also sets forth financial information about such segments. (i) The Phelps Dodge Mining Company segment includes the Corporation's worldwide copper operations from mining through rod production, marketing and sales, other mining operations and investments, and worldwide ex- ploration and development programs. (ii) The Phelps Dodge Industries segment includes the Corporation's carbon black and synthetic iron oxide operations, its wheel and rim business, and its magnet wire, specialty conductor and cable operations. Information about sales and earnings of foreign operations of the Corporation is included in Note 21 to the Consolidated Financial Statements. Unless the context otherwise requires, "Corporation" and "Phelps Dodge" as used herein mean Phelps Dodge Corporation and its consolidated subsidiaries. All references to tons in this report are to short tons and references to ounces are to troy ounces. The number of persons employed by the Corporation on December 31, 1993, was 14,799. 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 Cor- poration's other mining operations and investments (including gold, fluorspar, silver, lead and zinc operations) and its worldwide exploration and development programs. Properties, Facilities and Production Copper Operations Phelps Dodge produces copper concentrates from open-pit mines and concentrators located in Morenci, Arizona, and Santa Rita, New Mexico, and from two underground mines and a concentrator located near Copiapo, Chile (through Compania Contractual Minera Ojos del Salado, S.A. de C.V., or Ojos del Salado, which is a wholly owned Chilean subsidiary of Phelps Dodge Corporation). The Corporation also produced copper concentrates from an open-pit mine and concentrator located in Tyrone, New Mexico, until February 1992 when concentrator operations were indefinitely suspended because the higher grade sulfide copper ore reserves were substantially depleted (see Management's Discussion and Analysis for further discussion). In addition, the Corporation produces electrowon copper from solvent extraction/electrowinning (SX/EW) plants at Morenci, Santa Rita and Tyrone. The Corporation also produces copper precipitates from leaching operations at Santa Rita, Tyrone and, to a modest extent, Bisbee, Arizona (the Bisbee operation is wholly owned by Phelps Dodge). Precipitates, like concentrates, must be smelted and then electrolytically refined. The Morenci complex in southeastern Arizona comprises an open-pit mine, two concentrators and the world's largest SX/EW facility. The Corporation owns an 85 percent undivided interest in the Morenci complex; the remaining 15 percent interest is owned by Sumitomo Metal Mining Arizona, Inc. (Sumitomo), a jointly owned subsidiary of Sumitomo Metal Mining Co., Ltd. and Sumitomo Corporation. Phelps Dodge is the operator of the Morenci properties. Sumitomo takes in kind its share of Morenci production. The Morenci complex is the largest copper producing operation in North America and the second largest in the world. The allocation of available supplies of water among water users has for several years been the subject of litigation in Arizona, where water claims exceed water supplies. Morenci water rights were established many years ago by agreements and judicial decrees. Nevertheless, in recent years various Indian tribes in Arizona have filed suits in federal court claiming they have prior and paramount rights to use waters that are presently being used by many water users, including the Corporation, and claiming damages for prior use in derogation of their allegedly paramount rights. In addition, state proceedings are currently under way to adjudicate water rights on two principal watersheds in Arizona - the Gila River watershed and the Little Colorado watershed. These suits and adjudication proceedings could adversely affect the water supplies for the Morenci operation and other prospective producing properties of the Corporation in Arizona. See "Legal Proceedings" for information concerning the status of these proceedings and other legal proceedings initiated by or on behalf of Indian tribes that might affect the Corporation's rights to use water. The open-pit copper mine, concentrator and SX/EW facility in Santa Rita, New Mexico, and a smelter in Hurley, New Mexico, are owned by Chino Mines Company (Chino), a general partnership in which the Corporation holds a two-thirds partnership interest. Heisei Minerals Corporation (Heisei), a subsidiary of Mitsubishi Corporation and Mitsubishi Materials Corporation, owns the remaining one-third interest in Chino. Phelps Dodge manages the Chino operations. The Tyrone mine-for-leach operation near Silver City, New Mexico, is wholly owned by Phelps Dodge Corporation. The SX/EW plant at Tyrone is owned and operated by Burro Chief Copper Company (Burro Chief), a wholly owned subsidiary of the Corporation. Burro Chief also operates the SX/EW plant at Santa Rita, which is owned by Chino Mines Company. Phelps Dodge is the leading producer of copper using the SX/EW process. Copper produced by SX/EW accounted for 47 percent of the Corporation's total production in 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. The Corporation initiated SX/EW production at its Burro Chief plant near Tyrone in 1984. In early 1992, the Corporation completed a fourth expansion of the plant that increased its production capacity to 70,000 tons of cathode copper per year. The Corporation expects to operate the plant for the next 10 years or more. The Corporation initiated SX/EW production at Morenci in late 1987. With the completion of the Northwest Extension project in May 1992, Morenci's SX/EW facilities now have an annual production capacity of 170,000 tons of cathode copper. The Corporation initiated production at its Chino SX/EW plant at Santa Rita, which is operated by Burro Chief, in August 1988. The Corporation completed its first expansion of this plant in April 1993, increasing its design capacity to 60,000 tons of cathode copper per year. The Corporation owns a smelter in Hidalgo County, New Mexico, and, through Chino Mines Company, a two-thirds interest in the Chino smelter in Hurley, New Mexico; it operates both smelters. Phelps Dodge smelts and refines its share of U.S. mine production and serves as a custom smelter for other mining companies. In addition, the Corporation purchases concentrates to keep its smelters operating at efficient levels. This has resulted principally from the indefinite suspension of concentrator operations at Tyrone in February 1992, which significantly reduced the amount of the Corporation's concentrate production available to smelt at its two smelters. Such purchases are expected to continue whenever the smelting capacity of the Hidalgo and Chino smelters exceeds Phelps Dodge Mining Company's share of its U.S. production. The Corporation's copper refinery in El Paso, Texas, is one of the largest refineries in the world, having the capacity to produce approximately 430,000 tons of electrolytic copper annually. This capacity is sufficient to refine all copper produced by the Corporation for its account at its two operating smelters. During 1993, the refinery produced at capacity. The El Paso refinery also produces gold, silver and copper sulfate and recovers small amounts of selenium, platinum and palladium as by-products of the copper refining process. Phelps Dodge is the world's largest producer of continuous cast copper rod, the basic feed for the electrical wire and cable industry. Most of the Corporation's refined copper, and additional copper purchased by the Corporation, is converted into rod at its continuous cast copper rod facili- ties in El Paso, Texas, and Norwich, Connecticut. The two plants have a combined annual design capacity of converting more than 500,000 tons of re- fined copper into rod. During 1993, combined production of rod and other refined copper products from the two plants was 621,600 tons. The following tables give the Corporation's worldwide copper production by source for the years 1989 through 1993; aggregate production and delivery (sales) data for copper, gold, silver, molybdenum and sulfuric acid from these sources for the same years; annual average copper prices; and pro- duction from the Corporation's smelters and refinery. Major changes in operations during the five-year period included (1) increases in capacity in 1989 and 1992 of the SX/EW facilities at Morenci and at the Burro Chief plant at Tyrone; (2) the indefinite suspension of concentrator operations at Tyrone in February 1992; (3) an expansion of the mill at Ojos del Salado in 1991 from 1,900 to 3,850 tons of ore per day; (4) the commissioning of the Santa Gertrudis gold mine in May 1991; (5) at Morenci, continued development of the Northwest Extension and the 1990 reentry into the Metcalf area; (6) the expansion of Chino's SX/EW plant at Santa Rita in April 1993; and (7) a severe flooding problem at Ojos del Salado's Santos mine in 1993 that re- sulted in reduced production of copper concentrate. - ---------------------------------------------------------------------------- PHELPS DODGE COPPER PRODUCTION DATA, BY SOURCE (thousand tons)
1993 1992 1991 1990 1989 ---- ---- ---- ---- ---- MATERIAL MINED Morenci 219,032 203,456 198,009 144,211 91,689 Tyrone 49,387 32,407 92,542 84,183 70,417 Chino 108,568 103,081 103,198 100,339 88,368 Ojos del Salado 1,438 1,564 1,612 897 779 ------- ------- ------- ------- ------- Total material mined 378,425 340,508 395,361 329,630 251,253 Less minority participants' shares 69,044 64,878 64,100 55,078 43,209 ------- ------- ------- ------- ------- Net Phelps Dodge share 309,381 275,630 331,261 274,552 208,044 ======= ======= ======= ======= ======= MILL ORE MINED Morenci 46,990 46,562 44,529 43,107 40,659 Tyrone - 1,293 15,708 16,397 15,569 Chino 17,436 17,160 18,048 16,924 16,722 Ojos del Salado 1,314 1,513 1,159 791 709 ------- ------- ------- ------- ------- Total mill ore mined 65,740 66,528 79,444 77,219 73,659 Less minority participants' shares 12,861 12,704 12,695 12,107 11,673 ------- ------- ------- ------- ------- Net Phelps Dodge share 52,879 53,824 66,749 65,112 61,986 ======= ======= ======= ======= ======= GRADE OF ORE MINED - PERCENT COPPER Morenci 0.67 0.67 0.69 0.74 0.79 Tyrone - 0.69 0.58 0.79 0.88 Chino 0.73 0.68 0.70 0.67 0.67 Ojos del Salado 1.43 1.77 2.26 1.86 1.93 RECOVERABLE COPPER (a) Morenci: Concentrate and precipitate 233.3 226.5 222.8 235.3 238.8 Electrowon 170.8 162.8 119.4 100.4 63.4 Tyrone: Concentrate and precipitate 6.0 8.5 62.6 102.8 114.8 Electrowon 73.5 70.2 59.5 56.5 38.2 Chino: Concentrate and precipitate 95.6 94.9 102.2 98.5 93.9 Electrowon 63.9 57.3 55.2 47.9 37.6 Ojos del Salado: Concentrate and precipitate 16.7 24.4 20.0 12.3 11.7 Bisbee precipitate and miscellaneous 1.6 1.4 0.1 5.8 3.0 ------- ------- ------- ------- ------- Total recoverable copper 661.4 646.0 641.8 659.5 601.4 Less minority participants' shares 113.7 109.0 103.7 98.8 89.2 ------- ------- ------- ------- ------- Net Phelps Dodge share 547.7 537.0 538.1 560.7 512.2 ======= ======= ======= ======= ======= - ----------------------------------------------------------------------------
- ---------------------------------------------------------------------------- PHELPS DODGE METAL PRODUCTION AND DELIVERIES (a)
1993 1992 1991 1990 1989 ---- ---- ---- ---- ---- COPPER (THOUSAND TONS) Total production 661.4 646.0 641.8 659.5 601.4 Less minority participants' shares 113.7 109.0 103.7 98.8 89.2 ------- ------- ------- ------- ------- Net Phelps Dodge share 547.7 537.0 538.1 560.7 512.2 ======= ======= ======= ======= ======= Deliveries (b) 543.9 537.7 553.9 556.7 515.0 ======= ======= ======= ======= ======= GOLD (THOUSAND OUNCES) (c) Total production 85 105 85 60 72 Less partners' shares 29 38 25 10 12 ------- ------- ------- ------- ------- Net Phelps Dodge share 56 67 60 50 60 ======= ======= ======= ======= ======= Deliveries (b) 54 59 57 47 66 ======= ======= ======= ======= ======= SILVER (THOUSAND OUNCES) (c) Total production 1,387 1,403 1,931 2,562 3,255 Less partners' shares 273 315 314 288 340 ------- ------- ------- ------- ------- Net Phelps Dodge share 1,114 1,088 1,617 2,274 2,915 ======= ======= ======= ======= ======= Deliveries (b) 1,085 1,083 1,531 2,047 2,948 ======= ======= ======= ======= ======= MOLYBDENUM (THOUSAND POUNDS) Total production 1,200 1,729 2,078 1,237 3,123 Less minority participants' shares 394 528 501 325 694 ------- ------- ------- ------- ------- Net Phelps Dodge share 806 1,201 1,577 912 2,429 ======= ======= ======= ======= ======= Deliveries 905 1,129 1,566 1,064 2,390 ======= ======= ======= ======= ======= SULFURIC ACID (THOUSAND TONS) (d) Total production 1,379.4 1,230.0 1,301.7 1,328.8 1,132.2 Less minority participant's share 193.9 184.4 183.0 181.7 176.4 ------- ------- ------- ------- ------- Net Phelps Dodge share 1,185.5 1,045.6 1,118.7 1,147.1 955.8 ======= ======= ======= ======= ======= Deliveries 718.4 733.7 855.7 932.8 925.7 ======= ======= ======= ======= ======= - ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
1993 1992 1991 1990 1989 ---- ---- ---- ---- ---- COMEX COPPER PRICE (e) $ 0.85 1.03 1.05 1.19 1.25 - ----------------------------------------------------------------------------
- ---------------------------------------------------------------------------- PHELPS DODGE SMELTERS AND REFINERY - PRODUCTION
1993 1992 1991 1990 1989 ---- ---- ---- ---- ---- Smelters (f) Total copper (thousand tons) 376.7 329.2 305.7 323.3 323.4 Less minority participant's share 51.0 49.3 34.7 32.9 32.1 ------- ------- ------- ------- ------- Net Phelps Dodge share 325.7 279.9 271.0 290.4 291.3 ======= ======= ======= ======= ======= Refinery (g) Copper (thousand tons) 432.4 388.1 386.0 423.2 431.4 Gold (thousand ounces) 85.8 78.8 56.8 55.5 68.8 Silver (thousand ounces) 3,144.7 2,377.0 2,199.1 2,872.3 3,726.4 - ---------------------------------------------------------------------------- Footnotes to production and delivery tables: (a) Includes smelter production from custom receipts and fluxes as well as tolling gains or losses. (b) Excludes sales of purchased copper, silver and gold. (c) Beginning in 1991, includes the Santa Gertrudis gold project, which is operated by Phelps Dodge. (d) Sulfuric acid production results from smelter air quality control operations; deliveries do not include internal usage. (e) New York Commodity Exchange annual average spot price per pound - cathodes. (f) Includes production from purchased concentrates and copper smelted for others on toll. (g) Includes production from purchased material and copper refined for others on toll. - ----------------------------------------------------------------------------
Other Mining Operations and Investments Phelps Dodge Mining (Pty.) Limited, a wholly owned subsidiary of Phelps Dodge Corporation, operates the Witkop fluorspar mine and mill in the western Transvaal, South Africa. The operation produces acid-grade fluorspar concentrates for export to customers in the United States and Europe, and acid- and metallurgical-grade fluorspar for the South African market. Fluorspar prices continued to weaken throughout 1993 as a result of increased volumes of lower-priced supplies from China. Black Mountain Mineral Development Company (Pty.) Limited operates a lead-silver-zinc-copper mine and concentrator in the Cape Province of South Africa. The project is owned 44.6 percent by Phelps Dodge and 55.4 percent by the Gold Fields of South Africa group. Phelps Dodge accounts for its investment in Black Mountain on the equity basis. Low lead, zinc and silver prices in 1993 resulted in an operating loss. No cash dividend payments have been received from Black Mountain since the receipt of $1.6 million in 1991 ($6.3 million was received in 1990). Compania Minera Santa Gertrudis, S.A. de C.V. was organized in 1989 to develop the Santa Gertrudis gold project in Mexico. The company is owned 49 percent by Sonoran Mining Company, a wholly owned subsidiary of Phelps Dodge Corporation, and 51 percent by Grupo Ariztegui of Mexico. Phelps Dodge accounts for its investment in Santa Gertrudis on the equity basis. Santa Gertrudis produced 38,221 ounces of gold in 1993, 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. Phelps Dodge owns a 16.25 percent interest in Southern Peru Copper Corporation (SPCC), which operates two copper mines, two concentrators and a smelter in Peru. SPCC's other shareholders are ASARCO Incorporated with a 52.31 percent interest, affiliates of the Marmon Group, Inc. with a 20.70 percent interest, and Newmont Mining Corporation with a 10.74 percent interest. SPCC's results are not included in Phelps Dodge Corporation's earnings because the Corporation accounts for its investment in SPCC on the cost basis. During 1993, Phelps Dodge received dividend payments of $2.9 million from SPCC, compared with $2.4 million in 1992 and $9.8 million in 1991. The 1991 dividend was the first received by the Corporation from SPCC since 1984. Exploration & Development The objectives of Phelps Dodge Mining Company's exploration group are to increase copper ore reserves through discoveries, acquisitions or joint ventures, and to diversify into other metals or minerals and geographic areas where appropriate. The 1993 exploration program continued to place emphasis on the search for and delineation of bulk minable copper and gold deposits. Additional targets included mixed base metal sulfides and certain industrial minerals. The Corporation expended $43.4 million on exploration during 1993, com- pared with $34.7 million in 1992 and $36.3 million in 1991. Approximately one-half of these expenditures occurred in the United States, with the balance spent principally in Chile, Canada, Zambia and Mexico. In 1992, approximately two-thirds of the exploration expenditures occurred in the United States. La Candelaria is a major copper-gold deposit located 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 Cande- laria 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. Phelps Dodge Mining Company continued construction at La Candelaria throughout 1993. Construction and pre-stripping are on schedule and full production is anticipated in 1995. When completed, the $550 million project will consist of an open-pit mine, concentrator, port and associated fa- cilities. 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. In 1993, the Seven-Up Pete joint venture, owned 72.25 percent by Phelps Dodge, conducted 40,000 feet of drilling at the McDonald gold deposit near Lincoln, Montana. The majority of the drilling was part of ongoing hydrological, geochemical and geotechnical investigations to support detailed facility design and permit applications. Results of a final feasibility study estimate 205 million tons of mineralized material with an average grade of 0.025 ounces of gold per ton. Environmental baseline studies to support permitting for the project were largely completed during the year, as were draft operating and reclamation plans for the proposed mine. Work continues on engineering and environmental studies to support mine permitting. Phelps Dodge is currently evaluating restructuring alternatives for its interest in the joint venture. Phelps Dodge continued its evaluation of copper resources near Safford, Arizona, during 1993. Drilling at the Dos Pobres deposit has indicated a resource of potentially leachable copper mineralization amenable to open-pit mining; the resource is estimated to contain 350 million tons of leach material at an average grade of 0.33 percent copper. Dos Pobres also con- tains an estimated 230 million tons of sulfide material at a grade of 0.89 percent copper. The collection of baseline data and other preliminary permitting and land exchange work, which was initiated in 1993 and will continue in 1994, must be completed before aquifer protection and other permits can be acquired. In addition to Dos Pobres, the Corporation's holdings in the Safford area include the Lone Star deposit, containing an estimated 1.6 billion tons of leach material at a grade of 0.38 percent copper. In 1993, the Corporation entered into an option agreement to evaluate the San Juan property which is situated between the Dos Pobres and Lone Star deposits. A drilling program to delineate the potential of this property was under way at year-end. During 1993, the Corporation continued to study the feasibility and timing of a mining operation at the Coronado deposit in the Morenci district. A drilling program to complete the delineation of this deposit and test potential extensions is scheduled for completion in 1994. The deposit is estimated to contain 180 million tons of milling material at a grade of 0.69 percent copper, and 310 million tons of leach material at a grade of 0.29 percent copper. Other exploration drilling continues around the Morenci mine to evaluate further the potential of the district. In New Mexico, exploration drilling at Chino Mines Company has outlined approximately 100 million tons of sulfide mineralization for concentrator feed at a grade of 0.8 percent copper, and 300 million tons of leachable material at a grade of 0.27 percent copper. Additional drilling and engineering studies will be needed to confirm the size, grade and minability of this potential resource which could significantly extend the life of the mine. In Chile, underground drilling at Malaquita and Alcaparrosa continues to define copper mineralization that can be used as feed for the Ojos del Salado mill. Additional targets throughout Chile are being actively evaluated. In Zambia, the Corporation acquired exploration rights to more than 2,950 square miles, including the Lumwana area, which contains a known resource of 480 million tons of mineralized material at a grade of 1.14 percent copper. A program of geochemical and geophysical surveys followed by drilling and metallurgical test work is being undertaken to define the economic potential of the concession areas. Ore Reserves Ore reserves at each of Phelps Dodge's copper operations and at La Candelaria have been estimated as follows: - ----------------------------------------------------------------------------
Estimated at December 31, 1993 ------------------------------ Milling Leaching Reserves Reserves Phelps ---------------- ---------------- Dodge Million % Million % Interest Tons Copper Tons Copper (%) ------- ------ ------- ------ ------- Morenci 516.1 0.69 1,159.9 0.31 85.0 Chino 264.9 0.69 117.7 0.34 66.7 Tyrone - - 163.4 0.31 100.0 La Candelaria 403.3 1.09 - - 80.0 Ojos del Salado 8.8 1.63 - - 100.0 Estimated at December 31, 1992 ------------------------------ Milling Leaching Reserves Reserves Phelps --------------- ---------------- Dodge Million % Million % Interest Tons Copper Tons Copper (%) ------ ------ ------- ------ ------- Morenci 583.0 0.76 861.2 0.34 85.0 Chino 280.2 0.69 141.1 0.30 66.7 Tyrone - - 169.4 0.33 100.0 La Candelaria 403.3 1.09 - - 80.0 Ojos del Salado 14.5 1.31 - - 100.0 - ---------------- The La Candelaria and Ojos del Salado deposits are estimated to contain, respectively, 0.008 ounces and 0.010 ounces of gold per ton. - ----------------------------------------------------------------------------
The Corporation's estimated share of aggregate ore reserves at the above named properties at December 31 is as follows: - ----------------------------------------------------------------------------
1993 1992 1991 1990 1989 ---- ---- ---- ---- ---- Milling reserves (billion tons) 0.9 1.0 1.1 1.2 0.9 Leaching reserves (billion tons) 1.2 1.0 1.1 1.0 1.1 Commercially recoverable copper (million tons) 10.1 10.5 10.8 11.8 8.3 - ---------------- The La Candelaria reserve is not included in the 1989 estimate. It is included on a 100 percent basis in the 1990 estimate and on an 80 percent basis in the 1991 - 1993 estimates reflecting the acquisition by two Sumitomo companies of a 20 percent interest in the project (representing approximately 0.8 million tons of commercially recoverable copper) agreed to in 1991. - ----------------------------------------------------------------------------
Ore reserves at each of Phelps Dodge's other mining operations and investments at year-end 1993 are estimated as follows: - ------------------------------------------------------------------------------
Ore Phelps Reserves Gold % Dodge Million Ounces % % % Calcium Int. Tons Per Ton Copper Lead Zinc Fluoride (%) -------- -------- ------ ---- ---- ------- ------ Black Mountain Broken Hill deposit * 13.6 - 0.45 6.8 2.9 - 44.60 Santa Gertrudis 4.2 0.048 - - - - 49.00 Southern Peru Copper Corporation 394.2 - 0.86 - - - 16.25 Phelps Dodge Mining Limited 22.6 - - - - 18.40 100.00 - ---------------- * Black Mountain's Broken Hill deposit also contains an estimated 2.6 ounces of silver per ton. - ----------------------------------------------------------------------------
