1994
Third Quarter
Form 10-Q
---------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 1994 Commission file number 1-164
------------------- -----
ASARCO Incorporated
--------------------
(Exact name of registrant as specified in its charter)
New Jersey 13-4924440
---------- ----------
(State or other jurisdiction of (I.R.S Employer
incorporation or organization) Identification No.)
180 Maiden Lane, New York, N.Y. 10038
------------------------------ -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 212-510-2000
------------
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No
--- ---
As of October 31, 1994 there were outstanding 42,073,288 shares of
Asarco Common Stock, without par value.
</PAGE>
<PAGE>
ASARCO Incorporated
and Consolidated Subsidiaries
INDEX TO FORM 10-Q
------------------
Page No.
--------
Part I. Financial Information:
- -------------------------------
Item 1. Financial Statements (unaudited)
Consolidated Statement of Earnings
Three Months and Nine Months Ended 2
September 30, 1994 and 1993
Consolidated Balance Sheet
September 30, 1994 and December 31, 1993 3
Consolidated Statement of Cash Flows
Three Months and Nine Months Ended 4
September 30, 1994 and 1993
Notes to Consolidated Financial Statements 5-7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 8-12
Exhibit I - Report of Independent Accountants
Part II. Other Information:
- ----------------------------
Item 1. Legal Proceedings 13-14
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
</PAGE>
- 1 -
<PAGE>
ASARCO Incorporated
and Consolidated Subsidiaries
CONSOLIDATED STATEMENT OF EARNINGS
----------------------------------
(unaudited)
<TABLE>
<CAPTION>
3 Months Ended 9 Months Ended
September 30, September 30,
1994 1993 1994 1993
---- ---- ---- ----
(in thousands) (in thousands)
<S> <C> <C> <C> <C>
Sales of products and services $512,968 $425,180 $1,443,705 $1,300,823
Operating costs and expenses:
Cost of products and services 450,907 384,907 1,294,809 1,217,636
Selling, administrative and
other 19,968 19,760 59,348 61,823
Provision (recovery) for bad
debts 648 732 (2,086) 2,088
Depreciation and depletion 20,396 21,193 62,727 62,677
Research and exploration 5,541 5,378 13,875 15,959
Provision for environmental
matters 46,585 2,410 51,159 2,819
------ -------- --------- ---------
Total operating costs and
expenses 544,045 434,380 1,479,832 1,363,002
------- -------- --------- ---------
Operating income (loss) (31,077) (9,200) (36,127) (62,179)
Interest expense (16,103) (14,719) (45,104) (42,250)
Other income 1,918 5,513 7,429 15,612
Gain from sale of Asarco
Australia capital stock - 3,270 - 3,270
Gain on sale of Asarco
Australia Limited - 10,286 58,512 10,286
------- -------- -------- ---------
Earnings (loss) before taxes on
income and equity earnings (45,262) (4,850) (15,290) (75,261)
Taxes on income (benefit) (15,249) (1,323) (297) (16,737)
-------- ------- -------- ---------
Earnings (loss) before equity
earnings (30,013) (3,527) (14,993) (58,524)
Equity in earnings (losses) of
nonconsolidated associated
companies, net of taxes of
$1,279 and $2,959 in 1994 13,864 499 30,812 484
-------- ------- -------- ---------
Net earnings (loss) $ (16,149) $(3,028) $ 15,819 $ (58,040)
======== ======== ======== =========
Per share amounts:
Net earnings (loss) (a) $ (.39) $ (.08) $ .38 $ (1.40)
======== ======= ========= =========
Cash dividends $ 0.10 $ 0.10 $ 0.30 $ 0.40
Weighted average number of
shares outstanding 41,942 41,623 41,850 41,564
</TABLE>
(a) The effect on the calculation of net earnings per common share
of the Company's Common Stock equivalents (shares under option)
was insignificant.
