<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 March 31, 2000.
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
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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
incorporation or organization) No.)
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 10, 2000, 38,507,730 shares of common stock, $0.01 par value per share,
were issued and outstanding.
1
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STILLWATER MINING COMPANY
FORM 10-Q
QUARTER ENDED MARCH 31, 2000
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.......................... 8
Item 3. Quantitative and Qualitative Disclosures About
Market Risk............................................................ 13
PART II - OTHER INFORMATION
Item 1. Legal Proceedings...................................................... 15
Item 2. Changes in Securities and Use of Proceeds.............................. 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
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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>
<CAPTION>
(Unaudited)
March 31, December 31,
2000 1999
------------- -------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 10,892 $ 2,846
Inventories 12,233 11,658
Accounts receivable 34,027 26,248
Deferred income taxes 2,400 1,945
Other current assets 2,697 3,013
------------- -------------
Total current assets 62,249 45,710
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Property, plant and equipment, net 466,266 428,252
Other noncurrent assets 4,678 4,876
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Total assets $ 533,193 $ 478,838
============= =============
LIABILITIES and SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 16,548 $ 20,157
Accrued payroll and benefits 3,306 5,511
Property, production and franchise taxes payable 3,748 4,322
Current portion of capital lease obligations 2,628 2,628
Other current liabilities 3,809 3,729
Income taxes payable 3,292 642
------------- -------------
Total current liabilities 33,331 36,989
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Long-term liabilities
Long-term debt and capital lease obligations 106,853 84,404
Deferred income taxes 34,438 29,042
Other noncurrent liabilities 6,218 5,299
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Total liabilities 180,840 155,734
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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, 38,506,479 and 37,917,973 shares
issued and outstanding, respectively 385 379
Paid-in capital 280,993 272,173
Accumulated earnings 70,975 50,552
------------- -------------
Total shareholders' equity 352,353 323,104
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Total liabilities and shareholders' equity $ 533,193 $ 478,838
============= =============
</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)
Three months ended
March 31,
---------------------------
2000 1999
----------- -----------
Revenues $ 61,335 $ 38,030
Costs and expenses
Cost of metals sold 26,893 18,231
Depreciation and amortization 4,302 2,927
----------- -----------
Total cost of sales 31,195 21,158
General and administrative expense 2,055 1,328
----------- -----------
Total costs and expenses 33,250 22,486
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Operating income 28,085 15,544
Other income (expense)
Interest income 280 487
Interest expense, net of capitalized interest
of $2,656, and $1,089 - (109)
----------- -----------
Income before income taxes 28,365 15,922
Income tax provision (7,942) (5,334)
----------- -----------
Net income and comprehensive income $ 20,423 $ 10,588
=========== ===========
Basic and diluted earnings per share
Basic $ 0.53 $ 0.31
=========== ===========
Diluted $ 0.52 $ 0.28
=========== ===========
Weighted average common shares outstanding
Basic 38,271 34,582
Diluted 39,305 38,460
See notes to consolidated financial statements.
4
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Stillwater Mining Company
Consolidated Statement of Cash Flows
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Three months ended
March 31,
------------------------------
2000 1999
----------- -----------
<S> <C> <C>
Cash flows from operating activities
Net income $ 20,423 $ 10,588
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 4,302 2,927
Deferred income taxes 4,941 4,282
Changes in operating assets and liabilities:
Inventories (575) (991)
Accounts receivable (7,779) (4,625)
Accounts payable (3,609) (2,215)
Other operating assets and liabilities 1,384 (332)
----------- -----------
Net cash provided by operating activities 19,087 9,634
----------- -----------
Cash flows from investing activities
Capital expenditures (42,316) (40,185)
----------- -----------
Net cash used in investing activities (42,316) (40,185)
----------- -----------
Cash flows from financing activities
Borrowings under credit facility 23,100 -
Payments on long-term debt and capital lease obligations (651) (588)
Issuance of common stock, net of issuance costs 8,826 703
Costs for conversion of 7% convertible notes - (2,657)
----------- -----------
Net cash provided by (used in) financing activities 31,275 (2,542)
----------- -----------
Cash and cash equivalents
Net increase (decrease) 8,046 (33,093)
Balance at beginning of period 2,846 49,811
----------- -----------
Balance at end of period $ 10,892 $ 16,817
=========== ===========
</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 March 31, 2000 and the results of operations for the three month
periods ended March 31, 2000 and 1999 and cash flows for the three month periods
ended March 31, 2000 and 1999. Certain prior year amounts have been reclassified
to conform with the current year presentation. The results of operations for the
three 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 1999 Annual Report on Form 10-K.
