UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999.
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 APRIL 9, 1999, 34,639,871 SHARES OF COMMON STOCK, $.01 PAR VALUE PER SHARE,
WERE ISSUED AND OUTSTANDING.
1
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STILLWATER MINING COMPANY
FORM 10-Q
QUARTER ENDED MARCH 31, 1999
INDEX
PAGE
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS............................. 3-8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.... 9-13
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS................................ 14
ITEM 2. CHANGES IN SECURITIES............................ 14
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.................. 14
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS................................. 14
ITEM 5. OTHER INFORMATION................................ 14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K................. 14
SIGNATURES ................................................. 15
2
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
STILLWATER MINING COMPANY
CONSOLIDATED BALANCE SHEET
(in thousands, except per share amounts)
<TABLE>
(UNAUDITED)
MARCH 31, December 31,
1999 1998
--------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 16,718 $ 49,811
Inventories 10,324 9,333
Accounts receivable 26,387 21,762
Deferred income taxes 2,980 2,980
Other current assets 2,650 1,492
-------- --------
Total current assets 59,059 85,378
-------- --------
PROPERTY, PLANT AND EQUIPMENT, NET 284,814 247,556
OTHER NONCURRENT ASSETS 5,038 3,003
-------- --------
Total assets $348,911 $335,937
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 9,765 $ 11,980
Accrued payroll and benefits 3,508 3,332
Property, production and franchise 3,875 3,971
taxes payable
Current portion of capital lease 2,240 2,425
obligations
Other current liabilities 4,280 4,909
-------- --------
Total current liabilities 23,668 26,617
-------- --------
LONG-TERM LIABILITIES
Long-term debt and capital lease 58,589 58,992
obligations
Deferred income taxes 23,291 19,009
Other noncurrent liabilities 4,065 3,312
-------- --------
Total liabilities 109,613 107,930
-------- --------
SHAREHOLDERS' EQUITY
Preferred stock, $0.01 par value,
1,000,000 shares authorized, none issued -- --
Common stock, $0.01 par value, 50,000,000
shares authorized, 34,623,983 and
34,548,559 shares issued and outstanding 346 345
Paid-in capital 214,983 214,281
Accumulated earnings 23,969 13,381
-------- --------
Total shareholders' equity 239,298 228,007
-------- --------
Total liabilities and shareholders' equity $348,911 $335,937
======== ========
</TABLE>
See notes to consolidated financial statements.
3
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STILLWATER MINING COMPANY
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
(in thousands, except per share amounts)
<TABLE>
THREE MONTHS ENDED
MARCH 31,
------------------------
1999 1998
-------- --------
<S> <C> <C>
REVENUES $ 38,030 $ 21,513
COSTS AND EXPENSES
Cost of metals sold 18,231 15,604
Depreciation and amortization 2,927 2,814
-------- --------
Total cost of sales 21,158 18,418
General and administrative expense 1,328 723
-------- --------
Total costs and expenses 22,486 19,141
-------- --------
OPERATING INCOME 15,544 2,372
OTHER INCOME (EXPENSE)
Interest income 487 256
Interest expense, net of capitalized
interest of $1,089 and $222 (109) (1,028)
INCOME BEFORE INCOME TAXES 15,922 1,600
INCOME TAX PROVISION (5,334) (616)
-------- --------
NET INCOME AND COMPREHENSIVE INCOME $ 10,588 $ 984
======== ========
BASIC AND DILUTED EARNINGS PER SHARE
Basic $ 0.31 $ 0.03
======== ========
Diluted $ 0.28 $ 0.03
======== ========
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Basic 34,582 30,575
Diluted 38,460 31,008
</TABLE>
See notes to consolidated financial statements.
