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(2) The applicant smelter obtains concentrate from a nonadjacent mine. The mine will pay a charge no higher than the total market smelting charge, valued at the U.S. producer price, and the transportation costs between the mine and a Far East smelter. The applicant's net smelting charge is equal to this combined cost minus the transportation costs for shipping the concentrate between mine and applicant smelter.

Suppose that the mine to Far East freight charge is 13 cents per pound and the mine to applicant smelter freight charge is 4 cents per pound. If the export smelting charge is 12 cents per pound, the net smelting charge is equal to 24 cents per pound: 12 cents plus 3 cents (for the U.S. producer price premium) plus 13 cents (for the freight cost to the Far East) minus 4 cents (for the freight cost to the applicant smelter).

(b) The EPA forecast charges are based on a one unit deduction for metallurgical losses. This means that if a concentrate grades 25 percent copper, the mine is only credited with 24 percent for metal return. The one unit deduction on 25 percent concentrate is equivalent to a 96 percent payment for contained copper. Should a smelter recover less than 96 percent, its revenue would be less than the EPA forecast smelting charge. Should a smelter recover more than 96 percent, its revenue would be greater than the EPA forecast smelting charge.

2.4.2 Indices (Annual Percentage Changes). These indices, which are expressed as annual percentage rate changes in price (wages, energy prices, and GNP price deflator) must be used only for estimating the rate of price increases for the forecast period following the expiration of the applicant's current contracts. The applicant may use alternative forecasts of annual percentage changes for the forecast period following the expiration of current contracts, if justification is provided. Any such alternative forecasts must be prepared by a widely-recognized forecasting authority with expertise comparable to that of the forecaster relied upon by EPA. In addition, the documentation of these forecasts must be comparable to that provided by EPA's forecaster.

The wage indices are to be applied to wage paid to manufacturing labor. The energy price indices are to be applied to prices of the respective energy products. The GNP price deflators are to be applied to prices for non-metal, non-labor, and non-energy inputs.

2.5 Applicant Generated Forecasts. Within the specified limitations, applicants may submit a method of forecasting smelting charges and by-product, co-product and other prices. The method selected must be explained and unit prices or costs provided where applicable. The forecast elements must be compatible with an applicant's historical cost and revenue elements to permit direct comparisons of historical and forecast data. Applicants must attach as part of Exhibit B appropriate schedules explaining variances between forecast and historical unit costs for the smelter.

Forecasts of the smelting charges of the smelter's principal product (i.e., copper, lead, zinc, etc.) may be prepared either by an independent forecasting authority or by the smelter's in-house personnel. If the forecasts are prepared by an independent forecasting authority, the following conditions must be satisfied: (1) The forecasting authority must have expertise comparable to that of the forecaster relied upon by EPA. (2) As much documentation of the forecasting methodology as can reasonably be obtained must be made available to EPA. Such documentation must, at a minimum, be comparable to the documentation supporting EPA smelting charge forecasts. 2

2 Documentation of the EPA forecasts is provided as part of Item NO. IV-A-2 in EPA Docket No. A-82-35.

If the smelting charge forecasts are prepared by in-house personnel, the following conditions must be met: (1) The in-house forecasts must be certified as being based on sound methodology by an independent forecasting authority with expertise comparable to that of the forecaster who prepared the EPA-supplied smelting charges. The independent forecasting authority shall also provide a brief explanation of the basis for the conclusion reached in the certification. (2) The smelter owner shall provide EPA with the documentation of the forecasting methodology employed, which must at a minimum be comparable to the extent of documentation supporting EPA's smelting charge forecasts. The smelter owner shall also make available upon request by EPA such additional documentation of the methodology and underlying data as EPA considers appropriate for evaluation of the forecasts.

Forecasts of freight cost changes, which are applied to the freight costs used in calculating a smelter's net smelting charges, must be prepared by a widely-recognized forecasting authority. The forecaster's expertise must be comparable to that of the forecaster relied upon by EPA in forecasting the annual percentage changes in wages, energy prices, and GNP. The documentation of these forecasts must be comparable to that provided by EPA's forecaster.

To the maximum extent practicable, by-product, co-product and (when applicable) unaffiliated smelting charges must be stated at market prices adjusted to f.o.b. smelter. Adjustments of these pricing bases must be made to reflect differences in grades and types of production. All adjustments must be consistent with expected sales, grades and types of concentrate processed. Applicants must attach as part of Exhibit B schedules describing and explaining the methods used to forecast these revenue items and the adjustments required for these revenue forecasts.

Applicants must explain fully any changes from the historical data that are required to forecast labor productivity, ore-concentrate grade and composition, materials and energy consumption per unit of output, yield rates and other physical input/output relationships.

Existing contractual terms must be used in forecasting those sales or input costs or prices to which the applicant is committed by contracts. The use of contract-dictated prices must be disclosed and supported by attaching as part of Exhibit B the terms and duration of labor and other supplier arrangements.

Cost of compliance estimates need not be to the accuracy of final design/bid estimates; feasibility grade estimates will be acceptable. Updated cost of compliance estimates used in internal five year plans or specially prepared estimates of costs of compliance will generally be satisfactory.

