UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
(AMENDMENT NO. 3)
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
Commission file number 1-8736
HOMESTAKE MINING COMPANY
(Exact name of registrant as specified in its charter)
Delaware 94-2934609
(State of Incorporation) (I.R.S. Employer
Identification No.)
650 California Street
San Francisco, California 94108-2788
(Address of principal executive office) (Zip Code)
(415) 981-8150 http://www.homestake.com
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
Common Stock, $1.00 par value New York Stock Exchange, Inc.
Rights to Purchase Series A Participating
Cumulative Preferred Stock New York Stock Exchange, Inc.
Securities registered pursuant to Section 12(g) of the Act:
5 1/2% Convertible Subordinated Notes Due June 23, 2000
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant was approximately $2,273,000,000 as of March 11, 1997.
The number of shares of common stock outstanding as of March 11, 1997 was
146,672,425.
<PAGE>
In Form 10-K for the fiscal year ended December 31, 1996, certain
footnotes to the table on page 81 entitled "Geographic Information," were
incorrectly stated. This table is part of Item 8 - FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA. The complete text of Item 8, as amended, is included in this
Form 10-K/A (Amendment No. 3).
In Form 10-K/A (Amendment No. 2), which was submitted in order to
correctly state the term of office for certain directors in Item 10 - DIRECTORS
AND OFFICERS OF THE REGISTRANT, the complete text of Item 10 was not submitted.
The complete text of Item 10, as amended, is included in this Form 10-K/A
(Amendment No. 3).
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX
<TABLE>
<CAPTION>
Page *
<S> <C>
Statements of Consolidated Income.....................................................57
Consolidated Balance Sheets...........................................................58
Statements of Consolidated Shareholders' Equity.......................................59
Statements of Consolidated Cash Flows.................................................60
Notes to Consolidated Financial Statements.........................................61-83
Report of Independent Auditors........................................................84
Management's Responsibility for Financial Reporting...................................85
Quarterly Selected Data...............................................................86
Common Stock Price Range..............................................................86
<FN>
* Page numbers correspond to page numbers included in the original Form
10-K filed on March 28, 1997.
</TABLE>
<PAGE>
Homestake Mining Company and Subsidiaries
Statements of Consolidated Income
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
For the years ended December 31, 1996, 1995 and 1994 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues
Gold and ore sales $ 712,186 $ 675,222 $ 629,174
Sulfur and oil sales 30,749 40,620 26,882
Interest income 15,054 16,737 9,762
Equity earnings 1,588 2,155 2,857
Gain on issuance of stock by subsidiary (note 4) 11,224
Other income (note 15) 7,359 11,631 25,588
- -----------------------------------------------------------------------------------------------------------------------------
766,936 746,365 705,487
- -----------------------------------------------------------------------------------------------------------------------------
Costs and Expenses
Production costs 475,333 481,886 447,129
Depreciation, depletion and amortization 112,353 99,602 76,171
Administrative and general expense 36,965 37,283 38,159
Exploration expense 45,382 27,541 21,347
Interest expense 10,644 11,297 10,124
Other expense (note 16) 14,575 3,290 6,744
- -----------------------------------------------------------------------------------------------------------------------------
695,252 660,899 599,674
- -----------------------------------------------------------------------------------------------------------------------------
Income Before Taxes and Minority Interests 71,684 85,466 105,813
Income and Mining Taxes (note 6) (26,333) (39,141) (18,880)
Minority Interests (15,070) (15,998) (8,917)
- -----------------------------------------------------------------------------------------------------------------------------
Net Income $ 30,281 $ 30,327 $ 78,016
=============================================================================================================================
Net Income Per Share $ 0.21 $ 0.22 $ 0.57
=============================================================================================================================
Average Shares Used in the Computation 146,311 138,117 137,733
=============================================================================================================================
</TABLE>
See notes to consolidated financial statements.
57
<PAGE>
Homestake Mining Company and Subsidiaries
Consolidated Balance Sheets
(In thousands, except per share amount)
<TABLE>
<CAPTION>
December 31, 1996 and 1995 1996 1995
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current Assets
Cash and equivalents $ 89,599 $ 145,957
Short-term investments 130,158 66,416
Receivables (note 7) 47,650 58,046
Inventories (note 8) 91,127 69,979
Deferred income and mining taxes (note 6) 12,263 20,521
Other 8,551 7,798
- --------------------------------------------------------------------------------------------------------------------------------
Total current assets 379,348 368,717
Property, Plant and Equipment - net (notes 3 and 9) 1,007,030 846,776
Investments and Other Assets
Noncurrent investments (note 10) 39,606 46,188
Other assets (note 11) 56,124 59,952
- --------------------------------------------------------------------------------------------------------------------------------
Total investments and other assets 95,730 106,140
- --------------------------------------------------------------------------------------------------------------------------------
Total Assets $ 1,482,108 $ 1,321,633
================================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 36,171 $ 35,170
Accrued liabilities (note 12) 42,174 53,937
Income and other taxes payable 38,386 9,314
- --------------------------------------------------------------------------------------------------------------------------------
Total current liabilities 116,731 98,421
Long-term Liabilities
Long-term debt (note 13) 185,000 185,000
Other long-term obligations (note 14) 114,168 120,418
- --------------------------------------------------------------------------------------------------------------------------------
Total long-term liabilities 299,168 305,418
Deferred Income and Mining Taxes (note 6) 201,454 189,925
Minority Interests in Consolidated Subsidiaries 96,203 92,012
Shareholders' Equity (note 19)
Capital stock, $1 par value per share:
Preferred - 10,000 shares authorized; no shares outstanding
Common - 250,000 shares authorized; shares outstanding:
1996 - 146,672; 1995 - 140,541 146,672 140,541
Additional paid-in capital 477,880 382,314
Retained earnings 110,085 109,145
Accumulated currency translation adjustments 37,753 7,828
Other (3,838) (3,971)
- --------------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 768,552 635,857
- --------------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $ 1,482,108 $ 1,321,633
================================================================================================================================
Commitments and Contingencies - see notes 21 and 22.
</TABLE>
See notes to consolidated financial statements.
58
<PAGE>
Homestake Mining Company and Subsidiaries
Statements of Consolidated Shareholders' Equity
(In thousands)
<TABLE>
<CAPTION>
Accumulated
Additional Currency
For the years ended Common Paid-in Retained Translation
December 31, 1996, 1995 and 1994 Stock Capital Earnings Adjustments Other Total
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCES, DECEMBER 31, 1993 $ 137,494 $334,737 $ 52,495 $ (5,620) $ (3,862) $ 515,244
Net income 78,016 78,016
Dividends paid (24,106) (24,106)
Exercise of stock options 291 5,048 5,339
Currency translation adjustments 14,489 14,489
Unrealized loss on investments (382) (382)
Other 170 170
- ------------------------------------------------------------------------------------------------------------------------------
BALANCES, DECEMBER 31, 1994 137,785 339,785 106,405 8,869 (4,074) 588,770
Net income 30,327 30,327
Dividends paid (27,587) (27,587)
Exercise of stock options 206 2,680 2,886
Stock issued for purchase of HGAL
minority interests (note 3) 2,550 39,849 42,399
Currency translation adjustments (1,041) (1,041)
Change in unrealized loss on
investments 162 162
Other (59) (59)
- ------------------------------------------------------------------------------------------------------------------------------
BALANCES, DECEMBER 31, 1995 140,541 382,314 109,145 7,828 (3,971) 635,857
Net income 30,281 30,281
Dividends paid (29,341) (29,341)
Exercise of stock options 167 2,431 2,598
Stock issued for purchase of HGAL
minority interests (note 3) 5,976 93,370 99,346
Currency translation adjustments 29,925 29,925
Change in unrealized loss on
investments 10 10
Other (12) (235) 123 (124)
- ------------------------------------------------------------------------------------------------------------------------------
BALANCES, DECEMBER 31, 1996 $ 146,672 $477,880 $110,085 $ 37,753 $ (3,838) $768,552
==============================================================================================================================
</TABLE>
See notes to consolidated financial statements.
59
<PAGE>
Homestake Mining Company and Subsidiaries
Statements of Consolidated Cash Flows
(In thousands)
<TABLE>
<CAPTION>
For the years ended December 31, 1996, 1995 and 1994 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows From Operations
Net income $ 30,281 $ 30,327 $ 78,016
Reconciliation to net cash provided by operations:
Depreciation, depletion and amortization 112,353 99,602 76,171
Write-downs of investments in mining securities (note 16) 8,983
Foreign currency exchange losses on intercompany
debt (note 15) 8,943 883 5,959
Gains on asset disposals (3,836) (1,969) (19,521)
Gain on issuance of stock by subsidiary (note 4) (11,224)
Deferred income and mining taxes (note 6) (15,615) 19,475 (3,665)
Minority interests 15,070 15,998 8,917
Reclamation - net (1,472) (6,044) 3,986
Other noncash items - net 6,984 2,579 21,263
Effect of changes in operating working capital items:
Receivables 13,754 821 (8,824)
Inventories (15,851) 1,324 (14,045)
Accounts payable (450) (852) 2,484
Accrued liabilities and taxes payable 21,451 (7,456) (6,938)
Other (217) (1,231) 1,138
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operations 180,378 153,457 133,717
- ----------------------------------------------------------------------------------------------------------------------------------
Investment Activities
Decrease (increase) in short-term investments (63,742) 33,063 (99,479)
Proceeds from asset sales 16,141 13,295 24,542
Additions to property, plant and equipment (105,923) (80,979) (88,654)
Investments in mining companies (12,224) (37,314)
Purchase of HGAL minority interests (note 3) (6,435) (16,714)
Purchase of interest in Snip mine (note 3) (39,279)
Other 3,264 3,296 (8,033)
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash used in investment activities (208,198) (85,353) (171,624)
- ----------------------------------------------------------------------------------------------------------------------------------
Financing Activities
Debt repayments (8,352)
Dividends paid on common shares - Homestake (29,341) (27,587) (24,106)
- Prime minority interests (2,205)
Common shares issued 2,599 2,886 5,339
Stock issued by subsidiary (note 4) 31,870
- ----------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (28,947) (24,701) 4,751
- ----------------------------------------------------------------------------------------------------------------------------------
Effect of Exchange Rate Changes on Cash and Equivalents 409 (3,147) 4,138
- ----------------------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash and Equivalents (56,358) 40,256 (29,018)
Cash and Equivalents, January 1 145,957 105,701 134,719
- ----------------------------------------------------------------------------------------------------------------------------------
Cash and Equivalents, December 31 $ 89,599 $ 145,957 $ 105,701
==================================================================================================================================
See notes to consolidated financial statements.
