1996
First Quarter
Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended March 31, 1996 Commission file number 1-164
-------------- -----
ASARCO Incorporated
-------------------
(Exact name of registrant as specified in its charter)
New Jersey 13-4924440
- ------------------------------- ---------------
(State or other jurisdiction of (I.R.S Employer
incorporation or organization) Identification No.)
180 Maiden Lane, New York, N.Y. 10038
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 212-510-2000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
---- ----
As of April 30, 1996 there were outstanding 42,691,035 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 Ended March 31, 1996 and 1995 2
Consolidated Balance Sheet
March 31, 1996 and December 31, 1995 3
Consolidated Statement of Cash Flows
Three Months Ended March 31, 1996 and 1995 4
Notes to Consolidated Financial Statements 5-7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 8-11
Report of Independent Accountants 12
Part II. Other Information:
Item 1. Legal Proceedings 13-14
Item 4. Submission of Matters to a Vote of
Security Holders 15
Signatures 16
Exhibit I - Independent Accountants' Awareness Letter
</TABLE>
1
<PAGE>
ASARCO Incorporated
and Subsidiaries
CONSOLIDATED STATEMENT OF EARNINGS
(unaudited)
<TABLE>
<CAPTION>
3 Months Ended
March 31,
1996 1995
(in thousands)
<S> <C> <C>
Sales of products and services $718,010 $791,007
Operating costs and expenses:
Cost of products and services 554,643 570,086
Selling, administrative and other 33,116 33,009
Depreciation and depletion 30,703 31,631
Research and exploration 6,903 5,110
------- -------
Total operating costs and expenses 625,365 639,836
------- -------
Operating income 92,645 151,171
Interest expense (22,100) (18,903)
Other income 11,069 7,819
Gain on sale of interest in Silver Bell 11,083 -
-------- --------
Earnings before taxes on income, minority interests and equity
earnings 92,697 140,087
Taxes on income 32,627 43,377
Minority interests in net earnings of consolidated subsidiaries (24,617) (31,369)
Equity in earnings of nonconsolidated associated companies,
net of taxes 232 371
-------- --------
Net earnings $ 35,685 $ 65,712
======== ========
Per share amounts:
Net earnings (a) $ .84 $ 1.56
======== ========
Cash dividends $ 0.20 $ 0.10
Weighted average number of shares outstanding 42,618 42,154
</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.
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
ASARCO Incorporated
and Subsidiaries
CONSOLIDATED BALANCE SHEET
(unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
(in thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 265,409 $ 238,400
Marketable securities 42 42,493
Accounts and notes receivable, net 473,152 514,368
Inventories 365,198 360,861
Other assets 50,477 60,480
--------- ---------
Total current assets 1,154,278 1,216,602
Investments:
Cost and available-for-sale 785,238 822,152
Equity 59,751 61,758
Property 4,255,350 4,209,177
Accumulated depreciation and depletion (2,125,131) (2,098,911)
Intangible and other assets 126,352 115,945
---------- ----------
Total Assets $4,255,838 $4,326,723
========== ==========
LIABILITIES
Current liabilities:
Bank loans $ 18,273 $ 29,451
Current portion of long-term debt 42,089 29,826
Accounts payable 315,027 329,977
Salaries and wages 26,950 33,815
Taxes on income 63,419 103,282
Reserve for closed plant and environmental matters 55,293 53,042
Other current liabilities 43,538 72,254
---------- ---------
Total current liabilities 564,589 651,647
---------- ---------
Long-term debt 1,099,195 1,062,588
Deferred income taxes 199,205 211,270
Reserve for closed plant and environmental matters 49,319 62,484
Postretirement benefit obligations other than pensions 96,469 95,125
Other liabilities and reserves 70,378 72,225
--------- ---------
Total non-current liabilities 1,514,566 1,503,692
--------- ---------
MINORITY INTERESTS 465,901 463,900
--------- ---------
