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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
2002
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, 2002 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.)
2575 East Camelback Rd. Phoenix, AZ 85016
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (602) 977-6500
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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, 2002, there were outstanding 14,103,157 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, 2002 and 2001 2
Condensed Consolidated Balance Sheet June 30, 2002 3
and December 31, 2001
Condensed Consolidated Statement of Cash Flows
Three Months and Six Months ended June 30, 2002 and 2001 4-5
Notes to Condensed Consolidated Financial Statements 6-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-13
Independent Accountants' Report 14
PART II. OTHER INFORMATION:
Item 6. Exhibits
Exhibit 15 Independent Accountants' Awareness Letter
Signatures 15
Certification of Financial Reports 16-17
- 1 -
Southern Peru Copper Corporation
and Subsidiaries
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
--------------------------------------------
(Unaudited)
3 Months Ended June 30, 6 Months Ended June 30,
2002 2001 2002 2001
---- ---- ---- ----
(in thousands, except for per share amounts)
Net sales:
Related parties $ 4,952 $ 7,742 $ 7,109 $ 14,996
Others 188,420 155,093 322,457 310,259
------------ ------------ ------------ ------------
Total net sales 193,372 162,835 329,566 325,255
------------ ------------ ------------ ------------
Operating costs and expenses:
Cost of sales 124,652 115,274 214,914 218,288
Administrative and other expenses 7,885 8,672 14,961 15,786
Depreciation and depletion 16,288 18,760 32,509 39,585
Exploration expense 2,109 281 3,408 3,230
------------ ------------ ------------ ------------
Total operating costs and expenses 150,934 142,987 265,792 276,889
Operating income 42,438 19,848 63,774 48,366
Interest income 666 6,498 1,393 9,252
Other income (expense) 67 (740) 1,259 (1,113)
Interest expense (3,245) (13,344) (7,248) (20,345)
------------ ------------ ------------ ------------
Earnings before taxes on income minority interest of investment
shares and extraordinary loss 39,926 12,262 59,178 36,160
Taxes on income 12,702 4,612 18,714 12,514
Minority interest of investment shares in income of Peruvian Branch 413 193 523 490
------------ ------------ ------------ ------------
Earnings before extraordinary loss 26,811 7,457 39,941 23,156
Extraordinary loss from early extinguishment of debt net of
income tax benefits of $3,876 - - 8,536 -
------------ ------------ ------------ ------------
Net earnings $ 26,811 $ 7,457 $ 31,405 $ 23,156
============ ============ ============ ============
Per common share amounts:
Earnings before extraordinary loss $ 0.34 $ 0.09 $ 0.50 $ 0.29
Extraordinary loss from early
extinguishment of debt net of income tax benefits - - (0.11) -
------------ ------------ ------------ ------------
Net earnings - basic and diluted $ 0.34 $ 0.09 $ 0.39 $ 0.29
============ ============ ============ ============
Dividends paid $ 0.04 $ 0.24 $ 0.11 $ 0.24
============ ============ ============ ============
Weighted average common shares outstanding (Basic) 80,004 80,001 80,004 80,001
============ ============ ============ ============
Weighted average common shares outstanding (Diluted) 80,009 80,006 80,007 80,006
============ ============ ============ ============
The accompanying notes are an integral part of these condensed consolidated
financial statements.
- 2 -
Southern Peru Copper Corporation
and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEET
------------------------------------
(unaudited)
June 30, December 31,
2002 2001
---- ----
(in thousands)
ASSETS
Current assets:
Cash and cash equivalents $ 120,046 $ 212,857
Accounts receivable, net 83,138 81,827
Inventories 100,428 101,030
Other assets 11,396 30,931
------------ ------------
Total current assets 315,008 426,645
Net property 1,420,682 1,376,777
Other assets 11,394 17,995
------------ ------------
Total Assets $ 1,747,084 $ 1,821,417
------------ ------------
LIABILITIES
Current liabilities:
Current portion of long-term debt $ - $ 122,914
Accounts payable 52,081 53,617
Accrued liabilities 47,576 44,422
------------ ------------
Total current liabilities 99,657 220,953
------------ ------------
Long-term debt 299,043 273,121
Deferred income taxes 87,705 88,615
Other liabilities and reserves 14,817 15,252
------------ ------------
Total non-current liabilities 401,565 376,988
------------ ------------
MINORITY INTEREST 14,106 14,021
------------ ------------
STOCKHOLDERS' EQUITY
Common stock (a) 261,628 261,625
Retained earnings 970,128 947,830
------------ ------------
Total Stockholders' Equity 1,231,756 1,209,455
------------ ------------
Total Liabilities, Minority Interest and Stockholders' Equity $ 1,747,084 $ 1,821,417
------------ ------------
(a) Common shares: Authorized 34,099 34,099
Outstanding 14,103 14,103
Class A common shares Authorized
and Outstanding 65,901 65,901
The accompanying notes are an integral part of these condensed consolidated
financial statements.
