<PAGE>
1994
First 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 March 31, 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 April 30, 1994 there were outstanding 41,817,609 shares of Asarco Common
Stock, without par value.
<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 Ended March 31, 1994 and 1993 2
Consolidated Balance Sheet
March 31, 1994 and December 31, 1993 3
Consolidated Statement of Cash Flows
Three Months Ended March 31, 1994 and 1993 4
Notes to Consolidated Financial Statements 5-6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 7-9
Exhibit I - Report of Independent Accountants
PART II. OTHER INFORMATION:
Item 1. Legal Proceedings 10-11
Item 4. Submission of Matters to a Vote of
Security Holders 11
Signatures 12
<PAGE>
ASARCO Incorporated
and Consolidated Subsidiaries
CONSOLIDATED STATEMENT OF EARNINGS
----------------------------------
(unaudited)
<TABLE>
<CAPTION>
3 Months Ended
March 31,
1994 1993
---- ----
(in thousands)
<S> <C> <C>
Sales of products and services $442,981 $457,070
Operating costs and expenses:
Cost of products and services 407,830 440,561
Selling, administrative and other 19,742 21,490
Provision (recovery) for bad debts (3,430) 753
Depreciation and depletion 20,850 19,974
Research and exploration 3,874 4,804
-------- --------
Total operating costs and expenses 448,866 487,582
-------- --------
Operating loss (5,885) (30,512)
Interest expense (14,271) (13,423)
Other income 5,244 6,907
Gain on sale of Asarco Australia Limited 58,512 -
-------- --------
Earnings (loss) before taxes on income
and equity earnings 43,600 (37,028)
Taxes on income (benefit) 21,088 (6,230)
-------- --------
Earnings (loss) before equity earnings 22,512 (30,798)
Equity in earnings (losses) of
nonconsolidated associated companies,
net of taxes of $486 in 1994 4,094 (123)
-------- --------
Net earnings (loss) $ 26,606 $(30,921)
-------- --------
-------- --------
Per share amounts:
Net earnings (loss) (a) $ .64 $ (.74)
-------- --------
-------- --------
Cash dividends $ 0.10 $ 0.20
Weighted average number of shares
outstanding 41,771 41,505
<FN>
(a) The effect on the calculation of net earnings per common share of the
Company's Common Stock equivalents (shares under option) was insignificant.
</TABLE>
See notes to financial statements.
- 2 -
<PAGE>
ASARCO Incorporated
and Consolidated Subsidiaries
CONSOLIDATED BALANCE SHEET
(unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1994 1993
---- ----
(in thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 15,504 $ 12,500
Accounts and notes receivable, net 313,480 312,178
Inventories 247,962 245,034
Other assets 25,981 31,537
Investment in Asarco Australia Limited - 18,573
------------ ------------
Total current assets 602,927 619,822
Investments:
Cost method 851,800 783,417
Equity method 350,844 346,927
Property 2,458,701 2,497,605
Less: Accumulated depreciation and depletion (1,164,973) (1,192,153)
Intangible and other assets 99,286 96,880
------------ ------------
Total assets $ 3,198,585 $ 3,152,498
------------ ------------
------------ ------------
LIABILITIES
Current liabilities:
Bank loans $ 15,312 $ 16,875
Current portion of long-term debt 13,794 14,801
Accounts payable 271,412 264,738
Salaries and wages 15,537 15,759
Taxes on income 30,173 29,516
Reserve for closed plant and environmental matters 49,712 46,409
Other liabilities 33,795 30,582
------------ ------------
Total current liabilities 429,735 418,680
Long-term debt 792,976 868,871
Deferred income taxes 187,733 147,864
Reserve for closed plant and environmental matters 66,870 69,694
Postretirement benefit obligations other than
pensions 93,326 92,943
Other liabilities and reserves 82,937 82,848
------------ ------------
Total liabilities 1,653,577 1,680,900
------------ ------------
COMMON STOCKHOLDERS' EQUITY
Common stock (a) 555,564 550,726
Unrealized gain on securities reported at fair value 157,747 112,729
Retained earnings 831,697 808,143
------------ ------------
Total common stockholders' equity 1,545,008 1,471,598
------------ ------------
Total liabilities and common
stockholders' equity $ 3,198,585 $ 3,152,498
------------ ------------
------------ ------------
<FN>
(a) Common shares: authorized 80,000; outstanding: 41,802 41,718
</TABLE>
See notes to financial statements.