COMMON STOCKHOLDERS' EQUITY
Common stock (a) 605,141 599,777
Unrealized gain on securities reported at fair value 107,687 131,600
Retained earnings 997,954 976,107
---------- ----------
Total Common Stockholders' Equity 1,710,782 1,707,484
---------- ----------
Total Liabilities, Minority Interests and Common Stockholders' Equity
$4,255,838 $4,326,723
========== ==========
(a) Common shares: authorized 80,000; outstanding: 42,659 42,571
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
ASARCO Incorporated
and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
3 Months Ended
March 31,
1996 1995
(in thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Net earnings $35,685 $ 65,712
Adjustments to reconcile net earnings to net cash provided from operating
activities:
Depreciation and depletion 30,703 31,631
Provision (benefit) for deferred income taxes 5,879 12,051
Treasury stock used for employee benefits 2,053 1,608
Undistributed equity (earnings) losses 894 322
(Gain) on sale of interest in Silver Bell (11,083) -
Net (gain) loss on sale of investments and property (78) (452)
Increase (decrease) in reserve for closed plant and environmental matters (10,914) (22,535)
Minority interests 24,617 31,369
Cash provided from (used for) operating assets and
liabilities, net of the consolidation of SPCC:
Accounts and notes receivable 40,793 2,693
Inventories (5,432) 15,478
Accounts payable and accrued liabilities (60,522) (36,798)
Other operating assets and liabilities (34,950) (9,298)
Foreign currency transaction (gains) losses (1,301) (2,256)
-------- --------
Net cash provided from operating activities 16,344 89,525
-------- --------
INVESTING ACTIVITIES
Capital expenditures (51,710) (76,347)
Sale of securities, investments and property 692 867
Sale of available-for-sale securities 11,442 6,230
Sale of interest in Silver Bell 15,000 -
Proceeds from held-to-maturity investments 42,453 40,523
Purchase of available-for-sale securities (11,202) (6,708)
Purchase of held-to-maturity investments (2) (33,676)
Purchase of investments (1,674) (1,396)
Consolidation of the opening cash balance of SPCC - 93,348
-------- --------
Net cash provided from investing activities 4,999 22,841
-------- --------
FINANCING ACTIVITIES
Debt incurred 47,319 9,990
Debt repaid (9,623) (16,890)
Net treasury stock transactions 200 (236)
Distributions to minority interests (25,602) (12,791)
Dividends to common stockholders (8,525) (4,216)
-------- --------
Net cash provided from (used for) financing activities 3,769 (24,143)
Effect of exchange rate changes on cash 1,897 135
-------- --------
Increase (decrease) in cash and cash equivalents 27,009 88,358
Cash and cash equivalents at beginning of period 238,400 18,321
-------- --------
Cash and cash equivalents at end of period $265,409 $106,679
======== ========
</TABLE>
The accompanying notes are an integral part of these 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 March 31, 1996 and the results of operations and cash
flows for the three months ended March 31, 1996 and 1995. 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. The results of operations for the
three month period 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 1995
annual report on Form 10-K.
B. Inventories were as follows:
(in millions)
<TABLE>
<CAPTION>
March 31, Dec. 31,
1996 1995
<S> <C> <C>
Inventories of smelters and refineries at lower of LIFO cost or market $ 14.1 $ 12.9
Provisional cost of metals received from suppliers for which prices
have not yet been fixed 56.1 34.0
Mine inventories at lower of FIFO cost or market 99.2 111.1
Metal inventory at lower of average cost or market 28.8 35.2
Materials and supplies at lower of average cost or market 141.0 139.1
Other 26.0 28.6
------ ------
Total $365.2 $360.9
====== ======
</TABLE>
At March 31, 1996, replacement cost exceeded inventories carried at
LIFO cost by approximately $137.5 million (December 31, 1995 - $136.8
million).
