<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For The Quarterly Period Ended March 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For The Transition Period From to
-------------------------- ----------------------
Commission File Number 1-10012
SUNSHINE MINING AND REFINING COMPANY
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 75-2231378
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
877 W. Main, Suite 600, Boise, Idaho 83702
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(Address of principal executive offices)
Registrant's telephone number including area code (208) 345-0660
--------------
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Former name, former address and former fiscal year, if changed
since last report
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
---- ----
Number of Shares Outstanding
Title of Each Class of Common Stock at April 30, 1996
- ------------------------------------ ----------------------------
Common Stock, $.01 par value 192,125,892
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SUNSHINE MINING AND REFINING COMPANY
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1996 AND DECEMBER 31, 1995
(In Thousands)
ASSETS
<TABLE>
<CAPTION>
March 31 December 31
1996 1995
------------------- -------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 36,580 $ 12,837
Silver bullion 9,396 8,976
Accounts receivable 1,691 1,583
Inventories (Note 2) 1,949 1,477
Marketable securities 7 13
Other current assets 1,522 1,592
------------------- -------------------
Total current assets 51,145 26,478
Property, plant and equipment, at cost 139,745 140,886
Less accumulated depreciation,
depletion and amortization (68,904) (69,967)
------------------- -------------------
70,841 70,919
Other noncurrent assets and deferred charges 6,006 3,737
------------------- -------------------
Total assets $ 127,992 $ 101,134
=================== ===================
</TABLE>
See accompanying notes.
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SUNSHINE MINING AND REFINING COMPANY
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1996 AND DECEMBER 31, 1995
(IN THOUSANDS)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
March 31 December 31
1996 1995
----------------- -----------------
<S> <C> <C>
Current liabilities:
Accounts payable $ 1,218 $ 687
Accrued expenses 3,103 2,241
----------------- -----------------
Total current liabilities 4,321 2,928
Long-term debt (Note 3) 31,519 1,519
Accrued pension and other postretirement benefits 6,530 6,387
Other long-term liabilities and deferred credits 6,516 5,218
Stockholders' equity:
Cumulative redeemable preferred stock--
aggregate redemption value:
March 31, 1996 - $130,335
December 31, 1995 - $128,203 82,607 82,268
Common stock--$.01 par value;
400,000 shares authorized; shares issued:
March 31, 1996 - 196,801
December 31, 1995 - 196,760 1,968 1,968
Paid-in capital 623,338 623,337
Deficit (627,414) (622,454)
----------------- -----------------
80,499 85,119
Less treasury stock, at cost:
March 31, 1996 - 4,749 shares
December 31, 1995 - 3,664 shares 1,393 37
----------------- -----------------
79,106 85,082
----------------- -----------------
Total liabilities and stockholders' equity $ 127,992 $ 101,134
================= =================
</TABLE>
See accompanying notes.
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SUNSHINE MINING AND REFINING COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED
MARCH 31, 1996 AND 1995
(In Thousands, Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
QUARTER
-------
1996 1995
------------ ------------
<S> <C> <C>
Operating revenues $ 3,797 $ 4,564
Costs and expenses:
Cost of sales 3,625 5,035
Depreciation, depletion
and amortization 960 859
Exploration 2,524 1,116
Selling, general and
administrative expense 1,252 1,452
------------ ------------
8,361 8,462
------------ ------------
Operating loss (4,564) (3,898)
Other income (expense):
Interest income 182 344
Interest expense (296) (135)
Other, net 57 64
------------ ------------
(57) 273
------------ ------------
Net loss (4,621) (3,626)
Preferred dividend requirements (2,471) (2,559)
------------ ------------
Loss applicable to common shares $ (7,092) $ (6,184)
============ ============
Loss per common share $ (0.04) $ (0.03)
Weighted average common ============ ============
shares outstanding 191,989 192,995
============ ============
</TABLE>
See accompanying notes.
