1995
Second 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 June 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 July 31, 1995 there were outstanding 42,426,414 shares of Asarco Common
Stock, without par value.
<PAGE>
ASARCO Incorporated
and Subsidiaries
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
Page No.
<S> <C>
Part I. Financial Information:
Item 1. Financial Statements (unaudited)
Consolidated Statement of Earnings
Three Months and Six Months Ended
June 30, 1995 and 1994 2
Consolidated Balance Sheet
June 30, 1995 and December 31, 1994 3
Consolidated Statement of Cash Flows
Three Months and Six Months Ended
June 30, 1995 and 1994 4
Notes to Consolidated Financial Statements 5-8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 9-13
Exhibit I - Report of Independent Accountants
Part II. Other Information:
Item 1. Legal Proceedings 14-15
Signatures 16
Exhibit II - Independent Accountants' Awareness Letter
</TABLE>
- 1 -
<PAGE>
ASARCO Incorporated
and Subsidiaries
CONSOLIDATED STATEMENT OF EARNINGS
(unaudited)
<TABLE>
<CAPTION>
3 Months Ended 6 Months Ended
June 30, June 30,
1995 1994 1995 1994
(in thousands) (in thousands)
<S> <C> <C> <C> <C>
Sales of products and services $787,464 $487,756 $1,578,471 $930,737
Operating costs and expenses:
Cost of products and services 580,571 440,465 1,150,657 848,174
Selling, administrative and other 30,918 19,638 63,353 39,380
Provision (recovery) for bad debts 491 696 1,065 (2,734)
Depreciation and depletion 30,425 21,481 62,056 42,331
Research and exploration 7,656 4,460 12,766 8,334
-------- ------- --------- -------
Total operating costs and expenses 650,061 486,740 1,289,897 935,485
-------- ------- --------- -------
Operating income (loss) 137,403 1,016 288,574 (4,748)
Interest expense (24,424) (14,730) (43,327) (29,001)
Other income 5,077 267 12,896 5,511
Gain on sale of Asarco Australia Limited - - - 58,512
-------- -------- --------- -------
Earnings (loss) before taxes on income, minority interests
and equity earnings 118,056 (13,447) 258,143 30,274
Taxes on income (benefit) 37,034 (6,137) 80,411 14,951
Minority interests in net earnings of consolidated
subsidiaries (24,935) (181) (56,304) (302)
Equity in earnings of nonconsolidated associated companies,
net of taxes of $243 and $293 in 1995; $1,194 and $1,680
in 1994 323 12,853 694 16,947
-------- -------- --------- -------
Net earnings $ 56,410 $ 5,362 $ 122,122 $31,968
======== ======== ========= =======
Per share amounts:
Net earnings (a) $ 1.34 $ 0.13 $ 2.90 $ 0.76
======== ======== ========= =======
Cash dividends $ 0.20 $ 0.10 $ 0.30 $ 0.20
Weighted average number of shares outstanding 42,212 41,829 42,183 41,800
</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
- 2 -
<PAGE>
ASARCO Incorporated
and Subsidiaries
CONSOLIDATED BALANCE SHEET
(unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
(in thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 210,523 $ 18,321
Marketable securities 16,927 -
Accounts and notes receivable, net 443,768 383,724
Inventories 430,940 299,148
Other assets 58,592 46,124
---------- -----------
Total current assets 1,160,750 747,317
Investments:
Cost and available-for-sale 656,581 751,888
Equity 71,678 391,489
Property 4,059,363 2,509,072
Accumulated depreciation and depletion (2,064,620) (1,203,573)
Intangible assets 47,642 48,356
Other assets 76,088 46,476
---------- -----------
Total Assets $4,007,482 $ 3,291,025
========== ===========
LIABILITIES
Current liabilities:
Bank loans $ 20,428 $ 5,125
Current portion of long-term debt 30,436 13,330
Accounts payable 311,033 296,983
Salaries and wages 36,044 20,159
Taxes on income 76,582 43,152
Reserve for closed plant and environmental matters 42,624 55,946
Other liabilities 48,796 30,838
---------- -----------
Total current liabilities 565,943 465,533
---------- -----------
Long-term debt 1,135,706 914,601
Deferred income taxes 145,896 156,450
Reserve for closed plant and environmental matters 49,206 66,458
Postretirement benefit obligations other than pensions 93,837 95,186
Other liabilities and reserves 74,147 72,967
---------- -----------
Total non-current liabilities 1,498,792 1,305,662
---------- -----------
MINORITY INTERESTS 366,145 2,443
---------- -----------
COMMON STOCKHOLDERS' EQUITY
