1995
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, 1995 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, 1995 there were outstanding 42,496,683 shares of Asarco Common
Stock, without par value.
<PAGE>
ASARCO Incorporated
and Subsidiaries
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
<S> <C>
Page No.
Part I. Financial Information:
Item 1. Financial Statements (unaudited)
Consolidated Statement of Earnings
Three Months and Nine Months Ended
September 30, 1995 and 1994 2
Consolidated Balance Sheet
September 30, 1995 and December 31, 1994 3
Consolidated Statement of Cash Flows
Three Months and Nine Months Ended
September 30, 1995 and 1994 4
Notes to Consolidated Financial Statements 5-9
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 10-14
Exhibit I - Report of Independent Accountants
Part II. Other Information:
Item 1. Legal Proceedings 15
Signatures 16
Exhibit II - Independent Accountants' Awareness Letter
</TABLE>
<PAGE>
ASARCO Incorporated
and Subsidiaries
CONSOLIDATED STATEMENT OF EARNINGS
(unaudited)
<TABLE>
<CAPTION>
3 Months Ended 9 Months Ended
September 30, September 30,
1995 1994 1995 1994
(in thousands) (in thousands)
<S> <C> <C> <C> <C>
Sales of products and services $819,721 $512,968 $2,398,192 $1,443,705
Operating costs and expenses:
Cost of products and services 589,472 450,735 1,740,129 1,294,335
Selling, administrative and other 29,858 19,968 93,211 59,348
Provision (recovery) for bad debts 422 648 1,487 (2,086)
Depreciation and depletion 26,645 20,396 88,701 62,727
Research and exploration 6,693 5,541 19,459 13,875
Provision for environmental matters - 46,585 - 51,159
-------- ------- --------- ---------
Total operating costs and expenses 653,090 543,873 1,942,987 1,479,358
-------- ------- --------- ---------
Operating income (loss) 166,631 (30,905) 455,205 (35,653)
Interest expense (25,287) (16,103) (68,614) (45,104)
Other income (expense) (1,443) 1,918 11,453 7,429
Gain on sale of Asarco Australia Limited - - - 58,512
-------- ------- --------- ------
Earnings (loss) before taxes on income, minority interests
and equity earnings 139,901 (45,090) 398,044 (14,816)
Taxes on income (benefit) 46,555 (15,248) 126,966 (297)
Minority interests in net earnings of consolidated
subsidiaries (35,959) (172) (92,263) (474)
Equity in earnings of nonconsolidated associated companies,
net of taxes of $81 and $374 in 1995; $1,279 and $2,959
in 1994
929 13,865 1,623 30,812
-------- -------- --------- --------
Net earnings (loss) $ 58,316 $(16,149) $ 180,438 $ 15,819
======== ========= ========= ========
Per share amounts:
Net earnings (loss) (a) $ 1.38 $ (.39) $ 4.27 $ .38
======== ========= ======== ========
Cash dividends $ 0.20 $ 0.10 $ 0.50 $ 0.30
Weighted average number of shares outstanding
42,402 41,942 42,264 41,850
</TABLE>
(a) The effect on the calculation of net earnings (loss) per common share
of the Company's Common Stock equivalents (shares under option) was
insignificant.
See notes to financial statements
<PAGE>
ASARCO Incorporated
and Subsidiaries
CONSOLIDATED BALANCE SHEET
(unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
(in thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 229,093 $ 18,321
Accounts and notes receivable, net 513,638 383,724
Inventories 399,282 299,148
Other assets 53,949 46,124
---------- -----------
Total current assets 1,195,962 747,317
Investments:
Cost and available-for-sale 874,777 751,888
Equity method 66,836 391,489
Property 4,097,409 2,509,072
Accumulated depreciation and depletion (2,049,765) (1,203,573)
Intangible assets 47,279 48,356
Other assets 52,584 46,476
---------- -----------
Total Assets $4,285,082 $ 3,291,025
========== ===========
LIABILITIES
Current liabilities:
Bank loans $ 11,466 $ 5,125
Current portion of long-term debt 27,613 13,330
Accounts payable 311,923 296,983
Salaries and wages 33,867 20,159
Taxes on income 91,379 43,152
Reserve for closed plant and environmental matters 45,632 55,946
Other liabilities 61,965 30,838
---------- -----------
Total current liabilities 583,845 465,533
---------- -----------
Long-term debt 1,120,409 914,601
Deferred income taxes 230,847 156,450
Reserve for closed plant and environmental matters 24,773 66,458
Postretirement benefit obligations other than pensions
94,397 95,186
Other liabilities and reserves 74,092 72,967
---------- -----------
Total non-current liabilities 1,544,518 1,305,662
---------- -----------
MINORITY INTERESTS 393,770 2,443
---------- -----------
COMMON STOCKHOLDERS' EQUITY
Common stock (a) 594,351 572,591
Unrealized gain on securities reported at fair value 166,588 91,627
Retained earnings 1,002,010 853,169
---------- -----------
Total Common Stockholders' Equity 1,762,949 1,517,387
---------- -----------
Total Liabilities, Minority Interests and Common Stockholders' Equity
