1999
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, 1999 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, 1999 there were outstanding 39,732,649 shares of Asarco Common
Stock, without par value.
<PAGE>
ASARCO Incorporated
and Subsidiaries
INDEX TO FORM 10-Q
Page No.
Part I. Financial Information:
Item 1. Financial Statements (unaudited)
Condensed Consolidated Statement of Earnings
Three Months Ended March 31, 1999 and 1998 2
Condensed Consolidated Balance Sheet
March 31, 1999 and December 31, 1998 3
Condensed Consolidated Statement of Cash Flows
Three Months Ended March 31, 1999 and 1998 4
Notes to Condensed Consolidated Financial Statements 5-12
Item 2. Management's Discussion and Analysis of 13-19
Financial Condition and Results of
Operations
Report of Independent Accountants 20
Part II. Other Information:
Item 1. Legal Proceedings 21
Item 4. Submission of Matters to a Vote of Security Holders 22
Item 6(a) Exhibits on Form 10Q 23
Exhibit 12 - Statement re Computation of Consolidated Ratio of
Earnings to Fixed Charges and Combined Fixed Charges and
Preferred Share Dividend Requirements
Signatures 24
Exhibit I - Independent Accountants' Awareness Letter
-1-
<PAGE>
ASARCO Incorporated
and Subsidiaries
<TABLE>
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
(unaudited)
<CAPTION>
3 Months Ended
March 31,
1999 1998
---- ----
(in thousands, except per share amounts)
<S> <C> <C>
Sales of products and services $475,307 $614,511
Operating costs and expenses:
Cost of products and services 431,047 537,784
Selling, administrative and other 36,233 37,448
Depreciation and depletion 35,953 36,272
Research and exploration 3,667 8,200
Environmental and other closed plant
charges, net of recoveries 2,099 4,554
Asset dispositions and impairments - 20,000
------- -------
Total operating costs and expenses 508,999 644,258
------- -------
Operating income (loss) (33,692) (29,747)
Interest expense (19,489) (17,460)
Other income 3,830 7,117
------- -------
Earnings (loss) before taxes on income and minority interests (49,351) (40,090)
Taxes on income (benefit) (16,081) (14,494)
------- -------
Earnings (loss) before minority interests (33,270) (25,596)
Minority interests in net earnings of consolidated subsidiaries (2,048) (6,210)
------- -------
Net earnings (loss) $(35,318) $(31,806)
======== ========
Per share amounts:
Net earnings (loss):
Basic $ (0.89) $ (0.80)
======= =======
Diluted $ (0.89) $ (0.80)
======= =======
Dividends to common stockholders $ 0.05 $ 0.20
Weighted average common shares outstanding:
Basic 39,682 39,648
Diluted 39,682 39,648
The accompanying notes are an integral part of these financial statements.
</TABLE>
-2-
<PAGE>
ASARCO Incorporated
and Subsidiaries
<TABLE>
CONDENSED CONSOLIDATED BALANCE SHEET
(unaudited)
<CAPTION>
March 31, December 31,
1999 1998
(in thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 174,247 $ 193,048
Marketable securities 25,537 22,705
Accounts and notes receivable, net 410,847 409,792
Inventories 283,266 352,411
Other assets 105,860 104,809
------- -------
Total current assets 999,757 1,082,765
Investments:
Available-for-sale and other at cost 119,834 121,532
Equity method 66,080 64,465
Property, net 2,558,445 2,526,567
Other assets including intangibles, net 224,588 228,480
------- -------
Total Assets $3,968,704 $ 4,023,809
========== ===========
LIABILITIES
Current liabilities:
Bank loans $ 14,444 $ 4,963
Current portion of long-term debt 27,426 27,676
Accounts payable 331,821 336,501
Salaries and wages 29,255 27,268
Taxes on income 86,011 84,007
Reserve for closed plant and environmental matters 53,620 53,394
Other 49,226 47,611
------ ------
Total current liabilities 591,803 581,420
------- -------
Long-term debt 1,020,272 1,014,942
Deferred income taxes 40,056 56,045
Reserve for closed plant and environmental matters 77,985 90,985
Postretirement benefit obligations 109,550 108,741
Other liabilities and reserves 112,096 113,754
------- -------
Total non-current liabilities 1,359,959 1,384,467
--------- ---------
MINORITY INTERESTS 534,426 533,329
------- -------
COMMON STOCKHOLDERS' EQUITY
Common stock (a) 524,282 521,956
Accumulated other comprehensive income (loss), net of tax (13,046) (6,989)
Retained earnings 971,280 1,009,626
------- ---------
Total Common Stockholders' Equity 1,482,516 1,524,593
--------- ---------
Total Liabilities, Minority Interests and Common
Stockholders' Equity $3,968,704 $ 4,023,809
========== ===========
(a) Common shares: authorized 80,000 outstanding: 39,738 39,652
The accompanying notes are an integral part of these financial statements.
