<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q/A
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1998.
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 0-25090
-------
STILLWATER MINING COMPANY
-------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 81-0480654
- ------------------------------- ------------------------------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
ONE TABOR CENTER
1200 SEVENTEENTH STREET, SUITE 900
DENVER, COLORADO 80202
- ---------------------------------- ------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(303) 352-2060
----------------------------------------------------
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS: YES X NO
---- ----
AT OCTOBER 6, 1998, 20,660,886 SHARES OF COMMON STOCK, $.01 PAR VALUE PER
SHARE, WERE ISSUED AND OUTSTANDING.
1
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STILLWATER MINING COMPANY
FORM 10-Q/A
QUARTER ENDED SEPTEMBER 30, 1998
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C> <C>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.......................................... 3
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS................. 9
SIGNATURES....................................................................
</TABLE>
2
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PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
ITEM 1. FINANCIAL STATEMENTS
<S> <C> <C>
STILLWATER MINING COMPANY
CONSOLIDATED BALANCE SHEET
(in thousands, except share and per
share amounts)
(Unaudited)
SEPTEMBER 30, December 31,
1998 1997
--------------- ---------------
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 6,658 $ 4,191
Short-term investments -- 13,468
Inventories 8,035 7,380
Accounts receivable 16,375 6,926
Other current assets 2,422 1,349
Deferred income taxes 1,989 1,989
--------------- ---------------
Total current assets 35,479 35,303
PROPERTY, PLANT AND EQUIPMENT, NET OTHER
NONCURRENT ASSETS 213,780 191,254
2,478 2,662
--------------- ---------------
Total assets $ 251,737 $ 229,219
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of long-term debt
and capital lease obligations $ 1,562 $ 1,982
Accounts payable 6,440 2,709
Accrued payroll and benefits 2,116 1,972
Property, production and
franchise taxes payable 4,063 3,682
Other current liabilities 4,310 1,904
--------------- ---------------
Total current liabilities 18,491 12,249
LONG-TERM LIABILITIES
Long-term debt and
capital lease obligations 60,491 61,513
Other noncurrent liabilities 3,536 2,283
Deferred income taxes 16,686 11,782
--------------- ---------------
Total liabilities 99,204 87,827
--------------- ---------------
SHAREHOLDERS' EQUITY
Preferred stock, $.01 par value,
1,000,000 shares authorized, none issued --- ---
Common stock, $.01 par value, 50,000,000 shares
authorized, 20,651,448 and 20,377,623
issued and outstanding 207 204
Paid-in capital 144,497 141,193
Accumulated earnings (deficit) 7,829 (5)
--------------- ---------------
Total shareholders' equity 152,533 141,392
--------------- ---------------
Total liabilities and shareholders' equity $ 251,737 $ 229,219
=============== ===============
</TABLE>
See notes to consolidated financial statements
3
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<TABLE>
<CAPTION>
STILLWATER MINING COMPANY
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
(in thousands, except per share amounts)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------- -------------------------
1998 1997 1998 1997
------------ ----------- ---------- -----------
<S> <C> <C> <C> <C>
REVENUES $ 28,198 $ 16,998 $ 76,234 $ 55,293
COSTS AND EXPENSES
Cost of metals sold 17,178 15,540 49,698 50,549
Depreciation and amortization 3,049 2,876 8,814 8,606
------------ ----------- ---------- -----------
Total cost of sales 20,227 18,416 58,512 59,155
General administrative expense and other 1,314 281 3,096 1,091
------------ ----------- ---------- -----------
Total costs and expenses 21,541 18,697 61,608 60,246
------------ ----------- ---------- -----------
OPERATING INCOME (LOSS) 6,657 (1,699) 14,626 (4,953)
OTHER INCOME (EXPENSE)
Interest income 149 248 662 775
Interest expense, net of capitalized interest
of $565, $22, $1,140 and $764 (645) (1,256) (2,550) (3,192)
------------ ----------- ---------- -----------
INCOME (LOSS) BEFORE INCOME TAXES 6,161 (2,707) 12,738 (7,370)
INCOME TAX (PROVISION) BENEFIT (2,371) 1,043 (4,904) 2,838
------------ ----------- ---------- -----------
NET INCOME (LOSS) $ 3,790 $ (1,664) $ 7,834 $ (4,532)
============ =========== ========== ===========
BASIC AND DILUTED EARNINGS PER SHARE $ 0.18 $ (0.08) $ 0.38 $ (0.22)
============ =========== ========== ===========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING
Basic 20,608 20,341 20,506 20,230
Diluted 21,030 20,341 20,884 20,230
</TABLE>
See notes to consolidated financial statements.
