-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Mg+sBPqRq+lo6sfMA5v6Dao1VUiIKYJHTm4MDgkS4r/3Nc7XfPcR/RfBuE2CG/z5 huN8zwFG62hhwUM0amv86Q== 0000007649-95-000015.txt : 19951222 0000007649-95-000015.hdr.sgml : 19951222 ACCESSION NUMBER: 0000007649-95-000015 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950930 FILED AS OF DATE: 19951221 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ASARCO INC CENTRAL INDEX KEY: 0000007649 STANDARD INDUSTRIAL CLASSIFICATION: PRIMARY SMELTING & REFINING OF NONFERROUS METALS [3330] IRS NUMBER: 134924440 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-00164 FILM NUMBER: 95603417 BUSINESS ADDRESS: STREET 1: 180 MAIDEN LN CITY: NEW YORK STATE: NY ZIP: 10038 BUSINESS PHONE: 2125102000 FORMER COMPANY: FORMER CONFORMED NAME: AMERICAN SMELTING & REFINING CO DATE OF NAME CHANGE: 19760607 10-Q/A 1 1995 Third Quarter Form 10-Q/A SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarter Ended September 30, 1995 Commission file number 1-164 ------------------ ----- ASARCO INCORPORATED (Exact name of registrant as specified in its charter) New Jersey 13-4924440 (State or other jurisdiction of (I.R.S Employer incorporation or organization) Identification No.) 180 Maiden Lane, New York, N.Y. 10038 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code 212-510-2000 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 ____ As of October 31, 1995 there were outstanding 42,496,683 shares of Asarco Common Stock, without par value. ASARCO Incorporated and Subsidiaries INDEX TO FORM 10-Q
Page No. Part I. Financial Information: Item 1. Financial Statements (unaudited) Consolidated Statement of Earnings Three Months and Nine Months Ended September 30, 1995 and 1994 2 Consolidated Balance Sheet September 30, 1995 and December 31, 1994 3 Consolidated Statement of Cash Flows Three Months and Nine Months Ended September 30, 1995 and 1994 4 Notes to Consolidated Financial Statements 5-9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10-14 Exhibit I - Report of Independent Accountants Part II. Other Information: Item 1. Legal Proceedings 15 Signatures 16 Exhibit II - Independent Accountants' Awareness Letter
ASARCO Incorporated and Subsidiaries CONSOLIDATED STATEMENT OF EARNINGS (unaudited)
3 Months Ended 9 Months Ended September 30, September 30, 1995 1994 1995 1994 (in thousands) (in thousands) Sales of products and services $819,721 $512,968 $2,398,192 $1,443,705 Operating costs and expenses: Cost of products and services 589,472 450,735 1,740,129 1,294,335 Selling, administrative and other 29,858 19,968 93,211 59,348 Provision (recovery) for bad debts 422 648 1,487 (2,086) Depreciation and depletion 26,645 20,396 88,701 62,727 Research and exploration 6,693 5,541 19,459 13,875 Provision for environmental matters - 46,585 - 51,159 -------- ------- --------- --------- Total operating costs and expenses 653,090 543,873 1,942,987 1,479,358 -------- ------- --------- --------- Operating income (loss) 166,631 (30,905) 455,205 (35,653) Interest expense (25,287) (16,103) (68,614) (45,104) Other income (expense) (1,443) 1,918 11,453 7,429 Gain on sale of Asarco Australia Limited - - - 58,512 -------- ------- --------- ------ Earnings (loss) before taxes on income, minority interests and equity earnings 139,901 (45,090) 398,044 (14,816) Taxes on income (benefit) 46,555 (15,248) 126,966 (297) Minority interests in net earnings of consolidated subsidiaries (35,959) (172) (92,263) (474) Equity in earnings of nonconsolidated associated companies, net of taxes of $81 and $374 in 1995; $1,279 and $2,959 in 1994 929 13,865 1,623 30,812 -------- -------- --------- -------- Net earnings (loss) $ 58,316 $(16,149) $ 180,438 $ 15,819 ======== ========= ========= ======== Per share amounts: Net earnings (loss) (a) $ 1.38 $ (.39) $ 4.27 $ .38 ======== ========= ======== ======== Cash dividends $ 0.20 $ 0.10 $ 0.50 $ 0.30 Weighted average number of shares outstanding 42,402 41,942 42,264 41,850
(a) The effect on the calculation of net earnings (loss) per common share of the Company's Common Stock equivalents (shares under option) was insignificant. See notes to financial statements ASARCO Incorporated and Subsidiaries CONSOLIDATED BALANCE SHEET (unaudited)
September 30, December 31, 1995 1994 (in thousands) ASSETS Current assets: Cash and cash equivalents $ 229,093 $ 18,321 Accounts and notes receivable, net 513,638 383,724 Inventories 399,282 299,148 Other assets 53,949 46,124 ---------- ----------- Total current assets 1,195,962 747,317 Investments: Cost and available-for-sale 874,777 751,888 Equity method 66,836 391,489 Property 4,097,409 2,509,072 Accumulated depreciation and depletion (2,049,765) (1,203,573) Intangible assets 47,279 48,356 Other assets 52,584 46,476 ---------- ----------- Total Assets $4,285,082 $ 3,291,025 ========== =========== LIABILITIES Current liabilities: Bank loans $ 11,466 $ 5,125 Current portion of long-term debt 27,613 13,330 Accounts payable 311,923 296,983 Salaries and wages 33,867 20,159 Taxes on income 91,379 43,152 Reserve for closed plant and environmental matters 45,632 55,946 Other liabilities 61,965 30,838 ---------- ----------- Total current liabilities 583,845 465,533 ---------- ----------- Long-term debt 1,120,409 914,601 Deferred income taxes 230,847 156,450 Reserve for closed plant and environmental matters 24,773 66,458 Postretirement benefit obligations other than pensions 94,397 95,186 Other liabilities and reserves 74,092 72,967 ---------- ----------- Total non-current liabilities 1,544,518 1,305,662 ---------- ----------- MINORITY INTERESTS 393,770 2,443 ---------- ----------- COMMON STOCKHOLDERS' EQUITY Common stock (a) 594,351 572,591 Unrealized gain on securities reported at fair value 166,588 91,627 Retained earnings 1,002,010 853,169 ---------- ----------- Total Common Stockholders' Equity 1,762,949 1,517,387 ---------- ----------- Total Liabilities, Minority Interests and Common Stockholders' Equity $4,285,082 $ 3,291,025 ========== =========== (a) Common shares: authorized 80,000; outstanding: 42,480 42,102 See notes to financial statements
