-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WDNWvpQ+P3TdIjtAGA3adCcacnSSLjtIMDRUwPbMcgMPv6IdWOVqSddEz708lTNV S9Rc2hBd6qCFy4JtV3ousg== 0000927356-96-000031.txt : 19960124 0000927356-96-000031.hdr.sgml : 19960124 ACCESSION NUMBER: 0000927356-96-000031 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950630 FILED AS OF DATE: 19960123 SROS: AMEX SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ATLAS CORP CENTRAL INDEX KEY: 0000008302 STANDARD INDUSTRIAL CLASSIFICATION: GOLD & SILVER ORES [1040] IRS NUMBER: 135503312 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-02714 FILM NUMBER: 96506274 BUSINESS ADDRESS: STREET 1: 370 SEVENTEENTH ST STREET 2: STE 3150 CITY: DENVER STATE: CO ZIP: 80202 BUSINESS PHONE: 3038251200 MAIL ADDRESS: STREET 1: 370 SEVENTEENTH STREET STREET 2: STE 3150 CITY: DENVER STATE: CO ZIP: 80202 10-K/A 1 FORM 10-K/A UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K/A AMENDMENT TO APPLICATION OR REPORT Filed pursuant to Section 12, 13 or 15(d) of The Securities Exchange Act of 1934 For the Fiscal Year Ended June 30, 1995. COMMISSION FILE NO. 1-2714 ATLAS CORPORATION ----------------------------------- (Exact name of Registrant as specified in its charter) DELAWARE 13-5503312 - -------------------- ---------------- (State or other jurisdiction (I.R.S. Employer Identification No.) of incorporation or organization) 370 Seventeenth Street, Suite 3150, Denver, CO 80202 303-825-1200 - ---------------------------------------------------- ---------------- (Address of principal executive offices) (Registrant's telephone number) (Zip Code) (including area code) The undersigned registrant hereby amends the following items of its Annual Report on Form 10-K for fiscal year ended June 30, 1995 as set forth in the pages attached hereto: (List of such items, financial statements, exhibits or other portions amended) 1. ITEM 1. (Business) is hereby amended by the deletion of such item in its entirety and the inclusion of the text attached hereto as Attachment A in replacement thereof. 2. ITEM 7. (Management's Discussion and Analysis of Financial Condition and Results of Operations) is hereby amended by the deletion of such items in its entirety and the inclusion of the text attached hereto as Attachment B in replacement thereof. 3. ITEM 8. (Financial Statements and Supplementary Data) is hereby amended by the deletion of such items in its entirety and the inclusion of the text attached hereto as Attachment C in replacement thereof. Signitures Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant had duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ATLAS CORPORATION By: /s/ JEROME C. CAIN ---------------------- Jerome C. Cain Treasurer, Secretary and Principal Financial Officer Date: January 18, 1996 ------------------- ATTACHMENT A Item 1. BUSINESS -------- Atlas Corporation ("Atlas" or the "Company") is a mining company which is principally engaged in the business of exploring for, producing and selling gold. The Company is a Delaware Corporation with headquarters in Denver, Colorado. Incorporated in 1923, the Company first traded on the New York Stock Exchange in 1937. GOLD OPERATIONS All of the Company's gold production has been from its Gold Bar Resource Area. The Gold Bar Resource Area is located in and adjacent to the Roberts Mountains in Eureka County, Nevada, at elevations exceeding 6,000 feet above sea level. The area currently encompasses 110 square miles on the Battle Mountain mineral trend. The Company's right to the Gold Bar Resource Area is derived mainly through unpatented and patented lode mining claims and mill site claims located on public domain lands. The area is reached by traveling 22 miles west of Eureka, Nevada, on U.S. Highway No. 50 and 17 miles northeast along the Eureka County Three Bars Road. Regional exploration brought Atlas to the area in 1983. Detailed geological work led to the development of specific targets which resulted in the claim staking of most of the Gold Bar Resource Area. A drill program in late 1983 and 1984 outlined the original Gold Bar deposit. The orebody was a limestone-hosted predominantly oxidized orebody containing approximately 315,000 mineable ounces of finely disseminated gold. After completion of a positive feasibility study, a 1,500 ton per day carbon-in- leach mill was constructed at a cost of $12 million, and open pit gold production from the Gold Bar deposit began in January 1987. Due to a low stripping ratio, uniform mineralization, and low processing costs, Gold Bar was profitable for the first four years of operations, with project cash costs in the range of $150 per ounce. While producing at the Gold Bar pit, the Company conducted regional exploration which resulted in the discovery of three new gold bearing deposits, Goldstone, Gold Ridge and Gold Pick, clustered together in the Roberts Mountains approximately six miles northeast of the Gold Bar mine and mill. These deposits, located in bedded limestone sediments, contain ore which is largely oxidized, although portions are unoxidized and contain fine-grained pyrite and carbon. With the success of mining the Gold Bar deposit and the discovery of additional reserves in 1987 and 1988, the Company expanded mill capacity from 1,500 to 3,000 tons of ore per day at a cost of $5 million in 1989. Power for the processing facilities is provided by Mt. Wheeler Power Inc. As mining progressed at the Gold Bar pit, a large stockpile of higher grade refractory ore was created. A refractory circuit designed to process the stockpiled ore was added to the mill in the first quarter of fiscal 1991 at a cost of $3.4 million. Although the refractory ore circuit did not perform as expected, stockpiled refractory material was processed over the next six month period while the haul road was completed and the new satellite deposits prestripped. The refractory ore circuit did not perform as expected. As a result of an increase in the stripping ratio, the lower ore grade of the new satellite deposits and additional costs for the longer haul to the mill, direct minesite costs increased approximately $50 per ounce to $207 per ounce. Although the stripping ratios of the satellite deposits were much improved in fiscal 1992, the continued lower grade of the satellite ores resulted in minesite costs rising to $223 per ounce. The operations were still generating positive cash flow but the effect of the high non-cash costs resulted in operating losses for fiscal 1991 and 1992. Two properties were purchased in 1991 and 1992 to consolidate and expand the Company's Gold Bar claim block. In 1991, the Company acquired 751 unpatented lode mining claims for 118,644 shares of Common Stock. Exploration of these claims identified a small mineralized deposit, called Cabin Creek, located one mile east of the haul road. In 1992, an additional 99 unpatented lode mining claims were acquired for $500,000 in cash and 178,949 shares of Common Stock. These claims hosted the Gold Canyon deposit which provided ore for the mill from September 1993 to January 1994. Operational problems and permitting delays experienced in fiscal 1993 resulted in further cost increases which precipitated a liquidity crisis for the Company. A decrease in gold production was experienced during mining of the first phase at Gold Pick East with 30 percent less oxide and 18 percent more refractory ore being produced than was forecast by the reserve model. In addition, mining encountered a zone of structurally controlled mineralization which limited the dissemination of gold and reduced the available ore tonnage. A delay in the permitting of the Gold Canyon satellite deposit also required the acceleration in prestripping of the smaller and higher stripping ratio Goldstone North deposit which was mined from March to August 1993 in order to sustain production. In May 1993, mining of this deposit was suspended for one month due to a partial collapse of the highwall. As a result of these problems, Atlas was unable to maintain payments to its mining contractor and provided the contractor with a secured $3.5 million note. This note was repaid in fiscal 1994 from cashflow from the mining of Gold Canyon, from proceeds of a private placement in September 1993 and from the sale of selected mining equipment. After a change in control of the company in September 1993, management began an extensive program aimed at confirming and evaluating the economics of the remaining reserves at the Gold Pick, Gold Ridge and Gold Canyon deposits. One of the main concerns was the past overestimation of reserves in deposits having strong structural ore controls. A 23 hole confirmatory drill program at the Gold Canyon deposit led to the determination that mining to the originally designed pit bottom would have been uneconomical due to the occurrence of more refractory material than had been previously forecast. As a result, mining at the Gold Canyon deposit was halted in January 1994 instead of April 1994 as had been originally estimated. From January 1994 to the end of the fiscal year, gold production was sustained at reduced rates from the milling of stockpiled materials. This lower grade material resulted in gold production for the second half of 14,100 ounces. After the depletion of stockpiled material, milling operations were suspended on September 19, 1994. Since the commencement of commercial production in January 1987, the Company produced and sold 478,000 ounces of gold. The following table provides the operating statistics for the Gold Bar Project from fiscal years 1987 to 1995. GOLD BAR RESOURCE AREA ANNUAL PRODUCTION DATA (TONS IN THOUSANDS)
YEAR ENDED JUNE 30, --------------------------------------------------------------------------------------- 1987 1988 1989 1990 1991 1992 1993 1994 1995 --------------------------------------------------------------------------------------- GOLD BAR ORE TONS MINED 564 662 1,015 1,711 33 GRADE (OZ/TON) .058 .074 .086 .082 .061 GOLDSTONE ORE TONS MINED 704 5 195 126 10 GRADE (OZ/TON) .077 .080 .069 .088 .045 GOLD RIDGE ORE TONS MINED 44 1,316 331 GRADE (OZ/TON) .043 .060 .051 GOLD PICK ORE TONS MINED 249 544 GRADE (OZ/TON) .071 .075 GOLD CANYON ORE TONS MINED 602 GRADE (OZ/TON) .065 --------------------------------------------------------------------------------------- MINING STATISTICS: TOTAL TONS MINED (INCLUDING PREPRODUCTION STRIPPING) 1,703 2,462 6,198 7,004 13,298 10,240 13,322 4,462 13 TOTAL ORE TONS MINED 564 662 1,015 1,711 748 1,570 1,103 728 10 STRIP RATIO (WASTE:ORE) 2.0:1 2.7:1 5.1:1 3.2:1 16.8:1 5.5:1 11.1:1 5.1:1 .3:1 MILLING STATISTICS: TOTAL TONS MILLED 212 589 825 1,150 1,091 1,226 1,120 1,101 199 GRADE (OZ/TON) .09 .09 .09 .08 .09 .07 .06 .06 .04 RECOVERY 93% 91% 91% 89% 82% 92% 82% 79% 72% OUNCES PRODUCED 13,824 46,292 66,082 81,263 80,727 81,832 55,080 51,696 6,019 AVERAGE SALES PRICE ($ PER OZ) $ 435 $ 457 $ 428 $ 397 $ 379 $ 362 $ 350 $ 377 $ 387 OPERATING COSTS ($ PER OZ) CASH PRODUCTION COST $ 139 $ 166 $ 159 $ 161 $ 207 $ 223 $ 323 $ 319 $ 446 NON-CASH COSTS 95 82 62 73 98 143 162 87 58 ------- ------- ------- ------- ------- ------- ------- ------- ------ TOTAL $ 234 $ 248 $ 221 $ 234 $ 305 $ 366 $ 485 $ 406 $ 504 ------- ------- ------- ------- ------- ------- ------- ------- ------