See notes to financial statements
</PAGE>
- 2 -
<PAGE>
ASARCO Incorporated
and Consolidated Subsidiaries
CONSOLIDATED BALANCE SHEET
--------------------------
(unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1994 1993
---- ----
(in thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 19,881 $ 12,500
Accounts and notes receivable, net 371,940 312,178
Inventories 274,679 245,034
Other assets 36,268 31,537
Investment in Asarco Australia Limited - 18,573
---------- -----------
Total current assets 702,768 619,822
Investments:
Cost method 836,888 783,417
Equity method 375,933 346,927
Property 2,478,137 2,497,605
Accumulated depreciation and depletion (1,193,116) (1,192,153)
Intangible and other assets 103,589 96,880
----------- -----------
Total assets $ 3,304,199 $ 3,152,498
=========== ===========
LIABILITIES
Current liabilities:
Bank loans $ 7,228 $ 16,875
Current portion of long-term debt 14,316 14,801
Accounts payable 287,616 264,738
Salaries and wages 20,754 15,759
Taxes on income 36,494 29,516
Reserve for closed plant and
environmental matters 44,179 46,409
Other liabilities 35,904 30,582
---------- -----------
Total current liabilities 446,491 418,680
Long-term debt 905,976 868,871
Deferred income taxes 166,303 147,864
Reserve for closed plant and
environmental matters 86,158 69,694
Postretirement benefit obligations other
than pensions 93,347 92,943
Other liabilities and reserves 80,273 82,848
---------- -----------
Total liabilities 1,778,548 1,680,900
---------- -----------
COMMON STOCKHOLDERS' EQUITY
Common stock (a) 569,003 550,726
Unrealized gain on securities reported
at fair value 147,411 112,729
Retained earnings 809,237 808,143
---------- -----------
Total common stockholders' equity 1,525,651 1,471,598
---------- -----------
Total liabilities and common
stockholders' equity $ 3,304,199 $ 3,152,498
=========== ===========
(a) Common shares: authorized 80,000;
outstanding: 42,039 41,718
See notes to financial statements
</TABLE>
</PAGE>
- 3 -
<PAGE>
ASARCO Incorporated
and Consolidated Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS
-------------------------------------
(unaudited)
<TABLE>
<CAPTION>
3 Months Ended 9 Months Ended
September 30, September 30,
1994 1993 1994 1993
---- ---- ---- ----
(in thousands) (in thousands)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net earnings (loss) $ (16,149) $(3,028) $15,819 $(58,040)
Adjustments to reconcile net
earnings (loss) to net cash
provided from (used for) operating
activities:
Depreciation and depletion 19,757 21,193 62,727 62,677
Deferred income taxes (13,364) 4,667 302 (3,041)
Treasury stock used for employee
benefits 1,261 1,066 3,703 3,553
Undistributed equity (earnings)
losses (10,840) 822 (24,967) 1,049
Net gain on sale of investments,
property and Asarco Australia
Limited (221) (12,610) (59,510) (14,189)
Increase (decrease) in reserve
for closed plant and
environmental matters 25,543 (8,089) 14,234 (18,845)
Cash provided from (used for)
operating assets and
liabilities:
Accounts and notes receivable 18,675 (46,100) (57,421) 4,852
Inventories (5,259) 23,228 (28,747) 28,359
Accounts payable and accrued
liabilities (62,999) 42,612 29,301 31,538
Other operating liabilities
and reserves 11,131 12,085 7,388 10,854
Other operating assets (4,905) (4,082) (11,311) (1,601)
Foreign currency transaction
losses 191 542 2,498 574
------- ------- ------- ------
Net cash provided from (used for)
operating activities (37,179) 32,306 (45,984) 47,740
------- ------- ------- ------
INVESTING ACTIVITIES
Capital expenditures (31,651) (20,021) (55,583) (86,783)
Proceeds from sale of securities,
property and Asarco Australia
Limited 72,929 37,297 215,091 93,045
Purchase of investments (59,863) (21,101) (123,063) (80,793)
------- ------- -------- -------
Net cash provided from (used for)
investing activities (18,585) (3,825) 36,445 (74,531)
------- ------- ------- -------
FINANCING ACTIVITIES
Debt incurred 62,217 145 108,096 337,612
Debt retired (595) (38,549) (80,956) (311,273)
Net treasury stock transactions 3,225 18 3,707 227
Dividends paid (4,196) (4,163) (12,557) (16,623)
------- ------- ------- -------
Net cash provided from (used for)
financing activities 60,651 (42,549) 18,290 9,943
------- ------- ------- -------
Effect of exchange rate changes on
cash (1,039) (728) (1,370) (2,289)
------- ------- ------- -------
Increase (decrease) in cash and
cash equivalents 3,848 (14,796) 7,381 (19,137)
Cash and cash equivalents at
beginning of period 16,033 28,907 12,500 33,248
------- ------- ------- -------
Cash and cash equivalents at end of
period $19,881 $14,111 $19,881 $14,111
======= ======= ======= =======
</TABLE>
See notes to financial statements
</PAGE>
- 4 -
<PAGE>
ASARCO Incorporated
and Consolidated Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
A. In the opinion of the Company, the accompanying consolidated
financial statements contain all adjustments (consisting only of
normal recurring adjustments) necessary to present fairly the
Company's financial position as of September 30, 1994 and the
results of operations and cash flows for the three months and
nine months ended September 30, 1994 and 1993. This financial
data has been subjected to a limited review by Coopers & Lybrand
L.L.P., the Company's independent accountants. Their report is
filed as an exhibit to this filing. The results of operations
for the three and nine month periods are not necessarily
indicative of the results to be expected for the full year.