4
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<TABLE>
<CAPTION>
STILLWATER MINING COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
<S> <C> <C>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------------------
1998 1997
----------------- --------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES $ 18,737 $ (3,072)
(NOTE 7) ----------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (40,809) (12,596)
Purchase of short-term investments (2,256) (10,412)
Proceeds from maturity of short-term investments 15,724 14,177
Proceeds from sale/leaseback transactions 9,206 --
----------------- --------------
NET CASH USED IN INVESTING ACTIVITIES (18,135) (8,831)
----------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock 3,307 1,511
Payments on long-term debt and capital lease obligations (1,442) (1,034)
Proceeds from capital leases -- 855
----------------- --------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,865 1,332
----------------- --------------
CASH AND CASH EQUIVALENTS
Net increase (decrease) 2,467 (10,571)
Balance at beginning of period 4,191 16,389
----------------- --------------
BALANCE AT END OF PERIOD $ 6,658 $ 5,818
================= ==============
</TABLE>
See notes to consolidated financial statements.
5
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STILLWATER MINING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - GENERAL
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting only of normal
recurring adjustments) necessary to present fairly the Company's financial
position as of September 30, 1998 and the results of operations and cash flows
for the three and nine month periods ended September 30, 1998 and 1997. Certain
amounts in the accompanying consolidated financial statements for 1997 have been
reclassified to conform to the classifications used in 1998. The results of
operations for the three month and nine month periods are not necessarily
indicative of the results to be expected for the full year. The accompanying
consolidated financial statements should be read in conjunction with the
consolidated financial statements and notes thereto included in the Company's
1997 annual report on Form 10-K.
NOTE 2 - NEW ACCOUNTING STANDARDS
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 130, Reporting Comprehensive Income. This
statement establishes standards for reporting and presentation of comprehensive
income and its components. The effect of adopting SFAS No. 130 was not material
for any of the periods presented.
In June 1998, the Financial Accounting Standards Board (FASB) issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities."
This statement is effective for the fiscal year beginning January 1, 2000 and
establishes accounting and reporting standards for derivative instruments and
hedging activities. The Company is currently assessing the impact of this
statement.
Additionally in June 1998, the FASB issued Statement of Position (SOP)
98-5, "Reporting on the Costs of Start-up Activities." SOP 98-5 is effective
for fiscal year 1999 and requires that the costs of start-up activities,
including organization costs, be expensed as incurred. The Company has yet to
determine the effect of this statement on the Company's financial statements.
NOTE 3 - INVENTORIES
Inventories consisted of the following (in thousands):
(Unaudited)
SEPTEMBER 30, December 31,
1998 1997
---------------- --------------
Metals inventory
Raw ore $ 1,185 $ 460
Concentrate and in-process 3,457 3,604
---------------- --------------
4,642 4,064
Materials and supplies 3,393 3,316
---------------- --------------
$ 8,035 $ 7,380
================ ==============
<PAGE>
NOTE 4 - LONG-TERM DEBT
The Company has obtained a commitment letter from The Bank of Nova
Scotia for a $175 million syndicated senior secured credit facility ("the
Scotiabank Credit Facility"). The facility provides for a $125 million term loan
facility and a $50 million revolving credit facility. The Company expects the
Scotiabank Credit Facility to bear interest at LIBOR plus 1% to 1.75% depending
upon the Company's ratio of debt to operating cash flow. The Company expects to
be able to draw the term loan facility down until December 31, 2000, and expects
amortization to commence on March 31, 2001. The final maturity of both
facilities is expected to be December 31, 2005. The Scotiabank Credit Facility
is expected to be secured by substantially all of the property and assets of the
Company. Lending is subject to certain conditions precedent and the loan
contains typical financial and operating covenants.
