<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 JULY 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 September 11, 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
July 31, 2000 and October 31, 1999 3
Consolidated Statements of Operations
three and nine months ended July 31, 2000 and 1999 4
Condensed Consolidated Statements of Cash Flows
nine months ended July 31, 2000 and 1999 5
Notes to Consolidated Financial Statements 6-21
DOE RUN PERU S.R.L.
Condensed Consolidated Balance Sheets
July 31, 2000 and October 31, 1999 22
Condensed Consolidated Statements of Operations
three and nine months ended July 31, 2000 and 1999 23
Condensed Consolidated Statements of Cash Flows
nine months ended July 31, 2000 and 1999 24
Notes to Condensed Consolidated Financial Statements 25
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF 26-36
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK 37
PART II. OTHER INFORMATION.
ITEM 1. LEGAL PROCEEDINGS 37
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS 37
SIGNATURES 38
</TABLE>
<PAGE>
THE DOE RUN RESOURCES CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
JULY 31, OCTOBER 31,
2000 1999
----------------- -----------------
(UNAUDITED)
ASSETS
<S> <C> <C>
Current assets:
Cash $ 7,024 $ 9,886
Trade accounts receivable, net of allowance for
doubtful accounts 76,730 88,884
Inventories 139,070 120,261
Prepaid expenses and other current assets 43,993 33,861
Net deferred tax assets 2,268 2,115
----------------- -----------------
Total current assets 269,085 255,007
Property, plant and equipment, net 271,756 269,042
Special term deposit 125,000 125,000
Net deferred tax assets 1,969 1,606
Other noncurrent assets, net 11,249 14,062
----------------- -----------------
Total assets $ 679,059 $ 664,717
================= =================
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Short-term borrowings and current maturities of long-term debt $ 12,377 $ 8,582
Accounts payable 50,106 54,736
Accrued liabilities 60,323 49,793
----------------- -----------------
Total current liabilities 122,806 113,111
Long-term debt, less current maturities 504,423 477,286
Other noncurrent liabilities 55,262 57,699
----------------- -----------------
Total liabilities 682,491 648,096
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 (7,885) 12,168
Accumulated other comprehensive income (785) (785)
----------------- -----------------
Total shareholder's equity (3,432) 16,621
----------------- -----------------
Total liabilities and shareholder's equity $ 679,059 $ 664,717
================= =================
</TABLE>
3
<PAGE>
THE DOE RUN RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
JULY 31, JULY 31,
------------------------------- -------------------------------
2000 1999 2000 1999
--------------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
Net sales $ 194,788 $ 203,998 $ 597,299 $ 574,664
Costs and expenses:
Cost of sales 175,963 172,748 532,441 493,095
Depletion, depreciation and amortization 7,399 7,684 22,263 24,064
Selling, general and administrative 7,243 8,186 23,809 22,777
Exploration 1,689 1,005 3,230 2,855
--------------- -------------- --------------- --------------
Total costs and expenses 192,294 189,623 581,743 542,791
--------------- -------------- --------------- --------------
Income from operations 2,494 14,375 15,556 31,873
Other income (expense):
Interest expense (15,601) (14,972) (46,026) (44,413)
Interest income 3,613 3,629 10,832 11,202
Other, net 949 (888) 1,065 (1,557)
--------------- -------------- --------------- --------------
(11,039) (12,231) (34,129) (34,768)
--------------- -------------- --------------- --------------
Income (loss) before income tax expense (benefit) (8,545) 2,144 (18,573) (2,895)
Income tax expense (benefit) (173) 1,186 1,480 9,710
--------------- -------------- --------------- --------------
Net income (loss) $ (8,372) $ 958 $ (20,053) $ (12,605)
=============== ============== =============== ==============
</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>
NINE MONTHS
ENDED JULY 31,
--------------------------------
2000 1999
--------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (20,053) $ (12,605)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation, depletion and amortization 22,263 24,064
Amortization of deferred financing fees 2,628 2,666
Deferred income taxes (516) 7,187
Imputed interest 205 358
Increase (decrease) resulting from changes in assets and liabilities (12,323) 58
--------------- ---------------
Net cash provided by (used in) operating activities (7,796) 21,728
Cash flows from investing activities:
Purchases of property, plant and equipment (25,197) (24,912)
--------------- ---------------
Net cash used in investing activities (25,197) (24,912)
Cash flows from financing activities:
Proceeds from revolving loans and
short term borrowings, net 32,863 (15,544)
Proceeds from long-term debt - 5,665
Payments on long-term debt (2,732) (2,075)
Proceeds from sale/leaseback transactions - 17,922
Payment of deferred financing costs - (467)
--------------- ---------------
Net cash provided by financing activities 30,131 5,501
--------------- ---------------
Net increase (decrease) in cash (2,862) 2,317
Cash at beginning of period 9,886 4,646
--------------- ---------------
Cash at end of period $ 7,024 $ 6,963
============== ===============
Supplemental disclosure of cash flow information
Cash paid during the period for:
Interest, net of capitalized interest $ 30,699 $ 29,206
============== ===============
Income taxes $ 1,314 $ 6,739
============== ===============
</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 July 31, 2000 and results of operations for
the three and nine month periods ended July 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 nine months ended July
31, 1999.
(3) INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
JULY 31, OCTOBER 31,
2000 1999
------------- -------------
<S> <C> <C>
Finished metals and concentrates $ 25,099 $ 10,527
Metals and concentrates in process 70,859 66,958
Materials, supplies and repair parts 43,112 42,776
------------- -------------
$ 139,070 $ 120,261
============= =============
</TABLE>
Materials, supplies and repair parts are stated net of reserves for
obsolescence of approximately $4,300 and $4,200 at July 31, 2000 and
October 31, 1999, respectively.
(4) SEGMENT INFORMATION
The Company's operating segments are separately managed business units
that are distinguished by products, location and production processes.
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 NINE MONTHS ENDED
JULY 31, JULY 31,
--------------------------------------------------------
OPERATING SEGMENTS - REVENUES 2000 1999 2000 1999
------------ ----------- ------------ -------------
<S> <C> <C> <C> <C>
Revenues from external customers:
Peruvian operations $ 118,689 $ 117,840 $ 361,001 $ 330,942
Primary lead 52,644 60,344 167,346 174,286
Secondary lead 17,786 14,464 46,601 42,208
Fabricated products 6,402 7,146 20,580 19,108
------------ ----------- ------------ -------------
Total 195,521 199,794 595,528 566,544
Revenues from other operating segments: (1)
Peruvian operations 24 80 1,573 2,850
Primary lead 826 505 1,949 1,031
Secondary lead 10 73 371 381
Fabricated products 6 - 17 -
------------ ----------- ------------ -------------
Total 866 658 3,910 4,262
------------ ----------- ------------ -------------
Total revenues for reportable segments 196,387 200,452 599,438 570,806
Other revenues (2) (733) 4,204 1,771 8,120
Intersegment eliminations (866) (658) (3,910) (4,262)
------------ ----------- ------------ -------------
Total consolidated revenues $ 194,788 $ 203,998 $ 597,299 $ 574,664
============ =========== ============ =============
</TABLE>
(1) Transactions between segments consist of metal sales recorded based
on sales contracts that are negotiated between segments on terms that
management feels are similar to those that would be negotiated
between unrelated parties.