ASARCO Incorporated and Subsidiaries CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited)
3 Months Ended 9 Months Ended September 30, September 30, 1995 1994 1995 1994 (in thousands) (in thousands) OPERATING ACTIVITIES Net earnings (loss) $ 58,316 $(16,149) $180,438 $15,819 Adjustments to reconcile net earnings to net cash provided from (used for) operating activities: Depreciation and depletion 26,645 19,757 88,701 62,727 Deferred income taxes (benefit) 12,950 (13,364) 35,113 302 Treasury stock used for employee benefits 939 1,261 3,770 3,703 Undistributed equity (earnings) losses (946) (10,840) (540) (24,967) Net (gain) loss on sale of investments and property and Asarco Australia Limited 4,749 (221) 2,996 (59,510) Increase (decrease) in reserve for closed plant and environmental matters (21,425) 25,543 (51,999) 14,234 Minority interests 35,959 172 92,263 474 Cash provided from (used for) operating assets and liabilities, net of the consolidation of SPCC: Accounts and notes receivable (72,356) 18,675 (35,949) (57,421) Inventories 26,664 (5,259) 10,358 (28,747) Accounts payable and accrued liabilities 20,729 (62,999) (10,945) 29,301 Other operating liabilities and reserves 6,565 10,959 (8,323) 6,914 Other operating assets 14,126 (4,905) 3,584 (11,311) Foreign currency transaction (gains) losses 38 191 (1,241) 2,498 -------- ------- -------- ------- Net cash provided from (used for) operating activities 112,953 (37,179) 308,226 (45,984) -------- -------- ------- -------- INVESTING ACTIVITIES Capital expenditures (89,399) (31,651) (275,781) (55,583) Sale of securities, investments and property 26,073 13,406 88,638 93,109 Release of restricted cash 2,177 - 60,450 - Sale of available-for-sale securities 4,823 59,591 13,967 122,265 Purchase of available-for-sale securities (4,623) (59,863) (14,975) (123,063) Purchase of investments (1,545) (68) (37,555) (283) Acquisition of additional interest in SPCC - - (116,444) - Consolidation of the opening cash balance of SPCC - - 93,348 - -------- ------- -------- ------- Net cash provided from (used for) investing activities (62,494) (18,585) (188,352) 36,445 -------- ------- -------- ------- FINANCING ACTIVITIES Debt incurred 65,057 62,217 229,780 108,096 Debt repaid (92,272) (595) (121,439) (80,956) Net treasury stock transactions 5,108 3,225 5,343 3,707 Dividends paid (8,487) (4,196) (21,146) (12,557) -------- ------- -------- ------- Net cash provided from (used for) financing activities (30,594) 60,651 92,538 18,290 --------- ------- -------- ------- Effect of exchange rate changes on cash (1,295) (1,039) (1,640) (1,370) -------- ------- -------- ------- Increase (decrease) in cash and cash equivalents 18,570 3,848 210,772 7,381 Cash and cash equivalents at beginning of period 210,523 16,033 18,321 12,500 -------- ------- -------- ------- Cash and cash equivalents at end of period $229,093 $19,881 $229,093 $19,881 ======== ======= ======== =======
See notes to financial statements ASARCO Incorporated and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) A. In the opinion of the Company, the accompanying consolidated financial statements contain all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the Company's financial position as of September 30, 1995 and the results of operations and cash flows for the three months and nine months ended September 30, 1995 and 1994. Certain conforming reclassifications have been made in the financial statements from amounts previously reported. This financial data has been subjected to a limited review by Coopers & Lybrand L.L.P., the Company's independent accountants. Their report is filed as an exhibit to this filing. The results of operations for the three month and nine month periods are not necessarily indicative of the results to be expected for the full year. The accompanying consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's 1994 annual report on Form 10-K. B. Acquisition of Additional Interest in SPCC: On April 5, 1995, the Company acquired an additional 10.7% interest in Southern Peru Copper Corporation (SPCC) for $116.4 million, increasing its ownership from 52.3% to 63%. The additional shares acquired enabled the Company to elect a majority of the directors of SPCC. As a result, the Company has consolidated the financial statements of SPCC in its financial statements based on its 52.3% ownership, effective January 1, 1995 and 63% ownership, effective April 5, 1995. The Company previously accounted for its investment in SPCC by the equity method. The acquisition has been accounted for as a purchase transaction. The excess of the purchase price over the Company's interest in the net book value of SPCC attributable to the shares acquired is estimated to be assigned to proven and probable sulfide reserves, proven and probable leachable reserves and mineralized material. C. Inventories were as follows: (in millions)
