<PAGE>
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 September 30, 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 October 7, 1999, 37,881,539 shares of Common Stock, $0.01 par value per
share, were issued and outstanding.
<PAGE>
STILLWATER MINING COMPANY
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 1999
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <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
PART II - OTHER INFORMATION
Item 1 Legal Proceedings........................................ 15
Item 2 Changes in Securities.................................... 15
Item 3 Defaults Upon Senior Securities.......................... 15
Item 4 Submission of Matters to a Vote of Security Holders...... 15
Item 5 Other Information........................................ 15
Item 6 Exhibits and Reports on Form 8-K......................... 15
SIGNATURES ......................................................... 16
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Stillwater Mining Company
Consolidated Balance Sheet
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
(Unaudited)
September 30, December 31,
1999 1998
------------- ------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 10,652 $ 49,811
Inventories 11,816 9,333
Accounts receivable 21,657 21,762
Deferred income taxes 2,980 2,980
Other current assets 2,345 1,492
------------- ------------
Total current assets 49,450 85,378
------------- ------------
Property, plant and equipment, net 371,948 247,556
Other noncurrent assets 4,781 3,003
------------- ------------
Total assets $ 426,179 $ 335,937
============= ============
LIABILITIES and SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 21,460 $ 11,980
Accrued payroll and benefits 3,545 3,332
Property, production and franchise taxes payable 4,252 3,971
Current portion of capital lease obligations 2,247 2,425
Other current liabilities 5,750 4,909
------------- ------------
Total current liabilities 37,254 26,617
------------- ------------
Long-term liabilities
Long-term debt and capital lease obligations 49,962 58,992
Deferred income taxes 27,869 19,009
Other noncurrent liabilities 5,300 3,312
------------- ------------
Total liabilities 120,385 107,930
------------- ------------
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, 37,782,352 and 34,548,559 shares
issued and outstanding, respectively 378 345
Paid-in capital 268,302 214,281
Accumulated earnings 37,114 13,381
------------- ------------
Total shareholders' equity 305,794 228,007
------------- ------------
Total liabilities and shareholders' equity $ 426,179 $ 335,937
============= ============
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
Stillwater Mining Company
Consolidated Statement of Operations
(Unaudited)
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
---------------------------- -------------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues $ 32,204 $ 28,198 $ 107,079 $ 76,234
Costs and expenses
Cost of metals sold 18,921 17,178 58,320 49,698
Depreciation and amortization 3,543 3,049 9,802 8,814
----------- ----------- ----------- -----------
Total cost of sales 22,464 20,227 68,122 58,512
General and administrative expense 2,497 1,314 5,041 3,096
----------- ----------- ----------- -----------
Total costs and expenses 24,961 21,541 73,163 61,608
----------- ----------- ----------- -----------
Operating income 7,243 6,657 33,916 14,626
Other income (expense)
Interest income 201 149 868 662
Interest expense, net of capitalized
interest of $1,377, $565, $3,029 and $1,140 - (645) (137) (2,550)
----------- ----------- ----------- -----------
Income before income taxes 7,444 6,161 34,647 12,738
Income tax provision (2,345) (2,371) (10,914) (4,904)
----------- ----------- ----------- -----------
Net income and comprehensive income $ 5,099 $ 3,790 $ 23,733 $ 7,834
=========== =========== =========== ===========
Basic and diluted earnings per share
Basic $ 0.14 $ 0.12 $ 0.65 $ 0.25
=========== =========== =========== ===========
Diluted $ 0.13 $ 0.12 $ 0.62 $ 0.25
=========== =========== =========== ===========
Weighted average common shares
outstanding
Basic 37,771 30,912 36,372 30,759
Diluted 38,564 31,545 38,592 31,326
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
Stillwater Mining Company
Consolidated Statement of Cash Flows
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Nine months ended
September 30,
------------------------------------
1999 1998
------------- -------------
<S> <C> <C>
Cash flows from operating activities
Net income $ 23,733 $ 7,834
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 9,802 8,814
Deferred income taxes 8,860 4,904
Changes in operating assets and liabilities:
Inventories (2,483) (655)
Accounts receivable 105 (9,449)
Accounts payable 9,480 3,731
Other 3,349 3,295
------------- -------------
Net cash provided by operating activities 52,846 18,474
------------- -------------
Cash flows from investing activities
Capital expenditures (134,194) (40,546)
Purchase of short-term investments - (2,256)
Proceeds from maturity of short-term investments - 15,724
Proceeds from sale/leaseback transactions - 9,206
------------- -------------
Net cash used in investing activities (134,194) (17,872)
------------- -------------
Cash flows from financing activities
Issuance of common stock 2,966 3,307
Payments for debt issuance costs (2,657) -
Payments on long-term debt and capital lease obligations (13,811) (1,442)
Borrowings under credit facility 56,000 -
Payments for conversion costs of 7% convertible notes (309) -
------------- -------------
Net cash provided by financing activities 42,189 1,865
------------- -------------
Cash and cash equivalents
Net increase (decrease) (39,159) 2,467
Balance at beginning of period 49,811 4,191
------------- -------------
Balance at end of period $ 10,652 $ 6,658
============= =============
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
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, 1999 and the results of operations for the three
and nine month periods ended September 30, 1999 and 1998 and cash flows for the
nine month periods ended September 30, 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 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 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, 2001 and
establishes accounting and reporting standards for derivative instruments and
hedging activities. The Company is in the process of assessing the impact of
SFAS No. 133 on its financial statements.
