UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, DC  20549

 

FORM 10-Q

 

(Mark One)

 

ý		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the quarterly period ended January 31, 2005
		or
o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the transition period from                 to

 

Commission File Number 333-66291

 

The Doe Run Resources Corporation

(Exact name of registrant as specified in its charter)

 

New York		13-1255630
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)
1801 Park 270 Drive, Suite 300 St. Louis, Missouri		63146
(Address of principal executive offices)		(Zip Code)
(314) 453-7100
(Registrant’s telephone number, including area code)

 

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.

 

o

Yes

ý

No

 

Note: The Registrant files pursuant to an indenture, but is not otherwise subject to the reporting requirements of Section 13 or 15(d).

 

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

 

o

Yes

ý

No

 

Number of shares outstanding of each of the issuer’s classes of common stock, as of April 15, 2005:

 

Common stock, $.10 par value

1,000 shares

 

 

THE DOE RUN RESOURCES CORPORATION
INDEX TO FORM 10-Q

 

PART I – FINANCIAL INFORMATION
Item 1.		Financial Statements.
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Item 3.		Quantitative and Qualitative Disclosures About Market Risk.
Item 4.		Controls and Procedures.
PART II – OTHER INFORMATION
Item 1.		Legal Proceedings.
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds.
Item 3.		Defaults Upon Senior Securities.
Item 4.		Submission of Matters to a Vote of Security Holders.
Item 5.		Other Information.
Item 6.		Exhibits.

 

 

Item 1. Financial Statements.

 

THE DOE RUN RESOURCES CORPORATION
Condensed Consolidated Balance Sheets
(Dollars in thousands, except share data)

 

		January 31, 2005			October 31, 2004
		(unaudited)
ASSETS
Current assets:
Cash		$	5,486		$	20,318
Trade accounts receivable, net of allowance for doubtful accounts		70,433			64,219
Inventories		118,590			103,309
Prepaid expenses and other current assets		52,744			35,858
Total current assets		247,253			223,704
Property, plant and equipment, net		238,915			229,640
Other noncurrent assets, net		3,862			4,075
Total assets		$	490,030		$	457,419
LIABILITIES AND SHAREHOLDER’S DEFICIT
Current liabilities:
Current maturities of long-term debt		$	95,785		$	96,767
Accounts payable		89,977			65,855
Accrued liabilities		77,820			83,878
Total current liabilities		263,582			246,500
Long-term debt, less current maturities		320,585			320,561
Other noncurrent liabilities		74,789			75,765
Total liabilities		658,956			642,826
Series A redeemable preferred stock, $1,000 par value per share, 5,000 shares authorized; 2,533 shares issued and outstanding; liquidation and redemption value		26,121			25,329
Shareholder’s deficit:
Common stock, $.10 par value per share, 1,667 shares authorized; 1,000 shares issued and outstanding		—			—
Additional paid-in capital		—			—
Accumulated deficit		(153,115		)	(168,700		)
Accumulated other comprehensive losses		(41,932		)	(42,036		)
Total shareholder’s deficit		(195,047		)	(210,736		)
Total liabilities and shareholder’s deficit		$	490,030		$	457,419

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

1

 

THE DOE RUN RESOURCES CORPORATION
Condensed Consolidated Statements of Operations (unaudited)
(Dollars in thousands)

 

		Three Months Ended January 31,
		2005			2004
Net sales		$	235,659		$	190,004
Costs and expenses:
Cost of sales		198,003			178,411
Depreciation, depletion and amortization		6,137			6,465
Selling, general and administrative		10,828			9,126
Unrealized (gain) loss on derivative financial instruments		(798		)	5,024
Other		1,837			1,031
Total costs and expenses		216,007			200,057
Income (loss) from operations		19,652			(10,053		)
Other income (expense):
Interest expense, net		(3,441		)	(3,177		)
Other, net		476			(50		)
		(2,965		)	(3,227		)
Income (loss) before income tax expense		16,687			(13,280		)
Income tax expense		—			565
Net income (loss)		$	16,687		$	(13,845	)
Preferred stock dividends		(792		)	(625		)
Net income (loss) allocable to common shares		$	15,895		$	(14,470	)
Total comprehensive income (loss)		$	16,791		$	(13,290	)

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

2

 

THE DOE RUN RESOURCES CORPORATION
Condensed Consolidated Statements of Cash Flows (unaudited)
(Dollars in thousands)

 

		Three Months Ended January 31,
		2005			2004
Cash flows from operating activities:
Net income (loss)		$	16,687		$	(13,845	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation, depletion and amortization		6,137			6,465
Imputed interest and amortization of deferred financing costs		1,346			1,372
Unrealized (gain) loss on derivative financial instruments		(798		)	5,024
Losses from impairment and disposal of long-lived assets		1,210			708
Decrease resulting from other changes in assets and liabilities		(20,736		)	(2,766		)
Net cash provided by (used in) operating activities		3,846			(3,042		)
Cash flows from investing activities:
Purchases of property, plant and equipment		(16,569		)	(5,543		)
Net cash used in investing activities		(16,569		)	(5,543		)
Cash flows from financing activities:
Proceeds from (payments on) revolving loans, net		(2,097		)	5,245
Payments on long-term debt		(12		)	(1,211		)
Net cash provided by (used in) financing activities		(2,109		)	4,034
Net decrease in cash		(14,832		)	(4,551		)
Cash at beginning of period		20,318			16,794
Cash at end of period		$	5,486		$	12,243

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

3

 

THE DOE RUN RESOURCES CORPORATION

Notes to Condensed Consolidated Financial Statements
(Dollars in thousands)

 

(1)         Summary of Significant Accounting Policies

 

Unaudited Interim Financial Statements

 

These interim consolidated financial statements include the accounts of The Doe Run Resources Corporation (Doe Run) and its subsidiaries (on a consolidated basis, the Company). Doe Run’s issued and outstanding common stock is owned by a subsidiary of The Renco Group, Inc. (Renco).  In the opinion of management, the interim consolidated financial statements contain all adjustments, consisting of normal recurring accruals, necessary to present fairly the consolidated financial position as of January 31, 2005 and the results of operations for the three month periods ended January 31, 2005 and 2004.  Interim periods are not necessarily indicative of results to be expected for the year.

 

Reclassifications

 

Certain prior year balances have been reclassified in order to conform to current presentation.

 

(2)         Financial Condition

 

For the year ended October 31, 2003 and for several years prior, the Company reported recurring losses, primarily the result of declining treatment charges and low metal prices, a condition exacerbated by the Company’s significant interest costs prior to a restructuring in October 2002. These conditions have resulted in the Company’s net capital deficiency.