Sept. 30, Dec. 31, 1995 1994 Inventories of smelters, refineries and other metal plants at lower of LIFO cost or market $ 16.8 $ 12.5 Provisional cost of metals received for which prices have not yet been fixed 69.3 78.5 Mine inventories at lower of FIFO cost or market 113.8 119.8 Metal inventory at lower of average cost or less 31.0 - Materials and supplies at average cost or less 140.8 65.9 Other 27.6 22.4 ------- ------- Total $ 399.3 $ 299.1 ======= =======
Metal inventory represents the refined and in-process metal inventories of SPCC. At September 30, 1995, replacement cost exceeded inventories carried at LIFO cost by approximately $137.8 million (December 31, 1994 - $143.2 million). D. Hedging activities: At September 30, 1995, the Company had copper put options with an average strike price of 90.7 cents per pound covering 34,309 tons or approximately 41% of Asarco's expected domestic copper production for the remaining three months of 1995. The cost of acquiring these puts was $1.3 million. Copper put options with an average strike price of 98.5 cents per pound covering 130,210 tons or approximately 39% of Asarco's expected 1996 domestic copper production were acquired at a cost of $4.6 million. In addition, at September 30, 1995, SPCC had copper put options with an average strike price of 105.3 cents per pound covering 33,069 tons or approximately 43% of its expected copper production for the remaining three months of 1995. The cost of acquiring these puts was $1.1 million. Copper put options with an average strike price of 96.3 cents per pound covering 79,366 tons or approximately 25% of its expected 1996 copper production were acquired at a cost of $1.9 million. E. In the third quarter of 1994, the provision for environmental matters included a $30.7 million after-tax charge, $45.5 million on a pre-tax basis, for environmental costs associated with the Company's previously closed facilities and current operations. F. Supplemental disclosures of cash flow information: (in millions)
Three Months Ended Nine Months Ended September 30, September 30, 1995 1994 1995 1994 ---- ---- ---- ---- Interest paid 25.3 16.7 64.0 46.6 (net of amounts capitalized) Income taxes paid (refunded) 19.6 (6.7) 45.9 (5.6)
G. In the first quarter of 1994, the Company sold its remaining interest in Asarco Australia Limited, a gold mining company, for US $79.5 million. The sale resulted in a pre-tax gain of $58.5 million ($31.9 million after-tax). H. Taxes on income: Taxes on income for the three month and nine month periods ended September 30, 1995 reflect increased taxes due to higher earnings and the consolidation of SPCC. Taxes on income for the three month and nine month periods ended September 30, 1994 reflect tax benefits resulting from operating losses. Additionally, the nine month period ended September 30, 1994 includes taxes resulting from the gain on the sale of Asarco Australia Limited. Reported earnings from the consolidated subsidiary Asarco Australia Limited were previously treated as permanently reinvested. I. Condensed quarterly earnings information is provided for SPCC, a significant associated company previously accounted for by the equity method. Earnings information is not shown for the comparable 1995 period as the Company has consolidated the financial statements of SPCC in its financial statements effective January 1, 1995.
(in millions) SPCC Three Months Ended Nine Months Ended September 30, 1994 September 30, 1994 ------------------ ------------------ Net sales $186.9 $483.0 ====== ====== Earnings before taxes $ 42.3 $ 98.6 Taxes on income (14.9) (38.1) ------ ------ Net earnings $ 27.4 $ 60.5 ====== ====== Asarco's ownership percentage 52.3% 52.3% ====== ====== Asarco's pre-tax equity earnings $ 14.3 $ 31.6 ====== ======
Equity in earnings of other nonconsolidated associated companies included in the Consolidated Statement of Earnings for the three months ended September 30, 1995 and 1994 were $1.0 million and $.8 million respectively, and for the nine months ended September 30, 1995 and 1994 were $2.0 million and $2.1 million respectively. J. Consolidation of SPCC - Pro Forma Results of Operations: Note B describes the Company's acquisition of an additional 10.7% of SPCC on April 5, 1995. The table below summarizes unaudited pro forma consolidated results of operations of Asarco Incorporated and Subsidiaries for the three months and nine months ended September 30, 1995 and 1994, assuming that Asarco had acquired an additional 10.7% of the outstanding stock of SPCC on January 1, 1995 and January 1, 1994, respectively. In preparing the pro forma data, adjustments have been made for the amortization of the excess of the purchase price over the Company's interest in the net book value of SPCC attributable to the shares acquired, the interest expense on additional debt incurred in connection with the acquisition, the income tax benefit from amortization and additional interest expense and the SPCC earnings attributable to Asarco's additional interest net of the related income tax expense. The unaudited pro forma financial information is based on management's assumptions and does not purport to represent the results that actually would have occurred if the acquisition had, in fact, been completed on the dates assumed.