B. Inventories were as follows:
(in millions)
<TABLE>
<CAPTION>
Sept. 30, Dec. 31,
1994 1993
---- ----
<S> <C> <C>
Inventories of smelters, refineries and
other metal plants at LIFO cost or market $ 12.5 $ 12.7
Provisional cost of metals received for
which prices have not yet been fixed 62.9 44.2
Mine inventories at FIFO cost or market 111.2 98.6
Materials and supplies (average cost or
less) 65.0 62.4
Other 23.1 27.1
------ ------
Total $274.7 $245.0
====== ======
</TABLE>
At September 30, 1994, replacement cost exceeded inventories
carried at LIFO cost by approximately $137.9 million (December
31, 1993 - $114.1 million).
C. Hedging activities:
Substantially all of the Company's copper and lead production is
sold under annual contracts. To the extent not sold under
annual contracts, production can be sold on commodity exchanges
or to merchants or consumers on a spot sale basis. Zinc is sold
in the form of concentrates under contracts of one to three
years' duration. Silver and gold are sold under monthly
contracts or in spot sales. Sales prices are generally based on
the average of prevailing commodity prices for the scheduled
month of delivery or shipment according to the terms of the
contracts.
Depending on the market fundamentals of a metal and other
conditions, the Company may enter into forward sales or purchase
put options or establish synthetic put options to reduce or
eliminate the risk of metal price declines on its anticipated
future production. Put options purchased by the Company
establish a minimum price for the production covered by such put
options and permit the Company to participate in price increases
above the strike price of such put options. Forward sales
establish a selling price for future production at the time they
are entered into, thereby eliminating the risk of declining
prices but also eliminating potential gains on price increases
if not bought back. Synthetic put options are established by
entering into a forward sale and purchasing a call option for
the same quantity of the relevant metal and for the time period
relating to such forward sale. The forward sale establishes a
minimum price that will be realized, while the call option
permits the Company to participate in price increases. Gains
and losses on hedge contracts are reported as a component of the
underlying transaction.
</PAGE>
- 5 -
<PAGE>
As of September 30, 1994 the Company had copper put options with
an average strike price of 90.0 cents per pound covering 6,900
tons of 1994 production representing approximately 10% of the
Company's expected fourth quarter 1994 copper production, and
copper put options with an average strike price of 91.9 cents
per pound covering 137,600 tons or approximately 48% of its
expected 1995 copper production. As of September 30, 1994 the
Company also had zinc synthetic put options covering 22,700 tons
of expected fourth quarter 1994 zinc production at a price of
45.0 cents per pound.
D. In September 1994, the Company recorded a $30.7 million after-
tax charge, $45.5 million on a pre-tax basis, for environmental
costs associated with the Company's previously closed facilities
and current operations. This addition to the reserve for closed
plant and environmental matters, together with prior accruals,
accommodates resolutions reached in the quarter at a number of
sites, particularly at Asarco's former smelter in Tacoma,
Washington, where an agreement on remediation remains subject to
final acceptance by the EPA. Asarco had a total reserve for
environmental matters and closed operations of $130.3 million at
September 30, 1994.
E. Supplemental disclosures of cash flow information:
(in millions)
3 Months Ended 9 Months Ended
September 30, September 30,
1994 1993 1994 1993
---- ---- ---- ----
Cash paid for:
Interest (net of amount capitalized) 16.7 $16.6 46.6 $39.8
Income taxes (net of refunds) (6.7) 1.4 (5.6) 2.3
F. In the first quarter of 1994, the Company sold its remaining
interest in Asarco Australia Limited, its gold mining
investment, for US $79.5 million. The sale resulted in a pre-
tax gain of $58.5 million ($31.9 million after-tax).
In the third quarter of 1993, the Company sold a 9.9.% interest
in Asarco Australia Limited for US $13.8 million. The sale
resulted in a pre-tax gain of approximately $10.3 million ($5.4
million after-tax) and reduced the Company's interest in Asarco
Australia to 49.8%. As a result of this sale, the Company
accounted for its investment in Asarco Australia by the equity
method.