</TABLE>
-3-
<PAGE>
ASARCO Incorporated
and Subsidiaries
<TABLE>
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
<CAPTION>
3 Months Ended
March 31,
1999 1998
(in thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $(35,318) $ (31,806)
Adjustments to reconcile net loss to net cash provided
from (used for) operating activities:
Depreciation and depletion 35,953 36,272
Benefit for deferred income taxes (14,646) (19,122)
Treasury stock used for employee benefits 393 1,037
Undistributed equity earnings (570) (1,938)
Net (gain) loss on asset dispositions and impairments
(30) 20,177
Decrease in reserves for closed plant
and environmental matters (12,774) (10,154)
Minority interests 2,048 6,210
Cash provided from (used for) operating assets and liabilities:
Accounts receivable (4,217) (32,671)
Inventories 68,060 29,504
Accounts payable and accrued liabilities (346) (8,120)
Other operating assets and liabilities 3,846 (28,232)
Foreign currency transaction (gains) losses 1,447 (610)
--------- --------
Net cash provided from (used for) operating activities 43,846 (39,453)
-------- --------
INVESTING ACTIVITIES
Capital expenditures (70,872) (99,497)
Sale of property 635 1,960
Purchase of cost investments (626) (592)
Sale of available-for-sale securities 19,412 32,193
Purchase of available-for-sale securities (18,646) (34,680)
Proceeds from held-to-maturity investments 22,257 87,910
Purchase of held-to-maturity investments (25,089) (1,004)
-------- --------
Net cash used for investing activities (72,929) (13,710)
-------- --------
FINANCING ACTIVITIES
Debt incurred 32,700 223,435
Debt repaid (16,942) (184,793)
Escrow (deposits) withdrawals on long-term loans (27) 1,615
Treasury stock transactions 969 (1,919)
Purchase of minority interests (184) (3,658)
Distributions to minority interests (1,392) (7,708)
Contributions from minority interests 625 -
Dividends paid to common stockholders (1,984) (7,929)
-------- --------
Net cash provided from financing activities 13,765 19,043
Effect of exchange rate changes on cash (3,483) 1,194
-------- --------
Decrease in cash and cash equivalents (18,801) (32,926)
Cash and cash equivalents at beginning of period 193,048 210,559
-------- --------
Cash and cash equivalents at end of period $174,247 $177,633
======== ========
The accompanying notes are an integral part of these financial statements.
</TABLE>
-4-
<PAGE>
ASARCO Incorporated
and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
A. In 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 March 31, 1999 and the results of
operations and cash flows for the three months ended March 31, 1999
and 1998. Certain reclassifications have been made in the financial
statements from amounts previously reported. This financial data has
been subjected to a review by PricewaterhouseCoopers LLP, 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 condensed consolidated
financial statements should be read in conjunction with the
consolidated financial statements and notes thereto included in the
Company's 1998 annual report on Form 10-K.
B. Inventories were as follows:
(in millions)
March 31, December 31,
1999 1998
Inventories of smelters and refineries at lower of
LIFO cost or market $ 6.7 $ 2.3
Provisional cost of metals received from suppliers
for which prices have not yet been fixed 31.9 57.9
Mine inventories at lower of FIFO cost or market 49.3 93.5
Metal inventory at lower of average cost or market 38.3 39.5
Materials and supplies at lower of average cost or
market 123.3 124.9
Other 33.8 34.3
---- ------
Total $283.3 $352.4
====== ======
At March 31, 1999, and December 31, 1998, replacement cost exceeded
inventories valued at LIFO cost by approximately $74.0 million.
C. Financial Instruments:
Hedging Activities: Derivative instruments may be used to manage exposure
to market risk from changes in commodity prices, interest rates or the
value of the Company's assets and liabilities. Derivative instruments which
are designated as hedges must be deemed effective at reducing the risk
associated with the exposure being hedged and must be designated as a hedge
at the inception of the contract.
The Company may purchase put options or create synthetic put options to
reduce or eliminate the risk of metal price declines below the option
strike price on a portion of its anticipated future production. The cost of
options is amortized on a straight-line basis during the period in which
the options are exercisable. Gains or losses from the sale or exercise of
options, net of unamortized acquisition costs, are recognized in the period
in which the underlying hedged 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 futures contracts are reported as a
component of the underlying transaction.
-5-
<PAGE>
Trading Activities: Derivative instruments that do not meet the criteria to
be designated as hedges are considered trading activities and are marked to
market with the related adjustments recorded in net earnings.
Swap Agreements: Interest rate swap agreements limit the effect of
increases in interest rates on floating rate debt. The differential to be
paid or received as interest rates change under any such agreement is
recorded in interest expense. Fuel swap agreements limit the effect of
increases in the price of fuel. The differential to be paid or received as
fuel prices change is recorded as a component of cost of sales.
D. Business Segments:
(in millions)
Three Months Ended
March 31,
1999 1998
---- ----
Segment Sales:
Copper $ 362.5 $ 484.9
Specialty Chemicals 85.6 83.0
Aggregates 9.5 9.8
Exploration - -
All Other 17.7 36.8
-------- --------
Total $ 475.3 $ 614.5
======= =======
Segment Earnings:
Copper $ (29.6) $ 1.7
Specialty Chemicals 7.2 7.7
Aggregates 0.4 1.2
Exploration (2.0) (6.1)
All Other (1) (8.6) (32.3)
------- --------
Total $ (32.6) $ (27.8)
Interest and other (15.7) (10.3)
Less: Equity earnings (1.1) (2.0)
------- -------
Earnings (loss) before taxes on income
and minority interests $ (49.4) $ (40.1)
======= ========
(1) The All Other segment includes a $20 million charge in the first
quarter of 1998 to reflect the effect of the sale of the Missouri Lead
Division.
With the sale of the Missouri Lead Division in 1998, the closure of the Black
Cloud lead-zinc mine in Leadville, Colorado in the first quarter of 1999 and the
change in management responsibilities completed in April 1999, the Company's
Lead, Zinc and Precious Metals segment has been reclassified. The Company's
custom lead smelting and zinc mining operations are included in the All Other
segment, and precious metals refined at the Company's copper refineries are
included in the Copper segment.
The business segment data presented above includes reclassifications from
amounts previously reported as Lead, Zinc and Precious Metals. Had these
reclassifications been made to the business segment data included in the
Company's 1998 annual report on Form 10-K, the business segment data would have
been presented in the following manner:
The Company applies SFAS No. 131, "Disclosure About Segments of an Enterprise
and Related Information." This statement establishes standards for reporting
information about operating segments and related disclosures about products and
services, geographic areas, and major customers. Prior year amounts have been
restated to conform to the current year presentation.
-6-
<PAGE>
The Company's copper segment includes integrated mining, smelting and refining
operations in North America and in Peru, through its subsidiary, Southern Peru
Copper Corporation.
