SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
2002
First Quarter
FORM 10-Q/A
-----------
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended March 31, 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
----------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (602) 977-6500
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 March 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.
-1-
Southern Peru Copper Corporation
and Subsidiaries
INDEX TO FORM 10-Q/A
Page No.
--------
Explanatory Statement 3
PART I. FINANCIAL INFORMATION:
Item 1. Financial Statements (unaudited)
Condensed Consolidated Statement of Earnings
Three Months ended March 31, 2002 (as restated)
and 2001 4
Condensed Consolidated Balance Sheet
March 31, 2002 (as restated) and December 31, 2001 5
Condensed Consolidated Statement of Cash Flows
Three Months ended March 31, 2002 (as restated)
and 2001 6-7
Notes to Condensed Consolidated Financial Statements 8-12
Items 2 and 3. Management's Discussion and Analysis of
Financial Condition and Results of Operations
and Quantitative and Qualitative Disclosure about
Market Risk 13-18
Independent Accountants' Report 19
PART II. OTHER INFORMATION:
Item 6 - Exhibits and Reports on Form 8-K 20
Signatures 21
Exhibit 15 - Independent Accountant's Awareness Letter
Certification of Financial Reports 22-23
-2-
EXPLANATORY STATEMENT
This Form 10Q/A amends the Company's quarterly report on Form 10Q for the three
months ended March 31, 2002 to reflect the correction of an overstatement of
inventories and earnings for that period. See Note G to the unaudited
condensed consolidated financial statements for further discussion of this
matter.
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.
The Company has notified Andersen LLP, which had reviewed such statements for
first quarter 2002, upon discovering the need for the restatement. Andersen has
advised the company that in light of the restatement, their review of the
Company's financial statements for the first quarter of 2002 could not be relied
upon.
For purposes of this 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, no attempt has been made in this 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.
-3-
Southern Peru Copper Corporation
and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
Three Months Ended
March 31,
----------------------------
2002 2001
------------ ------------
(In thousands, except for per
share amounts)
(As Restated-
see Note G)
Net sales:
Related parties $ 2,157 $ 7,254
Others 134,037 155,166
------------ ------------
Total net sales 136,194 162,420
------------ ------------
Operating costs and expenses:
Cost of sales 90,262 103,014
Administrative and other expenses 7,076 7,114
Depreciation and depletion 16,221 20,825
Exploration expense 1,299 2,949
------------ ------------
Total operating costs and expenses 114,858 133,902
------------ ------------
Operating income 21,336 28,518
Interest income 727 2,754
Other income (expense) 1,192 (373)
Interest expense (4,003) (7,001)
------------ ------------
Earnings before taxes on income, minority
interest of investment shares and
extraordinary loss 19,252 23,898
Taxes on income 6,012 7,902
Minority interest of investment shares
in income of Peruvian Branch 110 297
------------ ------------
Earnings before extraordinary loss 13,130 15,699
Extraordinary loss from early extinguishment
of debt net of income tax benefits of $3,876 8,536 -
------------ ------------
Net earnings $ 4,594 $ 15,699
============ ============
Per common share amounts:
Earnings before extraordinary loss $ 0.17 $ 0.20
Extraordinary loss from early extinguishment
of debt net of income tax benefits (0.11) -
------------ ------------
Net earnings - basic and diluted $ 0.06 $ 0.20
------------ ------------
Dividends paid $ 0.07 $ -
============ ============
Weighted average common shares outstanding
(Basic) 80,004 80,001
============ ============
Weighted average common shares outstanding
(Diluted) 80,006 80,005
============ ============
The accompanying notes are an integral part of these condensed consolidated
financial statements.
