SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 1996 Second Quarter FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarter Ended June 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 July 31, 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 CONSOLIDATED SUBSIDIARIES INDEX TO FORM 10-Q <TABLE> <CAPTION> Page No. <S> <C> Part I. Financial Information: Item 1. Financial Statements (unaudited) Consolidated Statement of Earnings Three Months and Six Months Ended June 30, 1996 and 1995 2 Consolidated Balance Sheet June 30, 1996 and December 31, 1995 3 Consolidated Statement of Cash Flows Three Months and Six Months Ended June 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 - 12 Report of Independent Accountants 13 Part II. Other Information: Item 1. Legal Proceedings 14 Signatures 15 Exhibit I - Independent Accountants' Awareness Letter </TABLE> 1
Southern Peru Copper Corporation and Subsidiaries CONSOLIDATED STATEMENT OF EARNINGS (unaudited) <TABLE> <CAPTION> 3 Months Ended 6 Months Ended June 30, June 30, 1996 1995 1996 1995 ---- ---- ---- ---- (in thousands, except per share amounts) <S> <C> <C> <C> <C> Net sales: Stockholders and affiliates $ 17,892 $ 26,544 $ 31,248 $ 31,814 Others 155,277 185,633 338,329 385,101 -------- -------- -------- -------- Total net sales 173,169 212,177 369,577 416,915 -------- -------- -------- -------- Operating costs and expenses: Cost of sales 82,176 107,283 176,855 201,955 Administrative and other expenses 11,249 11,673 24,254 26,093 Depreciation, amortization and depletion 10,343 10,750 20,670 21,473 Provision for workers' participation 4,807 6,528 10,445 13,918 Exploration expense 492 591 1,147 914 -------- -------- -------- -------- Total operating costs and expenses 109,067 136,825 233,371 264,353 -------- -------- -------- -------- Operating income 64,102 75,352 136,206 152,562 Interest income 4,901 3,467 11,070 6,010 Other income 2,582 2,626 4,855 5,632 Interest expense (3,205) (4,264) (6,337) (5,788) -------- -------- -------- -------- Earnings before taxes on income and minority interest of labor shares 68,380 77,181 145,794 158,416 Taxes on income 21,805 25,475 48,093 52,309 --------- -------- -------- --------- Earnings before minority interest of labor shares 46,575 51,706 97,701 106,107 Minority interest of labor shares 1,346 8,837 3,364 18,883 --------- --------- --------- --------- Net earnings $ 45,229 $ 42,869 $ 94,337 $ 87,224 ========= ========= ========= ========= Per common share amounts: Net earnings (a) $ 0.56 $ 0.65 $ 1.18 $ 1.33 Dividends paid $ 0.30 $ 0.11 $ 0.95 $ 0.52 Weighted average number of shares outstanding 80,183 65,717 80,204 65,717 </TABLE> (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) <TABLE> <CAPTION> June 30, December 31, 1996 1995 (in thousands) <S> <C> <C> ASSETS Current assets: Cash and cash equivalents $ 237,737 $ 219,646 Marketable securities - 42,453 Accounts receivable: Trade: Stockholders and affiliates 2,405 8,732 Other trade 44,493 80,100 Other 15,736 11,631 Inventories 108,465 103,635 Other current assets 16,136 16,648 ---------- ---------- Total current assets 424,972 482,845 Property 1,674,492 1,630,517 Accumulated depreciation, amortization and depletion (863,147) (851,149) Other assets 19,440 9,488 ---------- ---------- Total Assets $1,255,757 $1,271,701 ========== ========== LIABILITIES Current liabilities: Current portion of long-term debt $ 26,935 $ 17,034 Accounts payable - trade 19,654 32,889 Accounts payable - other 6,802 8,056 Accrued liabilities 53,452 112,390 ---------- ---------- Total current liabilities 106,843 170,369 ---------- ---------- Long-term debt 105,397 76,828 Accrued severance pay 2,648 6,354 Deferred income taxes 45,373 39,677 ---------- ---------- Total non-current liabilities 153,418 122,859 ---------- ---------- Minority interest of labor shares 25,018 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 704,713 686,946 Treasury stock at cost, 47 common shares (783) - --------- ---------- Total stockholders' equity 970,478 953,487 ---------- ---------- Total Liabilities, Minority Interest and Stockholders' Equity $1,255,757 $1,271,701 ========== ========== Authorized Outstanding <S> <C> <C> <C> (a) Common shares 31,249 13,633 11,480 (b) Class A common shares 68,751 66,551 68,751 </TABLE> The accompanying notes are an integral part of these financial statements. 3