4
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STILLWATER MINING COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(in thousands)
THREE MONTHS ENDED
MARCH 31,
------------------------
1999 1998
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 10,588 $ 984
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 2,927 2,814
Deferred income taxes 4,282 616
Changes in operating assets and liabilities:
Inventories (991) 25
Accounts receivable (4,625) (2,278)
Accounts payable (2,215) 572
Other (332) 1,872
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 9,634 4,605
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (40,185) (6,297)
Purchase of short-term investments -- (2,129)
Proceeds from maturity of short-term
investments -- 3,828
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (40,185) (4,598)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock 703 517
Payments on capital lease obligations (588) (455)
Payments for debt issuance costs (2,657) --
-------- --------
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES (2,542) 62
-------- --------
CASH AND CASH EQUIVALENTS
Net increase (decrease) (33,093) 69
Balance at beginning of period 49,811 4,191
-------- --------
BALANCE AT END OF PERIOD $ 16,718 $ 4,260
======== ========
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 March 31, 1999 and the results of operations and cash flows for
the three month period ended March 31, 1999 and 1998. Certain amounts in the
accompanying consolidated financial statements for 1998 have been reclassified
to conform to the classifications used in 1999. The results of operations for
the three-month period 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 1998 Annual Report on Form 10-K.
NOTE 2 - NEW ACCOUNTING STANDARDS
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 effect of SFAS No. 133 is not expected to be material to
the Company's financial statements.
Additionally in June 1998, the American Institute of Certified Public
Accountants 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 effect of this statement on the Company's financial statements
was not material.
NOTE 3 - INVENTORIES
Inventories consisted of the following (in thousands):
(Unaudited)
MARCH 31, December 31,
1999 1998
----------- ------------
Metals inventory
Raw ore $ 351 $ 267
Concentrate and in-process 5,859 4,988
------- -------
6,210 5,255
Materials and supplies 4,114 4,078
------- -------
$10,324 $ 9,333
======= =======
6
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NOTE 4 - LONG-TERM DEBT
In March 1999, the Company obtained a seven-year $175 million credit
facility from a syndicate of banks led by the Bank of Nova Scotia. The facility
provides for a $125 million term loan facility and a $50 million revolving
credit facility. Borrowings may be made under the term loan facility until
December 31, 2000 and amortization of the term loan facility will commence on
March 31, 2001. The final maturity of the term loan facility and revolving
credit facility will be December 31, 2005.
The loans will be required to be prepaid 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 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 have been pledged as security for
the Scotiabank Credit Facility.
NOTE 5 - SALES COMMITMENTS
The Company may use forward sales or other commodity instruments to manage
its exposure to market risk from changes in palladium and platinum commodity
prices. The Company may also lease metal to counterparties to earn interest on
excess metal balances.
As of March 31, 1999, the Company had 3,500 ounces of platinum sold
forward at an average price of $395 per ounce. In addition, it held put options
for 22,500 ounces of palladium and 9,000 ounces of platinum at an average price
of $300 and $350, respectively. The Company has also sold call options for
22,500 ounces of palladium and 9,000 ounces of platinum at an average price of
$400 and $373, respectively. All options expire in 1999.
The Company has entered into long-term sales 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 under these contracts. 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
The Company complies with SFAS No. 128, Earnings per Share, which requires
the presentation of basic and diluted earnings per share.
7
<PAGE>
Outstanding options to purchase 2,132,578 and 1,285,274 shares of common
stock were included in the computation of diluted earnings per share for the
three month periods ended March 31, 1999 and 1998, respectively. Outstanding
options to purchase 489,000 and 669,863 shares of common stock were excluded
from the computation of diluted earnings per share for the three month periods
ended March 31, 1999 and 1998, respectively, because to do so would have been
antidilutive using the treasury stock method.
In addition, approximately 2.9 million shares of common stock issuable
under the terms of the Company's 7% Convertible Subordinated Notes Due 2003 were
included in the computation of diluted earnings per share for the three-month
period ended March 31, 1999. For the three month period ended March 31, 1998,
the effect of inclusion would have been antidilutive. Therefore, these shares
were excluded from the computation of diluted earnings per share.