Enthone-OMI, a wholly-owned subsidiary, operates a world-wide specialty
chemicals business focused on functional and decorative coatings for the
electronics and metal finishing industries. American Limestone Company, a
wholly-owned subsidiary, produces construction aggregates.
The Company also maintains an active exploration effort focused on the
identification and acquisition of advanced gold, copper and silver exploration
projects.
The segment labeled "All Other" includes a fully integrated lead business in
Missouri, which was sold in September 1998, a custom lead smelting business, a
silver mining business, a zinc mining business, environmental services, a
specialty metals business, and income and expenses associated with facilities
previously operated by the Company. The Company's reportable segments are
separately managed strategic business units that offer different products and
services.
The accounting policies of the segments are described in the summary of
significant accounting policies. The Company evaluates segment performance based
on operating income or loss plus the equity in the net earnings of investments
accounted for by the equity method attributable to each segment, where
applicable. Corporate and general administrative expenses are allocated among
the segments generally in proportion to operating expenses. Identifiable assets
are those directly used in the operations of each segment. Unallocated corporate
assets are principally cash, marketable securities, and investments. There can
be no assurance that operations and assets of the Company subject to the
jurisdiction of foreign governments will not be affected adversely by future
actions by such governments.
Business Segments - Sales
For the years ended December 31, 1998 1997 1996
---- ---- ----
(in millions)
By Reportable Segment
Copper $1,698 $2,170 $2,159
Specialty Chemicals 351 324 319
Aggregates 57 54 47
All Other 127 173 192
============= ============== ===============
Total $2,233 $2,721 $2,717
============= ============== ===============
By Country (a)
United States $1,226 $1,501 $1,529
Japan 155 219 245
United Kingdom 139 146 153
Italy 134 166 147
Germany 100 77 54
The Netherlands 79 109 122
Foreign - Other 400 503 467
============= ============== ===============
Total $2,233 $2,721 $2,717
============= ============== ===============
(a) Revenues are attributed to countries based on location of customer.
-7-
<PAGE>
<TABLE>
Business Segments - Earnings
<CAPTION>
For the years ended December 31, 1998 1997 1996
---- ---- ----
(in millions)
<S> <C> <C> <C>
By Reportable Segment (a),(b)
Copper (c) $ (35) $322 $326
Specialty Chemicals(d) 29 29 24
Aggregates 15 14 10
Exploration (17) (32) (27)
All Other (e),(f) (106) (49) (25)
--------------- -------------- ---------------
Total $(114) $284 $308
Interest and other (39) 33 23
Less: Equity Earnings (4) (9) (4)
--------------- -------------- ---------------
Earnings before taxes on income
and minority interests $(157) $308 $327
=============== ============== ===============
Depreciation and Depletion
Copper $ 124 $108 $ 99
Specialty Chemicals 4 3 3
Aggregates 3 3 2
All Other 14 17 15
=============== ============== ===============
Total $ 145 $131 $119
=============== ============== ===============
Equity in results of non-consolidated companies
Copper $ 1 $ 1 $ 1
Specialty Chemicals 3 5 4
All Other - 3 (1)
=============== ============== ===============
Total $ 4 $ 9 $ 4
=============== ============== ===============
</TABLE>
(a) LIFO profits of $1.6, $16.7 and $5.3 were reported in the All Other
segment for 1998, 1997 and 1996 respectively.
(b) Includes equity in the net earnings of investees accounted for by the
equity method.
(c) 1998 includes special non-recurring charges of $9.5 in connection with
the three year suspension of operations at the Company's copper smelter
in El Paso, Texas, $10.9 associated with the transfer of SPCC's ownership
of the Ilo townsite to its worker occupants and the City of Ilo, $10.0 in
severance costs related to SPCC's $30 million cost reduction program, and
$4.7 in connection with the Company's cost reduction program and an
increase in reserves for certain employee benefit plans.
(d) 1998 includes special non-recurring charges of $1.8 for severance in
connection with the Company's cost reduction program.
(e) 1998 includes a charge of $20.0 to reflect the sale of MLD, special
non-recurring charges of $9.8 to write down the book value and provide
for closure costs for the Company's Black Cloud lead-zinc mine in
Leadville, Colorado and $1.7 in connection with the Company's cost
reduction program and an increase in reserves for certain employee
benefit plans.
(f) 1998 includes a charge of $32.7 for closed plants and environmental
matters.
-8-
<PAGE>
Business Segments - Identifiable Assets
For the years ended December 31, 1998 1997 1996
---- ---- ----
(in millions)
By Reportable Segment
Copper $ 2,979 $ 3,009 $ 2,810
Specialty Chemicals 335 263 272
Aggregates 36 32 32
Exploration 21 15 11
All Other 503 580 524
--------------- -------------- ---------------
Total Reportable Segments $ 3,874 $ 3,899 $ 3,649
Unallocated corporate assets 150 211 471
=============== ============== ===============
Total $ 4,024 $ 4,110 $ 4,120
=============== ============== ===============
Long-Lived Assets
United States $ 1,499 $ 1,547 $ 1,820
Peru 1,060 919 872
Foreign - Other 154 142 84
=============== ============== ===============
Total $ 2,713 $ 2,608 $ 2,776
=============== ============== ===============
Equity Method Investments
Copper $ 2 $ 2 $ 2
Specialty Chemicals 53 50 53
All Other 9 9 5
=============== ============== ===============
Total $ 64 $ 61 $ 60
=============== ============== ===============
Capital Expenditures
Copper $ 349 $ 295 $ 233
Specialty Chemicals 5 4 7
Aggregates 4 3 3
All Other 13 20 43
--------------- -------------- ---------------
Total $ 371 $ 322 $ 286
=============== ============== ===============
E. Contingencies and Litigation:
Environmental Litigation and Related Matters
In connection with the matters referred to below, as well as at other closed
plants and sites where the Company is working with federal and state agencies to
resolve environmental issues, the Company accrues for 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 recoveries are deemed
probable.
