SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
1996
Second Quarter
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended June 30, 1996 Commission file number 1-14066
------------- -------
SOUTHERN PERU COPPER CORPORATION
(formerly known as Southern Peru Copper Holding Company)
(Exact name of registrant as specified in its charter)
Delaware 13-3849074
(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 July 31, 1996 there were outstanding 13,633,474 shares of Southern Peru
Copper Corporation common stock, par value $0.01 per share. There were also
outstanding 66,550,833 shares of Southern Peru Copper Corporation class A common
stock, par value $0.01 per share.
<PAGE>
SOUTHERN PERU COPPER CORPORATION
AND CONSOLIDATED SUBSIDIARIES
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
Page No.
<S> <C>
Part I. Financial Information:
Item 1. Financial Statements (unaudited)
Consolidated Statement of Earnings
Three Months and Six Months Ended
June 30, 1996 and 1995 2
Consolidated Balance Sheet
June 30, 1996 and December 31, 1995 3
Consolidated Statement of Cash Flows
Three Months and Six Months Ended
June 30, 1996 and 1995 4
Notes to Consolidated Financial Statements 5 - 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 9 - 12
Report of Independent Accountants 13
Part II. Other Information:
Item 1. Legal Proceedings 14
Signatures 15
Exhibit I - Independent Accountants' Awareness Letter
</TABLE>
1
<PAGE>
Southern Peru Copper Corporation
and Subsidiaries
CONSOLIDATED STATEMENT OF EARNINGS
(unaudited)
<TABLE>
<CAPTION>
3 Months Ended 6 Months Ended
June 30, June 30,
1996 1995 1996 1995
---- ---- ---- ----
(in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Net sales:
Stockholders and affiliates $ 17,892 $ 26,544 $ 31,248 $ 31,814
Others 155,277 185,633 338,329 385,101
-------- -------- -------- --------
Total net sales 173,169 212,177 369,577 416,915
-------- -------- -------- --------
Operating costs and expenses:
Cost of sales 82,176 107,283 176,855 201,955
Administrative and other expenses 11,249 11,673 24,254 26,093
Depreciation, amortization and depletion 10,343 10,750 20,670 21,473
Provision for workers' participation 4,807 6,528 10,445 13,918
Exploration expense 492 591 1,147 914
-------- -------- -------- --------
Total operating costs and expenses 109,067 136,825 233,371 264,353
-------- -------- -------- --------
Operating income 64,102 75,352 136,206 152,562
Interest income 4,901 3,467 11,070 6,010
Other income 2,582 2,626 4,855 5,632
Interest expense (3,205) (4,264) (6,337) (5,788)
-------- -------- -------- --------
Earnings before taxes on income and minority
interest of labor shares 68,380 77,181 145,794 158,416
Taxes on income 21,805 25,475 48,093 52,309
--------- -------- -------- ---------
Earnings before minority interest
of labor shares 46,575 51,706 97,701 106,107
Minority interest of labor shares 1,346 8,837 3,364 18,883
--------- --------- --------- ---------
Net earnings $ 45,229 $ 42,869 $ 94,337 $ 87,224
========= ========= ========= =========
Per common share amounts:
Net earnings (a) $ 0.56 $ 0.65 $ 1.18 $ 1.33
Dividends paid $ 0.30 $ 0.11 $ 0.95 $ 0.52
Weighted average number of shares outstanding 80,183 65,717 80,204 65,717
</TABLE>
(a) The effect on the net earnings per common share of the Company's Common
Stock equivalents (shares under option) was insignificant.
