<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended APRIL 30, 1999
Or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______ to _______
COMMISSION FILE NUMBER 333-66291
THE DOE RUN RESOURCES CORPORATION
(Exact name of registrant as specified in its charter)
NEW YORK 13-1255630
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
1801 PARK 270 DRIVE, SUITE 300
ST. LOUIS, MISSOURI 63146
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (314) 453 - 7100
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 proceeding 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.
[X] YES [ ] NO
Number of shares outstanding of each of the issuer's classes of common stock,
as of June 11, 1999:
COMMON STOCK, $.10 PAR VALUE 1,000 SHARES
<PAGE>
THE DOE RUN RESOURCES CORPORATION
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE DOE RUN RESOURCES CORPORATION
Condensed Consolidated Balance Sheets
April 30, 1999 and October 31, 1998 3
Consolidated Statements of Operations
Three and Six Months Ended April 30, 1999 and 1998 4
Condensed Consolidated Statements of Cash Flows
Six Months Ended April 30, 1999 and 1998 5
Notes to Consolidated Financial Statements 6-19
DOE RUN PERU S.R.L.
Condensed Consolidated Balance Sheets
April 30, 1999 and October 31, 1998 20
Condensed Consolidated Statements of Operations
Three and Six Months Ended April 30, 1999 and 1998 21
Condensed Consolidated Statements of Cash Flows
Six Months Ended April 30, 1999 and 1998 22
Notes to Condensed Consolidated Financial Statements 23
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF 24-33
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK 34
PART II. OTHER INFORMATION. 35
ITEM 1. LEGAL PROCEEDINGS
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS 35
Exhibit 10.1 Amendment No. 3 to Loan and Security Agreement dated
February 1, 1999 by and among The Doe Run Resources
Corporation, Fabricated Products, Inc. and Congress
Financial Corporation
Exhibit 27 Financial Data Schedule
SIGNATURES 36
EXHIBIT INDEX 37
</TABLE>
<PAGE>
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE DOE RUN RESOURCES CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
APRIL 30, OCTOBER 31,
1999 1998
----------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash $ 8,114 $ 4,646
Trade accounts receivable, net of allowance for
doubtful accounts 79,386 86,338
Inventories 128,040 126,467
Prepaid expenses and other current assets 34,175 30,306
-------- --------
Total current assets 249,715 247,757
Property, plant and equipment, net 259,957 264,468
Special term deposit 125,000 125,000
Net deferred tax assets - 8,015
Other noncurrent assets, net 17,171 18,399
-------- --------
Total assets $651,843 $663,639
-------- --------
-------- --------
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Short-term borrowings and current maturities
of long-term debt $ 8,677 $ 2,018
Accounts payable 42,002 53,698
Accrued liabilities 44,963 50,670
Net deferred tax liabilities - 1,815
-------- --------
Total current liabilities 95,642 108,201
Long-term debt, less current maturities 490,556 476,284
Net deferred tax liabilities 3,185 2,571
Other noncurrent liabilities 57,445 58,005
-------- --------
Total liabilities 646,828 645,061
Shareholder's equity:
Common stock, $.10 par value, 1,000 shares
authorized, issued, and outstanding - -
Additional paid-in capital 5,000 5,000
Retained earnings 15 13,578
-------- --------
Total shareholder's equity 5,015 18,578
-------- --------
Total liabilities and shareholder's equity $651,843 $663,639
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
3
<PAGE>
THE DOE RUN RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
APRIL 30, APRIL 30,
-------------------------- --------------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales $ 191,665 $ 174,319 $ 373,383 $ 343,405
Costs and expenses:
Cost of sales 160,140 139,558 320,347 283,105
Depletion, depreciation and amortization 8,203 5,747 16,380 11,461
Selling, general and administrative 9,019 10,229 17,660 17,700
Exploration 858 1,115 1,850 1,599
--------- --------- --------- ---------
Total costs and expenses 178,220 156,649 356,237 313,865
--------- --------- --------- ---------
Income from operations 13,445 17,670 17,146 29,540
Other income (expense):
Interest expense (14,203) (8,636) (29,441) (14,505)
Interest income 3,923 1,994 7,573 2,359
Other, net (1,243) (770) (317) (635)
--------- --------- --------- ---------
(11,523) (7,412) (22,185) (12,781)
--------- --------- --------- ---------
Income (loss) before income taxes 1,922 10,258 (5,039) 16,759
Income tax expense 1,356 3,453 8,524 7,980
--------- --------- --------- ---------
Income (loss) before extraordinary item 566 6,805 (13,563) 8,779
Extraordinary item related to early retirement
of debt, net of income tax benefit - (4,388) - (4,388)
--------- --------- --------- ---------
Net income (loss) $ 566 $ 2,417 $ (13,563) $ 4,391
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
4
<PAGE>
THE DOE RUN RESOURCES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED APRIL 30,
---------------------------
1999 1998
--------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (13,563) $ 4,391
Extraordinary item related to retirement of debt - 6,750
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation, depletion and amortization 16,380 11,461
Amortization of deferred financing fees 1,411 844
Deferred income taxes 6,814 389
Imputed interest 259 15
Decrease resulting from changes in assets and liabilities: (14,996) (25,593)
--------- ---------
Net cash used in operating activities (3,695) (1,743)
Cash flows from investing activities:
Special term deposit - (125,000)
Purchases of property, plant and equipment (11,800) (10,908)
--------- ---------
Net cash used in investing activities (11,800) (135,908)
Cash flows from financing activities:
Proceeds from revolving loans and short term borrowings, net 3,073 6,681
Proceeds from long-term debt - 380,000
Payments on long-term debt (1,321) (230,845)
Proceeds from sale/leaseback transactions 17,922 -
Payment of deferred financing costs (711) (12,297)
Payment of dividends - (189)
Redemption of preferred stock - (2,500)
--------- ---------
Net cash provided by financing activities 18,963 140,850
--------- ---------
Net increase in cash 3,468 3,199
Cash at beginning of period 4,646 8,943
--------- ---------
Cash at end of period $ 8,114 $ 12,142
--------- ---------
--------- ---------
Supplemental disclosure of cash flow information
Cash paid during the period for:
Interest, net of capitalized interest $ 27,495 $ 8,685
--------- ---------
--------- ---------
Income taxes $ 4,618 $ 7,028
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
5
<PAGE>
THE DOE RUN RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
UNAUDITED INTERIM FINANCIAL STATEMENTS
These interim consolidated financial statements include the accounts of The
Doe Run Resources Corporation and its subsidiaries (the Company). The common
stock of the Company is owned by DR Acquisition Corp., a wholly-owned
subsidiary of The Renco Group, Inc (Renco). In the opinion of management,
the interim consolidated financial statements contain all adjustments,
consisting of normal recurring accruals, necessary to present fairly the
consolidated financial position as of April 30, 1999 and results of
operations for the three and six month periods ended April 30, 1999 and
1998. Interim periods are not necessarily indicative of results to be
expected for the year.
RECLASSIFICATIONS
Certain prior year balances have been reclassified in order to conform to
current presentation.
(2) INVENTORIES
<TABLE>
<CAPTION>
APRIL 30, OCTOBER 31,
1999 1998
----------- -----------
(UNAUDITED)
<S> <C> <C>
Finished metals and concentrates $ 17,286 $ 10,954
Metals and concentrates in process 64,862 70,224
Materials, supplies and repair parts 45,892 45,289
-------- --------
$128,040 $126,467
-------- --------
-------- --------
</TABLE>
Materials, supplies and repair parts are stated net of reserves for
obsolescence of $4,439 and $4,559 as of April 30, 1999 and October 31, 1998,
respectively.
(3) SALE/LEASEBACK TRANSACTION
In January 1999, Doe Run Peru S.R.L (Doe Run Peru) finalized an agreement
for the sale and leaseback of its oxygen plant at the La Oroya facility
for $17,163. Doe Run Peru has an option to repurchase the oxygen plant at
the end of the five-year lease term for $200. This transaction has been
accounted for as a financing arrangement. A sale and leaseback of computer
equipment, accounted for as a financing arrangement, provided an
additional $761 of cash flows from financing activities.
(4) CHANGE IN TAXABLE STATUS
On January 15, 1999, Renco filed an election, with the consent of its
shareholders, with the Internal Revenue Service to change its taxable status
from that of a subchapter C corporation to that of a subchapter S
corporation, effective November 1, 1998. At the same time, Renco elected for
the Company to be treated as a qualified subchapter S subsidiary (QSSS).
Most states in which the Company operates will follow similar tax treatment.
QSSS status requires the ultimate shareholders to include their pro rata
share of the Company's income or loss in their individual tax returns. The
election does not affect foreign income taxes related to the Company's
foreign subsidiaries, and the Company will continue to provide for state and
local taxes for those jurisdictions that do not recognize QSSS status. As a
result of this change in tax status, the elimination of federal and most
state deferred tax assets and liabilities for income tax purposes resulted
in a charge to income tax expense of $6,200 for the six months ended April
30, 1999.
6
<PAGE>
THE DOE RUN RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(5) HEDGING
The fair market value of the Company's net hedging positions at April 30,
1999 is the difference between quoted prices at the respective period-end
and the contract settlement value. The fair market value represents the
estimated net cash the Company would receive (pay) if the contracts were
canceled on the respective dates. As management has designated these
contracts as hedges, the related gains and losses will be recognized in net
sales when the related production is sold.
The fair market value of the Company's net open hedging positions at April
30, 1999 was $(1,485).
(6) ENVIRONMENTAL AND LITIGATION MATTERS
ENVIRONMENTAL
The Company has recorded a liability of $35,024 as of April 30, 1999, which
represents management's best estimate of known obligations relating to
environmental and reclamation matters, which are discussed below.
DOMESTIC OPERATIONS
The Company is subject to numerous federal, state and local environmental
laws and regulations governing, among other things, air emissions, waste
water discharge, solid and hazardous waste treatment, and storage, disposal
and remediation of releases of hazardous materials. In common with much of
the mining industry, the Company's facilities are located on sites that have
been used for heavy industrial purposes for decades and may require
remediation. The Company has made and intends to continue making the
necessary expenditures for environmental remediation and compliance with
environmental laws and regulations. Environmental laws and regulations may
become more stringent in the future which could increase costs of
compliance.
Primary smelter slag produced by and stored at the primary smelter in
Herculaneum, Missouri is currently exempt from hazardous waste regulation
under the Resource Conservation and Recovery Act of 1976, as amended (RCRA).
The Company has accrued approximately $1,200 related to the Herculaneum
smelter's operations, primarily for closure obligations. If the slag or
other wastes at the smelter were to be regulated as hazardous waste, the
Company may be required to take corrective action under RCRA at the smelter,
as well as to adopt stricter management practices for these wastes. Further,
the EPA has initiated an investigation of the smelter under the
Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended (CERCLA), which could potentially require remediation
similar to the corrective action mentioned above.
The Company is working with regulators to develop a new three-year
compliance plan so that the Herculaneum smelter meets the ambient air
quality standard for lead promulgated under the federal Clean Air Act.
The plan must be completed by September 2000 and will take effect after
that date to implement the control measures identified in the plan. The
Company expects to make capital expenditures for various control measures
totaling approximately $2,900 in fiscal 1999 and anticipates additional
future cash requirements of $3,000 during the three-year compliance period.
Regulators could require that additional measures be included in the plan,
which could increase the amount of anticipated capital expenditures.