Reserves for closed plants and environmental matters, including mine reclamation
costs for active and closed properties, totaled $131.6 million at March 31,
1999. The Company anticipates that expenditures relating to these reserves will
be made over the next several years. Net cash expenditures against these
reserves for the three months ended March 31, 1999 and March 31, 1998 were $13.0
million and $14.8 million, respectively.
The effect on pre-tax earnings of environmental and other closed plant charges
was $2.1 million for the three month period ended March 31, 1999 compared with
$4.6 million for the three month period ended March 31, 1998.
-9-
<PAGE>
In 1997, separate 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. 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 damage 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 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 1996, the court granted a motion to consolidate this case with a
prior, similar lawsuit filed by the Coeur d'Alene Tribe. In 1998, the United
States Environmental Protection Agency (EPA) commenced a remedial investigation
and feasibility study of the Coeur d'Alene River Basin.
The Company, the United States Department of Justice, the EPA, and the Texas
Natural Resources Conservation Commission signed a consent decree filed in
United States District Court in Houston, Texas in April 1999 covering a broad
range of environmental issues affecting principally the facility of
Encycle/Texas, Inc., an indirect wholly-owned subsidiary of the Company, in
Corpus Christi, Texas and Asarco's Coy zinc mine in Tennessee. Pursuant to the
consent decree, the Company will perform certain environmental projects and pay
a $5.5 million penalty, without an admission of wrongdoing or liability. The
Company's existing environmental reserves are adequate to cover the cost of the
penalty and supplemental environmental projects. The April 1999 consent decree
is subject to public comment and court approval.
The Company and certain of its subsidiaries have received notices from EPA and
other federal agencies 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.
Product Litigation
The Company and two subsidiaries, as of March 31, 1999, are defendants in 1,149
lawsuits brought by 9,684 primary and 4,547 secondary plaintiffs seeking
substantial actual and punitive damages for personal injury or death allegedly
caused by exposure to asbestos. Three of these lawsuits are purported class
actions, two of which are allegedly brought on behalf of persons who are not
known to have asbestos-related injury. The third is purportedly brought on
behalf of persons suing both tobacco-related and asbestos-related entities
claiming damages for personal injury or death arising from exposure to asbestos
and cigarette smoke. In addition, the Company and certain subsidiaries are
defendants in product liability lawsuits involving various other products,
including metals.
Other Litigation
The Company is a defendant in lawsuits in Arizona, the earliest of which
commenced in 1975, 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 alleged 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 purported class
actions and thirteen 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.
-10-
<PAGE>
Opinion of Management
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 not deemed probable.
F. Comprehensive Income:
For the quarters ended March 31, 1999 and 1998 comprehensive income
consisted of net income, changes in unrealized gains or losses on
securities reported at fair value and foreign currency translation
adjustments.
Comprehensive income for the first quarter of 1999 and 1998 was as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
(in thousands)
<S> <C> <C>
Net income (loss) $(35,318) $(31,806)
Other comprehensive income (loss):
Foreign currency translation adjustments (5,707) (539)
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising during period
(net of tax benefit of $146 - 1999 and $343 - 1998) (271) (636)
Less: reclassifications of gains included in income
(net of tax of $42 - 1999 and $1,197 - 1998) (79) (2,223)
-------- --------
Comprehensive income (loss) $(41,375) $(35,204)
======== ========
</TABLE>
Accumulated other comprehensive income balances as of March 31, 1999 and
December 31, 1998 were as follows:
Foreign currency Accumulated other
Unrealized gain translation comprehensive
on securities adjustments income (loss)
(in thousands)
March 31, 1999
Beginning balance $ 1,469 $ (8,458) $ (6,989)
Current period change (350) (5,707) (6,057)
------ ------ --------
Ending balance $ 1,119 $(14,165) $(13,046)
======= ======== ========
December 31, 1998
Beginning balance $ 11,654 $(8,265) $ 3,389
Current period change (10,185) (193) (10,378)
-------- ------- --------
Ending balance $ 1,469 $(8,458) $ (6,989)
======= ======= ========
-11-
<PAGE>
G. Impact of New Accounting Standards:
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities." This
statement which is effective for fiscal years beginning after June 15,
1999, establishes accounting and reporting standards for derivative
instruments and hedging activities. The Company is currently assessing the
impact of this statement.
-12-
<PAGE>
Part I Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company reported a net loss of $35.3 million, or 89 cents per common share,
for the quarter ended March 31, 1999, compared with a net loss of $31.8 million,
or 80 cents per common share, for the quarter ended March 31, 1998. Results for
the first quarter of 1998 included an after-tax charge of $16.0 million related
to the sale of the Company's Missouri lead business and for severance costs
associated with a subsidiary's cost reduction program.
The net loss reported by the Company is the result of historically low copper
prices. In the first quarter of 1999, the price of copper reached a 12 year low,
and on an inflation-adjusted basis, the price was the lowest ever in the
Company's 100 year history. Prices for the Company's other metals were also
lower in the first quarter of 1999 compared with the year earlier period. The
impact of these lower prices was to reduce earnings by approximately $35 million
when compared with the first quarter of 1998.
In response to these conditions, the Company's cost reduction program, which was
implemented in 1997, has been expanded in 1999. As a result of this aggressive
program, which has also included a number of investments to improve operating
efficiencies, the Company's production costs have been sharply reduced, but not
enough to overcome the effect of the depressed copper price. The impact of the
Company's cost reduction program and other operating savings is estimated to
have reduced the net after-tax loss in the first quarter of 1999 by $15.4
million compared with the first quarter of 1998.