</TABLE>
60
<PAGE>
Homestake Mining Company and Subsidiaries
Notes to Consolidated Financial Statements
(Unless otherwise noted, all tabular amounts are in thousands)
Note 1: Nature of Operations
Homestake Mining Company ("Homestake" or the "Company") is engaged in gold
mining and related activities including exploration, extraction,
processing, refining and reclamation. Gold bullion, the Company's principal
product, is produced and sold in the United States, Canada, Australia and
Chile. Ore and concentrates, containing gold and silver, from the Eskay
Creek and Snip mines in Canada are sold directly to smelters. Through its
investment in Main Pass 299, the Company also produces and sells sulfur and
oil.
Note 2: Significant Accounting Policies
The consolidated financial statements include Homestake and its
majority-owned subsidiaries and their undivided interests in joint ventures
after elimination of intercompany amounts. At December 31, 1996 the Company
owned 50.6% of Prime Resources Group Inc. ("Prime") and 51% of Agua de la
Falda S.A. with the remaining interests reflected as minority interests in
the consolidated financial statements. Undivided interests in gold mining
operations (the Round Mountain mine in the United States; Homestake Gold of
Australia Limited's ("HGAL") interest in the gold mining operations in
Kalgoorlie, Western Australia; and Homestake Canada Inc.'s ("HCI")
interests in the Williams and David Bell mines in Canada) and in the sulfur
and oil recovery operations at Main Pass 299 in the Gulf of Mexico are
reported using pro rata consolidation whereby the Company reports its
proportionate share of assets, liabilities, income and expenses.
Use of estimates: The preparation of financial statements in conformity
with United States generally accepted accounting principles requires the
Company's management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, the disclosure of contingent
assets and liabilities at the date of the financial statements, and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Cash and equivalents include all highly-liquid investments with a maturity
of three months or less at the date of purchase. The Company minimizes its
credit risk by investing its cash and equivalents with major international
banks and financial institutions located principally in the United States,
Canada and Australia. The Company believes that no concentration of credit
risk exists with respect to investment of its cash and equivalents.
Short-term investments principally consist of highly-liquid United States
and foreign government and corporate securities with original maturities in
excess of three months. The Company classifies all short-term investments
as available-for-sale securities. Unrealized gains and losses on these
investments are recorded as a separate component of shareholders' equity,
except that declines in market value judged to be other than temporary are
recognized in determining net income.
Inventories, which include finished products, ore in process, stockpiled
ore, ore in transit, and supplies, are stated at the lower of cost or net
realizable value. The cost of gold produced by certain United States
operations is determined principally by the last-in, first-out method
("LIFO"). The cost of other inventories is determined primarily by
averaging methods.
Exploration costs are expensed as incurred. All costs related to property
acquisitions are capitalized.
61
<PAGE>
Homestake Mining Company and Subsidiaries
Notes to Consolidated Financial Statements
(Unless otherwise noted, all tabular amounts are in thousands)
Development costs: Following completion of a favorable feasibility study,
development costs incurred to place new mines into production and to
complete major development projects at operating mines are capitalized.
Ongoing costs to maintain production are expensed as incurred.
Depreciation, depletion and amortization of mining properties, mine
development costs and major plant facilities is computed principally by the
units-of-production method based on estimated proven and probable ore
reserves. Proven and probable ore reserves reflect estimated quantities of
ore which can be recovered economically in the future from known mineral
deposits. Such estimates are based on current and projected costs and
prices. Other equipment and plant facilities are depreciated using
straight-line or accelerated methods principally over estimated useful
lives of three to ten years.
Property evaluations: Effective January 1, 1996 the Company adopted
Statement of Financial Accounting Standards No. ("SFAS") 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of." SFAS 121 requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may
not be recoverable, and, if deemed impaired, measurement and recording of
an impairment loss be based on the fair value of the asset, which generally
will be computed using discounted cash flows. Based on the carrying values
and estimated future undiscounted cash flows of the Company's long-lived
assets at January 1, 1996, the Company did not record a cumulative effect
upon adopting SFAS 121.
Estimated future net cash flows from each mine and nonoperating
property are calculated using estimates of proven and probable ore reserves
for operating properties and estimated contained mineralization expected to
be classified as proven and probable reserves based on geological
delineation to date for nonoperating properties, estimated future sales
prices (considering historical and current prices, price trends and related
factors), production costs, capital and reclamation costs. Homestake used
gold and silver market prices of $375 and $5 per ounce, respectively, and a
sulfur price of $70 per long ton in preparing its estimates of future cash
flows at December 31, 1996 (see note 9).
The Company's estimates of future cash flows are subject to risks and
uncertainties. Therefore, it is possible that changes could occur which may
affect the recoverability of the Company's investments in mineral
properties and other assets.
Undeveloped properties upon which the Company has not performed
sufficient exploration work to determine whether significant mineralization
exists are carried at original acquisition cost.
Reclamation and remediation: Reclamation costs and related accrued
liabilities, which are based on the Company's interpretation of current
environmental and regulatory requirements, are accrued and expensed,
principally by the units-of-production method based on estimated proven and
probable ore reserves. Remediation liabilities, including estimated
governmental oversight costs, are expensed upon determination that a
liability has been incurred and where a minimum cost or reasonable estimate
of the cost can be determined.
The Company provides for all costs of reclamation, including long-term
care and monitoring and maintenance costs. The Company uses undiscounted
current costs in preparing its estimates of future reclamation costs. The
Company regularly updates its estimates of reclamation costs. Amounts to be
62
<PAGE>
Homestake Mining Company and Subsidiaries
Notes to Consolidated Financial Statements
(Unless otherwise noted, all tabular amounts are in thousands)
received from the United States Federal Government for its 51.2% share of
the cost of future reclamation activities at the Grants, New Mexico uranium
facility are offset against the remaining estimated Grants reclamation
liabilities. Receivables are recorded for the United States Federal
Government's share of reclamation expenditures at the Grants uranium
facility in the period that such expenditures are made.
Based on current environmental regulations and known reclamation
requirements, the Company has included its best estimates of these
obligations in its reclamation accruals. However, the Company's estimates
of its ultimate reclamation liabilities could change as a result of changes
in regulations or cost estimates.
Noncurrent investments include equity investments, mining securities and
assets held in trust to fund employee benefits.
Investments in gold mining partnerships over which the Company
exercises significant influence are reported using the equity method.
Equity investments are carried at the lower of cost or market.
Investments in mining securities and assets held in trust to fund
employee benefits are classified as available-for-sale investments.
Unrealized gains and losses on these investments are recorded as a separate
component of shareholders' equity, except that declines in market value
judged to be other than temporary are recognized in determining net income.
Realized gains and losses on these investments are included in determining
net income.
Product sales are recognized when title passes at the shipment or delivery
point.
Income taxes: The Company follows the liability method of accounting for
income taxes whereby deferred income taxes are recognized for the tax
consequences of temporary differences by applying statutory tax rates
applicable to future years to differences between the financial statement
carrying amounts and the tax bases of certain assets and liabilities.
Changes in deferred tax assets and liabilities include the impact of any
tax rate changes enacted during the year. Mining taxes represent Canadian
provincial taxes levied on mining operations.
Foreign currency: Substantially all assets and liabilities of foreign
subsidiaries are translated at exchange rates in effect at the end of each
period. Revenues and expenses are translated at the average exchange rate
for the period. Accumulated currency translation adjustments are included
as a separate component of shareholders' equity. Foreign currency
transaction gains and losses are included in the determination of net
income.
Pension plans and other postretirement benefits: Pension costs related to
United States employees are determined using the projected unit credit
actuarial method. Pension plans are funded through annual contributions. In
addition, the Company provides medical and life insurance benefits for
certain retired employees and accrues the cost of such benefits over the
period in which active employees become eligible for the benefits. The
costs of the postretirement medical and life insurance benefits are paid at
the time such benefits are provided.
63
<PAGE>
Homestake Mining Company and Subsidiaries
Notes to Consolidated Financial Statements
(Unless otherwise noted, all tabular amounts are in thousands)
Net income per share is computed by dividing net income by the weighted
average number of common shares and common share equivalents outstanding
during the year. Fully diluted net income per share is not presented since
the exercise of stock options would not result in a material dilution of
earnings per share and the conversion of the 5.5% convertible subordinated
notes would produce anti-dilutive results.
Preparation of financial statements: Certain amounts for 1995 and 1994 have
been reclassified to conform to the current year's presentation. All dollar
amounts are expressed in United States dollars unless otherwise indicated.
Note 3: Acquisitions
Homestake Gold of Australia Limited
In 1995, the Company made an unconditional offer to acquire the 18.5% of
HGAL it did not already own. Homestake offered .089 of a Homestake share or
A$1.90 in cash for each of the 109.6 million HGAL shares owned by the
public. Through December 31, 1995 a total of 38.9 million HGAL shares were
acquired at a cost of $59.1 million, including $42.4 million for 2.6
million newly issued shares of the Company, $14.5 million in cash and $2.2
million of transaction expenses. At December 31, 1995 Homestake owned 88.1%
of the shares of HGAL. The acquisition was completed in the first quarter
of 1996 when the remaining 70.7 million publicly held HGAL shares were
acquired at a cost of $105.8 million, including $99.3 million for 6 million
newly issued shares of the Company, $5 million in cash and $1.5 million of
transaction expenses. The total purchase price to acquire all of the 18.5%
of HGAL held by the minority shareholders was $164.9 million, including
$141.7 million for 8.5 million newly issued shares of the Company, $19.5
million in cash and $3.7 million of transaction expenses.
The acquisition of the HGAL minority interests was accounted for as a
purchase. For accounting purposes, the HGAL shares acquired in the fourth
quarter of 1995 and in the first quarter of 1996 are assumed to have been
acquired effective as of December 31, 1995 and January 1, 1996,
respectively. Based upon the total purchase price of $164.9 million, the
excess of the purchase price paid over the net book value of the minority
interests acquired was $140.7 million. Substantially all of the excess
purchase price is attributable to mineral property interests at Kalgoorlie.
The Company used discounted cash flow analysis to determine the allocation
of the purchase price between reserves and other mineralized material. This
analysis indicated that approximately 62% of the purchase price allocated
to mineral properties was attributable to reserves and the remainder was
attributable to other mineralized material and mineral properties.