(2) Other revenues consist of metal sales not attributed to operating
segments and gains (losses) on hedging transactions.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
OPERATING SEGMENTS - EBITDA (EARNINGS JULY 31, JULY 31,
BEFORE INTEREST, TAXES, AND DEPLETION, --------------------------------------------------------
DEPRECIATION AND AMORTIZATION) 2000 1999 2000 1999
------------ ------------ ------------ --------------
<S> <C> <C> <C> <C>
Peruvian operations $ 10,767 $ 13,687 $ 33,352 $ 38,931
Primary lead 1,026 7,785 6,732 20,284
Secondary lead 3,418 2,717 11,002 7,556
Fabricated products 581 616 1,933 1,763
------------ ------------ ------------ --------------
Total reportable segments 15,792 24,805 53,019 68,534
Other revenues and expenses (3) (1,891) 451 (2,051) (2,392)
Corporate selling, general and
administrative expenses (3,078) (4,070) (12,086) (11,897)
Intersegment eliminations 19 (15) 2 135
------------ ------------ ------------ --------------
Consolidated EBITDA 10,842 21,171 38,884 54,380
Depreciation, depletion and amortization (7,399) (7,684) (22,263) (24,064)
Interest income 3,613 3,629 10,832 11,202
Interest expense (15,601) (14,972) (46,026) (44,413)
------------ ------------ ------------ --------------
Income (loss) before income taxes $ (8,545) $ 2,144 $(18,573) $ (2,895)
============ ============ ============ ==============
</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 July 31,
2000 is the difference between quoted prices at the balance sheet date
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 balance sheet date. 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 July 31, 2000 were:
FUTURES SALES CONTRACTS (NUMBERS NOT IN THOUSANDS)
<TABLE>
<CAPTION>
FAIR
METAL QUANTITY PRICE RANGE MARKET VALUE PERIOD
------------------ ------------------ ----------------------------- ---------------- -------------------------
<S> <C> <C> <C> <C>
Copper 992 tons $.7600/lb. to $.8328/lb. $ (17,352) Aug. 00 to Dec. 00
Lead 24,113 tons $.1946/lb. to $.2359/lb. (923,200) Aug. 00 to Dec. 01
</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 14,075 tons $.7800/lb. to $.9000/lb. $ (1,984,670) Aug. 00 to Aug. 01
Lead 67,516 tons $.2041/lb. to $.2300/lb. (1,287,885) Aug. 00 to Aug. 01
Zinc 21,770 tons $.5089/lb. to $.5670/lb. (382,750) Aug. 00 to Mar. 01
</TABLE>
SOLD PUT OPTION CONTRACTS (NUMBERS NOT IN THOUSANDS)
<TABLE>
<CAPTION>
FAIR
METAL QUANTITY PRICE RANGE MARKET VALUE PERIOD
------------------ ------------------ ----------------------------- ---------------- -------------------------
<S> <C> <C> <C> <C>
Copper 1,102 tons $.7711/lb. to $.8051/lb. $ - Aug. 00 to Sep. 00
Lead 3,858 tons $.1950/lb. to $.2200/lb. (44,100) Aug. 00 to Sep. 00
Zinc 6,587 tons $.4762/lb. to $.5443/lb. (109,951) Aug. 00 to Dec. 00
Silver 20,000 oz. $4.95/oz. (3,300) Aug. 00 to Sep. 00
Gold 1,500 oz. $280.00/oz. (2,900) Aug. 00 to Sep. 00
</TABLE>
(6) ENVIRONMENTAL AND LITIGATION MATTERS
ENVIRONMENTAL
The Company has recorded a liability of approximately $31,400 as of July
31, 2000, which represents management's best estimate of known
obligations relating to the environmental and reclamation matters that
are discussed below.
8
<PAGE>
THE DOE RUN RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
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), but is subject to a state closure permit. The Company
has accrued approximately $1,000 related to the cost of closure
pursuant to this permit, which is management's best estimate of closure
costs under the current requirements of the permit. The Company expects
to sign a voluntary Administrative Order of Consent (AOC) in the fourth
quarter of 2000 to study and address issues related to the slag pile,
plant property, community soils adjacent to the plant, and lead
releases from 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 after the study is completed. In addition, when the
Company signs the AOC, the Company will also agree to replace the soil
in yards of private residences within a half-mile of the smelter. The
estimated cost of this cleanup is approximately $800, to be performed
in fiscal 2001 and the first part of 2002. The Company will also agree
to test soils in an area outside the half-mile zone to determine if
additional remediation is required. The estimated cost may change if
required levels of remediation are different than currently estimated
or if additional homes are identified as a result of soil testing.
The Company is working with regulators to develop a new plan to bring
the Herculaneum smelter in compliance with the ambient air quality
standard for lead promulgated under the federal Clean Air Act. The will
be submitted in September 2000, subject to final approval by
regulators. Capital expenditures for the control measures are expected
to total approximately $1,100 in fiscal 2000 and $9,000 thereafter,
approximately $8,000 of which will be spent by the end of fiscal 2002.
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: 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 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
July 31, 2000 of approximately $11,400 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; the remediation work required by the
AOC will be completed in September, 2000, followed by revegetation and
ongoing monitoring and maintenance activities.
The Company has also signed AOCs to perform an Engineering
Evaluation/Cost Analysis (EE/CA) on each of the Bonne Terre, National,
Rivermines, and Leadwood sites for remediation of the mine waste areas
at these sites. In
9
<PAGE>
THE DOE RUN RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
addition, 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 currently
expected within three years. The Company has signed an order to conduct
interim measures until the RI/FS is complete, consisting of blood lead
testing of young children, residential soil sampling, and limited soil
remediation as indicated by the testing and sampling results. 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 Mine 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 and the joint venture partner have 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. The Company has also been advised
that remediation is required at a related small satellite mine site.
After conducting an investigation, the Company has determined that it
was not involved in operations at the satellite site. At this time,
based on this preliminary information and an inspection of the sites,
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 will involve remediation of solid waste
management units at the site, although the plan for corrective action
has not yet been finalized. The Company has reserves as of July 31,
2000 of approximately $1,800 for corrective action and $2,600 for
closure costs for the permitted storage area. While management believes
these reserves are adequate based on expectations of the closure plan
requirements, regulators could require that additional measures be
included in the finalized plan, which could change the estimate of the
costs for corrective action.
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 may
be included in permits now subject to renewal. If additional treatment
facilities were required under these permits, capital expenditures of
approximately $4,000 would be required. Management does not expect an
appreciable increase in operating costs.
The Company's mining and milling operations include six mine waste
disposal facilities that are subject to Missouri mine closure permit
requirements. The total expected cost of closure is $14,600. Certain
closure requirements have already been performed. The Company accrues
for the cost of ultimate closure at a rate of approximately $500 per
year. The Company's mine and mill closure reserves were approximately
$7,400 as of July 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
that Doe Run Peru must undertake in order to achieve compliance with
the maximum applicable limits prior to expiration 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 Doe Run Peru must comply. After expiration of the
PAMA, Doe Run Peru must comply with all applicable standards and
requirements in effect at that time, in the case of the La Oroya
smelter, after December 31, 2006.
10
<PAGE>
THE DOE RUN RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
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. Fiscal 2000
spending through July 31, 2000 was approximately $9,100.
Doe Run Peru's Cobriza mine has a separate PAMA to be completed by
mid-2002. The total estimated cost of capital projects to manage
tailings, sewage and garbage under the PAMA is approximately $9,600,
with approximately $5,100 spent through July 31, 2000. The Company is
delaying further spending on the tailing projects in the PAMA while
tailings management options and cost estimates are reviewed. Once this
process is completed, the estimate of costs under the PAMA could
increase.
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 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
11
<PAGE>
THE DOE RUN RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
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 liabilities arising out of its prior
operations. The Peruvian government, through the enactment of the
Supreme Decree No. 042-97-PCM, has guaranteed the indemnity. 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.
The Company is responsible for the closure costs relating to a zinc
ferrite disposal site. The Company has accrued $7,200 for the closure
costs and, although a plan for closure of the site has not been
finalized, management feels that this reserve is adequate.
CONSOLIDATED
The Company believes its reserves for domestic and foreign
environmental and reclamation matters are adequate, based on the
information currently 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 seven 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
case is similarly 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
five cases are personal injury actions by eighteen 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 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.
12
<PAGE>
THE DOE RUN RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
The Company, with several other defendants, has been 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.
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.