When mining was suspended at gold canyon, management elected to delay the development of the gold pick and gold ridge deposits until they were more adequately drilled and various cost cutting measures were examined. A total of 303 surface holes were drilled into the Gold Pick and Gold Ridge deposits during fiscal 1994 to confirm and expand the known mineralization. An Additional 55 holes were drilled as part of an underground exploration program at Gold Pick. The drilling of these two permitted deposits confirmed 7.9 million tons of mineralized material at an average grade of 0.041 ounces gold per ton using a cut-off grade of 0.01 ounces per ton. As a result of a geological mapping program and the additional drilling, which has reduced drill spacing to a nominal 50 feet within these two deposits, management believes it has adequately resolved the previous problems relating to structural ore controls. In excess of 9.7 million tons of mineralized material at an average grade of 0.04 ounces per ton has been identified within the Gold Pick, Gold Ridge, Gold Canyon and Cabin Creek Deposits. Further analysis is required to determine an optimum development plan in light of a number of processing and mining alternatives and their associated levels of capital expenditures. During the fourth quarter of fiscal 1995, the Company completed revised mining plans for the Gold Pick and Gold Ridge deposits. Atlas plans to restart mining from these deposits when suitable mining contracts have been negotiated and financing arranged. Based on these mining plans, the Company estimates its proven and probable ore reserves at June 30, 1995, as 3,051,000 tons at an average gold grade of .063 ounces per ton, containing 192,000 ounces. Based upon an average recovery rate of 84 percent, the Company anticipates that approximately 162,000 of the 192,000 ounces of contained gold will be recovered. GOLD EXPLORATION The Company continues to actively explore for gold, principally in the Gold Bar Resource Area. During fiscal year 1995, the Company employed 5 full-time professionals and spent a total of $1,571,000 in connection with its exploration activities. During the fourth quarter of fiscal 1995, an 18 hole drill program was concluded on an area adjacent to the original Gold Bar Deposit. Holes were drilled to the northwest and southeast of the original pit. All of the 13 holes to the northwest encountered gold mineralization with 3 holes having grades in excess of 0.1 ounces per ton over a distance of at least 20 feet and 0.055 ounces per ton over 80 feet. Based on the results of this program, the Company is currently permitting a second phase of drilling to further define this target. To accelerate the exploration and development of the Gold Bar Resource Area, the Company entered into three exploration joint ventures on its property. Description and terms of the joint ventures and additional information on the Companys exploration program is provided under the caption, operations and joint ventures under item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations. The Company intends to pursue additional joint ventures for its property in addition to conducting its own exploration on a number of identified targets. Subsequent to fiscal 1995, the Company reached an agreement to purchase, subject to the completion of due diligence, the Doby George property in Nevada and entered into letter agreements for a one year option on the Commonwealth property in Arizona and on the Dixie Comstock property in Nevada. Descriptions of the properties and terms are provided under item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations. PERLITE OPERATIONS During the past year, the Company has been proceeding with the necessary activities to bring its Tucker Hill perlite deposit into commercial production. This property, located in south central Oregon, approximately 35 miles northwest of Lakeview, was acquired by the Company in 1988. The 900 acre property is held primarily by unpatented mining claims. A drilling program conducted in fiscal 1994 on a small portion of the property (10 acres) confirmed a proven and probable reserve of 8.9 million tons. Overall, the property is estimated to contain a minimum mineral deposit of 50 million tons. At current consumption levels, such a resource would be adequate to satisfy the current North American demand for perlite for the next 50 years. Perlite is a light weight volcanic mineral commonly used in the manufacturing of acoustic ceiling tile, insulation products and filter material and is used as an additive for horticultural products. To date a total of thirteen bulk samples, ranging up to 45 tons in size, have been mined from the property and sent to a variety of end users for testing. Ore from Tucker Hill has been demonstrated to be of high quality and capable of satisfying manufacturing requirements in a wide array of uses. The Company completed an engineering study which included a facilities design and an operating plan. Initial capital requirements to construct a nominal 75,000 ton per year capacity plant are estimated at approximately $2.0 million. A draft environmental impact statement has been issued by the Bureau of Land Management. Pending successful completion of permitting, contract negotiations, and financing, perlite production could begin as early as the summer of 1996. ACQUISITION OF GRANGES INC. INVESTMENT In August of 1994 Atlas completed the purchase of 12,694,200 shares of Granges Inc. The shares represented 37.2 percent of the issued and outstanding shares of Granges. The purchase price was Cdn. $4.00 Per share (US $2.80) or an aggregate purchase price of Cdn. $50.8 million (us $35.8 million). As a result of the subsequent amalgamation on may 1, 1995 of Granges and its 50.5 percent owned subsidiary, Hycroft Resources and Development Corporation, Atlas interest in the amalgamated entity was reduced to 27.7 percent. Prior to the amalgamation, the Company and Granges entered into an agreement pursuant to which atlas agreed to vote its shares in favor of the amalgamation of Granges and Hycroft as discussed above. The agreement called for the initial Board of Directors of the "new" Granges Inc. to be composed of eleven members including three members nominated by Atlas. The agreement also provided that effective on October 1, 1995, The Board would be reduced to nine members with Atlas continuing to have the right to nominate Directors to the Board proportionate to its shareholding in Granges. On that date, a representative of Atlas would be elected President and Chief Executive Officer of the Granges Inc., subject to approval of the revised Board. Mr. Michael B. Richings was subsequently named Director, President and Chief Executive Officer of Granges effective June 1, 1995, taking a leave of absence from his position as President and Chief Operating Officer of Atlas. Granges is a Vancouver, Canada, based precious metals mining company whose shares are traded on the Toronto Stock Exchange and American Stock Exchange. Granges principal asset is the Crofoot/Lewis Gold Mine. The mine is located 60 miles west of Winnemucca, Nevada, and is an open pit, heap leach operation which produces gold and silver. In calendar 1994, the mine reported production of 94,900 ounces of gold and 315,000 ounces of silver. Granges reported total ore reserves at January 1, 1995, of 66.5 million tons grading 0.019 ounces of gold per ton. Estimated contained gold was 1,264,000 ounces compared to 1,021,000 ounces at the end of 1993. Additional information on the Granges Inc. investment is provided under Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations and in Note 7. Investment in Unconsolidated Subsidiary to the Companys financial statements. OTHER The Company's profitability has been significantly affected by the price of gold. Gold prices fluctuate widely and are affected by numerous factors beyond the Company's control, including expectations for inflation, the strength of the United States dollar, global and regional demand, political and economic conditions and production costs in major gold producing regions, including Australia, Canada, South Africa and the former Soviet Union. The aggregate effects of these factors are impossible to predict. Gold is a product which can be easily sold on numerous markets throughout the world. It is not difficult to ascertain the market price for gold at any particular time, and gold can be sold to a large number of refiners or precious metals dealers on a competitive basis. The Company normally sells its gold through major precious metals dealers, in some cases using hedging programs, and it is free to sell uncommitted gold to others. Gold is produced at the mine site in the form of gold/silver alloy, which is further refined by a third party into commercially acceptable gold. The Company is required to comply with various federal, state and local regulations and requirements relating to environmental matters at its mining operations. The Company is required to obtain permits from various governmental agencies in order to mine and mill. The company has obtained all of the necessary permits relating to its present operations. The Company cannot anticipate whether increasing costs of environmental compliance for its gold operations will have a material adverse impact on its operations or competitive position. The Company competes with substantially larger companies in the production and sale of gold. The Company does not believe that it or any other competitor is a material factor in these markets, and the price it receives for its production depends almost entirely upon market conditions over which it has no control. The Company believes that it can promptly sell at current market prices all of the gold that it can produce for either present or future delivery. With respect to the acquisition of mineral interests and exploration activities, the Company competes with numerous persons and companies, many of which are substantially larger and have considerably greater resources than the Company. The Company currently employs approximately 25 people in its operations and considers its relations with those employees satisfactory. ATTACHMENT B Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ----------------------------------- The following comments should be read in conjunction with the Financial Statements and accompanying notes. CHANGE IN FISCAL YEAR END In order to allow the timely inclusion of Granges' results from operations in the Company's financial reports, the Board of Directors authorized a change in Atlas fiscal year-end to December 31. This change will be implemented at December 31, 1995, and will result in financial reporting being issued for a six month period. In the future, the Companys results will be reported on a time schedule consistent with its industry peers. RESULTS OF OPERATIONS - --------------------- In January 1994, production from the Gold Bar Property was halted, after a confirmatory drill program indicated that mining to the originally designed Gold Canyon pit bottom would have been uneconomical due to the occurrence of more refractory material than had been previously forecast. Management initiated the processing of low grade stockpiled ores in an effort to avoid the suspension of milling operations. Engineering and metallurgical studies focusing on the development of short term reserves were accelerated. On September 16, 1994, stockpiled ores were depleted and the Company was forced to suspend milling operations and to temporarily place the Gold Bar project on standby. As a result, fiscal year 1995 reflects only three months of operations. REVENUES Revenues for fiscal 1995 and 1994 were $2,328,000 and $19,478,000, respectively. Gold production decreased to 6,021 ounces in fiscal 1995 from 51,700 ounces in fiscal 1994. The decreases in revenue and gold production in fiscal 1995 reflect the suspension of operations at the Gold Bar property after only three months of production. The average price per ounce of gold realized in fiscal 1995 was $387 versus $377 in fiscal 1994. Revenues for fiscal 1993 were $19,280,000, reflecting a decrease of $198,000, or 1 percent, compared to fiscal 1994 revenues of $19,478,000. Gold production in fiscal 1994 was 51,700 ounces down from 55,100 ounces in fiscal 1993. The decrease in production was the result of processing low grade stockpiled material after the January 1994 suspension of mining operations. The decrease in production was offset by an increase in gold prices. The average gold price realized increased from $350 an ounce in fiscal 1993 to $377 an ounce in fiscal 1994. PRODUCTION COSTS Production costs for fiscal 1995 and 1994 were $2,683,000 and $16,526,000, respectively. Production costs per ounce in fiscal 1995 and 1994 were $446 and $319, respectively. The decrease in production costs are a result of the suspension of operations at the Gold Bar property after only three months of production in fiscal 1995. The higher production costs per ounce reflect the lower grades run prior to the suspension of operations in 1995. The Company incurred $1,485,000 in shutdown and standby costs during the last three quarters of fiscal 1995. Such costs included severance payments, continuing onsite security and maintenance as well as general and administrative expenditures. Production costs in fiscal 1994 decreased $1,266,000, or 7 percent, from fiscal 1993 production costs of $17,792,000 because of lower production levels. On a unit cost basis, direct minesite cash costs decreased to $319 per ounce in fiscal 1994 versus $323 in fiscal 1993. Production cost as a percentage of mining revenue was 85 percent in fiscal 1994 a decrease from 92 percent in fiscal 1993. During the fourth quarter of fiscal 1994, the Company and an independent consultant began evaluating the Gold Bar mine plan and remaining known ore reserves. As a result, the Company determined that its remaining unamortized costs could not be recovered from undiscounted cash flows over the remaining mine life and the Company recognized an impairment to adjust the carrying value of its assets. This adjustment resulted in a charge to operations of $5,355,000 in the fourth quarter of fiscal 1994. In the fourth quarter of fiscal 1993, the Company also reduced the carrying value of its producing and nonproducing properties by $28,716,000 and $2,796,000, respectively. DEPRECIATION, DEPLETION AND AMORTIZATION The Gold Bar property was written down to estimated salvage value during fiscal 1994. Depreciation, depletion and amortization charges of $348,000 in fiscal 1995 represent the flow through of non-cash costs contained in stockpiled ore inventory at the end of fiscal 1994 and the write-off of capital expenditures incurred during the three months of operations in fiscal 1995. Depreciation, depletion and amortization in fiscal 1994 totaled $4,479,000, or $87 per ounce, down from $9,005,000, or $162 per ounce, in fiscal 1993. The decrease is primarily a result of the impairment