-4-
Southern Peru Copper Corporation
and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
March 31, December 31,
2002 2001
------------ ------------
(in thousands)
(As Restated-
see Note G)
ASSETS
Current assets:
Cash and cash equivalents $ 94,598 $ 212,857
Marketable securities 16,632 -
Accounts receivable, net 55,412 81,827
Inventories 112,588 101,030
Other assets 31,405 30,931
------------ ------------
Total current assets 310,635 426,645
Net property 1,399,965 1,376,777
Other assets 10,703 17,995
------------ ------------
Total Assets $ 1,721,303 $ 1,821,417
============ ============
LIABILITIES
Current liabilities:
Current portion of long-term debt $ - $ 122,914
Accounts payable 53,658 53,617
Accrued liabilities 41,995 44,422
------------ ------------
Total current liabilities 95,653 220,953
------------ ------------
Long-term debt 299,043 273,121
Deferred income taxes 89,292 88,615
Other liabilities and reserves 15,256 15,252
------------ ------------
Total non-current liabilities 403,591 376,988
------------ ------------
Commitments and Contingencies
MINORITY INTEREST 13,915 14,021
------------ ------------
STOCKHOLDERS' EQUITY
Common stock (a) 261,628 261,625
Retained earnings 946,516 947,830
------------ ------------
Total Stockholders' Equity 1,208,144 1,209,455
------------ ------------
Total Liabilities, Minority Interest and
Stockholders' Equity $ 1,721,303 $ 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.
-5-
Southern Peru Copper Corporation
and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
3 Months Ended
March 31,
2002 2001
------------- ------------
(in thousands)
(As Restated-
see Note G)
OPERATING ACTIVITIES
Net earnings $ 4,594 $ 15,699
Extraordinary loss, pre tax 12,412 -
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and depletion 16,221 20,825
Remeasurement loss 1,129 1,704
Provision for deferred income taxes 715 2,125
Minority interest of labor shares 110 297
Cash provided by (used in) operating assets
and liabilities:
Accounts receivable 23,215 71,969
Inventories (11,556) (16,784)
Accounts payable and accrued liabilities (1,177) 3,228
Other operating assets and liabilities (719) 403
------------- ------------
Net cash provided by operating activities 44,944 99,466
------------- ------------
INVESTING ACTIVITIES
Capital expenditures (40,984) (27,523)
Purchase of marketable securities (16,632) -
Sales of property 3 13
------------- ------------
Net cash used in investing activities (57,613) (27,510)
------------- ------------
FINANCING ACTIVITIES
Cash paid for early extinguishment of debt (11,404) -
Debt repayment (122,914) (4,246)
Proceeds from borrowings 25,922 400,000
Escrow withdrawals on long-term loans 6,991 -
Dividends paid to common stockholders (2,706) -
Distributions to minority interest (95) -
Treasury stock transaction 3 -
Labor Shares purchased (129) (395)
------------- ------------
Net cash (used in) provided by financing
Activities (104,332) 395,359
------------- ------------
Effect of exchange rate changes on cash (1,258) (1,902)
------------- ------------
(Decrease) Increase in cash and cash equivalents (118,259) 465,413
Cash and cash equivalents, at beginning of period 212,857 149,088
------------- ------------
Cash and cash equivalents, at end of period $ 94,598 $ 614,501
============= ============
-6-
3 Months Ended
March 31,
2002 2001
------- -------
(in thousands)
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ 4,272 $ 5,011
------- -------
Income taxes $ 31 $ -
======= =======
Supplemental schedule of noncash investing and
Financing activities:
Accounts receivable from shareholders
offset by dividends paid $ 3,199 $ -
======== =======
The accompanying notes are an integral part of these condensed consolidated
financial statements.
-7-
Southern Peru Copper Corporation
and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
A. In the opinion of Southern Peru Copper Corporation (the "Company" or
"SPCC"), the accompanying unaudited condensed consolidated financial
statements contain all adjustments (consisting only of normal recurring
adjustments) necessary to present fairly the Company's financial position
as of March 31, 2002 and the results of operations and cash flows for the
three months ended March 31, 2002 and 2001. The condensed financial
statements for the three month period ended March 31, 2002 have been
subjected to a review by Deloitte and Touche LLP, the Company's independent
public accountants, whose report dated July 19, 2002, is presented on page
19. The results of operations for the three months period are not
necessarily indicative of the results to be expected for the full year. The
accompanying condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's 2001 annual report on Form 10-K.