2.6 Weighted Average Cost of Capital for Nonferrous Metal Producers. The industry average cost of capital is a weighted average of the rates of return for equity and debt. Its components are the interest rate and the return on equity specific to the nonferrous metals industry.

2.6.1 Computation. 3 The applicant must compute the cost of capital according to the following formula:

3 The derivation of the formula and the basis of the parameters are explained in two memoranda to EPA (Item Nos. II-A-1 and IV-A-6a in EPA Docket No. A-82-35).

R = (0.65×E)+(0.182×I)

where

R = weighted average cost of capital

E = return on equity

I = interest rate.

The components are calculated as follows.

(a) Return on equity for the nonferrous metals industry. The 20 year Treasury bond yield to maturity plus a risk premium of 8.6 percent.

(b) Interest Rate. The 20 year Treasury bond yield to maturity plus a risk premium of 3.0 percent.

(c) Source of the 20 Year Treasury bond yield. Federal Reserve Bulletin, most recent monthly issue. Use the average yield for the most recent full month.

2.6.2 Discount Factor. The discount factor corresponding to the weighted average cost of capital for any forecast year is computed according to the following equation:


where

DF = discount factor

R = weighted average cost of capital

N = the number of years in the future (e.g., for the applicant applying in 1984, N = for the forecast year 1985).

The horizon value, which is described in Section 2.7, is computed as of 1990, the end of the detailed forecast period. The discount factor to be applied to the horizon value is the same as for any other 1990 figure. For example, if the application is made in 1984, the value of N is 7.

2.7 Horizon Value. The horizon value is the present value of a stream of cash flows or net income for 15 years beyond the last forecast year. Applicants must compute the horizon value by capitalizing the average forecast value of the last two forecast years using the current real weighted cost of capital. The line item instructions for schedules having a horizon value entry will specify the values to be capitalized.

The applicant averages the values of the last two years after expressing both values in terms of the last year's dollars. The two-year average value is then multiplied by 9.6. This is the factor associated with capitalizing a 15 year value stream at the current real weighted cost of capital of 6.2 percent.

Applicants must use a separate schedule to calculate the horizon value for the Rate of Return Test and the Interim Controls Test (Schedule C.5 and D.7, respectively). These separate schedules adjust for potential overstatements in the horizon value cash flows that may be caused by control equipment depreciation reported for tax purposes.

2.8 Data Entry

2.8.1 Rounding. All amounts (including both dollar values and physical units) reported in the schedules and exhibits accompanying this application must be rounded to the nearest thousand and expressed in thousands of dollars or units unless otherwise indicated in the instructions.

2.8.2 Estimates. Where an applicant's records cannot produce the specific data required by this application, the use of estimates will be allowed if a meaningful estimate can be made without significant distortion of the reported results. Data estimates must be supported by attaching on a separate sheet of paper as a part of Exhibit B an explanation identifying where such estimates are used and showing explicitly how the estimates were made.

2.8.3 Missing Data. Applicants must provide, where applicable, all operating and financial data requested by this application. Only substantially complete applications can be accepted for processing by the Agency. Questions concerning data entries for which information is not provided by or cannot reasonably be estimated from the applicant's existing accounting records should be addressed to the EPA Contact for NSO Inquiries.

2.8.4 Historical Period. The annual data requested in the historical schedules, Schedules A.1 through A.4, must be reported for each of the five fiscal years immediately preceding the year in which this application is filed. The historical period shall be from fiscal years 1979 through 1983 for an NSO application filed in 1984. If an application is filed in a later year, the references in this appendix to the period 1979 through 1983 should be interpreted accordingly.

2.9 Use of schedules. All applicants must complete Schedules A.1 through A.4, which record historical revenues, cost, and capital investment data. These schedules will be used by EPA to assist in evaluating forecast data. Completion of the remaining schedules depends on the test required of the applicant.

2.9.1 NSO Eligibility. An NSO applicant must pass one of the following two tests and complete the corresponding schedules.

(a) Profit Protection Test. The applicant must complete Schedules B.1 through B.7 to determine eligibility under the Profit Protection Test. Schedules B.1 and B.2 report the base case (without constant controls) revenue and cost forecast, respectively, and Schedule B.3 summarizes Schedules B.1 and B.2. Base case production forecasts should reflect any production curtailments associated with interim controls currently (preforecast) installed on smelters. Schedules B.4 and B.5 report the revenue and cost forecast, respectively, for the constant controls case, and Schedule B.6 summarizes Schedules B.4 and B.5 for the Profit Protection Test.

Schedule B.7 presents the calculations for the Profit Protection Test. The applicant enters the forecast profits from Schedules B.3 and B.6. The present value of the forecast profits is then computed for each case. If the present value of forecast pre-tax profits with constant controls is less than 50 percent of the present value of forecast pre-tax profits without controls (base case) the smelter passes the test and is eligible for an NSO. The smelter also passes the test if the present value of forecast pre-tax profits without controls (base case) is negative.