In the third quarter of 1993, Asarco Australia Limited offered
13.3 million shares of previously unissued common stock to the
public, resulting in net cash proceeds to Asarco Australia
Limited of a $20.5 million. The Company, whose ownership
interest of Asarco Australia Limited was reduced from 49.8% to
45.3% by the share issue, recorded a $3.3 million pre-tax gain
(2.1 million after-tax) from the transaction as the shares were
sold at a price exceeding the book value of Asarco's investment.
G. Taxes on income (benefit):
Taxes on income reflect tax benefits on losses before equity
earnings. The nine month period ending September 30, 1994
includes higher taxes resulting from the first quarter 1994 gain
on the sale of Asarco Australia Limited. Reported earnings from
the consolidated subsidiary Asarco Australia Limited were
previously treated as permanently reinvested.
In the third quarter of 1993, $2.8 million of additional Federal
Income taxes were recorded as a result of the enactment of the
Omnibus Budget Reconciliation Act of 1993. Taxes were also
higher due to the sale of a 9.9% interest in Asarco Australia
Limited.
</PAGE>
- 6 -
<PAGE>
H. Capsulized quarterly earnings information is provided below for
significant nonconsolidated associated companies carried on the
equity method:
(in millions)
Southern Peru
Copper Corporation
------------------
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
September 30, 1994 September 30, 1994
------------------ ------------------
<S> <C> <C>
Net Sales $ 189.1 $ 442.0
======= =======
Earnings before Taxes $ 42.3 $ 98.6
Taxes on Income (14.9) (38.1)
-------- --------
Net Earnings $ 27.4 $ 60.5
======= =======
Asarco's ownership percentage 52.3% 52.3%
======== ========
Asarco's pre-tax equity
earnings $ 14.3 $ 31.6
======= =======
</TABLE>
The Company resumed equity accounting for Southern Peru Copper
Corporation in the fourth quarter of 1993. Equity earnings are
not shown for the comparable 1993 periods as Southern Peru
Copper Corporation was accounted for on the cost method.
Equity in earnings (losses) of other nonconsolidated associated
companies included in the Consolidated Statement of Earnings for
the three months ended September 30, 1994 were $.8 million and
for the nine months then ended, $2.1 million.
I. Subsequent Event:
On November 4, 1994 Southern Peru Copper Corporation ("SPCC")
filed with the Securities and Exchange Commission a registration
statement for a proposed initial public offering of up to
18,400,000 shares of its common stock to be sold by two
shareholders. Neither Asarco nor SPCC propose to sell any
shares of SPCC common stock in the proposed offering. In
connection with the offering, SPCC's capital stock will be
reclassified and Asarco and other current shareholders of SPCC
propose to enter into an agreement regarding designation of
directors and other related matters. If the offering is
successfully completed as contemplated by the registration
statement (which has not yet become effective), including the
reclassification of the capital stock and the execution of an
agreement by the current shareholders, Asarco will be able to
elect a majority of the directors of SPCC and determine the
outcome of substantially all actions requiring shareholder
approval. As a result of such control of SPCC if the
transaction is successfully completed, the financial statements
of SPCC will be consolidated with the financial statements of
Asarco.
</PAGE>
- 7 -
<PAGE>
Part I Item 2
-------------
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Earnings: Asarco reported a net loss of $16.1 million, or $.39 per
share, for the third quarter ended September 30, 1994, compared with
a net loss of $3.0 million, or $.08 per share, for the third quarter
of 1993. Third quarter 1994 results included a previously announced
$30.7 million after-tax charge, $45.5 million on a pre-tax basis, to
add to the Company's reserve for environmental matters. Excluding
this provision, Asarco earned $14.6 million or $.35 per share in the
third quarter of 1994. This improvement in earnings was principally
due to higher metal prices for both copper and lead and from $13.4
million of equity earnings from the Company's investment in Southern
Peru Copper Corporation ("SPCC"). Earnings from the Company's copper
operations in the third quarter of 1994 were adversely affected by
lower production at the Ray mine and the sale of higher cost copper
produced in the first half of 1994, principally at the Ray mine.
Operations at the Ray mine have been adversely impacted by the
effects of the heavy rains in early 1993 and by difficult ore
conditions encountered early in 1994. The Company is now realizing
lower costs at the Ray mine. These improved costs will begin to be
reflected in the fourth quarter of 1994 when this lower cost
production is sold.
Third quarter 1993 results included after-tax gains of $5.4 million
from the sale of 9.9% of Asarco Australia Limited, $2.1 million as a
result of the issuance of new shares by Asarco Australia Limited at a
price exceeding the book value of Asarco's investment and $2.3
million from a reduction of LIFO-valued inventory. Also, as a result
of the increased corporate tax rate enacted in the Omnibus Budget
Reconciliation Act of 1993, the Company recognized a $2.8 million
charge in the third quarter of 1993 to adjust its deferred income tax
liability.
