SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
2000
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, 2000 Commission file number 1-14066
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SOUTHERN PERU COPPER CORPORATION
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(Exact name of registrant as specified in its charter)
DELAWARE 13-3849074
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(State or other jurisdiction of (I.R.S Employer
Incorporation or organization) Identification No.)
180 MAIDEN LANE, NEW YORK, N.Y. 10038
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 212-510-2000
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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, 2000, 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.
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PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements (unaudited)
Condensed Consolidated Statement of Earnings
Three Months and Six Months
ended June 30, 2000 and 1999 2
Condensed Consolidated Balance Sheet
June 30, 2000 and December 31, 1999 3
Condensed Consolidated Statement of Cash Flows
Three Months and Six Months
ended June 30, 2000 and 1999 4
Notes to Condensed Consolidated Financial Statements 5-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-13
Report of Independent Public Accountants 14
PART II. OTHER INFORMATION:
Item 6 Exhibits on Form 10-Q 15
Signatures 16
Exhibit 15 - Independent Public Accountants Awareness Letter 17
Southern Peru Copper Corporation
and Subsidiaries
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
(unaudited)
3 Months Ended 6 Months Ended
June 30, June 30,
2000 1999 2000 1999
--------- --------- --------- ---------
(in thousands, except for per share amounts)
Net sales:
Stockholders and affiliates $ 17,094 $ -- $ 33,432 $ --
Others 139,927 132,376 286,711 256,318
--------- --------- --------- ---------
Total net sales 157,021 132,376 320,143 256,318
--------- --------- --------- ---------
Operating costs and expenses:
Cost of sales 100,852 95,862 210,655 185,113
Administrative and other expenses 6,935 9,427 14,138 19,525
Depreciation and depletion 18,587 18,271 37,225 35,658
Exploration expense 1,378 1,706 2,109 2,466
--------- --------- --------- ---------
Total operating costs and expenses 127,752 125,266 264,127 242,762
--------- --------- --------- ---------
Operating income 29,269 7,110 56,016 13,556
Interest income 645 2,301 1,073 5,218
Other income 927 175 1,910 1,641
Interest expense (4,019) (4,448) (7,935) (9,500)
--------- --------- --------- ---------
Earnings before taxes on income
and minority interest of investment
shares 26,822 5,138 51,064 10,915
Taxes on income 8,583 1,541 16,194 3,274
Minority interest of investment shares
in income of Peruvian Branch 225 8 381 10
--------- --------- --------- ---------
Net earnings $ 18,014 $ 3,589 $ 34,489 $ 7,631
========= ========= ========= =========
Per common share amounts:
Net earnings - basic and diluted $ 0.22 $ 0.05 $ 0.43 $ 0.10
Dividends paid $ 0.05 $ 0.025 $ 0.11 $ 0.055
Weighted average common shares
outstanding: Basic 79,999 79,867 80,000 79,862
Diluted 80,017 79,888 80,026 79,876
The accompanying notes are an integral part of these financial statements.
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Southern Peru Copper Corporation
and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEET
(unaudited)
June 30, December 31,
2000 1999
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(in thousands)
ASSETS
Current assets:
Cash and cash equivalents $ 37,593 $ 10,596
Accounts receivable, net 77,437 80,664
Inventories 105,148 110,171
Other assets 56,822 67,710
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Total current assets 277,000 269,141
Net property 1,276,789 1,250,887
Other assets 26,096 25,425
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Total Assets $1,579,885 $1,545,453
========== ==========
LIABILITIES
Current liabilities:
Current portion of long-term debt $ 30,505 $ 23,272
Accounts payable 39,123 58,413
Accrued liabilities 31,491 29,472
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Total current liabilities 101,119 111,157
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Long-term debt 203,835 199,253
Deferred income taxes 93,385 79,888
Other liabilities 16,375 15,242
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Total non-current liabilities 313,595 294,383
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Minority interest of investment shares
in the Peruvian Branch 13,544 13,975
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STOCKHOLDERS' EQUITY
Common stock (a) 261,584 261,584
Retained earnings 890,043 864,354
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Total Stockholders' Equity 1,151,627 1,125,938
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Total Liabilities, Minority
Interest and Stockholders' Equity $1,579,885 $1,545,453
========== ==========
(a) Common shares: Authorized 34,099 34,099
Outstanding 14,098 14,119
Class A common shares Authorized
and Outstanding 65,901 65,901
The accompanying notes are an integral part of these financial statements.