(b) Rate of Return Test. The applicant must complete Schedules B.4, B.5, and C.1 through C.5 to determine eligibility under the Rate of Return Test. Schedules B.4 and B.5 report the revenue and cost forecast, respectively, for the constant controls case, and Schedule C.1 summarizes Schedules B.4 and B.5 for the Rate of Return Test. Schedule C.2 reports forecast sustaining capital investment for the constant controls case. Schedule C.3 reports historical net investment for the most recent fiscal year expressed in constant dollars, i.e., dollars of the year in which the application is made.

Schedule C.4 presents the calculations for the Rate of Return Test. The applicant reports in Schedule C.4 the forecast cash flows from Schedules C.1 and C.2 and the horizon value from Schedule C.5, computes their present value, and subtracts the value of invested capital in constant dollars (taken from Schedule C.3) to yield net present value. If the net present value is less than zero, the smelter passes the test and is eligible to receive an NSO. This result indicates that the smelter is expected to earn a rate of return less than the industry average cost of capital.

2.9.2 Interim Control Waivers. An applicant for a waiver from interim controls must complete either a portion or all of Schedules D.1 through D.7, depending on whether the application is for a temporary or permanent waiver.

(a) Temporary Waiver from Interim Controls Test. The applicant must complete Schedules D.1 through D.3 to establish eligibility for a temporary waiver from interim controls. Schedules D.1 and D.2 report forecast revenue and cost data under the assumption of installation of interim constant control equipment and no installation of any additional SO2 controls that the smelter would otherwise be required to install but for the issuance of the NSO. Schedule D.3 summarizes Schedules D.1 and D.2 and calculates gross operating profit. If gross operating profit is negative for any year during which the NSO is in effect, the applicant is eligible for a temporary waiver.

(b) Permanent Waiver from Interim Controls Test. The applicant must complete Schedules D.1 through D.7. All schedules except for Schedule D.5 must be completed twice, based on two alternative assumptions: (1) installation of interim constant control equipment, no installation of any additional SO2 controls that the smelter would otherwise be required to install but for the issuance of the NSO, and closure of the smelter after January 1, 1988; and (2) installation of interim constant control equipment, installation of any additional SO2 controls required to comply with the smelter's SIP emission limitation by January 2, 1988, and continued operation of the smelter after January 1, 1988.

Schedules D.1 and D.2 report forecast revenue and cost data under each assumption. Schedule D.3 summarizes Schedules D.1 and D.2, and Schedule D.4 reports forecast sustaining capital under each assumption. Schedule D.5 reports cash proceeds from liquidation.

Schedule D.6 presents the calculations for the permanent waiver test. In Schedule D.6, the applicant reports cash flow projections from Schedules D.3 and D.4 and the horizon value from Schedule D.7, computes their present value and subtracts the current salvage value (taken from Schedule D.5) to yield net present value. The higher of the two net present value figures computed under the two alternative assumptions must be used in the test. If the higher net present value figure is negative, the applicant is eligible for a permanent waiver.

2.10 Use of exhibits. In addition to data required by the schedules included in this application, the following information must be attached as exhibits.

2.10.1 Exhibit A. Background information on the firm's organizational structure and its associated accounting and financial reporting systems for primary nonferrous activities. This information must include, where applicable, the firm's:

(a) Operating association with an ownership control in consolidated subsidiaries, unconsolidated subsidiaries, joint ventures and other affiliated companies.

(b) Organizational subdivision of its primary nonferrous activities into profit centers, cost centers and/or related financial reporting entities employed to control the operation of its mines, concentrators, smelters, refineries and other associated facilities.

(c) Material and product flows among the smelter subject to this NSO application, other integrated facilities and its affiliated suppliers and/or customers. In the case of integrated facilities, applicants must provide process flow diagrams depicting the operating interrelationships among its mines, concentrators, smelters, refineries and other integrated facilities. For both integrated and nonintegrated facilities, applicants also must describe the proportion contributed to its primary nonferrous activities by material purchases from and product sales to affiliated suppliers and customers.

(d) Annual operating capacity over the five most recent fiscal years for the smelter subject to this application. Operating capacity must be defined in terms of the total quantity of throughput that could have been processed with the available facilities after giving appropriate allowance to normal downtime requirements for maintenance and repairs. Operating capacity data also must consider both capacity balancing requirements among processing steps and annual processing yield rates attainable for each facility.

(e) Weighted average analysis of concentrates processed and tonnage produced annually over each of the five most recent fiscal years by the smelter subject to this application.

(f) Accounting system and policies for recording investment expenditures, operating revenues, operating costs and income taxes associated with its primary nonferrous activities. Applicants also must provide a complete description of allocation techniques employed for assigning investments, revenues, costs and taxes to individual profit, cost of departmental centers for which costs are accumulated. Applicants must further indicate the relationship of cost and/or departmental accounting entities to the firm's established profit centers.

(g) Annual five-year operating and capital expenditure plans (or budgets) by individual nonferrous profit center. These documents must include previous plans prepared for the five preceding fiscal years as well as the current one-year and five-year operating and capital expenditure plans. At least the current one-year and five-year plans must provide a specific breakdown of investment expenditures and operating costs associated with the operation and maintenance of each profit center's existing and proposed pollution control facilities.