For the nine month period ended September 30, 1994, the Company
reported net income of $15.8 million, or $.38 per share, compared
with a net loss of $58.0 million, or $1.40 per share for the
comparable 1993 period. In addition to the third quarter
environmental provision, the 1994 nine month earnings include a gain
on the sale of the Company's remaining interest in Asarco Australia
Limited of $31.9 million on an after-tax basis, $58.5 million on a
pre-tax basis. Higher metal prices and equity earnings from the
Company's investment in SPCC were offset by the provision for
environmental matters. Through the third quarter of 1993, the
Company accounted for its investment in SPCC on the cost method and
results for the three month and nine month period ended September 30,
1993 include $4.9 million and $8.8 million, respectively, of
dividends received.
Prices: Prices for the Company's metals are established principally
on the New York Commodity Exchange ("COMEX") or the London Metal
Exchange ("LME").
Price Volume Analysis:
- ----------------------
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
Average Realized September 30, September 30,
Price 1994 1993 1994 1993
----- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Copper (per pound) $ 1.15 $ .86 $ 1.00 $ .90
Lead (per pound) .30 .19 .26 .20
Silver (per ounce) 5.29 4.50 5.30 4.08
Zinc(1) (per pound-LME) .44 .41 .44 .44
Gold (per ounce) 386.73 368.08 384.26 354.79
</TABLE>
</PAGE>
- 8 -
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
Sales Volume 1994 1993 1994 1993
------------ ---- ---- ---- ----
(in thousands)
<S> <C> <C> <C> <C>
Copper (pounds) 243,566 251,388 813,316 762,336
Lead (pounds) 99,366 114,082 301,998 315,018
Silver (ounces) 9,122 7,572 24,852 24,111
Zinc(1) (pounds) 56,145 54,283 187,994 152,012
Gold (ounces) 48 46 96 129
</TABLE>
(1) The Company's zinc mine production is sold in concentrate
form. Volume represents pounds of zinc contained in
concentrate. The Company fully hedged its zinc mine
production for the nine months ended September 30, 1994 and
1993 at an average price of 47 cents per pound and 55 cents
per pound, respectively.
Hedging Activities: Substantially all of the Company's copper and
lead production is sold under annual contracts. To the extent not
sold under annual contracts, production can be sold on commodity
exchanges or to merchants or consumers on a spot sale basis. Zinc is
sold in the form of concentrates under contracts of one to three
years' duration. Silver and gold are sold under monthly contracts or
in spot sales. Sales prices are generally based on the average of
prevailing commodity prices for the scheduled month of delivery or
shipment according to the terms of the contracts.
Depending on the market fundamentals of a metal and other conditions,
the Company may enter into forward sales or purchase put options or
establish synthetic put options to reduce or eliminate the risk of
metal price declines on its anticipated future production. Put
options purchased by the Company establish a minimum price for the
production covered by such put options and permit the Company to
participate in price increases above the strike price of such put
options. As of September 30, 1994, the Company had copper put
options with an average strike price of 90.0 cents per pound covering
6,900 tons of 1994 production representing approximately 10% of the
Company's expected fourth quarter 1994 copper production, and copper
put options with an average strike price of 91.9 cents per pound
covering 137,600 tons or approximately 48% of its expected 1995
copper production.
Forward sales establish a selling price for future production at the
time they are entered into, thereby eliminating the risk of declining
prices but also eliminating potential gains on price increases if not
bought back. Synthetic put options are established by entering into
a forward sale and purchasing a call option for the same quantity of
the relevant metal and for the time period relating to such forward
sale. The forward sale establishes a minimum price that will be
realized, while the call option permits the Company to participate in
price increases. As of September 30, 1994 the Company had synthetic
put options covering 22,700 tons of expected fourth quarter 1994 zinc
production at a price of 45.0 cents per pound.
The pre-tax effect of the Company's hedging activities net of
transaction costs for the three month and nine month periods ending
September 30, 1994 and 1993 are as follows:
</PAGE>
- 9 -
<PAGE>
<TABLE>
<CAPTION>
Results of Hedging Activities
(in thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
Metal 1994 1993 1994 1993
----- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Copper $ - $ (149) $ 3,346 $ (149)
Zinc 806 4,967 2,308 10,104
Silver 85 - 65 192
----- ------- ------- -------
Total Gain $ 891 $ 4,818 $ 5,719 $10,147
===== ======= ======= =======
</TABLE>
Sales: Sales in the third quarter of 1994 were $513.0 million,
compared with $425.2 million in the third quarter of 1993. The
increase in sales generally reflected higher metal prices for all
major products. Sales for the nine month period ended September 30,
1994 were $1,443.7 million, compared with $1,300.8 million for the
comparable 1993 period. The increase in sales for the nine month
period resulted principally from higher metal prices, increased sales
volume of copper and zinc and increased specialty chemicals sales.