- 3 -
Southern Peru Copper Corporation
and Subsidiaries
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
----------------------------------------------
(unaudited)
3 Months Ended 6 Months Ended
June 30, June 30,
2002 2001 2002 2001
---- ---- ---- ----
(in thousands) (in thousands)
OPERATING ACTIVITIES
Net earnings $ 26,811 $ 7,457 $ 31,405 $ 23,156
Extraordinary loss, pre-tax - - 12,412 -
Adjustments to reconcile net earnings to net cash
provided from operating activities:
Depreciation and depletion 16,288 18,760 32,509 39,585
Remeasurement (gain) loss (3,238) 2,018 (2,109) 3,722
Deferred income taxes 486 855 1,201 2,980
Minority interest of investment shares 413 193 523 490
Cash provided from (used for) operating assets and liabilities:
Accounts receivable (29,487) (12,011) (6,272) 59,958
Inventories 15,159 12,965 603 (3,819)
Accounts payable and accrued liabilities 1,785 (1,017) 3,723 2,211
Other operating assets and liabilities 17,386 1,946 16,552 2,349
----------- ------------ ----------- ----------
Net cash provided by operating activities 45,603 31,166 90,547 130,632
----------- ------------ ----------- ----------
INVESTING ACTIVITIES
Capital expenditures (37,719) (40,222) (78,703) (67,745)
Purchases of marketable securities - - (16,632) -
Sales of marketable securities 16,632 - 16,632 -
Sales of property 75 48 78 61
----------- ------------ ----------- ----------
Net cash used in investing activities (21,012) (40,174) (78,625) (67,684)
----------- ------------ ----------- ----------
FINANCING ACTIVITIES
Cash paid for early extinguishment of debt - - (11,404) -
Debt repayment - (43,039) (122,914) (47,285)
Proceeds from borrowings - - 25,922 400,000
Escrow (deposits) withdrawals on long-term loans (55) (32,063) 6,936 (32,063)
Dividends paid to common stockholders (1,466) (8,833) (4,172) (8,833)
Distributions to minority interest (47) (309) (142) (309)
Treasury stock transaction - - 3 -
Labor shares purchased (201) (361) (330) (756)
----------- ------------ ----------- ----------
Net cash (used for) provided from financing activities (1,769) (84,605) (106,101) 310,754
----------- ------------ ----------- ----------
Effect of exchange rate changes on cash 2,626 (1,244) 1,368 (3,146)
----------- ------------ ----------- ----------
Increase (decrease) in cash and cash equivalents 25,448 (94,857) (92,811) 370,556
Cash and cash equivalents, at beginning of period 94,598 614,501 212,857 149,088
----------- ------------ ----------- ----------
Cash and cash equivalents, at end of period $ 120,046 $ 519,644 $ 120,046 $ 519,644
=========== ============ =========== ==========
- 4 -
3 Months Ended 6 Months Ended
June 30, June 30,
2002 2001 2002 2001
---- ---- ---- ----
(in thousands) (in thousands)
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ 5,187 $ 15,180 $ 9,432 $ 20,190
=========== ============ =========== ==========
Income taxes $ 1,281 $ 435 $ 5,262 $ 435
----------- ------------ ----------- ----------
Supplemental schedule of noncash investing and
Financing activities:
Accounts receivable from shareholders
offset by dividends paid $ 1,734 $ 10,446 $ 4,933 $ 10,446
----------- ------------ ----------- ----------
The accompanying notes are an integral part of these condensed consolidated
financial statements.
- 5 -
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, 2002 and the results of operations and cash flows for the three
and six months ended June 30, 2002 and 2001. Certain reclassifications have
been made in the financial statements from amounts previously reported. The
condensed financial statements as for the three and six months ended June
30, 2002 have been subjected to a review by Deloitte & Touche LLP, 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 2001 annual
report on Form 10-K.