 

The Company is highly leveraged and has significant commitments for environmental matters and Environmental Remediation and Management Program (PAMA) expenditures that require it to dedicate a substantial portion of cash flow from operations to the payment of these obligations, which will reduce funds available for other business purposes. See Note 7 for further discussion of these obligations. These factors also increase the Company’s vulnerability to general adverse conditions, limit the Company’s flexibility in planning for or reacting to changes in its business and industry, and limit the Company’s ability to obtain financing required to fund working capital and capital expenditures and for other general corporate purposes. An unfavorable outcome to certain contingencies discussed below, would have a further adverse effect on the Company’s ability to meet its obligations when due. The Company’s ability to meet these obligations is also dependent upon future operating performance and financial results, which are subject to financial, economic, political, competitive and other factors affecting the Company, many of which are beyond the Company’s control.

 

The Company has substantial debt service requirements in the future, including maturities in 2005 of $15,500 for the Term Note and $7,500 for the Old Notes, and also significant capital requirements under environmental commitments in Peru. The Company’s revolving credit facilities also expire in the fourth quarter of 2005, and will require renegotiation to extend their terms. There can be no assurance that the Company will be successful, or if it is successful, that the renewal would be at terms that are favorable to the Company. Discussions have been held with Renco to extend the Term Note, but there can be no assurance that the term will be extended.

 

Management will continue to assess market and operating conditions at prevailing metal prices to maximize its operating profit or limit losses, while allowing the Company to fulfill its environmental obligations..

 

As discussed in Note 7, Doe Run Peru’s existing PAMA requires it to perform projects in 2005 and 2006 at a total cost of $121,200. Doe Run Peru expects that it will not be able to comply with the spending requirements of the PAMA investment schedule in 2005 and 2006 with respect to the construction of a sulfuric acid plant required by the PAMA and, as a result, could be subject to penalties. Failure to comply with the PAMA could result in the cessation of operations at the La Oroya smelter.

 

The Peruvian Government has issued a supreme decree (Supreme Decree), which recognized that exceptional circumstances may justify an extension of one or more projects within the scope of a PAMA. Doe Run Peru

 

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will submit an application for extension to modify the requirements of the existing PAMA and extend the term of the PAMA to complete the construction of the sulfuric acid plant contemplated by the original PAMA. Doe Run Peru will perform other environmental projects to reduce fugitive emissions, including heavy metal dust, to address the health issues of the community. As of January 31, 2005, the remaining total cost of the  current PAMA projects, including the sulfuric acid plant construction, and these projects is approximately $136,000. If the extension of the PAMA is approved, management expects to fund the PAMA projects from cash from operations.

 

Upon approval of a modified PAMA, Doe Run Peru would be required to create a trust account. The trust account would administer the receipts and disbursements related to the extended PAMA project. The Supreme Decree requires that receipts from sales be remitted monthly directly to the trust account, in an amount sufficient to fund the month’s cash requirements of the extended PAMA projects,. Such an arrangement is prohibited by Doe Run Peru’s revolving credit facility (the Doe Run Peru Revolving Credit Facility), which expires on September 23, 2005. Accordingly, a renegotiated Doe Run Peru Revolving Credit Facility will need to comply with the requirements established by the Supreme Decree, should Doe Run Peru’s PAMA be extended.

 

The Supreme Decree also requires that, within 30 days of the approval of the PAMA extension, the Company provide financial security in an amount equal to 20% of the projected cost of the project or projects to be extended. The Company currently expects the overall investment required to build the sulfuric acid plant to be approximately $102,000.

 

A default under the requirements of the PAMA could result in a default under the Doe Run Peru Revolving Credit facility. A default under the Doe Run Peru Revolving Credit Facility would result in a default under the Doe Run Revolving Credit Facility.

 

These issues raise substantial doubt about the Company’s ability to continue as a going concern. Management believes that Doe Run Peru will obtain an approval of an extension to complete the sulfuric acid plant. There is no assurance, however, that Doe Run Peru will receive an extension, or, if it does, that the project will be completed within the time limitation specified by the Supreme Decree. Doe Run Peru has developed a business plan that identifies several revenue generating and cost reduction activities. Management believes the plan will enhance liquidity, which is expected to improve Doe Run Peru’s ability to make the investments under the PAMA, assuming an extension is received. Revenue enhancement and cost reduction projects include the processing of zinc ferrites and an effort to bring more recycled feed into the smelter. Cost reduction measures include manpower reductions through voluntary retirement and decreased power usage in the zinc circuit.

 

Doe Run Peru has received assessments of income tax, including penalties and interest, and Value Added Tax (VAT) totaling $102,500 and $41,000, respectively, as discussed in Note 7. In addition, the Company estimates that the effect of similar assessments for periods not yet assessed would be approximately $1,400 and $19,000 for the income tax and VAT matters, respectively. Furthermore, Doe Run Peru would also be required to make additional workers’ profit sharing payments equal to 8% of the increase in taxable income generated by the changes discussed above, or approximately $5,800 for tax years 1998 through 2004.

 

Management of the Company believes that in each case Doe Run Peru has followed the applicable Peruvian tax statutes and intends to pursue all available administrative and judicial appeals. Doe Run Peru is not required to make any payments pending the administrative appeal process. If Doe Run Peru is not successful in the administrative appeal processes and were to appeal in the judicial system, some type of financial assurance would be required, which would have a significant adverse effect on liquidity.

 

Net unused availability at January 31, 2005 and October 31, 2004 under the Doe Run Revolving Credit Facility was approximately $22.3 million and $22.5 million, respectively and under the Doe Run Peru Revolving Credit Facility was virtually none.  In addition to the availability under its revolving credit facilities, cash balances at Doe Run and Doe Run Peru were $1.5 million and $3.9 million, respectively, at January 31, 2005 and $13.4 million and $6.9 million, respectively, at October 31, 2004.

 

5

 

Management believes that high metal prices and other revenue enhancements, and the issuance of the Supreme Decree, by allowing an application to extend La Oroya’s PAMA requirement for the construction of the sulfuric acid plant, will enable the Company to continue as a going concern through October 31, 2005.

 

(3)         Inventories

 

Inventories consist of the following:

 

		January 31, 2005			October 31, 2004
Finished metals and concentrates		$	19,225		$	16,646
Metals and concentrates in process		72,493			58,664
Materials, supplies and repair parts		26,872			27,999
		$	118,590		$	103,309

 

Materials, supplies and repair parts are stated net of reserves for obsolescence of approximately $4,445 and $5,146 at January 31, 2005 and October 31, 2004, respectively.