B. Inventories were as follows:
(In millions)
March 31, December 31,
2002 2001
-------- -------------
Metals at lower of average cost or market:
Finished goods $ 11.2 $ 1.8
Work-in-process 51.7 45.9
Supplies at average cost 49.7 53.3
-------- -------------
Total inventories $ 112.6 $ 101.0
======== =============
For explanation of increase in the inventory of finished goods, please
refer to "Net Sales", on page 14.
C. At March 31, 2002, the Company has recorded sales of 1.1 million pounds
of copper, at an average provisional price of $0.75 per pound. Also the
Company has recorded sales of 2.4 million pounds of molybdenum at an
average provisional price of $ 2.37 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 second quarter of 2002.
D. In the first quarter 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 $3 million in the first quarter 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 October 1997, the Superior Court of Lima
nullified a previous ruling on the case rendered by a lower court. The
Superior Court remanded the case for a new trial. Plaintiffs filed an
extraordinary appeal before the Peruvian Supreme Court. The Supreme Court
may grant discretionary review in limited cases. In March 1999, the Company
received official notification that the Supreme Court had denied
plaintiffs' extraordinary appeal and affirmed the decision of the Superior
Court of Lima, which remanded the case to the lower court for further
proceedings. In December 1999, the
-8-
lower court decided against the Company, ordering the delivery of the
investment shares and dividends to the plaintiffs. The Company appealed
this decision in January 2000. On October 10, 2000, the Superior Court of
Lima affirmed the lower court's decision, which had been adverse to the
Company. 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.
There is also pending against the Company a similar lawsuit filed by 127
additional former employees. In the third quarter of 1997, the court of
first instance dismissed their complaint. Upon appeal filed by the
plaintiffs, the Superior Court of Lima, in the third quarter of 1998,
nullified the lower court's decision on technical grounds and remanded the
case to the lower court for further proceedings. In December 1999, the
lower court dismissed the complaint against the Company. Plaintiffs
appealed this decision in January 2000 before the Superior Court. At the
end of 2000 the Superior Court rejected the appeal. Plaintiffs have filed
an extraordinary appeal before the Supreme Court. The Supreme Court may
grant discretionary review in limited cases.
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 was filed against the Company in federal
court in New York City. The lawsuit seeks unspecified compensatory and
punitive damages for alleged personal injuries to eight persons resident in
Peru arising from alleged releases into the environment from the Company's
operations in Peru. The lawsuit is similar to a suit filed in 1995 in
Texas, 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.
It is the opinion of management that the outcome of the aforementioned
legal proceedings, as well as other miscellaneous litigation and
proceedings now pending, will not have a material adverse effect on the
financial position of the Company and its consolidated subsidiaries.
However, it is possible that litigation matters could have a material
effect on quarterly or annual operating results, when they are resolved in
future periods.
F. Impact of New Accounting Standards:
In 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,
-9-
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.
