<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
November 10, 1997
Newmont Gold Company
Delaware 1-1153 13-2526632
(State or other (Commission File (IRS Employer
jurisdiction of Number) Identification No.)
incorporation)
1700 Lincoln Street, Denver CO 80203
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(303) 863-7414
<PAGE> 2
ITEM 5. OTHER EVENTS
Newmont Gold Company ("Newmont Gold") is filing as Exhibits herewith a
copy of its restated consolidated financial statements for the years ended
December 31, 1996, 1995 and 1994, together with the report thereon of Arthur
Andersen LLP, independent auditors, to give effect to the merger between Newmont
Mining Corporation and Santa Fe Pacific Gold Corporation which occurred on May
5, 1997.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) None.
(b) None.
(c) Exhibits
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Price Waterhouse LLP.
99.1 Newmont Gold's consolidated financial statements for the year
ended December 31, 1996, 1995 and 1994, together with the report thereon of
Arthur Andersen LLP, independent auditors.
<PAGE> 3
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Newmont Gold Company
/s/TIMOTHY J. SCHMITT
-----------------------------
Timothy J. Schmitt
Vice President, Secretary
and Assistant General Counsel
Date: November 10, 1997
<PAGE> 4
EXHIBIT INDEX
Exhibit 23.1 Consent of Arthur Andersen LLP.
Exhibit 23.2 Consent of Price Waterhouse LLP.
Exhibit 99.1 Newmont Gold's consolidated financial statements for the year
ended December 31, 1996, 1995 and 1994, together with the report
thereon of Arthur Anderson LLP, independent auditors.
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our report included in this on Form 8-K, into Newmont Gold
Company's previously filed S-8 Registration Statement No.333-26591, S-8
Registration Statement No. 333-10765, S-3 Registration Statement No. 33-
54245 and S-8 Registration Statement No. 33-62471.
/s/ ARTHUR ANDERSEN LLP
------------------------------
ARTHUR ANDERSEN LLP
Denver, Colorado
November 10, 1997.
<PAGE> 1
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-3 (No. 33-54245)and Form S-8 (Nos. 333- 2659; 333-10765 and
33-62471) of Newmont Gold Company of our report dated February 1, 1997
pertaining to the consolidated financial statements of Santa Fe Pacific Gold
Corporation and Subsidiaries appearing in Newmont Gold Company's Current Report
on Form 8-K. It should be noted, however, that such financial statements are not
included in such Form 8-K.
/s/ PRICE WATERHOUSE LLP
------------------------------
PRICE WATERHOUSE LLP
Phoenix, Arizona
November 10, 1997
<PAGE> 1
Exhibit 99.1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Newmont Gold Company:
We have audited the accompanying consolidated balance sheets of Newmont
Gold Company (a Delaware corporation) and subsidiaries as of December 31, 1996
and 1995, and the related statements of consolidated income, changes in
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits. We did not audit the financial
statements of Santa Fe Pacific Gold Corporation, a company merged into the
Company during 1997 in a transaction accounted for as a pooling of interests, as
discussed in Note 1. Such statements are included in the consolidated financial
statements of Newmont Gold Company and reflect total assets and total revenues
of 37 percent and 30 percent in 1996, and 35 percent and 31 percent in 1995,
respectively, and total revenues of 38 percent in 1994 of the related
consolidated totals, after restatement to reflect certain adjustments as set
forth in Note 1. The financial statements of Santa Fe Pacific Gold Corporation
prior to those adjustments were audited by other auditors whose report has been
furnished to us and our opinion, insofar as it relates to the amounts included
for Santa Fe Pacific Gold Corporation, is based solely on the report of the
other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audits and the report of other auditors,
the financial statements referred to above present fairly, in all material
respects, the financial position of Newmont Gold Company and subsidiaries as of
December 31, 1996 and 1995, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1996 in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Denver, Colorado,
September 30, 1997.
<PAGE> 2
To the Board of Directors and Shareholders
of Santa Fe Pacific Gold Corporation
In our opinion, the consolidated balance sheet and the related
consolidated statements of operations, of cash flows and of shareholders' equity
of Santa Fe Pacific Gold Corporation (not presented separately herein) present
fairly, in all material respects, the financial position of Santa Fe Pacific
Gold Corporation and its subsidiaries at December 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1996, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audit. We conducted our audit of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Phoenix, Arizona
February 1, 1997
<PAGE> 3
NEWMONT GOLD COMPANY AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
(In thousands, except per share)
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <S> <S> <S>
Sales and other income
Sales $ 1,105,666 $ 981,640 $ 967,545
Dividends, interest and other 29,460 46,394 25,186
Gain on disposition of
investment -- 113,188 --
----------- ----------- -----------
1,135,126 1,141,222 992,731
----------- ----------- -----------
Costs and expenses
Costs applicable to sales 652,305 533,631 491,501
Depreciation, depletion and
amortization 204,081 186,785 174,360
Exploration and research 87,914 87,993 97,738
General and administrative 65,671 62,861 59,231
Interest, net of amounts
capitalized 58,619 47,099 18,588
Write-off of exploration properties -- 52,537 --
Other 22,521 11,681 42,655
----------- ----------- -----------
1,091,111 982,587 884,073
----------- ----------- -----------
Income before equity income and
income taxes 44,015 158,635 108,658
Equity in income of affiliated
companies 45,221 28,895 15,395
----------- ----------- -----------
Pre-tax income 89,236 187,530 124,053
Income tax benefit (provision) 15,949 (29,982) 11,685
----------- ----------- -----------
Net income 105,185 157,548 135,738
Preferred stock dividends -- 11,157 15,813
----------- ----------- -----------
Net income applicable to common
shares $ 105,185 $ 146,391 $ 119,925
=========== =========== ===========
Net income per common share $ 0.63 $ 0.95 $ 0.80
=========== =========== ===========
Average shares outstanding 166,296 153,878 149,219
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
1
<PAGE> 4
NEWMONT GOLD COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share)
<TABLE>
<CAPTION>
At December 31,
-----------------------------
1996 1995
----------- -----------
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 227,053 $ 94,994
Short-term investments 12,724 11,820
Accounts receivable 29,663 25,297
Inventories 279,315 245,930
Other current assets 52,233 33,250
----------- -----------
Current assets 600,988 411,291
Property, plant and mine development, net 2,391,872 2,114,589
Other long-term assets 289,270 184,127
----------- -----------
Total assets $ 3,282,130 $ 2,710,007
=========== ===========
LIABILITIES
Short-term debt $ 45,981 $ 29,179
Current portion of long-term debt 19,250 4,375
Accounts payable 72,135 65,127
Other accrued liabilities 140,893 148,765
----------- -----------
Current liabilities 278,259 247,446
Long-term debt 1,039,875 804,120
Reclamation and remediation liabilities 71,702 73,495
Other long-term liabilities 225,333 230,201
----------- -----------
Total liabilities 1,615,169 1,355,262
----------- -----------
Commitments and contingencies (Note 18)
STOCKHOLDERS' EQUITY
Common stock - $0.01 par value; 306.5 million shares
authorized; 166.7 million and 161.4
million shares issued, respectively 1,667 1,614
Capital in excess of par value 753,635 487,607
Retained earnings 913,927 867,887
Treasury stock, at cost, 257 thousand and
268 thousand shares, respectively (2,268) (2,363)
----------- -----------
Total stockholders' equity 1,666,961 1,354,745
----------- -----------
Total liabilities and
stockholders' equity $ 3,282,130 $ 2,710,007
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
2
<PAGE> 5
NEWMONT GOLD COMPANY AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CHANGES
IN STOCKHOLDERS' EQUITY
(In thousands, except per share)
<TABLE>
<CAPTION>
Preferred Stock Common Stock Capital in Treasury Stock
----------------------- ---------------------- Excess of Retained at Cost
Shares Amount Shares Amount Par Value Earnings Shares Amount
--------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993 -- -- 153,121 $ 1,531 $ 283,525 $ 853,343 -- $ --
Transaction with parent
(Note 4) 2,875 $ 14,375 -- -- -- (140,944) 8,650 (76,206)
Issuance of common stock -- -- 8,256 83 250,448 -- -- --
Common stock from treasury
issued primarily for
stock options exercised -- -- -- -- 6,638 -- (236) 2,080
Net income -- -- -- -- -- 135,738 -- --
Common stock dividends -- -- -- -- -- (59,741) -- --
Preferred stock dividends
$5.50 per share -- -- -- -- -- (15,813) -- --
Other -- -- -- -- (663) 1,958 -- --
--------- --------- --------- --------- --------- --------- --------- ---------
Balance at December 31, 1994 2,875 14,375 161,377 1,614 539,948 774,541 8,414 (74,126)
Stock options exercised -- -- -- -- 6,949 -- (247) 2,173
Preferred stock redemption
and conversion, net of
costs (2,875) (14,375) -- -- (59,766) -- (7,899) 69,590
Net income -- -- -- -- -- 157,548 -- --
Common stock dividends -- -- -- -- -- (53,376) -- --
Preferred stock dividends
$3.88 per share -- -- -- -- -- (11,157) -- --
Other -- -- -- -- 476 331 -- --
--------- --------- --------- --------- --------- --------- --------- ---------
Balance at December 31, 1995 -- -- 161,377 1,614 487,607 867,887 268 (2,363)
Common stock issuance -- -- 4,651 47 241,209 -- -- --
Stock options exercised -- -- 666 6 24,920 -- (13) 112
Net income -- -- -- -- -- 105,185 -- --
Common stock dividends -- -- -- -- -- (59,300) -- --
Other -- -- -- -- (101) 155 2 (17)
--------- --------- --------- --------- --------- --------- --------- ---------
Balance at December 31, 1996 -- $ -- 166,694 $ 1,667 $ 753,635 $ 913,927 257 $ (2,268)
========= ========= ========= ========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE> 6
NEWMONT GOLD COMPANY AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Operating Activities
Net income $ 105,185 $ 157,548 $ 135,738
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, depletion and amortization 204,081 186,785 174,360
Undistributed earnings of affiliates (13,134) (3,603) (14,553)
Deferred tax benefit (16,607) (12,893) (34,509)
Gain on sale of investments -- (113,188) --
Write-off of exploration properties -- 52,591 --
Other (1,640) 8,359 (16,898)
(Increase) decrease in operating assets:
Accounts receivable (4,245) 14,643 15,689
Inventories (63,233) (70,965) (26,958)
Other assets (13,125) 5,114 3,416
Increase (decrease) in operating liabilities:
Accounts payable and accrued expenses 11,891 58,786 28,188
Other liabilities 3,430 (14,696) (3,377)
--------- --------- ---------
Net cash provided by operating activities 212,603 268,481 261,096
--------- --------- ---------
Investing Activities
Additions to property, plant and mine
development (547,757) (520,913) (493,760)
Proceeds from sale of investment -- 119,799 --
Net cash acquired from parent -- -- 69,361
Advances to joint venture (3,684) (30,543) (14,675)
Other (2,335) (8,344) 16,503
--------- --------- ---------
Net cash used in investing activities (553,776) (440,001) (422,571)
--------- --------- ---------
Financing Activities
Short-term debt 16,802 13,440 --
Proceeds from long-term debt 255,000 254,856 533,634
Repayments of long-term debt (4,375) (130,000) (242,000)
Repayment of gold loans -- -- (138,595)
Proceeds from issuance of common stock 265,449 8,034 259,249
Dividends paid on common stock (59,300) (53,376) (46,225)
Dividends paid on preferred stock -- (11,860) (15,110)
Dividends paid to Santa Fe Pacific Corp. -- -- (13,516)
Preferred stock redemption and conversion costs -- (4,442) --
Other (344) (4,934) (7,615)
--------- --------- ---------
Net cash provided by financing
activities 473,232 71,718 329,822
--------- --------- ---------
Net increase (decrease) in cash and cash
equivalents 132,059 (99,802) 168,347
Cash and cash equivalents at beginning of year 94,994 194,796 26,449
--------- --------- ---------
Cash and cash equivalents at end of year $ 227,053 $ 94,994 $ 194,796
========= ========= =========
</TABLE>
See Note 16 for supplemental cash flow information.