Results of Operations: Three Months Ended Nine Months Ended (in millions, except per September 30, September 30, share amounts) Actual Pro Forma Pro Forma Pro Forma 1995 1994 1995 1994 Sales of products and services $819.7 $693.3 $2,398.2 $1,904.0 Net earnings $58.3 ($14.8) $183.4 $17.5 Net earnings per common share $1.38 ($.35) $4.34 $.42
K. Contingencies and Litigation: The Company and two subsidiaries, at September 30, 1995, are defendants in 950 lawsuits brought by 17,714 primary and 13,667 secondary plaintiffs seeking substantial actual and punitive damages for personal injury or death allegedly caused by exposure to asbestos, as well as three lawsuits for removal or containment of asbestos-containing products in structures. In addition, the Company and certain subsidiaries are defendants in product liability lawsuits involving various other products, including metals. The Company is a defendant in lawsuits in Arizona brought by indian tribes and some other Arizona water users contesting the right of the Company and numerous other individuals and entities to use water and, in some cases, seeking damages for water usage and contamination of ground water. The lawsuits could potentially affect the Company's use of water at its Ray Complex, Mission Complex and other Arizona operations. The Company and certain subsidiaries are defendants in eleven class and non-class lawsuits in Texas seeking substantial compensatory and punitive damages for personal injury and contamination of property allegedly caused by present and former operations and product sales of the Company and its subsidiaries. The Company and certain of its subsidiaries have received notices from the United States Environmental Protection Agency ("EPA") that they and in most cases numerous other parties are potentially responsible to remediate alleged hazardous substance releases at certain sites under the Comprehensive Environmental Response, Compensation and Liability Act of 1980 ("CERCLA" or "Superfund"). In addition, the Company and certain of its subsidiaries are defendants in lawsuits brought under CERCLA or state laws which seek substantial damages and remediation. Remedial action is being undertaken by the Company at some of these sites. In connection with the sites referred to above, as well as at other closed plants and sites where the Company is working with the EPA and state agencies to resolve environmental issues, the Company has made reasonable estimates, where possible, of the extent and cost of necessary remedial action and damages. As a result of feasibility studies, public hearings, engineering studies and discussions with the EPA and similar state agencies, for sites where it is probable that liability has been incurred and the amount of cost could be reasonably estimated, the Company recorded charges to earnings in 1992 of $72.4 million, and in 1994 of $51.2 million. Reserves for these matters total $70.4 million at September 30, 1995. The Company anticipates that expenditures relating to these reserves will be made over the next several years. Net cash expenditures charged to these reserves for the three months ended September 30, 1995 and 1994 were $22.6 and $21.0 million respectively, and for the nine months ended September 30, 1995 and 1994 were $54.9 and $36.9 million respectively. Future environmental related expenditures cannot be reliably determined in many circumstances due to the early stages of investigation, the uncertainties relating to specific remediation methods and costs, the possible participation of other potentially responsible parties, insurance coverage issues, and changing environmental laws and interpretations. It is the opinion of management that the outcome of the legal proceedings and environmental contingencies mentioned, and other miscellaneous litigation and proceedings now pending, will not materially adversely affect the financial position of Asarco and its consolidated subsidiaries. However, it is possible that future environmental contingencies could have a material effect on quarterly or annual operating results, when they are resolved in future periods. This opinion is based on considerations including experience related to previous court judgments and settlements and remediation costs and terms. The financial viability of other potentially responsible parties has been considered when relevant and no credit has been assumed for any potential insurance recoveries when the availability of insurance has not been determined. L. In the second quarter of 1995, the Company sold $150 million of 8.5% debentures due May 1, 2025. The sale was made under Asarco's universal shelf registration statement filed with the U.S. Securities and Exchange Commission in October, 1994 for up to $300 million of securities. The Company used the proceeds to repay, in part, revolving credit bank borrowings. Borrowings under the revolving credit were used to fund the purchase of an additional 10.7% interest in SPCC on April 5, 1995 and for general corporate purposes. M. Investments in Available-for-Sale Securities: (In millions) In accordance with the provisions of SFAS No. 115, available-for-sale securities are carried at fair value. Unrealized gains of $166.6 million (net of deferred taxes of $89.7 million) at September 30, 1995, compared with unrealized gains of $91.6 million (net of deferred taxes of $49.4 million) at December 31, 1994 are included as a component of stockholders' equity. Certain shares of Grupo Mexico owned by the Company at December 31, 1994 were accounted for under the cost method due to restrictions on their sale which expire in August 1996. At September 30, 1995, such shares are classified as available-for-sale securities carried at fair value.