G. Subsequent to the issuance of the Company's financial statements for the
quarter ended March 31, 2002, managements determined that certain
inventories and operating income were overstated by approximately $3
million. The effect of the error, after income taxes and minority
interests, is an overstatement of net income for the period of
approximately $1.8 million. Accordingly, the Company has restated its
financial statements as of and for the three months ended March 31,
2002. A summary of the effects of the restatement follows.
-10-
Southern Peru Copper Corporation
and Subsidiaries
Condensed Consolidated Statement of Earnings
(Unaudited)
Three Months Ended
2002
(In thousands, except for
per share amounts)
As
As Previously
Restated Reported
------------ ------------
Net sales:
Related parties $ 2,157 $ 2,157
Others 134,037 134,037
------------ ------------
Total net sales 136,194 136,194
------------ ------------
Operating costs and expenses:
Cost of sales 90,262 87,502
Administrative and other expenses 7,076 7,076
Depreciation and depletion 16,221 16,221
Exploration expense 1,299 1,299
------------ ------------
Total operating costs and Expenses 114,858 112,098
------------ ------------
Operating income 21,336 24,096
Interest income 727 727
Other income (expense) 1,192 1,192
Interest expense (4,003) (4,003)
------------ ------------
Earnings before taxes on income,
minority interest of investment
shares and extraordinary loss 19,252 22,012
Taxes on income 6,012 7,086
Minority interest of investment
shares in income of Peruvian
Branch 110 110
------------ ------------
Earnings before extraordinary loss 13,130 14,816
Extraordinary loss from early extinguishment of debt net
of income tax benefits of $3,876 and $3,995 8,536 8,417
------------ ------------
Net earnings $ 4,594 $ 6,399
============ ============
Per common share amounts:
Earnings before extraordinary loss $ 0.16 $ 0.19
Extraordinary loss from early Extinguishment of
debt net of Income tax benefits $ 0.11 $ 0.11
------------ ------------
Net earnings - basic and diluted $ 0.05 $ 0.08
============ ============
Dividends paid $ 0.07 $ 0.07
============ ============
Weighted average common shares outstanding (Basic) 80,004 80,004
============ ============
Weighted average common shares outstanding (Diluted) 80,006 80,006
============ ============
-11-
Southern Peru Copper Corporation
and Subsidiaries
Consolidated Balance Sheets
(Unaudited)
As of March 31, 2002
As
As Previously
Restated Reported
----------- ------------
ASSETS
Current assets:
Cash and cash equivalents $ 94,598 $ 94,598
Marketable securities 16,632 16,632
Accounts receivable, net 55,412 55,412
Inventories 112,588 115,588
Other assets 31,405 30,737
----------- ------------
Total current assets 310,635 312,967
Net property 1,399,965 1,399,965
Other assets 10,703 10,703
----------- ------------
Total Assets $ 1,721,303 $1,723,635
=========== ============
LIABILITIES
Current liabilities:
Accounts payable $ 53,658 $ 53,658
Accrued liabilities 41,995 42,006
----------- ------------
Total current liabilities 95,653 95,664
----------- ------------
Long-term debt 299,043 299,043
Deferred income taxes 89,292 89,567
Other liabilities and reserves 15,256 15,496
----------- ------------
Total non-current liabilities 403,591 404,106
----------- ------------
Commitments and Contingencies
MINORITY INTEREST 13,915 13,915
----------- ------------
STOCKHOLDERS' EQUITY
Common stock (a) 261,628 261,628
Retained earnings 946,516 948,322
----------- ------------
Total Stockholders' Equity 1,208,144 1,209,950
----------- ------------
Total Liabilities, Minority Interest and
Stockholders' Equity $ 1,721,303 $ 1,723,635
----------- ------------
(a) Common shares: Authorized 34,099 34,099
Outstanding 14,103 14,103
Class A common shares Authorized and
Outstanding 65,901 65,901
-12-
PART I ITEM 2 AND ITEM 3
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
AND QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
As discussed in Note G to the unaudited condensed consolidated financial
statements, we have restated our financial statements for the quarter ended
March 31, 2002. The accompanying Management's Discussion and Analysis gives
effect to the restatement.
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.
The Company has notified Andersen LLP, which had reviewed such statements for
first quarter 2002, upon discovering the need for the restatement. Andersen has
advised the company that in light of the restatement, their review of the
Company's financial statements for the first quarter of 2002 could not be relied
upon.
For purposes of this 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,
1999, the attempt has been made in this 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.
The Company reported net earnings of $4.6 million, or 5 cents per common share,
for the first quarter ended March 31, 2002 compared with net earnings of $15.7
million, or 20 cents per common share, for the first quarter of 2001. The
decrease in earnings in the first quarter of 2002 is primarily the result of
lower sales and lower copper prices when compared with the first quarter of
2001, and an extraordinary loss from early extinguishment of debt. The average
price for copper on the London Metal Exchange (LME) was 71 cents per pound for
the first quarter of 2002 compared with 80 cents per pound in the first quarter
of 2001. The average price for copper on the New York Commodity Exchange (COMEX)
was 72 cents per pound for the first quarter of 2002, compared with 82 cents per
pound in the first quarter of 2001.
