SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
1999
First Quarter
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended March 31, 1999 Commission file number 1-14066
-------------- -------
SOUTHERN PERU COPPER CORPORATION
(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 April 30, 1999 there were outstanding 13,964,862 shares of Southern Peru
Copper Corporation common stock, par value $0.01 per share. There were also
outstanding 65,900,833 shares of Southern Peru Copper Corporation Class A common
stock, par value $0.01 per share.
<PAGE>
SOUTHERN PERU COPPER CORPORATION
AND SUBSIDIARIES
INDEX TO FORM 10-Q
Page No.
Part I. Financial Information:
Item 1. Financial Statements (unaudited)
Condensed Consolidated Statement of Earnings
Three Months Ended March 31, 1999 and 1998 2
Condensed Consolidated Balance Sheet
March 31, 1999 and December 31, 1998 3
Condensed Consolidated Statement of Cash Flows
Three Months Ended March 31, 1999 and 1998 4
Notes to Condensed Consolidated Financial Statements 5-7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 8-12
Report of Independent Accountants 13
Part II. Other Information:
Item 1. Legal Proceedings 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 6(a) Exhibits on Form 10-Q 15
Exhibit 11 Statement re Computation of Earnings per Share
Signatures 16
Exhibit I - Independent Accountants' Awareness Letter
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<PAGE>
Southern Peru Copper Corporation
and Subsidiaries
<TABLE>
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
(unaudited)
<CAPTION>
3 Months Ended
March 31,
1999 1998
(in thousands, except
per share amounts)
Net sales:
<S> <C> <C>
Stockholders and affiliates $ - $ 5,984
Others 123,942 146,411
-------- ---------
Total net sales 123,942 152,395
-------- ---------
Operating costs and expenses:
Cost of sales 89,269 105,679
Administrative and other expenses 10,099 14,562
Depreciation and depletion 17,386 13,691
Exploration expense 760 1,192
-------- ---------
Total operating costs and expenses 117,514 135,124
-------- ---------
Operating income 6,428 17,271
Interest income 2,917 4,948
Other income 1,484 1,617
Interest expense (5,052) (4,407)
-------- ---------
Earnings before taxes on income and minority
interest of labor shares 5,777 19,429
Taxes on income 1,733 6,316
Minority interest of labor shares in income of
Peruvian Branch 2 193
-------- ---------
Net earnings $ 4,042 $ 12,920
======== =========
Per common share amounts:
Net earnings - basic and diluted $0.05 $0.16
Dividends paid $0.03 $0.20
Weighted average number of shares outstanding: Basic 79,857 79,943
Diluted 79,883 79,943
The accompanying notes are an integral part of these financial statements.
</TABLE>
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<PAGE>
Southern Peru Copper Corporation
and Subsidiaries
<TABLE>
CONDENSED CONSOLIDATED BALANCE SHEET
(unaudited)
March 31, December 31,
<CAPTION>
1999 1998
(in thousands)
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 160,788 $ 175,948
Marketable securities 24,470 22,152
Accounts receivable, net 51,459 64,561
Inventories 87,580 88,951
Other assets 59,320 58,450
--------- ---------
Total current assets 383,617 410,062
Net property 1,117,466 1,088,557
Other assets 28,573 27,218
--------- ---------
Total Assets $1,529,656 $1,525,837
========== ==========
LIABILITIES
Current liabilities:
Current portion of long-term debt $ 13,683 $ 13,683
Accounts payable 41,575 48,497
Accrued liabilities 37,251 34,836
---------- ----------
Total current liabilities 92,509 97,016
-------- ----------
Long-term debt 222,525 220,525
Deferred credits 16,371 15,722
Deferred income taxes 61,268 56,700
Other liabilities 10,643 10,951
---------- ----------
Total non-current liabilities 310,807 303,898
---------- ----------
Minority interest of labor shares in the Peruvian
Branch 16,102 16,331
---------- ----------
STOCKHOLDERS' EQUITY
Common stock (a) 261,363 261,363
Retained earnings 848,875 847,229
---------- ----------
Total Stockholders' Equity 1,110,238 1,108,592
---------- ----------
Total Liabilities, Minority Interest and Stockholders' Equity $1,529,656 $1,525,837
========== ==========
(a) Common shares: Authorized 34,099 34,099
Outstanding 13,962 13,950
Class A common shares Authorized and Outstanding 65,901 65,901
The accompanying notes are an integral part of these financial statements.