- 3 -
<PAGE>
ASARCO Incorporated
and Consolidated Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS
------------------------------------
(unaudited)
<TABLE>
<CAPTION>
3 Months Ended
March 31,
1994 1993
---- ----
(in thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Net earnings (loss) $ 26,606 $(30,921)
Adjustments to reconcile net earnings (loss) to net cash
provided from operating activities:
Depreciation and depletion 21,174 19,974
Deferred income taxes 20,359 2,015
Treasury stock used for employee benefits 1,291 1,245
Undistributed equity (earnings) losses (2,065) 335
Net gain on sale of investments,
property and Asarco Australia Limited (59,119) (674)
Increase (decrease) in reserve for closed plant
and environmental matters 479 (6,237)
Cash provided from (used for) operating assets
and liabilities:
Accounts and notes receivable (744) (39,475)
Inventories (2,660) 45,518
Accounts payable and accrued liabilities 7,194 (1,720)
Other operating liabilities and reserves 3,275 6,117
Other operating assets (1,475) 1,477
Foreign currency transaction losses 2,276 -
------------ -----------
Net cash provided from (used for) operating activities 16,591 (2,346)
------------ -----------
INVESTING ACTIVITIES
Capital expenditures (10,296) (31,641)
Proceeds from sale of securities, property and Asarco
Australia Limited 87,663 21,488
Purchase of investments, principally marketable
securities (8,056) (23,993)
------------ -----------
Net cash provided from (used for) investing activities 69,311 (34,146)
------------ -----------
FINANCING ACTIVITIES
Debt incurred 125 238,082
Debt retired (78,788) (201,884)
Net treasury stock transactions 22 121
Dividends paid (4,178) (8,303)
------------ -----------
Net cash provided from (used for) financing activities (82,819) 28,016
Effect of exchange rate changes on cash (79) 2,288
------------ -----------
Increase (decrease) in cash and cash equivalents 3,004 (6,188)
Cash and cash equivalents at beginning of period 12,500 33,248
------------ -----------
Cash and cash equivalents at end of period $ 15,504 $ 27,060
------------ -----------
------------ -----------
</TABLE>
See notes to financial statements.
- 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 March 31, 1994 and the results of operations and cash flows for the
three months ended March 31, 1994 and 1993. This financial data has been
subjected to a limited review by Coopers & Lybrand, the Company's
independent accountants. Their report is filed as an exhibit to this
filing. The results of operations for the three month period are not
necessarily indicative of the results to be expected for the full year.
B. Inventories were as follows:
(in millions)
<TABLE>
<CAPTION>
March 31, Dec. 31,
1994 1993
---- ----
<S> <C> <C>
Inventories of smelters, refineries and other
metal plants at LIFO cost or market $ 14.0 $ 12.7
Provisional cost of metals received for
which prices have not yet been fixed 48.7 44.2
Mine inventories at FIFO cost or market 94.5 98.6
Materials and supplies (average cost or less) 61.9 62.4
Other 28.9 27.1
------ ------
Total $248.0 $245.0
------ ------
------ ------
</TABLE>
At March 31, 1994, replacement cost exceeded inventories carried at LIFO
cost by approximately $123.4 million (December 31, 1993 - $114.1 million).
