-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, D6SMlV45znZjfzpI6C4uxmaDdzeqnuIBKqS9aWaQ9RGurWRlna1VndTpk/9QFqMP 870RL2ZYTv0Quh02fFjWUw== 0000007649-96-000014.txt : 19961118 0000007649-96-000014.hdr.sgml : 19961118 ACCESSION NUMBER: 0000007649-96-000014 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961114 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SOUTHERN PERU COPPER CORP/ CENTRAL INDEX KEY: 0001001838 STANDARD INDUSTRIAL CLASSIFICATION: METAL MINING [1000] IRS NUMBER: 133849074 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-14066 FILM NUMBER: 96664242 BUSINESS ADDRESS: STREET 1: 180 MAIDEN LANE CITY: NEW YORK STATE: NY ZIP: 10038 BUSINESS PHONE: 2125102000 MAIL ADDRESS: STREET 1: 180 MAIDEN LANE STREET 2: 180 MAIDEN LANE CITY: NEW YORK STATE: NY ZIP: 10038 FORMER COMPANY: FORMER CONFORMED NAME: SOUTHERN PERU COPPER HOLDING CO DATE OF NAME CHANGE: 19951006 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 1996 Third Quarter FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarter Ended September 30, 1996 Commission file number 1-14066 ------------------ ------- SOUTHERN PERU COPPER CORPORATION (formerly known as Southern Peru Copper Holding Company) (Exact name of registrant as specified in its charter) Delaware 13-3849074 (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 September 30, 1996 there were outstanding 13,633,474 shares of Southern Peru Copper Corporation common stock, par value $0.01 per share. There were also outstanding 66,550,833 shares of Southern Peru Copper Corporation class A common stock, par value $0.01 per share. SOUTHERN PERU COPPER CORPORATION AND SUBSIDIARIES INDEX TO FORM 10-Q
Page No. Part I. Financial Information: Item 1. Financial Statements (unaudited) Consolidated Statement of Earnings Three Months and Nine Months Ended September 30, 1996 and 1995 2 Consolidated Balance Sheet September 30, 1996 and December 31, 1995 3 Consolidated Statement of Cash Flows Three Months and Nine Months Ended September 30, 1996 and 1995 4 Notes to Consolidated Financial Statements 5-8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9-13 Report of Independent Accountants 14 Part II. Other Information: Signatures 15 Exhibit I - Independent Accountants' Awareness Letter
1 Southern Peru Copper Corporation and Subsidiaries CONSOLIDATED STATEMENT OF EARNINGS (unaudited)
3 Months Ended 9 Months Ended September 30, September 30, 1996 1995 1996 1995 ---- ---- ---- ---- (in thousands, except per share amounts) Net sales: Stockholders and affiliates $ 18,446 $ 26,050 $ 49,694 $ 57,864 Others 162,054 244,525 500,383 629,626 -------- -------- -------- -------- Total net sales 180,500 270,575 550,077 687,490 -------- -------- -------- -------- Operating costs and expenses: Cost of sales 99,868 130,375 276,723 332,330 Administrative and other expenses 11,622 12,228 35,876 38,321 Depreciation, amortization and depletion 10,634 5,888 31,304 27,361 Provision for workers' participation 3,480 9,162 13,925 23,080 Exploration expense 832 279 1,979 1,193 --------- --------- --------- --------- Total operating costs and expenses 126,436 157,932 359,807 422,285 --------- --------- --------- --------- Operating income 54,064 112,643 190,270 265,205 Interest income 3,999 2,626 15,069 8,636 Other income 3,003 1,262 7,858 6,894 Interest expense (3,248) (4,732) (9,585) (10,520) --------- --------- --------- --------- Earnings before taxes on income and minority interest of labor shares 57,818 111,799 203,612 270,215 Taxes on income 19,085 36,915 67,178 89,224 --------- --------- --------- --------- Earnings before minority interest 38,733 74,884 136,434 180,991 of labor shares Minority interest of labor shares 853 12,741 4,217 31,624 --------- --------- --------- --------- Net earnings $ 37,880 $ 62,143 $ 132,217 $ 149,367 ========= ========= ========= ========= Per common share amounts: Net earnings (a) $ 0.47 $ 0.95 $ 1.65 $ 2.27 Dividends paid $ 0.28 $ 0.33 $ 1.23 $ 0.85 Weighted average number of shares outstanding 80,184 65,717 80,198 65,717
