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, 1997 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, 1997 there were outstanding 40,362,015 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)
Condensed Consolidated Statement of Earnings
Three Months and Nine Months Ended
September 30, 1997 and 1996 2
Condensed Consolidated Balance Sheet
September 30, 1997 and December 31, 1996 3
Condensed Consolidated Statement of Cash Flows
Three Months and Nine Months Ended
September 30, 1997 and 1996 4
Notes to Condensed Consolidated Financial Statements 5-10
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 11-18
Report of Independent Accountants 19
Part II. Other Information:
Item 1. Legal Proceedings 20-21
Item 6(a) Exhibits on Form 10Q 22
Exhibit 11 - Statement re Computation of Earnings per Share
Exhibit 12 - Statement re Computation of Consolidated Ratio of Earnings to Fixed Charges and
Combined Fixed Charges and Preferred Share Dividend Requirements
Signatures 23
Exhibit I - Independent Accountants' Awareness Letter
</TABLE>
-1-
<PAGE>
ASARCO Incorporated
and Subsidiaries
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
(unaudited)
<TABLE>
<CAPTION>
3 Months Ended 9 Months Ended
September 30, September 30,
1997 1996 1997 1996
---- ---- ---- ----
(in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Sales of products and services $661,294 $647,818 $2,117,861 $2,065,292
Operating costs and expenses:
Cost of products and services 525,418 515,876 1,615,382 1,604,314
Selling, administrative and other 32,670 32,964 102,366 98,346
Depreciation and depletion 34,804 30,195 96,962 89,121
Research and exploration 11,090 12,426 30,910 26,422
Environmental and other closed plant
charges, net of recoveries 3,724 4,682 16,126 14,408
-------- --------- --------- ---------
Total operating costs and expenses 607,706 596,143 1,861,746 1,832,611
-------- --------- --------- ---------
Operating income 53,588 51,675 256,115 232,681
Interest expense (20,482) (16,835) (56,414) (59,349)
Other income 5,933 5,506 23,824 23,775
Gain on sale of investments and other
interests 52,616 - 73,281 71,158
--------- -------- --------- ---------
Earnings before taxes on income and
minority interests 91,655 40,346 296,806 268,265
Taxes on income 26,582 16,123 82,806 89,110
-------- --------- --------- --------
Earnings before minority interests 65,073 24,223 214,000 179,155
Minority interests in net earnings of
consolidated subsidiaries (19,270) (18,271) (75,743) (65,115)
-------- --------- --------- ---------
Net earnings $ 45,803 $ 5,952 $ 138,257 $ 114,040
======== ======== ========= =========
Per share amounts:
Net earnings (a) $ 1.10 $ 0.14 $ 3.26 $ 2.67
======== ======== ========= =========
Cash dividends $ 0.20 $ 0.20 $ 0.60 $ 0.60
Weighted average number of shares
outstanding 41,804 42,741 42,464 42,683
</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
CONDENSED CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
September 30, December 31,
1997 1996
(unaudited)
(in thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 223,540 $ 192,408
Marketable securities 312,315 1,039
Accounts and notes receivable, net 510,360 540,560
Inventories 349,655 383,281
Prepaid Expenses 99,761 43,478
Other assets 18,904 24,378
--------- ---------
Total current assets 1,514,535 1,185,144
Investments:
Available-for-sale (at market) and other (at cost) 130,337 442,707
Equity 63,172 59,787
Net property 2,330,766 2,274,088
Other assets including intangibles, net 192,797 158,623
---------- ----------
Total Assets $4,231,607 $4,120,349
========== ==========
LIABILITIES
Current liabilities:
Bank loans $ 108 $ 15,913
Current portion of long-term debt 29,908 39,815
Accounts payable 344,890 436,604
Salaries and wages 37,084 32,427
Taxes on income 128,458 57,695
Reserve for closed plant and environmental matters 49,755 38,128
Other current liabilities 59,658 51,975
---------- ----------
Total current liabilities 649,861 672,557
---------- ----------
Long-term debt 858,944 758,583
Deferred income taxes 120,285 173,245
Reserve for closed plant and environmental matters 83,503 90,205
Postretirement benefit obligations 103,432 99,945
Other liabilities and reserves 153,271 93,163
--------- ---------
Total non-current liabilities 1,319,435 1,215,141
--------- ---------
MINORITY INTERESTS 531,657 495,706
--------- ---------
COMMON STOCKHOLDERS' EQUITY
Common stock (a) 553,185 614,443
Unrealized gain on securities reported at fair value 10,167 56,311
Retained earnings 1,167,302 1,066,191
--------- ---------
Total Common Stockholders' Equity 1,730,654 1,736,945
--------- ---------
Total Liabilities, Minority Interests and Common
Stockholders' Equity $4,231,607 $4,120,349
========== ==========
(a) Common shares: authorized 80,000; outstanding: 40,806 42,824
</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 9 Months Ended
September 30, September 30
1997 1996 1997 1996
(in thousands) (in thousands)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net earnings $45,803 $5,952 $138,257 $114,040
Adjustments to reconcile net earnings to net cash
provided from operating activities:
Depreciation and depletion 34,804 30,195 96,962 89,121
Provision for (benefit from)deferred income
taxes (28,916) 4,771 (24,558) 24,427
Treasury stock used for employee benefits 294 1,136 3,261 4,577
Undistributed equity (earnings) losses 107 44 (2,941) 630
Net gain on sale of investments and property (52,616) (174) (73,335) (71,422)
Increase (decrease) in reserves for closed
plant and environmental matters 19,519 (8,737) 4,925 (29,259)
Minority interests 19,270 18,271 75,743 65,115
Cash provided from (used for) operating assets and liabilities:
Accounts receivable 59,242 (5,805) 26,315 37,053
Inventories 7,944 (998) 32,258 (19,630)
Accounts payable and accrued liabilities 42,936 51,082 (14,514) 15,979
Other operating assets and liabilities (15,617) 15,117 (15,038) (30,369)
Foreign currency transaction gains (723) (1,720) (1,798) (4,179)
--------- -------- -------- -------
Net cash provided from operating activities 132,047 109,134 245,537 196,083
--------- -------- -------- -------
INVESTING ACTIVITIES
Capital expenditures (74,736) (98,970) (198,485) (221,129)
Sale of securities, investments and property 3,155 (823) 43,871 15,990
Purchase of investments (9,726) (1,506) (11,834) (5,644)
Sale of available-for-sale securities 216,363 5,711 389,123 347,849
Purchase of available-for-sale securities (17,588) (5,500) (67,706) (21,478)
Purchase of held-to-maturity investments (102,758) (1,000) (311,585) (1,002)
Proceeds from held-to-maturity investments 15 - 1,033 42,455
-------- -------- -------- -------
