<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
November 10, 1997
Newmont Mining Corporation
Delaware 1-1153 13-1806811
(State or other (Commission File (IRS Employer
jurisdiction of Number) Identification No.)
incorporation)
1700 Lincoln Street, Denver CO 80203
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(303) 863-7414
<PAGE> 2
ITEM 5. OTHER EVENTS
Newmont Mining Corporation ("Newmont Mining") is filing as Exhibits
herewith a copy of its restated consolidated financial statements for the years
ended December 31, 1996, 1995 and 1994, together with the report thereon of
Arthur Andersen LLP, independent auditors, to give effect to the merger between
Newmont Mining and Santa Fe Pacific Gold Corporation which occurred on May 5,
1997.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) None.
(b) None.
(c) Exhibits
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Price Waterhouse LLP.
99.1 Newmont Mining's consolidated financial statements for the year
ended December 31, 1996, 1995 and 1994, together with the report thereon of
Arthur Andersen LLP, independent auditors.
<PAGE> 3
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Newmont Mining Corporation
/s/TIMOTHY J. SCHMITT
-------------------
Timothy J. Schmitt
Vice President, Secretary
and Assistant General Counsel
Date: November 10, 1997
<PAGE> 4
EXHIBIT INDEX
Exhibit 23.1 Consent of Arthur Andersen LLP.
Exhibit 23.2 Consent of Price Waterhouse LLP.
Exhibit 99.1 Newmont Mining's consolidated financial statements for the
year ended December 31, 1996, 1995 and 1994, together with the
report thereon of Arthur Anderson LLP, independent auditors.
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our report included in this on Form 8-K, into Newmont
Mining Corporation's previously filed S-8 Registration Statement No.33-
49872, S-8 Registration Statement No. 33-53267, S-3 Registration Statement
No. 33-54249, S-8 Registration Statement No. 33-62469, S-8 Registration
Statement No. 333-04161, S-4 Registration Statement No. 333-19335 and Post
Effective Amendment No. 1 on Form S-8 to Form S-4 No. 333-19335-01.
/s/ ARTHUR ANDERSEN LLP
------------------------
ARTHUR ANDERSEN LLP
Denver, Colorado
November 10, 1997.
<PAGE> 1
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the
Registration Statements on Forms S-3 (No. 33-54245), Form S-4 (No. 333- 19335)
and Form S-8 (Nos. 33-49872; 33-53267; 33-62469; 333-04161 and 333- 19335-01)
of Newmont Mining Corporation of our report dated February 1, 1997 pertaining
to the consolidated financial statements of Santa Fe Pacific Gold Corporation
and Subsidiaries appearing in Newmont Mining Corporation's Current Report on
Form 8-K. It should be noted, however, that such financial statements are not
included in such Form 8-K.
/s/ PRICE WATERHOUSE LLP
---------------------------
PRICE WATERHOUSE LLP
Phoenix, Arizona
November 10, 1997
<PAGE> 1
Exhibit 99.1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Newmont Mining Corporation:
We have audited the accompanying consolidated balance sheets of
Newmont Mining Corporation (a Delaware corporation) and subsidiaries as of
December 31, 1996 and 1995, and the related statements of consolidated income,
changes in stockholders' equity and cash flows for each of the three years in
the period ended December 31, 1996. These financial statements are the
responsibility of the Corporation's management. Our responsibility is to
express an opinion on these financial statements based on our audits. We did
not audit the financial statements of Santa Fe Pacific Gold Corporation, a
company merged into the Corporation during 1997 in a transaction accounted for
as a pooling of interests, as discussed in Note 1. Such statements are included
in the consolidated financial statements of Newmont Mining Corporation and
reflect total assets and total revenues of 37 percent and 30 percent in 1996,
and 35 percent and 31 percent in 1995, respectively, and total revenues of 38
percent in 1994 of the related consolidated totals, after restatement to
reflect certain adjustments as set forth in Note 1. The financial statements of
Santa Fe Pacific Gold Corporation prior to those adjustments were audited by
other auditors whose report has been furnished to us and our opinion, insofar
as it relates to the amounts included for Santa Fe Pacific Gold Corporation, is
based solely on the report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits and the report of other
auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of other auditors,
the financial statements referred to above present fairly, in all material
respects, the financial position of Newmont Mining Corporation and subsidiaries
as of December 31, 1996 and 1995, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 1996 in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Denver, Colorado,
September 30, 1997.
<PAGE> 2
To the Board of Directors and Shareholders
of Santa Fe Pacific Gold Corporation
In our opinion, the consolidated balance sheet and the related
consolidated statements of operations, of cash flows and of shareholders' equity
of Santa Fe Pacific Gold Corporation (not presented separately herein) present
fairly, in all material respects, the financial position of Santa Fe Pacific
Gold Corporation and its subsidiaries at December 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1996, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audit. We conducted our audit of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Phoenix, Arizona
February 1, 1997
<PAGE> 3
NEWMONT MINING CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
(In thousands, except per share)
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------------
1996 1995 1994
----------- --------- ----------
<S> <C> <C> <C>
Sales and other income
Sales $ 1,105,666 $ 981,640 $ 967,545
Dividends, interest and other 29,460 46,394 25,186
Gain on disposition of
investment - 113,188 -
----------- --------- ---------
1,135,126 1,141,222 992,731
----------- --------- ---------
Costs and expenses
Costs applicable to sales 652,305 533,631 491,501
Depreciation, depletion and
amortization 204,081 186,785 174,360
Exploration and research 87,914 87,993 97,738
General and administrative 65,671 62,861 55,857
Interest, net of amounts
capitalized 58,619 47,099 18,588
Write-off of exploration properties - 52,537 -
Other 22,521 11,681 46,029
----------- --------- ---------
1,091,111 982,587 884,073
----------- --------- ---------
Income before equity income and
income taxes 44,015 158,635 108,658
Equity in income of affiliated
companies 45,221 28,895 15,395
----------- --------- ---------
Pre-tax income 89,236 187,530 124,053
Income tax benefit (provision) 15,949 (29,982) 11,685
Minority interest in income
of Newmont Gold Company (6,584) (9,864) (8,298)
----------- --------- ---------
Net income 98,601 147,684 127,440
Preferred stock dividends - 11,157 15,813
----------- --------- ---------
Net income applicable to common
shares $ 98,601 $ 136,527 $ 111,627
=========== ========= =========
Net income per common share $ 0.63 $ 0.95 $ 0.80
=========== ========= =========
Average shares outstanding 155,887 143,509 138,894
=========== ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
1
<PAGE> 4
NEWMONT MINING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share)
<TABLE>
<CAPTION>
At December 31,
---------------------------
1996 1995
---------- ----------
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 227,053 $ 94,994
Short-term investments 12,724 11,820
Accounts receivable 29,663 25,297
Inventories 279,315 245,930
Other current assets 52,233 33,250
---------- ----------
Current assets 600,988 411,291
Property, plant and mine development, net 2,391,872 2,114,589
Other long-term assets 289,270 184,127
---------- ----------
Total assets $3,282,130 $2,710,007
========== ==========
LIABILITIES
Short-term debt $ 45,981 $ 29,179
Current portion of long-term debt 19,250 4,375
Accounts payable 72,135 65,127
Other accrued liabilities 140,893 148,765
---------- ----------
Current liabilities 278,259 247,446
Long-term debt 1,039,875 804,120
Reclamation and remediation liabilities 71,702 73,495
Other long-term liabilities 225,333 230,201
---------- ----------
Total liabilities 1,615,169 1,355,262
---------- ----------
Minority interest in Newmont Gold Company 104,209 87,456
---------- ----------
Commitments and contingencies (Note 18)
STOCKHOLDERS' EQUITY
Common stock - $1.60 par value; 176.5 million
shares authorized; 156.3 million and 151.3
million shares issued less 307 thousand and
591 thousand treasury shares, respectively 249,648 241,141
Capital in excess of par value 803,331 546,253
Retained earnings 509,773 479,895
---------- ----------
Total stockholders' equity 1,562,752 1,267,289
---------- ----------
Total liabilities and
stockholders' equity $3,282,130 $2,710,007
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
2
<PAGE> 5
NEWMONT MINING CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CHANGES
IN STOCKHOLDERS' EQUITY
(In thousands, except per share)
<TABLE>
<CAPTION>
Preferred Stock Common Stock Capital in
------------------------- ------------------------ Excess of Retained
Shares Amount Shares Amount Par Value Earnings
--------- --------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993 2,875 $ 14,375 134,042 $ 214,467 $ 293,585 $ 321,786
Transaction with parent
(Note 4) -- -- -- -- -- 14,069
Issuance of common stock -- -- 8,256 13,210 237,321 --
Common stock from treasury
issued primarily for
stock options exercised -- -- 284 454 9,769 (350)
Net income -- -- -- -- -- 127,440
Common stock dividends -- -- -- -- -- (54,968)
Preferred stock dividends
$5.50 per share -- -- -- -- -- (15,813)
Other -- -- -- -- (663) (3,596)
--------- --------- --------- --------- --------- ---------
Balance at December 31, 1994 2,875 14,375 142,582 228,131 540,012 388,568
Stock options exercised -- -- 232 372 8,126 (280)
Preferred stock redemption
and conversion, net of
costs (2,875) (14,375) 7,899 12,638 (2,360) 5,260
Net income -- -- -- -- -- 147,684
Common stock dividends -- -- -- -- -- (48,391)
Preferred stock dividends
$3.88 per share -- -- -- -- -- (11,157)
Other -- -- -- -- 475 (1,789)
--------- --------- --------- --------- --------- ---------
Balance at December 31, 1995 -- -- 150,713 241,141 546,253 479,895
Common stock issuance -- -- 4,651 7,442 233,814 (13,765)
Stock options exercised -- -- 666 1,065 23,579 (1,190)
Net income -- -- -- -- -- 98,601
Common stock dividends -- -- -- -- -- (54,305)
Other -- -- -- (315) 537
--------- --------- --------- --------- --------- ---------
Balance at December 31, 1996 -- $ -- 156,030 $ 249,648 $ 803,331 $ 509,773
========= ========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE> 6
NEWMONT MINING CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Operating Activities
Net income $ 98,601 $ 147,684 $ 127,440
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion and amortization 204,081 186,785 174,360
Undistributed earnings of affiliates (13,134) (3,603) (14,553)
Minority interest, net of dividends 1,589 4,879 2,343
Deferred tax benefit (16,607) (12,893) (34,509)
Gain on sale of investments -- (113,188) --
Write-off of exploration properties -- 52,591 --
Other (1,640) 8,359 (16,898)
(Increase) decrease in operating assets:
Accounts receivable (4,245) 14,643 15,689
Inventories (63,233) (70,965) (26,958)
Other assets (13,125) 5,114 3,416
Increase (decrease) in operating liabilities:
Accounts payable and accrued expenses 11,891 58,786 28,188
Other liabilities 3,430 (14,696) (3,377)
--------- --------- ---------
Net cash provided by operating activities 207,608 263,496 255,141
--------- --------- ---------
Investing Activities
Additions to property, plant and mine
development (547,757) (520,913) (493,760)
Proceeds from sale of investment -- 119,799 --
Advances to joint venture (3,684) (30,543) (14,675)
Other (2,335) (8,344) 15,533
--------- --------- ---------
Net cash used in investing activities (553,776) (440,001) (492,902)
--------- --------- ---------
Financing Activities
Short-term debt 16,802 13,440 --
Proceeds from long-term debt 255,000 254,856 533,634
Repayments of long-term debt (4,375) (130,000) (242,000)
Repayment of gold loans -- -- (138,595)
Proceeds from issuance of common stock 265,449 8,034 261,130
Dividends paid on common stock (54,305) (48,391) (41,452)
Dividends paid on preferred stock -- (11,860) (15,813)
Dividends paid to Santa Fe Pacific Corp. -- -- (13,516)
Preferred stock redemption and conversion costs -- (4,442) --
Other (344) (4,934) (6,641)
--------- --------- ---------
Net cash provided by financing
activities 478,227 76,703 336,747
--------- --------- ---------
Net increase (decrease) in cash and cash
equivalents 132,059 (99,802) 98,986
Cash and cash equivalents at beginning of year 94,994 194,796 95,810
--------- --------- ---------
Cash and cash equivalents at end of year $ 227,053 $ 94,994 $ 194,796
========= ========= =========
See Note 16 for supplemental cash flow information.