(7) 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)
(7) GUARANTOR SUBSIDIARIES (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF JULY 31, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
The Company
Excluding Doe Run Cayman
Guarantor Domestic and Certain
Subsidiaries Guarantors Subsidiaries
------------ ---------- ------------
ASSETS
Current assets:
<S> <C> <C> <C>
Cash $ 478 $ (478) $ 45
Trade accounts receivable, net of allowance for
doubtful accounts 44,306 5,639 -
Inventories 56,532 1,944 -
Prepaid expenses and other current assets 11,037 169 583
Net deferred tax assets - - -
Due from subsidiaries 18,550 - -
Due from parent - - -
------------ ---------- ------------
Total current assets 130,903 7,274 628
Property, plant and equipment, net 131,105 7,015 -
Special term deposit 125,000 - -
Net deferred tax assets - - (59)
Other noncurrent assets, net 10,583 229 208
Investment in subsidiaries 29,237 - 194,109
------------ ---------- ------------
Total assets $ 426,828 $ 14,518 $ 194,886
============ ========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings and current maturities
of long-term debt $ 386 $ - $ 1,473
Accounts payable 13,090 2,073 -
Accrued liabilities 37,175 386 7,120
Due to subsidiaries - - 27,952
Due to parent - 10,211 2,734
------------ ---------- ------------
Total current liabilities 50,651 12,670 39,279
Long-term debt, less current maturities 333,589 - 126,359
Other noncurrent liabilities 46,020 1,841 -
------------ ---------- ------------
Total liabilities 430,260 14,511 165,638
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, 729,548,057
shares authorized, issued and outstanding - - -
Additional paid in capital 5,238 1,205 -
Due from parent - - -
Foreign currency translation adjustment - - -
Retained earnings and accumulated other
comprehensive income (8,670) (1,199) 27,243
------------ ---------- ------------
Total shareholders' equity (3,432) 7 29,248
------------ ---------- ------------
Total liabilities and shareholders' equity $ 426,828 $ 14,518 $ 194,886
============ ========== ============
<CAPTION>
Doe Run
Peru and The
Subsidiaries Eliminations Company
------------ ------------ ---------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash $ 6,979 $ - $ 7,024
Trade accounts receivable, net of allowance for
doubtful accounts 27,375 (590) 76,730
Inventories 80,612 (18) 139,070
Prepaid expenses and other current assets 34,430 (2,226) 43,993
Net deferred tax assets 2,268 - 2,268
Due from subsidiaries - (18,550) -
Due from parent 27,952 (27,952) -
------------ ------------ ---------
Total current assets 179,616 (49,336) 269,085
Property, plant and equipment, net 133,636 - 271,756
Special term deposit - - 125,000
Net deferred tax assets 2,028 - 1,969
Other noncurrent assets, net 229 - 11,249
Investment in subsidiaries - (223,346) -
------------ ------------ ---------
Total assets $ 315,509 $ (272,682) $ 679,059
============ ============ =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings and current maturities
of long-term debt $ 10,518 $ - $ 12,377
Accounts payable 35,533 (590) 50,106
Accrued liabilities 17,868 (2,226) 60,323
Due to subsidiaries - (27,952) -
Due to parent 5,605 (18,550) -
------------ ------------ ---------
Total current liabilities 69,524 (49,318) 122,806
Long-term debt, less current maturities 44,475 - 504,423
Other noncurrent liabilities 7,401 - 55,262
------------ ------------ ---------
Total liabilities 121,400 (49,318) 682,491
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, 729,548,057
shares authorized, issued and outstanding 271,435 (271,435) -
Additional paid in capital (16,234) 15,029 5,238
Due from parent (105,257) 105,257 -
Foreign currency translation adjustment (19,743) 19,743 -
Retained earnings and accumulated other
comprehensive income 63,908 (89,952) (8,670)
------------ ------------ ---------
Total shareholders' equity 194,109 (223,364) (3,432)
------------ ------------ ---------
Total liabilities and shareholders' equity $ 315,509 $ (272,682) $ 679,059
============ ============ =========
</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 (UNAUDITED)
<TABLE>
<CAPTION>
The Company
Excluding Doe Run Cayman
Guarantor Domestic and Certain
Subsidiaries Guarantors Subsidiaries
------------ ---------- ------------
ASSETS
<S> <C> <C> <C>
Current assets:
Cash $ 7,197 $ (1,347) $ 39
Trade accounts receivable, net of allowance for
doubtful accounts 46,162 4,292 67
Inventories 47,368 1,791 -
Prepaid expenses and other current assets 6,580 145 (77)
Net deferred tax assets - - (50)
Due from subsidiaries 11,321 - -
Due from parent - - -
------------ ---------- ------------
Total current assets 118,628 4,881 (21)
Property, plant and equipment, net 140,663 7,784 -
Special term deposit 125,000 - -
Net deferred tax assets - - (40)
Other noncurrent assets, net 13,205 292 242
Investment in subsidiaries 33,029 - 188,227
------------ ---------- ------------
Total assets $ 430,525 $ 12,957 $ 188,408
============ ========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings and current maturities
of long-term debt $ 357 $ - $ 1,279
Accounts payable 16,479 1,901 67
Accrued liabilities 30,967 478 2,546
Due to subsidiaries - - 23,744
Due to parent - 8,666 1,386
------------ ---------- ------------
Total current liabilities 47,803 11,045 29,022
Long-term debt, less current maturities 317,693 - 126,359
Other noncurrent liabilities 48,408 1,890 -
------------ ---------- ------------
Total liabilities 413,904 12,935 155,381
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, 729,548, 057
shares authorized, issued and outstanding - - -
Additional paid in capital 5,238 1,205 -
Due from parent - - -
Foreign currency translation adjustment - - -
Retained earnings and accumulated other
comprehensive income 11,383 (1,184) 31,022
------------ ---------- ------------
Total shareholders' equity 16,621 22 33,027
------------ ---------- ------------
Total liabilities and shareholders' equity $ 430,525 $ 12,957 $ 188,408
============ ========== ============
<CAPTION>
Doe Run
Peru and The
Subsidiaries Eliminations Company
------------ ------------ ---------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash $ 3,997 $ - $ 9,886
Trade accounts receivable, net of allowance for
doubtful accounts 38,864 (501) 88,884
Inventories 71,122 (20) 120,261
Prepaid expenses and other current assets 27,958 (745) 33,861
Net deferred tax assets 2,165 - 2,115
Due from subsidiaries 122 (11,443) -
Due from parent 23,622 (23,622) -
------------ ------------ ---------
Total current assets 167,850 (36,331) 255,007
Property, plant and equipment, net 120,595 - 269,042
Special term deposit - - 125,000
Net deferred tax assets 1,646 - 1,606
Other noncurrent assets, net 323 - 14,062
Investment in subsidiaries - (221,256) -
------------ ------------ ---------
Total assets $ 290,414 $ (257,587) $ 664,717
============ ============ =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings and current maturities
of long-term debt $ 6,946 $ - $ 8,582
Accounts payable 36,790 (501) 54,736
Accrued liabilities 16,547 (745) 49,793
Due to subsidiaries - (23,744) -
Due to parent 1,269 (11,321) -
------------ ------------ ---------
Total current liabilities 61,552 (36,311) 113,111
Long-term debt, less current maturities 33,234 - 477,286
Other noncurrent liabilities 7,401 - 57,699
------------ ------------ ---------
Total liabilities 102,187 (36,311) 648,096
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, 729,548, 057
shares authorized, issued and outstanding 271,435 (271,435) -
Additional paid in capital (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 58,026 (87,864) 11,383
------------ ------------ ---------
Total shareholders' equity 188,227 (221,276) 16,621
------------ ------------ ---------
Total liabilities and shareholders' equity $ 290,414 $ (257,587) $ 664,717
============ ============ =========
</TABLE>
15
<PAGE>
THE DOE RUN RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(7) GUARANTOR SUBSIDIARIES (CONTINUED)
CONSOLIDATING STATEMENT OF OPERATIONS
THREE MONTHS ENDED JULY 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 $ 75,187 $ 6,408 $ 3,641 $118,713 $ (9,161) $ 194,788
Costs and expenses:
Cost of sales 66,701 5,464 - 104,683 (885) 175,963
Depletion, depreciation and amortization 4,762 387 - 2,250 - 7,399
