SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 2001 First Quarter FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarter Ended March 31, 2001 Commission file number 1-14066 SOUTHERN PERU COPPER CORPORATION -------------------------------- (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.) 1150 North 7th Avenue, Tucson, Az. 85705-0747 - ---------------------------------- ---------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (520) 798-7747 -------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes |X| No |_| As of April 30, 2001, there were outstanding 14,100,192 shares of Southern Peru Copper Corporation common stock, par value $0.01 per share. There were also outstanding 65,900,833 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) Condensed Consolidated Statement of Earnings Three Months ended March 31, 2001 and 2000 2 Condensed Consolidated Balance Sheet March 31, 2001 and December 31, 2000 3 Condensed Consolidated Statement of Cash Flows Three Months ended March 31, 2001 and 2000 4 Notes to Condensed Consolidated Financial Statements 5-7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8-11 Report of Independent Public Accountants 12 Part II. Other Information: Item 6 Exhibits on Form 10-Q 13 Signatures 14 Exhibit 15 - Independent Public Accountants Awareness Letter 15
Southern Peru Copper Corporation and Subsidiaries CONDENSED CONSOLIDATED STATEMENT OF EARNINGS (Unaudited) 3 Months Ended March 31, 2001 2000 ---- ---- Net sales: $ 162,420 $ 163,122 Operating costs and expenses: Cost of sales 103,014 109,803 Administrative and other expenses 7,114 7,202 Depreciation and depletion 20,825 18,638 Exploration expense 2,949 732 --------- --------- Total operating costs and expenses 133,902 136,375 --------- --------- Operating income 28,518 26,747 Interest income 2,754 428 Other income (373) 983 Interest expense (7,001) (3,916) --------- --------- Earnings before taxes on income and minority interest 23,898 24,242 Taxes on income 7,902 7,611 Minority interest in income of Peruvian Branch (297) (156) --------- --------- Net earnings $ 15,699 $ 16,475 ========= ========= Per common share amounts: Net earnings - basic and diluted $ 0.196 $ 0.206 Dividends declared $ 0.143 $O.06 Dividends paid -- $ 0.06 Weighted average common shares outstanding: Basic 80,001 80,001 Diluted 80,007 80,008 The accompanying notes are an integral part of these consolidated financial statements. - 2 -
Southern Peru Copper Corporation and Subsidiaries CONDENSED CONSOLIDATED BALANCE SHEET (Unaudited) <TABLE> <CAPTION> March 31, December 31, 2001 2000 ---- ---- (in thousands) <S> <C> <C> ASSETS Current assets: Cash and cash equivalents $ 614,501 $ 149,088 Accounts receivable, net 70,515 142,457 Inventories 131,715 114,931 Other assets 37,460 35,371 ---------- ---------- Total current assets 854,191 441,847 Net property 1,302,998 1,298,130 Other assets 30,377 30,581 ---------- ---------- Total Assets $2,187,566 $1,770,558 ========== ========== LIABILITIES Current liabilities: Current portion of long-term debt $ 24,687 $ 24,339 Accounts payable 85,788 68,157 Accrued liabilities 36,986 39,884 ---------- ---------- Total current liabilities 147,461 132,380 ---------- ---------- Long-term debt 718,320 322,914 Deferred income taxes 95,866 94,891 Other liabilities and reserves 15,742 14,253 ---------- ---------- Total non-current liabilities 829,928 432,058 ---------- ---------- MINORITY INTEREST 14,263 14,465 ---------- ---------- STOCKHOLDERS' EQUITY Common stock (a) 261,584 261,584 Retained earnings 934,330 930,071 ---------- ---------- Total Stockholders' Equity 1,195,914 1,191,655 ---------- ---------- Total Liabilities, Minority Interest and Stockholders' Equity $2,187,566 $1,770,558 ========== ========== (a) Common shares: Authorized 34,099 34,099 Outstanding 14,100 14,100 Class A common shares Authorized and Outstanding 65,901 65,901 </TABLE> The accompanying notes are an integral part of these balance sheets. - 3 -
Southern Peru Copper Corporation and Subsidiaries CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) <TABLE> <CAPTION> 3 Months Ended March 31, 2001 2000 ---- ---- (in thousands) <S> <C> <C> OPERATING ACTIVITIES Net earnings (loss) $ 15,699 $ 16,475 Adjustments to reconcile net earnings to Net cash provided from operating activities: Depreciation and depletion 20,825 18,638 Provision for deferred income taxes 2,125 4,222 Foreign currency transaction losses 1,704 902 Minority interest of investment shares 297 156 Cash provided from (used for) operating assets and liabilities: Accounts receivable 71,969 (2,821) Inventories (16,784) 10,234 Accounts payable and accrued liabilities 3,228 (18,882) Other operating assets and liabilities 403 8,342 --------- --------- Net cash provided by operating activities 99,466 37,266 --------- --------- INVESTING ACTIVITIES Capital expenditures (27,523) (33,236) Sales of property 13 6 --------- --------- Net cash used in investing activities (27,510) (33,230) --------- --------- FINANCING ACTIVITIES Debt repayment (4,246) -- Proceeds from borrowings 400,000 10,000 Escrow (deposits) withdrawals on long-term loans -- 190 Dividends paid to common stockholders -- (4,800) Distributions to minority interest -- (86) Purchases of investment shares (395) (851) --------- --------- Net cash provided by financing activities 395,359 4,453 --------- --------- Effect of exchange rate changes on cash (1,902) (911) --------- --------- Increase in cash and cash equivalents 465,413 7,578 Cash and cash equivalents, at beginning of period 149,088 10,596 --------- --------- Cash and cash equivalents, at end of period $ 614,501 $ 18,174 ========= ========= </TABLE> The accompanying notes are an integral part of these consolidated financial statements. - 4 -