NOTE 5 - SALES COMMITMENTS
The Company may use derivative instruments to manage its exposure to
market risk from changes in palladium and platinum commodity prices, interest
rates or the value of its assets and liabilities. Derivative instruments which
are designated as hedges must be deemed effective at reducing the risk
associated with the exposure being hedged and must be designated as a hedge at
the inception of the contract.
As of the end of the third quarter 1998, the Company had 38,350 ounces
of palladium sold forward at an average price of $150 per ounce, all to be
delivered in the fourth quarter of 1998. The Company has 250 ounces of
palladium sold forward for delivery in 1999 at an average price of $277 per
ounce. The Company had 12,400 ounces of platinum sold forward in the fourth
quarter of 1998 at an average price of $379 per ounce. In 1999, the Company has
8,500 ounces of platinum sold forward at an average price of $392 per ounce.
The Company has entered into new long-term marketing contracts with
General Motors Corporation, Ford Motor Company, Mitsubishi Corporation and KEMET
Corp. The contracts cover the Company's production over the five-year period
from January 1999 through December 2003. Under the contracts, the Company has
committed between 90% to 100% of its palladium production. Palladium sales are
priced at a slight discount to market, with a floor price averaging
approximately $225 per ounce. The Company has agreed to an average maximum
palladium price of approximately $400 per ounce on approximately 30% of its
production. The remaining 70% of the Company's palladium production is not
subject to any price cap. In addition, the Company has committed approximately
20% of its planned annual platinum production over the next five years. Platinum
sales are priced at a slight discount to market, subject to an average minimum
price of $350 per ounce with an average maximum price of $425 per ounce. The
remaining 80% of the Company's planned annual platinum production is not
committed under these contracts. Such platinum production remains available for
sale at prevailing market prices or under future contracts. The marketing
contracts contain termination provisions that allow the purchasers to terminate
in the event the Company breaches and the breach is not cured within periods
ranging from ten to thirty days of notice by the purchaser. In addition, the
contracts contain force majeure provisions that allow for the suspension and, in
one instance, the termination of the contract upon the occurrence of an event of
force majeure.
NOTE 6 - EARNINGS PER SHARE
In 1997, the Company adopted SFAS No. 128, "Earnings per Share." All
prior period earnings per share data presented have been restated to conform to
the provisions of this statement.
Outstanding options to purchase 1,269,284 and -0- shares of common
stock were included in the computation of diluted earnings per share for the
three month periods ended September 30, 1998 and 1997, respectively.
Outstanding options to purchase 71,475 and 1,246,484 shares of common stock were
excluded from the computation of diluted earnings per share for the three month
periods ended September 30, 1998 and 1997, respectively, because to do so would
have been antidilutive using the treasury stock method.
7
<PAGE>
Outstanding options to purchase 1,155,659 and -0- shares of common
stock were included in the computation of diluted earnings per share for the
nine month periods ended September 30, 1998 and 1997, respectively. Outstanding
options to purchase 185,100 and 1,246,484 shares of common stock were excluded
from the computation of diluted earnings per share for the nine month periods
ended September 30, 1998 and 1997, respectively, because to do so would have
been antidilutive using the treasury stock method.
In addition, approximately 1.9 million shares of common stock issuable
under the terms of the Company's 7% Convertible Subordinated Notes Due 2003 were
excluded from the computation of diluted earnings per share for the three month
and nine month periods ended September 30, 1998 and 1997, because to do so would
have been antidilutive.