adjustment recorded in fiscal 1993 which reduced the amortizable basis of the Company's assets. GENERAL AND ADMINISTRATIVE General and administrative expenses in fiscal 1995 decreased by $326,000, or 11 percent, from fiscal 1994. The primary reason for the fiscal 1995 decrease was a $400,000 reduction in salaries and severance costs. General and administrative expenses in fiscal 1994 were reduced by $1,081,000, or 26 percent, from fiscal 1993. This was primarily the result of reductions in personnel, a reduction in the use of consultants and a concentrated emphasis on cost control at the corporate level. Fiscal 1994 general and administrative expenses included approximately $390,000 in various change of control and severance costs. As a percentage of mining revenue, general and administrative expenses decreased to 16 percent in fiscal 1994 from 22 percent in fiscal 1993. OTHER Exploration costs of $1,911,000 were incurred in fiscal 1995, a decrease of approximately $400,000 from fiscal 1994. The decrease is attributable to the reduction of land holding costs, as current joint venture partners (see below) are responsible for land royalties and lease payments, and a reduction of personnel. Exploration costs in fiscal 1994 increased $430,000 from fiscal 1993 as a result of an underground drilling program commenced in the fourth quarter of fiscal 1994 and ended during the first quarter of fiscal 1995. In October 1992, the Company leased to another mining company gold properties in Oregon ("Grassy Mountain") and Idaho ("Musgrove Creek") for a period of 35 years with options for three additional 10 year extensions. The total consideration was $30 million, consisting of a $22.5 million initial payment and a $7.5 million advance royalty payment. The Company retained a 5 percent royalty on each of the properties which will first be applied against the advance royalty and interest thereon. A substantial portion of the proceeds from this transaction were used to repay the entire balance of the Company's bank borrowings and to provide cash collateral for a letter of credit. The balance of the proceeds were used for working capital and exploration. This transaction resulted in a gain of $17,803,000 in the second quarter of fiscal 1993. Notes 10 and 11 to the Financial Statements provide details and a discussion of discontinued operations for the past three fiscal years. The Company's revenues and operating results for the periods set forth are not necessarily indicative of the results for any future period because revenues and profits from sales of gold may vary significantly between periods depending on the amount of gold produced, production costs and gold prices. OPERATIONS AND JOINT VENTURES After a change of control of the Company in September of 1993, management began an extensive drilling program aimed at confirming and evaluating the current reserves at the Gold Canyon, Gold Pick and Gold Ridge deposits. The first phase consisted of a 23 hole confirmatory drill program at Gold Canyon. Based on the higher than anticipated level of refractory ore encountered and the higher costs associated with processing this material, mining activities were suspended in January 1994. Phase two drilling, which commenced in March of 1994, consisted of 55 underground drill holes at Gold Pick and 28 exploration drill holes at the Goldstone deposit. The program was designed to identify underground reserves while providing additional information about the open pit reserves. While the program did not generate underground reserves, it did provide additional information on geological structures present within the Gold Pick deposit. Phase three drilling, which commenced in April of 1994, consisted of a 303 hole surface drilling program designed to confirm and expand the Gold Pick and Gold Ridge reserves. Both the phase two and three programs were completed by September 1994. As a result of the information generated by these programs, the determination was made in September 1994 to re-evaluate the development of the Gold Pick and Gold Ridge deposits and, in the interim, to temporarily place the Gold Bar project on standby. Management continued to perform and evaluate metallurgical, engineering, and geotechnical studies aimed at optimizing the economics of the existing reserve base while attempting to reduce the capital requirements necessary to resume operations. Based upon the results of the studies and using a $390 per ounce gold price, the Company has calculated a proven and probable gold reserve of 3.1 million tons at a grade of .063, containing 192,000 ounces. This reserve is contained in the Gold Pick and Gold Ridge deposits and represents a reduction of 48,000 ounces from the 240,000 ounces reported in the prior year. The reduction is the result of new pit designs and revised cost estimates. Under the revised mine plan, open pit mining methods will continue to be employed using a contract miner. Plans call for average production of 52,000 ounces per year over a three year period at an estimated average cash cost of $330 per ounce. Non-cash costs are expected to average $30 per ounce. The Company is currently holding discussions with various mining contractors and is examining financing alternatives for approximately $7 to $9 million in capital and startup expenses. Pending financing and successful contract mining negotiations, mining is anticipated to resume in late 1995. The current mine plan calls for a six month period of preproduction stripping and ore stockpiling prior to the resumption of milling operations. The Company continues to explore for gold, principally on the Gold Bar claim block. During the fourth quarter of fiscal 1995, an 18 hole drill program was concluded on an area adjacent to the original Gold Bar deposit. Holes were drilled to the northwest and southeast of the original pit. All of the 13 holes to the northwest encountered gold mineralization with 3 holes having grades in excess of 0.1 ounce per ton over a distance of at least 20 feet and 0.055 ounce per ton over 80 feet. Based on the results of this program, the Company is currently permitting a second phase of drilling to further define this target. In order to accelerate the exploration and development of its large land position, the Company elected to enter into agreements for the joint exploration and development of certain portions of the Gold Bar claim block. Areas which contain known mineralization, or identified but as yet untested targets, were not included in such agreements. To date, Atlas has entered into a joint venture agreement and two separate exploration agreements with options to joint venture which together cover approximately 46 percent of the claim block. In August 1994, Atlas signed a mining venture agreement with Rayrock Mines Inc. covering approximately 29 square miles on the northern portion of the claim block. In order to earn a 60 percent interest in that property, Rayrock is required to (i) spend $1.5 million on exploration and development of the property on or before October 1, 1997 (with an option to extend the time period for earning that 60 percent interest through October 1, 1999 for an additional $1.5 million in expenditures), and (ii) complete a positive engineering study for the property. In September 1994, Atlas entered into an exploration agreement with option for joint venture with Homestake Mining Company on the southern 14 square miles of the Gold Bar claim block. The agreement gives Homestake the right to earn a 60 percent interest in that property over a five year period, by expenditure of an aggregated amount of $3 million in exploration and development expenses, starting with a minimum of $200,000 in the first year with annual commitments increasing over time up to $1 million in the fifth year. In addition to incurring the minimum required exploration expenditures to earn its 60 percent interest, Homestake must also complete an engineering report evaluating the viability of developing a commercial mining operation on the property and commit to proceeding with commercial development. In October 1994, Atlas signed an agreement with Hemlo Gold Mines (USA), Inc. on an approximately 4.5 square mile area located four miles northeast of the Gold Bar claim block. That agreement calls for Hemlo, in order to maintain the agreement in effect, to spend a minimum of $400,000 on exploration over a four year period. After Hemlo spends $400,000, Atlas may elect to participate in further development of the property pursuant to a mining venture agreement on a 30/70 basis with Hemlo or, if Atlas chooses not to participate, Hemlo may continue to develop the property with Atlas receiving a production royalty equal to 7 percent of the net operating proceeds. Since signing the agreement, Hemlo has drilled and surrendered a portion of the property, reducing the property position covered under this agreement to approximately 3 square miles. On August 17, 1995, the Company announced that it had reached an agreement to purchase the Doby George Gold Project, located in Nevada, from Independence Mining Company Inc. Doby is an early stage development project with an indicated gold resource of 3.7 million tons at an average grade of 0.060 ounces per ton, containing approximately 220,000 ounces. The Doby land position covers approximately 14 square miles on public land. The terms of the agreement call for delivery of 1.4 million shares of Atlas Corporation Common Stock to Independence along with a payment of $400,000 upon closing. The purchase is subject to a sixty day due diligence period and negotiation of a definitive contract to be completed on or before October 13, 1995. On September 7, 1995, the Company announced that it had entered into letter agreements for one year purchase options on the Commonwealth and Dixie Comstock properties. The Commonwealth project, optioned from Harvest Gold Corporation and located in central Arizona, is a two square mile, late stage exploration property. To date, 126 holes have been drilled on the site but the identified areas of mineralization have not been fully defined nor has the exploration potential of the property been fully evaluated. Under the terms of the agreement, the Company has made an initial payment of $125,000 and is committed to spend $425,000 for exploration and development of the property. If the option is exercised, Atlas would pay Harvest $25 per equivalent ounce of recoverable gold reserve as determined by an independent reserve study. This amount would be payable 75 percent in Atlas Common Stock, the value to be calculated by averaging the current price and the price on the date the option is exercised, and 25 percent in cash, with cash not to exceed $1,300,000. The Dixie Comstock project, optioned from Horizon Gold Corporation and located in western Nevada, is a four square mile late stage exploration property. The option agreement called for an initial payment of $65,000 and a second payment of $25,000 on November 1, 1995, to maintain the option for its one year term. If the option is exercised, Horizon will receive 250,000 shares of Atlas Common Stock. Horizon would also retain a 7.5 percent net operating profit royalty. INVESTMENT IN UNCONSOLIDATED SUBSIDIARY - --------------------------------------- On April 28, 1994, Atlas entered into an agreement to purchase 12,694,200 shares, or 37.2 percent of the outstanding shares, of Granges Inc.