Note 3 - Inventories
Inventories consisted of the following (in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
<S> <C> <C>
Metals inventory
Raw ore $ 500 $ 267
Concentrate and in-process 6,940 4,988
------------- ------------
7,440 5,255
Materials and supplies 4,376 4,078
------------- ------------
$ 11,816 $ 9,333
============= ============
</TABLE>
6
<PAGE>
Note 4 - Long-Term Debt
In March 1999, the Company obtained a seven-year $175 million credit
facility ("Scotiabank 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. As of
September 30, 1999, the Company had $44 million outstanding under the facility,
and is in compliance with all operating, financial, and reporting covenants.
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 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.
On May 1, 1999 the Company completed the underwritten call for redemption
of its approximately $51.4 million principal amount of 7% Convertible
Subordinated Notes due 2003, with substantially all of the indebtedness
converted into equity. Note holders received approximately 56 shares of common
stock for each $1,000 principal amount with cash paid in lieu of any fractional
shares. The Company issued approximately 2.9 million shares of common stock in
connection with the note conversions, increasing total shares of outstanding
stock to approximately 37.7 million shares.
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 September 30, 1999, the Company held put options expiring in 1999 for
7,500 ounces of palladium and 3,000 ounces of platinum at an average price of
$300 and $350, respectively. The Company has also sold call options expiring in
1999 for 7,500 ounces of palladium and 3,000 ounces of platinum at an average
price of $400 and $373, respectively.
As of September 30, 1999, the Company held put options expiring in 2000 for
57,500 ounces of palladium at an average price of $326. The Company has also
sold call options expiring in 2000 for 57,500 ounces of palladium at an average
price of $418. In the year 2001, the Company has established put and call
options on 5,000 ounces of palladium at $327 and $419, respectively. Platinum
put and call options in 2000 are for 1,000 ounces at $349 and $370,
respectively.
As of September 30, 1999, the Company had 20,000 ounces of platinum sold
forward at an average price of $404 per ounce, all to be delivered in 2000.
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.
Outstanding options to purchase 1,887,534 and 1,903,926 shares of common
stock were included in the computation of diluted earnings per share for the
three month periods ended September 30, 1999 and 1998, respectively. Outstanding
options to purchase 532,925 and 107,213 shares of common stock were excluded
from the computation of diluted earnings per share for the three month periods
ended September 30, 1999 and 1998,
7
<PAGE>
respectively, because to do so would have been antidilutive using the treasury
stock method.
Outstanding options to purchase 2,335,884 and 1,733,489 shares of common
stock were included in the computation of diluted earnings per share for the
nine month periods ended September 30, 1999 and 1998, respectively. Outstanding
options to purchase 84,575 and 277,650 shares of common stock were excluded from
the computation of diluted earnings per share for the nine month periods ended
September 30, 1999 and 1998, respectively, because to do so would have been
antidilutive using the treasury stock method.
In addition, 0 and 1,258,736 shares of common stock from assumed conversion
of the Company's 7% Convertible Subordinated Notes were included in the
computation of diluted earnings per share for the three and nine month periods
ended September 30, 1999, respectively. 2.9 million shares of common stock
issuable under the terms of the Notes were excluded from the computation of
diluted earnings per share for the three and nine month periods ended
September 30, 1998, because to do so would have been antidilutive.