$4,285,082 $ 3,291,025
========== ===========
(a) Common shares: authorized 80,000; outstanding: 42,480 42,102
See notes to financial statements
</TABLE>
<PAGE>
ASARCO Incorporated
and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
3 Months Ended 9 Months Ended
September 30, September 30,
1995 1994 1995 1994
(in thousands) (in thousands)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net earnings (loss) $ 58,316 $(16,149) $180,438 $15,819
Adjustments to reconcile net earnings to net cash provided from (used for)
operating activities:
Depreciation and depletion 26,645 19,757 88,701 62,727
Deferred income taxes (benefit) 12,950 (13,364) 35,113 302
Treasury stock used for employee benefits 939 1,261 3,770 3,703
Undistributed equity (earnings) losses (946) (10,840) (540) (24,967)
Net (gain) loss on sale of investments and property and
Asarco Australia Limited 4,749 (221) 2,996 (59,510)
Increase (decrease) in reserve for closed plant and
environmental matters (21,425) 25,543 (51,999) 14,234
Minority interests 35,959 172 92,263 474
Cash provided from (used for) operating assets and liabilities, net of the
consolidation of SPCC:
Accounts and notes receivable (72,356) 18,675 (35,949) (57,421)
Inventories 26,664 (5,259) 10,358 (28,747)
Accounts payable and accrued liabilities 20,729 (62,999) (10,945) 29,301
Other operating liabilities and reserves 6,565 10,959 (8,323) 6,914
Other operating assets 14,126 (4,905) 3,584 (11,311)
Foreign currency transaction (gains) losses
38 191 (1,241) 2,498
-------- ------- -------- -------
Net cash provided from (used for) operating activities
112,953 (37,179) 308,226 (45,984)
-------- -------- ------- --------
INVESTING ACTIVITIES
Capital expenditures (89,399) (31,651) (275,781) (55,583)
Sale of securities, investments and property 26,073 13,406 88,638 93,109
Release of restricted cash 2,177 - 60,450 -
Sale of available-for-sale securities 4,823 59,591 13,967 122,265
Purchase of available-for-sale securities (4,623) (59,863) (14,975) (123,063)
Purchase of investments (1,545) (68) (37,555) (283)
Acquisition of additional interest in SPCC - - (116,444) -
Consolidation of the opening cash balance of SPCC
- - 93,348 -
-------- ------- -------- -------
Net cash provided from (used for) investing activities
(62,494) (18,585) (188,352) 36,445
-------- ------- -------- -------
FINANCING ACTIVITIES
Debt incurred 65,057 62,217 229,780 108,096
Debt repaid (92,272) (595) (121,439) (80,956)
Net treasury stock transactions 5,108 3,225 5,343 3,707
Dividends paid (8,487) (4,196) (21,146) (12,557)
-------- ------- -------- -------
Net cash provided from (used for) financing activities
(30,594) 60,651 92,538 18,290
--------- ------- -------- -------
Effect of exchange rate changes on cash (1,295) (1,039) (1,640) (1,370)
-------- ------- -------- -------
Increase (decrease) in cash and cash equivalents
18,570 3,848 210,772 7,381
Cash and cash equivalents at beginning of period
210,523 16,033 18,321 12,500
-------- ------- -------- -------
Cash and cash equivalents at end of period $229,093 $19,881 $229,093 $19,881
======== ======= ======== =======
</TABLE>
See notes to financial statements
<PAGE>
ASARCO Incorporated
and 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, 1995 and the results of operations and
cash flows for the three months and nine months ended September 30,
1995 and 1994. Certain conforming reclassifications have been made in
the financial statements from amounts previously reported. 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 month and nine month periods are not necessarily indicative of
the results to be expected for the full year. The accompanying
consolidated financial statements should be read in conjunction with
the consolidated financial statements and notes thereto included in the
Company's 1994 annual report on Form 10-K.
B. Acquisition of Additional Interest in SPCC:
On April 5, 1995, the Company acquired an additional 10.7% interest in
Southern Peru Copper Corporation (SPCC) for $116.4 million, increasing
its ownership from 52.3% to 63%. The additional shares acquired enabled
the Company to elect a majority of the directors of SPCC. As a result,
the Company has consolidated the financial statements of SPCC in its
financial statements based on its 52.3% ownership, effective January 1,
1995 and 63% ownership, effective April 5, 1995. The Company previously
accounted for its investment in SPCC by the equity method. The
acquisition has been accounted for as a purchase transaction. The
excess of the purchase price over the Company's interest in the net
book value of SPCC attributable to the shares acquired is estimated to
be assigned to proven and probable sulfide reserves, proven and
probable leachable reserves and mineralized material.
