10-Q/A 1 doerun10qa2dqtr101906.htm FORM 10-Q/A - AMENDMENT NO. 1 - SECOND QUARTER 2006 Form 10-Q/A - Amendment No. 1 - Second Quarter 2006
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-Q/A
(Amendment No. 1)
(Mark One)
[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended April 30, 2006
or
[ ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from _______ to _______
Commission File Number 333-66291
 
The Doe Run Resources Corporation
(Exact name of registrant as specified in its charter)
     
New York
 
13-1255630
(State or other jurisdiction of incorporation or organization)
 
(IRS Employer Identification No.)
     
1801 Park 270 Drive, Suite 300
St. Louis, Missouri
 
63146
(Address of principal executive offices)
 
(Zip Code)
 
(314) 453-7100
(Registrant’s telephone number, including area code)


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

Note: The Registrant files pursuant to an indenture, but is not otherwise subject to the reporting requirements of Section 13 or 15(d).

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

[ ]Larger accelerated filer
[ ] Accelerated filer
[X] Non-accelerated filer

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
[ ]
Yes
 
[X]
No

Number of shares outstanding of each of the issuer’s classes of common stock, as of October 19, 2006:

Common stock, $.10 par value 1,000 shares




EXPLANATORY NOTE

The Doe Run Resources Corporation (the “Company”) is filing this Amendment No. 1 on Form 10-Q/A (the “Amended Filing”) to the Company’s Form 10-Q for the fiscal quarter ended April 30, 2006, as filed with the Securities and Exchange Commission on August 7, 2006 (the “Original Filing”), for purpose of revising its disclosure of gross margin on sales under the subheading “Results of Operations” in “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” to reflect all costs of sales, including depreciation, depletion and amortization amounts attributable to cost of sales.

This Amended Filing also revises the Condensed Consolidated Statements of Cash Flows in “Item 1. Financial Statements” to reflect certain individual changes in the Company’s assets and liabilities.

Additionally, this Amended Filing clarifies the disclosure under “Item 4. Controls and Procedures” by stating that the Company’s disclosure controls and procedures were effective as of the date of the Company’s evaluation.

Finally, this Amended Filing corrects certain typographical errors in the Original Filing.

Except as described above, no other changes have been made to the Original Filing and this Amended Filing does not amend, update or change any other items or disclosures in the Original Filing. This Amended Filing continues to speak as of the date of the Original Filing and the Company has not updated the disclosure in this Amended Filing to speak to any later date.





Part I. FINANCIAL INFORMATION

THE DOE RUN RESOURCES CORPORATION
 
Condensed Consolidated Balance Sheets
 
(Dollars in thousands, except share and per share data)
 
   
April 30,
 
October 31,
 
   
2006
 
2005
 
   
(unaudited)
     
ASSETS
         
Current assets:
         
Cash
 
$
23,913
 
$
23,486
 
Trade accounts receivable, net of allowance for doubtful accounts
   
135,748
   
85,740
 
Inventories
   
167,496
   
105,634
 
Prepaid expenses and other current assets
   
27,588
   
20,814
 
Total current assets
   
354,745
   
235,674
 
Property, plant and equipment, net
   
262,715
   
253,263
 
Other noncurrent assets, net
   
8,633
   
5,838
 
Total assets
 
$
626,093
 
$
494,775
 
               
LIABILITIES AND SHAREHOLDER'S DEFICIT
             
Current liabilities:
             
Current maturities of long-term debt
 
$
113,587
 
$
114,947
 
Accounts payable
   
158,154
   
92,275
 
Accrued liabilities
   
106,749
   
87,060
 
Total current liabilities
   
378,490
   
294,282
 
               
Long-term debt, less current maturities
   
262,639
   
271,566
 
Other noncurrent liabilities
   
66,877
   
68,337
 
Total liabilities
   
708,006
   
634,185
 
               
Series A redeemable preferred stock, $1,000 par value per share, 5,000 shares
             
authorized; 2,849 shares issued and outstanding as of April 30, 2006 and
             
October 31, 2005, liquidation and redemption value
   
30,276
   
28,495
 
               
Shareholder's deficit:
             
Common stock, $.10 par value per share, 1,667 shares authorized;
             
1,000 shares issued and outstanding
   
-
   
-
 
Accumulated deficit
   
(65,644
)
 
(123,141
)
Accumulated preferred stock dividends in excess of paid in capital
   
(5,038
)
 
(3,257
)
Accumulated other comprehensive losses
   
(41,507
)
 
(41,507
)
Total shareholder's deficit
   
(112,189
)
 
(167,905
)
Total liabilities and shareholder's deficit
 
$
626,093
 
$
494,775
 
 
The accompanying notes are an integral part of these condensed consolidated financial statements.





THE DOE RUN RESOURCES CORPORATION
 
Condensed Consolidated Statements of Operations (unaudited)
 
(Dollars in thousands)
 
   
Three Months Ended
April 30, 
 
Six Months Ended
April 30,
 
   
   
   
2006
 
2005
 
2006
 
2005
 
                   
Net sales
 
$
380,221
 
$
247,716
 
$
694,345
 
$
483,698
 
                           
Costs and expenses:
                         
Cost of sales
   
306,960
   
219,328
   
570,347
   
417,331
 
Depreciation, depletion and amortization
   
7,015
   
5,764
   
13,128
   
11,901
 
Selling, general and administrative
   
15,461
   
11,759
   
28,568
   
22,686
 
Unrealized gain on derivative financial instruments
   
(2,301
)
 
(463
)
 
(4,256
)
 
(1,261
)
Other
   
1,808
   
1,321
   
3,115
   
3,158
 
Total costs and expenses
   
328,943
   
237,790
   
610,902
   
453,815
 
                           
Income from operations
   
51,278
   
10,007
   
83,443
   
29,883
 
                           
Other income (expense):
                         
Interest expense, net
   
(988
)
 
(3,314
)
 
(3,725
)
 
(6,755
)
Other, net
   
579
   
(27
)
 
485
   
225
 
     
(409
)
 
(3,341
)
 
(3,240
)
 
(6,530
)
                           
Income before income tax expense
   
50,869
   
6,666
   
80,203
   
23,353
 
                           
Income tax expense
   
3,428
   
-
   
5,270
   
-
 
                           
Net income
 
$
47,441
 
$
6,666
 
$
74,933
 
$
23,353
 
Preferred stock dividends
   
(891
)
 
(791
)
 
(1,781
)
 
(1,583
)
Net income allocable to common shares
 
$
46,550
 
$
5,875
 
$
73,152
 
$
21,770
 
                           
Total comprehensive income
 
$
46,550
 
$
6,696
 
$
73,152
 
$
23,487
 
                           
The accompanying notes are an integral part of these condensed consolidated financial statements.





THE DOE RUN RESOURCES CORPORATION
 
Condensed Consolidated Statements of Cash Flows (unaudited)
 
(Dollars in thousands)
 
   
Six Months Ended
 
   
April 30,
 
   
2006
 
2005
 
Cash flows from operating activities:
         
Net income
 
$
74,933
 
$
23,353
 
Adjustments to reconcile net income to net cash
             
provided by operating activities:
             
Depreciation, depletion and amortization
   
13,128
   
11,901
 
Imputed interest and amortization of deferred financing costs
   
307
   
346
 
Unrealized gain on derivative financial instruments
   
(4,256
)
 
(1,261
)
Losses from impairment and disposal of long-lived assets
   
793
   
1,989
 
Increase (decrease) resulting from changes in:
             
Trade receivables
   
(50,008
)
 
(10,130
)
Inventories
   
(61,862
)
 
(21,704
)
Prepaid expenses and other current assets
   
(6,381
)
 
5,070
 
Accounts payable
   
65,879
   
19,236
 
Accrued liabilities
   
8,840
   
(565
)
Other noncurrent assets and liabilities, net
   
(4,022
)
 
(1,033
)
Net cash provided by operating activities
   
37,351
   
27,202
 
               
Cash flows from investing activities:
             
Purchases of property, plant and equipment
   
(23,131
)
 
(26,614
)
Net proceeds from sale of investments
   
-
   
333
 
Net cash used in investing activities
   
(23,131
)
 
(26,281
)
               
Cash flows from financing activities:
             
Proceeds from revolving loans
             
and short-term borrowings, net
   
455
   
5,335
 
Proceeds from long-term debt
   
10,000
   
-
 
Payments on long-term debt
   
(20,990
)
 
(14,638
)
Payments of financing costs
   
(925
)
 
-
 
Payments of tax dividends
   
(2,333
)
 
(310
)
Net cash used in financing activities
   
(13,793
)
 
(9,613
)
               
Net increase (decrease) in cash
   
427
   
(8,692
)
               
Cash at beginning of period
   
23,486
   
20,318
 
Cash at end of period
 
$
23,913
 
$
11,626
 
               
The accompanying notes are an integral part of these condensed consolidated financial statements.
 