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Southern Peru Copper Corporation
and Subsidiaries
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
3 Months Ended 6 Months Ended
June 30, June 30,
2000 1999 2000 1999
-------- --------- -------- ---------
(in thousands) (in thousands)
OPERATING ACTIVITIES
Net earnings $ 18,014 $ 3,589 $ 34,489 $ 7,631
Adjustments to reconcile net earnings to
net cash provided from operating activities:
Depreciation and depletion 18,587 18,271 37,225 35,658
Provision (benefit) for deferred income taxes 5,211 (182) 9,433 5,074
Foreign currency transaction losses (gains) (145) (286) 757 1,230
Minority interest of investment shares 225 8 381 10
Net changes in operating assets and liabilities:
Accounts receivable 6,116 (18,890) 3,295 (6,308)
Inventories (5,211) (1,463) 5,023 (92)
Accounts payable and accrued liabilities 1,623 4,609 (17,259) (1,492)
Other operating assets and liabilities 7,485 1,254 15,827 3,699
-------- --------- -------- ---------
Net cash provided by operating activities 51,905 6,910 89,171 45,410
-------- --------- -------- ---------
INVESTING ACTIVITIES
Capital expenditures (31,117) (47,372) (64,353) (97,686)
Purchases of held-to-maturity investments -- (30,520) -- (54,990)
Proceeds from held-to-maturity investments -- 24,470 -- 46,622
Sales of property 12 736 18 1,098
-------- --------- -------- ---------
Net cash used in investing activities (31,105) (52,686) (64,335) (104,956)
-------- --------- -------- ---------
FINANCING ACTIVITIES
Debt repayment (8,185) (6,842) (8,185) (6,842)
Proceeds from borrowings 10,000 -- 20,000 2,000
Escrow (deposits) withdrawals on long-term loans 940 (40) 1,130 (67)
Dividends paid to common stockholders (4,000) (1,997) (8,800) (4,393)
Distributions to minority interest (71) (39) (157) (86)
Purchases of investment shares (191) (462) (1,042) (645)
-------- --------- -------- ---------
Net cash provided by (used in) financing activities (1,507) (9,380) 2,946 (10,033)
-------- --------- -------- ---------
Effect of exchange rate changes on cash 126 284 (785) (453)
-------- --------- -------- ---------
Increase (decrease)in cash and cash equivalents 19,419 (54,872) 26,997 (70,032)
Cash and cash equivalents at beginning of period 18,174 160,788 10,596 175,948
-------- --------- -------- ---------
Cash and cash equivalents at end of period $ 37,593 $ 105,916 $ 37,593 $ 105,916
======== ========= ======== =========
The accompanying notes are an integral part of these financial statements.
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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 June 30,
2000 and the results of operations and cash flows for the three and six
months ended June 30, 2000 and 1999. The condensed financial statements as of
June 30, 1999 and for the three and six-month periods then ended were
reviewed by other accountants whose report dated July 16, 1999 stated that
they were not aware of any material modifications that should be made to
those statements in order for them to be in conformity with generally
accepted accounting principles in The United States of America. Certain
reclassifications have been made in the financial statements from amounts
previously reported. The condensed financial statements as of June 30, 2000
and for the three and six-months periods then ended have been subjected to a
review by Medina, Zaldivar y Asociados Sociedad Civil, member firm of Arthur
Andersen, the Company's independent public accountants. The results of
operations for the three and six-month periods 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
1999 annual report on Form 10-K.