activities 14,725 (102,088) (155,583) 157,041
-------- -------- -------- -------
FINANCING ACTIVITIES
Debt incurred 50 5,918 282,854 53,270
Debt repaid (107,136) (4,048) (208,016) (327,659)
Treasury stock used for corporate purposes 500 246 1,787 1,442
Treasury stock purchased (67,358) - (70,568) (545)
Purchase of minority interests (1,965) (3,027) (4,646) (3,857)
Distributions to minority interests (14,376) (11,140) (40,091) (48,874)
Contributions from minority interests 812 1,250 2,363 2,250
Dividends paid to common stockholders (8,377) (8,549) (25,547) (25,614)
-------- -------- -------- --------
Net cash used for financing activities (197,850) (19,350) (61,864) (349,587)
-------- -------- -------- --------
Effect of exchange rate changes on cash 2,502 (1,758) 3,042 1,622
-------- -------- -------- --------
Increase(decrease)in cash and cash equivalents (48,576) (14,062) 31,132 5,159
Cash and cash equivalents at beginning of period 272,116 257,621 192,408 238,400
-------- -------- -------- --------
Cash and cash equivalents at end of period $223,540 $243,559 $223,540 $243,559
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-4-
<PAGE>
ASARCO Incorporated
and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
A. In n the opinion of the Company, the accompanying unaudited condensed
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, 1997 and the results of operations
and cash flows for the three month and nine month periods ended September
30, 1997 and 1996. 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. 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 December 31, 1996 condensed
consolidated balance sheet data was derived from audited financial
statements, but does not include all disclosures required by generally
accepted accounting principles. The accompanying condensed consolidated
financial statements should be read in conjunction with the consolidated
financial statements and notes thereto included in the Company's 1996
annual report on Form 10-K.
B. During the third quarter of 1997, the Company sold 62.9 million shares of
Grupo Mexico, S.A. de C.V. (Grupo Mexico) for proceeds of $200.1 million,
resulting in a pre-tax gain of $52.6 million ($34.2 million after-tax). For
the nine months ended September 30, 1997 the Company sold 106.3 million
shares of Grupo Mexico for proceeds of $322.5 million, resulting in a
pre-tax gain of $73.3 million ($47.6 million after tax). At September 30,
1997 the value of the Company's remaining interest in Grupo Mexico is
approximately $79 million representing the exercise price of shares under
option. In addition, during the third quarter of 1997, the Company recorded
a pre-tax charge of $3.9 million ($2.5 million after-tax) in connection
with the planned refinancing of certain outstanding debt. The Company's
results for the nine months ended September 30, 1996 include a $60.1
million pre-tax gain ($39.0 million after-tax) on the sale of its 15.0%
interest in M.I.M. Holdings Limited (MIM) and an $11.1 million pre-tax gain
($7.2 million after-tax) on the sale of a 25% interest in its Silver Bell
copper mine to Mitsui & Co.
C. In the first quarter of 1997, the Government of Peru approved a
reinvestment allowance for a program of Southern Peru Copper Corporation
(SPCC), a 54.1% owned subsidiary of the Company, to expand the Cuajone
mine. The reinvestment allowance provides SPCC with tax incentives in Peru
and, as a result, certain U.S. tax credit carryforwards, for which no
benefit has previously been recorded, are expected to be realized. The
Company's beneficial interest in the estimated net earnings impact of the
reduction in the effective tax rate as a result of the reinvestment
allowance, for the third quarter of 1997 is approximately $1.4 million and
for the nine months ended September 30, 1997, approximately $5.3 million.
Pursuant to the reinvestment allowance SPCC will receive tax deductions in
Peru in amounts equal to the cost of the qualifying property (approximately
$245 million). As qualifying property is acquired, the financial statement
carrying value of the qualifying property will be reduced to reflect the
tax benefit associated with the reinvestment allowance (approximately $73
million). As a result, financial statement depreciation expense related to
the qualifying property will be reduced over its useful life (approximately
15 years).
-5-
<PAGE>
D. Inventories were as follows:
(in millions)
<TABLE>
<CAPTION>
September 30, Dec. 31,
1997 1996
<S> <C> <C>
Inventories of smelters and refineries at lower of
LIFO cost or market $ 10.6 $ 10.3
Provisional cost of metals received from suppliers
for which prices have not yet been fixed 32.9 44.5
Mine inventories at lower of FIFO cost or market 94.7 105.8
Metal inventory at lower of average cost or market 43.0 49.5
Materials and supplies at lower of average cost or
market 139.1 141.0
Other 29.4 32.2
------ ------
Total $349.7 $383.3
====== ======
</TABLE>
At September 30, 1997, replacement cost exceeded inventories carried at
LIFO cost by approximately $94.7 million (December 31, 1996 - $115.2
million). Pre-tax earnings for the nine month period ended September 30,
1997 includes a $15.9 million gain from the liquidation of LIFO inventories
recorded in the second quarter of 1997.
E. Metal Hedging and Trading Activities:
Hedging: Depending on the market fundamentals of a metal and other
conditions, the Company may purchase put options or establish synthetic put
options to reduce or eliminate the risk of metal price declines on a
portion of its anticipated future production. Put options purchased by the
Company establish a minimum sales price for the production covered by such
put options and permit the Company to participate in price increases above
the option price. Synthetic put options are established by purchasing a
call option and entering into a forward sale for the same quantity of metal
at approximately the same price and for the same time period as the call
option. The cost of options is amortized on a straight-line basis during
the period in which the options are exercisable. Depending upon market
conditions the Company may sell options it holds or exercise the options at
maturity. Gains or losses, net of unamortized acquisition costs are
recorded as current liabilities or current assets and are subsequently
recognized in the period in which the underlying production is sold. The
Company also uses futures contracts to hedge the effect of price changes on
a portion of the metals it sells. Gains and losses on hedge contracts are
reported as a component of the underlying transaction.