The Company has received notice that it is a potentially responsible party
(PRP) subject to liability under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended (CERCLA), at the
following sites: four sites in St. Francois County, Missouri, including the
Big River Mine Tailings site, the Bonne Terre site, the Federal site and the
National site; the Oronogo-Durenweg site in Jasper County, Missouri; the
Cherokee County site in Cherokee County, Kansas; the Tar Creek site in
Ottawa County, Oklahoma; the Block "P" site in Cascade County,
7
<PAGE>
THE DOE RUN RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
Montana; and the Missouri Electric Works site in Cape Girardeau, Missouri.
There are four additional sites in St. Francois County for which the
Environmental Protection Agency (EPA) has indicated it will issue notice.
These sites involve historical operations of predecessors of the Company.
CERCLA provides for strict and, in certain circumstances, joint and several
liability for response costs and natural resource damages. The Company has a
reserve as of April 30, 1999 of approximately $15,000 for these sites,
including the four additional sites in St. Francois County, which the
Company believes is adequate based on its investigations to date. However,
depending upon the types of remediation required and certain other factors,
costs at these sites, individually or collectively, could have a material
adverse effect on the results of operations, financial condition and
liquidity of the Company.
The Company signed a voluntary Administrative Order of Consent (AOC) in 1994
with the EPA to remediate the Big River Mine Tailings site. In February
1997, the Company signed an AOC to perform an Engineering Evaluation/Cost
Analysis (EE/CA) on the Bonne Terre site. In March 1998, an AOC was signed
to perform an EE/CA on the National site. In addition to remediating the
mine waste areas at these sites, the Company has signed an AOC with the EPA
to conduct a Remedial Investigation/Feasibility Study (RIFS) to assess
potential off-site impacts of site operations on and the need for
remediation regarding groundwater, residential soils, several creeks and a
river. The RIFS is being conducted by a third party and is approximately
one-half complete, with completion expected within two years. The Company
believes the current reserves assigned to these sites are adequate. However,
should remediation goals or areas change, requiring substantially increased
measures, there can be no assurance that the reserves would be adequate.
The Company has been advised by the EPA that it is considering taking
certain response actions at a mine site in Madison County, Missouri known as
the LaMotte Site. A predecessor of the Company was a former operator of the
site in a joint venture with another company. The EPA has not decided
whether any action will be taken, but the Company has signed an AOC to
conduct an RI/FS at the site. This site is substantially smaller than the
sites in St. Francois County where the Company has been named a PRP, and the
potential issues are less complex. At this time, based on this preliminary
meeting and an inspection of the site, management does not believe that any
future action will result in a material adverse impact to the results of
operations, financial condition and liquidity of the Company.
The Company's recycling facility is subject to corrective action
requirements under RCRA, as a result of a storage permit for certain wastes
issued in 1989. This has required and may involve future remediation of
solid waste management units at the site. Although it is not possible to
predict whether completed actions will be approved or new actions required,
the Company has reserves as of April 30, 1999 of approximately $1,800 for
future corrective actions and $2,600 for closure costs for the permitted
storage area.
The Company's domestic operating facilities have wastewater discharge
permits issued under the federal Clean Water Act, as amended. It is expected
that stricter discharge limits than previously in effect will be included in
permits now subject to renewal. As a result, there will be additional
treatment facilities required, with anticipated total capital expenditures
of $4,000 over the next five years to meet applicable permit requirements.
Management does not expect an appreciable increase in operating costs.
The Company's mining and milling operations include seven mine waste
disposal facilities that are subject to Missouri mine closure permit
requirements. The total expected cost of closure is $14,600. The Company has
begun certain closure requirements ahead of closure and will accrue for the
cost of ultimate closure at a rate of approximately $450 per year. The
Company's mine closure reserves were approximately $7,300 as of April 30,
1999.
FOREIGN OPERATIONS
Doe Run Peru has submitted to and received approval from the Peruvian
government for the Programa de Adecuacion y Manejo Ambiental (Environmental
Adjustment and Management Program) (the PAMA) that
8
<PAGE>
THE DOE RUN RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
consisted of an environmental impact analysis, monitoring plan and data,
mitigation measures and closure plan. The PAMA also sets forth the actions
and corresponding annual investments the concession holder agrees to
undertake in order to achieve compliance with the maximum applicable limits
prior to expiration of the PAMA (ten years for smelters, such as Doe Run
Peru's operations, and five years for any other type of mining or
metallurgical operation). The required amount of annual investment must not
be less than one percent of annual sales. Once approved, the PAMA functions
as the equivalent of an operating permit with which the operator must
comply. After expiration of the PAMA, the operator must comply with all
applicable standards and requirements.
Doe Run Peru has committed under its PAMA to implement the following
projects through December 31, 2006: (i) new sulfuric acid plants; (ii)
elimination of fugitive gases from the coke plant; (iii) use of oxygenated
gases in the anodic residue plant; (iv) water treatment plant for the copper
refinery; (v) a recirculation system for cooling waters at the smelter; (vi)
management and disposal of acidic solutions at the silver refinery; (vii)
industrial waste water treatment plant for the smelter and refinery; (viii)
containment dam for the lead muds near the zileret plant; (ix) granulation
process water at the lead smelter; (x) anode washing system at the zinc
refinery; (xi) management and disposal of lead and copper slag wastes; and
(xii) domestic waste water treatment and domestic waste disposal. Annual
spending on a calendar year basis approved in the PAMA is as follows:
<TABLE>
<CAPTION>
ESTIMATED
YEAR COSTS
<S> <C>
1999 $ 5,050
2000 11,265
2001 13,800
2002 14,300
2003 13,180
2004 30,055
2005 34,790
2006 42,040
---------
$ 164,480
---------
---------
</TABLE>
The current estimate for the environmental projects under the PAMA and
additional related process changes for Doe Run Peru is approximately
$195,000.
Doe Run Peru's operations historically and currently exceed some of the
applicable Ministry of Energy and Mines (MEM) maximum permissible limits
pertaining to air emissions, ambient air quality and waste water effluent
quality. The PAMA projects, which are more fully discussed below, have been
designed to achieve compliance with such requirements prior to the
expiration of the PAMA on January 13, 2007. No assurance can be given that
implementation of the PAMA projects is feasible or that their implementation
will achieve compliance with the applicable legal requirements by the end of
the PAMA period. Doe Run Peru has advised the MEM that it intends to seek
changes in certain PAMA projects that it believes will more effectively
achieve compliance. However, there can be no assurance that the MEM will
approve proposed changes to the PAMA or that implementation of the changes
will not increase the cost of compliance. Further, there can be no assurance
that the Peruvian government will not in the future require compliance with
additional environmental obligations that could adversely affect Doe Run
Peru's business, financial condition or results of operations. Under the
purchase agreement related to the acquisition of the La Oroya assets in
October 1997, Empresa Minera del Centro del Peru S.A. (Centromin), the
previous owner of the La Oroya assets, agreed to indemnify Doe Run Peru
against environmental liability arising out of its prior operations, and
performance of the indemnity has been guaranteed by the Peruvian government
through the enactment of the Supreme Decree No. 042-97-PCM. However, there
can be no assurance that Centromin will satisfy its environmental
obligations
9
<PAGE>
THE DOE RUN RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
and investment requirements, including those in its PAMA, or that the
guarantee will be honored. Any failure by Centromin to satisfy its
environmental obligations could adversely affect Doe Run Peru's business,
financial condition or results of operations.
Doe Run Peru's Cobriza mine has a separate PAMA. The total cost of
capital projects to manage tailings, sewage and garbage is approximately
$4,700, to be expended over the next three years.
According to the purchase agreement, the Company has the option to continue
the use of Doe Run Peru's existing zinc ferrite disposal site until October
2000, after which it can take ownership of the site or create a new site. If
the Company chooses to take ownership of the site, it will be responsible
for its closure costs. The Company has accrued for management's estimate of
the closure costs, or $7,200. If the Company abandons the ferrite site, it
must pay this amount to Centromin.
CONSOLIDATED
The Company believes its reserves for domestic and foreign environmental and
reclamation matters are adequate, based on the information available.
Depending upon the type and extent of remediation activities required, costs
in excess of established reserves are reasonably possible. Therefore, there
can be no assurance that additional costs, both individually and in the
aggregate, would not have a material adverse effect on the results of
operations, financial condition and liquidity of the Company.
LITIGATION
The Company is a defendant in five lawsuits alleging certain damages
stemming from the operations at the Herculaneum smelter. Two of these cases
are class action lawsuits. In one case, the plaintiffs seek to have
certified two separate classes. The first class would consist of property
owners in a certain section of Herculaneum, alleging that property values
have been damaged due to the operations of the smelter. The second class
would be composed of children who lived in Herculaneum during a period of
time when they were six months to six years old, and the remedy sought is
medical monitoring for the class. The second class action similarly is
seeking certification of a class of property owners allegedly damaged by
operations from the smelter, but the purported size of the class is every
home in Herculaneum, Missouri. The other three cases are personal injury
actions by fifteen individuals who allege damages from the effects of lead
poisoning due to operations at the smelter. Punitive damages also are being
sought in each case. The Company is vigorously defending all of these
claims.
Preliminary investigation and research by the Company indicates property
values in Herculaneum are consistent with those of surrounding communities
and have not been affected by the smelter. Finally, based on rules for class
certification, the Company believes class certification is not appropriate.
Because the cases are in discovery, the Company is unable at this time to
state with certainty the expected outcome of and the final costs of any
of these cases. Therefore, there can be no assurance that these cases
would not have a material adverse effect, both individually and in the
aggregate, on the results of operations, financial condition and liquidity
of the Company.
(7) SUBSEQUENT EVENT
On May 21, 1999, a lawsuit was filed against the Company alleging certain
damages from discontinued mine facilities in St. Francois County. The
plaintiffs seek to have certified two separate classes. The first class
would consist of property owners, alleging that property values have been
damaged due to the tailings from the discontinued operations. The second
class would be composed of children, and the remedy sought is medical
monitoring for the class. The Company intends to vigorously defend itself
against this claim. The Company is unable at this time to state with
certainty the expected outcome of and the final costs of this suit.
Therefore, there can be no assurance the suit will not have a material
adverse effecton the results of operations, financial condition and
liquidity of the Company.
10
<PAGE>
THE DOE RUN RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(8) GUARANTOR SUBSIDIARIES
The Guarantor Subsidiaries (Fabricated Products, Inc. (FPI) and DR Land
Holdings, LLC (the Domestic Guarantors) Doe Run Cayman Ltd. (Doe Run Cayman)
and certain subsidiaries, Doe Run Mining S.R.L. and its subsidiaries Doe Run
Development S.A.C. and Doe Run Peru, and its wholly-owned subsidiary, Doe
Run Air S.A.C.) have jointly and severally, fully, unconditionally and
irrevocably guaranteed the unsecured debt of the Company. Separate financial
statements and other disclosures concerning certain Guarantor Subsidiaries
and disclosures concerning non-Guarantor Subsidiaries have not been
presented because management has determined that such information is not
material to investors.