C. Supplemental disclosures of cash flow information:
(in millions)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1994 1993
---- ----
<S> <C> <C>
Cash paid for:
Interest (net of amount capitalized) $16.6 $13.1
Income taxes 0.7 0.9
</TABLE>
D. TAXES ON INCOME
Taxes on income in the first quarter of 1994 include higher taxes on the
gain realized on the sale of the Company's remaining interest in Asarco
Australia as a result of providing taxes on earnings previously treated as
permanently reinvested while Asarco Australia was a consolidated
subsidiary. Taxes in both periods reflect tax benefits resulting from
operating losses.
- 5 -
<PAGE>
E. Capsulated quarterly earnings information is provided below for significant
nonconsolidated associated companies carried on the equity method.
(in millions)
<TABLE>
<CAPTION>
Southern Peru
Copper Corporation
------------------
Three Months Ended
March 31, 1994
--------------
<S> <C>
Net Sales $124.0
------
------
Earnings $ 15.3
Taxes on Income (7.7)
------
Net Earnings $ 7.6
------
------
Asarco's percentage owned at March 31 52.3
------
------
Asarco's equity earnings $ 4.0
------
------
</TABLE>
Equity in earnings (losses) of other nonconsolidated associated companies
included in the Consolidated Statement of Earnings for the three months
ended March 31, 1994 and 1993 was (in millions) $0.6 and $(0.1),
respectively.
F. In January, 1994, the Company sold its remaining interest in Asarco
Australia Limited, its gold mining subsidiary for US $79.5 million. The
sale resulted in a pretax gain of $58.5 million ($31.9 million after tax).
- 6 -
<PAGE>
Part I Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
EARNINGS: The Company reported net earnings of $26.6 million, or $.64 per
share, for the first quarter ended March 31, 1994, compared with a net loss of
$30.9 million, or $.74 per share, for the first quarter of 1993. Net earnings
in the first quarter of 1994 included a $31.9 million after-tax gain on the sale
of the Company's remaining interest in Asarco Australia Limited, a $2.6 million
after-tax gain related to a recovery of a bad debt previously written off and a
$1.6 million after-tax charge related to a ten day annual maintenance shutdown
of the Hayden, Arizona smelter. The first quarter 1993 results included the
effects of the heavy rains and flooding at the Company's Arizona copper mines
and a scheduled thirty day maintenance shutdown at the Company's Hayden, Arizona
smelter which cost the Company approximately $27 million after-tax.
PRICES: Prices for the Company's metals are established principally on the New
York Commodity Exchange ("COMEX") or the London Metal Exchange ("LME"). Thus, it
is not possible to estimate prices for future Company metal sales.
PRICE VOLUME ANALYSIS:
<TABLE>
<CAPTION>
3 Month Ended
March 31,
Average Realized ---------
Price 1994 1993
----- ---- ----
<S> <C> <C>
Copper (per pound) $ .89 $ .99
Lead (per pound) .24 .20
Silver (per ounce) 5.27 3.68
Zinc (1) .44 .47
Gold (per ounce) 379.54 334.86
<CAPTION>
3 Months Ended
March 31,
---------
VOLUME 1994 1993
(in thousands) ---- ----
<S> <C> <C>
Copper (pounds) 295,153 272,148
Lead (pounds) 91,538 97,224
Silver (ounces) 7,484 10,014
Zinc (1) 62,400 52,800
Gold (ounces) 11 56
</TABLE>
1. Zinc prices are per pound for refined zinc. The Company's 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 first quarter 1994 at an average price of 45 cents
per pound and for the first quarter 1993 at an average price of 53
cents per pound.
SALES: Sales in the first quarter of 1994 were $443.0 million, compared with
$457.1 million in the same period of 1993. Increased sales volumes of copper and
zinc were partially offset by lower gold and silver sales volumes which resulted
from the sale of Asarco Australia Limited in January 1994 and the temporary
shutdown of the Troy, Montana mine in the second quarter of 1993. Current
quarter sales were adversely affected by lower copper prices. The effect of
changes in metals prices in the first quarter 1994 reduced net earnings by
approximately $10.5 million after-tax from 1993 levels.