(a) The effect on the net earnings per common share of the Company's Common Stock equivalents (shares under option) was insignificant. The accompanying notes are an integral part of these financial statements. 2 Southern Peru Copper Corporation and Subsidiaries CONSOLIDATED BALANCE SHEET (unaudited)
September 30, December 31, 1996 1995 (in thousands) ASSETS Current assets: Cash and cash equivalents $ 217,618 $ 219,646 Marketable securities 1,000 42,453 Accounts receivable: Trade: Stockholders and affiliates 4,863 8,732 Other trade 58,274 80,100 Other 13,742 11,631 Inventories 108,206 103,635 Other current assets 16,124 16,648 ---------- ---------- Total current assets 419,827 482,845 Property 1,714,569 1,630,517 Accumulated depreciation, amortization and depletion (870,360) (851,149) Other assets 20,775 9,488 ---------- ---------- Total Assets $1,284,811 $1,271,701 ========== ========== LIABILITIES Current liabilities: Current portion of long-term debt $ 27,017 $ 17,034 Accounts payable - trade 29,988 32,889 Accounts payable - other 7,406 8,056 Accrued liabilities 61,802 112,390 ---------- ---------- Total current liabilities 126,213 170,369 ---------- ---------- Long-term debt 99,527 76,828 Accrued severance pay 4,572 6,354 Deferred income taxes 45,720 39,677 ---------- ---------- Total non-current liabilities 149,819 122,859 ---------- ---------- Minority interest of labor shares 22,792 24,986 ---------- ---------- STOCKHOLDERS' EQUITY Common stock, par value $0.01(a) 137 115 Class A common stock, par value $0.01(b) 666 688 Additional paid-in capital 265,745 265,738 Retained earnings 720,222 686,946 Treasury stock at cost, 47 common shares (783) - ---------- ---------- Total stockholders' equity 985,987 953,487 ---------- ---------- Total Liabilities, Minority Interest and Stockholders' Equity $1,284,811 $1,271,701 ========== ==========
Authorized Outstanding (a) Common shares 31,249 13,633 11,480 (b) Class A common shares 68,751 66,551 68,751
The accompanying notes are an integral part of these financial statements. 3 Southern Peru Copper Corporation and Subsidiaries CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited)
3 Months Ended 9 Months Ended September 30, September 30, 1996 1995 1996 1995 ---- ---- ---- ---- (in thousands) OPERATING ACTIVITIES Net earnings $37,880 $62,143 $132,217 $149,367 Adjustments to reconcile net earnings to net cash provided from operating activities: Depreciation, amortization and depletion 10,634 5,888 31,304 27,361 Deferred income taxes 4,567 1,146 6,783 1,552 Minority interest of labor shares, net of distributions 40 12,741 701 31,624 (Gains) losses from sales and dispositions of assets (1) 133 285 (1,158) Cash provided from (used for) operating assets and liabilities: Accounts receivable (14,294) (41,185) 23,341 (10,501) Inventories 259 29,349 (4,571) 12,290 Accounts payable and accrued liabilities 12,194 13,259 (40,704) 1,064 Other operating liabilities and reserves 10,782 7,387 (10,159) 8,549 Other operating assets (5,838) 5,110 (1,970) 2,751 Foreign currency translation gain (1,748) (156) (4,176) (1,565) ------ -------- ------- ------- Net cash provided from operating activities 54,475 95,815 133,051 221,334 ------ -------- ------- ------- INVESTING ACTIVITIES Capital expenditures (42,260) (51,732) (94,191) (159,475) Purchase of held to maturity investments (1,000) - (1,000) (33,880) Transfer of cash from restricted account - 917 - 60,450 Proceeds from maturity of investments - 16,927 42,453 76,877 Proceeds from the sale of investments - - - 856 Other net - - - 1,195 ------- -------- ------- ------- Net cash used for investing activities (43,260) (33,888) (52,738) (53,977) ------- -------- ------- ------- FINANCING ACTIVITIES Dividends paid (22,465) (21,435) (98,669) (55,747) Proceeds from borrowings - 47,000 47,000 62,000 Repayment of borrowings (5,789) (77,573) (14,320) (78,677) Escrow deposits