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
Southern Peru Copper Corporation
and Subsidiaries
CONSOLIDATED BALANCE SHEET
(unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
(in thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 237,737 $ 219,646
Marketable securities - 42,453
Accounts receivable:
Trade:
Stockholders and affiliates 2,405 8,732
Other trade 44,493 80,100
Other 15,736 11,631
Inventories 108,465 103,635
Other current assets 16,136 16,648
---------- ----------
Total current assets 424,972 482,845
Property 1,674,492 1,630,517
Accumulated depreciation, amortization and depletion (863,147) (851,149)
Other assets 19,440 9,488
---------- ----------
Total Assets $1,255,757 $1,271,701
========== ==========
LIABILITIES
Current liabilities:
Current portion of long-term debt $ 26,935 $ 17,034
Accounts payable - trade 19,654 32,889
Accounts payable - other 6,802 8,056
Accrued liabilities 53,452 112,390
---------- ----------
Total current liabilities 106,843 170,369
---------- ----------
Long-term debt 105,397 76,828
Accrued severance pay 2,648 6,354
Deferred income taxes 45,373 39,677
---------- ----------
Total non-current liabilities 153,418 122,859
---------- ----------
Minority interest of labor shares 25,018 24,986
---------- ----------
STOCKHOLDERS' EQUITY
Common stock, par value $0.01(a) 137 115
Class A common stock, par value $0.01(b) 666 688
Additional paid-in capital 265,745 265,738
Retained earnings 704,713 686,946
Treasury stock at cost, 47 common shares (783) -
--------- ----------
Total stockholders' equity 970,478 953,487
---------- ----------
Total Liabilities, Minority Interest and Stockholders' Equity $1,255,757 $1,271,701
========== ==========
Authorized Outstanding
<S> <C> <C> <C>
(a) Common shares 31,249 13,633 11,480
(b) Class A common shares 68,751 66,551 68,751
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
Southern Peru Copper Corporation
and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
3 Months Ended 6 Months Ended
June 30, June 30,
1996 1995 1996 1995
---- ---- ---- ----
(in thousands)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net earnings $45,229 $42,869 $94,337 $87,224
Adjustments to reconcile net earnings to net cash provided from
operating activities:
Depreciation, amortization and depletion 10,343 10,750 20,670 21,473
Deferred income taxes 1,184 (211) 2,216 406
Minority interest of labor shares, net of distributions 522 8,837 661 18,883
(Gains) losses from sales and dispositions of assets (121) (1,291) 286 (1,291)
Cash provided from (used for) operating assets and liabilities:
Accounts receivable 17,130 (3,997) 37,635 30,684
Inventories (11,370) (5,850) (4,830) (17,059)
Accounts payable and accrued liabilities 61 20,011 (52,898) (12,195)
Other operating liabilities and reserves 4,351 6,982 (20,941) 1,162
Other operating assets 1,022 (3,016) 3,868 (2,359)
Foreign currency translation (gain) loss (1,135) 804 (2,428) (1,409)
------- ------- ------- -------
Net cash provided from operating activities 67,216 75,888 78,576 125,519
------- ------- ------- -------
INVESTING ACTIVITIES
Capital expenditures (37,356) (64,343) (51,931) (107,743)
Purchase of held to maturity investments - - - (33,880)
Transfer of cash from restricted account - 59,533 - 59,533
Proceeds from maturity of investments - 19,427 42,453 59,950
Proceeds from the sale of investments - 856 - 856
Other net - 1,195 - 1,195
------- ------- ------- --------
Net cash provided from (used for) investing activities (37,356) 16,668 (9,478) (20,089)
------- ------- ------- --------
FINANCING ACTIVITIES
Dividends paid (24,054) (7,500) (76,204) (34,312)
Proceeds from borrowings - 6,000 47,000 15,000
Repayment of borrowings (7,610) (558) (8,531) (1,104)
Escrow deposits on long-term loans - - (10,152) -
Proceeds from labor share subscription - 10,944 - 10,944
Treasury stock and labor share purchases (2,682) - (3,836) -
------- ------- ------- -------
Net cash provided from (used for) financing activities (34,346) 8,886 (51,723) (9,472)
------- ------- ------- -------
Effect of exchange rate changes on cash (517) (795) 716 (408)
------- ------- ------- -------
Increase (decrease) in cash and cash equivalents (5,003) 100,647 18,091 95,550
Cash and cash equivalents, beginning of period 242,740 88,239 219,646 93,336
-------- -------- -------- --------
Cash and cash equivalents, end of period $237,737 $188,886 $237,737 $188,886
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
SOUTHERN PERU COPPER CORPORATION
and SUBSIDIARIES
NOTES to CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Interim Financial Statements:
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
June 30, 1996 and the results of operations and cash flows for the three and six
months ended June 30, 1996 and 1995. This financial data has been subjected to a
limited review by Coopers & Lybrand L.L.P., the Company's independent
accountants. The results of operations for the six month period 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 1995 annual report on Form 10-K.