11
<PAGE>
THE DOE RUN RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(8) GUARANTOR SUBSIDIARIES (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF APRIL 30, 1999 (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
The Company
Excluding Doe Run Cayman
Guarantor Domestic and Certain
Subsidiaries Guarantors Subsidiaries
------------ ---------- ------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash $ - $ - $ 29
Trade accounts receivable, net of allowance for
doubtful accounts 50,449 5,406 -
Inventories 49,453 2,201 -
Prepaid expenses and other current assets 6,897 191 68
Due from subsidiaries 12,077 - 11,973
Due from parent - - -
--------- --------- ---------
Total current assets 118,876 7,798 12,070
Property, plant and equipment, net 143,829 8,390 -
Special term deposit 125,000 - -
Other noncurrent assets, net 16,180 341 265
Investment in subsidiaries 23,674 - 172,305
--------- --------- ---------
Total assets $ 427,559 $ 16,529 $ 184,640
--------- --------- ---------
--------- --------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings and current maturities
of long-term debt $ - $ - $ 1,371
Accounts payable 14,206 3,361 -
Accrued liabilities 27,997 542 1,922
Due to subsidiaries - - 29,621
Due to parent - 10,714 268
--------- --------- ---------
Total current liabilities 42,203 14,617 33,182
Long-term debt, less current maturities 332,013 - 127,596
Net deferred tax liabilities - - 155
Other noncurrent liabilities 48,328 1,917 -
--------- --------- ---------
Total liabilities 422,544 16,534 160,933
Shareholders' equity:
Common stock, $.10 par value, 1,000 shares authorized,
issued, and outstanding 0 - -
Common stock, $1 par value, 1,000 shares authorized,
issued, and outstanding - 1 -
Common stock, $1 par value, 2,005,000 shares authorized,
issued and outstanding - - 2,005
Common stock, one nuevo sole par value, 648,672,941
shares authorized, issued and outstanding - - -
Additional paid in capital 5,000 1,205 -
Foreign currency translation adjustment - - -
Retained earnings 15 (1,211) 21,702
--------- --------- ---------
Total shareholders' equity 5,015 (5) 23,707
--------- --------- ---------
Total liabilities and shareholders' equity $ 427,559 $ 16,529 $ 184,640
--------- --------- ---------
--------- --------- ---------
<CAPTION>
Doe Run
Peru and The
Subsidiaries Eliminations Company
------------ ------------ -------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash $ 8,085 $ - $ 8,114
Trade accounts receivable, net of allowance for
doubtful accounts 23,781 (250) 79,386
Inventories 76,414 (28) 128,040
Prepaid expenses and other current assets 28,617 (1,598) 34,175
Due from subsidiaries 127 (24,177) -
Due from parent 29,621 (29,621) -
--------- --------- ---------
Total current assets 166,645 (55,674) 249,715
Property, plant and equipment, net 107,738 - 259,957
Special term deposit - - 125,000
Other noncurrent assets, net 385 - 17,171
Investment in subsidiaries - (195,979) -
--------- --------- ---------
Total assets $ 274,768 $(251,653) $ 651,843
--------- --------- ---------
--------- --------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings and current maturities
of long-term debt $ 7,306 $ - $ 8,677
Accounts payable 24,685 (250) 42,002
Accrued liabilities 16,100 (1,598) 44,963
Due to subsidiaries - (29,621) -
Due to parent 13,195 (24,177) -
--------- --------- ---------
Total current liabilities 61,286 (55,646) 95,642
Long-term debt, less current maturities 30,947 - 490,556
Net deferred tax liabilities 3,030 - 3,185
Other noncurrent liabilities 7,200 - 57,445
--------- --------- ---------
Total liabilities 102,463 (55,646) 646,828
Shareholders' equity:
Common stock, $.10 par value, 1,000 shares authorized,
issued, and outstanding - - 0
Common stock, $1 par value, 1,000 shares authorized,
issued, and outstanding - (1) -
Common stock, $1 par value, 2,005,000 shares authorized,
issued and outstanding - (2,005) -
Common stock, one nuevo sole par value, 648,672,941
shares authorized, issued and outstanding 255,200 (255,200) -
Additional paid in capital (109,509) 108,304 5,000
Foreign currency translation adjustment (15,227) 15,227 -
Retained earnings 41,841 (62,332) 15
--------- --------- ---------
Total shareholders' equity 172,305 (196,007) 5,015
--------- --------- ---------
Total liabilities and shareholders' equity $ 274,768 $(251,653) $ 651,843
--------- --------- ---------
--------- --------- ---------
</TABLE>
12
<PAGE>
THE DOE RUN RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(8) GUARANTOR SUBSIDIARIES (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF OCTOBER 31, 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
The Company
Excluding Doe Run Cayman
Guarantor Domestic and Certain
Subsidiaries Guarantors Subsidiaries
------------ ---------- ------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash $ - $ - $ 89
Trade accounts receivable, net of allowance for
doubtful accounts 51,387 5,127 4,374
Inventories 39,545 1,735 6,506
Prepaid expenses and other current assets 6,966 134 3,366
Due from subsidiaries 20,434 - 10,388
Due from parent - - -
--------- --------- ---------
Total current assets 118,332 6,996 24,723
Property, plant and equipment, net 151,255 8,818 3,634
Special term deposit 125,000 - -
Net deferred tax assets 8,015 - -
Other noncurrent assets, net 17,274 391 286
Investment in subsidiaries 20,776 - 156,174
--------- --------- ---------
Total assets $ 440,652 $ 16,205 $ 184,817
--------- --------- ---------
--------- --------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ 895 $ - $ 1,123
Accounts payable 21,120 2,937 4,971
Accrued liabilities 28,692 366 7,107
Net deferred tax liabilities 1,815 - -
Due to subsidiaries - - 22,144
Due to parent - 11,068 811
--------- --------- ---------
Total current liabilities 52,522 14,371 36,156
Long-term debt, less current maturities 320,689 - 127,595
Net deferred tax liabilities - - 5
Other noncurrent liabilities 48,863 1,942 -
--------- --------- ---------
Total liabilities 422,074 16,313 163,756
Shareholders' equity:
Common stock, $.10 par value, 1,000 shares authorized,
issued, and outstanding 0 - -
Common stock, $1 par value, 1,000 shares authorized,
issued, and outstanding - 1 -
Common stock, $1 par value, 2,005,000 shares authorized,
issued and outstanding - - 2,005
Common stock, one nuevo sole par value, 648,672,941
shares authorized, issued and outstanding - - -
Additional paid in capital 5,000 935 -
Retained earnings 13,578 (1,044) 19,056
--------- --------- ---------
Total shareholders' equity 18,578 (108) 21,061
--------- --------- ---------
Total liabilities and shareholders' equity $ 440,652 $ 16,205 $ 184,817
--------- --------- ---------
--------- --------- ---------
<CAPTION>
Doe Run
Peru and The
Subsidiary Eliminations Company
--------- ------------ -------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash $ 4,557 $ - $ 4,646
Trade accounts receivable, net of allowance for
doubtful accounts 30,935 (5,485) 86,338
Inventories 78,150 531 126,467
Prepaid expenses and other current assets 21,923 (2,083) 30,306
Due from subsidiaries 85 (30,907) -
Due from parent 22,144 (22,144) -
--------- --------- ---------
Total current assets 157,794 (60,088) 247,757
Property, plant and equipment, net 100,761 - 264,468
Special term deposit - - 125,000
Net deferred tax assets - - 8,015
Other noncurrent assets, net 448 - 18,399
Investment in subsidiaries - (176,950) -
--------- --------- ---------
Total assets $ 259,003 $(237,038) $ 663,639
--------- --------- ---------
--------- --------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt $ - $ - $ 2,018
Accounts payable 30,155 (5,485) 53,698
Accrued liabilities 16,588 (2,083) 50,670
Net deferred tax liabilities - - 1,815
Due to subsidiaries - (22,144) -
Due to parent 19,028 (30,907) -
--------- --------- ---------
Total current liabilities 65,771 (60,619) 108,201
Long-term debt, less current maturities 28,000 - 476,284
Net deferred tax liabilities 2,566 - 2,571
Other noncurrent liabilities 7,200 - 58,005
--------- --------- ---------
Total liabilities 103,537 (60,619) 645,061
Shareholders' equity:
Common stock, $.10 par value, 1,000 shares authorized,
issued, and outstanding - - 0
Common stock, $1 par value, 1,000 shares authorized,
issued, and outstanding - (1) -
Common stock, $1 par value, 2,005,000 shares authorized,
issued and outstanding - (2,005) -
Common stock, one nuevo sole par value, 648,672,941
shares authorized, issued and outstanding 247,926 (247,926) -
Additional paid in capital (125,000) 124,065 5,000
Retained earnings 32,540 (50,552) 13,578
--------- --------- ---------
Total shareholders' equity 155,466 (176,419) 18,578
--------- --------- ---------
Total liabilities and shareholders' equity $ 259,003 $(237,038) $ 663,639
--------- --------- ---------
--------- --------- ---------
</TABLE>
13
<PAGE>
THE DOE RUN RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(8) GUARANTOR SUBSIDIARIES (CONTINUED)
CONSOLIDATING STATEMENT OF OPERATIONS
THREE MONTHS ENDED APRIL 30, 1999 (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
The Company
Excluding Doe Run Cayman Doe Run
Guarantor Domestic and Certain Peru and The
Subsidiaries Guarantors Subsidiaries Subsidiaries Eliminations Company
------------ ---------- ------------ ------------ ------------ -------
<S> <C> <C> <C> <C> <C> <C>
Net sales $ 80,024 $ 5,749 $ 3,806 $ 110,815 $ (8,729) $ 191,665
Costs and expenses:
Cost of sales 64,571 4,823 (1,245) 93,614 (1,623) 160,140
Depletion, depreciation and amortization 5,904 381 19 1,899 - 8,203
Selling, general and administrative 4,054 314 2,406 8,902 (6,657) 9,019
Exploration 858 - - - - 858
--------- --------- --------- --------- --------- ---------
Total costs and expenses 75,387 5,518 1,180 104,415 (8,280) 178,220
--------- --------- --------- --------- --------- ---------
Income (loss) from operations 4,637 231 2,626 6,400 (449) 13,445
Other income (expense):
Interest expense (10,170) (270) (3,701) (332) 270 (14,203)
Interest income 3,797 - 1 395 (270) 3,923
Other, net (154) (28) 563 (1,624) - (1,243)
Equity in earnings of subsidiaries 2,648 - 4,385 - (7,033) -
--------- --------- --------- --------- --------- ---------
(3,879) (298) 1,248 (1,561) (7,033) (11,523)
--------- --------- --------- --------- --------- ---------
Income (loss) before income tax expense 758 (67) 3,874 4,839 (7,482) 1,922
Income tax expense 192 - 1,481 (317) - 1,356
--------- --------- --------- --------- --------- ---------
Net income (loss) $ 566 $ (67) $ 2,393 $ 5,156 $ (7,482) $ 566
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
</TABLE>
14
<PAGE>
THE DOE RUN RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(8) GUARANTOR SUBSIDIARIES (CONTINUED)
CONSOLIDATING STATEMENT OF OPERATIONS
THREE MONTHS ENDED APRIL 30, 1998 (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
The Company
Excluding Doe Run Cayman Doe Run
Guarantor Domestic and Certain Peru and The
Subsidiaries Guarantors Subsidiaries Subsidiary Eliminations Company
------------ ---------- ------------ ---------- ------------ -------
<S> <C> <C> <C> <C> <C> <C>
Net sales $ 62,859 $ 3,745 $ 2,000 $ 115,548 $ (9,833) $ 174,319
Costs and expenses:
Cost of sales 45,721 3,372 224 90,483 (242) 139,558
Depletion, depreciation and amortization 3,893 157 (42) 1,739 - 5,747
Selling, general and administrative 5,524 349 740 13,433 (9,817) 10,229
Exploration 1,115 - - - - 1,115
--------- --------- --------- --------- --------- ---------
Total costs and expenses 56,253 3,878 922 105,655 (10,059) 156,649
--------- --------- --------- --------- --------- ---------
Income (loss) from operations 6,606 (133) 1,078 9,893 226 17,670
Other income (expense):
Interest expense (5,548) (187) (2,740) (3) (158) (8,636)
Interest income 2,067 - - 114 (187) 1,994