Third quarter 1997 earnings include pre-tax gains of $1.8 million ($1.2
million after-tax) from the exercise of put options primarily related to
copper sold during the three months ended September 30, 1997. Earnings for
the nine month period ended September 30, 1997 includes pre-tax gains of
$15.2 million ($9.9 million after-tax) from the sale or exercise of put
options primarily related to copper sold during that period. Earnings for
the first nine months of 1997 include the Company's proportionate interest
in pre-tax gains of SPCC. There were no pre-tax gains or losses from the
Company's proportionate interest in SPCC price protection in the third
quarter of 1997. A pre-tax gain of $1.4 million ($0.9 million after-tax)
from the sale of put options in 1996 will be recognized in the fourth
quarter of 1997 when the underlying production is sold.
-6-
<PAGE>
As of September 30, 1997, the Company held synthetic puts covering 36.2
million pounds of copper at an average strike price of $1.04 per pound and
7.3 million pounds of zinc at an average strike price of $0.52 covering a
portion of production to be sold in the fourth quarter of 1997.
During October and early November 1997, the Company sold additional copper
put options covering 16.3 million pounds of fourth quarter 1997 copper
sales with an average strike price of $0.95. In addition, the Company
closed out the forward sale component of synthetic put options with an
average strike price of $1.04 per pound covering 12.1 million pounds. The
total pre-tax gain from the option activity was $1.9 million. SPCC sold
copper put options covering 21.5 million pounds of fourth quarter 1997
copper sales with an average strike price of $0.95. The total pre-tax gain
from the Company's proportionate interest in SPCC's activity was $0.5
million.
Copper Price Protection held at September 30, 1997
(in millions, except per lb. amounts)
<TABLE>
<CAPTION>
Percent of
Strike Price Unamortized Estimated
Pounds Period Per Pound Cost Production
------ ------ --------- ---- ----------
<S> <C> <C> <C> <C> <C>
ASARCO 91.1 10/97 - 12/97 $0.99 $1.9 55%
44.0 1/98 - 3/98 $0.95 0.7 26%
----
$2.6
SPCC 94.1 10/97 - 12/97 $0.95 $1.4 54%
44.0 1/98 - 3/98 $0.95 0.6 28%
----
$2.0
</TABLE>
Trading: As part of its price protection program, the Company may establish
synthetic put options. Each component of a synthetic put option may be
purchased or sold at different times. In those cases where the forward sale
component has not been entered into or has been offset, call options are
accounted for as trading activities and the carrying values of such call
options are recorded as investments and are marked to market and any
related adjustments are recorded in earnings. Earnings for the nine month
period ended September 30, 1997 include pre-tax gains of $0.5 million ($0.4
million after-tax) from the sale or exercise of call options in 1997 and
$5.5 million ($3.6 million after-tax) of unrealized mark to market gains.
In October 1997, the Company purchased additional call options covering
88.0 million pounds of copper exercisable pro rata in each quarter of 1998
at a strike price of $1.00 for $1.8 million.
Gains and (Losses): The recognized pre-tax gains of the Company's metal
hedging and trading activities, were as follows:
<TABLE>
<CAPTION>
(in millions) Three Months Ended Nine Months Ended
September 30, September 30,
<S> <C> <C> <C> <C>
Metal 1997 1996 1997 1996
----- ---- ---- ---- ----
Copper $1.3 $12.6 $20.0 $10.8
Zinc 0.5 - 1.2 -
Lead - - - 0.2
---- ----- ----- -----
Total Gain $1.8 $12.6 $21.2 $11.0
==== ===== ===== =====
</TABLE>
-7-
<PAGE>
F. Contingencies and Litigation:
The Company is a defendant in lawsuits in Arizona involving the United
States, Native Americans and 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 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 four class action
and fourteen other lawsuits in Texas seeking substantial compensatory and
punitive damages for personal injury and contamination of property
allegedly caused by present and former operations in Texas, and product
sales of the Company and its subsidiaries. Most of the cases name
additional corporations as defendants.
The Company and two subsidiaries, at September 30, 1997, are defendants in
592 lawsuits brought by 7,862 primary and 1,984 secondary plaintiffs
seeking substantial compensatory and punitive damages for personal injury
or death allegedly caused by exposure to asbestos. Three of these lawsuits
are purported statewide class actions brought on behalf of classes of
persons who are not yet known to have asbestos related injury, one of which
has been dismissed subject to appeal, and a second of which is being
dismissed by plaintiffs. One subsidiary was dismissed from one lawsuit
seeking damages for removal or containment of asbestos-containing products
in structures. Plaintiffs have appealed. In addition, the Company and
certain subsidiaries are defendants in product liability lawsuits involving
various other products, including metals.
In September and October 1997, separate purported class actions were
commenced against the Company in Omaha, Nebraska and in Denver, Colorado,
seeking compensatory and punitive damages for alleged contamination of
properties by emissions from the Company's former Omaha plant and the Globe
plant in Denver. The actions are pending in federal district court in Omaha
and Denver.
In March 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 the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 ("CERCLA" or "Superfund") 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 restoration
of the area. The Company believes, and has been advised by outside legal
counsel, that it has strong legal defenses to the lawsuit. In August 1997,
the United States filed a motion to add to the lawsuit several companies,
including certain subsidiaries of the Company.
The Company and certain of its subsidiaries have received notices from the
United States Environmental Protection Agency ("EPA") and the United States
Forest Service that they and in most cases numerous other parties are
potentially responsible to remediate alleged hazardous substance releases
at certain sites under CERCLA. In addition, the Company and certain of its
subsidiaries are defendants in lawsuits brought under CERCLA or state laws
that seek substantial damages and remediation. Remedial action is being
undertaken by the Company at some of the sites.