NOTE 7 - CASH FLOW INFORMATION
Reconciliation of net income (loss) to net cash provided by (used in) operating
activities is as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C> <C>
Nine months ended September 30, 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 7,834 $ (4,532)
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating activities:
Depreciation and amortization 8,814 8,606
Deferred income taxes 4,904 (2,838)
Other 263 729
Changes in operating assets and liabilities:
Decrease (increase) in inventories (655) 4,881
Increase in accounts receivable (9,449) (6,015)
Increase in other current assets (1,073) (481)
Decrease in other noncurrent assets 184 288
Increase (decrease) in accounts payable 3,731 (2,913)
Increase (decrease) in other current liabilities 2,931 (1,590)
Increase in noncurrent liabilities 1,253 793
- ---------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES $18,737 $(3,072)
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE 8 - COMMITMENTS AND CONTINGENCIES
OPERATING LEASE AGREEMENTS
In September 1998, the Company completed the sale leaseback of a tunnel
boring machine and miscellaneous other mining equipment. The leases are
classified as operating leases for financial reporting purposes and are non-
cancelable with terms of seven years. Rental expense during third quarter 1998
approximated $0.1 million. The annual rental payments during the term of the
leases are approximately $1.5 million.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
STILLWATER MINING COMPANY
KEY FACTORS
(Unaudited)
The following table sets forth the amounts of palladium and platinum produced
and sold by the Company and the cash and total costs attributed to the mine
operations during the three and nine month periods ended September 30, 1998 and
1997:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- --------------------------
1998 1997 1998 1997
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
OUNCES PRODUCED/(1)/
Palladium (000) 87 71 255 191
Platinum (000) 26 22 78 59
---------- ----------- ----------- ----------
Total 113 93 333 250
TONS MINED 200 147 547 402
TONS MILLED (000)/(2)/ 191 147 537 402
MILL HEAD GRADE (OUNCES PER TON)/(3)/ 0.66 0.72 0.69 0.71
MILL RECOVERY (%) 92 89 92 88
CASH COSTS PER TON MILLED $ 90 $ 107 $ 93 $ 112
OUNCES SOLD/(2)/
Palladium (000) 88 68 253 203
Platinum (000) 28 21 77 64
----------- ----------- ----------- ----------
Total 116 89 330 267
CASH COSTS PER OUNCE/(4)/ $ 151 $ 169 $ 150 $ 180
Depreciation and amortization 27 31 27 35
----------- ----------- ----------- ----------
Total costs per ounce
produced/(4)/ $ 178 $ 200 $ 177 $ 215
AVERAGE REALIZED PRICE PER OUNCE
Palladium $ 204 $ 131 $ 184 $ 149
Platinum $ 369 $ 386 $ 383 $ 391
Combined /(5)/ $ 244 $ 191 $ 231 $ 207
AVERAGE MARKET PRICE PER OUNCE
Palladium $ 294 $ 197 $ 285 $ 169
Platinum $ 369 $ 422 $ 381 $ 396
Combined /(5)/ $ 312 $ 250 $ 305 $ 223
</TABLE>
/(1) / Ounces produced is defined as the number of ounces produced from the
concentrator during the period reduced by losses expected to be incurred
in subsequent smelting and refining processes.
/(2) / Tons milled represents the number of grade-bearing tons fed to the
concentrator.
/(3) / Mill head grade is presented as ounces per ton of palladium and platinum
combined.
/(4) / Cash costs include cash costs of mine operations, processing and
administrative expenses at the mine site (including overhead, taxes other
than income taxes, royalties, and credits for metals produced other than
9
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palladium and platinum). Total costs of production include cash costs plus
depreciation and amortization. Income taxes, general and administrative
expense and interest income and expense are not included in either total
or cash costs.
/(5)/ Stillwater Mining reports a combined average realized price of palladium
and platinum at the same ratio as ounces are produced from the base
metals refinery. The same ratio is applied to the combined average
market price.