C. Inventories were as follows:
(in millions)
<TABLE>
<CAPTION>
Sept. 30, Dec. 31,
1995 1994
<S> <C> <C>
Inventories of smelters, refineries and other
metal plants at lower of LIFO cost or market $ 16.8 $ 12.5
Provisional cost of metals received for
which prices have not yet been fixed 69.3 78.5
Mine inventories at lower of FIFO cost or market 113.8 119.8
Metal inventory at lower of average cost or less 31.0 -
Materials and supplies at average cost or less 140.8 65.9
Other 27.6 22.4
------- -------
Total $ 399.3 $ 299.1
======= =======
</TABLE>
Metal inventory represents the refined and in-process metal inventories
of SPCC.
At September 30, 1995, replacement cost exceeded inventories carried at
LIFO cost by approximately $137.8 million (December 31, 1994 - $143.2
million).
<PAGE>
D. Hedging activities:
At September 30, 1995, the Company had copper put options with an
average strike price of 90.7 cents per pound covering 34,309 tons or
approximately 41% of Asarco's expected domestic copper production for
the remaining three months of 1995. The cost of acquiring these puts
was $1.3 million. Copper put options with an average strike price of
98.5 cents per pound covering 130,210 tons or approximately 39% of
Asarco's expected 1996 domestic copper production were acquired at a
cost of $4.6 million.
In addition, at September 30, 1995, SPCC had copper put options with an
average strike price of 105.3 cents per pound covering 33,069 tons or
approximately 43% of its expected copper production for the remaining
three months of 1995. The cost of acquiring these puts was $1.1
million. Copper put options with an average strike price of 96.3 cents
per pound covering 79,366 tons or approximately 25% of its expected
1996 copper production were acquired at a cost of $1.9 million.
E. In the third quarter of 1994, the provision for environmental matters
included 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.
F. Supplemental disclosures of cash flow information:
(in millions)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest paid 25.3 16.7 64.0 46.6
(net of amounts capitalized)
Income taxes paid (refunded) 19.6 (6.7) 45.9 (5.6)
</TABLE>
G. In the first quarter of 1994, the Company sold its remaining interest
in Asarco Australia Limited, a gold mining company, for US $79.5
million. The sale resulted in a pre-tax gain of $58.5 million ($31.9
million after-tax).
H. Taxes on income:
Taxes on income for the three month and nine month periods ended
September 30, 1995 reflect increased taxes due to higher earnings and
the consolidation of SPCC. Taxes on income for the three month and nine
month periods ended September 30, 1994 reflect tax benefits resulting
from operating losses. Additionally, the nine month period ended
September 30, 1994 includes taxes resulting from the gain on the sale
of Asarco Australia Limited. Reported earnings from the consolidated
subsidiary Asarco Australia Limited were previously treated as
permanently reinvested.
I. Condensed quarterly earnings information is provided for SPCC, a
significant associated company previously accounted for by the equity
method. Earnings information is not shown for the comparable 1995
period as the Company has consolidated the financial statements of SPCC
in its financial statements effective January 1, 1995.
<PAGE>
<TABLE>
<CAPTION>
(in millions) SPCC
Three Months Ended Nine Months Ended
September 30, 1994 September 30, 1994
------------------ ------------------
<S> <C> <C>
Net sales $186.9 $483.0
====== ======
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>
Equity in earnings of other nonconsolidated associated companies
included in the Consolidated Statement of Earnings for the three months
ended September 30, 1995 and 1994 were $1.0 million and $.8 million
respectively, and for the nine months ended September 30, 1995 and 1994
were $2.0 million and $2.1 million respectively.
J. Consolidation of SPCC - Pro Forma Results of Operations:
Note B describes the Company's acquisition of an additional 10.7% of
SPCC on April 5, 1995. The table below summarizes unaudited pro forma
consolidated results of operations of Asarco Incorporated and
Subsidiaries for the three months and nine months ended September 30,
1995 and 1994, assuming that Asarco had acquired an additional 10.7% of
the outstanding stock of SPCC on January 1, 1995 and January 1, 1994,
respectively. In preparing the pro forma data, adjustments have been
made for the amortization of the excess of the purchase price over the
Company's interest in the net book value of SPCC attributable to the
shares acquired, the interest expense on additional debt incurred in
connection with the acquisition, the income tax benefit from
amortization and additional interest expense and the SPCC earnings
attributable to Asarco's additional interest net of the related income
tax expense. The unaudited pro forma financial information is based on
management's assumptions and does not purport to represent the results
that actually would have occurred if the acquisition had, in fact, been
completed on the dates assumed.
<TABLE>
<CAPTION>
Results of Operations: Three Months Ended Nine Months Ended
(in millions, except per September 30, September 30,
share amounts) Actual Pro Forma Pro Forma Pro Forma
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Sales of products and services $819.7 $693.3 $2,398.2 $1,904.0
Net earnings $58.3 ($14.8) $183.4 $17.5
Net earnings per common share $1.38 ($.35) $4.34 $.42
</TABLE>
K. Contingencies and Litigation:
The Company and two subsidiaries, at September 30, 1995, are defendants
in 950 lawsuits brought by 17,714 primary and 13,667 secondary
plaintiffs seeking substantial actual and punitive damages for personal
injury or death allegedly caused by exposure to asbestos, as well as
three lawsuits for removal or containment of asbestos-containing
products in structures. In addition, the Company and certain
subsidiaries are defendants in product liability lawsuits involving
various other products, including metals.