on long-term loans 87 11,550 (10,065) 11,550 Proceeds from labor share subscription - - - 10,944 Treasury stock and labor share purchases (3,417) - (7,253) - ------- -------- ------- ------- Net cash used for financing activities (31,584) (40,458) (83,307) (49,930) ------- -------- ------- ------- Effect of exchange rate changes on cash 250 (622) 966 (1,030) ------- ------- ------ ------- Increase (decrease) in cash and cash equivalents (20,119) 20,847 (2,028) 116,397 Cash and cash equivalents, beginning of period 237,737 188,886 219,646 93,336 -------- -------- -------- -------- Cash and cash equivalents, end of period $217,618 $209,733 $217,618 $209,733 ======== ======== ======== ========
The accompanying notes are an integral part of these financial statements. 4 SOUTHERN PERU COPPER CORPORATION and SUBSIDIARIES NOTES to CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 1. Interim Financial Statements: In the opinion of the Company, the accompanying consolidated financial statements contain all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the Company's financial position as of September 30, 1996 and the results of operations and cash flows for the three and nine months ended September 30, 1996 and 1995. This financial data has been subjected to a limited review by Coopers & Lybrand L.L.P., the Company's independent accountants. The results of operations for the nine month period are not necessarily indicative of the results to be expected for the full year. The accompanying consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's 1995 annual report on Form 10-K. 2. Inventories:
Inventories consists of: September 30, December 31, 1996 1995 (in millions) Metals: Finished goods $ 1.6 $ 2.0 Work-in-process 36.0 33.1 Supplies, net of reserves 70.6 68.5 ------ ------- Total inventories $108.2 $103.6 ====== ======
3. Metal Hedging and Trading Activity: Hedging: Depending on the market fundamentals of a metal and other conditions, the Company may purchase put options to reduce or eliminate the risk of metal price declines below the option strike price on its anticipated future production. Put options purchased by the Company establish a minimum sales price for the production covered by such put options and permit the Company to participate in price increases above the option price. Depending upon market conditions the Company may either sell put options it holds or exercise the options at maturity. Gains or losses, net of unamortized acquisition costs, are recognized in the period in which the underlying hedged production is sold. Third quarter results include a pre-tax gain of $4.4 million from the sale or exercise of copper put options held by the Company with respect to copper sales in the period. Results for the nine months include a pre-tax gain of $5.2 million from the sale or exercise of copper put options held by the Company with respect to copper sales in the nine month period. The table below details copper put options purchased and held by the Company at September 30, 1996: Copper Put Options at September 30,1996 (in millions, except per lb. amounts)
Percent of Option Strike Price Unamortized Estimated Lbs. Period Per lb. Cost Sales ---- ------ ------- ---- ----- 38.7 10/96 - 12/96 $ 0.95 $ 0.6 25% 41.3 1/97 - 3/97 $ 0.95 0.4 26% ---- ----- 80.0 $ 1.0 ==== =====
5 In October, SPCC sold or exercised additional copper put options covering 38.7 million pounds of fourth quarter 1996 copper sales with an average strike price of $0.95. The total pre-tax gain from the October option activity was $1.7 million. The Company's pre-tax gain from 1996 copper option sales and exercises through October 31, 1996 is $15.7 million. Of that amount $10.6 million remains to be recognized, $5.9 million in the fourth quarter of 1996 and $4.7 million in the first quarter of 1997. The pre-tax earnings effect, in millions, of the company's copper hedging activities, net of transaction costs, were as follows.