2. Inventories:
<TABLE>
<CAPTION>
Inventories consists of: June 30, December 31,
1996 1995
(in millions)
<S> <C> <C>
Metals:
Finished goods $2.2 $2.0
Work-in-process 31.9 33.1
Supplies, net of reserves 74.4 68.5
------ -------
Total inventories $108.5 $ 103.6
====== =======
</TABLE>
3. Metal Hedging and Trading Activity:
Hedging: Depending on the market fundamentals of a metal and other conditions,
the Company may purchase put options to reduce or eliminate the risk of metal
price declines on its anticipated future production. Put options purchased by
the Company establish a minimum sales price for the production covered by such
put options and permit the Company to participate in price increases above the
strike price. Gains or losses, net of unamortized acquisition costs, are
recognized in the period in which the underlying hedged production is sold.
During the second quarter SPCC sold copper put options with a average strike
price of $0.95 per pound covering 11% of its remaining six months of 1996 and 1%
of 1997 production.
The tables below detail the option sales concluded in the second quarter and the
options remaining at June 30, 1996:
Second Quarter Copper Put Option Sales
(dollars in millions)
<TABLE>
<CAPTION>
Pre-tax
Unamortized Gain to be Period to be
Tons Proceeds Cost Recognized Recognized
---- -------- ---- ---------- ----------
<S> <C> <C> <C> <C>
17,913 $ 4.8 $ 0.5 $ 4.3 7/96 - 3/97
</TABLE>
In addition to the above, the Company recognized proceeds of $0.8 million on
options covering 3,583 tons of copper which were sold in the second quarter of
1996. The cost of these options was $.1 million.
5
<PAGE>
Copper Put Options at June 30,1996
(dollars in millions, except per lb. amounts)
<TABLE>
<CAPTION>
Percent of
Strike Price Unamortized Estimated
Tons Period Per lb. Cost Production
---- ------ ------- ---- ----------
<S> <C> <C> <C> <C>
58,366 7/96 - 12/96 $ 0.95 $ 1.6 37%
35,384 1/97 - 3/97 $ 0.95 0.7 43%
-----
$ 2.3
</TABLE>
In addition to the sales of options described above, the Company sold copper put
options in July 1996. Details for the total of July and the second quarter sales
are contained in the table below:
July and Second Quarter Option Sales
(dollars in millions)
<TABLE>
<CAPTION>
Pre-tax
Unamortized Gain to be Period to be
Tons Proceeds Cost Recognized Recognized
---- -------- ---- ---------- ----------
<S> <C> <C> <C> <C>
44,533 $11.3 $ 1.1 $10.2 7/96 - 3/97
</TABLE>
4. Common Stock:
On February 27, 1996, Cerro Trading Company, Inc. transferred 2,200,000 class A
common stock shares to a foundation of the Pritzker Family. In accordance with
the Company's Certificate of Incorporation these shares were automatically
converted into common stock of the Company.
The stockholders of the Company at June 30, 1996 were:
<TABLE>
<CAPTION>
Percent of Total
Outstanding Number of
Shares Shares
<S> <C> <C>
Class A Common Shares:
ASARCO Incorporated 43,348,949 54.06%
Cerro Trading Company, Inc. 12,028,088 15.00
Phelps Dodge Overseas Capital Corporation 11,173,796 13.94
---------- ------
66,550,833 83.00%
Common Shares 13,633,474 17.00%
---------- ------
80,184,307 100.00%
========== =======
</TABLE>
The Company declared and paid cash dividends of $0.30 per share during the
second quarter of 1996 and $0.11 per share during the second quarter of 1995. On
August 1, 1996, the Company declared a $0.28 per share dividend payable
September 3, 1996 to stockholders of record at the close of business on August
15, 1996.
5. Supplemental disclosures of cash flow information:
<TABLE>
<CAPTION>
(in millions) Three months ended Six Months ended
June 30, June 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Cash paid for:
Interest expense (net of amount capitalized) $ 3.7 $ 4.2 $ 4.7 $ 7.3
Income taxes (net of refunds) $25.9 $18.0 $86.4 $40.0
</TABLE>
6
<PAGE>
6. Proforma second quarter 1996 earnings information:
In November 1995, the Company offered to exchange new common shares for labor
shares issued by the Peruvian Branch to workers under prior law in Peru (the
Exchange Offer). The labor shares, which are traded on the Lima Stock Exchange,
represented a 17.3% interest in the Peruvian Branch, which comprises
substantially all of the operations of the Company in Peru. The offer ended on
December 29, 1995 with 80.8% of the labor shares tendered. The Company, through
a wholly owned subsidiary, now owns 96.9% of the Peruvian Branch.