B. Inventories were as follows:
(in millions)
June 30, 2002 December 31, 2001
Metals at lower of average cost or market:
Finished goods $ 1.2 $ 1.8
Work-in-process 52.2 45.9
Supplies at average cost, net of reserves 47.0 53.3
--------- --------
Total inventories $ 100.4 $ 101.0
--------- --------
C. At June 30, 2002, the Company has recorded sales of 7.6 million pounds of
copper, at an average provisional price of $0.75 per pound. Also the Company
has recorded sales of 0.5 million pounds of molybdenum at an average
provisional price of $6.08 per pound. These sales are subject to final
pricing based on the average monthly LME and COMEX copper prices and Dealer
Oxide molybdenum prices in the month of settlement, which will occur in the
third quarter of 2002.
D. For the first six months of 2002, the Company changed the estimated lives
of certain machinery and equipment. This change was accounted for
prospectively and resulted in a reduction to depreciation expense of
approximately $7.0 million in the first six months of 2002.
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 December 1999, the civil court of first instance
of Lima 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. On appeal
by the Company, the Peruvian Supreme Court annulled the proceeding noting
that the civil courts lacked jurisdiction and that the matter had to be
decided by a labor court. The case is now pending before a labor court of
first instance in Lima.
- 6 -
There was also pending against the Company a similar lawsuit filed by 127
additional former employees. In December 1999, the civil court of first
instance of Lima 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 filed
an extraordinary appeal before the Supreme Court. In July 2002, the Company
was notified that the Supreme Court of Peru had affirmed the decision of
the lower court dismissing the case. Therefore, the case has been resolved
favorably for the Company.
In February 2002, the Company received notice that approximately 3,000
additional former employees intended to file a similar lawsuit, for
unspecified amounts, seeking the delivery of a substantial number of
investment shares. The conciliation hearing took place and was concluded
when no agreement was reached. The plaintiffs may now file a lawsuit against
the Company. The Company will challenge the claim.
On December 28, 2000, a lawsuit styled Flores v. Southern Peru Copper
Corporation was filed against the Company in federal court in New York City.
The Flores lawsuit sought 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 invoked the jurisdiction of the court under the federal Alien
Tort Claims Act, claiming violations of customary international law.
The Flores lawsuit is similar to a suit filed in 1995 in Texas, for
unspecified amounts, 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 it clear that the claims of Peruvian residents should be
tried in the courts of Peru, not in the United States.
On July 16, 2002, the United States District Court for the Southern District
of New York dismissed the complaint in the Flores lawsuit. In its decision,
the court ruled that it lacked jurisdiction under the Alien Tort Claims Act
because the Peruvian plaintiffs had failed to allege a cognizable claim that
international law had been violated. In the alternative, the court stated
that, even if it had jurisdiction, it nonetheless would dismiss the Flores
lawsuit on the basis of the doctrine of forum non convenient, because the
dispute should be litigated in the courts of Peru, not in the United States.
The clerk of the court entered a judgment formally dismissing the Flores
case on July 26, 2002. The period of time during which the plaintiffs may
file a notice of appeal from the dismissal of their lawsuit will expire on
August 25, 2002.
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. First quarter 10Q report amendment:
The Quarterly Report on Form 10-Q for the quarter ended March 31, 2002 was
amended to reflect an adjustment to its previously disclosed First Quarter
2002 earnings from $6.4 million to $4.6 million (basic and diluted earnings
adjusted from 8 cents to 6 cents) or a net adjustment of $1.8 million to the
first quarter results.
- 7 -
The corrected first quarter condensed financial statements contained in the
Form 10-Q/A is the result of the correction of an overstatement in
previously reported inventories on hand as of March 31, 2002.
Management believes the correction is largely associated with the process of
compiling reported inventories. Management believes that the Company's
current control systems and procedures have eliminated the excess that led
to the need for adjustment.
For purposes of the Form 10-Q/A, and in accordance with Rule 12b-15 under
the Securities Exchange Act of 1934, as amended Southern Peru Copper
Corporation has amended and has been affected by the Restatement. In order
to preserve the nature and character of the disclosures set forth in such
items as of May 13, 2002, the attempt has been made in the Form 10-Q/A to
modify or update such disclosures except as required to reflect the affects
of the Restatement and other potentially material events.