 

(4)         Income Taxes

 

On December 26, 2003, Peru’s tax authority, SUNAT, notified Doe Run Peru of an income tax assessment for the 1998 tax year. On December 23, 2004, assessments were received for tax years 1999 through 2001. The assessments primarily relate to Doe Run Peru’s income tax treatment of the December 1997 merger of Doe Run Peru and Metaloroya S.A., which was purchased by Doe Run Peru in October 1997, and its effects on subsequent years’ taxable income. Under the assessment by SUNAT, the tax basis of Doe Run Peru’s fixed assets acquired would decrease, resulting in lower tax depreciation expense than originally claimed. The assessed amount consisting of additional income taxes due, penalties and interest totals approximately $102,500.

 

The Company estimates that the effect of a similar assessment for tax years after 2001 would be approximately $1,400.

 

Furthermore, Doe Run Peru would also be required to make additional workers’ profit sharing payments equal to 8% of the increase in taxable income generated by the changes discussed above, or approximately $5,800 for tax years 1998 through 2004.

 

On November 15, 2004, SUNAT notified Doe Run Peru of a Value-Added Tax (VAT) assessment for the period from January through July 2004.  On December 23, 2004. Doe Run Peru received additional VAT assessments for tax years 1999 through 2001.  The assessments primarily relate to Doe Run Peru’s exports with holding certificates and differences in a tax credit application. The total assessment for these periods was approximately $41,000. SUNAT offset the amount assessed for 2004 of approximately $2,300 against Doe Run Peru’s VAT receivable balance from July 2004.  Future VAT reimbursements cannot be used to offset the assessment by SUNAT.  The Company estimates expected additional assessments related to VAT for tax years 2002 and 2003 to total approximately $19,000 in regard to its exports with holding certificates.

 

Management of the Company believes that in each case Doe Run Peru has followed the applicable Peruvian tax statutes and intends to pursue all available administrative and judicial appeals. Doe Run Peru is not required to make any payments pending the administrative appeal process. If Doe Run Peru is not successful in the administrative appeal processes and were to appeal in the judicial system, some type of financial assurance would be required. No amounts have been accrued as liabilities related to these actions.

 

Pursuant to the Company’s tax sharing agreement with Renco, a dividend payable of $310 was reflected in the Company’s balance sheet as of January 31, 2005, and was paid in the second quarter of 2005.

 

6

 

(5)         Employee Benefits

 

Defined Benefit Plans

 

Net periodic benefit cost is comprised of the following:

 

		Three Months Ended January 31,
		2005			2004
Service cost		$	547		$	619
Interest cost on projected benefit obligation		1,655			1,880
Expected return on assets		(1,423		)	(1,359		)
Net amortization and deferral of unrecognized net losses		708			997
Net periodic benefit cost		$	1,487		$	2,137

 

The Company is required to make total contributions of $9,025 in 2005, of which $1,677 had been paid as of January 31, 2005.

 

(6)         Segment Information

 

The Company’s operating segments are separately managed business units that are distinguished by products, location and production processes.  The primary lead segment includes integrated mining, milling and smelting operations located in Missouri.  The recycling operation segment, located in Missouri, recycles lead-bearing materials, primarily spent batteries.  The fabricated products segment produces value-added lead products.  Doe Run Peru produces an extensive product mix of non-ferrous and precious metals.

 

Operating Segments – Revenues

 

		Three Months Ended January 31,
		2005			2004
Revenues from external customers:
Doe Run Peru		$	148,062		$	122,973
Primary lead		63,937			50,528
Recycling operation		18,566			16,069
Fabricated products		3,815			2,808
Total		234,380			192,378
Revenues from other operating segments: (1)
Doe Run Peru		2,724			—
Primary lead		502			264
Recycling operation		98			44
Fabricated products		—			—
Total		3,324			308
Total reportable segments		237,704			192,686
Other revenues/gains (losses) (2)		1,279			(2,374		)
Intersegment eliminations		(3,324		)	(308		)
Total revenues		$	235,659		$	190,004

 

(1)          Transactions between segments consist of metal sales recorded based on sales contracts that are negotiated between segments on terms that management feels are similar to those that would be negotiated between unrelated parties.

 

7

 

(2)          Other revenues/gains (losses) consist of metal sales not attributed to operating segments of $2,521 for the three months ended January 31, 2005 and realized gains (losses) on derivative contracts of $(1,242) and $(2,374) for the three months ended January 31, 2005 and 2004, respectively.

 

The measure of segment profit and loss used by the Company is earnings of the segment before interest, taxes, depletion, depreciation, and amortization (EBITDA), as adjusted to exclude losses from impairment and disposal of long-lived assets and Doe Run Peru’s expenses related to hedging and agency fees under an agreement with Doe Run (Adjusted EBITDA). Consolidated Adjusted EBITDA also excludes accretion expense under Statement of Financial Accounting Standards No. 143, Asset Retirement Obligations (Statement No. 143), adopted November 1, 2002.

 

Operating Segments – Adjusted EBITDA

 

		Three Months Ended January 31,
		2005			2004
Doe Run Peru		$	8,476		$	1,414
Primary lead		23,082			8,866
Recycling operation		3,827			2,123
Fabricated products		509			248
Total reportable segments		35,894			12,651
Realized losses on derivatives		(1,242		)	(2,374		)
Other revenues and expenses (3)		(1,464		)	(2,007		)
Corporate selling, general and administrative expenses		(6,255		)	(5,897		)
Intersegment eliminations		25			20
Consolidated adjusted EBITDA		26,958			2,393
Depreciation, depletion and amortization		(6,137		)	(6,465		)
Interest expense, net		(3,441		)	(3,177		)
Unrealized gain (loss) on derivatives		798			(5,024		)
Losses from impairment and disposal of long-lived assets		(1,210		)	(708		)
Asset retirement obligation accretion expense		(374		)	(401		)
Other		93			102
Income (loss) before income taxes		$	16,687		$	(13,280	)

 

(3)                                  Other revenues and expenses consists of the profit on metal sales not attributed to operating segments and expenses not allocated to operating segments, including environmental expenses relating to historic operations of $1,000 for the three months ended January 31, 2004, and adjustments necessary to state the primary lead and recycling operations’ inventories at LIFO cost of $600 for the three months ended January 31, 2004.

 

(7)         Asset Retirement and Environmental Obligations

 

The Company is subject to numerous federal, state and local environmental laws and regulations governing, among other things, air emissions, wastewater discharges, solid and hazardous waste treatment, storage and disposal and remediation of releases of hazardous substances.  The Company’s facilities are located on sites that have been used for heavy industrial purposes for decades and may require remediation.  The Company has made and intends to continue making the necessary expenditures for environmental remediation and compliance with environmental laws and regulations.  Environmental laws and regulations may become more stringent in the future, which could increase costs of compliance.