The accompanying notes are an integral part of these statements.
4
<PAGE> 7
NEWMONT GOLD COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) THE COMPANY
Newmont Gold Company and its more-than-50% owned subsidiaries
(collectively, "NGC" or the Company) is a worldwide company engaged in gold
production, exploration for gold and acquisition of gold properties. Newmont
Mining Corporation ("NMC") owns approximately 93.75% of the common stock of
"NGC". Substantially all of the Company's consolidated sales and operating
profit in 1995 and 1994 related to its gold mining activities in the United
States. In 1996, the Company's consolidated sales resulted from operations in
the United States, Uzbekistan and Indonesia. The Company also has an equity
interest in a mining operation in Peru and conducts exploration for gold
deposits worldwide. See Note 3 regarding the acquisition of an additional
interest in the Peruvian operation in 1997.
Gold mining requires the use of specialized facilities and technology.
The Company relies heavily on such facilities to maintain its production levels.
Also, the profitability of the Company's current operations is significantly
affected by the market price of gold. Market gold prices can fluctuate widely
and are affected by numerous factors beyond the Company's control.
On May 5, 1997, NMC completed a merger with Santa Fe Pacific Gold
Corporation ("Santa Fe") under which each outstanding share of Santa Fe common
stock was exchanged for 0.43 of a share of NMC common stock. Santa Fe is engaged
in gold production in the United States and exploration for gold deposits
worldwide. The outstanding shares of common stock of Santa Fe were converted
into approximately 56.5 million shares of NMC common stock. NMC also reserved
approximately 566,000 shares of its common stock for issuance in connection with
outstanding Santa Fe stock options that were assumed by NMC in the merger. The
merger qualified as a tax-free reorganization and was accounted for as a pooling
of interests. In conjunction with the merger, NGC issued shares of common stock
to NMC equal to the number of shares of NMC common stock issued in the merger in
exchange for all of the outstanding shares of Santa Fe. As a result, Santa Fe
became a wholly-owned subsidiary of NGC. In addition, NGC issued options to NMC
to acquire additional shares of NGC common stock having the same terms as the
Santa Fe stock options assumed by NMC in the merger. NGC's consolidated
financial statements have been restated for periods prior to the merger to
include the operations of Santa Fe, adjusted to conform with NGC's accounting
policies and presentations.
1
<PAGE> 8
The following table provides a reconciliation of sales and net income
reported by NGC to the combined amounts presented (in thousands).
<TABLE>
<CAPTION>
For the Years Ended December 31,
---------------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Sales
Pre-Merger
NGC $ 768,455 $ 636,219 $ 597,370
Santa Fe 337,211 345,421 370,175
Merger adjustments -- -- --
----------- ----------- -----------
Total $ 1,105,666 $ 981,640 $ 967,545
=========== =========== ===========
Net income applicable to common shares
Pre-Merger
NGC $ 93,972 $ 113,715 $ 67,581
Santa Fe 21,068 39,812 56,701
Merger Adjustments (9,855) (7,136) (4,357)
----------- ----------- -----------
Total $ 105,185 $ 146,391 $ 119,925
=========== =========== ===========
</TABLE>
Merger adjustments reflect conforming accounting policy changes
primarily related to the accounting treatment for deferred mining costs. Santa
Fe included certain depreciation, depletion and amortization charges in deferred
mining costs. To the extent Santa Fe capitalized such charges as deferred mining
costs or as inventory, restatement adjustments have been made to reflect these
charges against earnings in the appropriate period. In addition, ore and
in-process inventories were not maintained on the same basis as NGC, which
resulted in certain balance sheet reclassifications.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Newmont
Gold Company and its more-than-50% owned subsidiaries. The Company also includes
its pro-rata share of assets, liabilities and operations for unincorporated
joint ventures in which it has an interest. All significant intercompany
balances and transactions have been eliminated. At December 31, 1996, NMC owned
approximately 93.75% of the Company. The functional currency for all
subsidiaries is the U. S. dollar.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of all cash balances and highly
liquid investments with an original maturity of three months or less. Because of
the short maturity of these investments, the carrying amounts approximate their
fair value. Cash and cash equivalents are primarily invested in United States
Treasury bills, with lesser amounts invested in high-quality commercial paper
and time deposits.
2
<PAGE> 9
INVESTMENTS
Short-term investments are carried at cost, which approximates market,
and include Eurodollar government and corporate obligations rated AA or higher.
At December 31, 1996 and 1995, $8.7 million and $7.9 million, respectively, of
such investments secured letters of credit.
Investments in companies in which NGC's ownership is 20% to 50% are
accounted for by the equity method of accounting and are included in Other
long-term assets. Income from such investments is included in Equity in income
of affiliated companies. Included in such investments is NGC's 38% equity
investment in Minera Yanacocha S. A. ("Minera Yanacocha") See Note 3.
As a result of the ownership structure discussed in Note 18, the Batu
Hijau project in Indonesia is accounted for as an equity investment effective
July 1996. NGC's investment at December 31, 1996 was $46.6 million.
INVENTORIES
Ore and in-process inventories and materials and supplies are stated at
the lower of average cost or net realizable value. Precious metals are stated at
market value.
Non-current inventories are stated at the lower of average cost or net
realizable value and represent ore-in-stockpiles from which no material is
expected to be processed for more than one year after the balance sheet date.
PROPERTY, PLANT AND MINE DEVELOPMENT
Expenditures for new facilities or expenditures which extend the useful
lives of existing facilities are capitalized and depreciated using the
straight-line method at rates sufficient to depreciate such costs over the
estimated productive lives of such facilities. Productive lives range from 2 to
21 years.
Mineral exploration costs are expensed as incurred. When it has been
determined that a mineral property can be economically developed, the costs
incurred to develop such property, including costs to further delineate the ore
body and remove overburden to initially expose the ore body, are capitalized.
Such costs, and estimated future development costs, are amortized using a
unit-of-production method over the estimated life of the ore body. On-going
development expenditures to maintain production are generally charged to
operations as incurred.
Significant payments related to the acquisition of exploration
interests are capitalized. If a mineable ore body is discovered, such costs are
amortized using a unit-of-production method. If no mineable ore body is
discovered, such costs are expensed in the period in which it is determined the
property has no future economic value.
Interest expense allocable to the cost of developing mining properties
and to constructing new facilities is capitalized until operations commence.
3
<PAGE> 10
Gains or losses from normal sales or retirements of assets are included
in other income or expense.
REVENUE RECOGNITION
Gold sales are recognized when gold is produced.
MINING COSTS
In general, mining costs are charged to operations as incurred.
However, certain of the Company's deposits have diverse grade and waste-to-ore
ratios over the mine's life. Mining costs for these deposits, to the extent they
do not relate to current gold production, are capitalized and then charged to
operations when the applicable gold is produced.
RECLAMATION AND REMEDIATION COSTS
Estimated future reclamation and remediation costs are based
principally on legal and regulatory requirements. Such costs related to active
mines are accrued and charged over the expected operating lives of the mines
using a unit-of-production method. Future reclamation and remediation costs for
inactive mines are accrued based on management's best estimate at the end of
each period of the undiscounted costs expected to be incurred at a site. Such
cost estimates include where applicable, ongoing care, maintenance and
monitoring costs. Changes in estimates are reflected in earnings in the period
an estimate is revised.
INCOME TAXES
The Company accounts for income taxes using Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). Under
the liability method of SFAS 109, the Company recognizes certain temporary
differences between the financial reporting basis of the Company's liabilities
and assets and the related income tax basis for such liabilities and assets.
This generates a net deferred income tax liability or net deferred income tax
asset for the Company as of the end of the year, as measured by the statutory
tax rates in effect as enacted. The Company derives its deferred income tax
charge or benefit by recording the change in the net deferred income tax
liability or net deferred income tax asset balance for the year.
The Company's deferred income tax assets include certain future tax
benefits such as net operating losses or tax credit carryforwards. The Company
must record a valuation allowance against any portion of those deferred income
tax assets which it believes it will more likely than not fail to realize.
COMMODITY INSTRUMENTS
The Company has entered into gold loans and forward sales contracts to
protect the selling price for certain anticipated gold production. The
4
<PAGE> 11
Company does not acquire, hold or issue commodity instruments for trading or
speculative purposes.
Proceeds from the sale of borrowed gold are recorded as gold loans at
the average price realized. As gold is delivered from production in repayment of
the borrowed gold, gold sales revenue is recognized at the average price
realized and the gold loan balance is reduced. If gold borrowings are repaid in
advance of the original repayment schedule, the resulting gain or loss is
deferred and recognized in gold sales revenue over the original repayment
schedule.
Forward sales contracts enable the Company to deliver a specified
number of ounces of gold to a counterparty at a specified price and date. Under
normal circumstances, counterparties under spot deferred contracts allow the
Company to defer delivery of gold to a later date, if necessary, at the original
contract price plus the prevailing interest-like premium. Gains and losses
realized on such instruments, as well as any cost or revenue associated
therewith, are recognized in sales when the related gold is produced.
EARNINGS PER COMMON SHARE
In March 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128 "Earnings per Share ("SFAS
128"), which specifies the computation, presentation and disclosure requirements
for earnings per share. SFAS 128 is effective for periods ending after December
15, 1997 and requires retroactive restatement of prior period earnings per
share. The statement replaces the "primary earnings per share" calculation with
a "basic earnings per share" and redefines the "dilutive earnings per share"
computation. Adoption of the statement is not expected to have any effect on the
Company's reported income per common share. The treasury stock method is used in
computing earnings per common and common equivalent share. Earnings per common
and common equivalent share are based on the sum of the weighted average number
of common shares outstanding during each period and the assumed exercise of
stock options having exercise prices less than the average market prices of the
common stock. The convertible preferred shares outstanding until conversion, as
discussed in Note 10, were not common stock equivalents as they were
anti-dilutive.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions. These estimates and assumptions affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements, as well as the reported amounts of
revenues and expenses during the reporting period. Actual amounts could differ
from those estimates.
5
<PAGE> 12
RECLASSIFICATIONS
Certain amounts in prior years have been reclassified to conform to the
1996 presentation.
(3) ADDITIONAL INTEREST IN MINERA YANACOCHA
The Company has an equity interest in Minera Yanacocha, a gold mining
operation located in Peru, that went into production in 1993.
