<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended April 30, 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 June 8, 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
April 30, 2000 and October 31, 1999 3
Consolidated Statements of Operations
three and six months ended April 30, 2000 and 1999 4
Condensed Consolidated Statements of Cash Flows
six months ended April 30, 2000 and 1999 5
Notes to Consolidated Financial Statements 6-21
DOE RUN PERU S.R.L.
Condensed Consolidated Balance Sheets
April 30, 2000 and October 31, 1999 22
Condensed Consolidated Statements of Operations
three and six months ended April 30, 2000 and 1999 23
Condensed Consolidated Statements of Cash Flows
six months ended April 30, 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 36
PART II. OTHER INFORMATION.
ITEM 1. LEGAL PROCEEDINGS 37
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS 37
SIGNATURES 37
</TABLE>
<PAGE>
THE DOE RUN RESOURCES CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
APRIL 30, OCTOBER 31,
2000 1999
-------------- ---------------
(UNAUDITED)
ASSETS
<S> <C> <C>
Current assets:
Cash $ 17,164 $ 9,886
Trade accounts receivable, net of allowance for
doubtful accounts 76,751 88,884
Inventories 139,852 120,261
Prepaid expenses and other current assets 33,869 33,861
Net deferred tax assets 2,268 2,115
-------------- ---------------
Total current assets 269,904 255,007
Property, plant and equipment, net 269,700 269,042
Special term deposit 125,000 125,000
Net deferred tax assets 1,723 1,606
Other noncurrent assets, net 12,271 14,062
-------------- ---------------
Total assets $ 678,598 $ 664,717
============== ===============
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
Short-term borrowings and current maturities of long-term debt $ 10,709 $ 8,582
Accounts payable 54,751 54,736
Accrued liabilities 48,696 49,793
-------------- ---------------
Total current liabilities 114,156 113,111
Long-term debt, less current maturities 502,431 477,286
Other noncurrent liabilities 57,071 57,699
-------------- ---------------
Total liabilities 673,658 648,096
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 487 12,168
Accumulated other comprehensive income (785) (785)
-------------- ---------------
Total shareholder's equity 4,940 16,621
-------------- ---------------
Total liabilities and shareholder's equity $ 678,598 $ 664,717
============== ===============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
3
<PAGE>
THE DOE RUN RESOURCES CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
APRIL 30, APRIL 30,
----------------------------------- --------------------------------
2000 1999 2000 1999
---------------- ----------------- --------------- ---------------
<S> <C> <C> <C> <C>
Net sales $197,599 $ 191,665 $ 404,989 $ 373,383
Costs and expenses:
Cost of sales 175,361 160,140 356,478 320,347
Depletion, depreciation and amortization 7,299 8,203 14,864 16,380
Selling, general and administrative 9,603 9,019 18,628 17,660
Exploration 941 858 1,541 1,850
---------------- ----------------- --------------- ---------------
Total costs and expenses 193,204 178,220 391,511 356,237
---------------- ----------------- --------------- ---------------
Income from operations 4,395 13,445 13,478 17,146
Other income (expense):
Interest expense (15,284) (14,616) (30,425) (29,441)
Interest income 3,591 3,923 7,219 7,573
Other, net (576) (830) (300) (317)
---------------- ----------------- --------------- ---------------
(12,269) (11,523) (23,506) (22,185)
---------------- ----------------- --------------- ---------------
-
Income (loss) before income tax expense (7,874) 1,922 (10,028) (5,039)
Income tax expense 1,534 1,356 1,653 8,524
---------------- ----------------- --------------- ---------------
Net income (loss) $ (9,408) $ 566 $ (11,681) $ (13,563)
================ ================= =============== ===============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
4
<PAGE>
THE DOE RUN RESOURCES CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED APRIL 30,
-----------------------------
2000 1999
-------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(11,681) $(13,563)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation, depletion and amortization 14,864 16,380
Amortization of deferred financing fees 1,752 1,411
Deferred income taxes (270) 6,814
Imputed interest 137 259
Decrease resulting from changes in assets and liabilities (8,510) (14,996)
-------------- -------------
Net cash used in operating activities (3,708) (3,695)
Cash flows from investing activities:
Purchases of property, plant and equipment (15,751) (11,800)
-------------- -------------
Net cash used in investing activities (15,751) (11,800)
Cash flows from financing activities:
Proceeds from revolving loans and
short term borrowings, net 28,531 3,073
Payments on long-term debt (1,794) (1,321)
Proceeds from sale/leaseback transactions - 17,922
Payment of deferred financing costs - (711)
-------------- -------------
Net cash provided by financing activities 26,737 18,963
-------------- -------------
Net increase in cash 7,278 3,468
Cash at beginning of period 9,886 4,646
-------------- -------------
Cash at end of period $ 17,164 $ 8,114
============== =============
Supplemental disclosure of cash flow information Cash paid during the period
for:
Interest, net of capitalized interest $ 28,536 $ 27,495
============== =============
Income taxes $ 916 $ 4,618
============== =============
</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 April 30, 2000 and results of operations for the
three and six month periods ended April 30, 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 six months
ended April 30, 1999.
(3) INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
APRIL 30, OCTOBER 31,
2000 1999
------------- -------------
<S> <C> <C>
Finished metals and concentrates $ 21,463 $ 10,527
Metals and concentrates in process 72,185 60,139
Materials, supplies and repair parts 46,204 49,595
------------- -------------
$ 139,852 $ 120,261
============= =============
</TABLE>
Materials, supplies and repair parts are stated net of reserves for
obsolescence of approximately $4,300 at April 30, 2000 and October 31,
1999.
(4) SEGMENT INFORMATION
The Company's operating segments are separately managed business units
that are distinguished by products, location and production 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>
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
APRIL 30, APRIL 30,
------------------------ -----------------------------
OPERATING SEGMENTS - REVENUES 2000 1999 2000 1999
------------ ----------- -------------- -------------
<S> <C> <C> <C> <C>
Revenues from external customers:
Peruvian operations $ 120,490 $ 110,472 $ 244,790 $ 215,819
Primary lead 56,509 58,319 114,702 113,942
Secondary lead 13,878 15,479 28,815 27,744
Fabricated products 7,429 5,748 14,167 11,962
------------ -------------------------- ------------
Total 198,306 190,018 402,474 369,467
Revenues from other operating segments: (1)
Peruvian operations 23 343 1,549 2,770
Primary lead 554 299 1,123 526
Secondary lead 166 77 361 308
Fabricated products - - 11 -
------------ ------------ ------------- ------------
Total 743 719 3,044 3,604
------------ ------------ ------------- ------------
Total revenues for reportable segments 199,049 190,737 405,518 373,071
Other revenues (2) (707) 1,647 2,515 3,916
Intersegment eliminations (743) (719) (3,044) (3,604)
------------ ------------ ------------- ------------
Total consolidated revenues $ 197,599 $ 191,665 $ 404,989 $ 373,383
============ ============ ============= ============
</TABLE>
(1) Transactions between segments consist of metal sales recorded based
on sales contracts that are negotiated between segments on an
arms-length basis.
(2) Other revenues consist of metal sales not attributed to operating
segments and gains (losses) on hedging transactions.
<TABLE>
<CAPTION>
OPERATING SEGMENTS - EBITDA (EARNINGS THREE MONTHS ENDED SIX MONTHS ENDED
BEFORE INTEREST, TAXES, AND DEPLETION, APRIL 30, APRIL 30,
DEPRECIATION AND AMORTIZATION) -----------------------------------------------------
2000 1999 2000 1999
------------ ------------ ------------ --------------
<S> <C> <C> <C> <C>
Peruvian operations $ 9,813 $ 13,729 $ 22,585 $ 25,244
Primary lead 1,614 8,223 5,706 12,499
Secondary lead 4,471 2,615 7,584 4,839
Fabricated products 800 583 1,352 1,147
------------ ------------ ------------ --------------
Total reportable segments 16,698 25,150 37,227 43,729
Other revenues and expenses (3) (1,053) (600) (160) (2,843)
Corporate selling, general and
administrative expenses (4,584) (4,054) (9,008) (7,827)
Intersegment eliminations 57 322 (17) 150
------------ ------------ ------------ --------------
Consolidated EBITDA 11,118 20,818 28,042 33,209
Depreciation, depletion and amortization (7,299) (8,203) (14,864) (16,380)
Interest income 3,591 3,923 7,219 7,573
Interest expense (15,284) (14,616) (30,425) (29,441)
------------ ------------ ------------ --------------
Income (loss) before income taxes $ (7,874) $ 1,922 $ (10,028) $ (5,039)
============ ============ ============ ==============
</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>
(5) REVOLVING CREDIT FACILITY
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, pending final
documentation.