 

Asset Retirement Obligations

 

Asset retirement obligations (AROs) are recognized as liabilities when incurred, with the initial measurement at fair value.  These liabilities will be increased to full value over time through charges of accretion to operating expense.  In addition, an asset retirement cost is capitalized as part of the related asset’s carrying value and will be depreciated over the asset’s useful life.  Changes in the ARO liability resulting from

 

8

 

revisions to the timing or the amount of the original estimate of undiscounted cash flows shall be recognized as an increase or a decrease in the carrying amount of the liability for an ARO and the related asset retirement cost capitalized as part of the carrying amount of the related long-lived asset.

 

The Company’s mines and related processing facilities are subject to governance by various agencies that have established minimum standards for reclamation.  The Company’s primary smelter slag produced by and stored at the primary smelter in Herculaneum, Missouri is currently exempt from hazardous waste regulation under the Resource Conservation and Recovery Act of 1976, as amended (RCRA), but is subject to a state closure permit, which requires activities to contain and cover the pile upon cessation of operations.  The Company’s mining and milling operations are subject to Missouri mine waste closure permit requirements and lease agreements which require the Company to reclaim surface areas, including remediation of mining waste disposal areas, and to perform closure activities underground.  These activities, which tend to be site specific, generally include costs for earthwork, revegetation, water treatment and demolition.  Closure activities may be performed over time.

 

The Company has a RCRA permit addressing the closure of portions of its recycling operation.  The majority of the cost will arise from removing hazardous materials from the facility. No ARO liability or related asset cost has been recorded because the fair value of the obligation cannot be determined due to the indeterminate timing. The cost of closure, based on third party estimates for bonding purposes, is approximately $3,000.  The life of the operation is considered indeterminable because there is not currently a cost-effective alternative to the lead acid batteries and because battery manufacturers are required to recycle the batteries.

 

Doe Run Peru also has AROs at its Cobriza mine related to the costs associated with closing the mine openings and covering acid rock.  Doe Run Peru is also responsible for the covering and revegetation of mixed lead and copper slag stored in Huanchan, an area a short distance from the smelter where the slag is currently stored.

 

The Company’s total recorded liability for AROs was approximately $15,000 and $14,600 as of January 31, 2005 and October 31, 2004, respectively.

 

Environmental remediation - Domestic Operations

 

The Company had recorded liabilities of approximately $17,800 and $18,800 related to remediation obligations as of January 31, 2005 and October 31, 2004, respectively.

 

Doe Run is subject to a voluntary Administrative Order on Consent (AOC), effective May 29, 2001, to study and address issues related to the slag pile, plant property, community soils adjacent to the primary smelter in Herculaneum, elevated blood lead levels in the community and lead releases from the plant. Under this AOC Doe Run completed additional soil testing in the area within a mile radius of the smelter and subsequently signed a second AOC with the U.S. EPA on December 21, 2001, which has essentially been completed.  The May 29, 2001 AOC was modified effective on May 20, 2004.  At January 31, 2005 the estimated remaining cost of remediating these properties is approximately $1,360, with approximately $1,000 to be spent during the remainder of calendar 2005.

 

Doe Run signed a settlement agreement with the State of Missouri on April 26, 2002 whereby it agreed to offer to purchase approximately 160 residential properties in an area close to the smelter if the owner requests such an offer. The homeowners have until June 30, 2005 to accept any offers made. The amount paid to the homeowners who accept an offer is based on an appraisal of the property’s value at August 31, 2001, plus, if a replacement property is purchased, an amount for owner-occupied residences representing the lesser of the difference between the appraisal amount and the cost of a similar property in another designated community or the difference between the appraisal amount and the replacement property.

 

As of January 31, 2005, a total of 149 homeowners had requested offers, and 117 of 142 delivered offers had been accepted. As of January 31, 2005, the Company had spent approximately $8,100 under the residential property purchase plan. Another $1,100 of accepted offers are awaiting a closing date and $2,000 in outstanding offers have not been accepted. Management cannot estimate how many of the remaining homeowners will accept offers.

 

9

 

Doe Run will attempt to rent out certain purchased properties, if approval is received by the regulatory agencies.  The properties must remain vacant while owned by Doe Run until regulators and the city agree that re-occupancy is not a risk to human health.  Management believes that there is current evidence that no health risk exists as a result of smelter operations, due to soil remediation efforts and low concentrations of lead in the air in the buyout area, and that other sources of lead contamination could be remedied.  If Doe Run does not comply with the material property purchase provisions of the settlement agreement, Doe Run will be subject to a $1,000 penalty.

 

The Company’s statements of operations reflect losses from impairment or retirement of long-lived assets primarily related to the properties owned in Herculaneum as it cannot be assured that the cost of the properties will be recovered through future cash flows.  If the cost of the properties cannot be recovered through future cash flows, additional impairment losses will be recognized as properties are purchased. The Company’s recorded liability for remediation does not include the future purchase costs relating to the residential property purchase plan as these costs are capitalized.

 

Doe Run is subject to a plan with the Missouri Department of Natural Resources and the Missouri Air Conservation Commission to achieve and maintain compliance with the ambient air quality standard for lead promulgated under the federal Clean Air Act for the city of Herculaneum.  The plan was included in a consent judgment entered into by Doe Run and has been approved at the state level and by the U.S. U.S. EPA. The air quality monitors reflected compliance from July 2002 through December 2004.

 

Doe Run has received notice that it is a potentially responsible party (PRP) subject to liability under The Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended (CERCLA), at the following sites: six sites in St. Francois County, Missouri, including the Big River Mine Tailings site, the Bonne Terre site, the Federal site, the National site, the Rivermines site and the Leadwood site; the Oronogo-Durenweg site in Jasper County, Missouri; the Cherokee County site in Cherokee County, Kansas; the Tar Creek site in Ottawa County, Oklahoma; the Block “P” site in Cascade County and Judith County, Montana; and the Missouri Electric Works site in Cape Girardeau, Missouri.  There are two additional sites in St. Francois County for which the U.S. EPA has indicated it will issue notice.  CERCLA provides for strict and, in certain circumstances, joint and several liability for response costs and natural resource damages.  The Company’s estimate of the cost of the remediation of these sites, including the two additional sites in St. Francois County, is included in the total liability for remediation obligations, which the Company believes is adequate based on its investigations to date.  However, depending upon the types of remediation required and certain other factors, additional costs at these sites, individually or collectively, could have a material adverse effect on the results of operations, financial condition and liquidity of the Company.

 

In February 2004 the U.S. Department of Agriculture issued a Unilateral Administrative Order (UAO) ordering certain remediation activities by Doe Run at the Block “P” millsite. Doe Run has requested that other parties be added to the order.  Doe Run will seek reimbursement from the U.S. Government and these other parties.

