<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 JANUARY 31, 2000
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.
[ ] YES [X] NO
Number of shares outstanding of each of the issuer's classes of common stock, as
of March 9, 2000:
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 I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE DOE RUN RESOURCES CORPORATION
Condensed Consolidated Balance Sheets
January 31, 2000 and October 31, 1999 3
Consolidated Statements of Operations
three months ended January 31, 2000 and 1999 4
Condensed Consolidated Statements of Cash Flows
three months ended January 31, 2000 and 1999 5
Notes to Consolidated Financial Statements 6-19
DOE RUN PERU S.R.L.
Condensed Consolidated Balance Sheets
January 31, 2000 and October 31, 1999 20
Condensed Consolidated Statements of Operations
three months ended January 31, 2000 and 1999 21
Condensed Consolidated Statements of Cash Flows
three months ended January 31, 2000 and 1999 22
Notes to Condensed Consolidated Financial Statements 23
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF 24-32
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK 32
PART II. OTHER INFORMATION.
ITEM 1. LEGAL PROCEEDINGS 32
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 33
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS 33
SIGNATURES 33
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE DOE RUN RESOURCES CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
JANUARY 31, OCTOBER 31,
2000 1999
--------- ----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash $ 4,074 $ 9,886
Trade accounts receivable, net of allowance for
doubtful accounts 87,106 88,884
Inventories 135,480 120,261
Prepaid expenses and other current assets 40,029 33,861
Net deferred tax assets 2,479 2,115
-------- --------
Total current assets 269,168 255,007
Property, plant and equipment, net 269,977 269,042
Special term deposit 125,000 125,000
Net deferred tax assets 1,828 1,606
Other noncurrent assets, net 12,611 14,062
-------- --------
Total assets $678,584 $664,717
======== ========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Short-term borrowings and current maturities of
long-term debt $ 6,820 $ 8,582
Accounts payable 60,799 54,736
Accrued liabilities 51,437 49,793
-------- --------
Total current liabilities 119,056 113,111
Long-term debt, less current maturities 487,696 477,286
Other noncurrent liabilities 57,484 57,699
-------- --------
Total liabilities 664,236 648,096
Shareholder's equity:
Common stock, $.10 par value, 1,000 shares authorized,
issued, and outstanding - -
Additional paid-in capital 5,238 5,238
Retained earnings 9,895 12,168
Accumulated other comprehensive income (785) (785)
-------- --------
Total shareholder's equity 14,348 16,621
-------- --------
Total liabilities and shareholder's equity $678,584 $664,717
======== ========
</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
JANUARY 31,
-----------------------
2000 1999
----------- -----------
<S> <C> <C>
Net sales $207,390 $181,718
Costs and expenses:
Cost of sales 181,117 160,207
Depletion, depreciation and amortization 7,565 8,177
Selling, general and administrative 9,025 8,641
Exploration 600 992
-------- --------
Total costs and expenses 198,307 178,017
-------- --------
Income from operations 9,083 3,701
Other income (expense):
Interest expense (15,141) (14,825)
Interest income 3,628 3,650
Other, net 276 513
-------- --------
(11,237) (10,662)
-------- --------
Loss before income tax expense (2,154) (6,961)
Income tax expense 119 7,168
-------- --------
Net loss $ (2,273) $(14,129)
======== ========
</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>
THREE MONTHS
ENDED JANUARY 31,
-----------------------
2000 1999
---------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (2,273) $ (14,129)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation, depletion and amortization 7,565 8,177
Amortization of deferred financing fees 863 661
Deferred income taxes (586) 6,835
Imputed interest 69 161
Increase (decrease) resulting from changes in assets and
liabilities (11,351) 1,715
-------- ---------
Net cash provided by (used in) operating activities (5,713) 3,420
Cash flows from investing activities:
Purchases of property, plant and equipment (8,480) (3,815)
-------- ---------
Net cash used in investing activities (8,480) (3,815)
Cash flows from financing activities:
Proceeds from (payments on) revolving loans and
short term borrowings, net 9,264 (11,365)
Payments on long-term debt (883) (895)
Proceeds from sale/leaseback transactions - 17,162
Payment of deferred financing costs - (424)
-------- ---------
Net cash provided by financing activities 8,381 4,478
-------- ---------
Net increase (decrease) in cash (5,812) 4,083
Cash at beginning of period 9,886 4,646
-------- ---------
Cash at end of period $ 4,074 $ 8,729
======== =========
Supplemental disclosure of cash flow information -
Cash paid during the period for:
Interest, net of capitalized interest $ 1,879 $ 2,194
======== =========
Income taxes $ 412 $ 2,330
======== =========
</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 (collectively, the
Company). 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 January 31, 2000 and results of operations for the three month
periods ended January 31, 2000 and 1999. 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) CHANGE IN TAXABLE STATUS
On January 15, 1999, the Company's parent, The Renco Group, Inc. (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 three months ended January 31, 1999.
(3) INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
JANUARY 31, OCTOBER 31,
2000 1999
---------- ------------
<S> <C> <C>
Finished metals and concentrates $ 19,021 $ 10,527
Metals and concentrates in process 58,386 60,139
Materials, supplies and repair parts 58,073 49,595
-------- --------
$135,480 $120,261
======== ========
</TABLE>
Materials, supplies and repair parts are stated net of reserves for
obsolescence of approximately $4,300 at January 31, 2000 and October 31,
1999.
(4) SEGMENT INFORMATION
The Company's operating segments are separately managed business units that
are distinguished by products, location and production process. The primary
lead segment includes integrated mining, milling and smelting operations
located in Missouri. The secondary lead segment, also located in Missouri,
recycles lead-bearing feed materials, primarily spent batteries. The
fabricated products segment produces value-added lead products. The
Peruvian operations produce an extensive product mix of non-ferrous and
precious metals through a subsidiary, Doe Run Peru S.R.L. (Doe Run Peru).
6
<PAGE>
THE DOE RUN RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JANUARY 31,
-------------------
OPERATING SEGMENTS - REVENUES 2000 1999
--------- ---------
<S> <C> <C>
Revenues from external customers:
Peruvian operations $ 124,300 $ 105,347
Primary lead 58,193 55,623
Secondary lead 14,937 12,265
Fabricated products 6,738 6,214
--------- ---------
Total 204,168 179,449
--------- ---------
Revenues from other operating segments: (1)
Peruvian operations 1,526 2,427
Primary lead 569 227
Secondary lead 195 231
Fabricated products 11 -
--------- ---------
Total 2,301 2,885
--------- ---------
Total revenues for reportable
segments 206,469 182,334
Other revenues (2) 3,222 2,269
Intersegment eliminations (2,301) (2,885)
--------- ---------
Total consolidated revenues $ 207,390 $ 181,718
========= =========
</TABLE>
(1) Transactions between segments consist of metal sales recorded based on
sales contracts that are negotiated between segments on an arms-length
basis.