The following shows comparative proforma 1995 earnings information as if the
Exchange Offer was completed January 1, 1995.
<TABLE>
<CAPTION>
(in millions, except for per share data) Three Months Ended Six Months Ended
June 30, June 30,
Historical Proforma Historical Proforma
1995 1995 1995 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $212.2 $212.2 $416.9 $416.9
Earnings before taxes on income and minority
interest of labor shares 77.2 76.8(a) 158.4 157.4(a)
Taxes on income 25.5 25.4(b) 52.3 52.0(b)
Earnings before minority interest of labor
shares 51.7 51.4 106.1 105.4
Minority interest of labor shares in
Peruvian Branch 8.8 1.7(c) 18.9 3.6(c)
Net earnings $42.9 $49.7 $87.2 $101.8
Weighted average number of shares outstanding 65.7 80.2 65.7 80.2
Net earnings per share $0.65 $0.62 $1.33 $1.27
Cash dividend paid per share $0.11 $0.09 $0.52 $0.43
</TABLE>
Proforma Effects
(a) The market value of the common stock issued for labor shares tendered
pursuant to the Exchange Offer was in excess of the book value of the
minority interest of such labor shares. This excess was assigned to
mineral reserves and mineralized material. Proforma earnings reflect
the amortization of the excess based on a ratio of actual copper
production in the period to the total copper contained in the mineral
reserves and the mineralized material.
(b) Reflects the amortization of the deferred income taxes on the excess of
the market value of common stock issued for labor shares tendered
pursuant to the Exchange Offer over the book value of the minority
interest of such labor shares. The amortization of the deferred taxes
is calculated on the same basis as described in footnote (a) above.
(c) Reflects the reduction of the minority interest of the labor shares
tendered pursuant to the Exchange offer.
7
<PAGE>
7. Commitments and contingencies:
On February 26, 1993, the Mayor of Tacna brought a lawsuit against Southern Peru
Limited, a wholly owned subsidiary of the Company (SP Limited), seeking $100
million in damages from alleged harmful deposition of tailings, slag and smelter
emissions. On May 3, 1996, the Superior Court of Tacna, Peru affirmed the lower
court's dismissal. There is generally no further right of appeal, however, the
Peruvian Supreme Court may grant discretionary review on limited issues in
exceptional cases.
On April 29, 1996, SP Limited, was served with a complaint filed in Peru by
approximately 800 former employees challenging the accounting of its
subsidiary's Peruvian Branch and its allocation of financial results to the
Mining Community, the former legal entity representing workers in Peruvian
mining companies, in the 1970's. The complaint seeks the delivery of a
substantial number of labor shares of the Peruvian Branch of the subsidiary plus
dividends and contains similar allegations made in a prior lawsuit dismissed in
September 1995.
As reported on Form 10-K for 1995, SP Limited, ASARCO Incorporated, other
present and former corporate shareholders of the subsidiary of the Company and
certain other companies are defendants in a lawsuit in federal district court in
Corpus Christi, Texas brought in September 1995 by 698 Peruvian plaintiffs
seeking damages for personal injury and property damage allegedly caused by the
operations of the subsidiary in Peru. Plaintiffs have filed a notice of appeal
from the district court order dismissing the complaint and from an earlier order
of that court denying plaintiffs' motion to remand the case to state court.
The Company's exploration, mining, milling, smelting and refining activities are
subject to Peruvian laws and regulations, including environmental laws and
regulations, which change from time to time. The development of more stringent
environmental protection programs in Peru could impose constraints and
additional costs on the Company's operations and the Company could be required
to make significant additional capital expenditures in the future.
It is the opinion of management that the outcome of the legal proceedings
mentioned, as well as the other miscellaneous litigation and proceedings now
pending, will not materially adversely affect the financial position or results
of operations of the Company and its consolidated subsidiaries. However, it is
possible that litigation and environmental contingencies could have a material
effect on quarterly or annual operating results, when they are resolved in
future periods.
8. Impact of new accounting standard:
Impact of New Accounting Standards: The Financial Accounting Standards Board
issued SFAS No. 123 "Accounting for Stock-Based Compensation" in October 1995.
In accordance with this pronouncement, the Company has a choice of adopting the
accounting provisions of SFAS No. l23 or continuing its current accounting with
additional disclosure required. The Company has elected the disclosure only
alternative and will continue its current accounting.