-8-
<PAGE>
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 accrues for these
losses when such losses are probable and reasonably estimable. Such
accruals are adjusted as new information develops or circumstances change
and are not discounted to their present value. Recoveries of environmental
remediation costs from insurance carriers and other parties are recorded as
assets when the recovery is deemed probable.
Reserves for closed plants and environmental matters totaled $133.3 million
at September 30, 1997. 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, 1997 and 1996 were $14.2 million and $10.4 million, respectively, and
for the nine months ended September 30, 1997 and 1996 were $41.2 million
and $34.3 million, respectively. In the third quarter of 1997, reserves for
remediation and other environmental liabilities related to sites previously
operated by the Company were increased by $30.0 million. Also in the third
quarter, the Company recorded a $30.0 million receivable representing
anticipated recoveries from its insurance carriers. The Company incurred
expenses of $15.0 million ($72.0 million in charges offset by $57.0 million
in insurance and other recoveries) in 1996 for environmental and closed
plant liabilities, including $10.0 million for the effect of the
application of the American Institute of Certified Public Accountants:
Statement of Position 96-1 "Environmental Remediation Liabilities." Net
cash expenditures charged to reserves were $54.1 million and $95.8 million
for the years 1996 and 1995, respectively. Environmental and other closed
plant expenses in 1995 and 1994 were $76.3 million and $65.6 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. Similarly, due to the
uncertainty of the outcome of court proceedings, future expenditures
related to litigation cannot be reliably determined. 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 recovery when it is not deemed probable.
G. Impact of New Accounting Standard:
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings Per Share" (the
"Statement"), which specifies the computation, presentation and disclosure
requirements for earnings per share ("EPS"). The Statement will require the
Company to present both basic and diluted EPS amounts for income from
continuing operations and net income on the face of the income statement.
The Company does not expect the impact of this statement to have a material
effect on its calculation of EPS. The Statement will be effective for
financial statements issued for periods ending after December 15, 1997,
including interim periods.
-9-
<PAGE>
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 "Reporting Comprehensive Income" and
Statement of Financial Accounting Standards No. 131 "Disclosures About
Segments Of An Enterprise And Related Information." The Company is
currently assessing the impact of these statements, both of which are
effective for fiscal years beginning after December 15, 1997.
-10-
<PAGE>
Part I Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company reported net earnings of $45.8 million, or $1.10 per common share,
for the quarter ended September 30, 1997, compared with net earnings of $6.0
million, or 14 cents per common share, for the third quarter of 1996. Results
for the third quarter of 1997 include an after-tax gain of $31.7 million ($48.8
million pre-tax), or 76 cents per share, from the sale of shares of Grupo
Mexico, S.A. de C.V. (Grupo Mexico), Mexico's largest mining company, partially
offset by a charge in connection with a planned refinancing of certain
outstanding debt. Excluding the net gain, third quarter 1997 earnings were $14.1
million or 34 cents per share.
For the nine months ended September 30, 1997, the Company reported net income of
$138.3 million, or $3.26 per share, compared with net income of $114.0 million,
or $2.67 per share, for the nine months ended September 30, 1996. Earnings for
the nine months ended September 30, 1997 include after-tax gains totaling $47.6
million from the sale of shares of Grupo Mexico. Results for the first nine
months of 1996 included an after-tax gain of $39.0 million from the sale of the
Company's interest in M.I.M. Holdings Limited (MIM), an Australian based mining
company, and a $7.2 million after-tax gain on the sale of a 25% interest in the
Company's Silver Bell copper mine.
The Company's third quarter 1997 earnings benefited from a $34.2 million
after-tax gain realized on the sale of Grupo Mexico stock. During 1996 and 1997
the Company sold its entire investment in MIM and all of its unrestricted shares
of Grupo Mexico. The total cash proceeds realized from the sale of these two
investments was nearly $650 million.
The Company has used most of the proceeds from the sale of investments to
strengthen its balance sheet by reducing debt. At September 30, 1997
consolidated debt was $889.0 million and the Company had $535.9 million in cash.
The Company's debt to capitalization, net of cash, was 17.9%. In addition, $100
million of the proceeds of the Grupo Mexico sale has been dedicated to the
purchase of Company stock. Through September 30, the Company had acquired almost
2.2 million of its shares at an aggregate cost of approximately $70 million.
Earnings from operations were higher in the third quarter of 1997 compared with
the third quarter of 1996 primarily due to higher copper prices and continued
strong performance from the Company's non-metals businesses. The Company's
specialty chemicals and aggregates businesses both recorded substantial
increases in earnings over the third quarter of 1996. Part of the effect of the
higher copper prices was offset by lower gains from the Company's price
protection program as compared to a year ago and adjustments made to
provisionally priced sales at SPCC. Third quarter 1997 earnings include gains of
$2.0 million from the Company's price protection program compared with gains of
$13.0 million recognized in the third quarter of 1996. At SPCC, sales are
provisionally priced when shipped and adjustments to the actual prices realized
are reflected in earnings approximately two months later. In comparison to sales
at monthly average prices, in the third quarter, adjustments to provisionally
priced sales negatively affected net earnings by $4.1 million.
-11-
<PAGE>
The Company's beneficial interest in mined copper production in the third
quarter of 1997 was 253.2 million pounds compared with 251.3 million pounds in
the third quarter of 1996. For the first nine months of 1997, the Company's
beneficial copper production was 716.3 million pounds compared with 760.5
million pounds for the first nine months of 1996. The principal reasons for the
lower nine month production were lower ore grades at the Company's North
American copper operations and the partial curtailment of the Hayden
concentrator at the Ray mine in Arizona during the early part of 1997.
In July, the Company began production of refined copper at its new solvent
extraction/electowinning (SX/EW) facility at the Silver Bell mine in Arizona.
Operations at the new SX/EW plant, in which Mitsui & Co., Ltd. has a 25%
interest, is designed to produce 36 million pounds of refined copper annually.
The plant which started up on schedule has been producing copper at its designed
capacity.