 


THE DOE RUN RESOURCES CORPORATION

Notes to Condensed Consolidated Financial Statements
(Dollars in thousands)

(1) Summary of Significant Accounting Policies

Unaudited Interim Financial Statements

These interim consolidated financial statements include the accounts of The Doe Run Resources Corporation (“Doe Run”) and its subsidiaries, including Doe Run Peru S.R.L. (“Doe Run Peru”, and together with Doe Run on a consolidated basis, the “ Company”). Doe Run’s issued and outstanding common stock is owned by a subsidiary of The Renco Group, Inc. (“Renco”). In the opinion of management, the interim consolidated financial statements contain all adjustments, consisting of normal recurring accruals, necessary to present fairly the consolidated financial position as of April 30, 2006 and the results of operations for the three and six-month periods ended April 30, 2006 and 2005. Interim periods are not necessarily indicative of results to be expected for the year.

Reclassifications

Certain prior period balances have been reclassified in order to conform to the current presentation.

(2) Financial Condition

The Company is highly leveraged and has significant commitments both in the U.S. and Peru for environmental matters and for Environmental Remediation and Management Program (“PAMA”) expenditures, including the financial guarantees, that require it to dedicate a substantial portion of cash flow from operations to the payment of these obligations, which will reduce funds available for other business purposes (see Note 7: Asset Retirement and Environmental Obligations). These factors also increase the Company’s vulnerability to general adverse conditions, limit the Company’s flexibility in planning for, or reacting to, changes in its business and industry, and limit the Company’s ability to obtain financing required to fund working capital and capital expenditures and for other general corporate purposes. An unfavorable outcome to certain contingencies, discussed below, would have a further adverse effect on the Company’s ability to meet its obligations when due. The Company’s ability to meet these obligations is also dependent upon future operating performance and financial results which are subject to financial, economic, political, competitive and other factors affecting Doe Run, many of which are beyond the Company’s control.

Metal prices have risen dramatically over the past two fiscal years. Lead prices increased from a London Metal Exchange (“LME”) settlement monthly average of $911.40 per short metal ton in October 2005 to $1,061.80 per short metal ton in April 2006. The Company has benefited from this price increase in both its lead metal and lead concentrate sales.

The consolidated financial statements have been prepared assuming the Company will continue as a going concern. Doe Run Peru however has significant capital requirements under environmental commitments and substantial contingencies related to Peruvian taxes and has significant debt service obligations, each of which, if not satisfied, could result in a default under the Company’s credit agreements and collectively raise substantial doubt about the Company’s ability to continue as a going concern. Management believes that the price improvements seen through fiscal year 2005 and in the first two quarters of fiscal year 2006, the potential revenues and cash flow enhancements from the Company’s new ferrite project in Peru and the approval by the Peruvian government of the application to extend the PAMA requirement for the construction of the sulfuric acid plants, will enable the Company to continue as a going concern. However, there can be no assurance that these actions will achieve the desired results.

Net unused availability at April 30, 2006 under the Doe Run Revolving Credit Facility was $34,689. Net unused availability at April 30, 2006 under the Doe Run Peru Revolving Credit Facility was approximately $200. In addition to the availability under its revolving credit facilities, the cash balance of Doe Run was $1,073 at April 30, 2006. The cash balance of Doe Run Peru was $22,840 at April 30, 2006. Doe Run Peru has reached and maintained its maximum borrowing level under the Doe Run Peru Revolving Credit Facility due in part to the higher metal prices resulting in higher outlays for concentrate purchases and higher VAT payments funded by cash from operations.
 

 

The Doe Run Revolving Credit Facility expires on August 29, 2008. The Doe Run Peru Revolving Credit Facility expires on September 22, 2006 and will require negotiations to extend its terms. There can be no assurance that the Company will be successful in extending the existing credit agreement or negotiating a new credit agreement, or if it is successful, that the extended or new credit agreement would be at terms that are favorable to the Company.

Any default under the requirements of the PAMA could result in a default under the Doe Run Peru Revolving Credit Facility. A default under the requirements of the Doe Run Peru Revolving Credit Facility results in defaults under the Doe Run Revolving Credit Facility and the indenture governing the bonds.

(3) Inventories

Inventories consist of the following:

   
April 30,
 
October 31,
 
   
2006
 
2005
 
           
Finished metals and concentrates
 
$
32,066
 
$
18,461
 
Metals and concentrates in process
   
101,843
   
55,681
 
Materials, supplies and repair parts
   
33,587
   
31,492
 
   
$
167,496
 
$
105,634
 

Materials, supplies and repair parts are stated net of reserves for obsolescence of approximately $4,999 and $5,389 at April 30, 2006 and October 31, 2005, respectively.

(4) Income Taxes

Doe Run Cayman is subject to the regulations of the Cayman Islands, which currently have no corporate income or capital gains tax. Doe Run Cayman’s subsidiaries located in Peru are subject to Peruvian taxation. The statutory income tax rate in Peru is 30%. Doe Run Peru has obtained a ten-year tax stabilization agreement with the Peruvian government, which provides for Peruvian taxation based on tax statutes and regulations prevailing on November 6, 1997, beginning with the Peruvian tax year ending on December 31, 1997 through December 31, 2006.

On December 30, 1997, Doe Run Peru signed a Contract of Guarantees and Measures to Promote Investments (“Contract”) with the government of Peru.  The Contract, which has been modified various times through 2006, committed Doe Run Peru to making certain investments related to the improvements of its facilities in order to receive certain tax benefits.  The Contract provided that if the investments were completed according to the schedule by December 31, 2006, Doe Run Peru would receive an additional tax stability agreement covering the period beginning January 1, 2007 and ending December 31, 2021.  Doe Run Peru will be unable to complete the required investments and, therefore, requested an extension of the time, from the Ministry of Energy and Mines (“MEM”), for these investments that would coincide with the extended period of compliance for the PAMA. MEM denied the request. As a result, Doe Run Peru will not receive the benefits of the additional tax stabilization agreement.

Doe Run Peru has received income tax assessments from Peru’s tax authority (“SUNAT”) for tax years 1998 through 2001. The assessments primarily relate to Doe Run Peru’s income tax treatment of the December 1997 merger of Metaloroya S.A. into Doe Run Peru, which was purchased by Doe Run Peru in October 1997, and its effects on subsequent years’ taxable income. Under the assessment by SUNAT, the tax basis of Doe Run Peru’s fixed assets acquired would decrease, resulting in lower tax depreciation expense than originally claimed. The assessments of years 1999 through 2001 also relate to the disallowance of the deduction of interest paid, the offsetting of losses on derivatives executed in the U.S. and some leaseback and leasing operations. The estimated assessed amount consisting of additional income taxes due, penalties and interest as of April 30, 2006 totals approximately $121,100. The Company estimates that the effect of a similar assessment for tax years after 2001 would be approximately $32,900. Furthermore, Doe Run Peru would also be required to make additional workers’ profit sharing payments equal to 8% of the increase in taxable income generated by the changes discussed above, or approximately $11,300, for calendar years 1998 through 2005.
 

 

Doe Run Peru has also received Value Added Tax (“VAT”) assessments for the tax years 1999 through 2001 and for the period from January through July 2004. The assessments primarily relate to Doe Run Peru’s exports with holding certificates and differences in a tax credit application. The total assessment for these periods, calculated with penalties and interest as of April 30, 2006 was approximately $48,100. SUNAT offset the amount assessed for 2004 of approximately $2,300 against Doe Run Peru’s VAT receivable balance from July of 2004. Future VAT reimbursements cannot be used to offset the assessment by SUNAT. The Company discontinued the use of holding certificates for exports in June of 2004. The Company estimates expected additional assessments related to VAT for tax years 2002 and 2003, calculated with penalties and interest as of April 30, 2006 to total approximately $22,400 in regard to its exports with holding certificates.