(6) HEDGING
The fair market value of the Company's hedging positions at April 30,
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 April 30, 2000 were:
FUTURES SALES (PURCHASE) CONTRACTS (NUMBERS NOT IN THOUSANDS)
<TABLE>
<CAPTION>
FAIR
METAL QUANTITY PRICE RANGE MARKET VALUE PERIOD
------------------ ------------------ ----------------------------- ---------------- -------------------------
<S> <C> <C> <C> <C>
Copper 854 tons $.7983/lb. to $.8292/lb. $ 21,688 May 00 to Jun. 00
Lead (40,648) tons $.1991/lb. to $.2468/lb. (2,513,000) May 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 6,943 tons $.7600/lb. to $.8400/lb. $ (559,850) May 00 to Aug. 01
Lead 12,842 tons $.2018/lb. to $.2268/lb. (26,300) May 00 to Aug. 00
Zinc 17,306 tons $.5089/lb. to $.5670/lb. (521,735) May 00 to Jan. 01
Silver 100,000 oz. $5.35/oz. (12,000) May 00 to Jul. 00
</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 2,205 tons $.8000/lb. to $.8323/lb. $ (81,050) May 00 to Sep. 00
Lead 8,543 tons $.2154/lb. to $.2260/lb. (237,250) May 00 to Sep. 00
Zinc 3,472 tons $.4762/lb. to $.5443/lb. (133,425) May 00 to Mar. 01
Silver 50,000 oz. $4.93/oz. (1,000) May 00
Gold 1,500 oz. $280.00/oz. (13,000) May 00 to Mar. 01
</TABLE>
8
<PAGE>
(7) ENVIRONMENTAL AND LITIGATION MATTERS
ENVIRONMENTAL
The Company has recorded a liability of approximately $32,300 as of April
30, 2000, which represents management's best estimate of known
obligations relating to environmental and reclamation matters, which are
discussed below.
DOMESTIC OPERATIONS
The Company is subject to numerous federal, state and local environmental
laws and regulations governing, among other things, air emissions, waste
water discharge, solid and hazardous waste treatment, and storage,
disposal and remediation of releases of hazardous materials. In common
with much of the mining industry, the Company's facilities are located on
sites that have been used for heavy industrial purposes for decades and
may require remediation. The Company has made and intends to continue
making the necessary expenditures for environmental remediation and
compliance with environmental laws and regulations. Environmental laws
and regulations may become more stringent in the future which could
increase costs of compliance.
Primary smelter slag produced by and stored at the primary smelter in
Herculaneum, Missouri is currently exempt from hazardous waste regulation
under the Resource Conservation and Recovery Act of 1976, as amended
(RCRA). The Company has accrued approximately $1,000 related to the
Herculaneum smelter's operations, primarily for closure obligations. If
the slag or other wastes at the smelter were to be regulated as hazardous
waste, the Company may be required to take corrective action under RCRA
at the smelter, as well as to adopt stricter management practices for
these wastes. Further, the Environmental Protection Agency (EPA) has
initiated an investigation of the smelter under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as
amended (CERCLA), which could potentially require remediation similar to
the corrective action mentioned above. The Company expects to sign a
voluntary Administrative Order of Consent (AOC) to study and address
issues related to the slag pile, the community 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.
The Company is working with regulators to develop a new three-year plan
to bring the Herculaneum smelter in compliance with the ambient air
quality standard for lead promulgated under the federal Clean Air Act.
The plan must be completed by September 2000, after which the Company
will implement the control measures identified in the plan. The Company
expects to make capital expenditures for various control measures
totaling approximately $1,100 in fiscal 2000 and anticipates additional
future cash requirements of approximately $8,000 during the three-year
compliance period. Regulators could require that additional measures be
included in the plan, which could increase the amount of anticipated
capital expenditures.
The Company has received notice that it is a potentially responsible
party (PRP) subject to liability under CERCLA at the following sites: six
sites in St. Francois County, Missouri, including the Big River Mine
Tailings site, the Bonne Terre site, the Federal site, the National site,
the Rivermines site and the Leadwood site; the Oronogo-Durenweg site in
Jasper County, Missouri; the Cherokee County site in Cherokee County,
Kansas; the Tar Creek site in Ottawa County, Oklahoma; the Block "P" site
in Cascade County, Montana; and the Missouri Electric Works site in Cape
Girardeau, Missouri. There are two additional sites in St. Francois
County for which the EPA has indicated it will issue notice. These sites
involve historical operations of predecessors of the Company. CERCLA
provides for strict and, in certain circumstances, joint and several
liability for response costs and natural resource damages. The Company
has a reserve as of April 30, 2000 of approximately $12,300 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
9
<PAGE>
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
is expected to be completed in August, 2000, followed by subsequent
monitoring and revegetation. The Company has also signed AOCs to perform
an Engineering Evaluation/Cost Analysis (EE/CA) on the Bonne Terre,
National, Rivermines, and Leadwood sites. In addition to remediating the
mine waste areas at these sites, the Company has signed an AOC with the
EPA to conduct a Remedial Investigation/Feasibility Study (RI/FS) to
assess potential off-site impacts of site operations on and the need for
remediation regarding groundwater, residential soils, several creeks and
a river. The RI/FS is being conducted by a third party with completion
expected within two years. The Company believes the current reserves
assigned to these sites are adequate. However, should remediation goals
or areas change, requiring substantially increased measures, there can be
no assurance that the reserves would be adequate.
The Company has been advised by the EPA that it is considering taking
certain response actions at a mine site in Madison County, Missouri known
as the LaMotte Site. A predecessor of the Company was a former operator
of the site in a joint venture with another company. The EPA has not
decided whether any action will be taken, but the Company 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 may be
required at a related small satellite mine site. The Company is
conducting an investigation as to whether the joint venture operated at
the satellite site. At this time, based on this preliminary meeting 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 future 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 April
30, 2000 of approximately $1,800 for future corrective action and $2,600
for closure costs for the permitted storage area. While management
believes these reserves are adequate, regulators could require that
additional measures be included in the 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 will be
included in permits now subject to renewal. As a result, there will be
additional treatment facilities required, with anticipated total capital
expenditures of approximately $4,000 over the next five years to meet
applicable permit requirements. Management does not expect an appreciable
increase in operating costs.
The Company's mining and milling operations include seven mine waste
disposal facilities that are subject to Missouri mine closure permit
requirements. The total expected cost of closure is $14,600. 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 closure reserves were approximately $7,400 as of April
30, 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
10
<PAGE>
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.
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 April 30, 2000 was approximately $4,700.
Doe Run Peru's Cobriza mine has a separate PAMA to be completed by 2002.
The total cost of capital projects to manage tailings, sewage and garbage
is approximately $9,600, to be expended over the next three fiscal years,
with estimated spending of approximately $6,000 in fiscal 2000, with
approximately $2,700 spent through April 30, 2000.
Doe Run Peru's operations historically and currently exceed some of the
applicable Ministry of Energy and Mines (MEM) maximum permissible limits
pertaining to air emissions, ambient air quality and waste water effluent
quality. The PAMA projects described above have been designed to achieve
compliance with such requirements prior to the expiration of the
respective PAMA periods. No assurance can be given that implementation of
the PAMA projects is feasible or that their implementation will achieve
compliance with the applicable legal requirements by the end of the PAMA
period. Doe Run Peru has advised the MEM that it intends to seek changes
11
<PAGE>
in certain PAMA projects that it believes will more effectively achieve
compliance. However, there can be no assurance that the MEM will approve
proposed changes to the PAMA or that implementation of the changes will
not increase the cost of compliance. Further, there can be no assurance
that the Peruvian government will not in the future require compliance
with additional 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.