<PAGE>
The Company is a defendant in lawsuits in Arizona brought by indian
tribes and some other Arizona water users contesting the right of the
Company and numerous other individuals and entities to use water and,
in some cases, seeking damages for water usage and contamination of
ground water. The lawsuits could potentially affect the Company's use
of water at its Ray Complex, Mission Complex and other Arizona
operations.
The Company and certain subsidiaries are defendants in eleven class and
non-class lawsuits in Texas seeking substantial compensatory and
punitive damages for personal injury and contamination of property
allegedly caused by present and former operations and product sales of
the Company and its subsidiaries.
The Company and certain of its subsidiaries have received notices from
the United States Environmental Protection Agency ("EPA") that they and
in most cases numerous other parties are potentially responsible to
remediate alleged hazardous substance releases at certain sites under
the Comprehensive Environmental Response, Compensation and Liability
Act of 1980 ("CERCLA" or "Superfund"). In addition, the Company and
certain of its subsidiaries are defendants in lawsuits brought under
CERCLA or state laws which seek substantial damages and remediation.
Remedial action is being undertaken by the Company at some of these
sites. In connection with the sites referred to above, as well as at
other closed plants and sites where the Company is working with the EPA
and state agencies to resolve environmental issues, the Company has
made reasonable estimates, where possible, of the extent and cost of
necessary remedial action and damages. As a result of feasibility
studies, public hearings, engineering studies and discussions with the
EPA and similar state agencies, for sites where it is probable that
liability has been incurred and the amount of cost could be reasonably
estimated, the Company recorded charges to earnings in 1992 of $72.4
million, and in 1994 of $51.2 million. Reserves for these matters total
$70.4 million at September 30, 1995. The Company anticipates that
expenditures relating to these reserves will be made over the next
several years. Net cash expenditures charged to these reserves for the
three months ended September 30, 1995 and 1994 were $22.6 and $21.0
million respectively, and for the nine months ended September 30, 1995
and 1994 were $54.9 and $36.9 million respectively.
Future environmental related expenditures cannot be reliably determined
in many circumstances due to the early stages of investigation, the
uncertainties relating to specific remediation methods and costs, the
possible participation of other potentially responsible parties,
insurance coverage issues, and changing environmental laws and
interpretations. It is the opinion of management that the outcome of
the legal proceedings and environmental contingencies mentioned, and
other miscellaneous litigation and proceedings now pending, will not
materially adversely affect the financial position of Asarco and its
consolidated subsidiaries. However, it is possible that future
environmental contingencies could have a material effect on quarterly
or annual operating results, when they are resolved in future periods.
This opinion is based on considerations including experience related to
previous court judgments and settlements and remediation costs and
terms. The financial viability of other potentially responsible parties
has been considered when relevant and no credit has been assumed for
any potential insurance recoveries when the availability of insurance
has not been determined.
L. In the second quarter of 1995, the Company sold $150 million of 8.5%
debentures due May 1, 2025. The sale was made under Asarco's universal
shelf registration statement filed with the U.S. Securities and
Exchange Commission in October, 1994 for up to $300 million of
securities. The Company used the proceeds to repay, in part, revolving
credit bank borrowings. Borrowings under the revolving credit were used
to fund the purchase of an additional 10.7% interest in SPCC on April
5, 1995 and for general corporate purposes.
<PAGE>
M. Investments in Available-for-Sale Securities:
(In millions)
In accordance with the provisions of SFAS No. 115, available-for-sale
securities are carried at fair value. Unrealized gains of $166.6
million (net of deferred taxes of $89.7 million) at September 30, 1995,
compared with unrealized gains of $91.6 million (net of deferred taxes
of $49.4 million) at December 31, 1994 are included as a component of
stockholders' equity. Certain shares of Grupo Mexico owned by the
Company at December 31, 1994 were accounted for under the cost method
due to restrictions on their sale which expire in August 1996. At
September 30, 1995, such shares are classified as available-for-sale
securities carried at fair value.