B. Inventories were as follows:
(in millions)
June 30, December 31,
2000 1999
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Metals at lower of average cost or market:
Finished goods $ 1.4 $ 1.5
Work-in-process 43.8 48.7
Supplies at average cost, net of reserves 60.0 60.0
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Total inventories $ 105.2 $ 110.2
======== ========
C. At June 30, 2000, the Company has recorded sales of 6.6 million pounds of
copper, at a provisional price of $0.82 per pound. These sales are subject to
final pricing based on the average monthly LME copper prices in the month of
settlement which will occur in the third quarter of 2000.
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.
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At June 30, 2000, 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.
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.
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 labor shares of its Peruvian Branch, plus dividends. In October
1997, the Superior Court of Lima nullified a decision adverse to SPCC that
had been rendered by the trial court. The Superior Court remanded the case
for a new trial. Plaintiffs filed an extraordinary appeal before the Peruvian
Supreme Court. In March 1999, the Supreme Court denied plaintiffs'
extraordinary appeal and affirmed the decision of the Superior Court of Lima.
In December 1999, the trial court decided against SPCC, ordering the delivery
of the labor shares and dividends to the plaintiffs. SPCC appealed this
decision. There is also pending against SPCC a similar lawsuit filed by
approximately 127 additional former employees. In 1997, the trial court
dismissed the complaint. Upon appeal filed by the plaintiffs, the Superior
Court of Lima, in 1998, nullified the trial court's decision and remanded the
case to the trial court for further proceedings. In December 1999, the trial
court dismissed the complaint against SPCC. Plaintiffs appealed this decision
in January 2000.
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:
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities". This
statement establishes accounting and reporting standards for derivative
instruments and hedging activities. Initially, the statement was to be
effective in fiscal years beginning after June 15, 1999. In June 1999, the
FASB issued SFAS No.137, which defers the effective date of SFAS No. 133 to
fiscal years beginning after June 15, 2000. The Company is currently
assessing the impact of SFAS No. 133.
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In December 1999, the Securities Exchange Commission issued Staff Accounting
Bulletin No. 101 (SAB 101), Revenue Recognition, which provides the staff's
views in applying generally accepted accounting principles to selected
revenue recognition issues. The effective date for the application of SAB 101
has been deferred to the fourth quarter 2000. The Company is currently
assessing the potential effect of SAB 101 on its revenue recognition
principles.
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PART I ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company reported net earnings of $18.0 million, or 22 cents per common
share, for the second quarter ended June 30, 2000 compared with net earnings of
$3.6 million, or 5 cents per common share, for the second quarter of 1999. For
the first six months of 2000, net earnings were $34.5 million or 43 cents per
common share, compared to $7.6 million or 10 cents per common share, for the
same period of 1999. The increase in earnings in the second quarter of 2000 is
primarily a result of higher copper prices and increased production. The average
price for copper on the London Metal Exchange (LME) was 79 cents per pound for
the second quarter of 2000 compared with 67 cents per pound in the second
quarter of 1999. Average price for copper for the six months ended June 30, was
80 cents in 2000 and 65 cents in 1999
Mine copper production increased 2.4% to 184.3 million pounds in the second
quarter of 2000 compared with second quarter of last year. This increase of 4.3
million pounds included 15.4 million pounds from the Cuajone mine, a decrease of
18.6 million pounds from the Toquepala Mine and an increase of 7.5 million
pounds in solvent extraction/electrowinning (SX/EW) production. The production
increase at Cuajone is due to the completion of the mine expansion program.
Toquepala's decrease in production was due principally to lower ore grades. The
increase in SX/EW production is a result of the plant expansion completion in
the third quarter of 1999.
Refined copper production increased 6.7% to 343.9 million pounds in the first
six months of year 2000 compared with same period of last year. This increase of
21.7 million pounds is largely due to the SX-EW plant expansion completion in
the third quarter of 1999. Production increases at the Ilo refinery in the six
months of 2000 amounted to 6.6 million pounds.
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 is
under construction and reached 77% completion at the end of the second quarter
of 2000, with an investment of $61.3 million out of the $75.5 million budget.
The Torata river was diverted on June 30, 2000 to allow the beginning of the
Cuajone pit expansion.
Two proposals have been received to resume the Ilo smelter modernization and
expansion project, and are currently being evaluated. Both alternatives fulfill
the Company's requirements to use the most efficient proven technology, to
provide economic returns and comply with Peruvian environmental standards.