Common stock (a) 581,250 572,591
Unrealized gain on securities reported at fair value 28,160 91,627
Retained earnings 967,192 853,169
---------- -----------
Total Common Stockholders' Equity 1,576,602 1,517,387
---------- -----------
Total Liabilities, Minority Interests and Common Stockholders' Equity $4,007,482 $ 3,291,025
========== ===========
(a) Common shares: authorized 80,000; outstanding: 42,248 42,102
See notes to financial statements
</TABLE>
- 3 -
<PAGE>
ASARCO Incorporated
and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
3 Months Ended 6 Months Ended
June 30, June 30,
1995 1994 1995 1994
(in thousands) (in thousands)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net earnings $56,410 $ 5,362 $122,122 $31,968
Adjustments to reconcile net earnings to net cash provided from (used for)
operating activities:
Depreciation and depletion 30,425 21,796 62,056 42,970
Deferred income taxes 10,112 (6,693) 22,163 13,666
Treasury stock used for employee benefits 1,223 1,151 2,831 2,442
Undistributed equity (earnings) losses 84 (12,062) 406 (14,127)
Net gain on sale of investments and property (1,301) (170) (1,753) (59,289)
Increase (decrease) in reserve for closed plant and environmental
matters (8,039) (11,788) (30,574) (11,309)
Minority interests 24,935 181 56,304 302
Cash provided from (used for) operating assets and liabilities, net of the
consolidation of SPCC:
Accounts and notes receivable 33,714 (75,352) 36,407 (76,096)
Inventories (31,784) (20,828) (16,306) (23,488)
Accounts payable and accrued liabilities 5,124 85,106 (31,674) 92,300
Other operating liabilities and reserves 2,193 (7,199) (14,888) (4,045)
Other operating assets (5,534) (4,931) (10,542) (6,406)
Foreign currency transaction (gains) losses 977 31 (1,279) 2,307
------- ------- ------- -----
Net cash provided from (used for) operating activities 118,539 (25,396) 195,273 (8,805)
------- ------- ------- ------
INVESTING ACTIVITIES
Capital expenditures (110,035) (13,636) (186,382) (23,932)
Sale of securities, investments and property 20,494 212 62,565 79,703
Release of restricted cash 58,954 - 58,273 -
Sale of available-for-sale securities 2,914 54,502 9,144 62,674
Purchase of available-for-sale securities (3,644) (55,144) (10,352) (63,200)
Purchase of investments (938) (215) (36,010) (215)
Acquisition of additional interest in SPCC (116,444) - (116,444) -
Consolidation of the opening cash balance of SPCC - - 93,348 -
-------- ------- -------- -----
Net cash provided from (used for) investing activities (148,699) (14,281) (125,858) 55,030
-------- ------- -------- -------
FINANCING ACTIVITIES
Debt incurred 154,733 45,754 164,723 45,879
Debt retired (12,277) (1,573) (29,167) (80,361)
Net treasury stock transactions 471 460 235 482
Dividends paid (8,443) (4,183) (12,659) (8,361)
------- ------- ------- -------
Net cash provided from (used for) financing activities 134,484 40,458 123,132 (42,361)
------- ------- ------- -------
Effect of exchange rate changes on cash (480) (252) (345) (331)
------- ------- ------- -------
Increase (decrease) in cash and cash equivalents 103,844 529 192,202 3,533
Cash and cash equivalents at beginning of period 106,679 15,504 18,321 12,500
------- ------- -------- -------
Cash and cash equivalents at end of period $210,523 $16,033 $210,523 $16,033
======== ======= ======== =======
</TABLE>
See notes to financial statements
- 4 -
<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 June 30, 1995 and the results of operations and cash flows for the
three months and six months ended June 30, 1995 and 1994. Certain
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 six 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>
June 30, Dec. 31,
1995 1994
<S> <C> <C>
Inventories of smelters, refineries and other
metal plants at LIFO cost or market $ 14.6 $ 12.5
Provisional cost of metals received for
which prices have not yet been fixed 69.9 78.5
Mine inventories at FIFO cost or market 114.5 119.8
Metal inventory at average cost or less 55.5 -
Materials and supplies at average cost or less 147.5 65.9
Other 28.9 22.4
------- -------
Total $ 430.9 $ 299.1
======= =======
</TABLE>
Metal inventory represents the refined and in-process metal inventories of
SPCC which is recorded at the lower of average cost or market value.