Note 2 - New Accounting Standards
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard (SFAS) No. 133, Accounting for
Derivative Instruments and Hedging Activities, which is required to be adopted
for fiscal years beginning after June 15, 2000. SFAS No. 133 requires that
derivatives be reported on the balance sheet at fair value and, if the
derivative is not designated as a hedging instrument, changes in fair value must
be recognized in earnings in the period of change. If the derivative is
designated as a hedge and to the extent such hedge is determined to be
effective, changes in fair value are either a) offset by the change in fair
value of the hedged asset or liability (if applicable) or b) reported as a
component of other comprehensive income in the period of change, and
subsequently recognized in earnings when the offsetting hedged transaction
occurs. The definition of derivatives has also been expanded to include
contracts that require physical delivery if the contract allows for net cash
settlement. The company primarily uses derivatives to hedge metal prices. Such
derivatives are reported at cost, if any, and gains and losses on such
derivatives are reported when the hedged transaction occurs. Accordingly, the
company's adoption of SFAS No. 133 will have an impact on the reported financial
position of the company, and although such impact has not been determined, it is
currently not believed to be material. Adoption of SFAS No. 133 should have no
significant impact on reported earnings, but could materially affect
comprehensive income.
In December 1999, the Securities and Exchange Commission (SEC) released
Staff Accounting Bulletin (SAB) No. 101, Revenue Recognition in Financial
Statements. The objective of this SAB is to provide further guidance on revenue
recognition issues in the absence of authoritative literature addressing a
specific arrangement or a specific industry. In March 2000, the SEC released SAB
No. 101A, which delays the implementation date of SAB 101 for registrants with
fiscal years that begin between December 16, 1999 and March 15, 2000 until the
second fiscal quarter of the first fiscal year beginning after December 15,
1999. The Company is currently assessing the impact of the SAB. Its effect on
the Company's financial position or results of operations has not yet been
determined. Any changes resulting from the implementation of SAB 101 will be
reported as a change in accounting principle with the cumulative effect of the
change on retained earnings at the beginning of the fiscal year included in
restated net income of the first interim period of the fiscal year in which the
change is made.
6
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Note 3 - Inventories
Inventories consisted of the following (in thousands):
<TABLE>
<CAPTION>
(Unaudited)
March 31, December 31,
2000 1999
----------------------- ------------------------
<S> <C> <C>
Metals inventory
Raw ore $ 347 $ 187
Concentrate and in-process 7,383 7,079
----------------------- ------------------------
7,730 7,266
Materials and supplies 4,503 4,392
----------------------- ------------------------
$ 12,233 $ 11,658
======================= ========================
</TABLE>
Note 4 - Long-Term Debt
Scotiabank Credit Facility
In March 1999, the company entered into a seven-year $175 million
credit facility ("Scotiabank Credit Facility") from a syndicate of banks led by
the Bank of Nova Scotia. The Scotiabank Credit 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 29, 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 is
December 30, 2005. As of March 31, 2000, the company had $76.4 million
outstanding under the term loan facility and $26.2 outstanding under the
revolving credit facility.