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE> 7
NEWMONT MINING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) THE CORPORATION
Newmont Mining Corporation and its more-than-50% owned subsidiaries
(collectively, "NMC" or the Corporation) is a worldwide company engaged in gold
production, exploration for gold and acquisition of gold properties. The
Corporation owns approximately 93.75% of the common stock of Newmont Gold
Company ("NGC"). All of NMC's operations are conducted through NGC.
Substantially all of the Corporation's consolidated sales and operating profit
in 1995 and 1994 related to its gold mining activities in the United States. In
1996, the Corporation's consolidated sales resulted from operations in the
United States, Uzbekistan and Indonesia. The Corporation also has an equity
interest in a mining operation in Peru and conducts exploration for gold
deposits worldwide. See Note 3 regarding the acquisition of an additional
interest in the Peruvian operation in 1997.
Gold mining requires the use of specialized facilities and technology.
The Corporation relies heavily on such facilities to maintain its production
levels. Also, the profitability of the Corporation's current operations is
significantly affected by the market price of gold. Market gold prices can
fluctuate widely and are affected by numerous factors beyond the Corporation's
control.
On May 5, 1997, the Corporation completed a merger with Santa Fe
Pacific Gold Corporation ("Santa Fe") under which each outstanding share of
Santa Fe common stock was exchanged for 0.43 of a share of NMC common stock.
Santa Fe is engaged in gold production in the United States and exploration for
gold deposits worldwide. The outstanding shares of common stock of Santa Fe
were converted into approximately 56.5 million shares of NMC common stock. NMC
also reserved approximately 566,000 shares of its common stock for issuance in
connection with outstanding Santa Fe stock options that were assumed by NMC in
the merger. The merger qualified as a tax-free reorganization and was accounted
for as a pooling of interests. In conjunction with the merger, NGC issued
shares of common stock to NMC equal to the number of shares of NMC common stock
issued in the merger in exchange for all of the outstanding shares of Santa Fe.
As a result, Santa Fe became a wholly-owned subsidiary of NGC. In addition, NGC
issued options to NMC to acquire additional shares of NGC common stock having
the same terms as the Santa Fe stock options assumed by NMC in the merger.
NMC's consolidated financial statements have been restated for periods prior to
the merger to include the operations of Santa Fe, adjusted to conform with
NMC's accounting policies and presentations.
The following table provides a reconciliation of sales and net income
reported by NMC to the combined amounts presented (in thousands).
1
<PAGE> 8
<TABLE>
<CAPTION>
For the Years Ended December 31,
--------------------------------
1996 1995 1994
----------- --------- ---------
<S> <C> <C> <C>
Sales
Pre-Merger
NMC $ 768,455 $ 636,219 $ 597,370
Santa Fe 337,211 345,421 370,175
Merger adjustments -- -- --
----------- --------- ---------
Total $ 1,105,666 $ 981,640 $ 967,545
=========== ========= =========
Net income applicable to common shares
Pre-Merger
NMC $ 85,076 $ 101,477 $ 60,308
Santa Fe 21,068 39,812 56,701
Merger Adjustments (7,543) (4,762) (5,382)
----------- --------- ---------
Total $ 98,601 $ 136,527 $ 111,627
=========== ========= =========
</TABLE>
Merger adjustments reflect conforming accounting policy changes
primarily related to the accounting treatment for deferred mining costs and the
accounting for the minority interest in income of NGC. Santa Fe included certain
depreciation, depletion and amortization charges in deferred mining costs. To
the extent Santa Fe capitalized such charges as deferred mining costs or as
inventory, restatement adjustments have been made to reflect these charges
against earnings in the appropriate period. In addition, ore and in-process
inventories were not maintained on the same basis as NMC, which resulted in
certain balance sheet reclassifications.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Newmont
Mining Corporation and its more-than-50% owned subsidiaries. The Corporation
also includes its pro-rata share of assets, liabilities and operations for
unincorporated joint ventures in which it has an interest. All significant
intercompany balances and transactions have been eliminated. NMC's principal
subsidiary is NGC, which holds all of the operating assets of the Corporation
and is approximately 93.75% owned by NMC. The functional currency for all
subsidiaries is the U. S. dollar.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of all cash balances and highly
liquid investments with an original maturity of three months or less. Because
of the short maturity of these investments, the carrying amounts approximate
their fair value. Cash and cash equivalents are primarily invested in United
2
<PAGE> 9
States Treasury bills, with lesser amounts invested in high-quality commercial
paper and time deposits.
INVESTMENTS
Short-term investments are carried at cost, which approximates market,
and include Eurodollar government and corporate obligations rated AA or higher.
At December 31, 1996 and 1995, $8.7 million and $7.9 million, respectively, of
such investments secured letters of credit.
Investments in companies in which NGC's ownership is 20% to 50% are
accounted for by the equity method of accounting and are included in Other
long-term assets. Income from such investments is included in Equity in income
of affiliated companies. Included in such investments is NGC's 38% equity
investment in Minera Yanacocha S. A. ("Minera Yanacocha") See Note 3.
As a result of the ownership structure discussed in Note 18, the Batu
Hijau project in Indonesia is accounted for as an equity investment effective
July 1996. NGC's investment at December 31, 1996 was $46.6 million.
INVENTORIES
Ore and in-process inventories and materials and supplies are stated
at the lower of average cost or net realizable value. Precious metals are
stated at market value.
Non-current inventories are stated at the lower of average cost or net
realizable value and represent ore-in-stockpiles from which no material is
expected to be processed for more than one year after the balance sheet date.
PROPERTY, PLANT AND MINE DEVELOPMENT
Expenditures for new facilities or expenditures which extend the
useful lives of existing facilities are capitalized and depreciated using the
straight-line method at rates sufficient to depreciate such costs over the
estimated productive lives of such facilities. Productive lives range from 2
to 21 years.
Mineral exploration costs are expensed as incurred. When it has been
determined that a mineral property can be economically developed, the costs
incurred to develop such property, including costs to further delineate the ore
body and remove overburden to initially expose the ore body, are capitalized.
Such costs, and estimated future development costs, are amortized using a
unit-of-production method over the estimated life of the ore body. On-going
development expenditures to maintain production are generally charged to
operations as incurred.
Significant payments related to the acquisition of exploration
interests are capitalized. If a mineable ore body is discovered, such costs are
amortized using a unit-of-production method. If no mineable ore body is
3
<PAGE> 10
discovered, such costs are expensed in the period in which it is determined the
property has no future economic value.
Interest expense allocable to the cost of developing mining properties
and to constructing new facilities is capitalized until operations commence.
Gains or losses from normal sales or retirements of assets are
included in other income or expense.
REVENUE RECOGNITION
Gold sales are recognized when gold is produced.
MINING COSTS
In general, mining costs are charged to operations as incurred.
However, certain of the Corporation's deposits have diverse grade and waste-
to-ore ratios over the mine's life. Mining costs for these deposits, to the
extent they do not relate to current gold production, are capitalized and then
charged to operations when the applicable gold is produced.
RECLAMATION AND REMEDIATION COSTS
Estimated future reclamation and remediation costs are based
principally on legal and regulatory requirements. Such costs related to active
mines are accrued and charged over the expected operating lives of the mines
using a unit-of-production method. Future reclamation and remediation costs for
inactive mines are accrued based on management's best estimate at the end of
each period of the undiscounted costs expected to be incurred at a site. Such
cost estimates include where applicable, ongoing care, maintenance and
monitoring costs. Changes in estimates are reflected in earnings in the period
an estimate is revised.
INCOME TAXES
The Corporation accounts for income taxes using Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). Under
the liability method of SFAS 109, the Corporation recognizes certain temporary
differences between the financial reporting basis of the Corporation's
liabilities and assets and the related income tax basis for such liabilities
and assets. This generates a net deferred income tax liability or net deferred
income tax asset for the Corporation as of the end of the year, as measured by
the statutory tax rates in effect as enacted. The Corporation derives its
deferred income tax charge or benefit by recording the change in the net
deferred income tax liability or net deferred income tax asset balance for the
year.
The Corporation's deferred income tax assets include certain future
tax benefits such as net operating losses or tax credit carryforwards. The
Corporation must record a valuation allowance against any portion of those
deferred income tax assets which it believes it will more likely than not fail
to realize.
4
<PAGE> 11
COMMODITY INSTRUMENTS
The Corporation has entered into gold loans and forward sales
contracts to protect the selling price for certain anticipated gold production.
The Corporation does not acquire, hold or issue commodity instruments for
trading or speculative purposes.
Proceeds from the sale of borrowed gold are recorded as gold loans at
the average price realized. As gold is delivered from production in repayment
of the borrowed gold, gold sales revenue is recognized at the average price
realized and the gold loan balance is reduced. If gold borrowings are repaid in
advance of the original repayment schedule, the resulting gain or loss is
deferred and recognized in gold sales revenue over the original repayment
schedule.
Forward sales contracts enable the Corporation to deliver a specified
number of ounces of gold to a counterparty at a specified price and date. Under
normal circumstances, counterparties under spot deferred contracts allow the
Corporation to defer delivery of gold to a later date, if necessary, at the
original contract price plus the prevailing interest-like premium. Gains and
losses realized on such instruments, as well as any cost or revenue associated
therewith, are recognized in sales when the related gold is produced.
EARNINGS PER COMMON SHARE
In March 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128 "Earnings per Share ("SFAS
128"), which specifies the computation, presentation and disclosure
requirements for earnings per share. SFAS 128 is effective for periods ending
after December 15, 1997 and requires retroactive restatement of prior period
earnings per share. The statement replaces the "primary earnings per share"
calculation with a "basic earnings per share" and redefines the "dilutive
earnings per share" computation. Adoption of the statement is not expected to
have any effect on the Corporation's reported income per common share. The
treasury stock method is used in computing earnings per common and common
equivalent share. Earnings per common and common equivalent share are based on
the sum of the weighted average number of common shares outstanding during each
period and the assumed exercise of stock options having exercise prices less
than the average market prices of the common stock. The convertible preferred
shares outstanding until conversion, as discussed in Note 10, were not common
stock equivalents as they were anti-dilutive.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions. These estimates and assumptions affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements, as well as the reported amounts of
revenues and expenses during the reporting period. Actual amounts could differ
from those estimates.