Feasibility studies for expansion of the Toquepala concentrator and mine were
finished and the project was started with the basic engineering. Feasibility
studies for a leaching section and a SX/EW plant at Cuajone are currently
underway. Construction of this project is expected to begin in the year 2000.
These projects will improve SPCC's production capacity to over 900 million
pounds of copper per year when completed.
- 8 -
In July 2000, the Company registered a $200 million bond program to be issued
through SPCC's Peruvian Branch. This facility will provide additional committed
financing for SPCC's modernization and expansion program. In July 2000, $30
million of these bonds were sold to investors in Peru. The bonds mature in July
2007, and have a fixed interest rate of 8 3/4% per annum with quarterly interest
payments. The Company also has available an undrawn $600 million committed bank
credit facility and a balance of $78 million from a $100 million 15-year loan
agreement with Mitsui and Co., Ltd.
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 June 30, 2000 the inflation and
devaluation rates were 1.69% and (0.57)%, respectively, and for the six month
periods ended June 30, 1999, the inflation and devaluation rate were 0.11% and
(0.59)%, respectively.
NET SALES: Net sales in the second quarter of 2000 increased $24.6 million to
$157.0 million from the comparable period in 1999. Net sales for the first six
months of 2000 totaled $320.1 million, compared with $256.3 million for the same
period of 1999. The increase in net sales in both three months and six months
periods of 2000 was principally a result of higher copper prices.
At June 30, 2000, the Company has recorded sales on 6.6 million pounds of
copper, at a provisional price of $0.82 per pound. These sales are subject to
final pricing based on the average monthly LME copper price in the month of
settlement, which will occur in the third quarter of 2000.
PRICES: Sales prices for the Company's metals are established principally by
reference to prices quoted on the LME, the New York Commodity Exchange (COMEX)
or published in Platt's Metals Week for dealer oxide mean prices for molybdenum
products.
Three Months Ended Six Months Ended
June 30, June 30,
Price/Volume Data: 2000 1999 2000 1999
---- ---- ---- ----
Average Metal Prices
Copper (per pound-LME) $0.79 $0.67 $0.80 $0.65
Molybdenum (per pound) $2.68 $2.64 $2.61 $2.67
Silver (per ounce-COMEX) $5.03 $5.13 $5.11 $5.20
Sales Volume (in thousands):
Copper (pounds) 177,800 181,200 361,300 349,900
Molybdenum (pounds) (1) 3,808 3,228 7,154 5,552
Silver (ounces) 881 674 1,756 1,307
(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.
- 9 -
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 June 30, 2000, 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. As of June
30, 2000, and December 31, 1999, the Company has entered into the following fuel
swap agreements:
Weighted Average
Quantity Contract Price
Fuel Type Period (Barrels) (Per Barrel)
--------- ------ --------- ------------
DECEMBER 31, 1999
Residual Oil 1/00 - 12/00 1,468,800 $12.80
Diesel Fuel 1/00 - 12/00 504,000 $19.36
JUNE 30, 2000
Residual Oil 7/00 - 12/00 734,400 $12.78
Diesel Fuel 7/00 - 12/00 252,000 $19.67
The unrealized gain in the Company's fuel swap positions at June 30, 2000, was
$10.4 million. A hypothetical 10% decrease from June 30, 2000 fuel prices, would
reduce the unrealized gain on fuel swaps by $2.6 million.
In the second quarter of 2000, the Company's production costs would have been
$4.5 million higher if this exposure had not been hedged.
FOREIGN CURRENCY: The Company selectively uses foreign currency swaps to limit
the effects of exchange rate changes on future cash flow obligations denominated
in foreign currencies. A currency swap establishes a fixed dollar cost for a
fixed amount of foreign currency required at a future date. The Company has
entered into currency swap agreements on a portion of its capital cost
contracted in euros.
