<PAGE>
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-12207
------------
PEGASUS GOLD INC.
(Exact name of registrant as specified in its charter)
PROVINCE OF BRITISH COLUMBIA NONE
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
601 W. FIRST AVE., SUITE 1500, SPOKANE, WASHINGTON 99201-3832
(Address of principal executive offices) (Zip Code)
(509) 624-4653
(Registrant's telephone number, including area code)
------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes No X
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
41,834,086
Common Shares, without par value, outstanding at July 31, 1998
<PAGE>
PEGASUS GOLD INC.
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1998
INDEX
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page
<S> <C> <C>
Item #1
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1998 AND DECEMBER 31, 1997. . . . . . . . . . . . . 3
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
THREE MONTHS ENDED MARCH 31, 1998 AND 1997. . . . . . . . . . 4
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997. . . . . . . . . . 5
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
THREE MONTHS ENDED MARCH 31, 1998 AND
YEAR ENDED DECEMBER 31, 1997 . . . . . . . . . . . . . . . . 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. . . . . . . . . . . 7
Item #2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS . . . . . . . . 10
PART II. OTHER INFORMATION
Item #6
EXHIBITS AND REPORTS ON FORM 8-K. . . . . . . . . . . . . . . . 14
SIGNATURES. . . . . . . . . . . . . . . . . . . . . . . . . . . 15
</TABLE>
In this Report, unless otherwise indicated, all dollar amounts are expressed in
U.S. Dollars.
2
<PAGE>
PEGASUS GOLD INC.
DEBTOR-IN-POSSESSION
CONSOLIDATED BALANCE SHEETS
March 31, 1998 and December 31, 1997
(In Thousands)
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . $30,613 $22,638
Forward contracts . . . . . . . . . . . . . . . . . . . . . . --- 35,665
Due from sales of products. . . . . . . . . . . . . . . . . . 19,202 18,766
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . 26,864 25,086
Other current assets. . . . . . . . . . . . . . . . . . . . . 5,411 6,036
--------- ---------
Total current assets . . . . . . . . . . . . . . . . . . . 82,090 108,191
Investments. . . . . . . . . . . . . . . . . . . . . . . . . . 1,553 1,795
Property, plant, and equipment, net. . . . . . . . . . . . . . 80,847 84,700
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . 4,295 7,036
--------- ---------
Total assets . . . . . . . . . . . . . . . . . . . . . . . $168,785 $201,722
--------- ---------
--------- ---------
LIABILITIES
Liabilities not subject to compromise:
Current liabilities:
Accounts payable and other current liabilities . . . . . . $6,413 $10,632
Accrued salaries, wages, and benefits. . . . . . . . . . . 3,847 3,061
Current portion of capital lease obligations . . . . . . . --- 3,872
Accrued care and maintenance . . . . . . . . . . . . . . . 3,096 4,413
Long-term debt . . . . . . . . . . . . . . . . . . . . . . --- 203,266
Mining taxes payable . . . . . . . . . . . . . . . . . . . 3,673 3,737
Foreign currency contracts . . . . . . . . . . . . . . . . --- 15,975
--------- ---------
17,029 244,956
Noncurrent liabilities:
Capital lease obligations. . . . . . . . . . . . . . . . . --- 18,693
Accrued maintenance. . . . . . . . . . . . . . . . . . . . 5,836 6,153
Accrued severance. . . . . . . . . . . . . . . . . . . . . 2,264 2,209
Deferred site closure and reclamation. . . . . . . . . . . --- 85,488
--------- ---------
Total liabilities not subject to compromise. . . . . . . 25,129 357,499
Liabilities subject to compromise. . . . . . . . . . . . . . . 309,505 ---
--------- ---------
Total liabilities. . . . . . . . . . . . . . . . . . . . 334,634 357,499
--------- ---------
SHAREHOLDERS' DEFICIT
Class A preferred shares, Series 1, C$10 par value:
Authorized - 20,000,000 shares; none issued
Common shares, no par value:
Authorized - 200,000,000 shares; issued
and outstanding, March 31, 1998 - 41,834,086 shares
and December 31, 1997 - 41,833,751 shares. . . . . . . . . . 428,815 428,810
Accumulated deficit. . . . . . . . . . . . . . . . . . . . . . (593,672) (583,566)
Accumulated other comprehensive income . . . . . . . . . . . . (992) (1,021)
--------- ---------
Total shareholders' deficit. . . . . . . . . . . . . . . (165,849) (155,777)
--------- ---------
Total liabilities and shareholders' deficit. . . . . . . $168,785 $201,722
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE>
PEGASUS GOLD INC.