Ore reserves are those estimated quantities of ore that, under condi- tions anticipated by the Corporation, may be profitably mined and processed for extraction of their constituent values. Estimates of the Corporation's reserves are based upon the Corporation's engineering evaluations of assay values derived from samplings of drill holes and other openings. In the Corporation's opinion, the sites for such samplings are spaced sufficiently close and the geologic characters of the deposits are sufficiently well defined to render the estimates reliable. Stated tonnages and grades of ore do not reflect waste dilution in mining or losses in processing. Leaching reserves include copper estimated to be recoverable from leach reserves re- maining to be mined at Morenci, Chino and Tyrone. Commercially recoverable copper includes copper estimated to be recoverable from milling and leaching reserves. The Corporation holds various other properties containing mineral deposits that it believes could be brought into production should market conditions warrant. Permitting and significant capital expenditures would be required before operations could commence at these properties. These deposits are estimated to contain the following mineralization as of December 31, 1993: - ----------------------------------------------------------------------------
Sulfide Material Leach Material Phelps ---------------- --------------Gold Dodge Million % Million % Ounces Interest Location Tons Copper Tons Copper Per Ton (%) -------- ----- ------ ----- ------ ------- --- Ajo Arizona 160 0.56 - - - 100.00 Cochise Arizona - - 210 0.40 - 100.00 Copper Basin Arizona 70 0.53 - - - 100.00 Coronado Arizona 180 0.69 310 0.29 - 85.00 Dos Pobres Arizona 230 0.89 350 0.33 - 100.00 Lone Star Arizona - - 1,600 0.38 - 100.00 Southside Arizona - - 150 0.39 - 85.00 Western Copper Arizona 530 0.55 500 0.31 - 85.00 McDonald Montana - - 205 - 0.025 72.25 Black Mountain * South Africa 20 44.60 - ------------------ * The Black Mountain deposit contains an estimated 7.56 percent lead, 3.43 percent zinc, 0.50 percent copper and 3.1 ounces of silver per ton. - ----------------------------------------------------------------------------
Ownership of Real Property The Corporation owns substantially all the lands on which its copper mines, concentrators, SX/EW facilities, smelters, refinery and rod mills are located and holds the rest under lease. The Chino Mines partnership owns substantially all the lands on which its copper mine, concentrator, SX/EW facility and smelter are located and holds the rest under lease. Sales and Competition Most of Phelps Dodge's copper, and additional copper purchased by the Corporation, is cast into rod. Rod sales to outside wire and cable manufacturers constituted approximately two-thirds of Phelps Dodge Mining Company's sales in 1993. Phelps Dodge also sells a portion of its copper as cathode. Sales of rod and cathode are made directly to wire and cable fab- ricators and brass mills under contracts principally of a one-year duration. Phelps Dodge rod also is used by the Corporation's magnet wire, bare wire and specialty conductor operations. The Corporation sells its copper rod and cathode on the basis of premiums, which are announced from time to time by the Corporation, over COMEX prices. It also sells some forms of copper on the basis of prices published by the Corporation and sells concentrates based on the prices on the COMEX or the London Metal Exchange (LME). From time to time, Phelps Dodge engages in hedging programs designed to enable the Corporation to realize current average prices for metal delivered or committed to be delivered. Other price protection arrangements also may be entered into from time to time, depending on market circumstances (see Management's Discussion and Analysis for a further discussion of such arrangements). Most of the refined copper sold by Phelps Dodge is incorporated into electrical wire and cable products worldwide for use in the construction, electric utility, communications and transportation industries. It is also used in industrial machinery and equipment, consumer products and a variety of other electrical and electronic applications. In the sale of copper as rod, cathode and concentrates, the Corporation competes, directly or indirectly, with many other sellers, including at least six other U.S. primary producers, as well as numerous foreign producers, metal merchants, custom refiners and scrap dealers. Some major foreign producers have cost advantages resulting from richer ore grades, lower labor rates and lack of strict regulatory requirements. The Corporation believes that its ongoing programs to contain costs and improve productivity in its copper operations have significantly narrowed these cost advantages and have placed the Corporation in a favorable competitive position with respect to a number of its U.S. and foreign competitors. The Corporation's copper also competes with other materials, such as aluminum, plastics, stainless steel and fiber optics, that can be substituted for copper in certain applications. The Corporation's principal methods of competing include pricing, product quality, customer service and dependability of supply. Prices, Supply and Consumption Copper is an internationally traded commodity, and its prices are effectively determined by the two major metals exchanges -- the COMEX and the LME. These prices generally reflect the worldwide balance of copper supply and demand, but are also influenced significantly from time to time by speculative actions and by currency exchange values. The average annual COMEX price was $1.25 in 1989, reflecting substantial reductions in excess inventories in 1987 and 1988. A slowing world economy and higher exports from formerly socialist countries resulted in a more balanced market in 1990 and modest surpluses in 1991 and 1992. As a result, the COMEX price was lower in 1990 than in 1989, averaging $1.19 for the year. The COMEX price continued to decrease in 1991 resulting in an annual average price per pound of $1.05, and decreased further in 1992 to an annual average price per pound of $1.03. Excess inventories that accumulated since 1992 resulted in substantially lower copper prices in 1993; the 1993 annual average price per pound was 85 cents. Costs 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. Unit production costs of copper generally continued to reflect high levels of production, the cost containment programs put into place over the last few years and increasing amounts of copper obtained through the SX/EW process at favorable incremental costs. Energy Supplies The principal sources of energy for the Corporation's copper operations are natural gas, petroleum products, waste heat generated in the smelting processes and electricity purchased from public utilities. Each of the Corporation's mine power plants and smelters uses natural gas as its primary fuel, and each is capable of being converted to use oil as a substitute fuel. The Corporation has experienced no difficulty in recent years in ob- taining adequate fuel to maintain production. Environmental and Other Regulatory Matters Federal and state environmental laws and regulations affect many aspects of the Corporation's mining operations. The federal Clean Air Act of 1970, as amended (the Clean Air Act), and regulations thereunder to date have had the most significant impact, particularly on the Corporation's smelters. The "solid wastes" of the Corporation's copper operations may be subject to regulation under the federal Resource Conservation and Recovery Act (RCRA) and related state laws and, to the extent these wastes affect surface waters, under the federal Clean Water Act and relevant state water quality laws. Mining wastes were exempted from the federal "hazardous waste" regulations under Subtitle C of RCRA pending study by EPA and promulgation of regulations governing "hazardous" mining waste. The EPA study on mineral "extraction" and "beneficiation" wastes was completed and submitted to Congress in December 1985. In 1986, EPA determined that "extraction" and "beneficiation" wastes did not warrant "hazardous" waste regulation under Subtitle C of RCRA. EPA determined that such mining wastes should be regulated as "solid waste" under Subtitle D of RCRA. EPA determined in 1991 that 20 mineral "processing" wastes also should be regulated as "solid waste" under RCRA Subtitle D, rather than be potentially regulated as "hazardous waste" under RCRA Subtitle C. Therefore, the gener- ation and management of any other mineral smelting and refining waste will be subject to "hazardous waste" regulation only if the waste exhibits a hazardous waste characteristic or if EPA specifically designates it as a "listed hazardous waste." These changes were effective in many states, including Arizona, New Mexico and Texas, by the end of 1991. The Corporation has taken steps to address hazardous waste regulation of any of its wastes which would no longer meet the definition of mineral "processing" wastes. RCRA Subtitle D rules governing mineral "extraction" and "beneficiation" wastes and "processing" wastes that are exempt from RCRA Subtitle C have not yet been promulgated by EPA, Arizona, New Mexico or Texas. The Corporation cannot yet estimate the impact of such mining waste regulations on its operations. The Corporation's copper operations are also subject to federal and state laws and regulations protecting both surface water and groundwater quality. The Corporation possesses, has applied for, or is in the process of applying for the necessary permits or other governmental approvals presently required under these rules and regulations. At the Hidalgo smelter at Playas, New Mexico, in accordance with the discharge plan approved by the New Mexico Environmental Improvement Division (EID) on December 30, 1987, and the renewed discharge plan approved by the New Mexico Environment Department (NMED) (successor to EID) on December 30, 1992, the Corporation continues to monitor and report to NMED regarding groundwater quality in the vicinity of the smelter's compacted, clay-lined evaporation pond. The Corporation is continuing its efforts to assess the effect on groundwater quality from operation of the evaporation pond and will continue to investigate and implement appropriate technologies and contingency plans to mitigate any adverse effect. The Corporation had also agreed during the term of the earlier discharge plan to cease discharging acidic solutions to the evaporation pond as presently constructed, to neutralize or remove the acidic solutions present in the evaporation pond, and to commence a groundwater remediation program for any existing contamination. During 1991, a neutralization facility was constructed and began operation. Additionally, a series of pumpback wells was installed and became operational in 1992 to begin remediation of groundwater adversely affected by past operation of the evaporation pond. The discharge plan approved in December 1992, covering the operation of the neutralization facility and groundwater remediation program, will be in effect for a five- year period. Effective September 27, 1989, Arizona adopted regulations for its aquifer protection permit (APP) program, which replaced the then existing Arizona groundwater quality protection permit regulations. The Corporation is in compliance with the APP regulations, pursuant to the transition provisions for existing facilities under those regulations. The APP regulations require permits for new facilities, activities and structures for mining, concentrating and smelting. The APP permits may require mitiga- tion and discharge reduction or elimination. APP permit applications for existing facilities deemed to be in compliance with the new regulations are not required until requested by the State or unless a major modification at the facility alters the existing discharge characteristics. The Corporation has conducted groundwater studies and submitted APP applications for aquifer protection permits for a closed tailing pile in Clarkdale, Arizona, and cer- tain facilities at its Copper Queen branch in Bisbee, Arizona, pursuant to a request by the Arizona Department of Environmental Quality (ADEQ). ADEQ has requested and the Corporation will submit to ADEQ in the future an application covering other facilities at the Copper Queen branch. Also, ADEQ recently published a list of site-specific application deadlines for all existing facilities known to ADEQ. The list includes several of the Corporation's properties, which were assigned deadlines ranging from June 30, 1992, to October 30, 1996. It is not known what the APP permit re- quirements for the listed facilities will be. The Corporation is likely to continue to have to make expenditures to comply with the APP permit program and regulations. In 1992, the legislatures of Arizona, New Mexico and certain other states amended their air quality statutes to establish authority for the states to administer the new requirements of the 1990 Amendments to the Clean Air Act. It is anticipated that in 1994 and coming years, these states will promulgate regulations to further define and implement these new requirements. EPA will administer these requirements in states which fail to establish adequate programs by certain deadlines. These programs will likely increase the Corporation's regulatory obligations and compliance costs. Until the implementing regulations are adopted, it is not possible to determine the impact of the new requirements on the Corporation. The Corporation estimates that its share of capital expenditures for programs to comply with applicable environmental laws and regulations that affect its mining operations will total approximately $25.0 million in 1994 and from $10.0 million to $15.0 million in 1995; $17.0 million was spent on such programs in 1993. The Corporation also anticipates making significant capital and other expenditures beyond 1995 for continued compliance with such laws and regulations. In light of the frequent changes in such laws and regulations and the inherent uncertainty in this area, the Corporation is unable to estimate accurately the total amount of such expenditures over the longer term, but it may be substantial. (See the discussion of "OTHER ENVIRONMENTAL MATTERS.") 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 to promote responsible utilization and reclamation of lands affected by exploration and mining. 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. The Energy, Minerals, and Natural Resources Department of the State of New Mexico is charged with the development of regulations by June 18, 1994, to implement the Act. The Act will increase the Corporation's regulatory and compliance costs for its New Mexico operations. Until the implementing regulations are adopted, it is not possible to determine the exact impact of the new requirements on the Corporation. The Corporation is also subject to federal and state laws and regulations pertaining to plant and mine safety and health conditions, including the Occupational Safety and Health Act of 1970 and the Mine Safety and Health Act of 1977. In particular, present and proposed regulations govern worker exposure to a number of substances and conditions present in work environments, including dust, mist, fumes, heat and noise. The Corporation has made and is likely to continue to have to make expenditures to comply with such legislation and regulations. Phelps Dodge does not expect that the additional capital and operating costs associated with achieving compliance with the various environmental, health and safety laws and regulations will adversely affect its competitive position relative to other U.S. copper producers, which are subject to comparable requirements. However, because copper is an internationally traded commodity, these costs could significantly affect the Corporation in its efforts to compete globally with those foreign producers that are not subject to such stringent requirements. Labor Matters Employees in Phelps Dodge Mining Company's Arizona operations, El Paso refinery, Hidalgo smelter, Burro Chief Copper Company and Norwich rod mill, and certain employees at Tyrone and Chino are not represented by any unions. The majority of the Tyrone mining employees are covered by a three-year labor agreement that expires on June 30, 1994. The labor contract at the El Paso rod mill expires on May 29, 1994. Most employees at Chino are covered by three-year labor agreements that expire on June 30, 1996. PHELPS DODGE INDUSTRIES Phelps Dodge Industries is a business segment comprising a group of international companies that manufacture engineered products principally for the transportation and electrical sectors 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 sub- sidiaries (Columbian Chemicals); its wheel and rim operations through Accuride Corporation and its subsidiaries (Accuride); its magnet wire opera- tions through Phelps Dodge Magnet Wire Company and its subsidiaries; its U.S. specialty conductor operations (beginning in November 1989) through Hudson International Conductors (Hudson); and its international wire and cable manufacturing operations through Phelps Dodge International Corpora- tion. Operations Columbian Chemicals, headquartered in Atlanta, Georgia, is an international producer and marketer of carbon blacks and synthetic iron oxides. The company produces a full range of rubber and industrial carbon blacks. Its rubber carbon blacks improve the tread wear and durability of tires, and extend the service life on a wide range of rubber products such as belts and hoses. The company's industrial carbon blacks are used in diverse applications including pigmentation of coatings, inks and plastics; ultraviolet stabilization of plastics; and as conductive insulation for wire and cable. Its synthetic iron oxide products are used widely for pigmentation of building products, paints, inks, plastics and toners; specialized grades are used for a new line of toners and to make catalysts for the chemical industry. Columbian Chemicals produces carbon black in 11 plants worldwide with approximately 60 percent of its production in North America and the remaining production at facilities in the United Kingdom, Germany (two), Italy, Hungary and the Philippines (owned 88.2 percent by Columbian Chemicals). The Hungarian plant began production in December 1993. It is owned by Columbian Tiszai Carbon Ltd. which in turn is owned 60 percent by Columbian Chemicals and 40 percent by Tiszai Vegyi Kombinat Rt., the largest petrochemical company in Hungary. Synthetic iron oxides are produced by Columbian Chemicals at its plant in St. Louis, Missouri. The company also maintains sales offices in France and Japan. Extensive research, development and engineering is performed at five worldwide locations. The company's Operations and Technology Center at Swartz, Louisiana, is responsible for studies specific to both industrial and rubber applications of carbon black. Carbon black product and process development at the Operations and Technology Center is supported by develop- ment work at the company's North Bend, Louisiana, and Hamilton, Ontario, plants. The European Central Laboratory at Avonmouth, United Kingdom, provides technical support for Columbian's European operations. Synthetic iron oxide development work is done at the St. Louis, Missouri, plant. Columbian Chemicals also licenses rubber carbon technology to other carbon black manufacturing companies in various countries. Accuride, headquartered in Henderson, Kentucky, manufactures and markets wheels and rims for medium and heavy trucks, trailers and buses. Accuride also manufactures steel wheels for light trucks and military vehicles. Accuride operates manufacturing plants producing steel wheel and rims in Henderson and London, Ontario, Canada. In addition, Accuride designs and distributes aluminum wheels for heavy trucks, trailers and buses. Accuride has a design and test center in Henderson and a customer service center in Taylor, Michigan. In addition, Accuride and The Goodyear Tire and Rubber Company of Akron, Ohio, each own 50 percent of AOT Inc., a commercial tire and wheel assembly facility located in Springfield, Ohio. Accuride's customer base includes the major North American manufacturers of light, medium and heavy trucks, buses and truck trailers. Accuride also serves a network of 225 independent distributor locations throughout the United States and Canada. Phelps Dodge Magnet Wire Company, headquartered in Fort Wayne, Indiana, is an international producer of magnet wire, the insulated conductor used in most electrical systems. Its products are manufactured in the United States at the company's Fort Wayne and Hopkinsville, Kentucky, plants, and at newly acquired plants in El Paso, Texas, and Laurinburg, North Carolina. Phelps Dodge Magnet Wire Company also manufactures its products at a newly acquired plant in Mureck, Austria. The Austrian operation is a joint venture with Eldra Elektrodraht-Erzeugung GmbH, a leading European magnet wire manufacturer. Phelps Dodge owns a 51 percent interest in the venture; Eldra Elektrodraht-Erzeugung GmbH owns the remaining 49 percent. In addition, the company and Sumitomo Electric Industries, Ltd. each own a 50 percent interest in SPD Magnet Wire Company, a joint venture established in 1990 that operates a magnet wire plant in Edmonton, Kentucky. These plants draw and insulate copper and aluminum wire which is sold as magnet wire to original equipment manufacturers for use in electric motors, generators, transformers, televisions, automobiles and a variety of small electrical appliances. Magnet wire is also sold to electrical equipment repair shops through a network of distributors. Hudson International Conductors, headquartered in Ossining, New York, manufactures and markets specialty high-performance conductors for the aerospace, automotive, biomedical, computer and consumer electronics markets. Its principal products are highly engineered conductors of copper and copper alloy wire electroplated with silver, tin or nickel for sophisticated, specialty product niches. Hudson's manufacturing operations consist of plants located in Inman, South Carolina, and Trenton, Georgia. In addition, at a plant in Elizabeth, New Jersey, the company manufactures specialty copper and copper alloy products. These products are sold primarily to the aerospace, automotive, transportation and high energy physics industries. In order to gain productivity and cost efficiencies, Hudson recently consolidated its manufacturing of conductor products from three facilities into its Inman facility. This consolidation, which was initiated in response to changes in market conditions, especially in the defense sector, resulted in the closure of its manufacturing facilities in Ossining and Walden, New York, in 1993. Hudson maintains a warehouse and sales office in Irvine, California, and sales offices in Europe and Japan. The Corporation has interests in companies that are primarily involved in the manufacture of electrical and telecommunication cables in joint venture associations in 15 countries. Through these companies, the Corporation is also active in the engineering and installation of telephone lines. In order to supply the increasing demand for copper rod in certain countries, five of the Corporation's international wire and cable companies have continuous cast copper rod facilities. The Corporation has majority interests in companies operating in nine countries -- Chile, Costa Rica, Ecuador, El Salvador, Guatemala, Honduras, Panama, Thailand and Venezuela. In December 1992, Phelps Dodge, through its 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 elec- trical and telecommunication copper and aluminum wires and cables in Venezuela and the Andean Region. The Corporation has minority interests in companies located in Mexico, Hong Kong, Thailand and the Philippines, ac- counted for on the equity basis, and in companies located in Greece, India and Zambia, accounted for on the cost basis. The Corporation's interests in these companies are managed by Phelps Dodge International Corporation, a wholly owned subsidiary headquartered in Coral Gables, Florida. This unit also provides management, marketing assistance, technical support and engineering and purchasing services to these companies. See Note 21 to the Consolidated Financial Statements for information concerning Phelps Dodge Industries' sales to customers in the transportation and