Cost of Products & Services: Cost of products and services were
$450.9 million in the third quarter of 1994, compared with $384.9
million in the third quarter of 1993. The increase in costs
reflected increased purchases of refined copper to meet customer
demand and higher costs in specialty chemicals due to increased sales
volumes. These cost increases were partially offset by lower costs
resulting from the sale of Asarco Australia Limited, the temporary
shutdown of the Troy silver mine in 1993 and the disposal of
nonstrategic businesses which had losses in the 1993 period. The
1993 third quarter included a pre-tax gain of $3.5 million on the
sale of LIFO inventories.
Cost of products and services were $1,294.8 million for the nine
month period ended September 30, 1994 compared with $1,217.6 million
for the comparable 1993 period. The increase in costs includes
increased purchases of refined copper to meet customer demand. The
Company's cost of purchased refined copper approximates the market
price at which it is sold.
Other Expenses: Selling, administrative and other costs were $20.0
million in the third quarter of 1994, and $59.3 million for the nine
month period ended September 30, 1994 compared to $19.8 million and
$61.8 million for the respective periods in 1993. Overhead reduction
programs contributed to lower costs in the nine month period ended
September 30, 1994. Depreciation and depletion expense decreased for
the third quarter ended September 30, 1994 by $0.8 million to $20.4
million due to the temporary shutdown of the Troy silver mine, the
sale of Asarco Australia Limited and disposal of nonstrategic
businesses. Research and exploration expenses were $5.5 million in
the third quarter of 1994 and $13.9 million for the nine months ended
September 30, 1994. The decrease of $2.1 million in research and
exploration expenses for the nine month period ended September 30,
1994 from the comparable 1993 period reflected lower costs, primarily
due to the sale of Asarco Australia Limited. The provision
(recovery) for bad debts for the nine month period ended September
30, 1994 includes a recovery of $4.0 million from the settlement of
litigation related to a bad debt written off in 1991.
In September 1994, the Company recorded a $30.7 million after-tax
charge, $45.5 million on a pre-tax basis, for environmental costs
associated with the Company's previously closed facilities and
current operations. This addition to the reserve for closed plant
and environmental matters, together with prior accruals, accommodates
resolutions reached in the quarter at a number of sites, particularly
at Asarco's former smelter in Tacoma, Washington, where an agreement
on remediation remains subject to final acceptance by the EPA.
Asarco had a total reserve for environmental matters and closed
operations of $130.3 million at September 30, 1994.
</PAGE>
- 10 -
<PAGE>
Nonoperating Items: Interest expense for the three month and nine
month periods ended September 30, 1994 increased by $1.4 million and
$2.9 million, respectively, over the comparable 1993 periods as a
result of lower capitalized interest due principally to the
completion of the modernization project at the El Paso copper
smelter, a higher debt level and higher interest rates on short term
borrowings. Other income included dividends from SPCC of $5.2
million in the third quarter of 1993 and $9.4 million for the nine
month period ended September 30, 1993, recorded prior to the
resumption of equity accounting for SPCC in the fourth quarter of
1993.
Third quarter 1993 results included a $10.3 million gain on the sale
of a 9.9% interest in Asarco Australia Limited. The Company also
recognized a $3.3 million pre-tax gain as a result of the issuance of
new shares by Asarco Australia Limited at a price exceeding the book
value of Asarco's investment.
Taxes on Income (Benefit): Taxes on income for the third quarter
ended September 30, 1994 reflect tax benefits of $15.2 million on the
reported loss. The nine month period ending September 30, 1994
includes higher taxes on the first quarter 1994 gain on the sale of
Asarco Australia Limited. Reported earnings from the consolidated
subsidiary Asarco Australia Limited were previously treated as
permanently reinvested. The tax benefit in the third quarter and
nine month period ended September 30, 1993 is net of $2.8 million of
additional federal income taxes resulting from the enactment of the
Omnibus Budget Reconciliation Act of 1993 and the impact of higher
taxes due to the gain on the sale of the 9.9% interest in Asarco
Australia Limited.
Cash Flows: Net cash used for operating activities was $37.2 million
in the third quarter of 1994, compared with cash provided from
operating activities of $32.3 million in the third quarter of 1993.