The Board of Directors declared a three-for-two stock split on the
Company's common stock effective December 31, 1998 in the form of a stock
dividend. All per share data, including stock option information, has been
restated to reflect this stock split.
NOTE 7 - INCOME TAXES
The Company has reviewed its net deferred tax asset and liability for the
three months ended March 31, 1999, and has provided for income taxes at the
expected rates of 33.5% and 38.5%, respectively, for the three months ended
March 31, 1999 and March 31, 1998, respectively.
NOTE 8 - SUBSEQUENT EVENTS
On April 1, 1999, the Company called its 7% Subordinated Notes Due 2003
for redemption on May 1, 1999. Any notes that are not converted into common
stock on or before April 28, 1999 will be redeemed by the Company for cash. The
redemption price is 104% of the principal amount of the notes plus accrued
interest. Salomon Smith Barney, the standby purchaser, will purchase from the
Company, at $18.59 per share, the number of shares that would have been issued
on conversion of any notes that are redeemed. The Company will pay Salomon Smith
Barney a commitment fee totaling 0.60% of the aggregate redemption price of the
notes outstanding on April 1, 1999 as well as additional compensation in the
event shares are purchased by Salomon Smith Barney.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
STILLWATER MINING COMPANY
KEY FACTORS
(Unaudited)
THREE MONTHS ENDED
MARCH 31,
----------------------
1999 1998
-------- -------
Ounces produced
Palladium (000) 83 77
Platinum (000) 25 24
---- ----
Total 108 101
TONS MINED 183 165
TONS MILLED (000) 185 165
MILL HEAD GRADE (OUNCES PER TON) 0.65 0.68
MILL RECOVERY (%) 91 91
CASH COSTS PER TON MILLED $102 $ 94
CASH COSTS PER OUNCE(1) $175 $153
Depreciation and amortization 27 28
---- ----
Total costs per ounce produced $202 $181
OUNCES SOLD(2)
Palladium (000) 80 74
Platinum (000) 24 23
---- ----
Total 104 97
AVERAGE REALIZED PRICE PER OUNCE(3)
Palladium $362 $167
Platinum $373 $404
Combined (2) $365 $223
AVERAGE MARKET PRICE PER OUNCE
Palladium $342 $241
Platinum $363 $387
Combined (2) $347 $276
(1) 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
palladium and platinum). Total costs of production include cash costs plus
depreciation and amortization. Income taxes, corporate general and
administrative expense and interest income and expense are not included in
either total or cash costs.
(2) 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.
(3) Revenue is recognized when product is shipped from the Company's base
metals refinery to external refiners. Sales are recorded and later adjusted
when sales prices are finalized; therefore, differences between realized
prices and market prices may occur.
9
<PAGE>
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. 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
expansion, fluctuations in ore grade, tons mined, crushed or milled, variations
in smelter of 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, 1998.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31, 1998
REVENUES
Revenues for the first quarter of 1999 increased $16.5 million, or 77%, to
$38.0 million compared to $21.5 million in the first quarter of 1998.
The increase in revenue was due to a 7% increase in the quantity of metal sold
combined with a 64% increase in the average realized price per ounce of
palladium and platinum over the prior year period.
During the first quarter of 1999, the Company sold 80,000 ounces of
palladium and 24,000 ounces of platinum at average realized prices of $362 and
$373, respectively, compared with sales of 74,000 ounces of palladium and 23,000
ounces of platinum at average realized prices of $167 and $404 in the prior
year's comparable period. During the first quarter of 1999, the average market
prices of palladium and platinum were $342 and $363, respectively. During the
first quarter of 1999, the Company increased production 7% to 83,000 ounces of
palladium and 25,000 ounces of platinum compared with production of 77,000
ounces of palladium and 24,000 ounces of platinum in the first quarter of 1998.