8
<PAGE>
Part I Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company reported net earnings of $45.2 million, or $0.56 per share, for the
second quarter ended June 30, 1996 compared with net earnings of $42.8 million,
or $0.65 per share, for the second quarter ended June 30, 1995. For the six
month period ended June 30, 1996, the Company reported net income of $94.3
million, or $1.18 per share, compared with net income of $87.2 million or $1.33
per share in the comparable 1995 period.
The Company's earnings in the second quarter of 1996 and the six months ended
June 30, 1996 were significantly affected by the decline in copper and
molybdenum prices when compared with the comparable 1995 periods. The decline in
prices was partially offset by higher sales volume and lower production costs.
Net earnings for the second quarter of 1996 and the six months ended June 30,
1996 were higher than in the comparable 1995 periods primarily due to a
reduction in the minority interest of labor shares in the Company's Peruvian
Branch. An exchange of labor shares for common shares was completed in the
fourth quarter of 1995 and reduced the interest of labor shares from 17.3% to
3.3%. The exchange offer increased the number of common shares outstanding to
80.2 million from 65.7 million.
The Company's copper mine production in the second quarter of 1996 was 173.1
million pounds, an increase of 34% over the year ago period. The increase was
attributable to higher ore grades at the Toquepala and Cuajone mines and 22.8
million pounds of refined copper produced from the Company's new solvent
extraction/electrowinning plant (SX/EW), which commenced operations in the
fourth quarter of 1995.
The Company announced a $35 million expansion project of its sulfuric acid plant
which commenced operations in October 1995. The expansion will increase the
capture of sulfur dioxide emissions from the smelter from 18% to 30% and will
also increase sulfuric acid production at the smelter from an estimated 180,000
tons in 1996 to 300,000 tons per year in 1998, the expected first full year of
expanded plant operation. The expansion is expected to substantially improve the
ambient air quality in the area. As a result, the Company expects a reduction in
the effect of its Intermittent Control Plan under which the Company curtails
production at the smelter during adverse weather conditions in order to reduce
emissions.
Net Sales: Net sales in the second quarter of 1996 were $173.2 million, compared
with $212.2 million in the second quarter of 1995. Sales for the six months
ended June 30, 1996 were $369.6 million compared to $416.9 million for the
comparable 1995 period. The $39.0 million decrease in net sales in the second
quarter of 1996 is primarily attributable to lower copper and molybdenum prices,
partially offset by the higher copper sales volume. Copper sales were 161.8
million pounds in the second quarter of 1996 as compared with 151.7 million
pounds in the 1995 second quarter. Copper sales volume included 23.0 million
pounds of copper produced at the new SX/EW facility in the second quarter of
1996 and 45.6 million pounds in the six month period.
Prices: Sales prices for the Company's metals are established principally by
reference to prices quoted on the London Metal Exchange ("LME"), the New York
Commodity Exchange ("COMEX") or published in "Metals Week" for dealer oxide
prices for molybdenum products.
9
<PAGE>
<TABLE>
<CAPTION>
Three Months ended Six Months ended
June 30, June 30,
Price Volume Data 1996 1995 1996 1995
- ----------------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Average Metal Prices
Copper (per pound-LME) $1.12 $1.31 $1.14 $1.32
Molybdenum (per pound-Metals Week Dealer Oxide) 3.15 7.21 3.56 10.49
Silver (per ounce-COMEX) 5.29 5.47 5.42 5.08
Sales Volume (in thousands)
Copper (pounds) 161,800 151,700 330,800 278,900
Molybdenum (pounds)(1) 1,937 1,526 3,804 3,418
Silver (ounces) 726 931 1,545 1,598
</TABLE>
(1) The Company's molybdenum production is sold in concentrate form.
The volume represents pounds of molybdenum contained in concentrate.
Metal Hedging and Trading Activity:
Hedging: Depending on the market fundamentals of a metal and other conditions,
the Company may purchase put options to reduce or eliminate the risk of metal
price declines on its anticipated future production. Put options purchased by
the Company establish a minimum sales price for the production covered by such
put options and permit the Company to participate in price increases above the
strike price. Gains or losses, net of unamortized acquisition costs, are
recognized in the period in which the underlying hedged production is sold.
During the second quarter SPCC sold copper put options with a average strike
price of $0.95 per pound covering 11% of its remaining six months of 1996 and 1%
of 1997 production.