On a pro forma basis, assuming that the acquisition of the HGAL
minority interests occurred on January 1, 1995, revenues, net income and
net income per share for the year ended December 31, 1995 have been
estimated at $745 million, $25.6 million and $.17 per share, respectively.
This pro forma information includes adjustments which are based on
available information and certain assumptions that the Company believes are
reasonable in the circumstances. The pro forma information is unaudited and
does not purport to represent what the results of operations actually would
have been had the acquisition of the HGAL minority interests occurred on
January 1, 1995 or to project the results of operations for any future date
or period.
64
<PAGE>
Homestake Mining Company and Subsidiaries
Notes to Consolidated Financial Statements
(Unless otherwise noted, all tabular amounts are in thousands)
Snip Mine
On April 30, 1996 Prime purchased Cominco Ltd.'s ("Cominco") 60% interest
in the Snip mine in British Columbia, Canada for $39.3 million in cash. The
purchase price included Cominco's share of the mine's working capital.
Prime now owns 100% of the Snip mine.
Agua de la Falda S.A.
In July 1996, Homestake and Corporacion Nacional del Cobre Chile
("Codelco"), a state-owned mining company in Chile, formed a new company,
Agua de la Falda S.A. ("La Falda") to conduct exploration and mining
activities near Homestake's former El Hueso mine in northern Chile.
Homestake owns 51% of the corporation and Codelco owns 49%. Codelco and
Homestake have contributed property interests in the area to the new
company. In addition, Codelco contributed the existing El Hueso plant,
which had been under lease to Homestake. Homestake also contributed $5.1
million for exploration and development, including $3.7 million of
exploration and development expenditures incurred prior to the formation of
La Falda. La Falda is developing the Agua de la Falda mine, which contains
187,000 ounces of oxide reserves, and will continue drilling and
metallurgical testing of the much larger Jeronimo deposit where 6.1 million
tons of mineralized material at a grade of .158 ounces of gold per ton have
been outlined to date.
Pinson Mining Company
In December 1996, Homestake increased its interest in the Pinson Mining
Company partnership ("Pinson Partnership") from 26.25% to 50% and became
the operator of the Pinson mine. Barrick Gold Corporation ("Barrick") owns
the remaining 50% interest. The purchase price for the additional 23.75%
partnership interest consisted of $4.4 million in cash, a net smelter
royalty on certain future Pinson Partnership production and assumption of a
proportionate increase of the Pinson Partnership's liabilities, including
reclamation.
Note 4: Prime Resources Group Inc.
In 1994, Prime sold 5 million common shares at approximately $6.70 per
share to the public. Net proceeds of approximately $31.9 million from this
issue were used to fund a portion of the construction and development costs
of the Eskay Creek mine. This transaction resulted in a reduction of the
Company's interest in Prime from 54.2% to 50.6%. It is the Company's policy
to include any gains or losses on the issuances of stock of the Company's
subsidiaries in the determination of net income. The Company recorded a
gain of $11.2 million on the transaction in recognition of the net increase
in the book value of the Company's investment in Prime. Deferred income
taxes were not provided on this gain since the Company's tax basis in Prime
substantially exceeds its carrying value.
Note 5: Sales of Mining Operations
Torres mining complex: In 1995, the Company sold its 28% equity interest in
the Torres silver mining complex in Mexico for $6 million. This sale
resulted in a pretax gain of $2.7 million, which was included in other
income.
65
<PAGE>
Homestake Mining Company and Subsidiaries
Notes to Consolidated Financial Statements
(Unless otherwise noted, all tabular amounts are in thousands)
Dee mine: In 1994, the Company sold its 44% interest in the Dee gold mine
in Nevada to Rayrock Mines, Inc. ("Rayrock") for $16.5 million. Rayrock
assumed responsibility for and indemnified Homestake against all related
environmental and reclamation matters. This sale resulted in a pretax gain
of $15.7 million, which was included in other income.
Note 6: Income Taxes
The provision for income and mining taxes consists of the following:
<TABLE>
<CAPTION>
1996 1995 1994
---------------------------------------------
<S> <C> <C> <C>
Current
Income taxes
Federal $ (1,999) $ 7,375 $ 7,560
State 211 (61) 1,258
Canadian 28,367 1,928 2,258
Other foreign 405 176 206
---------------------------------------------
26,984 9,418 11,282
Canadian mining taxes 14,964 10,248 9,741
---------------------------------------------
Total current taxes 41,948 19,666 21,023
---------------------------------------------
Deferred
Income taxes
Federal (3,879) (3,743) 6,867
State (1,300) 436 (1,086)
Canadian (14,588) 25,347 (13,796)
Other foreign 1,981 (2,041) 4,438
---------------------------------------------
(17,786) 19,999 (3,577)
Canadian mining taxes 2,171 (524) 1,434
---------------------------------------------
Total deferred taxes (15,615) 19,475 (2,143)
---------------------------------------------
Total income and mining taxes $26,333 $39,141 $18,880
=============================================
</TABLE>
The provision for income taxes is based on pretax income before
minority interests as follows:
<TABLE>
<CAPTION>
1996 1995 1994
--------------------------------------------
<S> <C> <C> <C>
United States $(14,003) $ 17,607 $ 28,415
Canada 95,548 71,333 49,690
Other foreign (9,861) (3,474) 27,708
--------------------------------------------
$ 71,684 $ 85,466 $105,813
============================================
</TABLE>
66
<PAGE>
Homestake Mining Company and Subsidiaries
Notes to Consolidated Financial Statements
(Unless otherwise noted, all tabular amounts are in thousands)
Deferred tax liabilities and assets as of December 31, 1996 and 1995
relate to the following:
<TABLE>
<CAPTION>
December 31,
1996 1995
--------------------------------------
<S> <C> <C>
Deferred tax liabilities
Depreciation and other resource property differences
United States $ 64,855 $ 65,763
Canada - Federal 32,395 52,068
Canada - Provincial 69,069 76,792
Australia 74,869 29,921
--------------------------------------
241,188 224,544
Inventory - Australia 3,590 859
Other 11,752 11,738
--------------------------------------
Gross deferred tax liabilities 256,530 237,141
--------------------------------------
Deferred tax assets
Tax loss carry-forwards
United States 162 2,533
Canada - Federal 2,001 8,073
Australia 16,680 7,681
Chile 19,929 18,344
--------------------------------------
38,772 36,631
Reclamation costs
United States 6,783 8,502
Other 6,226 5,314
--------------------------------------
13,009 13,816
Employee benefit costs 26,959 28,573
Alternative minimum tax credit carry-forwards 14,215 13,922
Land and other resource property 15,225 12,759
Deductible mining taxes 1,059 3,257
Foreign tax credit carry-forwards 12,725 4,600
Reorganization costs 286 1,038
Other 17,241 12,752
--------------------------------------
Gross deferred tax assets 139,491 127,348
Deferred tax asset valuation allowances (72,152) (59,611)
--------------------------------------
Net deferred tax assets 67,339 67,737
--------------------------------------
Net deferred tax liability $ 189,191 $ 169,404
======================================
Net deferred tax liability consists of
Current deferred tax assets $ (12,263) $ (20,521)
Long-term deferred tax liability 201,454 189,925
--------------------------------------
Net deferred tax liability $ 189,191 $ 169,404
======================================
</TABLE>
The classification of deferred tax assets and liabilities is based on
the related asset or liability creating the deferred tax. Deferred taxes
not related to a specific asset or liability are classified based on the
estimated period of reversal. The change in the valuation allowance for
deferred tax assets has increased by $12.5 million in 1996, of which $8.1
million relates to an increase in the Company's foreign tax credit
carryover. For income tax purposes, the Company has United States foreign
tax credit carry-forwards of approximately $12.7 million which are due to
expire at various times through
67
<PAGE>
Homestake Mining Company and Subsidiaries
Notes to Consolidated Financial Statements
(Unless otherwise noted, all tabular amounts are in thousands)
the year 2002. The $72.2 million deferred tax valuation allowance at
December 31, 1996 represents the portion of the Company's consolidated
deferred tax assets which, based on projections at December 31, 1996, the
Company does not believe that realization is "more likely than not." Such
$72.2 million of deferred tax valuation allowance consists of United
States, Chile and Australia unrealized deferred tax assets of $45.5
million, $20.8 million and $5.9 million, respectively.
The largest portion of the $72.2 million of unrealized deferred tax
assets is comprised of $38.6 million of future United States ($32.7
million) and Australia ($5.9 million) tax benefits relating to expenses
that the Company projects will not be deductible for tax return purposes
until after the year 2010. In projecting United States source income beyond
this period, the Company currently does not meet the SFAS 109 "more likely
than not" criteria required to recognize the United States tax benefits. In
addition, there currently is not a tax strategy which would result in the
realization of the Australian tax benefit. The remaining $33.6 million
principally is comprised of future Chilean tax benefits and United States
foreign tax credit carry-forwards that the Company projects it will be
unable to realize.
Major items causing the Company's income tax provision to differ from
the federal statutory rate of 35% were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------------------------------------------------------
<S> <C> <C> <C>
Income tax based on statutory rate $ 25,089 $ 29,913 $ 37,035
Percentage depletion (7,611) (9,879) (11,106)
Earnings in foreign jurisdictions
at different rates (1,899) (1,019) (6,175)
State income taxes,
net of federal benefit 333 340 1,614
Australian investment allowance (2,097)
Tax relating to reorganizations 7,682
Unrealized minimum tax credits 5,645 4,790 1,753
Nontaxable income (287) (777) (4,784)
Reduction of prior year accruals (24,048)
Other nondeductible losses 13,340 6,231 9,401
Deferred tax assets not recognized in
prior years (2,504) (1,262) (27,697)
Foreign taxes withheld 1,430 1,965 2,089
Litigation recovery (2,629)
Other - net 2,339 1,212 (2,107)
---------------------------------------------------------
Total income taxes 9,198 29,417 7,705
Canadian mining taxes 17,135 9,724 11,175
---------------------------------------------------------
Total income and mining taxes $ 26,333 $ 39,141 $ 18,880
=========================================================
</TABLE>
The Company's 1996 income tax expense includes a $24 million benefit
relating to a reduction of prior years' income tax accruals for certain
contingencies which have now been resolved and a $2.6 million benefit
relating to the tax portion of litigation recovery proceeds.