5
<PAGE> 12
RECLASSIFICATIONS
Certain amounts in prior years have been reclassified to conform to the
1996 presentation.
(3) ADDITIONAL INTEREST IN MINERA YANACOCHA
The Corporation has an equity interest in Minera Yanacocha, a gold
mining operation located in Peru, that went into production in 1993.
Summarized financial information for Minera Yanacocha follows (in
millions):
<TABLE>
<CAPTION>
For the Years Ended December 31,
--------------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Sales $ 313.9 $ 212.5 $ 116.6
Costs applicable to sales and
depreciation, depletion and
amortization $ 113.8 $ 82.4 $ 48.5
Exploration $ 17.5 $ 11.4 $ 4.1
Other $ 3.1 $ 3.3 $ 4.8
Net income, before Peruvian taxes $ 179.5 $ 115.4 $ 59.2
Peruvian taxes $ 54.8 $ 34.6 $ 18.0
Net income $ 124.7 $ 80.8 $ 41.2
Dividends applicable to
NGC's 38% interest $ 29.6 $ 23.2 $ --
</TABLE>
<TABLE>
<CAPTION>
At December 31,
------------------------
1996 1995
--------- ---------
<S> <C> <C>
Current assets $ 85.2 $ 71.7
Noncurrent assets 108.2 88.1
--------- ---------
Total assets $ 193.4 $ 159.8
========= =========
Current liabilities $ 44.3 50.0
Noncurrent liabilities 40.9 48.3
--------- ---------
Total liabilities $ 85.2 98.3
========= =========
Total equity $ 108.2 $ 61.5
========= =========
</TABLE>
In November 1993, the French government announced its intention to
privatize the mining assets of Bureau de Recherches Geologiques et Minieres,
the geological and mining bureau of the French government ("BRGM"), and in
September 1994, BRGM announced its intention to transfer its 24.7% interest in
Minera Yanacocha to another entity. The Corporation and Compania de Minas
Buenaventura, S.A. ("Buenaventura"), then 38.0% and 32.3% owners of Minera
Yanacocha, respectively, filed suit in Peru to seek enforcement of a provision
in the bylaws of Minera Yanacocha, giving shareholders preemptive
6
<PAGE> 13
rights on the proposed sale or transfer of any shareholder's interest. In
February 1995, an appellate court in Peru issued a preliminary ruling in favor
of NGC and Buenaventura, both of whom elected to exercise their preemptive
rights to acquire their proportionate share of the 24.7% interest. In
accordance with the court ruling, Minera Yanacocha canceled the BRGM shares and
issued shares representing interests in Minera Yanacocha of 13.35% to NGC and
11.35% to Buenaventura. NGC deposited $59.1 million for its additional
interest, together with the additional shares, with a Peruvian bank pending the
final resolution of the case. NGC borrowed the $59.1 million from the same
Peruvian bank with the right of set off against the deposit, and accordingly,
these amounts have been netted in the accompanying balance sheet. Through
December 31, 1996, NGC had received $18.6 million of dividends on the
additional shares. In September 1996, a court ruling provided that NGC and
Buenaventura have the right to acquire the 24.7% interest for a purchase price
of $109.3 million, $59.1 million attributable to the 13.35% interest of NGC. As
established by such ruling, the preemptive rights were triggered in November
1993 and thus the valuation of the shares held in escrow were calculated as of
such date. BRGM and other defendants filed an appeal to the Superior Court of
Lima challenging the court's determination that the preemptive rights were
triggered and the date and amount of the valuation.
In February 1997, the Superior Court upheld the decision of the trial
court. Therefore, beginning in 1997, NGC will consolidate Minera Yanacocha in
its financial statements and will reflect the increase in its ownership from
38% to 51.35% as of February 1997. BRGM and other defendants have filed a
request for review by the Supreme Court of the resolution of the Superior Court
of Peru. The Corporation has been advised that the Peruvian Supreme Court has
admitted the petition filed by BRGM. While the Corporation is unable to predict
the timing or the outcome of the review by the Supreme Court, management
believes that it is not probable that the Superior Court's decision will be
reversed.
The following pro forma income statement assumes the acquisition of
the additional interest occurred on January 1, 1996 and the pro forma balance
sheet assumes the acquisition occurred on December 31, 1996. The pro forma
financial statements are presented for illustrative purposes only and are not
necessarily indicative of the combined financial position or results of
operations which would have been realized had the acquisition of the additional
interest been considered to occur as of the dates for which the pro forma
financial statements are presented. The pro forma financial statements also are
not necessarily indicative of the combined position or results of operations in
the future.
7
<PAGE> 14
NEWMONT MINING CORPORATION AND MINERA YANACOCHA
PRO FORMA CONSOLIDATED INCOME STATEMENT - UNAUDITED
(In thousands, except per share)
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
Newmont Minera Pro Forma Pro Forma
Mining* Yanacocha Adjustments Consolidated
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Sales and other income
Sales $ 1,105,666 $ 313,870 $ 1,419,536
Dividends, interest and
other 29,460 2,336 31,796
----------- ----------- ----------- -----------
1,135,126 316,206 1,451,332
----------- ----------- ----------- -----------
Costs and expenses
Costs applicable to sales 652,305 89,206 $ (2,172)(A)
(1,624)(B) 737,715
Depreciation, depletion
and amortization 204,081 24,595 12,289 (C) 240,965
Exploration and research 87,914 17,482 105,396
General and administrative 65,671 -- 1,624 (B)
(617)(D) 66,678
Interest, net 58,619 5,447 64,066
Other 22,521 -- 22,521
----------- ----------- ----------- -----------
1,091,111 136,730 9,500 1,237,341
Equity in income of affiliated
companies 45,221 -- (47,381)(E)
(617)(D)
(2,172)(A) (4,949)
----------- ----------- ----------- -----------
Pretax income 89,236 179,476 (59,670) 209,042
Income tax (provision) benefit 15,949 (54,784) (599)(F) (39,434)
Minority interest in income of
subsidiaries (6,584) -- (60,663)(G)
(235)(H) (67,482)
----------- ----------- ----------- -----------
Net income $ 98,601 $ 124,692 $ (121,167) $ 102,126
=========== =========== =========== ===========
Income per common share $ 0.63 $ 0.66
=========== ===========
Weighted average number of
shares of common stock
and common stock equivalents
outstanding 155,887 155,887
=========== ===========
</TABLE>
* Reflects the pooling of interests described in Note 1.
(A) To eliminate royalties paid by Minera Yanacocha to a subsidiary of NGC.
(B) To eliminate management fees paid by Minera Yanacocha to a subsidiary of
NGC.
(C) Estimated additional amortization of excess purchase price over net assets
acquired.
(D) Reclassification of NGC's share (38%) of management fees charged to Minera
Yanacocha.
(E) Elimination of equity income recognized for Minera Yanacocha to reflect
consolidation.
(F) Additional taxes related to incremental earnings from additional interest
in Minera Yanacocha.
(G) Minority interest (48.65%) in income of Minera Yanacocha.
(H) Adjustment of minority interest in income of NGC.
8
<PAGE> 15
NEWMONT MINING CORPORATION AND MINERA YANACOCHA
PRO FORMA CONSOLIDATED BALANCE SHEET - UNAUDITED
(In thousands, except per share)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
Newmont Minera Pro Forma Pro Forma
Mining* Yanacocha Adjustments Consolidated
---------- --------- ----------- ------------
<S> <C> <C> <C> <C>
Assets
Cash and cash equivalents $ 227,053 $ 40,705 $ 267,758
Inventories 279,315 15,661 294,976
Other 94,620 28,848 123,468
---------- --------- ------------ -----------
Current assets 600,988 85,214 686,202
Property, plant and mine
development, net 2,391,872 106,308 $ 53,368 (A)
(14,445)(B) 2,537,103
Other long-term assets 289,270 1,887 (41,115)(C)
(2,843)(A) 247,199
---------- --------- ------------ -----------
Total assets $3,282,130 $ 193,409 $ (5,035) $ 3,470,504
========== ========= ============ ===========
Liabilities
Short-term debt and current
portion of long-term debt $ 65,231 $ 14,256 79,487
Other current liabilities 213,028 31,190 $ 50,525 (A) 294,743
---------- --------- ------------ -----------
Current liabilities 278,259 45,446 50,525 374,230
Long-term debt 1,039,875 24,244 1,064,119
Other long-term liabilities 297,035 15,520 312,555
---------- --------- ------------ -----------
Total liabilities 1,615,169 85,210 50,525 1,750,904
---------- --------- ------------ -----------
Minority interest in subsidiaries 104,209 -- 52,639 (D) 156,848
---------- --------- ------------ -----------
Stockholders' equity 1,562,752 108,199 (14,445)(B)
(41,115)(C)
(52,639)(D) 1,562,752
---------- --------- ------------ -----------
Total liabilities and
stockholders' equity $3,282,130 $193,409 $ (5,035) $ 3,470,504
========== ========= ============ ===========
</TABLE>
* Reflects the pooling of interests described in Note 1.
(A) Represents adjusted net purchase price for additional interest acquired and
associated net liabilities owed.
(B) Eliminate net book value of 13.35% acquired interest.
(C) Elimination of the Company's investment in Minera Yanacocha to reflect
consolidation.
(D) To reflect minority interest in Minera Yanacocha.
9
<PAGE> 16
(4) TRANSACTION WITH NEWMONT GOLD COMPANY
Effective January 1, 1994, NGC acquired essentially all of the
Corporation's non-NGC assets and assumed essentially all of the Corporation's
non-NGC liabilities. As part of the transaction, NMC transferred 8,649,899
shares of NGC stock to NGC. The result of the transaction is that the common
shareholders of both entities have interests in the same assets and
liabilities. Furthermore, NMC declared a 1.2481 shares to 1 share stock split
on March 21, 1994 which resulted in the two entities having identical per share
earnings.
The transfer of assets, NGC common stock and liabilities to NGC was
recorded at historical cost since the transaction was between entities under
common control. As a result of the transaction, consolidated retained earnings
increased approximately $14 million and the minority interest in NGC decreased
by a like amount. This resulted because net liabilities, with a historical cost
of approximately $203 million, were transferred to NGC, offset partially by
NMC's decrease in ownership of NGC resulting from the transfer of NGC shares to
NGC.
