-----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, Lp9oggwunG48PYZ4dIOwbFkzt3vqgwNh3YCV4CiIGoSGZOQGTdFclSxzCp8UutPB LarFUyyNxSvee/LdpsMRdA== 0000927356-99-001597.txt : 19991018 0000927356-99-001597.hdr.sgml : 19991018 ACCESSION NUMBER: 0000927356-99-001597 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991015 FILER: COMPANY DATA: COMPANY CONFORMED NAME: STILLWATER MINING CO /DE/ CENTRAL INDEX KEY: 0000931948 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS METAL ORES [1090] IRS NUMBER: 810480654 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-13053 FILM NUMBER: 99729491 BUSINESS ADDRESS: STREET 1: 1200 SEVENTEETH STREET STREET 2: SUITE 900 CITY: DENVER STATE: CO ZIP: 80202 BUSINESS PHONE: 3039782525 MAIL ADDRESS: STREET 1: 1200 SEVEENTH STREET STREET 2: SUITE 900 CITY: DENVER STATE: CO ZIP: 80202 10-Q 1 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended September 30, 1999. OR [_] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ______ to ______ Commission file number 0-25090 ------- STILLWATER MINING COMPANY ------------------------- (Exact name of registrant as specified in its charter) Delaware 81-0480654 ---------------------------------- ------------------------------------ (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) One Tabor Center 1200 Seventeenth Street, Suite 900 Denver, Colorado 80202 ---------------------------------- ------------------------------------ (Address of principal executive offices) (Zip Code) (303) 352-2060 ---------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: YES X NO ___ - At October 7, 1999, 37,881,539 shares of Common Stock, $0.01 par value per share, were issued and outstanding. STILLWATER MINING COMPANY FORM 10-Q QUARTER ENDED SEPTEMBER 30, 1999 INDEX
PAGE ---- PART I - FINANCIAL INFORMATION Item 1. Financial Statements..................................... 3 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............ 9 PART II - OTHER INFORMATION Item 1 Legal Proceedings........................................ 15 Item 2 Changes in Securities.................................... 15 Item 3 Defaults Upon Senior Securities.......................... 15 Item 4 Submission of Matters to a Vote of Security Holders...... 15 Item 5 Other Information........................................ 15 Item 6 Exhibits and Reports on Form 8-K......................... 15 SIGNATURES ......................................................... 16
2 PART I - FINANCIAL INFORMATION Item 1. Financial Statements Stillwater Mining Company Consolidated Balance Sheet (in thousands, except per share amounts)
(Unaudited) September 30, December 31, 1999 1998 ------------- ------------ ASSETS Current assets Cash and cash equivalents $ 10,652 $ 49,811 Inventories 11,816 9,333 Accounts receivable 21,657 21,762 Deferred income taxes 2,980 2,980 Other current assets 2,345 1,492 ------------- ------------ Total current assets 49,450 85,378 ------------- ------------ Property, plant and equipment, net 371,948 247,556 Other noncurrent assets 4,781 3,003 ------------- ------------ Total assets $ 426,179 $ 335,937 ============= ============ LIABILITIES and SHAREHOLDERS' EQUITY Current liabilities Accounts payable $ 21,460 $ 11,980 Accrued payroll and benefits 3,545 3,332 Property, production and franchise taxes payable 4,252 3,971 Current portion of capital lease obligations 2,247 2,425 Other current liabilities 5,750 4,909 ------------- ------------ Total current liabilities 37,254 26,617 ------------- ------------ Long-term liabilities Long-term debt and capital lease obligations 49,962 58,992 Deferred income taxes 27,869 19,009 Other noncurrent liabilities 5,300 3,312 ------------- ------------ Total liabilities 120,385 107,930 ------------- ------------ Shareholders' equity Preferred stock, $0.01 par value, 1,000,000 shares authorized, none issued - - Common stock, $0.01 par value, 50,000,000 shares authorized, 37,782,352 and 34,548,559 shares issued and outstanding, respectively 378 345 Paid-in capital 268,302 214,281 Accumulated earnings 37,114 13,381 ------------- ------------ Total shareholders' equity 305,794 228,007 ------------- ------------ Total liabilities and shareholders' equity $ 426,179 $ 335,937 ============= ============
See notes to consolidated financial statements. 3 Stillwater Mining Company Consolidated Statement of Operations (Unaudited) (in thousands, except per share amounts)