At June 30, 1995, replacement cost exceeded inventories carried at LIFO
cost by approximately $143.6 million (December 31, 1994 - $143.2 million).
- 5 -
<PAGE>
D. Hedging activities:
At June 30, 1995 the Company had copper put options with an average strike
price of 91.0 cents per pound covering 68,728 tons or approximately 41% of
Asarco's expected domestic copper production for the remaining six months
of 1995. The cost of acquiring these puts was $2.7 million. Copper put
options with an average strike price of 98.1 cents per pound covering
108,137 tons or approximately 32% of Asarco's expected 1996 domestic
copper production were acquired at a cost of $3.7 million. In addition, at
June 30, 1995 SPCC had copper put options with an average strike price of
107.9 cents per pound covering 66,139 tons or approximately 47% of its
expected copper production for the remaining six months of 1995. The cost
of acquiring these puts was $2.1 million. Copper put options with an
average strike price of 96.3 cents per pound covering 79,366 tons or
approximately 26% of its expected 1996 copper production were acquired at
a cost of $1.9 million.
E. Supplemental disclosures of cash flow information:
(in millions)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Cash paid for:
Interest (net of amounts capitalized)
$20.9 $13.3 $38.7 $29.9
Income taxes (net of refunds) 16.8 0.4 26.3 1.1
</TABLE>
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).
G. Taxes on income:
Taxes on income for the three month and six month periods ending June 30,
1995 reflect increased taxes due to higher earnings and the consolidation
of SPCC. The six month period ending June 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. Taxes on income for the six
month period ending June 30, 1994 also reflect tax benefits resulting from
operating losses.
H. Capsulized quarterly earnings information is provided for SPCC, a
significant associated company previously accounted for by the equity
method. Equity earnings are 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.
<TABLE>
<CAPTION>
(in millions) SPCC
Three Months Ended Six Months Ended
June 30, 1994 June 30, 1994
------------- -------------
<S> <C> <C>
Net Sales $ 149.2 $ 296.1
======= =======
Earnings before Taxes $ 41.0 $ 56.3
Taxes on Income (15.5) (23.2)
----- -----
Net Earnings $ 25.5 $ 33.1
====== ======
Asarco's ownership percentage 52.3% 52.3%
==== ====
Asarco's pre-tax equity earnings $ 13.3 $ 17.3
====== ======
</TABLE>
- 6 -
<PAGE>
Equity in earnings of other nonconsolidated associated companies included
in the Consolidated Statement of Earnings for the three months ended June
30, 1995 and 1994 were $566,000 and $753,000 respectively, and for the six
months ended June 30, 1995 and 1994 were $987,000 and $1,343,000
respectively.
I. 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 six months ended June 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 Six Months Ended
(in millions, except per June 30, June 30,
share amounts) Actual Pro Forma Pro Forma Pro Forma
1995 1994 1995 1994
<S> <C> <C> <C> <C> <C>
Sales of products and services $787.5 $631.0 $1,578.5 $1,210.7
Net earnings $ 56.4 $ 6.4 $ 125.1 $ 32.3
Net earnings per common share $ 1.34 $ .15 $ 2.97 $ .77
</TABLE>
J. Contingencies and Litigation:
The Company and two subsidiaries, at June 30, 1995, are defendants in 991
lawsuits brought by 11,786 primary and 6,476 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, in June 1995, one of the subsidiaries was served with a
complaint in a purported class action filed in Illinois state court that
also names 139 other defendants. The class action is allegedly brought on
behalf of a nationwide class of persons at an increased risk of developing
asbestos-related diseases as a result of asbestos exposure. In addition,
the Company and certain subsidiaries are defendants in product liability
lawsuits involving various other products, including metals.
