Item 3. Legal Proceedings
Litigation is pending in the Indiana Supreme Court and in the Marion County Superior Court in Indiana and arbitration is pending relating to a 1990 notice from PSI Energy Inc. of its intent to arbitrate certain matters arising under its long-term coal sales contract concerning the Cyprus Amax Wabash mine. PSI Energy Inc. is seeking relief regarding the contract including price relief retroactive to January 1, 1988. While the nature and extent of the claims is not clear, Cyprus Amax will continue to defend its position with respect to the contract and has offsetting claims. While Cyprus Amax is not able to predict the outcome of this matter at this time, based upon facts currently known to it, Cyprus Amax believes it has reasonable defenses in this matter and does not believe that the ultimate resolution of this matter will have a material adverse effect on its financial condition.
On November 8, 1993, Cyprus Amax was notified by the United States Department of Justice that it is under investigation for possible violations of the antitrust laws of the United States regarding its molybdenum business. While Cyprus Amax is unable to predict the outcome of this investigation, based upon facts currently known to it, the resolution of this matter is not expected to have a material adverse effect on Cyprus Amax's financial condition.
At December 31, 1993, Cyprus Amax's long-term accrual for deferred closure, reclamation, and environmental remediation liabilities totalled approximately $358 million which included $254 million for future reclamation, $90 million for environmental remediation at Superfund and other sites, and $14 million for closure of discontinued or previously sold operations. Cyprus Amax's $254 million reclamation reserve is primarily for operating facilities. Reclamation is an ongoing activity and a cost associated with the Company's mining operations and Cyprus Amax accrues for closure and final reclamation liabilities on a life-of-mine basis. The coal reclamation reserve component largely is a result of reclamation obligations incurred for replacing soils and revegetation of mined areas as required by provisions and permits pursuant to the Surface Mining Control and Reclamation Act. The copper and other reclamation reserve component includes costs for site stabilization, cleanup, long-term monitoring, and water treatment costs as expected to be required largely by state laws and regulations as well as by
sound environmental practice. Total reclamation costs for Cyprus Amax at the end of current mine lives are estimated at about $500-550 million.
Cyprus Amax or its subsidiaries has been advised by the Environmental Protection Agency ("EPA") and several State environmental agencies that it may be liable under the Comprehensive Environmental Response, Compensation and Liability Act or similar State laws and regulations ("Superfund"), for costs of responding to environmental conditions at a number of sites which have been or are being investigated by the EPA or state agencies to establish whether releases of hazardous substances have occurred and, if so, to develop and implement remedial actions. Cyprus Amax is named as a potentially responsible party ("PRP") or has received EPA requests for information for about 30 sites. The reserve of approximately $90 million at December 31, 1993, for Cyprus Amax's share of the estimated aggregate liability for the cost of remedial actions is based upon an evaluation of, among other factors, currently available facts, existing technology, currently enacted laws and regulations, its experience in remediation, other companies' cleanup experience, and its status as a PRP at each of the sites, as well as the ability of other PRPs to pay their allocated portions. The cost range of reasonably possible outcomes for sites where costs are estimable is from $60 million to $200 million and work on these sites is expected to be substantially completed within the next five years, subject to the inherent delays involved in the process. Cyprus Amax believes certain insurance policies partially cover these claims; however, some of the insurance carriers have denied responsibility and Cyprus Amax is litigating coverage. Further, Cyprus Amax believes that it has other potential claims for recovery from third parties, including the U.S. Government and other PRPs, as well as liability offsets through lower cost remedial solutions. Generally, neither insurance recoveries, nor other claims or offsets, have been recognized in the liabilities reported.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders
Cyprus Minerals Company and AMAX Inc. held special shareholder meetings on November 12, 1993, in New York to vote on the merger of AMAX Inc. into Cyprus Minerals Company and the transactions contemplated under the Agreement and Plan of Reorganization and Merger between Cyprus Minerals Company and AMAX Inc. ("Merger Agreement"). Cyprus shareholder approval was requested for the approval of the Merger Agreement, the issuance of Cyprus common stock and of shares of a newly-created series of Cyprus $4.00 Series A Convertible Preferred Stock to Amax shareholders in the merger, amendment to Cyprus' Certificate of Incorporation to create a new series of Cyprus $4.00 Series A Convertible Preferred Stock and to change the name of Cyprus to Cyprus Amax Minerals Company. Shareholders of Amax were asked to approve the spin-off of its aluminum company, Alumax Inc., in a tax-free distribution of all of the outstanding shares of Alumax common stock. In addition, Amax would distribute approximately 28 percent of Amax Gold, Inc. to Amax shareholders in the form of a taxable dividend. The merger and its contemplated transactions were approved by 77 percent of the Cyprus shareholders and 75 percent of the Amax shareholders. The vote of the Cyprus shareholders was 36,503,374 for the proposal, 967,916 against, with 548,347 abstentions.