 

Doe Run has completed an Engineering Evaluation/Cost Analysis (EE/CA) for the Bonne Terre site and has signed two AOCs to conduct removal actions on the west and east portions of the site.   Work is completed on the west Bonne Terre site and is underway on the east side with completion expected in 2005.

 

Doe Run has completed an EE/CA for the Rivermines site and, while unable to accept certain financial assurance provisions of a proposed AOC, has agreed to conduct a removal action at the site under a UAO. Work will commence upon approval of a work plan.

 

Doe Run is subject to a voluntary AOC with the U.S. EPA to remediate the Big River Mine Tailings site.  The remediation work required by the AOC has been substantially completed, and will continue with revegetation and ongoing monitoring and maintenance activities.

 

Doe Run has also signed AOCs to perform an EE/CA on each of the National and Leadwood sites for remediation of mine waste areas.  The National EE/CA is complete and the Leadwood EE/CA has been

 

10

 

submitted to the U.S. EPA for approval. In addition, Doe Run has signed an AOC with the U.S. EPA to conduct a Remedial Investigation/Feasibility Study (RI/FS) to assess potential off-site impacts of these site operations on and the need for remediation regarding groundwater, residential soils, several creeks and a river.  The initial draft of the RI/FS was submitted in early March 2002.  Doe Run signed an order to conduct interim measures, which consisted of blood lead testing of young children, residential soil sampling and limited soil remediation as indicated by the testing and sampling results, which was terminated and replaced by an AOC to conduct certain additional soil remediation in the area and has included its best estimate of these efforts in its recorded liabilities.  The Company believes the recorded liabilities related to these sites are adequate.  However, should remediation goals or areas change, requiring substantially increased measures, there can be no assurance that the recorded liabilities would be adequate.

 

In March 2004, Doe Run received notice that it is a PRP subject to liability under CERCLA for contamination along roads in Iron, Dent and Reynolds counties in Missouri, along with a number of mining companies involved in the transportation of concentrates. After sampling of 573 houses by the U.S. EPA and the Missouri DNR, approximately 150 houses were identified as potentially requiring some level of remediation. Doe Run and four other mining companies have signed an AOC to conduct soil remediation at approximately 40 of these houses. Doe Run expects that its share of the potential remediation costs will not be significant, based on management’s estimates of the number of houses requiring remediation, remediation methods and Doe Run’s apportionment of the costs.

 

Doe Run has been advised that the U.S. EPA is considering taking certain response actions at a mine site in Madison County, Missouri known as the Mine LaMotte Site.  Doe Run and the owner of the other 50% share of stock in the company that mined the site have signed an AOC to conduct an RI/FS at the site.  This site is substantially smaller than the sites in St. Francois County where the Company has been named a PRP, and the potential issues are less complex.  Doe Run has also been advised that remediation is required at a related small satellite mine site.  After conducting an investigation, Doe Run has determined that it was not involved in operations at the satellite site, but further review will be required before a determination can be made as to whether it has any liability at the main site.  At this time, based on preliminary information and an inspection of the sites, management does not believe that any future action will result in a material adverse impact to the results of operations, financial condition or liquidity of the Company.

 

Doe Run’s recycling facility is subject to corrective action requirements under RCRA as a result of a storage permit for certain wastes issued in 1989.  This will involve remediation of solid waste management units at the site and it is expected that the plan for corrective action will be approved in fiscal 2005. The Company’s estimate of the cost of this corrective action is $2,000.  The storage area is also covered under the permit, but management does not believe the cost of closure is significant.  While management believes that recorded liabilities are adequate based on expectations of the closure plan requirements, regulators could require that additional measures be included in the finalized plan, which could change the estimate of the costs for corrective action.

 

On August 25, 2004, the U.S. EPA issued a Notice of Violation (NOV) to the Company alleging past violations of the recycling facility’s air permit conditions regarding production limits for its reverbatory furnace. Management believes the facility has operated in compliance with state and federal air requirements and will contest the NOV.  If the U.S. EPA prevails, there is a reasonable possibility that fines based on this action could have a material adverse effect on the Company’s liquidity or results of operations.

 

The domestic operating facilities have wastewater discharge permits issued under the federal Clean Water Act, as amended.  Doe Run currently meets the effluent limits under these permits, but if compliance were not maintained, additional improvements to its treatment facilities could be required.

 

Foreign Operations

 

La Oroya’s operations historically and currently exceed some of the applicable Ministry of Energy and Mines (MEM) maximum permissible limits pertaining to air emissions and wastewater effluent quality. The Environmental Remediation and Management Program (PAMA) projects, which are more fully discussed below, have been designed to achieve compliance with these requirements. There can be no assurance that the

 

11

 

Peruvian government will not, in the future, require compliance with additional environmental regulations that could adversely affect Doe Run Peru’s business, financial condition and results of operations.

 

Metaloroya S.A., the former owner of the La Oroya smelter, at the time a subsidiary of Centromin, received approval from the Peruvian government for a PAMA that consisted of an environmental impact analysis, monitoring plan and data, mitigation measures and closure plan. Doe Run Peru assumed the obligations under the PAMA. The PAMA also sets forth the actions and corresponding annual investments the concession holder agrees to undertake in order to achieve compliance with the maximum permissible limits prior to expiration of the PAMA (ten years for smelters, such as Doe Run Peru’s operations in La Oroya, and five years for any other type of mining or metallurgical operation like Cobriza). After expiration of the PAMA, the operator must comply with all applicable standards and requirements. Because these costs improve the property or prevent future environmental contamination, they are capitalized.

 

Doe Run Peru has committed under its current approved PAMA to implement the following projects at its La Oroya smelter through December 31, 2006:

 

•                  New sulfuric acid plants

•                  Treatment plant for the copper refinery effluent

•                  Industrial wastewater treatment plant for the smelter and refinery

•                  Improve the slag handling system

•                  Improve Huanchan lead and copper slag deposits

•                  Build an arsenic trioxide deposit

•                  Improve the zinc ferrite disposal site

•                  Domestic wastewater treatment and domestic waste disposal

•                  Monitoring station

 

An investment schedule in the PAMA provides a specific plan for achieving the applicable MEM maximum permissible limits pertaining to air emissions and wastewater effluent quality. The PAMA may be modified and amended as to the actual design and timing of projects to be implemented, provided compliance with the applicable maximum permissible limits is achieved by December 31, 2006. The required estimated annual spending on a calendar year basis for the projects approved in the La Oroya PAMA, as amended, most recently on January 25, 2002, are as follows:

 

 

Doe Run Peru expects that it will not be able to comply with the spending requirements of La Oroya’s PAMA investment schedule in 2005 and 2006 with respect to the construction of a sulfuric acid plant required by the PAMA and, as a result, could be subject to penalties. Failure to comply with the PAMA could result in the cessation of operations at the La Oroya smelter.