(2) Other revenues consist of metal sales not attributed to operating segments
and gains (losses) on hedging transactions.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
OPERATING SEGMENTS - EBITDA (EARNINGS JANUARY 31,
BEFORE INTEREST, TAXES, AND DEPLETION, -------------------
DEPRECIATION AND AMORTIZATION) 2000 1999
--------- ---------
<S> <C> <C>
Peruvian operations $ 12,772 $ 11,515
Primary lead 4,092 4,276
Secondary lead 3,113 2,224
Fabricated products 552 564
--------- ---------
Total reportable segments 20,529 18,579
Other revenues and expenses (3) 893 (2,243)
Corporate selling, general and
administrative expenses (4,424) (3,773)
Intersegment eliminations (74) (172)
--------- ---------
Consolidated EBITDA 16,924 12,391
Depreciation, depletion and amortization (7,565) (8,177)
Interest income 3,628 3,650
Interest expense (15,141) (14,825)
--------- ---------
Loss before income taxes $ (2,154)$ (6,961)
========= =========
</TABLE>
(3) Other revenues and expenses include primarily exploration expenses, gains
and losses recognized on hedge transactions, and adjustments necessary to
state inventories at LIFO cost.
7
<PAGE>
THE DOE RUN RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(5) HEDGING
The fair market value of the Company's hedging positions at January 31,
2000 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 Company's open hedging positions at January 31, 2000 were:
FUTURES SALES (PURCHASE) CONTRACTS (NUMBERS NOT IN THOUSANDS)
<TABLE>
<CAPTION>
FAIR
METAL QUANTITY PRICE RANGE MARKET VALUE PERIOD
------------------ ------------------ ----------------------------- ---------------- -------------------------
<S> <C> <C> <C> <C>
Copper 1,184 tons $.7900/lb. to $.8596/lb. $ 154,886 Feb. 00 to Jun. 00
Lead 39,628 tons $.2184/lb. to $.2404/lb. (409,150) Feb. 00 to Dec. 01
Zinc 5,842 tons $.5021/lb. to $.5534/lb. 308,971 Feb. 00 to Oct. 00
Silver 75,000 oz. $5.07/oz. to $5.48/oz. (114,817) Feb.00
</TABLE>
SOLD CALL OPTION CONTRACTS (NUMBERS NOT IN THOUSANDS)
<TABLE>
<CAPTION>
FAIR
METAL QUANTITY PRICE RANGE MARKET VALUE PERIOD
------------------ ------------------ ----------------------------- ---------------- -------------------------
<S> <C> <C> <C> <C>
Copper 9,600 tons $.8187/lb. to $.9600/lb. $ (1,084,440) Feb. 00 to Sept. 00
Lead 22,500 tons $.2313/lb. to $.2359/lb. (6,990) Feb. 00 to Apr. 00
Zinc 5,625 tons $.5216/lb. to $.5443/lb. (273,710) Feb. 00 to Jul. 00
Silver 100,000 oz. $5.47/oz. - Feb. 00
</TABLE>
SOLD (PURCHASED) PUT OPTION CONTRACTS (NUMBERS NOT IN THOUSANDS)
<TABLE>
<CAPTION>
FAIR
METAL QUANTITY PRICE RANGE MARKET VALUE PERIOD
------------------ ------------------ ----------------------------- ---------------- -------------------------
<S> <C> <C> <C> <C>
Copper 3,300 tons $.6600/lb. to $.7600/lb. $ 64,760 Feb. 00 to Sep. 00
Lead 9,750 tons $.2154/lb. to $.2260/lb. (97,540) Feb. 00 to Mar. 00
Zinc 6,825 tons $.4876/lb. to $.4990/lb. (123,735) Feb. 00 to Jun. 00
Silver 150,000 oz. $5.00/oz. to $5.20/oz. (11,002) Feb. 00 to Mar. 00
Gold 3,100 oz. $280.00/oz. to $296.00/oz. (22,471) Feb. 00 to Mar. 00
</TABLE>
8
<PAGE>
THE DOE RUN RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(6) ENVIRONMENTAL AND LITIGATION MATTERS
ENVIRONMENTAL
The Company has recorded a liability of $33,000 as of January 31, 2000,
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 $1,000 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 Environmental Protection Agency (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 remediaton similar to the corrective action
mentioned above. The Company expects to sign a voluntary Administrative
Order of Consent (AOC) to study and address issues related to the slag pile
and the community adjacent to the plant. At this time, it is not possible
to determine the outcome of the study or what potential remediation
actions, if any, may be required.
At its primary smelter in Glover, Missouri, the Company has opened a new
slag pile for disposal of its smelting residue. The previous owner of the
site, Asarco, Inc., is required to close an existing pile with
proportionate contribution from the Company based on its use. The Company's
contribution is expected to be minimal, as the Company's portion of the
existing pile was moved to the new pile. The closure of the new pile will
take the form of a containment structure, the cost of which will be
capitalized and is not expected to have a material effect on the liquidity
or financial position of the Company.
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 after that date the Company
will implement the control measures identified in the plan. The Company
expects to make capital expenditures for various control measures totaling
approximately $1,100 in fiscal 2000 and anticipates additional future cash
requirements of $8,000 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 CERCLA at the following sites: six sites
in St. Francois County, Missouri, including the Big River Mine Tailings
site, the Bonne Terre site, the Federal site, the National site, the
Rivermines site and the Leadwood 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, Montana; and the Missouri Electric Works site in Cape Girardeau,
Missouri. There are two additional sites in St. Francois County for which
the EPA has indicated it will issue notice. These sites involve historical
operations of predecessors of the
9
<PAGE>
THE DOE RUN RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
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 January 31, 2000 of approximately $13,000 for
these sites, including the two 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 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 (RI/FS) 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 RI/FS is
being conducted by a third party 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 or liquidity of the Company.
The Company's Buick 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 January 31, 2000 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 $500 per year. The
Company's mine closure reserves were approximately $7,400 as of January 31,
2000.
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) for its La Oroya smelter that
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
10
<PAGE>
THE DOE RUN RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
of the PAMA (ten years from the date of the PAMA for smelters 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 in effect at that time.
Doe Run Peru has committed under its PAMA to implement the following
projects through December 31, 2006:
- New sulfuric acid plants
- Elimination of fugitive gases from the coke plant
- Use of oxygenated gases in the anodic residue plant
- Water treatment plant for the copper refinery
- Recirculation system for cooling waters at the smelter
- Management and disposal of acidic solutions at the silver refinery
- Industrial waste water treatment plant for the smelter and refinery
- Containment dam for the lead muds near the zileret plant
- Granulation process water at the lead smelter
- Anode washing system at the zinc refinery
- Management and disposal of lead and copper slag wastes
- Domestic waste water treatment and domestic waste disposal
Annual capital spending on a calendar year basis approved in the PAMA is as
follows:
<TABLE>
<CAPTION>
ESTIMATED
YEAR COST
---------
<S> <C>
2000 $ 11,265
2001 13,800
2002 14,300
2003 13,180
2004 30,055
2005 34,790
2006 42,040
---------
$ 159,430
=========
</TABLE>
The current estimate for the total to be expended on environmental projects
under the PAMA and on additional related process changes for Doe Run Peru
is approximately $189,950 for this period.
Doe Run Peru's Cobriza mine has a separate PAMA to be completed by 2002.
The total cost of capital projects to manage tailings, sewage and garbage
is approximately $9,600, to be expended over the next three fiscal years,
with estimated spending of approximately $7,000 in fiscal 2000.
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 described above have been designed to achieve
compliance with such requirements prior to the expiration of the respective
PAMA periods. 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
11
<PAGE>
THE DOE RUN RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
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 or different 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 certain 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 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.