At September 30, 1995 At December 31, 1994 --------------------- -------------------- Unrealized Unrealized Gains Fair Gains Fair Cost (Losses) Value Cost (Losses) Value M.I.M. Holdings Ltd. $266.7 $82.1 $348.8 $266.7 $138.5 $405.2 Grupo Mexico 248.9 168.9 417.8 3.8 3.8 7.6 Other 49.3 5.3 54.6 44.0 (1.3) 42.7 ------ ------ ------ ------ ------ ------ $564.9 $256.3 $821.2 $314.5 $141.0 $455.5 Deferred taxes $(89.7) $(49.4) ------ ------ Unrealized gain on securities reported at fair value $166.6 $ 91.6 ====== ======
N. As a result of SPCC's ongoing drilling programs at its mines, proven and probable sulfide ore reserves have been increased effective June 30, 1995 from December 31, 1994. Ore reserves are as follows:
As of As of Sept. 30, 1995 Dec. 31, 1994 -------------- ------------- Toquepala Mine: Ore reserves (tons in millions) 335.8 213.6 Grade-copper 0.80% 0.78% Cuajone Mine: Ore reserves (tons in millions) 940.9 374.1 Grade-copper 0.73% 0.80%
O. Subsequent Event: On October 5, 1995, SPCC filed a registration statement with the Securities and Exchange Commission relating to a proposed exchange of its common stock for any and all of the outstanding "Labor Shares" of SPCC's Peruvian Branch (the "Branch"). The Branch consists of substantially all the operating assets and liabilities of SPCC. The Labor Shares currently represent a 17.31% non-voting interest in the Branch's equity capital. These Labor Shares, which are accounted for as a minority interest by SPCC, are currently traded on the Lima Stock Exchange. SPCC intends to list its common stock on the New York and Lima stock exchanges. Assuming all Labor Shares are exchanged for common stock, the Company will own 52.2% of the outstanding common stock of SPCC which represents no change in its current economic interest in SPCC. P. Impact of New Accounting Standards: The Financial Accounting Standards Board issued SFAS No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets To Be Disposed Of" in March 1995 and SFAS No. 123 "Accounting for Stock-Based Compensation" in October 1995. The Company is currently assessing the impact of these statements, which will be effective for financial statements issued for fiscal years beginning after December 15, 1995. Part I Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Earnings: The Company reported net earnings of $58.3 million, or $1.38 per share, for the third quarter ended September 30, 1995, compared with a net loss of $16.1 million, or $.39 per share, for the third quarter of 1994. Third quarter 1994 results included a $30.7 million after-tax charge, $45.5 million on a pre-tax basis, to add to the Company's reserve for environmental matters. Excluding this charge, earnings for the third quarter of 1994 would have been $14.6 million or $.35 per share. The improvement in earnings reflect the higher copper price along with lower costs, an increase in sales of copper mined by the Company, the increased ownership of SPCC and improved earnings from the Company's specialty chemicals business. For the nine month period ended September 30, 1995, the Company reported net income of $180.4 million, or $4.27 per share, compared with net income of $15.8 million or $.38 per share for the comparable 1994 period. In addition to the third quarter environmental provision, results for the nine month period ended September 30, 1994 included a $31.9 million after-tax gain, $58.5 million on a pre-tax basis, on the sale of the Company's remaining interest in Asarco Australia Limited and a $2.6 million after-tax gain related to recovery of a bad debt previously written off. The improvement in earnings reflect the higher copper price along with lower costs, an increase in sales of copper mined by the Company, the increased ownership of SPCC and improved earnings from the Company's specialty chemicals business. On April 5, 1995, Asarco acquired an additional 10.7% interest in SPCC for $116.4 million, increasing its ownership from 52.3% to 63%. As a result of the acquisition, the Company has consolidated the financial statements of SPCC in its financial statements based on its 52.3% ownership, effective January 1, 1995 and 63% ownership, effective April 5, 1995. The Company had previously accounted for its investment in SPCC by the equity method. Had SPCC been consolidated in the Company's financial statements in 1994, based on its 52.3% ownership, there would have been no effect on net earnings. Prices: Prices for the Company's metals are established principally on the New York Commodity Exchange ("COMEX") or the London Metal Exchange ("LME"). Price/Volume Data:
Three Months Ended Nine Months Ended September 30, September 30, Average Metal Prices 1995 1994 1995 1994 - -------------------- ---- ---- ---- ---- Copper (per pound - COMEX) $1.36 $1.14 $1.36 $1.00 Copper (per pound - LME) $1.37 $1.11 $1.34 $ .98 Lead (per pound - LME) $ .28 $ .27 $ .28 $ .23 Silver (per ounce - Handy & Harman) $5.33 $5.34 $5.17 $5.33 Zinc (per pound - LME) $ .46 $ .44 $ .47 $ .44 Molybdenum (per pound - Metals Week Dealer Oxide) $4.37 $3.52 $8.45 $3.14
Three Months Ended Nine Months Ended September 30, September 30, Sales Volume: 1995 1994 1995 1994 ------------ ---- ---- ---- ---- Copper (tons) Asarco 120,000 121,800 377,700 406,600 SPCC 94,900 80,500 234,400 242,900 ------- ------- ------- ------- Consolidated 214,900 202,300 612,100 649,500 Asarco Beneficial Interest 169,500 156,500 494,200 511,400 Lead (tons) Asarco 52,200 49,700 151,300 151,000 SPCC - - - - ------- ------ ------- ------- Consolidated 52,200 49,700 151,300 151,000 Asarco Beneficial Interest 52,200 49,700 151,300 151,000 Silver (000s ounces) Asarco 9,583 9,121 28,414 24,851 SPCC 725 853 1,866 2,386 ------ ------ ------ ------ Consolidated 10,308 9,974 30,280 27,237 Asarco Beneficial Interest 9,961 9,489 29,339 25,881 Zinc (tons)(1) Asarco 29,398 34,927 93,126 100,858 SPCC - - - - ------ ------ ------- ------- Consolidated 29,398 34,927 93,126 100,858 Asarco Beneficial Interest 29,398 34,927 93,126 100,858 Molybdenum (tons)(1) Asarco 572 467 1,852 1,310 SPCC 1,328 699 3,037 2,307 ----- ----- ----- ----- Consolidated 1,900 1,166 4,889 3,617 Asarco Beneficial Interest 1,264 769 3,349 2,306