Southern Peru Copper Corporation and Subsidiaries NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) A. In the opinion of Southern Peru Copper Corporation (the "Company" or "SPCC"), the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the Company's financial position as of March 31, 2001 and the results of operations and cash flows for the three months ended March 31, 2001 and 2000. Certain reclassifications have been made in the financial statements from amounts previously reported. The condensed financial statements as of March 31,2001 and 2000 have been subjected to a review by Arthur Andersen, the Company's independent public accountants. The results of operations for the three months period are not necessarily indicative of the results to be expected for the full year. The accompanying condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's 2000 annual report on Form 10-K. B. Inventories were as follows: (In millions) March 31, December 31, 2001 2000 ---- ---- Metals at lower of average cost or market: Finished goods $ 2.3 $ 1.9 Work-in-process 53.2 46.0 Supplies at average cost, net of reserves 76.2 67.0 ------- ------- Total inventories $ 131.7 $ 114.9 ======= ======= C. At March 31, 2001, the Company has recorded sales of 19.8 million pounds of copper, at a provisional price of $0.76 per pound. These sales are subject to final pricing based on the average monthly LME and COMEX copper prices in the month of settlement, which will occur in the second quarter of 2001. D. Financial Instruments: The Company uses derivative instruments to manage its exposure to market risk from changes in commodity prices. Derivative instruments, which are designated as hedges, must be deemed effective at reducing the risk associated with the exposure being hedged and must be designated as a hedge at the inception of the contract. Copper: Depending on market fundamentals and other conditions, the Company may purchase put options to reduce or eliminate the risk of price declines below the option strike price on a portion of its anticipated future production. Put options purchased by the Company establish a minimum sales price for the production covered by such put options and permit the Company to participate in price increases above the option price. The cost of the options is amortized on a straight-line basis during the period in which the options are exercisable. Depending upon market conditions the Company may either sell options it holds or exercise the options at maturity. Gains or losses from the sale or exercise of options, net of unamortized acquisition costs, are recognized in the period in which the underlying production is sold and reported as a component of the underlying transaction. At March 31, 2001, the Company held no copper put options. - 5 -
Fuel swaps: The Company may enter into fuel swap agreements to limit the effect of changes in fuel prices on its production costs. A fuel swap establishes a fixed price for the quantity of fuel covered by the agreement. The difference between the published price for fuel and the price established in the contract for the month covered by the swap is recognized in production costs. At March 31, 2001, the Company held no fuel swaps. Foreign currency: The Company selectively uses foreign currency swaps to limit the effects of exchange rate changes on future cash flow obligations denominated in foreign currencies. A currency swap establishes a fixed dollar cost for a fixed amount or foreign currency required at a future date. The Company has entered into currency swap agreements on a portion of its capital cost contracted in Euros. The Company has a long-term energy contract (Power Purchase Agreement PPA) to guarantee the supply all its energy requirements through 2017. Under the terms of the PPA, the Company pays for the energy consumed by its operations based on rates that reflect the actual cost of producing the power and other factors related thereto. E. Commitments and Contingencies: Litigation: In April 1996, the Company was served with a complaint filed in Peru by approximately 800 former employees seeking the delivery of a substantial number of investment shares (formerly called "labor shares") of its Peruvian Branch plus dividends. In October 1997, the Superior Court of Lima nullified a decision of a court of first instance, which had been