According to the purchase agreement, the Company has the option to continue
the use of the La Oroya smelter 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 ferrite site is abandoned,
the Company 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 six 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 nine 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 four cases are personal injury
actions by sixteen 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.
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
12
<PAGE>
THE DOE RUN RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
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 effect on the results of operations,
financial condition and liquidity of the Company.
The Company, with several other defendants, was named in two cases in
Maryland. The first case is seeking certification as a class the owners of
all housing in the State of Maryland built prior to 1978 that have lead
paint on the premises. The complaint alleges that all defendants were
members of Lead Industries Association (LIA), a trade association, and that
the defendants improperly promoted lead paint. The suit seeks damages for
paint removal for all such housing in the State of Maryland. The other suit
seeks damages, alleging personal injuries to children as a result of lead
poisoning from lead paint in the family residence. Both suits seek punitive
damages. Discovery has just begun, and 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 on the results of operations, financial
condition and liquidity of the Company.
(7) SUBSEQUENT EVENT
In February, 2000 the Company and several other parties were named
defendants in a suit brought by the City of St. Louis, Missouri for costs
allegedly incurred and to be incurred by the plaintiff for the care of
lead-poisoned persons, education programs for children injured by exposure
to lead and the abatement of lead hazards purportedly created by the
defendants in the City of St. Louis. The complaint alleges that the
defendants made material misrepresentations and intentional omissions of
material facts to the City and/or its residents regarding the nature of
lead and lead products, such as paint. The suit also seeks punitive
damages. Discovery has yet to be initiated, 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 on the results of operations,
financial condition and liquidity of the Company.
(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, including Doe Run Mining S.R.L. and its
subsidiaries Doe Run Development S.A.C. and Doe Run Peru) have jointly and
severally, fully, unconditionally and irrevocably guaranteed the public
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. Intercompany
transactions eliminated in consolidation consist of various service and
agency fees between The Doe Run Resources Corporation and Doe Run Mining
S.R.L, The Doe Run Resources Corporation and Doe Run Peru, and Doe Run
Mining S.R.L and Doe Run Peru; and sales of metal to The Doe Run
Resources Corporation by Doe Run Peru and to FPI by The Doe Run
Resources Corporation.
13
<PAGE>
THE DOE RUN RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(8) GUARANTOR SUBSIDIARIES (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF JANUARY 31, 2000 (UNAUDITED)
<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>
ASSETS
Current assets:
Cash ........................................ $ -- $ -- $ 39 $ 4,035 $ -- $ 4,074
Trade accounts receivable, net of allowance
for doubtful accounts ................... 47,943 6,938 -- 32,627 (402) 87,106
Inventories ................................. 51,844 1,729 -- 82,000 (93) 135,480
Prepaid expenses and other current assets ... 10,234 138 15 30,257 (615) 40,029
Net deferred tax assets ..................... -- -- (46) 2,525 -- 2,479
Due from subsidiaries ....................... 12,897 -- -- -- (12,897) --
Due from parent ............................. -- -- -- 23,279 (23,279) --
--------- --------- --------- --------- --------- ---------
Total current assets .................... 122,918 8,805 8 174,723 (37,286) 269,168
Property, plant and equipment, net ............... 137,323 7,431 -- 125,223 -- 269,977
Special term deposit ............................. 125,000 -- -- -- -- 125,000
Net deferred tax assets .......................... -- -- (40) 1,868 -- 1,828
Other noncurrent assets, net ..................... 11,878 211 230 292 -- 12,611
Investment in subsidiaries ....................... 33,819 -- 192,368 -- (226,187) --
--------- --------- --------- --------- --------- ---------
Total assets ............................ $ 430,938 $ 16,447 $ 192,566 $ 302,106 $(263,473) $ 678,584
========= ========= ========= ========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings and current maturities
of long-term debt ....................... $ 366 $ -- $ 1,344 $ 5,110 $ -- $ 6,820
Accounts payable ............................ 17,322 3,948 -- 39,931 (402) 60,799
Accrued liabilities ......................... 31,709 333 6,111 13,899 (615) 51,437
Due to subsidiaries ......................... -- -- 23,279 -- (23,279) --
Due to parent ............................... -- 10,349 1,291 1,257 (12,897) --
--------- --------- --------- --------- --------- ---------
Total current liabilities ............... 49,397 14,630 32,025 60,197 (37,193) 119,056
Long-term debt, less current maturities .......... 318,996 -- 126,359 42,341 -- 487,696
Other noncurrent liabilities ..................... 48,197 1,886 201 7,200 -- 57,484
--------- --------- --------- --------- --------- ---------
Total liabilities ....................... 416,590 16,516 158,585 109,738 (37,193) 664,236
Shareholders' equity:
Common stock, $.10 par value, 1,000 shares
authorized, issued, and outstanding ..... 0 -- -- -- -- 0
Common stock, $1 par value, 1,000 shares
authorized, issued, and outstanding ..... -- 1 -- -- (1) --
Common stock, $1 par value, 2,005,000 shares
authorized, issued and outstanding ...... -- -- 2,005 -- (2,005) --
Common stock, one nuevo sole par value,
729,548,057 shares authorized, issued
and outstanding ......................... -- -- -- 271,435 (271,435) --
Additional paid in capital .................. 5,238 1,205 -- (16,234) 15,029 5,238
Due from parent ............................. -- -- -- (104,775) 104,775 --
Foreign currency translation adjustment ..... -- -- -- (20,225) 20,225 --
Retained earnings and accumulated other
comprehensive income .................... 9,110 (1,275) 31,976 62,167 (92,868) 9,110
--------- --------- --------- --------- --------- ---------
Total shareholders' equity .............. 14,348 (69) 33,981 192,368 (226,280) 14,348
--------- --------- --------- --------- --------- ---------
Total liabilities and shareholders'
equity ................................ $ 430,938 $ 16,447 $ 192,566 $ 302,106 $(263,473) $ 678,584
========= ========= ========= ========= ========= =========
</TABLE>
14
<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, 1999
<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>
ASSETS
Current assets:
Cash ........................................ $ 7,197 $ (1,347) $ 39 $ 3,997 $ -- $ 9,886
Trade accounts receivable, net of allowance
for doubtful accounts ................... 46,162 4,292 67 38,864 (501) 88,884
Inventories ................................. 47,368 1,791 -- 71,122 (20) 120,261
Prepaid expenses and other current assets ... 6,580 145 (77) 27,958 (745) 33,861
Net deferred tax assets ..................... -- -- (50) 2,165 -- 2,115
Due from subsidiaries ....................... 11,321 -- -- 122 (11,443) --
Due from parent ............................. -- -- -- 23,622 (23,622) --
--------- --------- --------- --------- --------- ---------
Total current assets .................... 118,628 4,881 (21) 167,850 (36,331) 255,007
Property, plant and equipment, net ............... 140,663 7,784 -- 120,595 -- 269,042
Special term deposit ............................. 125,000 -- -- -- -- 125,000
Net deferred tax assets .......................... -- -- (40) 1,646 -- 1,606
Other noncurrent assets, net ..................... 13,205 292 242 323 -- 14,062
Investment in subsidiaries ....................... 33,029 -- 188,227 -- (221,256) --
--------- --------- --------- --------- --------- ---------
Total assets ............................ $ 430,525 $ 12,957 $ 188,408 $ 290,414 $(257,587) $ 664,717
========= ========= ========= ========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings and current maturities