Summarized financial information for Minera Yanacocha follows (in
millions):
<TABLE>
<CAPTION>
For the Years Ended December 31,
-----------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Sales $ 313.9 $ 212.5 $ 116.6
Costs applicable to sales and
depreciation, depletion and
amortization $ 113.8 $ 82.4 $ 48.5
Exploration $ 17.5 $ 11.4 $ 4.1
Other $ 3.1 $ 3.3 $ 4.8
Net income, before Peruvian taxes $ 179.5 $ 115.4 $ 59.2
Peruvian taxes $ 54.8 $ 34.6 $ 18.0
Net income $ 124.7 $ 80.8 $ 41.2
Dividends applicable to
NGC's 38% interest $ 29.6 $ 23.2 $ --
At December 31,
--------------------------
1996 1995
----------- -----------
Current assets $ 85.2 $ 71.7
Noncurrent assets 108.2 88.1
----------- -----------
Total assets $ 193.4 $ 159.8
=========== ===========
Current liabilities $ 44.3 $ 50.0
Noncurrent liabilities 40.9 48.3
----------- -----------
Total liabilities $ 85.2 $ 98.3
=========== ===========
Total equity $ 108.2 $ 61.5
=========== ===========
</TABLE>
In November 1993, the French government announced its intention to
privatize the mining assets of Bureau de Recherches Geologiques et Minieres, the
geological and mining bureau of the French government ("BRGM"), and in September
1994, BRGM announced its intention to transfer its 24.7% interest in Minera
Yanacocha to another entity. The Company and Compania de Minas Buenaventura,
S.A. ("Buenaventura"), then 38.0% and 32.3% owners of Minera Yanacocha,
respectively, filed suit in Peru to seek enforcement of a provision in the
bylaws of Minera Yanacocha, giving shareholders preemptive
6
<PAGE> 13
rights on the proposed sale or transfer of any shareholder's interest. In
February 1995, an appellate court in Peru issued a preliminary ruling in favor
of NGC and Buenaventura, both of whom elected to exercise their preemptive
rights to acquire their proportionate share of the 24.7% interest. In accordance
with the court ruling, Minera Yanacocha canceled the BRGM shares and issued
shares representing interests in Minera Yanacocha of 13.35% to NGC and 11.35% to
Buenaventura. The Company deposited $59.1 million for its additional interest,
together with the additional shares, with a Peruvian bank pending the final
resolution of the case. The Company borrowed the $59.1 million from the same
Peruvian bank with the right of set off against the deposit, and accordingly,
these amounts have been netted in the accompanying balance sheet. Through
December 31, 1996, the Company had received $18.6 million of dividends on the
additional shares. In September 1996, a court ruling provided that NGC and
Buenaventura have the right to acquire the 24.7% interest for a purchase price
of $109.3 million, $59.1 million attributable to the 13.35% interest of the
Company. As established by such ruling, the preemptive rights were triggered in
November 1993 and thus the valuation of the shares held in escrow were
calculated as of such date. BRGM and other defendants filed an appeal to the
Superior Court of Lima challenging the court's determination that the preemptive
rights were triggered and the date and amount of the valuation.
In February 1997, the Superior Court upheld the decision of the trial
court. Therefore, beginning in 1997, the Company will consolidate Minera
Yanacocha in its financial statements and will reflect the increase in its
ownership from 38% to 51.35% as of February 1997. BRGM and other defendants have
filed a request for review by the Supreme Court of the resolution of the
Superior Court of Peru. The Company has been advised that the Peruvian Supreme
Court has admitted the petition filed by BRGM. While the Company is unable to
predict the timing or the outcome of the review by the Supreme Court, management
believes that it is not probable that the Superior Court's decision will be
reversed.
The following pro forma income statement assumes the acquisition of the
additional interest occurred on January 1, 1996 and the pro forma balance sheet
assumes the acquisition occurred on December 31, 1996. The pro forma financial
statements are presented for illustrative purposes only and are not necessarily
indicative of the combined financial position or results of operations which
would have been realized had the acquisition of the additional interest been
considered to occur as of the dates for which the pro forma financial statements
are presented. The pro forma financial statements also are not necessarily
indicative of the combined position or results of operations in the future.
7
<PAGE> 14
NEWMONT GOLD COMPANY AND MINERA YANACOCHA
PRO FORMA CONSOLIDATED INCOME STATEMENT - UNAUDITED
(In thousands, except per share)
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
Newmont Minera Pro Forma Pro Forma
Gold* Yanacocha Adjustments Consolidated
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Sales and other income
Sales $ 1,105,666 $ 313,870 $ 1,419,536
Dividends, interest and
other 29,460 2,336 31,796
----------- ----------- ----------- -----------
1,135,126 316,206 1,451,332
----------- ----------- ----------- -----------
Costs and expenses
Costs applicable to sales 652,305 89,206 $ (2,172) (A)
(1,624) (B) 737,715
Depreciation, depletion
and amortization 204,081 24,595 12,289 (C) 240,965
Exploration and research 87,914 17,482 105,396
General and administrative 65,671 -- 1,624 (B)
(617) (D) 66,678
Interest, net 58,619 5,447 64,066
Other 22,521 -- 22,521
----------- ----------- ----------- -----------
1,091,111 136,730 9,500 1,237,341
Equity in income of affiliated
companies 45,221 -- (47,381) (E)
(617) (D)
(2,172) (A) (4,949)
----------- ----------- ----------- -----------
Pretax income 89,236 179,476 (59,670) 209,042
Income tax (provision) benefit 15,949 (54,784) (599) (F) (39,434)
Minority interest in income of
subsidiaries -- -- (60,663) (G) (60,663)
----------- ----------- ----------- -----------
Net income $ 105,185 $ 124,692 $ (120,932) $ 108,945
=========== =========== =========== ===========
Income per common share $ 0.63 $ 0.66
=========== ===========
Weighted average number of
shares of common stock
and common stock equivalents
outstanding 166,296 166,296
=========== ===========
</TABLE>
* Reflects the pooling of interests described in Note 1.
(A) To eliminate
royalties paid by Minera Yanacocha to a subsidiary of NGC.
(B) To eliminate
management fees paid by Minera Yanacocha to a subsidiary of NGC.
(C) Estimated additional amortization of excess purchase price over net assets
acquired.
(D) Reclassification of NGC's share (38%) of management fees charged to Minera
Yanacocha.
(E) Elimination of equity income recognized for Minera Yanacocha to
reflect consolidation.
(F) Additional taxes related to incremental earnings from additional interest
in Minera Yanacocha.
(G) Minority interest (48.65%) in income of Minera Yanacocha.
8
<PAGE> 15
NEWMONT GOLD COMPANY AND MINERA YANACOCHA
PRO FORMA CONSOLIDATED BALANCE SHEET - UNAUDITED
(In thousands, except per share)
DECEMBER 31, 1996
<TABLE>
<CAPTION>
Newmont Minera Pro Forma Pro Forma
Gold* Yanacocha Adjustments Consolidated
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Assets
Cash and cash equivalents $ 227,053 $ 40,705 $ 267,758
Inventories 279,315 15,661 294,976
Other 94,620 28,848 123,468
----------- ----------- ----------- -----------
Current assets 600,988 85,214 686,202
Property, plant and mine
development, net 2,391,872 106,308 $ 53,368 (A)
(14,445) (B) 2,537,103
Other long-term assets 289,270 1,887 (41,115) (C)
(2,843) (A) 247,199
----------- ----------- ----------- -----------
Total assets $ 3,282,130 $ 193,409 $ (5,035) $ 3,470,504
=========== =========== =========== ===========
Liabilities
Short-term debt and current
portion of long-term debt $ 65,231 $ 14,256 $ 79,487
Other current liabilities 213,028 31,190 $ 50,525 (A) 294,743
----------- ----------- ----------- -----------
Current liabilities 278,259 45,446 50,525 374,230
Long-term debt 1,039,875 24,244 1,064,119
Other long-term liabilities 297,035 15,520 312,555
----------- ----------- ----------- -----------
Total liabilities 1,615,169 85,210 50,525 1,750,904
----------- ----------- ----------- -----------
Minority interest in subsidiaries -- -- 52,639 (D) 52,639
----------- ----------- ----------- -----------
Stockholders' equity 1,666,961 108,199 (14,445)(B)
(41,115)(C)
(52,639)(D) 1,666,961
Total liabilities and ----------- ----------- ----------- -----------
stockholders' equity $ 3,282,130 $ 193,409 $ (5,035) $ 3,470,504
=========== =========== =========== ===========
</TABLE>
* Reflects the pooling of interests described in Note 1.
(A) Represents adjusted net purchase price for additional interest acquired and
associated net liabilities owed.
(B) Eliminate net book value of 13.35% acquired interest.
(C) Elimination of the Company's investment in Minera Yanacocha to reflect
consolidation.
(D) To reflect minority interest in Minera Yanacocha.
9
<PAGE> 16
(4) ACQUISITION OF NMC'S OPERATIONS
Effective January 1, 1994, NGC acquired essentially all of the operations
of NMC. This transaction included the following: (I) the transfer by NMC to NGC
of 8,649,899 shares of the 94,500,000 shares of common stock of NGC then held by
NMC; (ii) the transfer by NMC of all of its other assets to NGC; (iii) the
assumption by NGC of all the liabilities (contingent or otherwise) of NMC
(including NGC's, $159.6 million of advances to NMC as of December 31, 1993),
but not NMC's obligations with respect to its then $5.50 convertible preferred
stock (the "NMC preferred stock") (except for accrued and unpaid dividends as of
December 31, 1993) and its employee stock options exercisable for NMC's common
stock; (iv) the issuance by NGC to NMC of 2,875,000 shares of $5.50 convertible
preferred stock with a par value of $5.00 per share, and having terms identical
to the NMC preferred stock (except that upon conversion, NMC was entitled to
receive shares of NGC's common stock instead of NMC's common stock); and (v) the
issuance by NGC to NMC of stock options exercisable for shares of NGC's common
stock having terms identical to NMC's employee stock options (except upon
exercise, NGC's common stock is issued instead of NMC's common stock).
NGC accounted for the transaction as a transfer of assets and liabilities
between entities under common control. As a result, the transferred assets and
liabilities were recorded by NGC at NMC's historical cost with the difference
charged to retained earnings. The 8,649,899 shares of common stock of NGC
transferred by NMC to NGC were recorded as treasury stock at the book value of
those shares on December 31, 1993. NGC's convertible preferred stock was
recorded at its par value.
The terms of the transaction intended that the preferred stock and stock
options issued by NGC to NMC be exercised to the extent NMC preferred stock and
outstanding NMC stock options are exercised and NGC grants to NMC additional
stock options to the extent additional stock options are granted by NMC. As a
result of the transaction and giving effect to the subsequent conversion of
preferred stock and issuance of common stock (see Note 10), stock option
exercises by NMC and additional stock options grants by NGC, NMC's only assets
at December 31, 1996, are (i) 156.0 million shares of common stock of NGC which
approximates 93.75% of NGC's common stock outstanding and (ii) stock options to
purchase 3.1 million shares of NGC.