(1) The Company's zinc and molybdenum mine production is sold in concentrate form. Volume represents tons of zinc and molybdenum metal contained in concentrate. Note: SPCC presented at 100%. Consolidated and Asarco Beneficial Interest amounts shown for 1994 are pro forma and assume that Asarco consolidated SPCC effective January 1, 1994 based on Asarco's 52.3% equity ownership. The minority interest in SPCC represented by Labor Shares in its Peruvian Branch resulted in Asarco having a beneficial interest in SPCC of 43.2%. Effective April 1995 Asarco's equity ownership of SPCC increased to 63% and its beneficial interest increased to 52.1%. At September 30, 1995, the Company had copper put options with an average strike price of 90.7 cents per pound covering 34,309 tons or approximately 41% of Asarco's expected domestic copper production for the remaining three months of 1995. The cost of acquiring these puts was $1.3 million. Copper put options with an average strike price of 98.5 cents per pound covering 130,210 tons or approximately 39% of Asarco's expected 1996 domestic copper production were acquired at a cost of $4.6 million. In addition, at September 30, 1995, SPCC had copper put options with an average strike price of 105.3 cents per pound covering 33,069 tons or approximately 43% of its expected copper production for the remaining three months of 1995. The cost of acquiring these puts was $1.1 million. Copper put options with an average strike price of 96.3 cents per pound covering 79,366 tons or approximately 25% of its expected 1996 copper production were acquired at a cost of $1.9 million. The pre-tax gain (loss) recognized on the Company's hedging activities, including amortized transaction costs were as follows: Hedging Activities (in thousands)
Three Months Ended Nine Months Ended September 30, September 30, Metal 1995 1994 1995 1994 ----- ---- ---- ---- ---- Copper $(655) $ - $(2,401) $3,346 Zinc (32) 1,008 (81) 2,652 Silver 286 241 501 730 Lead (180) - (285) - ----- ------ ------- ------ Total Gain (Loss) $(581) $1,249 $(2,266) $6,728 ===== ====== ======= ======
Sales: Sales in the third quarter of 1995 were $819.7 million, compared with $513.0 million in the third quarter of 1994. The increase in sales reflected $256.3 million due to the consolidation of SPCC, the higher copper price and higher specialty chemical sales. Sales for the nine month period ended September 30, 1995 were $2,398.2 million, compared with $1,443.7 million for the comparable 1994 period. The increase in sales reflected $654.1 million due to the consolidation of SPCC, higher base metal prices and increased specialty chemical and aggregate sales. The decline in 1995 copper sales volume from the same period in 1994 is due to lower quantities of copper purchased by the Company for resale on essentially the same terms to customers to satisfy contractual commitments. Cost of Products & Services: Cost of products and services were $589.5 million in the third quarter of 1995, compared with $450.7 million in the third quarter of 1994. The increase in costs reflected $128.2 million due to the consolidation of SPCC, higher costs in specialty chemicals due to increased sales volumes and the higher price of outside copper purchases offset by the lower volume of such copper purchases as a result of an increase in sales of copper mined by the Company. Cost of products and services for the nine month period ended September 30, 1995 were $1,740.1 million, compared with $1,294.3 million for the comparable 1994 period. The increase in costs reflected $322.9 million due to the consolidation of SPCC, higher costs in specialty chemicals due to increased sales volumes and the higher price of outside copper purchases offset by the lower volume of such copper purchases as a result of an increase in sales of copper mined by the Company. Other Expenses: Selling, administrative and other costs were $29.9 million in the third quarter of 1995, and $93.2 million for the nine month period ended September 30, 1995, compared with $20.0 million and $59.3 million for the respective periods in 1994. The increase was primarily due to the consolidation of SPCC. Depreciation and depletion expense was $26.6 million for the third quarter of 1995, and $88.7 million for the nine month period ended September 30, 1995, compared with $20.4 million and $62.7 million for the respective periods in 1994. The increase was primarily due to the consolidation of SPCC. Research and exploration increased by $1.2 million in the third quarter of 1995 and $5.6 million for the nine month period ended September 30, 1995 due to increased overseas exploration. Nonoperating Items: Interest expense was $25.3 million in the third quarter of 1995, and $68.6 million for the nine month period ended September 30, 1995, compared with $16.1 million and $45.1 million for the respective periods in 1994. The increase reflected $4.7 million and $10.5 million for the three and nine month periods due to the consolidation of SPCC, a higher debt level and higher interest rates on short term borrowings. Other income (expense) for the third quarter 1995 includes a pretax loss of $4.0 million on the sale of the Company's stock in Corporacion Minera Nor Peru, which owned and operated the Quiruvilca mine in the northern part of Peru and the sale of its Lone Star Construction business. Additionally, other income (expense) reflects increased interest income due to the consolidation of SPCC. The increase in minority interests is a result of the consolidation of SPCC. Taxes on Income: Taxes on income for the three and nine month periods ended September 30, 1995 were $46.6 million and $127.0 million, respectively, as compared to a tax benefit of $15.2 million and $.3 million for the respective periods in 1994. The increase was due to an increase in earnings and the consolidation of SPCC, partially offset by the higher taxes resulting from the gain on the sale of Asarco Australia Limited in the first quarter of 1994. Taxes had not been previously provided as reported