DEBTOR-IN-POSSESSION
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
For the Three Months Ended March 31, 1998 and 1997
(In Thousands Except Per Share Amounts)
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $26,927 $48,603
--------- ---------
Cost of sales. . . . . . . . . . . . . . . . . . . . . . . . . . 23,490 34,356
Depreciation and amortization. . . . . . . . . . . . . . . . . . 5,451 9,260
--------- ---------
28,941 43,616
--------- ---------
Gross profit (loss). . . . . . . . . . . . . . . . . . . . . . . (2,014) 4,987
--------- ---------
Operating expenses:
General and administrative . . . . . . . . . . . . . . . . . . 2,020 2,643
Exploration and evaluation . . . . . . . . . . . . . . . . . . 777 1,197
Care and maintenance . . . . . . . . . . . . . . . . . . . . . 150 1,894
Provision for closure and reclamation. . . . . . . . . . . . . --- 500
--------- ---------
2,947 6,234
--------- ---------
Loss from operations . . . . . . . . . . . . . . . . . . . . . . (4,961) (1,247)
--------- ---------
Other income (expense):
Interest and other income. . . . . . . . . . . . . . . . . . . --- 259
Gain on disposition of assets. . . . . . . . . . . . . . . . . 51 ---
Interest expense, net of amounts capitalized (1998
contractual interest $3,195) . . . . . . . . . . . . . . . . (823) (435)
Equity in net income of affiliates . . . . . . . . . . . . . . --- 1,381
--------- ---------
(772) 1,205
--------- ---------
Loss before reorganization items and income taxes. . . . . . . . (5,733) (42)
--------- ---------
Reorganization items:
Restructuring expenses . . . . . . . . . . . . . . . . . . . . (1,543) ---
Deferred debt issuance costs written off . . . . . . . . . . . (3,508) ---
Interest earned on accumulated cash resulting from
Chapter 11 proceeding. . . . . . . . . . . . . . . . . . . . 677 ---
--------- ---------
(4,374) (42)
--------- ---------
Loss before income taxes . . . . . . . . . . . . . . . . . . . . (10,107) (42)
Income tax provision (benefit) . . . . . . . . . . . . . . . . . (1) (27)
--------- ---------
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . (10,106) 15
--------- ---------
Other comprehensive income:
Foreign currency translation adjustment. . . . . . . . . . . . 29 1,925
--------- ---------
Comprehensive income (loss). . . . . . . . . . . . . . . . . . . $(10,077) $1,910
--------- ---------
--------- ---------
Net loss per share - basic . . . . . . . . . . . . . . . . . . . ($0.24) ($0.00)
--------- ---------
--------- ---------
Weighted average common shares outstanding . . . . . . . . . . . 41,834 41,157
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
<PAGE>
PEGASUS GOLD INC.
DEBTOR-IN-POSSESSION
CONSOLIDATED STATEMENTS OF CASH FLOW
For the Three Months Ended March 31, 1998 and 1997
(In Thousands)
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Operating activities:
Net income (loss). . . . . . . . . . . . . . . . . . . . . . . $(10,106) $(15)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization. . . . . . . . . . . . . . . . 5,841 9,450
Write-off of deferred debt issuance costs. . . . . . . . . . 3,508 ---
Provision for closure, reclamation and related costs . . . . --- 500
Payments for site closure and reclamation. . . . . . . . . . (1,199) (1,852)
Loss on disposition of investments . . . . . . . . . . . . . (51) ---
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . (1,770) (1,200)
Change in working capital accounts . . . . . . . . . . . . . . . 3,402 5,295
--------- ---------
Net cash provided by (used in) operating activities before
reorganization items . . . . . . . . . . . . . . . . . . . . . (375) 12,178
--------- ---------
Operating cash flows from reorganization items:
Interest received on cash accumulated because of Chapter 11
proceedings. . . . . . . . . . . . . . . . . . . . . . . . . 245 ---
Professional fees paid for services. . . . . . . . . . . . . . (393) ---
--------- ---------
Net cash used in reorganization items. . . . . . . . . . . . . . (148) ---
--------- ---------
Net cash provided by (used in) operating activities. . . . . . . (523) 12,178
--------- ---------
Investing activities:
Additions to property, plant, and equipment, net . . . . . . . (645) (22,700)
Sale of investments. . . . . . . . . . . . . . . . . . . . . . 181 ---
--------- ---------
Net cash used in investing activities. . . . . . . . . . . . . . (464) (22,700)
--------- ---------
Financing activities:
Proceeds from issuance of long-term debt . . . . . . . . . . . --- 7,820
Proceeds from issuance of common shares. . . . . . . . . . . . --- 670
Receipt of forward contract proceeds . . . . . . . . . . . . . 35,665 ---
Payments of long-term debt . . . . . . . . . . . . . . . . . . (26,336) ---
Payments of obligations under capital lease. . . . . . . . . . (367) (233)
--------- ---------
Net cash provided by financing activities. . . . . . . . . . . . 8,962 8,257
--------- ---------
Effect of exchange rate changes on cash and cash equivalents . . --- (140)
--------- ---------
Net increase (decrease) in cash and cash equivalents . . . . . . 7,975 (2,405)
Cash and cash equivalents, beginning of period . . . . . . . . . 22,638 8,566
--------- ---------
Cash and cash equivalents, end of period . . . . . . . . . . . . $30,613 $6,161
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
5
<PAGE>
PEGASUS GOLD INC.