(in millions) Three Months Ended Nine Months Ended September 30, September 30, 1996 1995 1996 1995 ---- ---- ---- ---- Hedging activities $4.4 $(1.1) $4.1 $(1.1)
4. Common Stock: The stockholders of the Company at September 30, 1996 were:
Percent of Total Outstanding Number of Shares Shares Class A Common Shares: ASARCO Incorporated 43,348,949 54.06% Cerro Trading Company, Inc. 12,028,088 15.00 Phelps Dodge Overseas Capital Corporation 11,173,796 13.94 ---------- ------ 66,550,833 83.00% Common Shares 13,633,474 17.00% ---------- ------ 80,184,307 100.00% ========== ======
On October 30, 1996, the Company declared a $0.24 per share dividend payable December 2, 1996 to stockholders of record at the close of business on November 14, 1996. 5. Supplemental disclosures of cash flow information:
(in millions) Three Months Ended Nine Months Ended September 30, September 30, 1996 1995 1996 1995 ---- ---- ---- ---- Cash paid for: Interest expense (net of amount capitalized) $ 2.9 $ 3.1 $ 7.6 $ 10.4 Income taxes (net of refunds) $19.5 $17.4 $105.9 $ 57.4
6. Proforma 1995 earnings information: In November 1995, the Company offered to exchange new common shares for labor shares issued by the Peruvian Branch to workers under prior law in Peru (the Exchange Offer). The labor shares, which are traded on the Lima Stock Exchange, represented a 17.3% interest in the Peruvian Branch, which comprises substantially all of the operations of the Company in Peru. The offer ended on December 29, 1995 with 80.8% of the labor shares tendered. The Company, effectively now owns 97.1% of the Peruvian Branch. 6 The following shows comparative annotated proforma 1995 earnings information as if the Exchange Offer was completed January 1, 1995.
(in millions, except for per share data) Three Months Ended Nine Months Ended September 30,1995 September 30, 1995 Historical Proforma Historical Proforma Net sales $270.6 $270.6 $687.5 $687.5 Earnings before taxes on income and minority interest of labor shares 111.8 111.2(a) 270.2 268.6(a) Taxes on income 36.9 36.7(b) 89.2 88.7(b) Earnings before minority interest of labor shares 74.9 74.5 181.0 179.9 Minority interest of labor shares in Peruvian Branch 12.8 2.2(c) 31.6 5.8(c) Net earnings $62.1 $72.3 $149.4 $174.1 Weighted average number of shares outstanding 65.7 80.2 65.7 80.2 Net earnings per share $0.95 $0.90 $2.27 $2.17 Cash dividend paid per share $0.33 $0.27 $0.85 $0.70
Proforma Effects (a) The market value of the common stock issued for labor shares tendered pursuant to the Exchange Offer was in excess of the book value of the minority interest of such labor shares. This excess was assigned to mineral reserves and mineralized material. Proforma earnings reflect the amortization of the excess based on a ratio of actual copper production in the period to the total copper contained in the mineral reserves and the mineralized material. (b) Reflects the amortization of the deferred income taxes on the excess of the market value of common stock issued for labor shares tendered pursuant to the Exchange Offer over the book value of the minority interest of such labor shares. The amortization of the deferred taxes is calculated on the same basis as described in footnote (a) above. (c) Reflects the reduction of the minority interest of the labor shares tendered pursuant to the Exchange offer. 7. Commitments and contingencies: On February 26, 1993, the Mayor of Tacna brought a lawsuit against Southern Peru Limited (SP Limited), a wholly owned subsidiary of the Company, seeking $100 million in damages from alleged harmful deposition of tailings, slag and smelter emissions. On May 3, 1996, the Superior Court of Tacna, Peru affirmed the lower court's dismissal. There is generally no further right of appeal, however, the Peruvian Supreme Court may grant discretionary review on limited issues in exceptional cases. On April 29, 1996, SP Limited, was served with a complaint filed in Peru by approximately 800 former employees challenging the accounting of its subsidiary's Peruvian Branch and its allocation of financial results to the Mining Community, the former legal entity representing workers in Peruvian mining companies, in the 1970's. The complaint seeks the delivery of a substantial number of labor shares of the Peruvian Branch of the subsidiary plus dividends and contains similar allegations made in a prior lawsuit dismissed in September 1995. 