The Company's specialty chemicals and aggregates businesses had combined pre-tax
earnings of $12.0 million in the third quarter of 1997, continuing both units'
strong growth in profitability. In the Company's specialty chemicals business,
increased sales volumes, particularly in North America and Asia, and improved
margins resulted in a 24% increase in profits over the third quarter of last
year. Increased sales volumes in the Company's aggregates business resulted in a
21% profit improvement year over year.
Third quarter 1997 results include a $30 million pre-tax charge to increase
reserves for remediation and other environmental liabilities related to sites
previously operated by the Company. Also in the third quarter, the Company
recorded $30.0 million in anticipated recoveries from its insurance carriers. In
addition, in the third quarter, the Company recorded a pre-tax charge of $3.9
million in connection with the refinancing of certain outstanding debt. Such
refinancing is anticipated to be completed in the fourth quarter of 1997 and is
expected to reduce the Company's annual interest costs by approximately $3.0
million.
Sales: Sales in the third quarter of 1997 were $661.3 million, compared with
$647.8 million in the third quarter of 1996, primarily as a result of higher
copper prices. Sales for the nine month period ended September 30, 1997, were
$2,117.9 million compared to $2,065.3 million for the comparable 1996 period.
Adjustments for provisionally priced sales of copper, principally related to
SPCC, reduced sales in the third quarter of 1997 by $9.3 million and increased
sales by $2.3 million for the nine month period ended September 30, 1997.
Adjustments for provisionally priced copper reduced sales in the third quarter
of 1996 by $0.6 million and $28.0 million for the nine months ended September
30, 1996. Sales of refined copper purchased by the Company were lower by $12.8
million and $34.7 million in the third quarter and nine month periods ended
September 30, 1997, respectively, compared to the same periods in 1996.
-12-
<PAGE>
Metal sales volumes and prices for the quarter were as follows:
Metal Sales Volume:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Copper (000s pounds)
Asarco 274,300 291,100 823,500 826,300
SPCC 199,600 188,600 555,600 519,400
------- ------- --------- ---------
Consolidated 473,900 479,700 1,379,100 1,345,700
Asarco Beneficial Interest (2) 378,800 398,100 1,115,600 1,098,300
Lead (000s pounds)
Asarco 70,900 75,300 197,500 227,900
Silver (000s ounces)
Asarco 3,477 5,683 15,655 23,568
SPCC 818 818 2,313 2,363
------- -------- ---------- ---------
Consolidated 4,295 6,501 17,968 25,931
Asarco Beneficial Interest (2) 3,908 6,112 16,874 24,805
Zinc (000s pounds) (1)
Asarco 36,600 48,200 109,000 163,900
Molybdenum (000s pounds) (1)
Asarco 1,234 1,741 4,047 4,812
SPCC 1,924 2,152 6,412 5,956
------- -------- ---------- ---------
Consolidated 3,158 3,893 10,459 10,768
Asarco Beneficial Interest (2) 2,249 2,870 7,426 7,931
</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 concentrate.
(2) At September 30, 1997, Asarco's equity ownership in SPCC was 54.1% and
its beneficial interest was 52.7%. At September 30, 1996, Asarco's
equity ownership in SPCC was 54.1% and its beneficial interest was
52.5%.
-13-
<PAGE>
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 Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Copper (per pound - COMEX) $1.02 $.91 $1.09 $1.08
Copper (per pound - LME) 1.03 .90 1.09 1.06
Lead (per pound - LME) .28 .36 .29 .36
Silver (per ounce - Handy & Harman) 4.53 5.05 4.77 5.30
Zinc (per pound - LME) .73 .45 .62 .46
Molybdenum (per pound - Metals Week
Dealer Oxide) 4.27 3.29 4.35 3.47
</TABLE>
Metal Hedging and Trading Activities:
Hedging: Depending on the market fundamentals of a metal and other conditions,
the Company may purchase put options or establish synthetic put options to
reduce or eliminate the risk of metal price declines on a portion of its
anticipated future production. Put options purchased by the Company establish a
minimum sales price for the production covered by such put options and permit
the Company to participate in price increases above the option price. Synthetic
put options are established by purchasing a call option and entering into a
forward sale for the same quantity of metal at approximately the same price and
for the same time period as the call option. The cost of options is amortized on
a straight-line basis during the period in which the options are exercisable.
Depending upon market conditions the Company may sell options it holds or
exercise the options at maturity. Gains or losses, net of unamortized
acquisition costs are recorded as current liabilities or current assets and are
subsequently recognized in the period in which the underlying production is
sold. The Company also uses futures contracts to hedge the effect of price
changes on a portion of the metals it sells. Gains and losses on hedge contracts
are reported as a component of the underlying transaction.
Third quarter 1997 earnings include pre-tax gains of $1.8 million ($1.2 million
after-tax) from the exercise of put options primarily related to copper sold
during the three months ended September 30, 1997. Earnings for the nine month
period ended September 30, 1997 includes pre-tax gains of $15.2 million ($9.9
million after-tax) from the sale or exercise of put options primarily related to
copper sold during that period. Earnings for the first nine months of 1997
include the Company's proportionate interest in pre-tax gains of SPCC. There
were no pre-tax gains or losses from the Company's proportionate interest in
SPCC price protection in the third quarter of 1997. A pre-tax gain of $1.4
million ($0.9 million after-tax) from the sale of put options in 1996 will be
recognized in the fourth quarter of 1997 when the underlying production is sold.
As of September 30, 1997, the Company held synthetic puts covering 36.2 million
pounds of copper at an average strike price of $1.04 per pound and 7.3 million
pounds of zinc at an average strike price of $0.52 covering a portion of
production to be sold in the fourth quarter of 1997.
During October and early November 1997, the Company sold additional copper put
options covering 16.3 million pounds of fourth quarter 1997 copper sales with an
average strike price of $0.95. In addition, the Company closed out the forward
sale component of synthetic put options with an average strike price of $1.04
per pound covering 12.1 million pounds. The total pre-tax gain from the option
activity was $1.9 million. SPCC sold copper put options covering 21.5 million
pounds of fourth quarter 1997 copper sales with an average strike price of
$0.95. The total pre-tax gain from the Company's proportionate interest in
SPCC's activity was $0.5 million.