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SUNSHINE MINING AND REFINING COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED
MARCH 31, 1996 AND 1995
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
-------------- --------------
<S> <C> <C>
Cash used by operating activities:
Net loss $ (4,621) $ (3,626)
Adjustments to reconcile loss from operations
to net cash used by operations:
Depreciation, depletion and amortization 960 859
Exploration Expenditures 2,524 1,116
Realized and unrealized gains on
marketable equity securities (60) -
Net (increase) decrease in:
Silver bullion (420) (720)
Accounts receivable (108) (618)
Inventories (472) 220
Other assets and deferred charges 70 384
Net increase (decrease) in:
Accounts payable and accrued expenses 570 202
Accrued pension and other postretirement benefits 143 50
Other liabilities and deferred credits (328) 225
-------------- --------------
Net cash used by operations (1,742) (1,907)
-------------- --------------
Cash provided (used) by investing activities:
Additions to property, plant and equipment and
exploration expenditures (3,098) (1,168)
Proceeds from investments 630 12
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Net cash used by investing activities (2,468) (1,156)
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Cash provided by financing activities:
Proceeds from issuance of common stock upon exercise of stock
options and warrants 1 -
Proceeds from issuance of long term debt 30,000 -
Debt issuance costs (2,047) -
-------------- --------------
Net cash provided by financing activities 27,954 0
-------------- --------------
Increase (decrease) in cash and cash investments 23,743 (3,064)
Cash and cash investments, January 1 12,837 26,581
-------------- --------------
Cash and cash investments, March 31 $ 36,580 $ 23,517
============== ==============
Supplemental cash flow information -
Interest paid in cash $ 166 $ 63
============== ==============
</TABLE>
See accompanying notes.
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SUNSHINE MINING AND REFINING COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS
March 31, 1996
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed financial statements of
Sunshine Mining and Refining Company ("Sunshine" or the "Company") have
been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q
and Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Certain
previously reported amounts have been reclassified to conform to the March
1996 presentation. Operating results for the three month period ended
March 31, 1996 are not necessarily indicative of the results that may be
expected for the year ended December 31, 1996. For further information,
refer to the consolidated financial statements and footnotes thereto
included in Sunshine's report on Form 10-K for the year ended December 31,
1995.
2. INVENTORIES
The components of inventory consist of the following:
<TABLE>
<CAPTION>
March 31 December 31
1996 1995
--------- -----------
<S> <C> <C>
Precious Metals Inventories:
Work in process $ 990 $ 512
Finished goods 159 264
Materials and supplies inventories 800 701
--------- ---------
$ 1,949 $ 1,477
========= =========
</TABLE>
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3. LONG-TERM DEBT
During the quarter, the Company, through its subsidiary SPMI, issued $30
million in 8% Senior Exchangeable Notes to non-U.S. persons pursuant to
Regulation S promulgated under the Securities Act of 1933, as amended.
See "Management's Discussion and Analysis of Financial Condition."
4. SIGNIFICANT ACCOUNTING POLICIES
The Company adopted the Financial Accounting Standards Board ("FASB")
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and
Long-Lived Assets to be Disposed of ("FAS 121")," in the first quarter of
1996. The adoption of FAS 121 had no impact on the Company's financial
condition as the Company's methodology for evaluating its mining
properties for impairment is consistent with FAS 121.
FASB Statement No. 123, "Accounting for Stock Based Compensation ("FAS
123")" establishes an alternative method of accounting for stock based
compensation to the method set forth in Accounting Principles Board
Opinion No. 25 ("APB 25"). The Company will continue to account for stock
option grants under the provisions of APB 25 and has adopted the
disclosure provisions of FAS 123. Accordingly, the adoption of FAS 123 in
1996 had no effect on the Company's financial statements.
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SUNSHINE MINING AND REFINING COMPANY
Management's Discussion and Analysis of Financial Condition
and Results of Operations for the
Three Months Ended March 31, 1996 and 1995
LIQUIDITY AND CAPITAL RESOURCES
The Company, through Sunshine Precious Metals, Inc. ("SPMI"), its
wholly-owned subsidiary, concluded an offering (the "Notes Offering") in March,
1996, conducted in Europe only to non-U.S. persons pursuant to Regulation S
promulgated under the Securities Act of 1933, as amended. SPMI issued $30
million aggregate principal amount of Senior Exchangeable Notes due 2000 (the
"Notes") pursuant to the Notes Offering. The net proceeds from the Notes
Offering (approximately $27.25 million) will be used to fund development and
exploration opportunities of the Company, and for working capital requirements
of the Company. The Company's working capital totaled $46.8 million at March
31, 1996, which will be adequate to fund the Company's anticipated cash
requirements for several years.
Set forth below are certain terms and provisions of the Notes and the
Notes Offering. The Notes bear interest at 8% per annum and will mature four
years after their issuance (March 21, 2000). The Notes are exchangeable into a
specified number of shares of Common Stock of the Company at an exchange price
of $1.4375 per share, subject to reset and adjustment in certain events. The
Notes may be exchanged at the option of the holder at any time after 40 days
following the date of issuance and prior to maturity, unless previously
redeemed. At any time after one year from the date of issuance and prior to
maturity, SPMI may force the exchange of the Notes, in whole or in part,
subject to certain restrictions. SPMI may redeem the Notes at any time at the
principal amount if United States withholding taxes are imposed on payments in
respect of the Notes. The Notes will be guaranteed by Sunshine (and any
successors thereof) and the
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<PAGE> 9
guarantee will rank senior to all of its unsecured and subordinated
obligations, including the currently outstanding Convertible Subordinated Reset
Debentures due July 15, 2008.