According to the purchase agreement, the Company has the option to
continue the use of the La Oroya smelter existing zinc ferrite disposal
site until October 2000, after which it can take ownership of the site or
create a new site. The Company has elected to take ownership of the site,
and has notified Centromin and the Ministry of Energy and Mines of its
intentions. The Company will be responsible for the closure costs
relating to the 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
12
<PAGE>
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.
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.
(8) GUARANTOR SUBSIDIARIES
The Guarantor Subsidiaries (Fabricated Products, Inc. (FPI) and DR Land
Holdings, LLC (the Domestic Guarantors); Doe Run Cayman Ltd. (Doe Run
Cayman) and certain subsidiaries, including Doe Run Mining S.R.L. and its
subsidiaries Doe Run Development S.A.C. and Doe Run Peru) have jointly
and severally, fully, unconditionally and irrevocably guaranteed the
public debt of the Company. Separate financial statements and other
disclosures concerning certain Guarantor Subsidiaries and disclosures
concerning non-Guarantor Subsidiaries have not been presented because
management has determined that such information is not material to
investors. Intercompany transactions eliminated in consolidation consist
of various service and agency fees between The Doe Run Resources
Corporation and Doe Run Mining S.R.L, The Doe Run Resources Corporation
and Doe Run Peru, and Doe Run Mining S.R.L and Doe Run Peru; and sales of
metal to The Doe Run Resources Corporation by Doe Run Peru and to FPI by
The Doe Run Resources Corporation.
13
<PAGE>
(8) GUARANTOR SUBSIDIARIES (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET
APRIL 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
The Company
Excluding Doe Run Cayman
Guarantor Domestic and Certain
Subsidiaries Guarantors Subsidiaries
------------ ---------- ------------
ASSETS
<S> <C> <C> <C>
Current assets:
Cash $ 1,760 $ (488) $ 45
Trade accounts receivable, net of allowance for
doubtful accounts 40,889 7,164 -
Inventories 53,844 2,096 -
Prepaid expenses and other current assets 7,136 143 232
Net deferred tax assets - - -
Due from subsidiaries 17,145 - -
Due from parent - - -
--------- --------- ---------
Total current assets 120,774 8,915 277
Property, plant and equipment, net 133,883 7,351 -
Special term deposit 125,000 - -
Net deferred tax assets - - (72)
Other noncurrent assets, net 11,538 253 220
Investment in subsidiaries 30,876 - 193,316
--------- --------- ---------
Total assets $ 422,071 $ 16,519 $ 193,741
========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings and current maturities
of long-term debt $ 377 $ - $ 1,409
Accounts payable 11,577 3,175 -
Accrued liabilities 27,726 613 3,307
Due to subsidiaries - - 29,054
Due to parent - 10,792 2,768
--------- --------- ---------
Total current liabilities 39,680 14,580 36,538
Long-term debt, less current maturities 329,651 - 126,359
Other noncurrent liabilities 47,800 1,870 -
--------- --------- ---------
Total liabilities 417,131 16,450 162,897
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 (298) (1,137) 28,839
--------- --------- ---------
Total shareholders' equity 4,940 69 30,844
--------- --------- ---------
Total liabilities and shareholders' equity $ 422,071 $ 16,519 $ 193,741
========= ========= =========
<CAPTION>
Doe Run
Peru and The
Subsidiaries Eliminations Company
------------ ------------ ---------
ASSETS
<S> <C> <C> <C>
Current assets:
Cash $ 15,847 $ - $ 17,164
Trade accounts receivable, net of allowance for
doubtful accounts 29,181 (483) 76,751
Inventories 83,949 (37) 139,852
Prepaid expenses and other current assets 28,108 (1,750) 33,869
Net deferred tax assets 2,268 - 2,268
Due from subsidiaries - (17,145) -
Due from parent 29,054 (29,054) -
--------- --------- ---------
Total current assets 188,407 (48,469) 269,904
Property, plant and equipment, net 128,466 - 269,700
Special term deposit - - 125,000
Net deferred tax assets 1,795 - 1,723
Other noncurrent assets, net 260 - 12,271
Investment in subsidiaries - (224,192) -
--------- --------- ---------
Total assets $ 318,928 $(272,661) $ 678,598
========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings and current maturities
of long-term debt $ 8,923 $ - $ 10,709
Accounts payable 40,482 (483) 54,751
Accrued liabilities 18,800 (1,750) 48,696
Due to subsidiaries - (29,054) -
Due to parent 3,585 (17,145) -
--------- --------- ---------
Total current liabilities 71,790 (48,432) 114,156
Long-term debt, less current maturities 46,421 - 502,431
Other noncurrent liabilities 7,401 - 57,071
--------- --------- ---------
Total liabilities 125,612 (48,432) 673,658
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 (105,167) 105,167 -
Foreign currency translation adjustment (19,833) 19,833 -
Retained earnings and accumulated other
comprehensive income 63,115 (90,817) (298)
--------- --------- ---------
Total shareholders' equity 193,316 (224,229) 4,940
--------- --------- ---------
Total liabilities and shareholders' equity $ 318,928 $(272,661) $ 678,598
========= ========= =========
</TABLE>
14
<PAGE>
(8) GUARANTOR SUBSIDIARIES (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF OCTOBER 31, 1999
<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
------------ ---------- ------------
ASSETS
<S> <C> <C> <C>
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>
(8) GUARANTOR SUBSIDIARIES (CONTINUED)
CONSOLIDATING STATEMENT OF OPERATIONS
THREE MONTHS ENDED APRIL 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
The Company
Excluding Doe Run Cayman
Guarantor Domestic and Certain
Subsidiaries Guarantors Subsidiaries
------------ ---------- ------------
<S> <C> <C> <C>
Net sales $ 75,000 $ 7,440 $ 3,057
Costs and expenses:
Cost of sales 64,678 6,281 -
Depletion, depreciation and amortization 4,726 391 -
Selling, general and administrative 4,585 351 2,435
Exploration 941 - -
------------ ---------- ------------
Total costs and expenses 74,930 7,023 2,435
------------ ---------- ------------
Income from operations 70 417 622
Other income (expense):
Interest expense (10,372) (271) (3,670)
Interest income 3,792 - -
Other, net 263 (8) (52)
Equity in earnings of subsidiaries (2,943) - 948
------------ ---------- ------------
(9,260) (279) (2,774)
------------ ---------- ------------
Income (loss) before income tax
expense (9,190) 138 (2,152)
Income tax expense 218 - 985
------------ ---------- ------------
Net income (loss) $ (9,408) $ 138 $ (3,137)
============ ========== ============
<CAPTION>
Doe Run
Peru and The
Subsidiaries Eliminations Company
------------ ---------- ------------
<S> <C> <C> <C>
Net sales $ 120,513 $ (8,411) $ 197,599
Costs and expenses:
Cost of sales 105,201 (799) 175,361
Depletion, depreciation and amortization 2,182 - 7,299
Selling, general and administrative 9,900 (7,668) 9,603
Exploration - - 941
------------ ---------- ------------
Total costs and expenses 117,283 (8,467) 193,204
------------ ---------- ------------
Income from operations 3,230 56 4,395
Other income (expense):
Interest expense (1,238) 267 (15,284)
Interest income 66 (267) 3,591
Other, net (779) - (576)
Equity in earnings of subsidiaries - 1,995 -
------------ ---------- ------------
(1,951) 1,995 (12,269)
------------ ---------- ------------
Income (loss) before income tax
expense 1,279 2,051 (7,874)
Income tax expense 331 - 1,534
------------ ---------- ------------
Net income (loss) $ 948 $ 2,051 $ (9,408)
============ ========== ============
</TABLE>
16
<PAGE>
(8) GUARANTOR SUBSIDIARIES (CONTINUED)
CONSOLIDATING STATEMENT OF OPERATIONS
THREE MONTHS APRIL 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
The Company
Excluding Doe Run Cayman
Guarantor Domestic and Certain
Subsidiaries Guarantors Subsidiaries
------------ ---------- ------------
<S> <C> <C> <C>
Net sales $ 80,024 $ 5,749 $ 2,453
Costs and expenses:
Cost of sales 64,571 4,823 -
Depletion, depreciation and amortization 5,904 381 -
Selling, general and administrative 4,054 314 2,101
Exploration 858 - -
------------ ---------- ------------