As of June 30, 2000 the Company had the following currency swap agreements:
US$ Euros Forward
Maturity Date (in millions) Exchange Rate
------------- ------------- -------------
7/31/2000 9.1 8.0 1.1341
10/31/2000 8.5 7.4 1.1419
12/29/2000 6.5 5.7 1.1467
3/31/2001 2.6 2.3 1.1535
4/30/2001 3.3 2.9 1.1559
The unrealized loss in the Company's currency swap position at June 30, 2000 was
- 10 -
$5.0 million. A hypothetical 10 percent decrease from June 30, 2000 rates, would
increase the unrealized loss on currency swaps by $2.5 million. The full cost of
the currency swap amount as acquired will, when exercised, be included in the
cost of the capital asset for which these swaps were acquired.
OPERATING COSTS AND EXPENSES: Operating costs and expenses were $127.8 million
in the second quarter of 2000 compared with $125.3 million in the second quarter
of 1999. In the six months ended June 30, operating costs and expenses were
$264.1 million in 2000, compared with $242.8 million in the comparable 1999
period.
Cost of sales for the three months ended June 30, 2000 was $100.9 million
compared with $95.9 million in the comparable 1999 period. In the six months
ended June 30, 2000, cost of sales was $210.7 million, compared with $185.1
million in the comparable 1999 period. The increases in both periods are mainly
due to increased fuel oil and power cost.
Administrative and other expenses were $6.9 million in the three months ended
June 30, 2000 and $9.4 million in the comparable 1999 period. In the six months
ended June 30, 2000, administrative and other expenses were $14.1 million
compared with $19.5 million in the six months ended June 30, 1999. The decrease
is mainly due to decrease in labor costs and other benefits associated with the
termination of foreign contracted employees at the end of year 1999.
Depreciation and depletion expense for the three months ended June 30, 2000 was
$18.6 million compared with $18.3 million in the comparable 1999 period. In the
six months ended June 30, 2000 depreciation and depletion expense was $37.2
million, compared with $35.7 million in the comparable 1999 period. The increase
in 2000 is principally due to the depreciation of the Toquepala SX/EW plant
expansion, completed in the third quarter of 1999.
NON-OPERATING ITEMS: Interest income was $0.7 million in the second quarter of
2000, compared to $2.3 million in the comparable 1999 period. In the six months
ended June 30, 2000 interest income was $1.1 million compared to $5.2 million
for the same period of 1999. The decrease reflects lower invested balances as
Company funds were used for the expansion and modernization program.
TAXES ON INCOME: Taxes on income for the six months ended June 30, 2000 were
$16.2 million, compared with $3.3 million for the same period of 1999. The
increase was principally due to higher earnings in 2000, resulting from higher
copper prices and higher production.
CASH FLOWS:
SECOND QUARTER: Net cash provided by operating activities was $51.9 million in
the second quarter of 2000, compared with $6.9 million in the comparable 1999
period. The increase was principally attributable to increased operating income
and the contribution of accounts receivable to cash flow. In the second quarter
of 2000, a decrease in accounts receivable added $6.1 million to cash, compared
to utilization of cash of $18.9 million in the second quarter of 1999. Decrease
in accounts receivable in 2000 period is mainly due to prompt proceeds from
sales made at beginning of June 2000. Utilization of cash in 1999 is due to
delay in reimbursement of taxes from the tax department.
Net cash used in investing activities was $31.1 million of capital expenditures
in the second quarter of 2000. In the second quarter of 1999, net cash used in
investing activities was $52.7 million and was principally due to $ 47.4 million
of capital expenditures and $6.1 million of net purchases of held-to-maturity
investment, net of sales of such investments.
- 11 -
Net cash used for financing activities in the second quarter of 2000 was $1.5
million, compared with $9.4 million for the second quarter of 1999. The second
quarter of 2000 includes a dividend distribution of $4.0 million, proceeds from
borrowings of $10.0 million and repayment of $8.2 million of long-term debt. The
second quarter of 1999 included a dividend distribution of $2.0 million and
scheduled debt repayments of $6.8 million.
SIX MONTHS: Net cash provided by operating activities was $89.2 million for the
six month period ended June 30, 2000, compared with $45.4 million in the
comparable 1999 period. Increased earnings and improved contributions from
operating assets and liabilities accounted for the improved cash flow.