The Company's beneficial interest in mined copper production in the first
quarter of 1999 totaled 257.2 million pounds, an 8.2% increase from the same
period in 1998. Total copper production at the Company's North American
operations grew 4.1% in the first quarter of 1999 including increased production
of low cost solvent extraction/electrowinning (SX/EW) copper. Despite unusually
wet weather conditions which hampered production in the first quarter of 1999,
mined copper production at SPCC's operations increased by 16.0% compared with
the first quarter of last year principally due to the expansion of the Cuajone
mine.
The Company's specialty chemicals business, Enthone-OMI Inc., had pre-tax
profits of $7.2 million in the first quarter of 1999, a decrease from $7.7
million in the first quarter of 1998. A decline in sales in Asia due to weakness
in the electronics sector was mostly offset by increased profits in Europe
during the quarter. The improvements in Europe were largely due to the effects
of the acquisition of Deutsche Oberflachtechnik Gmbh (DOT) in April 1998.
Pre-tax profits for the Company's aggregates business were $0.4 million in the
first quarter of 1999, a decline from $1.2 million for the first quarter of the
prior year. The decrease is due to adverse weather conditions in the southeast
United States, which reduced construction activity. Overall, demand in this
business remains strong and profits are expected to improve in succeeding
quarters.
Sales: Sales in the first quarter of 1999 were $475.3 million, compared with
$614.5 million in the same period of 1998. The decrease is primarily due to
lower copper prices and lower metal sales volume, which reflects the curtailment
of the Company's copper refinery in Amarillo, Texas and the sale of the Missouri
lead business.
-13-
<PAGE>
Metal sales volumes and prices for the three month periods ended March 31, 1999
and 1998 were as follows:
Metal Sales Volume:
Three Months Ended
March 31,
1999 1998
---- ----
Copper (000s pounds)
Asarco 328,900 335,000
SPCC (1) 168,700 170,000
------------- -------------
Consolidated 497,600 505,000
Asarco Beneficial Interest (2) 415,800 423,000
Silver (000s ounces)
Asarco 4,490 5,822
SPCC (1) 633 754
------------- -------------
Consolidated 5,123 6,576
Asarco Beneficial Interest (2) 4,827 6,223
Zinc (000s pounds) (3)
Asarco 37,100 37,000
Molybdenum (000s pounds) (3)
Asarco 1,644 1,465
SPCC (1) 2,324 2,851
------------- -------------
Consolidated 3,968 4,316
Asarco Beneficial Interest (2) 2,881 2,980
(1) SPCC presented at 100%.
(2) The Company's equity interest and voting interest in SPCC at both March
31, 1999 and 1998, was 54.3% and 63.1%, respectively. The Company's
beneficial economic interest in the operations of SPCC, net of the
remaining labor shares interest, was 53.2% and 53.1% at March 31, 1999
and 1998, respectively.
(3) 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
-14-
<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).
Three Months Ended
March 31,
1999 1998
----- ----
Copper (per pound - COMEX) $0.64 $0.77
Copper (per pound - LME) $0.64 $0.77
Silver (per ounce - COMEX) $5.28 $6.24
Zinc (per pound - LME) $0.45 $0.48
Molybdenum (per pound - Metals Week Dealer Oxide) $2.62 $3.85
DERIVATIVE INSTRUMENTS:
The Company uses derivative instruments to manage its exposure to market risk
from changes in commodity prices, interest rates or the value of its assets and
liabilities. Derivative instruments which are designated as hedges must be
deemed effective at reducing the risk associated with the exposure being hedged
and must be designated as a hedge at the inception of the contract.
HEDGING:
Metal Futures Contracts: The majority of the Company's activities involving
metal futures contracts are designed to match the price realized for the
Company's metal production as close as possible to the average monthly market
price during the month the Company makes shipments to customers. Sales contracts
with customers may provide for pricing in a month other than the month of
shipment. For instance, in cases where pricing is established in a month later
than the month of shipment, the Company will sell forward an equivalent amount
of metal to the month that the price with the customer is established. The gain
or loss on these forward contracts is offset with a lower or higher price on the
customer invoice. Metal futures contracts are also used to hedge the price of
metals purchased by the Company from third parties. Gains and losses on the
liquidation of futures contracts are included in earnings at the same time
revenue from the related sale transactions is recognized.
At March 31, 1999 and December 31,1998, the Company's aggregate metal futures
contract positions were as follows:
(in thousands)
Notional Unrealized
Weight Values Gain (Loss)
--------------------- ---------------------- ------------------
March 31,1999
Copper (pounds) 104,632 $ 65,811 $ 29
Silver (ounces) 3,915 $ 20,704 $ 1,195
Gold (ounces) 11 $3,043 $ 55
Lead (pounds) 1,544 $ 401 $ (47)
December 31,1998
Copper (pounds) 71,860 $ 48,207 $ 1,457
Silver (ounces) 5,630 $ 28,078 $ (184)
Gold (ounces) 32 $9,374 $ 206
Lead (pounds) 3,362 $ 742 $ (13)
-15-
<PAGE>
In the preceding table notional values represent the purchase or sales price of
the metal under contract. The unrealized gain or loss, if any, is the increase
or decrease in the value of the contract as of the date indicated.
In the event of a hypothetical 10 percent unfavorable change in the respective
metals prices on the Company's March 31, 1999 positions, the Company would incur
a loss of $1.5 million including the unrealized gain or loss displayed in the
table above. However, any such additional loss would be offset by a
corresponding gain on the related customer contracts being hedged. Since the
notional value displayed in the table above represents the absolute sum of all
outstanding futures contracts, it is not an accurate measure of risk to the
Company from these transactions.
Price Protection: Depending on the market fundamentals of a metal and other
conditions, the Company may purchase put options or create synthetic put options
to reduce or eliminate the risk of metal price declines below the option strike
price on a portion of its anticipated future production. Synthetic put options
consist of a call option and a forward sale of the same quantity of metal. These
put options 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. 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 either sell options it holds or exercise the options
at maturity. Gains or losses from the sale or exercise of options, net of
unamortized acquisition costs, are recognized in the period in which the
underlying production is sold. At March 31, 1999, the Company did not hold any
put options. Earnings included gains from option sales and exercises primarily
related to copper of $10.9 million in the quarter ended March 31, 1998.