Total costs and expenses 75,387 5,518 2,101
------------ ---------- ------------
Income (loss) from operations 4,637 231 352
Other income (expense):
Interest expense (10,170) (270) (3,698)
Interest income 3,797 - -
Other, net (154) (28) 224
Equity in earnings of subsidiaries 2,648 - 6,996
------------ ---------- ------------
(3,879) (298) 3,522
------------ ---------- ------------
Income (loss) before income tax
expense (benefit) 758 (67) 3,874
Income tax expense (benefit) 192 - 1,481
------------ ---------- ------------
Net income (loss) $ 566 $ (67) $ 2,393
============ ========== ============
<CAPTION>
Doe Run
Peru and The
Subsidiaries Eliminations Company
------------ ------------ ------------
<S> <C> <C> <C>
Net sales $ 110,815 $ (7,376) $ 191,665
Costs and expenses:
Cost of sales 91,787 (1,041) 160,140
Depletion, depreciation and amortization 1,918 - 8,203
Selling, general and administrative 9,207 (6,657) 9,019
Exploration - - 858
------------ ---------- ------------
Total costs and expenses 102,912 (7,698) 178,220
------------ ---------- ------------
Income (loss) from operations 7,903 322 13,445
Other income (expense):
Interest expense (748) 270 (14,616)
Interest income 396 (270) 3,923
Other, net (872) - (830)
Equity in earnings of subsidiaries - (9,644) -
------------ ---------- ------------
(1,224) (9,644) (11,523)
------------ ---------- ------------
Income (loss) before income tax
expense (benefit) 6,679 (9,322) 1,922
Income tax expense (benefit) (317) - 1,356
------------ ---------- ------------
Net income (loss) $ 6,996 $ (9,322) $ 566
============ ========== ============
</TABLE>
17
<PAGE>
(8) GUARANTOR SUBSIDIARIES (CONTINUED)
CONSOLIDATING STATEMENT OF OPERATIONS
SIX MONTHS ENDED APRIL 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
The Company
Excluding Doe Run Cayman
Guarantor Domestic and Certain
Subsidiaries Guarantors Subsidiaries
------------ ---------- ------------
<S> <C> <C> <C>
Net sales $ 156,942 $ 14,189 $ 6,530
Costs and expenses:
Cost of sales 133,482 12,192 -
Depletion, depreciation and amortization 9,680 782 -
Selling, general and administrative 9,008 633 4,930
Exploration 1,541 - -
------------ ---------- ------------
Total costs and expenses 153,711 13,607 4,930
------------ ---------- ------------
Income from operations 3,231 582 1,600
Other income (expense):
Interest expense (20,549) (523) (7,347)
Interest income 7,577 - -
Other, net 648 (12) (56)
Equity in earnings of subsidiaries (2,153) - 5,089
------------ ---------- ------------
(14,477) (535) (2,314)
------------ ---------- ------------
Income (loss) before income tax
expense (benefit) (11,246) 47 (714)
Income tax expense (benefit) 435 - 1,469
------------ ---------- ------------
Net income (loss) $ (11,681) $ 47 $ (2,183)
============ ========== ============
<CAPTION>
Doe Run
Peru and The
Subsidiaries Eliminations Company
------------ ------------ ------------
<S> <C> <C> <C>
Net sales $ 246,339 $ (19,011) $ 404,989
Costs and expenses:
Cost of sales 213,831 (3,027) 356,478
Depletion, depreciation and amortization 4,402 - 14,864
Selling, general and administrative 20,024 (15,967) 18,628
Exploration - - 1,541
------------ ------------ ------------
Total costs and expenses 238,257 (18,994) 391,511
------------ ------------ ------------
Income from operations 8,082 (17) 13,478
Other income (expense):
Interest expense (2,522) 516 (30,425)
Interest income 158 (516) 7,219
Other, net (880) - (300)
Equity in earnings of subsidiaries - (2,936) -
------------ ------------ ------------
(3,244) (2,936) (23,506)
------------ ------------ ------------
Income (loss) before income tax
expense (benefit) 4,838 (2,953) (10,028)
Income tax expense (benefit) (251) - 1,653
------------ ------------ ------------
Net income (loss) $ 5,089 $ (2,953) $ (11,681)
============ ============ ============
</TABLE>
18
<PAGE>
(8) GUARANTOR SUBSIDIARIES (CONTINUED)
CONSOLIDATING STATEMENT OF OPERATIONS
SIX MONTHS APRIL 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
The Company
Excluding Doe Run Cayman
Guarantor Domestic and Certain
Subsidiaries Guarantors Subsidiaries
------------ ---------- ------------
<S> <C> <C> <C>
Net sales $ 154,710 $ 11,963 $ 5,722
Costs and expenses:
Cost of sales 129,532 10,036 -
Depletion, depreciation and amortization 11,828 762 -
Selling, general and administrative 7,827 695 4,554
Exploration 1,850 - -
------------ ---------- ------------
Total costs and expenses 151,037 11,493 4,554
------------ ---------- ------------
Income (loss) from operations 3,673 470 1,168
Other income (expense):
Interest expense (20,341) (553) (7,458)
Interest income 7,619 - -
Other, net (559) (84) 834
Equity in earnings of subsidiaries 2,629 - 9,583
------------ ---------- ------------
(10,652) (637) 2,959
------------ ---------- ------------
Income (loss) before income tax
expense (6,979) (167) 4,127
Income tax expense 6,584 - 1,481
------------ ---------- ------------
Net income (loss) $ (13,563) $ (167) $ 2,646
============ ========== ============
<CAPTION>
Doe Run
Peru and The
Subsidiaries Eliminations Company
------------ ------------ ----------
<S> <C> <C> <C>
Net sales $ 218,589 $ (17,601) $ 373,383
Costs and expenses:
Cost of sales 184,533 (3,754) 320,347
Depletion, depreciation and amortization 3,790 - 16,380
Selling, general and administrative 18,581 (13,997) 17,660
Exploration - - 1,850
------------ ------------ ----------
Total costs and expenses 206,904 (17,751) 356,237
------------ ------------ ----------
Income (loss) from operations 11,685 150 17,146
Other income (expense):
Interest expense (1,642) 553 (29,441)
Interest income 507 (553) 7,573
Other, net (508) - (317)
Equity in earnings of subsidiaries - (12,212) -
------------ ------------ ----------
(1,643) (12,212) (22,185)
------------ ------------ ----------
Income (loss) before income tax
expense 10,042 (12,062) (5,039)
Income tax expense 459 - 8,524
------------ ------------ ----------
Net income (loss) $ 9,583 $ (12,062) $ (13,563)
============ ============ ==========
</TABLE>
19
<PAGE>
(8) GUARANTOR SUBSIDIARIES (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
SIX MONTHS ENDED APRIL 30, 2000 (UNAUDITED)
<TABLE>
<CAPTION>
The Company
Excluding Doe Run Cayman
Guarantor Domestic and Certain
Subsidiaries Guarantors Subsidiaries
------------ ---------- ------------
<S> <C> <C> <C>
Net cash provided by (used in) operating activities $(10,170) $ (958) $ (1,597)
Cash flows from investing activities:
Purchases of property, plant and equipment (3,169) (309) -
Investment in subsidiaries 2,153 - (5,089)
------------ ---------- ------------
Net cash provided by (used in)
investing activities (1,016) (309) (5,089)
Cash flows from financing activities:
Proceeds from revolving loans
and short-term borrowings, net 11,747 - -
Payments on long-term debt (174) - -
Loans from parent/subsidiaries (5,824) 2,126 6,692
------------ ---------- ------------
Net cash provided by
financing activities 5,749 2,126 6,692
------------ ---------- ------------
Net increase (decrease) in cash (5,437) 859 6
Cash at beginning of period 7,197 (1,347) 39
------------ ---------- ------------
Cash at end of period $ 1,760 $ (488) $ 45
============ ========== ============
<CAPTION>
Doe Run
Peru and The
Subsidiaries Eliminations Company
------------ ------------ ----------
<S> <C> <C> <C>
Net cash provided by (used in) operating activities $ 11,953 $ (2,936) $ (3,708)
Cash flows from investing activities:
Purchases of property, plant and equipment (12,273) - (15,751)
Investment in subsidiaries - 2,936 -
------------ ------------ ----------
Net cash provided by (used in)
investing activities (12,273) 2,936 (15,751)
Cash flows from financing activities:
Proceeds from revolving loans
and short-term borrowings, net 16,784 - 28,531
Payments on long-term debt (1,620) - (1,794)
Loans from parent/subsidiaries (2,994) - -
------------ ------------ ----------
Net cash provided by
financing activities 12,170 - 26,737
------------ ------------ ----------
Net increase (decrease) in cash 11,850 - 7,278
Cash at beginning of period 3,997 - 9,886
------------ ------------ ----------
Cash at end of period $ 15,847 $ - $ 17,164