10
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This Form 10-Q contains forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. Such statements include comments
regarding anticipated capital expenditures and sources of financing for capital
expenditures and benefit from net operating loss carryforwards. In addition to
factors discussed below, the factors that could cause actual results to differ
materially include, but are not limited to, the following: supply and demand of
palladium and platinum; unexpected events during facility expansion;
fluctuations in ore grade, tons mined, crushed or milled; variations in smelter
or refinery operation; amounts and prices of the Company's forward metals
sales, and geological, technical, permitting, mining or processing issues. For a
more detailed description of risks attendant to the business and operations of
Stillwater and to the mining industry in general, please see the Company's other
SEC filings, in particular the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997.
RESULTS OF OPERATIONS
Three months ended September 30, 1998 compared to three months ended September
- ------------------------------------------------------------------------------
30, 1997
- --------
Revenues
--------
Revenues for the third quarter of 1998 increased $11.2 million, or
66%, to $28.2 million compared to $17.0 million in the same period of 1997. The
increase in revenue was primarily due to a 30% increase in the quantity of metal
sold combined with a 56% increase in the average realized price per ounce of
palladium sold.
During the third quarter of 1998, the Company sold 88,000 ounces of
palladium and 28,000 ounces of platinum at average realized prices of $204 and
$369, respectively, compared with sales of 68,000 ounces of palladium and 21,000
ounces of platinum at average realized prices of $131 and $386, respectively,
in the prior year's comparable period. During the third quarter of 1998, the
average market prices of palladium and platinum were $294 and $369,
respectively. As a result of hedge contracts that were entered into in 1997, the
Company realized $7.9 million less revenue in the third quarter of 1998 than
would have been realized if metal had been delivered at prevailing average
market prices. In the comparable period of 1997, a hedging loss of $5.3 million
resulted.
During the third quarter of 1998, the Company increased production 22%
to 87,000 ounces of palladium and 26,000 ounces of platinum compared with
production of 71,000 ounces of palladium and 22,000 ounces of platinum in the
third quarter of 1997.
Costs and Expenses
------------------
Total cost of sales increased by $1.8 million, or 10%, from $18.4
million in the third quarter of 1997 to $20.2 million in the third quarter of
1998. The cash costs per ounce decreased 11% from $169 in the third quarter of
1997 to $151 in 1998. The decrease in costs resulted from increased throughput
and processing efficiencies achieved as a result of the completion of an
expansion at the Stillwater Mine. During 1997, the facility increased production
capacity from 1,200 tons per day in the first quarter of 1997 to 2,000 tons per
day in the fourth quarter of 1997. In addition, the mill recovery increased from
89% in the third quarter of 1997 to 92% in the third quarter of 1998.
Operating Income (Loss)
-----------------------
As a result of the increase in revenues and the decrease in operating
costs discussed above, operating income in the third quarter of 1998 increased
to $6.7 million compared with an operating loss of $1.7 million in the
comparable period of 1997.
11
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Net Income (Loss)
-----------------
The Company's income before income taxes amounted to $6.2 million in
the third quarter of 1998 compared to a loss before income taxes of $2.7 million
in the third quarter of 1997. In the third quarter of 1998, the Company provided
for $2.4 million of income taxes compared to a recorded tax benefit of $1.0
million in the third quarter of 1997. The Company has provided for deferred
income taxes at the statutory rate of 38.5%; however, as a result of
approximately $46.6 million of net operating loss carryforwards existing at
December 31, 1997, the Company does not expect to incur any material cash income
tax liability until future years. As a result, the Company reported net income
of $3.8 million, or $0.18 per basic and diluted share in the third quarter of
1998, compared to a net loss of $1.7 million, or $0.08 per basic and diluted
share in the third quarter of 1997.
RESULTS OF OPERATIONS
Nine months ended September 30, 1998 compared to nine months ended September 30,
- --------------------------------------------------------------------------------
1997
- ----
Revenues
--------
Revenues for the first nine months of 1998 increased $20.9 million, or
38%, to $76.2 million compared to $55.3 million in the same period of 1997.