C. Hedging activities:
At March 31, 1996 the Company had copper put options with an average
strike price of 99.3 cents per pound covering 123,018 tons or
approximately 48% of its expected domestic copper production for the
remaining nine months of 1996. The cost of acquiring these puts was
$4.9 million. Copper put options with an average strike price of $1.00
per pound covering 19,511 tons or approximately 6% of its expected
domestic copper production for 1997 were acquired at a cost of $1.1
million.
In addition at March 31, 1996, SPCC had copper put options with an
average strike price of 95.0 cents per pound covering 94,248 tons or
approximately 38% of its expected copper production for the remaining
nine months of 1996 at a cost of $2.5 million. In April 1996, SPCC
purchased put options with an average strike price of 95 cents per
pound covering 31,664 tons of copper or approximately 38% of expected
first quarter 1997 production at a cost of $0.7 million.
At March 31, 1996 the spot rate for copper was $1.16 and $1.17 per
pound on the London Metal Exchange and the New York Commodity Exchange,
respectively.
5
<PAGE>
D. Supplemental disclosures of cash flow information:
(in millions)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1996 1995
---- ----
<S> <C> <C>
Cash paid for:
Interest expense (net of amounts capitalized) $ 19.5 $ 17.8
Income taxes (net of refunds) $ 65.2 $ 9.5
</TABLE>
E. The Company's first quarter 1996 results include an $11.1 million
pre-tax gain ($7.2 million after-tax) on the sale of a 25% interest in
its Silver Bell project to Mitsui & Co., Ltd.
F. The consolidated effective tax rate increased in the first quarter of
1996 as compared to the first quarter of 1995 because SPCC, which is
subject to a higher effective tax rate, contributed a greater
percentage of total consolidated earnings.
G. Contingencies and Litigation
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
sixteen 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,
primarily in Texas, and product sales of the Company and its
subsidiaries.
The Company and two subsidiaries, at March 31, 1996, are defendants in
891 lawsuits brought by 9,350 primary and 4,619 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. Two of these lawsuits allege class action claims on behalf
of wide classes of persons, the majority of whom are not yet known to
have asbestos related injuries. In addition, the Company and certain
subsidiaries are defendants in product liability lawsuits involving
various other products, including metals.A subsidiary of SPCC, the
Company, other present and former corporate shareholders of the
subsidiary of SPCC and certain other companies are defendants in a
lawsuit in U.S. District Court in Corpus Christi, Texas brought in
September 1995 by 698 Peruvian plaintiffs seeking damages for personal
injury and property damage allegedly caused by the operations of SPCC's
subsidiary in Peru. Plaintiffs have filed a notice of appeal from the
United States District Court order dismissing the complaint and from an
earlier order of that court denying plaintiffs' motion to remand the
case to state court.
On March 22, 1996 the United States government filed an action in
United States District Court in Boise, Idaho against the Company and
three other mining companies under CERCLA and the federal Clean Water
Act for alleged natural resource damages to the Coeur d'Alene River
Basin in Idaho. The government contends that the defendants are liable
for damages to natural resources in a 1,500 square mile area caused by
mining and related activities that they and others undertook over
approximately the period between the mid-1800s and the mid-1960s. The
action also seeks a declaration that defendants are liable for
remediation of the area. The Company believes, and has been advised by
its outside legal counsel, that it has strong legal defenses to the
lawsuit.
6
<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 the 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 the fourth
quarter of 1995 of $59.2 million and in 1994 of $51.2 million. In
addition, the Company recorded a charge to earnings in the fourth
quarter of 1995 of $10.7 million related to legal and other costs
related to the termination of lead refining at its Omaha, Nebraska
plant. Reserves for closed plants and environmental matters total
$104.6 million at March 31, 1996. 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 March 31, 1996 and 1995 were $13.2 million and $22.9
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 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 litigation and 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.
H. Impact of New Accounting Standard: The Financial Accounting Standards
Board issued SFAS No. 123 "Accounting for Stock-Based Compensation" in
October 1995. In accordance with this pronouncement, the Company has a
choice of adopting the accounting provisions of SFAS No. 123 or
continuing its current accounting with additional disclosure required.