Three months ended Nine months ended September 30, September 30, ---------------------------- ------------------------------- 1999 1998 1999 1998 ----------- ----------- ----------- ----------- Revenues $ 32,204 $ 28,198 $ 107,079 $ 76,234 Costs and expenses Cost of metals sold 18,921 17,178 58,320 49,698 Depreciation and amortization 3,543 3,049 9,802 8,814 ----------- ----------- ----------- ----------- Total cost of sales 22,464 20,227 68,122 58,512 General and administrative expense 2,497 1,314 5,041 3,096 ----------- ----------- ----------- ----------- Total costs and expenses 24,961 21,541 73,163 61,608 ----------- ----------- ----------- ----------- Operating income 7,243 6,657 33,916 14,626 Other income (expense) Interest income 201 149 868 662 Interest expense, net of capitalized interest of $1,377, $565, $3,029 and $1,140 - (645) (137) (2,550) ----------- ----------- ----------- ----------- Income before income taxes 7,444 6,161 34,647 12,738 Income tax provision (2,345) (2,371) (10,914) (4,904) ----------- ----------- ----------- ----------- Net income and comprehensive income $ 5,099 $ 3,790 $ 23,733 $ 7,834 =========== =========== =========== =========== Basic and diluted earnings per share Basic $ 0.14 $ 0.12 $ 0.65 $ 0.25 =========== =========== =========== =========== Diluted $ 0.13 $ 0.12 $ 0.62 $ 0.25 =========== =========== =========== =========== Weighted average common shares outstanding Basic 37,771 30,912 36,372 30,759 Diluted 38,564 31,545 38,592 31,326
See notes to consolidated financial statements. 4 Stillwater Mining Company Consolidated Statement of Cash Flows (Unaudited) (in thousands)
Nine months ended September 30, ------------------------------------ 1999 1998 ------------- ------------- Cash flows from operating activities Net income $ 23,733 $ 7,834 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 9,802 8,814 Deferred income taxes 8,860 4,904 Changes in operating assets and liabilities: Inventories (2,483) (655) Accounts receivable 105 (9,449) Accounts payable 9,480 3,731 Other 3,349 3,295 ------------- ------------- Net cash provided by operating activities 52,846 18,474 ------------- ------------- Cash flows from investing activities Capital expenditures (134,194) (40,546) Purchase of short-term investments - (2,256) Proceeds from maturity of short-term investments - 15,724 Proceeds from sale/leaseback transactions - 9,206 ------------- ------------- Net cash used in investing activities (134,194) (17,872) ------------- ------------- Cash flows from financing activities Issuance of common stock 2,966 3,307 Payments for debt issuance costs (2,657) - Payments on long-term debt and capital lease obligations (13,811) (1,442) Borrowings under credit facility 56,000 - Payments for conversion costs of 7% convertible notes (309) - ------------- ------------- Net cash provided by financing activities 42,189 1,865 ------------- ------------- Cash and cash equivalents Net increase (decrease) (39,159) 2,467 Balance at beginning of period 49,811 4,191 ------------- ------------- Balance at end of period $ 10,652 $ 6,658 ============= =============
See notes to consolidated financial statements. 5 Stillwater Mining Company Notes to Consolidated Financial Statements (Unaudited) Note 1 - General In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the Company's financial position as of September 30, 1999 and the results of operations for the three and nine month periods ended September 30, 1999 and 1998 and cash flows for the nine month periods ended September 30, 1999 and 1998. Certain amounts in the accompanying consolidated financial statements for 1998 have been reclassified to conform to the classifications used in 1999. The results of operations for the three and nine month periods are not necessarily indicative of the results to be expected for the full year. The accompanying consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's 1998 Annual Report on Form 10-K. Note 2 - New Accounting Standards In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. This statement is effective for the fiscal year beginning January 1, 2001 and establishes accounting and reporting standards for derivative instruments and hedging activities. The Company is in the process of assessing the impact of SFAS No. 133 on its financial statements. Note 3 - Inventories Inventories consisted of the following (in thousands):
September 30, December 31, 1999 1998 ------------- ------------ Metals inventory Raw ore $ 500 $ 267 Concentrate and in-process 6,940 4,988 ------------- ------------ 7,440 5,255 Materials and supplies 4,376 4,078 ------------- ------------ $ 11,816 $ 9,333 ============= ============
6 Note 4 - Long-Term Debt In March 1999, the Company obtained a seven-year $175 million credit facility ("Scotiabank Credit Facility") from a syndicate of banks led by the Bank of Nova Scotia. The facility provides for a $125 million term loan facility and a $50 million revolving credit facility. Borrowings may be made under the term loan facility until December 31, 2000 and amortization of the term loan facility will commence on March 31, 2001. The final maturity of the term loan facility and revolving credit facility will be December 31, 2005. As of September 30, 1999, the Company had $44 million outstanding under the facility, and is in compliance with all operating, financial, and reporting covenants. The loans will be required to be repaid from excess cash flow, proceeds from asset sales and the issuance of debt or equity securities, subject to specified exceptions. Proceeds of the term loan facility will be used to finance a portion of the 1998 Expansion Plan. Proceeds of