Mine copper production increased 8.5% to 188.7 million pounds in the first
quarter of 2002, compared with the first quarter of last year. Higher ore grades
and throughput at both mines were responsible for the increase in production.
SX/EW production reached 31.7 million pounds during the first quarter of 2002,
an increase of 1.8 million pounds of copper over the similar period in 2001, as
a result of the completion of the SX/EW plant expansion at the end of October
2001. Copper concentrates smelted at the Ilo smelter increased by 9.5% and
blister copper production increased by 11.6% during the first quarter of 2002,
compared with the similar period in 2001, reaching a total of 297,743 and 76,302
metric tons, respectively. The refined copper production at the Ilo refinery
increased 2.3% to 152.5 million pounds in the first quarter of 2002, compared
with the same period last year. These increases are due to improved production
efficiencies at the smelter and Ilo refinery.
-13-
On February 1, 2002, SPCC prepaid and canceled the $122.9 million balance of
the $150 million Secured Export Notes that were placed in 1997 in the United
States and international markets. A premium of $11.4 million and the
unamortized balance of $1.0 million of commissions related to this prepayment
has been expensed as an extraordinary item. This one time event had an impact
on after tax earnings of $8.5 million or 11 cents per share.
On February 22, 2002, the Company sold bonds for $25.9 million, with maturities
ranging from May 2005 to February 2012, to investors in Peru. The bonds have an
interest rate of LIBOR plus 3.0% and were issued through SPCC's Peruvian Branch.
These bonds form part of a $750 million Peruvian bond market program, the
proceeds of which will be used to finance a portion of SPCC's expansion and
modernization program.
The Toquepala concentrator expansion and modernization project had reached 84%
completion at the end of March 2002, with an investment of $43.3 million out of
the $69.5 million budgeted. It is anticipated that when this project reaches
completion at the end of August 2002, the Toquepala concentrator milling
capacity will increase 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. The combined progress of engineering, procurement and construction
reached 97% completion as of March 31, 2002.
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.
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 three months ended March 31, 2002 the inflation and devaluation rates
were (0.02%) and 0.00%, respectively.
NET SALES: Net sales in the first quarter of 2002 decreased $26.2 million to
$136.2 million from the comparable period in 2001. The decrease in net sales was
principally the result of lower copper prices in 2002 and due to an unusual and
unexpected delay in the arrival of 3 vessels to the port of Ilo, originally
scheduled for arrival at month's end. As a result, 10,311 metric tons of copper
worth $16.3 million and 645 metric tons of molybdenum worth $1.9 million were
not shipped in the month of March. The shipment, which had a sales value of
$18.2 million was recognized as sales in the month of April 2002.
At March 31, 2002, the Company has recorded sales of 1.1 million pounds of
copper, at an average provisional price of $0.75 per pound. Also the Company has
recorded sales of 2.4 million pounds of molybdenum at an average provisional
price of $ 2.37 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 second quarter of 2002.
-14-
PRICES: Sales prices for the Company's metals are established principally by
reference to prices quoted on the LME, the COMEX or published in Platt's Metals
Week for dealer oxide mean prices for molybdenum products.
Three Months Ended
March 31,
Price/Volume Data: 2002 2001
---------- ----------
Average Metal Prices
Copper (per pound-LME) $ 0.71 $ 0.80
Copper (per pound - COMEX) 0.72 0.82
Molybdenum (per pound) 2.74 2.25
Silver (per ounce-COMEX) 4.47 4.53
Sales Volume (in thousands):
Copper (pounds) 170,600 177,900
Molybdenum (pounds) (1) 4,573 4,460
Silver (ounces) 888 920
(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
OPERATING COSTS AND EXPENSES: Operating costs and expenses were $114.9 million
in the first quarter of 2002 compared with $133.9 million in the first quarter
of 2001.