68
<PAGE>
Homestake Mining Company and Subsidiaries
Notes to Consolidated Financial Statements
(Unless otherwise noted, all tabular amounts are in thousands)
Deferred tax assets not recognized in prior years include (i) reversals
of prior year valuation allowances of $2.5 million in 1996, $1.3 million in
1995 and $12.4 million in 1994, and (ii) realization of additional deferred
tax assets that could not be recognized in prior years of $15.3 million in
1994.
Note 7: Receivables
<TABLE>
<CAPTION>
December 31,
1996 1995
-------------------------------------
<S> <C> <C>
Trade accounts $ 24,485 $ 37,907
U.S. Government receivable (see note 21) 5,500 5,500
Interest and other 17,665 14,639
-------------------------------------
$ 47,650 $ 58,046
=====================================
</TABLE>
Note 8: Inventories
<TABLE>
<CAPTION>
December 31,
1996 1995
-------------------------------------
<S> <C> <C>
Finished products $ 21,132 $ 13,498
Ore and in-process 39,980 26,027
Supplies 30,015 30,454
-------------------------------------
$ 91,127 $ 69,979
=====================================
</TABLE>
At December 31, 1996 and 1995, the cost of certain finished gold
inventories in the United States stated on the LIFO cost basis totaled $2.1
million and $2 million, respectively. Such inventories would have
approximated $3.7 million and $3.6 million, respectively, if stated at the
lower of market or current year average production costs.
At December 31, 1996 and 1995, ore stockpiles in the amounts of $10.9
million and $11.1 million, respectively, not expected to be processed
within the 12 months following the end of each year are included in other
noncurrent assets (see note 11).
Note 9: Property, Plant and Equipment
<TABLE>
<CAPTION>
December 31,
1996 1995
----------------------------------------
<S> <C> <C>
Mining properties and development costs $1,013,309 $ 790,335
Plant and equipment 932,826 891,277
Land and royalty interests 3,905 3,843
Construction and mine development in progress 20,260 12,282
----------------------------------------
1,970,300 1,697,737
Accumulated depreciation, depletion and
amortization (963,270) (850,961)
----------------------------------------
$1,007,030 $ 846,776
========================================
</TABLE>
69
<PAGE>
Homestake Mining Company and Subsidiaries
Notes to Consolidated Financial Statements
(Unless otherwise noted, all tabular amounts are in thousands)
Included in property, plant and equipment above is the Company's $110
million investment in its 16.7% undivided interest in the Main Pass 299
sulfur mine which contained proven recoverable reserves of approximately 66
million long tons of sulfur at December 31, 1996. In accordance with the
Company's accounting policy for reviewing the recoverability of its
investment in operating mines, the Company has estimated future Main Pass
undiscounted net cash flows based on its share of proven reserves,
estimated future sales prices (considering historical and current prices,
price trends and related factors), production costs, capital and
reclamation costs.
In estimating its future undiscounted net cash flows, the Company has
assumed an average future sales price for sulfur of approximately $70 per
ton over the expected remaining 30 year life of the mine. The current
market for sulfur is depressed. However, during the past 10 years the
market for sulfur has been cyclical with prices ranging between $50 and
$142 per ton and averaging over $99 per ton. During the years ended
December 31, 1996 and 1995, the Company realized prices of $60 and $68 per
ton, respectively. Although the Company does not expect significant
improvement in sulfur prices during 1997, the Company believes that future
prices over the life of this mine will be sufficient to recover its
investment. This view is based on the historical volatility of sulfur
prices and on the low operating cost structure of the Main Pass mine.
Estimates of future cash flows are subject to risks and uncertainties
and it is possible that changes could occur in the near term which may
affect the recoverability of the Company's investment in the Main Pass
operations. If the sulfur market remains depressed for a period of time,
the Company may not be able to recover all of its investment in the Main
Pass mine and future write-downs of up to $110 million may be required.
Note 10: Noncurrent Investments
<TABLE>
<CAPTION>
December 31,
1996 1995
-------------------------------------
<S> <C> <C>
Equity investments
Pinson (50%) and Marigold (33%)
mines (see note 3) $ 8,640 $ 4,121
Other equity investments 1,956 1,963
Navan Resources plc 16,800 24,000
Other investments 12,210 16,104
-------------------------------------
$ 39,606 $ 46,188
=====================================
</TABLE>
In 1995, Homestake acquired for $24 million a 10% interest in Navan
Resources plc ("Navan"), an Irish public company with diverse mineral
interests in Europe. The purchase price included an option which will
permit Homestake to acquire from Navan up to a 50% interest in Navan
Bulgarian Mining BV ("Navan BV"), which in turn owns 68% of Bimak AD, the
owner of the Chelopech gold/copper operations in Bulgaria, by investing an
additional $48 million. Homestake's initial $12 million investment in Navan
BV is conditioned upon receipt of all necessary permits for construction of
a roaster and an increase in mining rate at Chelopech from 500,000 to
750,000 metric tons per year, approval of the project by the Boards of
Directors of both companies and agreement on a suitable project management
team. Investment of the remaining $36 million in Navan BV is conditioned on
subsequent approval by the Bulgarian government, Navan and Homestake of a
70
<PAGE>
Homestake Mining Company and Subsidiaries
Notes to Consolidated Financial Statements
(Unless otherwise noted, all tabular amounts are in thousands)
further mine and mill expansion and the securing of expansion financing. In
March 1996, Homestake exercised its option to acquire up to a 50% interest
in Navan BV. However, pending satisfaction of certain conditions, to date
no amunts have been advanced in respect to this option.
In December 1996, Homestake in consultation with Navan, determined
that due to the deteriorating political and economic situation in Bulgaria,
it was likely that further development of the Chelopech project would be
delayed substantially. In light of the uncertainty surrounding the project,
Homestake considered it had an other than temporary impairment of its
investment and reduced the carrying value of the investment in Navan,
including its option to acquire up to a 50% interest in Navan BV, to the
quoted market value of the Navan securities. The resulting charge of $7.2
million was recorded in the fourth quarter of 1996.
Other investments at December 31, 1995 included $10 million related to
a 1995 investment in Orion Resources NL ("Orion"). In January 1996, after
further evaluation of the investment opportunity, the Company sold its
investment in Orion and recorded a gain of $.2 million.
Note 11: Other Assets
<TABLE>
<CAPTION>
December 31,
1996 1995
-------------------------------------
<S> <C> <C>
Assets held in trust (see note 17) $ 25,252 $ 23,741
Ore stockpiles 10,946 11,118
U.S. Government receivable (see note 21) 10,663 13,166
Other 9,263 11,927
-------------------------------------
$ 56,124 $ 59,952
=====================================
</TABLE>
Note 12: Accrued Liabilities
<TABLE>
<CAPTION>
December 31,
1996 1995
-------------------------------------
<S> <C> <C>
Accrued payroll and other compensation $ 23,085 $ 26,925
Accrued reclamation and closure costs 10,055 12,383
Other 9,034 14,629
-------------------------------------
$ 42,174 $ 53,937
=====================================
</TABLE>
Note 13: Long-term Debt
<TABLE>
<CAPTION>
December 31,
1996 1995
--------------------------------------
<S> <C> <C>
Convertible subordinated notes (due 2000) $ 150,000 $ 150,000
Pollution control bonds
Lawrence County, South Dakota (due 2003) 18,000 18,000
State of California (due 2004) 17,000 17,000
--------------------------------------
$ 185,000 $ 185,000
======================================
</TABLE>
71
<PAGE>
Homestake Mining Company and Subsidiaries
Notes to Consolidated Financial Statements
(Unless otherwise noted, all tabular amounts are in thousands)
Convertible subordinated notes: The Company's 5.5% convertible subordinated
notes, which mature on June 23, 2000, are convertible into common shares at
a price of $23.06 per common share and are redeemable by the Company in
whole at any time. Interest on the notes is payable semi-annually in June
and December. Issuance costs of $3.9 million were capitalized and are being
amortized over the life of the notes.
Pollution control bonds: The Company pays interest monthly on the pollution
control bonds based on variable short-term, tax-exempt obligation rates.
Interest rates at December 31, 1996 and 1995 were 4.3% and 5%,
respectively. No principal payments are required until cancellation,
redemption or maturity. Bondholders have the right to tender the bonds for
payment at any time on seven days notice. The Company has arrangements with
underwriters to remarket any tendered bonds and also with a bank to provide
liquidity and credit support to the Company and to purchase and hold for up
to 15 months any tendered bonds that the underwriters are unable to
remarket.
Lines of credit: In September 1996, the Company replaced its credit
agreement with a new United States/Canadian/Australian cross-border credit
facility providing a total availability of $275 million. The Company pays a
commitment fee of .15% per annum on the unused portion of this facility.
The credit facility is available through September 20, 2001 and provides
for borrowings in United States, Canadian or Australian dollars, or gold or
a combination of these. The credit agreement requires a minimum
consolidated net worth of $500 million. In addition, Prime has a $11
million credit facility. At December 31 1996 and 1995, no amounts had been
borrowed under these credit agreements.
Note 14: Other Long-term Obligations
<TABLE>
<CAPTION>
December 31,
1996 1995
-------------------------------------
<S> <C> <C>
Accrued reclamation and closure costs $ 45,388 $ 44,051
Accrued pension and other postretirement
benefit obligations (see note 17) 59,273 63,092
Other 9,507 13,275
-------------------------------------
$ 114,168 $ 120,418
=====================================
</TABLE>
While the ultimate amount of reclamation and site restoration costs to be
incurred in the future is uncertain, the Company has estimated that the
aggregate amount of these costs for operating properties, plus previously
accrued reclamation and remediation liabilities for nonoperating
properties, will be approximately $110 million. This figure includes
approximately $10.6 million of reclamation costs at the Grants uranium
facility which will be funded by the United States Federal Government. At
December 31, 1996 the Company had accrued $55.4 million for estimated
ultimate reclamation and site restoration costs and remediation liabilities
(see notes 12 and 21).