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 ten class and
nonclass 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.
- 7 -
<PAGE>
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 $91.8 million at June 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 June 30, 1995 and 1994 were $9.4 and $14.0 million
respectively, and for the six months ended June 30, 1995 and 1994 were
$32.3 and $15.9 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.
K. On April 21, 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.
L. Impact of New Accounting Standards:
In March 1995, 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." The Company is currently assessing the impact
of this statement, which will be effective for financial statements issued
for fiscal years beginning after December 15, 1995.
- 8 -
<PAGE>
Part I Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Earnings: The Company reported net earnings of $56.4 million, or $1.34 per
share, for the second quarter ended June 30, 1995, compared with net earnings of
$5.4 million, or $.13 per share, for the second quarter of 1994. The improvement
in earnings was principally due to higher base metal prices, the Company's
increased ownership of SPCC combined with improved operating results in all of
the Company's major businesses.
For the six month period ended June 30, 1995, the Company reported net income of
$122.1 million, or $2.90 per share, compared with net income of $32.0 million or
$.76 per share for the comparable 1994 period. Results for the six month period
ended June 30, 1994 included a $31.9 million after-tax gain, ($58.5 million
pre-tax) 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.
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 Six Months Ended
June 30, June 30,
Average Metal Prices 1995 1994 1995 1994
- -------------------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Copper (per pound - COMEX) $ 1.33 $ .99 $ 1.35 $ .93
Copper (per pound - LME) 1.31 .97 1.32 .91
Lead (per pound - LME) .27 .22 .28 .22
Silver (per ounce - Handy & Harman) 5.48 5.38 5.09 5.33
Gold (per ounce - London Final) 388 381 384 383
Zinc (per pound - LME) .47 .43 .48 .44
Molybdenum (per pound - Metals Week Dealer Oxide) 7.21 3.16 10.49 2.96
</TABLE>
- 9 -
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
Sales Volume: 1995 1994 1995 1994
------------ ---- ---- ---- ----
<S> <C> <C> <C> <C>
Copper (tons)
Asarco 128,890 137,299 257,650 284,875
SPCC 75,602 77,361 139,200 162,379
------- ------- ------- -------
Consolidated 204,492 214,660 396,850 447,254
Asarco Beneficial Interest 176,557 177,759 338,579 369,799
Lead (tons)
Asarco 49,424 55,547 99,075 101,316
SPCC - - - -
------- ------- ------- -------
Consolidated 49,424 55,547 99,075 101,316
Asarco Beneficial Interest 49,424 55,547 99,075 101,316
Silver (000s ounces)
Asarco 9,255 8,246 18,831 15,730
SPCC 613 639 1,141 1,533
------- ------ ------- -------
Consolidated 9,868 8,885 19,972 17,263
Asarco Beneficial Interest 9,641 8,580 19,493 16,532
Gold (ounces)
Asarco 42,200 37,100 93,500 48,300
SPCC - - - -
------- ------- ------ -------
Consolidated 42,200 37,100 93,500 48,300
Asarco Beneficial Interest 42,200 37,100 93,500 48,300
Zinc (tons)(1)
Asarco 35,137 35,182 63,728 65,925
SPCC - - - -
------- ------- ------- -------
Consolidated 35,137 35,182 63,728 65,925
Asarco Beneficial Interest 35,137 35,182 63,728 65,925
Molybdenum (tons)(1)
Asarco 614 421 1,280 843
SPCC 763 879 1,709 1,608
------ ------ ------- -------
Consolidated 1,377 1,300 2,989 2,451
Asarco Beneficial Interest 1,095 881 2,256 1,684
(1) Volume represents tons of zinc and molybdenum metal contained in concentrate.