G. Impact of New Accounting Standards:
In August 2001, the FASB issued SFAS No. 143 "Accounting for Asset
Retirement Obligations", which will be required to be adopted effective
January 1, 2003. SFAS No. 143 establishes standards for accounting for an
obligation associated with the retirement of long-lived tangible assets.
Management is assessing the impact of this statement on the results of
operations and financial condition.
In April 2002, the FASB issued SFAS No. 145 to rescind FASB Statement No. 4,
"Reporting Gains and Losses from Extinguishment of Debt", and an amendment
of that Statement, FASB Statement No. 64, "Extinguishments of Debt Made to
Satisfy Sinking-Fund Requirements". This Statement also rescinds FASB
Statement No. 44, "Accounting for Intangible Assets of Motor Carriers". This
Statement which shall be applied in fiscal years beginning after May 15,
2002, amends FASB Statement No. 13, "Accounting for Leases", to eliminate an
inconsistency between the required accounting for sale-leaseback
transactions and the required accounting for certain lease modifications
that have economic effects that are similar to sale-leaseback transactions.
This Statement also amends other existing authoritative pronouncements to
make various technical corrections, clarify meanings, or describe their
applicability under changed conditions. Management is assessing the impact
of this statement on the results of operations and financial condition.
In June 2002, the FASB issued SFAS No. 146 "Accounting for Costs Associated
with exit or disposal activities" which will be required to be effective for
exit or disposal activities that are initiated after December 31, 2002,
addresses financial accounting and reporting for costs associated with exit
or disposal activities and nullifies Emerging Issues Task Force (EITF) Issue
No. 94-3, "Liability Recognition for Certain Employee Termination Benefits
and Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring)". Management is assessing the impact of this statement on the
results of operations and financial condition.
- 8 -
Part I Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
AND QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company reported net earnings of $26.8 million, or 34 cents per basic and
diluted share, for the second quarter ended June 30, 2002 compared with net
earnings of $7.5 million, or 9 cents per basic and diluted share, for the second
quarter of 2001. For the first six months of 2002, net earnings were $31.4
million or 39 cents per basic and diluted share, compared to $23.2 million or 29
cents per basic and diluted share, for the same period of 2001. Sales of
products were $193.4 million in the second quarter of 2002 compared with $162.8
million in the second quarter of 2001.
Sales of products for the first half of 2002 totaled $329.6 million compared
with $325.3 million for the same period of the previous year. The increase in
earnings in the second quarter of 2002 is primarily a result of higher copper
production and sales, increase in molybdenum prices and a decrease in
depreciation and financing expenses. The average price for copper on the London
Metal Exchange (LME) was 73 cents per pound for the second quarter of 2002
compared with 75 cents per pound in the second quarter of 2001. Average price
for copper for the six months ended June 30, was 72 cents in 2002 and 77 cents
in 2001. The average price for copper on the New York Commodity Exchange (COMEX)
was 74 cents per pound for the second quarter of 2002 compared with 75 cents per
pound in the second quarter of 2001. Average price for copper for the six months
ended June 30, was 73 cents in 2002 and 79 cents in 2001. The average price for
molybdenum, one of SPCC's principal by-products, was higher in the second
quarter of 2002 at $4.35 per pound, compared with $2.46 for the same period of
2001. In the first half of 2002 the average price for molybdenum was $3.55 per
pound, compared with $2.35 for the same period of 2001.
Mine copper production increased 1.7% to 173.7 million pounds in the second
quarter of 2002 compared with the second quarter of last year. This increase of
2.9 million pounds included an increase of 2.1 million pounds from the Toquepala
mine, a decrease of 1.5 million pounds from the Cuajone mine and an increase of
2.3 million pounds in solvent extraction/electrowinning (SX/EW) production. The
Toquepala mine increase in production was due to higher ore grades mined, and
better copper recovery at the concentrator. The decrease in production at the
Cuajone mine was due to a decrease of 2 percent in mineral treated at the mine
and a decrease in the copper recovery, which was partially compensated by higher
ore grades mined compared to same period of 2001. The main reason for the 2.3
million pounds increase in SX/EW production was a higher volume of treated
solutions.