</TABLE>
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<PAGE>
Southern Peru Copper Corporation
and Subsidiaries
<TABLE>
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
<CAPTION>
3 Months Ended
March 31,
1999 1998
(in thousands)
OPERATING ACTIVITIES
<S> <C> <C>
Net earnings $ 4,042 $ 12,920
Adjustments to reconcile net earnings to net cash provided
from operating activities:
Depreciation and depletion 17,386 13,691
Provision (benefit) for deferred income taxes 5,256 2,446
Minority interest of labor shares 2 193
Net loss on sale of investments and property - 268
Cash provided from (used for) operating assets and
liabilities:
Accounts receivable 12,582 8,717
Inventories 1,371 (4,501)
Accounts payable and accrued liabilities (6,101) 14,399
Other operating assets and liabilities 2,446 (16,124)
Foreign currency transaction loss 1,516 -
------- ---------
Net cash provided from operating activities 38,500 32,009
------- ---------
INVESTING ACTIVITIES
Capital expenditures (50,314) (76,408)
Purchases of held-to maturity investments (24,470) (1,800)
Proceeds from held-to-maturity investments 22,152 88,679
Sale of property 362 822
--------- ---------
Net cash provided from (used for) investing activities (52,270) 11,293
--------- ---------
FINANCING ACTIVITIES
Proceeds from borrowings 2,000 -
Escrow (deposits) withdrawals on long-term loans (27) 1,615
Dividends paid to common stockholders (2,396) (15,983)
Distributions to minority interest (47) (396)
Treasury stock transactions - (3,001)
Purchases of labor shares (183) (912)
--------- ---------
Net cash used for financing activities (653) (18,677)
--------- ---------
Effect of exchange rate changes on cash (737) 193
---------- ---------
Increase(decrease) in cash and cash equivalents (15,160) 24,818
Cash and cash equivalents, at beginning of period 175,948 126,491
--------- ---------
Cash and cash equivalents, at end of period $ 160,788 $ 151,309
========= =========
The accompanying notes are an integral part of these financial statements.
</TABLE>
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<PAGE>
SOUTHERN PERU COPPER CORPORATION
and Subsidiaries
NOTES to CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
A. In the opinion of the Company, the accompanying unaudited condensed
consolidated financial statements contain all adjustments (consisting only
of normal recurring adjustments) necessary to present fairly the Company's
financial position as of March 31, 1999 and the results of operations and
cash flows for the three months ended March 31, 1999 and 1998. Certain
reclassifications have been made in the financial statements from amounts
previously reported. This financial data has been subjected to a review by
PricewaterhouseCoopers LLP, the Company's independent accountants. The
results of operations for the three month period are not necessarily
indicative of the results to be expected for the full year. The
accompanying condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's 1998 annual report on Form 10-K.
B. Inventories were as follows:
(in millions)
March 31, December 31,
1999 1998
Metals at lower of average cost or market:
Finished goods $1.0 $1.5
Work-in-process 37.3 37.9
Supplies at average cost, net of reserves 49.3 49.5
---- ----
Total inventories $ 87.6 $ 88.9
====== ======
C. At March 31, 1999, the Company has recorded sales of 6.7 million pounds of
copper, at a provisional price of $0.60 per pound. These sales are subject
to final pricing based on the average monthly LME copper price in the month
of settlement which will occur in the second quarter of 1999.
D. Financial Instruments:
The Company uses derivative instruments to manage its exposure to market
risk from changes in commodity prices. Derivative instruments which are
designated as hedges, must be deemed effective at reducing the risk
associated with the exposure being hedged and must be designated as a hedge
at the inception of the contract.
Copper: Depending on market fundamentals and other conditions, the Company
may purchase put options to reduce or eliminate the risk of price declines
below the option strike price on a portion of 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 option price. The cost of the
options is amortized on a straight-line basis during the period in which
the options are exercisable. Depending upon market conditions the Company
may either sell options it holds or exercise the options at maturity. Gains
or losses from the sale or exercise of options, net of unamortized
acquisition costs, are recognized in the period in which the underlying
production is sold and are reported as a component of the underlying
transaction.