earnings from the consolidated subsidiary Asarco Australia Limited were treated as permanently reinvested. Cash Flows: Net cash provided from operating activities was $113.0 million in the third quarter of 1995, compared with cash used for operating activities of $37.2 million in the third quarter of 1994. The improvements reflected the consolidation of SPCC, higher net earnings and the timing of payments on the purchase of raw materials. Net cash used for investing activities was $62.5 million in the third quarter of 1995, compared with net cash used for investing activities of $18.6 million in the third quarter of 1994. The change reflects the consolidation of SPCC and higher capital expenditures in 1995. Net cash provided from operating activities was $308.2 million for the nine month period ended September 30, 1995, compared with net cash used for operating activities of $46.0 million in the corresponding prior period. The improvements reflected the consolidation of SPCC and higher net earnings partially offset by an increase in cash used for closed plants and environmental matters, primarily at the Company's former Tacoma, Washington Smelter. Cash used for investing activities was $188.4 million for the nine month period ended September 30, 1995, compared with cash provided of $36.4 million in the corresponding prior period. The change reflected the effect of the consolidation of SPCC, the acquisition of an additional 10.7% interest in SPCC for $116.4 million in the second quarter of 1995, higher capital expenditures and cash provided from the proceeds of the sale of Asarco Australia Limited in the first quarter of 1994. The release of restricted cash of $2.2 million and $60.5 million for the three month and nine month periods ended September 30, 1995 represents the withdrawal by SPCC of funds, and interest accrued thereon, deposited with the Central Reserve Bank of Peru, pursuant to an agreement with the government of Peru, under which SPCC agreed to use such funds in an investment program over five years from 1992 through 1996. Financing activities in the third quarter of 1995 include the prepayment of $13.5 million of the Company's 8-3/4% pollution control revenue bonds at par value plus a premium of 1.5%. Financing activities in the second quarter of 1995 include the sale of $150 million of 8.5% debentures due May 1, 2025. Financing activities in the first quarter of 1994, included the prepayment of the Company's 9-3/4% Sinking Fund Debentures at par value plus a premium of .9%. Financing activities in the third quarter of 1995 also include the prepayment by SPCC of $77.0 million, substantially all of the outstanding balance, under the $115 million credit facility, and the borrowing of $35 million under a loan agreement with the Export - Import Bank of the United States at a fixed interest rate of 6.43% for use in its capital investment program. Liquidity and Capital Resources: At September 30, 1995, the Company's debt as a percentage of total capitalization (the total of debt, minority interests and equity) was 35.0%, compared with 38.1% at December 31, 1994. The primary reason for the decrease in the percentage of debt to total capitalization was the consolidation of SPCC. Consolidated debt at the end of the third quarter 1995 was $1,159.5 million compared with $933.1 million at the end of 1994. Debt increased $101.3 million due to the consolidation of SPCC and $116.4 million due to the purchase of an additional 10.7% interest in SPCC. Additional indebtedness permitted under the terms of the Company's credit agreements totaled $761 million at September 30, 1995. In the second quarter of 1995, the Company sold $150 million of 8.5% debentures due May 1, 2025. The sale was made under Asarco's universal shelf registration statement filed with the U.S. Securities and Exchange Commission in October, 1994 for up to $300 million of securities. The Company used the proceeds to repay, in part, revolving credit bank borrowings. Borrowings under the revolving credit agreements were used to fund the purchase of an additional 10.7% interest in SPCC on April 5, 1995 and for general corporate purposes. The Company expects that it will meet its cash requirements for 1995 and beyond from internally generated funds, cash on hand and from borrowings under its revolving credit agreements or from additional debt or equity financing. In October, the Board of Directors declared a quarterly dividend on the common stock of 20 cents per share payable December 1, 1995 to stockholders of record at the close of business on November 6, 1995. Ore Reserves: As a result of SPCC's ongoing drilling program at its mines, proven and probable sulfide ore reserves have been increased effective June 30, 1995 from December 31, 1994. Ore reserves are as follows:
As of As of Sept. 30, 1995 Dec. 31, 1994 -------------- ------------- Toquepala Mine: Ore reserves (tons in millions) 335.8 213.6 Grade-copper 0.80% 0.78% Cuajone Mine: Ore reserves (tons in millions) 940.9 374.1 Grade-copper 0.73% 0.80%
The increased reserves had the effect of reducing depreciation and depletion expense for the third quarter of 1995 by $3.3 million. In addition, the drilling program has identified mineralized material consisting of 538.4 million tons grading 0.72% copper at the Toquepala mine and 450.7 million tons grading 0.62% copper at the Cuajone mine. This mineralized material will not qualify as proven and probable reserves until such time as a final and comprehensive economic and technical feasibility study has been completed demonstrating that such additional material can be economically mined. Impact of New Accounting Standards: The Financial Accounting Standards Board issued SFAS No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets To Be Disposed Of" in March 1995 and SFAS No. 123 "Accounting for Stock-Based Compensation" in October 1995. The Company is currently assessing the impact of these statements, which will be effective for financial statements issued for fiscal years beginning after December 15, 1995. COOPERS & LYBRAND L.L.P. Exhibit I REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors of ASARCO Incorporated: We have reviewed the accompanying interim condensed consolidated balance sheet of ASARCO Incorporated and Subsidiaries as of September 30, 1995 and the related interim condensed consolidated statements of earnings and cash flows for the three month and nine month periods ended September 30, 1995 and 1994. These interim condensed consolidated financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. As described in Note B, the Company has consolidated the financial statements of Southern Peru Copper Corporation effective January 1, 1995. Based on our review, we are not aware of any material modifications that should be made to the accompanying interim condensed consolidated financial statements for them to be in conformity with generally accepted accounting principles. Coopers & Lybrand L.L.P. New York, New York October 23, 1995 PART II - OTHER INFORMATION Item 1 - Legal Proceedings 1. Asarco and two of its wholly-owned subsidiaries, Lac d'Amiante du Quebec, Ltee ("LAQ") and Capco Pipe Company, Inc. ("Capco"), have been named as defendants, among numerous other defendants, in additional asbestos personal injury lawsuits of the same general nature as the lawsuits reported on Forms 10-K for 1994 and prior years and 10-Q for the first and second quarters of 1995. As of September 30, 1995, there were pending against Asarco and its subsidiaries 950 lawsuits brought by 17,714 primary and 13,667 secondary plaintiffs in 26 states and one Canadian province seeking substantial damages for personal injury or death allegedly caused by exposure to asbestos. As of September 30, 1995, LAQ, Asarco and Capco have settled or have been dismissed from a total of 5,305 asbestos personal injury lawsuits brought by approximately 51,914 primary and 32,943 secondary plaintiffs. 2. On September 26, 1995, Southern Peru Copper Corporation ("SPCC"), a 63% owned subsidiary of the Company, was served with a lawsuit, which was filed in the state court of Nueces County, Texas, naming as defendants SPCC, its present and former stockholders and certain other defendants. The lawsuit seeks unspecified compensatory and punitive damages for alleged personal injuries to approximately 700 persons resident in Peru and property damages arising from alleged releases into the environment from SPCC operations in Peru. On September 29, 1995, the action was removed from Texas state court to the United States District Court for the Southern District of Texas, Corpus Christi Division. On October 2, 1995, SPCC and other defendants filed a motion to dismiss the action on a number of grounds, including that it would be unreasonable for a United States court to exercise extraterritorial jurisdiction, lack of personal jurisdiction and forum non conveniens. 3. With respect to the lawsuits alleging that the Company was illegally discharging untreated water from its Omaha Plant without a permit, reported on Forms 10-K for 1994 and 10-Q for the second quarter of 1995, the Department of Justice moved to have the Consent Decree resolving this matter entered by the court. Oral argument on the Department of Justice motion is scheduled for December, 1995. 4. With respect to the site of a former pesticide manufacturing plant in Hunt County, Texas, reported on Form 10-K for 1994 and on Form 10-Q for the second quarter of 1995, in August 1995, the Company was sued by 818 individuals in Dallas County, Texas District Court and by 10 individuals in Hunt County, Texas District Court alleging claims for personal injury and property damages similar to those previously reported. 5. With respect to the state implementation plans ("SIP's") to achieve compliance with the Environmental Protection Agency ("EPA") ambient air quality standard for lead, reported on Form 10-K for 1994 and on Form 10-Q for the second quarter of 1995, the Montana SIP which affects the Company's East Helena Montana Plant was approved by the State on August 4, 1995 and has been submitted to the EPA for final approval. 6. With respect to the lawsuit filed by a group named the Association of Retired Employees of SPCC and reported on Form 10-Q for the second quarter of 1995, in September 1995, the Supreme Court of Peru declined to review the case letting stand the previous dismissal by the Supreme Court of Lima. 7. With respect to the action pending in state court in Duval County, Texas concerning alleged exposure to materials, including metals, reported on Form 10-K for 1994 and Forms 10-Q for the first and second quarters of 1995, court approval of a settlement reached between the Company and the plaintiffs was entered on October 12, 1995. SIGNATURES Pursuant to the requirement 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. ASARCO Incorporated (Registrant) Date: November 13, 1995 /s/ Kevin R. Morano ------------------- Kevin R. Morano Vice President, Finance and Chief Financial Officer Date: November 13, 1995 /s/ William Dowd William Dowd Controller Exhibit II COOPERS & LYBRAND L.L.P. Securities and Exchange Commission 450 Fifth Street, N.W. Washington, D.C. 20549 We are aware that our report dated October 23, 1995 on our review of the interim financial information of ASARCO Incorporated and Subsidiaries as of September 30, 1995 and for the three month and nine month periods ended September 30, 1995 and 1994 and included in this Form 10-Q for the quarter ended September 30, 1995 is incorporated by reference in the Company's Registration Statements on Form S-8 (File Nos. 2-67732, 2-83782, and 33-34606) and Form S-3 (File Nos. 33-45631 and 33-55993). Pursuant to Rule 436(c) under the Securities Act of 1933, this report should not be considered a part of the Registration Statements prepared or certified by us within the meaning of Sections 7 and 11 of that Act. Coopers & Lybrand L.L.P. New York, New York November 10, 1995 EX-27 2
5 1,000 9-MOS DEC-31-1995 SEP-30-1995 229093 0 522023 8385 399282 1195962 4097409 2049765 4285082 583845 0 594351 0 0 0 4285082 2398192 2398192 1740129 1740129 108160 1487 68614 398044 126966 178815 0 0 0 180438 4.27 4.27
-----END PRIVACY-ENHANCED MESSAGE-----