Net cash used in investing activities was $64.3 million in the six month period
ended June 30, 2000, and was primarily due to capital expenditures. In the six
month period ended June 30, 1999, net cash used in investing activities was
$105.0 million and was principally due to capital expenditures of $97.7 and $8.4
million of net funds used for the purchase of held-to-maturity investments. The
decrease in capital expenditures in the six months ended June 30, 2000, as
compared to the 1999 period is attributable to completion of various projects
and the time required to evaluate the most efficient proven technology in the
modernization and expansion of the Ilo Smelter.
Cash provided by financing activities for the six months ended June 30, 2000 was
$2.9 million, compared with a use of $10.0 million in the comparable 1999
period. The six months ended June 30, 2000 includes a debt repayment of $8.2
million, proceeds from borrowings $20.0 million, and dividends paid to
shareholders of $8.8 million. The six months ended June 30, 1999 included a debt
repayment of $6.8 million, proceeds from borrowings $2.0 million and dividends
paid to shareholders $4.4 million.
LIQUIDITY AND CAPITAL RESOURCES: The Company expects that it will meet its cash
requirements for 2000 and beyond from internally generated funds, cash on hand,
from borrowings under existing credit facilities and from additional external
financing.
On June 16, 2000 a bond program of $200 million was approved in Peru. On July
20, 2000, $30 million of these bonds were issued through SPCC's Branch to
Peruvian investors. The bonds have an interest rate of 8 3/4% per annum and
mature in July 2007. The proceeds will be used to finance a portion of SPCC's
expansion and modernization of its Toquepala copper mine and Ilo copper smelter.
SPCC plans to issue the remaining balance of this program from time to time.
In the second quarter of 2000, the Company paid a dividend to shareholders of
$4.0 million or 5 cents per share, compared with $2.0 million or 2.5 cents per
share in the same period of 1999. On July 25, 2000, the Company declared a
quarterly dividend of 5.6 cents per share payable September 4, 2000, to
stockholders of record at the close of business on August 15, 2000.
Certain financing agreements contain covenants which, 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.
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IMPACT OF NEW ACCOUNTING STANDARDS: In June 1998, the Financial Accounting
Standards Board (FASB) issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes accounting and
reporting standards for derivative instruments and hedging activities.
Initially, the statement was to be effective in fiscal years beginning after
June 15, 1999. In June 1999, the FASB issued SFAS No. 137, which defers the
effective date of SFAS No.133 one year until June 15, 2000. The Company is
currently assessing the impact of SFAS No. 133.
In December 1999, the Securities Exchange Commission issued Staff Accounting
Bulletin No. 101 (SAB 101), Revenue Recognition, which provides the staff's
views in applying generally accepted accounting principles to selected revenue
recognition issues. The effective date for the application of SAB 101 has been
deferred to the fourth quarter 2000. The Company is currently assessing the
potential effect of SAB 101 on its revenue recognition principles.
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.
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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 balance sheet of Southern Peru
Copper Corporation and subsidiaries as of June 30, 2000, and the related
condensed statements of income and cash flows for the three-month and six-month
periods then ended. The condensed financial statements as of June 30, 1999 for
the three-month and six-month periods then ended were reviewed by other
accountants whose report dated July 16, 1999, stated that they were not aware of
any material modifications that should be made to those statements in order for
them to be in conformity with generally accepted accounting principles. 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 financial statements referred to above for them to be in
conformity with accounting principles generally accepted in the United States of
America.
Countersigned by:
/s/ MARCO ANTONIO ZALDIVAR
- --------------------------
Marco Antonio Zaldivar
C.P.C. Register No. 12477
Lima, Peru,
July 14, 2000
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Part II - OTHER INFORMATION
Item 6 - Exhibits on form 10-Q
15 - Independent Public Accountants Awareness Letter.
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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 11, 2000 /s/ OSCAR GONZALEZ ROCHA
------------------------
President
Date: August 11, 2000 /s/ DANIEL TELLECHEA SALIDO
---------------------------
Vice President of Finance
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