<TABLE>
<CAPTION>
At September 30, 1995 At December 31, 1994
--------------------- --------------------
Unrealized Unrealized
Gains Fair Gains Fair
Cost (Losses) Value Cost (Losses) Value
<S> <C> <C> <C> <C> <C> <C>
M.I.M. Holdings Ltd. $266.7 $82.1 $348.8 $266.7 $138.5 $405.2
Grupo Mexico 248.9 168.9 417.8 3.8 3.8 7.6
Other 49.3 5.3 54.6 44.0 (1.3) 42.7
------ ------ ------ ------ ------ ------
$564.9 $256.3 $821.2 $314.5 $141.0 $455.5
Deferred taxes $(89.7) $(49.4)
------ ------
Unrealized gain on securities reported at
fair value $166.6 $ 91.6
====== ======
</TABLE>
N. As a result of SPCC's ongoing drilling programs at its mines, proven
and probable sulfide ore reserves have been increased effective June
30, 1995 from December 31, 1994. Ore reserves are as follows:
<TABLE>
<CAPTION>
As of As of
Sept. 30, 1995 Dec. 31, 1994
-------------- -------------
<S> <C> <C>
Toquepala Mine:
Ore reserves (tons in millions) 335.8 213.6
Grade-copper 0.80% 0.78%
Cuajone Mine:
Ore reserves (tons in millions) 940.9 374.1
Grade-copper 0.73% 0.80%
</TABLE>
O. Subsequent Event:
On October 5, 1995, SPCC filed a registration statement with the
Securities and Exchange Commission relating to a proposed exchange of
its common stock for any and all of the outstanding "Labor Shares" of
SPCC's Peruvian Branch (the "Branch"). The Branch consists of
substantially all the operating assets and liabilities of SPCC. The
Labor Shares currently represent a 17.31% non-voting interest in the
Branch's equity capital. These Labor Shares, which are accounted for as
a minority interest by SPCC, are currently traded on the Lima Stock
Exchange. SPCC intends to list its common stock on the New York and
Lima stock exchanges. Assuming all Labor Shares are exchanged for
common stock, the Company will own 52.2% of the outstanding common
stock of SPCC which represents no change in its current economic
interest in SPCC.
P. Impact of New Accounting Standards:
The Financial Accounting Standards Board issued SFAS No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets To Be Disposed Of" in March 1995 and SFAS No. 123 "Accounting
for Stock-Based Compensation" in October 1995. The Company is currently
assessing the impact of these statements, which will be effective for
financial statements issued for fiscal years beginning after December
15, 1995.
<PAGE>
Part I Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Earnings: The Company reported net earnings of $58.3 million, or $1.38 per
share, for the third quarter ended September 30, 1995, compared with a net loss
of $16.1 million, or $.39 per share, for the third quarter of 1994. Third
quarter 1994 results included a $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 charge, earnings for the third quarter of 1994 would have been
$14.6 million or $.35 per share. The improvement in earnings reflect the higher
copper price along with lower costs, an increase in sales of copper mined by the
Company, the increased ownership of SPCC and improved earnings from the
Company's specialty chemicals business.
For the nine month period ended September 30, 1995, the Company reported net
income of $180.4 million, or $4.27 per share, compared with net income of $15.8
million or $.38 per share for the comparable 1994 period. In addition to the
third quarter environmental provision, results for the nine month period ended
September 30, 1994 included a $31.9 million after-tax gain, $58.5 million on a
pre-tax basis, on the sale of the Company's remaining interest in Asarco
Australia Limited and a $2.6 million after-tax gain related to recovery of a bad
debt previously written off. The improvement in earnings reflect the higher
copper price along with lower costs, an increase in sales of copper mined by the
Company, the increased ownership of SPCC and improved earnings from the
Company's specialty chemicals business.
On April 5, 1995, Asarco acquired an additional 10.7% interest in SPCC for
$116.4 million, increasing its ownership from 52.3% to 63%. As a result of the
acquisition, the Company has consolidated the financial statements of SPCC in
its financial statements based on its 52.3% ownership, effective January 1, 1995
and 63% ownership, effective April 5, 1995. The Company had previously accounted
for its investment in SPCC by the equity method. Had SPCC been consolidated in
the Company's financial statements in 1994, based on its 52.3% ownership, there
would have been no effect on net earnings.
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 Data:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
Average Metal Prices 1995 1994 1995 1994
- -------------------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Copper (per pound - COMEX) $1.36 $1.14 $1.36 $1.00
Copper (per pound - LME) $1.37 $1.11 $1.34 $ .98
Lead (per pound - LME) $ .28 $ .27 $ .28 $ .23
Silver (per ounce - Handy & Harman) $5.33 $5.34 $5.17 $5.33
Zinc (per pound - LME) $ .46 $ .44 $ .47 $ .44
Molybdenum (per pound - Metals Week Dealer Oxide)
$4.37 $3.52 $8.45 $3.14
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
Sales Volume: 1995 1994 1995 1994
------------ ---- ---- ---- ----
<S> <C> <C> <C> <C>
Copper (tons)
Asarco 120,000 121,800 377,700 406,600
SPCC 94,900 80,500 234,400 242,900
------- ------- ------- -------
Consolidated 214,900 202,300 612,100 649,500
Asarco Beneficial Interest 169,500 156,500 494,200 511,400
Lead (tons)
Asarco 52,200 49,700 151,300 151,000
SPCC - - - -
------- ------ ------- -------
Consolidated 52,200 49,700 151,300 151,000
Asarco Beneficial Interest 52,200 49,700 151,300 151,000
Silver (000s ounces)
Asarco 9,583 9,121 28,414 24,851
SPCC 725 853 1,866 2,386
------ ------ ------ ------
Consolidated 10,308 9,974 30,280 27,237
Asarco Beneficial Interest 9,961 9,489 29,339 25,881
Zinc (tons)(1)
Asarco 29,398 34,927 93,126 100,858
SPCC - - - -
------ ------ ------- -------
Consolidated 29,398 34,927 93,126 100,858
Asarco Beneficial Interest 29,398 34,927 93,126 100,858
Molybdenum (tons)(1)
Asarco 572 467 1,852 1,310
SPCC 1,328 699 3,037 2,307
----- ----- ----- -----
Consolidated 1,900 1,166 4,889 3,617
Asarco Beneficial Interest 1,264 769 3,349 2,306
</TABLE>
(1) The Company's zinc and molybdenum mine production is sold in
concentrate form. Volume represents tons of zinc and
molybdenum metal contained in concentrate.