Southern Peru Copper Corporation and Subsidiaries CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited) <TABLE> <CAPTION> 3 Months Ended 6 Months Ended June 30, June 30, 1996 1995 1996 1995 ---- ---- ---- ---- (in thousands) <S> <C> <C> <C> <C> OPERATING ACTIVITIES Net earnings $45,229 $42,869 $94,337 $87,224 Adjustments to reconcile net earnings to net cash provided from operating activities: Depreciation, amortization and depletion 10,343 10,750 20,670 21,473 Deferred income taxes 1,184 (211) 2,216 406 Minority interest of labor shares, net of distributions 522 8,837 661 18,883 (Gains) losses from sales and dispositions of assets (121) (1,291) 286 (1,291) Cash provided from (used for) operating assets and liabilities: Accounts receivable 17,130 (3,997) 37,635 30,684 Inventories (11,370) (5,850) (4,830) (17,059) Accounts payable and accrued liabilities 61 20,011 (52,898) (12,195) Other operating liabilities and reserves 4,351 6,982 (20,941) 1,162 Other operating assets 1,022 (3,016) 3,868 (2,359) Foreign currency translation (gain) loss (1,135) 804 (2,428) (1,409) ------- ------- ------- ------- Net cash provided from operating activities 67,216 75,888 78,576 125,519 ------- ------- ------- ------- INVESTING ACTIVITIES Capital expenditures (37,356) (64,343) (51,931) (107,743) Purchase of held to maturity investments - - - (33,880) Transfer of cash from restricted account - 59,533 - 59,533 Proceeds from maturity of investments - 19,427 42,453 59,950 Proceeds from the sale of investments - 856 - 856 Other net - 1,195 - 1,195 ------- ------- ------- -------- Net cash provided from (used for) investing activities (37,356) 16,668 (9,478) (20,089) ------- ------- ------- -------- FINANCING ACTIVITIES Dividends paid (24,054) (7,500) (76,204) (34,312) Proceeds from borrowings - 6,000 47,000 15,000 Repayment of borrowings (7,610) (558) (8,531) (1,104) Escrow deposits on long-term loans - - (10,152) - Proceeds from labor share subscription - 10,944 - 10,944 Treasury stock and labor share purchases (2,682) - (3,836) - ------- ------- ------- ------- Net cash provided from (used for) financing activities (34,346) 8,886 (51,723) (9,472) ------- ------- ------- ------- Effect of exchange rate changes on cash (517) (795) 716 (408) ------- ------- ------- ------- Increase (decrease) in cash and cash equivalents (5,003) 100,647 18,091 95,550 Cash and cash equivalents, beginning of period 242,740 88,239 219,646 93,336 -------- -------- -------- -------- Cash and cash equivalents, end of period $237,737 $188,886 $237,737 $188,886 ======== ======== ======== ======== </TABLE> 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 June 30, 1996 and the results of operations and cash flows for the three and six months ended June 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 six 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: <TABLE> <CAPTION> Inventories consists of: June 30, December 31, 1996 1995 (in millions) <S> <C> <C> Metals: Finished goods $2.2 $2.0 Work-in-process 31.9 33.1 Supplies, net of reserves 74.4 68.5 ------ ------- Total inventories $108.5 $ 103.6 ====== ======= </TABLE> 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 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 strike price. Gains or losses, net of unamortized acquisition costs, are recognized in the period in which the underlying hedged production is sold. During the second quarter SPCC sold copper put options with a average strike price of $0.95 per pound covering 11% of its remaining six months of 1996 and 1% of 1997 production. The tables below detail the option sales concluded in the second quarter and the options remaining at June 30, 1996: Second Quarter Copper Put Option Sales (dollars in millions) <TABLE> <CAPTION> Pre-tax Unamortized Gain to be Period to be Tons Proceeds Cost Recognized Recognized ---- -------- ---- ---------- ---------- <S> <C> <C> <C> <C> 17,913 $ 4.8 $ 0.5 $ 4.3 7/96 - 3/97 </TABLE> In addition to the above, the Company recognized proceeds of $0.8 million on options covering 3,583 tons of copper which were sold in the second quarter of 1996. The cost of these options was $.1 million. 5
Copper Put Options at June 30,1996 (dollars in millions, except per lb. amounts) <TABLE> <CAPTION> Percent of Strike Price Unamortized Estimated Tons Period Per lb. Cost Production ---- ------ ------- ---- ---------- <S> <C> <C> <C> <C> 58,366 7/96 - 12/96 $ 0.95 $ 1.6 37% 35,384 1/97 - 3/97 $ 0.95 0.7 43% ----- $ 2.3 </TABLE> In addition to the sales of options described above, the Company sold copper put options in July 1996. Details for the total of July and the second quarter sales are contained in the table below: July and Second Quarter Option Sales (dollars in millions) <TABLE> <CAPTION> Pre-tax Unamortized Gain to be Period to be Tons Proceeds Cost Recognized Recognized ---- -------- ---- ---------- ---------- <S> <C> <C> <C> <C> 44,533 $11.3 $ 1.1 $10.2 7/96 - 3/97 </TABLE> 4. Common Stock: On February 27, 1996, Cerro Trading Company, Inc. transferred 2,200,000 class A common stock shares to a foundation of the Pritzker Family. In accordance with the Company's Certificate of Incorporation these shares were automatically converted into common stock of the Company. The stockholders of the Company at June 30, 1996 were: <TABLE> <CAPTION> Percent of Total Outstanding Number of Shares Shares <S> <C> <C> 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% ========== ======= </TABLE> The Company declared and paid cash dividends of $0.30 per share during the second quarter of 1996 and $0.11 per share during the second quarter of 1995. On August 1, 1996, the Company declared a $0.28 per share dividend payable September 3, 1996 to stockholders of record at the close of business on August 15, 1996. 