-14-
<PAGE>
Copper Price Protection held at September 30, 1997
(in millions, except per lb. amounts)
<TABLE>
<CAPTION>
Percent of
Strike Price Unamortized Estimated
Pounds Period Per Pound Cost Production
------ ------ --------- ---- ----------
<S> <C> <C> <C> <C> <C>
ASARCO 91.1 10/97 - 12/97 $0.99 $1.9 55%
44.0 1/98 - 3/98 $0.95 0.7 26%
----
2.6
SPCC 94.1 10/97 - 12/97 $0.95 $1.4 54%
44.0 1/98 - 3/98 $0.95 0.6 28%
----
$2.0
</TABLE>
Trading: As part of its price protection program, the Company may establish
synthetic put options. Each component of a synthetic put option may be purchased
or sold at different times. In those cases where the forward sale component has
not been entered into or has been offset, call options are accounted for as
trading activities and the carrying values of such call options are recorded as
investments and are marked to market and any related adjustments are recorded in
earnings. Earnings for the nine month period ended September 30, 1997 include
pre-tax gains of $0.5 million ($0.4 million after-tax) from the sale or exercise
of call options in 1997 and $5.5 million ($3.6 million after-tax) of unrealized
mark to market gains.
In October 1997, the Company purchased additional call options covering 88.0
million pounds of copper exercisable pro rata in each quarter of 1998 at a
strike price of $1.00 for $1.8 million.
Gains and (Losses): The recognized pre-tax gains of the Company's metal hedging
and trading activities, were as follows:
<TABLE>
<CAPTION>
(in millions) Three Months Ended Nine Months Ended
September 30, September 30,
Metal 1997 1996 1997 1996
----- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Copper $ 1.3 $12.6 $20.0 $10.8
Zinc 0.5 - 1.2 -
Lead - - - 0.2
----- ----- ----- -----
Total Gain $ 1.8 $12.6 $21.2 $11.0
===== ===== ===== =====
</TABLE>
Cost of Products & Services: Cost of products and services were $525.4 million
in the third quarter of 1997, compared with $515.9 million in the third quarter
of 1996. The increase in costs reflects the higher sales volume of copper
produced from purchased concentrates at SPCC and higher operating expenses at
SPCC primarily related to an increase in power costs. In the second quarter of
1997, SPCC sold its power plant to an independent power company in order to
avoid substantial capital expenditures to meet the power needs of expanded
operations. In connection with the sale, a purchase agreement was also
completed, under which the power company will provide SPCC with its power needs
for the next twenty years. Under the agreement, SPCC's cost of power will
increase somewhat from its current level, while SPCC will benefit by avoiding
significant capital expenditures that would be required to meet the needs of
expanded operations.
-15-
<PAGE>
Costs of products and services for the nine month period ended September 30,
1997 was $1,615.4 million compared with $1,604.3 million for the comparable 1996
period. The increase is a result of higher operating costs at SPCC, higher sales
volumes of copper produced from purchased concentrates at SPCC offset by lower
purchases of refined copper to meet customer commitments.
Nonoperating Items: Interest expense was $20.5 million in the third quarter of
1997 and $56.4 million for the nine month period ended September 30, 1997,
compared with $16.8 million and $59.3 million for the respective periods in
1996. Interest expense was higher during the third quarter of 1997 compared to
the same period of 1996 due to the increase in SPCC borrowings related to the
expansion of the Cuajone mine. The decrease in interest expense over the
comparable nine month periods reflects lower average borrowings in 1997 due to
the use of proceeds from the sale of the Company's interest in MIM in the second
quarter of 1996 and the sale of shares of Grupo Mexico in the second and third
quarters of 1997. The increase in other income for the third quarter of 1997
compared to the same period in 1996 reflects an increase in interest income from
higher cash balances along with higher equity earnings, offset by the charge
related to the planned refinancing of certain debt.
Cash Flows:
Third quarter - Net cash provided from operating activities was $132.0 million
in the third quarter of 1997, compared with $109.1 million in the third quarter
of 1996. The increase is primarily a result of cash provided from operating
assets and liabilities which reflects a decrease in accounts receivable due to
the decline in copper prices during the third quarter of 1997.
Net cash provided from investing activities was $14.7 million in the third
quarter of 1997, compared with cash used for investing activities of $102.1
million in the third quarter of 1996. The three months ended September 30, 1997
includes proceeds from the sale of shares of Grupo Mexico partially offset by
the investment of the proceeds from SPCC financing activities in
held-to-maturity investments. The decrease in capital expenditures from the
prior year reflects lower spending at the Company's domestic copper operations.
Cash used for financing activities in the third quarter of 1997 was $197.9
million as compared with $19.4 million in the third quarter of 1996. In the
third quarter of 1997, proceeds from the sale of shares of Grupo Mexico were
used to reduce debt and purchase Company stock.
Nine months - Net cash provided from operating activities was $245.5 million for
the nine month period ended September 30, 1997, compared with $196.1 million in
the corresponding prior period. The increase was primarily due to higher
operating income and cash provided from operating assets and liabilities.
-16-
<PAGE>
Cash used for investing activities was $155.6 million for the nine month period
ended September 30, 1997, compared with cash provided of $157.0 million in the
corresponding prior period. Investing activities for the nine month period
ending September 30, 1997 includes proceeds from the sale of shares of Grupo
Mexico partially offset by the investment of the proceeds from SPCC financing
activities in held-to-maturity investments. The decrease in capital expenditures
from the prior year reflects lower spending at the Company's domestic copper
operations. Investing activities for the nine month period ending September 30,
1996 included proceeds from the sale of the Company's interest in MIM and a 25%
interest in the Company's Silver Bell copper mine.
Cash used for financing activities for the nine months ended September 30, 1997
was $61.9 million, compared with $349.6 million in the corresponding period.