DEBTOR-IN-POSSESSION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the Three Months Ended March 31, 1998 and the Year Ended
December 31, 1997
<TABLE>
<CAPTION>
Common Shares Foreign
------------------------- Currency
Number Accumulated Translation
of Shares Amount Deficit Adjustment
---------- -------- ----------- -----------
<S> <C> <C> <C> <C>
Balance, December 31, 1996 . . . . . . . . . . . . . . . . . . . 41,092,342 $425,382 $(70,734) $8,629
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . (512,832)
Common shares issued for:
Employee severance and cash . . . . . . . . . . . . . . . . . 579,304 2,541
Stock option plan. . . . . . . . . . . . . . . . . . . . . . . 41,100 311
Employee savings plan and other. . . . . . . . . . . . . . . . 121,005 576
Foreign currency translation adjustment. . . . . . . . . . . . . (9,650)
---------- -------- -------- ------
41,833,751 428,810 (583,566) (1,021)
Balance, December 31, 1997
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . (10,106)
Common shares issued for:
Stock option plan . . . . . . . . . . . . . . . . . . . . .
Employee savings plan and other . . . . . . . . . . . . . . 335 5
Foreign currency translation adjustment. . . . . . . . . . . . . 29
---------- -------- -------- ------
Balance, March 31, 1998. . . . . . . . . . . . . . . . . . . . . 41,834,086 $428,815 $(593,672) $(992)
---------- -------- -------- ------
---------- -------- -------- ------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
6
<PAGE>
PEGASUS GOLD INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. INTRODUCTION
The Company, which is incorporated in British Columbia, presents all financial
statements in United States dollars and under generally accepted accounting
principles as practiced in the United States for interim financial information,
and the instructions for Form 10-Q applicable to a going concern, which
principles, except as otherwise disclosed, assume that assets will be realized
and liabilities will be discharged in the normal course of business. The
Registrant and certain of its subsidiaries (collectively, the "Debtors") filed
petitions for relief under Chapter 11 of the United States Bankruptcy Code on
January 16, 1998 (the "Filing"). The Debtors are presently operating their
business as debtors-in-possession subject to the jurisdiction of the United
States Bankruptcy Court for the District of Nevada (the "Bankruptcy Court").
These unaudited consolidated financial statements should be read in conjunction
with the financial statements and notes thereto included in the Company's Annual
Report on Form 10-K. In the opinion of management, the financial information
set forth in the accompanying unaudited interim consolidated financial
statements reflects all adjustments necessary for a fair statement of the
periods reported, and all such adjustments were of a normal and recurring
nature.
2. REORGANIZATION CASE
Substantially all liabilities as of the date of the Filing are subject to
resolution under a plan of reorganization to be voted upon by the Debtors'
creditors and confirmed by the Bankruptcy Court. Amended and Restated schedules
have been filed by the Debtors with the Bankruptcy Court setting forth the
assets and liabilities of the Debtors as of the date of the Filing as shown by
the Debtors' accounting records. Differences between amounts shown by the
Debtors and claims filed by creditors will be investigated and reconciled. The
amount and settlement terms for such disputed liabilities are subject to
allowance by the Bankruptcy Court. Ultimately, the adjustment of the total
liabilities of the Debtors remains subject to a Bankruptcy Court approved Plan
of Reorganization, and, accordingly, the amount of such liabilities is not
presently determinable.
Under the Bankruptcy Code, the Debtors may elect to assume or reject real estate
leases, employment contracts, personal property leases, service contracts and
other executory pre-petition contracts, subject to Bankruptcy Court approval.
The Debtors continue to review leases and contracts and cannot presently
determine or reasonably estimate the ultimate outcome of, or liability resulting
from, this review. Additional information with respect to the Debtors' Chapter
11 case is set forth in the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1997.