the revolving credit facility will be used for general corporate and working capital needs. At the Company's option, the Scotiabank Credit Facility will bear interest at LIBOR or an alternate base rate, in each case plus a margin. The interest rate may be adjusted depending upon the Company's ratio of debt to operating cash flow. Substantially all the property and assets of the Company and its subsidiaries and the stock of the Company's subsidiaries have been pledged as security for the Scotiabank Credit Facility. On May 1, 1999 the Company completed the underwritten call for redemption of its approximately $51.4 million principal amount of 7% Convertible Subordinated Notes due 2003, with substantially all of the indebtedness converted into equity. Note holders received approximately 56 shares of common stock for each $1,000 principal amount with cash paid in lieu of any fractional shares. The Company issued approximately 2.9 million shares of common stock in connection with the note conversions, increasing total shares of outstanding stock to approximately 37.7 million shares. Note 5 - Sales Commitments The Company may use forward sales or other commodity instruments to manage its exposure to market risk from changes in palladium and platinum commodity prices. The Company may also lease metal to counterparties to earn interest on excess metal balances. As of September 30, 1999, the Company held put options expiring in 1999 for 7,500 ounces of palladium and 3,000 ounces of platinum at an average price of $300 and $350, respectively. The Company has also sold call options expiring in 1999 for 7,500 ounces of palladium and 3,000 ounces of platinum at an average price of $400 and $373, respectively. As of September 30, 1999, the Company held put options expiring in 2000 for 57,500 ounces of palladium at an average price of $326. The Company has also sold call options expiring in 2000 for 57,500 ounces of palladium at an average price of $418. In the year 2001, the Company has established put and call options on 5,000 ounces of palladium at $327 and $419, respectively. Platinum put and call options in 2000 are for 1,000 ounces at $349 and $370, respectively. As of September 30, 1999, the Company had 20,000 ounces of platinum sold forward at an average price of $404 per ounce, all to be delivered in 2000. Note 6 - Earnings per Share The Company complies with SFAS No. 128, Earnings per Share, which requires the presentation of basic and diluted earnings per share. Outstanding options to purchase 1,887,534 and 1,903,926 shares of common stock were included in the computation of diluted earnings per share for the three month periods ended September 30, 1999 and 1998, respectively. Outstanding options to purchase 532,925 and 107,213 shares of common stock were excluded from the computation of diluted earnings per share for the three month periods ended September 30, 1999 and 1998, 7 respectively, because to do so would have been antidilutive using the treasury stock method. Outstanding options to purchase 2,335,884 and 1,733,489 shares of common stock were included in the computation of diluted earnings per share for the nine month periods ended September 30, 1999 and 1998, respectively. Outstanding options to purchase 84,575 and 277,650 shares of common stock were excluded from the computation of diluted earnings per share for the nine month periods ended September 30, 1999 and 1998, respectively, because to do so would have been antidilutive using the treasury stock method. In addition, 0 and 1,258,736 shares of common stock from assumed conversion of the Company's 7% Convertible Subordinated Notes were included in the computation of diluted earnings per share for the three and nine month periods ended September 30, 1999, respectively. 2.9 million shares of common stock issuable under the terms of the Notes were excluded from the computation of diluted earnings per share for the three and nine month periods ended September 30, 1998, because to do so would have been antidilutive. The Board of Directors declared a three-for-two stock split on the Company's common stock effective December 31, 1998 in the form of a stock dividend. All per share data, including stock option information, has been restated to reflect this stock split. Note 7 - Income Taxes The Company has reviewed its expected net deferred tax assets and liabilities for the year ended December 31, 1999 and has provided for income taxes for the nine months ended September 30, 1999 at the expected annualized rate of 31.5%. 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Stillwater Mining Company Key Factors (Unaudited)