Executive Officers of the Registrant
Set forth below are the names, ages and titles of the executive officers of Cyprus Amax:
Mr. Ward was elected Chairman of the Board, President and Chief Executive Officer on May 14, 1992, and was made Co-Chairman on November 15, 1993. Mr. Brown was elected to his current office on May 2, 1991, and Mr. Clevenger assumed his current position on January 27, 1993. Mr. Malys was elected Senior Vice President effective October 31, 1988, and Chief Financial Officer effective August 1, 1989. Mr. Watkins assumed his current office on February 1, 1994. Mr. Wolf was elected to his current office on November 13, 1993. Mr. Kane assumed his current office on January 11, 1994. Mr. Peppard was elected to his current office on October 4, 1987. Mr. Taraba was elected to his current office on October 31, 1988.
Messrs. Brown, Malys, Wolf, Peppard, and Taraba have been engaged full-time in the business of Cyprus and its subsidiaries for more than the past five years. Prior to joining Cyprus in May 1992, Mr. Ward had been President and Chief Operating Officer of Freeport-McMoRan Inc. and Chairman and Chief Executive Officer of Freeport-McMoRan Copper & Gold Inc. since 1984. Mr. Brown has occupied various management positions in Cyprus' coal operations since 1980. Mr. Clevenger held various management positions at Phelps Dodge Corporation since 1979. Mr. Malys was Vice President and Corporate Controller from 1985 to 1988, and Senior Vice President Financial and Information Services from 1988 to 1989, when he assumed his current position. Prior to joining Cyprus Amax in 1994, Mr. Watkins occupied various management positions at Minnova Inc. from 1977 until 1991 when he was elected President and Director. Mr. Watkins served as Vice President and Director at Metall Mining Corporation from 1991 until 1993. Mr. Wolf has been a member of Cyprus' law department since 1993 and previously served as chief legal officer from 1984 through 1987. Mr. Wolf had operating responsibility for Cyprus' talc, lithium, gold and iron ore operations during the period from 1987 until 1993 when he assumed his current position. Prior to joining Cyprus in 1994, Mr. Kane served as Associate Director, Relationship Officer for Bear, Stearns & Co. Inc. since 1990. From 1989 to 1990, Mr. Kane served as Manager of Capital Markets and Exposure Management for United Technologies Corporation. Mr. Peppard has held various management positions in Cyprus' human resources department since 1986. Mr. Taraba held various positions in Cyprus' financial departments from 1982 until 1988, when he assumed his current position.
Each executive officer holds office subject to removal at any time by the Board of Directors of Cyprus Amax.
PART II
Item 5.
Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters.
Information required by this item is incorporated by reference from "Stock Market Information" on page 65 in the 1993 Annual Report.
The information required by Items 6 through 8 is incorporated by reference from the pages in the 1993 Annual Report set forth below.
PART III
Item 10.
Item 10. Directors and Executive Officers of the Registrant
The information required by this item appears in Part I of this Annual Report on Form 10-K and in Cyprus Amax's Proxy Statement for the 1994 Annual Meeting to be filed within 120 days after the end of the fiscal year.*
Item 11.
Item 11. Executive Compensation
The information required by this item appears in Cyprus Amax's Proxy Statement for the 1994 Annual Meeting to be filed within 120 days after the end of the fiscal year.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this item appears in Cyprus Amax's Proxy Statement for the 1994 Annual Meeting to be filed within 120 days after the end of the fiscal year.
Item 13.
Item 13. Certain Relationships and Related Transactions
The information required by this item appears in Cyprus Amax's Proxy Statement for the 1994 Annual Meeting to be filed within 120 days after the end of the fiscal year.
- ------------ * References in this Annual Report on Form 10-K to material contained in Cyprus Amax's Proxy Statement for the 1994 Annual Meeting to be filed within 120 days after the fiscal year incorporate such material into this Report by reference.