The tables below detail the option sales concluded in the second quarter and the
options remaining at June 30, 1996:
<TABLE>
<CAPTION>
Second Quarter Copper Put Option Sales
(dollars in millions)
Pre-tax
Unamortized Gain to be Period to be
Tons Proceeds Cost Recognized Recognized
---- -------- ---- ---------- ----------
<S> <C> <C> <C> <C>
17,913 $ 4.8 $ 0.5 $ 4.3 7/96 - 3/97
</TABLE>
In addition to the above, the Company recognized proceeds of $0.8 million on
options covering 3,583 tons of copper which were sold in the second quarter of
1996. The cost of these options was $.1 million.
Copper Put Options at June 30,1996
(dollars in millions, except per lb. amounts)
<TABLE>
<CAPTION>
Percent of
Strike Price Unamortized Estimated
Tons Period Per lb. Cost Production
---- ------ ------- ---- ----------
<S> <C> <C> <C> <C>
58,366 7/96 - 12/96 $ 0.95 $ 1.6 37%
35,384 1/97 - 3/97 $ 0.95 0.7 43%
-----
$ 2.3
</TABLE>
10
<PAGE>
In addition to the sales of options described above, the Company sold copper put
options in July 1996. Details for the total of July and the second quarter sales
are contained in the table below:
July and Second Quarter Option Sales
(dollars in millions)
<TABLE>
<CAPTION>
Pre-tax
Unamortized Gain to be Period to be
Tons Proceeds Cost Recognized Recognized
---- -------- ---- ---------- ----------
<S> <C> <C> <C> <C>
44,533 $11.3 $ 1.1 $10.2 7/96 - 3/97
</TABLE>
The pre-tax earnings effect, in millions, of the company's copper hedging
activities, net of transaction costs, were as follows.
<TABLE>
<CAPTION>
(in thousands) Three months ended Six months ended
June 30, June 30,
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Hedging activities $0.5 - $(0.3) -
</TABLE>
Operating Costs and Expenses: Operating costs and expenses were $109.1 million
in the second quarter of 1996 compared with $136.8 million for the same period
in 1995. Cost of sales for the three months ended June 30, 1996 and 1995 were
$82.2 million and $107.3 million respectively. The decrease in cost of sales is
attributable primarily to lower cost of purchased concentrates and lower
operating costs partially offset by increased sales volume.
Cost of sales was $176.9 million for the six month period ended June 30, 1996,
compared with $202.0 million in the corresponding 1995 period. The decrease in
cost of sales is attributable primarily to lower cost of purchased concentrates
and lower operating costs partially offset by increased sales volume.
The provision for workers' participation for the three and six month periods
ended June 30, 1996 was $4.8 million and $10.4 million as compared with $6.5
million and $13.9 million for the respective period in 1995. The decrease was
due to lower pre-tax profits of the Branch.
Nonoperating Items: Interest income was $4.9 million in the second quarter of
1996, and $11.1 million for the six month period ended June 30, 1996, compared
with $3.5 million and $6.0 million for the respective periods in 1995. The
increase reflected higher invested cash balances in 1996.
Taxes on Income: Taxes on income for the three and six month periods ended June
30, 1996 were $21.8 million and $48.1 million, respectively, as compared to
$25.5 million and $52.3 million for the respective periods in 1995. The decrease
was due to lower taxable earnings in the 1996 periods.
Minority Interest of Labor Shares: The income statement provision for minority
interest of labor shares represents an accrual of 3.2% in 1996 and 17.4% in
1995, of the Branch's after-tax earnings, as determined under Peruvian GAAP. The
Labor Share percentage participation in earnings decreased principally as a
result of the 1995 exchange offer in which labor shares of the Branch were
exchanged for common shares of the Company.
11
<PAGE>
Cash Flows - Operating Activities: Net cash provided from operating activities
was $67.2 million in the second quarter of 1996, compared to $75.9 million in
the second quarter of 1995. The decrease in operating cash flow was primarily
due to lower operating earnings in 1996. Net cash provided from operating
activities was $78.6 million for the six months ended June 30, 1996, compared
with $125.5 million in the corresponding 1995 period. The decrease in operating
cash flow was a result of payments in the first quarter of 1996 of 1995 Peruvian
income taxes and 1995 worker's participation and lower operating earnings in the
first six months of 1996.
Cash Flows - Investing Activities: Investing activities used cash of $37.4
million for the three months ended June 30, 1996 compared to cash provided from
investing activities of $16.7 million for the three months ended June 30, 1995.