The loans are required to be repaid from excess cash flow, proceeds
from asset sales and any issuance of debt or equity securities, subject to
specific exceptions. Proceeds of the term loan facility are used to finance a
portion of the expansion plan relating to the Stillwater mine and the East
Boulder project. Proceeds of the revolving credit facility are used for general
corporate and working capital needs. At the company's option, the Scotiabank
Credit Facility bears interest at London Interbank Offered Rates (LIBOR) or an
alternate base rate, in each case plus a margin of 1.00% to 1.75%, which is
adjusted depending upon the company's ratio of debt to operating cash flow. At
March 31, 2000, the borrowings outstanding under the Scotiabank Credit Facility
bear interest at 6.94%. Substantially all the property and assets of the company
and its subsidiaries and the stock of its subsidiaries are pledged as security
for the Scotiabank Credit Facility.
During 1999, the company did not comply with certain production
covenants set forth in the original Scotiabank Credit Facility. The bank
syndicate has granted waivers of these covenants that are effective until June
30, 2000. The company is in compliance with all other material aspects of the
credit agreement, including all financial covenants, as of March 31, 2000. The
company is seeking to complete a renegotiation of the debt covenants prior to
the date the waiver expires. As a result, the company has classified the debt as
a long-term liability as of March 31, 2000.
Convertible Subordinated Notes
On May 1, 1999, the company completed the underwritten call for
redemption of its $51.4 million outstanding principal amount of 7% Convertible
Subordinated Notes. Substantially all of the notes were converted into common
stock. The notes were redeemed at a conversion price of $17.87 per share with
cash paid in lieu of fractional shares. The company issued approximately 2.9
million shares of common stock in connection with the conversion of the notes.
Underwriters' fees and other costs associated with the call for redemption were
approximately $0.3 million.
7
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Note 5 - Earnings per Share
The company follows SFAS No. 128, Earnings per Share, which requires
the presentation of basic and diluted earnings per share.
The effect of outstanding stock options on diluted weighted average
shares outstanding was 1,033,754 and 1,000,889 shares for the three month
periods ending March 31, 2000 and 1999, respectively. Outstanding options to
purchase 4,725 and 489,000 shares of common stock were excluded from the
computation of diluted earnings per share for the three month periods ended
March 31, 2000 and 1999, respectively, because the effect of inclusion would
have been antidilutive using the treasury stock method.
The effect of the company's Convertible Subordinated Notes on diluted
weighted average shares outstanding was 0 and 2,878,656 shares for the three
month periods ended March 31, 2000 and 1999, respectively.
Note 6 - Income Taxes
Management has provided for income taxes for the three months ended
March 31, 2000, at the expected annualized rate of 28%.
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
March 31,
--------------------------------
2000 1999
------------- -------------
<S> <C> <C>
Ounces produced (000)
Palladium 86 83
Platinum 26 25
------------- -------------
Total 112 108
Tons mined (000) 169 183
Tons milled (000) 169 185
Mill head grade (ounce per ton) 0.72 0.65
Mill recovery (%) 91 91
Sub-grade tons milled (000) 14 -
Sub-grade mill head grade (ounce per ton) 0.12 -
Sub-grade mill recovery (%) 80 -
Cash costs per ton $ 155 $ 102
Cash costs per ounce/(1)/ $ 234 $ 175
Depreciation and amortization 39 27
------------- -------------
Total costs per ounce produced $ 273 $ 202
Ounces sold (000)/(2)/
Palladium 86 80
Platinum 26 24
------------- -------------
Total 112 104
</TABLE>
8
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Average realized price per ounce/(3)/
Palladium $ 579 $ 362
Platinum $ 447 $ 373
Combined/(2)/ $ 548 $ 365
Average market price per ounce/(3)/
Palladium $ 589 $ 342
Platinum $ 479 $ 363
Combined/(2)/ $ 563 $ 347
(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.