PART IV
Item 14.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following financial statements are filed as part of this Report:
1. Financial Statements included in the 1993 Annual Report and incorporated by reference:
With the exception of the aforementioned financial statements and schedules, and the information incorporated in Items 1 and 2 and Items 5 through 8, the 1993 Annual Report is not deemed to be filed as part of this Annual Report on Form 10-K. Schedules not included in this Form 10-K have been omitted because they are not applicable or the required information is shown in the financial statements in the 1993 Annual Report or notes thereto. Separate financial statements of 50 percent or less owned companies accounted for by the equity method have been omitted since, if considered in the aggregate, they would not constitute a significant subsidiary.
3. The following exhibits are filed with this Annual Report on Form 10-K. The exhibit numbers correspond to the numbers assigned in Item 601 of Regulation S-K. The page numbers correspond to the numbers in the sequential numbering system (used only in the manually signed copies of this Annual Report on Form 10-K).
* To be filed by amendment within 180 days of the plan's fiscal year end, in accordance with Rule 15d-21.
(b) The following 8-K's were filed during the last quarter of the period covered by this Report on Form 10-K:
A current report on Form 8-K dated October 26, 1993, reporting the first amendment to the Competitive Advance and Revolving Credit Facility Agreement was filed on October 27, 1993. A current report on Form 8-K dated October 26, 1993, reporting the issuance of $250,000,000 aggregate principal amount of 6 percent Notes due October 15, 2005, was filed on October 27, 1993. A current report on Form 8-K dated November 9, 1993, reporting the termination by the Justice Department of the waiting period for the Cyprus Amax merger was filed on November 9, 1993. A current report on Form 8-K dated November 30, 1993, reporting the amendments to Cyprus' Certificate of Incorporation and By-laws was filed on November 30, 1993.
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 on the 23rd day of March 1994.
Cyprus Amax Minerals Company (Registrant)
By /s/ Gerald J. Malys --------------------------------- Gerald J. Malys 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 indicated on March 23rd, 1994.
Signatures Titles ---------- ------
/s/ Milton H. Ward Co-Chairman of the Board, Director, President, and - ----------------------------- Chief Executive Officer Milton H. Ward
/s/ Allen Born Co-Chairman of the Board and Director - ----------------------------- Allen Born
/s/ Gerald J. Malys Senior Vice President and Chief Financial - ----------------------------- Officer (Principal Financial Officer) Gerald J. Malys
/s/ John Taraba Vice President and Controller (Principal - ----------------------------- Accounting Officer) John Taraba
/s/ Linda G. Alvarado Director - ----------------------------- Linda G. Alvarado
/s/ George S. Ansell Director - ----------------------------- George S. Ansell
/s/ William C. Bousquette Director - ----------------------------- William C. Bousquette
/s/ Calvin A. Campbell, Jr. Director - ----------------------------- Calvin A. Campbell, Jr.
/s/ Thomas V. Falkie Director - ----------------------------- Thomas V. Falkie
/s/ Ann Maynard Gray Director - ----------------------------- Ann Maynard Gray
/s/ James C. Huntington, Jr. Director - ----------------------------- James C. Huntington, Jr.
/s/ Michael A. Morphy Director - ----------------------------- Michael A. Morphy
/s/ Rockwell A. Schnabel Director - ----------------------------- Rockwell A. Schnabel
/s/ Theodore M. Solso Director - ----------------------------- Theodore M. Solso
/s/ John Hoyt Stookey Director - ----------------------------- John Hoyt Stookey
/s/ James A. Todd, Jr. Director - ----------------------------- James A. Todd, Jr.
/s/ Billie B. Turner Director - ----------------------------- Billie B. Turner
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULES
To the Board of Directors and Shareholders of Cyprus Amax Minerals Company:
Our audits of the consolidated financial statements referred to in our report dated March 1, 1994, appearing on page 38 of the 1993 Annual Report to Shareholders of Cyprus Amax Minerals Company (which report and consolidated financial statements are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the Financial Statement Schedules listed in Item 14(a) of this Form 10-K. 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 consolidated financial statements.
PRICE WATERHOUSE
Denver, Colorado March 1, 1994
APPENDIX A
ADDITIONAL INFORMATION CONCERNING CYPRUS AMAX'S OIL AND GAS OPERATIONS (Unaudited)
Introduction. Data presented in the tables below reflect the merger of Amax into Cyprus on November 15, 1993. Prior to November 15, 1993, Amax Energy Inc. was the holding company for Amax Oil & Gas Inc. In the first quarter 1994, Cyprus Amax reached an agreement with Union Pacific Resources Company, a subsidiary of Union Pacific Corporation, to sell all of its stock of Amax Oil & Gas, Inc. The sale, which has an effective date of September 30, 1993, is expected to close by March 31, 1994.