 

On December 29, 2004 the Peruvian Government issued a Supreme Decree, which recognized that exceptional circumstances may justify an extension of one or more projects within the scope of a PAMA. The Supreme Decree specifies that companies have until December 31, 2005 to apply for an extension.  The maximum extension is for three years and the MEM may authorize an additional year based upon the results of a health risk study.

 

Doe Run intends to apply for an extension to complete the construction of a sulfuric acid plant contemplated by the original PAMA. The application for a PAMA extension must be supported by a health risk study performed by a third party. The application must contain an engineering description and funding plan of any project to be extended, a discussion of how and when environmental emission standards will be met, a plan to

 

12

 

monitor emissions with the participation of the community, proof that at least three public workshops were held in various districts to provide information on Doe Run Peru’s financial situation and health programs, proof that two public hearings were held regarding the extension plans, and other financial information. In order to meet these requirements, the Company does not expect to apply for the extension until the end of 2005.

 

Upon approval of a modified PAMA, Doe Run Peru would be required to create a trust account. The trust account would administer the receipts and disbursements related to the extended PAMA project. The Supreme Decree requires that receipts from sales be remitted monthly directly to the trust account, in an amount sufficient to fund the month’s cash requirements of the extended PAMA projects. Such an arrangement is prohibited by the Doe Run Peru Revolving Credit Facility, which expires on September 23, 2005.  Accordingly, a renegotiated Doe Run Peru credit facility will need to comply with the requirements established by the Supreme Decree, should Doe Run Peru’s PAMA be extended.

 

The Supreme Decree also requires that, within 30 days of the approval of the PAMA extension, the Company provide financial security in an amount equal to 20% of the projected cost of the project or projects to be extended. The Company currently expects the overall investment required to build the sulfuric acid plant to be approximately $102,000. The Company cannot assure that it will be successful in obtaining the necessary financial security required.

 

Doe Run Peru will perform other environmental projects to reduce fugitive emissions, including heavy metal dust, to address the health issues of the community. As of January 31, 2005, the remaining total cost of the current PAMA projects, including the sulfuric acid plant construction, and these projects is approximately $136,000.

 

Management believes that Doe Run Peru will obtain an approval of an extension to complete the sulfuric acid plant. There is no assurance, however, that Doe Run Peru will receive an extension, or, if it does, that the project will be completed within the time limitation specified by the Supreme Decree.

 

The PAMA projects have been designed to achieve compliance with such requirements prior to the expiration of the PAMA. No assurance can be given that implementation of the PAMA projects is feasible or that their implementation will achieve compliance with the applicable legal requirements by the end of the PAMA period. Further, there can be no assurance that the Peruvian government will not in the future require compliance with additional or different environmental obligations that could adversely affect Doe Run Peru’s business, financial condition and results of operations.

 

Under the purchase agreement related to the acquisition of the La Oroya assets in October 1997, Centromin, the prior owner of the La Oroya smelter and Cobriza mine, agreed to indemnify Doe Run Peru against environmental liability arising out of its prior operations and their apportioned share of any other complaint related to emissions. Performance of the indemnity has been guaranteed by the Peruvian government through the enactment of the Supreme Decree No. 042-97-PCM. However, there can be no assurance that Centromin will satisfy its environmental obligations and investment requirements, including those in its PAMA, or that the guarantee will be honored. Any failure by Centromin to satisfy its environmental obligations could adversely affect Doe Run Peru’s business, financial condition and results of operations.

 

The Cobriza mine has a separate PAMA in which Doe Run Peru has committed to complete projects to manage tailings, mine drainage, sewage and garbage. As of June 2004, Doe Run Peru ceased discharging mine waste into the Mantaro River and was in compliance with the emissions standards required by the PAMA.

 

Doe Run Peru is responsible for the remediation costs relating to a zinc ferrite disposal site. The current closure plan provides for encapsulating the ferrite residues in place at Huanchan, an area a short distance from the smelter where they are currently stored, for which an environmental liability of $1,600 has been recorded as of January 31, 2005 and October 31, 2004.

 

13

 

Consolidated

 

The Company believes its liabilities for domestic and foreign environmental, mine closure and reclamation matters are adequate, based on the information currently available.  Depending upon the type and extent of activities required, revisions to management’s estimates of costs to perform these activities are reasonably possible in the near term.  Therefore, there can be no assurance that additional costs, both individually and in the aggregate, would not have a material adverse effect on the results of operations, financial condition and liquidity of the Company.

 

(8)         Litigation

 

Doe Run is a defendant in eight lawsuits alleging certain damages stemming from the operations at the Herculaneum smelter.  Three of these cases are class action lawsuits.  In two cases, the plaintiffs seek to have certified a class of property owners in a certain section of Herculaneum, alleging that property values have been damaged due to the operations of the smelter.  In another case, plaintiffs seek to have certified a class of children who lived in Herculaneum during a period of time when they were less than six years old and children born to mothers who lived in Herculaneum during their pregnancies.  The remedy sought is medical monitoring for the class.  Five of the cases are personal injury actions by 24 individuals who allege damages from the effects of lead due to operations at the smelter.  Punitive damages also are being sought in each case.

 

A resident of Herculaneum has claimed personal injuries allegedly resulting from exposure to emissions from the smelter.  No suit has yet been filed in this matter.

 

Doe Run is a defendant in five lawsuits alleging certain damages from discontinued mine facilities in St. Francois County.  Four of the cases are class action lawsuits.  The first case seeks to have certified a class consisting of property owners in Bonne Terre, Missouri, alleging that property values have been damaged due to the tailings from the discontinued operations.  In the second case plaintiffs seek to have certified a class of children who lived, went to school or day care in Bonne Terre, or whose mothers lived in Bonne Terre during their pregnancies.  The third and fourth cases are class actions for property damage and medical monitoring concerning alleged damages caused by chat, tailings, and related operations in six areas in St. Francois County.  The fifth case alleges personal injury to two children living in St. Francois County.

 

Doe Run has been named in 17 suits filed by 116 railway employees against a railroad carrier and multiple lead mining companies alleging personal injury resulting from exposure to lead concentrates hauled by the railroad carrier.  In addition, Doe Run has been named in an action by the spouses of four railway workers related to the exposure to lead from the hauling of lead concentrates by the railroad.  Doe Run has reached tentative settlement with all but three of the plaintiffs in these cases.