Three months ended Nine months ended September 30, September 30, -------------------------- -------------------------- 1999 1998 1999 1998 --------- --------- --------- --------- Ounces produced (000) Palladium 72 87 230 255 Platinum 22 26 69 78 --------- --------- --------- --------- Total 94 113 299 333 Tons mined (000) 152 200 501 547 Tons milled (000) 152 191 503 537 Mill head grade (ounces per ton) 0.68 0.66 0.66 0.69 Mill recovery (%) 91 92 91 92 Cash costs per ton $ 134 $ 90 $ 116 $ 93 Cash costs per ounce/(1)/ $ 217 $ 151 $ 195 $ 150 Depreciation and amortization 38 27 33 27 --------- --------- --------- --------- Total costs per ounce produced $ 255 $ 178 $ 228 $ 177 Ounces sold (000)/(2)/ Palladium 69 88 231 253 Platinum 21 28 70 77 --------- --------- --------- --------- Total 90 116 301 330 Average realized price per ounce/(3)/ Palladium $ 359 $ 204 $ 353 $ 184 Platinum $ 364 $ 369 $ 364 $ 383 Combined/(2)/ $ 360 $ 244 $ 356 $ 231 Average market price per ounce/(3)/ Palladium $ 345 $ 294 $ 343 $ 285 Platinum $ 357 $ 369 $ 359 $ 381 Combined/(2)/ $ 348 $ 312 $ 347 $ 305
(1) Cash costs include cash costs of mine operations, processing and administrative expenses at the mine site (including overhead, taxes other than income taxes, royalties, and credits for metals produced other than palladium and platinum). Total costs of production include cash costs plus depreciation and amortization. Income taxes, corporate general and administrative expense and interest income and expense are not included in either total or cash costs. (2) Stillwater Mining reports a combined average realized price of palladium and platinum at the same ratio as ounces are produced from the base metals refinery. The same ratio is applied to the combined average market price. (3) Revenue is recognized when product is shipped from the Company's base metals refinery to external refiners. Sales are recorded and later adjusted when sales prices are finalized. Therefore, differences between realized prices and market prices may occur. 9 This Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such statements include comments regarding plans to rectify production efficiencies, anticipated capital expenditures and sources of financing for capital expenditures. In addition to factors discussed below, the factors that could cause actual results to differ materially include, but are not limited to, the following: supply and demand of palladium and platinum, unexpected events during expansion, fluctuations in ore grade, tons mined, crushed or milled, variations in smelter of refinery operation, amounts and prices of the Company's forward metals sales and geological, technical, permitting, mining or processing issues. For a more detailed description of risks attendant to the business and operations of Stillwater and to the mining industry in general, please see the Company's other SEC filings, in particular the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1998. Results of Operations Three months ended September 30, 1999 compared to three months ended September - ------------------------------------------------------------------------------ 30, 1998 - -------- Revenues -------- Revenues for the third quarter of 1999 increased $4.0 million, or 14%, to $32.2 million compared to $28.2 million in the third quarter of 1998. The increase in revenue was due to a 48% increase in the combined average realized price per ounce of palladium and platinum over the prior year period partially offset by a 22% decrease in the quantity of metal sold. During the third quarter of 1999, the Company sold 69,000 ounces of palladium and 21,000 ounces of platinum at average realized prices of $359 and $364, respectively, compared with sales of 88,000 ounces of palladium and 28,000 ounces of platinum at average realized prices of $204 and $369, respectively, in the prior year's comparable period. During the third quarter of 1999, the average market prices of palladium and platinum were $345 and $356, respectively. During the third quarter of 1999, the Company produced 72,000 ounces of palladium and 22,000 ounces of platinum compared with production of 87,000 ounces of palladium and 26,000 ounces of platinum in the third quarter of 1998. The lower ore production is the result of a temporary decrease in developed reserves available for mining, which has resulted in a temporary increase in the quantity of waste tons mined relative to total mine output, and to continued production inefficiencies created by the rapid expansion of the miner's workforce associated with the Company's expansion activities. The Company is implementing strategic plans designed to rectify the production inefficiencies. Costs ----- Cost of sales increased by $2.2 million, or 11%, from $20.2 million in the third quarter of 1998 to $22.4 million in the third quarter of 1999. The cash cost per ounce produced increased 44% from $151 in the third quarter of 1998 to $217 in 1999. The increase in cash costs per ounce is the result of a 20% decrease in tons milled and an overall 19% increase in cash costs. The increase in costs is associated with programs that are currently in place in anticipation of the planned production increases scheduled for 2000 and beyond. General and administrative expense increased by $1.2 million, or 90% and is primarily the result of $1.1 million of severance expenses associated with a management restructuring instituted in the third quarter of 1999 and consulting services of $0.4 million designed to rectify certain production inefficiencies. Operating Income ---------------- As a result of the increase in revenues and the increase in operating costs discussed above, operating income in the third quarter of 1999 increased by $0.5 million to $7.2 million compared to $6.7 million in the comparable period of 1998. 