5. Supplemental disclosures of cash flow information: <TABLE> <CAPTION> (in millions) Three months ended Six Months ended June 30, June 30, 1996 1995 1996 1995 ---- ---- ---- ---- <S> <C> <C> <C> <C> Cash paid for: Interest expense (net of amount capitalized) $ 3.7 $ 4.2 $ 4.7 $ 7.3 Income taxes (net of refunds) $25.9 $18.0 $86.4 $40.0 </TABLE> 6
6. Proforma second quarter 1996 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, through a wholly owned subsidiary, now owns 96.9% of the Peruvian Branch. The following shows comparative proforma 1995 earnings information as if the Exchange Offer was completed January 1, 1995. <TABLE> <CAPTION> (in millions, except for per share data) Three Months Ended Six Months Ended June 30, June 30, Historical Proforma Historical Proforma 1995 1995 1995 1995 ---- ---- ---- ---- <S> <C> <C> <C> <C> Net sales $212.2 $212.2 $416.9 $416.9 Earnings before taxes on income and minority interest of labor shares 77.2 76.8(a) 158.4 157.4(a) Taxes on income 25.5 25.4(b) 52.3 52.0(b) Earnings before minority interest of labor shares 51.7 51.4 106.1 105.4 Minority interest of labor shares in Peruvian Branch 8.8 1.7(c) 18.9 3.6(c) Net earnings $42.9 $49.7 $87.2 $101.8 Weighted average number of shares outstanding 65.7 80.2 65.7 80.2 Net earnings per share $0.65 $0.62 $1.33 $1.27 Cash dividend paid per share $0.11 $0.09 $0.52 $0.43 </TABLE> 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
7. Commitments and contingencies: On February 26, 1993, the Mayor of Tacna brought a lawsuit against Southern Peru Limited, a wholly owned subsidiary of the Company (SP Limited), 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. 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 development of more stringent environmental protection programs in Peru could impose constraints and additional costs on the Company's operations and the Company could be required to make significant additional capital expenditures in the future. 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 standard: 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. 8
Part I Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The Company reported net earnings of $45.2 million, or $0.56 per share, for the second quarter ended June 30, 1996 compared with net earnings of $42.8 million, or $0.65 per share, for the second quarter ended June 30, 1995. For the six month period ended June 30, 1996, the Company reported net income of $94.3 million, or $1.18 per share, compared with net income of $87.2 million or $1.33 per share in the comparable 1995 period. The Company's earnings in the second quarter of 1996 and the six months ended June 30, 1996 were significantly affected by the decline in copper and molybdenum prices when compared with the comparable 1995 periods. The decline in prices was partially offset by higher sales volume and lower production costs. Net earnings for the second quarter of 1996 and the six months ended June 30, 1996 were higher than in the comparable 1995 periods primarily due to 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 second quarter of 1996 was 173.1 million pounds, an increase of 34% over the year ago period. The increase was attributable to higher ore grades at the Toquepala and Cuajone mines and 22.8 million pounds of refined copper produced from the Company's new solvent extraction/electrowinning plant (SX/EW), which commenced operations in the fourth quarter of 1995. The Company announced a $35 million expansion project of its sulfuric acid plant which commenced operations in October 1995. The expansion will increase the capture of sulfur dioxide emissions from the smelter from 18% to 30% and will also increase sulfuric acid production at the smelter from an estimated 180,000 tons in 1996 to 300,000 tons per year in 1998, the expected first full year of expanded plant operation. The expansion is expected to substantially improve the ambient air quality in the area. As a result, the Company expects a reduction in the effect of its Intermittent Control Plan under which