7 As reported on Form 10-K for 1995, SP Limited, ASARCO Incorporated, other present and former corporate shareholders of the subsidiary of the Company and certain other companies are defendants in a lawsuit in federal district court in Corpus Christi, Texas brought in September 1995 by 698 Peruvian plaintiffs seeking damages for personal injury and property damage allegedly caused by the operations of the subsidiary in Peru. Plaintiffs have filed a notice of appeal from the district court order dismissing the complaint and from an earlier order of that court denying plaintiffs' motion to remand the case to state court. The Company's exploration, mining, milling, smelting and refining activities are subject to Peruvian laws and regulations, including environmental laws and regulations, which change from time to time. The Company has submitted an environmental compliance program to the Government of Peru (the "PAMA"). The PAMA would require the Company to make significant additional capital expenditures to achieve compliance with current Peruvian environmental requirements within a period of five years except for environmental controls applicable to its smelter operations, which must be put in place within ten years. Once the PAMA is approved by the government, compliance with the PAMA will satisfy all environmental requirements pertaining to the Company's operations throughout the applicable five or ten year period. It is the opinion of management that the outcome of the legal proceedings mentioned, as well as the other miscellaneous litigation and proceedings now pending, will not materially adversely affect the financial position or results of operations of the Company 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. 8. Impact of new accounting standards: Impact of New Accounting Standards: The Financial Accounting Standards Board issued SFAS No. 123 "Accounting for Stock-Based Compensation" in October 1995. In accordance with this pronouncement, the Company has a choice of adopting the accounting provisions of SFAS No. l23 or continuing its current accounting with additional disclosure required. The Company has elected the disclosure only alternative and will continue its current accounting. The American Institute of Certified Public Accountants issued Statement of Position 96-1, "Environmental Remediation Liabilities" ("SOP 96-1") in October 1996. SOP 96-1 provides authoritative guidance on specific accounting issues in connection with recognizing, measuring and disclosing environmental cleanup liabilities. The Company is currently assessing the impact of this statement, which is effective for fiscal years beginning after December 15, 1996. 8 Part I Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The Company reported net earnings of $37.9 million, or $0.47 per share, for the third quarter ended September 30, 1996 compared with net earnings of $62.1 million, or $0.95 per share, for the third quarter ended September 30, 1995. For the nine month period ended September 30, 1996, the Company reported net income of $132.2 million, or $1.65 per share, compared with net income of $149.4 million or $2.27 per share in the comparable 1995 period. The Company's earnings in the third quarter of 1996 and the nine months ended September 30, 1996 were significantly reduced by the decline in the copper price from the comparable 1995 periods. The decline in earnings due to lower copper prices was somewhat offset by increased production and lower production costs. Sales of copper produced from the Company's mines, including the new solvent extraction/electrowinning (SX/EW) facility increased significantly in the third quarter of 1996 and the nine months ended September 30, 1996, when compared to the comparable 1995 periods. Net earnings for the third quarter of 1996 and the nine month period ended September 30, 1996 reflect a reduction in the minority interest of labor shares in the Company's Peruvian Branch. An exchange of labor shares for common shares was completed in the fourth quarter of 1995 and reduced the interest of labor shares from 17.3% to 3.3%. The exchange offer increased the number of common shares outstanding to 80.2 million from 65.7 million. The Company's copper mine production in the third quarter of 1996 was 169.9 million pounds, an increase of 23% over the year ago period. The increase was attributable to higher ore grades at the Cuajone mine and 24.4 million pounds of refined copper produced from the Company's new SX/EW plant, which commenced operations in the fourth quarter of 1995. In September 1996, the Company announced that its board of directors approved the expansion of the Cuajone copper mine and commencement of engineering studies for the modernization of its copper smelter at Ilo. Commencement of the expansion project will begin once financing has been arranged. The Cuajone mine expansion represents the first stage of a multi-year programmed expansion which will expand Cuajone mine annual copper production by 65,000 tons. Engineering for the second stage of the program, the modernization of the Ilo smelter, will begin immediately. Following completion of the preliminary engineering and securing of financing, SPCC plans to modernize its existing copper smelter at Ilo to increase capacity, modernize facilities and to meet current international environmental guidelines. A future opportunity for a third stage of the modernization and expansion plan, consisting of a second expansion at Cuajone and further expansion of smelter capacity at the Ilo smelter will be evaluated