Cash invested in operating assets and liabilities increased
principally as a result of higher trade receivables due to higher
metal prices, increased in-process copper inventories and higher
advances on outside purchased raw materials inventories. Cash used
for accounts payable in the third quarter of 1994 includes changes in
Company hedge positions which represent a liability for the purchase
of copper on a terminal market. This is offset by a change in
receivables for a corresponding sale on a terminal market amounting
to approximately $26 million. These positions had no impact on net
cashflow. Net cash used for investing activities in the third
quarter of 1994 increased by $14.8 million over the prior year period
primarily due to capitalization of mine development costs at the Ray
mine.
Net cash used for operating activities was $46.0 million for the nine
month period ended September 30, 1994, compared with cash provided
from operating activities of $47.7 million in the corresponding prior
period. Cash invested in operating assets and liabilities increased
principally as a result of higher trade receivables due to higher
metal prices and increased in-process copper inventories partially
offset by an increase in trade payable financing on outside raw
material purchases. Cash provided from investing activities
increased for the nine month period ended September 1994 due to the
proceeds from the sale of Asarco Australia Limited in the first
quarter and lower capital spending reflecting completion of the El
Paso smelter modernization in 1993.
Financing activities included the prepayment of the Company's 9-3/4%
Sinking Fund Debentures at par value plus a premium of .9% in the
first quarter of 1994.
Liquidity and Capital Resources: At September 30, 1994, the
Company's debt as a percentage of total capitalization was 37.8%,
compared with 38.0% at December 31, 1993. Debt at the end of the
third quarter 1994 was $927.5 million, compared with $900.5 million
at the end of 1993. Additional indebtedness permitted under the
terms of the Company's revolving credit loan agreements totaled $334
million at September 30, 1994.
</PAGE>
- 11 -
<PAGE>
In October, Asarco filed a universal shelf registration statement
with the Securities and Exchange Commission covering the future
issuance of up to $300 million in equity and debt securities. The
shelf registration also covers the sale by M.I.M. Holdings Limited
(ASX:MIM) of up to all of its holdings totaling 10.353 million shares
of Asarco. Asarco has no immediate plans to issue securities at this
time and the registration is intended to provide the Company with
financial flexibility to access the market when conditions are
appropriate.
The Company expects that it will meet its cash requirements for 1994
and beyond from internally generated funds, cash on hand and
borrowings under its revolving credit agreements or additional debt
or equity financing.
In October, the Board of Directors declared a quarterly dividend on
the common stock of 10 cents per share payable December 1, 1994 to
stockholders of record at the close of business on November 11, 1994.
</PAGE> - 12 -
<PAGE>
COOPERS & LYBRAND L.L.P.
Exhibit I
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
ASARCO Incorporated:
We have reviewed the accompanying interim consolidated condensed
balance sheet of ASARCO Incorporated and Consolidated Subsidiaries as
of September 30, 1994 and the related interim consolidated condensed
statements of earnings and cash flows for the three month and nine
month periods ended September 30, 1994 and 1993. These interim
consolidated condensed financial statements are the responsibility of
the Company's management.
We conducted our review in accordance with standards established by
the American Institute of Certified Public Accountants. A review of
interim financial information consists principally of applying
analytical procedures to financial data and making inquiries of
persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications
that should be made to the accompanying interim consolidated
condensed financial statements for them to be in conformity with
generally accepted accounting principles.
Coopers & Lybrand L.L.P.
New York, New York
October 21, 1994, except as to Note I, which is as of November 4,
1994.
</PAGE>
<PAGE>
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
1. Asarco and two of its wholly-owned subsidiaries, Lac d'Amiante
du Quebec, Ltee ("LAQ") and Capco Pipe Company, Inc. ("Capco"),
have been named as defendants, among numerous other defendants,
in additional asbestos personal injury lawsuits of the same
general nature as the lawsuits reported on Forms 10-K for 1993
and prior years and 10-Q for the first and second quarters of
1994. As of September 30, 1994, there were pending against
Asarco and its subsidiaries 546 lawsuits brought by 828 primary
and 563 secondary plaintiffs in 22 states and one Canadian
province seeking substantial damages for personal injury or
death allegedly caused by exposure to asbestos. In addition, on
October 25, 1994, LAQ was served with a series of lawsuits in
state court in Michigan brought by 1,375 primary and 957
secondary plaintiffs. Also, on November 8, 1994 a lawsuit
naming both Asarco and LAQ was brought by 3,984 primary
plaintiffs and 3,088 secondary plaintiffs in state court in
Texas. As of September 30, 1994, LAQ, Asarco and Capco have
settled or have been dismissed from a total of 4,707 asbestos
personal injury lawsuits brought by approximately 33,471 primary
and 21,025 secondary plaintiffs.