electrical industries. Competition and Markets The principal competitive factors in the various markets in which Phelps Dodge Industries competes are price, product quality, customer service, dependability of supply, delivery lead time, breadth of product line and research and development. Columbian Chemicals is one of the largest producers of carbon black in the world. Approximately 90 percent of the carbon black produced by Columbian Chemicals is used in rubber applications, 75 percent of which is in the tire industry. The major tire manufacturers in the United States and Western Europe account for a substantial portion of Columbian Chemicals' carbon black sales. In addition, Columbian Chemicals maintains a strong competitive position in mechanical rubber goods markets based on its com- mitment to quality and service. The Corporation is not aware of any product that could be substituted for carbon black to a significant extent in any of its principal applications. Including Columbian Chemicals, there are a total of six carbon black producers in the United States, two in Canada and three major producers in Western Europe. The carbon black industry is highly competitive, particularly in the U.S. rubber black market. The com- pany has expanded its production and marketing position by entry into the emerging market in Central Europe through Columbian Tiszai Carbon Ltd. in Hungary. The Corporation believes that Accuride is the largest producer of steel wheels and rims for medium and heavy trucks, trailers and buses in North America. Accuride's sales are primarily in the United States, where a majority of the truck, trailer and bus manufacturers are located, and in Canada. The demand for its products fluctuates with the level of original equipment truck, trailer and bus manufacturing activity. In the last five years, Accuride's 10 largest customers have accounted for approximately 65 percent of its total sales. Accuride principally competes with five U.S. companies and one major foreign company. With the addition of newly acquired plants in El Paso, Texas, and Laurinburg, North Carolina, the Corporation believes that Phelps Dodge Magnet Wire Company is the largest manufacturer of magnet wire in North America. It principally competes with four U.S. manufacturers. The company also has expanded its production and marketing position by acquiring a majority interest in a manufacturing company in Austria primarily to serve the operations of its U.S. customers in Europe. In early 1994, Phelps Dodge Magnet Wire Company will complete a $10 million modernization program for its Fort Wayne facilities that includes the construction of a technology center including new development laboratories with pilot manufacturing equipment in a controlled atmosphere. The Corporation believes Hudson is the world leader in the manufacture of specialty high-performance conductors. Hudson's primary customers are intermediators (insulators, assemblers, subcontractors and distributors). More than half of Hudson's products are ultimately sold to commercial and military aerospace companies for use in airframes, avionics, space electronics, radar systems and ground control electronics. Hudson's products are also used in appliances, instrumentation, computers, telecommu- nications, military electronics, medical equipment and other products. Hudson has one primary U.S. competitor in the specialty conductor market, however, in those few markets where Hudson competes for high volume products the company faces competition from several U.S. fabricators. The Corporation's international wire and cable companies sell a majority of their products to contractors, distributors and public utilities. Their products are used in lighting, power distribution, telecommunications and other electrical applications. In addition, the companies provide engineering and installation of telephone lines in Central and South America. Raw Materials Carbon black is produced from heavy residual oil, a by-product of the crude oil refining process. Columbian Chemicals purchases substantially all of its feedstock on a spot basis at prices that fluctuate with world oil prices. The cost of feedstock is a significant factor in the cost of carbon black. In order for Columbian Chemicals to achieve satisfactory financial results during periods of increasing oil prices, it must be able to pass through to customers any increase in its feedstock costs. The principal raw material for the production of synthetic iron oxide is copperas. Accuride manufactures a majority of its products from either flat roll or section steel, except for certain finished aluminum products manufactured to its specifications and designs by a third party. The principal raw materials used by Phelps Dodge Magnet Wire Company's manufacturing operations are copper, aluminum and various electrical insulating materials. Hudson's principal specialty conductor product line is composed of copper, copper alloy, aluminum and copper-clad steel, usually plated with silver, nickel or tin. The principal raw materials used by the Corporation's international wire and cable companies are copper, aluminum and various electrical insulating materials. A majority of the materials used by these companies is purchased from others. Phelps Dodge Magnet Wire Company acquires most of its copper from the Corporation. Phelps Dodge Industries purchases its residual oil feedstock and other raw materials from various other suppliers. It does not believe that the loss of any one supplier would have a material adverse effect on its financial conditions or on the results of its operations. Energy Phelps Dodge Industries' operations generally use purchased electricity and natural gas as their principal sources of energy. Phelps Dodge Magnet Wire Company's principal manufacturing equipment that uses natural gas is also equipped to burn alternative fuels. Environmental Matters Environmental laws and regulations affect many aspects of the Corporation's industrial operations. Phelps Dodge Industries estimates that its capital expenditures for programs to comply with applicable envi- ronmental laws and regulations will total approximately $4.0 million in 1994 and from $5.0 million to $10 million in 1995; $2.1 million was spent on these programs in 1993. The Corporation also anticipates making significant capital and other expenditures beyond 1995 for continued compliance with such laws and regulations. In light of the frequent changes in such laws and regulations and the inherent uncertainty in this area, the Corporation is unable to estimate accurately the total amount of such expenditures over the longer term, but it may be substantial. (See "OTHER ENVIRONMENTAL MAT- TERS.") Labor Agreements Phelps Dodge Industries has labor agreements covering most of its U.S. and international plants. Accuride has a three-year agreement that was renewed in January 1994 that covers approximately 625 employees at its Canadian plant. Hudson has a three-year agreement that will expire in July 1994 that covers approximately 60 employees at its Elizabeth, New Jersey, plant. Phelps Dodge International Corporation has two agreements expiring in 1994 at associate company plants in Mexico and the Philippines. Ownership of Real Property Phelps Dodge Industries owns all of its plants and the land on which they are located except for the facilities of Accuride at Henderson, which are leased, and the land, which also is leased, on which six international plants are located. RESEARCH AND DEVELOPMENT The Corporation conducts research and development programs relating to exploration for minerals, recovery of metals from ores, concentrates and solutions, smelting and refining of copper, and metal processing and product development. It also conducts research and development programs related to its carbon black and synthetic iron oxide products through its Columbian Chemicals subsidiary, its wheel and rim products through its Accuride subsidiary, its wire insulating processes and materials through Phelps Dodge Magnet Wire Company, and conductor materials and processes through Hudson International Conductors. Expenditures for all of these research and de- velopment programs, together with contributions to industry and government- supported programs, totaled $16.3 million in 1993, compared with $17.9 mil- lion in 1992 and $17.0 million in 1991. OTHER ENVIRONMENTAL MATTERS The Corporation is subject to federal, state and local environmental laws, rules and regulations, including the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA or Superfund), as amended by the Superfund Amendments and Reauthorization Act of 1986. Under Superfund, the Environmental Protection Agency (EPA) has identified approximately 35,000 sites throughout the United States for review, ranking and possible inclusion on the National Priorities List (NPL) for possible response. Among the sites identified, EPA has included 13 sites owned by the Corporation. The Corporation believes that most, if not all, of its sites so identified will not qualify for listing on the NPL. In addition, the Corporation may be required to remove hazardous waste or remediate the alleged effects of hazardous 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. The Environmental, Health and Safety Committee of the Board of Directors, comprising six non-employee directors, was established in 1991. The Committee met three times in 1993 to review, among other things, the Corporation's policies with respect to environmental, health and safety matters and the adequacy of management's programs for implementing those policies. The Committee reports on such reviews and makes recommendations with respect to those policies to the Board of Directors and to management. Item 3. Legal Proceedings I. 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. 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:
Age at Officer of the Name 3/1/94 Position Corporation since ---- ------ -------- ----------------- Douglas C. Yearley 58 Chairman of the Board, President and Chief Executive Officer 1981 Bernard G. Rethore 52 Senior Vice President 1989 Patrick J. Ryan 57 Senior Vice President 1981 Thomas M. St. Clair 58 Senior Vice President and Chief Financial Officer 1989 J. Steven Whisler 39 Senior Vice President 1987
Except as stated below, all of the above have been officers of Phelps Dodge Corporation for the past five years. Mr. 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. 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 6. Selected Financial Data (In millions except per share amounts)
1993 1992 1991 1990 1989 (a/b) ---- ---- ---- ---- ---------- Sales and other operating revenues $ 2,595.9 2,579.3 2,434.3 2,635.7 2,699.6 Income before cumulative effect of accounting changes (c) $ 187.9 301.6 272.9 454.9 267.0 Per common share: (d) - primary (e) $ 2.66 4.28 3.93 6.56 3.80 - fully diluted (f) $ 2.66 4.28 3.93 6.56 3.73 Cumulative effect of accounting changes (g) $ - (79.9) - - - Per common share: (d) - primary (e) $ - (1.13) - - - - fully diluted (f) $ - (1.13) - - - Net income (c) $ 187.9 221.7 272.9 454.9 267.0 Per common share: (d) - primary (e) $ 2.66 3.15 3.93 6.56 3.80 - fully diluted (f) $ 2.66 3.15 3.93 6.56 3.73 Total assets $ 3,720.9 3,441.2 3,051.2 2,827.4 2,504.6 Long-term debt $ 547.3 373.8 382.0 403.5 431.5 Dividends per common share: (d) Regular dividends $ 1.65 1.61 1.50 1.50 1.43 Extraordinary dividends $ - - - - 5.00 (a) Hudson International Conductors was acquired in November 1989. (b) Reported 1989 net income of $267.0 million ($3.73 per fully diluted common share) includes income of $504.0 million ($7.04 per share) less a non-recurring after-tax charge of $237.0 million ($3.31 per share) primarily reflecting write-downs of certain non- producing assets. (c) 1992 includes a non-taxable gain of $36.4 million (52 cents per common share) on a subsidiary's stock issuance from two Sumitomo companies' acquisition of a 20 percent interest in the La Candelaria copper-gold project in Chile. (d) All per share amounts reflect average shares outstanding for the respective periods after giving effect to a two-for-one stock split in May 1992. (e) Based on average number of shares outstanding after preference dividend requirements. (f) Assumes the conversion to common shares of all of the Corporation's outstanding convertible exchangeable preference shares. (All such preference shares were converted or redeemed on or before April 1, 1989.) (g) Includes one-time, after-tax charges in 1992 for the adoption of new accounting methods for postretirement and postemployment benefits and income taxes (see Notes 5, 16 and 17 to the Consolidated Financial Statements for a description of these accounting changes). Note: See Management's Discussion and Analysis for a discussion of the effect on the Corporation's results of material changes in the price the Corporation receives for copper or in its unit production costs.
Item 7. Management's Discussion and Analysis The information called for by Item 7 appears in Management's Discussion and Analysis. 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. 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): - ----------------------------------------------------------------------------
1993 1992 1991 ---- ---- ---- Sales and other operating revenues $ 2,595.9 2,579.3 2,434.3 Operating income 314.4 407.8 411.9 Earnings from operations 314.4 408.4 415.0 Earnings before cumulative effect of accounting changes 187.9 301.6 272.9 Cumulative effect of accounting changes - (79.9) - Net income 187.9 221.7 272.9 Per common share: Before cumulative effect of accounting changes 2.66 4.28 3.93 Cumulative effect of accounting changes - (1.13) - Net income 2.66 3.15 3.93 - ----------------------------------------------------------------------------
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. - ----------------------------------------------------------------------------
1993 1992 1991 ---- ---- ---- Copper (from own mines - thousand tons) * Production 547.7 537.0 538.1 Deliveries 543.9 537.7 553.9 COMEX average spot copper price per pound - cathodes $ 0.85 1.03 1.05 (millions of dollars) Sales and other operating revenues $ 1,320.3 1,397.7 1,325.3 Operating income 227.1 366.0 367.9 Equity losses (3.5) (2.2) (0.4) Earnings from operations 223.6 363.8 367.5 - ---------------- * The Corporation's worldwide copper production and deliveries shown in the above table exclude the amounts attributable to (i) the 15 percent undivided interest in the Morenci, Arizona, copper mining complex held by Sumitomo Metal Mining Arizona, Inc. (Sumitomo) and (ii) the one- third partnership interest in Chino Mines Company in New Mexico held by Heisei Minerals Corporation (Heisei). Excluded production amounts for 1993, 1992 and 1991 were 60,500 tons, 58,200 tons and 51,100 tons produced at Morenci for the account of Sumitomo and 53,200 tons, 50,800 tons and 52,600 tons produced at Chino for the account of Heisei. - ----------------------------------------------------------------------------
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. - ----------------------------------------------------------------------------
1993 1992 1991 ---- ---- ---- (millions of dollars) Sales and other operating revenues $ 1,275.6 1,181.6 1,109.0 Operating income 117.1 72.4 72.8 Equity earnings 3.5 2.8 3.5 Earnings from operations 120.6 75.2 76.3 - ----------------------------------------------------------------------------
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. - ----------------------------------------------------------------------------
1993 1992 1991 ---- ---- ---- (millions of dollars) Phelps Dodge Mining Company: La Candelaria $ 189.8 53.6 19.9 Other 95.6 146.9 242.7 ------- ------- ------- 285.4 200.5 262.6 Phelps Dodge Industries 101.2 69.7 93.8 Corporate and other 0.6 0.6 1.3 ------- ------- ------- $ 387.2 270.8 357.7 ======= ======= ======= - ----------------------------------------------------------------------------
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. - ----------------------------------------------------------------------------
Market Price Ranges* --------------------------------------- 1993 1992 1991 ---- ---- ---- High Low High Low High Low ----- ----- ----- ----- ----- ----- First Quarter $ 55.63 47.75 43.00 32.00 34.69 26.19 Second Quarter 50.75 41.50 50.50 39.50 34.88 28.75 Third Quarter 49.25 39.13 53.00 45.00 38.00 31.63 Fourth Quarter 50.88 40.00 49.25 41.38 39.63 29.94 - --------------- * The market price ranges reflect actual share prices as reported for each day's trading; they have been revised for the respective periods to give effect to the May 1992 two-for-one stock split. - ----------------------------------------------------------------------------
QUARTERLY FINANCIAL DATA (In millions except per common share amounts) - ----------------------------------------------------------------------------
First Second Third Fourth Quarter Quarter Quarter Quarter ------- ------- ------- ------- 1993 ---- Sales and other operating revenues $ 666.7 629.8 646.7 652.7 Operating income 95.7 78.4 74.5 65.8 Net income 60.3 46.3 39.7 41.6 Net income per common share 0.85 0.66 0.56 0.59 1992 * ---- Sales and other operating revenues $ 590.5 663.3 672.1 653.4 Operating income 84.5 98.9 120.8 103.6 Income before cumulative effect of accounting changes 52.0 65.8 118.3 65.5 Cumulative effect of accounting changes (79.9) - - - Net income (loss) (27.9) 65.8 118.3 65.5 Per share amounts: Income before cumulative effect of accounting changes 0.74 0.94 1.68 0.93 Cumulative effect of accounting changes (1.14) - - - Net income (loss) (0.40) 0.94 1.68 0.93 - --------------- * Information for the first three quarters of 1992 has been revised to reflect changes in accounting for postretirement and postemployment benefits and income taxes (see Notes 5, 16 and 17 to the Consolidated Financial Statements for a description of these accounting changes). Net income for the 1992 third quarter includes 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. - ----------------------------------------------------------------------------
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 - ---------------------------------------------------------------------------- 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 STATEMENT OF CONSOLIDATED OPERATIONS (In thousands except per share data)
1993 1992 1991 ---- ---- ---- SALES AND OTHER OPERATING REVENUES $2,595,892 2,579,251 2,434,262 ---------- --------- --------- OPERATING COSTS AND EXPENSES Cost of products sold 1,933,916 1,853,918 1,734,195 Depreciation, depletion and amortization 187,061 162,245 138,898 Selling and general administrative expense 103,744 105,386 98,695 Exploration and research expense 56,775 49,924 50,570 ---------- --------- --------- 2,281,496 2,171,473 2,022,358 ---------- --------- --------- OPERATING INCOME 314,396 407,778 411,904 Equity earnings 19 659 3,112 ---------- --------- --------- EARNINGS FROM OPERATIONS 314,415 408,437 415,016 Interest expense (54,490) (47,402) (47,463) Capitalized interest 17,477 7,866 8,317 Gain from subsidiary's stock issuance - 36,404 - Miscellaneous income and expense, net 16,398 10,695 28,430 ---------- --------- --------- INCOME BEFORE TAXES AND CUMULATIVE EFFECT OF ACCOUNTING CHANGES 293,800 416,000 404,300 Provision for taxes (105,900) (114,400) (131,400) ---------- --------- --------- INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGES 187,900 301,600 272,900 Cumulative effect of accounting changes - (79,900) - ---------- --------- --------- NET INCOME $ 187,900 221,700 272,900 ========== ========= ========= EARNINGS PER SHARE Income before cumulative effect of accounting changes $2.66 4.28 3.93 Cumulative effect of accounting changes - (1.13) - ---------- --------- --------- Net income $2.66 3.15 3.93 ========== ========= ========= AVERAGE NUMBER OF SHARES OUTSTANDING 70,642 70,453 69,454 See Notes to Consolidated Financial Statements.
STATEMENT OF CONSOLIDATED RETAINED EARNINGS (In thousands)
1993 1992 1991 ---- ---- ---- RETAINED EARNINGS AT BEGINNING OF YEAR $1,546,683 1,437,951 1,269,094 Net income 187,900 221,700 272,900 Dividends on common shares (116,119) (112,968) (104,043) ---------- --------- --------- RETAINED EARNINGS AT END OF YEAR $1,618,464 1,546,683 1,437,951 =========== ========== ========== See Notes to Consolidated Financial Statements.
CONSOLIDATED BALANCE SHEET (Dollars in thousands except per share values)
December December 31, 31, 1993 1992 ---- ---- ASSETS Current assets: Cash and short-term investments, at cost $ 255,770 251,221 Receivables, less allowance for doubtful accounts (1993 - $12,162; 1992 - $10,717) 354,428 365,357 Inventories 225,404 223,926 Supplies 103,267 101,536 Prepaid expenses 13,089 15,388 Deferred income taxes 35,386 32,556 ---------- --------- Current assets 987,344 989,984 Investments and long-term receivables 115,407 93,753 Property, plant and equipment, net 2,340,231 2,108,638 Other assets and deferred charges 277,894 248,815 ---------- --------- $3,720,876 3,441,190 ========== ========= LIABILITIES Current liabilities: Short-term debt $ 82,718 72,539 Current portion of long-term debt 17,210 42,166 Accounts payable and accrued expenses 425,735 391,697 Income taxes 14,290 34,472 ---------- --------- Current liabilities 539,953 540,874 Long-term debt 547,285 373,766 Deferred income taxes 286,042 265,118 Other liabilities and deferred credits 263,280 238,228 ---------- --------- 1,636,560 1,417,986 ---------- --------- COMMITMENTS AND CONTINGENCIES (SEE NOTES 18 AND 19) MINORITY INTEREST IN SUBSIDIARIES 62,217 50,751 ---------- --------- COMMON SHAREHOLDERS' EQUITY Common shares, par value $6.25; 100,000,000 shares authorized; 70,531,081 outstanding (1992 - 70,374,258) after deducting 4,657,233 shares (1992 - 4,814,056) held in treasury 440,819 439,839 Capital in excess of par value 83,147 80,632 Retained earnings 1,618,464 1,546,683 Cumulative translation adjustments and other (120,331) (94,701) ---------- ---------- 2,022,099 1,972,453 ---------- ---------- $3,720,876 3,441,190 ========== ========= See Notes to Consolidated Financial Statements.
CONSOLIDATED STATEMENT OF CASH FLOWS (In thousands)
1993 1992 1991 ---- ---- ---- OPERATING ACTIVITIES Net income $ 187,900 221,700 272,900 Adjustments to reconcile net income to cash flow from operations: Depreciation, depletion and amortization 187,061 162,245 138,898 Deferred income taxes 29,512 19,322 50,540 Equity earnings net of dividends received 369 4,628 2,464 Provision for non-producing assets and other - - 14,450 Cumulative effect of accounting changes - 79,900 - --------- --------- --------- Cash flow from operations 404,842 487,795 479,252 Adjustments to reconcile cash flow from operations to net cash provided by operating activities: Changes in current assets and liabilities: (Increase) decrease in receivables (563) (40,440) (18,358) (Increase) decrease in inventories (2,348) (6,717) 44,449 (Increase) decrease in supplies (1,133) (1,732) (5,855) (Increase) decrease in prepaid expenses 3,052 (6,536) 8,176 (Increase) decrease in deferred income taxes (2,830) (1,339) - Increase (decrease) in interest payable 1,075 2,636 1,036 Increase (decrease) in other accounts payable 30,490 8,774 12,018 Increase (decrease) in income taxes (20,611) 4,858 (19,400) Increase (decrease) in other accrued expenses (14,383) 20,232 (17,124) Gain from subsidiary's stock issuance - (36,404) - Other adjustments, net (12,609) (398) (3,225) --------- --------- --------- Net cash provided by operating activities 384,982 430,729 480,969 --------- --------- --------- INVESTING ACTIVITIES Capital outlays (387,205) (270,812) (357,728) Capitalized interest (17,477) (7,866) (8,317) Proceeds from subsidiary's stock issuance 6,703 41,924 - Investment in subsidiaries (3,846) (58,650) (8,485) Other 1,175 8,165 4,206 --------- --------- --------- Net cash used in investing activities (400,650) (287,239) (370,324) --------- --------- --------- FINANCING ACTIVITIES Increase in debt 313,667 200,732 47,509 Payment of debt (153,001) (187,515) (42,684) Debt issue costs (25,811) - - Common dividends (116,119) (112,968) (104,043) Purchase of common shares (5,562) - (1,854) Other 7,043 24,983 11,277 --------- --------- --------- Net cash provided by (used in) financing activities 20,217 (74,768) (89,795) --------- --------- --------- INCREASE IN CASH AND SHORT-TERM INVESTMENTS 4,549 68,722 20,850 CASH AND SHORT-TERM INVESTMENTS AT BEGINNING OF YEAR 251,221 182,499 161,649 --------- --------- --------- CASH AND SHORT-TERM INVESTMENTS AT END OF YEAR $ 255,770 251,221 182,499 ========= ========= ========= See Notes to Consolidated Financial Statements.