Results of Operations
Three months ended March 31, 2000 compared to three months ended March 31, 1999
- -------------------------------------------------------------------------------
PGM Production. During the first quarter of 2000, the company produced
--------------
approximately 86,000 ounces of palladium and approximately 26,000 ounces of
platinum, compared to approximately 83,000 ounces of palladium and approximately
25,000 ounces of platinum during the first quarter of 1999. The increase was
primarily due to an 11% increase in the average ore grade of material processed
which was partially offset by an 8% decrease in tons of ore mined in the first
quarter of 2000 compared to the prior year's first quarter. The higher ore grade
in the first quarter of 2000 compared to the first quarter of 1999 is attributed
to normal variations in ore grades experienced from year to year. Ore grades
will likely continue to fluctuate in the future.
Revenues. Revenues were $61.3 million for the first quarter of 2000
--------
compared to $38.0 million for the first quarter of 1999, an increase of 61% and
were the result of higher realized platinum group metal (PGM) prices combined
with a 4% increase in the quantity of metals sold.
Palladium sales increased to approximately 86,000 ounces in the first
quarter of 2000 from approximately 80,000 ounces in the first quarter of 1999.
Platinum sales increased to approximately 26,000 ounces in the first quarter of
2000 from approximately 24,000 ounces in the first quarter of 1999. As a result,
the total quantity of metal sold increased 8% to approximately 112,000 ounces in
the first quarter of 2000 from approximately 104,000 ounces in the first quarter
of 1999.
The average realized price per ounce of palladium and platinum sold in
the first quarter of 2000 increased 50% to $548 per ounce, compared to $365 per
ounce in the first quarter of 1999. The average market price rose 62% to $563
per ounce in the first quarter of 2000 compared to $347 per ounce in the first
quarter of 1999. The average realized price per ounce of palladium was $579 in
the first quarter of 2000 compared to $362 per ounce in the first quarter of
1999, while the average market price was $589 per ounce in the first quarter of
2000 compared to $342 per ounce in the first quarter of 1999. The average
realized price per ounce of platinum sold was $447 per ounce in the first
quarter of 2000, compared with $373 per ounce in the first quarter of 1999. The
platinum average market price was $479 per ounce in the first quarter of 2000
compared to $363 per ounce in the first quarter of 1999.
9
<PAGE>
Costs and Expenses. Cash production costs per ounce in the first quarter
------------------
of 2000 increased $59 or 34%, to $234 per ounce from $175 per ounce in the first
quarter of 1999. The increase is primarily the result of the following items: 1)
Additional stope development activities performed during the first quarter which
do not immediately contribute to current production but are necessary for
expansion of stope mining areas. The company expects to benefit from these
additional stope development activities in the second half of 2000. Stope
development cash costs per ounce in the first quarter of 2000 were $22 compared
to $3 in the first quarter of 1999. 2) Cash production costs per ounce for the
first quarter of 2000 also included an additional $16 of maintenance costs as
compared to the prior year's quarter related to ongoing expansion activities and
the implementation of a preventative maintenance system. 3) An additional $11 of
cash costs per ounce were also incurred in the first quarter of 2000 compared to
the first quarter of 1999 for royalties and production taxes associated with
higher realized PGM prices. Total production costs per ounce in the first
quarter of 2000 increased $71 or 35% to $273 per ounce from $202 per ounce in
the first quarter of 1999. This increase is also primarily due to the items
noted above and cost increases associated with the programs designed to expand
operations at the Stillwater Mine. Depreciation and amortization increased $12,
or 44% to $39 per ounce from $27 per ounce in the first quarter of 1999 due to
certain assets acquired for the expansion being placed into service.
General and Administrative Expense. For the first quarter of 2000, general
-----------------------------------
and administrative costs were $2.1 million compared to $1.3 million in the first
quarter of 1999. The increase was primarily a result of consulting costs
incurred in the first quarter of 2000.
Income Tax Provision. The company has provided for income taxes of $7.9
---------------------
million, or 28% of pretax income, for the first quarter of 2000 compared to $5.3
million, or 33.5% of pretax income, for the first quarter of 1999. A review of
the company's projected benefit from statutory depletion resulted in the
reduction of the first quarter 2000 tax rate to 28% from the rate of 33.5%
accrued during the first quarter of 1999.