The Company has elected the disclosure only alternative and will
continue its current accounting.
I. Subsequent Event: On May 14, 1996, the Company sold its entire 15%
interest in M.I.M. Holdings Limited for US$331.2 million. The sale will
result in an after-tax gain of $39.0 million ($60.1 million pre-tax) to
be reported in the second quarter 1996 financial statements.
7
<PAGE>
Part I Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company reported net earnings of $35.7 million, or $.84 per share, for the
first quarter ended March 31, 1996, compared with net earnings of $65.7 million,
or $1.56 per share, for the first quarter of 1995. Results for the first quarter
of 1996 include an after-tax gain of $7.2 million on the sale of a 25% interest
in the Company's Silver Bell project in February 1996. The reduction in
operating results was primarily attributable to lower copper prices in the first
quarter of 1996, partially offset by lower costs and higher production rates.
The Company's earnings in the first quarter of 1996 were significantly affected
by the decline in copper prices when compared with the first quarter of 1995.
The decline in the price of copper reduced the Company's net earnings by an
estimated $40 million including the impact lower copper prices had on both
provisionally priced sales made in the fourth quarter of 1995 as well as sales
made in the first quarter of 1996. Additionally, earnings in the first quarter
of 1996 were affected by a charge for the uninsured portion of the repair cost
of the electric slag cleaning furnace at the Company's Hayden, Arizona copper
smelter which was damaged in January of 1996.
The Company's beneficial interest in mined copper production in the first
quarter of 1996 was 251.4 million pounds, an increase of 22%. The increase is
attributable to higher production at the Company's Mission and Ray mines and at
SPCC which is 54% owned by the Company. The Company increased its interest in
SPCC in April 1995 by purchasing an additional 10.7% interest which also
contributed to the increase in beneficial mine production.
Production at the Company's Ray mine increased 17% in the first quarter of 1996
as compared to the first quarter of 1995 as a result of full operations of the
Hayden concentrator which had been curtailed during the accelerated development
program undertaken at Ray from mid 1994 to mid 1995. In addition, the Company's
beneficial interest in production at SPCC was up 52% in the first quarter of
1996 as compared to the first quarter of 1995 reflecting the Company's increased
ownership as well as a full quarter of production from SPCC's new SX/EW facility
which began production in the fourth quarter of 1995.
Sales: Sales in the first quarter of 1996 were $718.0 million, compared with
$791.0 million in the first quarter of 1995. The decrease in sales reflected the
lower copper price partially offset by increased specialty chemicals sales.
8
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended
Metal Sales Volume: March 31,
- ------------------
1996 1995
---- ----
<S> <C> <C>
Copper (000s pounds)
Asarco 264,800 257,600
SPCC (2) 169,000 127,200
------- -------
Consolidated 433,800 384,800
Asarco Beneficial Interest 353,200 312,600
Lead (000s pounds)
Asarco 83,000 99,400
Silver (000s ounces)
Asarco 7,952 9,576
SPCC (2) 819 667
------ -------
Consolidated 8,771 10,243
Asarco Beneficial Interest 8,380 9,864
Zinc (000s pounds)(1)
Asarco 57,900 57,200
Molybdenum (000s pounds)(1)
Asarco 1,542 1,331
SPCC (2) 1,867 1,892
------ ------
Consolidated 3,409 3,223
Asarco Beneficial Interest 2,518 2,148
</TABLE>
(1) The Company's zinc and molybdenum production is sold in the form of
concentrates. Volume represents pounds of zinc and molybdenum metal
contained in those concentrates.
(2) 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 5, 1995, Asarco's equity ownership of SPCC
increased to 63% and its beneficial interest increased to 52.1%.
Effective December 31, 1995, Asarco's equity ownership of SPCC was 54%
and its beneficial interest was 52.3% reflecting the effects of SPCC's
completed labor share exchange offer.