Other, net (272) (10) (896) 408 - (770)
Equity in earnings of subsidiaries 2,814 - 9,017 - (11,831) -
--------- --------- --------- --------- --------- ---------
(939) (197) 5,381 519 (12,176) (7,412)
--------- --------- --------- --------- --------- ---------
Income (loss) before income tax expense 5,667 (330) 6,459 10,412 (11,950) 10,258
Income tax expense 1,231 - 827 1,395 - 3,453
--------- --------- --------- --------- --------- ---------
Income (loss) before extraordinary item 4,436 (330) 5,632 9,017 (11,950) 6,805
Extraordinary item (2,019) - (2,369) - - (4,388)
--------- --------- --------- --------- --------- ---------
Net income (loss) $ 2,417 $ (330) $ 3,263 $ 9,017 $ (11,950) $ 2,417
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
</TABLE>
15
<PAGE>
THE DOE RUN RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(8) GUARANTOR SUBSIDIARIES (CONTINUED)
CONSOLIDATING STATEMENT OF OPERATIONS
SIX MONTHS ENDED APRIL 30, 1999 (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
The Company
Excluding Doe Run Cayman Doe Run
Guarantor Domestic and Certain Peru and The
Subsidiaries Guarantors Subsidiaries Subsidiaries Elimination Company
------------ ---------- ------------ ------------ ----------- -------
<S> <C> <C> <C> <C> <C> <C>
Net sales $ 154,710 $ 11,963 $ 12,007 $ 218,589 $ (23,886) $ 373,383
Costs and expenses:
Cost of sales 129,532 10,036 5,577 184,533 (9,331) 320,347
Depletion, depreciation and amortization 11,828 762 45 3,745 - 16,380
Selling, general and administrative 7,827 695 5,683 17,452 (13,997) 17,660
Exploration 1,850 - - - - 1,850
--------- --------- --------- --------- --------- ---------
Total costs and expenses 151,037 11,493 11,305 205,730 (23,328) 356,237
--------- --------- --------- --------- --------- ---------
Income from operations 3,673 470 702 12,859 (558) 17,146
Other income (expense):
Interest expense (20,341) (553) (7,488) (1,612) 553 (29,441)
Interest income 7,619 - 41 466 (553) 7,573
Other, net (559) (84) 2,279 (1,953) - (317)
Equity in earnings of subsidiaries 2,629 - 8,593 - (11,222) -
--------- --------- --------- --------- --------- ---------
(10,652) (637) 3,425 (3,099) (11,222) (22,185)
--------- --------- --------- --------- --------- ---------
Income (loss) before income tax expense (6,979) (167) 4,127 9,760 (11,780) (5,039)
Income tax expense 6,584 - 1,481 459 - 8,524
--------- --------- --------- --------- --------- ---------
Net income (loss) $ (13,563) $ (167) $ 2,646 $ 9,301 $ (11,780) $ (13,563)
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
</TABLE>
16
<PAGE>
THE DOE RUN RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(8) GUARANTOR SUBSIDIARIES (CONTINUED)
CONSOLIDATING STATEMENT OF OPERATIONS
SIX MONTHS ENDED APRIL 30, 1998 (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
The Company
Excluding Doe Run Cayman Doe Run
Guarantor Domestic and Certain Peru and The
Subsidiaries Guarantors Subsidiaries Subsidiary Eliminations Company
------------ ---------- -------------- ---------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Net sales $ 119,006 $ 7,827 $ 2,000 $ 227,359 $ (12,787) $ 343,405
Costs and expenses:
Cost of sales 97,090 7,322 - 181,631 (2,938) 283,105
Depletion, depreciation and amortization 7,786 279 - 3,396 - 11,461
Selling, general and administrative 7,935 712 740 18,130 (9,817) 17,700
Exploration 1,599 - - - - 1,599
--------- --------- --------- --------- --------- ---------
Total costs and expenses 114,410 8,313 740 203,157 (12,755) 313,865
--------- --------- --------- --------- --------- ---------
Income (loss) from operations 4,596 (486) 1,260 24,202 (32) 29,540
Other income (expense):
Interest expense (8,838) (311) (5,632) (35) 311 (14,505)
Interest income 2,214 - - 456 (311) 2,359
Other, net (241) (32) (941) 579 - (635)
Equity in earnings of subsidiaries 9,975 - 18,534 - (28,509) -
--------- --------- --------- --------- --------- ---------
3,110 (343) 11,961 1,000 (28,509) (12,781)
--------- --------- --------- --------- --------- ---------
Income (loss) before income tax expense 7,706 (829) 13,221 25,202 (28,541) 16,759
Income tax expense 1,296 16 - 6,668 - 7,980
--------- --------- --------- --------- --------- ---------
Income (loss) before extraordinary item 6,410 (845) 13,221 18,534 (28,541) 8,779
Extraordinary item (2,019) - (2,369) - - (4,388)
--------- --------- --------- --------- --------- ---------
Net income (loss) $ 4,391 $ (845) $ 10,852 $ 18,534 $ (28,541) $ 4,391
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
</TABLE>
17
<PAGE>
THE DOE RUN RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(8) GUARANTOR SUBSIDIARIES (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
SIX MONTHS ENDED APRIL 30, 1999 (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
The Company
Excluding Doe Run Cayman Doe Run
Guarantor Domestic and Certain Peru and The
Subsidiaries Guarantors Subsidiaries Subsidiaries Eliminations Company
------------ ---------- -------------- ------------ ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Net cash provided by (used in) operating
activities $ (9,920) $ 378 $ 11,275 $ 13,331 $(18,759) $ (3,695)
Cash flows from investing activities:
Purchases of property, plant and equipment (5,122) (24) (85) (6,569) - (11,800)
Investment in subsidiaries (2,628) - (16,131) - 18,759 -
-------- -------- -------- -------- -------- --------
Net cash used in
investing activities (7,750) (24) (16,216) (6,569) 18,759 (11,800)
Cash flows from financing activities:
Proceeds from (payments on ) revolving
loans and short-term borrowings, net 10,919 - - (7,846) - 3,073
Payments on long-term debt (895) - (426) - - (1,321)
Proceeds from sale/leaseback transactions - - - 17,922 17,922
Payment of deferred financing costs (711) - - - (711)
Loans from parent/subsidiaries 8,357 (354) 5,307 (13,310) - -
-------- -------- -------- -------- -------- --------
Net cash provided by (used in)
financing activities 17,670 (354) 4,881 (3,234) - 18,963
-------- -------- -------- -------- -------- --------
Net increase (decrease) in cash - - (60) 3,528 - 3,468
Cash at beginning of period - - 89 4,557 - 4,646
-------- -------- -------- -------- -------- --------
Cash at end of period $ - $ - $ 29 $ 8,085 $ - $ 8,114
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
</TABLE>
18
<PAGE>
THE DOE RUN RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(8) GUARANTOR SUBSIDIARIES (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
SIX MONTHS ENDED APRIL 30, 1998 (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
The Company
Excluding Doe Run Cayman Doe Run
Guarantor Domestic and Certain Peru and The
Subsidiaries Guarantors Subsidiaries Subsidiary Eliminations Company
------------ ---------- -------------- ---------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
Net cash provided by (used in) operating
activities $ 15,626 $ (324) $ (7,663) $ 625 $ (10,007) $ (1,743)
Cash flows from investing activities:
Special term deposit (125,000) - - - - (125,000)
Purchases of property, plant and equipment (6,248) (3,124) - (1,536) - (10,908)
Investment in subsidiaries (10,007) - - - 10,007 -
--------- -------- --------- --------- --------- ---------
Net cash used in investing activities (141,255) (3,124) - (1,536) 10,007 (135,908)
Cash flows from financing activities:
Proceeds from (payments on) revolving
loans and short-term borrowings, net 4,681 - (3,000) 5,000 - 6,681
Proceeds from long-term debt 255,000 - 125,000 - - 380,000
Payments on long-term debt (130,845) - (100,000) - - (230,845)
Payment of deferred financing costs (11,985) - (312) - - (9,986)
Loans from parent 9,888 3,448 (13,336) - - -
Payment of dividends (189) - - - - (189)
Redemption of preferred stock (2,500) - - - - (2,500)
--------- -------- --------- --------- --------- ---------
Net cash provided by financing activities 126,361 3,448 8,352 5,000 - 143,161
--------- -------- --------- --------- --------- ---------
Net increase in cash (1,579) - 689 4,089 - 3,199
Cash at beginning of period 1,579 - 2,351 5,013 - 8,943
--------- -------- --------- --------- --------- ---------
Cash at end of period $ - $ - $ 3,040 $ 9,102 $ - $ 12,142
--------- -------- --------- --------- --------- ---------
--------- -------- --------- --------- --------- ---------
</TABLE>
19
<PAGE>
DOE RUN PERU S.R.L.
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
APRIL 30, OCTOBER 31,
1999 1998
----------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash $ 8,085 $ 4,557
Trade accounts receivable, net of allowance for
doubtful accounts 23,781 30,935
Inventories 76,414 78,150
Prepaid expenses and other current assets 28,617 21,923
Due from parent/subsidiaries 29,748 22,229
--------- ---------
Total current assets 166,645 157,794
Property, plant and equipment, net 107,738 100,761
Other noncurrent assets, net 385 448
--------- ---------
Total assets $ 274,768 $ 259,003
--------- ---------
--------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings and current maturities of long-term debt $ 7,306 $ -
Accounts payable 24,685 30,155
Accrued liabilities 16,100 16,588
Due to parent 13,195 19,028
--------- ---------
Total current liabilities 61,286 65,771
Long-term debt, less current maturities 30,947 28,000
Net deferred tax liabilities 3,030 2,566
Other noncurrent liabilities 7,200 7,200
--------- ---------
Total liabilities 102,463 103,537
Shareholders' equity:
Common stock, one nuevo sole par value, 648,672,941
shares authorized, issued and outstanding 255,200 247,926
Due from shareholder (109,509) (125,000)
Foreign currency translation adjustment (15,227) -
Retained earnings 41,841 32,540
--------- ---------
Total shareholders' equity 172,305 155,466
--------- ---------
Total liabilities and shareholders' equity $ 274,768 $ 259,003
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
20
<PAGE>
DOE RUN PERU S.R.L.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED APRIL 30, ENDED APRIL 30,
-------------------------- --------------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales $ 110,815 $ 115,548 $ 218,589 $ 227,359
Costs and expenses:
Cost of sales 93,614 90,483 184,533 181,631
Depreciation and amortization 1,899 1,739 3,745 3,396
Selling, general and administrative 8,902 13,433 17,452 18,130
--------- --------- --------- ---------
Total costs and expenses 104,415 105,655 205,730 203,157
--------- --------- --------- ---------
Income from operations 6,400 9,893 12,859 24,202
Other income (expense):
Interest expense (332) (3) (1,612) (35)
Interest income 395 114 466 456
Other, net (1,624) 408 (1,953) 579
--------- --------- --------- ---------
(1,561) 519 (3,099) 1,000
--------- --------- --------- ---------
Income before income tax expense 4,839 10,412 9,760 25,202
Income tax expense (317) 1,395 459 6,668
--------- --------- --------- ---------
Net income $ 5,156 $ 9,017 $ 9,301 $ 18,534
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
21
<PAGE>
DOE RUN PERU S.R.L.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED APRIL 30,
------------------------
1999 1998
-------- --------
<S> <C> <C>
Net cash provided by operating activities $ 13,331 $ 625
Cash flows from investing activities:
Purchases of property, plant and equipment (6,569) (1,536)
-------- --------
Net cash provided by investing activities (6,569) (1,536)
Cash flows from financing activities:
Proceeds from (payments on) revolving loans and
short-term borrowings, net (7,846) 5,000
Proceeds from sale/leaseback transactions 17,922 -
Loans to parent (13,310) -
-------- --------
Net cash used in financing activities (3,234) 5,000
-------- --------
Net increase in cash 3,528 4,089
Cash at beginning of period 4,557 5,013
-------- --------
Cash at end of period $ 8,085 $ 9,102
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of
these condensed consolidated financial statements.