2.10.2 Exhibit B. Supplemental description and explanation of items appearing in the financial reporting schedules. Other parts of Section 2 and the detailed instructions for the Schedules specify the information required in Exhibit B.

2.10.3 Exhibit C. Financial data documentation. Applicants must document annual balance sheet, income statement and supporting data reported for the firm's preceding five fiscal years or for that portion of the past five years during which the firm engaged in smelter operations. This documentation must be provided by attaching to the application:

(a) SEC 10–K reports filed by the parent corporation for each of the preceding five fiscal years.

(b) Certified financial statements prepared on a consolidated basis for the parent corporation and its consolidated subsidiaries. This requirement may be omitted for those years in which SEC 10–K reports have been attached to this Exhibit.

(c) Business Segment Information reports filed with the Securities and Exchange Commission by the firm for each of the preceding five years (as available).

Schedule A.1—Historical Revenue Data

General. Use Schedule A.1 to report annual historical revenue data for fiscal years 1979 through 1983. Revenues include product sales and associated operating revenues, net of returns and allowances, from smelter sales and/or transfers of copper, lead, zinc and molybdenum or other nonferrous metal products and tolling services to both unaffiliated and affiliated customers. The line items in Schedule A.1 are explained in the following instructions.

Lines 01, 14, 27 and 40—Primary Nonferrous Product Sales. Report for each year the total quantity of copper, lead, zinc and molybdenum or other nonferrous metal product sales.

Lines 02, 15, 28 and 41—Unaffiliated Customer Sales. Report for each year the respective quantities of copper, lead, zinc and molybdenum or other nonferrous metal product sales to unaffiliated customers.

Lines 03, 16, 29 and 42—Unaffiliated Customer Revenues. Report for each year the total operating revenues derived from smelter sales of copper, lead, zinc and molybdenum or other nonferrous metals to unaffiliated customers.

Lines 04, 17, 30 and 43—Unaffiliated Customer Prices. Report for each year the average unit price received on smelter sales of copper, lead, zinc and molybdenum or other nonferrous metals to unaffiliated customers. The prices are computed as operating revenues reported on Lines 03, 16, 29 and 42 divided by the quantities reported on Lines 02, 15, 28 and 41, respectively.

Lines 05, 18, 31 and 44—Average Product Quality Grade. Report for each year the average quality rating assigned to copper, lead, zinc and molybdenum or other nonferrous metal products purchased by the smelter's unaffiliated customers.

Lines 06, 19, 32 and 45—Affiliated Customers Sales. Report for each year the respective quantities of copper, lead, zinc and molybdenum or other nonferrous metal product sales to affiliated customers.

Lines 07, 20, 33 and 46—Affiliated Customer Revenues. Report for each year the total operating revenues derived from smelter sales of copper, lead, zinc and molybdenum or other nonferrous metals to affiliated customers. These revenues should be stated at prices equivalent to those received on comparable sales to unaffiliated customers as described in Section 2.2. Attach as part of Exhibit B an explanation of the methodology used to state affiliated customer revenues.

Lines 08, 21, 34 and 47—Affiliated Customer Prices. Report for each year the average unit price received on smelter sales of copper, lead, zinc and molybdenum or other nonferrous metals to affiliated customers. The prices are computed as operating revenues reported on Lines 07, 20, 33 and 46 divided by the quantities reported on Lines 06, 19, 32 and 45, respectively.

Lines 09, 22, 35 and 48—Average Product Quality Grade. Report for each year the average quality rating assigned to copper, lead, zinc and molybdenum or other nonferrous metal products purchased by the smelter's affiliated customers.

Lines 10, 23, 36 and 49—Total Primary Product Revenues. Report for each year total operating revenues derived from the smelter's sales to unaffiliated and affiliated customers of copper (Lines 03+07), lead (Lines 16+20), zinc (Lines 29+33) and molybdenum or other nonferrous metals (Lines 42+46).

Lines 11, 24, 37 and 50—Transfer Price Adjustments. Report for each year operating revenue adjustments required to equate affiliated customer transfer prices with unaffiliated customer market prices on smelter sales of copper, lead, zinc and molybdenum or other nonferrous metals. Attach as part of Exhibit B an explanation of the method used for restating transfer prices where such adjustments are necessary.

Lines 12, 25, 38 and 51—Other Revenue Adjustments. Report for each year sales returns and allowances and other adjustments applicable to the smelter's revenues derived from copper, lead, zinc and molybdenum or other nonferrous metal product sales. Attach as part of Exhibit B a schedule reporting the types and amounts of such adjustments.

Lines 13, 26, 39 and 52—Adjusted Product Revenues. Enter for each year the sums of Lines 10 through 12 for adjusted copper sales (Line 13), Lines 23 through 25 for adjusted lead sales (Line 26), Lines 36 through 38 for adjusted zinc sales (Line 39) and Lines 49 through 51 for adjusted molybdenum or other nonferrous metal sales (Line 52).

Line 53—Primary Metal Revenues. Enter for each year the sum of Lines 13, 26, 39 and 52.