On July 17, 1998, a Joint Plan of Reorganization (the "Plan") was filed with the
Bankruptcy Court for four of the individual debtor entities, Diamond Hill
Mining, Inc. (DHMI), Montana Tunnels Mining, Inc. (MTMI), Florida Canyon
Mining, Inc.(FCMI), and Pegasus Gold International, Inc. (PGII). The Plan
calls for the reorganized PGII to be redomesticated in Delaware and to become
the corporate parent of reorganized DHMI, FCMI, and MTMI. Priority claims and
convenience claims (vendors with claims under $10,000) will be paid in full, in
cash. Other vendor claims will be paid cash equal to 75 percent of the claim
amount with the remainder paid in common stock of reorganized PGII. Guaranty
claims in respect of the Revolving Credit Agreement, guaranty claims in respect
of foreign exchange contracts, and Pegasus Gold Corp. claims will be paid in
common stock of reorganized PGII. The Plan must be accepted by each class of
allowed claims whose rights are impaired. A class is deemed to have accepted
the Plan if creditors holding at least two-thirds in amount and one-half in
number of the allowed claims have voted for the Plan. A hearing date has been
set for August 25, 1998 to approve the content of the Disclosure Statement
respecting the Plan. The Bankruptcy Court has fixed October 8, 1998 as the date
for a hearing on the confirmation of the Plan. Upon confirmation of the Plan,
a consummation date will be established.
On July 31, 1998, a Joint Liquidating Plan of Reorganization (the "Liquidating
Plan") was filed with the Bankruptcy Court for the remaining fourteen debtors in
bankruptcy, including Pegasus Gold Inc., Pegasus Gold Corp., and the other non-
operating debtors. The Liquidating Plan provides for the separate liquidation
of each debtor, such that each debtor's estate will be liquidated and
distributions made to holders of allowed claims against that debtor. The
Liquidating Plan does not provide for substantive consolidation of the debtors.
7
<PAGE>
PEGASUS GOLD INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. REORGANIZATION CASE, CONTINUED:
Priority claims will be paid in full, in cash. Secured claims will either
remain unaltered, satisfied by agreement, or the collateral will be abandoned to
the claimant. General unsecured claims will receive a pro rata distribution of
available remaining cash. A hearing date has been set for September 11, 1998 to
approve the content of the Disclosure Statement respecting the Liquidating Plan.
The date for a hearing on the confirmation of the Liquidating Plan has not yet
been established.
If the Plan and the Liquidating Plan are not confirmed, there can be no
assurance that the debtors or any other parties in interest would be able to
formulate and confirm any other plans.
3. LIABILITIES SUBJECT TO COMPROMISE
Liabilities subject to compromise consist of the following at March 31, 1998:
<TABLE>
<S> <C>
(In Thousands)
Convertible Subordinated Notes . . . . . . . . . $114,995
Revolving Credit Facility. . . . . . . . . . . . 61,930
Deferred site closure and reclamation. . . . . . 85,903
Capital lease obligations. . . . . . . . . . . . 22,198
Foreign currency contracts . . . . . . . . . . . 15,976
Accounts payable and other accrued liabilities . 8,503
--------
$309,505
--------
--------
</TABLE>
4. RESTRUCTURING EXPENSES
Restructuring expenses included as reorganization items in the Consolidated
Statement of Income and Comprehensive Income include fees for professional
services totaling $1,515,000 and travel expenses totaling $28,000.
<TABLE>
<S> <C>
Provision for restructuring fees . . . . . . . . $1,543
Cash payments. . . . . . . . . . . . . . . . . . (393)
------
Accrued restructuring fees at March 31, 1998 . . $1,150
------
------
</TABLE>
5. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
March 31, Dec. 31,
1998 1997
---------- --------
<S> <C> <C>
(In Thousands)
Deferred mining costs. . . . . . . . . . . . . . $16,454 $16,262
Materials and supplies . . . . . . . . . . . . . 5,370 5,631
Stockpiled ore . . . . . . . . . . . . . . . . . 4,651 2,761
Processed metal. . . . . . . . . . . . . . . . . 389 432
------- -------
$26,864 $25,086
------- -------
------- -------
</TABLE>
6. RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, Statement of Financial Accounting Standards No. 130 (SFAS 130),
"Comprehensive Income", was issued. SFAS 130 establishes standards for
reporting and display of comprehensive income and its components in a full set
of general-purpose financial statements. SFAS 130 is effective for fiscal years
beginning after December 15, 1997, and requires restatement of earlier periods
presented. The Company has applied this standard effective January 1, 1998.