("Granges") from M.I.M. (Canada) Inc. (M.I.M.) for approximately Cdn. $50 million (US $37 million). Granges is a Canadian-based, precious metals mining company whose shares are traded on the American and Toronto Stock Exchange under the symbol GXL. Granges controlled, via its 50.5 percent subsidiary Hycroft Resources and Development Corporation (Hycroft), the Crofoot/Lewis mine, located in northwestern Nevada. This mine reported production of 94,900 ounces of gold in 1994. Effective May 1, 1995, Granges amalgamated with Hycroft with the resultant company being named Granges Inc. The amalgamation resulted in each common share of Hycroft being exchanged for 0.88 of a common share of "new" Granges Inc. In addition, each Granges common share outstanding prior to the amalgamation was exchanged for one common share of "new" Granges Inc. After giving effect to the amalgamation, the Companys 12,694,200 shares of "new" Granges Inc. represented 27.7 percent of the outstanding common shares of that company. The Company recorded the acquisition of the Granges shares using purchase accounting and reports the results of Granges operations using the equity method. During the period of Atlas ownership, Granges has reported a net loss of $644,000. Due to the amortization of excess basis in the investment over the net assets acquired and differences between United States and Canadian Generally Accepted Accounting Principles, the Company during the same period has recorded a loss of $1,361,000 on equity in unconsolidated subsidiary. In connection with the amalgamation of Granges and Hycroft, the Company re- evaluated its investment in Granges relative to the market values implied in the amalgamation and to the known reserves at the Crofoot/Lewis mine. As a result thereof, the Company recorded an impairment of $11,419,000 of its investment in unconsolidated subsidiary at June 30, 1995. The Company intends to pursue strategies that offer both companies the potential of economic benefits, including, but not limited to, joint exploration activities and a business combination. WORKING CAPITAL - --------------- Over the last three years, the Company has financed acquisitions and raised working capital through the issuance of equity securities and instruments. During the summer of 1994, the Company conducted a private placement of 9,090,909 Units, for a purchase price of $5.50 per Unit, each Unit consisting of one share of Atlas Common Stock and one-half of one warrant (exercisable for five years) to purchase one share of Atlas Common Stock at an exercise price of $7.00 per share. The $50 million equity financing was completed in August 1994. Of these funds, $35.5 million was released on August 15, 1994, allowing Atlas to complete the acquisition of the Granges shares. The remaining $14.5 million was released on December 15, 1994, following shareholder approval of a proposal to increase the number of shares authorized for issuance. On January 18, 1994, the Company, in a private placement, sold 1.5 million shares of Atlas Common Stock for $5.00 per share for gross proceeds of $7.5 million. The shares were placed outside the United States with a number of gold funds and institutional investors in Canada and Europe. On September 20, 1993, the Company, under a Securities Purchase Agreement with Phoenix Financial Holding Inc. ("Phoenix"), closed on the sale for an aggregate of $8,375,000 of (i) 1,500,000 shares of Atlas Common Stock, (ii) a Redeemable Convertible Debenture due in 1998 in the amount of $3,500,000 which is convertible as to principal into Atlas Common Stock at the rate of $4.00 per share and bears interest at the rate of 9 percent per annum payable in cash or Atlas Common Stock at the rate of $4.00 per share, and (iii) Warrants to purchase for three years 2,000,000 shares of Atlas Common Stock at $3.625 per share. Working capital was $5,611,000 at June 30, 1995, which compares to a working capital deficit of $239,000 at June 30, 1994 and a deficit of $2,816,000 at June 30, 1993. The Company's current ratio was 2.60 to 1 at June 30, 1995, .96 to 1 at June 30, 1994, .69 to 1 at June 30, 1993. The positive change in working capital reflects the funds received from issuance of equity securities as described above. The proceeds from the Phoenix transaction provided relief from liquidity difficulties the Company was experiencing at June 30, 1993, by allowing for repayment of short term debt and increasing working capital. The January 18, 1994, financing provided working capital to fund development and exploration drilling programs, expand the Gold Bar claim block, and fund the $1,843,000 deposit on the Granges transaction. The June 30, 1995, working capital position was the result of funds generated from the December 15, 1994, release of escrowed private placement funds. The proceeds were used to repay a short term loan, to pay fees related to the private placement, to acquire 2.4 million shares of Dakota Mining Corp. for $3,000,000 and for continuing exploration and administration expenses. The Company will utilize its working capital and equity investments to address the lack of cash flow from current operations. The Company will also address this problem by pursuing: 1) business combination strategies with Granges Inc., 2) sale of non-core assets, 3) issuance of debt, and 4) acquisitions. The Company's capital expenditures in fiscal 1995 were $625,000, compared to $5,263,000 in fiscal 1994 and $3,795,000 in fiscal 1993. In fiscal 1995, approximately $360,000 was spent on the development of the Tucker Hill perlite deposit with the remainder being spent on the Gold Bar property. In fiscal 1994 and 1993, substantially all of the capital expenditures were for the development of the Gold Bar property. The Company currently projects that $1 to $2 million will be needed to secure, explore and develop the recently announced Doby George acquisition and investigate the Commonwealth and Dixie Comstock options. The Company anticipates funding these expenditures through current working capital, the sale of non-core assets and borrowings secured by the assets of the Company. Restarting Gold Bar operations will be contingent upon negotiation of acceptable mining contracts and receipt of project financing commitments. The Company currently estimates that additional capital expenditures to develop and mine its Tucker Hill perlite deposit in Oregon will be approximately $2 million, all of which could be required during the next fiscal year pending successful permitting. At present, it is anticipated the funding will be obtained through project borrowings. There is no assurance that the Company will be able to obtain the financing commitments mentioned in the preceding paragraphs. See also "Environmental Matters" below. ENVIRONMENTAL MATTERS - --------------------- The Company is subject to extensive federal, state and local environmental laws and regulations. These laws, which are constantly changing, regulate the discharge of materials into the environment and may require the Company to mitigate any environmental effects caused by its operations. The Company believes that it is currently in substantial compliance with all federal, state and local environmental regulations applicable to its current and discontinued operations. The Company is obligated to decommission and reclaim its uranium mill site located near Moab, Utah. When the Company discontinued its uranium operations in 1987, estimated shut-down and reclamation expenses of $17,406,000 were accrued. Reclamation and decommissioning costs of $1,497,000, $1,159,000 and $623,000 in fiscal 1995, 1994 and 1993 have been charged against this accrual. The balance of this accrual at June 30, 1995 was $5,702,000 and the reclamation plan as proposed by the Company extends over the next four to seven years. Title X of "The Comprehensive National Energy Policy Act" ("Title X"), which was enacted in October 1992, provides for reimbursement by the federal government of past and future reclamation expenses in proportion to the extent that the site's tailings were generated by Atomic Energy Commission (AEC) contracts. With respect to the Company's discontinued uranium operations, 56 percent of the tailings were generated by AEC contracts. Requests for reimbursement under Title X must be submitted to the Department of Energy (DOE) and are subject to review and audit. The timing on the repayment of costs approved for reimbursement is a function of Congressional appropriation. The Company's proposed reclamation plan, which provides for capping the tailings on site, is the subject of an Environmental Impact Statement, a public draft of which is scheduled for release by the Nuclear Regulatory Commission in November 1995. The Company is confident that the ultimate result of this review process will be the approval of its reclamation plan and that its remaining accrual, when combined with anticipated reimbursements of reclamation costs under the Title X program, is sufficient to cover future reclamation costs. In July 1994, the Company submitted a claim under Title X for approximately $5.0 million of reclamation costs incurred from fiscal 1986 through fiscal 1994. The Company has received notification that the DOE has given interim approval on approximately $4.5 million of the claim and $2.5 million in reimbursement with $0.5 million being disallowed. On December 29, 1994, the Company received $846,000 as a partial payment of the approved reimbursement which was recorded as income from discontinued operations. Based upon the Company's analysis of the reclamation liability, it is anticipated that all subsequent reimbursements under Title X will be used to increase the reclamation accrual. In June 1995, the Company submitted a second claim under Title X for approximately $3.6 million for reclamation costs incurred from fiscal 1980 through fiscal 1985, from June 1994 through May 1995 and appealed reclamation costs previously disallowed. The June 1995 claim is currently undergoing audit, the results of which are anticipated to be released late in 1995. The Company has received notification from the DOE that $1 million of the claim does not fall under the current definition of a reimbursable cost under Title X and has been disallowed. It is the Company's intention to appeal this determination. If the June 1995 claim of $3.6 million is approved in full, the Company will receive reimbursement of approximately $2 million. Estimated reclamation costs relating to the Gold Bar Resource Area are recorded based on the units of production method. Total reclamation costs expensed in fiscal 1995, 1994 and 1993 were $0, $732,000 and $313,000, respectively. As part of the impairment recorded during the fourth quarter of fiscal year 1994 (see results of operations, above), the Company increased it accrued expense by an additional $1,244,000. No charges were recorded in 1995 since analysis indicated the $3,342,000 accrued for reclamation costs at the Gold Bar Resource Area is adequate. Although the Gold Bar mine is currently on temporary standby, the Company expects to restart mining, subject to financing and negotiations with mining contractors. The Company believes it can meet the estimated closing and reclamation costs of its uranium and gold mining operations from internally generated funds, from the $5,659,000 in restricted cash which serves as collateral for a letter of credit and reclamation bonds relating to these costs, and from reimbursements under Title X, without a significant impact on its working capital position. It is presently anticipated that these obligations will be satisfied over the next four to seven years. During fiscal 1988, the United States Environmental Protection Agency (EPA) notified the Company that it was one of several potentially responsible parties ("PRPs") under the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") for cleanup costs at the Company's former asbestos mine and mill site near Coalinga, California and in the City of Coalinga. A prolonged period of inquiry and administrative process concerning this matter followed. In fiscal 1993 and 1991, the Company established a reserve of, and recorded as an expense, $600,000 and $3,000,000, respectively, to cover the Company's share of costs to be incurred in connection with this matter. This accrual reflects participation by the BLM, another PRP. The Company instituted legal action against 13 insurance carriers which had issued insurance policies over a period of more than 25 years with respect to these sites. During fiscal 1994, the Company reached settlement with a number of these carriers and recorded a gain from discontinued operations of $2,175,000. All remaining claims with the carriers were settled in fiscal 1995. The proceeds were negligible. In October, 1994, the Environmental Protection Agency approved a remedial action plan for the sites. Due to unusually heavy rains experienced at the site during the spring and early summer of 1995, the Company experienced delays and cost overruns. As a result, the Company recorded an additional loss from discontinued operations of $225,000 in the fourth quarter of fiscal 1995. The Company believes the remaining reserve is sufficient to cover future costs incurred under the remedial action plan, which is scheduled to be completed in the fall of 1995. The Company is required to obtain permits from various governmental agencies in order to mine and mill. The Company has obtained all of the necessary permits relating to is present operations. The Company cannot anticipate whether the increasing costs of environmental compliance for its gold operations will have a material adverse impact on its future operations or competitive position. ATTACHMENT C Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ------------------------------------------- INDEX TO FINANCIAL STATEMENTS Page Consolidated Statements of Operations for the Fiscal Years Ended June 30, 1995, 1994 and 1993 21 Consolidated Balance Sheets as of June 30, 1995 and 1994 22 Consolidated Statement of Stockholders' Equity (Deficit) as of June 30, 1995, 1994 and 1993 23 Consolidated Statements of Cash Flows for the Fiscal Years Ended June 30, 1995, 1994 and 1993 24 Notes to Consolidated Financial Statements 25 - 39 Report of Independent Auditors 40 ATLAS CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except earnings per share)