Lower capital spending in 1996 as compared to 1995 was mainly due to the
completion of construction on the SX/EW facility in the fourth quarter of 1995.
The second quarter 1995 investing activities included the release of previously
restricted cash under a commitment to fund certain capital projects.
Net cash used for investing activities was $9.5 million for the six month period
ended June 30, 1996, compared with $20.1 million in the corresponding 1995
period. The lower use of cash for investing activities in the six months ended
June 30, 1996 was principally attributable to higher proceeds from redemption of
investments, net of purchases.
Cash Flows - Financing Activities: Financing activities in the second quarter of
1996 included the scheduled payment of $7.6 million of the Company's long-term
debt and distribution of $24.1 million of dividends. In the second quarter of
1995 net borrowings of debt after escrow requirements were $5.4 million. In
addition, in the second quarter of 1995 the Company received proceeds from a
subscription of labor shares of $10.9 million.
Liquidity and Capital Resources: At June 30, 1996, the Company's debt as a
percentage of total capitalization was 11.7%, compared with 8.8% at December 31,
1995. Debt at June 30, 1996 was $132.3 million, compared with $93.9 million at
the end of 1995.
The Company expects that it will meet its cash requirements for 1996 and beyond
from internally generated funds, cash on hand, from borrowings under its credit
agreements or from additional debt or equity financing.
On August 1, the Company declared a quarterly dividend on the common stock of
$0.28 per share payable September 3, 1996 to stockholders of record at the close
of business on August 15, 1996.
Impact of New Accounting Standards: The Financial Accounting Standards Board
issued SFAS No. 123 "Accounting for Stock-Based Compensation" in October 1995.
In accordance with this pronouncement, the Company has a choice of adopting the
accounting provisions of SFAS No. l23 or continuing its current accounting with
additional disclosure required. The Company has elected the disclosure only
alternative and will continue its current accounting.
Cautionary Statement: Statements in this report regarding expected commencement
dates of mining or metal production operations, projected quantities of future
metal production, and anticipated production rates, operating efficiencies,
costs and expenditures are forward-looking statements. Actual results could
differ materially depending upon the availability of materials, equipment,
required permits or approvals and financing, the occurrence of unusual weather
or operating conditions, lower than expected ore grades or the failure of
equipment or processes to operate in accordance with specifications. Results of
operations are directly affected by metals prices on commodity exchanges which
can be volatile.
12
<PAGE>
COOPERS & LYBRAND L.L.P.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Southern Peru Copper Corporation:
We have reviewed the accompanying interim condensed consolidated balance sheet
of Southern Peru Copper Corporation and Subsidiaries as of June 30, 1996 and the
interim condensed consolidated statements of earnings and cash flows for the
three month and six month periods ended June 30, 1996 and 1995. 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.
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
July 19, 1996
13
<PAGE>
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
As reported on Form 10-K for 1995, Southern Peru Limited a wholly owned
subsidiary of the Company, ASARCO Incorporated, other present and former
corporate shareholders of the subsidiary of the Company and certain other
companies are defendants in a lawsuit in federal district court in Corpus
Christi, Texas brought in September 1995 by 698 Peruvian plaintiffs seeking
damages for personal injury and property damage allegedly caused by the
operations of the subsidiary in Peru. Plaintiffs have filed a notice of appeal
from the district court order dismissing the complaint and from an earlier order
of that court denying plaintiffs' motion to remand the case to state court.
14
<PAGE>
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.
SOUTHERN PERU COPPER CORPORATION
(Registrant)
Date: August 14, 1996 /s/ Ronald J. O'Keefe
---------------------
Ronald J. O'Keefe
Executive Vice President and
Chief Financial Officer
Date: August 14, 1996 /s/ Brendan M. O'Grady
----------------------
Brendan M. O'Grady
Comptroller
15
<PAGE>
Exhibit I
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 July 19, 1996 on our review of the interim
financial information of Southern Peru Copper Corporation and Subsidiaries as of
June 30, 1996 and for the three month and six month periods ended June 30, 1996
and 1995 and included in this Form 10-Q for the quarter ended June 30, 1996 is
incorporated by reference in the Company's Registration Statements on Form S-8
(File Nos. 33-32736). Pursuant to Rule 436(c) under the Securities Act of 1933,
this report should not be considered a part of the Registration Statement
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
August 12, 1996
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