22
<PAGE>
DOE RUN PERU S.R.L.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(1) BASIS OF PRESENTATION
UNAUDITED INTERIM FINANCIAL STATEMENTS
In the opinion of management, the interim condensed consolidated financial
statements of Doe Run Peru S.R.L. (Doe Run Peru) contain all adjustments,
consisting of normal recurring accruals, necessary to present fairly the
condensed consolidated financial position as of April 30, 1999 and results
of operations for the three and six month periods ended April 30, 1999 and
1998. Interim periods are not necessarily indicative of results to be
expected for the year.
(2) INVENTORIES
<TABLE>
<CAPTION>
APRIL 30, OCTOBER 31,
1999 1998
---- ----
(UNAUDITED)
<S> <C> <C>
Refined metals and concentrates for sale $ 4,918 $ 3,857
Metals and concentrates in process 45,897 54,534
Materials, supplies and spare parts 25,599 19,759
------- -------
$76,414 $78,150
------- -------
------- -------
</TABLE>
(3) SALE/LEASEBACK TRANSACTION
In January 1999, Doe Run Peru finalized an agreement for the sale and
leaseback of its oxygen plant at the La Oroya facility for $17,163. Doe Run
Peru has an option to repurchase the oxygen plant at the end of the
five-year lease term for $200. This transaction has been accounted for as a
financing arrangement. A sale and leaseback of computer equipment,
accounted for as a financing arrangement, provided an additional $761 of
cash flows from financing activities.
(4) CONVERSION OF LOAN TO FOREIGN CURRENCY
In the second quarter Doe Run Mining and Doe Run Peru agreed to convert the
loan payable to Doe Run Peru by Doe Run Mining from dollars into Peruvian
nuevos soles. The related translation effect of the loan receivable is
reflected in other shareholders' equity as a foriegn currency translation
adjustment.
(4) MERGER OF DOE RUN PERU AND COBRIZA S.A.
On March 1, 1999 Doe Run Mining merged the Empresa Minera Cobriza S.A. into
Doe Run Peru.
23
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis includes the U.S. operations of
the Company, including FPI, and the Peruvian operations of the Company,
including Doe Run Cayman and its Peruvian subsidiaries, and should be read in
conjunction with the consolidated financial statements of the Company and the
notes thereto, and other financial information included herein.
RESULTS OF OPERATIONS
The Company reported net income of $0.6 million for three months ended
April 30, 1999 (the 1999 quarter) compared to net income of $2.4 million for
the three months ended April 30, 1998 (the 1998 quarter). The Company's U.S.
operations reported a net loss $6.4 million (excluding intercompany fee
revenue of $4.2 million) for the 1999 quarter compared to a net loss of $8.6
million (excluding intercompany fee revenue of $7.8 million) in 1998 quarter.
The improvement in U.S. operations was primarily due to: an increase in gross
margins, in spite of lower lead, copper and zinc prices, due to increased
volumes and lower unit production costs reduced selling, administrative and
other expenses; and absence of the extraordinary loss affecting the 1998
quarter, associated with the Company's refinancing activities. These
improvements were partially offset by increased depreciation expense
primarily associated with the acquisition of the Missouri Lead Division
assets of ASARCO Incorporated (the MLD Acquisition), and increased interest
expense associated with the Company's refinancing and an increase in
outstanding debt, primarily associated with the MLD Acquisition. Peruvian
operations contributed $6.9 million to net income for the 1999 quarter
(excluding intercompany fees and eliminations of $4.5 million) compared to
net income of $11.0 million (excluding intercompany fees and eliminations of
$7.6 million) in the 1998 quarter. The decrease in Peruvian net income was
due primarily to increased unit production costs of silver and copper
resulting from difficulties in obtaining suitable feed material and lower
treatment charges for copper. Increased interest expense also contributed to
the decrease in net income. Partially offsetting these factors were lower
income taxes and absence of the extraordinary loss affecting the 1998 quarter
associated with the Company's refinancing activities.
The Company reported a net loss of $13.6 million (excluding intercompany
fee revenue of $8.3 million) for the six months ended April 30, 1999 (the
1999 period) compared to net income of $4.4 million (excluding intercompany
fee revenue of $7.8 million) for the six months ended April 30, 1998 (the
1998 period). The Company's U.S. operations reported a net loss of $24.6
million for the 1999 period compared to a net loss of $14.2 million for the
1998 period. The net loss was increased primarily as a result of a write-off
of deferred tax balances of $6.2 million associated with a change in tax
status to a qualified subchapter S subsidiary, and increased depreciation.
See "Item 1. Financial Statements - Note 4 to the Company's Consolidated
Financial Statements" for a discussion of the change in tax status. These
factors were partially offset by improved gross margins and absence of the
extraordinary loss affecting the 1998 period. Peruvian operations contributed
$11.0 million to net income for the 1999 period (excluding intercompany fees
and eliminations of $8.2 million) compared to net income of $18.6 million
(excluding intercompany fees and eliminations of $7.9 million) for the 1998
period. The decrease in Peruvian net earnings was due primarily to increased
unit production costs and increased interest expense offset by lower income
taxes and absence of the extraordinary loss affecting the 1998 period.
24
<PAGE>
The Company's results for the three months and the six months ended
April 30, 1999 reflect declines in the market prices of lead, copper, zinc,
and silver from the prior year. The following table sets forth average London
Metal Exchange (LME) prices for lead, copper and zinc and the average London
Bullion Market Association (LBMA) price for silver for the periods indicated:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
April 30, April 30,
---------------------------- ----------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
AVERAGE PRICES
Lead ($/ton) $ 465.60 $ 498.80 $ 457.80 $ 494.40
Copper ($/ton) 1,284.80 1,576.80 1,319.80 1,599.60
Zinc ($/ton) 927.40 963.60 896.40 991.40
Silver ($/troy ounce) 5.26 6.47 5.13 6.03
</TABLE>
The following table sets forth the Company's production statistics for
the periods indicated:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
April 30, April 30,
---------------------- ----------------------
1999 1998 1999 1998
------- ------ ------- -------
<S> <C> <C> <C> <C>
U.S. OPERATIONS
Lead metal - primary (short tons) 98,205 63,712 191,103 126,622
Lead metal - secondary (short tons) 28,047 26,988 55,426 54,286
Lead concentrates (metal content, short tons) 100,444 60,117 192,014 119,172
Ore Grade 5.59% 5.44% 5.57% 5.35%
PERUVIAN OPERATIONS
Refined copper (short tons) 18,113 16,788 35,464 34,959
Refined lead (short tons) 29,239 28,922 58,758 57,236
Refined zinc (short tons) 19,533 19,344 39,457 39,007
Refined silver (thousands of troy ounces) 7,597 6,454 15,664 12,781
Refined gold (thousands of troy ounces) 18 14 33 27
</TABLE>
Mine production of lead metal in concentrates for the 1999 quarter
increased by 67.1% compared to the 1998 quarter. Of this increase, 51.3% was
attributable to the MLD Acquisition. Production by existing properties was
15.8% better in the 1999 quarter, compared to the prior year, primarily due to
an increase in ore grade from 5.44% in the 1998 quarter to 6.01% in the 1999
quarter. Operating plans were modified during the 1999 quarter based on
evaluations designed to optimize mine production in light of low metal prices
and the availability of lead concentrates for purchase. As a result, mining
of lower grade areas was scaled back from planned levels. For the 1999
period, mine production of lead metal in concentrates increased by 61.1%
compared to the 1998 period. Of this increase, 49.8% was attributable to the
MLD Acquisition. Production by existing properties was 11.4% better than the
prior year primarily due to an increase in ore grade from 5.35% in the 1998
quarter to 5.91% in the 1999 quarter. While production exceeded the prior
year, it was slightly less than planned, in spite of the improved ore grade,
due to the production disruptions that occurred
25
<PAGE>
during the first quarter and the modifications to the operating plan
discussed above.
Primary smelter production for the 1999 quarter was 54.1% greater than
the 1998 quarter. The MLD Acquisition accounted for an increase of 52.1%.
Production at the Company's Herculaneum primary smelter was 2.1% in the 1999
quarter, compared to the prior year. For the 1999 period, primary smelter
production increased 50.9% over the 1998 period. An increase of 52.4% is
attributable to the MLD Acquisition. Herculaneum's production for the 1999
period was 1.5% less than the 1998 period due primarily to cooling system
failures on its blast furnaces which occurred during the first quarter of
1999. A portion of this production shortfall was recovered during the second
quarter and the Company anticipates recovery of all of the lost production by
the end of the third quarter of the fiscal year.
Secondary smelter production exceeded the prior year by 3.9% for the
three months and 2.1% for the six months ended April 30, 1999 due to improved
smelter operating efficiencies.
During the third quarter of 1998, La Oroya installed equipment that
increased the capacity of its silver and lead refineries by approximately
25.0% and 4.8%, respectively. The benefits of these improvements, partially
offset by problems obtaining suitable feed material and the need to produce
bullion lead to meet customer commitments, are reflected in the production
results for the 1999 quarter. Refined silver production exceeded the prior
year by 17.7% and 22.6% for the quarter and the six months ended April 30,
1999, respectively. Refined lead production was up 1.1% for the quarter and
2.7% for the six months, compared to the prior year. Copper production was
better than the prior year for both the three monthsand the six months ended
April 30, 1999, but slightly less than expected, due to the reduced
availability of suitable concentrates. The tight market conditions for copper
concentrates continue currently, and the Company intends to partially
mitigate the impact of these market conditions by maximizing production of
copper concentrates from its Cobriza mine.
Results of operations for the three months and the six months ended
April 30, 1999 and 1998 include the results of the Company's U.S. and
Peruvian operations. In order to provide a more meaningful analysis, the
results of operations attributable to Peruvian operations will be noted and
discussed separately under "Results of Peruvian Operations."
NET SALES in the 1999 quarter were $191.7 million compared to $174.3
million in the 1998 quarter. A decrease of $5.2 million is attributable to
Peruvian operations. U. S. net sales were $22.6 million or 38.3% higher in
the 1999 quarter, compared to the 1998 quarter, primarily due to greater lead
metal and zinc concentrate sales volume associated with the MLD Acquisition,
offset by lower realized prices for lead, zinc and copper.
The following table sets forth the sales volume and realized prices for
the Company's U. S. operations for the periods indicated:
26
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
April 30, April 30,
-------------------------- ---------------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
SALES VOLUMES (SHORT TONS)
Lead metal 107,099 66,352 212,116 136,784
Zinc concentrates 27,197 18,311 50,171 33,142
Copper concentrates 3,850 3,732 7,316 9,495
REALIZED PRICES ($/TON)
Lead metal $ 548.04 $ 597.54 $ 535.50 $ 589.37
Zinc concentrates 305.55 344.98 291.26 358.85
Copper concentrates 229.09 254.82 206.53 223.38
</TABLE>
Lead metal net sales increased 48.0% from $39.6 million in the 1998
quarter to $58.7 million in the 1999 quarter. An increase of $24.3 million in
lead metal net sales resulted from the volume increase discussed above. The
average LME price for lead metal decreased 6.7% in the 1999 quarter compared
to the 1998 quarter. As a result, the Company's net realized price was 8.3%
lower in the 1999 quarter which reduced net sales by $5.3 million. Net
realized prices for lead metal include the effects of changes in premiums
received, as well as net hedging activity. Zinc concentrate sales were higher
by $2.0 million due to a 48.5% volume increase partially offset by lower
realized prices. Other sales were higher primarily due to an increase of
approximately $2.0 million in sales by Seafab Metals Company, a division of
FPI, which returned to full production after relocating its fabrication plant
during 1998, partially offset by a reduction in sales of zinc metal imported
from Peru.