10 Other Income (Expense) ---------------------- During the third quarter of 1999, the Company incurred no interest expense compared to $0.6 million in the third quarter of 1998. The decrease in interest expense is due to a larger portion of interest being capitalized in 1999. The Company's 7% Subordinated Convertible Notes were called for redemption on May 1, 1999. Capitalized interest expense increased from $0.6 million in the third quarter of 1998 to $1.4 million in the third quarter of 1999 as a result of expansion activities at the Company's various operations. Net Income ---------- The Company's income before income taxes amounted to $7.4 million in the third quarter of 1999 compared to $6.2 million in the third quarter of 1998. In the third quarter of 1999, the Company provided for $2.3 million of income taxes compared to $2.4 million in the third quarter of 1998. As a result, the Company had net income of $5.1 million, or $0.14 per basic share ($0.13 per diluted share) in the third quarter of 1999, compared to net income of $3.8 million, or $0.12 per basic and diluted share in the third quarter of 1998. Nine months ended September 30, 1999 compared to nine months ended September 30, - -------------------------------------------------------------------------------- 1998 - ---- Revenues -------- Revenues for the first nine months of 1999 increased $30.9 million, or 40%, to $107.1 million compared to $76.2 million in the first nine months of 1998. The increase in revenue was primarily due to a 54% increase in the combined average realized price per ounce of palladium and platinum as compared to the first nine months of 1998, partially offset by a 9% decrease in the quantity of metal sold. During the first nine months of 1999, the Company sold 231,000 ounces of palladium and 70,000 ounces of platinum at average realized prices of $353 and $364, respectively, compared with sales of 253,000 ounces of palladium and 77,000 ounces of platinum at average realized prices of $184 and $383, respectively, in the prior year's comparable period. During the first nine months of 1999, the average market prices of palladium and platinum were $345 and $359, respectively. During the first nine months of 1999, the Company produced 230,000 ounces of palladium and 69,000 ounces of platinum compared with production of 255,000 ounces of palladium and 78,000 ounces of platinum in the first nine months of 1998. The lower ore production is the result of a temporary decrease in developed reserves available for mining, which has resulted in a temporary increase in the quantity of waste tons mined relative to total mine output, and to continued production inefficiencies created by the rapid expansion of the miner's workforce associated with the Company's expansion activities. The Company is implementing strategic plans designed to rectify the production inefficiencies. Costs ----- Cost of sales increased by $9.6 million, or 16%, from $58.5 million in the first nine months of 1998 to $68.1 million in the first nine months of 1999. The cash cost per ounce produced increased 30% from $150 in the first nine months of 1998 to $195 in 1999. The increase in cash costs per ounce is the result of a 4% decrease in average ore grade processed in the first nine months of 1999, a 6% decrease in tons milled, and an overall 17% increase in cash costs associated with programs that are currently in place in anticipation of the planned production increases scheduled for 2000 and beyond. General and administrative expense increased by $1.9 million, or 63% and is primarily the result of $1.1 million of severance expenses associated with a management restructuring instituted in the third quarter of 1999 and consulting services of $0.4 million designed to rectify certain production inefficiencies. Operating Income ---------------- As a result of the increase in revenues and the increase in operating costs discussed above, operating income in the first nine months of 1999 increased by $19.3 million to $33.9 million compared to $14.6 million in the comparable period of 1998. 