(5) INVENTORIES
<TABLE>
<CAPTION>
At December 31,
----------------------
1996 1995
-------- --------
(In thousands)
<S> <C> <C>
Current:
Ore and in-process inventories $161,806 $149,168
Precious metals 35,259 34,308
Materials and supplies 80,544 60,496
Other 1,706 1,958
-------- --------
$279,315 $245,930
======== ========
Non-current:
Ore-in-stockpiles (included in
other long-term assets) $ 85,652 $ 53,167
======== ========
</TABLE>
10
<PAGE> 17
(6) PROPERTY, PLANT AND MINE DEVELOPMENT
<TABLE>
<CAPTION>
At December 31,
-----------------------------
1996 1995
----------- -----------
(In thousands)
<S> <C> <C>
Land and mining claims $ 360,845 $ 346,747
Buildings and equipment 1,974,872 1,847,054
Mine development 433,477 397,441
Construction-in-progress 327,970 238,524
----------- -----------
3,097,164 2,829,766
Accumulated depreciation,
depletion and amortization (1,063,695) (942,797)
Capitalized mining costs 358,403 227,620
----------- -----------
$ 2,391,872 $ 2,114,589
=========== ===========
</TABLE>
(7) OTHER ACCRUED LIABILITIES
<TABLE>
<CAPTION>
At December 31,
----------------------
1996 1995
-------- --------
(In thousands)
<S> <C> <C>
Interest $ 27,600 $ 33,701
Contingent dividends received (see Note 3) 18,556 8,143
Payroll and related benefits 28,188 26,368
Reclamation and remediation 10,000 10,000
Plant and equipment 11,656 25,954
Other 44,893 44,599
-------- --------
$140,893 $148,765
======== ========
</TABLE>
(8) INCOME TAXES
Components of the Company's consolidated deferred income tax
liabilities and assets are as follows (in thousands):
<TABLE>
<CAPTION>
At December 31,
-------------------------
1996 1995
--------- ---------
<S> <C> <C>
Deferred tax liabilities:
Deferred mining costs $ (94,149) $ (51,302)
Accelerated tax depreciation (86,835) (190,577)
Mine development costs (34,576) (3,843)
Capitalized interest (10,220) (8,158)
Depletion of the cost of land and mining claims (70,464) (2,872)
Net undistributed earnings from equity investment (2,108) (1,357)
Other (6,013) (8,428)
--------- ---------
Deferred tax liabilities (304,365) (266,537)
--------- ---------
Deferred tax assets:
Exploration costs 69,399 75,280
Remediation and reclamation costs 35,647 31,842
Alternative minimum tax credit carryforward 51,164 38,007
Net operating loss carryforwards 22,457 6,006
Sale/leaseback transaction, net 12,512 9,638
Foreign tax credit carryforward 12,461 1,262
Retiree benefit costs 18,775 16,002
Capitalized inventory costs 10,241 10,622
Deferred gain on interest rate hedges 2,940 3,240
Relocation/reorganization costs 2,491 2,610
Other 7,170 11,120
--------- ---------
245,257 205,629
Valuation allowance for deferred tax assets (14,000) (9,800)
--------- ---------
Net deferred tax assets 231,257 195,829
--------- ---------
Net deferred tax liabilities $ (73,108) $ (70,708)
========= =========
</TABLE>
11
<PAGE> 18
As of December 31, 1996, the Company had approximately $51.2 million of
nonexpiring alternative minimum tax credit carryforwards and approximately $12.5
million of foreign tax credit carryforwards. Of these foreign tax credit
carryforwards, $1.3 million expire in 2000 and $11.2 million expire in 2001.
Based primarily upon estimates of future operations, the Company, more
likely than not, will utilize $231.3 million of the $245.3 million of deferred
income tax assets at December 31, 1996. This estimate reflects a valuation
allowance of $14.0 million, which is an increase of $4.2 million from December
31, 1995's valuation allowance.
The Company's pre-tax financial statement income (loss) consists of (in
thousands):
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Domestic $ 42,677 $ 182,053 $ 138,873
Foreign 46,559 5,477 (14,820)
--------- --------- ---------
$ 89,236 $ 187,530 $ 124,053
========= ========= =========
</TABLE>
The Company's (benefit) provision for income taxes consists of (in
thousands):
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------------
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Current:
Domestic $ (3,347) $ 40,398 $ 27,766
Foreign 4,005 2,477 586
---------- ---------- ----------
658 42,875 28,352
---------- ---------- ----------
Deferred:
Domestic (18,232) (12,893) (40,037)
Foreign 1,625 -- --
---------- ---------- ----------
(16,607) (12,893) (40,037)
---------- ---------- ----------
$ (15,949) $ 29,982 $ (11,685)
========== ========== ==========
</TABLE>
The Company's resulting (benefits) provisions for income taxes differ
from the amounts computed by applying the United States corporate income tax
statutory rate for the following reasons (in thousands):
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
U.S. corporate income tax at statutory rate $ 31,233 $ 65,635 $ 43,419
Percentage depletion (28,650) (30,960) (36,923)
Resolution of tax issues associated with
prior years (6,000) -- (16,250)
Foreign tax credits (13,057) (8,658) (4,421)
Foreign losses 339 3,129 --
State taxes (1,570) 1,173 (17)
Non-taxable portion of dividends received
from domestic corporations -- (700) (564)
Other 1,756 363 3,071
-------- -------- --------
$(15,949) $ 29,982 $(11,685)
======== ======== ========
</TABLE>
12
<PAGE> 19
(9) DEBT
LONG-TERM DEBT
Long-term debt consists of (in thousands):
<TABLE>
<CAPTION>
At December 31,
-----------------------------
1996 1995
----------- -----------
<S> <C> <C>
Sale-leaseback of refractory ore treatment plant $ 349,134 $ 349,134
8-3/8% debentures, net 199,866 199,861
8-5/8% notes 150,000 150,000
Credit facility 255,000 --
Medium-term notes 42,000 42,000
Project financing 63,125 67,500
----------- -----------
1,059,125 808,495
Current maturities (19,250) (4,375)
----------- -----------
$ 1,039,875 $ 804,120
=========== ===========
</TABLE>
Scheduled minimum long-term debt repayments are $19.3 million in 1997,
$25.0 million in 1998, $33.5 million in 1999, $14.4 million in 2000, $11.9
million in 2001 and $955.0 million thereafter. Actual payments may be greater in
any one year due to actual operating cash flows realized.
SALE-LEASEBACK OF THE REFRACTORY ORE TREATMENT PLANT
In September 1994, the Company entered into a sale and leaseback
agreement for its refractory ore treatment plant located in Carlin, Nevada for
$349.1 million. The transaction was accounted for as debt for financial
statement purposes, with the cost of the refractory ore treatment plant
recognized as an asset and depreciated. The lease is for 21 years and the
aggregate future minimum lease payments, which include interest, as of December
31, 1996 and 1995 were $638.2 million and $667.9 million, respectively. Payments
began in January 1996 and are $29.7 million annually through 2000. Principal
payments are included in these amounts beginning in 1998. The lease has purchase
options during and at the end of the lease at predetermined prices. The interest
rate on this sale-leaseback transaction is 6.36%. Because of the uniqueness of
this asset, the Company determined that it is not practicable to estimate the
fair value of this debt.
In connection with this transaction, the Company entered into certain
interest rate contracts to hedge the interest cost of the financing. These
contracts were settled for a gain of $11 million which is being recognized as a
reduction of interest expense over the term of the lease. As a result of this
gain, the effective interest rate on this sale and leaseback transaction is
6.15%.
8-3/8% DEBENTURES
Unsecured debentures in an aggregate principal amount of $200 million
maturing July 1, 2005 bearing an annual interest rate of 8.375% were outstanding
at December 31, 1996 and 1995. The debentures were issued by Santa Fe and
subsequent to the merger are guaranteed by NGC. The debentures were priced at
99.928% to yield 8.386% and are not redeemable prior to maturity. The costs
related to the issuance of the debentures were capitalized and are amortized to
interest expense over the term of the debentures. The fair value of the
Company's debentures approximates their carrying value.
13
<PAGE> 20
8-5/8% NOTES
Unsecured notes with a principal amount of $150 million due April 1,
2002 bearing an annual interest rate of 8-5/8% were outstanding at December 31,
1996 and 1995. Interest is payable semi-annually in April and October and the
notes are not redeemable prior to maturity. Using interest rates prevailing on
similar instruments at December 31, 1996 and 1995, this debt was estimated to
have a fair value of $165.7 million and $169.5 million, respectively.
CREDIT FACILITIES
Santa Fe had a $400 million unsecured, five-year revolving credit
facility involving several commercial banks, of which $255 million was
outstanding at December 31, 1996. Interest rates varied depending on the
interest options chosen by Santa Fe as well as other factors, but generally were
tied to margins over the following interest rate alternatives: LIBOR, CD or gold
funding. The interest rate on borrowings outstanding at December 31, 1996, was
6.1%. The lenders' commitment under the credit facility was to terminate on
April 16, 2001, at which time any outstanding indebtedness was to be repaid. The
fair value of amounts outstanding under the credit facility at December 31, 1996
approximated the related carrying value.
NGC had a $400 million revolving credit facility with a consortium of
banks that was to expire in April 1998. No amounts were outstanding under the
facility as of December 31, 1996.
On June 11, 1997, NGC replaced the separate facilities held by Santa Fe
and NGC with a new $1.0 billion revolving credit facility.
MEDIUM-TERM NOTES
Unsecured notes totaling $42 million, with a weighted average interest
rate of 7.7%, maturing on various dates ranging from mid-1999 to late 2004, were
outstanding as of December 31, 1996 and 1995. Interest is payable semi-annually
in March and September and the notes are not redeemable prior to maturity. Using
the interest rates prevailing on similar instruments at December 31, 1996 and
1995, this debt was estimated to have a fair value of $44.4 million and $44.9
million, respectively.
PROJECT FINANCING FACILITY
The Company, through a wholly-owned subsidiary, is a 50% participant in
Zarafshan-Newmont Joint Venture ("Zarafshan-Newmont") in the Republic of
Uzbekistan. The other 50% participants are two entities of the Uzbekistan
government.
As of December 31, 1996, Zarafshan-Newmont had $126.3 million
outstanding under a project financing loan secured by the assets of the project.
The loan is to be repaid in semi-annual installments until 2001. Starting in
1997, the average interest rate is between 3.9 and 4.25 percentage points over
the three-month LIBOR. The carrying amount of the loan is estimated to
approximate its fair market value. The weighted average interest rates for 1996
and 1995 were 8.2% and 8.4%, respectively, and the interest rates at December
31, 1996 and 1995 were 9.4% and 8.2%, respectively.
14
<PAGE> 21
Until defined completion tests have been satisfied, the Company has
guaranteed the payment of certain amounts due under the loan which totaled
$58.75 million at December 31, 1996. The 50% Uzbek partners have guaranteed the
repayment of the remaining amount due under the loan until such completion tests
have been satisfied. After satisfaction of the completion tests, the loan
becomes non-recourse to the Zarafshan-Newmont partners. The lenders have agreed
to extend the date by which the completion tests must be met to October 1998.
SHORT-TERM DEBT
All short-term debt at December 31, 1996 and 1995 consisted of bank
debt. The Company had unsecured demand bank lines of credit aggregating $70.0
million and $39.0 million at December 31, 1996 and 1995, respectively, of which
$46.0 million and $29.2 million were outstanding at the same respective dates.
These facilities bear interest at customary short-term rates for borrowers with
similar credit ratings. The carrying value of this debt is assumed to
approximate its fair value. The weighted average interest rates for 1996 and
1995 were 6.9% and 8.8%, respectively, and the interest rates at December 31,
1996 and 1995 were 8.25% and 8.5%, respectively.
CAPITALIZED INTEREST
Capitalized interest was $16.6 million, $14.2 million and $20.1 million
in 1996, 1995 and 1994, respectively.