============ ============ ==========
</TABLE>
20
<PAGE>
(8) GUARANTOR SUBSIDIARIES (CONTINUED)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
SIX MONTHS ENDED APRIL 30, 1999 (UNAUDITED)
<TABLE>
<CAPTION>
The Company
Excluding Doe Run Cayman
Guarantor Domestic and Certain
Subsidiaries Guarantors Subsidiaries
------------ ---------- ------------
<S> <C> <C> <C>
Net cash provided by (used in) operating activities $ (9,920) $ 378 $ 4,632
Cash flows from investing activities:
Purchases of property, plant and equipment (5,122) (24) -
Investment in subsidiaries (2,628) - (9,846)
------------ ---------- ------------
Net cash provided by (used in)
investing activities (7,750) (24) (9,846)
Cash flows from financing activities:
Proceeds from (payments on) revolving
loans and short-term borrowings, net 10,919 - -
Payments on long-term debt (895) - (426)
Proceeds from sale/leaseback transaction - - -
Payment of deferred financing costs (711) - -
Loans from parent/subsidiaries 8,357 (354) 5,648
------------ ---------- ------------
Net cash provided by (used in)
financing activities 17,670 (354) 5,222
------------ ---------- ------------
Net increase in cash - - 8
Cash at beginning of period - - 21
------------ ---------- ------------
Cash at end of period $ - $ - $ 29
============ ========== ============
<CAPTION>
Doe Run
Peru and The
Subsidiaries Eliminations Company
------------ ------------ ----------
<S> <C> <C> <C>
Net cash provided by (used in) operating activities $ 13,689 $(12,474) $ (3,695)
Cash flows from investing activities:
Purchases of property, plant and equipment (6,654) - (11,800)
Investment in subsidiaries - 12,474 -
------------ ------------ ----------
Net cash provided by (used in)
investing activities (6,654) 12,474 (11,800)
Cash flows from financing activities:
Proceeds from (payments on ) revolving
loans and short-term borrowings, net (7,846) - 3,073
Payments on long-term debt - - (1,321)
Proceeds from sale/leaseback transaction 17,922 - 17,922
Payment of deferred financing costs - - (711)
Loans from parent/subsidiaries (13,651) - -
------------ ------------ ----------
Net cash provided by (used in)
financing activities (3,575) - 18,963
------------ ------------ ----------
Net increase in cash 3,460 - 3,468
Cash at beginning of period 4,625 - 4,646
------------ ------------ ----------
Cash at end of period $ 8,085 $ - $ 8,114
============ ============ ==========
</TABLE>
21
<PAGE>
DOE RUN PERU S.R.L.
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
APRIL 30, OCTOBER 31,
2000 1999
---------------- ---------------
(unaudited)
ASSETS
<S> <C> <C>
Current assets:
Cash $ 15,847 $ 3,997
Trade accounts receivable, net of allowance for
doubtful accounts 29,181 38,864
Inventories 83,949 71,122
Prepaid expenses and other current assets 28,108 27,958
Net deferred tax assets 2,268 2,165
Due from parent/subsidiaries 29,054 23,744
---------------- ---------------
Total current assets 188,407 167,850
Property, plant and equipment, net 128,466 120,595
Net deferred tax assets 1,795 1,646
Other noncurrent assets, net 260 323
---------------- ---------------
Total assets $ 318,928 $ 290,414
================ ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings and current maturities of long-term debt $ 8,923 $ 6,946
Accounts payable 40,482 36,790
Accrued liabilities 18,800 16,547
Due to parent 3,585 1,269
---------------- ---------------
Total current liabilities 71,790 61,552
Long-term debt, less current maturities 46,421 33,234
Other noncurrent liabilities 7,401 7,401
---------------- ---------------
Total liabilities 125,612 102,187
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 (105,167) (104,865)
Foreign currency translation adjustment (19,833) (20,135)
Retained earnings 63,115 58,026
---------------- ---------------
Total shareholders' equity 193,316 188,227
---------------- ---------------
Total liabilities and shareholders' equity $ 318,928 $ 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 SIX MONTHS
ENDED APRIL 30, ENDED APRIL 30,
-------------------------------- --------------------------------
2000 1999 2000 1999
--------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C>
Net sales $ 120,513 $110,815 $246,339 $218,589
Costs and expenses:
Cost of sales 105,201 91,787 213,831 184,533
Depreciation and amortization 2,182 1,918 4,402 3,790
Selling, general and administrative 9,900 9,207 20,024 18,581
--------------- --------------- --------------- ----------------
Total costs and expenses 117,283 102,912 238,257 206,904
--------------- --------------- --------------- ----------------
Income from operations 3,230 7,903 8,082 11,685
Other income (expense):
Interest expense (1,238) (748) (2,522) (1,642)
Interest income 66 396 158 507
Other, net (779) (872) (880) (508)
--------------- --------------- --------------- ----------------
(1,951) (1,224) (3,244) (1,643)
--------------- --------------- --------------- ----------------
Income before income tax expense (benefit) 1,279 6,679 4,838 10,042
Income tax expense (benefit) 331 (317) (251) 459
--------------- --------------- --------------- ----------------
Net income $ 948 $ 6,996 $ 5,089 $ 9,583
=============== =============== =============== ================
</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>
Six Months
Ended April 30,
--------------------------------
2000 1999
--------------- --------------
<S> <C> <C>
Net cash provided by operating activities $ 11,953 $ 13,689
Cash flows from investing activities:
Purchases of property, plant and equipment (12,273) (6,654)
--------------- --------------
Net cash used in investing activities (12,273) (6,654)
Cash flows from financing activities:
Proceeds from (payments on) revolving loans
and short-term borrowings, net 16,784 (7,846)
Payments on long-term debt (1,620) -
Proceeds from sale/leaseback transactions - 17,922
Loans to parent (2,994) (13,651)
--------------- --------------
Net cash provided by (used in) financing activities 12,170 (3,575)
--------------- --------------
Net increase in cash 11,850 3,460
Cash at beginning of period 3,997 4,625
--------------- --------------
Cash at end of period $ 15,847 $ 8,085
=============== ==============
</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 April 30, 2000 and results of operations for the
three and six month periods ended April 30, 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 six months
ended April 30, 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>
April 30, October 31,
2000 1999
----------- -------------
(unaudited)
<S> <C> <C>
Refined metals and concentrates for sale $ 3,839 $ 1,414
Metals and concentrates in process 55,929 47,970
Materials, supplies and spare parts 24,181 21,738
----------- -------------
$ 83,949 $ 71,122
=========== =============
</TABLE>
(3) REVOLVING CREDIT FACILITY
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, pending final documentation.
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 six months ended April 30, 2000 inventories
increased by $19.6 million. In the U.S., inventories increased by
$6.7 million primarily due to normal cyclical increases in
finished goods inventories and to increased production at the
Buick secondary smelter. In Peru, inventories rose $12.9 million
primarily due to a $7.7 million increase in raw material
inventories intended to build a stock of blister copper in
anticipation of major maintenance on the reverberatory furnace in
the copper circuit, scheduled for September of 2000. 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
$2.4 million as increased production exceeded sales volume.
Management anticipates that inventories will continue to increase
during the third quarter but will be reduced significantly during
the fourth quarter so that both finished goods and raw material
inventories are near normal levels by year end.
During the six months ended April 30, 2000, total debt
increased by $27.3 million. This increase, mainly in revolving
loans and short-term borrowings, is primarily due to the
inventory increase discussed above and an increase of $7.3
million in cash outstanding at the end of the period.