Management of the Company believes that in each case Doe Run Peru has followed the applicable Peruvian tax statutes and intends to pursue all available administrative and judicial appeals. Doe Run Peru is not required to make any payments pending the administrative appeal process. If Doe Run Peru is not successful in the administrative appeal processes and were to appeal in the judicial system, some type of financial assurance would be required. No amounts have been accrued as liabilities related to these actions.

For the past several years, Doe Run Peru has generated net losses from operations that according to tax law may be used to offset taxable income in the future. The Company expects to utilize all of Doe Run Peru’s net operating loss carryforwards in the current fiscal year. As a result, Doe Run Peru has recorded $5,270 of income tax expense for the first two quarters of 2006.

Pursuant to the Company’s tax sharing agreement with Renco, a tax dividend is payable to Renco for federal and state income taxes that would be assessed if the Company was a C corporation. Tax dividends payable to Renco of $15,487 and $384 were reflected in the Company’s balance sheets at April 30, 2006 and October 31, 2005, respectively. The dividend payable at October 31, 2005 of $384 was paid in the second quarter of 2006 along with the tax dividend for the first quarter of 2006 of $1,949. The Company paid $12,842 of the dividend payable at April 30, 2006 in the third quarter of 2006 and the remaining $2,645 will be paid during the fourth quarter of 2006.

(5) Employee Benefits

Defined Benefit Plans

Net periodic benefit cost is comprised of the following:

   
Three Months Ended
 
Six Months Ended
 
   
April 30,
 
April 30,
 
   
2006
 
2005
 
2006
 
2005
 
                   
Service cost
 
$
(226
)
$
551
 
$
-
 
$
1,097
 
Interest cost on projected benefit obligation
   
2,577
   
1,670
   
3,412
   
3,325
 
Expected return on assets
   
(2,426
)
 
(1,435
)
 
(3,166
)
 
(2,858
)
Net amortization and deferral of unrecognized net losses
   
142
   
714
   
666
   
1,422
 
Net periodic benefit cost
 
$
67
 
$
1,500
 
$
912
 
$
2,986
 

The Company is required to make total contributions of $10,082 in 2006, of which $4,317 had been paid as of April 30, 2006.
 
 


 
Net Worth Appreciation Agreements

Certain current and former employees are parties to net worth agreements with Doe Run, pursuant to which, upon termination of each person’s employment with Doe Run, they are entitled to receive a fixed percentage of the increase in the net worth of the Company, as defined in such agreement, from a base date until the end of the fiscal quarter preceding the date of his termination or in accordance with the terms of the individual agreements. Such amounts are payable without interest in 40 equal quarterly installments, commencing three months after the termination of each person’s employment or in accordance with the terms of the individual agreements, and at three month intervals thereafter. The net worth appreciation agreements also provide that, in the event of payment of a dividend, other than tax dividends paid in accordance with the Company’s tax sharing agreement, or sale of the Company, the active participants will be entitled to receive a percentage of the dividend or the net proceeds of the sale equal to their maximum percentages under the agreements. The Company recorded $2,503 in expense during the first two quarters of 2006.

(6) Segment Information

The Company’s operating segments are separately managed business units that are distinguished by products, location and production processes. The primary lead segment includes integrated mining, milling and smelting operations located in Missouri. The recycling operation segment, located in Missouri, recycles lead-bearing materials, primarily spent batteries. The fabricated products segment, located in Washington and Arizona, produces value-added lead products. Doe Run Peru produces an extensive product mix of non-ferrous and precious metals.

Operating Segments - Revenues
 
Three Months Ended
April 30,
 
Six Months Ended
April 30,
 
   
2006
 
2005
 
2006
 
2005
 
Revenues from external customers:
                 
Doe Run Peru
 
$
247,673
 
$
158,316
 
$
450,365
 
$
306,701
 
Primary lead
   
101,094
   
65,143
   
183,868
   
129,080
 
Recycling operation
   
22,672
   
22,432
   
46,760
   
40,998
 
Fabricated products
   
4,030
   
3,386
   
7,393
   
7,201
 
Total
   
375,469
   
249,277
   
688,386
   
483,980
 
Revenues from other operating segments: (1)
                         
Doe Run Peru
   
6,091
   
-
   
12,331
   
2,724
 
Primary lead
   
397
   
209
   
1,076
   
711
 
Recycling operation
   
100
   
82
   
182
   
180
 
Total
   
6,588
   
291
   
13,589
   
3,615
 
Total reportable segments
   
382,057
   
249,568
   
701,975
   
487,595
 
Metal sales not attributed to operating segments
   
6,982
   
(1
)
 
12,126
   
2,520
 
Realized losses on derivative contracts
   
(2,230
)
 
(1,560
)
 
(6,167
)
 
(2,802
)
Intersegment eliminations 
   
(6,588
)
 
(291
)
 
(13,589
)
 
(3,615
)
Total revenues
 
$
380,221
 
$
247,716
 
$
694,345
 
$
483,698
 

(1)  
Transactions between segments consist of metal sales recorded based on sales contracts that are negotiated between segments on terms that management feels are similar to those that would be negotiated between unrelated parties.

The measure of segment profit and loss used by the Company is earnings of the segment before interest, taxes, depletion, depreciation and amortization (“EBITDA”), as adjusted to exclude losses from impairment and disposal of long-lived assets and unrealized gains (losses) on derivatives (“Adjusted EBITDA”). Consolidated Adjusted EBITDA also excludes accretion expense under Statement of Financial Accounting Standards No. 143, Asset Retirement Obligations adopted November 1, 2002.
 
 


 
Operating Segments - Adjusted EBITDA
 
Three Months Ended
April 30,
 
Six Months Ended
April 30,
 
   
2006
 
2005
 
2006
 
2005
 
                   
Doe Run Peru
 
$
21,483
 
$
7,238
 
$
33,607
 
$
15,714
 
Primary lead
   
44,797
   
15,168
   
76,493
   
37,686
 
Recycling operation
   
3,328
   
3,957
   
7,507
   
7,629
 
Fabricated products
   
836
   
676
   
1,141
   
1,149
 
Total reportable segments
   
70,444
   
27,039
   
118,748
   
62,178
 
Realized losses on derivatives
   
(2,230
)
 
(1,560
)
 
(6,167
)
 
(2,802
)
Other revenues and expenses (1)
   
(1,229
)
 
(2,084
)
 
(2,191
)
 
(2,793
)
Corporate selling, general and administrative expenses
   
(9,298
)
 
(6,856
)
 
(16,011
)
 
(13,111
)
Intersegment eliminations
   
(44
)
 
(12
)
 
(3
)
 
13
 
Consolidated adjusted EBITDA
   
57,643
   
16,527
   
94,376
   
43,485
 
Depreciation, depletion and amortization
   
(7,015
)
 
(5,764
)
 
(13,128
)
 
(11,901
)
Interest expense, net
   
(988
)
 
(3,314
)
 
(3,725
)
 
(6,755
)
Unrealized gain on derivatives
   
2,301
   
463
   
4,256
   
1,261
 
Losses from impairment and disposal of long-lived assets
   
(668
)
 
(779
)
 
(793
)
 
(1,989
)
Asset retirement obligation accretion expense
   
(404
)
 
(374
)
 
(783
)
 
(748
)
Other
   
-
   
(93
)
 
-
   
-
 
Income before income taxes
 
$
50,869
 
$
6,666
 
$
80,203
 
$
23,353
 

(1)  
Other revenues and expenses consist of the profit on metal sales not attributed to operating segments and expenses not allocated to operating segments, including environmental expenses relating to historic operations of $542 and $803 for the three and six months ended April 30, 2006, respectively and $2,877 for the three and six months ended April 30, 2005.

(7) Asset Retirement and Environmental Obligations

The Company is subject to numerous federal, state, local and other government environmental laws and regulations governing, among other things, air emissions, wastewater discharges, solid and hazardous waste treatment, storage and disposal and remediation of releases of hazardous substances. The Company’s facilities are located on sites that have been used for heavy industrial purposes for decades and may require remediation. The Company has made and intends to continue making the necessary expenditures for environmental remediation and compliance with environmental laws and regulations. Environmental laws and regulations may become more stringent in the future, which could increase costs of compliance.
 