(10) STOCKHOLDERS' EQUITY
COMMON STOCK OFFERINGS
In January 1996, NMC issued 4.65 million shares of common stock for
$51.87 per share under an existing "shelf" registration statement with the
Securities and Exchange Commission. Proceeds of the issue netted $241.3 million
and were used to purchase an equal number of shares of common stock of NGC. This
transaction increased NMC's ownership of NGC from 93.58% to 93.75%.
Prior to June 23, 1994, Santa Fe was a wholly-owned subsidiary of Santa
Fe Pacific Company ("SFP"). On June 23, 1994, Santa Fe completed an initial
public offering ("Offering")of 19.2 million shares (14.6%) of its common stock
resulting in net proceeds of $250.5 million, after commissions and related
expenses. The net proceeds from the Offering were used primarily to repay all
outstanding indebtedness under Santa Fe bank project financings, for the
repayment of other indebtedness and for working capital. On September 30, 1994,
SFP distributed all of the outstanding shares of common stock of Santa Fe held
by SFP to holders of SFP's common stock.
DIVIDENDS
The Company paid dividends of $0.48 per common share in 1996, 1995 and
1994. Santa Fe paid dividends of $0.05 per Santa Fe common share in 1996 and
1995.
STOCK OPTIONS
As part of the transaction with NMC discussed in Note 4, NGC issued
options to NMC to purchase shares of NGC's common stock. NGC issued options
15
<PAGE> 22
in the same number and with the same exercise prices as all of the NMC employee
stock options then outstanding. Additional options have been and will continue
to be issued by NGC to NMC to match the terms of additional NMC employee stock
options granted. NMC has exercised and will continue to exercise the stock
options issued to it by NGC to the extent the corresponding NMC stock options
have been or will be exercised.
Substantially all of the NMC options have been granted to participants
under NMC's 1982 Key Employees Stock Option Plan, 1987 Key Employees Stock
Option Plan, 1992 Key Employees Stock Plan and 1996 Employees Stock Plan
(collectively, the "plans"). NMC continues to grant NMC options to eligible
participants under its 1987 Key Employees Stock Option Plan, 1992 Key
Employees Stock Plan and 1996 Employees Stock Plan.
Under NMC's stock option plans, options to purchase shares of NMC are
granted to key employees generally at the fair market value of such shares on
the date of grant. NMC options under these plans generally vest over a two year
period and are exercisable over a period not exceeding ten years. At December
31, 1996, 2,831,003 shares were available for future grants under the NMC's
plans. In conjunction with the merger with Santa Fe, 566,000 shares were
authorized for issuance in connection with outstanding Santa Fe stock options
that were assumed by NMC.
In 1994, 1993 and 1992 certain key executives were granted NMC options
that, although the exercise price is generally equal to the fair market value on
the date of grant, cannot be exercised when otherwise vested unless the market
price of NMC's common stock is a defined amount above the NMC option exercise
price. In addition, the same executives were granted NMC options in 1994, 1993
and 1992 having exercise prices in excess of the fair market value on the date
of grant. Generally, these key executive NMC options vest over a period of one
to five years and are exercisable over a ten year period. At December 31, 1996,
605,989 of these NMC options were outstanding.
The following table summarizes annual total stock option activity for
the three years ended December 31, 1996:
<TABLE>
<CAPTION>
1996 1995 1994
------------------------ ------------------------ -------------------------
Weighted- Weighted- Weighted-
Average Average Average
Number Exercise Number Exercise Number Exercise
of shares Price of shares Price of shares Price
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year 2,719,682 $38 2,177,546 $39 2,055,087 $37
Granted 1,216,916 $49 906,213 $36 476,703 $41
Exercised (666,164) $37 (232,109) $34 (276,894) $31
Forfeited (207,347) $38 (131,968) $41 (77,350) $41
----------- ----------- -----------
Outstanding at
end of year 3,063,087 $43 2,719,682 $38 2,177,546 $39
=========== =========== ===========
Options exercisable
at year end 1,320,799 $40 1,287,688 $39 1,007,998 $36
Weighted-average
fair value of
options granted
during the year $ 18.46 $ 13.90 Not calculated
</TABLE>
16
<PAGE> 23
The following table summarizes information about stock options
outstanding at December 31, 1996 with exercise prices equal to the fair market
value on the date of grant and no restrictions on exercisability after vesting:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------- ------------------------------
Weighted-Average
Remaining
Range of Number Contractual Weighted-Average Number Weighted-Average
Exercise Prices Outstanding Life Exercise Price Exercisable Exercise Price
- --------------- ----------- ------------ --------------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
$27 to $35 704,289 8.4 years $31 206,953 $31
$35 to $43 817,699 7.9 years $40 555,298 $40
$43 to $51 533,790 9.4 years $51 90,351 $46
$51 to $59 401,320 9.3 years $58 -- $--
--------- ----------
$27 to $59 2,457,098 8.5 years $47 852,602 $38
========= ==========
</TABLE>
Information about all other stock options outstanding at December 31,
1996 is summarized below:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------------------- ---------------------------------
Range of Weighted-Average
Exercise Number Remaining Weighted-Average Number Weighted-Average
Type of Option Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price
- --------------- ----------- ------------ --------------- ----------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Options with $40 to $56 355,581 6.2 years $49 286,687 $47
exercise prices in
excess of the fair
market value on the
date of the grant
Options that cannot $30 to $41 250,408 6.7 years $37 181,510 $37
be exercised until
the market price
of NMC's stock
exceeds a fixed
amount above the
exercise price
</TABLE>
The Company applies APB Opinion 25 and related interpretations in
accounting for its stock options. Accordingly, no compensation cost has been
recognized for its stock options. Had compensation cost for the options been
determined based upon their fair value at their grant dates in 1995 and 1996,
consistent with the methodology prescribed by Statement of Financial Accounting
Standards No. 123, the Company's net income (in thousands) and earnings per
share would have been the pro forma amounts indicated below:
<TABLE>
<CAPTION>
Years Ended
December 31,
----------------------------
1996 1995
----------- -----------
<S> <C> <C> <C>
Net income As reported $ 105,185 $ 157,548
Pro forma $ 99,225 $ 156,195
Earnings per share As reported $ 0.63 $ 0.95
Pro forma $ 0.59 $ 0.94
</TABLE>
For purposes of determining the pro forma amounts, the fair value of
each option grant was estimated on the date of the grant using the Black-Sholes
option-pricing model with the following assumptions for 1996 and 1995,
respectively: weighted-average risk-free interest rates of 6.1% and 5.8%,
dividend yield of 1% for both years, expected lives of 5 years for both periods
and volatility of 35% and 39%, respectively.
17
<PAGE> 24
Compensation costs included in the pro forma amounts above only reflect
fair values associated with options granted after January 1, 1995. These amounts
may not be indicative of future amounts that will apply to all future
outstanding nonvested awards or future grants.
PREFERRED STOCK
Effective January 1, 1994, as a result of the transaction discussed in
Note 4, NGC issued to NMC 2.875 million shares of $5.00 par value convertible
preferred stock at a value of $100 per share. As discussed in Note 4, the terms
of the preferred stock mirrored the terms of NMC preferred stock (except that
upon conversion, NMC was entitled to receive shares of NGC's common stock
instead of NMC's common stock). Through NGC's preferred stock, NGC facilitated
NMC's compliance of its continuing obligations on the NMC preferred stock.
Dividends paid by the Company to NMC for the NGC preferred stock were in turn
paid by NMC to the holders of the NMC preferred stock. The NGC annual preferred
stock dividend was $5.50 per share which was cumulative from January 1, 1994 and
was payable quarterly.
NMC called all of the outstanding 2.875 million shares of $5.50
convertible preferred stock, $5.00 par value, for redemption on December 14,
1995 at a redemption price of $105.21 per share. NGC, exercising its redemption
right under its preferred stock, called all of its 2.875 million shares of $5.00
par value convertible preferred stock for redemption on the same date and at the
same price. For both companies, each share of preferred stock was convertible at
the option of the shareholder into shares of common stock at a conversion price
of $36.395 per share of common stock (equivalent to a conversion rate of 2.7476
shares of common stock for each whole share of convertible preferred stock).
Essentially all of the NMC preferred stock was converted prior to the redemption
date. As a result, NMC converted the same number of NGC preferred shares as
those of converted NMC preferred shares. This ensured that NMC's holding of
outstanding shares of NGC's common stock was equal to the outstanding shares of
NMC stock. In total, 7.9 million shares of NGC common stock were issued to NMC.
(11) EMPLOYEE BENEFIT PLANS
PENSION BENEFITS
The Company has three qualified non-contributory defined benefit
pension plans which cover salaried employees of the Company, Santa Fe and
substantially all hourly employees. The Company also has two non-qualified
supplemental pension plans for salaried employees whose benefits under the
qualified plan are limited by federal legislation. The vesting period is five
years of service for each plan. The plans' benefit formulas are based on an
employee's years of credited service and either such employee's last five years
average pay (salaried plan) or a flat dollar amount adjusted by a
service-weighted multiplier (hourly plan).
Pension costs are determined annually by independent actuaries and
pension contributions to the qualified plans are made based on funding standards
established under the Employee Retirement Income Security Act of 1974 ("ERISA").
18
<PAGE> 25
The components of pension expense for these three plans, in the
aggregate, consist of (in thousands):
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Service cost $ 5,590 $ 3,681 $ 3,070
Interest cost on projected
benefit obligation 6,342 5,597 4,633
Return on assets (11,876) (7,678) (5,370)
Net amortization and deferral 5,051 1,077 211
-------- -------- --------
Pension expense $ 5,107 $ 2,677 $ 2,544
======== ======== ========
</TABLE>
The following tables set forth the funded status of the Company's
pension plans and the amounts recognized in the Company's consolidated balance
sheets at December 31, 1996 and 1995, respectively (in thousands):
<TABLE>
<CAPTION>
At December 31, 1996
----------------------------------------------------
NGC Santa Fe
Salary Salary Hourly Supplemental
Pension Pension Pension Salary
Plan Plan Plan Pension Plan
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation-
Vested benefits $(56,997) $ (9,211) $ (7,737) $ (2,074)
Non-vested benefits (2,420) (2,074) (1,293) (53)
-------- -------- -------- --------
(59,417) (11,285) (9,030) (2,127)
Effect of future salary increases/service-
weighted benefit multiplier (9,020) (3,369) (654) (696)
-------- -------- -------- --------
Projected benefit obligation (68,437) (14,654) (9,684) (2,823)
Plan assets at fair value 76,979 11,935 8,870 --
-------- -------- -------- --------
Plan assets greater (less) than projected
benefit obligation 8,542 (2,719) (814) (2,823)
Unrecognized prior service cost (505) (306) 1,220 1,130
Unrecognized net (gain) loss (4,306) (593) (492) 4,230
Unrecognized net transition (asset) liability (1,750) (33) (66) 1,965
Adjustment required to recognize minimum
liability -- -- -- (6,640)
-------- -------- -------- --------
Net pension asset (liability) $ 1,981 $ (3,651) $ (152) $ (2,138)
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
At December 31, 1995
----------------------------------------------------
NGC Santa Fe
Salary Salary Hourly Supplemental
Pension Pension Pension Salary
Plan Plan Plan Pension Plan
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation-
Vested benefits $(56,420) $ (8,451) $ (6,637) $ (1,217)
Non-vested benefits (2,102) (1,599) (1,381) (20)
-------- -------- -------- --------
(58,522) (10,050) (8,018) (1,237)
Effect of future salary increases (7,631) (2,945) -- (542)
-------- -------- -------- --------
Projected benefit obligation (66,153) (12,995) (8,018) (1,779)
Plan assets at fair value 68,331 10,163 6,918 --
-------- -------- -------- --------
Plan assets greater (less) than projected
benefit obligation 2,178 (2,832) (1,100) (1,779)
Unrecognized prior service cost (548) 167 130 1,216
Unrecognized net loss 2,752 (634) 871 3,674
Unrecognized net transition (asset) liability (2,215) (39) (72) 2,356
Adjustment required to recognize minimum
liability -- -- -- (6,704)
-------- -------- -------- --------
Net pension asset (liability) $ 2,167 $ (3,338) $ (171) $ (1,237)
======== ======== ======== ========
</TABLE>
19
<PAGE> 26
In October 1996, an amendment was made to increase the benefit
multiplier of the benefits under the Hourly Pension Plan. The effect of this
amendment was to increase the accumulated benefit obligation by approximately
$0.5 million, the projected benefit obligation and prior service cost by $1.2
million and to increase the annual pension cost by $0.3 million.