Fuel Swaps: The Company may enter into fuel swap agreements to limit the effect
of increases in fuel prices on its production costs. A fuel swap establishes a
fixed price for the quantity of fuel covered by the agreement. The difference
between the published price for fuel and the price established in the contract
for the month covered by the swap is recognized as a component of cost of
products and services. As of March 31, 1999 and December 31, 1998, the Company
had entered into the following fuel swap agreements:
Weighted
Average
Contract
Fuel Type Period Quantity Price
- --------------------------------------------------------------------------------
March 31, 1999
Residual Oil (barrels) 4/99-12/99 1,240,500 $10.07
Diesel Fuel (barrels) 4/99-12/99 520,500 $15.93
Natural Gas (BTUs in millions) 4/99-6/01 2,172,600 $2.12
December 31, 1998
Residual Oil (barrels) 1/99-9/99 1,095,000 $ 9.84
Diesel Fuel (barrels) 1/99-9/99 564,000 $15.35
Natural Gas (BTUs in millions) - - -
In the event of a hypothetical 10 percent decrease in the respective fuel prices
on the Company's March 31, 1999 positions, the Company would incur higher
production costs of approximately $0.1 million over the life of the contracts
than it would have incurred had the exposure not been hedged.
Interest Rate Swaps: The Company may enter into interest rate swap agreements to
limit the effect of interest rates on any floating rate debt. The differential
to be paid or received as interest rates change is recorded in interest expense.
During 1995, the Company entered into a swap agreement with an aggregate
notional amount of $15.0 million to limit the interest rate exposure on its
$15.0 million, 5 year term loan to 6.8%. Interest expense would have been lower
by $0.1 million in both quarters ended March 31, 1999 and 1998 had the Company
not hedged its exposure.
-16-
<PAGE>
In the event of a hypothetical decrease of 1% in the prevailing interest rate,
the Company would incur higher interest expense of approximately $0.2 million
over the remaining life of the contract than it would have incurred had the
exposure not been hedged.
TRADING:
Price protection programs utilizing synthetic puts may be implemented in steps.
In cases where the step approach is used, the Company's objective is to take
advantage of current market conditions to minimize its cost of the synthetic
put. Until a synthetic put is completed, any calls not matched with a forward
sale are considered trading activities and are marked to market with the gain or
loss, if any, recorded in earnings. At March 31, 1999, the Company did not hold
any call options. Earnings for the quarter ended March 31, 1998 include losses
of $0.03 million from the sale or exercise of call options and losses of $0.12
million from mark to market adjustments.
The Company may hold positions in the metals futures markets for metals which it
produces but which are not related to any specific sales to customers. These
contracts are considered trading activities and are marked to market with the
gain or loss, if any, recorded in earnings. At March 31, 1999 and 1998, such
futures positions were not material.
Cost of Products and Services: Cost of products and services were $431.0 million
and $537.8 million for the quarters ended March 31, 1999 and 1998, respectively.
The decrease in 1999 is primarily due to lower production costs as a result of
the Company's cost reduction program and lower refined sales volume, which
reflects the curtailment of the Company's copper refinery in Amarillo, Texas and
the sale of the Missouri Lead Division. Costs were also reduced by $7.7 million
due to insurance proceeds received related to the heavy rains in 1993 at Ray
mines and a pricing settlement from an explosives producer.
Other Operating Costs: Selling, administrative and other expenses were $36.2
million in the first quarter of 1999 compared with $37.4 million in the first
quarter of 1998. The decrease is the result of lower corporate administrative
costs partially offset by higher selling expenses related to the specialty
chemicals business.
Research and exploration expense was $3.7 million and $8.2 million in the first
quarters of 1999 and 1998, respectively. The decrease reflects lower spending
for domestic and foreign exploration as part of the Company's cost reduction
program.
Environmental and other closed plant charges were $2.1 million and $4.6 million
for the quarters ended March 31, 1999 and 1998, respectively. The decrease is
the result of lower spending in 1999 on outside legal expenses, reflecting the
effect of the Company's cost reduction program.
Asset dispositions and impairments include a $20.0 million charge in the first
quarter of 1998 to reflect the effect of the sale of the Missouri Lead Division.
Non-operating Items: Interest expense was $19.5 million and $17.5 million for
the quarters ended March 31, 1999 and 1998, respectively. The increase in 1999
reflects higher borrowings partially offset by lower rates on floating rate
debt.
Other income was $3.8 million and $7.1 million for the quarters ended March 31,
1999 and 1998, respectively. The decrease is due to lower interest income and
lower equity earnings primarily from Silver Valley Resources, a 50% owned equity
investment.
Taxes on Income: The consolidated effective tax rate decreased in the first
quarter of 1999 as compared to the first quarter of 1998 primarily due to SPCC's
reduced earnings.
-17-
<PAGE>
Cash Flows: Net cash provided from operating activities was $43.8 million in the
first quarter of 1999, compared with a net use of $39.5 million in the first
quarter of 1998. The improvement is primarily due to the lower level of
inventories reflecting concentrate sales resulting from the suspension of
operations at the Company's copper smelter in El Paso, Texas.
Net cash used for investing activities was $72.9 million in the first quarter of
1999, compared with $13.7 million in the first quarter of 1998. The first
quarter of 1998 included higher proceeds from held-to-maturity investments at
SPCC. The decrease in capital expenditures in 1999 reflects lower spending as a
result of the completion of the expansion project at the Cuajone mine.