The Toquepala concentrator expansion and modernization project had reached 96%
completion at the end of June 2002, with an investment of $56.2 million out of
the $69.5 million budgeted. It is anticipated that when this project reaches
completion in August 2002, the Toquepala concentrator milling capacity will be
increased from 45,000 to 60,000 metric tons per day. This increase in production
represents an annual increase of 122,815 metric tons of concentrates to be
processed at the Ilo smelter. The Cuajone leaching facilities expansion project
is being developed to expand the leaching pads and the grinding plant. This will
allow the plant to produce 18 tons per day of copper contained in solution for
treatment at the solvent extraction plant in Toquepala.
At the end of 2001, the Company initiated a feasibility study to expand
production capacity at the Ilo refinery's electrolytic plant by 80,000 tons per
year to eventually reach total production of 360,000 tons of cathodes annually.
- 9 -
INFLATION AND DEVALUATION OF PERUVIAN NUEVO SOL: The functional currency of the
Peruvian Branch is the US Dollar. 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 six months ended June 30, 2002, the inflation and devaluation rates were
0.62% and 1.89% respectively, and for the six months periods ended June 30, 2001
the inflation and devaluation rates were 0.49% and (0.37%), respectively.
NET SALES: Net sales in the second quarter of 2002 increased $30.5 million to
$193.4 million from the comparable period in 2001. Net sales for the first six
months of 2002 totaled $329.6 million, compared with $325.3 million for the same
period of 2001. The increase in net sales in both the three and six month
periods ended June 30, 2002 was principally a result of the increase in copper
sales of 28.7 million pounds in the second quarter of 2002 and 21.4 million in
the first half of 2002 as compared with the same periods of 2001. The increase
in net sales is also due to higher molybdenum prices in both second quarter and
first half of 2002 as compared to same periods in 2001.
At June 30, 2002, the Company has recorded sales of 7.6 million pounds of
copper, at an average provisional price of $0.75 per pound. Also, the Company
has recorded sales of 0.5 million pounds of molybdenum at an average provisional
price of $6.08 per pound. These sales are subject to final pricing based on the
average monthly LME and COMEX copper prices and Dealer Oxide molybdenum prices
in the month of settlement, which will occur in the third quarter of 2002.
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 Six Months Ended
June 30, June 30,
Price/Volume Data: 2002 2001 2002 2001
Average Metal Prices
Copper (per pound-LME) $ 0.73 $ 0.75 $ 0.72 $ 0.77
Copper (per pound-Comex) $ 0.74 $ 0.75 $ 0.73 $ 0.79
Molybdenum (per pound) $ 4.35 $ 2.46 $ 3.55 $ 2.35
Silver (per ounce-COMEX) $ 4.73 $ 4.38 $ 4.60 $ 4.45
Sales Volume (in thousands):
Copper (pounds) 222,700 194,000 393,300 371,900
Molybdenum (pounds) (1) 5,085 3,737 9,658 8,197
Silver (ounces) 991 890 1,879 1,810
(1) The Company's molybdenum production is sold in concentrate form. Volume
represents pounds of molybdenum contained in concentrates.
METAL PRICE SENSITIVITY: There is market risk arising from the volatility of
copper prices. Assuming that expected metal production and sales are achieved,
that tax rates are unchanged, that the number of shares outstanding is
unchanged, and disregarding the effects of hedging programs or changes in past
production, metal price sensitivity factors would indicate the following
estimated change in earnings per share resulting from metal price changes in
2002. Estimates are based on 80.0 million shares outstanding.
Copper Silver Molybdenum
------ ------ ----------
Change in Metal Prices $ 0.01/lb. $ 1.00/oz. $ 1.00/lb.
Annual Change in Earnings per share $ 0.06 $ 0.03 $ 0.15
- 10 -
OPERATING COSTS AND EXPENSES: Operating costs and expenses were $150.9 million
in the second quarter of 2002 compared with $143.0 million in the second quarter
of 2001. In the six months ended June 30, operating costs and expenses were
$265.8 million in 2002, compared with $276.9 million in the comparable 2001
period.
Cost of sales for the three months ended June 30, 2002 was $124.7 million
compared with $115.3 million in the comparable 2001 period. In the six months
ended June 30, 2002 cost of sales was $214.9 million, compared with $218.3
million in the comparable 2001 period. The increase in the second quarter was
the result of higher copper sales volumes.
Administrative and other expenses were $7.9 million in the three months ended
June 30, 2002 and $8.7 million in the comparable 2001 period. In the six months
ended June 30, 2002, administrative and other expenses were $15.0 million
compared with $15.8 million in the six months ended June 30, 2001. The decrease
in the second quarter 2002 compared with the same period of 2001 is mainly due
to a decrease in legal and consulting services.