 

The railroad carrier has also threatened Doe Run and other companies associated with lead mining operations in Missouri with possible legal action for claims for property damage at certain rail yards and claims for contribution and indemnity for costs associated with settlement of lead exposure cases.  The demands indicate that material liability is reasonably possible, but, given the various types of claims, the number of potential defendants, the defenses available to the Company (including that certain costs are the result of the railroad’s activities for which it plead guilty to a felony and paid a criminal fine), and the fact that no lawsuit has been filed, the Company is unable at this time to estimate the expected outcome and any final costs of this potential action.

 

Doe Run is a defendant in lawsuits alleging certain damages from past mining operations in Ottawa County, Oklahoma.  Ten lawsuits have been filed alleging personal injury to 25 children and one adult living in Ottawa County against eight companies, including Doe Run, who allegedly, either through predecessors or subsidiaries, mined lead and zinc in Ottawa County or commercially used the chat or tailings in Ottawa County.   Five of these suits were dismissed, leaving claims alleged by seven children. Two cases are class action lawsuits for personal injury and property damage in Picher and Quapaw, Ottawa County. An additional class action lawsuit for damages to natural resources and land owned by members of the Quapaw Tribe was filed on December 10, 2003 against seven companies, including Doe Run.  The Company is unable at this time to estimate the expected outcome and any final costs of this action. Two additional cases alleging personal injury to 45 children and three children, respectively, were filed in July 2004.

 

14

 

Doe Run, with several other defendants, has been named in four cases in Maryland, but has not yet been joined as a defendant in any of these cases.  These suits seek damages, alleging personal injuries as a result of lead poisoning from exposure to lead paint and tetraethyl lead dust.  The suits seek punitive damages.  Doe Run was dismissed from two similar cases in which it was joined as a defendant.  Until Doe Run is actually joined as a defendant in one or more of these cases, material liability from these cases is considered remote.

 

Doe Run has been named in an asbestos injury suit in the City of St. Louis by an individual against numerous companies and public entities, alleging that he was exposed to asbestos, including at the premises of the St. Joe Minerals Corporation (Doe Run’s predecessor).  Doe Run was named in two similar suits filed in Madison County, Illinois, one alleging that a worker was exposed to asbestos at premises of the St. Joe Minerals Corporation, in which Doe Run has not been properly served, and the other filed by a person who did laundry for insulation workers in her family who were allegedly exposed to asbestos at Doe Run’s Herculaneum, Missouri facility.  Doe Run was served a Writ of Summons in a fourth case filed in Pennsylvania in May 2003 but has not yet been served with a complaint, so few details of the case are known, including the alleged location of the exposure.

 

Doe Run has been named as a party in various lawsuits relating to certain operations of its predecessor.  Fluor Corporation, the owner of Doe Run’s predecessor, retained the obligation for any costs of defense or claims relating to these lawsuits.  Should Fluor Corporation become unable to fulfill its contractual obligation, Doe Run could be liable for any costs or claims resulting from these lawsuits.  There is no reason at this time to believe that Fluor Corporation could not fulfill its contractual obligations.

 

Doe Run Peru is a defendant in 123 lawsuits in the Lima, Peru labor courts whereby workers have alleged damages from industrial diseases.  Doe Run Peru has made claims in most of the cases against Centromin and has also made claims against both governmental agencies and private companies that provide workers’ insurance.  The average claim is $18.  Of seven concluded cases in this category, six were dismissed and one resulted in a payment by Doe Run Peru of $9.

 

Doe Run Peru is also a defendant in 136 lawsuits by workers alleging that they are owed certain differences in salaries and benefits.  The average claim is $23.  Of 22 concluded cases in this category, 21 were dismissed and one resulted in a payment by Doe Run Peru of $2. Doe Run Peru is also a defendant in a lawsuit by the Yauli-La Oroya Employees Union concerning salaries and benefits.  The claims of the 150 workers remaining in the lawsuit total approximately $660.

 

On January 19, 2005, Doe Run Peru was served with a lawsuit by an association of municipalities of the Junin Region of Peru against Doe Run Peru and two other mining companies.  This lawsuit alleges environmental damages to the Mantaro River basin in the amount of $5.0 billion.  Material liability to Doe Run Peru is believed to be remote because it is the opinion of management and outside counsel for Doe Run Peru that the probability under Peruvian law of this case proceeding to a conclusion at the favor of the plaintiffs is low. Any potential judgment would be subject to the indemnification obligations of Centromin, which are guaranteed by the Peruvian government.

 

Since most of the above cases are either in the pleading or discovery stages, the Company is unable at this time to estimate the expected outcome and the final costs, except as noted, of these actions.  No amounts have been accrued as liabilities related to these actions.  There can be no assurance that these cases would not have a material adverse effect, both individually and in the aggregate, on the results of operations, financial condition and liquidity of the Company.  The Company has and will continue to vigorously defend itself against such claims.

 

15

 

(9)         Guarantor Subsidiaries

 

The Guarantor Subsidiaries (Fabricated Products, Inc. (FPI) and DR Land Holdings, LLC (together, the Domestic Guarantors) Buick Resource Recycling Facility, LLC, Doe Run Cayman Ltd. (Doe Run Cayman) and its subsidiary Doe Run Peru) have jointly and severally, fully, unconditionally and irrevocably guaranteed the Unsecured Notes, Secured Notes and 11.75% Notes of the Company. Doe Run Cayman has no operations separate from those of Doe Run Peru. Separate financial statements and other disclosures concerning certain Guarantor Subsidiaries and disclosures concerning non-Guarantor Subsidiaries have not been presented because management has determined that such information is not material to investors. Intercompany transactions eliminated in consolidation consist of various service and agency fees between Doe Run and Doe Run Peru and sales of metal to Doe Run by Doe Run Peru and to FPI by Doe Run.

 

16

 

(9)         Guarantor Subsidiaries (Continued)

 

Condensed Consolidating Balance Sheet (unaudited)
As of January 31, 2005

 