RESULTS OF OPERATIONS
The Company reported a net loss of $9.4 million for the
three months ended April 30, 2000 (the 2000 quarter) compared to
net income of $0.6 million for the three months ended April 30,
1999 (the 1999 quarter). The Company's U.S. operations reported a
net loss of $11.0 million (excluding intercompany fee revenue of
$4.6 million) for the 2000 quarter, compared to a net loss of
$6.4 million (excluding intercompany fee revenue of $4.2 million)
in the 1999 quarter, reflecting the effects of lower realizes
prices for lead metal and increased production costs. Peruvian
operations generated net income of $1.5 million for the 2000
quarter (excluding intercompany fees and eliminations of $4.7
million) compared to net income of $6.9 million (excluding
intercompany fees and eliminations of $4.5 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 increased production
and sales volumes.
The Company reported a net loss of $11.7 million for the
six months ended April 30, 2000 (the 2000 period) compared to a
net loss of $13.6 million for the six months ended April 30, 1999
(the 1999 period). The Company's U.S. operations reported a net
loss of $18.9 (excluding intercompany fee revenue of $9.4
million) million for the 2000 period compared to a net loss of
$24.6 million (excluding intercompany fee revenue of $8.3
million) for the 1999 period. This improvement was primarily due
to the absence, in the 2000 period, of the write-off of deferred
tax balances of $6.2 million associated with a change in the
Company's tax status to a qualified subchapter S subsidiary in
the 1999 period. See "Item 1. Financial Statements - Note 2 to
the Company's Consolidated Financial Statements" for a discussion
of the change in tax status. In addition, lower depreciation
expense and improved realized prices for zinc and copper
concentrates contributed to the improvement. These factors were
partially offset by lower
26
<PAGE>
realized prices for lead metal and increased production costs. Peruvian
operations generated net income of $7.3 million for the 2000 period
(excluding intercompany fees and eliminations of $9.4 million) compared to
net income of $11.0 million (excluding intercompany fees and eliminations of
$8.4 million) for the 1999 period. The decrease in Peruvian net income was
primarily due to the factors discussed above.
The Company's results for the three months and the six months ended
April 30, 2000 reflect declines in the market price of lead metal and
increases in the price of copper and zinc from the prior year. The following
table sets forth the average London Metal Exchange (LME) prices for lead,
copper and zinc and the average London Bullion Market Association (LBMA)
price for silver for the periods indicated:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
April 30, April 30,
------------------------------ ------------------------------
2000 1999 2000 1999
-------------- --------------- --------------- --------------
<S> <C> <C> <C> <C>
AVERAGE PRICES
Lead ($/short ton) $ 398.40 $ 465.60 $ 415.20 $ 457.80
Copper ($/short ton) 1,580.80 1,284.80 1,596.40 1,319.80
Zinc ($/short ton) 1,009.00 927.40 1,034.80 896.40
Silver ($/troy ounce) 5.12 5.26 5.15 5.13
</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. Current prices are near historical lows.
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 reduction of LME
inventories. Over the past ten years, the average LME price of lead has been
approximately $540/short ton. Management believes that lead prices, over the
long term, will reflect the historical industry average.
As a result of the current low lead price the Company's U.S.
operations had operating losses in the quarter and the six months ended April
30, 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 during the
remainder of fiscal 2000. 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 Six Months Ended
April 30, April 30,
------------------------ -------------------------
2000 1999 2000 1999
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
U.S. OPERATIONS
Lead metal - primary (short tons) 91,436 98,223 190,642 191,137
Lead metal - secondary (short tons) 36,936 27,685 69,538 54,817
Lead concentrates (metal content, short tons) 87,669 100,444 166,860 192,014
Ore Grade (lead content) 5.99% 5.59% 5.73% 5.57%
PERUVIAN OPERATIONS
Refined copper (short tons) 18,089 18,113 36,438 35,464
Refined lead (short tons) 32,413 29,239 64,893 58,758
Refined zinc (short tons) 21,206 19,533 42,655 39,457
Refined silver (thousands of troy ounces) 8,588 7,597 17,346 15,664
Refined gold (thousands of troy ounces) 20 18 50 33
</TABLE>
The Company continues to evaluate mine production plans in light of
persistent low lead metal prices. Selective mining of higher grade ore caused
a reduction in the total ore mined, which was down 18% in the 2000 quarter
and 16% in the 2000 period, compared to the prior year. As a result,
production of lead metal in concentrates decreased by approximately 13% in
both the 2000 quarter and the 2000 period, compared to the prior year.
On April 19, 2000 the Company announced further changes intended
to increase grade and lower unit production costs. These changes, which will
be implemented beginning in the third quarter, involve 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 will be idled
and placed on care and maintenance and three of the Company's eight mines
will be effectively idled, producing only small quantities of selected high
grade ore. Under this new operating mode, annualized tons of ore mined will
be reduced approximately 20% from the fiscal 1999 levels, but the lead and
zinc grades will improve by approximately 12% and 21% respectively.
Annualized production of lead metal contained in concentrates will be reduced
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 at capacity. These concentrates have been secured for
fiscal 2000. In addition to production changes, management continues to
pursue cost reduction initiatives, including retaining consultants to perform
an in-depth cost analysis at the mining/milling operations. The benefits of
these changes should result in lower unit production cost beginning in the
fourth quarter of fiscal 2000.
Primary smelter production for the 2000 quarter was 7% 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 Herculaneum primary
smelter for the 2000 quarter was 10% less than the 1999 quarter due to
metallurgical and other furnace problems that affected the smelter throughout
the quarter. On March 14, 2000, one of Herculaneum's blast furnaces was taken
offline for major repairs, which were completed in early May. Production
returned to normal levels in the second half of May. Despite shortfall in the
second quarter, Herculaneum's production for the 2000 period was only 1% less
than the 1999 period. Management expects that Herculaneum can achieve the
planned production level by year-end. Production at the Company's Glover
primary smelter for the 2000 quarter was about 1% less than the 1999 quarter
due to the structural failure of a storage hopper that caused furnace and
sinter plant downtime. Glover's production for the 2000 period was 1% better
than the 1999 period.
28
<PAGE>
Secondary smelter production exceeded the prior year by 33% for the
three months and 27% for the six months ended April 30, 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 and 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 impacts of
these changes are reflected in La Oroya's production performance. In the 2000
quarter, production of lead, zinc, silver and gold all exceeded the 1999
quarter and copper production was about the same as the prior year. For the
2000 period, production of all the main metals was better than the 1999
period. Lead and silver production were up more than 10% and gold bullion
production improved by more than 50%, compared to the prior year. The
increases in silver and gold production were primarily the result of
acquiring concentrate feed with higher contents of these metals.