- 7 -
<PAGE>
Cost of Products & Services: Cost of products and services were $407.8 million
in the first quarter of 1994, compared with $440.6 million in the first quarter
of 1993. Higher than usual costs associated with the heavy rains in Arizona in
the first quarter 1993 contributed to the variance between the quarters. In
addition, lower gold and silver costs resulting from the sale of Asarco
Australia Limited and the temporary shut-down of the Troy silver mine was more
than offset by 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: The first quarter 1994 selling and administrative costs
declined by $1.7 million as a result of cost reduction programs. Depreciation
and depletion expense increased by $.9 million as a result of higher production
levels, offset by lower depreciation relating to the temporary closure of the
Troy mine and the sale of Asarco Australia. Research and exploration expense
declined by $.9 million due to reduced levels of exploration activity. The
provision (recovery) for bad debts in 1994 includes $4.0 million from the
settlement of litigation regarding a bad debt written off in 1991.
NONOPERATING ITEMS: Interest expense was $.8 million higher in the first
quarter of 1994, than in the first quarter of 1993 as a result of lower
capitalized interest due principally to the completion of a new furnace at the
El Paso, Texas, copper smelter, offset in part by lower borrowings. Other income
decreased to $5.2 million in the first quarter of 1994 from $6.9 million in the
first quarter of 1993. Other income includes dividends from Southern Peru Copper
Corporation of $2.1 million in the first quarter of 1993 recorded prior to
resumption of equity accounting in the fourth quarter 1993. Dividends from
M.I.M. Holdings Limited included in other income were $4.8 million in the first
quarter of 1994 and $4.3 million in 1993.
TAXES ON INCOME Taxes on income in the first quarter of 1994 include higher
taxes on the gain realized on the sale of the Company's remaining interest in
Asarco Australia as a result of providing taxes on earnings previously treated
as permanently reinvested while Asarco Australia was a consolidated subsidiary.
Taxes in both periods reflect tax benefits resulting from operating losses.
CASH FLOWS: Net cash provided from operating activities was $16.6 million in
the quarter ended March 31, 1994, compared with cash used for operating
activities of $2.3 million in the corresponding prior period. The increase
results principally from improvements in operating income, less a reduction in
operating assets net of liabilities. The Company spent $10.3 million for capital
expenditures in the first quarter of 1994 and $31.6 million in the first quarter
of 1993 including $8.5 million for the copper expansion and modernization
program at the El Paso copper smelter.
Financing activities included the prepayment of the Company's 9-3/4% Sinking
Fund Debentures at par value plus a premium of .9%. In April, the Company also
negotiated a new five-year $350 million revolving credit agreement to replace a
$330 million revolving credit agreement scheduled to reduce in amount through
1996.
- 8 -
<PAGE>
Liquidity and Capital Resources: At March 31, 1994, the Company's debt as a
percentage of total capitalization was 34.7%, compared with 38.0% at December
31, 1993. Debt at the end of the first quarter of 1994 was $822.1 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 $450 million at March 31, 1994.
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 financing.
In April, the Board of Directors declared a quarterly dividend on the common
stock of 10 cents per share payable June 1, 1994 to stockholders of record at
the close of business on May 13, 1994.
- 9 -
<PAGE>
COOPERS & LYBRAND
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 March 31, 1994 and
the related interim consolidated condensed statements of earnings and
cash flows for the three month periods ended March 31, 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
New York, New York
April 22, 1994
<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 Form 10-K for 1993 and prior years. As of March 31, 1994, there
were pending against Asarco and its subsidiaries 661 lawsuits brought by
5,058 primary and 3,993 secondary plaintiffs in 22 states and one Canadian
province seeking substantial damages for personal injury or death allegedly
caused by exposure to asbestos. As of March 31, 1994, LAQ, Asarco and Capco
have settled or have been dismissed from a total of 4,474 asbestos personal
injury lawsuits brought by approximately 28,777 primary and 17,573
secondary plaintiffs.