adverse to the Company. The Superior Court remanded the case for a new trial. Plaintiffs filed an extraordinary appeal before the Peruvian Supreme Court. The Supreme Court may grant discretionary review in limited cases. In March 1999, the Company received official notification that the Supreme Court had denied plaintiffs' extraordinary appeal and affirmed the decision of the Superior Court of Lima, which remanded the case to the lower court for further proceedings. In December 1999, the lower court decided against the Company, ordering the delivery of the investment shares and dividends to the plaintiffs. The Company appealed this decision in January 2000. On October 10, 2000, the Superior Court of Lima affirmed the lower court's decision, which had been adverse to the Company. The Company has filed an extraordinary appeal before the Peruvian Supreme Court. The Supreme Court may grant discretionary review in limited cases. There is also pending against the Company a similar lawsuit filed by 127 additional former employees. In the third quarter of 1997, the court of first instance dismissed their complaint. Upon appeal filed by the plaintiffs, the Superior Court of Lima, in the third quarter of 1998, nullified the lower court's decision on technical ground and remanded the case to the lower court for further proceedings. In December 1999, the lower court dismissed the complaint against the Company. Plaintiffs appealed this decision in January 2000 before the Superior Court. By the end of year 2000 the Superior Court rejected the appeal. Plaintiffs have filed an extraordinary appeal before the Supreme Court. The Supreme Court may grant discretionary review in limited cases. On December 28, 2000, a lawsuit was filed against the Company in federal court in New York City. The lawsuit seeks unspecified compensatory and punitive damages for alleged personal injuries to eight persons resident in Peru arising from alleged releases into the environment from the Company's operations in Peru. The lawsuit is similar to a suit filed in 1995 in Texas, which was dismissed in 1996 by a U. S. district judge. That ruling was affirmed unanimously by a three-judge federal appeals court. The court made - 6 -
it clear that the claims of Peruvian residents should be tried in the courts of Peru, not in the United States. It is the opinion of management that the outcome of the legal proceedings mentioned, as well as other miscellaneous litigation and proceedings now pending, will not materially adversely affect the financial position of the Company and its consolidated subsidiaries. However, it is possible that litigation matters could have a material effect on quarterly or annual operating results, when they are resolved in future periods. F. Impact of New Accounting Standards: Effective January 1, 2001, the Company has adopted the SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities" and SFAS No. 138 "Accounting for Certain Derivative instruments and certain Hedging Activities". Such adoption did not have a material impact on the condensed financial statements as of 3/31/01. - 7 -
Part I Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The Company reported net earnings of $15.7 million, or 19.6 cents per common share, for the first quarter ended March 31, 2001 compared with net earnings of $16.5 million, or 20.6 cents per common share, for the first quarter of 2000. The decrease in earnings in the first quarter of 2001 is primarily a result of lower copper prices when compared with the first quarter of 2000. The average price for copper on the London Metal Exchange (LME) was 80 cents per pound for the first quarter of 2001 compared with 81 cents per pound in the first quarter of 2000. The average price for copper on the New York Commodity Exchange (COMEX) was 82 cents per pound for the first quarter of 2001 and 2000. Mine copper production decreased 1.4% to 173.9 million pounds in the first quarter of 2001 compared with the first quarter of last year. Lower ore grade and bad weather conditions at both mines were responsible for the decrease in production. Improved recovery and throughput at the Cuajone and Toquepala mines to a great extent offset this decrease. Decrease in SX/EW copper production of 3.0 million pounds of copper is a result of a temporary decrease in the grade of PLS (Pregnant Leach Solution) and various interruptions in the power supply system due to adverse weather conditions. Copper concentrates smelted at the Ilo smelter increased by 3.6% and blister copper production increased by 8.9% during the first quarter of 2001 compared to similar period of year 2000. The refined copper production at the Ilo refinery increased 6.7% to 149.1 million pounds in the first quarter of 2001 compared with the same period of last year. These increases are due to increased production efficiencies at the smelter and Ilo refinery. The Company's expansion and modernization program is under way. The project to expand and protect the Cuajone mine from maximum flooding of the Torata river continues under construction