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: - ----------------------------------------------------------------------------
1993 1992 1991 ---- ---- ---- International wire and cable manufacturers $ 3,328 3,694 4,101 Black Mountain (635) (1,630) (188) Santa Gertrudis (3,264) (645) (255) Other 590 (760) (546) ------- ------- ------- $ 19 659 3,112 ======= ======= ======= - ----------------------------------------------------------------------------
Dividends were received as follows: - ----------------------------------------------------------------------------
1993 1992 1991 ---- ---- ---- Equity investments: International wire and cable manufacturers $ 388 5,250 3,615 Black Mountain - - 1,888 Other - 37 73 ------- ------ ------ $ 388 5,287 5,576 ======= ====== ====== Cost basis investments: Southern Peru Copper Corporation (16.25%) $ 2,925 2,438 9,752 Other 572 745 424 ------- ------ ------ $ 3,497 3,183 10,176 ======= ====== ====== - ----------------------------------------------------------------------------
Investments and long-term receivables were as follows: - ----------------------------------------------------------------------------
1993 1992 1991 ---- ---- ---- Equity basis: International wire and cable manufacturers $ 38,342 35,502 37,367 Black Mountain 10,216 12,075 14,477 Santa Gertrudis 2,976 6,240 7,745 Other 9,257 8,922 8,469 Cost basis: Southern Peru Copper Corporation (16.25%) 13,157 13,157 13,157 Other 41,459 17,857 14,573 -------- ------ ------ $115,407 93,753 95,788 ======== ====== ====== - ----------------------------------------------------------------------------
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: - ----------------------------------------------------------------------------
1993 1992 1991 ---- ---- ---- Sales $637,238 567,251 511,991 Net income 36,659 36,068 38,832 - ---------------------------------------------------------------------------- Net current assets $44,684 64,278 82,522 Fixed assets, net 292,270 266,419 212,104 Long-term debt (64,889) (73,164) (71,184) Other assets, net 27,562 37,717 34,070 -------- -------- -------- Net assets $299,627 295,250 257,512 ======== ======== ======== - ----------------------------------------------------------------------------
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: - ----------------------------------------------------------------------------
1993 1992 1991 ---- ---- ---- United States $259,100 352,100 364,600 Foreign 34,700 63,900 39,700 -------- ------- ------- $293,800 416,000 404,300 ======== ======= ======= - ----------------------------------------------------------------------------
The provisions for income taxes for the years ended December 31 were as follows: - ----------------------------------------------------------------------------
1993 1992 1991 ---- ---- ---- Currently payable: Federal $ 49,877 62,610 47,349 State 8,404 6,845 7,161 Foreign 18,107 25,623 26,350 -------- ------- ------- 76,388 95,078 80,860 -------- ------- ------- Deferred: Federal 24,689 16,615 43,830 State 2,671 4,870 7,602 Foreign 2,152 (2,163) (892) -------- ------- ------- 29,512 19,322 50,540 -------- ------- ------- $105,900 114,400 131,400 ======== ======= ======= - ----------------------------------------------------------------------------
A reconciliation of the U.S. statutory tax rate to the Corporation's effective tax rate is as follows: - ----------------------------------------------------------------------------
1993 1992 1991 ---- ---- ---- Statutory tax rate 35.0% 34.0 34.0 Depletion (4.7) (8.0) (8.6) State and local income taxes 2.5 1.9 2.4 Rate increase effect on existing temporary differences 2.0 - - Non-deductible expenses of acquisitions 0.6 0.9 2.0 Foreign taxes 0.6 (0.9) 2.0 Credits and taxes attributable to foreign operations 0.1 2.2 0.3 Non-taxable gain - (3.0) - Other items, net (0.1) 0.4 0.4 ---- ---- ---- Effective tax rate 36.0% 27.5 32.5 ==== ==== ==== - ----------------------------------------------------------------------------
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: - ----------------------------------------------------------------------------
1993 1992 ---- ---- Minimum tax credits $ 110,290 77,546 Postretirement and postemployment benefits 46,239 45,599 Reserves 41,310 53,548 Other 8,048 8,365 --------- --------- Deferred tax assets 205,887 185,058 --------- --------- Depreciation (425,957) (380,263) Mining properties (10,597) (10,803) Exploration and mine development costs (10,106) (11,286) Pensions (7,450) (13,141) Inventories (2,433) (2,127) --------- --------- Deferred tax liabilities (456,543) (417,620) --------- --------- $(250,656) (232,562) ========= ========= - ----------------------------------------------------------------------------
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): - ----------------------------------------------------------------------------
Phelps Phelps Dodge Dodge Mining Industries Total ------ ---------- ----- 1993: Metals and other raw materials $ 73.0 69.2 142.2 Work in process 2.0 14.1 16.1 Finished manufactured goods - 62.4 62.4 Other 4.7 - 4.7 ------- ------- ------- $ 79.7 145.7 225.4 ======= ======= ======= 1992: Metals and other raw materials $ 67.5 70.3 137.8 Work in process 1.0 15.4 16.4 Finished manufactured goods - 65.0 65.0 Other 4.5 0.2 4.7 ------- ------- ------- $ 73.0 150.9 223.9 ======= ======= ======= - ----------------------------------------------------------------------------
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): - ----------------------------------------------------------------------------
1993 1992 ---- ---- Buildings, machinery and equipment $3,717.5 3,374.1 Mining properties 129.6 128.6 Capitalized mine development 267.7 245.2 Land and water rights 63.3 59.5 -------- ------- 4,178.1 3,807.4 Less accumulated depreciation, depletion and amortization 1,837.9 1,698.8 -------- ------- $2,340.2 2,108.6 ======== ======= - ----------------------------------------------------------------------------
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): - ----------------------------------------------------------------------------
1993 1992 ---- ---- Balance at beginning of year $2,108.6 1,894.5 -------- ------- Cumulative effect of accounting change (see Note 5) - 90.9 Capital expenditures 387.2 270.8 Depreciation, depletion and amortization (181.6) (156.8) Property, plant and equipment of acquired companies 23.7 39.2 Currency translation adjustments and other 2.3 (30.0) -------- ------- 231.6 214.1 -------- ------- Balance at end of year $2,340.2 2,108.6 ======== ======= - ----------------------------------------------------------------------------
8. OTHER ASSETS AND DEFERRED CHARGES Other assets and deferred charges are as follows (in millions): - ----------------------------------------------------------------------------
1993 1992 ---- ---- Goodwill, less accumulated amortization (1993 - $29.8; 1992 - $24.7) $ 142.1 147.3 Employee benefit plans 82.0 74.6 Debt issue costs 26.9 2.4 Intangible pension asset 17.0 17.1 Other intangible assets 4.5 3.1 Other 5.4 4.3 ------- ------- $ 277.9 248.8 ======= ======= - ----------------------------------------------------------------------------
9. ACCOUNTS PAYABLE AND ACCRUED EXPENSES Accounts payable and accrued expenses are as follows (in millions): - ----------------------------------------------------------------------------
1993 1992 ---- ---- Accounts payable $ 218.6 173.7 Employee benefit plans 38.9 40.1 Insurance and loss reserves 29.5 24.6 Salaries, wages and other compensation 25.4 23.3 Environmental reserves 24.0 33.5 Smelting, refining and freight 16.2 17.8 Other accrued taxes 14.2 11.4 Shutdown, relocation and restructuring 13.9 8.6 Interest * 12.7 11.7 La Candelaria development 8.0 11.7 Returnable containers 5.0 5.3 Other 19.4 30.0 ------- ------- $ 425.8 391.7 ======= ======= - --------------- * Interest paid by the Corporation in 1993 was $54.9 million, compared with $44.1 million in 1992 and $44.9 million in 1991. - ----------------------------------------------------------------------------
10. OTHER LIABILITIES AND DEFERRED CREDITS Other liabilities and deferred credits are as follows (in millions): - ----------------------------------------------------------------------------
1993 1992 ---- ---- Postretirement and postemployment benefit plans (see Notes 16 and 17) $ 127.2 118.8 Other employee benefit plans 70.3 50.6 Environmental reserves 50.0 48.1 Shutdown, relocation and restructuring 9.3 10.8 Insurance and loss reserves 4.0 4.0 Other 2.5 5.9 ------- ------- $ 263.3 238.2 ======= ======= - ----------------------------------------------------------------------------
11. LONG-TERM DEBT AND OTHER FINANCING Long-term debt due after one year is summarized below (in millions): - ----------------------------------------------------------------------------
1993 1992 ---- ---- 7.75% Notes due 2002 $ 100.0 100.0 7.96% Notes due 1998-2000 50.0 50.0 Air Quality Control Obligations: 5.75% to 6.25% Series A and B notes due 1995-2004 81.1 81.1 7% Installment sale obligations due 1995-2003 - 81.5 6.50% Installment sale obligations due 2013 90.0 - Variable rate note due 1995 3.5 7.0 La Candelaria 164.7 - Columbian Tiszai Carbon Ltd. 33.5 - Phelps Dodge International 14.4 23.8 Accuride Canada 6.0 28.7 Other 4.1 1.7 ------- ------- $ 547.3 373.8 ======= ======= - ----------------------------------------------------------------------------
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: - ----------------------------------------------------------------------------
Common Shares ---------------------- Capital in Shares Par value excess of (000s) $6.25 par value ------ ----- --------- Balance at December 31, 1990 34,441 $ 215,258 $ 268,729 Stock options exercised 384 2,402 12,946 Shares purchased (30) (187) (1,666) Restricted shares granted 17 103 1,002 Restricted shares terminated (1) (6) (46) --------- --------- --------- Balance at December 31, 1991 34,811 217,570 280,965 Adjustment for two-for-one stock split 35,019 218,870 (218,870) Stock options exercised 535 3,346 17,876 Restricted shares granted 17 106 715 Restricted shares terminated (4) (23) (84) Other (4) (30) 30 --------- --------- --------- Balance at December 31, 1992 70,374 439,839 80,632 Stock options exercised 236 1,474 5,327 Shares purchased (130) (813) (4,749) Restricted shares granted 51 319 1,937 --------- --------- --------- Balance at December 31, 1993 70,531 $ 440,819 $ 83,147 ========= ========= ========= - ----------------------------------------------------------------------------
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: - ----------------------------------------------------------------------------
Average option Shares price per share ------ ---------------- Outstanding at December 31, 1990 1,211,485 $ 46.23 Granted 423,597 67.56 Exercised (514,581) 40.84 Expired or terminated (42,527) 66.76 --------- Outstanding at December 31, 1991 1,077,974 56.38 Pre-stock split: Granted 83,633 78.87 Exercised (287,901) 52.02 Expired or terminated (2,668) 57.24 Adjustment for two-for-one stock split 871,038 N/A Post-stock split: Granted 772,157 47.27 Exercised (496,161) 29.75 Expired or terminated (42,222) 30.28 --------- Outstanding at December 31, 1992 1,975,850 36.78 Granted 831,896 45.11 Exercised (377,203) 28.03 Expired or terminated (50,982) 41.37 --------- Outstanding at December 31, 1993 2,379,561 40.88 ========= - ----------------------------------------------------------------------------
Changes during 1991, 1992 and 1993 in Restricted Stock were as follows: - ----------------------------------------------------------------------------
Shares ------ Outstanding at December 31, 1990 36,800 Granted 16,500 Terminated (1,000) -------- Outstanding at December 31, 1991 52,300 Adjustment for two-for-one stock split 46,200 Granted 16,900 Terminated (3,600) Released (32,200) -------- Outstanding at December 31, 1992 79,600 Granted 51,000 Released (30,400) -------- Outstanding at December 31, 1993 100,200 ======== - ----------------------------------------------------------------------------
14. CUMULATIVE TRANSLATION ADJUSTMENTS Changes in the cumulative translation adjustments account during 1991, 1992 and 1993 are summarized below (in millions): - ----------------------------------------------------------------------------
Cumulative translation adjustments account ------------------- Balance at December 31, 1990 $ (64.5) Aggregate adjustment for 1991 (6.6) ------- Balance at December 31, 1991 (71.1) Aggregate adjustment for 1992 (17.9) ------- Balance at December 31, 1992 (89.0) Aggregate adjustment for 1993 (12.2) ------- Balance at December 31, 1993 $(101.2) ======= - ----------------------------------------------------------------------------
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): - ----------------------------------------------------------------------------
Overfunded Underfunded Plans Plans ----------- ----------- 1993 1992 1993 1992 ---- ---- ---- ---- Actuarial present value of projected benefit obligation, based on employment service to date and current salary levels: Vested employees $ 278 277 226 146 Non-vested employees 12 15 17 8 ----- ---- ---- ---- Accumulated benefit obligation 290 292 243 154 Additional amounts related to projected salary increases 24 35 9 4 ----- ---- ---- ---- Total projected benefit obligation 314 327 252 158 Plan assets at fair value 371 400 184 120 ----- ---- ---- ---- Projected pension benefit obligation in excess of (less than) plan assets (57) (73) 68 38 Unamortized net asset (liability) existing at January 1, 1985 19 23 (6) (9) Unrecognized prior service cost (13) (16) (11) (10) Unrecognized net gain (loss) from actuarial experience (7) 17 (28) (2) ----- ---- ---- ---- Accrued (prepaid) pension cost $ (58) (49) 23 17 ===== ==== ==== ==== - ----------------------------------------------------------------------------
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): - ----------------------------------------------------------------------------
1993 1992 1991 ---- ---- ---- Benefits earned during the year $ 10.8 9.8 9.2 Interest accrued on projected benefit obligation 40.8 39.5 39.3 Return on assets - actual (68.0) (63.2) (77.7) - unrecognized gain 17.5 15.7 33.6 Net amortization 0.5 0.3 0.1 ------ ------ ------ Net periodic pension cost for the year $ 1.6 2.1 4.5 ====== ====== ====== - ----------------------------------------------------------------------------
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): - ----------------------------------------------------------------------------
1993 1992 ---- ---- Accumulated Postretirement Benefit Obligation: Retirees $ 69 57 Fully eligible active plan participants 18 18 Other active plan participants 49 50 ------ ------ Total accumulated postretirement benefit obligation 136 125 Plan assets at fair value 11 11 ------ ------ Accumulated postretirement benefit obligation in excess of plan assets 125 114 Unrecognized prior service cost 9 - Unrecognized net loss from actuarial experience (13) - ------ ------ Accrued postretirement benefit cost $ 121 114 ====== ====== - ----------------------------------------------------------------------------
The components of net periodic postretirement benefit cost (credit) were as follows (in millions): - ----------------------------------------------------------------------------
1993 1992 ---- ---- Benefits attributed to service during the year $ 3 4 Interest cost on accumulated postretirement benefit obligation 10 10 Return on assets - actual (1) (1) Net amortization (1) - ------- ------ Net periodic postretirement benefit cost for the year $ 11 13 - -------------- Net periodic postretirement benefit cost was $3 million in 1991 on a cash basis. - ----------------------------------------------------------------------------
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): - ----------------------------------------------------------------------------
Carrying Fair Amount Value -------- ----- Cash and short-term investments $ 255.8 255.8 Price protection arrangements (copper price guarantees) 0.5 0.5 Investments and long-term receivables (including amounts due within one year) for which it is: - practicable to estimate fair value 35.9 37.6 - not practicable to estimate fair value 20.2 Long-term debt (including amounts due within one year) 564.5 572.8 Interest rate protection agreements 2.5 2.1 - ----------------------------------------------------------------------------
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. - ----------------------------------------------------------------------------
Phelps Phelps Dodge Dodge Corporate Mining Industries and Other Total ------ ---------- --------- ----- 1993: Sales and other operating revenues: Unaffiliated customers $1,320,256 1,275,636 - 2,595,892 ========== ========= ========= ========= Intersegment $ 170,998 2,667 - 173,665 ========== ========= ========= ========= Operating income (loss) $ 227,066 117,153 (29,823) 314,396 Equity earnings (losses) (3,479) 3,498 - 19 ---------- --------- --------- --------- Earnings (losses) from operations $ 223,587 120,651 (29,823) 314,415 ========== ========= ========= ========= Identifiable assets at December 31 $2,105,463 1,335,705 279,708 3,720,876 ========== ========= ========= ========= Depreciation, depletion and amortization $ 104,915 81,052 1,094 187,061 ========== ========= ========= ========= Capital outlays $ 285,422 101,207 576 387,205 ========== ========= ========= ========= - ---------------------------------------------------------------------------- 1992: Sales and other operating revenues: Unaffiliated customers $1,397,665 1,181,586 - 2,579,251 ========== ========= ========= ========= Intersegment $ 148,354 921 - 149,275 ========== ========= ========= ========= Operating income (loss) $ 365,984 72,378 (30,584) 407,778 Equity earnings (losses) (2,162) 2,821 - 659 ---------- --------- --------- --------- Earnings (losses) from operations $ 363,822 75,199 (30,584) 408,437 ========== ========= ========= ========= Identifiable assets at December 31 $1,910,077 1,282,092 249,022 3,441,191 ========== ========= ========= ========= Depreciation, depletion and amortization $ 91,606 69,489 1,150 162,245 ========== ========= ========= ========= Capital outlays $ 200,454 69,758 600 270,812 ========== ========= ========= ========= - ---------------------------------------------------------------------------- 1991: Sales and other operating revenues: Unaffiliated customers $1,325,258 1,109,004 - 2,434,262 ========== ========= ======== ========= Intersegment $ 163,764 1,237 - 165,001 ========== ========= ======== ========= Operating income (loss) $ 367,978 72,764 (28,838) 411,904 Equity earnings (losses) (409) 3,521 - 3,112 ---------- --------- -------- --------- Earnings (losses) from operations $ 367,569 76,285 (28,838) 415,016 ========== ========= ======== ========= Identifiable assets at December 31 $1,698,466 1,163,351 189,321 3,051,138 ========== ========= ======== ========= Depreciation, depletion and amortization $ 78,578 59,277 1,043 138,898 ========== ========= ======== ========= Capital outlays $ 262,621 93,798 1,309 357,728 ========== ========= ======== ========= - ----------------------------------------------------------------------------
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.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 V PHELPS DODGE CORPORATION AND CONSOLIDATED SUBSIDIARIES PROPERTY, PLANT AND EQUIPMENT - ---------------------------------------------------------------------------- (In thousands)
Other Balance at changes: Balance beginning Additions Retire- add at end of period at cost (a) ments (deduct) (b) of period --------- ------- ------ -------- --------- Year ended December 31, 1993 Buildings, machinery and equipment $3,374,092 380,599 45,453 8,280 3,717,518 Mining properties 128,625 884 185 318 129,642 Capitalized mine development 245,147 21,620 - 888 267,655 Land and water rights 59,539 1,579 263 2,501 63,356 ---------- -------- -------- --------- --------- Total $3,807,403 404,682 45,901 11,987 4,178,171 ========== ======== ======== ========= ========= Year ended December 31, 1992 Buildings, machinery and equipment $3,073,625 250,643 86,154 135,978 3,374,092 Mining properties 121,778 7,119 125 (147) 128,625 Capitalized mine development 240,393 18,121 14,691 1,324 245,147 Land and water rights 55,090 2,795 407 2,061 59,539 ---------- --------- -------- --------- --------- Total $3,490,886 278,678 101,377 139,216 3,807,403 ========== ========= ======== ========= ========= Year ended December 31, 1991 Buildings, machinery and equipment $2,802,855 313,653 35,693 (7,190) 3,073,625 Mining properties 115,128 4,783 299 2,166 121,778 Capitalized mine development 200,415 40,255 277 - 240,393 Land and water rights 50,597 7,354 102 (2,759) 55,090 ---------- --------- -------- --------- --------- Total $3,168,995 366,045 36,371 (7,783) 3,490,886 ========== ========= ======== ========= =========
(a) Additions at cost include capitalized interest. 1993 1992 1991 ---- ---- ---- (b) Other changes consist of: Cumulative effect of SFAS No. 109 $ - 126,854 - Property, plant and equipment of acquired companies 23,678 39,218 - Foreign currency translation adjustments (14,468) (24,928) (6,548) Miscellaneous items - net 2,777 (1,928) (1,235) -------- -------- -------- $ 11,987 139,216 (7,783) ======== ======== ========
Schedule VI PHELPS DODGE CORPORATION AND CONSOLIDATED SUBSIDIARIES ACCUMULATED DEPRECIATION, DEPLETION AND AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT - ---------------------------------------------------------------------------- (In thousands)
Additions Other Balance at charged to changes: Balance beginning costs and Retire- add at end of period expenses ments (deduct) of period --------- -------- ------ -------- --------- Year ended December 31, 1993 Accumulated depreciation $1,483,380 174,887 34,698 (7,740) 1,615,829 Accumulated depletion 67,509 1,379 73 (37) 68,778 Accumulated amortization: Capitalized mine development 143,846 5,345 - 112 149,303 Water rights 4,030 - - - 4,030 ---------- ------- ------ ------ --------- Total $1,698,765 181,611 a 34,771 (7,665) 1,837,940 ========== ======= ====== ====== ========= Year ended December 31, 1992 Accumulated depreciation $1,387,285 150,407 79,486 25,174 b 1,483,380 Accumulated depletion 66,352 1,229 72 - 67,509 Accumulated amortization: Capitalized mine development 138,687 5,159 - - 143,846 Water rights 4,030 - - - 4,030 ---------- ------- ------ ------ --------- Total $1,596,354 156,795 a 79,558 25,174 1,698,765 ========== ======= ====== ====== ========= Year ended December 31, 1991 Accumulated depreciation $1,271,511 130,721 24,267 9,320 1,387,285 Accumulated depletion 65,253 1,127 - (28) 66,352 Accumulated amortization: Capitalized mine development 137,025 1,662 - - 138,687 Water rights 4,030 - - - 4,030 ---------- ------- ------ ------ --------- Total $1,477,819 133,510 a 24,267 9,292 1,596,354 ========== ======= ====== ====== =========
1993 1992 1991 ---- ---- ---- (a) Reconciliation of depreciation, depletion and amortization: Total shown above $181,611 156,795 133,510 Amortization of goodwill and other deferred charges 5,450 5,450 5,388 -------- ------- -------- Total shown in Consolidated Financial Statements $187,061 162,245 138,898 ======== ======= ======== (b) Includes cumulative effect ($35,957) of adoption of SFAS No. 109, "Accounting for Income Taxes" (see Note 5 to the Consolidated Financial Statements).