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 expected net deferred tax assets and
liabilities for the year ended December 31, 1999 and has provided for income
taxes for the nine months ended September 30, 1999 at the expected annualized
rate of 31.5%.
8
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Stillwater Mining Company
Key Factors
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
-------------------------- --------------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Ounces produced (000)
Palladium 72 87 230 255
Platinum 22 26 69 78
--------- --------- --------- ---------
Total 94 113 299 333
Tons mined (000) 152 200 501 547
Tons milled (000) 152 191 503 537
Mill head grade (ounces per ton) 0.68 0.66 0.66 0.69
Mill recovery (%) 91 92 91 92
Cash costs per ton $ 134 $ 90 $ 116 $ 93
Cash costs per ounce/(1)/ $ 217 $ 151 $ 195 $ 150
Depreciation and amortization 38 27 33 27
--------- --------- --------- ---------
Total costs per ounce produced $ 255 $ 178 $ 228 $ 177
Ounces sold (000)/(2)/
Palladium 69 88 231 253
Platinum 21 28 70 77
--------- --------- --------- ---------
Total 90 116 301 330
Average realized price per ounce/(3)/
Palladium $ 359 $ 204 $ 353 $ 184
Platinum $ 364 $ 369 $ 364 $ 383
Combined/(2)/ $ 360 $ 244 $ 356 $ 231
Average market price per ounce/(3)/
Palladium $ 345 $ 294 $ 343 $ 285
Platinum $ 357 $ 369 $ 359 $ 381
Combined/(2)/ $ 348 $ 312 $ 347 $ 305
</TABLE>
(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 plans to rectify production efficiencies, 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 September 30, 1999 compared to three months ended September
- ------------------------------------------------------------------------------
30, 1998
- --------
Revenues
--------
Revenues for the third quarter of 1999 increased $4.0 million, or 14%, to
$32.2 million compared to $28.2 million in the third quarter of 1998. The
increase in revenue was due to a 48% increase in the combined average realized
price per ounce of palladium and platinum over the prior year period partially
offset by a 22% decrease in the quantity of metal sold.
During the third quarter of 1999, the Company sold 69,000 ounces of palladium
and 21,000 ounces of platinum at average realized prices of $359 and $364,
respectively, compared with sales of 88,000 ounces of palladium and 28,000
ounces of platinum at average realized prices of $204 and $369, respectively, in
the prior year's comparable period. During the third quarter of 1999, the
average market prices of palladium and platinum were $345 and $356,
respectively. During the third quarter of 1999, the Company produced 72,000
ounces of palladium and 22,000 ounces of platinum compared with production of
87,000 ounces of palladium and 26,000 ounces of platinum in the third quarter of
1998. The lower ore production is the result of a temporary decrease in
developed reserves available for mining, which has resulted in a temporary
increase in the quantity of waste tons mined relative to total mine output, and
to continued production inefficiencies created by the rapid expansion of the
miner's workforce associated with the Company's expansion activities. The
Company is implementing strategic plans designed to rectify the production
inefficiencies.
Costs
-----
Cost of sales increased by $2.2 million, or 11%, from $20.2 million in the
third quarter of 1998 to $22.4 million in the third quarter of 1999. The cash
cost per ounce produced increased 44% from $151 in the third quarter of 1998 to
$217 in 1999. The increase in cash costs per ounce is the result of a 20%
decrease in tons milled and an overall 19% increase in cash costs. The increase
in costs is associated with programs that are currently in place in anticipation
of the planned production increases scheduled for 2000 and beyond. General and
administrative expense increased by $1.2 million, or 90% and is primarily the
result of $1.1 million of severance expenses associated with a management
restructuring instituted in the third quarter of 1999 and consulting services of
$0.4 million designed to rectify certain production inefficiencies.
Operating Income
----------------
As a result of the increase in revenues and the increase in operating costs
discussed above, operating income in the third quarter of 1999 increased by $0.5
million to $7.2 million compared to $6.7 million in the comparable period of
1998.