at a later date and will depend on the availability of financing and other conditions at the time. As a result of ongoing drilling programs at the Company's mines, proven and probable sulfide ore reserves at the Cuajone Mine have been increased approximately 300 million tons effective June 30, 1996. The ore grade of this increase is .59% copper. The increase in ore reserves had no material impact on net earnings for the three or nine months ended September 30, 1996. The Company's exploration, mining, milling, smelting and refining activities are subject to Peruvian laws and regulations, including environmental laws and regulations, which change from time to time. The Company has submitted an environmental compliance program to the Government of Peru (the "PAMA"). The PAMA would require the Company to make significant additional capital expenditures to achieve compliance with current Peruvian environmental requirements within a period of five years except for environmental controls applicable to its smelter operations, which must be put in place within ten years. Once the PAMA is approved by the government, compliance with the PAMA will satisfy all environmental requirements pertaining to the Company's operations throughout the applicable five or ten year period. 9 Net Sales: Net sales in the third quarter of 1996 were $180.5 million, compared with $270.6 million in the third quarter of 1995. Sales for the nine months ended September 30, 1996 were $550.1 million compared to $687.5 million for the comparable 1995 period. The $90.1 million decrease in net sales in the third quarter of 1996 is primarily attributable to lower copper and molybdenum prices. Copper sales were 188.6 million pounds in the third quarter of 1996 as compared with 189.8 million pounds in the 1995 third quarter. Copper sales volume included 23.8 million pounds and 69.4 million pounds of copper produced at the new SX/EW facility in the third quarter of 1996 and the nine month period, respectively. Prices: Sales prices for the Company's metals are established principally by reference to prices quoted on the London Metal Exchange ("LME"), the New York Commodity Exchange ("COMEX") or published in "Metals Week" for dealer oxide prices for molybdenum products.
Three Months Ended Nine Months Ended September 30, September 30, Price Volume Data 1996 1995 1996 1995 - ----------------- ---- ---- ---- ---- Average Metal Prices Copper (per pound-LME) $0.90 $1.37 $1.06 $1.34 Molybdenum (per pound-Metals Week Dealer Oxide) $3.47 $3.29 $4.37 $8.45 Silver (per ounce-COMEX) $5.04 $5.32 $5.29 $5.16 Sales Volume (in thousands) Copper (pounds) 188,600 189,800 519,400 468,700 Molybdenum (pounds)(1) 2,152 2,656 5,956 6,074 Silver (ounces) 818 1,110 2,363 2,708
(1) The Company's molybdenum production is sold in concentrate form. The volume represents pounds of molybdenum contained in concentrate. Metal Hedging and Trading Activity: Hedging: Depending on the market fundamentals of a metal and other conditions, the Company may purchase put options to reduce or eliminate the risk of metal price declines below the option strike price on its anticipated future production. Put options purchased by the Company establish a minimum sales price for the production covered by such put options and permit the Company to participate in price increases above the option price. Depending upon market conditions the Company may either sell put options it holds or exercise the options at maturity. Gains or losses, net of unamortized acquisition costs, are recognized in the period in which the underlying hedged production is sold. Third quarter results include a pre-tax gain of $4.4 million from the sale or exercise of copper put options held by the Company with respect to copper sales in the period. Results for the nine months include a pre-tax gain of $5.2 million from the sale or exercise of copper put options held by the Company with respect to copper sales in the nine month period. The table below details copper put options purchased and held by the Company at September 30, 1996: Copper Put Options at September 30,1996 (in millions, except per lb. amounts)
Percent of Option Strike Price Unamortized Estimated Lbs. Period Per lb. Cost Sales ---- ------ ------- ---- ----- 38.7 10/96 - 12/96 $ 0.95 $ 0.6 25% 41.3 1/97 - 3/97 $ 0.95 0.4 26% ---- ----- 80.0 $ 1.0 ==== =====
10 In October, SPCC sold or exercised additional copper put options covering 38.7 million pounds of fourth quarter 1996 copper sales with an average strike price of $0.95. The total pre-tax gain from the October option activity was $1.7 million. The Company's pre-tax gain from 1996 copper option sales and exercises through October 31, 1996 is $15.7 million. Of that amount $10.6 million remains to be recognized, $5.9 million in the fourth quarter of 1996 and $4.7 million in the first quarter of 1997. The pre-tax earnings effect, in millions, of the company's copper hedging activities, net of transaction costs, were as follows.