Line 54—Toll Concentrates Processed. Report for each year the total quantity of toll concentrates processed.

Lines 55 to 58—Customer Toll Revenues. Report for each year the quantity of toll concentrates processed for unaffiliated customers (Line 55), total operating revenues derived from this processing (Line 56), average price charged per ton of concentrate processed (Line 57=Line 56/55) and the average quality rating assigned to toll concentrates processed for unaffiliated customers (Line 58).

Lines 59 to 62—Affiliated Customer Toll Revenues. Report for each year the quantity of toll concentrates processed for affiliated customers (Line 59), total operating revenues derived from such processing (Line 60), average price charged per ton of concentrate processed (Line 61=Line 60/59) and the average quality rating (Line 62) assigned to toll concentrates processed for affiliated customers.

Line 63—Tolling Service Revenues. Enter for each year the total of amounts reported on Lines 56 and 60.

Line 64—Transfer Price Adjustments. Report for each year operating revenue adjustments required to equate affiliated customer transfer prices with market prices charged to unaffiliated customers on the smelter's tolling services. Attach as part of Exhibit B an explanation of the method used for restating transfer prices where such adjustments are necessary.

Line 65—Other Revenue Adjustments. Report for each year other adjustments applicable to the smelter's tolling service revenues. Attach as part of Exhibit B a schedule reporting the types and amounts of such adjustments.

Line 66—Adjusted Tolling Service Revenues. Enter for each year the total of Lines 63 through 65.

Line 67—Co-Product Revenues. Report for each year the net revenues from sales of co-products derived from the smelter's operations. Attach as part of Exhibit B a schedule showing by individual type of co-product, the quantity produced and sold, market price per unit of sales and total revenues derived from the co-product sales.

Line 68—Pollution Control By-product Revenues. Report for each year revenues from the sale of by-products derived from operation of the smelter's pollution control facilities. Attach as part of Exhibit B a schedule showing by type of by-product produced, the quantity of output, market price received per unit of output sold and total revenue derived from the by-product sales.

Line 69—Other By-product Revenues. Report for each year revenues from the sales of gold, silver and other by-products derived from the smelter's operations. Attach as part of Exhibit B a schedule providing additional documentation as specified in the instruction for Line 68.

Line 70—Total Co-product and By-product Revenues. Enter for each year the total of Lines 67 through 69.

Schedule A.2—Historical Cost Data

General. Use Schedule A.2 to report annual historical cost and input quantities for smelter operations for fiscal years 1979 through 1983. The line items in Schedule A.2 are explained in the following instructions.

Line 01—Total Quantity Purchased. Report for each year the total quantity of concentrates purchased by the smelter. This will be sum of Lines 02 and 06. Do not include the quantity of toll concentrates.

Line 02—Quantity Purchased. Report for each year the total quantity of concentrates purchased from unaffiliated suppliers by the smelter. Attach as a part of Exhibit B a description of the types and grades of these concentrates. Do not include the quantity of toll concentrates.

Line 03—Concentrate Cost. Report for each year the outlays paid to unaffiliated suppliers for concentrates. Attach as part of Exhibit B an explanation of the method(s) used in determining these outlays and relationship between concentrate prices and the types and grades of concentrates purchased from unaffiliated suppliers.

Line 04—Average Unit Price. Report for each year the average unit price paid for purchases of concentrates from unaffiliated suppliers. Generally, this value will be equivalent to Line 03 divided by Line 02. If this equivalency does not hold, attach as a part of Exhibit B an explanation of the variance.

Line 05—Average Concentrate Grade. Report for each year the average concentrate grade of concentrates purchased from unaffiliated suppliers. Attach as part of Exhibit B an explanation of this average. The average should correspond to the average price reported in Line 04.

Line 06—Quantity Purchased. Report for each year the total quantity of concentrates purchased from affiliated suppliers by the smelter. Attach as part of Exhibit B a description of the types and grades of these concentrates. Do not include the quantity of toll concentrates.

Line 07—Concentrate Cost. Report for each year the actual outlays paid to affiliated suppliers for concentrates. Attach as part of Exhibit B an explanation of the method(s) used in determining these outlays and relationship between concentrate prices and the types and grades of concentrates purchased from affiliated suppliers. Do not reflect any adjustments to market prices here.

Line 08—Average Unit Price. Report for each year the average unit price paid for purchases of concentrates from affiliated suppliers. Generally, this value will be equivalent to Line 07 divided by Line 06. If this equivalency does not hold, attach as part of Exhibit B an explanation of the variance.

Line 09—Average Concentrate Grade. Report for each year the average concentrate grade of concentrates purchased from affiliated suppliers. Attach as part of Exhibit B an explanation of this average. The average should correspond to the average price reported in Line 08.

Line 10—Total Concentrate Cost. Enter for each year the sum of Lines 03 and 07.

Line 11—Transfer Price Adjustments. Enter for each year the amounts required to adjust outlays paid to affiliated suppliers to market value. Refer to Section 2.2 for instructions on the restatement of affiliated party transactions. Attach as part of Exhibit B a description and the computations of any required cost adjustments.