Selling, general and administrative 3,078 355 2,500 9,605 (8,295) 7,243
Exploration 783 - - 906 - 1,689
--------- ------ --------- ------ ------ ---------
Total costs and expenses 75,324 6,206 2,500 117,444 (9,180) 192,294
--------- ------ --------- ------ ------ ---------
Income from operations (137) 202 1,141 1,269 19 2,494
Other income (expense):
Interest expense (10,564) (257) (3,670) (1,363) 253 (15,601)
Interest income 3,776 - - 90 (253) 3,613
Other, net 409 (7) (17) 564 - 949
Equity in earnings of subsidiaries (1,639) - 793 - 846 -
--------- ------ --------- ------ ------ ---------
(8,018) (264) (2,894) (709) 846 (11,039)
--------- ------ --------- ------ ------ ---------
Income (loss) before income tax
expense (benefit) (8,155) (62) (1,753) 560 865 (8,545)
Income tax expense (benefit) 217 - (157) (233) - (173)
--------- ------ --------- ------ ------ ---------
Net income (loss) $ (8,372) $ (62) $ (1,596) $ 793 $ 865 $(8,372)
========= ====== ========= ====== ====== =========
</TABLE>
16
<PAGE>
THE DOE RUN RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(7) GUARANTOR SUBSIDIARIES (CONTINUED)
CONSOLIDATING STATEMENT OF OPERATIONS
THREE MONTHS ENDED JULY 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 $ 84,152 $ 7,145 $ 3,191 $117,920 $ (8,410) $ 203,998
Costs and expenses:
Cost of sales 67,724 6,069 - 99,598 (643) 172,748
Depletion, depreciation and amortization 5,393 382 - 1,909 - 7,684
Selling, general and administrative 4,069 433 2,804 8,632 (7,752) 8,186
Exploration 1,005 - - - - 1,005
------- ------ ------ ------- ------- --------
Total costs and expenses 78,191 6,884 2,804 110,139 (8,395) 189,623
------- ------ ------ ------- ------- --------
Income (loss) from operations 5,961 261 387 7,781 (15) 14,375
Other income (expense):
Interest expense (10,189) (273) (3,698) (1,030) 218 (14,972)
Interest income 3,796 - - 51 (218) 3,629
Other, net 92 (29) (433) (518) - (888)
Equity in earnings of subsidiaries 1,497 - 5,884 - (7,381) -
------- ------ ------ ------- ------- --------
(4,804) (302) 1,753 (1,497) (7,381) (12,231)
------- ------ ------ ------- ------- --------
Income (loss) before income tax
expense 1,157 (41) 2,140 6,284 (7,396) 2,144
Income tax expense 199 - 587 400 - 1,186
------- ------ ------ ------- ------- --------
Net income (loss) $ 958 $(41) $ 1,553 $ 5,884 $(7,396) $ 958
======= ====== ======== ======== ========= =======
</TABLE>
17
<PAGE>
THE DOE RUN RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(7) GUARANTOR SUBSIDIARIES (CONTINUED)
CONSOLIDATING STATEMENT OF OPERATIONS
NINE MONTHS ENDED JULY 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 $ 232,129 $ 20,597 $ 10,171 $362,574 $(28,172) $ 597,299
Costs and expenses:
Cost of sales 200,183 17,656 - 318,514 (3,912) 532,441
Depletion, depreciation and amortization 14,442 1,169 - 6,652 - 22,263
Selling, general and administrative 12,086 988 7,430 27,567 (24,262) 23,809
Exploration 2,324 - - 906 - 3,230
-------- ------- ------ -------- -------- --------
Total costs and expenses 229,035 19,813 7,430 353,639 (28,174) 581,743
-------- ------- ------ -------- -------- --------
Income from operations 3,094 784 2,741 8,935 2 15,556
Other income (expense):
Interest expense (31,113) (780) (11,017) (3,885) 769 (46,026)
Interest income 11,353 - - 248 (769) 10,832
Other, net 1,057 (19) (73) 100 - 1,065
Equity in earnings of subsidiaries (3,792) - 5,882 - (2,090) -
-------- ------- ------ -------- -------- --------
(22,495) (799) (5,208) (3,537) (2,090) (34,129)
-------- ------- ------ -------- -------- --------
Income (loss) before income tax
expense (benefit) (19,401) (15) (2,467) 5,398 (2,088) (18,573)
Income tax expense (benefit) 652 - 1,312 (484) - 1,480
-------- ------- ------ -------- -------- --------
Net income (loss) $ (20,053) $ (15) $ (3,779) $ 5,882 $ (2,088) $ (20,053)
========== ========= ========= ======== ========= ==========
</TABLE>
18
<PAGE>
THE DOE RUN RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(7) GUARANTOR SUBSIDIARIES (CONTINUED)
CONSOLIDATING STATEMENT OF OPERATIONS
NINE MONTHS ENDED JULY 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 $ 238,862 $ 19,108 $ 8,913 $ 333,792 $ (26,011) $ 574,664
Costs and expenses:
Cost of sales 197,256 16,105 - 284,131 (4,397) 493,095
Depletion, depreciation and amortization 17,221 1,144 - 5,699 - 24,064
Selling, general and administrative 11,896 1,128 7,358 24,144 (21,749) 22,777
Exploration 2,855 - - - - 2,855
--------- --------- -------- --------- --------- --------
Total costs and expenses 229,228 18,377 7,358 313,974 (26,146) 542,791
--------- --------- -------- --------- --------- --------
Income from operations 9,634 731 1,555 19,818 135 31,873
Other income (expense):
Interest expense (30,530) (826) (11,156) (2,672) 771 (44,413)
Interest income 11,415 - - 558 (771) 11,202
Other, net (467) (113) 401 (1,378) - (1,557)
Equity in earnings of subsidiaries 4,126 - 15,467 - (19,593) -
--------- --------- -------- --------- --------- --------
(15,456) (939) 4,712 (3,492) (19,593) (34,768)
--------- --------- -------- --------- --------- --------
Income (loss) before income tax
expense (5,822) (208) 6,267 16,326 (19,458) (2,895)
Income tax expense 6,783 - 2,068 859 - 9,710
--------- --------- -------- --------- --------- --------
Net income (loss) $ (12,605) $ (208) $ 4,199 $ 15,467 $ (19,458) $ (12,605)
=========== ========== ======== ========== =========== ===========
</TABLE>
19
<PAGE>
THE DOE RUN RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(7) GUARANTOR SUBSIDIARIES (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
NINE MONTHS ENDED JULY 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 $ (13,436) $ (336) $ 332 $ 7,734 $ (2,090) $ (7,796)
Cash flows from investing activities:
Purchases of property, plant and equipment (5,164) (340) - (19,693) - (25,197)
Investment in subsidiaries 3,792 - (5,882) - 2,090 -
-------- -------- ------- -------- -------- ---------
Net cash provided by (used in)
investing activities (1,372) (340) (5,882) (19,693) 2,090 (25,197)
Cash flows from financing activities:
Proceeds from revolving loans
and short-term borrowings, net 15,584 - - 17,279 - 32,863
Payments on long-term debt (266) - - (2,466) - (2,732)
Loans from parent/subsidiaries (7,229) 1,545 5,556 128 - -
-------- -------- ------- -------- -------- ---------
Net cash provided by
financing activities 8,089 1,545 5,556 14,941 - 30,131
-------- -------- ------- -------- -------- ---------
Net increase (decrease) in cash (6,719) 869 6 2,982 - (2,862)
Cash at beginning of period 7,197 (1,347) 39 3,997 - 9,886
-------- -------- ------- -------- -------- ---------
Cash at end of period $ 478 $ (478) $ 45 $ 6,979 $ - $ 7,024
========= ======== ======= ======== ======== =========
</TABLE>
20
<PAGE>
THE DOE RUN RESOURCES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
(7) GUARANTOR SUBSIDIARIES (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
NINE MONTHS ENDED JULY 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 $ 7,373 $ (462) $ 9,917 $ 24,295 $ (19,395) $ 21,728
Cash flows from investing activities:
Purchases of property, plant and equipment (11,089) (100) - (13,723) - (24,912)
Investment in subsidiaries (4,126) - (15,269) - 19,395 -
--------- -------- ---------- --------- --------- ---------
Net cash provided by (used in)
investing activities (15,215) (100) (15,269) (13,723) 19,395 (24,912)
Cash flows from financing activities:
Proceeds from (payments on ) revolving
loans and short-term borrowings, net (2,750) - - (12,794) - (15,544)
Proceeds from long-term debt 5,665 - - - - 5,665
Payments on long-term debt (895) - - (1,180) - (2,075)
Proceeds from sale/leaseback transaction - - - 17,922 - 17,922
Payment of deferred financing costs (467) - - - - (467)
Loans from parent/subsidiaries 6,289 562 5,362 (12,213) - -
--------- -------- ---------- --------- --------- ---------
Net cash provided by (used in)
financing activities 7,842 562 5,362 (8,265) - 5,501
--------- -------- ---------- --------- --------- ---------
Net increase in cash - - 10 2,307 - 2,317
Cash at beginning of period - - 21 4,625 - 4,646
--------- -------- ---------- --------- --------- ---------
Cash at end of period $ - $ - $ 31 $ 6,932 $ - $ 6,963
========= ======== ========== ========= ========= =========
</TABLE>
21
<PAGE>
DOE RUN PERU S.R.L.