Average Metal Prices:
Prices for the Company's metals are established principally on the New York
Commodity Exchange ("COMEX") or the London Metal Exchange ("LME").
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1996 1995
---- ----
<S> <C> <C>
Copper (per pound - COMEX) $ 1.18 $ 1.38
Copper (per pound - LME) 1.17 1.33
Lead (per pound - LME) .35 .28
Silver (per ounce - Handy & Harmon) 5.54 4.70
Zinc (per pound - LME) .47 .49
Molybdenum (per pound - Metals Week Dealer Oxide) 4.07 13.77
</TABLE>
9
<PAGE>
Hedging/Price Risk: Depending on the metal market fundamentals and other
conditions, the Company may enter into forward sales or purchase options to
reduce or eliminate the risk of metal price declines on its anticipated future
production. Put options purchased by the Company establish a minimum price for
the production covered by such put options and permit the Company to participate
in price increases above the strike price of such put options. At March 31,
1996, the Company had copper put options with an average strike price of 99.3
cents per pound covering 123,018 tons or approximately 48% of Asarco's expected
domestic copper production for the remaining nine months of 1996. The cost of
acquiring these puts was $4.9 million. Copper put options with an average strike
price of $1.00 per pound covering 19,511 tons or approximately 6% of Asarco's
expected 1997 domestic copper production were acquired at a cost of $1.1
million.
In addition, at March 31, 1996 SPCC had copper put options with an average
strike price of 95.0 cents per pound covering 94,248 tons or approximately 38%
of its expected copper production for the remaining nine months of 1996 at a
cost of $2.5 million.
Forward sales establish a selling price for future production at the time they
are entered into, thereby eliminating the risk of declining prices but also
eliminating potential gains on price increases. Synthetic put options are
established by entering into a forward sale and purchasing a call option for the
same quantity of the relevant metal and for the time period relating to such
forward sale. The forward sale establishes a minimum price that will be
realized, while the call option permits the Company to participate in price
increases. The Company has acquired synthetic copper put options with an average
strike price of $1.04 per pound covering 19,842 tons or approximately 6% of its
1997 domestic copper production at a cost of $2.8 million.
The pre-tax earnings effect of the Company's derivative and anticipatory hedging
activities, net of transaction costs, are as follows:
<TABLE>
<CAPTION>
Hedging Activities
(in thousands)
Three Months Ended
March 31,
Metal 1996 1995
----- ---- ----
<S> <C> <C>
Copper $(1,304) $ (735)
Zinc - (39)
Silver - (37)
Lead - (14)
-------- -------
Net Gain (Loss) $(1,304) $ (825)
======== =======
</TABLE>
Cost of Products & Services: Cost of products and services were $554.6 million
in the first quarter of 1996, compared with $570.1 million in the first quarter
of 1995. The decrease in costs reflected the lower price and volume of outside
copper purchases partially offset by higher costs in specialty chemicals due to
increased sales volumes.
Other Expenses: Selling, administrative and other costs were $33.1 million in
the first quarter of 1996 and $33.0 million in the first quarter of 1995.
Depreciation and depletion expense decreased to $30.7 million for the first
quarter of 1996 from $31.6 million in the first quarter of 1995 primarily due to
increased ore reserves at SPCC. Research and exploration expense increased to
$6.9 million for the first quarter of 1996 from $5.1 million in the first
quarter of 1995 primarily due to increased foreign gold exploration.
Nonoperating Items: Interest expense in the first quarter ended March 31, 1996
was $22.1 million compared with $18.9 million in the first quarter of 1995. The
increase reflected a higher debt level and lower capitalized interest due to the
completion of the SPCC solvent extraction/electrowinning plant (SX/EW). The
SX/EW facility began production in the fourth quarter of 1995. Other income
increased by $3.3 million primarily due to increased interest income at SPCC as
a result of higher cash balances.