Asset Retirement Obligations
 
Asset retirement obligations (“AROs”) are recognized as liabilities when incurred, with the initial measurement at fair value. These liabilities will be increased to full value over time through charges of accretion to operating expense. In addition, an asset retirement cost is capitalized as part of the related asset’s carrying value and will be depreciated over the asset’s useful life. Changes in the ARO liability resulting from revisions to the timing or the amount of the original estimate of undiscounted cash flows shall be recognized as an increase or a decrease in the carrying amount of the liability for an ARO and the related asset retirement cost capitalized as part of the carrying amount of the related long-lived asset.
 
Doe Run’s mines and related processing facilities are governed by various agencies that have established minimum standards for reclamation. Doe Run’s primary smelter slag produced by and stored at the primary smelter in Herculaneum, Missouri, is currently exempt from hazardous waste regulation under the Resource Conservation and Recovery Act of 1976, as amended (“RCRA”), but is subject to a state closure permit, which requires Doe Run to contain and cover the pile upon cessation of operations. Doe Run’s mining and milling operations are subject to 
 
 

 
Missouri mine waste closure permit requirements and lease agreements that require Doe Run to reclaim surface areas, including remediation of mining waste disposal areas, and to perform closure activities underground. These activities, which tend to be site specific, generally include costs for earthwork, revegetation, water treatment and demolition. Closure activities may be performed over time.
 
Doe Run has a RCRA permit addressing the closure of portions of its recycling operation. The majority of the cost will arise from removing hazardous materials from the facility. No ARO liability or related asset cost has been recorded because the fair value of the obligation cannot be determined due to the indeterminate timing. The cost of closure, based on third party estimates for bonding purposes, is approximately $3,200. The life of the operation is considered indeterminable because there is not currently a cost-effective alternative to the lead acid batteries and because battery manufacturers are required to recycle the batteries.
 
Mine Closure Law No. 28090 (“Law”) became effective in Peru as of October 15, 2005. It applies to smelters and mines. The Law establishes the obligations and procedures that titleholders of mining activities must follow, including a financial guarantee for environmental issues.   Doe Run Peru must submit a mine closure plan to the MEM by August 17, 2006 which must include a description of the remediation measures to be done, along with their cost and timing, and the expected amount of the financial guarantee. Doe Run Peru has hired a technical mining consultant to prepare the mine closure plans for Cobriza and La Oroya to insure that they will comply with the technical and legal requirements. The financial guarantee will not be known until the final mine closure plan is approved therefore, the guarantee is estimated to be established in January of 2007.

Doe Run Peru has AROs at its Cobriza mine related to the costs associated with closing the mine openings and covering acid rock. Doe Run Peru is also responsible for the eventual covering and revegetation of mixed lead and copper slag also stored in Huanchan, an area a short distance from the La Oroya smelter where the slag is currently stored.

The Company’s total recorded liabilities for AROs were approximately $15,945 and $15,188 as of April 30, 2006 and October 31, 2005, respectively.

Environmental Remediation - Domestic Operations

The Company had recorded liabilities of approximately $15,000 and $20,000 related to remediation obligations as of April 30, 2006 and October 31, 2005, respectively.
 
Doe Run is subject to an Administrative Order on Consent (“AOC”) with the U.S. Environmental Protection Agency (“ U.S. EPA”), effective May 29, 2001, to study and address issues related to the slag pile, plant property, community soils adjacent to the primary smelter in Herculaneum, Missouri, elevated blood lead levels in the community and lead releases from the plant. This AOC was modified effective on May 20, 2004 which addressed the technical requirements concerning the slag pile design and construction along with adjustments to the remediation schedule. At April 30, 2006 the estimated remaining cost of remediating the soils of this community was approximately $434.
 
Doe Run signed a settlement agreement with the State of Missouri on April 26, 2002, whereby it agreed to offer to purchase approximately 160 residential properties in an area close to the smelter if the owner requests such an offer. Offers totaling $10,300 have been accepted and closed. The remaining offers have expired except for a few with pending closing dates or special arrangements for a total of $138. The formal program under the agreement is now essentially completed.
 
The Company’s statements of operations reflect losses from impairment or retirement of long-lived assets primarily related to the residential properties owned in Herculaneum, as it is probable that the cost of the properties will not be recovered through future cash flows.
 
Doe Run has received notice that it is a potentially responsible party (“PRP”) subject to liability under The Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended (“CERCLA”), at the following sites: six sites in St. Francois County, Missouri, including the Big River Mine Tailings site, the Bonne Terre site, the Federal site, the National site, the Rivermines site and the Leadwood site; sites comprising areas along roads 
 
 

 
in Iron, Dent and Reynolds counties in Missouri; the Oronogo-Durenweg site in Jasper County, Missouri; the Cherokee County site in Cherokee County, Kansas; the Tar Creek site in Ottawa County, Oklahoma; the Block “P” site in Cascade County and Judith County, Montana; and the Missouri Electric Works site in Cape Girardeau, Missouri. There are two additional sites in St. Francois County for which the U.S. EPA has indicated it will issue notice. CERCLA provides for strict and, in certain circumstances, joint and several liability for response costs and natural resource damages. The Company’s estimate of the cost of the remediation of these sites, including the two additional sites in St. Francois County, is included in the total liability for remediation obligations, which the Company believes is adequate based on its investigations to date. However, depending upon the types of remediation required and certain other factors, additional costs at these sites, individually or collectively, could have a material adverse effect on the results of operations, financial condition and liquidity of the Company.
 
In addition to being asked to conduct remediation at the above sites, the U.S. EPA may also seek reimbursement from Doe Run for response actions it has conducted at these sites. The U.S. Government has advised PRP’s at the Tar Creek site, including Doe Run, that it will seek reimbursement for approximately $125 million of such costs. Given legal issues about Doe Run’s responsibility for activities of a former subsidiary, the fact that the former subsidiary’s activities at the site were localized and small (less than 1% of the waste), and the major involvement at the site of the U.S. Government through the Bureau of Land Management’s and the Bureau of Indian Affairs’ management of mineral leasing at the site, the Company is unable to estimate the expected outcome of any such potential claim.
 
In February 2004 the U.S. Department of Agriculture issued a Unilateral Administrative Order (“UAO”) ordering certain remediation activities by Doe Run at the Block “P” mill site in Montana. Doe Run has requested that other parties be added to the order. Doe Run will seek reimbursement from the U.S. Government and these other parties. The final remediation was essentially completed as of October 31, 2005.
 
Doe Run has completed an Engineering Evaluation/Cost Analysis (“EE/CA”) for the Bonne Terre site and has signed two AOCs to conduct removal actions on the west and east portions of the site. Work is completed on the west Bonne Terre site and is nearly finished on the east site with completion expected in the summer of 2006.
 
Doe Run has completed an EE/CA for the Rivermines site and, while unable to accept certain financial assurance provisions of a proposed AOC, has agreed to conduct a removal action at the site under a UAO. Work has commenced on the removal action. The EPA accelerated the timeframe to complete the majority of the remediation effort by the summer of 2006.
 
Doe Run is subject to an AOC with the U.S. EPA to remediate the Big River Mine Tailings site. The remediation work required by the AOC has been substantially completed and will continue with revegetation and ongoing monitoring and maintenance activities.
 
Doe Run has also signed AOCs to perform an EE/CA on each of the National and Leadwood sites for remediation of mine waste areas. The National EE/CA was completed by the PRPs and was submitted to the U.S. EPA for approval. The U.S. EPA then had two EE/CA’s prepared, the last of which was accepted by them. The cost of their remedy is higher than that estimated by the EE/CA prepared by Doe Run. On July 6, 2006, the U.S. EPA issued a unilateral administrative order to four parties, the generating company and three landowners including Doe Run. Doe Run is negotiating its share with the generating PRP. The Leadwood EE/CA has been modified and submitted to the U.S. EPA for approval and it is contemplated that a unilateral order will be issued during the fiscal year to conduct the work. We would utilize Doe Run’s internal workforce which is about to complete work at Elvins-Rivermines. In addition, Doe Run has signed an AOC with the U.S. EPA to conduct a Remedial Investigation/Feasibility Study (“RI/FS”) to assess potential off-site impacts of these site operations on groundwater, residential soils, several creeks and a river and the need for related remediation. The initial draft of the RI/FS was submitted in early March of 2002. Doe Run signed an order to conduct interim measures, which consisted of blood lead testing of young children, residential soil sampling and limited soil remediation as indicated by the testing and sampling results, which was terminated and replaced by an AOC to conduct certain additional soil remediation in the area and has included its best estimate of these efforts in its recorded liabilities. The Company believes the recorded liabilities related to these sites are adequate. However, should remediation goals or areas change, requiring substantially increased measures, there can be no assurance that the recorded liabilities would be adequate.
 