In accordance with the provisions of Statement of Financial Accounting
Standards No. 87, an adjustment was required to reflect a minimum liability for
the supplemental pension plan in 1996, 1995 and 1994. Such adjustment resulted
in recording an intangible asset and, to the extent the minimum liability
adjustment exceeded the unrecognized net transition liability, a reduction of
$2.0 million, $2.0 million and $2.5 million in stockholders' equity, which is
net of related deferred income tax benefits, for 1996, 1995 and 1994,
respectively.
In measuring the projected benefit obligation for the plans, the
following actuarial assumptions were used:
<TABLE>
<CAPTION>
At December 31,
-----------------
1996 1995
---- ----
<S> <C> <C>
Weighted average discount rate 7.5% 7.0%
Rate of increase in future compensation
(applicable only to salaried plans) 4.0% 4.0%
</TABLE>
The weighted average expected long-term rate of return on plan assets
was assumed to be 8.75% for 1996, 9.00% for 1995 and 8.25% for 1994.
The Company maintains a trust for the purpose of funding the
supplemental pension plan as well as death benefits for officers of the Company.
This trust is funded at the discretion of the Company and had a balance, which
approximated market value, of $2 million at both December 31, 1996 and December
31, 1995. Although the trust's assets can be used to pay benefits for the
supplemental pension plan, they cannot be used in determining the net pension
liability for the supplemental pension plan. The qualified plans' assets consist
of stocks, bonds and cash.
RETIREE BENEFITS OTHER THAN PENSIONS
The Company provides defined medical benefits to qualified retirees who
were salaried employees and to their eligible dependents, and it provides
defined life insurance benefits to qualified retirees who were salaried
employees. In general, participants become eligible for these benefits upon
retirement directly from the Company if they are at least 55 years old and the
combination of their age and years of service with the Company equals 75 or
more.
The Company also provides a contributory medical plan and a
noncontributory life insurance plan for certain retired employees of one of its
subsidiaries. Covered employees become eligible for these benefits at retirement
if they have rendered at least ten years of service after attaining age 45.
The defined medical benefits cover most of the reasonable and customary
charges for hospital, surgical, diagnostic and physician services and
prescription drugs. Life insurance benefits are based on a percentage of final
base annual salary and decline over time after retirement commences.
20
<PAGE> 27
Postretirement benefits other than pensions are accrued during an
employee's service to the Company.
The components of expense for postretirement benefits other than
pensions for 1996, 1995 and 1994 are shown in the table below (in thousands):
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Service cost $ 2,845 $ 2,189 $ 2,568
Interest cost 2,017 2,165 1,997
Amortization of net gain (299) (424) (160)
Other (119) -- (31)
------- ------- -------
Expense for postretirement benefits
other than pensions $ 4,444 $ 3,930 $ 4,374
======= ======= =======
</TABLE>
The following table sets forth the components of the liability for the
Company's plans for postretirement benefits other than pensions recognized in
its balance sheet (in thousands):
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1996 1995
------- -------
<S> <C> <C>
Actuarial present value of accumulated benefit
obligation ("APBO"):
Retirees and eligible dependents $11,871 $13,006
Other fully eligible plan participants 2,693 2,346
Other active plan participants 16,449 15,964
------- -------
Total APBO 31,013 31,316
Unrecognized prior service credit 1,458 2,408
Unrecognized net gain 6,587 1,699
------- -------
Accrued liability for postretirement benefits
other than pensions $39,058 $35,423
======= =======
</TABLE>
At December 31, 1996 and 1995, $2.6 million of assets, with a market
value of approximately the same amount, were designated in a trust to pay
postretirement benefits other than pensions. Since these assets could be used to
pay other employee benefits, they cannot be used for the postretirement benefit
calculations. The Company has no formal policy for funding postretirement
benefit obligations.
Weighted average discount rates of 7.5% and 7.0% were used in
calculating the APBO at December 31, 1996 and 1995, respectively. The assumed
health care cost trend rates to measure the expected cost of benefits at
December 31, 1996 start at an 8% annual increase for coverage before the age of
65 and a 7% annual increase for coverage after the age of 64. The assumed health
care cost trend rates to measure the expected cost of benefits at December 31,
1995 start at a 9% annual increase for coverage before the age of 65 and an 8%
annual increase for coverage after the age of 64. These rates were assumed to
decrease one percentage point each year until a 5% annual rate of increase was
reached, at which point a 5% annual rate of increase was assumed thereafter. The
effect of a one percentage point annual increase in the assumed cost trend rates
would increase the aggregate of service and interest costs by approximately 19%
in 1996 and the APBO at December 31, 1996 by approximately 15%. The effect of a
one percentage point annual increase in the assumed cost trend rates would
increase the aggregate
21
<PAGE> 28
of service and interest costs in 1995 by approximately 23% and the APBO at
December 31, 1995 by approximately 19%.
SAVINGS PLAN
The Company has three qualified defined contribution savings plans, one
which covers salaried employees, one which covers substantially all hourly
employees and one which covers substantially all salary and hourly employees of
Santa Fe. In addition, the Company has a non-qualified supplemental savings plan
for salaried employees whose benefits under the qualified plan are limited by
federal regulations.
Upon the employee meeting eligibility requirements, the Company matches
100% of employee contributions of up to 6% and 4% of base salary for the
salaried and hourly plans, respectively. Employees covered by the Santa Fe plan
receive matching contributions up to 4% of base salary and eligible hourly
employees also receive an employer contribution equal to 2% of before-tax
eligible compensation.
The Company's matching contributions to such plans were $8.2 million,
$6.8 million and $5.6 million in 1996, 1995 and 1994, respectively.
(12) WRITE-OFF OF EXPLORATION PROPERTIES
In 1995, the Company recorded write-offs of two exploration properties
totaling $52.5 million. The Ivanhoe property was purchased in June 1992. Over
the next three years, extensive drilling, environmental studies and mine models
were developed to determine the economics of extracting gold from the property.
A feasibility report was issued in June 1995 that reflected high levels of
environmental and mining costs that resulted in financial returns much lower
than the Company's threshold for development. Accordingly, the decision was made
not to develop the property and $18.8 million of capitalized costs associated
with the property were written off in June 1995. An additional charge of $4.6
million was taken as other expense for estimated costs to reclaim areas
disturbed by previous mining and exploration activity on the property.
The Grassy Mountain property was purchased in September 1992. At the
time of the purchase, certain reliance was placed upon geological models
prepared by the seller. Work performed by the Company in 1993 demonstrated that
the gold distribution was not distributed as modeled by the seller. In 1994, the
Company created new detailed models of the deposit based on its revised geologic
interpretation. These models resulted in fewer high grade ounces, which led to
the reclassification of 996,000 ounces of reserves to mineralized material at
the end of 1994. However, additional drilling and modeling was required to
determine whether there was an impairment of the asset based on the work
performed through that date. Based on economic information at that time and the
use of undiscounted cash flows, no write-down was considered necessary as of
December 31, 1994. Throughout 1995, further refinement of geological and
economic models continued with open-pit, underground and price hedging scenarios
all resulting in deposit sizes and economic returns smaller than the Company's
threshold for development. Based on these results, capitalized costs of $33.8
million relating to the Grassy Mountain property were written off in December
1995.
22
<PAGE> 29
(13) GAIN ON SALE OF INVESTMENTS
In May 1995, NGC sold its 10.7% interest in Southern Peru Copper
Corporation for $116.4 million, which resulted in a pre-tax gain of $113.2
million.
(14) DIVIDEND, INTEREST AND OTHER INCOME
Included in dividends, interest and other income are $3.1 million,
$28.3 million and $9.2 million for 1996, 1995 and 1994, respectively for
business interruption insurance that was received for problems associated with
the refractory ore treatment plant at the Carlin, Nevada operations.
(15) MAJOR CUSTOMERS AND EXPORT SALES
The Company is not economically dependent on a limited number of
customers for the sale of its product because gold commodity markets are
well-established worldwide. In 1996, sales to one customer totaled $213.3
million or 19% of total sales. In 1995, sales to two customers accounted for
$177.6 million and $137.3 million, or 32% of total sales. In 1994, sales to
three such major customers accounted for $143.9 million, $99.6 million and $88.5
million, or 38% of total sales.
Export sales were $764.4 million, $636.2 million and $497.2 million in
1996, 1995 and 1994, respectively.
(16) SUPPLEMENTAL CASH FLOW INFORMATION
Net cash provided by operating activities includes the following cash
payments (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Income taxes, net of refunds $ (9,708) $ 32,546 $ 42,517
Interest, net of amounts capitalized $ 55,644 $ 23,625 $ 15,724
</TABLE>
Excluded from the statements of consolidated cash flows are the effects
of certain non-cash transactions. As described in Note 18, in July 1996, NGC
began accounting for the Batu Hijau project as an equity investment. The
adjustments that were made to the Company's balance sheet are as follows (in
thousands):
<TABLE>
<CAPTION>
Increase (decrease)
-------------------
<S> <C>
Assets
Other current assets $ (849)
Property, plant and mine development, net (43,936)
Other long-term assets (3,607)
Liabilities
Accounts payable 182
--------
Total $(48,210)
========
</TABLE>
In 1996, the Company retired mostly fully depreciated property, plant
and equipment with an original cost of $77.0 million, which is not reflected in
the statement of consolidated cash flows.
23
<PAGE> 30
In 1996 and 1994, the Company recognized income tax benefits of $6.0
million and $16.2 million, respectively, resulting from the resolution of
certain tax issues associated with prior years.
In 1995, as discussed in Note 10, NGC called for redemption of all of
its outstanding 2.875 million shares of convertible preferred stock.
Substantially all of the convertible preferred stock was converted into common
stock of NGC. This transaction resulted in a non-cash decrease to preferred
stock, a non-cash decrease to treasury stock and a non-cash increase to capital
in excess of par value.