8
<PAGE>
PEGASUS GOLD INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. RECENT ACCOUNTING PRONOUNCEMENTS, CONTINUED:
In June 1998, Statement of Financial Accounting Standards No. 133 (SFAS 133),
"Accounting for Derivative Instruments and Hedging Activities", was issued.
SFAS 133 establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts, (collectively referred to as derivatives) and for hedging activities.
It requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. SFAS 133 is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999.
7. COMMITMENTS AND CONTINGENCIES
COMMON SHARES ISSUABLE
At March 31, 1998, a total of 14,269,228 shares of authorized common stock were
reserved for the following:
<TABLE>
<S> <C>
Convertible Notes. . . . . . . . . . . . . . . . 7,708,732
Stock Options. . . . . . . . . . . . . . . . . . 6,246,634
Employee Savings Plan. . . . . . . . . . . . . . 313,862
----------
14,269,228
----------
----------
</TABLE>
GENERAL
Various lawsuits, claims, and proceedings have been or may be instituted or
asserted against the Company. Management believes the disposition of other
matters that are pending or asserted will not have a material adverse effect on
the financial position of the Company or its results of operations.
9
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
OVERVIEW
The Registrant and certain of its subsidiaries (collectively, the "Debtors")
filed petitions for relief under Chapter 11 of the United States Bankruptcy Code
on January 16, 1998 (the "Filing"). The Debtors are presently operating their
business as debtors-in-possession subject to the jurisdiction of the United
States Bankruptcy Court for the District of Nevada (the "Bankruptcy Court"). As
a result of the Filing, the cash requirements for the payment of accounts
payable and other liabilities that arose prior to the Filing are in most cases
deferred until a plan of reorganization is approved by the Bankruptcy Court.
The Company recorded a net loss of $10.1 million ($0.24 per share) in the first
quarter of 1998, compared to net loss of $15,000 ($0.00 per share) during the
same period in 1997. The increased loss is the result of a 25 percent decline
in production, a 29 percent decrease in the realized price per ounce of gold,
and $4.4 million in charges for reorganization items, combined with a decrease
of $2.1 million in other income. These items were only partially offset by a 19
percent decrease in total production costs, and lower general and
administrative, exploration, and care and maintenance expenses. The loss before
reorganization items and income taxes for the first quarter of 1998 was $5.7
million ($0.14 per share).
GOLD PRODUCTION
The following chart details gold production, cash costs and total production
costs per ounce by location for the three months ended March 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
FLORIDA CANYON MINE:
Ounces of gold . . . . . . . . . . . . . . . . . . . . . . . 33,590 40,131
Average cost per ounce:(1)
Cash operating cost. . . . . . . . . . . . . . . . . . . . . $278 $277
Total cash cost. . . . . . . . . . . . . . . . . . . . . . . $289 $289
Total production cost. . . . . . . . . . . . . . . . . . . . $360 $395
MONTANA TUNNELS MINE:
Ounces of gold . . . . . . . . . . . . . . . . . . . . . . . 23,073 19,154
Average cost per ounce:(1)
Cash operating cost. . . . . . . . . . . . . . . . . . . . . $142 $192
Total cash cost. . . . . . . . . . . . . . . . . . . . . . . $168 $239
Total production cost. . . . . . . . . . . . . . . . . . . . $285 $405
DIAMOND HILL:
Ounces of gold . . . . . . . . . . . . . . . . . . . . . . . 4,906 714
Average cost per ounce:(1)
Cash operating cost. . . . . . . . . . . . . . . . . . . . . $68 $275
Total cash cost. . . . . . . . . . . . . . . . . . . . . . . $75 $275
Total production cost. . . . . . . . . . . . . . . . . . . . $124 $385
BEAL MOUNTAIN MINE:
Ounces of gold . . . . . . . . . . . . . . . . . . . . . . . --- 7,883
Average cost per ounce:(1)
Cash operating cost. . . . . . . . . . . . . . . . . . . . . --- $360
Total cash cost. . . . . . . . . . . . . . . . . . . . . . . --- $388
Total production cost. . . . . . . . . . . . . . . . . . . . --- $478
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
1998 1997
------ ------
<S> <C> <C>
BLACK PINE MINE:
Ounces of gold . . . . . . . . . . . . . . . . . . . . . . . 4,063 13,504
Average cost per ounce:(1)
Cash operating cost. . . . . . . . . . . . . . . . . . . . . $434 $263
Total cash cost. . . . . . . . . . . . . . . . . . . . . . . $475 $288
Total production cost. . . . . . . . . . . . . . . . . . . . $512 $303
MT. TODD MINE:
Ounces of gold . . . . . . . . . . . . . . . . . . . . . . . --- 6,100
Average cost per ounce:(1)
Cash operating cost. . . . . . . . . . . . . . . . . . . . . --- $429
Total cash cost. . . . . . . . . . . . . . . . . . . . . . . --- $429