Cost of sales for the three months ended March 31, 2002 was $90.3 million
compared with $103.0 million in the comparable 2001 period. The decrease is a
result of a combined effect of lower sales and lower production cost, partially
offset by higher copper sales from purchased concentrates.
Administrative and other expenses were $7.1 million in the three months ended
March 31, 2002, the same amount for the comparable 2001 period.
Depreciation and depletion expense for the three months ended March 31, 2002
was $16.2 million compared with $20.8 million in the comparable 2001 period.
The decrease in 2002 is principally due to a change to longer estimated
service lives of certain machinery and equipment implemented prospectively
during the first quarter 2002.
-15-
NON-OPERATING ITEMS: Interest income was $0.7 million in the first quarter of
2002, compared to $2.8 million in the comparable 2001 period. The decrease
reflects lower amounts of excess cash invested in the year 2002.
Interest expense was $4.0 million in the first quarter of 2002, compared with
$7.0 million in the first quarter of 2002. 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 three months ended March 31, 2002, were
$2.1 million (net of a $3.9 million benefit, which was recorded as part of the
extraordinary loss), compared with $7.9 million for the same period in 2001. The
decrease was principally due to lower earnings in 2002.
CASH FLOWS:
Net cash provided by operating activities was $44.9 million in the first quarter
of 2002, compared with $99.5 million in the comparable 2001 period. The decrease
was principally attributable to reimbursements of Peruvian value added taxes of
$45.5 millions in 2001 made by the government.
Net cash used in investing activities was $57.6 million consisting of $41.0
million of capital expenditures and $16.6 million of purchase of marketable
securities in the first quarter of 2002. In the first quarter of 2001, net cash
used in investing activities was $27.5 million related to capital expenditures.
Net cash used in financing activities in the first quarter of 2002 was $104.3
million, compared with cash generated of $395.4 million in the first quarter of
2001. The first quarter of 2001 includes proceeds of $400.0 million under a
credit line contracted with a group of international financial institutions,
which was cancelled and repaid in December 2001.
LIQUIDITY AND CAPITAL RESOURCES:
On February 1, 2002, SPCC prepaid the remaining $122.9 million of Secured Export
Notes that were placed in the United States and international markets. A premium
of $11.4 million and an unamortized balance of $1.0 million of commissions
related to this prepayment has been expensed as an extraordinary item.
On February 22, 2002, the Company sold bonds for $25.9 million, with maturities
ranging from May 2005 to February 201,2 to investors in Peru. The bonds have an
interest rate of LIBOR plus 3.0% and were issued through SPCC's Peruvian Branch.
These bonds form part of a $750 million Peruvian bond market program, the
proceeds of which will be used to finance a portion of SPCC's expansion and
modernization program.
On March 8, 2002, the Company paid a quarterly dividend of 7.4 cents per share,
to stockholders of record at the close of business on February 18, 2002.
Additionally, on April 30, 2002, the Company declared a quarterly dividend of 4
cents per share payable June 7, 2002, to stockholders of record at the close of
business on May 20, 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.
-16-
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 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); litigation and 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 depletion,
as well as in evaluating mine assets impairments. Changes in ore reserve
estimates could significantly affect these items. Please also refer to
"Cautionary Statement".
For the first three months 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.
-17-
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.
-18-
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
March 31, 2002 and the related condensed consolidated statements of earnings and
cash flows for the three-month 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.
As discussed in Note G, the condensed consolidated financial statements for the
three month period ended March 31, 2002 have been restated.
The accompanying condensed consolidated financial information as of December 31,
2001, and for the three-month period ended March 31, 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
-19-
Part II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K.
Exhibit 15. Independent Accountants' Awareness Letter
Reports on Form 8-K
On April 30, 2002, the Company filed a Current Report on Form 8-K dated April
25, 2002 reporting a change in the Company's certifying accountant. On April 25,
2002, upon the recommendation of the Audit Committee, the Board of Directors of
the Company approved the selection of Deloitte & Touche LLP as independent
auditors for 2002, removing Arthur Andersen LLP.
-20-
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
-21-