of long-term debt ....................... $ 357 $ -- $ 1,279 $ 6,946 $ -- $ 8,582
Accounts payable ............................ 16,479 1,901 67 36,790 (501) 54,736
Accrued liabilities ......................... 30,967 478 2,546 16,547 (745) 49,793
Due to subsidiaries ......................... -- -- 23,744 -- (23,744) --
Due to parent ............................... -- 8,666 1,386 1,269 (11,321) --
--------- --------- --------- --------- --------- ---------
Total current liabilities ............... 47,803 11,045 29,022 61,552 (36,311) 113,111
Long-term debt, less current maturities .......... 317,693 -- 126,359 33,234 -- 477,286
Other noncurrent liabilities ..................... 48,408 1,890 -- 7,401 -- 57,699
--------- --------- --------- --------- --------- ---------
Total liabilities ....................... 413,904 12,935 155,381 102,187 (36,311) 648,096
Shareholders' equity:
Common stock, $.10 par value, 1,000 shares
authorized, issued, and outstanding ..... 0 -- -- -- -- 0
Common stock, $1 par value, 1,000 shares
authorized, issued, and outstanding ..... -- 1 -- -- (1) --
Common stock, $1 par value, 2,005,000 shares
authorized, issued and outstanding ...... -- -- 2,005 -- (2,005) --
Common stock, one nuevo sole par value,
729,548, 057 shares authorized, issued
and outstanding ......................... -- -- -- 271,435 (271,435) --
Additional paid in capital .................. 5,238 1,205 -- (16,234) 15,029 5,238
Due from parent ............................. -- -- -- (104,865) 104,865 --
Foreign currency translation adjustment ..... -- -- -- (20,135) 20,135 --
Retained earnings and accumulated other
comprehensive income .................... 11,383 (1,184) 31,022 58,026 (87,864) 11,383
--------- --------- --------- --------- --------- ---------
Total shareholders' equity .............. 16,621 22 33,027 188,227 (221,276) 16,621
--------- --------- --------- --------- --------- ---------
Total liabilities and shareholders'
equity ................................ $ 430,525 $ 12,957 $ 188,408 $ 290,414 $(257,587) $ 664,717
========= ========= ========= ========= ========= =========
</TABLE>
15
<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 JANUARY 31, 2000 (UNAUDITED)
<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 .............................. $ 81,942 $ 6,749 $ 3,473 $ 125,826 $ (10,600) $ 207,390
Costs and expenses:
Cost of sales ..................... 68,804 5,911 -- 108,630 (2,228) 181,117
Depletion, depreciation and
amortization .................... 4,954 391 -- 2,220 -- 7,565
Selling, general and administrative 4,423 282 2,495 10,124 (8,299) 9,025
Exploration ....................... 600 -- -- -- -- 600
--------- --------- --------- --------- --------- ---------
Total costs and expenses ....... 78,781 6,584 2,495 120,974 (10,527) 198,307
--------- --------- --------- --------- --------- ---------
Income from operations ......... 3,161 165 978 4,852 (73) 9,083
Other income (expense):
Interest expense .................. (10,177) (252) (3,677) (1,284) 249 (15,141)
Interest income ................... 3,785 -- -- 92 (249) 3,628
Other, net ........................ 385 (4) (4) (101) -- 276
Equity in earnings of subsidiaries 790 -- 4,141 -- (4,931) --
--------- --------- --------- --------- --------- ---------
(5,217) (256) 460 (1,293) (4,931) (11,237)
--------- --------- --------- --------- --------- ---------
Income (loss) before income tax
expense (benefit) ........ (2,056) (91) 1,438 3,559 (5,004) (2,154)
Income tax expense (benefit) ...... 217 -- 484 (582) -- 119
--------- --------- --------- --------- --------- ---------
Net income (loss) .............. $ (2,273) $ (91) $ 954 $ 4,141 $ (5,004) $ (2,273)
========= ========= ========= ========= ========= =========
</TABLE>
16
<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 JANUARY 31, 1999 (UNAUDITED)
<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 .............................. $ 74,686 $ 6,214 $ 3,269 $ 107,774 $ (10,225) $ 181,718
Costs and expenses:
Cost of sales ..................... 64,961 5,213 -- 92,746 (2,713) 160,207
Depletion, depreciation and
amortization .................... 5,924 381 -- 1,872 -- 8,177
Selling, general and administrative 3,773 381 2,453 9,374 (7,340) 8,641
Exploration ....................... 992 -- -- -- -- 992
--------- --------- --------- --------- --------- ---------
Total costs and expenses ....... 75,650 5,975 2,453 103,992 (10,053) 178,017
--------- --------- --------- --------- --------- ---------
Income (loss) from operations .. (964) 239 816 3,782 (172) 3,701
Other income (expense):
Interest expense .................. (10,171) (283) (3,760) (894) 283 (14,825)
Interest income ................... 3,822 -- -- 111 (283) 3,650
Other, net ........................ (405) (56) 610 364 -- 513
Equity in earnings of subsidiaries (19) -- 2,587 -- (2,568) --
--------- --------- --------- --------- --------- ---------
(6,773) (339) (563) (419) (2,568) (10,662)
--------- --------- --------- --------- --------- ---------
Income (loss) before income
tax expense .................. (7,737) (100) 253 3,363 (2,740) (6,961)
Income tax expense ................ 6,392 -- -- 776 -- 7,168
--------- --------- --------- --------- --------- ---------
Net income (loss) .............. $ (14,129) $ (100) $ 253 $ 2,587 $ (2,740) $ (14,129)
========= ========= ========= ========= ========= =========
</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
THREE MONTHS ENDED JANUARY 31, 2000 (UNAUDITED)
<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 .................................... $(4,327) $ (318) $ 4,701 $ (838) $(4,931) $(5,713)
Cash flows from investing activities:
Purchases of property, plant and equipment (1,614) (18) -- (6,848) -- (8,480)
Investment in subsidiaries ................ (790) -- (4,141) -- 4,931 --
------- ------- ------- ------- ------- -------
Net cash provided by (used in)
investing activities ................. (2,404) (18) (4,141) (6,848) 4,931 (8,480)
Cash flows from financing activities:
Proceeds from revolving loans
and short-term borrowings, net ......... 1,195 -- -- 8,069 -- 9,264
Payments on long-term debt ................ (85) -- -- (798) -- (883)
Loans from parent/subsidiaries ............ (1,576) 1,683 (560) 453 -- --
------- ------- ------- ------- ------- -------
Net cash provided by (used in)
financing activities ................ (466) 1,683 (560) 7,724 -- 8,381
------- ------- ------- ------- ------- -------
Net increase (decrease) in cash ........ (7,197) 1,347 -- 38 -- (5,812)
Cash at beginning of period ...................... 7,197 (1,347) 39 3,997 -- 9,886
------- ------- ------- ------- ------- -------
Cash at end of period ............................ $ -- $ -- $ 39 $ 4,035 $ -- $ 4,074
======= ======= ======= ======= ======= =======
</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
THREE MONTHS ENDED JANUARY 31, 1999 (UNAUDITED)
<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 $ (5,997) $ (255) $ 5,815 $ 6,425 $ (2,568) $ 3,420
Cash flows from investing activities:
Purchases of property, plant and equipment (1,755) (19) -- (2,041) -- (3,815)
Investment in subsidiaries ................ 19 -- (2,587) -- 2,568 --
-------- -------- -------- -------- -------- --------
Net cash provided by (used in)
investing activities ................. (1,736) (19) (2,587) (2,041) 2,568 (3,815)
Cash flows from financing activities:
Proceeds from (payments on ) revolving
loans and short-term borrowings, net ... 858 -- -- (12,223) -- (11,365)
Payments on long-term debt ................ (895) -- -- -- -- (895)
Proceeds from sale/leaseback transaction .. -- -- -- 17,162 -- 17,162
Payment of deferred financing costs ....... (424) -- -- -- -- (424)
Loans from parent/subsidiaries ............ 8,194 274 (3,230) (5,238) -- --
-------- -------- -------- -------- -------- --------
Net cash provided by (used in)
financing activities ................ 7,733 274 (3,230) (299) -- 4,478
-------- -------- -------- -------- -------- --------
Net increase (decrease) in cash ........ -- -- (2) 4,085 -- 4,083
Cash at beginning of period ...................... -- -- 21 4,625 -- 4,646
-------- -------- -------- -------- -------- --------
Cash at end of period ............................ $ -- $ -- $ 19 $ 8,710 $ -- $ 8,729
======== ======== ======== ======== ======== ========
</TABLE>
19
<PAGE>
DOE RUN PERU S.R.L.