10
<PAGE>
Other Income (Expense)
----------------------
During the third quarter of 1999, the Company incurred no interest expense
compared to $0.6 million in the third quarter of 1998. The decrease in interest
expense is due to a larger portion of interest being capitalized in 1999. The
Company's 7% Subordinated Convertible Notes were called for redemption on May 1,
1999. Capitalized interest expense increased from $0.6 million in the third
quarter of 1998 to $1.4 million in the third 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 $7.4 million in the third
quarter of 1999 compared to $6.2 million in the third quarter of 1998. In the
third quarter of 1999, the Company provided for $2.3 million of income taxes
compared to $2.4 million in the third quarter of 1998. As a result, the Company
had net income of $5.1 million, or $0.14 per basic share ($0.13 per diluted
share) in the third quarter of 1999, compared to net income of $3.8 million, or
$0.12 per basic and diluted share in the third quarter of 1998.
Nine months ended September 30, 1999 compared to nine months ended September 30,
- --------------------------------------------------------------------------------
1998
- ----
Revenues
--------
Revenues for the first nine months of 1999 increased $30.9 million, or 40%, to
$107.1 million compared to $76.2 million in the first nine months of 1998. The
increase in revenue was primarily due to a 54% increase in the combined average
realized price per ounce of palladium and platinum as compared to the first nine
months of 1998, partially offset by a 9% decrease in the quantity of metal sold.
During the first nine months of 1999, the Company sold 231,000 ounces of
palladium and 70,000 ounces of platinum at average realized prices of $353 and
$364, respectively, compared with sales of 253,000 ounces of palladium and
77,000 ounces of platinum at average realized prices of $184 and $383,
respectively, in the prior year's comparable period. During the first nine
months of 1999, the average market prices of palladium and platinum were $345
and $359, respectively. During the first nine months of 1999, the Company
produced 230,000 ounces of palladium and 69,000 ounces of platinum compared with
production of 255,000 ounces of palladium and 78,000 ounces of platinum in the
first nine months of 1998. The lower ore production is the result of a temporary
decrease in developed reserves available for mining, which has resulted in a
temporary increase in the quantity of waste tons mined relative to total mine
output, and to continued production inefficiencies created by the rapid
expansion of the miner's workforce associated with the Company's expansion
activities. The Company is implementing strategic plans designed to rectify the
production inefficiencies.
Costs
-----
Cost of sales increased by $9.6 million, or 16%, from $58.5 million in the
first nine months of 1998 to $68.1 million in the first nine months of 1999. The
cash cost per ounce produced increased 30% from $150 in the first nine months of
1998 to $195 in 1999. The increase in cash costs per ounce is the result of a 4%
decrease in average ore grade processed in the first nine months of 1999, a 6%
decrease in tons milled, and an overall 17% increase in cash costs associated
with programs that are currently in place in anticipation of the planned
production increases scheduled for 2000 and beyond. General and administrative
expense increased by $1.9 million, or 63% and is primarily the result of $1.1
million of severance expenses associated with a management restructuring
instituted in the third quarter of 1999 and consulting services of $0.4 million
designed to rectify certain production inefficiencies.
Operating Income
----------------
As a result of the increase in revenues and the increase in operating costs
discussed above, operating income in the first nine months of 1999 increased by
$19.3 million to $33.9 million compared to $14.6 million in the comparable
period of 1998.
11
<PAGE>
Other Income (Expense)
----------------------
During the first nine months of 1999, interest expense decreased by $2.4
million to $0.1 million compared with $2.6 million in the first nine months of
1998. The decrease in interest expense is due to a larger portion of interest
being capitalized in 1999 and by a decrease in the Company's level of long-term
debt in the first nine months of 1999 compared to the first nine months of 1998.
The Company's 7% Subordinated Convertible Notes were called for redemption on
May 1, 1999. Capitalized interest expense increased from $1.1 million in the
first nine months of 1998 to $3.0 million in the first nine months 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 $34.6 million in the
first nine months of 1999 compared to $12.7 million in the first nine months of
1998. In the first nine months of 1999, the Company provided for $10.9 million
of income taxes compared to $4.9 million in the first nine months of 1998. As a
result, the Company reports net income of $23.7 million, or $0.65 per basic
share ($0.62 per diluted share) in the first nine months of 1999, compared to a
net income of $7.8 million, or $0.25 per basic and diluted share in the first
nine months of 1998.
Liquidity and Capital Resources
The Company's working capital at September 30, 1999 was $12.2 million compared
to $58.8 million at December 31, 1998. The ratio of current assets to current
liabilities was 1.3 at September 30, 1999 compared to 3.2 at December 31, 1998.