Depreciation and depletion expense for the three months ended June 30, 2002 was
$16.3 million compared with $18.8 million in the comparable 2001 period. In the
six months ended June 30, 2002 depreciation and depletion expense was $32.5
million, compared with $39.6 million in the comparable 2001 period. The decrease
in 2002 is principally due to a change related to longer estimated service lives
of assets implemented during the first quarter of 2002.
NON-OPERATING ITEMS: Interest income was $0.7 million in the second quarter of
2002, compared with $6.5 million in the comparable 2001 period. In the six
months ended June 30, 2002 interest income was $1.4 million compared with $9.3
million for the same period of 2001. The decrease reflects lower amounts of
excess cash invested in year 2002.
Interest expense was $3.2 million in the second quarter of 2002, compared with
$13.3 million in the second quarter of 2002. In the six months ended June 30,
2002, interest expense was $7.2 million compared with $20.3 million in the first
six months of 2001. The decrease reflects the decrease in the levels of
long-term debt maintained by the company during 2002 as compared to the same
period during 2001.
TAXES ON INCOME: Taxes on income for the six months ended June 30, 2002 were
$18.7 million, compared with $12.5 million for the same period of 2001. The
increase was principally due to higher earnings in 2002, resulting from higher
production.
CASH FLOWS:
SECOND QUARTER: Net cash provided by operating activities was $45.6 million in
the second quarter of 2002, compared with $31.2 million in the comparable 2001
period. The increase was principally attributable to increased operating income.
Net cash used in investing activities was $21.0 million consisting of $37.7
million of capital expenditures offset by $16.6 million from sales of marketable
securities in the second quarter of 2002. In the second quarter of 2001, net
cash used in investing activities was $40.2 million related to capital
expenditures.
Net cash used for financing activities in the second quarter of 2002 was $1.8
million, compared with $84.6 million for the second quarter of 2001. The
second quarter of 2002 includes a dividend distribution of $1.5 million, and
similar period of 2001 included a dividend distribution of $8.8 million, a
debt repayment of $43.0 million and an escrow deposit of $32.1 million.
- 11 -
SIX MONTHS: Net cash provided by operating activities was $90.5 million for the
six months period ended June 30, 2002, compared with $130.6 million in the
comparable 2001 period. The decrease was attributable primarily to
reimbursements of Peruvian value added taxes of $45.5 million in 2001.
Net cash used in investing activities was $78.6 million in the six-month period
ended June 30, 2002, and was primarily due also to capital expenditures. In the
six months period ended June 30, 2001, net cash used in investing activities was
$67.7 million and was primarily due to capital expenditures.
Cash provided by (used for) financing activities for the six months ended June
30, 2002 was $106.1 million, compared with $310.8 million in the comparable 2001
period. The six months ended June 30, 2002, includes proceeds of $25.9 million
from bonds issued in the first quarter, an escrow withdrawal of $6.9 million, a
SEN's repayment of $134.3 million, and a dividend distribution of $4.2 million.
The six months ended June 30, 2001, includes proceeds of $400.0 million under a
credit line contracted with a group of international financial institutions,
which was prepaid in December 2001, a debt repayment of $47.3 million, an escrow
deposit of $32.1 million, and dividends distribution of $8.8 million.
LIQUIDITY AND CAPITAL RESOURCES: In the second quarter of 2002, the Company paid
a dividend to shareholders of $3.2 million or 4 cents per share, compared with
$19.3 million or $0.24 cents per share in the same period of 2001. On July 25,
2002, the Company declared a quarterly dividend of 15.6 cents per share payable
September 3,2002, to stockholders of record at the close of business on August
13, 2002.
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 up to 50% of the net income of the Company, on an
annual basis.
The Company expects to meet its liquidity and capital expenditure requirements,
from internally generated funds, cash on hand and from additional external
financing.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES:
Southern Peru Copper Corporation's discussion and analysis of its financial
condition and results of operations, as well as quantitative and qualitative
disclosures of market risks, are based upon its consolidated financial
statements, which have been prepared in accordance with generally accepted
accounting principles in the United States of America ("US GAAP"). Preparation
of these financial statements requires Southern Peru's management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, as well as the reported amounts of revenues and expenses, for the
reported period. The more significant areas requiring the use of management
estimates and assumptions relate to mineral reserves that are the basis for
future cash flow estimates and units-of-production for mine depletion
determination; environmental, reclamation and closure obligations; asset
impairments (including estimates of future cash flow) and litigation
contingencies.