Net Income. As a result of the above items, the company reported net
----------
income of $20.4 million for the first quarter of 2000 compared to $10.6 million
for the first quarter of 1999.
Liquidity and Capital Resources
The company's working capital at March 31, 2000, was $28.9 million compared
to $8.7 million at December 31, 1999. The ratio of current assets to current
liabilities was 1.9 at March 31, 2000, compared to 1.2 at December 31, 1999.
Net cash provided by operations for the quarter ended March 31, 2000, was
$19.1 million compared with $9.6 million for the comparable period of 1999, an
increase of $9.5 million. The increase was primarily a result of the increase
in net income of $9.8.
A total of $42.3 million of cash was used in investing activities in the
first quarter of 2000 compared to $40.2 million in the same period of 1999. The
increase was primarily due to increased capital expenditures as a result of the
development of the East Boulder project and the Stillwater Mine expansion.
For the quarter ended March 31, 2000, cash flow provided by financing
activities was $31.3 million compared to an outflow of $2.5 million for the
comparable period of 1999. The increase was primarily due to additional
borrowings of $23.1 million under the company's seven-year, $175 million credit
facility, and proceeds received from the issuance of common stock in the amount
of $8.8 million in connection with the company's stock option plans.
As a result of the above, cash and cash equivalents increased by $8.0
million for the quarter ended March 31, 2000, compared with a decrease of $33.1
million for the comparable period of 1999.
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
10
<PAGE>
located in Columbus, Montana. For the first quarter of 2000, the company
invested approximately $42.3 million in capital items, including capitalized
interest of $2.7 million.
Cash flow from operating activities is not expected to be sufficient to
cover 2000 capital expenditures. Based on cash on hand and expected cash flows
from operations, along with the remaining credit of $72.4 million available at
March 31, 2000 under the existing $175 million credit facility, management
believes there is sufficient liquidity to meet 2000 operating and capital needs.
In addition, 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 the current
phase of the current expansion plans.
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 29, 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 30, 2005.
The loans are 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 are being used to finance a
portion of the expansion plan. Proceeds of the revolving credit facility are
being used for general corporate and working capital needs. At the company's
option, the credit facility bears interest at the London Interbank Offered Rate
(LIBOR) or an alternate base rate, in each case plus a margin of 1.00% to 1.75%
which is 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 its subsidiaries are pledged as security for the
credit facility.
Covenants in the Scotiabank Credit Facility include restrictions on: (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 expansion plan); (7) refinancing or prepayment of
subordinated debt (excluding the underwritten call of the company's 7%
Convertible Subordinated Notes); (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 is also 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 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 sales contracts.
During 1999, as a result of delays in the expansion plan, the company did
not comply with certain production covenants set forth in the credit facility.
The bank syndicate granted an initial waiver of these covenants until February
15, 2000 pending completion of the Year 2000 Mine Plan. On February 22, 2000,
the bank group granted a second waiver of the production covenants until June
30, 2000. The company is seeking to renegotiate the debt covenants prior to the
date the waiver expires. However, in the event the company cannot comply with
the debt covenants, there can be no assurance that the company will be able to
renegotiate or extend the existing waiver on the underlying credit agreement.
If it is unsuccessful in this endeavor, it will seek alternative financing which
may not be available on favorable terms or at all. The company is in compliance
with all other material aspects of the credit agreement including all financial
covenants.
New Accounting Standards
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard (SFAS) No. 133, Accounting for
Derivative Instruments and Hedging Activities, which is required to be adopted
for fiscal years beginning after June 15, 2000. SFAS No. 133 requires that
derivatives be reported on the balance sheet at fair value and, if the
derivative is not designated as a hedging instrument, changes in fair value must
be recognized in earnings in the period of change. If the derivative is
designated as a hedge and
11
<PAGE>
to the extent such hedge is determined to be effective, changes in fair value
are either a) offset by the change in fair value of the hedged asset or
liability (if applicable) or b) reported as a component of other comprehensive
income in the period of change, and subsequently recognized in earnings when the
offsetting hedged transaction occurs. The definition of derivatives has also
been expanded to include contracts that require physical delivery if the
contract allows for net cash settlement. The company primarily uses derivatives
to hedge metal prices. Such derivatives are reported at cost, if any, and gains
and losses on such derivatives are reported when the hedged transaction occurs.