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
JULY 31, OCTOBER 31,
2000 1999
---------------- ---------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash $ 6,979 $ 3,997
Trade accounts receivable, net of allowance for
doubtful accounts 27,375 38,864
Inventories 80,612 71,122
Prepaid expenses and other current assets 34,430 27,958
Net deferred tax assets 2,268 2,165
Due from parent 27,952 23,744
------------ ----------
Total current assets 179,616 167,850
Property, plant and equipment, net 133,636 120,595
Net deferred tax assets 2,028 1,646
Other noncurrent assets, net 229 323
------------ ----------
Total assets $ 315,509 $ 290,414
============ ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings and current maturities of long-term debt $ 10,518 $ 6,946
Accounts payable 35,533 36,790
Accrued liabilities 17,868 16,547
Due to parent 5,605 1,269
------------ ----------
Total current liabilities 69,524 61,552
Long-term debt, less current maturities 44,475 33,234
Other noncurrent liabilities 7,401 7,401
------------ ----------
Total liabilities 121,400 102,187
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 (105,257) (104,865)
Foreign currency translation adjustment (19,743) (20,135)
Retained earnings 63,908 58,026
------------ ----------
Total shareholders' equity 194,109 188,227
------------ ----------
Total liabilities and shareholders' equity $ 315,509 $ 290,414
============ ==========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
22
<PAGE>
DOE RUN PERU S.R.L.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED JULY 31, ENDED JULY 31,
-------------------------- --------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $ 118,713 $ 117,920 $ 362,574 $ 333,792
Costs and expenses:
Cost of sales 104,683 99,598 318,514 284,131
Depreciation and amortization 2,250 1,909 6,652 5,699
Selling, general and administrative 9,605 8,632 27,567 24,144
Exploration 906 - 906 -
----------- ----------- ----------- -----------
Total costs and expenses 117,444 110,139 353,639 313,974
----------- ----------- ----------- -----------
Income from operations 1,269 7,781 8,935 19,818
Other income (expense):
Interest expense (1,363) (1,030) (3,885) (2,672)
Interest income 90 51 248 558
Other, net 564 (518) 100 (1,378)
----------- ----------- ----------- -----------
(709) (1,497) (3,537) (3,492)
----------- ----------- ----------- -----------
Income before income tax expense (benefit) 560 6,284 5,398 16,326
Income tax expense (benefit) (233) 400 (484) 859
----------- ----------- ----------- -----------
Net income $ 793 $ 5,884 $ 5,882 $ 15,467
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
23
<PAGE>
DOE RUN PERU S.R.L.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED JULY 31,
--------------------------
2000 1999
------------ ------------
<S> <C> <C>
Net cash provided by operating activities $ 7,734 $ 24,295
Cash flows from investing activities:
Purchases of property, plant and equipment (19,693) (13,723)
------------ ------------
Net cash used in investing activities (19,693) (13,723)
Cash flows from financing activities:
Proceeds from (payments on) revolving loans
and short-term borrowings, net 17,279 (12,794)
Payments on long-term debt (2,466) (1,180)
Proceeds from sale/leaseback transactions - 17,922
Loans to parent 128 (12,213)
------------ ------------
Net cash provided by (used in) financing activities 14,941 (8,265)
------------ ------------
Net increase in cash 2,982 2,307
Cash at beginning of period 3,997 4,625
------------ ------------
Cash at end of period $ 6,979 $ 6,932
============ ============
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
24
<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 July
31, 2000 and results of operations for the three and nine month periods
ended July 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 and nine months ended July 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>
JULY 31, OCTOBER 31,
2000 1999
------------- -----------
(UNAUDITED)
<S> <C> <C>
Refined metals and concentrates for sale $ 4,070 $ 1,414
Metals and concentrates in process 54,836 47,970
Materials, supplies and spare parts 21,706 21,738
------------- -----------
$ 80,612 $ 71,122
============= ===========
</TABLE>
25
<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.
CONSOLIDATED FINANCIAL POSITION
During the nine months ended July 31, 2000 (the 2000 period)
inventories increased by $18.8 million. In the U.S., inventories
increased by $9.3 million primarily due to normal seasonal increases in
finished goods inventories and to increased production at the Buick
secondary smelter. In Peru, inventories rose $9.5 million primarily due
to a $6.8 million increase in copper concentrate inventories intended
to build a stock of blister copper in anticipation of major maintenance
on the reverberatory furnace in the copper circuit, previously
scheduled for September of 2000. This maintenance has been rescheduled
for May of 2001 and the excess copper concentrate inventory should be
consumed during the fourth quarter. Lead concentrates and, in
particular, silver contained in concentrates, were also higher to
support increased production of lead and silver metal. Finished goods
inventories in Peru rose $2.7 million as increased production exceeded
sales volume. Management anticipates that inventories will be reduced
significantly during the fourth quarter. Raw material inventories at
year end should be near the prior year end levels. Finished goods
inventories will be higher than the prior year, primarily in the U.S.,
as a result of increased production coupled with a slight decrease in
lead metal sales volume.
During the nine months ended July 31, 2000, net cash used in
operating activities was $7.8 million and capital expenditures were
$25.2 million. As a result, total debt, mainly revolving loans and
short-term borrowings, increased by $30.9 million
RESULTS OF OPERATIONS
The Company reported a net loss of $8.4 million for the three
months ended July 31, 2000 (the 2000 quarter) compared to net income of
$1.0 million for the three months ended July 31, 1999 (the 1999
quarter). The Company's U.S. operations reported a net loss of $11.4
million (excluding intercompany fee revenue of $4.7 million) for the
2000 quarter, compared to a net loss of $5.2 million (excluding
intercompany fee revenue of $4.6 million) in the 1999 quarter,
reflecting the effects of lower realized prices for lead metal,
partially offset by higher realized prices for copper and zinc.
Peruvian operations generated net income of $3.1 million for the 2000
quarter (excluding intercompany fees and eliminations of $4.7 million)
compared to net income of $6.1 million (excluding intercompany fees and
eliminations of $4.6 million) in the 1999 quarter. The decrease in
Peruvian net income was due primarily to increased production costs and
lower treatment charges for copper and lead concentrates, partially
offset by higher copper prices and increased lead production and sales.
The Company reported a net loss of $20.0 million for the 2000
period compared to a net loss of $12.6 million for the nine months
ended July 31, 1999 (the 1999 period). The Company's U.S. operations
reported a net loss of $30.4 million (excluding intercompany fee
revenue of $14.1 million) for the 2000 period compared to a net loss of
$29.8 million (excluding intercompany fee revenue of $12.8 million) for
the 1999 period, reflecting the effects of lower realized prices for
lead metal and higher production costs. These factors were partially
offset by the absence, in the 2000 period, of the write-off of deferred
tax
26
<PAGE>
balances of $6.2 million associated with a change in the Company's tax
status to a qualified subchapter S subsidiary in the 1999 period. 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 generated net income of $10.3 million for the 2000
period (excluding intercompany fees and eliminations of $14.1 million)
compared to net income of $17.2 million (excluding intercompany fees
and eliminations of $12.7 million) for the 1999 period. The decrease in
Peruvian net income was primarily due to the factors discussed above.
The Company's results for the three months and the nine months
ended July 31, 2000 reflect declines in the market price of lead metal
and increases in the price of copper and zinc from the prior year. The
following table sets forth the average London Metal Exchange (LME)
prices for lead, copper and zinc and the average London Bullion Market
Association (LBMA) price for silver for the periods indicated:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
July 31, July 31,
------------------------------ ------------------------------
2000 1999 2000 1999
-------------- --------------- --------------- --------------
<S> <C> <C> <C> <C>
AVERAGE PRICES
Lead ($/short ton) $ 388.00 $ 462.20 $ 406.00 $ 459.20
Copper ($/short ton) 1,613.80 1,383.60 1,602.40 1,341.20
Zinc ($/short ton) 1,031.20 941.20 1,033.60 911.40
Silver ($/troy ounce) 4.98 5.16 5.09 5.14
</TABLE>
Over the past two years the LME lead price has declined as new
mines have been developed in Australia and Ireland, and as China has
increased its lead metal production and exports. During the second and
third quarters of 2000 lead prices declined to near historical lows.
Despite modest improvement late in the third quarter, lead prices
remain substantially below the ten-year average. However, in the U.S.,
demand for the Company's lead products has remained strong. Industry
sources continue to forecast significant growth in stationary and
industrial battery consumption. Because of excellent product quality,
the Company's U.S. operations have a major share of this growth market.
Management believes that lead prices will recover from the
current low level as several large lead producing mines will be
depleted. This should bring about a deficit in supply versus demand.
Recent industry developments include smelter closures in China, which
should result in reduced exports, mine production cutbacks in the U.S.
and Australia and a sharp reduction in LME inventories. Between April
and August 2000 the LME lead inventory balance declined 84 thousand
tons or approximately 41%. During the same time frame, the monthly
average LME lead price improved approximately 12%.
As a result of the recent low lead price the Company's U.S.
operations had operating losses in the quarter and the nine months
ended July 31, 2000. The Company has made changes to its operations,
described below, which it expects will reduce certain costs, and
achieve certain operating efficiencies, in an effort to mitigate the
impact of low metal prices. The Company also expects to benefit from
increased sales volume in the fourth quarter of fiscal 2000, compared
to the first three quarters. However, prices sustained at these levels
or decreasing further are likely to result in the continuation of
operating losses for the Company's U.S. operations.