Liquidity and Capital Resources: At March 31, 1999, the Company's debt as a
percentage of total capitalization (the total of debt, minority interests and
equity) was 34.5%, compared with 33.7% at December 31, 1998. Consolidated debt
at March 31, 1999, including the debt of SPCC, none of which is guaranteed by
Asarco, was $1,062.1 million, compared with $1,047.6 million at December 31,
1998. Additional indebtedness permitted under the terms of the Company's most
restrictive covenants was $532.6 million at March 31, 1999. In addition, under
the most restrictive covenants of SPCC's loan agreements, SPCC would have been
permitted additional indebtedness of $874.0 million at March 31, 1999.
The Company expects that it will meet its cash requirements for 1999 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 $2.0 million or 5 cents per
share in the first quarter of 1999 and $7.9 million or 20 cents per share in the
first quarter of 1998. In addition SPCC paid dividends of $1.1 million to
minority interests in the first quarter of 1999 and $7.7 million in the first
quarter of 1998. At March 31, 1999, the Company had 39,738,000 shares issued and
outstanding, compared with 39,652,000 at December 31, 1998.
Impact of New Accounting Standards: In June 1998, the Financial Accounting
Standards Board issued SFAS No. 133 "Accounting for Derivative Instruments and
Hedging Activities." This statement which is effective for fiscal years
beginning after June 15, 1999, establishes accounting and reporting standards
for derivative instruments and hedging activities. The Company is currently
assessing the impact of this statement.
Year 2000: The Company has implemented a three phase program to identify and
resolve Year 2000 (Y2K) issues related to the integrity and reliability of its
computerized information systems as well as computer systems embedded in its
production processes. Phase one of the Company's program which involved an
assessment of Y2K compliance of the Company's computerized information systems
and embedded computer systems has been completed. In phase two of the program
the Company is modifying or replacing all non-compliant systems. As of March 31,
1999, approximately 98% of the Company's systems and 95% of SPCC's systems have
been tested and are Y2K compliant with the remainder expected to be tested and
be Y2K compliant by the second quarter of 1999. The Company continues to test
these systems where appropriate.
As of March 31, 1999, the Company had spent approximately $2.7 million in
addition to its normal internal information technology costs in connection with
its Y2K program. The Company expects to incur additional costs of $0.6 million
including its beneficial interest in SPCC's costs to complete phases two and
three of the program.
Phase three of the program, which involved the Company sending detailed
information requests to its principal customers, suppliers and service providers
to determine the status of their Y2K compliance, has been completed. The Company
received confirmations indicating that most are or will be Y2K compliant. The
Company will have further contact with those who have not responded or have
-18-
<PAGE>
indicated further work was required to achieve Y2K compliance, but none are
critical to the Company's operations. SPCC has sent surveys to its major
customers, suppliers and service providers and also expects to complete this
phase of its program in the third quarter of 1999.
Among other things, the Company's operations depend on the availability of
utility services, principally electricity, and reliable performance by domestic
and international transportation services. A substantial disruption in any of
these services due to providers of these services failing to achieve Y2K
compliance would have an adverse impact on the Company's financial results, the
significance of which would depend on the length and severity of the disruption.
The Company is currently identifying alternatives and will complete a
contingency plan for each of its principal operations by June 1999. The purpose
of the contingency plan is to identify possible alternatives which could be used
in the event of a disruption in the delivery of essential goods or services and
to minimize the effect of such a disruption.
The above estimates and conclusions contain forward-looking statements and are
based on management's best estimate of future events. Actual results could
differ materially depending on the availability of resources and the Company's
ability to identify and correct all Y2K issues.
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.
-19-
<PAGE>
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 March 31, 1999 and the related condensed consolidated
statements of earnings and cash flows for the three month periods ended March
31, 1999 and 1998. 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 accompanying interim condensed consolidated financial statements
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, 1998 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 26,
1999, 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, 1998, is fairly stated,
in all material respects, in relation to the consolidated balance sheet from
which it has been derived.
PricewaterhouseCoopers LLP
New York, New York
April 19, 1999
-20-
<PAGE>
PART II - OTHER INFORMATION
Item 1- Legal Proceedings
1. Asarco and two of its wholly-owned subsidiaries, Lac d'Amiante du Quebec,
Ltee (LAQ) and Capco Pipe Company, Inc. (Capco), have been named as defendants,
among numerous other defendants, in additional asbestos personal injury lawsuits
of the same general nature as the lawsuits reported on Form 10-K for 1998 and
prior years. As of March 31, 1999, there were pending against Asarco and its
subsidiaries 1,149 lawsuits brought by 9,684 primary and 4,547 secondary
plaintiffs in 27 states seeking substantial damages for personal injury or death
allegedly caused by exposure to asbestos. As of March 31, 1999, LAQ, Asarco, and
Capco have settled or have been dismissed from a total of 10,425 asbestos
personal injury lawsuits brought by approximately 108,009 primary and 60,602
secondary plaintiffs.
2. The Company, the United States Department of Justice, the United States
Environmental Protection Agency (EPA), and the Texas Natural Resources
Conservation Commission signed a consent decree that was filed in the U.S.
District Court in Houston, Texas on April 15, 1999. This represents the second
and final phase of a multi-state settlement of environmental issues between the
Company and EPA. The first phase, reported on form 10-K for 1997 and 1998,
resolved a number of compliance issues at the Company's East Helena smelter in
Montana, and the Ray Complex in Arizona. The April 1999 consent decree deals
with compliance issues at the facility of Encycle/Texas, Inc., an indirect
wholly-owned subsidiary of the Company, in Corpus Christi, Texas, at Asarco's
Coy zinc mine in Tennessee, and at Asarco's East Helena and El Paso smelters as
regards certain feedstocks received from Encycle/Texas. To settle the disputed
matters, the Company has agreed to undertake supplemental environmental projects
at a total cost of $2.2 million and perform on-site remediation, environmental
studies and work at the Encycle/Texas facility. Further, the Company has
committed to perform environmental compliance and management systems audits of
its operating facilities in the United States that will be reviewed by an
outside consultant. The Company will also pay civil penalties to EPA and to
Texas aggregating $5.5 million without an admission of wrongdoing or liability.