The increase in revenue was primarily due to a 24% increase in the quantity of
metal sold combined with a 23% increase in the average realized price per ounce
of palladium sold.
During the first nine months of 1998, the Company sold 253,000 ounces
of palladium and 77,000 ounces of platinum at average realized prices of $184
and $383, respectively, compared with sales of 203,000 ounces of palladium and
64,000 ounces of platinum at average realized prices of $149 and $391,
respectively, in the prior year's comparable period. During the first nine
months of 1998, the average market prices of palladium and platinum were $285
and $381, respectively. As a result of hedge contracts that were entered into in
1997, the Company lost $24.4 million in revenue in the first nine months of 1998
than would have been realized if metal had been delivered at prevailing average
market prices. In the comparable period of 1997, a hedging loss of $4.3 million
resulted.
As of September 30, 1998, the Company had 38,350 ounces of palladium
sold forward at an average price of $150 per ounce, all to be delivered in the
fourth quarter of 1998. The Company has 250 ounces of palladium sold forward for
delivery in 1999 at an average price of $277 per ounce. The Company had 12,400
ounces of platinum sold forward in the fourth quarter of 1998 at an average
price of $379 per ounce. In 1999, the Company has 8,500 ounces of platinum sold
forward at an average price of $392 per ounce.
During the first nine months of 1998, the Company increased production
33% to 255,000 ounces of palladium and 78,000 ounces of platinum compared with
production of 191,000 ounces of palladium and 59,000 ounces of platinum in the
first nine months of 1997.
Costs and Expenses
------------------
Total cost of sales decreased by $0.7 million, from $59.2 million in
the first nine months of 1997 to $58.5 million in the first nine months of 1998.
The cash costs per ounce produced decreased 17% from $180 in the first nine
months of 1997 to $150 in the first nine months of 1998. The decrease in costs
resulted from increased throughput and processing efficiencies achieved as a
result of the completion of an expansion at the Stillwater Mine. During 1997,
the facility increased production capacity from 1,200 tons per day in the first
quarter of 1997 to 2,000 tons per day in the fourth quarter of 1997. Materials
handling and processing efficiencies were also realized upon commissioning of
the production shaft in June 1997. In addition, the mill recovery increased from
88% in the first nine months of 1997 to 92% in the first nine months of 1998.
12
<PAGE>
Operating Income (Loss)
-----------------------
As a result of the increase in revenues and the decrease in operating
costs discussed above, operating income in the first nine months of 1998
increased by $19.6 million to $14.6 million compared with an operating loss of
$5.0 million in the comparable period of 1997.
Net Income (Loss)
-----------------
The Company's income before income taxes amounted to $12.7 million in
the first nine months of 1998 compared to a loss before income taxes of $7.4
million in the first nine months of 1997. In the first nine months of 1998, the
Company provided for $4.9 million of income taxes compared to a recorded tax
benefit of $2.8 million in the same period of 1997. The Company has provided for
deferred income taxes at the statutory rate of 38.5%; however, as a result of
approximately $46.6 million of net operating loss carryforwards existing at
December 31, 1997, the Company does not expect to incur any material cash income
tax liability until future years. As a result, the Company reported net income
of $7.8 million, or $0.38 per basic and diluted share in the first nine months
of 1998, compared to a net loss of $4.5 million, or $0.22 per basic and diluted
share in the same period of 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital at September 30, 1998 was $17.0 million
compared to $23.1 million at December 31, 1997. The ratio of current assets to
current liabilities was 1.9 at September 30, 1998, compared to 2.9 at December
31, 1997.
Net cash provided by operating activities for the first nine months of
1998 was $18.7 million compared to net cash used of $3.1 million in the first
nine months of 1997. The $21.8 million increase in operating cash flow in 1998
is primarily attributable to an increase in the Company's net income of $12.4
million and an increase in the provision for deferred income taxes of $7.7
million.