For the Year Ended June 30, 1995 1994 1993 - --------------------------- ------ ------ ------ Mining revenue $ 2,328 $ 19,478 $ 19,280 - ------------------------------------------------------------------------ Costs and expenses: Production costs 2,683 16,526 17,792 Depreciation, depletion and amortization 348 4,479 9,005 Impairment of mineral properties (Note 4) -- 5,355 28,716 Shutdown and standby costs (Note 4) 1,485 -- -- General and administrative expenses 2,742 3,068 4,149 Exploration and prospecting costs 1,911 2,315 1,783 Impairment of nonproducing mineral properties (Note 4) -- -- 2,796 - ------------------------------------------------------------------------ Gross operating loss (6,841) (12,265) (44,961) - ------------------------------------------------------------------------ Other (income) and expense: Equity in loss of unconsolidated subsidiary (Note 7) 1,361 -- -- Impairment of investment in unconsolidated subsidiary (Note 7) 11,419 -- -- Forfeiture of deposit on stock purchase agreement (Note 15) 1,144 Gain on mineral lease transaction (Note 4) -- -- (17,803) Interest expense (income), net (327) 205 (148) Other (income) expense (41) (430) 579 - ------------------------------------------------------------------------ Loss from continuing operations before income taxes (20,397) (12,040) (27,589) Provision for income taxes (Note 14) -- -- 477 - ------------------------------------------------------------------------ Loss from continuing operations (20,397) (12,040) (28,066) - ------------------------------------------------------------------------ Income (loss) from discontinued operations (Note 10) 621 2,175 (875) - ------------------------------------------------------------------------ Loss before cumulative effect of postretirement benefit obligations (19,776) (9,865) (28,941) Cumulative effect of post retirement benefit obligations (Note 13) -- -- (968) - ------------------------------------------------------------------------ Net loss $(19,776) $ (9,865) $(29,909) ======================================================================== Loss per share of common stock: Loss from continuing operations $(1.23) $ (1.45) $ (4.43) Income (loss) from discontinued operations .04 .26 (.14) Cumulative effect on prior years of postretirement benefit obligations -- -- (.15) - ------------------------------------------------------------------------ Net loss $(1.19) $ (1.19) $ (4.72) ======================================================================== Weighted average of common shares outstanding 16,549 8,264 6,336 ========================================================================
ATLAS CORPORATION CONSOLIDATED BALANCE SHEETS (In thousands)
June 30, 1995 1994 - ------------------------------------------------------------- ASSETS Current assets: Cash and cash equivalents $ 4,453 $ 3,767 Accounts receivable 131 970 Inventories (Note 2) 250 1,367 Investments in marketable equity securities (Note 3) 4,083 -- Prepaid expenses and other current assets 198 212 - ------------------------------------------------------------- Total current assets 9,115 6,316 Property, plant and equipment (Note 4) 47,686 50,476 Less: Accumulated depreciation, depletion and amortization and impairment (44,661) (47,637) - ------------------------------------------------------------- 3,025 2,839 Investment in unconsolidated subsidiary (Note 7) 25,452 -- Restricted cash and securities (Note 8) 5,659 7,993 Other assets (Note 8) 246 2,699 - ------------------------------------------------------------- $ 43,497 $ 19,847 ============================================================= LIABILITIES Current liabilities: Trade accounts payable $ 601 $ 2,109 Other accrued liabilities (Note 8) 2,103 3,146 Current portion of estimated uranium reclamation costs (Note 11) 800 1,300 - ------------------------------------------------------------- Total current liabilities 3,504 6,555 Convertible debenture (Note 15) 3,500 3,500 Other liabilities, long-term (Note 8) 11,660 12,267 Commitments and contingencies (Note 11) STOCKHOLDERS' EQUITY (DEFICIT) (NOTES 5, 6 AND 15) Common stock, par value $1 per share; authorized 50,000,000 and 25,000,000, issued and outstanding 18,577,500 and 9,410,012 at June 30, 1995 and 1994, respectively 18,578 9,410 Capital in excess of par value 68,678 31,555 Deficit (63,216) (43,440) Unrealized gain on investment in equity securities (Note 3) 896 -- Currency translation adjustment (103) -- - ------------------------------------------------------------- Total stockholders' equity (deficit) 24,833 (2,475) - ------------------------------------------------------------- $ 43,497 $ 19,847 =============================================================
ATLAS CORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) (In thousands)
Capital in For the Three Years Common Common Excess of Ended June 30, 1995 Shares Stock Par Value Deficit Other Total - -------------------------------------------------------------------------------------------------- Balance at June 30, 1992 6,336 $ 6,336 $22,832 $ (3,666) -- $ 25,502 Current year loss -- -- -- (29,909) -- (29,909) - -------------------------------------------------------------------------------------------------- Balance at June 30, 1993 6,336 6,336 22,832 (33,575) -- (4,407) Issuance of Common stock (Note 15) 3,000 3,000 8,362 -- -- 11,362 Exercise of warrants 13 13 33 -- -- 46 Interest on Debenture 61 61 328 -- -- 389 Current year loss -- -- -- (9,865) -- (9,865) - -------------------------------------------------------------------------------------------------- Balance at June 30, 1994 9,410 9,410 31,555 (43,440) -- (2,475) Issuance of Common Stock (Note 15) 9,091 9,091 36,965 -- -- 46,056 Exercise of Warrants 15 15 39 -- -- 54 Interest on Debenture 40 40 50 -- -- 90 Shares issued to 401k plan 22 22 69 -- -- 91 Unrealized gain on investment (Note 3) -- -- -- -- 896 896 Currency translation adjustment -- -- -- -- (103) (103) Current year loss -- -- -- (19,776) -- (19,776) - -------------------------------------------------------------------------------------------------- Balance at June 30, 1995 18,578 $18,578 $68,678 $(63,216) $ 793 $ 24,833 ==================================================================================================
ATLAS CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOW (In thousands)
For the Year Ended June 30, 1995 1994 1993 - ---------------------------------------------------------------------------------------------------------- Operating activities: Net loss $ (19,776) $ (9,865) $ (29,909) (Income) loss from discontinued operations (621) (2,175) 875 Cumulative effect of postretirement benefit obligations -- -- 968 From continuing operations: Adjustments to reconcile loss to net cash used in operations: Depreciation, depletion and amortization 395 4,547 9,005 Equity loss in unconsolidated subsidiary 1,361 -- -- Forfeiture of deposit on stock purchase agreement 525 -- -- Write-down of investment in unconsolidated subsidiary 11,419 -- -- Write-down of mineral properties - producing -- 5,355 28,716 Write-down of mineral properties - nonproducing -- -- 2,796 Gain on mineral lease transaction -- -- (17,803) Other adjustments 498 -- 615 Changes in operating assets and liabilities (Note 9) (62) (2,217) (608) - ---------------------------------------------------------------------------------------------------------- (6,261) (4,355) (5,345) - ---------------------------------------------------------------------------------------------------------- Discontinued operations: Operating income (loss) (net of tax) 621 2,175 (875) Adjustments to reconcile income to net cash provided from operations: Decrease (increase) in accounts receivable 875 (875) -- Decrease in taxes payable -- -- (37) Increase in accrued liabilities 123 -- -- Increase (decrease) in other liabilities, long-term 102 (101) 877 Net decrease in estimated reclamation costs (1,497) (1,079) (623) - ---------------------------------------------------------------------------------------------------------- 224 120 (658) - ---------------------------------------------------------------------------------------------------------- Net cash used in operations (6,037) (4,235) (6,003) - ---------------------------------------------------------------------------------------------------------- Investing activities: Purchase of stock in unconsolidated subsidiary (36,492) -- -- Investment in equity securities (3,007) -- -- Proceeds from lease transaction -- -- 30,000 Additions to property, plant and equipment (625) (5,263) (3,795) Proceeds from sale of equipment and reduction in other assets 491 434 1,479 Collateral for letter of credit -- -- (6,500) - ---------------------------------------------------------------------------------------------------------- Net cash provided by (used in) investing activities (39,633) (4,829) 21,184 - ---------------------------------------------------------------------------------------------------------- Financing activities: Proceeds from borrowings on short term debt and line of credit 3,550 750 Principal payments on revolving line of credit and long-term debt -- -- (14,749) Repayment of short-term debt (3,550) (3,524) -- Proceeds from the issuance of common stock 50,054 12,421 -- Proceeds from the issuance of convertible debenture -- 3,500 -- Cost of issuance of convertible debenture and common stock (3,698) (1,300) -- - ---------------------------------------------------------------------------------------------------------- Net cash provided by (used in) financing activities 46,356 11,097 (13,999) - ---------------------------------------------------------------------------------------------------------- Increase in cash and cash equivalents 686 2,033 1,182 Cash and cash equivalents at beginning of year 3,767 1,734 552 - ---------------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of year $ 4,453 $ 3,767 $ 1,734 ==========================================================================================================
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ------------------------------------------ 1. ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION -- The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. INVENTORIES -- Inventories other than finished gold are recorded at the lower of average cost or net realizable value. Finished gold inventory is carried at realizable value. MINING COSTS -- During production periods, costs attributable to waste are charged to operations based on the average ratio of waste tonnage to ore tonnage. PROPERTY, PLANT AND EQUIPMENT -- Property, plant and equipment is stated at the lower of cost, or estimated net realizable value. Depreciation of milling facilities and depletion of mining properties is determined by the units of production method. The Company regularly assesses its ability to recover the carrying value of its assets and recognizes an impairment when it is determined that unamortized costs cannot be recovered from undiscounted cash flows over the remaining project life. Leasehold improvements are amortized on a straight-line basis over the terms of related leases or, if shorter, estimated useful life. Expenditures for maintenance and repairs are charged to operations as incurred Expenditures for additions and major renewals are added to the property, plant and equipment accounts. Interest expense allocable to the acquisition or construction of capital assets and deferred mine development is capitalized until operations commence. INVESTMENTS -- The Company uses the equity method to account for investments in common stock of companies 20 percent to 50 percent owned. Investments in equity securities of companies which are less then 20 percent owned are carried at the lower of cost or market value. Marketable equity securities available for sale are recorded at fair value with unrealized gains and losses reported as a separate component of stockholders' equity. FOREIGN CURRENCIES -- All assets and liabilities of foreign subsidiaries are translated into U.S. dollars using the exchange rate prevailing at the balance sheet date, while income and expense items are translated at the weighted average exchange rate prevailing during the period. Unrealized exchange gains and losses are deferred and shown as a currency translation adjustment in shareholders' equity. EXPLORATION AND MINE DEVELOPMENT -- Exploration costs are expensed as incurred. When it is determined that a property has development potential, the subsequent costs of exploration and development are capitalized. Upon commencement of production the capitalized costs are amortized using the units of production method. MINING REVENUE -- Revenues are recorded when the finished product is available for shipment. RECLAMATION -- Estimated reclamation, site restoration and closure costs for each mine are charged to operations over the expected life of the mine using the units of production method. INCOME TAXES -- Effective July 1, 1993, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes. Under SFAS 109, income taxes are provided for the tax effects of transactions reported in the financial statements and consist of taxes currently due plus deferred taxes related to certain income and expenses recognized in different periods for financial and income tax reporting purposes. Deferred tax assets and liabilities represent the future tax return consequences of those differences which will either be taxable or deductible in the future when the assets and liabilities are recovered or settled. A valuation allowance is provided if it is more likely than not that any portion of the deferred tax assets will not be realized. Deferred tax assets are also recognized for operating losses and tax credits that are available to offset future taxable income or income taxes. CASH EQUIVALENTS -- The Company considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents. EARNINGS PER SHARE -- Earnings per share have been calculated based on the weighted average number of common shares outstanding during the year. Shares issuable under options and warrants are excluded from the computation when they are not dilutive. RECLASSIFICATIONS -- Certain of the comparative figures have been reclassified to conform with the current year's presentation. 2. INVENTORIES The following is a summary of inventories:
June 30, (In thousands) 1995 1994 - ----------------------------- ----- ------- Stockpiled ore $ -- $ 360 Work in process -- 593 Finished product -- 64 Materials and supplies 250 350 ----- ------ $ 250 $1,367 ===== ======
3. INVESTMENTS IN MARKETABLE EQUITY SECURITIES The following is a summary of investments in equity securities:
Gross Estimated Unrealized Fair June 30, 1995 ( In thousands) Cost Gains Value - ----------------------------------------------------------------------------------------------------- Dakota Mining Corporation Common Stock $ 3,187 $ 896 $4,083 =====================================================================================================
4. PROPERTY, PLANT AND EQUIPMENT The following is a summary of property, plant and equipment:
Accumulated Depreciation, Depletion Acquisition Amortization Net Book June 30, 1995 (In thousands) Costs & Impairment Value - ---------------------------- ------- ------- --------- Property and leaseholds $ 2,256 $ 2,256 $ -- Land improvements 5,734 5,734 -- Deferred exploration and development costs: Producing 3,470 3,470 -- Nonproducing 750 -- 750 Buildings and equipment 35,476 33,201 2,275 ------- ------- --------- Total $47,686 $44,661 $3,025 ======= ======= ========= Accumulated Depreciation, Depletion, Acquisition Amortization Net Book June 30, 1994 (In thousands) Costs & Impairment Value - -------------------------------------------------------------- ------- ------- --------- Property and leaseholds $ 2,256 $ 2,256 $ -- Land improvements 5,734 5,734 -- Deferred exploration and development costs: Producing 3,470 3,470 -- Nonproducing 388 -- 388 Buildings and equipment 38,620 36,177 2,451 ------- ------- --------- Total $50,476 $47,637 $2,839 ======= ======= =========
During September 1994, the Company placed the Gold Bar Mine on standby and recorded an expense of $1,275,000 for estimated shutdown and standby costs through the end of the fiscal year. During the fourth quarter of fiscal year 1995, the Company recorded $210,000 of additional shutdown and standby costs. During the fourth quarter of fiscal year 1994, the Company reviewed its mine plan and feasibility studies at certain Gold Bar properties. It was determined that the Company's unamortized investment could not be recovered from undiscounted cash flows over the remaining mine life, accordingly, the Company recorded an impairment of $5,355,000 in carrying value of its producing properties. This impairment is in addition to a similar reduction of $28,716,000 in the carrying value of its producing properties recorded in fiscal year 1993. The Company wrote off the $2,796,000 carrying value of certain nonproducing properties in the fourth quarter of fiscal 1993. In October 1992, the Company leased to another mining company gold properties in Oregon and Idaho for a period of 35 years with options for three additional 10 year periods. The total consideration was $30 million, consisting of a $22.5 million initial payment and a $7.5 million advance royalty payment. The Company has retained a 5 percent royalty on each of the properties which will first be applied against the advance royalty and interest thereon. This transaction resulted in a gain of $17.8 million in fiscal year 1993. 5. STOCKHOLDERS' EQUITY At a Special Meeting of Stockholders held on December 15, 1994, an amendment was approved to the Company's Certificate of Incorporation increasing the number of authorized shares of common stock from 25 million to 50 million. The Company is also authorized to issue 1,000,000 shares of preferred stock, par value $1 per share. The preferred stock is issuable in series, with designations, rights and preferences to be fixed by the Board of Directors. The Board of Directors has established a series of 150,000 shares of Series Preferred Stock designated Series A Junior Participating Preferred Stock ("Series A Preferred Stock"), no shares of which have been issued. At June 30, 1995, there were 875,000 shares of Common Stock reserved for the conversion of an outstanding convertible debenture and 2,032,111 shares of Common Stock reserved for Option Warrants traded on the American Stock Exchange which are exercisable at a price of $15.625 per share and have no expiration date. Also at June 30, 1995, there were 6,517,955 shares of Common Stock reserved for Option Warrants outstanding with the following terms:
Date of Number Exercise Date Issuance of Shares Price of Termination ------------ --------- -------- -------------- Sept. 21, 1993 1,972,500 $3.625 Sept. 20, 1996 Aug. 17, 1994 3,243,405 $ 7.00 Aug. 16, 1999 Dec. 15, 1994 1,302,050 $ 7.00 Dec. 14, 1999
The Company has an Amended and Restated Rights Agreement under which a holder of Preferred Stock Purchase Rights ("Rights") is entitled to purchase from the Company 1/200th of a share of Series A Preferred Stock at a price of $45 per 1/200th of a share. Subject to action by the Board of Directors, the Rights become exercisable upon the occurrence of certain events, including acquisition by a person or group of 15 percent or more of the outstanding Common Stock of the Company. Upon any such acquisition, the amended Plan provides that upon exercise of Rights and payment of the purchase price, the exercising Rights holder is entitled to receive, in lieu of Series A Preferred Stock, shares of Common Stock having a market value equal to twice the purchase price. The Amended and Restated Rights Agreement was amended as of September 13, 1993 and August 15, 1994 to provide that the transactions with Phoenix Financial Holdings Inc., M.I.M. Holdings Limited and Mackenzie Financial Corporation would not cause the Rights to become exercisable (Note 15). 6. EMPLOYEE INCENTIVE PLANS The Company's Long Term Incentive Plan (the "LTIP") provides that key employees may be granted options to purchase Common Stock at the fair value of the shares on the date of grant. At a February 17, 1995 Meeting of Stockholders, the shareholders approved an amendment to the Long Term Plan (i) to increase by 850,000 the number of shares authorized for issuance under the LTIP, (ii) to provide for the automatic grant to non-employee directors of the Company of awards of stock options under the LTIP and (iii) to reduce the minimum period prior to which an option may be exercised for all options granted after January 6, 1995 from one year to six months. Options are exercisable for a maximum of ten years from the date of grant and no options may be granted after July 31, 1999. At June 30, 1995, 1,745,000 shares of Common Stock were authorized for issuance under the LTIP with 1,117,000 options outstanding.
Options Exercised -------------------------------------------------------------------- Date Option Number Prior to Outstanding Granted Price Granted (a) 1992 1992 1993 1994 1995 6/30/95 ------ --------- -------- ---- ---- ------- ---- --------- 03/11/93 $ 2.75 30,000 -- -- -- (30,000) -- -- 11/15/93 $ 4.25 409,500 -- -- -- -- -- 409,500 05/02/94 $ 8.00 5,000 -- -- -- -- -- 5,000 08/10/94 $ 4.75 37,500 -- -- -- -- -- 37,500 01/06/95 $2.125 80,000 -- -- -- -- -- 80,000 01/06/95 $ 4.50 350,000 -- -- -- -- -- 350,000 05/19/95 $ 2.00 235,000 -- -- -- -- -- 235,000 ------ --------- -------- ---- ---- ------- ---- --------- Total 1,147,000 -- -- -- (30,000) -- 1,117,000 --------- -------- ---- ---- ------- ---- ---------
(a) Options granted shown net of cancellations, of which 815,000 were canceled in fiscal year 1995 7. INVESTMENT IN UNCONSOLIDATED SUBSIDIARY On August 15, 1994, the Company completed the purchase from M.I.M. (Canada) Inc. ("M.I.M.") of 12,694,200 common shares of Granges Inc. ("Granges") which represented 37.2 percent of the issued and outstanding shares of Granges. The purchase price was Cdn. $4.00 per share (U.S. $2.80), or an aggregate purchase price of Cdn. $50.8 million (U.S. $35.8 million). Granges is a Canadian-based precious metals mining company whose shares are traded on the Toronto Stock Exchange and the American Stock Exchange. Effective May 1, 1995, Granges amalgamated with Hycroft Resources and Development Corporation ("Hycroft"), which operates the Crofoot/Lewis mine located in Nevada,. Prior to the amalgamation, Granges had a 50.5 percent ownership position in Hycroft. The terms of the amalgamation called for each common share of Hycroft to be exchanged for 0.88 of a common share of "new" Granges Inc. and for each common share of Granges outstanding prior to the amalgamation, to be exchanged for one common share of "new" Granges Inc. After the amalgamation, the Company continued to hold 12,694,200 shares of "new" Granges Inc., representing 27.7 percent of the outstanding common shares of Granges. The Company has reported the results of Granges' operations on the equity method since it was acquired on August 15, 1994. A summarized Statement of Operations (Unaudited, U.S. dollars and U.S. GAAP) of Granges for the twelve month period ended June 30, 1995 and a summarized Balance Sheet (Unaudited, U.S. dollars and U.S. GAAP) is presented below:
Twelve Months Ended STATEMENT OF OPERATIONS (In thousands) June 30, 1995 - -------------------------------------- ------------- Sales $42,833 Cost of sales 34,179 Depreciation, depletion, & amortization 4,773 ------- Income from operations 3,880 Net loss $(1,405) ======= BALANCE SHEET (In thousands) Current assets $34,109 Non-current assets $28,137 Current liabilities $ 5,346 Non-current liabilities $ 3,206 Net equity $53,694
Under the equity method, the Company recorded a loss of $1,361,000 for the period from August 15, 1994 (date of acquisition) to June 30, 1995, respectively. Excess cost of investment over the net assets acquired of $9,002,000 is being amortized on a unit of production (gold ounces) basis and is included in the reported loss. In connection with May 1, 1995 amalgamation of Granges Inc. and Hycroft Resources and Development Corporation, the Company has re-evaluated its investment in Granges relative to the fair values implied in the amalgamation and to known reserves at the Crofoot/Lewis mine. As a result, the Company has elected to record an $11,419,000 impairment of its investment in unconsolidated subsidiary as of June 30, 1995. 8. DETAILS OF CERTAIN BALANCE SHEET CAPTIONS A summary of restricted cash and securities is as follows:
June 30, (In thousands) 1995 1994 - ---------------------- ------- ------- Collateral for a $4,592,000 letter of credit (a)(c) $ 4,869 $ -- Collateral for a $6,500,000 letter of credit (a) -- 6,500 Collateral for a $1,500,000 reclamation bond (b) 790 775 Other restricted cash (c) -- 718 ------- ------- $ 5,659 $ 7,993 ======= =======
(a) Securing $6,500,000 performance bond related to the Company's uranium reclamation obligations. (b) Securing $1,500,000 performance bond related to the Company's Gold Bar reclamation obligation. (c) Securing $1,826,000 performance bond related to the Company's Gold Bar reclamation obligation. A summary of other assets is as follows: June 30, (In thousands) 1995 1994 - ----------------------- ------- ------- Deposit paid for Granges Inc. shares $ -- $ 1,843 Deposit paid for Dakota Mining Corporation shares (Note 15) -- 525 Other 246 331 ------- ------- $ 246 $ 2,699 ======= ======= A summary of other accrued liabilities is as follows: June 30, (In thousands) 1995 1994 - ---------------------- ------- ------- Accrued compensation $ 230 $ 596 Mine reclamation accrual (short-term) 300 300 Accrued asbestos reclamation costs (Note 11) 566 1,400 Other 1,002 850 ------- ------- $ 2,103 $ 3,146 ======= ======= A summary of other liabilities, long-term is as follows: June 30, (In thousands) 1995 1994 - ---------------------- ------- ------- Long term uranium reclamation cost (Note 11) $ 4,902 $ 5,899 Pension and deferred compensation obligations 1,405 1,335 Mine reclamation accrual 3,042 3,100 Accrued postretirement benefit obligation (Note 13) 1,232 1,203 Other 1,079 730 ------- ------- $11,660 $12,267 ======= ======= 9. DETAILS OF CERTAIN STATEMENTS OF CASH FLOW CAPTIONS The components of the changes in operating assets and liabilities as reflected in the Consolidated Statements of Cash Flows are as follows:
Year Ended June 30, (In thousands) 1995 1994 1993 - --------------------------------- -------- -------- -------- Decrease (increase) in trade accounts receivable $ (36) $ -- $ 68 Decrease in inventories 843 1,024 614 Decrease (increase) in prepaid expenses and other current assets (69) (57) 160 Decrease (increase) in other assets and restricted cash and securities 2,419 (2,565) (390) Increase (decrease) in trade accounts payable (1,500) 860 (1,110) Decrease in other accrued liabilities (1,784) (182) (1,015) Increase (decrease) in income taxes payable -- (477) 477 Increase (decrease) in other liabilities, long-term 65 (820) 588 ------- ------- ------- $ (62) $(2,217) $ (608) ======= ======= =======
Net cash required for operating activities reflects cash payments for interest and income taxes as follows: Year Ended June 30, (In thousand) 1995 1994 1993 - -------------------------------- ------- ------- ------- Interest (net of amounts capitalized) $ 99 $ 562 $ 61 Income taxes $ -- $ -- $ -- 10. DISCONTINUED OPERATIONS During fiscal year 1995, the Company recognized income of $621,000 from discontinued operations, this included a gain of $846,000 recorded upon the receipt of a payment from the Department of Energy under Title X of the Energy Policy Act (Note 11) in connection with the reclamation of the Company's uranium mine and mill site in Moab, Utah. The gain was partially offset by a loss of $225,000 due to cost overruns at the Company's Coalinga, California asbestos mine and mill reclamation project (Note 11). During fiscal year 1994, the Company recognized income of $2,175,000 from discontinued operations primarily due to the recovery from insurance carriers of cleanup costs at the Coalinga reclamation project. During fiscal year 1993, the Company charged $912,000 ($875,000 net of tax) to discontinued operations including $600,000 for estimated reclamation costs at the Coalinga project and $312,000 for litigation related to the sale of the Atlas Building Systems Division in a prior fiscal year. The items above are included in the consolidated statements of operations under the heading "Income (loss) from discontinued operations". The following table summarizes the operating income (loss) of the discontinued businesses:
Building Asbestos Products & Mining & Ready-Mix Service & Year ended (In thousands) Milling Concrete Other Total ------------------------- --------- ---------- ------- -------- June 30, 1995 $ (225) $ -- $846 $ 621 June 30, 1994 $1,997 $ 136 $(42) $2,175 June 30, 1993 $ (600) $(312) $ -- $ (912)
11. COMMITMENTS AND CONTINGENCIES The Company is obligated to decommission and reclaim its uranium mill site located near Moab, Utah. The Company discontinued its uranium operations and permanently shut down its uranium mill and mines in 1987, estimated shut-down expenses and reclamation costs of $17,406,000 were accrued. The balance in this accrual at June 30, 1995 was $5,702,000. Title X of "The Comprehensive National Energy Policy Act" ("Title X"), enacted in October 1992, provides for the reimbursement of past and future reclamation expenses related to uranium sites operated under Atomic Energy Commission contracts. The Company's uranium reclamation cost will be reduced by this Government cost sharing program since 56 percent of its tailings were generated under government contracts. The Company believes the accrual, when combined with anticipated reimbursements under the Title X program, is sufficient to cover future reclamation costs. In July 1994, the Company submitted a claim to the Department of Energy (the "DOE") under Title X of approximately $5 million for reclamation costs incurred from fiscal year 1986 through fiscal year 1994. The DOE has given interim approval on approximately $4.5 million of the claim and $2.5 million in reimbursement, disallowing $.5 million. On December 29, 1994, the Company received $846,000 as a partial payment of the approved reimbursement which was recorded as income from discontinued operations. In June 1995, the Company submitted a second claim to the DOE under Title X for approximately $3.6 million which included reclamation costs incurred from fiscal year 1980 through fiscal year 1985, from June 1994 through May 1995, and reclamation costs previously disallowed. The Company anticipates the DOE audit of the June 1995 claim will be completed in the fall of 1995. If the June 1995 claim is approved in full, the Company would receive reimbursement of approximately $2.0 million. Timing of payments for approved reimbursements is a function of Congressional appropriation of Title X funding. During fiscal year 1988, the United States Environmental Protection Agency notified the Company that it was one of several potentially responsible parties for cleanup costs at the Company's former asbestos mine and mill site near Coalinga, California and in the City of Coalinga. A prolonged period of inquiry and administrative process concerning this matter followed. In fiscal years 1995, 1993 and 1991, the Company established a reserve, and recorded as an expense, $225,000, $600,000 and $3,000,000, respectively, to cover the Company's share of cleanup costs. In fiscal year 1992, the Company started legal action against thirteen insurance carriers which had issued insurance policies, with respect to the site. During fiscal year 1994, the Company reached settlement with a number of the carriers and recorded a gain from discontinued operations of $2,175,000. All claims with remaining carriers were settled in fiscal year 1995. The proceeds were negligible. The remedial action plan commenced October 1994 and is now scheduled to be completed in the fall of 1995 after delays caused by unusually heavy rains in central California during the spring and summer of 1995. Minimum future rental commitments under the Company's non-cancelable operating leases having a remaining term in excess of one year at June 30, 1995 are as follows: Year ended June 30, (In thousands) - ---------------------------------- 1996 $ 283 1997 283 1998 283 1999 283 2000 94 Later years -- ------ Total minimum payments required $1,226 ====== Amounts charged to rent expense in fiscal years 1995, 1994 and 1993 were $550,000, $670,000 and $1,263,000, respectively 12. EMPLOYEE RETIREMENT PLANS The Company has a trusteed and insured retirement plan covering substantially all salaried employees. The plan provides pension benefits that are based on final average compensation minus certain adjustments for primary social security benefits. The Company's funding policy for the plan is to make at least the minimum annual contributions required by applicable government regulations. Plan assets are invested primarily in equity securities, corporate and government bonds and money market funds.
For the Year Ended June 30, (In thousands) 1995 1994 1993 - ------------------------------------------------------ ------ ------ ------ Service costs-benefits earned during the year $ 83 $ 123 $ 195 Interest cost on projected benefit obligation 432 441 500 Actual return on plan assets (218) (90) (252) Net amortization and deferral (223) (399) (262) ----- ----- ----- Net periodic pension cost for the year $ 74 $ 75 $ 181 Assumed long-term rate of return on plan assets 8.5% 8.5% 8.5%
The following table sets forth the plans' funded status and amounts recognized in the Company's financial statements at June 30, 1995 and 1994:
For the Year Ended June 30, (In thousands) 1995 1994 - ----------------------------------------- -------- ------- Accumulated benefit obligation based on salaries to date, including vested benefit obligation of $5,449,000 for 1994 and $5,338,000 for 1995 $(5,344) $(5,494) Additional benefit obligation based on estimated future salary levels (145) (157) ------- ------- Projected benefit obligation (5,489) (5,651) Fair value of plan assets 4,971 5,342 ------- ------- Funded status (518) (309) Unrecognized net obligation at July 1, 1989 and 1988 being recognized over approximately 15.88 years 58 71 Unrecognized net gain (42) (190) ------- ------- Accrued pension cost $ (502) $ (428) ======= ======= Assumed discount rate 8.25% 8.25% Assumed rate of increase in future compensation 5.0% 5.0%
The Company has an Investment and Savings Plan to assist eligible employees in providing for retirement or other future financial needs. Employee contributions (up to 10 percent of their earnings) are matched in Company stock by the Company at a rate of 100 percent up to a maximum of 6 percent of the employee earnings. In addition, the Company provides a 4 percent contribution for all eligible employees compensated on an hourly scale. The Company's contributions to this Plan in fiscal years 1995, 1994 and 1993 were $93,000, $179,000 and $284,000, respectively. 13. OTHER POSTRETIREMENT BENEFIT PLANS In addition to the Company's defined benefit pension plan the Company has two defined benefit postretirement plans covering most salaried employees. One plan provides medical benefits and the other provides life insurance benefits. The postretirement health care plans are contributory, with retiree contributions adjusted annually, and contain other cost-sharing features such as deductibles and coinsurance. The accounting for the health care plans anticipates future cost-sharing changes to the written plan that are consistent with the Company's expressed intent to increase the retiree contribution rate annually for the expected general inflation rate for that year. The life insurance plan is non- contributory. The Company's policy is to fund the cost of the postretirement health care benefits in amounts determined at the discretion of management and to make annual contributions to the life insurance plan in level amounts over the plan participant's expected service period. In fiscal year 1993, the Company adopted FASB Statement No. 106, Employers' Accounting for Postretirement Benefits Other Than Pensions. The effect was a one-time charge to operations of $968,000. This cumulative catch-up adjustment as of July 1, 1992 represents the discounted present value of expected future retiree health and insurance benefits attributed to employees' service rendered prior to that date. The new standard results in additional annual expense which totaled $102,000, $149,000 and $138,000 in fiscal years 1995, 1994 and 1993 respectively. The following table shows the plan's combined funded status reconciled with the amounts recognized in the Company's financial statements:
Life Medical Insurance June 30, 1995 (In thousands) Plans Plans Total - --------------------------- ------ -------- ------ Accumulated postretirement benefit obligation: Retirees $(194) $(492) $ (686) Fully eligible active plan participants -- -- -- Other active participants (152) (38) (190) ----- ----- ------- Accrued postretirement benefit cost $(346) $(530) $ (876) Unrecognized prior service cost (32) (91) (123) Unrecognized net gain (234) 1 (233) ----- ----- ------- Accrued postretirement benefit cost $(456) $(593) $(1,232) ===== ===== =======
Components of net periodic postretirement benefit cost: Service cost $ 41 $ 8 $ 49 Interest cost 35 40 75 Net amortization and deferral (12) (10) (22) - --------------------------------------------------------- ----- ----- ------- Net periodic postretirement benefit cost $ 64 $ 38 $ 102 ===== ===== =======
Life ----- Medical Insurance June 30, 1994 (In thousands) Plans Plans Total - --------------------------- ------- ------ ------ Accumulated postretirement benefit obligation: Retirees $(202) $(460) $ (662) Fully eligible active plan participants -- -- -- Other active participants (235) (47) (282) ----- ----- ------- (437) (507) (944) Unrecognized prior service cost (34) (98) (132) Unrecognized net gain (99) (28) (127) ----- ----- ------- Accrued postretirement benefit costs $(570) $(633) $(1,203) ===== ===== ======= Components of net periodic postretirement benefit cost: Service cost $ 55 $ 12 $ 67 Interest cost 37 45 82 ----- ----- ------- Net periodic postretirement benefit cost $ 92 $ 57 $ 149 ===== ===== =======
The weighted-average annual assumed rate of increase in per capita cost of covered benefits (i.e. health care cost trend rate) for the medical plan is 13 percent for fiscal year 1995, 12 percent for fiscal year 1996 and is assumed to decrease gradually to 6 percent in 2002 and remain at that level thereafter, and for the dental plan 8.625 percent for fiscal year 1995, 8.25 percent in fiscal 1996 and is assumed to decrease gradually to 6 percent in 2002 and remain level thereafter. The health care cost trend rate assumption has a significant effect on the amounts reported. For example, increasing the assumed health care cost trend rates by one percentage point in each year would increase the accumulated postretirement benefit obligation for the medical plans as of June 30, 1995 by $32,000 and 1994 by $54,000 and the aggregate of the service cost and interest cost components of net periodic postretirement benefit cost for June 30, 1995 by $12,000. The weighted-average discount rate used in determining the accumulated postretirement benefit obligation was 7.5 percent and 8.25 percent at June 30, 1995 and June 30, 1994. 14. INCOME TAXES Effective July 1, 1993, the Company adopted SFAS No. 109, Accounting for Income Taxes. The adoption of SFAS No. 109 resulted in no material change to the Company's deferred tax liability. Financial Statements for prior periods have not been restated.