</TABLE>
Note: SPCC presented at 100%. Asarco's interest in SPCC was 52.3% through
the first quarter of 1995 and 63% effective with the second quarter
of 1995. Consolidated and Asarco Beneficial Interest amounts shown
for 1994 are proforma and assume that Asarco consolidated SPCC
effective January 1, 1994 based on Asarco's 52.3% ownership of SPCC
and is presented for comparison purposes.
- 10 -
<PAGE>
At June 30, 1995, the Company had copper put options with an average strike
price of 91.0 cents per pound covering 68,728 tons or approximately 41% of
Asarco's expected domestic copper production for the remaining six months of
1995. The cost of acquiring these puts was $2.7 million. Copper put options with
an average strike price of 98.1 cents per pound covering 108,137 tons or
approximately 32% of Asarco's expected 1996 domestic copper production were
acquired at a cost of $3.7 million. In addition, at June 30, 1995, SPCC had
copper put options with an average strike price of 107.9 cents per pound
covering 66,139 tons or approximately 47% of its expected copper production for
the remaining six months of 1995. The cost of acquiring these puts was $2.1
million. Copper put options with an average strike price of 96.3 cents per pound
covering 79,366 tons or approximately 26% of its expected 1996 copper production
were acquired at a cost of $1.9 million.
The pre-tax gain (loss) on the Company's hedging activities, including amortized
transaction costs for the three month and six month periods ending June 30, 1995
and 1994 were as follows:
Hedging Activities
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
Metal 1995 1994 1995 1994
----- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Copper $(1,011) $ (43) $(1,746) $3,346
Zinc (10) 1,582 (49) 1,644
Lead (90) - (105) -
Silver 251 489 215 489
------- ------ ------- ------
Total Gain (Loss) $ (860) $2,028 $(1,685) $5,479
======= ====== ======= ======
</TABLE>
Sales: Sales in the second quarter of 1995 were $787.5 million, compared with
$487.8 million in the second quarter of 1994. The increase in sales reflected
$198.4 million due to the consolidation of SPCC, higher base metal prices and
increased specialty chemical sales. Sales for the six month period ended June
30, 1995 were $1,578.5 million, compared with $930.7 million for the comparable
1994 period. The increase in sales reflected $397.9 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 $580.6 million
in the second quarter of 1995, compared with $440.5 million in the second
quarter of 1994. The increase in costs reflected $99.0 million due to the
consolidation of SPCC, higher costs in specialty chemicals due to increased
sales volumes and the higher price effect on costs of outside copper purchases,
partially offset by lower volume.
Cost of products and services for the six month period ended June 30, 1995 were
$1,150.7 million, compared with $848.2 million for the comparable 1994 period.
The increase in costs reflected $194.6 million due to the consolidation of SPCC,
higher costs in specialty chemicals due to increase volumes and the higher price
effect on costs of outside copper purchases, partially offset by lower volume.
The accelerated development program begun at the Ray mine in 1994 was completed
during the second quarter of 1995, four months earlier than the original
schedule, which allowed the Company to restart a portion of the previously
curtailed Hayden mill at the Ray Complex. Production at Ray in the second
quarter of 1995 increased nearly 20% over the year earlier period, which had
been adversely impacted by the residual effects of the heavy rains in 1993.
- 11 -
<PAGE>
Other Expenses: Selling, administrative and other costs were $30.9 million in
the second quarter of 1995, and $63.4 million for the six month period ended
June 30, 1995, compared with $19.6 million and $39.4 million for the respective
periods in 1994. The increase was primarily due to the consolidation of SPCC.
Depreciation and depletion expense were $30.4 million for the second quarter of
1995, and $62.1 million for the six month period ended June 30, 1995, compared
with $21.5 million and $42.3 million for the respective periods in 1994. The
increase was primarily due to the consolidation of SPCC. Research and
exploration increased by $3.2 million in the second quarter of 1995 and $4.4
million for the six month period ended June 30, 1995 due to increased overseas
exploration of gold and copper properties.