 

 
In March of 2004, Doe Run received notice that it is a PRP subject to liability under CERCLA for contamination along roads in Iron, Dent and Reynolds counties in Missouri, along with a number of mining companies involved in the transportation of concentrates. After sampling approximately 750 houses by the U.S. EPA and the Missouri Department of Natural Resources, approximately 150 houses were identified as potentially requiring some level of remediation. Doe Run and four other mining companies have signed an AOC to conduct soil remediation at approximately 40 of these houses. The five companies have completed a mediation session concerning the allocation of costs and, subject to resolving certain outstanding issues, expect to modify the agreement between them resolving the allocation of the completed work. They are also expected to sign an agreement to resolve the management and expenditures regarding future work on this project. Also, in regard to potential contamination from transportation activities in and near the City of Viburnum, Doe Run has signed an AOC to conduct sampling and prepare a Preliminary Assessment/Site Inspection report. The draft of that work has been completed and submitted.
 
Doe Run has been advised that the U.S. EPA is considering taking certain response actions at a mine site in Madison County, Missouri known as the Mine LaMotte Site. Doe Run and the owner of the other 50% share of stock in the company that mined the site have signed an AOC to conduct an RI/FS at the site. This site is substantially smaller than the sites in St. Francois County where the Company has been named a PRP, and the potential issues are less complex. Doe Run has also been advised that remediation is required at a related small satellite mine site. After conducting an investigation, Doe Run has determined that it was not involved in operations at the satellite site, but further review will be required before a determination can be made as to whether it has any liability at the main site. At this time, based on preliminary information and an inspection of the sites, management does not believe that any future action will result in a material adverse impact to the results of operations, financial condition or liquidity of the Company.
 
Doe Run’s recycling facility is subject to corrective action requirements under RCRA as a result of a storage permit for certain wastes initially issued in 1989. This will involve remediation of solid waste management units at the site, and it is expected that the plan for corrective action will be approved in fiscal 2006. The Company’s estimate of the cost of this corrective action is $1,000. While management believes that recorded liabilities are adequate based on expectations of the closure plan requirements, regulators could require that additional measures be included in the finalized plan, which could change the estimate of the costs for corrective action.
 
Environmental Remediation - Foreign Operations
 
Doe Run Peru’s La Oroya operations historically and currently exceed some of the applicable maximum permissible limits established by MEM pertaining to air emissions and wastewater effluents quality. Prior to our acquisition of La Oroya, Metaloroya S.A., the former owner, a subsidiary of Empresa Minera del Centro del Peru S.A., which we refer to as Centromin, received approval from the Peruvian Government for a PAMA. The PAMA was designed to achieve compliance with MEM’s air and wastewater limits. It consisted of an environmental impact analysis, monitoring plan and data mitigation measures and a closure plan. The PAMA also set forth the actions and corresponding annual investments a company agrees to undertake in order to achieve compliance with the maximum permissible limits prior to expiration of the PAMA (ten years for smelters, such as Doe Run Peru’s operations in La Oroya, and five years for mining operations, such as Cobriza). The PAMA projects, which are more fully discussed below, were designed to achieve compliance with these requirements.

On December 29, 2004, the Peruvian Government issued a Supreme Decree No. 046-2004-EM (“Supreme Decree”), which recognized that exceptional circumstances may justify an extension of the time to complete one or more projects within the scope of a PAMA. Since Doe Run Peru expected that it would not be able to comply with the spending requirements of La Oroya’s PAMA investment schedule by the end of calendar year 2006 with respect to certain projects, Doe Run Peru applied for an extension on December 20, 2005.

On May 29, 2006, MEM approved the extension of certain PAMA projects through October 31, 2009 (the “Modified PAMA”). Pursuant to the terms of the Modified PAMA, Doe Run Peru is now required to complete the acid plant projects for the lead circuit and the copper circuit by September 30, 2008 and October 31, 2009, respectively and Doe Run Peru remains obligated under the original PAMA to implement the following projects at its La Oroya smelter by December 31, 2006:

 

§  Upgrade the acid plant for the zinc circuit;
§  Construct a treatment plant for the copper refinery effluent;
§  Construct an industrial wastewater treatment plant for the smelter and refinery;
§  Improve the slag handling system;
§  Improve Huanchan lead and copper slag deposits;
§  Construct an arsenic trioxide deposit;
§  Improve the zinc ferrite disposal site;
§  Construct domestic wastewater treatment and domestic waste disposal; and
§  Construct a monitoring station.

The Modified PAMA also requires Doe Run Peru to comply with certain special measures not previously required. These measures include, but are not limited to, implementation of projects to reduce stack and fugitive emissions which are designed to meet certain air quality objectives, a continuing improvement provision that provides for additional pollution controls to address the shortfalls in meeting objectives or to further reduce risks and certain measures regarding protection of public health, including, among others, actions for the reduction of lead in blood levels and special health programs for children and expectant women.

MEM has also required that the cost of a planned replacement of the oxy-fuel reverberatory furnace with a submerged lanced reactor furnace that will reduce gas volume while enriching sulfurous gas feed to the copper circuit sulfuric acid plant be included as part of the cost of the Modified PAMA acid plant projects. The estimated cost of this reactor furnace is $57,000, which brings the total remaining investment needed to build the sulfuric acid plants to approximately $152,590.

Additional PAMA projects required for fiscal year 2006 include an upgrade of the ventilation system in the Sinter plant, completion of the enclosure work around the lead and dross furnace, the enclosure of the anode residue plant along with the elimination of its nitrous gases, and the reduction of fugitive emissions from the copper and lead beds. The total cost of the currently remaining Modified PAMA projects as f April 30, 2006 was approximately $175,000 of which $31,500 remains to be spent in the 2006 calendar year.

Doe Run Peru’s ability to complete the required projects by the specific deadlines depends in large part upon the availability of sufficient funds. Doe Run Peru believes that sufficient funds will be available on a timely basis, but the availability of sufficient funds is largely dependent upon the results of its business operations and the possibility of additional financing; therefore, there can be no assurance that sufficient funds will be available for these projects.

Consistent with the requirements of the Supreme Decree providing for the possibility of PAMA extensions, in addition to other terms and conditions, the Modified PAMA contains two separate financial security arrangements to ensure that Doe Run Peru fulfills its statutory obligation to complete the Modified PAMA projects.

First, Doe Run Peru has established an environmental trust account with Scotiabank Peru into which receipts from sales are required to be remitted directly in an amount to have cash available sufficient to pay the expenditures estimated to be incurred in each subsequent month by Doe Run Peru in complying with the Modified PAMA. Second, Doe Run Peru has provided to MEM a bank letter of guarantee in the amount of $28,641 (an amount estimated to be 20% of the projected cost of the Modified PAMA projects to be spent after 2006). Doe Run Peru deposited such amount with Standard Chartered Bank which has in turn provided for the issuance to MEM of the necessary bank letter of guarantee relying solely upon the funds so deposited. Doe Run Peru has amended the Doe Run Peru Revolving Credit Facility to allow for these arrangements.

Although not contemplated by the Supreme Decree providing for the possibility of PAMA extensions, as a condition of granting the Modified PAMA, MEM has provided that Doe Run Peru could lose the benefit of the extension if Doe Run Peru makes any payments to any shareholder or affiliate, which could affect the full and satisfactory compliance with the Modified PAMA obligations. This provision has not been agreed to by Doe Run or Doe Run Peru but was imposed under applicable law over their objection. Doe Run Peru was required, however, to provide a bank letter of guarantee in the amount of $4,000 which may be drawn upon to fund Modified PAMA projects if Doe Run Peru makes any payments to any shareholder or affiliate. Doe Run Peru satisfied this requirement
 
 

 
by depositing such amount with Standard Chartered Bank which has in turn provided for the issuance to MEM of the necessary bank letter of guarantee relying solely upon the funds so deposited.
Separately, Renco has confirmed to MEM that Renco understands that Doe Run Peru could lose the benefit of the extension if Doe Run Peru makes any payments to any shareholder or affiliate which could affect the full and satisfactory compliance with Doe Run Peru’s Modified PAMA obligations and Renco has stated that Renco has no intention of causing, and will not do anything to cause, Doe Run Peru to make any such payment.