and reached 96.6% completion at the end of the first quarter of 2001, with an investment of $70.6 million out of the $75.5 million budgeted. The Torata River was diverted on June 30, 2000 allowing the beginning of the Cuajone pit expansion. On March 30, 2001, SPCC received a disbursement of $400 million under a line of credit contracted with a group of international financial institutions. This line of credit will be used by SPCC to finance its expansion and modernization plan that includes among others, the expansion of the Toquepala mine and concentrator, an additional leaching section at the Cuajone mine, and the expansion and modernization of its Ilo smelter. Inflation and Devaluation of Peruvian Nuevo Sol: A portion of the Company's operating costs is denominated in Peruvian nuevos soles. Since the revenues of the Company are primarily denominated in U.S. dollars, when inflation in Peru is not offset by a corresponding devaluation of the Peruvian nuevo sol, the financial position, results of operations and cash flows of the Company could be adversely affected. For the three months ended March 31, 2001 the inflation and devaluation rates were 0.95% and (0.06)%, respectively. Net Sales: Net sales in the first quarter of 2001 decreased $0.7 million to $162.4 million from the comparable period in 2000. The decrease in net sales was primarily a result of lower copper prices in 2001 and decrease in copper sales volume of 5.6 million pounds in the first quarter of 2001. At March 31, 2001, the Company has recorded sales on 19.8 million pounds of copper, at a provisional price of $0.76 per pound. These sales are subject to final pricing based on the average monthly LME and COMEX copper price in the - 8 -
month of settlement, which will occur in the second quarter of 2001. Prices: Sales prices for the Company's metals are established principally by reference to prices quoted on the LME, the COMEX or published in Platt's Metals Week for dealer oxide mean prices for molybdenum products. Three Months Ended March 31, Price/Volume Data: 2001 2000 ---- ---- Average Metal Prices Copper (per pound-LME) $0.80 $0.81 Copper (per pound - COMEX) $0.82 $0.82 Molybdenum (per pound) $2.25 $2.54 Silver (per ounce-COMEX) $4.53 $5.18 Sales Volume (in thousands): Copper (pounds) 177,929 183,500 Molybdenum (pounds) (1) 4,460 3,346 Silver (ounces) 920 875 (1) The Company's molybdenum production is sold in concentrate form. Volume represents pounds of molybdenum contained in concentrates. Financial Instruments: The Company may use derivative instruments to manage its exposure to market risk from changes in commodity prices. Derivative instruments which are designated as hedges must be deemed effective at reducing the risk associated with the exposure being hedged and must be designated as a hedge at the inception of the contract. Copper: Depending on market fundamentals and other conditions, the Company may purchase put options to reduce or eliminate the risk of price declines below the option strike price on a portion of its anticipated future production. Put options purchased by the Company establish a minimum sales price for the production covered by such put options and permit the Company to participate in price increases above the option price. The cost of the options is amortized on a straight-line basis during the period in which the options are exercisable. Depending upon market conditions the Company may either sell options it holds or exercise the options at maturity. Gains or losses from the sale or exercise of options, net of unamortized acquisition costs, are recognized in the period in which the underlying production is sold and are reported as a component of the underlying transaction. At March 31, 2001, the Company held no copper put options. Fuel swaps: The Company may enter into fuel swap agreements to limit the effect of changes in fuel prices on its production costs. A fuel swap establishes a fixed price for the quantity of fuel covered by the agreement. The difference between the published price for fuel and the price established in the contract for the month covered by the swap is recognized in production costs. At March 31, 2001, the Company held no fuel swaps. Foreign currency: The Company selectively uses foreign currency swaps to limit the effects of exchange rate changes on future cash flow obligations denominated in foreign currencies. A currency swap establishes a fixed dollar cost for a fixed amount of foreign currency required at a future date. The Company has entered into currency swap agreements on a portion of its capital cost contracted in Euros. - 9 -