24
<PAGE> 31
The following reflects the non-cash adjustments made to the Company's
balance sheet effective as of January 1, 1994 for the transaction with NMC
discussed in Note 4 (in thousands):
<TABLE>
<CAPTION>
Increase (decrease)
-------------------
<S> <C>
Assets
Cash and cash equivalents $ 69,361
Short-term investments 18,709
Advances to parent (159,573)
Inventories 3,355
Other current assets 2,311
---------
Current assets (65,837)
Property, plant and mine development, net 99,070
Other long-term assets 131,307
---------
Total assets $ 164,540
=========
Liabilities
Short-term debt $ 15,739
Accounts payable 2,876
Accrued income taxes 2,143
Other accrued liabilities 29,019
---------
Current liabilities 49,777
Long-term debt 192,000
Reclamation liabilities 55,952
Other long-term liabilities 69,586
---------
Total liabilities 367,315
---------
Stockholders' Equity
Preferred stock 14,375
Retained earnings (140,944)
Treasury stock (76,206)
---------
Total stockholders' equity (202,775)
---------
Total liabilities and stockholders' equity $ 164,540
=========
</TABLE>
(17) GEOGRAPHIC INFORMATION
The Company operates predominantly in a single industry as a worldwide
corporation engaged in gold production, exploration for gold and acquisition of
gold properties. The Company has consolidated operations in the United States,
Indonesia and Uzbekistan. In computing earnings from operations for foreign
subsidiaries, no allocations of general corporate expenses, interest or income
taxes have been made.
25
<PAGE> 32
Identifiable assets by country represent those assets related to the
operations in those countries. Information by geological location for the year
ended December 31, 1996 is as follows (in thousands):
<TABLE>
<CAPTION>
United Indonesia
States Uzbekistan and Other Consolidated
---------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Sales $ 995,093 $ 62,609 $ 47,964 $1,105,666
Earnings from
Operations $ 228,434 $ 14,423 $ 14,231 $ 257,088
Exploration and
Research $ 46,453 $ 1,184 $ 40,277 $ 87,914
Identifiable
Assets $2,077,370 $ 226,721 $ 174,702 $2,478,793
</TABLE>
Prior to 1996, substantially all operations were in the United States.
The above segment information does not include NGC's equity investment
in Minera Yanacocha in Peru. NGC's equity in Minera Yanacocha's 1996 revenues
and earnings was $119.3 million and $76.9 million, respectively. NGC's equity in
Minera Yanacocha's total assets at December 31, 1996 was $73.5 million. See
Notes 1 and 3.
(18) COMMITMENTS AND CONTINGENCIES
ENVIRONMENTAL OBLIGATIONS
The Company's mining and exploration activities are subject to various
federal and state laws and regulations governing the protection of the
environment. These laws and regulations are continually changing and are
generally becoming more restrictive. The Company conducts its operations so as
to protect the public health and environment and believes its operations are in
compliance with all applicable laws and regulations. The Company has made, and
expects to make in the future, expenditures to comply with such laws and
regulations. The Company cannot predict such future expenditures.
Estimated future reclamation and remediation costs are based
principally on legal and regulatory requirements. At December 31, 1996 and 1995,
$31.8 million and $27.7 million, respectively, were accrued for reclamation and
remediation costs relating to currently producing mineral properties.
Certain appeals have been filed with the Department of Interior Board
of Land Appeals in conjunction with the Twin Creeks Environmental Impact
Statement, the Lone Tree Mine Plan of Operations and the Mule Canyon Mine Plan
of Operations. These appeals seek to impose mitigation and other conditions on
the mine operations. The Company has intervened and does not believe that such
appeals have merit. An unfavorable outcome of such appeals, however, could
result in additional conditions on operations which may have a material adverse
effect on the Company's financial position or results of operations.
In addition, the Company is involved in several matters concerning
environmental obligations associated with former mining activities.
26
<PAGE> 33
Generally, these matters concern developing and implementing remediation plans
at the various sites involved. The Company believes that the related
environmental obligations associated with these sites are similar in nature with
respect to the development of remediation plans, their risk profile and the
compliance required to meet general environmental standards. Based upon the
Company's best estimate of its liability for these matters, $49.8 million and
$55.8 million were accrued for such obligations at December 31, 1996 and 1995,
respectively. These amounts are included in other current liabilities and
reclamation and remediation liabilities. Depending upon the ultimate resolution
of these matters, the Company believes that it is reasonably possible that the
liability for these matters could be as much as 100% greater or 40% lower than
the amount accrued at December 31, 1996. The amounts accrued for these matters
are reviewed periodically based upon facts and circumstances available at the
time. Changes in estimates are charged to other expense in the period estimates
are revised. Charges related to these matters were $6.6 million, $3.0 million
and $16.1 million in the years ended December 31, 1996, 1995 and 1994,
respectively.
Details about certain of the more significant sites involved are
discussed below.
Idarado Mining Company ("Idarado") - 80.1% owned by NGC
In July 1992, the Company and Idarado signed a consent decree with the
State of Colorado ("State") which was agreed to by the U.S. District Court of
Colorado to settle a lawsuit brought by the State under the Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA"), generally
referred to as the "Superfund Act." Idarado settled natural resources damages
and past and future response costs and provided habitat enhancement work. In
addition, Idarado agreed in the consent decree to undertake specified
remediation work at its former mining site in the Telluride/Ouray area of
Colorado. The Company expects to complete the remediation work at this property
by the end of 1997. If the remediation work does not meet specific technical
criteria specified in the consent decree, the State and court reserve the right
to require Idarado to perform other remediation work. Idarado and the Company
have obtained a $16.3 million letter of credit to secure their obligations under
the consent decree.
Resurrection Mining Company ("Resurrection") - 100% owned by NGC
In 1983, the State of Colorado filed a lawsuit under the Superfund Act
which involves a Resurrection Mining Company and Asarco Incorporated ("Asarco")
joint venture mining operation near Leadville, Colorado. This action was
subsequently consolidated with a lawsuit filed by the U.S. Environmental
Protection Agency ("EPA") in 1986, with the EPA taking the lead role. The
proceedings seek to compel the defendants to remediate the impacts of
pre-existing, historic mining activities that date back to the mid-1800's which
the government agencies claim are causing substantial environmental problems in
the area. The lawsuits have named the Company, Resurrection, the joint venture
and Asarco as defendants in the proceedings. The EPA is also proceeding against
other companies with interests in the area.
The EPA divided the remedial work into two phases. Phase I addresses
the Yak Tunnel, a drainage and access tunnel owned by the joint venture.
Phase II addresses the remainder of the site.
In 1988 and 1989, the EPA issued administrative orders with respect to
Phase I work for the Yak Tunnel. The joint venture, Asarco, Resurrection and
27
<PAGE> 34
the Company have collectively implemented those orders by constructing a water
treatment plant which was placed in operation in early 1992. The joint venture
is in negotiations regarding remaining remedial work for Phase I, which
primarily consists of environmental monitoring and operating and maintenance
activities.
The parties have entered into a consent decree with respect to Phase II
which apportions liabilities and responsibilities for the site among the various
parties. The EPA has approved remedial actions for selected components of
Resurrection's portion of the site, which were initiated in 1995. However, the
EPA has not yet selected the final remedy for the site. Accordingly, the Company
cannot yet determine the full extent or cost of its share of the remedial action
which will be required under Phase II. The government agencies may also seek to
recover for damages to natural resources.
Dawn Mining Company ("Dawn") - 51% owned by NGC
Dawn leased a currently inactive open-pit uranium mine on the Spokane
Indian Reservation in the State of Washington. The mine is subject to regulation
by agencies of the U.S. Department of Interior, the Bureau of Indian Affairs and
the Bureau of Land Management, as well as the EPA. Dawn also owns a nearby
uranium millsite facility.
In 1991, Dawn's lease was terminated. As a result, Dawn was required to
file a formal mine closure and reclamation plan. The Department of Interior has
commenced an Environmental Impact Study to analyze Dawn's proposed plan and to
consider alternate closure and reclamation plans for the mine. Dawn cannot
predict at this time what type of mine reclamation plan may be selected by the
Department of Interior. Dawn does not have sufficient funds to pay for the
reclamation plan it proposed, for any alternate plan, or for the closure of its
mill.
The Department of Interior previously notified Dawn that when the lease
was terminated, it would seek to hold Dawn and the Company (as Dawn's then 51%
owner) liable for any costs incurred as a result of Dawn's failure to comply
with the lease and applicable regulations. If asserted, the Company will
vigorously contest any such claims. The Company cannot reasonably predict the
likelihood or outcome of any future action against Dawn or the Company arising
from this matter.
Dawn has received a license for a mill closure plan which would
generate funds to close and reclaim both the mine and the mill. The license is
being challenged by third parties.
Insurance Receivables
The Company carried insurance policies for which it filed claims for
the costs of certain of its remediation activities. The Company recorded
receivables for claims under such policies when management believed the
likelihood of recovery was probable. Prior to 1993, three of the insurance
companies commenced actions against NGC seeking judgments that they had no
liability. In the fall of 1993, NGC instituted a comprehensive lawsuit against
its carriers.
Based on the views of prior lead counsel, the Company had believed that
significant progress in certain settlement discussions would have been
achieved by mid-summer 1994, but that expectation was not realized. The
28
<PAGE> 35
absence of such anticipated progress in settlement discussions, as well as the
Company's discussions with new lead counsel for the insurance recovery actions
regarding its review of such actions, caused the Company in the second quarter
of 1994 to provide a $20.0 million valuation allowance on its insurance
receivables, which was recorded as other expense, resulting in a net balance of
$16.7 million outstanding at December 31, 1994.
In the first quarter of 1995, settlement in certain of the insurance
litigation was reached enabling the Company to realize the receivable
outstanding at December 31, 1994. Settlement discussions continue with respect
to additional insurance litigation. Trial of this litigation has been scheduled
for late 1997. The Company intends to vigorously pursue its claims with respect
to the remaining litigation and believes that it is reasonably possible that
additional amounts will be recovered, although no such amounts are accrued.
BATU HIJAU
In July 1996, the Company and Sumitomo Company ("Sumitomo") entered
into a definitive partnership agreement to develop and operate the Batu Hijau
copper/gold deposit in Indonesia. The estimated cost for development of the open
pit mine, mill, and infrastructure including employee housing, a port,
electrical generation facilities, interest during construction, cost escalations
and working capital is expected to approximate $1.9 billion. Batu Hijau contains
proven and probable reserves of 10.6 billion pounds (4.8 billion equity pounds)
of copper and 12.1 million ounces (5.4 million equity ounces) of gold.
Production is expected to begin around the turn of the century, with a projected
mine life in excess of 20 years.
Under the terms of the agreement with Sumitomo, the Company contributed
its interest in the company that owns the project and Sumitomo will contributed
an agreed upon amount of cash, expected to be approximately $235 million. After
the contributions are made, the Company retains a 45% interest in the Company
that owns the project and Sumitomo has a 35% interest. The remaining 20%
interest is held by an unrelated Indonesian company. The parties' obligations to
make their contributions to the partnership were subject to the receipt of
certain approvals from the Indonesian government. Until such approvals were
received, Sumitomo had agreed to fund up to $100 million of costs through
non-interest bearing loans, ($20.2 million of which were outstanding at December
31, 1996) which the Company had effectively guaranteed. Approvals were received
in May 1997 and amounts outstanding under such loans were applied to Sumitomo's
cash contribution of the previously mentioned $235 million. Additional
contributions required by the parties will be contributed 56.25% by the Company
and 43.75% by Sumitomo. Project financing for development of the property will
be $1 billion and will be guaranteed by the Company and Sumitomo until project
completion tests are met. The source of the Company's future contributions will
be operating cash flow, bank credit lines or other third party financing as
needed.