COSTS
Cost of sales increased by $2.7 million, or 15%, from $18.4 million in the
first quarter of 1998 to $21.2 million in the first quarter of 1999. The cash
cost per ounce produced increased 14% from $153 in the first quarter of 1998 to
$175 in 1999. The increase in cash costs per ounce is the result of a 5%
decrease in average ore grade processed in the first quarter of 1999, an
increase in royalties and mining taxes associated with higher metal prices, and
additional production costs associated with the planned production increases
scheduled for the remainder of 1999 and 2000.
OPERATING INCOME
As a result of the increase in revenues and the increase in operating
costs discussed above, operating income in the first quarter of 1999 increased
by $13.1 million to $15.5 million compared to $2.4 million in the comparable
period of 1998.
9
<PAGE>
OTHER INCOME (EXPENSE)
During the first quarter of 1999, interest expense decreased by $0.9
million to $0.1 million compared with $1.0 million in the first quarter of 1998.
The decrease in interest expense is due to a larger portion of interest being
capitalized in 1999. Capitalized interest expense increased from $0.2 million in
the first quarter of 1998 to $1.1 million in the first quarter of 1999 as a
result of expansion activities at the Company's various operations.
NET INCOME
The Company's income before income taxes amounted to $15.9 million in the
first quarter of 1999 compared to $1.6 million in the first quarter of 1998. In
the first quarter of 1999, the Company provided for $5.3 million of income taxes
compared to $0.6 million in the first quarter of 1998. As a result, the Company
reports net income of $10.6 million, or $0.31 per basic share ($0.28 per diluted
share) in the first quarter of 1999, compared to a net income of $1.0 million,
or $0.03 per basic and diluted share in the first quarter of 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital at March 31, 1999 was $35.4 million compared
to $58.8 million at December 31, 1998. The ratio of current assets to current
liabilities was 2.5 at March 31, 1999 compared to 3.2 at December 31, 1998.
Net cash provided by operations for the quarter ended March 31, 1999 was
$9.6 million compared with net cash provided by operations of $4.6 million in
the comparable period of 1998, an increase of $5.0 million. The increase is
primarily the result of increased net income of $9.6 million and an increase in
the provision for deferred income taxes of $3.7 million in the first quarter of
1999, which was partially offset by an increase in operating assets and
liabilities of $8.4 million.
A total of $40.2 million of cash was used in investing activities in the
first quarter of 1999 compared to $4.6 million in the same period in 1998. The
increase was primarily due to significantly higher capital expenditures as a
result of the development of the East Boulder project, the Stillwater Mine
expansion and expansion of the Company's smelter and base metals refinery.
For the quarter ended March 31, 1999, cash flow used in financing
activities was $2.6 million compared to $62,000 for the quarter ended March 31,
1998. The increase is primarily the result of costs associated with completion
of the Company's $175 million credit facility.
As a result of the above, cash and cash equivalents decreased by $33.1
million for the quarter ended March 31, 1999, compared with a increase of $0.1
million in the comparable period of 1998.
In 1998, the Company announced plans to expand the Stillwater Mine and to
develop East Boulder. Total capital to fund the expansion is expected to
approximate $385 million. Of this, the Stillwater Mine expansion is expected to
cost approximately $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 1999, the Company expects to invest approximately $160.3
million on capital items, including capitalized interest of $4.9 million.
Cash flow from operating activities is not expected to be sufficient to
cover 1999 capital expenditures. Based on cash and cash equivalents on hand and
expected cash flows from operations, along with existing credit facilities of
$175 million, management believes there is sufficient liquidity to meet 1999
operating and capital needs. The Company may, from time to time, also seek to
raise additional capital from the public or private securities markets or from
other sources for general corporate purposes and for investments beyond the
scope of its current expansion plans.