The Company's existing environmental reserves are adequate to cover the cost of
the penalty and supplemental environmental projects. The April 1999 consent
decree is subject to public comment and court approval.
3. On or about April 16, 1999, the Company and Encycle/Texas, Inc., received a
notice under the federal Clean Air Act, Clean Water Act and Resource
Conservation and Recovery Act on behalf of the owners of residential property
near the Encycle/Texas facility in Corpus Christi, Texas stating that unless
appropriate action is meantime taken by EPA or Texas environmental authorities,
they intend to commence a civil suit sixty days after notice is given, for civil
penalties for past violations of those laws, an injunction against future
violations, and an injunction requiring the Company to investigate and remediate
alleged contamination at the facility. The Company considers that the issues in
the notice letter are substantially addressed by the consent decree filed on
April 15, 1999 discussed in the preceding paragraph.
4. With respect to the Company's former smelter site in Everett, Washington,
reported on Form 10-K for 1998 and prior years, in April 1999 the Washington
Department of Ecology ordered the Company to remediate certain residential
properties. In light of the Company's challenge to the applicable environmental
laws on constitutional grounds in a pending lawsuit in Washington state court,
the Company has declined to do so.
-21-
<PAGE>
Item 4 - Submission of Matters to a Vote of Security Holders
At the annual meeting of stockholders of the Company held on April 28, 1999,
stockholders were asked to elect five directors (the remaining directors
continue to serve in accordance with their previous election) and to approve the
selection of auditors for 1999.
Votes cast in the election of the Class I director to serve until the 2001
Annual Meeting of Stockholders were as follows:
Number of Shares
----------------------------------------------
Name For Withheld
---------------------- --------------------
Richard de J. Osborne 28,390,255 6,508,895
Votes cast in the election of Class II directors to serve until the 2002 Annual
Meeting of Stockholders were as follows:
Number of Shares
----------------------------------------------
Name For Withheld
---------------------- --------------------
Kevin R. Morano 28,400,887 6,498,263
Michael T. Nelligan 28,375,266 6,523,884
Manuel T. Pacheco 28,357,767 6,541,383
James Wood 28,374,724 6,524,426
Stockholders approved the selection of auditors as follows:
For Against Abstain
---------------------- ---------------------- ----------------------
30,668,560 4,074,858 155,732
-22-
<PAGE>
Item 6(a) - Exhibits on Form 10Q
EXHIBIT INDEX
Exhibit
12 Statement re Computation of Consolidated Ratio of Earnings to Fixed
Charges and Combined Fixed Charges and Preferred Share Dividend
Requirements
-23-
<PAGE>
Exhibit 12 Statement re Computation of Consolidated Ratio of Earnings
to Fixed Charges and Combined Fixed Charges
and Preferred Share Dividend Requirements
Three months Three months
ended ended
March 31, March 31,
1999 1998
(Dollars in thousands)
NET EARNINGS (LOSS) $(35,318) $(31,806)
Adjustments
Taxes (benefit) on Income (16,171) (14,579)
Equity Earnings, Net of Taxes (955) (1,853)
Dividends received from non-
consolidated companies 475 -
Total Fixed Charges 23,123 21,632
Interest Capitalized (1,485) (2,316)
Capitalized Interest Amortized 341 830
Minority Interest 2,048 6,210
-------- -------
EARNINGS (LOSS) $(27,942) $(21,882)
======== ========
FIXED CHARGES
Interest Expense $ 19,489 $ 17,460
Interest Capitalized 1,485 2,316
Imputed Interest Expense 2,149 1,856
-------- --------
TOTAL FIXED CHARGES $ 23,123 $ 21,632
======== ========
Ratio of Earnings to Fixed Charges (a) (b)
======== ========
(a) For the quarter ended March 31, 1999 earnings were insufficient to cover
fixed charges by $51,065.
(b) For the quarter ended March 31, 1998 earnings were insufficient to cover
fixed charges by $43,514.
<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 7, 1999 /s/ William Dowd
---------------------
William Dowd
Vice President and
Chief Financial Officer
Date: May 7, 1999 /s/ Edward J. Melando
---------------------
Edward J. Melando
Controller
-24-
<PAGE>
Exhibit I
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
We are aware that our report dated April 19, 1999 on our review of the interim
financial information of ASARCO Incorporated and Subsidiaries as of March 31,
1999 and for the three month periods ended March 31, 1999 and 1998 and included
in this Form 10-Q for the quarter ended March 31, 1999 is incorporated by
reference in the Company's Registration Statements on Form S-8 (File Nos.
2-67732, 2-83782, 33-34606, 333-16875, 333-18083 and 333-46181) 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.
PricewaterhouseCoopers LLP
New York, New York
May 7, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-1-1999
<PERIOD-END> MAR-31-1999
<CASH> 174247
<SECURITIES> 25537
<RECEIVABLES> 421495
<ALLOWANCES> 10648
<INVENTORY> 283266
<CURRENT-ASSETS> 999757
<PP&E> 4854397
<DEPRECIATION> 2295952
<TOTAL-ASSETS> 3968704
<CURRENT-LIABILITIES> 591803
<BONDS> 0
0
0
<COMMON> 524282
<OTHER-SE> 958234
<TOTAL-LIABILITY-AND-EQUITY> 3968704
<SALES> 475307
<TOTAL-REVENUES> 475307
<CGS> 431047
<TOTAL-COSTS> 431047
<OTHER-EXPENSES> 77952
<LOSS-PROVISION> 317
<INTEREST-EXPENSE> 19489
<INCOME-PRETAX> (49351)
<INCOME-TAX> (16081)
<INCOME-CONTINUING> (35318)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (35318)
<EPS-PRIMARY> (0.89)
<EPS-DILUTED> (0.89)
</TABLE>