72
<PAGE>
Homestake Mining Company and Subsidiaries
Notes to Consolidated Financial Statements
(Unless otherwise noted, all tabular amounts are in thousands)
Note 15: Other Income
<TABLE>
<CAPTION>
1996 1995 1994
------------------------------------------------------------
<S> <C> <C> <C>
Gain on asset disposals $ 3,836 $ 5,024 $ 19,521
Royalty income 2,888 2,252 3,061
Foreign currency contract gains
(losses) 1,632 (151) 4,569
Foreign currency exchange losses on
intercompany advances (8,943) (883) (5,959)
Other foreign currency gains (losses) 595 249 (658)
Pension curtailment gain 1,868
Other 5,483 5,140 5,054
------------------------------------------------------------
$ 7,359 $ 11,631 $ 25,588
============================================================
</TABLE>
Note 16: Other Expense
<TABLE>
<CAPTION>
1996 1995 1994
-----------------------------------------------------------
<S> <C> <C> <C>
Write-downs of investments in
mining securities (see note 10) $ 8,983
Expenses related to proposed
merger (see note 24) 3,424
Other 2,168 $ 3,290 $ 6,744
-----------------------------------------------------------
$ 14,575 $ 3,290 $ 6,744
===========================================================
</TABLE>
Note 17: Employee Benefit Plans
Pension plans: The Company has pension plans covering substantially all
United States employees. Plans covering salaried and other nonunion
employees provide pension benefits based on years of service and the
employee's highest compensation during any 60 consecutive months prior to
retirement. Plans covering union employees provide defined benefits for
each year of service.
Pension costs for 1996, 1995 and 1994 for Company-sponsored United
States employee plans included the following components:
<TABLE>
<CAPTION>
1996 1995 1994
------------------------------------------------------------
<S> <C> <C> <C>
Service cost - benefits earned
during the year $ 4,519 $ 3,573 $ 3,928
Interest cost on projected
benefit obligations 15,319 14,476 13,497
Actual net return on assets (34,693) (44,788) (1,828)
Net amortization (deferral) 20,696 32,405 (11,202)
Pension curtailment gain (1,868)
------------------------------------------------------------
$ 3,973 $ 5,666 $ 4,395
============================================================
</TABLE>
73
<PAGE>
Homestake Mining Company and Subsidiaries
Notes to Consolidated Financial Statements
(Unless otherwise noted, all tabular amounts are in thousands)
Assumptions used in determining net periodic pension cost for 1996,
1995 and 1994 include discount rates of 7%, 8%, and 7%, respectively, an
assumed rate of increase in compensation of 5% for each year and an assumed
long-term rate of return on assets of 8.5% for each year. Assumptions used
in determining the projected benefit obligations at December 31, 1996 and
1995 include discount rates of 7% and an assumed rate of increase in
compensation of 5%.
The funded status and amounts recognized for pension plans in the
consolidated balance sheets are as follows:
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
Plans Where Plans Where
----------------------------------------------------------------------------------
Accumulated Accumulated
Assets Exceed Benefits Assets Exceed Benefits
Accumulated Exceed Accumulated Exceed
Benefits Assets Benefits Assets
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Actuarial present value
of benefit obligations
Vested benefits $ (162,100) $ (17,700) $ (159,400) $ (16,300)
==================================================================================
Accumulated benefits $ (180,800) $ (18,900) $ (175,400) $ (17,500)
==================================================================================
Projected benefits $ (202,200) $ (21,000) $ (195,300) $ (19,800)
Plan assets at fair value (1) 224,064 192,565
----------------------------------------------------------------------------------
Plan assets in excess of (less than)
projected benefit obligation 21,864 (21,000) (2,735) (19,800)
Unrecognized net loss (gain) (22,467) 51 (7,285) 114
Unrecognized net transition
obligation (asset) amortized
over 15 years (3,364) 547 (3,916) 792
Unrecognized prior service
cost (benefit) 141 2,459 680 3,081
Additional minimum liability (957) (1,687)
----------------------------------------------------------------------------------
Pension liability recognized
in the consolidated balance
sheets $ (3,826) $ (18,900) $ (13,256) $ (17,500)
==================================================================================
<FN>
(1) Approximately 98% and 93% of the plan assets were invested in listed
stocks and bonds and the balance was invested in fixed-rate insurance
contracts at December 31, 1996 and 1995, respectively.
</TABLE>
Amounts shown under "plans where accumulated benefits exceed assets" at
December 31, 1996 and 1995 consist of liabilities for a nonqualified
supplemental pension plan covering certain employees and a nonqualified
pension plan covering directors of the Company. These plans are unfunded.
In 1995, the Company established a grantor trust, consisting of a money
market fund, mutual funds and corporate-owned life insurance policies, to
provide funding for the benefits payable under these nonqualified plans and
certain other deferred compensation plans. The grantor trust, which is
included in other assets, amounted to $25.3 million at December 31, 1996
and $23.7 million at December 31, 1995.
74
<PAGE>
Homestake Mining Company and Subsidiaries
Notes to Consolidated Financial Statements
(Unless otherwise noted, all tabular amounts are in thousands)
Certain of the Company's foreign operations participate in pension
plans. The Company's share of contributions to these plans was $1.4 million
in 1996, $1.1 million in 1995, and $0.8 million in 1994.
Postretirement benefits other than pensions: The Company provides medical
and life insurance benefits for certain retired employees, primarily
retirees of the Homestake mine. Retirees generally are eligible for
benefits upon retirement if they are at least age 55 and have completed
five years of service. Net periodic postretirement benefit costs were $3.1
million in 1996 and $3.5 million in 1995 and 1994.
The actuarial assumptions used in determining net periodic
postretirement benefit costs include discount rates of 7% for 1996, 8% for
1995, and 7% for 1994, an initial health care trend rate of 10% grading
down to an ultimate health care cost trend rate of 5% for 1996, and an
initial health care cost trend rate of 9.5% grading down to an ultimate
health care cost trend rate of 5% for 1997. The ultimate trend rate is
expected to be achieved by 2006. The actuarial assumptions used in
determining the Company's accumulated postretirement benefit obligation at
December 31, 1996 and 1995 include a discount rate of 7%. A one
percentage-point increase in the assumed health care cost trend rate would
result in an increase of approximately $5 million in the accumulated
postretirement benefit obligation at December 31, 1996 and an increase of
approximately $.5 million in net periodic postretirement benefit costs for
1996.
The following table sets forth amounts recorded in the Company's
consolidated balance sheets at December 31, 1996 and 1995. The Company has
not funded any of its estimated future obligation.
<TABLE>
<CAPTION>
December 31,
1996 1995
--------------------------------------
<S> <C> <C>
Accumulated postretirement benefit obligation
Retirees $(29,000) $(27,000)
Fully-eligible active plan participants (1,000) (1,000)
Other active plan participants (7,000) (7,000)
--------------------------------------
(37,000) (35,000)
Unrecognized net gain (4,364) (5,412)
Unrecognized prior service cost 617 677
--------------------------------------
Accumulated postretirement benefit obligation
liability recognized in the consolidated
balance sheets $(40,747) $(39,735)
======================================
</TABLE>
Stock option plans: The Company may grant stock options for up to 6 million
common shares under its 1996 stock option plan. The exercise price of each
option granted under the 1996 and prior plans is equal to the market price
of the Company's stock on the date of grant and an option's maximum term is
ten years. Options usually vest over a four-year period.
75
<PAGE>
Homestake Mining Company and Subsidiaries
Notes to Consolidated Financial Statements
(Unless otherwise noted, all tabular amounts are in thousands)
A summary of the status of the Company's stock option plans as of
December 31, 1996, 1995 and 1994 and changes during the years ending on
those dates is presented below:
<TABLE>
<CAPTION>
1996 1995 1994
-----------------------------------------------------------------------------
Number Average Number Average Number Average
of Price Per of Price Per of Price Per
Shares Share Shares Share Shares Share
-----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1 2,309 2,301 2,600
Granted 466 $19.19 361 $15.58 268 $20.50
Exercised (168) 19.71 (206) 13.90 (293) 15.98
Expired (4) 19.38 (147) 16.92 (274) 15.86
---------- ---------- ----------
Balance at December 31 2,603 2,309 2,301
========== ========== ==========
Options exercisable at
December 31 1,854 1,500 1,481
Fair value of options granted
during the year $5.84 $5.06
</TABLE>
The fair value of each stock option is estimated on the date of grant
using a Black-Scholes option-pricing model with the following
weighted-average assumptions: an expected life of 1.8 years from the vest
date (with incremental vesting over four years) for 1996 and 1995, expected
volatility of 31.7% and 33.3% for 1996 and 1995, a dividend yield of 1% and
1.3% for 1996 and 1995, respectively, and a risk-free interest rate of 5.4%
and 6.9% in 1996 and 1995, respectively.
The following table summarizes information about stock options
outstanding at December 31, 1996:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------------------------- --------------------------------------
Range of Weighted-Average Weighted-Average Weighted-Average
Exercise Prices Number Remaining Exercise Price Number Exercise Price
Per Share Outstanding Contractual Life Per Share Exercisable Per Share
--------------------- --------------- ------------------ ------------------ -------------- ---------------------
<S> <C> <C> <C> <C> <C>
$12.18 to $15.38 881 5.9 years $13.76 637 $13.51
15.43 to 19.13 1,111 6.6 years 17.65 691 16.84
19.70 to 42.77 611 4.0 years 27.98 526 29.18
--------------- --------------
2,603 1,854
=============== ==============
</TABLE>
An additional 6 million and .6 million shares were available for future
grants at December 31, 1996 and 1995, respectively.
The Financial Accounting Standards Board issued SFAS 123, "Accounting
for Stock-Based Compensation," which is effective for periods beginning
after December 15, 1995, requires that companies either recognize
compensation expense for grants of stock, stock options, and other equity
instruments based on fair value, or provide pro forma disclosure of the
effect of the grants on net income and earnings per share in the notes to
the financial statements as if such compensation expense had been
recognized. The Company has elected to use the pro forma disclosure
provisions of SFAS 123 in 1996 and has applied Accounting Principles Board
Opinion 25 and related Interpretations in accounting for its plans.
Accordingly, no compensation cost has been recognized for the Company's
stock option plans. Had compensation expense for the Company's stock-based
compensation plans
76
<PAGE>
Homestake Mining Company and Subsidiaries
Notes to Consolidated Financial Statements
(Unless otherwise noted, all tabular amounts are in thousands)
been determined based on the fair value of options at the grant dates as
calculated in accordance with SFAS 123, the Company's net income and
earnings per share for the years ended December 31, 1996 and 1995 would
have been as follows:
<TABLE>
<CAPTION>
1996 1995
---------------------------- -------------------------------
Earnings Earnings
Net income per share Net income per share
----------- ---------- -------------- -----------
<S> <C> <C> <C> <C>
As reported $ 30,281 $ 0.21 $ 30,327 $ 0.22
Pro forma 28,913 0.20 29,773 0.22
</TABLE>
During the initial phase-in period of SFAS 123, disclosures are not
likely to be representative of the pro forma effects on reported net income
for future years, as the disclosures only include the pro forma effects of
options granted on or after January 1, 1995.