		The Company Excluding Guarantor Subsidiaries			Buick Resource Recycling Facility, LLC			Other Domestic Guarantors			Doe Run Cayman and Subsidiary			Eliminations			The Company
ASSETS
Current assets:
Cash		$	1,537		$	—		$	1		$	3,948		$	—		$	5,486
Trade accounts receivable, net of allowance for doubtful accounts		50,731			—			2,299			18,703			(1,300		)	70,433
Inventories		41,319			—			1,085			76,218			(32		)	118,590
Prepaid expenses and other current assets		19,995			—			51			32,698			—			52,744
Due from subsidiaries		152,002			1,358			—			—			(153,360		)	—
Total current assets		265,584			1,358			3,436			131,567			(154,692		)	247,253
Property, plant and equipment, net		73,290			14,116			1,294			150,215			—			238,915
Due from subsidiaries		16,432			—			—			—			(16,432		)	—
Other noncurrent assets, net		3,710			—			63			89			—			3,862
Investment in subsidiaries		(8,281		)	—			—			—			8,281			—
Total assets		$	350,735		$	15,474		$	4,793		$	281,871		$	(162,843	)	$	490,030
LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Current maturities of long-term debt		$	55,789		$	—		$	—		$	39,996		$	—		$	95,785
Accounts payable		22,752			—			710			67,815			(1,300		)	89,977
Accrued liabilities		48,363			—			824			28,633			—			77,820
Due to parent/subsidiaries		1,358			—			7,939			144,063			(153,360		)	—
Total current liabilities		128,262			—			9,473			280,507			(154,660		)	263,582
Long-term debt, less current maturities		320,561			—			—			24			—			320,585
Due to parent		—			—			—			16,432			(16,432		)	—
Other noncurrent liabilities		70,838			—			491			3,460			—			74,789
Total liabilities		519,661			—			9,964			300,423			(171,092		)	658,956
Series A redeemable preferred stock		26,121			—			—			—			—			26,121
Shareholders’ equity (deficit):
Common stock, $.10 par value, 1,667 shares authorized, 1000 shares issued and outstanding		—			—			—			—			—			—
Common stock, $1 par value, 1,000 shares authorized, issued and outstanding		—			—			1			—			(1		)	—
Common stock, $1 par value, 2,005,000 shares authorized, issued and outstanding		—			—			—			2,005			(2,005		)	—
Additional paid in capital		—			19,348			1,205			—			(20,553		)	—
Accumulated deficit and accumulated other comprehensive losses		(195,047		)	(3,874		)	(6,377		)	(20,557		)	30,808			(195,047		)
Total shareholders’ equity (deficit)		(195,047		)	15,474			(5,171		)	(18,552		)	8,249			(195,047		)
Total liabilities and shareholders’ equity (deficit)		$	350,735		$	15,474		$	4,793		$	281,871		$	(162,843	)	$	490,030

 

17

 

(9)         Guarantor Subsidiaries (Continued)

 

Condensed Consolidating Balance Sheet
As of October 31, 2004

 

		The Company Excluding Guarantor Subsidiaries			Buick Resource Recycling Facility, LLC			Other Domestic Guarantors			Doe Run Cayman and Subsidiary			Eliminations			The Company
ASSETS
Current assets:
Cash		$	13,412		$	—		$	1		$	6,905		$	—		20,318
Trade accounts receivable, net of allowance for doubtful accounts		42,269			—			1,942			22,217			(2,209		)	64,219
Inventories		36,359			—			1,130			65,876			(56		)	103,309
Prepaid expenses and other current assets		19,898			—			59			15,901			—			35,858
Due from subsidiaries		11,998			1,162			—			—			(13,160		)	—
Total current assets		123,936			1,162			3,132			110,899			(15,425		)	223,704
Property, plant and equipment, net		72,716			14,739			1,442			140,743			—			229,640
Due from subsidiaries		156,495			—			—			—			(156,495		)	—
Other noncurrent assets, net		3,890			—			63			122			—			4,075
Investment in subsidiaries		(12,647		)	—			—			—			12,647			—
Total assets		$	344,390		$	15,901		$	4,637		$	251,764		$	(159,273	)	457,419
LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)
Current liabilities:
Current maturities of long-term debt		$	57,367		$	—		$	—		$	39,400		$	—		96,767
Accounts payable		23,310			—			662			44,092			(2,209		)	65,855
Accrued liabilities		55,625			—			1,054			27,199			—			83,878
Due to parent/subsidiaries		1,162			—			7,998			143,063			(152,223		)	—
Total current liabilities		137,464			—			9,714			253,754			(154,432		)	246,500
Long-term debt, less current maturities		320,561			—			—			—			—			320,561
Due to parent		—			—			—			17,432			(17,432		)	—
Other noncurrent liabilities		71,772			—			533			3,460			—			75,765
Total liabilities		529,797			—			10,247			274,646			(171,864		)	642,826
Series A redeemable preferred stock		25,329			—			—			—			—			25,329
Shareholders’ equity (deficit):
Common stock, $.10 par value, 1,667 shares authorized, 1,000 shares issued and outstanding		—			—			—			—			—			—
Common stock, $1 par value, 1,000 shares authorized, issued and outstanding		—			—			1			—			(1		)	—
Common stock, $1 par value, 2,005,000 shares authorized, issued and outstanding		—			—			—			2,005			(2,005		)	—
Additional paid in capital		—			19,348			1,205			—			(20,553		)	—
Accumulated deficit and accumulated other comprehensive losses		(210,736		)	(3,447		)	(6,816		)	(24,887		)	35,150			(210,736	)
Total shareholders’ equity (deficit)		(210,736		)	15,901			(5,610		)	(22,882		)	12,591			(210,736	)
Total liabilities and shareholders’ equity (deficit)		$	344,390		$	15,901		$	4,637		$	251,764		$	(159,273	)	457,419

 

18

 

(9)         Guarantor Subsidiaries (Continued)

 

Condensed Consolidating Statement of Operations (unaudited)
Three Months Ended January 31, 2005

 

		The Company Excluding Guarantor Subsidiaries			Buick Resource Recycling Facility, LLC			Domestic Guarantors			Doe Run Cayman and Subsidiary			Eliminations			The Company
Net sales		$	84,382		$	—		$	3,815		$	150,786		$	(3,324	)	$	235,659
Costs and expenses:
Cost of sales		60,038			—			2,950			138,364			(3,349		)	198,003
Depletion, depreciation and amortization		2,259			623			100			3,155			—			6,137
Selling, general and administrative		6,026			—			587			4,215			—			10,828
Unrealized loss on derivatives		(1,109		)	—			—			311			—			(798		)
Other		1,521			29			153			134			—			1,837
Total costs and expenses		68,735			652			3,790			146,179			(3,349		)	216,007
Income (loss) from operations		15,647			(652		)	25			4,607			25			19,652
Other income (expense):
Interest expense, net		(2,679		)	—			(156		)	(606		)	—			(3,441		)
Other, net		(79		)	224			2			329			—			476
Equity in earnings of subsidiaries		3,798			—			—			—			(3,798		)	—
		1,040			224			(154		)	(277		)	(3,798		)	(2,965		)
Income (loss) before income tax expense		16,687			(428		)	(129		)	4,330			(3,773		)	16,687
Income tax expense		—			—			—			—			—			—
Net income (loss)		16,687			(428		)	(129		)	4,330			(3,773		)	16,687
Preferred stock dividends		(792		)	—			—			—			—			(792		)
Net income (loss) allocable to common shares		$	15,895		$	(428	)	$	(129	)	$	4,330		$	(3,773	)	$	15,895

 

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