Accordingly, the company's adoption of SFAS No. 133 will have an impact on the
reported financial position of the company, and although such impact has not
been determined, it is currently not believed to be material. Adoption of SFAS
No. 133 should have no significant impact on reported earnings, but could
materially affect comprehensive income.
In December 1999, the Securities and Exchange Commission (SEC) released
Staff Accounting Bulletin (SAB) No. 101, Revenue Recognition in Financial
Statements. The objective of this SAB is to provide further guidance on revenue
recognition issues in the absence of authoritative literature addressing a
specific arrangement or a specific industry. In March 2000, the SEC released
SAB No. 101A, which delays the implementation date of SAB 101 for registrants
with fiscal years that begin between December 16, 1999 and March 15, 2000 until
the second fiscal quarter of the first fiscal year beginning after December 15,
1999. The Company is currently assessing the impact of the SAB. Its effect on
the Company's financial position or results of operations has not yet been
determined. Any changes resulting from the implementation of SAB 101 will be
reported as a change in accounting principle with the cumulative effect of the
change on retained earnings at the beginning of the fiscal year included in
restated net income of the first interim period of the fiscal year in which the
change is made.
Forward Looking Statement; Factors That May Affect Future Results and Financial
Condition
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 development and other activities associated with the expansion plan,
anticipated capital expenditures and sources of financing for capital
expenditures, renegotiation of our credit facility and our future compliance
thereunder and the effect of new accounting rules. 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, loss of a significant customer, labor difficulties,
inadequate insurance coverage, government regulations, property title
uncertainty, unexpected events during expansion, fluctuations in ore grade, tons
mined, crushed or milled, variations in smelter or refinery operations, amounts
and prices of the company's forward metals sales under hedging and supply
contracts 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, 1999.
Expansion Plan Risks--Achievement of the company's long-term goals is subject to
significant uncertainties.
The company's achievement of its long-term expansion goals depends upon its
ability to increase production substantially at the Stillwater Mine and related
facilities and its ability to develop the East Boulder mine. Each of these
tasks will require the company to construct mine and processing facilities and
to commence and maintain production within budgeted levels. Although the
company believes its goals and preliminary estimates are based upon reasonable
assumptions, the company may need to revise its plans and estimates for the
Stillwater Mine and East Boulder project as the projects progress. Among the
major risks to successful completion of the expansion plan are:
. potential cost overruns during development of new mine operations and
construction of new facilities;
. possible delays and unanticipated costs resulting from difficulty in
obtaining the required permits; and
. the inability to recruit sufficient numbers of skilled underground miners.
12
<PAGE>
In addition, a decrease in the market price for platinum group metals would
limit the company's ability to successfully implement and finance the expansion
plan.
Based on the complexity and uncertainty involved in development projects at
this early stage, it is extremely difficult to provide reliable time and cost
estimates. The company cannot be certain that either the Stillwater Mine
expansion or the development of East Boulder will be completed on time or at
all, that the expanded operations will achieve the anticipated production
capacity, that the construction costs will not be higher than estimated, that
the expected operating cost levels will be achieved or that funding will be
available from internal and external sources in necessary amounts or on
acceptable terms.
During the fourth quarter of 1999, the company contracted with two
independent engineering firms, Bechtel Corporation and MRDI, USA, a division of
AGRA Simons Limited, to conduct a project review of the project parameters for
the East Boulder project. The study is expected to analyze the project's
development schedule, mine planning, capital and operating cost estimates. The
project's capital costs, operating costs and economic returns may differ
materially from the company's previous analyses, which were based largely on
preliminary engineering and cost estimates. The company will proceed with
further development of East Boulder as the engineering studies are completed and
the grade and continuity of the reserves are confirmed.