In connection with its negotiations with MEM regarding the Modified PAMA, Doe Run voluntarily agreed to extend the maturity of Doe Run Peru’s $139,063 intercompany note payable to Doe Run until such time as the Modified PAMA has been completed.

No assurance can be given that implementation of the projects under the Modified PAMA is feasible or that their implementation will achieve compliance with the applicable legal requirements by the end of the Modified PAMA period. The Peruvian Government may, in the future, require compliance with additional environmental regulations that could adversely affect Doe Run Peru’s business, financial condition and results of operations, as well as their ability to comply with the Modified PAMA. After expiration of the Modified PAMA, Doe Run Peru must comply with all applicable standards and requirements.

The Cobriza mine has a separate PAMA in which Doe Run Peru committed to complete projects to manage tailings, mine drainage, sewage and garbage. Doe Run Peru completed its own PAMA requirements with respect to Cobriza in June of 2004 and is in compliance with emissions standards required by this PAMA.

In addition to its PAMA obligations, Doe Run Peru is responsible for the remediation costs relating to the zinc ferrite disposal site at La Oroya. The current closure plan provides for encapsulating the ferrite residues in place in Huanchan, an area a short distance from the smelter where they are currently stored, for which an environmental liability of $1,600 has been recorded as of April 30, 2006 and October 31, 2005.

Under the purchase agreement related to the acquisition of the La Oroya assets in October of 1997, Centromin, the prior owner of the La Oroya smelter and Cobriza mine, agreed to indemnify Doe Run Peru against environmental liability arising out of its prior operations and their apportioned share of any complaint related to emissions. Performance of the indemnity has been guaranteed by the Peruvian Government through the enactment of the Supreme Decree No. 042-97-PCM. However, there can be no assurance that Centromin will satisfy its environmental obligation and investment requirements or that the guarantee will be honored. Any failure by Centromin to satisfy its environmental obligations could adversely affect Doe Run Peru’s business, financial condition and results of operations.

Environmental Remediation - Consolidated
 
The Company believes its reserves for domestic and foreign environmental, mine closure and reclamation matters are adequate, based on the information currently available. Depending upon the type and extent of activities required, revisions to management’s estimates of costs to perform these activities are reasonably possible in the near term. Therefore, there can be no assurance that additional costs, both individually and in the aggregate, would not have a material adverse effect on the results of operations, financial condition and liquidity of the Company.
 
(8) Litigation  

Doe Run is a defendant in 29 lawsuits alleging certain damages stemming from the operations at the Herculaneum primary smelter. Three of these cases are class action lawsuits. In two cases, the plaintiffs seek to have certified a class of property owners in a certain section of Herculaneum, alleging that property values have been damaged due to the operations of the smelter. In another case, plaintiffs seek to have certified a class of children who lived in Herculaneum during a period of time when they were less than six years old and children born to mothers who lived in Herculaneum during their pregnancies. The remedy sought is medical monitoring for the class. Twenty-six of the cases are personal injury actions by 161 individuals who allege damages from the effects of lead due to operations at the smelter. Punitive damages also are being sought in each case. Doe Run is also a defendant in a wrongful death action concerning a drowning in the City of Herculaneum.
 
 

 
A resident of Herculaneum has claimed personal injuries allegedly resulting from exposure to emissions from the smelter. No suit has yet been filed in this matter.
 
Doe Run is a defendant in 17 lawsuits alleging certain damages from discontinued mine facilities in St. Francois County. Four of the cases are class action lawsuits. The first case seeks to have certified a class consisting of property owners in Bonne Terre, Missouri, alleging that property values have been damaged due to the tailings from the discontinued operations. In the second case plaintiffs seek to have certified a class of children who lived, went to school or day care in Bonne Terre, or whose mothers lived in Bonne Terre during their pregnancies. The third and fourth cases are class actions for property damage and medical monitoring concerning alleged damages caused by chat, tailings and related operations in six areas in St. Francois County. The remainder of the cases allege personal injury to 28 individuals who were exposed to lead in St. Francois County.
 
Doe Run is a defendant in a lawsuit by the BNSF Railway Company, who has alleged that Doe Run and other companies associated with lead mining operations in Missouri are responsible for property damage at certain rail yards and for contribution and indemnity for costs incurred by BNSF associated with settlement by BNSF of lead exposure cases. Given the early stage of this case, the Company is unable at this time to estimate the expected outcome and any final costs of this action.
 
Doe Run is a defendant in five lawsuits alleging certain damages from past mining operations in Ottawa County, Oklahoma.  Three of these suits are class actions alleging personal injury and property damage in Picher and Quapaw, Oklahoma.  One lawsuit, a consolidation of five suits, alleges injury to seven children living in Picher, Oklahoma.  One lawsuit, a consolidation of two suits, alleges injury to 42 children living in Ottawa County.
 
Doe Run, with several other defendants, has been named in four cases in Maryland but has not yet been joined as a defendant in any of these cases. These suits seek damages, alleging personal injuries as a result of lead poisoning from exposure to lead paint and tetraethyl lead dust. The suits seek punitive damages. Doe Run was dismissed from two similar cases in which it was joined as a defendant. Until Doe Run is actually joined as a defendant in one or more of these cases, material liability from these cases is considered remote.
 
Doe Run is currently a defendant in three asbestos injury suits filed in Madison County, Illinois, each alleging that a worker was exposed to asbestos at the premises of the St. Joe Minerals Corporation. However, Doe Run has not been properly served in one of these cases. Doe Run has reached a tentative settlement in another of these cases prior to going to trial. Doe Run is also a defendant in an asbestos case filed in Lawrence County, Pennsylvania
 
Doe Run is in a commercial dispute with a buyer concerning one ocean shipment of lead concentrates. Buyer is seeking reimbursement of expenses incurred to address a large amount of water that appeared during the voyage on top of concentrates in the forward holds. This contract dispute is in arbitration before the LME.
 
Doe Run is a defendant in a lawsuit by Korea Zinc Co. and affiliates filed on January 19, 2006 in the Circuit Court of St. Louis County, concerning alleged violations of an agreement regarding the sale of zinc concentrates. Doe Run disputes the claim and will seek dismissal because the dispute should be subject to arbitration.
 
Doe Run is a defendant in a lawsuit filed by Nadist, LLC in U.S. District Court for the Eastern District of Missouri on June 23, 2006 concerning the Sweetwater Mine and Mill. The lawsuit purports to constitute a citizen suit alleging violations of certain U.S. environmental laws and includes certain state law allegations.
 
Doe Run has been named as a party in various lawsuits relating to certain operations of its predecessor. Fluor Corporation, the owner of Doe Run’s predecessor, retained the obligation for any costs of defense or claims relating to these lawsuits. Should Fluor Corporation become unable to fulfill its contractual obligation, Doe Run could be liable for any costs or claims resulting from these lawsuits. There is no reason at this time to believe that Fluor Corporation could not fulfill its contractual obligations.
 
 

 
Doe Run Peru is currently a defendant in 207 lawsuits in the Lima, Peru labor courts that allege damage to workers from industrial diseases. Doe Run Peru has made claims in most of the cases against Centromin and has also made claims against both governmental agencies and private companies that provide workers’ insurance. The average claim is $17. Of 19 previously concluded cases in this category, 18 were dismissed and 1 resulted in an award of $9.
 
Doe Run Peru is also currently a defendant in 164 lawsuits by workers alleging that they are owed certain differences in salaries and benefits. The average claim is $20. Of 38 previously concluded cases in this category, 29 were dismissed and 9 resulted in awards totaling $19. Doe Run Peru is also a defendant in a lawsuit by the Yauli-La Oroya Employees Union concerning salaries and benefits. The claims of the 149 workers remaining in the lawsuit have been valued at a total of $218 according to a report by an expert appointed by the court.
 