Reserve Data. The following table sets forth the estimated quantities of Cyprus Amax's net proved reserves of crude oil, natural gas and natural gas liquids as of December 31, 1993.
No major discovery or other favorable or adverse event has occurred since December 31, 1993, which would cause a significant change in estimated proved reserve data. No estimates of Cyprus Amax's total net proved oil and gas reserves have been filed with or included in reports to any federal authority or agency other than the Securities and Exchange Commission since January 1, 1993.
Proved oil and gas reserves are the estimated quantities of crude oil, natural gas, condensate, and natural gas liquids which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. Proved developed oil and gas reserves are reserves that can be expected to be recovered through existing wells with existing equipment and operating methods. Proved undeveloped oil and gas reserves are reserves that are expected to be recovered from new wells on undrilled acreage, or from existing wells where a relatively major expenditure is required for recompletion. Estimated net proved reserves of crude oil and natural gas reported herein are stated in terms of Cyprus Amax's net interest, after reduction for royalties and other economic interests owned by others.
Average Sales Price and Average Production Costs. The following table sets forth Cyprus Amax's average sales prices per unit of crude oil, natural gas and natural gas liquids for the period November 15 through December 31, 1993.
/(1)/ Includes condensate /(2)/ See "Governmental Regulations" under "Other Minerals--Oil and Gas" /(3)/ Includes hedging activity
The following table sets forth Cyprus Amax's average production costs per equivalent barrel of crude oil and per equivalent thousand cubic feet of natural gas for the period November 15 through December 31, 1993. Production costs include lifting costs and severance taxes but do not include foreign or domestic income taxes, depreciation, depletion and amortization of capitalized acquisitions, exploration and development, interest, general administrative, overhead allocation or other expenses.
/(1)/ Natural gas amounts have been converted to equivalent barrels of crude oil based on relative energy content. /(2)/ Crude oil amounts, including condensate and natural gas liquids, have been converted to equivalent thousand cubic feet of natural gas based on relative energy content.
Production Data. The net quantities of crude oil, natural gas and natural gas liquids production attributable to Cyprus Amax's interests for the period November 15 through December 31, 1993 were as follows:
/(1)/ Includes production of 211 (thousands of barrels) from Cyprus Amax's ownership interests in gas processing plants.
Gross and Net Productive Wells. The table below sets forth Cyprus Amax's gross and net productive wells as of December 31, 1993.
/(1)/ A "gross well" is a well in which a working interest is owned. The number of gross wells is the total number of wells in which a working interest is owned. /(2)/ A "net well" is deemed to exist when the sum of fractional ownership working interest in gross wells equals one. The number of net wells is the sum of the fractional working interests owned in gross wells expressed as whole numbers and fractions thereof.
Wells in Process of Drilling. At December 31, 1993, there were 6 gross (4.4 net) wells in the process of drilling in which Cyprus Amax had an interest.
Productive and Dry Wells Drilled. The following table sets forth the number of gross and net productive and dry exploratory and development wells drilled for the period November 15 through December 31, 1993.
Acreage Data. Undeveloped acreage in which Cyprus Amax held interests at December 31, 1993 included fee mineral interests, acres held under oil and gas leases and overriding royalty interests. Developed acreage, on which there is oil and gas production in which Cyprus Amax had interests at December 31, 1993, included fee mineral interests, acreage held under oil and gas leases and overriding royalty interests. The developed and undeveloped acreage is summarized as follows:
/(1)/ Developed acreage is that spaced or assignable to productive wells. /(2)/ Undeveloped acreage is acreage on which wells have not been drilled or completed to the point which would permit the production of commercial quantities of oil and gas, regardless of whether such acreage contains proved reserves.
The remaining terms of oil and gas leases in which Cyprus Amax has an interest range from one to five years. In general, leases have a primary term of three years and are subject to possible extension by development and production.
SCHEDULE II CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES AMOUNTS RECEIVABLE FROM RELATED PARTIES AND UNDERWRITERS, PROMOTERS, AND EMPLOYEES OTHER THAN RELATED PARTIES For the Year Ended December 31 (Thousands of Dollars)
/(1)/ Descriptions ------------ Alumax Inc. Represents amounts due under a tax disaffiliation agreement which requires Alumax to pay or reimburse Cyprus Amax for tax obligations arising from certain transactions within Alumax prior to spin-off.
/(2)/ Resulted from the merger.