27
<PAGE>
The following table sets forth the Company's production
statistics for the periods indicated:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
July 31, July 31,
------------------------ -------------------------
2000 1999 2000 1999
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
U.S. OPERATIONS
Lead metal - primary (short tons) 93,669 94,433 284,292 285,570
Lead metal - secondary (short tons) 35,722 28,969 105,260 83,786
Lead concentrates (metal content, short tons) 75,131 96,253 241,991 288,267
Ore Grade (lead content) 5.86% 5.87% 5.77% 5.66%
PERUVIAN OPERATIONS
Refined copper (short tons) 17,993 19,354 54,431 54,817
Refined lead (short tons) 33,228 30,607 98,121 89,365
Refined zinc (short tons) 21,701 20,951 64,356 60,408
Refined silver (thousands of troy ounces) 8,627 8,543 25,973 24,206
Refined gold (thousands of troy ounces) 21 15 71 48
</TABLE>
The Company continues to evaluate mine production plans in
light of continuing low lead metal prices. Selective mining of higher
grade ore caused a reduction in the total ore mined, which was down 22%
in the 2000 quarter and 18% in the 2000 period, compared to the prior
year. As a result, production of lead metal in concentrates decreased
by approximately 22% in the 2000 quarter and 16% in the 2000 period,
compared to the prior year.
On April 19, 2000 the Company announced operating changes
intended to increase grade and lower unit production costs. These
changes, which were implemented in the third quarter, involved a
restructuring of the mine/mill operations resulting in a workforce
reduction of approximately 12% at the U.S. mining operations. Two of
the Company's six mills were idled and placed on care and maintenance
and three of the Company's eight mines were effectively idled,
producing only small quantities of selected high-grade ore. Major
mine development work initiated late in the second quarter yielded
less than expected ore grades, and as a result ore grade estimates
under the new operating mode have been revised. Management expects a
reduction in annualized tons of ore mined of approximately 15% from
the fiscal 1999 levels, but anticipates that lead and zinc ore grades
will improve by approximately 5% and 12%, respectively. Annualized
production of lead metal contained in concentrates is expected to
decline approximately 10% from the 1999 level. Concentrates purchased
in the open market are expected to replace the Company's production
and the smelters will continue to operate near capacity. The necessary
concentrates have been purchased for fiscal 2000. For fiscal 2001, the
Company has contracts in place for approximately 80% of its estimated
purchased concentrate requirement. In addition to production changes,
management is in the process of implementing cost reduction measures
primarily resulting from an in-depth cost analysis of the
mining/milling operations. These measures include strategic sourcing
of raw materials, equipment and supplies, enhanced ordering procedures
and controls, improved maintenance planning and scheduling, improved
maintenance procedures, and others. The benefits of these changes
should result in modest improvements in unit production costs in the
fourth quarter of fiscal 2000, with the full impact being realized
by the end of fiscal 2001.
Primary smelter production for the 2000 quarter was 1% less
than the 1999 quarter. For the 2000 period, total primary production
was approximately the same as the 1999 period. Production at the
Company's Glover primary smelter for the 2000 quarter was about 5% less
than the 1999 quarter due primarily to cooling system failures on its
blast furnace in early July. By the end of the quarter, Glover's
production rate had returned to normal levels. Management anticipates
recovery of the lost production by the end of the fiscal year. Glover's
production for the 2000 period was 1% less than the 1999 period.
28
<PAGE>
Secondary smelter production exceeded the prior year by 23%
for the three months and 26% for the nine months ended July 31, 2000.
These increases are primarily the result of installation of a new
burner, with an improved design, on the smelter's reverberatory furnace
during the fourth quarter of 1999, as well as modifications that were
made to the lead blast furnace during the first quarter of 2000. These
changes combined increased total secondary smelter capacity by
approximately 27%.
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. In addition, the Company
continues to replace equipment and make process improvements throughout
the plant. The impact of these changes is reflected in La Oroya's
production performance. In the 2000 quarter, production of lead, zinc,
silver and gold all exceeded the 1999 quarter. Copper production was
about 7% less than the 1999 quarter primarily due to a shortfall in
copper concentrate feed from the Company's Cobriza mining operation.
For the 2000 period, lead production increased 10% over the prior year,
zinc and silver production were each up approximately 7% and gold
bullion production improved by more than 47%. Copper production was 1%
less than the prior year primarily due to the feed shortfall mentioned
above. The increases in silver and gold production were primarily the
result of acquiring concentrate feed with higher content of these
metals.
At the Company's Cobriza copper mining operation, ore grade in
the available working areas diminished significantly, from 1.01% in the
1999 period to .88% in the 2000 period. In May 2000, the Company
implemented changes in operations intended to improve ore grade and
reduce unit production cost. The changes involved a workforce reduction
of approximately 19% and a reduction in annualized ore production of
approximately 31% from the fiscal 1999 levels. Ore grade improved from
.86% in the second quarter to .92% in the third quarter and should
continue to improve in the fourth quarter. It is anticipated that ore
grade will average approximately 1.06% for fiscal 2001. As the new
operating plan was implemented, ground support, ventilation and other
development work was accelerated in an effort to improve ore grade.
Operating costs for Cobriza were up 11% for the 2000 quarter and 19%
for the 2000 period, compared to the prior year, primarily as a result
of this development work. As a result of the lower grade and reduced
ore production, copper metal contained in concentrates produced was
40% lower for the 2000 quarter and 17% lower for the 2000 period,
compared the prior year. The combination of reduced production and
increased operating cost resulted in a significant increase in the
cost of metal units delivered to La Oroya for both the 2000 quarter
and the 2000 period.
29
<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 Nine Months Ended
July 31, July 31,
------------------------------ -----------------------------
2000 1999 2000 1999
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Net sales (a) $ 76,099 $ 86,158 $ 236,298 $ 243,722
Costs and expenses:
Cost of sales 71,304 73,230 215,500 211,929
Depreciation and amortization 5,149 5,775 15,611 18,365
Selling, general and administrative 3,433 4,502 13,074 13,024
Exploration 783 1,005 2,324 2,855
------------ ------------ ------------ ------------
Total costs and expenses 80,669 84,512 246,509 246,173
------------ ------------ ------------ ------------
Income from operations (4,570) 1,646 (10,211) (2,451)
Other income (expense)
Interest expense (10,568) (10,244) (31,124) (30,585)
Interest income 3,523 3,578 10,584 10,644
Other, net 402 63 1,038 (580)
------------ ------------ ------------ ------------
(6,643) (6,603) (19,502) (20,521)
------------ ------------ ------------ ------------
Loss before income tax expense (11,213) (4,957) (29,713) (22,972)
Income tax expense 217 199 652 6,783
------------ ------------ ------------ ------------
Net loss $ (11,430) $ (5,156) $ (30,365) $ (29,755)
============ ============ ============ ============
(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 $ 4,654 $ 4,561 $ 14,091 $ 12,836
SALES VOLUMES (SHORT TONS) 106,805 109,769 318,352 321,885
Lead metal 24,169 24,365 71,878 74,536
Zinc concentrates 2,804 4,468 10,309 11,784
Copper concentrates
REALIZED PRICES ($/SHORT TON)(b) $ 495.15 $ 566.85 $ 516.40 $ 546.20
Lead metal 347.68 322.63 351.47 301.52
Zinc concentrates 298.86 203.22 292.56 205.28
Copper concentrates
</TABLE>
(b) 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.
30
<PAGE>
RESULTS OF PERUVIAN OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
July 31, July 31,
------------------------------------- -------------------------------
2000 1999 2000 1999
-------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales (a) $ 118,689 $ 117,840 $ 361,001 $ 330,942
Costs and expenses:
Cost of sales (a) 104,659 99,518 316,941 281,166
Depreciation and amortization 2,250 1,909 6,652 5,699
Selling, general and administrative (a) 3,810 3,684 10,735 9,753
Exploration 906 -- 906 --
------------ ------------ ------------ ------------
Total costs and expenses 111,625 105,111 335,234 296,618
------------ ------------ ------------ ------------
Income from operations 7,064 12,729 25,767 34,324
Other income (expense)
Interest expense (5,033) (4,728) (14,902) (13,828)
Interest income 90 51 248 558
Other, net 547 (951) 27 (977)
------------ ------------ ------------ ------------
(4,396) (5,628) (14,627) (14,247)
------------ ------------ ------------ ------------
Income before income tax expense (benefit) 2,668 7,101 11,140 20,077
Income tax expense (benefit) (390) 987 828 2,927
------------ ------------ ------------ ------------
Net income $ 3,058 $ 6,114 $ 10,312 $ 17,150
============ ============ ============ ============
(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 $ 24 $ 80 $ 1,573 $ 2,850
Cost of sales 24 80 1,573 2,965
Selling, general and administrative expense 4,654 4,561 14,091 12,836
SALES VOLUMES
Copper (short tons) 17,805 19,061 54,332 54,424
Lead (short tons) 33,285 30,065 94,235 84,835
Zinc (short tons) 21,762 21,677 63,088 60,747
Silver (thousands of troy ounces) 8,564 8,589 25,764 24,229
Gold (thousands of troy ounces) 21 18 71 48
REALIZED PRICES (b)
Copper ($/short ton) $ 1,605.33 $ 1,335.84 $ 1,598.16 $ 1,317.77
Lead ($/short ton) 440.78 493.66 408.90 473.87
Zinc ($/short ton) 1,049.33 957.93 1,055.13 917.17
Silver ($/troy ounce) 5.02 5.19 5.11 5.16
Gold ($/troy ounce) 280.55 275.50 286.51 284.09
(b) Net realized prices for metals include the effects of changes in:
1) premiums received, including charges for special alloys and
shapes, 2) adjustments to provisionally priced sales, and 3) net
hedging activity.