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
JANUARY 31, OCTOBER 31,
2000 1999
----------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash ......................................................... $ 4,035 $ 3,997
Trade accounts receivable, net of allowance for
doubtful accounts ........................................ 32,627 38,864
Inventories .................................................. 82,000 71,122
Prepaid expenses and other current assets .................... 30,257 27,958
Net deferred tax assets ...................................... 2,525 2,165
Due from parent/subsidiaries ................................. 23,279 23,744
--------- ---------
Total current assets ..................................... 174,723 167,850
Property, plant and equipment, net ................................ 125,223 120,595
Net deferred tax assets ........................................... 1,868 1,646
Other noncurrent assets, net ...................................... 292 323
--------- ---------
Total assets ............................................. $ 302,106 $ 290,414
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings and current maturities of long-term debt $ 5,110 $ 6,946
Accounts payable ............................................. 39,931 36,790
Accrued liabilities .......................................... 13,899 16,547
Due to parent ................................................ 1,257 1,269
--------- ---------
Total current liabilities ................................ 60,197 61,552
Long-term debt, less current maturities ........................... 42,341 33,234
Other noncurrent liabilities ...................................... 7,200 7,401
--------- ---------
Total liabilities ........................................ 109,738 102,187
Shareholders' equity:
Common stock, one nuevo sole par value, 729,548,057
shares authorized, issued and outstanding ................ 271,435 271,435
Additional paid in capital ................................... (16,234) (16,234)
Due from shareholder ......................................... (104,775) (104,865)
Foreign currency translation adjustment ...................... (20,225) (20,135)
Retained earnings ............................................ 62,167 58,026
--------- ---------
Total shareholders' equity ............................... 192,368 188,227
--------- ---------
Total liabilities and shareholders' equity ............... $ 302,106 $ 290,414
========= =========
</TABLE>
The accompanying notes are an integral part of
these condensed consolidated financial statements.
20
<PAGE>
DOE RUN PERU S.R.L.
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED JANUARY 31,
------------------------
2000 1999
--------- ---------
<S> <C> <C>
Net sales .............................. $ 125,826 $ 107,774
Costs and expenses:
Cost of sales ...................... 108,630 92,746
Depreciation and amortization ...... 2,220 1,872
Selling, general and administrative 10,124 9,374
--------- ---------
Total costs and expenses ....... 120,974 103,992
--------- ---------
Income from operations ......... 4,852 3,782
Other income (expense):
Interest expense ................... (1,284) (894)
Interest income .................... 92 111
Other, net ......................... (101) 364
--------- ---------
(1,293) (419)
--------- ---------
Income before income tax expense 3,559 3,363
Income tax expense ..................... (582) 776
--------- ---------
Net income ..................... $ 4,141 $ 2,587
========= =========
</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>
THREE MONTHS
ENDED JANUARY 31,
-----------------------
2000 1999
-------- --------
<S> <C> <C>
Net cash provided by (used in) operating activities ......... $ (838) $ 6,425
Cash flows from investing activities:
Purchases of property, plant and equipment ............. (6,848) (2,041)
-------- --------
Net cash used in investing activities ............. (6,848) (2,041)
Cash flows from financing activities:
Proceeds from (payments on) revolving loans
and short-term borrowings, net ...................... 8,069 (12,223)
Payments on long-term debt ............................. (798) --
Proceeds from sale/leaseback transactions .............. -- 17,162
Loans from (to) parent ................................. 453 (5,238)
-------- --------
Net cash provided by (used in) financing activities 7,724 (299)
-------- --------
Net increase in cash .............................. 38 4,085
Cash at beginning of period ................................. 3,997 4,625
-------- --------
Cash at end of period ....................................... $ 4,035 $ 8,710
======== ========
</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 January 31, 2000 and
results of operations for the three month periods ended January 31, 2000
and 1999. Interim periods are not necessarily indicative of results to be
expected for the year.
MERGER OF DOE RUN PERU AND EMPRESA MINERA COBRIZA S.A.
Effective March 1, 1999, Doe Run Mining merged Doe Run Peru and the Empresa
Minera Cobriza S.A. (Cobriza), an entity previously controlled by Doe Run
Mining since the acquisition of substantially all of Cobriza's shares on
August 31, 1998. The financial statements of the Company for the three
months ended January 31, 1999 have been restated to reflect the results of
operations and cash flows of Cobriza to reflect the common control of Doe
Run Peru and Cobriza before the merger.
RECLASSIFICATIONS
Certain prior year balances have been reclassified in order to conform to
current presentation.
(2) INVENTORIES
<TABLE>
<CAPTION>
JANUARY 31, OCTOBER 31,
2000 1999
------- -------
(UNAUDITED)
<S> <C> <C>
Refined metals and concentrates for sale ................... $ 4,510 $ 1,414
Metals and concentrates in process ......................... 54,383 47,970
Materials, supplies and spare parts ........................ 23,107 21,738
------- -------
$82,000 $71,122
======= =======
</TABLE>
23
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis includes both the U.S. operations and
the Peruvian operations of the Company and should be read in conjunction with
the consolidated financial statements of the Company and the notes thereto, and
other financial information included herein.
CONSOLIDATED FINANCIAL POSITION
During the three months ended January 31, 1999 inventories increased by
$15.2 million. In the U.S., inventories increased by $4.4 million due to
increased purchases of lead concentrates and to normal cyclical increases in
finished goods inventories. In Peru, work in process inventories increased
$6.4 in part to provide a buffer against possible supply disruptions which
could occur during the rainy season, and in part, to build a stock of copper
blister in anticipation of major maintenance on the reverberatory furnace in
the copper circuit, scheduled for April 2000. Finished goods inventories in
Peru rose $3.1 million as increased production exceeded sales volume.