(in millions) Three Months Ended Nine Months Ended September 30, September 30, 1996 1995 1996 1995 ---- ---- ---- ---- Hedging activities $4.4 $(1.1) $4.1 $(1.1)
Operating Costs and Expenses: Operating costs and expenses were $126.4 million in the third quarter of 1996 compared with $157.9 million for the same period in 1995. Cost of sales for the three months ended September 30, 1996 and 1995 were $99.9 million and $130.4 million respectively. The decrease in cost of sales is attributable primarily to the reduction of sales of copper produced from purchased concentrates which were replaced by sales of copper produced from the Company's new SX/EW operation. Cost of sales was $276.7 million for the nine month period ended September 30, 1996, compared with $332.3 million in the corresponding 1995 period. While the volume of all copper sold increased by 50.7 million pounds in the nine month 1996 period, as compared to the 1995 period, cost of sales decreased by $55.6 million. This decrease in cost of sales was principally attributable to a reduction in sales of 62.4 million pounds of copper produced from purchased concentrates and an increase of 113.1 million pounds in sales of copper produced from Company mines, of which 69.4 million pounds were from the new SX/EW facility. The unit cost of purchased concentrates in 1995 were considerably higher, as cost is based on prevailing market prices. Depreciation expense for the three and nine month periods ended September 30, 1996 was $10.6 million and $31.3 million, respectively as compared to $5.9 million and $27.4 million in the comparable periods in 1995. An increase to ore reserves at June 30, 1995 resulted in lower depreciation expense in the third quarter of 1995. Higher nine month depreciation in 1996 reflects additions to property. The provision for workers' participation for the three and nine month periods ended September 30, 1996 was $3.5 million and $13.9 million, respectively, as compared with $9.2 million and $23.1 million for the comparable period in 1995. The decrease was due to lower pre-tax profits of the Branch. 11 Nonoperating Items: Interest income was $4.0 million in the third quarter of 1996, and $15.1 million for the nine month period ended September 30, 1996, compared with $2.6 million and $8.6 million for the respective periods in 1995. The increase reflected a higher interest rate and higher invested cash balances in 1996. Other income was $3.0 million in the third quarter of 1996, and $7.9 million for the nine month period ended September 30, 1996, compared with $1.3 million and $6.9 million for the respective periods in 1995. 1996 exchange gains were higher than in 1995 due primarily to a higher devaluation rate. Also, nine month 1995 results include a gain of $1.3 million on the sale of an investment. Interest expense was $3.2 million in the third quarter of 1996, and $9.6 million for the nine months period ended September 30, 1996, compared with $4.7 million and $10.5 million for the respective periods in 1995. The third quarter 1995 included a write-off of previously capitalized loan fees of $2.0 related to the prepayment of $77 million of the Company's long term debt. In addition, the nine month 1995 period included $1.9 million of interest capitalized. Taxes on Income: Taxes on income for the three and nine month periods ended September 30, 1996 were $19.1 million and $67.2 million, respectively, as compared to $36.9 million and $89.2 million for the respective periods in 1995. The decrease was due to lower taxable earnings in the 1996 periods. Minority Interest of Labor Shares: The income statement provision for minority interest of labor shares during the third quarter represents an accrual of approximately 3.0% in 1996 and 17.4% in 1995, of the Branch's after-tax earnings, as determined under Peruvian GAAP. The Labor Share percentage participation in earnings decreased principally as a result of the 1995 exchange offer in which labor shares of the Branch were exchanged for common shares of the Company. Cash Flows - Operating Activities: Net cash provided from operating activities was $54.5 million in the third quarter of 1996, compared to $95.8 million in the third quarter of 1995. The decrease in operating cash flow was primarily due to lower operating earnings partially offset by higher non-cash charges for depreciation and deferred taxes in 1996. Net cash provided from operating activities was $133.1 million for the nine months ended September 30, 1996, compared with $221.3 million in the corresponding 1995 period. The decrease in operating cash flow was a result of higher payments of Peruvian income taxes and lower earnings before minority interest of labor shares in the first nine months of 1996. Cash Flows - Investing Activities: Investing activities used cash of $43.3 million for the three months ended September 30, 1996 compared $33.9 million for the three months ended September 30, 1995. Lower proceeds from the maturity of investments in 1996 was partially offset by lower