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 Six Months Ended
April 30, April 30,
------------------------- ------------------------
2000 1999 2000 1999
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Net sales (a) $ 77,109 $ 81,193 $ 160,199 $ 157,564
Costs and expenses:
Cost of sales 70,254 69,036 144,196 138,699
Depreciation and amortization 5,117 6,285 10,462 12,590
Selling, general and administrative 4,936 4,368 9,641 8,522
Exploration 941 858 1,541 1,850
------------ ------------ ------------ -----------
Total costs and expenses 81,248 80,547 165,840 161,661
------------ ------------ ------------ -----------
Income from operations (4,139) 646 (5,641) (4,097)
Other income (expense)
Interest expense (10,376) (10,170) (20,556) (20,341)
Interest income 3,525 3,527 7,061 7,066
Other, net 255 (182) 636 (643)
------------ ------------ ------------ -----------
(6,596) (6,825) (12,859) (13,918)
------------ ------------ ------------ -----------
Loss before income tax expense (10,735) (6,179) (18,500) (18,015)
Income tax expense 218 192 435 6,584
------------ ------------ ------------ -----------
Net loss $ (10,953) $ (6,371) $ (18,935) $ (24,599)
============ ============ ============ ===========
</TABLE>
(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:
<TABLE>
<S> <C> <C> <C> <C>
Net Sales $ 4,611 $ 4,204 $ 9,437 $ 8,275
SALES VOLUMES (SHORT TONS)
Lead metal 103,289 107,099 211,547 212,116
Zinc concentrates 25,218 27,197 47,709 50,171
Copper concentrates 3,626 3,850 7,505 7,316
REALIZED PRICES ($/SHORT TON)(b)
Lead metal $511.12 $548.04 $527.13 $535.50
Zinc concentrates 337.85 305.55 353.39 291.26
Copper concentrates 295.64 229.09 290.21 206.53
</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 Six Months Ended
April 30, April 30,
-------------------------- ----------------------------
2000 1999 2000 1999
------------- ------------ -------------- -------------
<S> <C> <C> <C> <C>
Net sales (a) $ 120,490 $ 110,472 $ 244,790 $ 215,819
Costs and expenses:
Cost of sales (a) 105,107 91,104 212,282 181,648
Depreciation and amortization 2,182 1,918 4,402 3,790
Selling, general and administrative (a) 4,667 4,651 8,987 9,138
------------- ------------ -------------- -------------
Total costs and expenses 111,956 97,673 225,671 194,576
------------- ------------ -------------- -------------
Income from operations 8,534 12,799 19,119 21,243
Other income (expense)
Interest expense (4,908) (4,446) (9,869) (9,100)
Interest income 66 396 158 507
Other, net (831) (648) (936) 326
------------- ------------ -------------- -------------
(5,673) (4,698) (10,647) (8,267)
------------- ------------ -------------- -------------
Income before income tax expense 2,861 8,101 8,472 12,976
Income tax expense 1,316 1,164 1,218 1,940
------------- ------------ -------------- -------------
Net income $ 1,545 $ 6,937 $ 7,254 $ 11,036
============= ============ ============== =============
</TABLE>
(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:
<TABLE>
<S> <C> <C> <C> <C>
Net sales $ 23 $ 343 $ 1,549 $ 2,770
Cost of sales 94 683 1,549 2,885
Selling, general and administrative expense 4,611 4,204 9,437 8,275
SALES VOLUMES
Copper (short tons) 18,719 18,165 36,527 35,363
Lead (short tons) 32,017 30,564 59,910 54,770
Zinc (short tons) 21,369 19,514 41,409 39,071
Silver (thousands of troy ounces) 8,476 7,804 17,200 15,640
Gold (thousands of troy ounces) 20 14 50 30
REALIZED PRICES (b)
Copper ($/short ton) $1,601.60 $1,288.66 $1,612.63 $1,328.29
Lead ($/short ton) 427.10 488.90 438.29 484.13
Zinc ($/short ton) 1,049.66 940.55 1,072.22 914.43
Silver ($/troy ounce) 5.13 5.29 5.17 5.14
Gold ($/troy ounce) 285.86 286.07 289.21 289.70
</TABLE>
(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.
31
<PAGE>
Results of operations for the three months and the six months ended
April 30, 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 $197.6 million compared to $191.7
million in the 1999 quarter. An increase of $10.0 million is attributable to
Peruvian operations. U.S. net sales were $4.1 million, or 5%, lower in the
2000 quarter, compared to the 1999 quarter, primarily due to lower realized
prices for, and lower volume of, lead metal sales. Lead metal net sales
decreased from $58.7 million in the 1999 quarter to $52.8 million in the 2000
quarter. Of this decrease, $2.1 million is attributable to a 4% reduction in
lead metal sales volume. Management anticipates selling this lead at higher
prices and higher premiums in the fourth quarter. Lower realized prices for
lead metal accounted for a decrease of $3.8 million in lead metal net sales.
Despite a 14% decrease in the LME average lead price, the net realized price
for lead metal was only 7% lower in the 2000 quarter, compared to the 1999
quarter. 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. The
decrease in lead metal sales was partially offset by an increase of
approximately $1.1 million in sales by Seafab Metals Company (Seafab), a
division of FPI, and by a 10% increase in the volume of toll lead. The
increase at Seafab was the result of improved production volume and increased
sales of lead-silver anodes, which is a higher value product.
Net sales for the 2000 period were $405.0 million compared to
$373.4 million for the 1999 period. An increase of $29.0 million is
attributable to Peruvian operations. U.S. net sales for the 2000 period were
$2.6 million more than the 1999 period due primarily to increased realized
prices for zinc concentrates and higher toll lead volumes, partially offset
by lower lead metal prices. The average LME price for lead metal declined 9%
in the 2000 period, compared to the 1999 period. However, as a result of
improved premiums, the Company's net realized price was only 2% lower than
the prior year reducing net sales by $1.8 million. Zinc and copper
concentrate sales were $2.9 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 14% increase in toll lead
volume, which contributed $1.4 million to the net sales increase. Other sales
were slightly lower as increased sales at Seafab were more than offset by
lower cable stripping fees and sales of other by-products.
COST OF SALES for the 2000 quarter was $175.4 million compared to
$160.1 million for the 1999 quarter. An increase of $14.0 million is
attributable to Peruvian operations. U.S. cost of sales for the 2000 quarter
was $1.2 million more than the 1999 quarter. This increase is primarily
attributable to a 6% increase in the per unit production cost of lead metal.
Several factors contributed to the increase in production cost per ton,
including: 1) the impact of reduced mine production volume, 2) the impact of
lower primary smelter production volume, 3) repair costs associated with the
primary smelter production problems discussed previously, and 4) increased
costs related to production of lead alloy products. These factors were
somewhat mitigated by the impact of increased secondary smelter production
volume. The increase in lead metal unit production cost was partially offset
by sales volume changes, primarily reduced volume of lead metal sales.
Cost of sales for the 2000 period was $356.5 million compared to
$320.3 million for the 1999 period. Of this increase, $30.6 million is
attributable to Peruvian operations. U.S. cost of sales for the 2000 period
increased by $5.5 million compared to the 1999 period. For the reasons
discussed above, the unit production cost of lead metal increased by 5%,
compared to the prior year, accounting for $5.0 million of the cost of sales
increase. The increased volume at Seafab contributed $1.6 million to the cost
of sales increase. These increases were partially offset by lower processing
costs for toll metal.
DEPLETION, DEPRECIATION AND AMORTIZATION for the 2000 quarter
decreased by $0.9 million compared to the 1999 quarter. For the 2000 period,
depletion, depreciation and amortization decreased
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by $1.5 million compared to the 1999 period. Increases of $0.3 million for
the 2000 quarter and $0.6 million for the 2000 period are attributable to
Peruvian operations. The decreases in depletion, depreciation, and
amortization for U.S. operations of $1.2 million for the 2000 quarter and
$2.1 million for the 2000 period were primarily attributable to a significant
number of assets with five-year lives becoming fully depreciated in March of
1999 and to a reduction in depletion expense associated with lower mine
production rates and the shifting of production to areas with lower depletion
rates.
EXPLORATION expense for the 2000 quarter was approximately the same
as the 1999 quarter. For the 2000 period, exploration expense decreased $0.3
million compared to the 1999 period primarily due to the completion of
underground test work on a Missouri property, which was in process during the
1999 period. 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 $4.4 million compared
to $13.4 million for the 1999 quarter. For the 2000 period, operating income
was $13.5 million compared to $17.1 million for the 1999 period. Decreases of
$4.3 million for the quarter and $2.1 million for the six months are
attributable to Peruvian operations. The remainder of the changes are
primarily due to the factors discussed above.
OTHER NET, income was $0.6 million in the 2000 quarter compared to
$0.8 in the 1999 quarter. An increase in other net expense of $0.2 million is
attributable to Peruvian operations. For U.S. operations, other net income
was $0.3 million in the 2000 quarter compared to other net expense of $0.2
million in the 1999 quarter. The change is primarily due to rental income on
capital assets provided for Peruvian operations, which was not in the prior
year.
Other net, expense was $0.3 million in the 2000 period,
approximately the same as the 1999 period. An increase in other net expense
of $1.2 million is attributable to Peruvian operations. For U.S. operations,
other net income was $0.6 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 provided for Peruvian operations, which was not in
the prior year, and reductions in other taxes and losses on retirements of
assets.
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.