the Company curtails production at the smelter during adverse weather conditions in order to reduce emissions. Net Sales: Net sales in the second quarter of 1996 were $173.2 million, compared with $212.2 million in the second quarter of 1995. Sales for the six months ended June 30, 1996 were $369.6 million compared to $416.9 million for the comparable 1995 period. The $39.0 million decrease in net sales in the second quarter of 1996 is primarily attributable to lower copper and molybdenum prices, partially offset by the higher copper sales volume. Copper sales were 161.8 million pounds in the second quarter of 1996 as compared with 151.7 million pounds in the 1995 second quarter. Copper sales volume included 23.0 million pounds of copper produced at the new SX/EW facility in the second quarter of 1996 and 45.6 million pounds in the six month period. 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. 9
<TABLE> <CAPTION> Three Months ended Six Months ended June 30, June 30, Price Volume Data 1996 1995 1996 1995 - ----------------- ---- ---- ---- ---- <S> <C> <C> <C> <C> Average Metal Prices Copper (per pound-LME) $1.12 $1.31 $1.14 $1.32 Molybdenum (per pound-Metals Week Dealer Oxide) 3.15 7.21 3.56 10.49 Silver (per ounce-COMEX) 5.29 5.47 5.42 5.08 Sales Volume (in thousands) Copper (pounds) 161,800 151,700 330,800 278,900 Molybdenum (pounds)(1) 1,937 1,526 3,804 3,418 Silver (ounces) 726 931 1,545 1,598 </TABLE> (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 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 strike price. Gains or losses, net of unamortized acquisition costs, are recognized in the period in which the underlying hedged production is sold. During the second quarter SPCC sold copper put options with a average strike price of $0.95 per pound covering 11% of its remaining six months of 1996 and 1% of 1997 production. The tables below detail the option sales concluded in the second quarter and the options remaining at June 30, 1996: <TABLE> <CAPTION> Second Quarter Copper Put Option Sales (dollars in millions) Pre-tax Unamortized Gain to be Period to be Tons Proceeds Cost Recognized Recognized ---- -------- ---- ---------- ---------- <S> <C> <C> <C> <C> 17,913 $ 4.8 $ 0.5 $ 4.3 7/96 - 3/97 </TABLE> In addition to the above, the Company recognized proceeds of $0.8 million on options covering 3,583 tons of copper which were sold in the second quarter of 1996. The cost of these options was $.1 million. Copper Put Options at June 30,1996 (dollars in millions, except per lb. amounts) <TABLE> <CAPTION> Percent of Strike Price Unamortized Estimated Tons Period Per lb. Cost Production ---- ------ ------- ---- ---------- <S> <C> <C> <C> <C> 58,366 7/96 - 12/96 $ 0.95 $ 1.6 37% 35,384 1/97 - 3/97 $ 0.95 0.7 43% ----- $ 2.3 </TABLE> 10
In addition to the sales of options described above, the Company sold copper put options in July 1996. Details for the total of July and the second quarter sales are contained in the table below: July and Second Quarter Option Sales (dollars in millions) <TABLE> <CAPTION> Pre-tax Unamortized Gain to be Period to be Tons Proceeds Cost Recognized Recognized ---- -------- ---- ---------- ---------- <S> <C> <C> <C> <C> 44,533 $11.3 $ 1.1 $10.2 7/96 - 3/97 </TABLE> The pre-tax earnings effect, in millions, of the company's copper hedging activities, net of transaction costs, were as follows. <TABLE> <CAPTION> (in thousands) Three months ended Six months ended June 30, June 30, 1996 1995 1996 1995 ---- ---- ---- ---- <S> <C> <C> <C> <C> Hedging activities $0.5 - $(0.3) - </TABLE> Operating Costs and Expenses: Operating costs and expenses were $109.1 million in the second quarter of 1996 compared with $136.8 million for the same period in 1995. Cost of sales for the three months ended June 30, 1996 and 1995 were $82.2 million and $107.3 million respectively. The decrease in cost of sales is attributable primarily to lower cost of purchased concentrates and lower operating costs partially offset by increased sales volume. Cost of sales was $176.9 million for the six month period ended June 30, 1996, compared with $202.0 million in the corresponding 1995 period. The decrease in cost of sales is attributable primarily to lower cost of purchased concentrates and lower operating costs partially offset by increased sales volume. The provision for workers' participation for the three and six month periods ended June 30, 1996 was $4.8 million and $10.4 million as compared with $6.5 million and $13.9 million for the respective period in 1995. The decrease was due to lower pre-tax profits of the Branch. Nonoperating Items: Interest income was $4.9 million in the second quarter of 1996, and $11.1 million for the six month period ended June 30, 1996, compared with $3.5 million and $6.0 million for the respective periods in 1995. The increase reflected higher invested cash balances in 1996. Taxes on Income: Taxes on income for the three and six month periods ended June 30, 1996 were $21.8 million and $48.1 million, respectively, as compared to $25.5 million and $52.3 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 represents an accrual of 3.2% 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. 11