11
<PAGE>
In March 1999, the Company obtained a seven-year $175 million credit
facility from a syndicate of banks led by the Bank of Nova Scotia. The facility
provides for a $125 million term loan facility and a $50 million revolving
credit facility. Borrowings may be made under the term loan facility until
December 31, 2000 and amortization of the term loan facility will commence on
March 31, 2001. The final maturity of the term loan facility and revolving
credit facility will be December 31, 2005.
The loans will be required to be prepaid 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 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 have been pledged as security for
the Scotiabank Credit Facility.
The Company had an unsecured working capital line of credit with N M
Rothschild & Sons Limited, with a maximum borrowing capacity of $15 million.
This facility was cancelled concurrent with completion of the Scotiabank Credit
Facility.
MARKET RISK
The Company may from time to time utilize derivative instruments to manage
financial risk. The Company has no material derivative positions as of March 31,
1999. During the third quarter of 1998, the Company entered into sales contracts
with General Motors Corporation, Ford Motor Company, Mitsubishi Corporation and
KEMET Corp. These contracts cover the Company's PGM production over the
five-year period from January 1999 through December 2003. During this period,
the Company has committed between 90% to 100% of its actual 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.
YEAR 2000 ISSUES
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 miscalculation causing
disruptions of operation, including a temporary inability to process
transactions, send invoices or engage in other ordinary activities. This problem
largely affects software programs written years ago, before the issue came to
prominence. 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 a new information technology infrastructure that the Company
believes will be fully Year 2000 compliant. This infrastructure will be in place
by the fourth quarter of 1999. 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 will use the
entities on this list to obtain its supplies.
12
<PAGE>
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 customers that they are Year 2000 compliant or that they are expecting to
become Year 2000 compliant before December 31, 1999. In addition, the Company is
developing contingency plans to deal with potential Year 2000 risks that could
occur as a result of power failures or the failure of other critical systems.
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 or private
entities will not have a material adverse effect on the Company.
OTHER DEVELOPMENTS
The Company has recently become aware of an unpublished decision of the
United States Forest Service and Bureau of Land Management refusing to approve a
proposed plan of operations for Battle Mountain Gold Company's Crown Jewel Mine
in Washington. The agenies' decision was unexpected and based on an opinion of
the Solicitor of the Department of the Interior interpreting the Mining Law of
1872 as imposing a limitation of five acres of millsite use for each valid
mining claim. The Company understands that both Battle Mountain and the industry
as a whole are considering the ramifications of that decision, and the Company
has begun a review of its position. The Company does not believe there will be
any impact on the Stillwater Mine. The East Boulder project, whose record of
decision and plan of operations were approved in 1993, has more than five
millsite acres per mining claim described in the plan of operations, although
not necessarily more than five millsite acres per mining claim that the Company
intends to develop. At this time, the Company has not received any notice of any
proceeding with respect to the plan of operations at East Boulder and cannot
predict whether its East Boulder project will be adversely affected by these
developments. If it became necessary, the Company believes it could modify its
planned operations at East Boulder to fit within the limitations of the
agencies' decision. The Company intends to monitor this situation carefully.
13
<PAGE>
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
During the period covered by this report, there were no legal
proceedings instituted that are reportable.
Item 2. CHANGES IN SECURITIES
None
Item 3. DEFAULTS UPON SENIOR SECURITIES
None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
Item 5. OTHER INFORMATION
None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
Financial Data Schedule
(b) Reports on Form 8-K.
Current Report on Form 8-K, dated April 1, 1999, regarding the
redemption the outstanding 7% Convertible Subordinated Notes Due
2003, effective May 1, 1999.
14
<PAGE>
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: April 15, 1999 By: /s/William E. Nettles
---------------------------------------
William E. Nettles
Chairman and Chief Executive
Officer (Principal Executive Officer)
Date: April 15, 1999 By: /s/James A. Sabala
---------------------------------------
James A. Sabala
Vice President and Chief Financial
Officer (Principal Financial Officer)
15
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