Doe Run Peru is also currently a defendant in 22 lawsuits alleging various labor claims including indemnification for arbitrary dismissal, nullity of dismissal, moral damage compensation, compensatory damages from work accident and readmission of worker. The average claim is $7. Of 30 previously concluded cases in this category, 26 were dismissed and 4 resulted in awards totaling $21.
 
The amount of awards in the various categories of lawsuits referenced above represented total judgments issued by the relevant courts. For certain of these lawsuits, Centromin will pay a portion of the total award.
 
On January 19, 2005, Doe Run Peru was served with a lawsuit by an association of municipalities of the Junin Region of Peru against Doe Run Peru and two other mining companies. This lawsuit alleges environmental damages to the Mantaro River basin in the amount of $5 billion. On February 2, 2006, Doe Run Peru was served with a lawsuit by the municipality of Jauja. This lawsuit alleges environmental damages to the Mantaro River basin in the amount of $5,000. Material liability to Doe Run Peru, in these two actions, is believed to be remote based on the opinion of management and outside counsel for Doe Run Peru. Any potential judgment would be subject to the indemnification obligations of Centromin, which are guaranteed by the Peruvian government.
 
On December 3, 2003, Doe Run Peru filed an administrative lawsuit against the Yauli - La Oroya Provincial City Hall in order to nullify and void a number of fines for the amount of $2,800. Doe Run Peru was fined for not having construction licenses for the PAMA projects.
 
Since most of the above cases are either in the pleading or discovery stages, the Company is unable at this time to estimate the expected outcome and the final costs, except as noted, of these actions. No amounts have been accrued as liabilities related to these actions. There can be no assurance that these cases would not have a material adverse effect, both individually and in the aggregate, on the results of operations, financial condition and liquidity of the Company. The Company has and will continue to vigorously defend itself against such claims.
 
(9)  Guarantor Subsidiaries

The Guarantor Subsidiaries (Fabricated Products, Inc. (“FPI”) and DR Land Holdings, LLC (together with FPI, the “Domestic Guarantors”) Buick Resource Recycling Facility, LLC, Doe Run Cayman Ltd. (“Doe Run Cayman”) and its subsidiary Doe Run Peru) have jointly and severally, fully, unconditionally and irrevocably guaranteed the 11.75% notes of the Company. Doe Run Cayman has no operations separate from those of Doe Run Peru. Separate financial statements and other disclosures concerning certain Guarantor Subsidiaries and disclosures concerning non-Guarantor Subsidiaries have not been presented because management has determined that such information is not material to investors. Intercompany transactions eliminated in consolidation consist of various service and agency fees between Doe Run and Doe Run Peru and sales of metal to Doe Run by Doe Run Peru and to FPI by Doe Run.
 
 




 
Condensed Consolidating Balance Sheet (unaudited)
 
As of April 30, 2006
 
(Dollars in thousands, except share and per share data)
 
   
The Company
 
Buick
                 
   
Excluding
 
Resource
 
Other
 
Doe Run
         
   
Guarantor
 
Recycling
 
Domestic
 
Cayman and
     
The
 
   
Subsidiaries
 
Facility, LLC
 
Guarantors
 
Subsidiary
 
Eliminations
 
Company
 
   
ASSETS
 
Current assets:
                         
Cash
 
$
1,072
 
$
-
 
$
1
 
$
22,840
 
$
-
 
$
23,913
 
Trade accounts receivable, net of allowance for
                                     
doubtful accounts
   
84,869
   
-
   
2,565
   
55,677
   
(7,363
)
 
135,748
 
Inventories
   
42,495
   
-
   
1,605
   
123,436
   
(40
)
 
167,496
 
Prepaid expenses and other current assets
   
4,776
   
-
   
40
   
22,772
   
-
   
27,588
 
Due from subsidiaries/parent
   
9,023
   
2,512
   
-
   
-
   
(11,535
)
 
-
 
Total current assets
   
142,235
   
2,512
   
4,211
   
224,725
   
(18,938
)
 
354,745
 
                                       
Property, plant and equipment, net
   
75,477
   
14,720
   
805
   
171,713
   
-
   
262,715
 
Due from subsidiaries
   
156,753
   
-
   
-
   
-
   
(156,753
)
 
-
 
Other noncurrent assets, net
   
8,300
   
-
   
63
   
270
   
-
   
8,633
 
Investment in subsidiaries
   
27,984
   
-
   
-
   
-
   
(27,984
)
 
-
 
Total assets
 
$
410,749
 
$
17,232
 
$
5,079
 
$
396,708
 
$
(203,675
)
$
626,093
 
 
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
                                     
                                       
Current maturities of long-term debt
 
$
67,581
 
$
-
 
$
-
 
$
46,006
 
$
-
 
$
113,587
 
Accounts payable
   
31,864
   
-
   
434
   
133,219
   
(7,363
)
 
158,154
 
Accrued liabilities
   
68,587
   
-
   
604
   
37,558
   
-
   
106,749
 
Due to parent/subsidiaries
   
2,512
   
-
   
9,023
   
-
   
(11,535
)
 
-
 
Total current liabilities
   
170,544
   
-
   
10,061
   
216,783
   
(18,898
)
 
378,490
 
                                       
Long-term debt, less current maturities
   
258,704
   
-
   
-
   
3,935
   
-
   
262,639
 
Due to parent
   
-
   
-
   
-
   
156,753
   
(156,753
)
 
-
 
Other noncurrent liabilities
   
63,414
   
-
   
3
   
3,460
   
-
   
66,877
 
Total liabilities
   
492,662
   
-
   
10,064
   
380,931
   
(175,651
)
 
708,006
 
                                       
Series A redeemable preferred stock
   
30,276
   
-
   
-
   
-
   
-
   
30,276
 
                                       
Shareholders' equity (deficit):
                                     
Common stock, $.10 par value, 1,667 shares authorized,
                                     
1000 shares issued and outstanding
   
-
   
-
   
-
   
-
   
-
   
-
 
Common stock, $1 par value, 1,000 shares authorized,
                                     
issued and outstanding
   
-
   
-
   
1
   
-
   
(1
)
 
-
 
Common stock, $1 par value, 2,005,000 shares authorized,
                                     
issued and outstanding
   
-
   
-
   
-
   
2,005
   
(2,005
)
 
-
 
Additional paid in capital
   
-
   
23,305
   
1,205
   
-
   
(24,510
)
 
-
 
Accumulated preferred stock dividends in excess
               
-
         
-
   
-
 
of paid in capital
   
(5,038
)
 
-
   
-
   
-
   
-
   
(5,038
)
Retained earnings (accumulated deficit) and accumulated
                                     
other comprehensive losses
   
(107,151
)
 
(6,073
)
 
(6,191
)
 
13,772
   
(1,508
)
 
(107,151
)
Total shareholders' equity (deficit)
   
(112,189
)
 
17,232
   
(4,985
)
 
15,777
   
(28,024
)
 
(112,189
)
Total liabilities and shareholders' equity (deficit)
 
$
410,749
 
$
17,232
 
$
5,079
 
$
396,708
 
$
(203,675
)
$
626,093
 
 

 



 
Condensed Consolidating Balance Sheet
 
As of October 31, 2005
 
(Dollars in thousands, except share and per share data)
 
   
The Company
 
Buick
                 
   
Excluding
 
Resource
 
Other
 
Doe Run
         
   
Guarantor
 
Recycling
 
Domestic
 
Cayman and
     
The
 
   
Subsidiaries
 
Facility, LLC
 
Guarantors
 
Subsidiary
 
Eliminations
 
Company
 
   
ASSETS
 
Current assets:
                         
Cash
 
$
8,916
 
$
-
 
$
1
 
$
14,569
 
$
-
 
$
23,486
 
Trade accounts receivable, net of allowance for doubtful accounts
   
56,454
   
-
   
2,202
   
31,637
   
(4,553
)
 
85,740
 
Inventories
   
35,613
   
-
   
1,301
   
68,756
   
(36
)
 
105,634
 
Prepaid expenses and other current assets
   
4,564
   
-
   
59
   
16,191
   
-
   
20,814
 
Due from subsidiaries
   
151,617
   
2,037
   
-
   
-
   
(153,654
)
 