As the price of silver since 1985 has been only slightly in excess of, or
less than, the Company's cash cost to produce an ounce of silver, the Company's
operations have not been able to generate cash flow sufficient to cover its
costs of exploration, research, general and administrative expenses, and
interest, as well as non-cash charges such as depreciation, depletion, and
amortization. Until such time as the price of silver increases significantly
or higher production is achieved at a lower cost, the Company will continue to
generate a negative cash flow from operations.
The Company anticipates capital expenditures in 1996 at the Sunshine Mine
to be approximately $3 million, including $574 thousand expended in the first
quarter. For 1996, the Company has also budgeted approximately $7.5 million for
exploration activities at the Sunshine Mine, Pirquitas property in Argentina,
and other projects. Exploration expenditures for the first three months of
1996 totaled approximately $2.5 million.
Preferred Stock
The dividend on Sunshine's $11.94 (Stated Value) Cumulative Redeemable
Preferred Stock (the "Preferred Stock") has neither been declared nor paid
since December 31, 1990. Given current silver prices, the Company does not
expect any resumption of dividends in the foreseeable future. Dividends are
cumulative. The amount of aggregate redemption value disclosed on the balance
sheet includes $45 million in dividends in arrears.
The Certificate of Designation of Rights and Preferences (the
"Certificate") governing the Preferred Stock prohibits partial redemptions
while dividends are in arrears. Therefore, the Company has not made annual
redemptions of approximately 808 thousand shares of the Preferred Stock since
1991.
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<PAGE> 10
Pursuant to the Certificate, the Company may make dividend payments and
redemptions of the Preferred Stock using cash or by issuing shares of its
common stock valued in accordance with a specified formula. There are no
penalties for the Company failing to make dividend payments or partial
redemptions.
On October 19, 1995, the Board of Directors of Sunshine approved the
proposed merger (the "Merger") of Sunshine with and into its wholly-owned
subsidiary, Sunshine Merger Company, pursuant to which Sunshine Merger Company
would be the surviving entity. The purpose of the proposed Merger is to retire
all of Sunshine's outstanding Preferred Stock. The proposed Merger requires
approval by the holders of a majority of the outstanding Common Stock and
Preferred Stock, voting separately as a class. A special meeting of
Stockholders was held on March 29, 1996 to consider the Merger. The Merger was
approved by the preferred stockholders at the meeting. The meeting has been
adjourned until May 21, 1996 to allow common stockholders additional time to
consider and vote on the Merger. As of April 30, 1996, approximately 47.1% of
the outstanding Common Stock had been voted in favor of the Merger, 3.6%
against the Merger, and 1.6% have voted to abstain.
Operating, Investing, and Financing Activities
Cash used in operating activities in the first quarter of 1996 was $1.7
million compared to $1.9 million in the first quarter of 1995. Cash operating
losses decreased in the first quarter of 1995 by $0.5 million, partially offset
by changes in working capital components.
Approximately $2.5 million of cash was used by investing activities in the
first quarter of 1996 compared to $1.2 million in the 1995 period. The $1.3
million increase was primarily due to increased exploration expenditures of
$1.4 million and $0.6 million increase in additions to property, plant and
equipment partially offset by the sale of certain marketable securities.
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<PAGE> 11
Cash provided by financing activities was $28.0 million in the first
quarter of 1996 as a result of the Company's Notes Offering. There was no cash
provided by financing activities in the first quarter of 1995.
RESULTS OF OPERATIONS
THE THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THE THREE
MONTHS ENDED MARCH 31, 1995
Consolidated operating revenues decreased approximately $767 thousand for
the first quarter of 1996 compared to the first quarter of 1995 due to smaller
mark to market increases on work in process inventories and investment bullion
during the quarter ($470 thousand increase in the first quarter of 1996
compared to $921 thousand increase in the same period in 1995); and a reduction
in sales volumes (457,000 ounces of silver in the 1996 quarter compared to
619,000 ounces in the 1995 quarter). The reduction in sales volumes was due to
a drawdown in work-in- process inventories in the first quarter of 1995
resulting from the suspension of operations of the Company's silver refinery
during the 1995 quarter, which resulted in shorter processing time before sales
recognition of silver and copper concentrates to a third party smelter. These
decreases were partially offset by increased sales volumes resulting from a
177,000 ounce (47%) increase in production in the 1996 quarter and an $0.83
(17.1%) increase in average silver price received per ounce.