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<PAGE>
Earnings include pre-tax gains from option sales and exercises of $7.2
million in the first quarter of 1998. At March 31, 1999, the Company held
no copper put options.
Fuel swaps: The Company may enter into fuel swap agreements to limit the
effect of changes in fuel prices on its production costs. A fuel swap
establishes a fixed price for the quantity of fuel covered by the
agreement. The difference between the published price for fuel and the
price established in the contract for the month covered by the swap is
recognized as a component of cost of sales. As of March 31, 1999 and
December 31, 1998, the Company had the following fuel swap agreements:
Weighted
Average
Contract
Quantity Price
Fuel Type Period (barrels) (per barrel)
--------- ------ --------- ------------
March 31, 1999
--------------
Residual Oil 4/99-12/99 1,240,500 $10.07
Diesel Fuel 4/99-12/99 360,000 $15.94
December 31, 1998
Residual Oil 1/99-9/99 1,095,000 $9.84
Diesel Fuel 1/99-9/99 432,000 $15.80
Due to increases in fuel prices the value of the Company's fuel swap
positions at March 31, 1999 has increased. As a result, in the event of a
hypothetical 10 percent decrease from March 31, 1999 fuel prices, the
Company would still incur lower production costs of approximately $100,000
over the life of the contracts then it would have incurred had the exposure
not been hedged.
In the first quarter of 1999, the Company's production costs would have been
$0.8 million lower if this exposure had not been hedged.
E. Commitments and Contingencies:
Litigation
In April 1996, the Company was served with a complaint filed in Peru by
approximately 800 former employees seeking the delivery of a substantial
number of labor shares of its Peruvian Branch plus dividends. In October
1997, the Superior Court of Lima nullified a decision of a court of first
instance, which had been adverse to the Company. The Superior Court
remanded the case for a new trial. Plaintiffs filed an extraordinary appeal
before the Peruvian Supreme Court. The Supreme Court may grant
discretionary review in limited cases. In March 1999, the Company received
official notification that the Supreme Court had denied plaintiff's
extraordinary appeal and affirmed the decision of the Supreme Court of Lima
which remanded the case for a new trial. There is also pending against the
Company a similar lawsuit filed by 127 additional former employees. In the
third quarter of 1997, the court of first instance dismissed their
complaint. Upon appeal filed by the plaintiffs, the Superior Court of Lima,
in the third quarter of 1998, nullified the lower court's decision on
technical grounds and remanded the case to the lower court for further
proceedings.
-6-
<PAGE>
It is the opinion of management that the outcome of the legal proceedings
mentioned, as well as other miscellaneous litigation and proceedings now
pending, will not materially adversely affect the financial position of the
Company and its consolidated subsidiaries. However, it is possible that
litigation matters could have a material effect on quarterly or annual
operating results, when they are resolved in future periods.
F. Impact of New Accounting Standard:
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities." This
statement which is effective for fiscal years beginning after June 15,
1999, establishes accounting and reporting standards for derivative
instruments and hedging activities. The Company is currently assessing the
impact of this statement.
-7-
<PAGE>
Part I Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company reported net earnings of $4.0 million, or 5 cents per common share,
for the first quarter ended March 31, 1999 compared with net earnings of $12.9
million, or 16 cents per common share, for the first quarter of 1998. The
decrease in earnings in 1999 is primarily a result of lower metal prices. The
average price for copper on the London Metal Exchange (LME) was 64 cents per
pound for the first quarter of 1999 compared with 77 cents per pound in the
first quarter of 1998. Prices for SPCC's principal by-products were also lower
in the 1999 period. Molybdenum averaged $2.70 per pound and silver averaged
$5.28 per ounce compared to $3.96 per pound and $6.24 per ounce, respectively,
during the first quarter of 1998.
The decrease in first quarter 1999 earnings was partially offset by estimated
pre-tax savings of $5.8 million realized from the Company's cost reduction and
production enhancement programs. For the entire year 1999, the cost reduction
and production enhancement programs are expected to improve pre-tax earnings by
$30.0 million. The Company's first quarter 1998 results include $10.0 million
pre-tax charge ($6.0 million after-tax) for severance costs associated with the
Company's cost reduction program.