Management believes that inventories will continue to increase, although at a
slower rate, during the second quarter of 2000 and that during the second
half of 2000, inventories will be reduced significantly. Year-end work in
process inventories are expected to be somewhat higher than the prior year to
accommodate increased production.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JANUARY 31, 2000 (THE 2000 QUARTER) COMPARED TO THE
THREE MONTHS ENDED JANUARY 31, 1999 (THE 1999 QUARTER)
The Company reported a net loss of $2.3 million for the 2000 quarter
compared to a net loss of $14.1 million for the 1999 quarter. The Company's
U.S. operations reported a net loss of $8.0 million (excluding intercompany
fee revenue of $4.8 million) for the 2000 quarter compared to a net loss of
$18.2 million (excluding intercompany fee revenue of $4.1 million) in the
1999 quarter. This improvement was primarily due to the absence of the
write-off of deferred tax balances of $6.2 million associated with a change
in the Company's tax status to a qualified subchapter S subsidiary in the
1999 quarter, and to improved operating margins resulting primarily from
improved premiums for lead metal and higher realized prices for zinc
concentrates. See "Item 1. Financial Statements - Note 2 to the Company's
Consolidated Financial Statements" for a discussion of the change in tax
status. Peruvian operations contributed $5.7 million (excluding intercompany
fees and eliminations of $4.9 million) of net income for the 2000 quarter
compared to net earnings of $4.1 million (excluding intercompany fees and
eliminations of $4.3 million) in the 1999 quarter. The increase in Peruvian
net income was due primarily to improved operating margins resulting from an
increase in the market price of copper, improved production efficiency, and a
reduction of income tax expense, partially offset by a reduction in foreign
currency transaction gains.
24
<PAGE>
The Company's results for the 2000 quarter reflect a decline in the market
price of lead and increases in the market prices of copper, zinc, and silver
compared to the 1999 quarter. The following table sets forth average London
Metal Exchange (LME) prices for lead, copper and zinc and the average London
Bullion Market Association (LBMA) price for silver for the periods indicated:
<TABLE>
<CAPTION>
Three Months Ended
January 31,
---------------------------------
2000 1999
---------------- ----------------
<S> <C> <C>
AVERAGE PRICES
Lead ($/short ton) $ 432.20 $ 449.80
Copper ($/short ton) 1,612.00 1,355.20
Zinc ($/short ton) 1,060.60 864.80
Silver ($/troy ounce) 5.17 5.00
</TABLE>
The average market prices for metals have declined since the end of the
2000 quarter. As of March 7 2000, the market prices for lead, copper, zinc and
silver were $408.20/short ton, $1,584.00/short ton, $1,032.38/short ton and
$5.10/troy ounce, respectively.
Over the past two years the lead price has dropped as new mines have been
developed in Australia and Ireland, and as China has increased its lead metal
production and exports. Current prices are near historical lows. Management
believes that prices will recover from these levels in the next several years,
as several large lead producing mines will be depleted of ore. This should bring
about a balance or slight deficit in supply versus demand. Over the past ten
years, the average price of lead has been approximately $540/short ton.
Management believes that lead prices over the long term will reflect the
historical industry average.
As a result of the current low metals prices, primarily lead, the
Company's U.S. operations had an operating loss in the 2000 quarter. The
Company expects to reduce certain costs, and achieve certain operating
efficiencies, in an effort to mitigate the impact of low metal prices, and it
expects to benefit from increased sales volume during the remainder of fiscal
2000. However, prices sustained at these levels or decreasing further are
likely to result in operating losses for the Company's U.S. operations in the
future.
25
<PAGE>
The following table sets forth the Company's production statistics for the
periods indicated:
<TABLE>
<CAPTION>
Three Months Ended
January 31,
----------------------------------
2000 1999
---------------- ---------------
<S> <C> <C>
U.S. OPERATIONS
Lead concentrates (metal content, short tons) 79,191 91,570
Ore Grade 5.47% 5.54%
Lead metal - primary (short tons) 99,206 92,914
Lead metal - secondary (short tons) 32,602 27,132
PERUVIAN OPERATIONS
Refined copper (short tons) 18,349 17,351
Refined lead (short tons) 32,480 29,519
Refined zinc (short tons) 21,450 19,924
Refined silver (thousands of troy ounces) 8,758 8,067
Refined gold (thousands of troy ounces) 29 15
</TABLE>
In the U.S., mine production of lead metal in concentrates was 13.5% lower
in the 2000 quarter compared to the 1999 quarter. Lead ore production was scaled
back based on evaluations designed to optimize mine production in light of
continued low lead prices and the availability of lead concentrates for
purchase.
Primary smelter production for the 2000 quarter was 6.8% greater than the
1999 quarter. After experiencing cooling system failures on its blast furnaces
that caused a production shortfall during the 1999 quarter, the Company's
Herculaneum smelter returned to planned production in the 2000 quarter. As a
result, production volume improved 8.6%. Production efficiency continued to
improve at the Company's Glover primary smelter. A new monthly production record
of 12,545 tons was established in December. For the 2000 quarter, Glover's
production volume improved 3.5% over the 1999 quarter.
Secondary smelter production in the 2000 quarter exceeded the 1999
quarter by 20.2%. A new burner, with an improved design, was installed on the
smelter's reverberatory furnace during the fourth quarter of 1999 and
modifications were made to the lead blast furnace during the 2000 quarter.
These changes combined increased total secondary smelter capacity by
approximately 18.0%.
In Peru, the La Oroya metallurgical complex increased the capacities of its
lead and zinc refineries by approximately five percent each during the third
quarter of 1999. The impact of these changes, along with continuing efficiency
improvements, are reflected in La Oroya's production performance. In the 2000
quarter, production of copper, lead, zinc, silver and gold all exceeded the 1999
quarter and new monthly production records were established for refined lead,
silver and gold bullion.