capital spending. Net cash used for investing activities was $52.7 million for the nine month period ended September 30, 1996, compared with $54.0 million in the corresponding 1995 period. Cash Flows - Financing Activities: Financing activities in the third quarter of 1996 included the scheduled payment of $5.8 million of the Company's long-term debt, distribution of $22.5 million of dividends, and $3.4 million to repurchase labor shares. In the third quarter of 1995 net repayments of debt after escrow requirements were $19.0 million and dividends distributed were $21.4 million. Net cash used for financing activities was $83.3 million in the nine month period ended September 30, 1996, compared with $49.9 million in the comparable 1995 period. Dividends paid in the nine month 1996 period were $98.7 million compared with $55.7 million in the comparable 1995 period. Borrowings, net of escrow requirements were $22.6 million in the 1996 period, compared to repayments, net of escrow release of $5.2 million in the comparable 1995 period. In the nine month 1996 period, cash of $6.1 million was used to purchase labor shares. In the nine month 1995 period cash of $10.9 million was received from a labor share subscription. 12 Liquidity and Capital Resources: At September 30, 1996, the Company's debt as a percentage of total capitalization was 11.1%, compared with 8.8% at December 31, 1995. Debt at September 30, 1996 was $126.5 million, compared with $93.9 million at the end of 1995. The Company expects that it will meet its cash requirements for 1996 and beyond from internally generated funds, cash on hand, from borrowings under its credit agreements or from additional external financing. On October 30, the Company declared a quarterly dividend on the common stock of $0.24 per share payable December 2, 1996 to stockholders of record at the close of business on November 14, 1996. Impact of New Accounting Standards: The Financial Accounting Standards Board issued SFAS No. 123 "Accounting for Stock-Based Compensation" in October 1995. In accordance with this pronouncement, the Company has a choice of adopting the accounting provisions of SFAS No. l23 or continuing its current accounting with additional disclosure required. The Company has elected the disclosure only alternative and will continue its current accounting. The American Institute of Certified Public Accountants issued Statement of Position 96-1, "Environmental Remediation Liabilities" ("SOP 96-1") in October 1996. SOP 96-1 provides authoritative guidance on specific accounting issues in connection with recognizing, measuring and disclosing environmental cleanup liabilities. The Company is currently assessing the impact of this statement, which is effective for fiscal years beginning after December 15, 1996. 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. 13 COOPERS & LYBRAND L.L.P. REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of Southern Peru Copper Corporation: We have reviewed the accompanying interim condensed consolidated balance sheet of Southern Peru Copper Corporation and Subsidiaries as of September 30, 1996 and the interim condensed consolidated statements of earnings and cash flows for the three month and nine month periods ended September 30, 1996 and 1995. These interim condensed consolidated financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the accompanying interim condensed consolidated financial statements for them to be in conformity with generally accepted accounting principles. Coopers & Lybrand L.L.P. New York, New York October 18, 1996 14 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. SOUTHERN PERU COPPER CORPORATION (Registrant) Date: November 14, 1996 /s/ Ronald J. O'Keefe --------------------- Ronald J. O'Keefe Executive Vice President and Chief Financial Officer Date: November 14, 1996 /s/ Brendan M. O'Grady ---------------------- Brendan M. O'Grady Comptroller 15 Exhibit I COOPERS & LYBRAND L.L.P. Securities and Exchange Commission 450 Fifth Street, N.W. Washington, D.C. 20549 We are aware that our report dated October 18, 1996 on our review of the interim financial information of Southern Peru Copper Corporation and Subsidiaries as of September 30, 1996 and for the three month and nine month periods ended September 30, 1996 and 1995 and included in this Form 10-Q for the quarter ended September 30, 1996 is incorporated by reference in the Company's Registration Statements on Form S-8 (File Nos. 33-32736). Pursuant to Rule 436(c) under the Securities Act of 1933, this report should not be considered a part of the Registration Statement prepared or certified by us within the meaning of Sections 7 and 11 of that Act. Coopers & Lybrand L.L.P. New York, New York November 12, 1996 EX-27 2
5 1,000 9-MOS DEC-31-1996 SEP-30-1996 217618 1000 76879 0 108206 419827 1714569 870360 1284811 126213 0 0 0 265765 720222 1284811 550077 550077 276723 276723 83084 0 9585 203612 (67178) 136434 0 0 0 132217 1.65 1.65
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