During the nine month period ended September 30, 1997, proceeds from the sale of
shares of Grupo Mexico were used to reduce debt and purchase Company stock. Debt
incurred for the nine month period reflects the sale of $150.0 million of
Secured Export Notes and $50.0 million of bonds to partially finance the SPCC
expansion project at the Cuajone mine. Cash used for financing activities for
the nine months ended September 30, 1996 reflects the use of proceeds from the
sale of MIM to repay a portion of the Company's revolving credit agreements.
Liquidity and Capital Resources: At September 30, 1997, the Company's debt as a
percentage of total capitalization (total debt, minority interests and
stockholders' equity) was 28.2%, compared with 26.7% at December 31, 1996.
Consolidated debt at the end of the third quarter 1997 was $889.0 million
compared with $814.3 million at the end of 1996. Additional indebtedness
permitted under the terms of the most restrictive of the Company's credit
agreements totaled $909.5 million at September 30, 1997.
The Company expects that it will meet its cash requirements for 1997 and beyond
from internally generated funds, cash on hand and from borrowings under its
revolving credit agreements or from additional debt or equity financing.
The Company paid dividends to common stockholders of $8.4 million or 20 cents
per share, in the third quarter of 1997 and $8.6 million or 20 cents per share
in the third quarter of 1996. In addition, SPCC paid dividends of $14.4 million
to minority interests in the third quarter of 1997 and $11.1 million in the
third quarter of 1996. At the end of the third quarter of 1997, the Company had
40,806,000 common shares issued and outstanding, compared with 42,772,000 at the
end of the third quarter of 1996. Dividends by SPCC are limited by covenants
under SPCC's financing agreements. The most restrictive of these covenants
limits the payment of dividends by SPCC to 50% of its consolidated net income.
Impact of New Accounting Standards: In February 1997, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" (the "Statement"), which specifies the computation,
presentation and disclosure requirements for earnings per share ("EPS"). The
Statement will require the Company to present both basic and diluted EPS amounts
from income for continuing operations and net income on the face of the income
statement. The Company does not expect the impact of this statement to have a
material effect on its calculation of EPS. The Statement will be effective for
financial statements issued for periods ending after December 15, 1997,
including interim periods.
-17-
<PAGE>
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 "Reporting Comprehensive Income" and
Statement of Financial Accounting Standards No. 131 "Disclosures About Segments
Of An Enterprise And Related Information." The Company is currently assessing
the impact of these statements, both of which are effective for fiscal years
beginning after December 15, 1997.
Cautionary Statement: Forward-looking statements in this report and in other
Company statements include statements regarding expected commencement dates of
mining or metal production operations, projected quantities of future metal
production, anticipated production rates, operating efficiencies, costs and
expenditures as well as projected demand or supply for the Company's products.
Actual results could differ materially depending upon factors including the
availability of materials, equipment, required permits or approvals and
financing, the occurrence of unusual weather or operating conditions, lower than
expected ore grades, the failure of equipment or processes to operate in
accordance with specifications, labor relations, environmental risks as well as
political and economic risk associated with foreign operations. Results of
operations are directly affected by metals prices on commodity exchanges which
can be volatile.
-18-
<PAGE>
COOPERS & LYBRAND L.L.P.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of ASARCO Incorporated:
We have reviewed the condensed consolidated balance sheet of ASARCO Incorporated
and Subsidiaries as of September 30, 1997 and the related condensed consolidated
statements of earnings and cash flows for the three month and nine month periods
ended September 30, 1997 and 1996. These 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 condensed consolidated financial statements, referred to above,
for them to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet as of December 31, 1996, and the
related consolidated statements of income, retained earnings, and cash flows for
the year then ended (not presented herein); and in our report dated January 28,
1997 we expressed an unqualified opinion on those consolidated financial
statements. In our opinion, the information set forth in the accompanying
condensed consolidated balance sheet as of December 31, 1996, is fairly stated,
in all material respects, in relation to the consolidated balance sheet from
which it has been derived.
Coopers & Lybrand L.L.P.
New York, New York
October 20, 1997
-19-
<PAGE>
PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
1. Asarco and two of its wholly-owned subsidiaries, Lac d'Amiante du Quebec,
Ltee ("LAQ") and Capco Pipe Company, Inc. ("Capco"), have been named as
defendants, among numerous other defendants, in additional asbestos personal
injury lawsuits of the same general nature as the lawsuits reported on Form 10-Q
for the first and second quarters of 1997 and Form 10-K for 1996 and prior
years. As of September 30, 1997, there were pending against Asarco and its
subsidiaries 592 lawsuits brought by 7,862 primary and 1,984 secondary
plaintiffs in 30 states seeking substantial damages for personal injury or death
allegedly caused by exposure to asbestos. Three of these lawsuits are purported
statewide class actions brought on behalf of classes of persons who are not yet
known to have asbestos related injury, one of which has been dismissed subject
to appeal, and a second of which is being dismissed by plaintiffs. As of
September 30, 1997, LAQ, Asarco and Capco have settled or been dismissed from a
total of 7,134 asbestos personal injury lawsuits brought by approximately 86,416
primary and 53,265 secondary plaintiffs.
2. In September 1997, the Nebraska Department of Environmental Quality approved
a Remedial Action Work Plan submitted by the Company for remediation of the site
of the Company's former Omaha, Nebraska, lead refinery, which had suspended
operations on June 1, 1996.
3. In September 1997, the Company was sued in United States District Court in
Nebraska in a purported class action on behalf of approximately 10,000 persons
owning and approximately 15,000 persons renting property in Nebraska and Iowa
located within boundaries of up to approximately five miles from the Company's
former Omaha plant, and on behalf of a medical monitoring class of approximately
30,000 persons. The action asserts causes of action in trespass, nuisance,
negligence, strict liability, unjust enrichment, medical monitoring and under
CERCLA due to the alleged contamination of soils by airborne releases from the
plant, and seeks compensatory damages for diminution in property value and loss
of use, punitive damages, a declaratory judgment of liability for future
response costs, and creation of a medical monitoring fund.