Cash Flows - Operating Activities: Net cash provided from operating activities was $67.2 million in the second quarter of 1996, compared to $75.9 million in the second quarter of 1995. The decrease in operating cash flow was primarily due to lower operating earnings in 1996. Net cash provided from operating activities was $78.6 million for the six months ended June 30, 1996, compared with $125.5 million in the corresponding 1995 period. The decrease in operating cash flow was a result of payments in the first quarter of 1996 of 1995 Peruvian income taxes and 1995 worker's participation and lower operating earnings in the first six months of 1996. Cash Flows - Investing Activities: Investing activities used cash of $37.4 million for the three months ended June 30, 1996 compared to cash provided from investing activities of $16.7 million for the three months ended June 30, 1995. Lower capital spending in 1996 as compared to 1995 was mainly due to the completion of construction on the SX/EW facility in the fourth quarter of 1995. The second quarter 1995 investing activities included the release of previously restricted cash under a commitment to fund certain capital projects. Net cash used for investing activities was $9.5 million for the six month period ended June 30, 1996, compared with $20.1 million in the corresponding 1995 period. The lower use of cash for investing activities in the six months ended June 30, 1996 was principally attributable to higher proceeds from redemption of investments, net of purchases. Cash Flows - Financing Activities: Financing activities in the second quarter of 1996 included the scheduled payment of $7.6 million of the Company's long-term debt and distribution of $24.1 million of dividends. In the second quarter of 1995 net borrowings of debt after escrow requirements were $5.4 million. In addition, in the second quarter of 1995 the Company received proceeds from a subscription of labor shares of $10.9 million. Liquidity and Capital Resources: At June 30, 1996, the Company's debt as a percentage of total capitalization was 11.7%, compared with 8.8% at December 31, 1995. Debt at June 30, 1996 was $132.3 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 debt or equity financing. On August 1, the Company declared a quarterly dividend on the common stock of $0.28 per share payable September 3, 1996 to stockholders of record at the close of business on August 15, 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. Cautionary Statement: Statements in this report regarding expected commencement dates of mining or metal production operations, projected quantities of future metal production, and anticipated production rates, operating efficiencies, costs and expenditures are forward-looking statements. Actual results could differ materially depending upon the availability of materials, equipment, required permits or approvals and financing, the occurrence of unusual weather or operating conditions, lower than expected ore grades or the failure of equipment or processes to operate in accordance with specifications. Results of operations are directly affected by metals prices on commodity exchanges which can be volatile. 12
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 June 30, 1996 and the interim condensed consolidated statements of earnings and cash flows for the three month and six month periods ended June 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 July 19, 1996 13
PART II - OTHER INFORMATION Item 1 - Legal Proceedings As reported on Form 10-K for 1995, Southern Peru Limited a wholly owned subsidiary of the Company, 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. 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: August 14, 1996 /s/ Ronald J. O'Keefe --------------------- Ronald J. O'Keefe Executive Vice President and Chief Financial Officer Date: August 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 July 19, 1996 on our review of the interim financial information of Southern Peru Copper Corporation and Subsidiaries as of June 30, 1996 and for the three month and six month periods ended June 30, 1996 and 1995 and included in this Form 10-Q for the quarter ended June 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 August 12, 1996