June 30, (In thousands) 1995 1994 1993 - ----------------------- ----- ---- ---- Deferred $-- $-- $-- Current -- -- 477 Operating loss and credit carryovers -- -- -- ----- ----- ----- Income tax expense/(benefit) $ -- $ -- $ 477 ===== ===== =====
Deferred income taxes result from temporary differences in the timing of income and expenses for financial and income tax reporting purposes. The primary components of deferred income taxes result from exploration and development costs; depreciation, depletion, and amortization expenses; impairments; and reclamation accruals. The net deferred tax balances in the accompanying June 30, 1995 and 1994 balance sheets include the following components:
June 30, (In thousands) 1995 1994 - ----------------------- ------- ------ Deferred tax assets: Net operating loss (NOL) carryovers $ 33,711 $ 29,877 Tax credit carryovers 756 964 Impairment of mineral properties 12,359 12,359 Depreciation, depletion and amortization 882 2,244 Reclamation accruals 3,399 4,216 Postretirement benefit accrual 431 421 Impairment of investment in unconsolidated subsidiary 3,997 -- Equity in unconsolidated subsidiary 512 -- -------- -------- Total deferred tax assets 56,047 50,081 Deferred tax asset valuation allowance (51,664) (45,020) -------- -------- Net deferred tax assets 4,383 5,061 -------- -------- Deferred tax liabilities: Depreciation, depletion, and amortization 4,069 4,853 Unrealized gain on investment of equity securities 314 -- Other -- 208 -------- -------- Total deferred tax liabilities 4,383 5,061 -------- -------- Net deferred tax balances $ -- $ -- ======== ========
The change in the Company's valuation allowance is summarized as follows: June 30, (In thousands) 1995 1994 - ---------------------- -------- -------- Valuation allowance, beginning of year $ 45,020 $ 41,567 Continuing operations 7,139 4,214 Discontinued operations (217) (716) Other (278) -- -------- -------- Valuation allowance, end of year $ 51,664 $ 45,020 ======== ========
The 1994 components of deferred tax liabilities and assets have been revised from amounts previously reported to reflect changes in assumptions on the availability of NOL carryovers. A reconciliation of expected federal income taxes on income from continuing operations at statutory rates with the expense/(benefit) for income taxes is as follows:
June 30, (In thousands) 1995 1994 1993 - ---------------------- ------ ------ ----- Income tax at statutory rates $(7,139) $(4,214) $(9,380) Increase in deferred tax asset valuation allowance 7,139 4,214 -- Net operating loss utilization limitation -- -- 9,380 ------- ------- ------- Income tax expense/(benefit) $ -- $ -- $ -- ======= ======= =======
At June 30, 1995, the Company has unused NOL carryovers and investment tax credit carryovers of approximately $96,316,000 and $629,000, respectively, which begin to expire in 1996. The Company has approximately $127,000 of alternative minimum tax credit carryover which can be carried forward indefinitely. 15. PRIVATE PLACEMENTS The Company conducted a private placement of 9,090,909 Units of Atlas securities during the summer of 1994 for a purchase price of $5.50 per Unit, each Unit consisting of one share of the Company's common stock and one-half of a warrant (exercisable for five years) to purchase a share of the Company's common stock at an exercise price of $7.00 per share in order to finance the acquisition 12,894,200 common shares of Granges (Note 7) and 1,500,000 common shares and 3,100,000 preferred shares of Dakota Mining Corporation ("Dakota"). The first portion of such private placement, consisting of the sale of 6,486,809 Units for an aggregate purchase price of $35,677,450, was completed on August 15, 1994, and the proceeds thereof were applied primarily to the price of the Granges shares. In connection with closing the first portion of the private placement, the Company entered into a $3.5 million secured, short-term credit agreement to cover certain expenses of the private placement. The Company pledged the Granges Shares as part of the security for such loan. On October 29, 1994, the Company determined not to proceed with acquisition of the Dakota shares (see below). The second portion of the private placement, the sale of an additional 2,604,100 Units for an aggregate purchase price of $14,322,550, was completed on December 15, 1994 following the shareholder approval of an increase in the authorized share capital of the Company. Upon closing the second portion of the private placement, the Company used a portion of the proceeds to repay the balance of $800,000 due on short-term security agreement. Of the Units sold in the private placement, Mackenzie Financial Corporation ("Mackenzie Financial") acquired 1,820,000 Units, consisting of 1,820,000 shares of Common Stock and 910,000 warrants to purchase shares of Common Stock, and M.I.M. Holdings Limited ("M.I.M.") acquired 2,000,000 Units, consisting of 2,000,000 shares of Common Stock and 1,000,000 warrants to purchase shares of Common Stock. Since such date, Mackenzie Financial has acquired an additional 591,000 shares of Common Stock. Following such purchases, to the best of the Company's knowledge and belief, Mackenzie Financial and M.I.M. have beneficial ownership of, respectively, 18.8 percent and 15.3 percent of the shares of Common Stock of the Company outstanding as of September 10, 1995. On May 31, 1994, the Company, Dakota and VenturesTrident, L.P. and VenturesTrident II, L.P. entered into an agreement in principle providing for (i) the purchase of 1,500,000 common shares of Dakota from the VenturesTrident Partnerships, for $4.00 per share, and, subject to the completion of the purchase of the VenturesTrident Shares, (ii) the subscription by Atlas to 3,100,000 newly-to-be issued convertible preferred shares of Dakota. On October 28, 1994, the Company determined that it was in the best interests of its shareholders not to proceed with the Dakota acquisition and forfeited $1,000,000 in nonrefundable deposits to the VenturesTrident Partnerships. Costs of $144,000 incurred in conjunction with the Dakota transaction were also expensed. On March 9, 1995, Atlas and Dakota entered into a Subscription Agreement, under which Atlas purchased 2,419,355 Special Warrants of Dakota at a price of $1.24 per Special Warrant which were subsequently converted into 2,419,355 Common Shares of Dakota. As a result of such purchase, the Company owns about 9 percent of the outstanding Common Shares of Dakota. In connection with the purchase by the Company of Special Warrants, the Company and Dakota executed a mutual limited release, whereby each party released the other from any liability arising out of the May 31, 1994 agreement. On January 18, 1994, the Company sold for $7,500,000 in gross proceeds, 1,500,000 shares of Common Stock for $5.00 per share in a private placement. The shares were placed outside the United States with a number of gold funds in Canada and European institutional investors. On September 20, 1993, the Company sold to Phoenix Financial Holdings Inc. for an aggregate of $8,375,000 (i) 1,500,000 shares of the Company's Common Stock, (ii) a Redeemable Convertible Debenture due 1998 in the principal amount of $3,500,000, which is convertible as to principal into Common Stock at the rate of $4.00 per share and bears interest at the rate of 9 percent per annum payable in cash or Common Stock at the rate of $4.00 per share, and (iii) Warrants to purchase for three years 2,000,000 shares of Common Stock at $3.625 per share. Of such securities, the 1,500,000 shares of the Company's Common Stock and 750,000 of the Warrants to Purchase Common Stock were sold to various investors in a private placement. REPORT OF INDEPENDENT AUDITORS THE BOARD OF DIRECTORS AND STOCKHOLDERS OF ATLAS CORPORATION We have audited the accompanying consolidated balance sheets of Atlas Corporation and subsidiaries as of June 30, 1995 and 1994, and the related consolidated statements of operations, stockholders' equity (deficit) and cash flows for each of the three years in the period ended June 30, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. The financial statements of Granges Inc., (a corporation in which the Company has a 27.7 percent interest), have been audited by other auditors whose report has been furnished to us; insofar as our opinion on the 1995 consolidated financial statements relates to data included for Granges Inc., it is based solely on their report. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the report of other auditors provide a reasonable basis for our opinion. In our opinion, based on our audits and the report of other auditors, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Atlas Corporation and subsidiaries at June 30, 1995 and 1994, and the consolidated results of their operations and their cash flows for each of the three years in the period ended June 30, 1995, in conformity with generally accepted accounting principles. As discussed in Note 13 to the financial statements, in 1993 the Company changed its method of accounting for postretirement benefits other than pensions. /s/ Ernst & Young LLP Denver, Colorado September 6, 1995 EX-23 2 CONSENT OF ERNST & YOUNG LLP CONSENT OF INDEPENDENT AUDITORS We consent to the use of our report dated September 6, 1995, included in the Annual Report on Form 10-K of Atlas Corporation for the year ended June 30, 1995, with respect to the financial statements, as amended, included in this Form 10-K/A. /s/ ERNST & YOUNG LLP Denver, Colorado January 17, 1996 -----END PRIVACY-ENHANCED MESSAGE-----