2. With regard to the Tacoma Smelter Superfund site, reported on
Form 10-K for 1993 and prior years, the Company reached an
agreement in principle on August 11, 1994 with the City of
Tacoma, the Town of Ruston, and the Metropolitan Park District
on a remediation and master redevelopment plan for the site
("Agreement"). The remediation plan calls for the placement of
untreated soils in an on-site containment facility. On August
12, 1994, EPA released its proposed plan for remediation of the
site. The EPA proposed plan contains a preferred alternative
involving treatment of plant soils and disposal on site. The
EPA plan also states that the placement of untreated soils into
an on-site containment facility as contemplated in the Agreement
would also be protective of the environment and public health.
The EPA plan asks for public comment by November 11, 1994 on
whether the community prefers the EPA's treatment alternative or
the remediation plan included in the Agreement.
3. In September 1994, the Company received notice from the State of
Texas that it is a potentially responsible party for remediation
of the site of a former pesticide manufacturing plant in Hunt
County, Texas. In addition, on September 29, 1994 the Company
was sued by 346 individuals who live near that site for
compensatory and punitive damages, including damages for alleged
personal injury and property damage due to exposure to arsenic
that Asarco sold to the manufacturer at the site.
4. With respect to the citizen suit and related litigation
concerning the Company's Omaha, Nebraska plant, reported on
Forms 10-K for 1993 and 10-Q for the first and second quarters
of 1994, the Company and the United States Environmental
Protection Agency have reached an agreement in principle to
settle the matter. Under the terms of this agreement in
principle, the Company will agree to pay a $3.25 million penalty
and build a water treatment plant by December 31, 1995. The
agreement in principle is subject to approval by the federal
district court in Omaha, Nebraska.
5. With respect to the lawsuit in Duval County, Texas involving
alleged exposure of individuals to materials shipped by Asarco
and others to a landfill near plaintiffs' residences, reported
on Form 10-Q for the first quarter of 1994, additional
plaintiffs have joined the lawsuit for a total of approximately
320.
</PAGE>
- 13 -
<PAGE>
6. With respect to the litigation relating to alleged contamination
of a waterway on which log sort yards are located in Tacoma,
Washington, reported on Form 10-Q for the second quarter of
1994, in August 1994 the Company was sued in another case in
federal district court in Tacoma brought by the owner and
operator of another log sort yard and seeking similar relief.
7. With respect to the class action lawsuit pending in federal
court in Seattle, Washington seeking damages for past emissions
of metals from the Company's former Tacoma plant, reported on
Form 10-K for 1993, on September 30, 1994 the court granted
plaintiffs' motion to expand the class to add 1,851 individuals
to the medical monitoring class and 728 owners and renters to
the other classes.
8. On July 26, 1994 the EPA notified the Montana Department of
Health and Environmental Sciences that it considers that the
Company's East Helena plant is in violation of the Federal Clean
Water Act because of unauthorized discharges into a nearby
creek. The Company is in discussions with the EPA and State of
Montana regarding this matter.
Item 6 - Exhibits and Reports on Form 8-K
(b) Current reports on Form 8-K
Current report filed on October 3, 1994 containing a press
release of ASARCO Incorporated dated September 30, 1994
regarding a provision in its third quarter 1994 earnings for
environmental costs associated with certain of its previously
closed facilities and current operations.
</PAGE>
- 14 -
<PAGE>
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
ASARCO Incorporated
(Registrant)
Date: November 14, 1994 /s/ Kevin R. Morano
-------------------
Kevin R. Morano
Vice President, Finance and
Chief Financial Officer
Date: November 14, 1994 /s/ Ronald J. O'Keefe
---------------------
Ronald J. O'Keefe
Controller
- 15 -
</PAGE>
<PAGE>
COOPERS & LYBRAND L.L.P.
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
We are aware that our report dated October 21,1994, except as to Note
I, which is as of November 4, 1994 on our review of the interim
financial information of ASARCO Incorporated for the three month and
nine month periods ended September 30, 1994 included in this Form 10-
Q for the quarter then ended is incorporated by reference in the
Company's Registration Statements on Form S-8 (File Nos. 2-67732, 2-
83782, and 33-34606) and Form S-3 (File Nos. 33-45631 and 33-55993).
Pursuant to Rule 436(c) under the Securities Act of 1933, this report
should not be considered a part of the Registration Statements
prepared or certified by us within the meaning of Sections 7 and 11
of that Act.
Coopers & Lybrand L.L.P.
New York, New York
November 4, 1994
</PAGE>
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