Net sales for the 1999 period were $373.4 million compared to $343.4
million for the 1998 period. A decrease of $9.0 million is attributable to
Peruvian operations. U.S. net sales for the 1999 period were $39.0 million
greater than the 1998 period due primarily to increased lead metal and zinc
concentrate sales volume partially offset by lower metal prices. Lead metal
net sales increased 40.9% from $80.6 million in the 1998 period to $113.6
million in the 1999 period. An increase of $33.0 million in lead metal net
sales resulted from the volume increase discussed above. The average LME
price for lead metal decreased 7.4% in the 1999 period, compared to the 1998
period. As a result, the Company's net realized price was 9.1% lower in the
1999 period reducing net sales by $11.4 million. Zinc concentrate sales were
$2.7 million higher in the 1999 period, compared to the 1998 period, due to a
51.4% volume increase partially offset by a 18.8% reduction in the net
realized price. Other sales were higher primarily due to an increase of
approximately $4.2 million in sales by Seafab Metals Company, partially
offset by a reduction in sales of imported zinc metal.
COST OF SALES for the 1999 quarter was $160.1 million compared to $139.5
million for the 1998 quarter. Of this increase, $0.5 million is attributable
to Peruvian operations. U.S. cost of sales for the 1999 quarter was $20.1
million greater than the 1998 quarter. Volume changes, primarily the
increased sales of lead metal and zinc concentrates discussed above accounted
for a cost of sales increase of $24.8 million, which was partially offset
primarily by a 7.8% reduction in the per unit production cost of lead metal.
This lower production cost is primarily the result of programs the Company
implemented during the second quarter of 1998 to minimize the impact of metal
price declines through cost reductions and productivity and revenue
enhancements. These programs, which are ongoing, include maintenance and
other expense reductions, selective mining of higher grade ores and increased
primary and secondary smelter production, all of which contributed to
improved unit production cost in the 1999 quarter. Also contributing to lower
unit costs were certain production efficiencies realized as a result of the
MLD Acquisition.
COST OF SALES for the 1999 period was $320.3 million compared to $283.1
million for the 1998 period. Of this increase, $2.4 million is attributable
to Peruvian operations. U.S. cost of sales for the 1999 period increased by
$34.8 million compared to the 1998 period. As a result of the production
increases discussed previously, lead metal sales volume was up 55.1% or
75,332 tons over the prior year, increasing cost of sales
27
<PAGE>
by $42.9 million. Other volume changes added an additional $4.7 million to
cost of sales. These volume increases were partially offset by lower unit
production costs which were primarily the result of the Company's programs of
cost reduction and the productivity enhancements, and the efficiencies
realized as a result of the MLD Acquisition, discussed above.
DEPLETION, DEPRECIATION AND AMORTIZATION for the 1999 quarter increased
by $2.5 million compared to the 1998 quarter. For the 1999 period, depletion,
depreciation and amortization increased by $4.9 million, compared to the 1998
period. Increases of $0.2 million for the 1999 quarter and $0.4 million for
the 1999 period are attributable to Peruvian operations. The increases in
depletion, depreciation, and amortization for U.S. operations for the 1999
quarter and the 1999 period are primarily attributable to the MLD Acquisition.
SELLING, GENERAL AND ADMINISTRATIVE expenses decreased by $1.2 million
in the 1999 quarter compared to the 1998 quarter. Peruvian operations
accounted for an increase of $0.3 million. U.S. selling and administrative
expenses decreased $1.5 million from the 1998 quarter to the 1999 quarter.
The 1998 quarter included charges of approximately $2.2million related to
services provided to the Peruvian operation for approximately seven months of
operations, compared to $1.3 million in the 1999 quarter related to services
for three months of operations. The Company's cost of providing these selling
and administrative services to its Peruvian subsidiaries was reimbursed by
fees collected under various services and agency agreements. These fees have
been eliminated from the Company's consolidated financial statements. The
1998 quarter also included administrative expenses of approximately $0.3
million related to the Company's refinancing activities which did not recur
in the 1999 quarter.
SELLING, GENERAL AND ADMINISTRATIVE expenses were approximately the same
in the 1999 period and the 1998 period. Increases in management fees paid to
Renco, consulting and other expenses were offset by the non-recurring items
mentioned above and other expense reductions.
EXPLORATION expense for the 1999 quarter decreased $0.3 million compared
to the 1998 quarter due to the timing of exploration activities. For the 1999
period, exploration expense increased by $0.3 million compared to the 1998
period primarily due more extensive evaluation of potential mineral
properties, primarily in Missouri.
INCOME FROM OPERATIONS for the 1999 quarter was $13.4 million compared
to $17.7 million for the 1998 quarter. For the 1999 period, operating income
was $17.1 million compared to $29.5 million for the 1998 period. Decreases of
$6.2 million for the quarter and $11.9 million for the six months, are
attributable to Peruvian operations. The remainder of the changes are due to
the factors discussed above.
INTEREST EXPENSE increased by $5.6 million in the quarter and $14.9
million in the 1999 period, compared to the prior year, due to increases in
the Company's average outstanding debt balance and higher average interest
rates. The increases in the Company's average outstanding debt balance of
approximately $192.1 million for the quarter and $228.9 for the six months
were primarily the result of the $125 million required for a deposit (see
"INTEREST INCOME", below) made in a foreign bank as collateral for a loan
made to Doe Run Mining (the Special Term Deposit), borrowing to finance the
MLD Acquisition and increased working capital required for Peruvian
operations and for operations of the assets acquired in the MLD Acquisition.
INTEREST INCOME increased $1.9 million from the 1998 quarter to the 1999
quarter and $5.2 million from the 1998 period to the 1999 period primarily
due to interest income on the $125.0 million Special Term Deposit.
INCOME TAX EXPENSE for the 1999 quarter and the 1999 period reflects the
impact of a change in tax status effective at the beginning of the fiscal
year. See "Item 1. Financial Statements--Note 4 to the Company's Consolidated
Financial Statements." As a result of this change in tax status, the
elimination of federal and most state deferred tax assets and liabilities for
income tax purposes resulted in a charge to income tax expense of $6.2
million in the 1999 period.
28
<PAGE>
RESULTS OF PERUVIAN OPERATIONS
The following table set forth the operating results, sales volumes and
realized prices of the Company's Peruvian operations for the periods
indicated:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
April 30, April 30,
-------------------------- --------------------------
RESULTS OF OPERATIONS 1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales $ 110,815 $ 115,548 $ 218,589 $ 227,359
Costs and expenses:
Cost of sales 91,787 90,707 184,533 181,631
Depreciation and amortization 1,918 1,697 3,790 3,396
Selling, general and administrative 4,651 4,356 9,138 9,053
Intercompany fees 4,204 7,817 8,275 7,817
--------- --------- --------- ---------
Total costs and expenses 102,560 104,577 205,736 201,897
--------- --------- --------- ---------
Income from operations 8,255 10,971 12,853 25,462
Other income (expense)
Interest expense (4,033) (2,743) (9,100) (5,667)
Interest income 396 114 507 456
Other, net (1,061) (488) 325 (360)
--------- --------- --------- ---------
(4,698) (3,117) (8,268) (5,571)
--------- --------- --------- ---------
Income before income tax expense $ 3,557 $ 7,854 $ 4,585 $ 19,891
--------- --------- --------- ---------
--------- --------- --------- ---------
Note: The following eliminations were made in consolidating these results
with the Company.
Net sales $ 343 $ (84) $ 2,770 $ 2,478
Cost of sales 683 143 2,885 2,372
Intercompany fees 4,204 7,817 8,275 7,817
SALES VOLUMES
Copper (short tons) 18,165 17,272 35,363 35,155
Lead (short tons) 30,564 28,533 59,777 55,438
Zinc (short tons) 18,962 21,323 38,519 39,692
Silver (thousands of troy ounces) 7,804 6,500 15,640 13,008
Gold (thousands of troy ounces) 14 14 30 26
REALIZED PRICES
Copper ($/ton) $1,282.62 $1,524.20 $1,321.67 $1,575.12
Lead ($/ton) 494.01 509.01 485.55 521.52
Zinc ($/ton) 937.00 984.46 910.37 1,023.54
Silver ($/troy ounce) 5.33 6.40 5.12 5.91
Gold ($/troy ounce) 286.01 302.95 289.49 300.44
</TABLE>
29
<PAGE>
NET SALES in the 1999 quarter were $110.8 million compared to $115.5
million in the 1998 quarter. This decline is the result of lower realized
prices for refined copper, lead, zinc, silver and gold partially offset by
improved sales volumes of refined copper, lead and silver. The production
improvements discussed previously increased refined silver sales volume by
1.3 million ounces or 20.1%, increasing net sales by $8.3 million. The
average LBMA price for silver was lower by 18.7% in the 1999 quarter compared
to the 1998 quarter. As a result, the Company's net realized price for
refined silver was 16.7% lower in the 1999 quarter, reducing net sales by
$8.7 million. Net realized prices for silver are net of the effects of
changes in premiums and hedging activities. Refined copper net sales were
lower by $3.0 and million or 11.5% in the 1999 quarter primarily due to a
15.8 % decrease in the net realized price. Refined zinc net sales were $3.2
million lower in the 1999 quarter, compared to 1998 quarter, due to a 4.8%
decrease in the net realized price and an 11.1% decrease in sales volume.
Copper blister sales were $3.1 million in the 1999 quarter, while there were
none in the 1998 quarter due to changes in customer demand.
Net sales for the 1999 period were $218.6 million compared to $227.4
million in the 1998 period. The reduction is due to lower metal prices
partially offset by improved sales volumes. The production improvements
discussed previously increased refined silver sales volume by 2.6 million
ounces or 20.2%, increasing net sales by $15.5 million. Due to a 14.9%
decrease in the average LBMA price for silver, the Company's net realized
price for refined silver was 13.4% lower in the 1999 period, reducing net
sales by $12.2 million. Refined copper net sales were lower by $8.6 million
in the 1999 period, compared to the 1998 period, primarily due to a 16.1%
decrease in the net realized price. Refined zinc net sales were $5.6 million
lower in the 1999 period compared to 1998 period due to lower prices and
volumes.
COST OF SALES increased from $90.7 million in the 1998 quarter to $91.0
million in the 1999 quarter. The sales volume increases discussed above,
offset by lower refined zinc and bullion lead volume, account for an increase
of $5.3 million in cost of sales. This increase was offset by lower unit
production cost for silver, copper and zinc resulting primarily from a
decrease in feed cost due to lower market prices for these metals and by
reductions in various indirect production expenses.
COST OF SALES increased 1.2% from the 1998 period to the 1999 period.
Increased sales volume of silver, lead, copper and blister copper, partially
offset by lower refined zinc and bullion lead sales, account for a $15.1
million increase in cost of sales. The increase due to volume was partially
offset by lower unit production costs for copper, lead zinc and silver that
were primarily the result of lower cost of feed costs for these metals.
DEPRECIATION AND AMORTIZATION expense increased by $0.2 million for the
1999 quarter and $0.4 million the 1999 period, compared to the prior year,
primarily due to recent capital additions.
INTERCOMPANY FEES for the three months and the six months ended April
30, 1999 and 1998 represent fees paid to the Company under various services
and agency agreements with its Peruvian subsidiaries. These fees have been
eliminated from the Company's consolidated financial statements.