2. With respect to the actions concerning asbestos products in buildings,
reported on Form 10-K for 1993 and prior years, as of March 31, 1994, there
were pending against LAQ and numerous other companies five lawsuits seeking
removal or containment of asbestos-containing products. The actions,
including some purported class actions, involve colleges and universities,
private buildings under lease to the federal government, schools and public
buildings in cities, counties, and states. In general, each of these
actions seeks substantial compensatory and punitive damages. As of March
31, 1994, LAQ has settled four and been dismissed from another 79 such
actions, and Asarco has been dismissed from eleven of the twelve actions in
which it was named.
3. On February 15, 1994, Asarco and two of its subsidiaries were sued in an
action now pending in state court in Duval County, Texas by 172 plaintiffs
seeking compensatory and punitive damages for personal injuries, increased
risk of disease and medical monitoring, as well as property damage,
allegedly resulting from exposure to materials, including metals, shipped
to a landfill near the plaintiffs' residences. The lawsuit includes
numerous other defendants. In April 1994, 20 additional plaintiffs were
added to the lawsuit.
4. On March 11, 1994, Asarco and a subsidiary were sued, together with over
200 other defendants, in state court in Cameron County, Texas by 63
plaintiffs seeking compensatory and punitive damages for birth defects and
other personal injuries allegedly resulting from exposure to toxic
contaminants, including metals.
- 10 -
<PAGE>
5. On March 18, 1994, the Company received a 60-day notice from the Montana
Environmental Information Center that it plans to file a Clean Water Act
citizen suit for alleged failure to obtain National Pollution Discharge
Elimination System and stormwater permits at the Anaconda and Paymaster
mines, which are historic mine sites located near the Mike Horse mine in
the Upper Blackfoot River state Superfund site.
6. With respect to the citizen suit and the Company's action concerning its
Omaha, Nebraska plant reported on Form 10-K for 1993, on March 31, 1994,
the Federal government on behalf of the Environmental Protection Agency
filed a complaint in federal district court in Omaha, Nebraska seeking
relief similar to the citizens' complaint. Additionally, on April 8, 1994,
the Nebraska Department of Environmental Quality filed a motion to dismiss
the action brought against it by the Company on the grounds that the action
fails to present a "case or controversy" between the parties and because
the State of Nebraska has not consented to be sued and is therefore
entitled to immunity under the Eleventh Amendment to the Constitution of
the United States.
Item 4 - Submission of Matters to a Vote of Security Holders
At the annual meeting of stockholders of the Company held on April 27,
1994, stockholders were asked to elect four directors and to approve the
selection of auditors for 1994. Nine remaining directors continue to serve
in accordance with their previous election.
Votes cast in the election of directors were as follows:
Number of Shares
Names For Withheld
--- --------
James C. Cotting 36,706,013 721,398
Norman C. Fussell 36,689,361 738,050
E. Gordon Gee 36,668,759 758,652
James Wood 36,536,948 890,463
Stockholders approved the selection of auditors as follows:
For Against Abstain
37,204,381 134,817 88,213
There were no "broker nonvotes" cast at the meeting: that is, brokers
holding shares in nominee name for beneficial owners were permitted under
applicable regulations to vote on the matters presented at the annual
meeting in the absence of any instructions from the beneficial owners after
timely delivery to them of soliciting proxy materials.
- 11 -
<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: May 12, 1994 /s/ Kevin R. Morano
------------ -------------------
Kevin R. Morano
Vice President, Finance and
Chief Financial Officer
Date: May 12, 1994 /s/ Ronald J. O'Keefe
------------ ---------------------
Ronald J. O'Keefe
Controller
- 12 -
<PAGE>
COOPERS & LYBRAND
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
We are aware that our report dated April 22,1994 on our review of the interim
financial information of ASARCO Incorporated for the three month period ended
March 31, 1994 and 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 No. 33-45631).
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
New York, New York
April 22, 1994