Line 12—Other Cost Adjustments. Enter for each year the amounts of any other cost adjustments required such as freight or allowances. Attach as part of Exhibit B the identification and the derivation of these adjustments.

Line 13—Adjusted Concentrate Cost. Enter for each year the adjusted concentrate cost reflecting the adjustments reported in Lines 11 and 12.

Line 14—Direct Labor Hours. Report for each year the quantity of direct labor hours required to support the processing levels previously reported. Attach as part of Exhibit B an explanation of the labor productivity factor involved.

Line 15—Average Hourly Wage Rate. Report for each year the average wage rate paid per unit of direct labor input. Attach as part of Exhibit B a description of direct labor costs factors under existing labor contracts and an explanation of the method(s) used to determine wage rates.

Line 16—Total Wage Payments. Enter for each year the product of Lines 14 and 15.

Line 17—Supplemental Employee Benefits. Report adjustments required to direct labor costs for other employee compensation under supplemental benefit plans. Attach as part of Exhibit B a description of such plans and their costs and an explanation of the method(s) used to determine such costs.

Line 18—Total Production Labor Cost. Enter for each year the total of Lines 16 and 17.

Lines 19, 22, 25, 28 and 31—Energy Quantities. Report for each year the quantity of energy by type required to support the processing levels reported in the smelter's revenue. Attach as part of Exhibit B, an explanation of energy use factors and qualities considered in determining the smelter's energy requirements.

Lines 20, 23, 26, 29 and 32—Unit Prices. Report for each year a price paid per unit of energy input by type of energy. Attach as part of Exhibit B, a description of the energy price factors under existing energy contracts and an explanation of the method(s) used to determine unit energy prices.

Lines 21, 24, 27, 30 and 33—Total Payments. Enter for each year the products of quantity and prices paid for electricity (Lines 19×20), natural gas (Lines 22×23), coal (Lines 25×26), fuel oil (Lines 28×29), and other (Lines 31×32).

Line 34—Total Energy Costs. Enter for each year the total of Lines 21, 24, 27, 30 and 33.

Schedule A.3—Historical Profit and Loss Summary

General. Use Schedule A.3 to report annual revenues, cost and income taxes assignable to operation of the smelter subject to this NSO application for fiscal years 1979 through 1983. Assignable revenues and costs should include only the results of transactions either (1) directly associated with smelter operations or (2) for which the applicant can establish a causal and beneficial relationship with smelter operations pursuant to instructions in Section 2.1. The line items in Schedule A.3 are explained in the following instructions.

Line 01—Primary Metal Sales. Enter the totals reported in Schedule A.1, Line 40.

Line 02—Co-Product and By-Product Sales. Report for each year annual revenues, net or returns and allowances, derived from smelter sales and/or transfers of co-products and by-products to both unaffiliated and affiliated customers. Attach as part of Exhibit B a supporting schedule for each major co-product and by-product component of smelter revenues. Segregate the revenues reported by major co-product and by-product components into their unaffiliated customer and affiliated customer elements. Report for each component's unaffiliated and affiliated customer revenue elements the (1) average grade of product sold, (2) actual quantity sold, (3) average price per unit, and (4) total smelter revenues. Also show for each product line any adjustments required to restate transfer prices and explain the basis for such adjustments. Refer to Section 2.2 for instructions on the restatement of affiliated customer revenues.

Line 03—Tolling Service Revenues. Enter the totals reported in Schedule A.1, Line 53.

Line 04—Other Operating Revenues. Report for each year annual revenues directly associated with smelter operations that have not previously been reported on Lines 01 through 03. Attach as part of Exhibit B a schedule showing the types and amounts of sales reported as other operating revenue. The following non-operating revenue and income items should not be included as other operating revenue or as a part of revenues reported on Lines 01 through 03.

Royalties, licensing fees and other income from intangibles.

Interest and dividend income on portfolio investments.

Equity in income (loss) of unconsolidated subsidiaries and affiliates.

Gain (loss) from discontinued operations and disposal of property.

Minority interest adjustment to consolidated subsidiary income.

Extraordinary items.

Line 05—Total Operating Revenue. Enter for each year the total of Lines 01 through 04.

Line 06—Concentrates Processed. Report the cost of concentrates processed and sold or transferred to unaffiliated and affiliated customers from Schedule A.2, Line 13. Concentrates purchased from unaffiliated suppliers should be valued at the actual prices paid. Concentrates purchased from affiliated suppliers should be valued at or, if necessary, restated to equivalent prices quoted by unaffiliated suppliers. If prices used to report revenues are c.i.f. and concentrate costs are f.o.b. smelter, all transportation charges paid on the smelter's or buyer's account should be excluded from smelter expense. Attach as part of Exhibit B supporting schedules showing the:

Annual value of concentrate purchases classified according to purchases from unaffiliated and affiliated suppliers.

Cost of sales adjustments to concentrate purchases for net annual additions to or withdrawals from concentrate inventories, freight-in on concentrate purchases and inventory spoilage.

Impact on cost of sales for restating, where applicable, the cost of concentrate purchases from affiliated suppliers to the equivalent prices paid to unaffiliated suppliers.