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 - Schedule VIII PHELPS DODGE CORPORATION AND CONSOLIDATED SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS AND RESERVES - ---------------------------------------------------------------------------- (In thousands)
Additions ----------------- Balance at Charged to Balance beginning costs and Deduc- at end of period expenses Other tions of period --------- -------- ----- ----- --------- Reserve deducted in balance sheet from the asset to which applicable: Accounts Receivable: December 31, 1993 $ 10,717 1,740 567 862 12,162 December 31, 1992 11,840 1,423 (590) 1,956 10,717 December 31, 1991 16,579 5,525 162 10,426 11,840 Supplies: December 31, 1993 $ 16,738 3,651 164 7,808 12,745 December 31, 1992 10,416 10,396 - 4,074 16,738 December 31, 1991 11,385 2,433 - 3,402 10,416
Schedule IX PHELPS DODGE CORPORATION AND CONSOLIDATED SUBSIDIARIES SHORT-TERM BORROWINGS - ---------------------------------------------------------------------------- (In thousands)
Maximum amount out- Average Weighted standing amount average Category of Weighted at out- interest aggregate Balance average month-end standing rate short-term at end of interest during the during the during the borrowings period rate* period period period* - ---------- ------ ----- ------ ------ -------- December 31, 1993: Bank borrowings $ 82,718 9.9% $ 152,987 $ 99,911 9.3% December 31, 1992: Bank borrowings 72,529 13.0 86,070 70,880 10.7 December 31, 1991: Bank borrowings 62,949 12.7 69,017 55,702 14.1 * Interest rates can be significantly impacted by local currency borrowings of international subsidiaries.
Schedule X PHELPS DODGE CORPORATION AND CONSOLIDATED SUBSIDIARIES SUPPLEMENTARY INCOME STATEMENT INFORMATION - ---------------------------------------------------------------------------- (In thousands)
Charged to costs and expenses ----------------------------- 1993 1992 1991 ---- ---- ---- Maintenance and repairs $231,336 223,550 236,783 Depreciation, depletion and amortization (Schedule VI) 187,061 156,795 138,898 Taxes, other than payroll and income taxes: Property 19,152 18,529 16,411 Other 13,111 15,484 15,505
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 EX-10.4 2 1993 STOCK OPTION & RESTRICTED STOCK PLAN Exhibit 10.4 PHELPS DODGE 1993 STOCK OPTION AND RESTRICTED STOCK PLAN (as amended through December 1, 1993) SECTION 1 PURPOSE The purpose of the Plan is to foster and promote the long-term financial success of the Corporation and materially increase shareholder value by (a) motivating superior performance by means of performance-related incentives, (b) encouraging and providing for the acquisition of an ownership interest in the Corporation by Employees, and (c) enabling the Corporation to attract and retain the services of an outstanding team upon whose judgment, interest and special effort the successful conduct of its operations is largely dependent. SECTION 2 DEFINITIONS 2.1 Definitions. Whenever used herein, the following terms shall have the respective meanings set forth below: (a) "Act" shall mean the Securities Exchange Act of 1934, as amended. (b) "Adjustment Event" shall mean any stock dividend, stock split or share combination of, or extraordinary cash dividend on, the Common Shares or recapitalization of the Corporation. (c) "Board" shall mean the Board of Directors of the Corporation. (d) "Common Shares" shall mean the Common Shares of the Corporation. (e) "Cause" shall mean (i) the willful failure by the Participant to perform substantially his duties as an Employee (other than due to physical or mental illness) after reasonable notice to the Participant of such failure, (ii) serious misconduct on the part of the Participant that is injurious to the Corporation or any Subsidiary in any way, including, without limitation, by way of damage to any of their respective reputations or standings in their respective industries, (iii) the conviction of, or entrance of a plea of nolo contendere by, the Participant with respect to a crime that constitutes a felony or (iv) the breach by the Participant of any written covenant or agreement with the Corporation or any Subsidiary not to disclose any information pertaining to the Corporation or any Subsidiary or not to compete or interfere with the Corporation or any Subsidiary. (f) "Change in Control" shall mean (i) the approval by the vote of the Corporation's stockholders holding at least 50% (or such greater percentage as may be required by the Certificate of Incorporation or By-Laws of the Corporation or by law) of the voting stock of the Corporation of any merger, consolidation, sale of assets, liquidation or reorganization in which the Corporation will not survive as a publicly owned corporation or (ii) the first purchase of Common Shares pursuant to a tender or exchange offer (other than an offer by the Corporation). (g) "Code" shall mean the Internal Revenue Code of 1986, as amended. (h) "Committee" shall mean a Committee of the Board, which shall consist of two or more members, all of whom shall be "disinterested persons" within the meaning of Rule 16b-3, as promulgated under the Act, and serving at the pleasure of the Board. (i) "Corporation" shall mean Phelps Dodge Corporation, a New York corporation, and any successor thereto. (j) "Disability" means the inability of a Participant to perform his duties for a period of at least 180 days due to mental or physical infirmity, as determined pursuant to the Corporation's policies. (k) "Employee" shall mean any executive or other key employee of the Corporation or any Subsidiary (as determined by the Committee in its sole discretion). (l) "Fair Market Value" shall mean the mean of the high and low prices of the Common Shares on the Consolidated Trading Tape on the date of determination or, if no sale of Common Shares is recorded on the Tape on such date, then on the next preceding day on which there was such a sale. (m) "Option" shall mean the right to purchase Common Shares at a stated price for a specified period of time. For purposes of the Plan, an Option may be either (i) an "Incentive Stock Option" within the meaning of section 422 of the Code or (ii) an Option which is not an Incentive Stock Option (a "Nonqualified Stock Option"). (n) "Participant" shall mean any Employee designated by the Committee to receive an Option or share of Restricted Stock under the Plan. (o) "Plan" shall mean the 1993 Stock Option and Restricted Stock Plan, as set forth herein and as the same may be amended from time to time. (p) "1987 Plan" shall mean the Phelps Dodge 1987 Stock Option and Restricted Stock Plan. (q) "Predecessor Plans" shall mean the Phelps Dodge 1979 Stock Option Plan and the 1987 Plan. (r) "Restricted Period" shall mean the period during which shares of Restricted Stock are subject to forfeiture and restrictions on transferability pursuant to Section 6.2 of the Plan. (s) "Restricted Stock" shall mean Stock granted to a Participant pursuant to the Plan which is subject to forfeiture and restrictions on transferability in accordance with Section 6 of the Plan. (t) "Retirement" shall mean termination of a Participant's employment on or after the Participant's normal retirement date. Notwithstanding the foregoing, on or after November 30, 1993, the Committee may include in any Option instrument, initially or by amendment at any time, a provision that expands the meaning of "Retirement" to include a Participant's early retirement under any pension or retirement plan of the Corporation or a Subsidiary if the Committee deems such provision to be in the interests of the Corporation or necessary to realize the reasonable expectation of the Participant. (u) "Stock Appreciation Right" shall mean the right to receive a payment from the Corporation, in cash, in an amount determined under Section 5.6 of the Plan. (v) "Subsidiary" shall mean any company in which the Corporation and/or another Subsidiary owns 50% or more of the total combined voting power of all classes of stock. 2.2 Gender and Number. Except when otherwise indicated by the context, words in the masculine gender used in the Plan shall include the feminine gender, the singular shall include the plural and the plural shall include the singular. SECTION 3 ADMINISTRATION 3.1 Power to Grant and Establish Terms of Awards. The Committee shall have authority, subject to the terms of the Plan, to determine the Employees eligible for Options and awards of Restricted Stock and those to whom Options or Restricted Stock shall be granted, the number of Common Shares to be covered by each Option or award of Restricted Stock, the time or times at which Options or Restricted Stock shall be granted, and the terms and provisions of the instruments by which Options or Restricted Stock shall be evidenced; to designate Options as Incentive Stock Options or Nonqualified Stock Options; and to determine the period of time during which restrictions on Restricted Stock shall remain in effect. The grant of any Option to any Employee or an award of Restricted Stock shall neither entitle such Employee to, nor disqualify him from, participation in any other grant of Options or award of Restricted Stock. 3.2 Substitute Options. The Committee shall have the right, subject to the consent of Participants to whom Options have been granted, to grant, in substitution for outstanding Options, replacement Options which may contain terms more favorable to the Participant than the Options they replace, including, without limitation, a lower purchase price, and to cancel replaced Options. 3.3 Administration. Any Option grant or award of Restricted Stock made by the Committee may be subject to such conditions, not inconsistent with the terms of the Plan, as the Committee shall determine. The Committee, by majority action thereof, is authorized to prescribe, amend and rescind rules and regulations relating to the Plan, to provide for conditions deemed necessary or advisable to protect the interests of the Corporation, to interpret the Plan and to make all other determinations necessary or advisable for the administration and interpretation of the Plan to carry out its provisions and purposes. Determinations, interpretations or other actions made or taken by the Committee pursuant to the provisions of the Plan shall be final, binding and conclusive for all purposes and upon all persons. The Committee may consult with legal counsel, who may be counsel to the Corporation, and shall not incur any liability for any action taken in good faith in reliance upon the advice of counsel. SECTION 4 STOCK SUBJECT TO PLAN 4.1 Number. The stock as to which Options and awards of Restricted Stock may be granted shall be Common Shares. When Options are exercised or Restricted Stock is awarded, the Corporation may either issue unissued Common Shares or transfer issued shares held in its treasury. Subject to adjustment as provided in Section 4.3 below, the total number of Common Shares (i) which may be sold to Employees under the Plan pursuant to Options, (ii) with respect to which Participants may relinquish Options in order to exercise Stock Appreciation Rights described in Section 5.7 below and (iii) that may be transferred or issued as Restricted Stock pursuant to Section 6 shall not exceed the sum of (A) 5,000,000 Common Shares (inclusive of the 200,000 Common Shares authorized for issuance under the 1987 Plan by action of the Board in December 1992) plus (B) the lesser of (1) 1,000,000 Common Shares or (2) the number of Common Shares received by the Corporation after February 3, 1993 in payment of the exercise price under any Option, whether issued under the Plan or a Predecessor Plan. Notwithstanding the foregoing, the total number of Common Shares that may be transferred or issued hereunder as awards of Restricted Stock pursuant to Section 6 shall not exceed 1,000,000 Common Shares. Any Option settled in cash shall reduce the number of Common Shares under the Plan by the number of shares that would have been issued had the Option been exercised for Common Shares. 4.2 Cancelled, Terminated or Forfeited Awards. To the extent permitted under Section 16(b) of the Act and any interpretations thereunder, if an Option granted hereunder or an Option granted under the 1987 Plan which is outstanding on the date hereof expires, or is terminated or cancelled prior to its exercise or prior to exercise of any related Stock Appreciation Right, or if shares of Restricted Stock are returned to the Corporation pursuant to the terms of the Plan or if shares of Restricted Stock awarded under the 1987 Plan which are still restricted on the date hereof are returned to the Corporation prior to the time at which a Participant's rights become nonforfeitable, the Common Shares covered by such Option or such Stock Appreciation Right immediately prior to such expiration or other termination or affected by such return shall be available for future grants under the Plan. 4.3 Adjustment in Capitalization. The number and price of Common Shares covered by each Option and the total number of Common Shares that may be sold, issued or transferred under the Plan shall be proportionately adjusted to reflect, as deemed equitable and appropriate by the Committee, an Adjustment Event. To the extent deemed equitable and appropriate by the Committee, subject to any required action by stockholders, in any merger, consolidation, reorganization, liquidation, dissolution, or other similar transaction, any Option granted under the Plan shall pertain to the securities and other property to which a holder of the number of Common Shares covered by the Option would have been entitled to receive in connection with such event. Any shares of stock (whether Common Shares, shares of stock into which Common Shares are converted or for which Common Shares are exchanged or shares of stock distributed with respect to Common Shares) or cash or other property received with respect to any award of Restricted Stock granted under the Plan as a result of any Adjustment Event, any distribution of property or any merger, consolidation, reorganization, liquidation, dissolution or other similar transaction shall, except as provided in Section 6.4 or as otherwise provided by the Committee at or after the date an award of Restricted Stock is made by the Committee, be subject to the same terms and conditions, including restrictions on transfer, as are applicable to such shares of Restricted Stock and any stock certificate(s) representing or evidencing any shares of stock so received shall be legended in substantially the same manner as provided in Section 6.5 hereof. SECTION 5 STOCK OPTIONS 5.1 Grant of Options. The date of grant of an Option under the Plan will be the date on which the Option is awarded by the Committee or, if so determined by the Committee, the date on which occurs any event the occurrence of which is an express condition precedent to the grant of the Option. The Committee may provide, at or after the date of grant of an Option, that, upon the exercise of such Option and payment of the exercise price therefor with already owned Common Shares, an additional Option will be granted for the number of shares so delivered in payment of the exercise price, having such other terms and conditions not inconsistent with the Plan as the Committee may determine, including the feature described in this second sentence of Paragraph 5.1. The aggregate Fair Market Value of the Common Shares with respect to which Incentive Stock Options are exercisable for the first time by a Participant during any calendar year under the Plan and any other stock option plan of the Corporation or any Subsidiary shall not exceed $100,000 or such other amount as may be subsequently specified by the Internal Revenue Code of 1986, as amended. Options shall be evidenced by instruments in such form or forms as the Committee may from time to time approve. 5.2 Option Price. The Option price per share shall be at or above the Fair Market Value of the optioned shares on the day the Option is granted (as determined under Section 5.1). 5.3 Payment. Upon exercise, the Option price shall be paid (i) in cash, including an assignment of the right to receive cash proceeds of the sale of Common Shares subject to the Option (ii) in the discretion of the Committee, in already owned Common Shares of the Corporation having a Fair Market Value on the date of exercise equal to such Option price or in a combination of cash and Common Shares or (iii) in accordance with such procedures or in such other form as the Committee shall from time to time determine. 5.4 Term and Exercise of Options. Each Incentive Stock Option shall expire not later than the tenth anniversary of the date of its grant, and each Nonqualified Stock Option shall expire not later than the day after the tenth anniversary of the date of its grant. Options shall become exercisable in three or four substantially equal annual installments commencing on the first anniversary of the date of grant, as the Committee in its discretion shall determine. Notwithstanding the foregoing, the Committee may include in any Option instrument, initially or by amendment at any time, a provision making any installment or installments exercisable at such earlier or later date, or upon the occurrence of such earlier or later event, as may be specified by such provision, if the Committee deems such provision to be in the interests of the Corporation or necessary to realize the reasonable expectation of the Participant, but in no event shall any Option be exercisable sooner than six months from the date on which such Option is granted, except when the death of the Participant occurs within such six-month period. Without limiting the generality of the foregoing, the Committee may approve, pursuant to the foregoing sentence, provisions making installments exercisable (i) not later than a Participant's early or normal retirement date, (ii) six months from the date on which an Option is granted if such Option is granted in conjunction with the Participant's exercise of another Option (whether such Option is issued under this Plan or a Predecessor Plan) with Common Shares already owned by the Participant, (iii) not later than the date the Participant ceases to be employed by the Corporation if he ceases to be so employed within two years following a Change of Control of the Corporation, and (iv) at such time and for such period as the Committee deems appropriate, in the event of a Change of Control. Except as may be provided in any provision approved by the Committee pursuant to this Section 5.4, after becoming exercisable each installment shall remain exercisable until expiration, termination or cancellation of the Option. An Option may be exercised from time to time, in whole or in part, up to the total number of Common Shares with respect to which it is then exercisable. 5.5 Termination of Employment. If the Participant ceases to be employed by the Corporation or a Subsidiary other than by reason of death, Disability, Retirement or the Participant's termination for Cause, all Options granted to him and exercisable on the date of his termination of employment shall terminate on the earlier of such Options' expiration or one month after the day his employment ends. If the Participant ceases to be employed on account of Disability or Retirement, all Options granted to him and exercisable on the date of his termination of employment due to Disability or his Retirement shall terminate on the earlier of such Options' expiration or the fifth anniversary of the day of such termination or Retirement. If the Participant's employment is terminated for Cause, all Options granted to such Participant which are then outstanding shall be forfeited. Any installment which has not become exercisable prior to the time the Participant ceases to be employed by the Corporation or a Subsidiary other than by reason of death shall lapse and be thenceforth unexercisable. Whether authorized leave of absence or absence in military or governmental service may constitute employment for the purposes of the Plan shall be conclusively determined by the Committee. 5.6 Exercise upon Death of Participant. If the Participant dies while he is employed by the Corporation or a Subsidiary, his Options may be exercised, for the full number of Common Shares covered thereby for which such Options were not previously exercised, by his estate, personal representative or beneficiary who acquires the Options by will or by the laws of descent and distribution, at any time prior to the earlier of the Options' expiration or the fifth anniversary of the Participant's death. Such Options shall terminate upon the earlier of such Options' expiration or the fifth anniversary of such Participant's death. If the Participant dies while he is no longer employed by the Corporation, his Options may be exercised, for the number of Common Shares as to which he could have exercised them on the date of his death, by his estate, personal representative or beneficiary who acquires the Options by will or by the laws of descent and distribution, at any time prior to the termination date provided by Section 5.5. 5.7 Stock Appreciation Rights. The Committee may, in its discretion, include in any Option a right of the Participant to elect, in the manner described below, in lieu of purchasing any Common Shares to which such Option is exercisable at any time, to relinquish his Option with respect to any or all of such Common Shares and to receive from the Corporation a payment, in cash, equal to the amount by which (i) the product of (x) the Fair Market Value of a Common Share on the date of such election multiplied by (y) the number of Common Shares as to which the Participant shall have made such election exceeds (ii) the total exercise price for that number of Common Shares under the terms of such Option. Notwithstanding the foregoing, the Committee may include initially in any Option instrument evidencing Stock Appreciation Rights, or by amendment in any Option instrument of any Participant who has theretofore agreed in writing to such inclusion at any time, a provision to the effect that the Stock Appreciation Rights evidenced thereby may be exercised during any period beginning on the date of a Change of Control and ending on the thirtieth day following such Change of Control for an amount equal to the amount by which (1) the product of (x) the price payable or paid for a Common Share in such merger, consolidation, sale of assets, liquidation or reorganization or tender or exchange offer (in the event such price is payable or paid in consideration other than cash or in an amount not readily determinable at such time, such price shall be determined by the Committee) multiplied by (y) the number of Common Shares as to which the Participant shall have exercised such rights exceeds (2) the total exercise price for that number of Common Shares under the terms of such Option. The Committee may include by amendment in any Option instrument evidencing Stock Appreciation Rights of any Participant who has theretofore agreed in writing to such inclusion a provision limiting the extent to which such Participant may exercise such rights. If the Participant shall exercise Stock Appreciation Rights appertaining to any Option, such Option shall thereafter remain exercisable, according to its term, only with respect to the number of Common Shares as to which it would otherwise be exercisable less the number of Common Shares with respect to which Stock Appreciation Rights have been exercised. SECTION 6 RESTRICTED STOCK 6.1 Grant of Restricted Stock. Any award made hereunder of Restricted Stock shall be subject to the terms and conditions of the Plan and to any other terms and conditions not inconsistent with the Plan (including, but not limited to, requiring the Employee to pay the Corporation an amount equal to the par value per share for each share of Restricted Stock awarded) as shall be prescribed by the Committee in its sole discretion. The Committee may require that, as a condition to any award of Restricted Stock under the Plan, the Employee shall have entered into an agreement with the Corporation setting forth the terms and conditions of such award and such other matters as the Committee, in its sole discretion, shall have determined. As determined by the Committee, the Corporation shall either (i) transfer or issue to each Participant to whom an award of Restricted Stock has been made the number of shares of Restricted Stock specified by the Committee or (ii) hold such shares of Restricted Stock for the benefit of the Participant for the Restricted Period. 6.2 Restrictions on Transferability. Shares of Restricted Stock may not be sold, assigned, transferred, pledged, hypothecated or otherwise encumbered by the Participant during the Restricted Period, except as hereinafter provided. 6.3 Rights as a Shareholder. Except for the restrictions set forth herein and unless otherwise determined by the Committee, the Participant shall have all the rights of a shareholder with respect to such shares of Restricted Stock, including, but not limited to, the right to vote and the right to receive dividends. 6.4 Lapse of Restricted Period. Unless the Committee shall otherwise determine at or after the date an award of Restricted Stock is made to the Participant by the Committee, the Restricted Period shall commence upon the date of grant and shall lapse with respect to the shares of Restricted Stock on the earlier of: (a) the third anniversary of the date of grant or (b) the date of a Change of Control, unless sooner terminated as otherwise provided herein. Without limiting the generality of the foregoing, the Committee may provide for termination of the Restricted Period upon the achievement by the Participant of performance goals specified by the Committee at the date of grant. The determination of whether the Participant has achieved such performance goals shall be made by the Committee in its sole discretion. 6.5 Legend. Each certificate issued to a Participant in respect of shares of Restricted Stock awarded under the Plan shall be registered in the name of the Participant and shall bear the following (or similar) legend: "The shares of stock represented by this certificate are subject to the terms and conditions contained in the Phelps Dodge 1993 Stock Option and Restricted Stock Plan and may not be sold, pledged, transferred, assigned, hypothecated, or otherwise encumbered in any manner until __________________." 6.6 Death, Disability or Retirement. Unless the Committee shall otherwise determine at the date of grant, if a Participant ceases to be employed by the Corporation or any Subsidiary by reason of death, Disability or Retirement, the Restricted Period covering all shares of Restricted Stock transferred or issued to such Participant under the Plan shall immediately lapse. 6.7 Termination of Employment. Unless the Committee shall otherwise determine at or after the date of grant, if a Participant ceases to be employed by the Corporation or any Subsidiary for any reason other than those specified in Section 6.6 at any time prior to the date when the Restricted Period lapses, all shares of Restricted Stock owned by such Participant shall revert back to the Corporation upon the Participant's termination of employment. Whether authorized leave of absence or absence in military or government service may constitute employment for the purposes of the Plan shall be conclusively determined by the Committee. 