Note: SPCC presented at 100%. Consolidated and Asarco Beneficial
Interest amounts shown for 1994 are pro forma and assume that
Asarco consolidated SPCC effective January 1, 1994 based on
Asarco's 52.3% equity ownership. The minority interest in SPCC
represented by Labor Shares in its Peruvian Branch resulted in
Asarco having a beneficial interest in SPCC of 43.2%.
Effective April 1995 Asarco's equity ownership of SPCC
increased to 63% and its beneficial interest increased to
52.1%.
At September 30, 1995, the Company had copper put options with an average strike
price of 90.7 cents per pound covering 34,309 tons or approximately 41% of
Asarco's expected domestic copper production for the remaining three months of
1995. The cost of acquiring these puts was $1.3 million. Copper put options with
an average strike price of 98.5 cents per pound covering 130,210 tons or
approximately 39% of Asarco's expected 1996 domestic copper production were
acquired at a cost of $4.6 million.
<PAGE>
In addition, at September 30, 1995, SPCC had copper put options with an average
strike price of 105.3 cents per pound covering 33,069 tons or approximately 43%
of its expected copper production for the remaining three months of 1995. The
cost of acquiring these puts was $1.1 million. Copper put options with an
average strike price of 96.3 cents per pound covering 79,366 tons or
approximately 25% of its expected 1996 copper production were acquired at a cost
of $1.9 million.
The pre-tax gain (loss) recognized on the Company's hedging activities,
including amortized transaction costs were as follows:
Hedging Activities
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
Metal 1995 1994 1995 1994
----- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Copper $(655) $ - $(2,401) $3,346
Zinc (32) 1,008 (81) 2,652
Silver 286 241 501 730
Lead (180) - (285) -
----- ------ ------- ------
Total Gain (Loss) $(581) $1,249 $(2,266) $6,728
===== ====== ======= ======
</TABLE>
Sales: Sales in the third quarter of 1995 were $819.7 million, compared with
$513.0 million in the third quarter of 1994. The increase in sales reflected
$256.3 million due to the consolidation of SPCC, the higher copper price and
higher specialty chemical sales. Sales for the nine month period ended September
30, 1995 were $2,398.2 million, compared with $1,443.7 million for the
comparable 1994 period. The increase in sales reflected $654.1 million due to
the consolidation of SPCC, higher base metal prices and increased specialty
chemical and aggregate sales. The decline in 1995 copper sales volume from the
same period in 1994 is due to lower quantities of copper purchased by the
Company for resale on essentially the same terms to customers to satisfy
contractual commitments.
Cost of Products & Services: Cost of products and services were $589.5 million
in the third quarter of 1995, compared with $450.7 million in the third quarter
of 1994. The increase in costs reflected $128.2 million due to the consolidation
of SPCC, higher costs in specialty chemicals due to increased sales volumes and
the higher price of outside copper purchases offset by the lower volume of such
copper purchases as a result of an increase in sales of copper mined by the
Company.
Cost of products and services for the nine month period ended September 30, 1995
were $1,740.1 million, compared with $1,294.3 million for the comparable 1994
period. The increase in costs reflected $322.9 million due to the consolidation
of SPCC, higher costs in specialty chemicals due to increased sales volumes and
the higher price of outside copper purchases offset by the lower volume of such
copper purchases as a result of an increase in sales of copper mined by the
Company.
Other Expenses: Selling, administrative and other costs were $29.9 million in
the third quarter of 1995, and $93.2 million for the nine month period ended
September 30, 1995, compared with $20.0 million and $59.3 million for the
respective periods in 1994. The increase was primarily due to the consolidation
of SPCC.
Depreciation and depletion expense was $26.6 million for the third quarter of
1995, and $88.7 million for the nine month period ended September 30, 1995,
compared with $20.4 million and $62.7 million for the respective periods in
1994. The increase was primarily due to the consolidation of SPCC.
<PAGE>
Research and exploration increased by $1.2 million in the third quarter of 1995
and $5.6 million for the nine month period ended September 30, 1995 due to
increased overseas exploration.
Nonoperating Items: Interest expense was $25.3 million in the third quarter of
1995, and $68.6 million for the nine month period ended September 30, 1995,
compared with $16.1 million and $45.1 million for the respective periods in
1994. The increase reflected $4.7 million and $10.5 million for the three and
nine month periods due to the consolidation of SPCC, a higher debt level and
higher interest rates on short term borrowings.