10
<PAGE>
The Company's first quarter 1996 results also include an $11.1 million pre-tax
gain ($7.2 million after-tax) on the sale of a 25% interest in its Silver Bell
project to Mitsui & Co., Ltd. for $15.0 million.
Taxes on Income: The consolidated effective tax rate increased in the first
quarter of 1996 as compared to the first quarter of 1995 because SPCC, which is
subject to a higher effective tax rate, contributed a greater percentage of
total consolidated earnings.
Cash Flows: Net cash provided from operating activities was $16.3 million in the
first quarter of 1996, compared to $89.5 million in the first quarter of 1995.
The decrease reflected lower earnings and payments of taxes and employee
participation payments accrued in 1995 and paid in the first quarter of 1996.
This was partially offset by a decrease in cash used for closed plants and
environmental matters. The decrease in accounts receivable was due to lower
copper prices partially offset by higher volume.
Net cash provided from investing activities was $5.0 million in the first
quarter of 1996, compared with $22.8 million in the first quarter of 1995. The
decrease reflects the consolidation of SPCC's opening cash balance in 1995
offset by lower capital expenditures, lower purchases of held-to-maturity
securities, and proceeds of $15.0 million from the sale of a 25% interest in the
Company's Silver Bell project in 1996. Held-to-maturity securities represent
liquid investments, principally held by SPCC, with maturities of greater than
three months. The Company invested in marketable securities maturing in less
than 90 days in the first quarter of 1996. The decrease in capital expenditures
in 1996 reflects decreased spending at SPCC, due to the completion of the SX/EW
facility in the fourth quarter of 1995.
Cash provided from financing activities of $3.8 in 1996 as compared to cash used
for financing activities of $24.1 in 1995 reflects additional borrowings of
$47.0 million by SPCC, partially offset by higher dividends paid.
Liquidity and Capital Resources: At March 31, 1996, the Company's debt as a
percentage of total capitalization was 34.8%, compared with 34.1% at December
31, 1995. Consolidated debt at the end of the first quarter 1996 was $1,160.0
million compared with $1,121.9 million at the end of 1995. Additional
indebtedness permitted under the terms of the Company's credit agreements
totaled $433.5 million at March 31, 1996.
In 1996, Asarco filed a universal shelf registration statement with the
Securities and Exchange Commission covering the future issuance of equity and
debt securities which when combined with an existing universal shelf
registration totals $300 million. Asarco has no immediate plans to issue
securities at this time and the registration is intended to provide the Company
with financial flexibility to access the market when conditions are appropriate.
The Company expects that it will meet its cash requirements for 1996 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 April, the Board of Directors declared a quarterly dividend on the common
stock of 20 cents per share payable June 3, 1996 to stockholders of record at
the close of business on May 8, 1996.
Impact of New Accounting Standards: Impact of New Accounting Standard: The
Financial Accounting Standards Board issued SFAS No. 123 "Accounting for
Stock-Based Compensation" in October 1995. In accordance with this
pronouncement, the Company has a choice of adopting the accounting provisions of
SFAS No. 123 or continuing its current accounting with additional disclosure
required. The Company has elected the disclosure only alternative and will
continue its current accounting.
11
<PAGE>
COOPERS & LYBRAND L.L.P.
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 March 31, 1996 and the interim
condensed consolidated statements of earnings and cash flows for the three month
periods ended March 31, 1996 and 1995. 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.
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
April 22, 1996, except as to Note I,
which is as of May 14, 1996
12
<PAGE>
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
1. On March 22, 1996 the United States government filed an action in United
States District Court in Boise, Idaho against the Company and three other mining
companies under CERCLA and the federal Clean Water Act for alleged natural
resource damages to the Coeur d'Alene River Basin in Idaho. The government
contends that the defendants are liable for damages to natural resources in a
1,500 square mile area caused by mining and related activities that they and
others undertook over approximately the period between the mid-1800s and the
mid-1960s. The action also seeks a declaration that defendants are liable for
remediation of the area. The Company believes, and has been advised by its
outside legal counsel, that it has strong legal defenses to the lawsuit.