11 Other Income (Expense) ---------------------- During the first nine months of 1999, interest expense decreased by $2.4 million to $0.1 million compared with $2.6 million in the first nine months of 1998. The decrease in interest expense is due to a larger portion of interest being capitalized in 1999 and by a decrease in the Company's level of long-term debt in the first nine months of 1999 compared to the first nine months of 1998. The Company's 7% Subordinated Convertible Notes were called for redemption on May 1, 1999. Capitalized interest expense increased from $1.1 million in the first nine months of 1998 to $3.0 million in the first nine months of 1999 as a result of expansion activities at the Company's various operations. Net Income ---------- The Company's income before income taxes amounted to $34.6 million in the first nine months of 1999 compared to $12.7 million in the first nine months of 1998. In the first nine months of 1999, the Company provided for $10.9 million of income taxes compared to $4.9 million in the first nine months of 1998. As a result, the Company reports net income of $23.7 million, or $0.65 per basic share ($0.62 per diluted share) in the first nine months of 1999, compared to a net income of $7.8 million, or $0.25 per basic and diluted share in the first nine months of 1998. Liquidity and Capital Resources The Company's working capital at September 30, 1999 was $12.2 million compared to $58.8 million at December 31, 1998. The ratio of current assets to current liabilities was 1.3 at September 30, 1999 compared to 3.2 at December 31, 1998. Net cash provided by operations for the nine months ended September 30, 1999, was $52.8 million compared with $18.5 million in the comparable period of 1998, an increase of $34.3 million. The increase is primarily the result of increased net income of $15.9 million and an increase in the provision for deferred income taxes of $4.0 million in the first nine months of 1999, and a change in operating assets and liabilities of $13.5 million. A total of $134.2 million of cash was used in investing activities in the first nine months of 1999 compared to $17.9 million in the same period of 1998. The increase was primarily due to higher capital expenditures as a result of the development of the East Boulder project, the Stillwater Mine expansion and expansion of the Company's smelter and base metals refinery. For the nine months ended September 30, 1999, cash flow provided by financing activities was $42.2 million compared to $1.9 million for the comparable period of 1998. The increase is primarily the result of proceeds from the borrowings under the Company's credit facility. As a result of the above, cash and cash equivalents decreased by $39.2 million for the nine months ended September 30, 1999, compared with an increase of $2.5 million in the comparable period of 1998. In 1998, the Company announced plans to expand the Stillwater Mine and to develop East Boulder. Total capital to fund the expansion is expected to approximate $385 million. Of this, the Stillwater Mine expansion is expected to cost approximately $75 million; East Boulder is expected to cost approximately $270 million; and approximately $40 million is designated for the expansion of the Company's smelter and base metals refinery located in Columbus, Montana. For the first nine months of 1999, capital expenditures increased to $134.2 million compared to $40.5 million for the same period in 1998. Cash flow from operating activities is not expected to be sufficient to cover 1999 capital expenditures. Based on cash and cash equivalents on hand and expected cash flows from operations, along with existing credit facilities of $175 million, management believes there is sufficient liquidity to meet operating and capital needs for the next year. The Company may, from time to time, also seek to raise additional capital from the public or private securities markets or from other sources. 12 In March 1999, the Company obtained a seven-year $175 million credit facility ("Scotiabank Credit Facility") from a syndicate of banks led by the Bank of Nova Scotia. The facility provides for a $125 million term loan facility and a $50 million revolving credit facility. Borrowings may be made under the term loan facility until December 31, 2000 and amortization of the term loan facility will commence on March 31, 2001. The final maturity of the term loan facility and revolving credit facility will be December 31, 2005. As of September 30, 1999, the Company had $44 million outstanding under the facility, and is in compliance with all operating, financial, and reporting covenants. The loans will be required to be prepaid from excess cash flow, proceeds from asset sales and the issuance of debt or equity securities, subject to specified exceptions. Proceeds of the term loan facility will be used to finance a portion of the 1998 Expansion Plan. Proceeds of the revolving credit facility will be used for general corporate and working capital needs. At the Company's option, the Scotiabank Credit Facility will bear interest at LIBOR or an alternate base rate, in each case plus a margin. The interest rate may be adjusted depending upon the Company's ratio of debt to operating cash flow. Substantially all the property and assets of the Company and its subsidiaries and the stock of the Company's subsidiaries have been pledged as security for the Scotiabank Credit Facility. Market Risk The Company may from time to time utilize derivative instruments to manage financial risk. The Company has no material derivative