Copper mine production increased 16% to 177.6 million pounds in the first
quarter of 1999, compared with 153.1 million pounds in the first quarter of last
year. This increase of 24.5 million pounds, included 17.4 million pounds from
the Cuajone mine, 6.7 million pounds from the Toquepala mine and 0.4 million
pounds from the solvent extraction/electrowinning (SX/EW) facility. The increase
in production at the Cuajone mine is a result of the recently completed mill
expansion. Although production increased during the quarter, Cuajone's mill
throughput was adversely affected by heavy rains that caused ore handling
problems and difficult working conditions. Production increased at the Toquepala
mine despite the adverse weather conditions due to the addition of two new ball
mills and higher ore grades.
The Company's $1.2 billion expansion and modernization program is progressing on
schedule. Construction of the Cuajone mine expansion is complete. Although start
up has been hampered by excessive rain, the project should reach planned
production rates in the second quarter 1999. The Cuajone expansion is expected
to increase SPCC's annual copper production by 130 million pounds. Engineering
and planning for the Ilo smelter modernization are also moving forward and are
on schedule.
In March 1999, the Company concluded a $100 million 15-year loan agreement with
Mitsui and Co., Ltd. This facility provides additional committed financing for
SPCC's modernization and expansion program. The Company also has available an
undrawn $600 million committed bank credit facility and cash and available for
sale securities of $185 million at March 31, 1999.
Inflation and Devaluation of Peruvian Sol: A portion of the Company's operating
costs is denominated in Peruvian soles. Since the revenues of the Company are
primarily denominated in U.S. dollars, when inflation in Peru is not offset by a
corresponding devaluation of the sol, the financial position, results of
operations and cash flows of the Company could be adversely affected. For the
three months ended March 31,1999 the inflation and devaluation rates were 0.9%
and 5.7%, respectively.
-8-
<PAGE>
Net Sales: Net sales in the first quarter of 1999 decreased $28.5 million to
$123.9 million from the comparable period in 1998. The decrease in net sales was
principally the result of lower metal prices in the 1999 period.
At March 31, 1999, the Company has recorded sales of 6.7 million pounds of
copper, at a provisional price of $0.60 per pound. These sales are subject to
final pricing based on the average monthly LME copper price in the month of
settlement which will occur in the second quarter of 1999.
Prices: Sales prices for the Company's metals are established principally by
reference to prices quoted on the LME, the New York Commodity Exchange (COMEX)
or published in Platt's Metals Week for dealer oxide prices for molybdenum
products.
Three Months Ended
March 31,
Price/Volume Data 1999 1998
---- ----
Average Metal Prices:
Copper (per pound-LME) $0.64 $0.77
Molybdenum (per pound) $2.70 $3.96
Silver (per ounce-COMEX) $5.28 $6.24
Sales Volume (in thousands):
Copper (pounds) 168,700 170,000
Molybdenum (pounds) (1) 2,324 2,850
Silver (ounces) 633 754
(1) The Company's molybdenum production is sold in concentrate form. Volume
represents pounds of molybdenum contained in concentrates.
Financial Instruments:
The Company uses derivative instruments to manage its exposure to market risk
from changes in commodity prices. Derivative instruments which are designated as
hedges, must be deemed effective at reducing the risk associated with the
exposure being hedged and must be designated as a hedge at the inception of the
contract.
Copper: Depending on market fundamentals and other conditions, the Company may
purchase put options to reduce or eliminate the risk of price declines below the
option strike price on a portion of 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 option price. The cost of the options is amortized on
a straight-line basis during the period in which the options are exercisable.
Depending upon market conditions the Company may either sell options it holds or
exercise the options at maturity. Gains or losses from the sale or exercise of
options, net of unamortized acquisition costs, are recognized in the period in
which the underlying production is sold and are reported as a component of the
underlying transaction.
Earnings include pre-tax gains from option sales and exercises of $7.2 million
in the first quarter of 1998. At March 31, 1999, the Company held no copper put
options.
-9-
<PAGE>
Fuel swaps: The Company may enter into fuel swap agreements to limit the effect
of changes in fuel prices on its production costs. A fuel swap establishes a
fixed price for the quantity of fuel covered by the agreement. The difference
between the published price for fuel and the price established in the contract
for the month covered by the swap is recognized as a component of cost of sales.