Southern Peru, at least annually, estimates its ore reserves at active
properties and properties currently on care-and-maintenance status. Ore reserve
estimates are based upon engineering evaluations of assay values derived from
samplings of drill holes and other openings. Additionally, declines in the
market price of a particular metal may render certain reserves containing
relatively lower grades of mineralization economically unfeasible to mine.
Further, availability of permits, changes in operating and capital costs, and
other factors could materially and adversely affect ore reserves. Southern Peru
uses its ore reserve estimates in determining the unit basis for mine
depreciation, as well as in evaluating mine assets impairments. Changes in ore
reserve estimates could significantly affect these items. Please also refer to
"Cautionary Statement".
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During the first quarter of 2002, the Company changed the estimated useful lives
of certain machinery and equipment. This change was accounted for prospectively
and resulted in a reduction to depreciation expense of approximately $3.1
million in the first three months of 2002. Estimated useful lives of the
Company's fixed assets are based on periodic evaluation by the Company's
management and engineers. Changes in such estimates could significantly affect,
among other things, the Company's operating costs and net income.
IMPACT OF NEW ACCOUNTING STANDARDS:
In August 2001, the FASB issued SFAS No. 143 "Accounting for Asset Retirement
Obligation", which will be required to be adopted effective January 1, 2003.
SFAS No. 143 establishes standards for accounting for an obligation associated
with the retirement of long-lived tangible assets. Management is assessing the
impact of this statement on the results of operations and financial condition.
In April 2002, the FASB issued SFAS No. 145 to rescind FASB Statement No. 4,
"Reporting Gains and Losses from Extinguishment of Debt", and an amendment of
that Statement, FASB Statement No. 64, "Extinguishments of Debt Made to Satisfy
Sinking-Fund Requirements". This Statement also rescinds FASB Statement No. 44,
"Accounting for Intangible Assets of Motor Carriers". This Statement which shall
be applied in fiscal years beginning after May 15, 2002, amends FASB Statement
No. 13, "Accounting for Leases", to eliminate an inconsistency between the
required accounting for sale-leaseback transactions and the required accounting
for certain lease modifications that have economic effects that are similar to
sale-leaseback transactions. This Statement also amends other existing
authoritative pronouncements to make various technical corrections, clarify
meanings, or describe their applicability under changed conditions. Management
is assessing the impact of this statement on the results of operations and
financial condition.
In June 2002, the FASB issued SFAS No. 146 "Accounting for Costs Associated with
exit or disposal activities" which will be required to be effective for exit or
disposal activities that are initiated after December 31, 2002, addresses
financial accounting and reporting for costs associated with exit or disposal
activities and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3,
"Liability Recognition for Certain Employee Termination Benefits and Other Costs
to Exit an Activity (including Certain Costs Incurred in a Restructuring)".
Management is assessing the impact of this statement on the results of
operations and financial condition.
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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PART II - OTHER INFORMANTION
Item 6 - Exhibits on Form 10-Q
15. Independent Public Accountant's Awareness Letter
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INDEPENDENT ACCOUNTANTS' REPORT
To Southern Peru Copper Corporation:
We have reviewed the accompanying condensed consolidated balance sheet of
Southern Peru Copper Corporation and subsidiaries (a Delaware Corporation) as of
June 30, 2002 and the related condensed consolidated statements of earnings and
cash flows for the three-month and six-month periods then ended. These financial
statements are the responsibility of the Company's management.
We conducted our reviews 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 reviews, we are not aware of any material modifications that should
be made to the condensed consolidated financial statements referred to above for
them to be in conformity with generally accepted accounting principles.
The accompanying condensed consolidated financial information as of December 31,
2001, and for the three-month and six-month periods ended June 30, 2001, were
not audited or reviewed by us and, accordingly, we do not express an opinion or
any other form of assurance on them.
DELOITTE & TOUCHE LLP
Phoenix, Arizona
July 19, 2002
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Part II -- OTHER INFORMATION
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)
/s/ Oscar Gonzalez Rocha
-------------------------
Date: August 14, 2002 Oscar Gonzalez Rocha
President
/s/ Daniel Tellechea Salido
---------------------------
Date: August 14, 2002 Daniel Tellechea Salido
Vice President of Finance
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