26
<PAGE>
The following tables set forth the separate operating results, sales
volumes and realized prices for the Company's U. S. and Peruvian operations for
the periods indicated:
RESULTS OF U.S. OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended
January 31,
----------------------------
2000 1999
------------- -------------
<S> <C> <C>
Net sales (a) $83,090 $ 76,371
Costs and expenses:
Cost of sales 73,942 69,663
Depletion, depreciation and amortization 5,345 6,305
Selling, general and administrative 4,705 4,154
Exploration 600 992
------------ ------------
Total costs and expenses 84,592 81,114
------------ ------------
Loss from operations (1,502) (4,743)
Other income (expense)
Interest expense (10,180) (10,171)
Interest income 3,536 3,539
Other, net 381 (461)
------------ ------------
(6,263) (7,093)
------------ ------------
Loss before income tax expense (7,765) (11,836)
Income tax expense 217 6,392
------------ ------------
Net loss $(7,982) $(18,228)
============ ============
(a) Intercompany fees that are eliminated in the consolidated results of
the Company and have been excluded from the results presented above
are as follows:
Net Sales $ 4,826 $ 4,071
SALES VOLUMES (SHORT TONS)
Lead metal 108,258 105,017
Zinc concentrates 22,491 22,974
Copper concentrates 3,879 3,466
REALIZED PRICES ($/SHORT TON)
Lead metal $542.41 $522.72
Zinc concentrates 370.81 274.35
Copper concentrates 285.13 181.48
</TABLE>
27
<PAGE>
RESULTS OF PERUVIAN OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended
January 31,
-----------------------------
2000 1999
-------------- --------------
<S> <C> <C>
Net sales (a) $124,300 $105,347
Costs and expenses:
Cost of sales (a) 107,175 90,544
Depreciation and amortization 2,220 1,872
Selling, general and administrative (a) 4,320 4,487
------------- ------------
Total costs and expenses 113,715 96,903
------------- ------------
Income from operations 10,585 8,444
Other income (expense):
Interest expense (4,961) (4,654)
Interest income 92 111
Other, net (105) 974
------------- ------------
(4,974) (3,569)
------------- ------------
Income before income tax expense (benefit) 5,611 4,875
Income tax expense (benefit) (98) 776
------------- ------------
Net Income $ 5,709 $ 4,099
============= ============
(a) Intercompany sales and fees that are eliminated in the consolidated
results of the Company and have been excluded from the results
presented above are as follows:
Net sales $ 1,526 $ 2,427
Cost of sales 1,454 2,202
Intercompany fees 4,826 4,071
SALES VOLUMES
Copper (short tons) 17,808 17,198
Lead (short tons) 28,089 24,206
Zinc (short tons) 18,330 19,557
Silver (thousands of troy ounces) 8,724 7,836
Gold bullion (thousands of troy ounces) 30 15
REALIZED PRICES
Copper ($/short ton) $ 1,624.22 $ 1,370.15
Lead ($/short ton) 447.99 477.74
Zinc ($/short ton) 1,085.61 888.39
Silver ($/troy ounce) 5.21 4.99
Gold bullion ($/troy ounce) 291.51 292.95
</TABLE>
28
<PAGE>
Results of operations for the three months ended January 31, 2000 and 1999
include the results of the Company's U.S. and Peruvian operations. In order to
provide a more meaningful analysis, the results attributable to Peruvian
operations will be noted and discussed separately under "Results of Peruvian
Operations".
NET SALES in the 2000 quarter were $207.4 million compared to $181.7
million in the 1999 quarter. An increase of $19.0 million is attributable to
Peruvian operations. U. S. net sales were $6.7 million or 8.8% higher in the
2000 quarter, compared to the 1999 quarter, primarily due to improved realized
prices for lead metal and zinc concentrates and greater lead metal sales volume.
Lead metal net sales increased 7.0% from $54.9 million in the 1999 quarter
to $58.7 million in the 2000 quarter. An increase of $1.7 million in lead metal
net sales resulted from the production volume increase discussed above along
with continued strong demand. In spite of a 3.9% decrease in average LME lead
price, the Company's net realized price for lead metal rose 3.8%, increasing net
sales by $2.1 million. The improvement in realized price was primarily due to:
generally higher premiums as a result of strong customer demand, increased
production and sales of alloy and specialty lead products which command higher
premiums, and improved results from hedging activities. Net realized prices for
metals, concentrates, and by-products include the effects of changes in: 1)
premiums received, including charges for special alloys and shapes, 2)
adjustments to provisionally priced sales, 3) treatment and refining charges and
4) net hedging activity. Realized prices for zinc concentrates improved by 35.2%
in the 2000 quarter, compared to the 1999 quarter. Approximately 54.8% of this
increase is attributable to a 22.6% increase in the LME zinc price. The
remainder of the increase is primarily due to hedging activity, improved
treatment charges and adjustments to provisionally priced sales. A 17.5%
increase in toll lead volume also contributed to the increase in net sales.
COST OF SALES for the 2000 quarter was $181.1 million compared to $160.2
million for the 1999 quarter. Of this increase, $16.6 million is attributable to
Peruvian operations. U.S. cost of sales for the first quarter of 1999 was $4.3
million greater than the 1999 quarter. Increased sales volumes, primarily of
lead metal and zinc concentrates, accounted for approximately 63.7% of the cost
of sales increase. The remainder is primarily attributable to a 3.2% increase in
the per unit production cost of lead metal. Several factors contributed to the
increase in production cost per ton, including: 1) reduced ore grade, 2) the
impact of reduced mine production volume, 3) an increase in mine development
costs, and 4) increased costs related to production of lead alloy products.
DEPLETION, DEPRECIATION AND AMORTIZATION for the 2000 quarter decreased by
$0.6 million compared to the 1999 quarter. An increase of $0.3 million was
attributable to Peruvian operations. The decrease in depletion, depreciation,
and amortization for U.S. operations was $0.9 million, which was primarily
attributable to a significant number of assets with five-year lives becoming
fully depreciated in March of 1999 and to a reduction in depletion expense
associated with lower mine production rates and the shifting of production to
areas with lower depletion rates.
SELLING, GENERAL AND ADMINISTRATIVE expenses increased by $0.4 million in
the 2000 quarter compared to the 1999 quarter. Peruvian operations accounted for
a decrease of $0.2 million. The increase in selling and administrative expenses
for U.S. operations of $0.6 million for the 2000 quarter is primarily due to
increases in compensation and employee benefit costs, and legal fees for new and
ongoing litigation. See "Item 1. Financial Statements - Note 6 to the Company's
Consolidated Financial Statements" for a discussion of litigation. These
increases were partially offset by reductions in insurance costs.
EXPLORATION expense for the 2000 quarter decreased $0.4 million compared to
the 1999 quarter primarily due to the completion of underground test work on a
Missouri property, which was in process during the 1999 quarter. This reduction
was partially offset by increased activity related to a feasibility study on a
South African property.
29
<PAGE>
INCOME FROM OPERATIONS for the 2000 quarter was $9.1 million compared to
$3.7 million for the 1999 quarter. Peruvian operations, excluding intercompany
transactions, accounted for an increase of $2.1 million. The increase in U.S.
income from operations of $3.2 million is due to the factors discussed above.
INCOME TAX EXPENSE for the 2000 quarter reflects the impact of a change in
tax status effective at the beginning of fiscal year 1999. See "Item 1.
Financial Statements--Note 2 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
quarter. This change does not affect foreign income taxes related to foreign
subsidiaries.
RESULTS OF PERUVIAN OPERATIONS
NET SALES for 2000 quarter increased $19.0 million or 18.0% compared to
1999 quarter. This increase is primarily the result of higher realized prices
for refined copper and zinc, and improved metal sales volumes, particularly
silver and gold. As a result of the production improvements discussed
previously, refined silver sales volume increased by 887,664 ounces or 11.3%,
increasing net sales by $4.4 million and gold bullion sales were up 14,361
ounces or 92.9%, contributing $4.2 million to the net sales increase. In the
2000 quarter, the realized price for refined copper rose 18.5% and the zinc
realized price increased 22.2%, compared to the 1999 quarter, primarily due to
improved LME prices. These price increases accounted for an $8.1 million
increase in net sales.
COST OF SALES increased $16.6 million, or 18.4%, from the 1999 quarter
to the 2000 quarter. Sales volume changes, primarily increases in silver and
gold discussed above, accounted for an increase of $8.1 million in cost of
sales. The remainder of the increase is due to higher unit production costs
resulting primarily from increased feed and energy costs. Feed costs per ton
increased approximately 19.7% from the 1999 quarter to the 2000 quarter
mainly due to increases in the market prices of copper, zinc, silver and
gold. Unit conversion costs were approximately the same in the 2000 quarter
compared to the 1999 quarter as increased costs, primarily power and fuel,
were partially offset by improved efficiency and the impact of increased
production volume.