East Boulder is a development project and has no operating history. Thus,
estimates of future cash operating costs at East Boulder are based largely on
the company's years of operating experience at the Stillwater Mine. Actual cash
operating costs and economic returns may differ significantly from those
currently estimated or those established in future studies and estimates.
Although the company anticipates that the operating characteristics at East
Boulder will be similar to the Stillwater Mine, new mining operations often
experience unexpected problems during the development and start-up phases, which
can result in substantial delays in reaching commercial production.
Compliance with Bank Credit Agreement
The company's agreement with the syndicate of banks, led by the Bank of
Nova Scotia, provides a credit facility that is being used to finance a portion
of the expansion plan and contains certain covenants relating to the
accomplishment of project milestones and certain other production covenants.
During 1999, the company did not comply with the production covenants. On
October 29, 1999, the bank syndicate waived the requirement to comply with the
production covenants. This waiver was extended to June 30, 2000 on February 22,
2000. The company expects to comply with the debt covenants subsequent to the
date the waiver expires. However, in the event the company cannot comply with
the debt covenants, and pending final results of the project review, there can
be no assurance that the company will be able to renegotiate or extend the
existing waiver on the underlying credit agreement. If this occurs, the company
would be required to seek alternative financing, which may not be available, and
could adversely impact operating and capital costs or affect project completion.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The company is exposed to market risk, including the effects of adverse changes
in metal prices and interest rates as discussed below.
Commodity Price Risk
The company produces and sells palladium, platinum and associated by-
product metals directly to its customers and also through third parties. As a
result, financial results are materially affected when prices for these
commodities fluctuate. In order to manage commodity price risk and to reduce
the impact of fluctuation in prices, the company enters into long-term contracts
and uses various derivative financial instruments. The company may also lease
metal to counterparties to earn interest on excess metal balances. All
derivatives are off-balance sheet and therefore have no carrying value. Because
the company hedges only with instruments that have a high correlation with the
value of the hedged transactions, changes in derivatives' fair value are
expected to be offset by changes in the value of the hedged transaction.
13
<PAGE>
As of March 31, 2000, the company had sold forward 14,000 ounces of
platinum for delivery in 2000 at an average price of $404 per ounce. The company
has also sold forward 22,000 and 2,000 ounces of palladium to be delivered in
2001 and 2002, respectively, at an average price of $672 per ounce pursuant to
forward sales contracts. All forward sales contracts are settled in cash at the
delivery date. For anticipated production in the year 2000, the company has
established put and call options on 45,000 ounces of palladium production at
$324 and $419, respectively. For anticipated production in the year 2001, the
company has established put and call options on 5,000 ounces of palladium at
$324 and $419, respectively. The fair value of the company's put and call
options was a loss of approximately $8.2 million at March 31, 2000. These put
and call options work together as collars under which the company receives the
difference between the put price and market price only if the market price is
below the put price and the company pays the difference between the call price
and the market price only if the market price is above the call price. The
company's put and call options are settled at maturity.
In addition, the company has entered into long-term sales contracts with
General Motors Corporation, Ford Motor Company and Mitsubishi Corporation. The
contracts apply to a portion of the company's production through December 2003.
Under the contracts, the company has committed 100% of its palladium production.
Palladium sales are priced at a 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 for approximately 30% of its
production sold under the contracts. At April 10, 2000, the market price for
palladium was $554 per ounce. 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 annual platinum production through December
2004 under these agreements. Platinum sales are priced at a 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 annual platinum
production is not committed under these contracts and remains available for sale
at prevailing market prices. At April 10, 2000, the market price for platinum
was $488 per ounce. The sales contracts provide for adjustments to ounces
committed based upon actual production. In addition, the sales contracts
contain termination provisions that allow the purchasers to terminate in the
event the company breaches certain provisions of the contracts and the breach is
not cured within periods ranging from ten to 30 days of notice by the purchaser.