As of March 31, 1999 and December 31, 1998, the Company has entered into the
following fuel swap agreements:
Weighted
Average
Contract
Quantity Price
Fuel Type Period (barrels) (per barrel)
--------- ------ --------- ------------
March 31, 1999
--------------
Residual Oil 4/99-12/99 1,240,500 $10.07
Diesel Fuel 4/99-12/99 360,000 $15.94
December 31, 1998
Residual Oil 1/99-9/99 1,095,000 $9.84
Diesel Fuel 1/99-9/99 432,000 $15.80
Due to increases in fuel prices the value of the Company's fuel swap positions
at March 31, 1999 has increased. As a result, in the event of a hypothetical 10
percent decrease from March 31, 1999 fuel prices, the Company would still incur
lower production costs of approximately $100,000 over the life of the contracts
then it would have incurred had the exposure not been hedged.
In the first quarter of 1999, the Company's production costs would have been
$0.8 million lower if this exposure had not been hedged.
Operating Costs and Expenses: Operating costs and expenses were $117.5 million
in the first quarter of 1999 compared with $135.1 million in the first quarter
of 1998. The decrease in operating costs and expenses is principally due to
lower production costs as a result of the cost-reduction and production
enhancement programs instituted by the Company in April 1998, and a charge of
$10 million in the first quarter of 1998 for severance costs associated with the
cost reduction program.
Non-Operating Items: Interest income was $2.9 million in the first quarter of
1999, compared with $4.9 million for the respective period in 1998. The decrease
principally reflects lower invested balances as Company funds were used for the
expansion and modernization program.
Taxes on Income: Taxes on income for the three months ended March 31, 1999 were
$1.7 million, compared with $6.3 million for the first quarter of 1998. The
decrease in the first quarter 1999 is due to lower earnings as a consequence of
lower metal prices.
Cash Flows - Operating Activities: Net cash provided from operating activities
was $38.5 million in the first quarter of 1999, compared with $32.0 million in
the comparable 1998 period. The increase was primarily the result of changes in
operating assets and liabilities.
Cash Flows - Investing Activities: Investing activities in the first quarter of
1999 was a use of cash of $52.3 million, compared with a source of cash of $11.3
million for the first quarter of 1998. The first quarter of 1998 included higher
proceeds from held-to-maturity investments. The decrease in capital expenditures
from the prior year first quarter is principally related to the expansion of the
Cuajone mine which was substantially completed in 1998.
-10-
<PAGE>
Cash Flows - Financing Activities: Financing activities in the first quarter of
1999 included long-term borrowing of $2.0 million and dividend distributions of
$2.4 million.
The first quarter of 1998 included a dividend distribution of $16.0 million. In
addition, $3.9 million was used to purchase labor shares and treasury stock.
Liquidity and Capital Resources: At March 31, 1999, the Company's debt as a
percentage of total capitalization (total debt, minority interests and
stockholders' equity) was 17.3% compared to 17.2% at December 31, 1998. Debt at
March 31, 1999 was $236.2 million, compared to $234.2 at the end of 1998.
Additional indebtedness permitted under terms of the most restrictive of the
Company's credit agreements totaled $874.0 million at March 31, 1999.
In March 1999, the Company concluded a $100 million loan agreement with Mitsui &
Co., Ltd. The agreement provides for a two year drawdown period (1999-2000), a
three year grace period on principal payments (2001-2003) and a ten year
repayment period (2004-2013). The interest rate is LIBOR plus 1.25%, with a
commitment fee of 0.5% on the undrawn portion. As of March 31, 1999, $2.0
million of this facility has been drawn.
The Company expects that it will meet its cash requirements for 1999 and beyond
from internally generated funds, cash on hand, from borrowings under existing
credit facilities and from additional external financing.
In the first quarter of 1999, the Company paid a dividend to shareholders of
$2.4 million or $0.03 per share, compared with $16.0 million or $0.20 per share
in the same period of 1998. On April 29, 1999, the Company declared a quarterly
dividend of $0.025 per share payable June 2, 1999 to stockholders of record at
the close of business on May 19, 1999.
Certain financing agreements contain covenants which limit the payment of
dividends to stockholders. Under the most restrictive covenant, the Company may
pay dividends to stockholders equal to 50% of the net income of the Company for
any fiscal quarter as long as such dividends are paid by June 30 of the
following year.