Total production cost. . . . . . . . . . . . . . . . . . . . --- $531
CONSOLIDATED TOTALS
Ounces of gold . . . . . . . . . . . . . . . . . . . . . . . 65,632 87,486
Average cost per ounce:(1)
Cash operating cost. . . . . . . . . . . . . . . . . . . . . $224 $274
Total cash cost. . . . . . . . . . . . . . . . . . . . . . . $242 $297
Total production cost. . . . . . . . . . . . . . . . . . . . $325 $403
Average price per ounce sold . . . . . . . . . . . . . . . . $295 $460
</TABLE>
___________
(1) Effective January 1, 1997, the Company adopted the gold production cost
standard developed by the Gold Institute in order to facilitate comparisons
among companies in the gold industry. Cash production costs reported in
prior periods have been restated as cash operating costs and total cash
costs in accordance with the new standard. Cash operating costs calculated
under the new standard include all operating costs (including overhead) at
the mine sites, but exclude royalties, production taxes and reclamation and
are reported net of by-product credits. Total cash costs include royalties
and production taxes, but exclude reclamation. Total production costs
remain unchanged and include reclamation in addition to depreciation,
depletion and amortization.
REVENUES
GOLD: Revenue from the sale of gold decreased 52 percent to $19.3 million
during the first quarter of 1998 as a result of a 25 percent decline in gold
production and a 29 percent decrease in the realized price per ounce. Lower
production reflects the fact that the Company has shutdown operations at Mt.
Todd and Beal Mountain, and has production from residual leaching of ore at
Black Pine during the first quarter of 1998. Commercial production from those
sites was 27,487 ounces during 1997 compared to only 4,063 ounces thus far in
1998.
Average realized gold prices for the first three months of 1998 and 1997 were
$295 and $460 per ounce, respectively, compared to average first quarter COMEX
gold prices of $294 and $352, in 1998 and 1997, respectively. The decline in
the average realized gold prices per ounce during the quarter is the result of
the closeout of all of the Company's forward sales contracts during December
1997 and January 1998.
OTHER METALS: Sales of other metals decreased $0.8 million to $7.6 million in
the first quarter of 1998. Lower production of silver and lead at Montana
Tunnels, combined with decreased prices for zinc and lead, were only partially
offset by higher production of zinc and higher realized prices for silver.
Realized prices were $5.64 per ounce, $0.45 per pound, and $0.26 per pound for
silver, zinc, and lead, respectively, compared to $4.42, $0.54, and $0.30,
respectively, in the first quarter of 1997.
OPERATING COSTS
The average total cash cost of production decreased 19 percent to $242 per ounce
of gold in the first quarter of 1998 from $297 per ounce in the first quarter of
1997. Decreased cash costs reflect higher by-product credits per ounce, lower
royalties, and the shutdown of operations at Mt. Todd and Beal Mountain, which
were high-cost mines during 1997. Total cash costs per ounce at Florida Canyon
were unchanged from 1997. At Montana Tunnels, decreased cash costs resulted
from increased production, higher by-product credits per
11
<PAGE>
ounce, lower unit costs of production and lower royalties. At Diamond Hill,
1997 cash costs for the first quarter are the result of settlement
adjustments of previously shipped ore. No batches were run in the first
quarter of 1997. First quarter production and cash costs in 1998 are the
result of carryover ounces from 1997 credited to Diamond Hill after
completion of the blending with the Montana Tunnels ore in December 1997.
Higher total cash costs at Black Pine are attributable to the high cost of
residual leaching.
Depreciation and amortization charges decreased 22 percent to $83 per ounce in
1998, compared to $106 per ounce in 1997. The decrease reflects the property
write-downs recorded in the third and fourth quarters of 1997, which
significantly reduced the Company's property, plant, and equipment balances.
Exploration and evaluation expenses of $0.8 million in the first quarter of 1998
are 35 percent lower than during the same period in 1997 due to cutbacks in
program expenditures in South America and lower overall planned expenditures for
exploration.
Care and maintenance costs decreased to $0.2 million in the first quarter of
1998, compared to $1.9 million during the same period in 1997. The decrease in
expense reflects the fact that all of the remaining care and maintenance
expenses at Zortman were accrued during the fourth quarter of 1997. In 1997,
all site activities in the first quarter were classified as care and maintenance
pending the restart of residual production during the second quarter of 1997.