Interest Rate Risk
At the present time, the company has no financial instruments in place to
manage the impact of changes in interest rates. Therefore, it is exposed to
changes in interest rates that effect the credit facility which carries a
variable interest rate based upon LIBOR or an alternative base rate. At March
31, 2000, approximately $102.6 million had been borrowed under the total
available credit of $175 million at an interest rate of 6.94%.
14
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
-----------------
The company is involved in various claims and legal actions
arising in the ordinary course of business. In the opinion of
management, the ultimate disposition of these matters will not have a
material adverse effect on the company's consolidated financial
position, results of operations or liquidity.
Item 2. Changes in Securities and Use of Proceeds
-----------------------------------------
None
Item 3. Defaults Upon Senior Securities
-------------------------------
None
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
None
Item 5. Other Information
-----------------
The following table contains information concerning the grant of stock
options under the company's 1998 Equity Incentive Plan to the named executive
officers in 1999:
<TABLE>
<CAPTION>
Option Grants in Last Fiscal Year
Number of % of Total
Securities Options Potential Realized Value at
Name Underlying Granted to Assumed Annual Rates of
Options Employees Exercise Stock Price Appreciation for
Granted In Fiscal Price Expiration Option Term(3)
(#)(1)(2) Year ($/Sh)(1) Date 5% 10%
<S> <C> <C> <C> <C> <C> <C>
William E. Nettles 150,000 23.74% $26.6875 1/22/09 $2,517,544 $6,379,950
John E. Andrews(4) 68,000 10.76% 26.6875 10/28/00 186,012 381,098
James A. Sabala 45,000 7.12% 26.6875 1/22/09 755,263 1,913,985
Gilmour Claussen(4) 20,000 3.17% 26.6875 10/28/00 54,709 112,088
Harry C. Smith 40,000 6.33% 22.8750 9/7/09 575,439 1,458,274
Vernon C. Baker 15,000 2.37% 28.5000 5/4/09 268,852 681,325
</TABLE>
__________________________
(1) The exercise price for each grant is equal to 100% of the fair market value
of a share of Common Stock on the date of grant.
(2) The options vest and become exercisable in three equal annual installments
on the anniversary date of the date of grant, subject, in the case of Mr.
Nettles, to accelerated vesting under the circumstances set forth in his
employment agreement.
(3) Assumed values result from the indicated prescribed rates of stock price
appreciation through the expiration date. The actual value of these option
grants is dependent on the future performance of the Common Stock.
(4) Messrs. Andrews and Clausen resigned as executive officers in July 1999.
All options granted expire one year from the date of termination of their
employment.
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)
/s/ William E. Nettles
Date: April 18, 2000 By: ----------------------------------------
William E. Nettles
Chairman and Chief Executive Officer
(Principal Executive Officer)
Date: April 18, 2000 /s/ James A. Sabala
By: ----------------------------------------
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 ITS
CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF OPERATIONS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 10,892
<SECURITIES> 0
<RECEIVABLES> 34,027
<ALLOWANCES> 0
<INVENTORY> 12,233
<CURRENT-ASSETS> 62,249
<PP&E> 546,131
<DEPRECIATION> (79,865)
<TOTAL-ASSETS> 533,193
<CURRENT-LIABILITIES> 33,331
<BONDS> 0
0
0
<COMMON> 385
<OTHER-SE> 351,968
<TOTAL-LIABILITY-AND-EQUITY> 533,193
<SALES> 61,335
<TOTAL-REVENUES> 61,335
<CGS> 31,195
<TOTAL-COSTS> 33,250
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (280)
<INCOME-PRETAX> 28,365
<INCOME-TAX> (7,942)
<INCOME-CONTINUING> 20,423
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,423
<EPS-BASIC> $0.53
<EPS-DILUTED> $0.52
</TABLE>