RESULTS OF PERUVIAN OPERATIONS
NET SALES in the 2000 quarter were $120.5 million compared to $110.5
million in the 1999 quarter. This increase is primarily the result of higher
sales volumes of all of La Oroya's main metals and improved realized prices
for copper and zinc, partially offset by lower realized prices for lead,
silver and gold. The production improvements discussed previously increased
refined silver sales volume by 9%, increasing net sales by $3.6 million.
Volume increases for the other main metals, partially offset by reduced
by-product sales, contributed another $1.3 million to the net sales increase.
The LME average price for copper was 23% higher in the 2000 quarter, compared
to the 1999 quarter. As a result, the Company's net realized price for
refined copper increased by 24% in the 2000 quarter, increasing net sales by
$5.9 million. Improved realized prices for zinc contributed another $2.3
million to the net sales increase. These increases were partially offset by
lower realized prices for lead, silver and gold.
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Net sales for the 2000 period were $244.8 million compared to
$215.8 million in the 1999 period. The increase is primarily the result of
higher sales volumes for all of the main metals and improved realized prices
for copper, zinc and silver, partially offset by lower realized prices for
lead and gold, and reduced by-product sales. The production improvements
discussed previously increased refined silver sales volume by 1.6 million
ounces or 10%, increasing net sales by $8.0 million. Gold bullion sales
volume was up by 20.5 thousand ounces or 69%, compared to the prior year,
accounting for $5.9 million of the sales increase. Higher copper, lead and
zinc volumes added another $6.4 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 $10.4 million. Improvements in zinc realized
prices added $6.3 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 $4.1 million, and the absence of blister copper
sales in the 2000 period, compared to $6.8 million in the 1999 period.
Blister copper sales were eliminated in the 2000 in favor of more profitable
refined copper sales.
COST OF SALES increased from $91.1 million in the 1999 quarter to
$105.1 million in the 2000 quarter. Sales volume increases, primarily in
silver, gold and zinc, account for an increase of $7.3 million in cost of
sales. A 36% increase in the unit production cost of refined copper
contributed $7.8 million to the increase in cost of sales. This increase was
primarily the result of higher feed costs for copper due to: 1) the 23%
increase in LME copper price, 2) an increase in the cost of concentrates
produced by the Company's Cobriza mining operation resulting from higher
operating costs, coupled with a 14% decrease in the grade of ore mined, and
3) a reduction in copper treatment charges of approximately 4%. 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.
Cost of sales was $212.3 million the 2000 period compared to $181.6
million in the 1999 period. Higher sales volumes for all of the main metals
increased cost of sales by $17.2 million. Increased production cost for
refined copper, due to the factors discussed above, added $14.2 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 $0.6 million the 2000 period, compared to the prior
year, primarily due to recent capital additions.
INCOME FROM OPERATIONS decreased $4.3 million in the 2000 quarter
compared to the 1999 quarter and $2.1 million in the 2000 period compared to
the 1999 period due primarily to the factors discussed above.
INTEREST INCOME decreased $0.3 million for the 2000 quarter and 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, expense increased by $0.2 million in the 2000 quarter
compared to the 1999 quarter. The change is primarily due to expense for air
transportation services, which was not in the prior year.
Other net, expense was $0.9 million in the 2000 period compared to
other net income of $0.3 million in the 1999 period. The change is due to
expense for air transportation services, which was not in the prior year, and
to fluctuations in foreign currency transaction gains and losses, resulting
primarily from changes in the exchange rate, partially offset by other
miscellaneous income items.
INCOME TAXES for the 2000 quarter and the 2000 period reflects
interest and other losses of a Peruvian subsidiary that are not deductible
for tax purposes.
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LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity requirements arise from its working capital
requirements, and capital investment and debt service obligations. The
Company's primary available sources of liquidity are cash provided by
operating activities and two revolving credit facilities. In the U.S., the
Company has available a revolving credit facility (the Doe Run Revolving
Credit Facility) that provides for advances by the lender to a maximum of
$100.0 million less outstanding letters of credit, based on specific
percentages of eligible receivables and inventories. As of April 30, 2000,
$23.6 million was outstanding, exclusive of $5.5 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
April 30, 2000, $35.0 million was outstanding under the Doe Run Peru
Revolving Credit Facility. The Company also has available, in Peru, unsecured
and uncommitted credit arrangements and additional availability related to
letters of credit and customs bonds, provided by local banks. At April 30,
2000, $5.4 million exclusive of $16.3 million of letters of credit and
customs bonds was outstanding under these arrangements. Borrowings under the
Peruvian working capital facilities, including the Doe Run Peru Revolving
Credit Facility, are limited to $60.0 million under the indentures governing
the Notes.
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, subject to
documentation. In addition, the lender approved an independent line of $10.0
million for the issuance of guarantee letters. Unlike the Revolving Credit
Facility, this independent line is not committed and is subject to
modification or cancellation at the option of the lender.
Net unused availability at April 30, 2000 was $32.2 million under the
Doe Run Revolving Credit Facility and $15.0 million under the Doe Run Peru
Revolving Credit Facility. In addition to availability under the credit
facilities, the Company had $17.2 million of cash at April 30, 2000.
In the 2000 quarter, cash provided by operating activities was $2.0
million, cash used in investing activities was $7.3 million and cash provided
by financing activities was $18.4 million. For the 2000 period, cash used in
operating activities was $3.7 million, cash used in investing activities was
$15.8 million and cash provided by financing activities was $26.7 million.
In the U.S., the Company had capital expenditures of $3.5 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
$70.2 million on qualifying expenditures under the investment commitment
through April 30, 2000. The current estimate of completed expenditures is
less than previously reported as a recently received independent audit
certification disallowed certain expenditures, through October 31, 1999,
which were previously believed to qualify. Peruvian operations had capital
expenditures of $12.3 million in the 2000 period and have projected total
capital expenditures for fiscal 2000 of approximately $24.5 million,
primarily for environmental improvements and to support ongoing operations.
The Company has substantial indebtedness and debt service
requirements. As of April 30, 2000, on a consolidated basis, the Company had
$513.1 million of indebtedness outstanding, or $388.1
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million net of the Special Term Deposit securing certain indebtedness.
Management believes that cash flows from operations, in addition to
availability under the revolving credit facilities, will be sufficient to
meet the Company's liquidity needs for the foreseeable future. However, metal
prices sustained at current levels for an extended period, or decreasing
further, will adversely impact liquidity. Should this occur, 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, including requirements that the Company satisfy
certain financial ratios in order to incur additional indebtedness. The
ability of the Company to meet its debt service requirements and to comply
with such covenants is dependent upon future operating performance and
financial results which are subject to financial, economic, political,
competitive and other factors affecting the Company, many of which are beyond
the Company's control.
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; increasing industry capacity and levels of
imports of non-ferrous metals or non-ferrous metals products; industry
trends, including product pricing; competition; currency fluctuations; the
loss of any significant customer; availability of qualified personnel;
effects of future collective bargaining agreements; outcome of litigation;
and major equipment failures. These forward-looking statements speak only as
of the date of this report. The Company expressly disclaims any obligation or
undertaking to disseminate any updates or revisions to any forward-looking
statement contained herein to reflect any change in the Company's
expectations with regard thereto or any change in events, conditions, or
circumstances on which any such statement is based.
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 May 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 April 30,
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.
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PART II. OTHER INFORMATION.
ITEM 2. LEGAL PROCEEDINGS.
On February 14, 2000, CITY OF ST. LOUIS VS. LEAD INDUSTRIES
ASSOCIATION, INC. ET AL was filed in the Circuit Court of the City of St.
Louis, Missouri. The Company and several other parties were named defendants
in the suit for costs allegedly incurred and to be incurred by the plaintiff
for the care of lead-poisoned persons, education programs for children
injured by exposure to lead and the abatement of lead hazards 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.
See "Item 1. Financial Statements - Note 7 to the Company's
Consolidated Financial Statements" for information regarding other pending
litigaion.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) EXHIBITS.
Exhibit 10.1.1 Amendments to Contract for a Line of
Credit in Foreign Currency, dated June
11, 1998 (with English translation)
Exhibit 27 Financial Data Schedule
S I G N A T U R E S
Pursuant to the requirements of the Securities
Exchange Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned thereunto duly
authorized.
THE DOE RUN RESOURCES CORPORATION
(Registrant)
<TABLE>
<S> <C>
June 8, 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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