Other plans: Substantially all full-time United States employees of the
Company are eligible to participate in the Company's defined contribution
savings plans. The Company's matching contribution was approximately $2.2
million in 1996, $1.6 million in 1995 and $1.1 million in 1994.
Note 18: Fair Value of Financial Instruments
At December 31, 1996 and 1995 the carrying values of the Company's cash and
equivalents and short-term investments, noncurrent investments, long-term
debt and foreign currency options approximated their estimated fair values.
Note 19: Shareholders' Equity
Other equity includes deductions of $3.5 million and $3.7 million at
December 31, 1996 and 1995, respectively, for loans made to certain former
HCI employees and directors for the purchase of HCI common shares. The
loans are non-interest bearing, are secured by a pledge of shares, and are
not required to be paid until the securities purchased are equal to or
greater than the value of the respective loans.
Each share of common stock includes and trades with a right. Rights are
not exercisable currently but become exercisable on the 10th business day
after any person, entity or group ("the Acquiring Person") acquires 20% or
more of the Company's common stock or announces a tender or exchange offer
which would result in such entity acquiring 20% or more of the Company's
common stock. When exercisable, each right entitles its holder to purchase
from the Company one one-hundredth of a share of Series A Participating
Cumulative Preferred Stock, par value $1 per share, at a share price of
$75. If the Acquiring Person acquires 30% or more of the Company's common
stock other than pursuant to a cash tender offer for all of the Company's
stock or engages in certain self-dealing transactions, each right will
entitle its holder to purchase Company common stock at one-half the market
price therefor. If the Company is subsequently involved in a merger or
other business combination involving the Acquiring Person, each right will
entitle its holder to purchase certain securities of the surviving company
at one-half the market price therefor. The rights expire on November 2,
1997.
77
<PAGE>
Homestake Mining Company and Subsidiaries
Notes to Consolidated Financial Statements
(Unless otherwise noted, all tabular amounts are in thousands)
Note 20: Additional Cash Flow Information
Cash paid for interest and for income and mining taxes is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------------------------------------------------------
<S> <C> <C> <C>
Interest, net of amounts capitalized $ 10,643 $ 11,292 $ 10,110
Income and mining taxes 17,163 22,650 10,670
</TABLE>
Certain investing and financing activities of the Company affected its
financial position but did not affect its cash flows. See note 3 for a
discussion of the noncash acquisitions of the additional interests in HGAL.
Note 21: Contingencies
Environmental Contingencies
The Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA") imposes heavy liabilities on persons who discharge hazardous
substances. The Environmental Protection Agency ("EPA") publishes a
National Priorities List ("NPL") of known or threatened releases of such
substances.
Whitewood Creek: An 18-mile stretch of Whitewood Creek in the Black Hills
of South Dakota formerly was a site on the NPL. The EPA asserted that
discharges of tailings by mining companies, including the Company,
contaminated soil and water for more than 100 years. In 1990, the Company
signed a consent decree with the EPA requiring that the Company perform
remedial work on the site and continue long-term monitoring. The on-site
remedial work has been completed and the consent decree was terminated on
January 10, 1996. At December 31, 1996 the Company had accrued
approximately $1 million as its estimate of the total remaining cost of
long-term monitoring at the Whitewood Creek site. The EPA deleted the site
from the NPL on August 13, 1996.
Grants: The Company's former uranium millsite near Grants, New Mexico is
listed on the NPL. The EPA asserted that leachate from the tailings
contaminated a shallow aquifer used by adjacent residential subdivisions.
The Company paid the costs of extending the municipal water supply to the
affected homes and continues to operate a water injection and collection
system that has significantly improved the quality of the aquifer. The
Company has decommissioned and disposed of the mills and has covered the
tailings impoundments at the site. The total future cost for reclamation,
remediation, monitoring and maintaining compliance at the Grants site is
estimated to be $20.4 million.
Title X of the Energy Policy Act of 1992 (the "Act") and subsequent
amendments to the Act authorized appropriations of $335 million to cover
the Federal Government's share of certain costs of reclamation,
decommissioning and remedial action for by-product material (primarily
tailings) generated by certain licensees as an incident of uranium sales to
the Federal Government. Reimbursement is subject to compliance with
regulations of the Department of Energy ("DOE"), which were issued in 1994.
Pursuant to the Act, the DOE is responsible for 51.2% of past and future
costs of reclaiming the Grants site in accordance with Nuclear Regulatory
Commission license requirements. Through December 31, 1996, the Company had
received $14.2 million from the DOE and the accompanying balance sheet at
December 31, 1996 includes an additional receivable of $16.2 million
78
<PAGE>
Homestake Mining Company and Subsidiaries
Notes to Consolidated Financial Statements
(Unless otherwise noted, all tabular amounts are in thousands)
(see notes 7 and 11) for the DOE's share of reclamation expenditures made
by the Company through 1996. The Company believes that its share of the
estimated remaining cost of reclaiming the Grants facility, net of
estimated proceeds from the ultimate disposals of related assets, is fully
provided in the financial statements at December 31, 1996.
In 1983, the state of New Mexico made a claim against the Company for
unspecified natural resource damages resulting from the Grants tailings.
The state of South Dakota made a similar claim in 1983 as to the Whitewood
Creek tailings. The Company denies all liability for damages at the two
CERCLA sites. The two states have taken no action to enforce the 1983
claims.
The Company believes that the ultimate resolution of the above matters
will not have a material adverse impact on its financial condition or
results of operations.
Other Contingencies
In addition to the above, the Company is party to legal actions and
administrative proceedings and is subject to claims arising in the ordinary
course of business. The Company believes the disposition of these matters
will not have a material adverse effect on its financial position or
results of operations.
Note 22: Foreign Currency and Other Commitments
Under the Company's foreign currency protection program, the Company has
entered into a series of foreign currency option contracts which
established trading ranges within which the United States dollar may be
exchanged for foreign currencies by setting minimum and maximum exchange
rates. The Company does not require or place collateral for these
contracts. However, the Company minimizes its credit risk by dealing with
only major international banks and financial institutions. The contracts
are marked to market at each balance sheet date. Net unrealized gains on
contracts outstanding at December 31, 1996 and 1995 totaled $.3 million.
Other income for the years ended December 31, 1996, 1995 and 1994 included
income (loss) of $1.6 million, $(.2) million, and $4.6 million,
respectively, related to the foreign currency protection program. At
December 31, 1996 the Company had outstanding foreign currency contracts as
follows:
<TABLE>
<CAPTION>
Weighted-Average Exchange
Amount Covered Rates to U.S. Dollars Expiration
Currency (U.S. Dollars) Put Options Call Options Dates
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Canadian $149,120 0.71 0.77 1997
Canadian 29,000 0.73 0.77 1998
Australian 94,400 0.77 0.80 1997
Australian 6,000 0.77 0.80 1998
--------------
$278,520
</TABLE>
In addition to amounts related to the foreign currency option
contracts, the Company realized foreign currency transaction losses of $8.3
million in 1996, $.6 million in 1995, and $6.6 million in 1994 which were
included in other income. The 1996 net foreign currency transaction loss
includes the recognition of an $8.9 million foreign exchange loss primarily
related to the Company's Canadian-dollar denominated advances to HCI.
79
<PAGE>
Homestake Mining Company and Subsidiaries
Notes to Consolidated Financial Statements
(Unless otherwise noted, all tabular amounts are in thousands)
In the fourth quarter of 1996, the Company entered into forward sales
commitments for 680,100 ounces expected to be produced from the McLaughlin
mine stockpiles from 1997 through 2003. The Company does not require or
place collateral for these contracts. At December 31, 1996 the Company's
forward sales commitments were as follows:
<TABLE>
<CAPTION>
Average Price of
Forward Sales Forward Sales
Year (ounces) (per ounce)
- -----------------------------------------------------------------------------------------
<S> <C> <C>
1997 120,100 $385
1998 120,000 399
1999 109,900 415
2000 85,100 430
2001 85,000 446
2002 85,000 463
2003 75,000 481
--------------
680,100
</TABLE>
During 1994, the Company entered into forward sales for 183,200 ounces
of gold it expected to produce at the Nickel Plate mine during 1995 and
1996. In October 1995, the Company closed out forward sales covering 24,400
ounces at an average price of $435 per ounce for delivery in 1996,
realizing a gain of $.8 million. Gold sales for 1996 and 1995 included
70,000 ounces and 88,800 ounces sold under this program at an average price
of $421 per ounce and $398 per ounce, respectively. At December 31, 1996
all sales and obligations under this forward sales program had been
completed.
The purpose of both of the above forward sales programs was to help
assure recovery of the Company's remaining investment in the mines and
provide for remaining unaccrued reclamation costs.
The Company has entered into various commitments during the ordinary
course of its business, which include commitments to perform assessment
work and other obligations necessary to maintain or protect its interests
in mining properties, financing and other obligations to joint ventures and
partners under venture and partnership agreements, and commitments under
federal and state environmental health and safety permits.
Note 23: Geographic and Segment Information
The Company primarily is engaged in gold mining and related activities.
Interests in joint ventures are included in segment operations and
identifiable assets. Operating earnings, which are defined as operating
revenues less operating costs and exploration expenses, exclude corporate
income and expenses, and income and mining taxes. Identifiable assets
represent those assets used in a segment's operations. Corporate assets are
principally cash and equivalents, short-term investments and assets related
to operations not significant enough to require classification as a
business segment.