As of March 31, 2001 the Company had the following currency swap agreements: Maturity Date US$ Euros Forward ------------- (in millions) Exchange Rate ------------- ------------- 4/30/2001 3.3 2.9 1.1559 The unrealized loss in the Company's currency swap position at March 31, 2001 amounted to $0.8 million. A hypothetical 10 percent decrease from the March 31, 2001 rates, would increase the unrealized loss on currency swaps by $1.0 million. Operating Costs and Expenses: Operating costs and expenses were $133.9 million in the first quarter of 2001 compared with $136.4 million in the first quarter of 2000. Cost of sales for the three months ended March 31, 2001 was $103.0 million compared with $109.8 million in the comparable 2000 period. The decrease of $6.8 million in 2001 includes lower volume of 8.6 million pounds of copper sold from purchased concentrates equivalent to $6.7 millions. Administrative and other expenses were $7.1 million in the three months ended March 31, 2001 and $7.2 million in the comparable 2000 period. Depreciation and depletion expense for the three months ended March 31, 2001 was $20.8 million compared with $18.6 million in the comparable 2000 period. The increase in 2001 is principally due to the depreciation of the new equipment and other assets to expand and protect the Cuajone mine from maximum flooding of the Torata River. Non-Operating Items: Interest income was $2.8 million in the first quarter of 2001, compared to $0.4 million in the comparable 2000 period. The increase reflects higher amounts of excess cash invested in year 2001. Taxes on Income: Taxes on income for the three months ended March 31, 2001, were slightly higher as a percentage of pre-tax income as a result of lower expected foreign tax credits and amounted to $7.9 million, compared with $7.6 million for the same quarter of 2000. Cash Flows: Net cash provided by operating activities was $99.5 million in the first quarter of 2001, compared with $37.3 million in the comparable 2000 period. The increase was attributable to reimbursements of pending I.G.V. drawbacks made by the government of $45.5 millions and decreases in accounts receivable due to lower copper price of $14.5 million, and others. Net cash used in investing activities was $27.5 million of capital expenditures in the first quarter of 2001. In the first quarter of 2000, net cash used in investing activities was $33.2 million of capital expenditures. Net cash generated by financing activities in the first quarter of 2001 was $395.4 million, compared with a use of cash of $4.5 million in the first quarter of 2000. The first quarter of 2001 includes a disbursement of $400.0 million under a credit line contracted with a group of international financial institutions. Liquidity and Capital Resources: In the first quarter of 2001 the Company has received a disbursement of $400.0 million under a line of credit contracted with a group of international financial institutions. This line of credit will be used by SPCC to finance its expansion and modernization plan that includes among others, the expansion of the Toquepala mine and concentrator, an additional leaching section at the Cuajone mine, and the expansion and modernization of its smelter in Ilo. - 10 -
On February 28, 2001, the Company declared a quarterly dividend of 14.3 cents per share payable April 4, 2001, to stockholders of record at the close of business on March 16, 2001. Payment was made on April 4, 2001. Additionally, on May 9, 2001, the Company declared a quarterly dividend of 9.8 cents per share payable June 15, 2001, to stockholders of record at the close of business on May 29, 2001. Certain financing agreements contain covenants that limit the payment of dividends to stockholders. Under the most restrictive covenant, the Company may pay dividends to stockholders equal to 50% of the net income of the Company for any fiscal quarter as long as such dividends are paid by June 30 of the following year. Impact of New Accounting Standards: Effective January 1, 2001, the Company has adopted the SFAS No. 133 "Accounting for Derivative Instruments and Hedging Activities" and SFAS No. 138 "Accounting for Certain Derivative instruments and certain Hedging Activities". Such adoption did not have a material impact on the condensed financial statements as of 3/31/01. 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 metal prices on commodity exchanges, which can be volatile. - 11 -
Arthur Andersen REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Stockholders and Board of Directors of Southern Peru Copper Corporation: We have reviewed the accompanying condensed consolidated balance sheet of Southern Peru Copper Corporation and subsidiaries as of March 31, 2001 and the related condensed consolidated statements of income and cash flows for the three-month periods ended 2001 and 2000. These financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the condensed financial statements referred to above for them to be in conformity with accounting principles generally accepted in the United States of America. ARTHUR ANDERSEN LLP Phoenix, Arizona April 18, 2001 - 12 -
Part II - OTHER INFORMATION Item 6 - Exhibits on form 10-Q 15 - Independent Public Accountants Awareness Letter. - 13 -
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: May 11, 2001 /s/ Oscar Gonzalez Rocha ------------------------ President Date: May 11, 2001 /s/ Daniel Tellechea Salido --------------------------- Vice President of Finance - 14 -