A total of $18.1 million of net cash was used in investing activities
in the first nine months of 1998 compared to $8.8 million in the first nine
months of 1997. The increased usage was due to an increase in capital
expenditures as a result of the development at the East Boulder project and the
Stillwater Mine expansion. The Company's financing activities provided $1.9
million in net cash in the first nine months of 1998 compared to $1.3 million in
the first nine months of 1997. As a result of the above, cash and cash
equivalents increased by $2.5 million in the first nine months of 1998 compared
with a decrease of $10.6 million in the comparable period of 1997.
In September 1998, the Company completed the sale leaseback of a
tunnel boring machine and miscellaneous other mining equipment. The leases are
classified as operating leases for financial reporting purposes and are non-
cancelable with terms of seven years. Rental expense during the third quarter
1998 approximated $0.1 million. The annual rental payments during the term of
the leases are approximately $1.5 million.
The Company recently announced plans to expand the Stillwater Mine and
to develop the East Boulder project. Total capital to fund the expansion is
expected to approximate $385 million. Of this, the Stillwater Mine expansion is
expected to cost $75 million, East Boulder is expected to cost approximately
$270 million, and approximately $40 million is designated for the expansion of
the Company's smelter and base metals refinery located in Columbus, Montana.
During the remainder of 1998, the Company expects to invest approximately $39.2
million in connection with the expansion plans. The Company intends to finance
the expansion with operating cash flow and external financing.
During the third quarter of 1998, the Company entered into marketing
contracts with General Motors Corporation, Ford Motor Company, Mitsubishi
Corporation and KEMET Corp. These contracts cover the Company's PGM production
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over the five-year period from January 1999 through December 2003. During this
period, the Company has committed between 90% to 100% of its palladium
production and approximately 20% of its planned annual platinum production.
Palladium and platinum sales are priced at a slight discount to market, with
floor prices on substantially all of the Company's production committed under
these contracts averaging $225 per ounce of palladium and $350 per ounce of
platinum. The Company has also agreed to an average maximum price of
approximately $400 per ounce on approximately 30% of its palladium production
and $425 per ounce on approximately 20% of its planned annual platinum
production.
In addition, the Company has an unsecured working capital line of
credit with NM Rothschild and Sons, Ltd., with a maximum borrowing capacity of
$15 million, which expires on April 30, 1999. As of September 30, 1998, there
were no borrowings against this credit line and the Company could borrow up to
$13.5 million based upon quarterly borrowing calculations under the terms of the
agreement. This facility will be cancelled concurrent with completion of the
Scotiabank Credit Facility.
The Company has obtained a commitment letter from The Bank of Nova
Scotia for a $175 million credit facility. The commitment letter for the
Scotiabank Credit Facility provides for a $125 million term loan facility and a
$50 million revolving credit facility. We expect to be able to borrow under the
term loan facility until December 31, 2000 and that amortization of the term
loan facility will commence on March 31, 2001. We expect that the final maturity
of the term loan facility and revolving credit facility will be December 31,
2005. The loans will be required to be repaid from excess cash flow, proceeds
from asset sales and the issuance of debt or equity securities, subject to
specified exceptions. Proceeds of the term loan facility will be used to finance
a portion of the 1998 Expansion Plan. Proceeds of the revolving credit facility
will be used for our general corporate and working capital needs. At the
Company's option, the Scotiabank Credit Facility will bear interest at LIBOR or
an alternate base rate, in each case plus a margin. The interest rate may be
adjusted depending upon the Company's ratio of debt to operating cash flow.
Substantially all the property and assets of the Company and its subsidiaries
and the stock of the Company's subsidiaries will be pledged as security for the
Scotiabank Credit Facility.
The bank's commitment is subject to numerous conditions, including the
completion of due diligence, the company's obtaining $50 million of additional
equity capital and the negotiation of definitive loan documentation. In
addition, conditions precedent to both initial and subsequent borrowings under
the term loan facility and revolving credit facility may include: (1) continued
performance of the marketing contracts; (2) receipt of satisfactory milestone
reports regarding the 1998 Expansion Plan; and (3) receipt of all government and
third party approvals necessary or advisable for the 1998 Expansion Plan.