INCOME FROM OPERATIONS decreased $2.7 million in the 1999 quarter
compared to the 1998 quarter and $12.6 million in the 1999 period compared to
the 1998 period due primarily to the factors discussed above.
INTEREST EXPENSE increased $1.3 million for 1999 quarterand $3.4 million
for the 1999 periodcompared to the prior year, primarily due to an increase
of approximately $52.3 million in the average outstanding debt balance and
higher average interest rates. Proceeds from the increase in the outstanding
debt were used to repay a $23 million intercompany loan and to finance
increased working capital required for ongoing operations.
INTEREST INCOME increased $0.3 million for the three months and $0.1
million for the six months ended April 30 1999, compared to the prior year,
primarily due to interest received on extended terms granted to customers
partially offset by lower average cash balances.
30
<PAGE>
OTHER NET, expense increased $0.6 million in the 1999 quarter compared
to the 1999 quarter primarily due to translation gains. For the 1999 period
other net income was $0.3 million compared to net expense of $0.4 million for
the 1998 period. The change is primarily due to reductions of expenses
related to the El Nino flooding that occurred in the 1998 period and
reductions in other miscellaneous expenses.
FOREIGN INCOME TAXES
The Company's foreign income tax provision reflects the provision of its
Peruvian subsidiaries at the statutory rate of 30%. Differences between the
effective and statutory rate are due primarily to book losses of certain
subsidiaries that cannot be offset against other subsidiaries' taxable income
for Peruvian income tax purposes.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity requirements arise from its working capital
requirements, and capital investment and debt service obligations. The
Company's primary available sources of liquidity are cash provided by
operating activities and two revolving credit facilities. In the U.S., the
Company has available a revolving credit facility (the Doe Run Revolving
Credit Facility) that provides for advances by the lender to a maximum of
$100.0 million less outstanding letters of credit, based on specific
percentages of eligible receivables and inventories. As of April 30, 1999,
$34.5 million was outstanding, exclusive of $5.2 million of letters of
credit, under the Doe Run Revolving Credit Facility. In Peru, the Company has
available a revolving credit facility (the Doe Run Peru Revolving Credit
Facility) that provides for advances by the lender to a maximum of $40.0
million, less outstanding letters of credit and customs bonds based upon
specific percentages of eligible receivables and inventories. At April 30,
1999, $16.0 million, exclusive of $2.8 million of letters of credit and
customs bonds, was outstanding under the Doe Run Peru Revolving Credit
Facility. Net unused availability at April 30, 1999 was $26.7 million under
the Doe Run Revolving Credit Facility and $21.2 million under the Doe Run
Peru Revolving Credit Facility. In Peru, the Company also has available two
unsecured and uncommitted credit arrangements, and additional availability
related to letters of credit and customs bonds, provided by local banks. At
April 30, 1999, $4.1 million exclusive of $10.8 million of letters of credit
and customs bonds was outstanding under these arrangements. Borrowings under
the Peruvian working capital facilities, including the Doe Run Peru Revolving
Credit Facility, are limited to $60.0 million under the indentures governing
the Notes. In addition to availability under the credit facilities, the
Company had $8.1 of cash on deposit in banks at April 30, 1999.
In the 1999 quarter, cash used in operating activities was $7.1 million,
cash used in investing activities was $8.0 million and cash provided by
financing activities was $14.5 million. For the 1999 period cash used in
operating activities was $3.7 million, cash used in investing activities was
$11.8 million and cash provided by financing activities was $19.0 million
(this includes net proceeds of $17.9 million from sale and leaseback
transactions, including the sale and leaseback of La Oroya's oxygen plant
discussed below).
On January 20, 1999, Doe Run Peru executed a sale and leaseback
agreement with two Peruvian financial institutions. The main oxygen plant at
La Oroya was sold at fair market value as determined by an independent
appraisal. The proceeds, net of value added tax, of $17.2 million were used
to reduce the outstanding balance on the Doe Run Peru Revolving Credit
Facility and to pay the outstanding balance of an obligation to the Company
of $3.8 million. The lease requires monthly payments of approximately $0.4
million and has a purchase option of $0.2 million at the end its five-year
term.
In the U.S., the Company had capital expenditures of $5.1 million for
the 1999 period and has projected total capital expenditures for fiscal 1999
of approximately $8.9 million, primarily to support ongoing operations and
for operational and environmental improvements. In addition to these capital
investments, the Company's U.S. operations expended an average of
approximately $63.4 million per year on repairs and maintenance from fiscal
1996 through fiscal 1998. As a result of these expenditures, the Company
believes that it operates and will continue to maintain modern and efficient
facilities.
31
<PAGE>
As part of the acquisition of its Peruvian operations, the Company has
undertaken a capital investment program, in part to satisfy an investment
commitment of $120.0 million as set forth in the purchase agreement. The
Peruvian operations had capital expenditures of $6.7 million in the 1999
period and have projected total capital expenditures for fiscal 1999 of
approximately $20.0 million, primarily to support ongoing operations and for
operational and environmental improvements.
The Company has substantial indebtedness and debt service requirements.
As of April 30, 1999, on a consolidated basis, the Company had $499.2 million
of indebtedness outstanding, or $374.2 million net of the Special Term
Deposit. Management believes that cash flows from operations, in addition to
availability under the revolving credit facilities, will be sufficient to
meet the Company's liquidity needs for the foreseeable future.
The Doe Run Revolving Credit Facility, the Doe Run Peru Revolving Credit
Facility, and the indentures governing the Notes contain numerous covenants
and restrictions, including requirements that the Company satisfy certain
financial ratios in order to incur additional indebtedness. The ability of
the Company to meet its debt service requirements and to comply with such
covenants is dependent upon future operating performance and financial
results which are subject to financial, economic, political, competitive and
other factors affecting the Company, many of which are beyond the Company's
control.
On January 15, 1999, Renco filed an election, with the consent of its
shareholders, with the Internal Revenue Service to change its taxable status
from that of a subchapter C corporation to that of a subchapter S
corporation, effective November 1, 1998. At the same time, Renco elected for
the Company to be treated as a QSSS. As a result of such election, generally,
no provision for federal income taxes will be included in the Company's
statements of income for periods beginning after October 31, 1998. However,
under the "built-in gain" provisions of the tax law, federal and state taxes
may become payable and will be charged to the Company's statement of income.
Such taxes are measured by the excess of the fair market value of assets over
their tax bases at the effective date of the S corporation election if the
appreciated assets are disposed of within the ten-year post-conversion
period. It is not management's present intent to generate any taxes under the
built-in gain provisions of the tax laws. See "Item 1. Financial
Statements--Note 4 to the Company's Consolidated Financial Statements."
YEAR 2000 MATTERS
Many information and process control systems used in the current
business environment were designed to use only two digits in the date field,
and therefore may not function properly in the year 2000. Any of the
Company's programs that have date-sensitive software may recognize a date
using "00" as the year 1900 rather than the year 2000, which could result in
a major system failure or in miscalculations. The Company conducted a
comprehensive review of its computerized information systems (IS) to identify
systems that could be affected by the year 2000 problem and has implemented a
plan to resolve the issues identified. In the U.S., the Company modified its
critical programs so that a four-digit year would be recognized. These
programs were tested at the end of February 1999 and the Company identified
and began modifying programs that were not properly processing the new date
fields. Programs will continue to be monitored through normal operating
cycles to determine whether the new date fields are being processed properly.
The Company anticipates that appropriate modifications to these IS, as well
as modification of non-critical systems, will be completed by mid-year 1999.
The Company expects to spend, including spending to date, approximately $.4
million in modifying its U.S. information systems.
In Peru, current computerized systems supporting the Company's
financial, commercial, and logistical functions are largely year 2000
non-compliant. The Company is dependent on these systems to conduct its basic
day to day business functions. The Company has purchased new computing
hardware and software to replace most of these systems. Systems not being
replaced are being upgraded to year 2000 compliance.
32
<PAGE>
Implementation of the new systems is underway, and the Company has retained
specialized outside consultants to assist in this activity. The
implementation project is on schedule for completion of key systems by
November 1999.
Process controls and other systems are being evaluated individually and
may require replacement software, reprogramming and other corrective actions.
The Company has evaluated the status of these systems, and is in the process
of making critical systems year 2000 compliant. Assessment of, and correction
to these systems is targeted for completion by November 1999.
The Company is developing contingency plans for IS and non-IS systems,
as considered necessary after assessment, implementation and testing phases
are completed.
The Company's operations are dependent on various third parties. The
Company's operations depend on the availability of utility services,
primarily electricity, and transportation services. The Peruvian operations
depend on the viability and performance of certain customers and suppliers.
Areas of particular vulnerability include the supply of concentrate feed,
electric power supply, transportation services. The company also has exposure
to the performance of certain government agencies, particularly the import
and export of products and reimbursement to the company of export tax
credits. The Company has written and/or visited key suppliers and customers
requesting assurance that year 2000 issues will not disrupt their ability to
provide service to the Company. Relevant government agencies will also be
contacted. A substantial disruption in utility services or feed supply or
decreases in orders from significant customers due to these third parties
failing to achieve year 2000 compliance could have a significant impact on
the Company's financial results. The Company is in the process of identifying
its crucial vendors and customers and requesting information from them
regarding their readiness for the year 2000. The Company intends to create
contingency plans based on the responses to these inquiries to mitigate the
risk of disruption to its operations.
Except for the new system in Peru discussed above, the cost of achieving
year 2000 compliance will be included in the Company's operating and
administrative expenses. Management believes that the cost of these efforts
will not be material. Due to the inherent uncertainties surrounding the
effect of the year 2000, there can be no assurance that failures or
implications, including potential litigation, will not have a material
adverse effect on the Company's results of operations, financial position or
liquidity.
FORWARD-LOOKING STATEMENTS
This report includes "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995 which involve known and
unknown risks, uncertainties and other important factors that could cause the
actual results, performance or achievements of the Company to differ
materially from any future results, performance or achievements expressed or
implied by such forward-looking statements. Such risks, uncertainties, and
other important factors include, among others: general economic and business
conditions; increasing industry capacity and levels of imports of non-ferrous
metals or non-ferrous metals products; industry trends, including product
pricing; competition; currency fluctuations; the loss of any significant
customer; availability of qualified personnel; effects of future collective
bargaining agreements; major equipment failures; unanticipated problems
encountered in the year 2000 readiness program; and availability of
replacement equipment to achieve year 2000 readiness. These forward-looking
statements speak only as of the date of this report. The Company expressly
disclaims any obligation or undertaking to disseminate any updates or
revisions to any forward-looking statement contained herein to reflect any
change in the Company's expectations with regard thereto or any change in
events, conditions, or circumstances on which any such statement is based.
33
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
In the normal course of its business, the Company has used in the past,
and may use in the future, forward sales commitments and commodity put and
call option contracts to manage its exposure to fluctuations in the prices of
lead, copper, zinc and silver. Contract positions are designed to ensure that
the Company will receive a defined minimum price for certain quantities of
its production. Gains and losses and the related costs paid or premiums
received for option contracts which hedge the sales prices of commodities are
recognized in net sales when the related production is sold. None of the
aforementioned activities have been entered into for speculative purposes.
34
<PAGE>
PART II. OTHER INFORMATION.
ITEM 1. LEGAL PROCEEDINGS.
See "Part 1, Item 1. Financial Statements - Note 7 to the Company's
Consolidated Financial Statements."
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS.
Exhibit 10.1 Amendment No. 3 to Loan and Security Agreement
dated February 1, 1999 by and among The Doe Run
Resources Corporation, Fabricated Products, Inc.
and Congress Financial Corporation.