Year 2000: The Company has implemented a three phase program to identify and
resolve Year 2000 (Y2K) issues related to the integrity and reliability of its
computerized information systems as well as computer systems embedded in its
production processes. Phase one of the Company's program which involved an
assessment of Y2K compliance of the Company's computerized information systems
and embedded computer systems has been completed. In phase two of the program
the Company is modifying or replacing all non-compliant systems. The Company has
identified three systems that are not Y2K compliant. These systems are being
replaced and are expected to be operational by the third quarter of 1999. As of
March 31, 1999, approximately 95% of the Company's computerized information
systems have been tested and are Y2K compliant with the remainder expected to be
tested and be Y2K compliant by the third quarter of 1999. The Company continues
to test these systems where appropriate.
-11-
<PAGE>
Under the third phase of the program the Company has sent detailed information
requests to its principal customers, suppliers and service providers to
determine the status of their Y2K compliance. As of March 31, 1999, the Company
received confirmations from approximately 60% indicating that they are or will
be Y2K compliant. The Company expects to have further communications with those
who have not responded or have indicated further work was required to achieve
Y2K compliance. The third phase of the program is expected to be completed in
the third quarter of 1999.
Among other things, the Company's operations depend on the availability of
utility services, principally electricity, and reliable performance by
international transportation services. A substantial disruption in any of these
services due to providers of these services failing to achieve Y2K compliance
would have an adverse impact on the Company's financial results the significance
of which would depend on the length and severity of the disruption. In response
to a request from the Company, a detailed plan to ensure Y2K compliance by the
Company's principal electrical power supplier was received. The Company is
monitoring the progress of this plan. The Company will complete a contingency
plan for each of its principal operating services during the third quarter of
1999. The purpose of the contingency plan is to identify possible alternatives
which could be used in the event of a disruption in the delivery of essential
goods or services and to minimize the effect of such a disruption.
As of March 31, 1999, the Company had spent approximately $0.9 million in
addition to its normal internal information technology costs in connection with
its Y2K program. The Company expects to incur additional costs of $0.3 million
to complete phases two and three of the program.
The above estimates and conclusions contain forward-looking statements and are
based on management's best estimate of future events. Actual results could
differ materially depending on the availability of resources and the Company's
ability to identify and correct all Y2K issues.
Impact of New Accounting Standard: In June 1998, the Financial Accounting
Standards Board issued SFAS No. 133 "Accounting for Derivative Instruments and
Hedging Activities." This statement which is effective for fiscal years
beginning after June 15, 1999, establishes accounting and reporting standards
for derivative instruments and hedging activities. The Company is currently
assessing the impact of this statement.
Cautionary statement: Forward-looking statements in this report and in other
Company statements include statements regarding expected commencement dates of
mining or metal production operations, projected quantities of future metal
production, anticipated production rates, operating efficiencies, costs and
expenditures as well as projected demand or supply for the Company's products.
Actual results could differ materially depending upon factors including the
availability of materials, equipment, required permits or approvals and
financing, the occurrence of unusual weather or operating conditions, lower than
expected ore grades, the failure of equipment or processes to operate in
accordance with specifications, labor relations, environmental risks as well as
political and economic risk associated with foreign operations. Results of
operations are directly affected by metal prices on commodity exchanges which
can be volatile.
-12-
<PAGE>
PRICEWATERHOUSECOOPERS LLP
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of Southern Peru Copper Corporation:
We have reviewed the condensed consolidated balance sheet of Southern Peru
Copper Corporation and Subsidiaries as of March 31, 1999 and the condensed
consolidated statements of earnings and cash flows for the three months ended
March 31, 1999 and 1998. These 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 condensed consolidated financial statements, referred to above,
for them to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet as of December 31, 1998 and the
related consolidated statements of earnings, cash flows, and changes in common
stockholders' equity for the year then ended (not presented herein); and in our
report dated January 22, 1999, we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the information set forth in
the accompanying condensed consolidated balance sheet as of December 31, 1998,
is fairly stated, in all material respects, in relation to the consolidated
balance sheet from which it has been derived.