Nonoperating Items: Interest expense was $24.4 million in the second quarter of
1995, and $43.3 million for the six month period ended June 30, 1995, compared
with $14.7 million and $29.0 million for the respective periods in 1994. The
increase reflected $4.3 million due to the consolidation of SPCC, a higher debt
level and higher interest rates on short term borrowings. Other income 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 six month periods ended June
30, 1995 were $37.0 million and $80.4 million, respectively, as compared to a
tax benefit of $6.1 million and a tax expense of $15.0 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 $118.5 million in
the second quarter of 1995, compared with cash used for operating activities of
$25.4 million in the second quarter of 1994. The improvements reflected the
consolidation of SPCC and higher net earnings. Net cash used for investing
activities was $148.7 million in the second quarter of 1995, compared with cash
used for investing activities of $14.3 million in the second quarter of 1994.
The change reflected the acquisition of an additional 10.7% interest in SPCC for
$116.4 million and the consolidation of SPCC.
Net cash provided from operating activities was $195.3 million for the six month
period ended June 30, 1995, compared with cash used for operating activities of
$8.8 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 $125.9 million for the six month period ended June 30, 1995, compared with
cash provided of $55.0 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, higher capital
expenditures at the Ray mine in the first quarter of 1995, and cash provided
from the proceeds of the sale of Asarco Australia Limited in the first quarter
of 1994.
Financing activities in the second quarter of 1995 include the sale of $150
million of 8.5% debentures due May 1, 2025. Financing activities also 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 June 30, 1995, the Company's debt as a
percentage of total capitalization was 37.9%, compared with 38.1% at December
31, 1994. Consolidated debt at the end of the second quarter 1995 was $1,186.6
million compared with $933.1 million at the end of 1994. Debt increased $131.9
million due to the consolidation of SPCC. Additional indebtedness permitted
under the terms of the Company's credit agreements totaled $648 million at June
30, 1995.
- 12 -
<PAGE>
On April 21, 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 July, the Board of Directors declared a quarterly dividend on the common
stock of 20 cents per share payable September 1, 1995 to stockholders of record
at the close of business on August 7, 1995.
Impact of New Accounting Standards: In March 1995, 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." The Company is currently
assessing the impact of this statement, which will be effective for financial
statements issued for fiscal years beginning after December 15, 1995.
- 13 -
<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 June 30, 1995 and the related
interim condensed consolidated statements of earnings and cash flows for the
three month and six month periods ended June 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
July 24, 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 quarter of 1995. As of June 30, 1995, there were pending
against Asarco and its subsidiaries 991 lawsuits brought by 11,786
primary and 6,476 secondary plaintiffs in 25 states and one Canadian
province 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, in June 1995 Capco was served with
a complaint in a purported class action filed in Illinois state court
that also names 139 other defendants. The class action is allegedly
brought on behalf of a nationwide class of persons at an increased risk
of developing asbestos-related diseases as a result of asbestos
exposure. As of June 30, 1995, LAQ, Asarco and Capco have settled or
have been dismissed from a total of 5,094 asbestos personal injury
lawsuits brought by approximately 40,608 primary and 26,330 secondary
plaintiffs.
2. With respect to the lawsuits alleging that the Company was illegally
discharging untreated water from its Omaha plant without a permit,
reported on Form 10-K for 1994, on June 28, 1995 the Environmental
Protection Agency ("EPA"), the Department of Justice and the Company
filed with the United States District Court a Consent Decree reached
between the three parties. The Consent Decree provides for the Company
to pay a fine of $3.25 million, to pay an additional $1.0 million for
various studies, to acquire properties to maintain or convert to
wetlands and to build a water treatment plant. The Consent Decree is
subject to approval by the Court after public comment. The citizen
plaintiffs have not agreed to the Decree. On June 28 and 29, 1995 a
hearing was held on the citizen plaintiffs' motion to preliminarily
enjoin plant operations. The court has not yet ruled on the motion.