As a result of the ownership structure described above, the Company is
accounting for its investment in Batu Hijau as an equity investment effective
July 1996. The Company's investment at December 31, 1996, which is included in
Other long-term assets, was $46.6 million.
In connection with the Batu Hijau project, the entity owning the
project has entered into a construction contract for approximately $1 billion.
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<PAGE> 36
GUARANTEE OF THIRD PARTY INDEBTEDNESS
The Company guaranteed a former NMC subsidiary's $35.7 million
Pollution Control Revenue Bonds, due 2009. NMC's former subsidiary is BHP Copper
Inc., formerly known as Magma Copper Company. It is expected that the Company
will be required to remain liable on this guarantee as long as the bonds remain
outstanding; however, the Company has not been required to pay any of these
amounts, nor does it expect to have to pay any in the future.
COMMODITY INSTRUMENTS
At December 31, 1996, the Company had forward sales contracts made on a
spot deferred basis ("spot deferred contracts") for approximately 1.7 million
ounces of gold relating to production during the period January 1997 through
September 1998 at sales prices ranging from $386 - $438 per ounce or a weighted
average price of $416 per ounce. In July 1997, the Company purchased
approximately 1.1 million ounces of gold ranging from $329 per ounce to $343 per
ounce, to offset the spot deferred contracts. The gain from this transaction
will be recognized in sales as the related gold is produced.
The Company also had purchased put options on 1.2 million ounces at an
exercise price of $375 per ounce and written call options on 0.4 million ounces
at an exercise price of $464 per ounce. During January through March 1997,
300,000 ounces of put options were exercised with $6.7 million of cash received
and 100,000 ounces of call options expired unexercised. The remaining option
contracts were closed out in March 1997 with $17.0 million of cash received.
The Company entered into forward sales contracts, that began maturing
in January 1996 and continue through December 2000, for production from its
Minahasa property, located in Indonesia. These contracts consist of forward
sales of 125,000 ounces of gold per year at an average price of $454 an ounce,
plus 40% of the amount by which the market price exceeds the forward sales
price.
ADVANCED ROYALTY
In a 1993 asset exchange transaction, a wholly-owned subsidiary of
Santa Fe transferred a coal lease with Chaco Energy Company ("Chaco") to Hanson
Natural Resources Company ("HNRC") with respect to which the subsidiary had
collected $484.0 million in advance royalty payments. The lease provides for
HNRC to collect another $390.0 million from 1994 through 2018 from Chaco. In the
event of a title failure as stated in the lease, this subsidiary has a primary
obligation to refund the advance royalty payments previously collected and has a
secondary obligation as assignor to HNRC to refund any of the $390.0 million
HNRC collects if HNRC fails to meet its refund obligation to Chaco. The
subsidiary has no direct liability to Chaco under the coal lease. The subsidiary
has title insurance on the leased coal deposits in the amount of $240.0 million
covering the secondary obligation. The Company and the subsidiary regard the
circumstances entitling Chaco to a refund as remote. The Company has agreed with
Chaco to maintain the subsidiary's net worth at $108.0 million until July 1,
2005.
LITIGATION
On December 8, 1996, Santa Fe entered into a definitive merger
agreement with Homestake Mining Company ("Homestake") and a subsidiary of
Homestake,
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<PAGE> 37
subsequent to discussions during November 1996 with both Homestake and NMC
regarding potential business combinations. On January 7, 1997, NMC announced a
proposal for a business combination with Santa Fe. Santa Fe commenced
discussions with NMC on January 13, 1997 and on March 10, 1997, the merger
agreement between Homestake and Santa Fe was terminated and Santa Fe entered
into a merger agreement with NMC. In conjunction with the termination of the
Homestake merger agreement, Santa paid to Homestake a termination fee of $65
million.
On December 6 and 9, 1996, a total of six Santa Fe stockholders filed
class action complaints against Santa Fe and Santa Fe's Board of Directors
(collectively, "Defendants"). To date, the Defendants have been served only with
the first complaint. The complaints allege, among other things, that members of
the Santa Fe Board of Directors breached their fiduciary responsibilities to the
Company's stockholders by failing to consider fully the Newmont proposal to
acquire Santa Fe and the Santa Fe Board of Directors approved the Homestake
merger transaction to ensure that certain of the Defendants would retain their
positions. The actions seek, among other things, to have the Court of Chancery
("Court") order the Defendants to take various actions to cooperate with any
entity or person interested in proposing a transaction with the Company and to
act to maximize shareholder value and seek unspecified damages. The Defendants
moved to dismiss the first complaint on January 6, 1997, and also moved to stay
discovery pending resolution of the motion to dismiss. On January 22, 1997, the
Court entered an order consolidating the complaints into one action. The Company
intends to defend against the allegations. It is the opinion of the Company's
management that none of the actions filed by Santa Fe stockholders will have a
material adverse effect on the Company's financial position or results of
operations.
OTHER COMMITMENTS AND CONTINGENCIES
Under a 1992 agreement with Barrick Goldstrike Mines, Inc. ("Barrick"),
Barrick is mining the Company's Carlin, Nevada Post deposit which extends beyond
NGC's property boundaries onto Barrick's property. The Company and Barrick share
the costs so that each ounce of gold mined bears the same mining cost. The
Company is obligated to pay Barrick for such costs as Barrick mines the deposit.
In addition, the Company is obligated to share dewatering costs which are
associated with the deposit. The Company incurred $63.7 million, $62.5 million
and $39.0 million of such mining and dewatering costs in 1996, 1995 and 1994,
respectively, and NGC expects to incur approximately $15 million in 1997.
The Company has minimum royalty obligations on one of its producing
mines for the life of the mine. The amount to be paid to meet the royalty
obligations is based upon a defined average market gold price. Any amounts paid
due to the minimum royalty obligation not being met in any year are recoverable
in future years when the minimum royalty obligation is exceeded. Although the
minimum royalty requirement may not be met in any certain year, the Company
expects the mine's gold production over its life will meet the minimum royalty
requirements.
At December 31, 1996, there were $101.1 million of outstanding letters
of credit that were primarily for bonding reclamation plans and electric supply
and reinsurance agreements. The Company has provided investment collateral for
$8.7 million of these letters of credit. The remaining $91.5 million represents
unsecured letters of credit. The letters of credit
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<PAGE> 38
reflect fair value as a condition of their underlying purpose and are subject to
fees competitively determined in the market place.
The Company is from time to time involved in various legal proceedings
of a character normally incident to its business. It does not believe that
adverse decisions in any pending or threatened proceedings or any amounts which
it may be required to pay by reason thereof will have a material adverse effect
on its financial condition or results of operations.
(19) UNAUDITED SUPPLEMENTARY DATA
QUARTERLY DATA
The following is a summary of selected quarterly financial information
(amounts in millions except per share amounts):
<TABLE>
<CAPTION>
1996
-------------------------------------------------------------------
Three Months Ended
----------------------------------------------------- Year Ended
March 31, June 30, September 30, December 31, December 31,
----------------------------------------------------- ------------
<S> <C> <C> <C> <C> <C>
Sales $ 236.6 $ 261.4 $ 302.2 $ 305.5 $ 1,105.7
Gross profit (1) $ 48.4 $ 55.7 $ 73.9 $ 71.3 $ 249.3
Net income $ 16.4 $ 25.7 $ 40.1 $ 23.0 $ 105.2
Net income per common share $ 0.10 $ 0.15 $ 0.24 $ 0.14 $ 0.63
Weighted average shares outstanding 165.3 166.8 166.8 166.6 166.3(2)
Dividends declared per NGC common share $ 0.12 $ 0.12 $ 0.12 $ 0.12 $ 0.48
Dividends declared per Santa Fe common share $ -- $ 0.05 $ -- $ -- $ 0.05
Closing price of common stock $ 56.125 $ 50.375 $ 47.375 $ 43.75 $ 43.75
</TABLE>
<TABLE>
<CAPTION>
1995
-------------------------------------------------------------------------
Three Months Ended
----------------------------------------------------- Year Ended
March 31, June 30, September 30, December 31, December 31,
----------------------------------------------------- ------------
<S> <C> <C> <C> <C> <C>
Sales $ 218.8 $ 229.5 $ 258.4 $ 274.9 $ 981.6
Gross profit (1) $ 52.4 $ 57.7 $ 77.6 $ 73.5 $ 261.2
Net income $ 27.5 $ 85.0 (3) $ 34.8 $ 10.2 (4) $ 157.5 (3,4)
Preferred stock dividends $ 4.0 $ 4.0 $ 4.0 $ (0.7) (5) $ 11.2 (5)
Net income applicable to common stock $ 23.5 $ 81.0 (3) $ 30.8 $ 11.0 (4) $ 146.3 (3,4)
Net income per common share $ 0.16 $ 0.52 (3) $ 0.20 $ 0.07 (4) $ 0.95 (3,4)
Weighted average shares outstanding 153.0 153.2 153.3 156.1 153.9 (5)
Dividends declared per NGC common share $ 0.12 $ 0.12 $ 0.12 $ 0.12 $ 0.48
Dividends declared per Santa Fe common share $ -- $ 0 05 $ -- $ -- $ 0.05
Closing price of common stock $ 41.375 $ 40.25 $ 40.50 $ 45.75 $ 43.75
</TABLE>
(1) Sales less costs applicable to sales and depreciation, depletion and
amortization.
(2) In January 1996, 4.65 million shares of common stock were
issued under an existing shelf registration statement (see Note 10).
(3) Includes an after-tax gain of $72 million, or $0.47 per share, from the
sale of the Company's interest in Southern Peru Copper Corporation and
an after-tax charge of $15.1 million, or $0.10 per share, for the
write-off of the investment and additional reclamation provision of the
Ivanhoe exploration property (see Notes 12 and 13).
(4) Includes an after-tax charge of $22 million, or $0.14 per share, for
the write-off of the investment in the Grassy-Mountain property (see
Note 12).
(5) Substantially all of the convertible preferred stock was converted into
common stock in December 1995 (see Note 10).
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<PAGE> 39
RATIO OF EARNINGS TO FIXED CHARGES
As a result of the transaction with NMC discussed in Note 4, the
Company's capital structure became essentially the same as NMC's. In that the
Company's financial results had been fully consolidated into NMC's and the
Company's capital structure became essentially that of NMC's, management
believes that NMC's historical consolidated ratio of earnings to fixed charges
for the two years ended December 31, 1993 is more relevant than the Company's.
They represent essentially what the Company's ratios would have been had it
acquired NMC's assets and assumed its liabilities at the beginning of 1992. The
Company had no significant fixed charges in 1992 or 1993.
The ratio of earnings to fixed charges was 1.9, 3.7, 3.2, 5.2 and 4.3
for the years ended December 31, 1996, 1995, 1994, 1993 and 1992, respectively.
The Company guarantees certain third party debt which had total interest
obligations of $1.2 million, $1.4 million, $1 million, $0.8 million and $3.3
million for the years ended December 31, 1996, 1995, 1994, 1993 and 1992,
respectively. The Company has not been required to pay any of these amounts, nor
does it expect to have to pay any amounts; therefore, such amounts have not been
included in the ratio of earnings to fixed charges.
33