PricewaterhouseCoopers LLP
New York, New York
April 16, 1999
-13-
<PAGE>
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
In April 1996, the Company was served with a complaint filed in Peru by
approximately 800 former employees seeking the delivery of a substantial number
of labor shares of its Peruvian Branch plus dividends. In October 1997, the
Superior Court of Lima nullified a decision of a court of first instance, which
had been adverse to the Company. The Superior Court remanded the case for a new
trial. Plaintiffs filed an extraordinary appeal before the Peruvian Supreme
Court. The Supreme Court may grant discretionary review in limited cases. In
March 1999, the Company received official notification that the Supreme Court
had denied plaintiff's extraordinary appeal and affirmed the decision of the
Superior Court of Lima which remanded the case for a new trial. There is also
pending against the Company a similar lawsuit filed by 127 additional former
employees. In the third quarter of 1997, the court of first instance dismissed
their complaint. Upon appeal filed by the plaintiffs, the Superior Court of
Lima, in the third quarter of 1998, nullified the lower court's decision on
technical grounds and remanded the case to the lower court for further
proceedings.
Item 4 - Submission of Matters to a Vote of Security Holders
At the annual meeting of stockholders of the Company held on April 29, 1999, the
holders of Common Stock, voting as a class, were asked to elect two directors,
the holders of Class A Common Stock, voting as a class, were asked to elect 13
directors, and both classes, voting together, were asked to approve the
selection of the independent accountants for 1999.
Votes cast in the election of directors by holders of Common Stock were as
follows:
Number of Shares
Names For Withheld
Amb. Everett E. Briggs 10,236,637 187,838
John F. McGillicuddy 10,238,490 185,985
In the election of directors by holders of Class A Common Stock, each of the
following directors received 65,900,833 votes and no votes were withheld:
Jaime Claro Charles B. Smith
William Dowd Gerald D. Van Voorhis
Augustus B. Kinsolving Michael O. Varner
Francis R. McAllister J. Steven Whisler
Kevin R. Morano David B. Woodbury
Richard de J. Osborne Douglas C. Yearley
Robert A. Pritzker
Stockholders approved the selection of the independent accountants as follows:
For Against Withheld
Common Stock: 10,370,337 20,122 34,016
Class A Common Stock: 329,504,165 - -
----------- ------ ------
Total 339,874,502 20,122 34,016
Holders of Class A Common Stock are entitled to five votes per share when voting
together with the holders of Common Stock as one class.
-14-
<PAGE>
Item 6(a) - Exhibits on Form 10Q
EXHIBIT INDEX
Exhibit
11 Statement re Computation of Earnings per Share
-15-
<PAGE>
Exhibit 11 Statement re Computation of Earnings per Share
This calculation is submitted in accordance with Regulation S-K item 601(b)(11).
Earnings per Common Share
(in thousands, except per share amounts)
3 Months Ended
March 31,
1999 1998
---- ----
Net earnings applicable to common stock $4,042 $12,920
====== =======
Weighted average number of common shares outstanding 79,857 79,943
Shares issuable from assumed exercise of Stock Options 26 -
------ ------
Weighted average number of common shares outstanding, 79,883 79,943
as adjusted ====== ======
Diluted earnings per share:
Net earnings applicable to common stock $0.05 $.16
===== ====
Basic earnings per share:
Net earnings applicable to common stock $0.05 $.16
===== ====
<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: May 10, 1999 /s/ Thomas J. Findley, Jr.
--------------------------
Thomas J. Findley, Jr.
Vice President and
Chief Financial Officer
Date: May 10, 1999 /s/ Brendan M. O'Grady
----------------------
Brendan M. O'Grady
Comptroller
-16-
<PAGE>
Exhibit I
PRICEWATERHOUSECOOPERS LLP
Securities and Exchange Commission
450 Fifth Street, NW
Washington, D.C. 20549
We are aware that our report dated April 16, 1999 on our review of the interim
financial information of Southern Peru Copper Corporation and Subsidiaries as of
March 31,1999 and for the three months ended March 31, 1999 and 1998 and
included in this Form 10-Q for the quarter ended March 31,1999 is incorporated
by reference in the Company's Registration Statement on Form S-8 (File Nos.
333-02736 and 333-40293). 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.
PricewaterhouseCoppers LLP
New York, New York
May 10, 1999
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<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-1-1999
<PERIOD-END> MAR-31-1999
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0
0
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<CGS> 89269
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<INCOME-TAX> 1733
<INCOME-CONTINUING> 4044
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<EXTRAORDINARY> 0
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<NET-INCOME> 4042
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