2. Asarco and two of its wholly-owned subsidiaries, Lac d'Amiante du Quebec,
Ltee ("LAQ") and Capco Pipe Company, Inc. ("Capco"), have been named as
defendants, among numerous other defendants, in additional asbestos personal
injury lawsuits of the same general nature as the lawsuits reported on Form 10-K
for 1995 and prior years. As of March 31, 1996, there were pending against
Asarco and its subsidiaries 891 lawsuits brought by 9,350 primary and 4,619
secondary plaintiffs in 23 states seeking substantial damages for personal
injury or death allegedly caused by exposure to asbestos. As of March 31, 1996,
LAQ, Asarco and Capco have settled or have been dismissed from a total of 5,542
asbestos personal injury lawsuits brought by approximately 65,736 primary and
43,462 secondary plaintiffs.
3. With respect to the Mayor of Tacna lawsuit against a subsidiary of Southern
Peru Copper Corporation ("SPCC"), a 54%-owned subsidiary of the Company,
reported on Form 10-K for 1995, on May 3, 1996, the Superior Court of Tacna,
Peru affirmed the lower court's dismissal. The lawsuit sought $100 million in
damages from alleged harmful deposition of tailings, slag and smelter emissions.
There is generally no further right of appeal; however, the Peruvian Supreme
Court may grant discretionary review on limited issues in exceptional cases. On
April 29, 1996 a subsidiary of SPCC was served with a complaint filed in Peru by
approximately 800 former employees challenging the accounting of the
subsidiary's Peruvian Branch and its allocation of financial results to the
Mining Community, the former legal entity representing workers in Peruvian
mining companies, in the 1970s. Similar allegations were made in a prior lawsuit
which was dismissed in September 1995. The new complaint seeks the delivery of a
substantial number of labor shares of the Peruvian Branch of the subsidiary,
plus dividends.
4. In March 1996, the Company received a notice from the United States
Department of Agriculture-Forest Service that it may be potentially liable for
environmental remediation at a site on the border of Montana and Idaho where the
Company had operated a former mine and mill.
5. With respect to the litigation in Nueces County, Texas involving the
neighborhoods around the Company's Corpus Christi, Texas property, reported on
Form 10-K for 1995, on April 11, 1996 a fourth action was filed in Nueces County
on behalf of four persons who own property in, but do not reside in, the
neighborhoods. The action seeks a declaration that the Company is obligated to
remediate plaintiffs' property, an injunction against operations at the Corpus
Christi property that allegedly contribute to the contamination of plaintiffs'
property, and compensatory and punitive damages.
13
<PAGE>
6. With respect to the litigation pending in various Texas State District Courts
involving claims of personal injury and property damages due to alleged exposure
to arsenic that the Company sold to a former pesticide manufacturing plant in
Hunt County, Texas, reported on Form 10-K for 1995, during the first quarter of
1996 the Company received notice that it had been named as one of a number of
defendants in three additional lawsuits filed in Texas State District Courts by
or on behalf of approximately 100 persons.
7. In March 1996, the Company received a notice from the Environmental
Protection Agency ("EPA") relating to alleged solid waste violations at its El
Paso, Texas smelter in 1994 and 1995. EPA is seeking a civil penalty of
$202,160. The Company is cooperating with the agency to resolve these issues.
8. With respect to compliance with the lead State Implementation Plan ("SIP") at
the Company's Omaha plant, reported on Form 10-K for 1995, the Company has
appealed to a state District Court a provision of the proposed final SIP that
would allow the state to hold the Company responsible for exceedences of the SIP
regardless of whether the Company is the cause of the exceedence.
9. With respect to the National Pollution Discharge Elimination System permit
application at the Company's East Helena plant, reported on Form 10-K for 1995,
pending final issuance of the permit, the Company is complying with discharge
limitations imposed by an EPA Administrative Order.