80
<PAGE>
Homestake Mining Company and Subsidiaries
Notes to Consolidated Financial Statements
(Unless otherwise noted, all tabular amounts are in thousands)
GEOGRAPHIC INFORMATION
<TABLE>
<CAPTION>
1996 1995 1994
-------------------------------------------------------
<S> <C> <C> <C>
Revenues
United States (1,2) $ 310,881 $ 349,461 $ 346,629
Canada (3) 304,530 264,548 192,363
Australia 147,241 120,898 143,944
Latin America (4) 4,284 11,458 22,551
-------------------------------------------------------
$ 766,936 $ 746,365 $ 705,487
=======================================================
Exploration Expense
United States $ 11,861 $ 12,750 $ 11,841
Canada 9,751 2,797 2,445
Australia 7,863 4,745 4,008
Latin America and other 15,907 7,249 3,053
-------------------------------------------------------
$ 45,382 $ 27,541 $ 21,347
=======================================================
Operating Earnings
United States (2) $ 23,124 $ 32,623 $ 60,538
Canada 103,640 86,662 53,359
Australia 1,914 4,516 25,018
Latin America and other (4) (14,606) (6,544) (4,412)
-------------------------------------------------------
$ 114,072 $ 117,257 $ 134,503
=======================================================
Identifiable Assets as of December 31
United States $ 522,565 $ 618,267 $ 598,059
Canada 494,083 432,087 382,575
Australia 451,973 264,238 207,837
Latin America and other 13,487 7,041 13,497
-------------------------------------------------------
$ 1,482,108 $ 1,321,633 $ 1,201,968
=======================================================
<FN>
(1) Includes a foreign currency exchange loss of $8.9 million in 1996
primarily related to the Company's Canadian-dollar denominated
advances to HCI.
(2) Includes a gain of $15.7 million in 1994 on the sale of the Company's
interest in the Dee mine.
(3) Includes a gain of $11.2 million in 1994 on the dilution of the
Company's interest in Prime.
(4) Includes a gain of $2.7 million in 1995 on the sale of the Company's
interest in the Torres mining complex.
</TABLE>
81
<PAGE>
Homestake Mining Company and Subsidiaries
Notes to Consolidated Financial Statements
(Unless otherwise noted, all tabular amounts are in thousands)
SEGMENT INFORMATION
<TABLE>
<CAPTION>
1996 1995 1994
-------------------------------------------------------
<S> <C> <C> <C>
Revenues
Gold $ 713,774 $ 677,377 $ 632,031
Sulfur and oil 30,749 40,620 26,882
Interest and other (1,2) 22,413 28,368 46,574
-------------------------------------------------------
$ 766,936 $ 746,365 $ 705,487
======================================================
Operating Earnings
Gold (1) $ 112,800 $ 111,564 $ 134,695
Sulfur and oil 1,272 5,693 (192)
------------------------------------------------------
Operating earnings 114,072 117,257 134,503
Net corporate expense (2,3) (42,388) (31,791) (28,690)
------------------------------------------------------
Income Before Taxes and Minority Interests $ 71,684 $ 85,466 $ 105,813
======================================================
Depreciation, Depletion and Amortization
Gold $ 105,020 $ 90,237 $ 66,857
Sulfur and oil 6,302 8,055 7,861
Corporate 1,031 1,310 1,453
------------------------------------------------------
$ 112,353 $ 99,602 $ 76,171
======================================================
Exploration Expense
Gold $ 45,382 $ 27,541 $ 21,318
Sulfur and oil - - 29
------------------------------------------------------
$ 45,382 $ 27,541 $ 21,347
======================================================
Additions to Property, Plant and Equipment
Gold (4) $ 262,235 $ 147,549 $ 83,597
Sulfur and oil 1,541 1,604 3,039
Corporate 440 483 2,018
------------------------------------------------------
$ 264,216 $ 149,636 $ 88,654
======================================================
Identifiable Assets as of December 31
Gold $ 1,038,156 $ 870,512 $ 796,016
Sulfur and oil 126,499 134,990 143,742
Corporate:
Cash and equivalents and short-term
investments 219,757 212,373 205,180
Other 97,696 103,758 57,030
------------------------------------------------------
$ 1,482,108 $ 1,321,633 $ 1,201,968
======================================================
<FN>
(1) Includes a gain of $2.7 million in 1995 on the sale of the Company's
interest in the Torres mining complex and a gain of $15.7 million in
1994 on the sale of the Company's interest in the Dee mine.
(2) Includes a foreign currency exchange loss of $8.9 million in 1996
primarily related to the Company's Canadian-dollar denominated
advances to HCI and a gain of $11.2 million in 1994 on the dilution of
the Company's interest in Prime.
82
<PAGE>
Homestake Mining Company and Subsidiaries
Notes to Consolidated Financial Statements
(Unless otherwise noted, all tabular amounts are in thousands)
(3) Includes, in 1996, write-downs of $9 million in the carrying value of
investments in mining company securities and costs of $3.4 million
related to Homestake's now terminated proposed merger with Santa Fe.
(4) Includes additions to property, plant and equipment of $35.6 million
in 1996 related to the purchase of Cominco's 60% interest in the Snip
mine and additions of $122.6 million and $68.7 million in 1996 and
1995, respectively, related to the acquisition of the 18.5% of HGAL
the Company did not already own (including deferred tax purchase
adjustments of $32.5 million and $18.2 million, respectively).
</TABLE>
Sales to individual customers exceeding 10% of the Company's
consolidated revenues were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------------------------------------------------------
<S> <C> <C> <C>
Customer A $ 129,000 $ 92,000 $ 129,000
B 117,000 102,000
C 77,000
D 77,000
E 101,000 118,000
F 91,000 100,000
</TABLE>
Because of the active worldwide market for gold, Homestake believes
that the loss of any of these customers would not have a material adverse
impact on the Company.
Note 24: Subsequent Events
On March 10, 1997, the Company announced that Santa Fe Pacific Gold
Corporation had terminated its previously announced merger agreement with
Homestake and, in accordance with the terms of the merger agreement, had
paid Homestake a $65 million termination fee. As a result, in the first
quarter of 1997 the Company will record a pretax gain of approximately $63
million ($49 million after tax), net of merger related expenses of
approximately $2 million incurred in 1997.
In February 1997, Homestake completed the previously announced sale of
its interests in the George Lake and Back River ventures in Canada to
Arauco Resources Corporation ("Arauco") for $10 million in cash and 3.6
million shares of Arauco common stock. As a result of this transaction, the
Company will record a pretax gain of approximately $14 million ($8 million
after tax) in the first quarter of 1997.
83
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Shareholders and
Board of Directors of
Homestake Mining Company:
We have audited the consolidated balance sheets of Homestake Mining Company and
Subsidiaries as of December 31, 1996 and 1995, and the related statements of
consolidated income, shareholders' 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 Company's management. Our responsibility is to express an
opinion on the financial statements based on our audits.
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 provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Homestake Mining
Company and 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.
/s/ Coopers & Lybrand L.L.P.
- ---------------------------
San Francisco, California February 7, 1997, except for Note 24 as to
which the date is March 10, 1997.
84
<PAGE>
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL REPORTING
The accompanying consolidated financial statements of Homestake Mining Company
and Subsidiaries are prepared by the Company's management in conformity with
generally accepted accounting principles. Management is responsible for the
fairness of the financial statements, which include estimates based on
judgments.
The Company maintains accounting and other control systems which management
believes provide reasonable assurance that financial records are reliable for
the purposes of preparing financial statements and that assets are properly
safeguarded and accounted for. Underlying the concept of reasonable assurance is
the premise that the cost of controls should not be disproportionate to the
benefits expected to be derived from such controls. The Company's internal
control structure is reviewed by its internal auditors and to the extent
necessary by the external auditors in connection with their independent audit of
the Company's consolidated financial statements.
The external auditors conduct an independent audit of the consolidated
financial statements in accordance with generally accepted auditing standards in
order to express their opinion on these financial statements. These standards
require that the external auditors plan and perform the audit to obtain
reasonable assurance that the financial statements are free of material
misstatement.
The Audit Committee of the Board of Directors, composed entirely of outside
directors, meets periodically with management, internal auditors and the
external auditors to discuss the annual audit, internal control, internal
auditing and financial reporting matters. The external auditors and the internal
auditors have direct access to the Audit Committee.
/s/ Jack E. Thompson
- --------------------
Jack E. Thompson
President and Chief Executive Officer
/s/ Gene G. Elam
- ----------------
Gene G. Elam
Vice President, Finance and Chief Financial Officer March 10, 1997
85
<PAGE>
Quarterly Selected Data
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter Year
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1996:
Revenues $ 202,808 $ 201,492 $ 183,683 $ 178,953 $ 766,936
Net income 13,653 (1) 6,776 7,427 (2) 2,425 (2,3,4) 30,281 (1,2,3,4)
Per common share:
Net income $ 0.09 (1) $ 0.05 $ 0.05 (2) $ 0.02 (2,3,4) $ 0.21 (1,2,3,4)
Dividends paid 0.05 0.05 0.05 0.05 0.20
1995:
Revenues $ 179,932 $ 195,590 $ 181,428 $ 189,415 $ 746,365
Net income 6,560 11,179 4,945 7,643 30,327
Per common share:
Net income $ 0.05 $ 0.08 $ 0.04 $ 0.05 $ 0.22
Dividends paid 0.05 0.05 0.05 0.05 0.20
<FN>
(1) Includes income of $4.9 million ($5.5 million pretax) or $0.03 per share
from a litigation recovery.
(2) Includes $2.7 million or $0.02 per share and $21.3 million or $0.14 per
share in the third and fourth quarters, respectively, for reductions in
the Company's accrual for prior year income taxes.
(3) Includes foreign currency exchange losses on intercompany advances of
$7.2 million ($8.7 million pretax) or $0.05 per share and $7.4 million
($8.9 million pretax) or $0.05 per share in the 1996 fourth quarter and
year-to-date periods, respectively, primarily related to the Company's
Canadian-dollar denominated advances to HCI.
(4) Includes write-downs of $8.3 million ($9 million pretax) or $0.06 per
share in the carrying value of investments in mining company securities,
and costs of $2.8 million ($3.4 million pretax) or $0.02 per share
related to Homestake's now terminated proposed merger with Santa Fe.
</TABLE>
Common Stock Price Range
(Prices as quoted on the New York Stock Exchange)
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter Year
---------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C> <C> <C>
1996: High $20.63 $20.88 $18.00 $16.63 $20.88
Low 15.75 16.88 14.25 13.63 13.63
1995: High $19.13 $19.13 $18.13 $17.38 $19.13
Low 14.75 15.63 16.13 15.13 14.75
</TABLE>
86
<PAGE>
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
(a) Information with Respect to Directors.
Certain information as to the Directors of the Registrant is set forth
below. The information appearing below, and certain information regarding
beneficial ownership of securities by the Directors has been furnished by the
Directors.