Net cash provided by operations for the nine months ended September 30, 1999,
was $52.8 million compared with $18.5 million in the comparable period of 1998,
an increase of $34.3 million. The increase is primarily the result of increased
net income of $15.9 million and an increase in the provision for deferred income
taxes of $4.0 million in the first nine months of 1999, and a change in
operating assets and liabilities of $13.5 million.
A total of $134.2 million of cash was used in investing activities in the
first nine months of 1999 compared to $17.9 million in the same period of 1998.
The increase was primarily due to 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 nine months ended September 30, 1999, cash flow provided by financing
activities was $42.2 million compared to $1.9 million for the comparable period
of 1998. The increase is primarily the result of proceeds from the borrowings
under the Company's credit facility.
As a result of the above, cash and cash equivalents decreased by $39.2 million
for the nine months ended September 30, 1999, compared with an increase of $2.5
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. For
the first nine months of 1999, capital expenditures increased to $134.2 million
compared to $40.5 million for the same period in 1998.
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
operating and capital needs for the next year. The Company may, from time to
time, also seek to raise additional capital from the public or private
securities markets or from other sources.
12
<PAGE>
In March 1999, the Company obtained a seven-year $175 million credit facility
("Scotiabank 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. As of September 30, 1999,
the Company had $44 million outstanding under the facility, and is in compliance
with all operating, financial, and reporting covenants.
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.
Market Risk
The Company may from time to time utilize derivative instruments to manage
financial risk. The Company has no material derivative exposures as of September
30, 1999 (see Note 5 - Sales Commitments). 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
operations, 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 has recently completed necessary upgrades to make
this software Year 2000 compliant. During the fourth quarter of 1999, the
Company will undergo the final phase of software testing and anticipates minimal
problems. The Company does not believe that the costs associated with additional
Year 2000 compliance will be material.
The Company has requested and obtained written assurances from its key
material suppliers regarding their Year 2000 compliance. As a result of this
effort, the Company has generated a validated list of key suppliers that are
Year 2000 compliant, and will use the entities on this list to obtain its
supplies.
13
<PAGE>
The Company has also provided written communications to material customers
regarding Year 2000 compliance, outlining the importance of addressing this
issue and detailing the Company's progress towards becoming fully Year 2000
compliant. 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 and the Paper, Allied Industrial, Chemical and Energy Workers
International Union, under which the Company's employees are organized, reached
agreement on a five-year collective bargaining agreement, dated July 1, 1999,
which covers substantially all hourly employees at the Company's facilities.
14
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
Not applicable
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:
27 Financial Data Schedule
(b) Reports on Form 8-K:
None
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
STILLWATER MINING COMPANY
(Registrant)
Date: October 15, 1999 By: /s/ William E. Nettles
----------------------------------
William E. Nettles
Chairman and Chief Executive Officer
(Principal Executive Officer)
Date: October 15, 1999 By: /s/ James A. Sabala
----------------------------------
James A. Sabala
Vice President and Chief Financial
Officer
(Principal Financial Officer)
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S INTERIM UNAUDITED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1999
<PERIOD-START> JUL-01-1999 JAN-01-1999
<PERIOD-END> SEP-30-1999 SEP-30-1999
<CASH> 10,652 10,652
<SECURITIES> 0 0
<RECEIVABLES> 21,657 21,657
<ALLOWANCES> 0 0
<INVENTORY> 11,816 11,816
<CURRENT-ASSETS> 49,450 49,450
<PP&E> 444,978 444,978
<DEPRECIATION> (73,030) (73,030)
<TOTAL-ASSETS> 426,179 426,179
<CURRENT-LIABILITIES> 37,254 37,254
<BONDS> 49,962 49,962
0 0
0 0
<COMMON> 378 378
<OTHER-SE> 305,416 305,416
<TOTAL-LIABILITY-AND-EQUITY> 426,179 426,179
<SALES> 32,204 107,079
<TOTAL-REVENUES> 32,204 107,079
<CGS> 18,921 58,320
<TOTAL-COSTS> 24,961 73,163
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 137
<INCOME-PRETAX> 7,444 34,647
<INCOME-TAX> (2,345) (10,914)
<INCOME-CONTINUING> 5,099 23,733
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 5,099 23,733
<EPS-BASIC> 0.14 0.65
<EPS-DILUTED> 0.13 0.62
</TABLE>