Other income (expense) for the third quarter 1995 includes a pretax loss of $4.0
million on the sale of the Company's stock in Corporacion Minera Nor Peru, which
owned and operated the Quiruvilca mine in the northern part of Peru and the sale
of its Lone Star Construction business. Additionally, other income (expense)
reflects increased interest income due to the consolidation of SPCC. The
increase in minority interests is a result of the consolidation of SPCC.
Taxes on Income: Taxes on income for the three and nine month periods ended
September 30, 1995 were $46.6 million and $127.0 million, respectively, as
compared to a tax benefit of $15.2 million and $.3 million for the respective
periods in 1994. The increase was due to an increase in earnings and the
consolidation of SPCC, partially offset by the higher taxes resulting from the
gain on the sale of Asarco Australia Limited in the first quarter of 1994. Taxes
had not been previously provided as reported earnings from the consolidated
subsidiary Asarco Australia Limited were treated as permanently reinvested.
Cash Flows: Net cash provided from operating activities was $113.0 million in
the third quarter of 1995, compared with cash used for operating activities of
$37.2 million in the third quarter of 1994. The improvements reflected the
consolidation of SPCC, higher net earnings and the timing of payments on the
purchase of raw materials. Net cash used for investing activities was $62.5
million in the third quarter of 1995, compared with net cash used for investing
activities of $18.6 million in the third quarter of 1994. The change reflects
the consolidation of SPCC and higher capital expenditures in 1995.
Net cash provided from operating activities was $308.2 million for the nine
month period ended September 30, 1995, compared with net cash used for operating
activities of $46.0 million in the corresponding prior period. The improvements
reflected the consolidation of SPCC and higher net earnings partially offset by
an increase in cash used for closed plants and environmental matters, primarily
at the Company's former Tacoma, Washington Smelter. Cash used for investing
activities was $188.4 million for the nine month period ended September 30,
1995, compared with cash provided of $36.4 million in the corresponding prior
period. The change reflected the effect of the consolidation of SPCC, the
acquisition of an additional 10.7% interest in SPCC for $116.4 million in the
second quarter of 1995, higher capital expenditures and cash provided from the
proceeds of the sale of Asarco Australia Limited in the first quarter of 1994.
The release of restricted cash of $2.2 million and $60.5 million for the three
month and nine month periods ended September 30, 1995 represents the withdrawal
by SPCC of funds, and interest accrued thereon, deposited with the Central
Reserve Bank of Peru, pursuant to an agreement with the government of Peru,
under which SPCC agreed to use such funds in an investment program over five
years from 1992 through 1996.
Financing activities in the third quarter of 1995 include the prepayment of
$13.5 million of the Company's 8-3/4% pollution control revenue bonds at par
value plus a premium of 1.5%. Financing activities in the second quarter of 1995
include the sale of $150 million of 8.5% debentures due May 1, 2025. Financing
activities in the first quarter of 1994, included the prepayment of the
Company's 9-3/4% Sinking Fund Debentures at par value plus a premium of .9%.
<PAGE>
Financing activities in the third quarter of 1995 also include the prepayment by
SPCC of $77.0 million, substantially all of the outstanding balance, under the
$115 million credit facility, and the borrowing of $35 million under a loan
agreement with the Export - Import Bank of the United States at a fixed interest
rate of 6.43% for use in its capital investment program.
Liquidity and Capital Resources: At September 30, 1995, the Company's debt as a
percentage of total capitalization (the total of debt, minority interests and
equity) was 35.0%, compared with 38.1% at December 31, 1994. The primary reason
for the decrease in the percentage of debt to total capitalization was the
consolidation of SPCC. Consolidated debt at the end of the third quarter 1995
was $1,159.5 million compared with $933.1 million at the end of 1994. Debt
increased $101.3 million due to the consolidation of SPCC and $116.4 million due
to the purchase of an additional 10.7% interest in SPCC. Additional indebtedness
permitted under the terms of the Company's credit agreements totaled $761
million at September 30, 1995.
In the second quarter of 1995, the Company sold $150 million of 8.5% debentures
due May 1, 2025. The sale was made under Asarco's universal shelf registration
statement filed with the U.S. Securities and Exchange Commission in October,
1994 for up to $300 million of securities. The Company used the proceeds to
repay, in part, revolving credit bank borrowings. Borrowings under the revolving
credit agreements were used to fund the purchase of an additional 10.7% interest
in SPCC on April 5, 1995 and for general corporate purposes.
The Company expects that it will meet its cash requirements for 1995 and beyond
from internally generated funds, cash on hand and from borrowings under its
revolving credit agreements or from additional debt or equity financing.
In October, the Board of Directors declared a quarterly dividend on the common
stock of 20 cents per share payable December 1, 1995 to stockholders of record
at the close of business on November 6, 1995.
Ore Reserves: As a result of SPCC's ongoing drilling program at its mines,
proven and probable sulfide ore reserves have been increased effective June 30,
1995 from December 31, 1994. Ore reserves are as follows:
<TABLE>
<CAPTION>
As of As of
Sept. 30, 1995 Dec. 31, 1994
-------------- -------------
<S> <C> <C>
Toquepala Mine:
Ore reserves (tons in millions) 335.8 213.6
Grade-copper 0.80% 0.78%
Cuajone Mine:
Ore reserves (tons in millions) 940.9 374.1
Grade-copper 0.73% 0.80%
</TABLE>
The increased reserves had the effect of reducing depreciation and depletion
expense for the third quarter of 1995 by $3.3 million.