(5) INVENTORIES
<TABLE>
<CAPTION>
At December 31,
----------------------
1996 1995
-------- --------
(In thousands)
<S> <C> <C>
Current:
Ore and in-process inventories $161,806 $149,168
Precious metals 35,259 34,308
Materials and supplies 80,544 60,496
Other 1,706 1,958
-------- --------
$279,315 $245,930
======== ========
Non-current:
Ore-in-stockpiles (included in
other long-term assets) $ 85,652 $ 53,167
======== ========
</TABLE>
(6) PROPERTY, PLANT AND MINE DEVELOPMENT
<TABLE>
<CAPTION>
At December 31,
-----------------------------
1996 1995
----------- -----------
(In thousands)
<S> <C> <C>
Land and mining claims $ 360,845 $ 346,747
Buildings and equipment 1,974,872 1,847,054
Mine development 433,477 397,441
Construction-in-progress 327,970 238,524
----------- -----------
3,097,164 2,829,766
Accumulated depreciation,
depletion and amortization (1,063,695) (942,797)
Capitalized mining costs 358,403 227,620
----------- -----------
$ 2,391,872 $ 2,114,589
=========== ===========
</TABLE>
10
<PAGE> 17
(7) OTHER ACCRUED LIABILITIES
<TABLE>
<CAPTION>
At December 31,
------------------------
1996 1995
-------- --------
(In thousands)
<S> <C> <C>
Interest $ 27,600 $ 33,701
Contingent dividends received (see Note 3) 18,556 8,143
Payroll and related benefits 28,188 26,368
Reclamation and remediation 10,000 10,000
Plant and equipment 11,656 25,954
Other 44,893 44,599
-------- --------
$140,893 $148,765
======== ========
</TABLE>
(8) INCOME TAXES
Components of the Corporation's consolidated deferred income tax
liabilities and assets are as follows (in thousands):
<TABLE>
<CAPTION>
At December 31,
------------------------
1996 1995
-------- --------
(In thousands)
<S> <C> <C>
Deferred tax liabilities:
Deferred mining costs $(94,149) $(51,302)
Accelerated tax depreciation (86,835) (190,577)
Mine development costs (34,576) (3,843)
Capitalized interest (10,220) (8,158)
Depletion of the cost of land and mining claims (70,464) (2,872)
Net undistributed earnings from equity investment (2,108) (1,357)
Other (6,013) (8,428)
-------- --------
Deferred tax liabilities (304,365) (266,537)
-------- --------
Deferred tax assets:
Exploration costs 69,399 75,280
Remediation and reclamation costs 35,647 31,842
Alternative minimum tax credit carryforward 51,164 38,007
Net operating loss carryforwards 22,457 6,006
Sale/leaseback transaction, net 12,512 9,638
Foreign tax credit carryforward 12,461 1,262
Retiree benefit costs 18,775 16,002
Capitalized inventory costs 10,241 10,622
Deferred gain on interest rate hedges 2,940 3,240
Relocation/reorganization costs 2,491 2,610
Other 7,170 11,120
-------- --------
245,257 205,629
Valuation allowance for deferred tax assets (14,000) (9,800)
-------- --------
Net deferred tax assets 231,257 195,829
-------- --------
Net deferred tax liabilities $(73,108) $(70,708)
======== ========
</TABLE>
As of December 31, 1996, the Corporation had approximately $51.2
million of nonexpiring alternative minimum tax credit carryforwards and
approximately $12.5 million of foreign tax credit carryforwards. Of these
foreign tax credit carryforwards, $1.3 million expire in 2000 and $11.2 million
expire in 2001.
Based primarily upon estimates of future operations, the Corporation,
more likely than not, will utilize $231.3 million of the $245.3 million of
deferred income tax assets at December 31, 1996. This estimate reflects a
11
<PAGE> 18
valuation allowance of $14.0 million, which is an increase of $4.2 million from
December 31, 1995's valuation allowance.
The Corporation's pre-tax financial statement income (loss) consists
of (in thousands):
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Domestic $ 42,677 $182,053 $138,873
Foreign 46,559 5,477 (14,820)
-------- -------- --------
$ 89,236 $187,530 $124,053
======== ======== ========
</TABLE>
The Corporation's (benefit) provision for income taxes consists of (in
thousands):
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Current:
Domestic $ (3,347) $ 40,398 $ 27,766
Foreign 4,005 2,477 586
-------- -------- --------
658 42,875 28,352
-------- -------- --------
Deferred:
Domestic (18,232) (12,893) (40,037)
Foreign 1,625 - -
-------- -------- --------
(16,607) (12,893) (40,037)
-------- -------- --------
$(15,949) $ 29,982 $(11,685)
======== ======== ========
</TABLE>
The Corporation's resulting (benefits) provisions for income taxes
differ from the amounts computed by applying the United States corporate income
tax statutory rate for the following reasons (in thousands):
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
U.S. corporate income tax at statutory rate $ 31,233 $ 65,635 $ 43,419
Percentage depletion (28,650) (30,960) (36,923)
Resolution of tax issues associated with
prior years (6,000) -- (16,250)
Foreign tax credits (13,057) (8,658) (4,421)
Foreign losses 339 3,129 --
State taxes (1,570) 1,173 (17)
Non-taxable portion of dividends received
from domestic corporations -- (700) (564)
Other 1,756 363 3,071
-------- -------- --------
$(15,949) $ 29,982 $(11,685)
======== ======== ========
</TABLE>
12
<PAGE> 19
(9) DEBT
LONG-TERM DEBT
Long-term debt consists of (in thousands):
<TABLE>
<CAPTION>
At December 31,
-------------------------
1996 1995
---------- ---------
<S> <C> <C>
Sale-leaseback of refractory ore treatment plant $ 349,134 $ 349,134
8-3/8% debentures, net 199,866 199,861
8-5/8% notes 150,000 150,000
Credit facility 255,000 --
Medium-term notes 42,000 42,000
Project financing 63,125 67,500
---------- ---------
1,059,125 808,495
Current maturities (19,250) (4,375)
---------- ---------
$1,039,875 $ 804,120
========== =========
</TABLE>
Scheduled minimum long-term debt repayments are $19.3 million in 1997,
$25.0 million in 1998, $33.5 million in 1999, $14.4 million in 2000, $11.9
million in 2001 and $955.0 million thereafter. Actual payments may be greater
in any one year due to actual operating cash flows realized.
SALE-LEASEBACK OF THE REFRACTORY ORE TREATMENT PLANT
In September 1994, NGC entered into a sale and leaseback agreement for
its refractory ore treatment plant located in Carlin, Nevada for $349.1
million. The transaction was accounted for as debt for financial statement
purposes, with the cost of the refractory ore treatment plant recognized as an
asset and depreciated. The lease is for 21 years and the aggregate future
minimum lease payments, which include interest, as of December 31, 1996 and
1995 were $638.2 million and $667.9 million, respectively. Payments began in
January 1996 and are $29.7 million annually through 2000. Principal payments
are included in these amounts beginning in 1998. The lease has purchase options
during and at the end of the lease at predetermined prices. The interest rate
on this sale-leaseback transaction is 6.36%. Because of the uniqueness of this
asset, the Corporation determined that it is not practicable to estimate the
fair value of this debt.
In connection with this transaction, the Corporation entered into
certain interest rate contracts to hedge the interest cost of the financing.
These contracts were settled for a gain of $11 million which is being
recognized as a reduction of interest expense over the term of the lease. As a
result of this gain, the effective interest rate on this sale and leaseback
transaction is 6.15%.
8-3/8% DEBENTURES
Unsecured debentures in an aggregate principal amount of $200 million
maturing July 1, 2005 bearing an annual interest rate of 8.375% were
outstanding at December 31, 1996 and 1995. The debentures were issued by Santa
Fe and subsequent to the merger are guaranteed by NGC. The debentures were
priced at 99.928% to yield 8.386% and are not redeemable prior to maturity. The
costs related to the issuance of the debentures were capitalized and are
amortized to interest expense over the term of the debentures. The fair value
of the Corporation's debentures approximates their carrying value.
13
<PAGE> 20
8-5/8% NOTES
Unsecured notes with a principal amount of $150 million due April 1,
2002 bearing an annual interest rate of 8-5/8% were outstanding at December 31,
1996 and 1995. Interest is payable semi-annually in April and October and the
notes are not redeemable prior to maturity. Using interest rates prevailing on
similar instruments at December 31, 1996 and 1995, this debt was estimated to
have a fair value of $165.7 million and $169.5 million, respectively.
CREDIT FACILITIES
Santa Fe had a $400 million unsecured, five-year revolving credit
facility involving several commercial banks, of which $255 million was
outstanding at December 31, 1996. Interest rates varied depending on the
interest options chosen by Santa Fe as well as other factors, but generally
were tied to margins over the following interest rate alternatives: LIBOR, CD
or gold funding. The interest rate on borrowings outstanding at December 31,
1996, was 6.1%. The lenders' commitment under the credit facility was to
terminate on April 16, 2001, at which time any outstanding indebtedness was to
be repaid. The fair value of amounts outstanding under the credit facility at
December 31, 1996 approximated the related carrying value.
NGC had a $400 million revolving credit facility with a consortium of
banks that was to expire in April 1998. No amounts were outstanding under the
facility as of December 31, 1996.
On June 11, 1997, NGC replaced the separate facilities held by Santa
Fe and NGC with a new $1.0 billion revolving credit facility.
MEDIUM-TERM NOTES
Unsecured notes totaling $42 million, with a weighted average interest
rate of 7.7%, maturing on various dates ranging from mid-1999 to late 2004,
were outstanding as of December 31, 1996 and 1995. Interest is payable
semi-annually in March and September and the notes are not redeemable prior to
maturity. Using the interest rates prevailing on similar instruments at
December 31, 1996 and 1995, this debt was estimated to have a fair value of
$44.4 million and $44.9 million, respectively.
PROJECT FINANCING FACILITY
NGC, through a wholly-owned subsidiary, is a 50% participant in
Zarafshan-Newmont Joint Venture ("Zarafshan-Newmont") in the Republic of
Uzbekistan. The other 50% participants are two entities of the Uzbekistan
government.
As of December 31, 1996, Zarafshan-Newmont had $126.3 million
outstanding under a project financing loan secured by the assets of the
project. The loan is to be repaid in semi-annual installments until 2001.
Starting in 1997, the average interest rate is between 3.9 and 4.25 percentage
points over the three-month LIBOR. The carrying amount of the loan is estimated
to approximate its fair market value. The weighted average interest rates for
1996 and 1995 were 8.2% and 8.4%, respectively, and the interest rates at
December 31, 1996 and 1995 were 9.4% and 8.2%, respectively.
14
<PAGE> 21
Until defined completion tests have been satisfied, the Corporation
has guaranteed the payment of certain amounts due under the loan which totaled
$58.8 million at December 31, 1996. The 50% Uzbek partners have guaranteed the
repayment of the remaining amount due under the loan until such completion
tests have been satisfied. After satisfaction of the completion tests, the loan
becomes non-recourse to the Zarafshan-Newmont partners. The lenders have agreed
to extend the date by which the completion tests must be met to October 1998.
SHORT-TERM DEBT
All short-term debt at December 31, 1996 and 1995 consisted of bank
debt. The Corporation had unsecured demand bank lines of credit aggregating
$70.0 million and $39.0 million at December 31, 1996 and 1995, respectively, of
which $46.0 million and $29.2 million were outstanding at the same respective
dates. These facilities bear interest at customary short-term rates for
borrowers with similar credit ratings. The carrying value of this debt is
assumed to approximate its fair value. The weighted average interest rates for
1996 and 1995 were 6.9% and 8.8%, respectively, and the interest rates at
December 31, 1996 and 1995 were 8.25% and 8.5%, respectively.
CAPITALIZED INTEREST
Capitalized interest was $16.6 million, $14.2 million and $20.1
million in 1996, 1995 and 1994, respectively.
(10) STOCKHOLDERS' EQUITY
COMMON STOCK OFFERINGS
In January 1996, NMC issued 4.65 million shares of common stock for
$51.87 per share under an existing "shelf" registration statement with the
Securities and Exchange Commission. Proceeds of the issue netted $241.3 million
and were used to purchase an equal number of shares of common stock of NGC.