3. 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, further amendments to the complaint
were filed during the first two quarters of 1995 increasing the number
of plaintiffs to approximately 395. Trial has been scheduled to begin
on October 2, 1995.
4. With respect to the site of a former pesticide manufacturing plant in
Hunt County, Texas, reported on Form 10-K for 1994, the number of
plaintiffs in the Hunt County Texas District Court suit is now
approximately 630. In addition, in May 1995 the Company was sued in
Tarrant County, Texas District Court by an additional 637 individuals
who live or lived near the site for compensatory and punitive damages,
including damages for alleged personal injuries and property damage,
due to alleged exposure to arsenic products that Asarco sold to the
manufacturer at the site. Also in May 1995, the Company was named as a
third-party defendant in a suit, pending in the United States District
Court for the Northern District of Texas, for contribution under CERCLA
and Texas state law involving approximately 15 parties alleged to be
responsible for remediation. In July 1995, the Company and others were
sued in Jefferson County, Texas state court by 22 former railroad
workers, their spouses or other plaintiffs who lived near the site
asserting claims similar to the previously reported allegations.
Plaintiffs have requested class certification.
- 14 -
<PAGE>
5. With respect to the state implementation plans ("SIP's") to achieve
compliance with the EPA ambient air quality standard for lead, reported
on Form 10-K for 1994, the Nebraska Department of Environmental Quality
issued a final lead SIP affecting the Company's Omaha, Nebraska plant
in June 1995. On June 30, 1995 the Company appealed the issuance of the
SIP in state district court. In addition, the Montana SIP which affects
the Company's East Helena, Montana plant has been finalized and is
expected to be approved in August by the Montana Board of Environmental
Review.
6. With respect to the Bunker Hill Superfund site in Idaho previously
disclosed on Form 10-K for 1994 and prior years, on July 17, 1995, the
Company received a notice of potential liability pursuant to CERCLA
from the Federal Trustees of their intent to file suit for natural
resource damages at the site.
7. On February 26, 1993, the Mayor of Tacna, Peru brought a lawsuit
against Southern Peru Copper Corporation ("SPCC"), a 63%-owned
subsidiary of the Company, seeking $100 million in damages from alleged
harmful disposition of tailings, slag and smelter emissions. On
September 9, 1994, the First Civil Court of Tacna dismissed the
complaint. The plaintiff appealed and on December 29, 1994, the
Superior Court of Tacna reversed the lower court's decision and
remanded the case for further proceedings. In March 1995 the trial
court dismissed the complaint on the ground that the plaintiff lacks
standing to bring the action. In April 1995 the plaintiff appealed this
dismissal.
8. In another pending lawsuit in Peru, a group named the Association of
Retired Employees of SPCC challenged the accounting of SPCC's Peruvian
Branch and its allocations of financial results to the Mining Community
during the 1970s. In July 1994, the complaint was dismissed, and in
December 1994, the dismissal was affirmed by the Superior Court of
Lima, which in January 1995 granted the plaintiff's request for leave
to appeal to the Peruvian Supreme Court. The Supreme Court is now
considering whether it will grant discretionary review of the case.
9. With respect to the class action lawsuit pending since 1993 in United
States District Court in Seattle, Washington relating to past emissions
from the Company's former Tacoma smelter, the settlement reported on
Form 10-K for 1994 received final court approval in June 1995.
10. With respect to the declaratory judgment action pending in New Jersey
state court in Essex County concerning contamination of a property
leased by a subsidiary of the Company, reported on Form 10-K for 1994,
in April 1995 the suit was dismissed, without prejudice, on the ground
that the suit was premature until the lease is terminated.
- 15 -
<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: August 11, 1995 /s/ Kevin R. Morano
-------------------
Kevin R. Morano
Vice President, Finance and
Chief Financial Officer
Date: August 11, 1995 /s/ William Dowd
William Dowd
Controller
- 16 -
<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 July 24, 1995 on our review of the interim
financial information of ASARCO Incorporated and Subsidiaries as of June 30,
1995 and for the three month and six month periods ended June 30, 1995 and 1994
and included in this Form 10-Q for the quarter ended June 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
August 11, 1995
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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