</TABLE>
31
<PAGE>
Results of operations for the three months and the nine months
ended July 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 of operations attributable to Peruvian operations
will be noted and discussed separately under "Results of Peruvian
Operations."
NET SALES in the 2000 quarter were $194.8 million compared to
$204.0 million in the 1999 quarter. An increase of $0.8 million is
attributable to Peruvian operations. U.S. net sales were $10.1 million,
or 12%, lower in the 2000 quarter, compared to the 1999 quarter,
primarily due to lower realized prices for, and slightly lower volume
of, lead metal sales. Lead metal net sales decreased from $62.2 million
in the 1999 quarter to $52.9 million in the 2000 quarter. Of this
decrease, $1.7 million is attributable to a 3% reduction in lead metal
sales volume. A slow start to the automotive battery season due to the
cool summer in the northeastern U.S. and the Company's policy of
maintaining higher premiums contributed to the volume decrease. Lower
realized prices for lead metal accounted for a decrease of $7.7 million
in lead metal net sales. The Company's net realized price for lead
metal was 13% lower in the 2000 quarter, compared to the 1999 quarter,
primarily due to a 16% decrease in the LME average lead price. The
Company was able to maintain premiums over the LME price at near
historical highs through its marketing efforts and its focus on sales
of alloy and specialty lead products, which command higher premiums.
Net sales for the 2000 period were $597.3 million compared to
$574.7 million for the 1999 period. An increase of $30.1 million is
attributable to Peruvian operations. U.S. net sales for the 2000 period
were $7.4 million less than the 1999 period primarily due to lower lead
metal prices partially offset by increased realized prices for zinc
concentrates and higher toll lead volumes. The average LME price for
lead metal declined 12% in the 2000 period, compared to the 1999
period. However, as a result of improved premiums, the Company's net
realized price was only 6% lower than the prior year reducing net sales
by $9.5 million. Due to the factors discussed above, lead metal sales
volume was 1% lower than the prior year, reducing net sales by $1.9
million. Zinc and copper concentrate sales were $3.4 million higher in
the 2000 period, compared to the 1999 period, primarily due to
increases in the LME price for these metals. The production
improvements at the Buick secondary smelter, discussed above, coupled
with increased demand generated a 9% increase in toll lead volume,
which contributed $1.4 million to the net sales increase.
COST OF SALES for the 2000 quarter was $176.0 million compared
to $172.7 million for the 1999 quarter. An increase of $5.1 million is
attributable to Peruvian operations. U.S. cost of sales for the 2000
quarter was $1.9 million less than the 1999 quarter. This decrease is
primarily attributable to the reduced volume of lead metal sales and
the reduced sales at Lone Star, discussed above. Reduced unit
production cost at the Buick smelter, primarily related to volume
improvements, also contributed to the reduction. These factors were
partially offset by higher production costs for primary lead metal and
zinc and copper concentrates.
Cost of sales for the 2000 period was $532.4 million compared
to $493.1 million for the 1999 period. Of this increase, $35.7 million
is attributable to Peruvian operations. U.S. cost of sales for the 2000
period increased by $3.6 million compared to the 1999 period. The unit
production cost of primary lead metal increased by approximately 5%,
compared to the prior year, accounting for an increase of $6.6 million
in cost of sales. Factors contributing to the increase in primary
production cost per ton include: 1) the impact of reduced mine
production volume, 2) repair costs associated with the primary smelter
production problems which occurred during the second quarter, and 3)
costs related to increased production of lead alloy products. The
increased volume at Seafab Metals Company (Seafab), a division of FPI,
contributed $2.1 million to the cost of sales increase. These increases
were partially offset by lower lead metal sales volume and lower unit
production costs at the Buick smelter.
DEPLETION, DEPRECIATION AND AMORTIZATION for the 2000 quarter
decreased by $0.3 million compared to the 1999 quarter. For the 2000
period, depletion, depreciation and amortization decreased
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by $1.8 million compared to the 1999 period. Increases of $0.3 million
for the 2000 quarter and $1.0 million for the 2000 period are
attributable to Peruvian operations. The decrease in depletion,
depreciation, and amortization for U.S. operations of $0.6 million for
the 2000 quarter and $2.8 million for the 2000 period was primarily
attributable to a significant number of assets with five-year lives
that were fully depreciated in March of 1999 and 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 decreased by $0.9
million in the 2000 quarter compared to the 1999 quarter. Peruvian
operations accounted for an increase of $0.1 million. The decrease in
selling, general and administrative expenses for U.S. operations of
$1.0 million for the 2000 quarter is primarily due to adjustments of
incentive compensation accruals as a result of financial performance
and anticipated insurance reimbursements of legal fees previously paid.
Selling, general and administrative expenses increased by $1.0
million in the 2000 period compared to the 1999 period. Peruvian
operations accounted for an increase of $1.0 million. In the U.S.,
selling, general and administrative expenses for the 2000 period were
about the same as the 1999 period after the reductions in the 2000
quarter and lower insurance costs were offset by increases in
compensation in earlier quarters and legal fees relating to new
lawsuits.
EXPLORATION expense was $1.7 million for the 2000 quarter
compared to $1.0 million in the 1999 quarter. For the 2000 period,
exploration expense was $3.2 million compared to $2.9 million in the
prior year. An increase of $0.9 million for both the 2000 quarter and
the 2000 period is attributable to Peruvian operations. In the U.S.,
exploration decreased by $0.2 million for the quarter and $0.5 million
for the 2000 period due to the completion of underground test work on a
Missouri property, which was in process during the 1999. This reduction
was partially offset by increased activity related to a feasibility
study on a South African property.
INCOME FROM OPERATIONS for the 2000 quarter was $2.9 million
compared to $14.4 million for the 1999 quarter. For the 2000 period,
operating income was $16.0 million compared to $31.9 million for the
1999 period. Decreases of $5.7 million for the quarter and $8.6 million
for the nine months are attributable to Peruvian operations. The
remaining fluctuation is primarily due to the factors discussed above.
OTHER, NET income was $0.9 million in the 2000 quarter
compared to other net expense $0.9 in the 1999 quarter. Of this $1.8
million change, $1.5 million is attributable to Peruvian operations.
The remaining change is due to rental income on capital assets provided
for Peruvian operations, which was not in the prior year.
Other, net income was $1.1 million in the 2000 period,
compared to other net expense of $1.6 million in the 1999 period. Of
the $2.6 million difference, $1.0 million is attributable to Peruvian
operations. For U.S. operations, other net income was $1.0 million in
the 2000 period compared to other net expense of $0.6 in the 1999
period. The change is primarily due to rental income on capital assets
discussed above.
INCOME TAX EXPENSE for the 2000 quarter and the 2000 period
reflects the impact of a change in tax status effective at the
beginning of the fiscal year. 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 period.
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RESULTS OF PERUVIAN OPERATIONS
NET SALES in the 2000 quarter were $118.7 million compared to
$117.8 million in the 1999 quarter. This increase is the result
improved realized prices for refined copper, zinc and gold and higher
sales volumes of lead, zinc and gold, partially offset by lower
realized prices for lead and silver and lower copper and by-product
volumes. The LME average price for copper was 17% higher in the 2000
quarter, compared to the 1999 quarter. As a result, the Company's net
realized price for refined copper increased by 20% in the 2000 quarter,
increasing net sales by $4.8 million. Improved realized prices for zinc
and gold contributed another $2.1 million to the net sales increase.
These increases were partially offset by a 19% reduction in the
realized price for lead, which reduced net sales by $3.1 million, and
slightly lower prices for silver. Sales volume changes, primarily a 7%
reduction in copper volume, reduced net sales by $1.0 million.