This transaction increased NMC's ownership of NGC from 93.58% to 93.75%.
Prior to June 23, 1994, Santa Fe was a wholly-owned subsidiary of
Santa Fe Pacific Corporation ("SFP"). On June 23, 1994, Santa Fe completed an
initial public offering ("Offering")of 19.2 million shares (14.6%) of its
common stock resulting in net proceeds of $250.5 million, after commissions and
related expenses. The net proceeds from the Offering were used primarily to
repay all outstanding indebtedness under Santa Fe bank project financings, for
the repayment of other indebtedness and for working capital. On September 30,
1994, SFP distributed all of the outstanding shares of common stock of Santa Fe
held by SFP to holders of SFP's common stock.
DIVIDENDS
The Corporation paid dividends of $0.48 per common share in 1996, 1995
and 1994. Santa Fe paid dividends of $0.05 per Santa Fe common share in 1996
and 1995.
15
<PAGE> 22
PREFERRED STOCK
NMC called all of the outstanding 2.875 million shares of $5.50
convertible preferred stock, $5.00 par value, for redemption on December 14,
1995 at a redemption price of $105.21 per share. Each share of preferred stock
was convertible at the option of the shareholder into shares of common stock at
a conversion price of $36.395 per share of common stock (equivalent to a
conversion rate of 2.7476 shares of common stock for each whole share of
convertible preferred stock). Substantially all of the preferred stock was
converted prior to the redemption date. A total of 7.9 million common shares
were issued in the redemption.
COMMON STOCK RIGHTS
Equal Value Rights
In September 1987, the Board of Directors declared a dividend
distribution of one equal value right ("EVR") on each share of common stock
outstanding on October 5, 1987. Each share issued subsequent to such date
automatically received an EVR. The EVRs, which were non-voting, expired in
September 1997.
PREFERRED SHARE PURCHASE RIGHTS
In August 1990, the Board of Directors declared a dividend
distribution of one preferred share purchase right ("PSPR") on each share of
common stock outstanding on September 11, 1990. Each share issued subsequent to
September 11, 1990 and prior to the "Distribution Date" referred to below (and
in certain limited circumstances thereafter) will be issued with a PSPR. Each
PSPR entitles the holder to purchase from NMC one five-hundredth of a share of
participating preferred stock of NMC for $150, subject to adjustment. Prior to
the Distribution Date, the PSPRs are not exercisable, will be evidenced by
NMC's common stock certificates and will be transferred with and only with such
certificates. The PSPRs expire in September 2000 unless earlier redeemed. Until
a PSPR is exercised, the holder thereof has no rights as a stockholder of NMC.
The Distribution Date, which is the date on which the PSPRs separate
from the common stock and become exercisable, is the earlier of (i) ten days
after the public announcement that a person or group (other than NMC's present
shareholder groups subject to a standstill agreement dated as of December 7,
1990, as amended and certain related entities and their transferees, but only
to the extent of their current share ownership) (an "Acquiring Person") has
acquired 15% or more of the common stock (the date of such first public
announcement being the "Stock Acquisition Date"), or (ii) ten business days
after the commencement of a tender or exchange offer that would result in a
person or group owning 15% or more of the common stock. If after the
Distribution Date a person shall become an Acquiring Person (other than
pursuant to certain offers approved by the Board of Directors) each holder of a
PSPR (other than the Acquiring Person and, in certain circumstances,
transferees of the Acquiring Person) will have the right to receive, upon
exercise, common stock (or, in certain circumstances, cash, property or other
securities of NMC) having a value equal to two times the purchase price of the
PSPR. In addition, if after a Stock Acquisition Date NMC is not the surviving
entity in certain business combinations, or 50% or more of NMC's assets or
earning power is sold or transferred, each holder of a PSPR shall have the
right to receive, upon exercise, common stock of the acquiring company having a
value equal to two times the purchase price of the
16
<PAGE> 23
PSPR. Prior to the earlier of a Stock Acquisition Date or the expiration date
of the PSPR, NMC, in certain circumstances with the approval of continuing
directors, may redeem the PSPRs at a price of $0.01 per PSPR.
Each one five-hundredth share of preferred stock is designed to have
similar rights to one share of common stock. The preferred shares have a
preferential quarterly dividend that is 500 times the dividends on the common
stock, but in no event less than one dollar. The liquidation preference per
preferred share is the greater of $500 (plus accrued dividends to the date of
distribution) or an amount equal to 500 times the aggregate amount of dividends
to be distributed per share to holders of NMC's common stock. In the event of a
business combination in which shares of NMC's common stock are exchanged, each
preferred share will be entitled to receive 500 times the amount and type of
consideration received per share of common stock. Each preferred share will
have 500 votes and vote together with the common stock.
The preferred shares are not redeemable.
(11) EMPLOYEE BENEFIT PLANS
STOCK OPTIONS
Under the Corporation's stock option plans, options to purchase shares
of NMC are granted to key employees generally at the fair market value of such
shares on the date of grant. The options under these plans generally vest over
a two year period and are exercisable over a period not exceeding ten years. At
December 31, 1996, 2,831,003 shares were available for future grants under the
Corporation's plans. In conjunction with the merger with Santa Fe, 566,000
shares were authorized for issuance in connection with outstanding Santa Fe
stock options that were assumed by NMC.
In 1994, 1993 and 1992 certain key executives were granted NMC options
that, although the exercise price is generally equal to the fair market value
on the date of grant, cannot be exercised when otherwise vested unless the
market price of NMC's common stock is a defined amount above the NMC option
exercise price. In addition, the same executives were granted NMC options in
1994, 1993 and 1992 having exercise prices in excess of the fair market value
on the date of grant. Generally, these key executive NMC options vest over a
period of one to five years and are exercisable over a ten year period. At
December 31, 1996, 605,989 of these NMC options were outstanding.
The following table summarizes annual total stock option activity for
the three years ended December 31, 1996:
<TABLE>
<CAPTION>
1996 1995 1994
---------------------- --------------------- ------------------
Weighted- Weighted- Weighted-
Average Average Average
Number Exercise Number Exercise Number Exercise
of shares Price of shares Price of shares Price
--------- ----- --------- ----- --------- -----
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year 2,719,682 $38 2,177,546 $39 2,055,087 $37
Granted 1,216,916 $49 906,213 $36 476,703 $41
Exercised (666,164) $37 (232,109) $34 (276,894) $31
Forfeited (207,347) $38 (131,968) $41 (77,350) $41
---------- --------- ---------
Outstanding at
end of year 3,063,087 $43 2,719,682 $38 2,177,546 $39
========== ========= =========
Options exercisable
at year end 1,320,799 $40 1,287,688 $39 1,007,998 $36
Weighted-average
fair value of
options granted
during the year $18.46 $13.90 Not calculated
</TABLE>
17
<PAGE> 24
The following table summarizes information about stock options
outstanding at December 31, 1996 with exercise prices equal to the fair market
value on the date of grant and no restrictions on exercisability after vesting:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------------------------- --------------------------------
Weighted-Average
Range of Number Remaining Weighted-Average Number Weighted-Average
Exercise Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price
- --------------- ----------- ---------------- --------------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
$27 to $35 704,289 8.4 years $31 206,953 $31
$35 to $43 817,699 7.9 years $40 555,298 $40
$43 to $51 533,790 9.4 years $51 90,351 $46
$51 to $59 401,320 9.3 years $58 - $ -
--------- ---------
$27 to $59 2,457,098 8.5 years $47 852,602 $38
========= =========
</TABLE>
Information about all other stock options outstanding at December 31,
1996 is summarized below:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------------------------- -------------------------------
Range of Weighted-Average
Exercise Number Remaining Weighted-Average Number Weighted-Average
Type of Option Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price
-------------- ------ ----------- ---------------- -------------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Options with $40 to $56 355,581 6.2 years $49 286,687 $47
exercise prices in
excess of the fair
market value on the
date of the grant
Options that cannot $30 to $41 250,408 6.7 years $37 181,510 $37
be exercised until
the market price
of NMC's stock
exceeds a fixed
amount above the
exercise price
</TABLE>
The Corporation applies APB Opinion 25 and related interpretations in
accounting for its stock options. Accordingly, no compensation cost has been
recognized for its stock options. Had compensation cost for the options been
determined based upon their fair value at their grant dates in 1995 and 1996,
consistent with the methodology prescribed by Statement of Financial Accounting
Standards No. 123, the Corporation's net income (in thousands) and earnings per
share would have been the pro forma amounts indicated below:
<TABLE>
<CAPTION>
Years Ended
December 31,
---------------------
1996 1995
-------- --------
<S> <C> <C>
Net income As reported $ 98,601 $136,527
Pro forma $ 93,057 $135,260
Earnings per share As reported $ 0.63 $ 0.95
Pro forma $ 0.59 $ 0.94
</TABLE>
18
<PAGE> 25
For purposes of determining the pro forma amounts, the fair value of
each option grant was estimated on the date of the grant using the Black-
Sholes option-pricing model with the following assumptions for 1996 and 1995,
respectively: weighted-average risk-free interest rates of 6.1% and 5.8%,
dividend yield of 1% for both years, expected lives of 5 years for both periods
and volatility of 35% and 39%, respectively.
Compensation costs included in the pro forma amounts above only
reflect fair values associated with options granted after January 1, 1995.
These amounts may not be indicative of future amounts that will apply to all
future outstanding nonvested awards or future grants.
PENSION BENEFITS
The Corporation has three qualified non-contributory defined benefit
pension plans which cover salaried employees of NMC, Santa Fe and substantially
all hourly employees. The Corporation also has two non-qualified supplemental
pension plans for salaried employees whose benefits under the qualified plan
are limited by federal legislation. The vesting period is five years of service
for each plan. The plans' benefit formulas are based on an employee's years of
credited service and either such employee's last five years average pay
(salaried plan) or a flat dollar amount adjusted by a service-weighted
multiplier (hourly plan).
Pension costs are determined annually by independent actuaries and
pension contributions to the qualified plans are made based on funding
standards established under the Employee Retirement Income Security Act of 1974
("ERISA").