4. In October 1997, the Company was sued in state court in Denver, Colorado, in
a purported class action brought on behalf of property owners and other persons
residing in approximately 300 homes located within one mile south of the
Company's Globe plant. The action asserts causes of action in trespass, private
nuisance, negligence, and strict liability allegedly due to the contamination of
properties by emissions from the plant, and seeks compensatory damages for
diminution in property value and loss of use, as well as punitive damages. The
Company has removed the action from state court to federal district court in
Denver.
5. In September 1997, the Company entered into an Administrative Order on
Consent to conduct an Engineering Evaluation/Cost Analysis ("EE/CA") for the
portal discharge from the Company's former Gem mine in the Coeur D'Alene River
Basin in Idaho. The discharge drains to a tributary of the Coeur d'Alene River.
The Company has agreed to implement the remedy selected by the EE/CA process.
6. In July 1997, the Company received a notice from the United States Forest
Service that it may be potentially liable for environmental remediation at a
site in California where it appears a predecessor company had leased a mine for
approximately one year in the early 1900s.
-20-
<PAGE>
7. With respect to the litigation pending in state court in New Jersey relating
to the Company's environmental liability insurance, reported on Form 10-K for
1996 and prior years, the Company has appealed the court's rulings on summary
judgment.
8. With respect to the lawsuit filed by the Mayor of Tacna, Peru, in 1993
against Southern Peru Limited, an indirect subsidiary of the Company, seeking
$100 million in damages from alleged harmful deposition of tailings, slag, and
smelter emissions, reported on Form 10-K for 1996 and 1995, in the third quarter
of 1997 the Supreme Court of Peru affirmed the dismissal by the Superior Court
of Tacna.
9. With respect to the Clean Water Act action filed by the Cabinet Resources
Group and reported on Form 10-K for 1996 and 1995, the Company settled the
action during the third quarter of 1997.
10. With respect to the action in Cameron County, Texas, filed in March 1997
against the Company and one of its wholly owned subsidiaries, Federated Metals
Corporation, reported on Form 10-Q for the first quarter of 1997, the Company
and Federated Metals have been dismissed from this action, without prejudice.
-21-
<PAGE>
Item 6(a) - Exhibits on Form 10Q
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
<S> <C>
11 Statement re Computation of Earnings per Share
12 Statement re Computation of Consolidated Ratio of Earnings to Fixed Charges and Combined Fixed
Charges and Preferred Share Dividend Requirements
</TABLE>
-22-
<PAGE>
Exhibit 11 Statement re Computation of Earnings per Share
This calculation is submitted in accordance with Regulation S-K item 601(b)(11).
Fully Diluted Earnings per Common Share
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
3 Months Ended 9 Months Ended
September 30, September 30,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net earnings applicable to common stock $45,803 $5,952 $138,257 $114,040
======= ====== ======== ========
Weighted average number of common shares outstanding 41,804 42,741 42,46 42,683
Shares issuable from assumed exercise of Stock Options 166 27 166 76
------- ------- -------- --------
Weighted average number of common shares outstanding,
as adjusted 41,970 42,768 42,630 42,759
======= ======= ======== ========
Fully diluted earnings per share:
Net earnings applicable to common stock $ 1.09 $ 0.14 $ 3.24 $ 2.67
======= ======= ======= =======
Primary earnings per share:
Net earnings applicable to common stock $ 1.09 $ 0.14 $ 3.24 $ 2.67
======= ======= ======= =======
</TABLE>
<PAGE>
Exhibit 12 Statement re Computation of Consolidated Ratio of Earnings to
Fixed Charges and Combined Fixed Charges and
---------------------------------------------------------------------
Preferred Share Dividend Requirements
<TABLE>
<CAPTION>
Nine months
Ended
September 30,
1997 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
NET EARNINGS (LOSS) $138,257 $138,336 $169,153 $ 64,034 $ 15,619 $(83,091)
Adjustments
Taxes on Income 81,076 99,924 122,465 9,375 (36,503) (37,371)
Equity Earnings, Net of Taxes (5,201) (3,837) (1,837) (47,653) (27,384) (2,575)
Cumulative Effect of Change in
Accounting Principle - - - - (86,295) 53,964
Dividends received from non-
consolidated associated
companies 4,159 4,047 1,828 14,301 1,676 803
Total Fixed Charges 62,496 83,553 99,516 66,377 64,359 62,200
Interest Capitalized (3,518) (2,839) (3,256) (869) (4,010) (7,433)
Capitalized Interest Amortized 1,928 2,274 2,949 1,727 1,629 1,825
Minority interest 75,743 88,331 129,543 809 693 615
-------- -------- -------- -------- -------- --------
EARNINGS (LOSS) $354,940 $409,789 $520,361 $108,101 $(70,216) $(11,063)
======== ======== ======== ======== ======== ========
FIXED CHARGES
Interest Expense 56,414 $ 76,442 $ 91,954 $ 62,529 $ 57,321 $ 51,230
Interest Capitalized 3,518 2,839 3,256 869 4,010 7,433
Imputed Interest Expense 2,564 4,272 4,306 2,979 3,028 3,537
-------- -------- -------- -------- -------- --------
TOTAL FIXED CHARGES $ 62,496 $ 83,553 $ 99,516 $ 66,377 $ 64,359 $ 62,200
======== ======== ======== ======== ======== ========
Ratio of Earnings to Fixed Charges 5.7 4.9 5.2 1.6 (1.1) (0.2)
======== ======== ======== ======== ======== ========
</TABLE>
<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 12, 1997 /s/ Kevin R. Morano
-------------------
Kevin R. Morano
Vice President, Finance and
Chief Financial Officer
Date: November 12, 1997 /s/ William Dowd
----------------
William Dowd
Controller
-23-
<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 October 20, 1997 on our review of the interim
financial information of ASARCO Incorporated and Subsidiaries as of September
30, 1997 and for the three month and nine month periods ended September 30, 1997
and 1996 and included in this Form 10-Q for the quarter ended September 30, 1997
is incorporated by reference in the Company's Registration Statements on Form
S-8 (File Nos. 2-67732, 2-83782, 33-34606, 333-16875 and 333-18083) 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
November 12, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 223540
<SECURITIES> 312315
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