Covenants in the Scotiabank Credit Facility will restrict: (1)
additional indebtedness; (2) payment of dividends or redemption of capital
stock; (3) liens; (4) investment, acquisitions, dispositions or mergers; (5)
transactions with affiliates; (6) capital expenditures (other than those
associated with the 1998 Expansion Plan); (7) refinancing or prepayment of
subordinated debt (excluding an underwritten call or conversion of the Company's
7% Convertible Subordinated Notes Due 2003);(8) changes in the nature of
business conducted or ceasing operations at the principal operating properties;
and (9) commodities hedging to no more than 90% of annual palladium production
and 75% of annual platinum production (excluding the sales covered by the
Company's marketing contracts and similar agreements). The Company also will be
subject to financial covenants including a debt to operating cash flow ratio, a
debt service coverage ratio and a debt to equity ratio.
Events of default will include: (1) a cross-default to other
indebtedness of the Company or its subsidiaries; (2) any material modification
to the life-of-mine plan for the Stillwater Mine; (3) a change of control of the
Company; (4) the failure to maintain annual palladium production of at least
315,000 ounces in the year 2000 and at least 490,000 ounces each year thereafter
or (5) any breach or modification of any of the marketing contracts. Default
under the Scotiabank Credit Facility may constitute a default under the
indenture associated with the Convertible Notes. The indenture for the
Convertible Notes also contains standard covenants and provisions for events of
default.
YEAR 2000 ISSUES
The Year 2000 will impact computer programs written using two digits
rather than four to define the applicable year. Any programs with time-
sensitive software may recognize a date using "00" as the year 1900 rather than
the year 2000. This could result in a system failure or miscalculations causing
disruptions of operation, including a temporary inability to process
transactions, send invoices or engage
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in other ordinary activities. This problem largely affects software programs
written years ago, before the issue came to prominence. The Company recently
reviewed all of its software for exposure to Year 2000 issues, and does not
believe that such software poses significant risks associated with the Year 2000
problem. The Company primarily uses third-party software programs written and
updated by outside firms, and the Company is in the process of determining
whether this software is Year 2000 compliant. In May 1996, the Company began the
implementation of new information technology infrastructure that the Company
believes will be fully Year 2000 compliant. This infrastructure is expected to
be in place by the fourth quarter of 1998. To assure that all software programs
can successfully work in conjunction with each other using this new
infrastructure, the Company plans on testing all of its software and hardware
during the first quarter of 1999 using a combination of past and future dates.
The Company does not believe that the costs associated with additional Year 2000
compliance will be material.
The Company has set in motion an effort to obtain written assurances
from its material suppliers regarding their Year 2000 compliance. As a result
of this effort, the Company expects to generate by the second quarter of 1999 a
validated list of suppliers that are Year 2000 compliant, and expects to use the
entities on the list to obtain its supplies.
The Company has also begun the process of obtaining written assurances
from the Company's material customers regarding their Year 2000 compliance. The
Company's goal is to obtain by the second quarter of 1999 written assurances
from its customers that they are Year 2000 compliant or that they are expecting
to become Year 2000 compliant before December 31, 1999.
Although the Company has taken significant steps to address the Year
2000 problem, there can be no assurance that the failure of the Company and/or
its material customers or suppliers to timely attain Year 2000 compliance will
not materially reduce the Company's revenues or income, or that these failures
and/or the impacts of broader compliance failures by telephone, mail, data
transfer or other utility or general service providers or government of private
entities will not have a material adverse effect on the Company.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on behalf of the
undersigned thereunto duly authorized.
STILLWATER MINING COMPANY
(Registrant)
Date: November 24, 1998 By: /s/ JAMES A. SABALA
------------------------------------------
James A. Sabala
Vice President and Chief Financial Officer
(Principal Financial Officer)
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