The components of pension expense for these three plans, in the
aggregate, consist of (in thousands):
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------
1996 1995 1994
-------- ------- -------
<S> <C> <C> <C>
Service cost $ 5,590 $ 3,681 $ 3,070
Interest cost on projected
benefit obligation 6,342 5,597 4,633
Return on assets (11,876) (7,678) (5,370)
Net amortization and deferral 5,051 1,077 211
-------- ------- -------
Pension expense $ 5,107 $ 2,677 $ 2,544
======== ======= =======
</TABLE>
19
<PAGE> 26
The following tables set forth the funded status of the Corporation's
pension plans and the amounts recognized in the Corporation's consolidated
balance sheets at December 31, 1996 and 1995, respectively (in thousands):
<TABLE>
<CAPTION>
At December 31, 1996
-------------------------------------------------------
NGC Santa Fe
Salary Salary Hourly Supplemental
Pension Pension Pension Salary
Plan Plan Plan Pension Plan
-------- -------- -------- ------------
<S> <C> <C> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation-
Vested benefits $(56,997) $ (9,211) $ (7,737) $(2,074)
Non-vested benefits (2,420) (2,074) (1,293) (53)
-------- -------- -------- -------
(59,417) (11,285) (9,030) (2,127)
Effect of future salary increases/service-
weighted benefit multiplier (9,020) (3,369) (654) (696)
-------- -------- -------- -------
Projected benefit obligation (68,437) (14,654) (9,684) (2,823)
Plan assets at fair value 76,979 11,935 8,870 -
-------- -------- -------- -------
Plan assets greater (less) than projected
benefit obligation 8,542 (2,719) (814) (2,823)
Unrecognized prior service cost (505) (306) 1,220 1,130
Unrecognized net (gain) loss (4,306) (593) (492) 4,230
Unrecognized net transition (asset) liability (1,750) (33) (66) 1,965
Adjustment required to recognize minimum
liability - - - (6,640)
-------- -------- -------- -------
Net pension asset (liability) $ 1,981 $ (3,651) $ (152) $(2,138)
======== ======== ======== =======
</TABLE>
<TABLE>
<CAPTION>
At December 31, 1995
-------------------------------------------------------
NGC Santa Fe
Salary Salary Hourly Supplemental
Pension Pension Pension Salary
Plan Plan Plan Pension Plan
-------- -------- -------- ------------
<S> <C> <C> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation-
Vested benefits $(56,420) $ (8,451) $(6,637) $ (1,217)
Non-vested benefits (2,102) (1,599) (1,381) (20)
-------- -------- ------- --------
(58,522) (10,050) (8,018) (1,237)
Effect of future salary increases (7,631) (2,945) - (542)
-------- -------- ------- --------
Projected benefit obligation (66,153) (12,995) (8,018) (1,779)
Plan assets at fair value 68,331 10,163 6,918 -
-------- -------- ------- --------
Plan assets greater (less) than projected
benefit obligation 2,178 (2,832) (1,100) (1,779)
Unrecognized prior service cost (548) 167 130 1,216
Unrecognized net loss 2,752 (634) 871 3,674
Unrecognized net transition (asset) liability (2,215) (39) (72) 2,356
Adjustment required to recognize minimum
liability - - - (6,704)
-------- -------- ------- --------
Net pension asset (liability) $ 2,167 $ (3,338) $ (171) $ (1,237)
======== ======== ======= ========
</TABLE>
In October 1996, an amendment was made to increase the benefit
multiplier of the benefits under the Hourly Pension Plan. The effect of this
amendment was to increase the accumulated benefit obligation by approximately
$0.5 million, the projected benefit obligation and prior service cost by $1.2
million and to increase the annual pension cost by $0.3 million.
In accordance with the provisions of Statement of Financial Accounting
Standards No. 87, an adjustment was required to reflect a minimum liability for
the supplemental pension plan in 1996, 1995 and 1994. Such adjustment resulted
in recording an intangible asset and, to the extent the minimum liability
adjustment exceeded the unrecognized net transition liability, a reduction of
$2.0 million, $2.0 million and $2.5 million in stockholders' equity, which is
net of related deferred income tax benefits, for 1996, 1995 and 1994,
respectively.
20
<PAGE> 27
In measuring the projected benefit obligation for the plans, the
following actuarial assumptions were used:
<TABLE>
<CAPTION>
At December 31,
---------------
1996 1995
---- ----
<S> <C> <C>
Weighted average discount rate 7.5% 7.0%
Rate of increase in future compensation
(applicable only to salaried plans) 4.0% 4.0%
</TABLE>
The weighted average expected long-term rate of return on plan assets
was assumed to be 8.75% for 1996, 9.00% for 1995 and 8.25% for 1994.
The Corporation maintains a trust for the purpose of funding the
supplemental pension plan as well as death benefits for officers of the
Corporation. This trust is funded at the discretion of the Corporation and had
a balance, which approximated market value, of $2 million at both December 31,
1996 and December 31, 1995. Although the trust's assets can be used to pay
benefits for the supplemental pension plan, they cannot be used in determining
the net pension liability for the supplemental pension plan. The qualified
plans' assets consist of stocks, bonds and cash.
RETIREE BENEFITS OTHER THAN PENSIONS
The Corporation provides defined medical benefits to qualified
retirees who were salaried employees and to their eligible dependents, and it
provides defined life insurance benefits to qualified retirees who were
salaried employees. In general, participants become eligible for these benefits
upon retirement directly from the Corporation if they are at least 55 years old
and the combination of their age and years of service with the Corporation
equals 75 or more.
The Corporation also provides a contributory medical plan and a
noncontributory life insurance plan for certain retired employees of one of its
subsidiaries. Covered employees become eligible for these benefits at
retirement if they have rendered at least ten years of service after attaining
age 45.
The defined medical benefits cover most of the reasonable and
customary charges for hospital, surgical, diagnostic and physician services and
prescription drugs. Life insurance benefits are based on a percentage of final
base annual salary and decline over time after retirement commences.
Postretirement benefits other than pensions are accrued during an
employee's service to the Corporation.
21
<PAGE> 28
The components of expense for postretirement benefits other than
pensions for 1996, 1995 and 1994 are shown in the table below (in thousands):
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Service cost $2,845 $2,189 $2,568
Interest cost 2,017 2,165 1,997
Amortization of net gain (299) (424) (160)
Other (119) - (31)
------ ------ ------
Expense for postretirement benefits
other than pensions $4,444 $3,930 $4,374
====== ====== ======
</TABLE>
The following table sets forth the components of the liability for the
Corporation's plans for postretirement benefits other than pensions recognized
in its balance sheet (in thousands):
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1996 1995
-------- --------
<S> <C> <C>
Actuarial present value of accumulated benefit
obligation ("APBO"):
Retirees and eligible dependents $11,871 $13,006
Other fully eligible plan participants 2,693 2,346
Other active plan participants 16,449 15,964
------- -------
Total APBO 31,013 31,316
Unrecognized prior service credit 1,458 2,408
Unrecognized net gain 6,587 1,699
------- -------
Accrued liability for postretirement benefits
other than pensions $39,058 $35,423
======= =======
</TABLE>
At December 31, 1996 and 1995, $2.6 million of assets, with a market
value of approximately the same amount, were designated in a trust to pay
postretirement benefits other than pensions. Since these assets could be used
to pay other employee benefits, they cannot be used for the postretirement
benefit calculations. The Corporation has no formal policy for funding
postretirement benefit obligations.
Weighted average discount rates of 7.5% and 7.0% were used in
calculating the APBO at December 31, 1996 and 1995, respectively. The assumed
health care cost trend rates to measure the expected cost of benefits at
December 31, 1996 start at an 8% annual increase for coverage before the age of
65 and a 7% annual increase for coverage after the age of 64. The assumed
health care cost trend rates to measure the expected cost of benefits at
December 31, 1995 start at a 9% annual increase for coverage before the age of
65 and an 8% annual increase for coverage after the age of 64. These rates were
assumed to decrease one percentage point each year until a 5% annual rate of
increase was reached, at which point a 5% annual rate of increase was assumed
thereafter. The effect of a one percentage point annual increase in the assumed
cost trend rates would increase the aggregate of service and interest costs by
approximately 19% in 1996 and the APBO at December 31, 1996 by approximately
15%. The effect of a one percentage point annual increase in the assumed cost
trend rates would increase the aggregate of service and interest costs in 1995
by approximately 23% and the APBO at December 31, 1995 by approximately 19%.
22
<PAGE> 29
SAVINGS PLAN
The Corporation has three qualified defined contribution savings
plans, one which covers salaried employees, one which covers substantially all
hourly employees and one which covers substantially all salary and hourly
employees of Santa Fe. In addition, the Corporation has a non-qualified
supplemental savings plan for salaried employees whose benefits under the
qualified plan are limited by federal regulations.
Upon the employee meeting eligibility requirements, the Corporation
matches 100% of employee contributions of up to 6% and 4% of base salary for
the salaried and hourly plans, respectively. Employees covered by the Santa Fe
plan receive matching contributions up to 4% of base salary and eligible hourly
employees also receive an employer contribution equal to 2% of before-tax
eligible compensation.
The Corporation's matching contributions to such plans were $8.2
million, $6.8 million and $5.6 million in 1996, 1995 and 1994, respectively.
(12) WRITE-OFF OF EXPLORATION PROPERTIES
In 1995, the Corporation recorded write-offs of two exploration
properties totaling $52.5 million. The Ivanhoe property was purchased in June
1992. Over the next three years, extensive drilling, environmental studies and
mine models were developed to determine the economics of extracting gold from
the property. A feasibility report was issued in June 1995 that reflected high
levels of environmental and mining costs that resulted in financial returns
much lower than the Corporation's threshold for development. Accordingly, the
decision was made not to develop the property and $18.8 million of capitalized
costs associated with the property were written off in June 1995. An additional
charge of $4.6 million was taken as other expense for estimated costs to
reclaim areas disturbed by previous mining and exploration activity on the
property.
The Grassy Mountain property was purchased in September 1992. At the
time of the purchase, certain reliance was placed upon geological models
prepared by the seller. Work performed by the Corporation in 1993 demonstrated
that the gold distribution was not distributed as modeled by the seller. In
1994, the Corporation created new detailed models of the deposit based on its
revised geologic interpretation. These models resulted in fewer high grade
ounces, which led to the reclassification of 996,000 ounces of reserves to
mineralized material at the end of 1994. However, additional drilling and
modeling was required to determine whether there was an impairment of the asset
based on the work performed through that date. Based on economic information at
that time and the use of undiscounted cash flows, no write-down was considered
necessary as of December 31, 1994. Throughout 1995, further refinement of
geological and economic models continued with open-pit, underground and price
hedging scenarios all resulting in deposit sizes and economic returns smaller
than the Corporation's threshold for development. Based on these results,
capitalized costs of $33.8 million relating to the Grassy Mountain property
were written off in December 1995.
23
<PAGE> 30
(13) GAIN ON SALE OF INVESTMENTS
In May 1995, NGC sold its 10.7% interest in Southern Peru Copper
Corporation for $116.4 million, which resulted in a pre-tax gain of $113.2
million.
(14) DIVIDEND, INTEREST AND OTHER INCOME
Included in dividends, interest and other income are $3.1 million,
$28.3 million and $9.2 million for 1996, 1995 and 1994, respectively for
business interruption insurance that was received for problems associated with
the refractory ore treatment plant at the Carlin, Nevada operations.
(15) MAJOR CUSTOMERS AND EXPORT SALES
The Corporation is not economically dependent on a limited number of
customers for the sale of its product because gold commodity markets are
well-established worldwide. In 1996, sales to one customer totaled $213.3
million or 19% of total sales. In 1995, sales to two customers accounted for
$177.6 million and $137.3 million, or 32% of total sales. In 1994, sales to
three such major customers accounted for $143.9 million, $99.6 million and
$88.5 million, or 38% of total sales.
Export sales were $764.4 million, $636.2 million and $497.2 million in
1996, 1995 and 1994, respectively.
(16) SUPPLEMENTAL CASH FLOW INFORMATION
Net cash provided by operating activities includes the following cash
payments (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Income taxes, net of refunds $(9,708) $32,546 $42,517
Interest, net of amounts capitalized $55,644 $23,625 $15,724
</TABLE>
Excluded from the statements of consolidated cash flows are the
effects of certain non-cash transactions. As described in Note 18, in July
1996, NGC began accounting for the Batu Hijau project as an equity investment.