Net sales for the 2000 period were $361.0 million compared to
$330.9 million in the 1999 period. The increase is primarily the result
of higher sales volumes for lead, zinc, silver and gold and improved
realized prices for copper, zinc and gold, partially offset by lower
realized prices for lead and silver, and reduced by-product sales. The
production improvements discussed previously increased refined silver
sales volume by 1.5 million ounces or 6%, increasing net sales by $6.9
million. Gold bullion sales volume was up almost 23 thousand ounces or
48%, compared to the prior year, accounting for $6.5 million of the
sales increase. Higher lead and zinc volumes added another $6.6 million
to the net sales improvement. The Company's net realized price for
refined copper increased by 21% in the 2000 period, increasing net
sales by $15.2 million. Improvements in zinc realized prices added $8.7
million to the net sales increase. These increases were partially
offset by lower realized prices for lead metal and bullion lead, which
reduced net sales by $7.6 million, and the absence of blister copper
sales in the 2000 period, compared to $6.5 million in the 1999 period.
Blister copper sales were eliminated in the 2000 period in favor of
more profitable refined copper sales.
COST OF SALES increased from $99.5 million in the 1999 quarter
to $104.7 million in the 2000 quarter. A 25% increase in the unit
production cost of refined copper contributed $5.6 million to the
increase in cost of sales. This increase was primarily the result of
higher feed costs for copper due to: 1) the 17% increase in LME copper
price, 2) the increase in the cost of concentrates produced by Cobriza,
discussed previously, and 3) a reduction in copper treatment and
refining charges of approximately 15%. Production costs for refined
zinc and gold were also somewhat higher in the 2000 quarter. These
increases were partially offset by lower feed cost for refined lead
resulting primarily from the decline in the LME price for lead, which
reduced cost of sales by $2.6 million. In addition, sales volume
changes, primarily lower copper sales, accounted for a $1.0 million
decrease in cost of sales.
Cost of sales was $316.9 million in the 2000 period compared
to $281.2 million in the 1999 period. Higher sales volumes for refined
lead, zinc, silver and gold increased cost of sales by $17.5 million.
Increased production cost for refined copper, due to the factors
discussed above, added $19.7 million to the cost of sales. These
increases were partially offset by lower feed cost for lead metal and
bullion lead, and reduced by-product sales, primarily blister copper.
DEPRECIATION AND AMORTIZATION expense increased by $0.3
million for the 2000 quarter and $1.0 million the 2000 period, compared
to the prior year, primarily due to recent capital additions.
EXPLORATION Expense increased due to work done to further
delineate reserves at the Company's Cobriza mine.
INCOME FROM OPERATIONS decreased $5.7 million in the 2000
quarter compared to the 1999 quarter and $8.6 million in the 2000
period compared to the 1999 period due primarily to the factors
discussed above.
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INTEREST INCOME decreased $0.3 million for the 2000 period,
compared to the prior year, due primarily to interest from a customer
on a past due account receivable in the 1999 period, which has been
collected.
OTHER, NET income was $0.5 million in the 2000 quarter
compared to other net expense of $1.0 million in the 1999 quarter. This
change is primarily due to fluctuations in foreign currency transaction
gains and losses, resulting primarily from changes in the exchange
rate, and to an insurance recovery related to the turbine failure at La
Oroya's oxygen plant.
Other, net income was $0.03 million in the 2000 period
compared to other net expense of $1.0 million in the 1999 period. The
change is primarily the result of the insurance recovery mentioned
above and to lower expenses related to transportation interruptions
during the rainy season in the 2000 period.
INCOME TAXES for the 2000 quarter and the 2000 period reflect
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 July 31, 2000, $27.4 million was
outstanding, exclusive of $6.5 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 $50.0 million, less outstanding letters
of credit, based upon specific percentages of eligible receivables and
inventories. At July 31, 2000, $34.0 million was outstanding under the
Doe Run Peru Revolving Credit Facility. In addition, an independent
line of $10.0 million is available for the issuance of guarantee
letters of which $3.0 million were outstanding as of July 31, 2000. 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 July 31, 2000, $6.7
million exclusive of $10.6 million of letters of credit and customs
bonds was outstanding under these arrangements.
Effective March 30, 2000 the Company's primary lender in Peru
approved an increase in the maximum advance under the Doe Run Peru
Revolving Credit Facility from $40.0 million to $50.0 million, under a
written memorandum from the lender, pending completion of a formal
contract. In addition, the lender approved the independent line of
$10.0 discussed above. Unlike the Revolving Credit Facility, the
independent line is not committed and is subject to modification or
cancellation at the option of the lender.
Net unused availability at July 31, 2000 was $31.2 million
under the Doe Run Revolving Credit Facility and $16.0 million under the
Doe Run Peru Revolving Credit Facility. In addition to availability
under the credit facilities, the Company had $7.0 million of cash at
July 31, 2000.
In the 2000 quarter, cash used in operating activities was
$2.1 million, cash used in investing activities was $16.7 million and
cash provided by financing activities was $21.8 million. For the 2000
period, cash used in operating activities was $7.8 million, cash used
in investing activities was $25.2 million and cash provided by
financing activities was $30.1 million.
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In the U.S., the Company had capital expenditures of $5.5
million for the 2000 period and has projected total capital
expenditures, for fiscal 2000, of approximately $7.8 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 $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 by October 23, 2002, as set
forth in the purchase agreement. The Company estimates that it has
spent approximately $81.4 million on qualifying expenditures under the
investment commitment through July 31, 2000. Peruvian operations had
capital expenditures of $19.7 million in the 2000 period and have
projected total capital expenditures for fiscal 2000 of approximately
$26.7 million, primarily for environmental improvements and to support
ongoing operations.
The Company has substantial indebtedness and debt service
requirements. As of July 31, 2000, on a consolidated basis, the Company
had $516.8 million of indebtedness outstanding, or $391.8 million net
of the Special Term Deposit securing certain indebtedness. The Company
has recently developed projections for the fourth quarter and fiscal
year 2001, which include the changes in mining operations and
reductions in inventory discussed previously. Management believes,
based on these projections, 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. However, metal prices sustained at current levels for an
extended period, or decreasing further, will adversely impact
liquidity. Changes in operating results, such as production
interruptions or less than expected ore grade could also adversely
impact liquidity. Should liquidity be adversely impacted by these or
any other factors, management will reevaluate capital, exploration and
maintenance spending levels and consider further changes in operations
in order to maintain sufficient liquidity.
The Doe Run Revolving Credit Facility, the Doe Run Peru
Revolving Credit Facility, and the indentures governing the Notes
contain numerous covenants and restrictions. Among the more restrictive
covenants include limitations on allowable indebtedness and maintenance
of a minimum net worth. Under the indentures covering the Company's
Senior Notes, Senior Secured Notes and Floating Rate Notes limit
principal outstanding under various Peruvian working capital facilities
to $60 million. Also, the Company must maintain consolidated net worth,
as adjusted for certain non-cash items, of no less than negative $10
million. The Company is in compliance with all applicable covenants at
July 31, 2000 and anticipates maintaining compliance at the end of
fiscal 2000 and into fiscal 2001. 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. Specifically, future losses could affect the
Company's ability to meet the net worth requirement. The company is
working with the lender to change the requirement, but there can be no
assurance that these efforts will be successful.
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; political conditions; changing 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
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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.
On May 28, 2000, a presidential runoff election was held in
Peru, after which President Fujimori was declared the winner. Amid
allegations of irregularities, the election was boycotted by
international election oversight organizations and by Alejandro Toledo,
the challenger to President Fujimori. The events surrounding the
election have been widely reported by the international press and
criticized by the United States and other countries. As of August 31,
2000, the Company's operations in Peru have been unaffected by these
developments. However, management recognizes the potential for
political instability, social unrest, and deterioration of economic
conditions, which could adversely impact the operating activities,
results of operations and financial condition of the Company.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company has outstanding $55 million of indebtedness 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 July 31, 2000, the effective rate was approximately
12.65%.
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.
PART II. OTHER INFORMATION.
ITEM 1. LEGAL PROCEEDINGS
See the report on Form 10-Q for the quarter ended April 30, 2000 for
discussion of legal proceedings initiated in the current fiscal year.
See "Item 1. Financial Statements - Note 6 to the Company's
Consolidated Financial Statements" for further information regarding
the Company's legal proceedings.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS.
Exhibit 27 Financial Data Schedule
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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)
<TABLE>
<S> <C>
September 11, 2000 /s/ Marvin K. Kaiser
------------------ -----------------------------------------------
Date Marvin. K. Kaiser
Vice President and Chief Financial Officer
(duly authorized officer and principal financial officer)
</TABLE>
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