6.8 Issuance of New Certificates. Upon the lapse of the Restricted Period with respect to any shares of Restricted Stock, such shares shall no longer be subject to the restrictions imposed under Section 6.2 and the Corporation shall issue or have issued new share certificates without the legend described in Section 6.5 in exchange for those previously issued. SECTION 7 TERMINATION AND AMENDMENT OF PLAN The Board may terminate or amend the Plan in any respect at any time, except that without the approval of the holders of a majority of Common Shares, the total number of shares that may be sold, issued or transferred under the Plan may not be increased (except by adjustment pursuant to Section 4.3), the category of persons eligible to receive Options and shares of Restricted Stock may not be changed, the purchase price at which shares may be offered pursuant to Options may not be reduced (except by adjustment pursuant to Section 4.3) and the expiration date of the Plan may not be extended. No action of the Board or stockholders, however, may, without the consent of a Participant alter or impair his rights under any Option or Stock Appreciation Right or award of Restricted Stock previously granted. SECTION 8 APPLICABILITY OF PLAN TO GRANTS UNDER PREDECESSOR PLANS The provisions of the Plan relating to Options and Restricted Stock grants shall apply to, and govern, existing Option and Restricted Stock grants made under the Predecessor Plans as if such awards were granted hereunder (except that the 200,000 Common Shares authorized for issuance under the 1987 Plan by action of the Board in December 1992 shall be the only awards under the Predecessor Plans that shall count against the share limit set forth in Section 4.1) and such Options and Restricted Stock grants shall, where appropriate, be deemed to have been amended to provide any additional rights, subject in the case of Options and Restricted Stock grants outstanding as of February 3, 1993, to the right of an affected Participant to consent to the application of such amendments to such grants. SECTION 9 MISCELLANEOUS PROVISIONS 9.1 Nontransferability of Awards. No awards granted under the Plan may be sold, transferred, pledged, assigned or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution. All rights with respect to awards granted to a Participant under the Plan shall be exercisable during his lifetime only by such Participant. 9.2 Securities Law Compliance. Instruments evidencing Options may contain such other provisions, not inconsistent with the Plan, as the Committee deems advisable, including (i) a provision limiting the period during which Stock Appreciation Rights could be exercised to the extent required in order to avoid the application of Section 16(b) of the Act in the case of officers and directors of the Corporation, and (ii) a requirement that the Participant represent to the Corporation in writing, when an Option is granted or when he receives shares upon its exercise or at such other time as the Committee deems appropriate, that he is accepting such Option, or receiving or acquiring such shares (unless they are then covered by a Securities Act of 1933 registration statement), for his own account for investment only and with no present intention to transfer, sell or otherwise dispose of such shares except such disposition by a legal representative as shall be required by will or the laws of any jurisdiction in winding up the estate of the Participant. Such shares shall be transferable only if the proposed transfer shall be permissible pursuant to the Plan and if, in the opinion of counsel satisfactory to the Corporation, such transfer at such time will be in compliance with applicable securities laws. 9.3 Tax Withholding. The Corporation shall have the power to withhold, or require a Participant to remit to the Corporation promptly upon notification of the amount due, an amount sufficient to satisfy Federal, state and local withholding tax requirements on any award under the Plan, and the Corporation may defer payment of cash or issuance or delivery of Common Shares until such requirements are satisfied. The Committee may, in its discretion, permit a Participant to elect, subject to such conditions as the Committee shall impose, (i) to have Common Shares otherwise issuable or deliverable under the Plan withheld by the Corporation or (ii) to deliver to the Corporation previously acquired shares of Stock, in each case, having a Fair Market Value sufficient to satisfy all or part of the Participant's estimated total Federal, state and local tax obligation associated with the transaction. 9.4 Term of Plan. This Plan shall be effective as of February 3, 1993, subject to approval by the holders of the Common Shares at the 1993 Annual Meeting of Shareholders. This Plan shall expire on February 2, 2003 (except as to Options, Stock Appreciation Rights and Restricted Stock outstanding on that date), unless sooner terminated pursuant to Section 7 of the Plan. 9.5 Governing Law. The Plan, and all Agreements hereunder, shall be construed in accordance with and governed by the laws of the State of New York. STOCK OPTION AGREEMENT (1993 Stock Option Plan) (as amended through December 1, 1993) STOCK OPTION AGREEMENT, dated _______________, between PHELPS DODGE CORPORATION, a New York corporation (the "Corporation"), and __________________ (the "Employee"). The Compensation and Management Development Committee of the Board of Directors of the Corporation (such Committee, and any successor committee appointed by the Board of Directors of the Corporation to administer the Corporation's 1993 Stock Option and Restricted Stock Plan (the "Plan"), is hereinafter referred to as the "Committee") has granted to the Employee (a) an option under the Plan to purchase Common Shares of the Corporation and (b) limited stock appreciation rights on the terms set forth below. To evidence the option and limited stock appreciation rights so granted, and to set forth their terms and conditions as provided in the Plan, the Corporation and the Employee hereby agree as follows: 1. Confirmation of Grant of Option and Rights; Option Price. The Corporation hereby evidences and confirms its grant to the Employee of (i) an option (the "Option") to purchase _____ of the Corporation's Common Shares at an option price of $_____ per share and (ii) limited stock appreciation rights (the "Rights") appertaining to the Option which, if exercisable pursuant to Section 2, shall enable the Employee to elect, in the manner described in Section 6 hereof, to relinquish the Option with respect to any or all of the Common Shares as to which the Option is exercisable at such time for a cash payment from the Corporation. The amount of cash payable upon the exercise of any Rights shall be equal to the excess of (x) the product of (A) the price paid or payable for a Common Share of the Corporation in the transaction described in Section 2(b) below (a "Transaction") which causes the Rights to become exercisable multiplied by (B) the number of Common Shares with respect to which the Employee shall have made such election, over (y) the purchase price for that number of Common Shares. (In the event that the price paid or payable with respect to such a Transaction is in a consideration other than cash or in an amount not readily determinable at such time, such price shall be determined by the Committee). The Option and the Rights granted hereby shall be subject to the provisions of the Plan. 2. Term for Exercise. (a) The Option shall become exercisable, subject to the provisions of this Section 2 and Sections 3 and 4 hereof, in installments of __________ Common Shares on the first anniversary of the date of grant of the Option, _________ Common Shares on the second anniversary and ____________ Common Shares on the third anniversary. Unless an earlier expiration date is specified by this Agreement (or, if applicable, in Supplement A), the Option and the Rights shall expire at 5:00 P.M., Arizona Mountain time (such time shall hereinafter be referred to as the "End of Business"), on the day after the tenth anniversary of the date on which the Option was granted (the "Termination Date"). (b) Without limiting the generality of the foregoing, in the event: (i) the Corporation's stockholders holding at least 50% (or such greater percentage as may be required by the Certificate of Incorporation or By-Laws of the Corporation or by law) of the voting stock of the Corporation approve any merger, consolidation, sale of assets, liquidation or reorganization in which the Corporation will not survive as a publicly owned corporation (such approval hereinafter referred to as a "Merger Approval"); or (ii) any of the Corporation's Common Shares are purchased pursuant to a tender or exchange offer other than an offer by the Corporation, any Subsidiary of the Corporation (as defined in the Plan and hereinafter referred to as a "Subsidiary"), or any employee benefit plan maintained by the Corporation or a Subsidiary (such purchase hereinafter referred to as a "Tender Purchase"); then the Option and the Rights shall become exercisable during the period beginning on the date of the Merger Approval or Tender Purchase, as the case may be, and ending on the thirtieth day following such date (but in no event shall the Option or the Rights become exercisable under this paragraph earlier than six months from the date on which the Option was granted (the "Grant Date")). If any Rights or any portion of the Option shall be exercised, the Rights or the Option shall thereafter remain exercisable, according to their terms, only with respect to the number of Common Shares as to which the Rights or the Option, as the case may be, would otherwise be exercisable less the number of Common Shares with respect to which the Rights and the Option have previously been exercised. 3. Who May Exercise. During the Employee's lifetime the Option and the Rights may be exercised only by him. If the Employee dies while in the employ of the Corporation or one of its Subsidiaries, the Option and, if exercisable under Section 2, the Rights may be exercised for the full number of Common Shares specified in Section 1 hereof less the number of Common Shares for or respect to which the Option and the Rights have previously been exercised, by the Employee's estate, personal representative or beneficiary who acquired the right to exercise the Option and the Rights by will or by the laws of descent and distribution, at any time prior to the End of Business on the earlier of the Termination Date or the fifth anniversary of the Employee's death. If the Employee dies while he is no longer employed by the Corporation or a Subsidiary, his Options and, if exercisable under Section 2, the Rights may be exercised for the full number of Common Shares as to which he could have exercised them on the date of his death, by his estate, personal representative or beneficiary who acquired the right to exercise the Option and the Rights by will or by the laws of descent and distribution, at any time prior to the termination date provided by Section 4 thereof. Following the End of Business on the earlier of such Termination Date, the fifth anniversary of the Employee's death or the termination date provided by Section 4, as the case may be, the Option and Rights shall expire. 4. Exercise after Termination of Employment. If the Employee shall cease to be employed by the Corporation or a Subsidiary other than by reason of death, Disability (as defined below), retirement at or after the Employee's normal retirement date under any pension or retirement plan of the Corporation or a Subsidiary (such termination being hereafter referred to as "Normal Retirement") or the Employee's termination for Cause (as defined in the Plan), the Option shall remain exercisable, to the extent exercisable on the date of such termination, until the End of Business on the earlier of the Termination Date or the date which is one month after the day his employment ends. If the Employee's employment shall terminate due to Disability or if the Employee shall retire at Normal Retirement, the Option shall remain exercisable, to the extent exercisable on the date of such termination or retirement, until the End of Business on the earlier of the Termination Date or the fifth anniversary of the date of his termination of employment or retirement; provided, however, that, in the event the Employee's employment with the Corporation terminates not earlier than six months from the Grant Date as a result of the Employee's retirement at or after the Employee's Normal Retirement date, immediately prior to the End of Business on the date of such retirement the Option shall become exercisable for the purchase of the full number of Common Shares specified in Section 1 of the Agreement less the number of Common Shares with respect to which the Option and the Rights have previously been exercised. Disability means the inability of a Participant to perform his duties for a period of at least 180 days due to mental or physical infirmity, as determined pursuant to the Corporation's policies. If the Employee's employment is terminated for Cause, all Options granted to the Employee which are then outstanding shall be forfeited as of the effective time of such termination but in no event later than the End of Business on such termination date. Any portion of the Option or the Rights which is not exercisable on the date the Employee's employment terminates for any reason other than death or Normal Retirement shall expire at the End of Business on such termination date. Any portion of the Option which did not expire on the date the Employee's employment terminates and which is not exercised within the period established under this Section 4 shall expire following the End of Business on the last day on which the Option could have been exercised. Following termination of the Employee's employment for any reason (including death), the Rights (i) shall remain outstanding with respect to that number of Common Shares as to which the Option is exercisable, (ii) will become exercisable pursuant to Section 2 as to that number of Common Shares as to which the Option is then exercisable if a Transaction occurs while the Option remains exercisable and (iii) shall expire at the same time as the Option expires. 5. Restrictions on Exercise. The Option and Rights may be exercised only with respect to full Common Shares. No fractional shares shall be issued. The Option (and, if applicable, the Rights) may not be exercised in whole or part: (a) if any requisite approval or consent of any governmental authority of any kind having jurisdiction over the exercise of options shall not have been secured; or (b) unless the Common Shares subject to the Option shall be effectively listed on the New York Stock Exchange and registered under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), which listing and registration may be upon official notice of issuance of such Common Shares. The Corporation may require that, as a condition to any exercise of the Option, the Employee represent to the Corporation in writing that he is acquiring the Common Shares subject to such exercise for his own account for investment only and not with a view to the distribution thereof. 6. Manner of Exercise. To the extent the Option and the Rights shall be exercisable in accordance with the terms hereof, and subject to such administrative regulations as the Committee may have adopted: (a) The Option may be exercised in whole or from time to time in part by written notice to the Committee, (i) identifying the Option by Grant Date, the option price and whether or not the Agreement includes Supplement A, (ii) specifying the number of Common Shares with respect to which the Option is being exercised, and (iii) accompanied by full payment of the option price for such Common Shares (1) in United States dollars by personal check or cash, including an assignment of the right to receive cash proceeds of the sale of Common Shares subject to the Option, (2) in Common Shares of the Corporation owned by the Employee for at least three months prior to the day of exercise, represented by certificates duly endorsed to the Corporation or its nominee with any requisite transfer tax stamps attached, the market value of which shall be equal to the option price for the Common Shares with respect to which the Option is being exercised, or (3) in a combination of (1) and (2) above. The market value of any Common Shares delivered pursuant to the immediately preceding sentence shall be the mean of the high and low prices of such Common Shares on the Consolidated Trading Tape on the day of exercise or, if there was no such sale on such day, on the day next preceding the day of exercise on which there was a sale. (b) Rights may be exercised when exercisable under Section 2 in whole or in part by written notice to the Committee, (i) identifying the Rights by Grant Date and option price, and (ii) specifying the number of Common Shares with respect to which such Rights are being exercised. For valuation purposes, the day of exercise of the Option or the Rights shall be deemed to be the day on which notice, addressed to the Committee, either to exercise the Option in whole or in part by the payment of Common Shares (together with duly endorsed certificates as provided above and any other required payment) or to exercise the Rights is received at the Corporation's principal office, except that if such notice (together with certificates and other payment if required) is received on a Saturday or Sunday or on a holiday observed by the Corporation's principal office, or after the End of Business on any other day, the day of exercise shall be deemed to be the next business day. "Written notice" shall include, without limitation, notice by telegram, telex, cable or telecopy facsimile. In the event that the Option or the Rights shall be exercised by a person other than the Employee in accordance with the provisions of Section 3 hereof, such person shall furnish the Corporation with evidence satisfactory to it of his right to exercise the same and of payment or provision for payment of any estate, transfer, inheritance or death taxes payable with respect to the Option or the Rights or with respect to any related Common Shares or payment. The Corporation may require the Employee or other person exercising the Option or the Rights to furnish or execute such documents as the Corporation shall deem necessary to evidence such exercise, to determine whether registration is then required under the Securities Act of 1933, as amended, or to comply with or satisfy the requirements of the Exchange Act, or any other law. 7. Nonassignability. Neither the Option nor the Rights are assignable or transferable except by will or by the laws of descent and distribution to the extent contemplated by Section 3 hereof. At the request of the Employee, Common Shares purchased on exercise of the Option may be issued or transferred in the name of the Employee and another person jointly with the right of survivorship. 8. Rights as Stockholder. The Employee shall have no rights as a stockholder with respect to any Common Shares covered by the Option until the issuance of a certificate or certificates to him for such Common Shares. No adjustment shall be made for dividends or other rights for which the record date is prior to the issuance of such certificate or certificates. 9. Capital Adjustments. The number and price of the Common Shares covered by the Option shall be proportionately adjusted to reflect, as deemed equitable and appropriate by the Committee, any stock dividend, stock split or share combination of, or extraordinary cash dividend on, the Corporation's Common Shares or any recapitalization of the Corporation. To the extent deemed equitable and appropriate by the Committee, subject to any required action by the stockholders of the Corporation, in any merger, consolidation, reorganization, liquidation, dissolution, or other similar transaction, the Option shall pertain to the securities and other property, if any, which a holder of the number of Common Shares covered by the Option would have been entitled to receive in connection with such event. 10. Withholding. (a) The Corporation's obligation to deliver Common Shares upon the exercise of the Option shall be subject to payment by the Employee of any amount required to be withheld with respect to such exercise pursuant to any applicable federal, state or local tax withholding requirements. The Corporation shall withhold from any cash payable in connection with the exercise of any Rights any amount required to be withheld pursuant to any applicable federal, state or local tax withholding requirement (including, without limitation, FICA). (b) Unless this Agreement includes Supplement A (making it an incentive stock option), the Employee may elect to satisfy all or any part of his federal, state and local tax obligations (including, without limitation, FICA) with respect to such exercise by having the Corporation withhold from any Common Shares otherwise deliverable to him in connection with the exercise of the Option a number of Common Shares, or by delivering Common Shares already owned by the Employee, having a market value equal in amount to the obligations to be so satisfied, in accordance with procedures adopted by the Committee from time to time. The market value of Common Shares withheld or delivered shall be the mean of the high and low prices of such Common Shares on the Consolidated Trading Tape on the day of exercise or, if there was no such sale on such day, on the next preceding day on which there was a sale. 11. Governing Law. This Agreement shall be construed and enforced in accordance with, and governed by, the laws of the State of New York. 12. Supplements. Attached hereto are the following supplements: Supplement A -- Incentive Stock Option Supplement B -- Change of Control Supplement D -- Reload Option Any such supplements so attached are incorporated herein and constitute a part of this Agreement as though set forth in full herein. Any such supplement may be added to this Agreement at a later date by the Committee if such supplement does not adversely affect the rights of the Employee under this Agreement. All capitalized terms used in such supplements without definition are used as defined in this Agreement. IN WITNESS WHEREOF, the Corporation and the Employee have duly executed this Agreement as of the date set forth above. PHELPS DODGE CORPORATION By__________________________ Vice President ____________________________ Employee Supplement A [Incentive Stock Option -- 1993 Stock Option Plan] Supplement A to the Stock Option Agreement (the "Agreement") dated _________________ between Phelps Dodge Corporation (the "Corporation") and ______________________ (the "Employee"). 1. Term of the Option. Each incentive stock option shall expire on the tenth anniversary of the date of its grant. 2. Disposition of Shares. If the Employee disposes of any Common Shares received upon exercise of the Option within two years after the Option was granted to him or within one year after the Common Shares were transferred to him upon exercise of the Option, whether by sale, gift, or otherwise, the Employee shall notify the Secretary of the Corporation of the number of such Common Shares disposed of, the date on which disposed of, the manner of disposition and the amount, if any, realized upon such disposition, and shall promptly pay to the Corporation the amount, if any, that the Corporation specifies in a written notice to the Employee as required to be withheld with respect to such exercise and disposition pursuant to any applicable federal, state or local tax withholding requirements. 3. Interpretation of Agreement. The Option is intended to be an incentive stock option within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended. Supplement B [Change of Control -- 1993 Stock Option Plan] Supplement B to the Stock Option Agreement (the "Agreement") dated _________________, between Phelps Dodge Corporation (the "Corporation") and ____________________ (the "Employee"). 1. Additional Trigger Event For Exercisability. In addition to the provisions of Section 2 of the Agreement, in the event the Employee's employment with the Corporation or any Subsidiary terminates by reason of a Qualifying Termination (as defined below) not earlier than six months from the date on which the Option was granted and within two years after a Change of Control (as defined below) of the Corporation, the Option shall become exercisable, no later than the date of such termination, for the purchase of the full number of Common Shares specified in Section 1 of the Agreement (or such lesser number of Shares for which the Option would have become exercisable on or prior to the Employee's normal retirement date under the Phelps Dodge Retirement Plan for Salaried Employees were the Employee to retire on such date). For the purpose of this Supplement: (a) A "Change of Control" shall be deemed to have taken place at the time (i) when any "person" or "group" of persons (as such terms are used in Section 13 and 14 of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), other than the Corporation or any employee benefit plan sponsored by the Corporation, becomes the "beneficial owner" (as such term is used in Section 13 of the Exchange Act) of 25% or more of the total number of the Corporation's Common Shares at the time outstanding; (ii) of any Merger Approval (as defined in the Agreement); or (iii) when, as the result of a tender offer, exchange offer, merger, consolidation, sale of assets or contested election or any combination of the foregoing transactions, the persons who were directors of the Corporation immediately before such transaction shall cease to constitute a majority of the Board of Directors of the Corporation or of any successor to the Corporation. (b) A "Qualifying Termination" means a termination of the Employee's employment with the Corporation or any Subsidiary (under circumstances where the Employee is no longer employed by the Corporation or any Subsidiary) for any reason other than (i) death; (ii) disability; (iii) willful misconduct in the performance of the Employee's duties as an employee which results in a material adverse effect on the Corporation's business or reputation; (iv) retirement under the Phelps Dodge Retirement Plan for Salaried Employees; or (v) a termination by the Employee unless (1) such termination occurs more than 180 days following the time when a Change of Control takes place and such Change of Control has not been approved by a resolution adopted by the Board of Directors of the Corporation as constituted immediately prior to such Change of Control or (2) the Employee terminates his employment for one or more of the following reasons (and the Employee has not agreed thereto in writing): (x) the assignment to the Employee of any duties inconsistent, in a way significantly adverse to the Employee, with his positions, duties, responsibilities and status with the Corporation and its Subsidiaries immediately prior to such Change of Control, or a significant reduction in the duties and responsibilities held by the Employee immediately prior to such Change of Control; a change in the Employee's reporting responsibilities, titles or offices as in effect immediately prior to such Change of Control; or any removal of the Employee from or any failure to re-elect the Employee to any position with the Corporation or any Subsidiary that the Employee held immediately prior to such Change of Control except in connection with the Employee's promotion or the termination of his employment for any of the reasons specified in paragraphs (i) through (iv) above; or (y) a reduction by the Corporation in the Employee's base salary as in effect immediately prior to such Change of Control; the failure by the Corporation to continue in effect any employee benefit plan or compensation plan in which the Employee is participating immediately prior to such Change of Control unless the Employee is permitted to participate in other plans providing him with substantially comparable benefits; or the taking of any action by the Corporation which would adversely affect the Employee's participation in or materially reduce his benefits under such plan; or (z) the Corporation's requiring the Employee to be based anywhere other than his location immediately prior to such Change of Control; or the Corporation's requiring the Employee to travel on the Corporation's business to an extent substantially more burdensome than his travel obligations immediately prior to such Change of Control. Supplement D [Reload Option -- 1993 Plan] Supplement D to the Stock Option Agreement (the "Agreement") dated ________________ between Phelps Dodge Corporation (the "Corporation") and _____________________ (the "Employee"). 