Cost of sales decreased $1.4 million (28%) (from $5.0 million in the first
quarter of 1995 to $3.6 million in the first quarter of 1996) due to the
drawdown in inventories in 1995, as discussed above, and lower unit production
costs. Unit production costs decreased primarily due to a 47% increase in
silver production and a 15.6% increase in average grades from 1995 to 1996 (554
thousand ounces produced from 31,037 tons at 18.42 ounces per ton in 1996
versus 377 thousand ounces from 24,534 tons at 15.93 ounces per ton in 1995).
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<PAGE> 12
Exploration expense increased $1.4 million (28%) for the first quarter of
1996 compared to the same period in 1995 in keeping with the Company's plan to
increase exploration spending at the Sunshine mine, the Pirquitas property in
Argentina, and other sites in Argentina, Peru and Colorado.
Depreciation, depletion and amortization increased by approximately $100
thousand as a result of increased production in the 1996 period.
Interest income decreased by $162 thousand (47%) due to lower invested
cash balances.
Interest expense increased $161 thousand due to the Notes Offering
completed in March, 1996. (See "Liquidity and Capital Resources.")
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SUNSHINE MINING AND REFINING COMPANY
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On March 22, 1996, a complaint was filed in the United States
District Court for the District of Idaho on behalf of the United
States Department of the Interior, United States Department of
Agriculture and the Environmental Protection Agency against Sunshine,
Sunshine Precious Metals, Inc. (SPMI) and other identified
Potentially Responsible Parties (PRPs) for alleged natural resource
damages in the Coeur d'Alene Basin. The complaint seeks to recover
natural resource damages and response costs under the federal
Comprehensive Environmental Response, Compensation and Liability Act
of 1980, as amended (CERCLA) and the Clean Water Act, and does not
identify the amount of damages sought to be recovered. The Company
believes that the settlement by SPMI of all natural resource claims
with the State of Idaho in May, 1986, bars these claims, and that the
complaint is without merit.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On March 29, 1996, a special meeting of the stockholders of
Sunshine was convened, at which holders of Sunshine's common stock
and preferred stock, each voting separately as a class, were asked to
vote on the proposed merger of Sunshine with and into Sunshine Merger
Company, a wholly-owned subsidiary of Sunshine. On the effective
date, the merger will result in the elimination of Sunshine's
preferred stock in exchange for common stock and warrants to purchase
common stock; all other securities of Sunshine will be converted into
identical corresponding securities of Sunshine Merger Company without
any action by the holders thereof. On the effective date of the
merger, Sunshine Merger Company's name will be changed to Sunshine
Mining and Refining Company.
There were 7,166,186 shares of preferred stock outstanding and
entitled to vote at the special meeting. The holders of preferred
stock approved the merger proposal by the following vote:
For: 4,381,202
Against: 387,867
Abstain: 39,029
The meeting was adjourned for lack of a quorum of common stock
to April 17, 1996, with the polls remaining open during the interim
with respect to the vote by holders of common stock. On April 17,
1996, the meeting was continued to April 30, 1996 for lack of a
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<PAGE> 14
Quorum of Common stock. On April 30, 1996, the meeting was continued,
with respect to the vote by holders of common stock, to May 21,1996
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
Sunshine filed a report on Form 8-K dated March 22, 1996,
regarding the closing of the offering of $30,000,000 8% Senior
Exchangeable Notes due 2000 (the "Notes") by SPMI. The Notes
will be guaranteed by and exchangeable into shares of common
stock of Sunshine.
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<PAGE> 15
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 hereto duly authorized.
SUNSHINE MINING AND REFINING COMPANY
Dated: May 9, 1996 By: /s/ William W. Davis
------------------------------------------
William W. Davis Executive Vice President,
Chief Financial Officer and Chief
Accounting Officer
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INDEX TO EXHIBITS
Exhibit
Number Description
- ------- -----------
EX 27. Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AT MARCH 31, 1996 (UNAUDITED) AND THE CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1996 (UNAUDITED)
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<MULTIPLIER> 1,000
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 36,580
<SECURITIES> 7
<RECEIVABLES> 1,691
<ALLOWANCES> 0
<INVENTORY> 1,949
<CURRENT-ASSETS> 51,145
<PP&E> 139,745
<DEPRECIATION> 68,904
<TOTAL-ASSETS> 127,992
<CURRENT-LIABILITIES> 4,321
<BONDS> 31,519
<COMMON> 1,968
82,607
0
<OTHER-SE> (5,469)
<TOTAL-LIABILITY-AND-EQUITY> 127,992
<SALES> 3,797
<TOTAL-REVENUES> 3,797
<CGS> 3,625
<TOTAL-COSTS> 7,109
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 296
<INCOME-PRETAX> (4,621)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,621)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,092)
<EPS-PRIMARY> (0.04)
<EPS-DILUTED> (3.03)
</TABLE>