Volumes, grades and net prices of concentrate purchases from unaffiliated and affiliated suppliers by type of concentrate purchased.

Volumes, grades and net prices associated with toll concentrates processed by type of concentrate.

Line 07—Other Materials Costs. Report for each year annual costs incurred for flux, refractories, coke and other materials used by the smelter in its processing of concentrates. Materials purchased from unaffiliated suppliers should be valued at the actual prices paid after adjustment for transportation costs incurred. Materials purchased from affiliated suppliers should be valued at or, if necessary, restated to equivalent prices quoted by unaffiliated suppliers. Include in Exhibit B supporting schedules showing the:

Annual value of material purchases classified according to purchases from unaffiliated and affiliated suppliers.

Cost of sales adjustments to material purchases for net annual additions to or withdrawals from material inventories, freight costs on material purchases and inventory loss.

Impact on cost of sales for restating, where applicable, the costs of material purchases from affiliated suppliers to equivalent prices paid to unaffiliated suppliers.

Classification of other material costs by major cost factors for each cost component that exceeds 20 percent of any line item in the cost of sales schedule.

Line 08—Production Labor Costs. Report for each year total direct labor costs incurred by the smelter for processing purchased and toll concentrates, Schedule A.2, Line 18. Include in Exhibit B supporting schedules showing the:

Manhours and wage rates for major labor classifications.

Potential impact on wage rates of provision in the smelter's current labor contracts.

Explanation of major variances observed in direct labor costs over the five-year period as a result of factors such as strikes or new labor contracts.

Line 09—Energy Costs. Enter the totals reported in Schedule A.2, Line 34.

Line 10—Pollution Control Costs. Report for each year expenses incurred for operating and maintaining pollution control facilities. All by-product credits associated with pollution control facility operations should be eliminated and reported on Line 02. Depreciation and amortization charges against the smelter's pollution control facilities should be reported separately on Line 18. Attach as part of Exhibit B supporting schedules showing the:

Major pollution control cost elements with their values classified according to direct and indirect cost factors.

Techniques used to allocate indirect pollution control costs to major cost pools.

Line 11—Production Overhead. Report for each year the total costs for indirect labor, indirect materials and other production overhead costs associated with the smelter. Attach as part of Exhibit B a schedule showing annual overhead costs by major cost components associated with the smelter's operations. For each cost component, where appropriate, identify the quantity and unit price element of overhead costs.

Line 12—Other Production Costs. Report for each year annual smelter overhead and other production costs not previously reported on Lines 06 through 11. By-product credits, if any, should be eliminated and reported on Line 02 as operating revenues. Attach as part of Exhibit B supporting schedules showing the:

Major cost elements classified according to direct and indirect production costs.

Disaggregation of major overhead cost components into their fixed and variable cost elements.

Allocation techniques used in assigning indirect overload costs to the major cost components.

Elements of overhead costs represented by purchases from affiliated suppliers and adjustments, if any, required to restate these costs on the basis of equivalent prices paid to unaffiliated supplier.

Line 13—Total Cost of Sales. Enter for each year the total of Lines 06 through 12.

Line 14—Gross Operating Profit. Enter for each year the difference between Lines 05 and 13.

Line 15—Selling, General & Administrative (SG&A) Expenses. Report for each year SG&A expenses attributable to the smelter's annual operating activities. Exclude those operating costs to be reported separately on Lines 16 through 21 and those costs for which causal and beneficial relationships to the smelter cannot be established. Attach as part of Exhibit B supporting schedules (1) segregating SG&A expenses by major expense components, (2) classifying the major expense components according to those costs incurred directly by smelter operations and costs allocated to the smelter from indirect cost pools, and (3) explaining the basis used for indirect cost allocations.

Line 16—Taxes, Other Than Income Tax. Report for each year all taxes (exclusive of Federal, State, local and foreign income taxes) assignable to the smelter's operations. Attach as part of Exhibit B, a schedule that (1) segregates these operating taxes by major component, (2) classifies each component according to direct and indirect cost elements, and (3) explains the basis used for indirect cost allocations.

Line 17—Research Costs. Report for each year research costs (exclusive of capitalized costs reported in Schedule A.4) that are assignable to the smelter's annual operations. Attach as part of Exhibit B a schedule (1) segregating exploration and research costs by major expense components, (2) classifying each expense component according to direct and indirect cost elements, and (3) explaining the basis used for indirect cost allocations.

Line 18—Pollution Control Depreciation and Amortization. Report for each year annual depreciation and amortization charges attributable to the smelter's investment in pollution control facilities and equipment. Reported charges should be computed in accordance with depreciation and amortization methods adopted for tax reporting purposes by the firm. Attach explanatory supporting schedules as part of Exhibit B.

Line 19—Other Facility Depreciation and Amortization. Report for each year annual depreciation and amortization charges (exclusive of charges reported on Line 18) assignable to the smelter's operations. Attach explanatory supporting schedules as part of Exhibit B.

Line 20—Interest on Short-Term Debt. Report for each year interest expense and associated financial charges on current liabilities in accordance with the assignment instructions in Section 2.1. Do not include interest on the portion of long-term debt due within the current year for each reporting period.