The adjustments that were made to the Corporation's balance sheet are as
follows (in thousands):
<TABLE>
<CAPTION>
Increase (decrease)
-------------------
<S> <C>
Assets
Other current assets $ (849)
Property, plant and mine development, net (43,936)
Other long-term assets (3,607)
Liabilities
Accounts payable 182
---------
Total $ (48,210)
==========
</TABLE>
In 1996, the Corporation retired mostly fully depreciated property,
plant and equipment with an original cost of $77.0 million, which is not
reflected in the statement of consolidated cash flows.
24
<PAGE> 31
In 1996 and 1994, the Corporation recognized income tax benefits of
$6.0 million and $16.2 million, respectively, resulting from the resolution of
certain tax issues associated with prior years.
In 1996, as discussed in Note 10, NGC issued 4.65 million shares of
common stock which were purchased by NMC. This resulted in a $13.8 million
decrease to retained earnings to adjust for the increased value attributable to
minority interest shareholders of NGC.
In 1995, as discussed in Note 10, NMC called for redemption of all of
the outstanding 2.875 million shares of convertible preferred stock.
Substantially all of the convertible preferred stock was converted into common
stock of NMC. This transaction resulted in a non-cash decrease to preferred
stock, a non-cash increase to common stock and capital in excess of par value,
and a non-cash increase to retained earnings.
(17) GEOGRAPHIC INFORMATION
The Corporation operates predominantly in a single industry as a
worldwide corporation engaged in gold production, exploration for gold and
acquisition of gold properties. The Corporation has consolidated operations in
the United States, Indonesia and Uzbekistan. In computing earnings from
operations for foreign subsidiaries, no allocations of general corporate
expenses, interest or income taxes have been made.
Identifiable assets by country represent those assets related to the
operations in those countries. Information by geological location for the year
ended December 31, 1996 is as follows (in thousands):
<TABLE>
<CAPTION>
United Indonesia
States Uzbekistan and Other Consolidated
---------- ---------- --------- ------------
<S> <C> <C> <C> <C>
Sales $ 995,093 $ 62,609 $ 47,964 $1,105,666
Earnings from
Operations $ 228,434 $ 14,423 $ 14,231 $ 257,088
Exploration and
Research $ 46,453 $ 1,184 $ 40,277 $ 87,914
Identifiable
Assets $2,077,370 $226,721 $174,702 $2,478,793
</TABLE>
Prior to 1996, substantially all operations were in the United States.
The above segment information does not include NGC's equity investment
in Minera Yanacocha in Peru. NGC's equity in Minera Yanacocha's 1996 revenues
and earnings was $119.3 million and $76.9 million, respectively. NGC's equity
in Minera Yanacocha's total assets at December 31, 1996 was $73.5 million. See
Notes 1 and 3.
(18) COMMITMENTS AND CONTINGENCIES
ENVIRONMENTAL OBLIGATIONS
The Corporation's mining and exploration activities are subject to
various federal and state laws and regulations governing the protection of
25
<PAGE> 32
the environment. These laws and regulations are continually changing and are
generally becoming more restrictive. The Corporation conducts its operations so
as to protect the public health and environment and believes its operations are
in compliance with all applicable laws and regulations. The Corporation has
made, and expects to make in the future, expenditures to comply with such laws
and regulations. The Corporation cannot predict such future expenditures.
Estimated future reclamation and remediation costs are based
principally on legal and regulatory requirements. At December 31, 1996 and
1995, $31.8 million and $27.7 million, respectively, were accrued for
reclamation and remediation costs relating to currently producing mineral
properties.
Certain appeals have been filed with the Department of Interior Board
of Land Appeals in conjunction with the Twin Creeks Environmental Impact
Statement, the Lone Tree Mine Plan of Operations and the Mule Canyon Mine Plan
of Operations. These appeals seek to impose mitigation and other conditions on
the mine operations. The Corporation has intervened and does not believe that
such appeals have merit. An unfavorable outcome of such appeals, however, could
result in additional conditions on operations which may have a material adverse
effect on the Corporation's financial position or results of operations.
In addition, the Corporation is involved in several matters concerning
environmental obligations associated with former mining activities. Generally,
these matters concern developing and implementing remediation plans at the
various sites involved. The Corporation believes that the related environmental
obligations associated with these sites are similar in nature with respect to
the development of remediation plans, their risk profile and the compliance
required to meet general environmental standards. Based upon the Corporation's
best estimate of its liability for these matters, $49.8 million and $55.8
million were accrued for such obligations at December 31, 1996 and 1995,
respectively. These amounts are included in other current liabilities and
reclamation and remediation liabilities. Depending upon the ultimate resolution
of these matters, the Corporation believes that it is reasonably possible that
the liability for these matters could be as much as 100% greater or 40% lower
than the amount accrued at December 31, 1996. The amounts accrued for these
matters are reviewed periodically based upon facts and circumstances available
at the time. Changes in estimates are charged to other expense in the period
estimates are revised. Charges related to these matters were $6.6 million, $3.0
million and $16.1 million in the years ended December 31, 1996, 1995 and 1994,
respectively.
Details about certain of the more significant sites involved are
discussed below.
Idarado Mining Company ("Idarado") - 80.1% owned by NGC
In July 1992, the Corporation and Idarado signed a consent decree with
the State of Colorado ("State") which was agreed to by the U.S. District Court
of Colorado to settle a lawsuit brought by the State under the Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA"), generally
referred to as the "Superfund Act." Idarado settled natural resources damages
and past and future response costs and provided habitat enhancement work. In
addition, Idarado agreed in the consent decree to undertake specified
remediation work at its former mining site in the Telluride/Ouray area of
Colorado. The Corporation expects to complete the
26
<PAGE> 33
remediation work at this property by the end of 1997. If the remediation work
does not meet specific technical criteria specified in the consent decree, the
State and court reserve the right to require Idarado to perform other
remediation work. Idarado and the Corporation have obtained a $16.3 million
letter of credit to secure their obligations under the consent decree.
Resurrection Mining Company ("Resurrection") - 100% owned by NGC
In 1983, the State of Colorado filed a lawsuit under the Superfund Act
which involves a Resurrection Mining Company and Asarco Incorporated ("Asarco")
joint venture mining operation near Leadville, Colorado. This action was
subsequently consolidated with a lawsuit filed by the U.S. Environmental
Protection Agency ("EPA") in 1986, with the EPA taking the lead role. The
proceedings seek to compel the defendants to remediate the impacts of
pre-existing, historic mining activities that date back to the mid-1800's which
the government agencies claim are causing substantial environmental problems in
the area. The lawsuits have named the Corporation, Resurrection, the joint
venture and Asarco as defendants in the proceedings. The EPA is also proceeding
against other companies with interests in the area.
The EPA divided the remedial work into two phases. Phase I addresses
the Yak Tunnel, a drainage and access tunnel owned by the joint venture.
Phase II addresses the remainder of the site.
In 1988 and 1989, the EPA issued administrative orders with respect to
Phase I work for the Yak Tunnel. The joint venture, Asarco, Resurrection and
the Corporation have collectively implemented those orders by constructing a
water treatment plant which was placed in operation in early 1992. The joint
venture is in negotiations regarding remaining remedial work for Phase I, which
primarily consists of environmental monitoring and operating and maintenance
activities.
The parties have entered into a consent decree with respect to Phase
II which apportions liabilities and responsibilities for the site among the
various parties. The EPA has approved remedial actions for selected components
of Resurrection's portion of the site, which were initiated in 1995. However,
the EPA has not yet selected the final remedy for the site. Accordingly, the
Corporation cannot yet determine the full extent or cost of its share of the
remedial action which will be required under Phase II. The government agencies
may also seek to recover for damages to natural resources.
Dawn Mining Company ("Dawn") - 51% owned by NGC
Dawn leased a currently inactive open-pit uranium mine on the Spokane
Indian Reservation in the State of Washington. The mine is subject to
regulation by agencies of the U.S. Department of Interior, the Bureau of Indian
Affairs and the Bureau of Land Management, as well as the EPA. Dawn also owns a
nearby uranium millsite facility.
In 1991, Dawn's lease was terminated. As a result, Dawn was required
to file a formal mine closure and reclamation plan. The Department of Interior
has commenced an Environmental Impact Study to analyze Dawn's proposed plan and
to consider alternate closure and reclamation plans for the mine. Dawn cannot
predict at this time what type of mine reclamation plan may be selected by the
Department of Interior. Dawn does not have sufficient funds
27
<PAGE> 34
to pay for the reclamation plan it proposed, for any alternate plan, or for
the closure of its mill.
The Department of Interior previously notified Dawn that when the
lease was terminated, it would seek to hold Dawn and the Corporation (as Dawn's
then 51% owner) liable for any costs incurred as a result of Dawn's failure to
comply with the lease and applicable regulations. If asserted, the Corporation
will vigorously contest any such claims. The Corporation cannot reasonably
predict the likelihood or outcome of any future action against Dawn or the
Corporation arising from this matter.
Dawn has received a license for a mill closure plan which would
generate funds to close and reclaim both the mine and the mill. The license is
being challenged by third parties.
Insurance Receivables
The Corporation carried insurance policies for which it filed claims
for the costs of certain of its remediation activities. The Corporation
recorded receivables for claims under such policies when management believed
the likelihood of recovery was probable. Prior to 1993, three of the insurance
companies commenced actions against NMC seeking judgments that they had no
liability. In the fall of 1993, NMC instituted a comprehensive lawsuit against
its carriers.
Based on the views of prior lead counsel, the Corporation had believed
that significant progress in certain settlement discussions would have been
achieved by mid-summer 1994, but that expectation was not realized. The absence
of such anticipated progress in settlement discussions, as well as the
Corporation's discussions with new lead counsel for the insurance recovery
actions regarding its review of such actions, caused the Corporation in the
second quarter of 1994 to provide a $20.0 million valuation allowance on its
insurance receivables, which was recorded as other expense, resulting in a net
balance of $16.7 million outstanding at December 31, 1994.
In the first quarter of 1995, settlement in certain of the insurance
litigation was reached enabling the Corporation to realize the receivable
outstanding at December 31, 1994. Settlement discussions continue with respect
to additional insurance litigation. Trial of this litigation has been scheduled
for late 1997. The Corporation intends to vigorously pursue its claims with
respect to the remaining litigation and believes that it is reasonably possible
that additional amounts will be recovered, although no such amounts are
accrued.
BATU HIJAU
In July 1996, the Corporation and Sumitomo Corporation ("Sumitomo")
entered into a definitive partnership agreement to develop and operate the Batu
Hijau copper/gold deposit in Indonesia. The estimated cost for development of
the open pit mine, mill, and infrastructure including employee housing, a port,
electrical generation facilities, interest during construction, cost
escalations and working capital is expected to approximate $1.9 billion. Batu
Hijau contains proven and probable reserves of 10.6 billion pounds (4.8 billion
equity pounds) of copper and 12.1 million ounces (5.4 million equity ounces) of
gold. Production is expected to begin around the turn of the century, with a
projected mine life in excess of 20 years.
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Under the terms of the agreement with Sumitomo, the Corporation
contributed its interest in the company that owns the project and Sumitomo will
contributed an agreed upon amount of cash, expected to be approximately $235
million. After the contributions are made, the Corporation retains a 45%
interest in the Company that owns the project and Sumitomo has a 35% interest.