10. With respect to the action pending in New Jersey state court in Essex County
brought by the owner of property leased to a subsidiary of the Company, reported
on Form 10-K for 1995, since the agreement in principle was reached, additional
issues have arisen. Negotiations between the parties are continuing.
11. With regard to the notice received in January 1994 alleging violations of
the Resource Conservation and Recovery Act by a contractor performing
abrasive-blasting at the Company's El Paso, Texas smelter, reported on Form 10-K
for 1995, the Company and the contractor have settled this matter by agreeing to
perform certain remediation and paying a fine of $80,000 to the EPA.
14
<PAGE>
Item 4 - Submission of Matters to a Vote of Security Holders
At the annual meeting of stockholders of the Company held on April 24, 1996,
stockholders were asked to elect three directors (the remaining directors
continue to serve in accordance with their previous election, with the exception
of Harry Holiday, Jr., who has retired and did not stand for re-election), to
approve the selection of auditors for 1996, to vote on a proposal to adopt a
1996 Stock Incentive Plan, and to vote on a proposal to adopt an Incentive
Compensation Plan for Senior Officers.
Votes cast in the election of directors were as follows:
<TABLE>
<CAPTION>
Names Number of Shares
<S> <C> <C>
For Withheld
Willard C. Butcher 34,580,904 253,430
Martha T. Muse 34,560,490 273,844
Richard de J. Osborne 34,590,439 243,895
</TABLE>
Stockholders approved the selection of auditors as follows:
<TABLE>
<CAPTION>
For Against Abstain
<S> <C> <C>
34,669,550 98,031 66,753
The proposal to adopt a 1996 Stock Incentive Plan was approved as follows:
For Against Abstain
21,462,341 9,376,754 235,558
The proposal to adopt an Incentive Compensation Plan for Senior Officers was
approved as follows:
For Against Abstain
32,329,872 1,802,190 286,618
</TABLE>
There were 3,759,681 "broker nonvotes" relating to the 1996 Stock Incentive Plan
proposal, and 415,654 "broker nonvotes" relating to the Incentive Compensation
Plan for Senior Officers proposal, cast at the meeting: that is, brokers holding
shares in nominee name for beneficial owners were not permitted under applicable
regulations to vote on the matters presented at the annual meeting in the
absence of any instructions from the beneficial owners after timely delivery to
them of soliciting proxy materials.
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: May 10, 1996 /s/ Kevin R. Morano
-------------------
Kevin R. Morano
Vice President, Finance and
Chief Financial Officer
Date: May 10, 1996 /s/ William Dowd
----------------
William Dowd
Controller
16
<PAGE>
Exhibit I
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 April 22, 1996, except as to Note I, which is
as of May 14, 1996 on our review of the interim financial information of ASARCO
Incorporated and Subsidiaries as of March 31, 1996 and for the three month
periods ended March 31, 1996 and 1995 and included in this Form 10-Q for the
quarter ended March 31, 1996 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, 33-55993 and 333-02359). 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
May 14, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 265409
<SECURITIES> 42
<RECEIVABLES> 481627
<ALLOWANCES> 8475
<INVENTORY> 365198
<CURRENT-ASSETS> 1154278
<PP&E> 4255350
<DEPRECIATION> 2125131
<TOTAL-ASSETS> 4255838
<CURRENT-LIABILITIES> 564589
<BONDS> 0
0
0
<COMMON> 605141
<OTHER-SE> 1105641
<TOTAL-LIABILITY-AND-EQUITY> 4255838
<SALES> 718010
<TOTAL-REVENUES> 718010
<CGS> 554643
<TOTAL-COSTS> 554643
<OTHER-EXPENSES> 37606
<LOSS-PROVISION> 444
<INTEREST-EXPENSE> 22100
<INCOME-PRETAX> 92697
<INCOME-TAX> (32627)
<INCOME-CONTINUING> 60070
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 35685
<EPS-PRIMARY> 0.84
<EPS-DILUTED> 0.84
</TABLE>