Line 21—Miscellaneous Operating Expenses. Report for each year any additional expenses assignable to the smelter's annual operations. Attach as part of Exhibit B a schedule (1) segregating these additional expenses into major expense components, (2) classifying each expense component according to costs incurred directly by the smelter and costs allocated to the smelter from indirect cost pools, and (3) explaining the basis used for indirect cost allocations.

Line 22—Total Other Operating Expenses. Enter for each year the total of Lines 15 through 21.

Line 23—Income from Operations. Enter for each year the difference between Lines 14 and 22.

Line 24—Gain/(Loss) from Disposition of Property. Report net gains or losses recognized during each year from disposition of property, plant and equipment. Report such gains or losses in accordance with the firm's normal practice for certified financial statement reporting. If such gains or losses are not significant and are classified otherwise, no reclassification need be made. A note to this effect must be included in Exhibit B.

Line 25—Miscellaneous Income and Expenses. Report minority interest in income, foreign currency translation effects, and other non-operating income and expenses directly assignable to the smelter and not recognized elsewhere on this schedule. Report such items in accordance with the accounting methods used for certified financial reporting purposes.

Line 26—Total Other Income and Expenses. Enter for each year the sum of Lines 24 and 25.

Line 27—Net Taxable Income. Enter for each year the difference between Lines 23 and 26.

Schedule A.4—Historical Capital Investment Summary

General. Use Schedule A.4 to report annual end-of-period asset investments and current liabilities for fiscal years 1979 through 1983. These figures must correspond with the revenues and costs associated with operation of the smelter subject to this NSO application as reported in Schedule A.3.

The amounts assigned to the subject smelter should include both (1) investments and liabilities directly identifiable with the smelter's operating activities and (2) asset investments shared with other segments to the extent that a specific causal and beneficial relationship can be established for the intersegment allocation of such investments. Do not allocate to the smelter the costs of assets maintained for general corporate purposes. Provide a detailed explanation of amounts classified as nontraceable on a separate schedule and attach as part of Exhibit B.

Applicants shall also restate trade receivables and payables for transfer price adjustments on the smelter's transactions with affiliated customers. The line items in Schedule A.4 are explained in the following instructions.

Line 01—Cash on Hand and Deposit. Report for each year total cash balances assignable to the smelter's operations at the end of each year on the basis of causal and beneficial relationships with total corporate activities. Attach as part of Exhibit B in explanation of the basis used for allocation.

Line 02—Temporary Cash Investments. Report for each year temporary cash investments in time deposits or other short-term securities. Include only those investments either held by the smelter to meet current-period tax payments or other budgeted expenditures specifically identifiable with the smelter's continued operation. Exclude any temporary cash investments for which no specific future outlay requirement can be identified.

Attach as part of Exhibit B a schedule classifying temporary cash investments according to identifiable budgeted expenditure requirements.

Lines 03 and 04—Net Trade Receivables. Report for each year trade accounts and notes, net of reserves for uncollectible items, assignable to the smelter in relation to its unaffiliated (Line 03) and affiliated (Line 04) customer sales and transfers. Trade receivables reported by the smelter as due from affiliated customers should be stated or, if necessary, restated on credit terms equivalent to those received by unaffiliated customers on a sale of comparable products. Attach as part of Exhibit B a schedule showing adjustments in the smelter's receivables investments required to equate trade credit terms extended to affiliated and unaffiliated customers.

Lines 05 and 06—Inventory Investments. Report for each year respective end-of-period investments in raw material, work-in-process and finished good inventories held to support the smelter's production and sale of products (Line 05) and associated inventories of other materials and supplies (Line 06). These inventories must be valued at current market prices. Inventory purchases from affiliated suppliers should also be stated at current market prices or, if necessary, restated at current market prices prevailing on purchases from unaffiliated suppliers. Attach explanatory supporting schedules as part of Exhibit B.

Line 07—Other Current Assets. Report for each year prepaid expenses, deferred charges, non-trade notes and accounts receivable, and other assets classified as current for certified financial statement reporting purposes that are assignable to the smelter's operations. Attach as part of Exhibit B a schedule classifying these other current assets according to their types and amounts.

Line 08—Total Current Assets. Enter for each year the total of Lines 01 through 07.

Lines 09 to 14—Property, Plant and Equipment. Report for each year by individual line item property, plant and equipment investments assignable to smelter operations. Include in gross facility investments at the end of each period both (1) property, plant and equipment directly associated with the smelter's operations and (2) facilities shared with other operating segments to the extent that a causal and beneficial relationship can be established for the inter-segment allocation of such facility investments.

Attach as part of Exhibit B a schedule reporting by individual line item the annual capital expenditures on additional property, plant and equipment investments in the smelter's operations. Further classify these annual capital expenditures into both (1) investments required to maintain the smelter versus investments in smelter expansion and improvement and (2) direct facility versus joint-use facility investments. Explain the method used for allocating capital expenditures on joint-use facilities to the smelter's operations. Refer to Line 17 instructions for additional reporting requirements on the smelter's facility investments. (continued)