The remaining 20% interest is held by an unrelated Indonesian company. The
parties' obligations to make their contributions to the partnership were
subject to the receipt of certain approvals from the Indonesian government.
Until such approvals were received, Sumitomo had agreed to fund up to $100
million of costs through non-interest bearing loans, ($20.2 million of which
were outstanding at December 31, 1996) which the Corporation had effectively
guaranteed. Approvals were received in May 1997 and amounts outstanding under
such loans were applied to Sumitomo's cash contribution of the previously
mentioned $235 million. Additional contributions required by the parties will
be contributed 56.25% by the Corporation and 43.75% by Sumitomo. Project
financing for development of the property will be $1 billion and will be
guaranteed by the Corporation and Sumitomo until project completion tests are
met. The source of the Corporation's future contributions will be operating
cash flow, bank credit lines or other third party financing as needed.
As a result of the ownership structure described above, the
Corporation is accounting for its investment in Batu Hijau as an equity
investment effective July 1996. The Corporation's investment at December 31,
1996, which is included in Other long-term assets, was $46.6 million.
In connection with the Batu Hijau project, the entity owning the
project has entered into a construction contract for approximately $1 billion.
GUARANTEE OF THIRD PARTY INDEBTEDNESS
The Corporation guaranteed a former subsidiary's $35.7 million
Pollution Control Revenue Bonds, due 2009. The former subsidiary is BHP Copper
Inc., formerly known as Magma Copper Company. It is expected that the
Corporation will be required to remain liable on this guarantee as long as the
bonds remain outstanding; however, the Company has not been required to pay any
of these amounts, nor does it expect to have to pay any in the future.
COMMODITY INSTRUMENTS
At December 31, 1996, the Corporation had forward sales contracts made
on a spot deferred basis ("spot deferred contracts") for approximately 1.7
million ounces of gold relating to production during the period January 1997
through September 1998 at sales prices ranging from $386 - $438 per ounce or a
weighted average price of $416 per ounce. In July 1997, the Corporation
purchased approximately 1.1 million ounces of gold ranging from $329 per ounce
to $343 per ounce, to offset the spot deferred contracts. The gain from this
transaction will be recognized in sales as the related gold is produced.
The Company also had purchased put options on 1.2 million ounces at an
exercise price of $375 per ounce and written call options on 0.4 million ounces
at an exercise price of $464 per ounce. During January through March 1997,
300,000 ounces of put options were exercised with $6.7 million of cash received
and 100,000 ounces of call options expired unexercised. The remaining option
contracts were closed out in March 1997 with $17.0 million of cash received.
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The Corporation entered into forward sales contracts, that began
maturing in January 1996 and continue through December 2000, for production
from its Minahasa property, located in Indonesia. These contracts consist of
forward sales of 125,000 ounces of gold per year at an average price of $454 an
ounce, plus 40% of the amount by which the market price exceeds the forward
sales price.
ADVANCED ROYALTY
In a 1993 asset exchange transaction, a wholly-owned subsidiary of
Santa Fe transferred a coal lease with Chaco Energy Company ("Chaco") to Hanson
Natural Resources Company ("HNRC") with respect to which the subsidiary had
collected $484.0 million in advance royalty payments. The lease provides for
HNRC to collect another $390.0 million from 1994 through 2018 from Chaco. In
the event of a title failure as stated in the lease, this subsidiary has a
primary obligation to refund the advance royalty payments previously collected
and has a secondary obligation as assignor to HNRC to refund any of the $390.0
million HNRC collects if HNRC fails to meet its refund obligation to Chaco. The
subsidiary has no direct liability to Chaco under the coal lease. The
subsidiary has title insurance on the leased coal deposits in the amount of
$240.0 million covering the secondary obligation. The Corporation and the
subsidiary regard the circumstances entitling Chaco to a refund as remote. The
Corporation has agreed with Chaco to maintain the subsidiary's net worth at
$108.0 million until July 1, 2005.
LITIGATION
On December 8, 1996, Santa Fe entered into a definitive merger
agreement with Homestake Mining Company ("Homestake") and a subsidiary of
Homestake, subsequent to discussions during November 1996 with both Homestake
and NMC regarding potential business combinations. On January 7, 1997, NMC
announced a proposal for a business combination with Santa Fe. Santa Fe
commenced discussions with NMC on January 13, 1997 and on March 10, 1997, the
merger agreement between Homestake and Santa Fe was terminated and Santa Fe
entered into a merger agreement with NMC. In conjunction with the termination
of the Homestake merger agreement, Santa paid to Homestake a termination fee of
$65 million.
On December 6 and 9, 1996, a total of six Santa Fe stockholders filed
class action complaints against Santa Fe and Santa Fe's Board of Directors
(collectively, "Defendants"). To date, the Defendants have been served only
with the first complaint. The complaints allege, among other things, that
members of the Santa Fe Board of Directors breached their fiduciary
responsibilities to the Company's stockholders by failing to consider fully the
Newmont proposal to acquire Santa Fe and the Santa Fe Board of Directors
approved the Homestake merger transaction to ensure that certain of the
Defendants would retain their positions. The actions seek, among other things,
to have the Court of Chancery ("Court") order the Defendants to take various
actions to cooperate with any entity or person interested in proposing a
transaction with the Company and to act to maximize shareholder value and seek
unspecified damages. The Defendants moved to dismiss the first complaint on
January 6, 1997, and also moved to stay discovery pending resolution of the
motion to dismiss. On January 22, 1997, the Court entered an order
consolidating the complaints into one action. The Corporation intends to defend
against the allegations. It is the opinion of the Corporation's management that
none of the actions filed by Santa Fe stockholders will have a material adverse
effect on the Corporation's financial position or results of operations.
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OTHER COMMITMENTS AND CONTINGENCIES
Under a 1992 agreement with Barrick Goldstrike Mines, Inc.
("Barrick"), Barrick is mining NGC's Post deposit which extends beyond NGC's
property boundaries onto Barrick's property. NGC and Barrick share the costs so
that each ounce of gold mined bears the same mining cost. NGC is obligated to
pay Barrick for such costs as Barrick mines the deposit. In addition, the
Corporation is obligated to share dewatering costs which are associated with
the deposit. NGC incurred $63.7 million, $62.5 million and $39.0 million of
such mining and dewatering costs in 1996, 1995 and 1994, respectively, and
expects to incur approximately $15 million in 1997.
The Corporation has minimum royalty obligations on one of its
producing mines for the life of the mine. The amount to be paid to meet the
royalty obligations is based upon a defined average market gold price. Any
amounts paid due to the minimum royalty obligation not being met in any year
are recoverable in future years when the minimum royalty obligation is
exceeded. Although the minimum royalty requirement may not be met in any
certain year, the Corporation expects the mine's gold production over its life
will meet the minimum royalty requirements.
At December 31, 1996, there were $101.1 million of outstanding letters
of credit that were primarily for bonding reclamation plans and electric supply
and reinsurance agreements. The Corporation has provided investment collateral
for $8.7 million of these letters of credit. The remaining $91.5 million
represents unsecured letters of credit. The letters of credit reflect fair
value as a condition of their underlying purpose and are subject to fees
competitively determined in the market place.
The Corporation is from time to time involved in various legal
proceedings of a character normally incident to its business. It does not
believe that adverse decisions in any pending or threatened proceedings or any
amounts which it may be required to pay by reason thereof will have a material
adverse effect on its financial condition or results of operations.
(19) UNAUDITED SUPPLEMENTARY DATA
QUARTERLY DATA
The following is a summary of selected quarterly financial information
(amounts in millions except per share amounts):
<TABLE>
<CAPTION>
1996
------------------------------------------------------------
Three Months Ended Year Ended
--------------------------------------------- -------------
March 31, June 30, September 30, December 31, December 31,
--------- -------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Sales $236.6 $261.4 $302.2 $305.5 $1105.7
Gross profit (1) $ 48.4 $ 55.7 $ 73.9 $ 71.3 $249.3
Net income $ 15.3 $ 24.1 $ 37.6 $ 21.6 $ 98.6
Net income per common share $ 0.10 $ 0.15 $ 0.24 $ 0.14 $ 0.63
Weighted average shares outstanding 155.0 156.8 155.8 156.2 155.9(2)
Dividends declared per NMC common share $ 0.12 $ 0.12 $ 0.12 $ 0.12 $ 0.48
Dividends declared per Santa Fe common share $ - $ 0.05 $ - $ - $ 0.05
Closing price of common stock $56.625 $49.375 $47.25 $44.75 $44.75
</TABLE>
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<TABLE>
<CAPTION>
1995
--------------------------------------------------------
Three Months Ended
-------------------------------------------------------- Year Ended
March 31, June 30, September 30, December 31, December 31,
--------- -------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Sales $ 218.8 $ 229.5 $ 258.4 $ 274.9 $ 981.6
Gross profit (1) $ 52.4 $ 57.7 $ 77.6 $ 73.5 $ 261.2
Net income $ 26.7 $ 77.9(3) $ 32.8 $ 10.3 (4) $ 147.7(3,4)
Preferred stock dividends $ 4.0 $ 4.0 $ 4.0 $ (0.7)(5) $ 11.2(5)
Net income applicable to common stock $ 22.7 $ 73.9(3) $ 28.8 $ 11.1 (4) $ 136.5(3,4)
Net income per common share $ 0.16 $ 0.52(3) $ 0.20 $ 0.07 (4) $ 0.95(3,4)
Weighted average shares outstanding 142.6 142.8 143.0 145.8 143.5(5)
Dividends declared per NMC common share $ 0.12 $ 0.12 $ 0.12 $ 0.12 $ 0.48
Dividends declared per Santa Fe common share $ -- $ 0 05 $ -- $ -- $ 0.05
Closing price of common stock $ 42.75 $ 41.875 $ 42.50 $ 45.375 $ 45.375
</TABLE>
(1) Sales less costs applicable to sales and depreciation, depletion and
amortization.
(2) In January 1996, 4.65 million shares of common stock were issued
under an existing shelf registration statement (see Note 10).
(3) Includes an after-tax gain of $72 million, or $0.47 per share, from the
sale of the Corporation's interest in Southern Peru Copper Corporation
and an after-tax charge of $15.1 million, or $0.10 per share, for the
write-off of the investment and additional reclamation provision of the
Ivanhoe exploration property (see Notes 12 and 13).
(4) Includes an after-tax charge of $22 million, or $0.14 per share, for
the write-off of the investment in the Grassy Mountain property (see
Note 12).
(5) Substantially all of the convertible preferred stock was converted
into common stock in December 1995 (see Note 10).
RATIO OF EARNINGS TO FIXED CHARGES
The ratio of earnings to fixed charges was 1.9, 3.7, 3.2, 5.2 and 4.3
for the years ended December 31, 1996, 1995, 1994, 1993 and 1992, respectively.
The Corporation guarantees certain third party debt which had total interest
obligations of $1.2 million, $1.4 million, $1 million, $0.8 million and $3.3
million for the years ended December 31, 1996, 1995, 1994, 1993 and 1992,
respectively. The Corporation has not been required to pay any of these
amounts, nor does it expect to have to pay any amounts; therefore, such amounts
have not been included in the ratio of earnings to fixed charges.
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