1. Issuance of Reload Option. In the event that the Employee exercises this Option (a) at least six months prior to the expiration date of this Option, (b) while still employed by the Corporation or a Subsidiary and (c) prior to the expiration date of the Plan using, in whole or in part, Common Shares owned by the Employee for at least three months prior to the day of exercise (the "Exercise Date"), the Employee shall be granted a new option (the "Reload Option") under the Plan on the Exercise Date for the number of Common Shares of the Corporation equal to the number of Common Shares exchanged by the Employee to exercise this Option. No Reload Option shall be granted if the Exercise Date is (a) within six months of the expiration date of the Option, (b) a date when the Employee is not employed by the Corporation or a Subsidiary or (c) after the expiration date of the Plan. 2. Terms of Reload Option. The Reload Option shall be exercisable on the same terms and conditions as apply to the Option as set forth in this Agreement, except that (a) the Reload Option shall become exercisable in full on the day six months after the Exercise Date, (b) the option price per share shall be the fair market value of a Common Share on the Exercise Date, which shall be the mean of the high and low prices of a Common Share on the Consolidated Trading Tape on that day, or, if no sale of Common Shares is recorded on such tape on that day, then on the next preceding day on which there was such a sale and (c) the expiration date of the Reload Option shall be the date of expiration of the Option under this Agreement. The Corporation may issue a new agreement to evidence the Reload Option and, if it does, that agreement shall supersede this Agreement in all respects insofar as the Reload Option is concerned. 3. Right of Committee to Disapprove Reload Option. Notwithstanding the foregoing, the continuance of a Reload Option granted pursuant to this Supplement shall be subject to the disapproval of the Committee in its sole discretion exercised at the meeting of the Committee next following the date such Reload Option is granted. Any Reload Options so disapproved by the Committee shall terminate upon such disapproval. RELOAD OPTION AGREEMENT (1993 Stock Option Plan) (as amended through December 1, 1993) RELOAD OPTION AGREEMENT, dated ________________, between PHELPS DODGE CORPORATION, a New York corporation (the "Corporation"), and _______________ (the "Employee"). The Compensation and Management Development Committee of the Board of Directors of the Corporation (such Committee, and any successor committee appointed by the Board of Directors of the Corporation to administer the Corporation's 1993 Stock Option and Restricted Stock Plan (the "Plan"), is hereinafter referred to as the "Committee") has granted to the Employee (a) an option under the Plan to purchase Common Shares of the Corporation and (b) limited stock appreciation rights on the terms set forth below. Such grant was made on _______________________ in connection with the exercise on that date by the Employee of an option (the "Original Option") issued under the Plan, the Phelps Dodge 1987 Stock Option and Restricted Stock Plan or the Phelps Dodge 1979 Stock Option Plan evidenced by a Stock Option Agreement dated _____________. In connection with such exercise, the Employee delivered to the Corporation in payment of part or all of the exercise price of the Original Option _____________ Common Shares that he owned for at least three months prior to the date of exercise. To evidence the option and limited stock appreciation rights so granted, and to set forth their terms and conditions as provided in the Plan, the Corporation and the Employee hereby agree as follows: 1. Confirmation of Grant of Reload Option and Rights; Reload Option Price. The Corporation hereby evidences and confirms its grant to the Employee of (i) an option (the "Reload Option") to purchase ___________ of the Corporation's Common Shares at an option price of $________ per share and (ii) limited stock appreciation rights (the "Rights") appertaining to the Reload Option which, if exercisable pursuant to Section 2, shall enable the Employee to elect, in the manner described in Section 6 hereof, to relinquish the Reload Option with respect to any or all of the Common Shares as to which the Reload Option is exercisable at such time for a cash payment from the Corporation. The amount of cash payable upon the exercise of any Rights shall be equal to the excess of (x) the product of (A) the price paid or payable for a Common Share of the Corporation in the transaction described in Section 2(b) below (a "Transaction") which causes the Rights to become exercisable multiplied by (B) the number of Common Shares with respect to which the Employee shall have made such election, over (y) the purchase price for that number of Common Shares. (In the event that the price paid or payable with respect to such a Transaction is in a consideration other than cash or in an amount not readily determinable at such time, such price shall be determined by the Committee). The Reload Option and the Rights granted hereby shall be subject to the provisions of the Plan. 2. Term for Exercise. (a) The Reload Option shall become exercisable, subject to the provisions hereof, on ________________, which is the date six months after the grant date specified in Section 1. Unless an earlier expiration date is specified by this Agreement, the Reload Option and the Rights shall expire at 5:00 P.M., Arizona Mountain time (such time shall hereinafter be referred to as the "End of Business"), on ____________________, which is the expiration date of the Original Option (the "Termination Date"). (b) In the event: (i) the Corporation's stockholders holding at least 50% (or such greater percentage as may be required by the Certificate of Incorporation or By-Laws of the Corporation or by law) of the voting stock of the Corporation approve any merger, consolidation, sale of assets, liquidation or reorganization in which the Corporation will not survive as a publicly owned corporation (such approval hereinafter referred to as a "Merger Approval"); or (ii) any of the Corporation's Common Shares are purchased pursuant to a tender or exchange offer other than an offer by the Corporation, any Subsidiary of the Corporation (as defined in the Plan and hereinafter referred to as a "Subsidiary"), or any employee benefit plan maintained by the Corporation or a Subsidiary (such purchase hereinafter referred to as a "Tender Purchase"); then the Rights shall become exercisable during the period beginning on the date of the Merger Approval or Tender Purchase, as the case may be, and ending on the thirtieth day following such date (but in no event shall the Rights become exercisable under this paragraph earlier than six months from the date on which the Reload Option was granted (the "Grant Date"). If any Rights or any portion of the Reload Option shall be exercised, the Rights or the Reload Option shall thereafter remain exercisable, according to their terms, only with respect to the number of Common Shares as to which the Rights or the Reload Option, as the case may be, would otherwise be exercisable less the number of Common Shares with respect to which the Rights and the Reload Option have previously been exercised. 3. Who May Exercise. During the Employee's lifetime the Reload Option and the Rights may be exercised only by him. If the Employee dies while in the employ of the Corporation or one of its Subsidiaries, the Reload Option and, if exercisable under Section 2, the Rights may be exercised for the full number of Common Shares specified in Section 1 hereof less the number of Common Shares for or respect to which the Reload Option and the Rights have previously been exercised, by the Employee's estate, personal representative or beneficiary who acquired the right to exercise the Reload Option and the Rights by will or by the laws of descent and distribution, at any time prior to the End of Business on the earlier of the Termination Date or the fifth anniversary of the Employee's death. If the Employee dies while he is no longer employed by the Corporation or a Subsidiary, the Reload Option and, if exercisable under Section 2, the Rights may be exercised for the full number of Common Shares as to which he could have exercised them on the date of his death, by his estate, personal representative or beneficiary who acquired the right to exercise the Reload Option and the Rights by will or by the laws of descent and distribution, at any time prior to the termination date provided by Section 4 thereof. Following the End of Business on the earlier of such Termination Date, fifth anniversary of the Employee's death or the termination date provided by Section 4, as the case may be, the Reload Option and Rights shall expire. 4. Exercise after Termination of Employment. If the Employee shall cease to be employed by the Corporation or a Subsidiary other than by reason of death, Disability (as defined below), retirement at or after the Employee's normal retirement date under any pension or retirement plan of the Corporation or a Subsidiary (such termination being hereafter referred to as "Normal Retirement") or the Employee's termination for Cause (as defined in the Plan), the Reload Option shall remain exercisable, to the extent exercisable on the date of such termination, until the End of Business on the earlier of the Termination Date or the date which is one month after the day his employment ends. If the Employee's employment shall terminate due to Disability or if the Employee shall retire at Normal Retirement, the Reload Option shall remain exercisable, to the extent exercisable on the date of such termination or retirement, until the End of Business on the earlier of the Termination Date or the fifth anniversary of the date of his termination of employment or retirement. Disability means the inability of a Participant to perform his duties for a period of at least 180 days due to mental or physical infirmity, as determined pursuant to the Corporation's policies. If the Employee's employment is terminated for Cause, all Reload Options granted to the Employee which are then outstanding shall be forfeited as of the effective time of such termination but in no event later than the End of Business on such termination date. Any portion of the Reload Option or the Rights which is not exercisable on the date the Employee's employment terminates for any reason other than death or Normal Retirement shall expire at the End of Business on such termination date. Any portion of the Reload Option which did not expire on the date the Employee's employment terminates and which is not exercised within the period established under this Section 4 shall expire following the End of Business on the last day on which the Reload Option could have been exercised. Following termination of the Employee's employment for any reason (including death), the Rights (i) shall remain outstanding with respect to that number of Common Shares as to which the Reload Option is exercisable, (ii) will become exercisable pursuant to Section 2 as to that number of Common Shares as to which the Reload Option is then exercisable if a Transaction occurs while the Reload Option remains exercisable and (iii) shall expire at the same time as the Reload Option expires. 5. Restrictions on Exercise. The Reload Option and Rights may be exercised only with respect to full Common Shares. No fractional shares shall be issued. The Reload Option (and, if applicable, the Rights) may not be exercised in whole or part: (a) if any requisite approval or consent of any governmental authority of any kind having jurisdiction over the exercise of options shall not have been secured; or (b) unless the Common Shares subject to the Reload Option shall be effectively listed on the New York Stock Exchange and registered under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), which listing and registration may be upon official notice of issuance of such Common Shares. The Corporation may require that, as a condition to any exercise of the Reload Option, the Employee represent to the Corporation in writing that he is acquiring the Common Shares subject to such exercise for his own account for investment only and not with a view to the distribution thereof. 6. Manner of Exercise. To the extent the Reload Option and the Rights shall be exercisable in accordance with the terms hereof, and subject to such administrative regulations as the Committee may have adopted: (a) The Reload Option may be exercised in whole or from time to time in part by written notice to the Committee, (i) identifying the Reload Option by Grant Date, the option price [and whether or not the Agreement includes Supplement A], (ii) specifying the number of Common Shares with respect to which the Reload Option is being exercised, and (iii) accompanied by full payment of the option price for such Common Shares (1) in United States dollars by personal check or cash, including an assignment of the right to receive cash proceeds of the sale of Common Shares subject to the Reload Option, (2) in Common Shares of the Corporation owned by the Employee for at least three months prior to the day of exercise, represented by certificates duly endorsed to the Corporation or its nominee with any requisite transfer tax stamps attached, the market value of which shall be equal to the option price for the Common Shares with respect to which the Reload Option is being exercised, or (3) in a combination of (1) and (2) above. The market value of any Common Shares delivered pursuant to the immediately preceding sentence shall be the mean of the high and low prices of such Common Shares on the Consolidated Trading Tape on the day of exercise or, if there was no such sale on such day, on the day next preceding the day of exercise on which there was a sale. (b) Rights may be exercised when exercisable under Section 2 in whole or in part by written notice to the Committee, (i) identifying the Rights by Grant Date and option price, and (ii) specifying the number of Common Shares with respect to which such Rights are being exercised. For valuation purposes, the day of exercise of the Reload Option or the Rights shall be deemed to be the day on which notice, addressed to the Committee, either to exercise the Reload Option in whole or in part by the payment of Common Shares (together with duly endorsed certificates as provided above and any other required payment) or to exercise the Rights is received at the Corporation's principal office, except that if such notice (together with certificates and other payment if required) is received on a Saturday or Sunday or on a holiday observed by the Corporation's principal office, or after the End of Business on any other day, the day of exercise shall be deemed to be the next business day. "Written notice" shall include, without limitation, notice by telegram, telex, cable or telecopy facsimile. In the event that the Reload Option or the Rights shall be exercised by a person other than the Employee in accordance with the provisions of Section 3 hereof, such person shall furnish the Corporation with evidence satisfactory to it of his right to exercise the same and of payment or provision for payment of any estate, transfer, inheritance or death taxes payable with respect to the Reload Option or the Rights or with respect to any related Common Shares or payment. The Corporation may require the Employee or other person exercising the Reload Option or the Rights to furnish or execute such documents as the Corporation shall deem necessary to evidence such exercise, to determine whether registration is then required under the Securities Act of 1933, as amended, or to comply with or satisfy the requirements of the Exchange Act, or any other law. 7. Nonassignability. Neither the Reload Option nor the Rights are assignable or transferable except by will or by the laws of descent and distribution to the extent contemplated by Section 3 hereof. At the request of the Employee, Common Shares purchased on exercise of the Reload Option may be issued or transferred in the name of the Employee and another person jointly with the right of survivorship. 8. Rights as Stockholder. The Employee shall have no rights as a stockholder with respect to any Common Shares covered by the Reload Option until the issuance of a certificate or certificates to him for such Common Shares. No adjustment shall be made for dividends or other rights for which the record date is prior to the issuance of such certificate or certificates. 9. Capital Adjustments. The number and price of the Common Shares covered by the Reload Option shall be proportionately adjusted to reflect, as deemed equitable and appropriate by the Committee, any stock dividend, stock split or share combination of, or extraordinary cash dividend on, the Corporation's Common Shares or any recapitalization of the Corporation. To the extent deemed equitable and appropriate by the Committee, subject to any required action by the stockholders of the Corporation, in any merger, consolidation, reorganization, liquidation, dissolution, or other similar transaction, the Reload Option shall pertain to the securities and other property, if any, which a holder of the number of Common Shares covered by the Reload Option would have been entitled to receive in connection with such event. 10. Withholding. (a) The Corporation's obligation to deliver Common Shares upon the exercise of the Reload Option shall be subject to payment by the Employee of any amount required to be withheld with respect to such exercise pursuant to any applicable federal, state or local tax withholding requirements. The Corporation shall withhold from any cash payable in connection with the exercise of any Rights any amount required to be withheld pursuant to any applicable federal, state or local tax withholding requirement (including, without limitation, FICA). (b) [Unless this Agreement includes Supplement A (making it an incentive stock option),] the Employee may elect to satisfy all or any part of his federal, state and local tax obligations (including, without limitation, FICA) with respect to such exercise by having the Corporation withhold from any Common Shares otherwise deliverable to him in connection with the exercise of the Reload Option a number of Common Shares, or by delivering Common Shares already owned by the Employee, having a market value equal in amount to the obligations to be so satisfied, in accordance with procedures adopted by the Committee from time to time. The market value of Common Shares withheld or delivered shall be the mean of the high and low prices of such Common Shares on the Consolidated Trading Tape on the day of exercise or, if there was no such sale on such day, on the next preceding day on which there was a sale. 11. Governing Law. This Agreement shall be construed and enforced in accordance with, and governed by, the laws of the State of New York. 12. Supplements. Attached hereto is Supplement D -- Reload Option. Any such supplement so attached is incorporated herein and constitutes a part of this Agreement as though set forth in full herein. Any such supplement may be added to this Agreement at a later date by the Committee if such supplement does not adversely affect the rights of the Employee under this Agreement. All capitalized terms used in such supplements without definition are used as defined in this Agreement. IN WITNESS WHEREOF, the Corporation and the Employee have duly executed this Agreement as of the date set forth above. PHELPS DODGE CORPORATION By__________________________ Vice President ____________________________ Employee Supplement D [Reload Option -- 1993 Plan] Supplement D to the Stock Option Agreement (the "Agreement") dated _______________ between Phelps Dodge Corporation (the "Corporation") and _____________________ (the "Employee"). 1. Issuance of Reload Option. In the event that the Employee exercises this Option (a) at least six months prior to the expiration date of this Option, (b) while still employed by the Corporation or a Subsidiary and (c) prior to the expiration date of the Plan using, in whole or in part, Common Shares owned by the Employee for at least three months prior to the day of exercise (the "Exercise Date"), the Employee shall be granted a new option (the "Reload Option") under the Plan on the Exercise Date for the number of Common Shares of the Corporation equal to the number of Common Shares exchanged by the Employee to exercise this Option. No Reload Option shall be granted if the Exercise Date is (a) within six months of the expiration date of the Option, (b) a date when the Employee is not employed by the Corporation or a Subsidiary or (c) after the expiration date of the Plan. 2. Terms of Reload Option. The Reload Option shall be exercisable on the same terms and conditions as apply to the Option as set forth in this Agreement, except that (a) the Reload Option shall become exercisable in full on the day six months after the Exercise Date, (b) the option price per share shall be the fair market value of a common share on the Exercise Date, which shall be the mean of the high and low prices of a common share on the Consolidated Trading Tape on that day, or, if no sale of Common Shares is recorded on such tape on that day, then on the next preceding day on which there was such a sale and (c) the expiration date of the Reload Option shall be the date of expiration of the Option under this Agreement. The Corporation may issue a new agreement to evidence the Reload Option and, if it does, that agreement shall supersede this Agreement in all respects insofar as the Reload Option is concerned. 3. Right of Committee to Disapprove Reload Option. Notwithstanding the foregoing, the continuance of a Reload Option granted pursuant to this Supplement shall be subject to the disapproval of the Committee in its sole discretion exercised at the meeting of the Committee next following the date such Reload Option is granted. Any Reload Options so disapproved by the Committee shall terminate upon such disapproval. Award of Restricted Stock Dear : We are pleased to confirm to you that at a meeting held on __________________, the Compensation and Management Development Committee of the Board of Directors of Phelps Dodge Corporation (the "Company") awarded you _________ shares of Restricted Stock of the Company pursuant to the 1993 Stock Option and Restricted Stock Plan (the "Plan"). This letter will confirm the following agreement between you and the Company pursuant to the Plan. Capitalized words used in this letter and defined in the Plan are used as so defined. This award of Restricted Stock is subject to the terms and conditions of the Plan, as supplemented by this letter. 1. Restriction on Transfer. Except as provided in paragraphs 3 and 4 below, the shares of Restricted Stock awarded to you hereunder may not be sold, assigned, transferred, pledged, hypothecated or otherwise encumbered until ___________________ (the "Restricted Period"). 2. Forfeiture of Restricted Stock. Except as provided in paragraph 3 below, if your employment with the Company and its Subsidiaries terminates prior to the end of the Restricted Period for any reason including without limitation any termination by you or by the Company in its absolute discretion, your shares of Restricted Stock shall revert back to the Company without any payment to you and you shall cease to have any rights with respect to such shares of Restricted Stock. In the case of such reversion, such shares shall be retransferred to the Company by means of the stock power referred to in paragraph 5 below. 3. Death, Disability or Normal Retirement. If your employment with the Company and its Subsidiaries terminates by reason of your death, your disability (as determined in accordance with the Company's applicable policies on disability) or your retirement at or after age 65 (except for a termination occurring within six months of the date of the grant of your shares of Restricted Stock on account of your disability or retirement), the Restricted Period shall lapse upon your termination of employment. 4. Change of Control. The Restricted Period shall lapse in the event that, on or after the date six months after the date of the grant of your shares of Restricted Stock: (a) the Company's stockholders holding at least 50% (or such greater percentage as may be required by the Certificate of Incorporation or By-Laws of the Corporation or by law) of the voting stock of the Corporation approve any merger, consolidation, sale of assets, liquidation or reorganization in which the Company will not survive as a publicly owned corporation; or (b) any of the Company's Common Shares are purchased pursuant to a tender or exchange offer (other than an offer by the Company, any Subsidiary of the Company, or any employee benefit plan maintained by the Company or a Subsidiary). 5. Rights as a Shareholder. Subject to the provisions of paragraph 7 below, you shall have all the rights of a holder of Common Shares with respect to your Restricted Stock, including the right to vote the shares and to receive dividends. Notwithstanding the foregoing, your Restricted Stock shall be held by the Company prior to the lapse of the Restricted Period and you shall deliver to the Company a stock power executed in blank in such form as the Company shall determine. 