DEPRECIATION AND AMORTIZATION expense increased by $0.3 million in the 2000
quarter compared to the 1999 quarter, primarily due to recent capital additions.
INCOME FROM OPERATIONS increased $2.1 million in the 2000 quarter compared
to the 1999 quarter due primarily to the factors discussed above.
OTHER EXPENSE, NET was $0.1 million in the 2000 quarter compared to other
income of $1.0 million in the 1999. The change was primarily due to a reduction
in foreign currency transaction gains.
INCOME TAXES The effective tax rate for the 2000 quarter reflects the
recognition of benefits relating to deferred tax assets for which benefit had
not previously been recognized.
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 January 31, 2000, $14.8 million was outstanding, exclusive of
$6.4 million of letters of credit, under the Doe Run Revolving Credit Facility.
30
<PAGE>
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
January 31, 2000, $30.0 million, exclusive of $1.0 million of letters of credit
and customs bonds, was outstanding under the Doe Run Peru Revolving Credit
Facility. The Company also has available, in Peru, unsecured and uncommitted
credit arrangements and additional availability related to letters of credit and
customs bonds, provided by local banks. At January 31, 2000 $1.7 million
exclusive of $14.9 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.
Net unused availability at January 31, 2000 was $41.6 million under the Doe
Run Revolving Credit Facility and $9.0 million under the Doe Run Peru Revolving
Credit Facility. In addition to availability under the credit facilities, the
Company had $4.1 million of cash at January 31, 2000.
In the 2000 quarter, cash used in operating activities was $5.7 million,
cash used in investing activities was $8.5 million and cash provided by
financing activities was $8.4 million.
In the U.S., the Company had capital expenditures of $1.6 million for the
2000 quarter and has projected total capital expenditures of approximately $10.5
million for fiscal 2000, 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
$64.8 million per year on repairs and maintenance from fiscal 1996 through
fiscal 1999. As a result of these expenditures, the Company believes that it
operates and will continue to maintain modern and efficient facilities.
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 Company
has spent approximately $84.0 million on qualifying expenditures under the
investment commitment through January 31, 2000. Peruvian operations had capital
expenditures of $6.8 million in the 2000 quarter and have projected capital
expenditures of approximately $26.0 million for fiscal 2000, primarily for
environmental and operational improvements and to support ongoing operations.
The Company has substantial indebtedness and debt service requirements. As
of January 31, 2000, on a consolidated basis, the Company had $494.5 million of
indebtedness outstanding, or $369.5 million net of the Special Term Deposit,
securing indebtedness of a like amount. 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. See "Item 1. Financial Statements--Note 2 to the
Company's Consolidated Financial Statements."
31
<PAGE>
YEAR 2000 MATTERS
As of March 7, 2000, the Company had experienced no significant problems
related to the Year 2000 conversion either domestically or foreign. All
computerized information and process control systems were operating normally.
The availability of utility and transportation services has continued without
significant incident. The performance of critical customers and suppliers
continues without notable changes. Production and business activities were
normal at all locations and the Company has no reason to anticipate any Year
2000 related problems.
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; outcome of litigation, and major equipment failures. 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company has outstanding $55 million on which interest is payable
based on the six-month LIBOR rate plus 6.29%, reset at each interest payment
date (March and September 15). The Company has not hedged its risk with respect
to fluctuations in the LIBOR rate. At January 31, 2000, the effective rate was
approximately 12.23%.
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. See "Item 1.
Financial Statements--Note 5 to the Company's Consolidated Financial Statements"
for additional disclosures regarding these activities.
PART II. OTHER INFORMATION.
ITEM 1. LEGAL PROCEEDINGS
On February 14, 2000, CITY OF ST. LOUIS VS. LEAD INDUSTRIES ASSOCIATION,
INC. ET AL was filed in the Circuit Court of the City of St. Louis, Missouri.
The Company and several other parties were named defendants in the suit for
costs allegedly incurred and to be incurred by the plaintiff for the care of
lead-poisoned persons, education programs for children injured by exposure to
lead and the abatement of lead hazards allegedly created by the defendants in
the City of St. Louis. The complaint alleges that the defendants made material
misrepresentations and intentional omissions of material facts to the City
and/or its residents regarding the nature of lead and lead products, such as
paint. The suit also seeks punitive damages. Discovery has yet to be initiated,
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 on the
results of operations, financial condition and liquidity of the Company.
32
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On January 5, 2000, DR Acquisition Corp., as sole shareholder of the
Company, executed a written consent in lieu of an annual meeting of
shareholders, for the re-election of Ira Leon Rennert as chairman and sole
director of the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS.
Exhibit 27 Financial Data Schedule
Exhibit 27.1 Restated Financial Data Schedule
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)
March 9, 2000 /s/ Marvin K. Kaiser
------------- ------------------------------------------------
Date Marvin. K. Kaiser
Vice President and Chief Financial Officer
(duly authorized officer and principal financial
officer)
33
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-2000
<PERIOD-START> NOV-01-1999
<PERIOD-END> JAN-31-2000
<CASH> 4,074
<SECURITIES> 0
<RECEIVABLES> 87,768
<ALLOWANCES> (662)
<INVENTORY> 135,480
<CURRENT-ASSETS> 40,029
<PP&E> 378,995
<DEPRECIATION> (109,018)
<TOTAL-ASSETS> 678,584
<CURRENT-LIABILITIES> 119,056
<BONDS> 300,857
0
0
<COMMON> 0
<OTHER-SE> 14,348
<TOTAL-LIABILITY-AND-EQUITY> 678,584
<SALES> 207,390
<TOTAL-REVENUES> 207,390
<CGS> 181,117
<TOTAL-COSTS> 198,307
<OTHER-EXPENSES> (276)
<LOSS-PROVISION> 12
<INTEREST-EXPENSE> 15,141
<INCOME-PRETAX> (2,154)
<INCOME-TAX> 119
<INCOME-CONTINUING> (2,273)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,273)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-START> NOV-01-1998
<PERIOD-END> JAN-31-1999
<CASH> 8,729
<SECURITIES> 0
<RECEIVABLES> 73,499
<ALLOWANCES> (884)
<INVENTORY> 127,532
<CURRENT-ASSETS> 32,232
<PP&E> 338,343
<DEPRECIATION> (78,666)
<TOTAL-ASSETS> 643,649
<CURRENT-LIABILITIES> 101,055
<BONDS> 300,049
0
0
<COMMON> 0
<OTHER-SE> 4,449
<TOTAL-LIABILITY-AND-EQUITY> 643,649
<SALES> 181,718
<TOTAL-REVENUES> 181,718
<CGS> 160,207
<TOTAL-COSTS> 178,017
<OTHER-EXPENSES> (513)
<LOSS-PROVISION> 8
<INTEREST-EXPENSE> 14,825
<INCOME-PRETAX> (6,961)
<INCOME-TAX> 7,168
<INCOME-CONTINUING> (14,129)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (14,129)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