-
 
Total current assets
   
257,164
   
2,037
   
3,563
   
131,153
   
(158,243
)
 
235,674
 
                                       
Property, plant and equipment, net
   
74,604
   
16,083
   
1,013
   
161,563
   
-
   
253,263
 
Due from subsidiaries
   
14,057
   
-
   
-
   
-
   
(14,057
)
 
-
 
Other noncurrent assets, net
   
5,775
   
-
   
63
   
-
   
-
   
5,838
 
Investment in subsidiaries
   
6,708
   
-
   
-
   
-
   
(6,708
)
 
-
 
Total assets
 
$
358,308
 
$
18,120
 
$
4,639
 
$
292,716
 
$
(179,008
)
$
494,775
 
 
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
                                     
Current maturities of long-term debt
 
$
75,126
 
$
-
   
-
 
$
39,821
 
$
-
 
$
114,947
 
Accounts payable
   
29,007
   
-
   
706
   
67,115
   
(4,553
)
 
92,275
 
Accrued liabilities
   
55,392
   
-
   
468
   
31,200
   
-
   
87,060
 
Due to parent/subsidiaries
   
2,037
   
-
   
8,554
   
143,063
   
(153,654
)
 
-
 
Total current liabilities
   
161,562
   
-
   
9,728
   
281,199
   
(158,207
)
 
294,282
 
                                       
Long-term debt, less current maturities
   
271,566
   
-
   
-
   
-
   
-
   
271,566
 
Due to parent
   
-
   
-
   
-
   
14,057
   
(14,057
)
 
-
 
Other noncurrent liabilities
   
64,590
   
-
   
281
   
3,466
   
-
   
68,337
 
Total liabilities
   
497,718
   
-
   
10,009
   
298,722
   
(172,264
)
 
634,185
 
                                       
Series A redeemable preferred stock
   
28,495
   
-
   
-
   
-
   
-
   
28,495
 
                                       
Shareholders' equity (deficit):
                                     
Common stock, $.10 par value, 1,667 shares authorized,
                                     
1,000 shares issued and outstanding
   
-
   
-
   
-
   
-
   
-
   
-
 
Common stock, $1 par value, 1,000 shares authorized,
                                     
issued and outstanding
   
-
   
-
   
1
   
-
   
(1
)
 
-
 
Common stock, $1 par value, 2,005,000 shares authorized,
                                     
issued and outstanding
   
-
   
-
   
-
   
2,005
   
(2,005
)
 
-
 
Additional paid in capital
   
-
   
23,305
   
1,205
   
-
   
(24,510
)
 
-
 
Accumulated preferred stock dividends in excess
                                     
of paid in capital
   
(3,257
)
 
-
   
-
   
-
   
-
   
(3,257
)
Accumulated deficit and accumulated other
                                     
comprehensive losses
   
(164,648
)
 
(5,185
)
 
(6,576
)
 
(8,011
)
 
19,772
   
(164,648
)
Total shareholders' equity (deficit)
   
(167,905
)
 
18,120
   
(5,370
)
 
(6,006
)
 
(6,744
)
 
(167,905
)
Total liabilities and shareholders' equity (deficit)
 
$
358,308
 
$
18,120
 
$
4,639
 
$
292,716
 
$
(179,008
)
$
494,775
 

 



 
Condensed Consolidating Statement of Operations (unaudited)
 
Six Months Ended April 30, 2006
 
(Dollars in thousands)
 
   
The Company
 
Buick
                 
   
Excluding
 
Resource
     
Doe Run
         
   
Guarantor
 
Recycling
 
Domestic
 
Cayman and
     
The
 
   
Subsidiaries
 
Facility, LLC
 
Guarantors
 
Subsidiary
 
Eliminations
 
Company
 
                           
Net sales
 
$
237,845
 
$
-
 
$
7,393
 
$
462,696
 
$
(13,589
)
$
694,345
 
                                       
Costs and expenses:
                                     
Cost of sales
   
161,435
   
-
   
5,248
   
417,249
   
(13,585
)
 
570,347
 
Depletion, depreciation and amortization
   
4,771
   
1,364
   
219
   
6,774
   
-
   
13,128
 
Selling, general and administrative
   
15,425
   
-
   
1,327
   
11,816
   
-
   
28,568
 
Unrealized gain on derivative financial instruments
   
(1,963
)
 
-
   
-
   
(2,293
)
 
-
   
(4,256
)
Other
   
2,028
   
-
   
-
   
1,087
   
-
   
3,115
 
Total costs and expenses
   
181,696
   
1,364
   
6,794
   
434,633
   
(13,585
)
 
610,902
 
                                       
Income (loss) from operations
   
56,149
   
(1,364
)
 
599
   
28,063
   
(4
)
 
83,443
 
                                       
Other income (expense):
                                     
Interest expense, net
   
(2,004
)
 
-
   
(217
)
 
(1,504
)
 
-
   
(3,725
)
Other, net
   
(487
)
 
475
   
3
   
494
   
-
   
485
 
Equity in earnings of subsidiaries
   
21,275
   
-
   
-
   
-
   
(21,275
)
 
-
 
     
18,784
   
475
   
(214
)
 
(1,010
)
 
(21,275
)
 
(3,240
)
                                       
Income (loss) before income tax expense
   
74,933
   
(889
)
 
385
   
27,053
   
(21,279
)
 
80,203
 
                                       
Income tax expense
   
-
   
-
   
-
   
5,270
   
-
   
5,270
 
Net income (loss)
   
74,933
   
(889
)
 
385
   
21,783
   
(21,279
)
 
74,933
 
Preferred stock dividends
   
(1,781
)
 
-
   
-
   
-
   
-
   
(1,781
)
Net income (loss) allocable to common shares
 
$
73,152
 
$
(889
)
$
385
 
$
21,783
 
$
(21,279
)
$
73,152
 

 




 
Condensed Consolidating Statement of Operations (unaudited)
 
Three Months Ended April 30, 2006
 
(Dollars in thousands)
 
   
The Company
 
Buick
                 
   
Excluding
 
Resource
     
Doe Run
         
   
Guarantor
 
Recycling
 
Domestic
 
Cayman and
     
The
 
   
Subsidiaries
 
Facility, LLC
 
Guarantors
 
Subsidiary
 
Eliminations
 
Company
 
                           
Net sales
 
$
129,015
 
$
-
 
$
4,030
 
$
253,764
 
$
(6,588
)
$
380,221
 
                                       
Costs and expenses:
                                     
Cost of sales
   
83,981
   
-
   
2,707
   
226,815
   
(6,543
)
 
306,960
 
Depletion, depreciation and amortization
   
2,447
   
684
   
109
   
3,775
   
-
   
7,015
 
Selling, general and administrative
   
8,958
   
-
   
671
   
5,832
   
-
   
15,461
 
Unrealized gain on derivative financial instruments
   
(2,278
)
 
-
   
-
   
(23
)
 
-
   
(2,301
)
Other
   
1,011
   
-
   
-
   
797
   
-
   
1,808
 
Total costs and expenses
   
94,119
   
684
   
3,487
   
237,196
   
(6,543
)
 
328,943
 
 
                                     
Income (loss) from operations
   
34,896
   
(684
)
 
543
   
16,568
   
(45
)
 
51,278
 
                                       
Other income (expense):
                                     
Interest expense, net
   
(851
)
 
-
   
(101
)
 
(36
)
 
-
   
(988
)
Other, net
   
(246
)
 
230
   
1
   
594
   
-
   
579
 
Equity in earnings of subsidiaries
   
13,642
   
-
   
-
   
-
   
(13,642
)
 
-
 
     
12,545
   
230
   
(100
)
 
558
   
(13,642
)
 
(409
)
                                       
Income (loss) before income tax expense
   
47,441
   
(454
)
 
443
   
17,126
   
(13,687
)
 
50,869
 
                                       
Income tax expense
   
-
   
-
   
-
   
3,428
   
-
   
3,428
 
Net income (loss)
   
47,441
   
(454
)
 
443
   
13,698
   
(13,687
)
 
47,441
 
Preferred stock dividends
   
(891
)
 
-
   
-
   
-
   
-
   
(891
)
Net income (loss) allocable to common shares
 
$
46,550
 
$
(454
)
$
443
 
$
13,698
 
$
(13,687
)
$
46,550