Exhibit 27 Financial Data Schedule
35
<PAGE>
S I G N A T U R E S
Pursuant to the requirements 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.
THE DOE RUN RESOURCES CORPORATION
(Registrant)
June 11, 1999 /s/ Marvin K. Kaiser
Date Marvin. K. Kaiser
Vice President and Chief Financial Officer
(duly authorized officer and principal financial
officer)
36
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Number Description
- -------------- -----------
<S> <C>
Exhibit 10.1 Amendment No. 3 to Loan and Security Agreement
dated February 1, 1999 by and among The Doe Run
Resources Corporation, Fabricated Products, Inc.
and Congress Financial Corporation
Exhibit 27 Financial Data Schedule
</TABLE>
37
<PAGE>
AMENDMENT NO. 3 TO
LOAN AND SECURITY AGREEMENT
As of February 1, 1999
The Doe Run Resources Corporation
Fabricated Products, Inc.
1801 Park 270 Drive, Suite 300
St. Louis, Missouri 63146
Ladies and Gentlemen:
Congress Financial Corporation ("Lender") has entered into financing
arrangements with The Doe Run Resources Corporation ("Doe Run") and Fabricated
Products, Inc. ("Fabricated Products", and together with Doe Run, collectively
"Borrowers") pursuant to which Lender has made and may make loans and advances
and provide other financial accommodations to Borrowers as set forth in the Loan
and Security Agreement, dated March 12, 1998, by and among Lender and Borrowers
as amended pursuant to Amendment No. 1 to Loan and Security Agreement, dated as
of September 1, 1998 and Amendment No. 2 to Loan and Security Agreement, dated
January 13, 1999 (as the same now exists or may hereafter be amended, modified,
supplemented, extended, renewed, restated or replaced, the "Loan Agreement") and
other agreements, documents and instruments referred to therein or at any time
executed and/or delivered in connection therewith or related thereto, including
this letter agreement (all of the foregoing, including the Loan Agreement, as
the same now exist or may hereafter be amended, modified, supplemented,
extended, renewed, restated or replaced, being collectively referred to herein
as the "Financing Agreements"). All capitalized terms used herein shall have
the meaning assigned thereto in the Loan Agreement, unless otherwise defined
herein.
Borrowers have requested certain amendments to the Loan Agreement and
Lender is willing to agree to such amendments, subject to the terms and
conditions contained herein. By this Amendment, Lender and Borrowers desire and
intend to evidence such amendments. All capitalized terms used herein shall
have the meaning assigned thereto in the other Financing Agreements, unless
otherwise defined herein.
In consideration of the foregoing, and the respective agreements and
covenants contained herein, the parties hereto agree as follows:
<PAGE>
1. RESTRICTED PAYMENTS.
(a) Section 6.7(b)(iii) of the Loan Agreement is hereby deleted and
replaced with the following:
"(iii) each Borrower may make payments to Renco Group or an affiliate
of Renco Group on behalf of itself and its Subsidiaries (including for this
purpose, Doe Run Cayman and its Subsidiaries) pursuant to the Tax Sharing
Agreement between Borrowers and their Subsidiaries and Renco Group (as in effect
on the date hereof); PROVIDED, THAT, (A) each Borrower and its Subsidiaries are
included in the consolidated federal income tax return filed by Renco Group as
to which such Borrower is making such payments for the 1998 tax year or any
prior year, OR for any taxable period during which such Borrower joins with
Renco Group or an affiliate of Renco Group in filing any combined or
consolidated (or similar) state or local income tax return for a jurisdiction
which does not recognize DRA and its Subsidiaries as a QSSS (as defined in
Section 6.7(b)(viii) hereof), (B) the payments in any year shall not exceed the
tax liability that such Borrower would have been liable for if such Borrower had
filed its tax returns on a stand-alone basis except that such Borrower will not
have the benefit of any of its tax loss carry forwards and any intercompany
items shall, for tax liability purposes, be recorded on a cash basis rather than
on an accrual basis, and (C) such payments shall be made by such Borrower no
earlier than ten (10) day prior to the date on which Renco Group or an affiliate
of the Renco Group is required to make its payments to the Internal Revenue
Service or a state or local jurisdiction described in Section 6.7(b)(iii)(A)
hereof;"
(b) Section 6.7(b)(v)(C) of the Loan Agreement is hereby deleted and
replaced with the following:
"(C) as of the date of any such payments and after giving effect
thereto, the aggregate amount of all such payments made in any fiscal year of
Doe Run shall not exceed the amount equal to fifty (50%) percent of: (1) the
cumulative Consolidated Net Income of Doe Run (or if cumulative Consolidated Net
Income shall be a loss, minus one hundred (100%) percent of such loss) earned
subsequent to the date hereof and prior to the date the payment occurs (treating
such period as a single account period) minus (2) all payments made to DRA by
Doe Run and its Subsidiaries pursuant to Section 6.7(b)(viii) below for federal,
state and local income taxes based on the taxable income of the immediately
preceding fiscal year;"
(c) The period at the end of Section 6.7(b)(vii) of the Loan Agreement
is hereby deleted and replaced with "; and" and the following is hereby added as
a new Section 6.7(b)(viii) of the Loan Agreement:
"(viii) With respect to any year that DRA and its Subsidiaries (which
term for purposes of this clause (viii) shall include Doe Run Cayman and its
Subsidiaries) have effectively been designated as a qualified Subchapter S
subsidiary company ("QSSS") under the Code, Borrowers may pay cash dividends,
from legally available funds therefor, to the
-2-
<PAGE>
extent taxable income of Borrowers is required to be included in the taxable
income shown by Renco Group as reported in its subchapter S tax returns
("Form 1120S"), subject to the following:
(A) Such cash dividends shall be with respect to any such
period, in an amount up to the product of (1) the taxable income of Borrowers
and their Subsidiaries for such period which is the basis for Renco Group being
required to include such taxable income in its Form 1120S, as amended or
modified or determined by audit, and the required estimated taxable income
related thereto and the comparable state and local taxable income reports and
estimated taxable income, multiplied by (2) the corporate Federal, State and
local tax rates, whether calculated on regular taxable income or alternative
minimum taxable income, as applicable, in effect for the taxable period
applicable to Borrowers and their Subsidiaries using the rates that would be
applicable if Borrowers were not a QSSS and calculated in accordance with the
tax sharing arrangement by and among DRA and Renco Group (as in effect on the
date hereof),
(B) Borrowers may pay such cash dividends with respect to any
such period so long as (1) in such period, Borrowers are effectively designated
a QSSS, (2) the product of the taxable income of Borrowers and their
Subsidiaries for such period multiplied by the applicable tax rates as described
above shall be reduced by any applicable tax credits or deductions calculated in
accordance with the tax sharing arrangement by and among Borrowers, their
Subsidiaries and Renco Group (as in effect on the date hereof) available to
Borrowers and their Subsidiaries which would reduce the amount of the income
taxes payable by Borrowers and their Subsidiaries, (3) any such dividends shall
be paid no more than five (5) days prior to the date that Renco Group's
shareholders are required to make payment of the taxes based on the taxable
income of Borrowers and their Subsidiaries, (4) not less than five (5) days
prior to the payment of any such dividends, Lender shall have received a
certificate signed by the chief financial officer of Doe Run, in form and
substance satisfactory to Lender, stating the calculation of the amount which is
the basis for tax distributions permitted hereunder through such period (if any)
and providing full information and computations with respect thereto and (5)
such dividend shall not be in violation of applicable law or any other agreement
to which Borrowers are a party or by which Borrowers or their assets are bound,
and
(C) In no event shall dividends be paid to DRA based on taxable
income of Borrowers and their Subsidiaries for jurisdictions which do not
recognize Borrowers and their Subsidiaries as a QSSS and where (1) Borrowers and
their Subsidiaries are required to file and pay their individual taxes, and (2)
where Renco Group is not required to pay, or by virtue of a consolidated (or
similar) return does not make payments in respect of, the tax liabilities of the
Borrowers or any of their Subsidiaries in such jurisdictions;"
-3-
<PAGE>
2. CONSOLIDATED NET WORTH. Sections 6.10(b), (c) and (d) of the Loan
Agreement are hereby deleted in their entirety and the following substituted
therefor:
<TABLE>
<CAPTION>
Period Amount
------ ------
<S> <C>
"(b) From and including February 1, 1999
and at all times thereafter ($10,000,000)"
</TABLE>
3. CONDITIONS PRECEDENT. The effectiveness of the other terms and
provisions contained herein shall be subject to the receipt by Lender of an
original of this Amendment, duly authorized, executed and delivered by
Borrowers.
4. EFFECT OF THIS AMENDMENT. Except as modified pursuant hereto, no other
changes or modifications in the Loan Agreement or the other Financing Agreements
are intended or implied and the Financing Agreements are hereby specifically
ratified, restated and confirmed by all parties hereto as of the affective date
hereof. To the extent of conflict between the terms of this Amendment and the
other Financing Agreements, the terms of this Amendment shall control. The
terms herein shall not limit or otherwise affect in any manner whatsoever the
rights of the Lender to require Borrowers to execute and deliver or cause to be
executed, delivered or obtained any further agreements, documents or instruments
as provided in the Financing Agreements. The parties hereto acknowledge,
confirm and agree that the failure of Borrowers to comply with the
representations, warranties and covenants set forth herein shall constitute an
Event of Default under the Loan Agreement.
5. GOVERNING LAW. The rights and obligations hereunder of each of the
parties hereto shall be governed by and interpreted and determined in accordance
with the laws of the State of New York.
6. BINDING EFFECT. This Amendment shall be binding upon and inure to the
benefit of each of the parties hereto and their respective successors and
assigns.
7. COUNTERPARTS. This Amendment may be executed in any number of
counterparts, but all of such counterparts shall together constitute but one and
the same agreement. In making proof of this Amendment, it shall not be
necessary to produce or account for more than one counterpart thereof signed by
each of the parties hereto.
-4-
<PAGE>
8. FURTHER ASSURANCES. The parties hereto shall execute and deliver such
additional documents and take such additional action as may be necessary or
desirable to effectuate the provisions and purposes of this Agreement.
Very truly yours,
CONGRESS FINANCIAL CORPORATION
By: /s/ Herbert C. Korn
-------------------------------
Title: Assistant Vice President
----------------------------
ACKNOWLEDGED:
THE DOE RUN RESOURCES CORPORATION
By: /s/ Marvin K. Kaiser
-------------------------------
Title: VP & CFO
----------------------------
FABRICATED PRODUCTS, INC.
By: /s/ Marvin K. Kaiser
-------------------------------
Title: VP & CFO
----------------------------
-5-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-START> NOV-01-1998
<PERIOD-END> APR-30-1999
<CASH> 8,114
<SECURITIES> 0
<RECEIVABLES> 80,279
<ALLOWANCES> (893)
<INVENTORY> 128,040
<CURRENT-ASSETS> 34,175
<PP&E> 173,158
<DEPRECIATION> (86,799)
<TOTAL-ASSETS> 651,843
<CURRENT-LIABILITIES> 95,642
<BONDS> 300,251
0
0
<COMMON> 0
<OTHER-SE> 5,015
<TOTAL-LIABILITY-AND-EQUITY> 651,843
<SALES> 373,383
<TOTAL-REVENUES> 373,383
<CGS> 320,347
<TOTAL-COSTS> 356,237
<OTHER-EXPENSES> 317
<LOSS-PROVISION> 84
<INTEREST-EXPENSE> 29,441
<INCOME-PRETAX> (5,039)
<INCOME-TAX> 8,524
<INCOME-CONTINUING> (13,563)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (13,563)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