General and administrative expenses decreased 24 percent to $2.0 million in the
first quarter of 1998 primarily as a result of fewer employees, reduced outside
fees, decreased travel costs associated with the Company's foreign operations,
and an overall cost savings program undertaken at the corporate level.
Professional fees incurred as a result of the Filing are seperately classified
as reorganization items in the Consolidated Statement of Income and
Comprehensive Income.
OTHER INCOME (EXPENSE) AND TAXES
Interest income for the first quarter of 1998 has been classified as a
reorganization item. The interest was earned on cash balances accumulated due
to the deferral of payments to creditors as a result of the Filing. Cash and
cash equivalents in the first quarter of 1998 included proceeds from the
closeout of the Company's forward contracts in December 1997 and January 1998.
Interest expense increased $0.4 million to $0.8 million in the first quarter of
1998. In 1997, all interest associated with the Revolving Credit Facility (the
"Revolver") and the Convertible Subordinated Notes (the "Notes") was capitalized
against the construction of the Mt. Todd Project. Interest expense for the
first quarter of 1997 represents interest on capital lease obligations. In
1998, interest expense includes interest accrued on outstanding debt balances in
the pre-petition period from January 1 to January 15, 1998, as well as interest
on capital lease obligations. No interest has been accrued on the Revolver or
the Notes since the Filing. There was no interest capitalized in the first
quarter of 1998.
The Company recorded a charge of $3.5 million associated with the write-off of
remaining deferred debt issuance costs associated with the Notes and the
Revolver. This charge has been classified as a reorganization item.
Additionally, the Company has accrued fees for professional services related to
the bankruptcy process totaling $1.5 million in the first quarter of 1998.
Equity in net income of affiliates in 1997 is comprised of the Company's
proportionate share of earnings from the Emerging Markets Gold Fund, which was
liquidated and its assets distributed in the second quarter of 1997.
FINANCING, CAPITAL INVESTMENT, AND LIQUIDITY
At March 31, 1998, the Company had working capital of $65.1 million. Cash and
cash equivalents totaled $30.6 million at March 31, 1998, compared to $22.6
million at the end of 1997.
OPERATING ACTIVITIES
Cash flow used in operating activities was $0.5 million for the first quarter of
1998, compared to cash generated from operations of $12.2 million during the
same period in 1997. Decreased cash flow is the result of lower production and
lower realized gold prices, offset slightly by lower production costs, general
and administrative expenses, and exploration spending. Cash flow used in
operations before working capital
12
<PAGE>
changes was $2.9 million for the first quarter of 1998 compared to cash flow
generated from operations of $6.9 million for the same period in 1997.
INVESTING ACTIVITIES
During the quarter, the Company invested $0.6 million in property, plant and
equipment, compared to $22.7 million in 1997. 1997 expenditures included $10.6
million for expansion at Mt. Todd, $2.1 million at Florida Canyon, $1.6 million
at Pullalli, $1.4 million at Zortman, $3.1 million at the Company's other
operating mine sites and corporate office, and $3.9 million of capitalized
interest.
FINANCING ACTIVITIES
Cash flow provided by financing activities for the first quarter of 1998
includes the receipt of $35.7 million from the closeout of forward contracts, of
which $26.3 million was used to set off amounts owing under the Revolver.
During 1997, cash flows from financing activities included borrowings under the
Company's Revolver of $7.8 million and $0.7 million raised from the issuance of
common stock to the employee savings plan and through stock option exercises.
CONCLUSION
The Company believes that the $30.6 million in cash and cash equivalents on hand
will be adequate to meet its current liquidity and capital expenditure
requirements; however, cash flow generated by or used in operations is subject
to certain risks that could materially impact available cash. Until a plan of
reorganization is approved, the Company's long-term liquidity and the adequacy
of its capital resources cannot be determined.
YEAR 2000
The Company has not yet completed a review of its computer-based operations and
financial systems for the purpose of developing a plan that will ensure that all
of these systems will be Year 2000 compliant, nor has management determined what
the potential cost of compliance might be. The Company expects to begin
implementation of any necessary corrective measures in the fourth quarter of
1998.
SAFE HARBOR
Some of the statements contained in this report are forward-looking statements,
such as estimates and statements that describe the Company's future plans,
objectives or goals, including words to the effect that the Company or
management expects a stated condition or result to occur. Since forward-looking
statements address future events and conditions, by their very nature, they
involve inherent risks and uncertainties. Actual results in each case could
differ materially from those currently anticipated in such statements by reason
of factors such as production at the Company's mines, changes in operating
costs, changes in general economic conditions and conditions in the financial
markets, changes in demand and prices for the products the Company produces,
litigation, legislative, environmental and other judicial, regulatory, political
and competitive developments in areas in which the Company operates, and
technological and operational difficulties encountered in connection with mining
activities.