<TABLE>
<CAPTION>
Age at
April 15, Director
1997 Since Biographical Information
--------- --------- ------------------------
CLASS I DIRECTORS TO SERVE UNTIL 1997 ANNUAL MEETING:
<S> <C> <C> <C>
M. Norman Andersen 66 1992 Mr. Anderson is President of Norman Anderson &
Associates Ltd. (mining consultants). Mr. Anderson
was a director of Homestake Canada Inc. from 1987
to 1993, and was the Chairman of the Board of
Directors of Homestake Canada Inc. from February
1991 to July 1992, when the Company acquired the
outstanding voting shares of Homestake Canada Inc.
He is a director of Prime Resources Group Inc.
(gold mining), Solv-ex Corporation (tar sands
processing), Finning Ltd. (construction
equipment sales and service), and Toronto
Dominion Bank.
Robert H. Clark, Jr. 56 1984 Mr. Clark has been Chief Executive Officer since
1993, President since 1983, and a director since
1968 of Case, Pomeroy & Company, Inc. (mining,
oil and gas, real estate).
Douglas W. Fuerstenau 68 1977 Mr. Fuerstenau has been a Professor of Metallurgy,
Department of Materials Science and Mineral
Engineering, University of California, Berkeley
since 1959. He was P. Malozemoff Professor of
Mineral Engineering from 1987 to 1993, professor
emeritus from 1993 to July 1994, and has been a
professor in the Graduate School since July 1994.
Berne A. Schepman 70 1973 Mr. Schepman has been President of Adair Company
(management consulting) since 1982 and President of
Russian Technology Group (technology marketing)
since July 1992.
CLASS II DIRECTORS TO SERVE UNTIL 1998 ANNUAL MEETING:
Henry G. Grundstedt 68 1992 Mr. Grundstedt is a mining consultant. He was
Senior Vice President of Capital Guardian Trust
Company (money manager of pension and mutual
funds) from 1973 to 1991 and held other executive
positions with that firm beginning in 1972,
specializing in the mining and metals industry.
<PAGE>
<CAPTION>
Age at
April 15, Director
1997 Since Biographical Information
--------- -------- ------------------------
<S> <C> <C> <C>
William A. Humphrey 70 1982 Mr. Humphrey has been a mining consultant since
March 1993. He has been Vice Chairman of Homestake
since July 1992, was President and Chief Operating
Officer of Homestake from April 1991 to July 1992,
and was an Executive Vice President of Homestake
from 1981 to April 1991.
John Neerhout, Jr. 66 1989 Mr. Neerhout has been the Managing Director of
Union Railways Limited (rail transportation)
since April 1997, and a director of London and
Continental Railways Ltd. since March 1997. He has
been a director of the Energy Group (UK) since
February 1997. Mr. Neerhout retired as
Executive Vice President of Bechtel Group Inc.
(engineering and construction) in October,
1996, a position he held since 1986. Mr. Neerhout
was also a director and held executive positions
with Bechtel Group Inc. and other of its
affiliated companies prior to his retirement.
Stuart T. Peeler 67 1981 Mr. Peeler has been a petroleum industry
consultant since 1989. From 1982 until 1988 he
was Chairman of the Board and Chief Executive
Officer of Statex Petroleum, Inc. He is a
director of CalMat Company (aggregates, asphalt,
and property development), Chieftain International,
Inc. (oil and gas exploration and production) and
Chieftain International Funding Corp. (financial
services).
Jack E. Thompson 47 1994 Mr. Thompson has been the Chief Executive Officer
of Homestake since May 1996, and President and a
director of Homestake since August 1994. He was
Executive Vice President-Canada of Homestake and
President and Chief Executive Officer of Prime
Resources Group Inc. and Homestake Canada Inc.
from July 1992 until August 1994. He was President
of Homestake Mineral Development Company and of
North American Metals Corp. (gold mining) from
1988 until 1992.
CLASS III DIRECTORS TO SERVE UNTIL 1999 ANNUAL MEETING:
Harry M. Conger 66 1977 Mr. Conger has been Chairman of the Board of
Homestake since 1982. In May 1996, he retired
as Chief Executive Officer of Homestake, a
position he had held since 1978. He was also
President of Homestake from 1977 to 1986. He is
a director of ASA Limited (investment company),
CalMat Company (aggregates, asphalt, and property
development), and Pacific Gas and Electric
Company.
<PAGE>
<CAPTION>
Age at
April 15, Director
1997 Since Biographical Information
--------- -------- ------------------------
<S> <C> <C> <C>
G. Robert Durham 68 1990 In May, 1996, Mr. Durham retired as
Chairman of the Board, Chief Executive Officer
and a director of Walter Industries, Inc.
(building materials, home building, mortgage
financing and natural resources development).
He was Chief Executive Officer and a director of
Walter Industries, Inc. from June 1991, and
Chairman from October 1995, until his retirement.
He was also President from June 1991 until
October 1995. He was Chairman of the Board,
President and Chief Executive Officer of Phelps
Dodge Corporation (mining) from 1987 to
1989, President and Chief Operating Officer from
1984 to 1987, and held other executive offices with
Phelps Dodge Corporation or affiliated companies
beginning in 1977. He is a director of FINOVA Group
Inc. (financial services), and a trustee of Mutual
Life Insurance Company of New York.
Robert K. Jaedicke 68 1983 Mr. Jaedicke is a Professor (emeritus) of
Accounting at Stanford University Graduate School
of Business. He has been a member of the Stanford
faculty since 1961 and was Dean of the Graduate
School of Business from 1983 to 1990. He is a
director of Boise Cascade Corporation (forest
products and paper), California Water Service
Company, Enron Corp. (natural gas and liquid
fuels), GenCorp (aerospace, auto, polymer
products), State Farm Insurance Companies, and
Wells Fargo & Company and Wells Fargo Bank, N.A.
Carol A. Rae 51 1995 Ms. Rae has been the President and Chief Executive
Officer of Integrated Media and Marketing, LLC
(producer of educational video and multimedia
products) since 1995, and the President of MedVal
Technologies International, Inc. (manufacturer of
orthopedic splints) since 1984. She has been a
member of the Board of Directors of the U.S.
Chamber of Commerce since 1994. She was Senior Vice
President and General Manager of the Refractive
Division of Chiron Vision Corporation
(manufacturer of ophthalmic intraocular lenses)
from 1993 until 1995 and since 1995 she has been
Senior Vice President of Government Affairs of the
Refractive Division of Chiron Vision Corporation.
She was President and Chief Executive Officer of
Magnum Diamond Corporation (manufacturer of
surgical instruments) from 1989 to 1995.
</TABLE>
<PAGE>
INFORMATION CONCERNING THE BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD:
Homestake's Board of Directors held 15 meetings during the calendar
year 1996.
The Board of Directors has six standing committees: Executive, Finance,
Audit, Compensation, Nominating, and Environment, Health and Safety.
The Executive Committee has authority to exercise most of the powers of
the Board of Directors. It is intended to function on a standby basis. The
members of the Committee are Messrs. Thompson (Chairman), Conger, Clark,
Humphrey, Peeler and Schepman. The Executive Committee held two meetings during
1996.
The Finance Committee reviews and makes recommendations to the Board of
Directors about proposed dividends, investments and financial matters, and
oversees pension and savings plan investments. The members of the Committee are
Messrs. Peeler (Chairman), Conger, Grundstedt, Humphrey, and Thompson, and Ms.
Rae. The Finance Committee held four meetings during 1996.
The Audit Committee recommends to the Board of Directors appointment of
the firm of independent auditors to examine and report to shareholders on the
consolidated financial statements of Homestake, and receives and considers the
reports of the auditors. The Committee also oversees Homestake's internal
auditing. The members of the Committee are Messrs. Jaedicke (Chairman),
Anderson, Clark, and Neerhout, and Ms. Rae, all non-employee directors. The
Committee held three meetings during 1996.
The Compensation Committee evaluates and recommends to the full Board
of Directors the levels of compensation and benefits for officers and key
employees. The Compensation Committee also administers the Company's stock
option plans and its Deferred Compensation Plan and Executive Supplemental
Retirement Plan. The members of the Committee are Messrs. Schepman (Chairman),
Durham, Fuerstenau, Grudnstedt, Jaedicke and Neerhout, all non-employee
directors. The Committee held four meetings during 1996.
The Nominating Committee reviews and evaluates candidates for director,
including nominees recommended by shareholders, and makes recommendations on
candidates to the Board of Directors. Applications and communications relating
to candidates for director may be sent to the Secretary of Homestake at the
corporate offices in San Francisco. The members of the Committee are Messrs.
Fuerstenau (Chairman), Anderson, Durham and Schepman, all non-employee
directors. The Nominating Committee did not meet during 1996.
The Environment, Health and Safety Committee oversees Homestake's
compliance with environmental, health and safety laws and policies. The members
are Messrs. Anderson (Chairman), Durham, Fuerstenau, Humphrey and Neerhout, and
Ms. Rae, all non-employee directors. The Environment, Health and Safety
Committee held three meetings during 1996.
Each incumbent director attended at least 75 percent of the total
number of meetings of the Board of Directors and the respective committees on
which he or she served. The aggregate average attendance at meetings of the
Board of Directors and its committees was 96.9 percent.
(b) Information with Respect to Executive Officers.
The required information is contained in Part I of the 10-K Report, at
pages 39-41.
<PAGE>
(c) Section 16(a) Beneficial Ownership Reporting Compliance.
Section 16(a) of the Securities Exchange Act of 1934 and related rules
require the Company's directors and executive officers to file reports of
beneficial ownership and changes of beneficial ownership with the Securities and
Exchange Commission and with the Company. Based on its review of reports of
beneficial ownership and changes in beneficial ownership required under Section
16(a), the Company believes that during 1996 all of its directors and executive
officers timely filed all reports of beneficial ownership and changes in
beneficial ownership required under Section 16(a), except that: the Form 3
Initial Report of Ownership of Stephen A. Orr, a Vice President elected in 1996,
was filed late; one Form 4 Statement of Changes in Beneficial Ownership for
Carol A. Rae, a Director of the Company, reporting a purchase of Company shares,
was filed late; and one Form 4 Statement of Changes in Beneficial Ownership for
Ronald D. Parker, a Vice President of the Company, reporting an exercise of
Company stock options and the sale of the shares so acquired, was filed late (in
1997). No directors or executive officers reported in 1996 a transaction that
should have been reported in an earlier year.
<PAGE>
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
HOMESTAKE MINING COMPANY
Date May 21, 1997 By:/s/ David W. Peat
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David W. Peat
Vice President and Controller
(Principal Accounting Officer)