In addition, the drilling program has identified mineralized material consisting
of 538.4 million tons grading 0.72% copper at the Toquepala mine and 450.7
million tons grading 0.62% copper at the Cuajone mine. This mineralized material
will not qualify as proven and probable reserves until such time as a final and
comprehensive economic and technical feasibility study has been completed
demonstrating that such additional material can be economically mined.
Impact of New Accounting Standards: The Financial Accounting Standards Board
issued SFAS No. 121 "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets To Be Disposed Of" in March 1995 and SFAS No. 123 "Accounting
for Stock-Based Compensation" in October 1995. The Company is currently
assessing the impact of these statements, which will be effective for financial
statements issued for fiscal years beginning after December 15, 1995.
<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 condensed consolidated balance sheet
of ASARCO Incorporated and Subsidiaries as of September 30, 1995 and the related
interim condensed consolidated statements of earnings and cash flows for the
three month and nine month periods ended September 30, 1995 and 1994. These
interim condensed consolidated 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.
As described in Note B, the Company has consolidated the financial statements of
Southern Peru Copper Corporation effective January 1, 1995.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying interim condensed consolidated financial statements
for them to be in conformity with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
New York, New York
October 23, 1995
<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 1994 and prior years and 10-Q for
the first and second quarters of 1995. As of September 30, 1995, there
were pending against Asarco and its subsidiaries 950 lawsuits brought
by 17,714 primary and 13,667 secondary plaintiffs in 26 states and one
Canadian province seeking substantial damages for personal injury or
death allegedly caused by exposure to asbestos. As of September 30,
1995, LAQ, Asarco and Capco have settled or have been dismissed from a
total of 5,305 asbestos personal injury lawsuits brought by
approximately 51,914 primary and 32,943 secondary plaintiffs.
2. On September 26, 1995, Southern Peru Copper Corporation ("SPCC"), a 63%
owned subsidiary of the Company, was served with a lawsuit, which was
filed in the state court of Nueces County, Texas, naming as defendants
SPCC, its present and former stockholders and certain other defendants.
The lawsuit seeks unspecified compensatory and punitive damages for
alleged personal injuries to approximately 700 persons resident in Peru
and property damages arising from alleged releases into the environment
from SPCC operations in Peru. On September 29, 1995, the action was
removed from Texas state court to the United States District Court for
the Southern District of Texas, Corpus Christi Division. On October 2,
1995, SPCC and other defendants filed a motion to dismiss the action on
a number of grounds, including that it would be unreasonable for a
United States court to exercise extraterritorial jurisdiction, lack of
personal jurisdiction and forum non conveniens.
3. With respect to the lawsuits alleging that the Company was illegally
discharging untreated water from its Omaha Plant without a permit,
reported on Forms 10-K for 1994 and 10-Q for the second quarter of
1995, the Department of Justice moved to have the Consent Decree
resolving this matter entered by the court. Oral argument on the
Department of Justice motion is scheduled for December, 1995.
4. With respect to the site of a former pesticide manufacturing plant in
Hunt County, Texas, reported on Form 10-K for 1994 and on Form 10-Q for
the second quarter of 1995, in August 1995, the Company was sued by 818
individuals in Dallas County, Texas District Court and by 10
individuals in Hunt County, Texas District Court alleging claims for
personal injury and property damages similar to those previously
reported.
5. With respect to the state implementation plans ("SIP's") to achieve
compliance with the Environmental Protection Agency ("EPA") ambient air
quality standard for lead, reported on Form 10-K for 1994 and on Form
10-Q for the second quarter of 1995, the Montana SIP which affects the
Company's East Helena Montana Plant was approved by the State on August
4, 1995 and has been submitted to the EPA for final approval.
6. With respect to the lawsuit filed by a group named the Association of
Retired Employees of SPCC and reported on Form 10-Q for the second
quarter of 1995, in September 1995, the Supreme Court of Peru declined
to review the case letting stand the previous dismissal by the Supreme
Court of Lima.
7. With respect to the action pending in state court in Duval County,
Texas concerning alleged exposure to materials, including metals,
reported on Form 10-K for 1994 and Forms 10-Q for the first and second
quarters of 1995, court approval of a settlement reached between the
Company and the plaintiffs was entered on October 12, 1995.
<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 13, 1995 /s/ Kevin R. Morano
-------------------
Kevin R. Morano
Vice President, Finance and
Chief Financial Officer
Date: November 13, 1995 /s/ William Dowd
William Dowd
Controller
<PAGE>
Exhibit II
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 23, 1995 on our review of the interim
financial information of ASARCO Incorporated and Subsidiaries as of September
30, 1995 and for the three month and nine month periods ended September 30, 1995
and 1994 and included in this Form 10-Q for the quarter ended September 30, 1995
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 10, 1995