exposures as of September 30, 1999 (see Note 5 - Sales Commitments). During the third quarter of 1998, the Company entered into sales contracts with General Motors Corporation, Ford Motor Company, Mitsubishi Corporation and KEMET Corp. These contracts cover the Company's PGM production over the five-year period from January 1999 through December 2003. During this period, the Company has committed between 90% to 100% of its actual palladium production and approximately 20% of its planned annual platinum production. Palladium and platinum sales are priced at a slight discount to market, with floor prices on substantially all of the Company's production committed under these contracts averaging $225 per ounce of palladium and $350 per ounce of platinum. The Company has also agreed to an average maximum price of approximately $400 per ounce on approximately 30% of its palladium production and $425 per ounce on approximately 20% of its planned annual platinum production. Year 2000 Issues Year 2000 will impact computer programs written using two digits rather than four to define the applicable year. Any programs with time-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculation causing disruptions of operations, including a temporary inability to process transactions, send invoices or engage in other ordinary activities. This problem largely affects software programs written years ago, before the issue came to prominence. The Company primarily uses third-party software programs written and updated by outside firms, and the Company has recently completed necessary upgrades to make this software Year 2000 compliant. During the fourth quarter of 1999, the Company will undergo the final phase of software testing and anticipates minimal problems. The Company does not believe that the costs associated with additional Year 2000 compliance will be material. The Company has requested and obtained written assurances from its key material suppliers regarding their Year 2000 compliance. As a result of this effort, the Company has generated a validated list of key suppliers that are Year 2000 compliant, and will use the entities on this list to obtain its supplies. 13 The Company has also provided written communications to material customers regarding Year 2000 compliance, outlining the importance of addressing this issue and detailing the Company's progress towards becoming fully Year 2000 compliant. In addition, the Company is developing contingency plans to deal with potential Year 2000 risks that could occur as a result of power failures or the failure of other critical systems. Although the Company has taken significant steps to address the Year 2000 problem, there can be no assurance that the failure of the Company and/or its material customers or suppliers to timely attain Year 2000 compliance will not materially reduce the Company's revenues or income, or that these failures and/or the impacts of broader compliance failures by telephone, mail, data transfer or other utility or general service providers or government or private entities will not have a material adverse effect on the Company. Other Developments The Company and the Paper, Allied Industrial, Chemical and Energy Workers International Union, under which the Company's employees are organized, reached agreement on a five-year collective bargaining agreement, dated July 1, 1999, which covers substantially all hourly employees at the Company's facilities. 14 PART II - OTHER INFORMATION Item 1. Legal Proceedings ----------------- Not applicable Item 2. Changes in Securities --------------------- None Item 3. Defaults Upon Senior Securities ------------------------------- None Item 4. Submission of Matters to a Vote of Security Holders --------------------------------------------------- None Item 5. Other Information ----------------- None Item 6. Exhibits and Reports on Form 8-K -------------------------------- (a) Exhibits: 27 Financial Data Schedule (b) Reports on Form 8-K: None 15 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. STILLWATER MINING COMPANY (Registrant) Date: October 15, 1999 By: /s/ William E. Nettles ---------------------------------- William E. Nettles Chairman and Chief Executive Officer (Principal Executive Officer) Date: October 15, 1999 By: /s/ James A. Sabala ---------------------------------- James A. Sabala Vice President and Chief Financial Officer (Principal Financial Officer) 16 EX-27 2 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S INTERIM UNAUDITED FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS 9-MOS DEC-31-1999 DEC-31-1999 JUL-01-1999 JAN-01-1999 SEP-30-1999 SEP-30-1999 10,652 10,652 0 0 21,657 21,657 0 0 11,816 11,816 49,450 49,450 444,978 444,978 (73,030) (73,030) 426,179 426,179 37,254 37,254 49,962 49,962 0 0 0 0 378 378 305,416 305,416 426,179 426,179 32,204 107,079 32,204 107,079 18,921 58,320 24,961 73,163 0 0 0 0 0 137 7,444 34,647 (2,345) (10,914) 5,099 23,733 0 0 0 0 0 0 5,099 23,733 0.14 0.65 0.13 0.62
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