6. Administration. The Plan is administered by the Committee and any interpretation or construction of the Plan or this letter by the Committee, and any determination made by the Committee pursuant to the Plan or this letter, shall be conclusive and binding on the Company, you and any other interested party. 7. Conversions and Property Distributions. In the event your Restricted Stock is exchanged for or converted into securities other than Common Shares or in the event that any distribution is made with respect to such Restricted Stock either in Common Shares or in other property or by way of an extraordinary cash dividend, the securities or other property or cash that you receive shall be subject to the same restrictions as apply to your Restricted Stock, including those provided by the last sentence of paragraph 5 above. 8. Withholding. You shall be required to pay, as a condition of receiving a share certificate without legend, any applicable federal, state or local tax withholding requirements, which, if the Committee shall permit, may be satisfied by the withholding of shares of Restricted Stock with respect to which the Restricted Period has lapsed, subject to such terms and conditions as the Committee shall impose. 9. Governing Law. This Agreement shall be construed and enforced in accordance with, and governed by, the laws of the State of New York. Please sign one of the two copies of this letter where indicated below and the attached Stock Power and return them to me at your earliest convenience. Please retain the other copy of this letter for your records. PHELPS DODGE CORPORATION By: ________________________ ACCEPTED AND AGREED TO: ____________________________ Date: _________________ EX-10.5 3 ANNUAL INCENTIVE COMPENSATION PLAN Exhibit 10.5 PHELPS DODGE ANNUAL INCENTIVE COMPENSATION PLAN The Phelps Dodge Annual Incentive Compensation Plan (the "Plan") is a component of the executive compensation program. The Plan is administered by the Compensation and Management Development Committee (the "Committee"). The Committee determines annually who will participate in the Plan, and the appropriate performance measures and performance objectives, and recommends the final awards for approval by the Board of Directors, both in the aggregate and individually to the executive officers of the Corporation. Participation is limited to key employees whose performance can have a measurable impact on the Corporation's annual business and financial results. The award potential for each participant is based on the responsibility of his or her position. Awards earned pursuant to the Plan are based on achieving pre-established annual corporate, individual and, where appropriate, unit performance goals. Threshold, target and maximum performance objectives are established by the Committee for each performance measure. The Committee also establishes the relative weighting of each goal for determining each participant's award. Awards are paid in cash following the close of the appropriate award year. No awards are paid for performance below the threshold objectives nor are awards paid to employees who terminate their employment during the award period for reasons other than death, disability or retirement. Employees whose employment ends as a result of death, disability or retirement receive pro rata awards. EX-10.13 4 NONQUALIFIED RETIREMENT & SAVINGS PLAN Exhibit 10.13 Draft -- May 22, 1992 Approved by Board of Directors June 3, 1992 Instrument of Amendment The Comprehensive Executive Nonqualified Retirement and Savings Plan of Phelps Dodge Corporation (the "Comprehensive Nonqualified Plan") is hereby amended, effective as of January 1, 1991 (unless specified otherwise) as set forth below. 1. Article II.B.(ii)1.1. is hereby amended to read as follows: "All Participants in the Savings Plan either (1) making Salary Pre-Tax Deferral Contributions to the Savings Plan equal to an average of at least 5% of Salary (as defined in the Savings Plan) per month or (2) making Salary Pre-Tax Deferral Contributions equal to the limitation imposed by Section 402(g) of the Code (or any successor section thereof) upon such contributions." 2. A new section 3.1.4. is hereby added to Article II.A.(i).3.1., to read as follows: "3.1.4. Notwithstanding any other provision of this Plan, each Employee who becomes a participant in the ICP on or after the Effective Date but thereafter becomes ineligible for participation in the ICP but otherwise meets all other eligibility criteria shall never-the-less retain eligibility for a benefit under these Supplementary Executive Retirement Provisions if such Employee receives any award pursuant to the ICP within ten years of his retirement under such provisions or his termination of service with the Company." 3. Effective as of January 1, 1992, a new section 1.4 is hereby added to Article II.B.(i)., to read as follows: "1.4 Certain Limitations. The Administrative Committee reserves the right, in its sole discretion, to limit participation under this Article II.B.(i). if, in its opinion, there is insufficient participation hereunder." 4. The first sentence of Article III.(ii).1.2.1. is hereby amended to read as follows: "A Participant still employed by the Company may request a withdrawal of all or part of his Base Salary, Incentive Compensation, and/or LTPP Compensation Pre-Tax Deferrals, including the earnings thereon, held in the Plan for more than five years (except in the case of those Participants receiving benefits pursuant to the Company's Long Term Disability Plan or any other comparable disability plan sponsored by the Company, in which case such five year requirement shall be waived) as of any December 1 upon appropriate written notice." 5. The first part of the first sentence of Article IV.(ii).1.3. is hereby amended to read as follows: "Subject to the provisions of this Section 1.3., each Participant still employed by the Company may elect as of each March 15, June 15, September 15 or December 15 (effective September 1, 1992, as of the 15th calendar day of any calendar month), effective as soon as administratively practicable following ..." Instrument of Amendment The Comprehensive Executive Nonqualified Retirement and Savings Plan of Phelps Dodge Corporation is hereby amended, effective as of November 15, 1993, as set forth below. 1. A new section 1.5 is hereby added to Article VIII to read as follows: "1.5 Supplementary Retirement Provisions Early Retirement 70/80 Benefit. This Section will apply to any eligible Participant who has amounts credited under the Supplementary Retirement Provisions of this Comprehensive Plan. A Participant who elects to retire (a) under the early retirement program associated with the Twentieth Supplement of the Retirement Plan or (b) in connection with the reorganization of Phelps Dodge International Corporation whose age and years of Service, as of January 1, 1994, equal or exceed (i) 70 if such Participant has attained age 55 on or before such date or (ii) 80 if he has not attained age 55 on or before such date, may elect (with the same rights of election as under the Retirement Plan or any other applicable plan) on or before January 15, 1994 to retire before December 31, 1994 (such retirement date, or such later retirement date, to be mutually agreed to between such Participant and the Company) and to receive, commencing on the first day of the month following or coinciding with his retirement, a retirement benefit in the amount computed under such provisions of Section 5.1 and Section 5.2 of the Supplementary Executive Retirement Provisions and other Supplementary Retirement Provisions as may be applicable to him, without any reduction in such retirement benefit on account of the commencement thereof prior to attainment of his Normal Retirement Date; provided that the provisions of Section 5.1 and Section 5.2 of the Supplementary Executive Retirement Provisions shall be applicable without regard to whether or not the Participant has attained age 55. If such a retired Participant shall subsequently become reemployed by the Company any retirement benefit paid to him hereunder shall cease, his Service completed on and after the date of his reemployment shall continue to accrue and upon his subsequent retirement or termination of employment his retirement benefit shall be computed in accordance with the applicable provisions of the Comprehensive Plan, reduced by the Actuarial Equivalent of the amount of any retirement benefit previously paid hereunder; provided that if such retired Participant who is reemployed shall thereafter again be terminated, payment of the retirement benefit hereunder shall be resumed at a monthly rate not less than that in effect prior to his reemployment. Each Participant in this Comprehensive Plan to whom this Section 1.5 applies shall be fully vested in his or her benefits under the Supplementary Executive Retirement Provisions of this Comprehensive Plan whether or not he or she meets the service requirements of those provisions. The Administrative Committee shall determine, in accordance with uniform and nondiscriminatory rules designed to carry out the purpose of this Section 1.5, which is to encourage and facilitate the retirement of older employees with long service, (i) whether this Section shall apply to any Participant whose age or length of service is in doubt and (ii) the form and manner of any payment due hereunder." EX-11 5 COMPUTATION OF EARNINGS PER SHARE PHELPS DODGE CORPORATION AND SUBSIDIARIES Exhibit 11 COMPUTATION OF EARNINGS PER SHARE (In thousands except per share amounts)
1993 1992 1991 ---- ---- ---- * AVERAGE COMMON SHARES OUTSTANDING 70,642 70,453 69,454 ========= ======== ======== INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGES $ 187,900 301,600 272,900 Per common share $ 2.66 4.28 3.93 CUMULATIVE EFFECT OF ACCOUNTING CHANGES $ - (79,900) - Per common share $ - (1.13) - NET INCOME $ 187,900 221,700 272,900 Per common share $ 2.66 3.15 3.93 * Average common shares outstanding have been revised for all periods presented to give effect to the May 1992 two-for-one stock split.
EX-12 6 STATEMENT RE COMPUTATION OF RATIOS PHELPS DODGE CORPORATION AND SUBSIDIARIES Exhibit 12 COMPUTATION OF TOTAL DEBT TO TOTAL CAPITALIZATION (Dollars in thousands)
1993 1992 1991 ---- ---- ---- Short-term debt $ 82,718 72,539 62,949 Current portion of long-term debt 17,210 42,166 35,032 Long-term debt 547,285 373,766 381,968 ----------- ---------- ---------- Total debt 647,213 488,471 479,949 Minority interest in subsidiaries 62,217 50,751 35,156 Common shareholders' equity 2,022,099 1,972,453 1,859,286 ----------- ---------- ---------- Total capitalization $2,731,529 2,511,675 2,374,391 =========== ========== ========== Ratio of total debt to total capitalization 23.7% 19.4% 20.2% =========== ========== ==========
EX-21 7 PHELPS DODGE CORP & CONSOLIDATED SUBSIDIARIES PHELPS DODGE CORPORATION AND CONSOLIDATED SUBSIDIARIES Exhibit 21 LIST OF SUBSIDIARIES AND INVESTMENTS - ---------------------------------------------------------------------------- Registrant: Phelps Dodge Corporation (New York). The Registrant has no parent. Registrant's percent of voting power ------------ CONSOLIDATED SUBSIDIARIES: Accuride Canada Inc. (Ontario) 100.0 Accuride Corporation (Delaware) 100.0 Aislamientos Plasticos, C.A. (Venezuela) 87.0 Alambres y Cables de Panama, S.A. (Panama) 78.1 Alambres y Cables Venezolanos, C.A. (Venezuela) 87.0 Burro Chief Copper Company (Delaware) 100.0 Cables Electricos Ecuatorianos, C.A. (Ecuador) 67.1 Cahosa, S.A. (Panama) 78.1 Cobre Cerrillos Sociedad Anonima (Chile) 90.0 Cocesa Ingenieria y Construccion, S.A. (Chile) 63.0 Columbian Carbon Deutschland GmbH (Germany) 100.0 Columbian Carbon Europa S.r.l. (Italy) 100.0 Columbian Carbon Philippines, Inc. (Philippines) 88.2 Columbian Chemicals Canada Ltd. (Ontario) 100.0 Columbian Chemicals Company (Delaware) 100.0 Columbian Chemicals Europa GmbH (Germany) 100.0 Columbian Foreign Export Corporation (U.S. Virgin Islands) 100.0 Columbian International Chemicals Corporation (Delaware) 100.0 Columbian International Trading Company (Delaware) 100.0 Columbian Technology Company (Delaware) 100.0 Columbian Tiszai Carbon Ltd. (Hungary) 60.0 Columbian (U.K.) Limited (United Kingdom) 100.0 Compania Contractual Minera Candelaria (Chile) 80.0 Compania Contractual Minera Ojos del Salado (Chile) 100.0 "CONAL" Conductores y Aluminio C.A. (Venezuela) 87.0 CONDUCEN, S.A. (Costa Rica) 75.4 Conductores Electricos de Centro America, Sociedad Anonima (El Salvador) 57.6 Dodge & James Insurance Company, Ltd. (Bermuda) 100.0 Electroconductores de Honduras, S.A. de C.V. (Honduras) 60.5 Elektrodraht Mureck, Phelps Dodge Eldra GmbH (Austria) 51.0 Hudson Wire Company dba Hudson International Conductors (New York) 100.0 Industria de Conductores Electricos, C.A. (Venezuela) 87.0 PD Candelaria, Inc. (Delaware) 100.0 PD Ojos del Salado, Inc. (Delaware) 100.0 Phelps Dodge Chino, Inc. (Delaware) 100.0 Phelps Dodge Industries GmbH (Austria) 100.0 Phelps Dodge Industries, Inc. (Delaware) 100.0 Phelps Dodge International Corporation (Delaware) 100.0 Phelps Dodge Mining (Pty) Limited (South Africa) 100.0 Phelps Dodge Morenci, Inc. (Delaware) 100.0 Phelps Dodge Refining Corporation (New York) 100.0 Phelps Dodge Thailand Limited (Thailand) 50.2 Sevalco Limited (United Kingdom) 100.0 Seven-Up Pete Joint Venture (an Arizona partnership) 72.3 Sonoran Mining Company (Delaware) 100.0 INVESTMENTS CARRIED ON AN EQUITY BASIS: AOT Inc. (Delaware) 50.0 Black Mountain Mineral Development Company (Proprietary) Limited (South Africa) (Parent - the Gold Fields of South Africa group controls 55.4% of the voting stock) 44.6 Compania Minera Santa Gertrudis, S.A. de C.V. (Mexico) 49.0 Columbian Carbon Japan Ltd. (Japan) 50.0 CONELEC, S.A. de C.V. (Mexico) 40.0 Keystone Electric Wire and Cable Company Limited (Hong Kong) 20.0 PDTL Trading Company Limited (Thailand) 40.0 Phelps Dodge Philippines, Inc. (Philippines) 40.0 SPD Magnet Wire Company (Delaware) 50.0 Summarized financial information is provided for these and other companies (see Note 2 to the Consolidated Financial Statements of the Corporation contained in this Form 10-K) pursuant to Article 3 - General Instructions as to Financial Statements. Omitted from this listing are subsidiaries which, considered in the aggregate as a single subsidiary, would not constitute a significant subsidiary. EX-23 8 CONSENT OF INDEPENDENT ACCOUNTANTS Exhibit 23 Consent of Independent Accountants We hereby consent to the incorporation by reference in the Prospectus constituting part of the Registration Statements on Form S-3 (No. 33-44380) and on Form S-8 (Nos. 33-26442, 33-6141, 33-26443, 33-29144, 33-19012, 2- 67317, 33-34363, 33-34362 and 33-62486) of our report dated January 24, 1994 appearing on page 54 of Phelps Dodge Corporation's Annual Report on Form 10- K for the year ended December 31, 1993. We also consent to the incorporation by reference of our report on the Financial Statement Schedules, which appears on page 52 of such Annual Report on Form 10-K. PRICE WATERHOUSE Phoenix, Arizona March 18, 1994 EX-24 9 POWER OF ATTORNEY Exhibit 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and appoints Douglas C. Yearley, Thomas M. St. Clair and William C. Tubman and each of them his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities: Annual Report For the Year Ended December 31, 1993 of Phelps Dodge Corporation on Form 10-K (1) to sign the Annual Report for the fiscal year ended December 31, 1993 of Phelps Dodge Corporation on Form 10-K ("1993 Form 10-K") to be filed under the Securities Exchange Act of 1934, as amended, and any and all amendments to such 1993 Form 10-K; (2) to file such 1993 Form 10-K (and any and all such amendments) with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission; and (3) to take such other action as may be deemed necessary or appropriate in connection with such 1993 Form 10-K; as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents of any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 7th day of February, 1994. Edward L. Addison ______________________________ Edward L. Addison POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and appoints Douglas C. Yearley, Thomas M. St. Clair and William C. Tubman and each of them his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities: Annual Report For the Year Ended December 31, 1993 of Phelps Dodge Corporation on Form 10-K (1) to sign the Annual Report for the fiscal year ended December 31, 1993 of Phelps Dodge Corporation on Form 10-K ("1993 Form 10-K") to be filed under the Securities Exchange Act of 1934, as amended, and any and all amendments to such 1993 Form 10-K; (2) to file such 1993 Form 10-K (and any and all such amendments) with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission; and (3) to take such other action as may be deemed necessary or appropriate in connection with such 1993 Form 10-K; as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents of any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 3rd day of February, 1994. Robert N. Burt ______________________________ Robert N. Burt POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and appoints Douglas C. Yearley, Thomas M. St. Clair and William C. Tubman and each of them his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities: Annual Report For the Year Ended December 31, 1993 of Phelps Dodge Corporation on Form 10-K (1) to sign the Annual Report for the fiscal year ended December 31, 1993 of Phelps Dodge Corporation on Form 10-K ("1993 Form 10-K") to be filed under the Securities Exchange Act of 1934, as amended, and any and all amendments to such 1993 Form 10-K; (2) to file such 1993 Form 10-K (and any and all such amendments) with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission; and (3) to take such other action as may be deemed necessary or appropriate in connection with such 1993 Form 10-K; as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents of any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 2nd day of February, 1994. George C. Dillon ______________________________ George C. Dillon POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and appoints Douglas C. Yearley, Thomas M. St. Clair and William C. Tubman and each of them his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities: Annual Report For the Year Ended December 31, 1993 of Phelps Dodge Corporation on Form 10-K (1) to sign the Annual Report for the fiscal year ended December 31, 1993 of Phelps Dodge Corporation on Form 10-K ("1993 Form 10-K") to be filed under the Securities Exchange Act of 1934, as amended, and any and all amendments to such 1993 Form 10-K; (2) to file such 1993 Form 10-K (and any and all such amendments) with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission; and (3) to take such other action as may be deemed necessary or appropriate in connection with such 1993 Form 10-K; as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents of any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 3rd day of February, 1994. Cleveland E. Dodge, Jr. ______________________________ Cleveland E. Dodge, Jr. POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and appoints Douglas C. Yearley, Thomas M. St. Clair and William C. Tubman and each of them his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities: Annual Report For the Year Ended December 31, 1993 of Phelps Dodge Corporation on Form 10-K (1) to sign the Annual Report for the fiscal year ended December 31, 1993 of Phelps Dodge Corporation on Form 10-K ("1993 Form 10-K") to be filed under the Securities Exchange Act of 1934, as amended, and any and all amendments to such 1993 Form 10-K; (2) to file such 1993 Form 10-K (and any and all such amendments) with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission; and (3) to take such other action as may be deemed necessary or appropriate in connection with such 1993 Form 10-K; as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents of any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 15th day of February, 1994. Paul W. Douglas ______________________________ Paul W. Douglas POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and appoints Douglas C. Yearley, Thomas M. St. Clair and William C. Tubman and each of them his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities: Annual Report For the Year Ended December 31, 1993 of Phelps Dodge Corporation on Form 10-K (1) to sign the Annual Report for the fiscal year ended December 31, 1993 of Phelps Dodge Corporation on Form 10-K ("1993 Form 10-K") to be filed under the Securities Exchange Act of 1934, as amended, and any and all amendments to such 1993 Form 10-K; (2) to file such 1993 Form 10-K (and any and all such amendments) with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission; and (3) to take such other action as may be deemed necessary or appropriate in connection with such 1993 Form 10-K; as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents of any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 1st day of February, 1994. William A. Franke ______________________________ William A. Franke POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and appoints Douglas C. Yearley, Thomas M. St. Clair and William C. Tubman and each of them his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities: Annual Report For the Year Ended December 31, 1993 of Phelps Dodge Corporation on Form 10-K (1) to sign the Annual Report for the fiscal year ended December 31, 1993 of Phelps Dodge Corporation on Form 10-K ("1993 Form 10-K") to be filed under the Securities Exchange Act of 1934, as amended, and any and all amendments to such 1993 Form 10-K; (2) to file such 1993 Form 10-K (and any and all such amendments) with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission; and (3) to take such other action as may be deemed necessary or appropriate in connection with such 1993 Form 10-K; as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents of any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 2nd day of February, 1994. Paul Hazen ______________________________ Paul Hazen POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and appoints Douglas C. Yearley, Thomas M. St. Clair and William C. Tubman and each of them his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities: Annual Report For the Year Ended December 31, 1993 of Phelps Dodge Corporation on Form 10-K (1) to sign the Annual Report for the fiscal year ended December 31, 1993 of Phelps Dodge Corporation on Form 10-K ("1993 Form 10-K") to be filed under the Securities Exchange Act of 1934, as amended, and any and all amendments to such 1993 Form 10-K; (2) to file such 1993 Form 10-K (and any and all such amendments) with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission; and (3) to take such other action as may be deemed necessary or appropriate in connection with such 1993 Form 10-K; as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents of any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 2nd day of February, 1994. Robert D. Krebs ______________________________ Robert D. Krebs POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and appoints Douglas C. Yearley, Thomas M. St. Clair and William C. Tubman and each of them his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities: Annual Report For the Year Ended December 31, 1993 of Phelps Dodge Corporation on Form 10-K (1) to sign the Annual Report for the fiscal year ended December 31, 1993 of Phelps Dodge Corporation on Form 10-K ("1993 Form 10-K") to be filed under the Securities Exchange Act of 1934, as amended, and any and all amendments to such 1993 Form 10-K; (2) to file such 1993 Form 10-K (and any and all such amendments) with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission; and (3) to take such other action as may be deemed necessary or appropriate in connection with such 1993 Form 10-K; as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents of any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 14th day of February, 1994. Southwood J. Morcott ______________________________ Southwood J. Morcott POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and appoints Douglas C. Yearley, Thomas M. St. Clair and William C. Tubman and each of them his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities: Annual Report For the Year Ended December 31, 1993 of Phelps Dodge Corporation on Form 10-K (1) to sign the Annual Report for the fiscal year ended December 31, 1993 of Phelps Dodge Corporation on Form 10-K ("1993 Form 10-K") to be filed under the Securities Exchange Act of 1934, as amended, and any and all amendments to such 1993 Form 10-K; (2) to file such 1993 Form 10-K (and any and all such amendments) with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission; and (3) to take such other action as may be deemed necessary or appropriate in connection with such 1993 Form 10-K; as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents of any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 2nd day of February, 1994. George B. Munroe ______________________________ George B. Munroe POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and appoints Douglas C. Yearley, Thomas M. St. Clair and William C. Tubman and each of them his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities: Annual Report For the Year Ended December 31, 1993 of Phelps Dodge Corporation on Form 10-K (1) to sign the Annual Report for the fiscal year ended December 31, 1993 of Phelps Dodge Corporation on Form 10-K ("1993 Form 10-K") to be filed under the Securities Exchange Act of 1934, as amended, and any and all amendments to such 1993 Form 10-K; (2) to file such 1993 Form 10-K (and any and all such amendments) with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission; and (3) to take such other action as may be deemed necessary or appropriate in connection with such 1993 Form 10-K; as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents of any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 3rd day of February, 1994. George L. Shinn ______________________________ George L. Shinn POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and appoints Thomas M. St. Clair and William C. Tubman and each of them his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities: Annual Report For the Year Ended December 31, 1993 of Phelps Dodge Corporation on Form 10-K (1) to sign the Annual Report for the fiscal year ended December 31, 1993 of Phelps Dodge Corporation on Form 10-K ("1993 Form 10-K") to be filed under the Securities Exchange Act of 1934, as amended, and any and all amendments to such 1993 Form 10-K; (2) to file such 1993 Form 10-K (and any and all such amendments) with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission; and (3) to take such other action as may be deemed necessary or appropriate in connection with such 1993 Form 10-K; as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents of any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney this 1st day of February, 1994. Douglas C. Yearley ______________________________ Douglas C. Yearley -----END PRIVACY-ENHANCED MESSAGE-----