13
<PAGE>
PART II. OTHER INFORMATION
PEGASUS GOLD INC.
Items 1, 2, 3, 4, and 5 of Part II are omitted from this report as inapplicable.
Item 6. Exhibits and Report on Form 8-K
(a) Exhibits
11.0 Computation of Earnings Per Share
27.0 Financial Data Schedule
(b) Reports on Form 8-K:
January 9, 1998
Item 5 - News release announcing that the lenders under the
Company's Revolving Credit Facility have notified the Company
that the indebtedness thereunder has been accelerated and that
such lenders off-set amounts they owe the Company under various
hedging contracts.
January 30, 1998
Item 3 - News release announcing that the Company and certain of
its subsidiaries had filed voluntarily to reorganize under
Chapter 11 of the Bankruptcy Code.
Item 5 - News releases announcing the delisting of the Company's
Common Stock from the American Stock Exchange, notification of
the suspension of trading on the Toronto Stock Exchange, and the
reopening of trading of the Company's Common Stock on the
Montreal Exchange.
14
<PAGE>
PEGASUS GOLD INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PEGASUS GOLD INC.
(Registrant)
Date: August 11, 1998 By: /s/ Michelle G. Viau.
----------------------------
Michelle G. Viau
Vice President, Finance
Chief Financial Officer, and
Principal Accounting Officer
15
<PAGE>
EXHIBIT 11.0
<PAGE>
EXHIBIT 11.0
PEGASUS GOLD INC.
DEBTOR-IN-POSSESSION
COMPUTATION OF EARNINGS PER SHARE
(In Thousands, except for share amounts)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1998 1997
-------- --------
<S> <C> <C>
BASIC:
Earnings:
Net loss applicable to basic earnings
per share calculation . . . . . . . . . . . . . . . . . . . $(10,106) $(15)
-------- -------
-------- -------
Weighted average number of shares outstanding, as adjusted. . . 41,834 41,157
-------- -------
-------- -------
Net loss per share - basic. . . . . . . . . . . . . . . . . . . $(0.24) $(0.00)
-------- -------
-------- -------
DILUTED:
Earnings:
Net loss applicable to basic and diulted earnings per share
calculation . . . . . . . . . . . . . . . . . . . . . . . . . $(10,106) $(15)
Weighted average number of shares outstanding:
Common shares and equivalents . . . . . . . . . . . . . . . . 41,834 41,140
Additional shares outstanding assuming exercise
of stock options reduced by the number of shares
which could have been purchased with the proceeds
from the exercise of such options . . . . . . . . . . . . . --- 32
Additional average shares outstanding
assuming conversion of 6.25% convertible
subordinated notes (b). . . . . . . . . . . . . . . . . . . --- 7,709
-------- -------
Weighted average number of shares outstanding, as adjusted. . . 41,834 48,881
-------- -------
-------- -------
Net loss per share - diluted (a). . . . . . . . . . . . . . . . $(0.24) $0.00
-------- -------
-------- -------
</TABLE>
(a) This calculation is submitted in accordance with Regulation S-K item
601(b)(11) although it is contrary to paragraph 40 of APB Opinion No. 15
because it produces an anti-dilutive result.
(b) The convertible subordinated notes included in the diluted earnings per
share calculation for 1997 have been excluded for 1998 as a result of the
Company's Chapter 11 bankruptcy filing. The Plans of Reorganization filed
with the Bankruptcy Court will not result in any distribution to the
convertible subordinated note holders.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ART. 5 FOR
1ST QUARTER 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 30,613
<SECURITIES> 0
<RECEIVABLES> 19,202
<ALLOWANCES> 0
<INVENTORY> 26,864
<CURRENT-ASSETS> 82,090
<PP&E> 80,847
<DEPRECIATION> 0
<TOTAL-ASSETS> 168,785
<CURRENT-LIABILITIES> 17,029
<BONDS> 0
0
0
<COMMON> 428,815
<OTHER-SE> (594,664)
<TOTAL-LIABILITY-AND-EQUITY> 168,785
<SALES> 26,927
<TOTAL-REVENUES> 26,927
<CGS> 23,490
<TOTAL-COSTS> 28,941
<OTHER-EXPENSES> 927
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 823
<INCOME-PRETAX> (10,107)
<INCOME-TAX> (1)
<INCOME-CONTINUING> (10,106)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,106)
<EPS-PRIMARY> (0.24)
<EPS-DILUTED> (0.24)
</TABLE>