SCHEDULE IV CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES INDEBTEDNESS OF AND TO RELATED PARTIES -- NOT CURRENT For the Year Ended December 31 (Thousands of Dollars)
/(1)/ Descriptions ------------
Loan to Savings Plan Loan outstanding under a promissory note payable. The loan to the Savings Plan bears interest at 9 3/4 percent per annum and is serviced by Cyprus' contributions to the Savings Plan and dividends paid on the Cyprus common shares purchased with the proceeds of the loan. The minimum contribution to the Savings Plan by Cyprus must be sufficient to amortize the loan to the Plan over a 20-year term as provided in the promissory note. The loan to the Savings Plan is recorded as a reduction of Shareholders' Equity.
Amax Gold Inc. Loans outstanding under a demand promissory note payable. Interest payable at the Federal Funds Rate plus 3/16 percent. In February 1994 approval was granted for Cyprus Amax to purchase Amax Gold common stock at $6.888 per share to repay approximately $21 million of the above indebtedness.
Oakbridge Limited Subordinated loans outstanding due June 28, 1996. Interest payable at the average daily bank bill buying rate rounded to the nearest 1/16 percent plus one percent payable in arrears.
/(2)/ Resulted from the merger.
SCHEDULE V CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES PROPERTY, PLANT, AND EQUIPMENT/(1)/ For the Year Ended December 31 (Thousands of Dollars)
- ------------ /(1)/ Property acquisition costs, intangible mine development costs and certain tangible assets which are expected to be in service for the life of the mine are amortized on the unit-of-production basis. Mobile mining equipment and most other assets are depreciated on a straight-line basis. /(2)/ Other changes are due mainly to the balance sheet reclassifications and intercompany transfers.
SCHEDULE VI CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES ACCUMULATED DEPRECIATION, DEPLETION, AMORTIZATION, AND WRITE-DOWNS OF PROPERTY, PLANT, AND EQUIPMENT For the Year Ended December 31 (Thousands of Dollars)
Reconciliation to depreciation, depletion, and amortization:
- ------------ /(1)/ Other Changes include balance sheet reclassifications, intercompany transfers and write-downs of certain assets in 1992 and 1991.
SCHEDULE VII CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES GUARANTEES OF SECURITIES OF OTHER ISSUERS For the Year Ended December 31 (Thousands of Dollars)
- ------------ /(1)/ Oakbridge Limited - Short-term loan (6 months) from ABN AMRO Australia Limited to Oakbridge. Final loan repayment occurred on February 9, 1994 and the guarantee subsequently was cancelled.
SCHEDULE VIII CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS AND RESERVES For the Year Ended December 31 (Thousands of Dollars)
/(1)/ Amount includes the elimination of reserves for operations sold or shut down, $4,417; remainder represents deductions for transfers, usage, returns, and obsolescence due to the M&S inventory reduction program. /(2)/ Amount primarily represents increased reserve for obsolescence, $12,100. /(3)/ Amount primarily represents the write-off of LTV receivables. /(4)/ Amount primarily represents collection of loan from a joint venture partner, $3,654.
SCHEDULE IX CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES SHORT-TERM BORROWINGS For the Year Ended December 31 (Thousands of Dollars)
- -------------- /(1)/ The average amount outstanding during the year was computed by dividing the sum of month end outstanding principal balances by twelve.
/(2)/ Weighted average interest rate during the year was computed by dividing total interest on short-term borrowings by the average outstanding short- term principal balance during the year.
SCHEDULE X CYPRUS AMAX MINERALS COMPANY AND SUBSIDIARIES SUPPLEMENTARY INCOME STATEMENT INFORMATION For the Year Ended December 31 (Thousands of Dollars)
INDEX TO EXHIBITS
- ------------ * To be filed by amendment within 180 days of the plan's fiscal year end, in accordance with Rule 15d-21.
(b) The following 8-K's were filed during the last quarter of the period covered by this Report on Form 10-K:
A current report on Form 8-K dated October 26, 1993, reporting the first amendment to the Competitive Advance and Revolving Credit Facility Agreement was filed on October 27, 1993. A current report on Form 8-K dated October 26, 1993, reporting the issuance of $250,000,000 aggregate principal amount of 6 5/8 percent Notes due October 15, 2005, was filed on October 27, 1993. A current report on Form 8-K dated November 9, 1993, reporting the termination by the Justice Department of the waiting period for the Cyprus Amax merger was filed on November 9, 1993. A current report on Form 8-K dated November 30, 1993, reporting the amendments to Cyprus' Certificate of Incorporation and By-laws was filed on November 30, 1993.