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SECURITIES AND EXCHANGE COMMISSION
Washington D. C. 20549
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FORM 8-K
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report
(Date of earliest event reported): February 18, 1997
Hecla Mining Company
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(Exact name of registrant as specified in its charter)
Delaware
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(State or other jurisdiction of incorporation)
1-8491 82-0126240
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(Commission File Number) (IRS Employer Identification No.)
6500 Mineral Drive
Coeur d'Alene, Idaho 83814-8788
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(Address of principal executive offices) (Zip Code)
(208) 769-4100
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(Registrant's Telephone Number)
Page 1 of 3 Pages
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Item 5. Other Events.
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Attached hereto and incorporated herein by reference are the
following:
(a) Registrant's Management Discussion and Analysis for Registrant
for the year ended December 31, 1996, as Exhibit 99.1; and
(b) Registrant's Audited Consolidated Financial Statements as of
December 31, 1996 and 1995, and for each of the three years in the period ended
December 31, 1996, together with the report of Coopers & Lybrand L.L.P.
thereon, as Exhibit 99.2.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
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Exhibit 99.1 Management's Discussion and Analysis for Registrant for
the year ended December 31, 1996.
Exhibit 99.2 Registrant's Audited Consolidated Financial Statements.
Exhibit 23.1 Consent of Coopers & Lybrand L.L.P., to incorporation
by reference of their report dated February 7, 1997, on
the Consolidated Financial Statements of the Registrant
in the Registrant's Registration Statements on Forms
S-3 (No. 33-72832 and No. 33-59659), and Forms S-8 (No.
33-7833, No. 33-41833, No. 33-14758, No. 33-40691, No.
33-60095 and No. 33-60099).
Page 2 of 3 Pages
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SIGNATURE
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Pursuant to the requirements of Section 12 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.
HECLA MINING COMPANY
By /s/ Nathaniel K. Adams
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Name: Nathaniel K. Adams
Title: Corporate Counsel and
Assistant Secretary
Dated: February 18, 1997
Page 3 of 3 Pages
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EXHIBIT INDEX
Exhibit No. Title
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Exhibit 99.1 Management's Discussion and Analysis for Registrant for the year
ended December 31, 1996.
Exhibit 99.2 Registrant's Audited Consolidated Financial Statements.
Exhibit 23.1 Consent of Coopers & Lybrand L.L.P., to incorporation by
reference of their report dated February 7, 1997, on the
Consolidated Financial Statements of the Registrant in the
Registrant's Registration Statements on Forms S-3 (No. 33-72832
and No. 33-59659), and Forms S-8 (No. 33-7833, No. 33-41833, No.
33-14758, No. 33-40691, No. 33-60095 and No. 33-60099).
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
INTRODUCTION
Hecla Mining Company (Hecla or the Company) is primarily involved in
exploration, development, mining, and processing of gold, silver, lead, zinc,
and industrial minerals. As such, the Company's revenues and profitability are
strongly influenced by world prices of gold, silver, lead, and zinc, which
fluctuate widely and are affected by numerous factors beyond the Company's
control, including inflation and worldwide forces of supply and demand for
precious and base metals. The aggregate effect of these factors is not possible
to accurately predict. In the following descriptions, where there are changes
that are attributable to more than one factor, the Company presents each
attribute in descending order relative to the attribute's importance to the
overall change.
Except for the historical information contained in this Management's Discussion
and Analysis of Financial Condition and Results of Operations, the matters
discussed below are forward-looking statements that involve risks and
uncertainties, including the timely development of existing properties and
reserves (such as the Company's Rosebud joint-venture project) and future
projects, the impact of metals prices and metal production volatility, changing
market conditions and the regulatory environment and the other risks detailed
below, and, from time to time, as necessary, in the Company's periodic reports
filed with the Securities and Exchange Commission (see "Investment
Considerations" of Part I, Item 1 of the Company's December 31, 1995, Form 10-K)
. As a result, actual results may differ materially from those projected or
implied. These forward-looking statements represent the Company's judgment as
of the date of this filing. The Company disclaims, however, any intent or
obligation to update these forward-looking statements as circumstances change or
develop.
The Company incurred losses applicable to common shareholders for each of the
past three years in the period ended December 31, 1996. If the Company's
estimates of market prices of gold, silver, lead, and zinc are realized in 1997,
the Company expects to record income or (loss) in the range of a $(2.0) million
loss, to $2.0 million income, after the expected dividends to preferred
shareholders totaling approximately $8.1 million for the year ending
December 31, 1997. Due to the volatility of metals prices and the significant
impact metals price changes have on the Company's operations, there can be no
assurance that the actual results of operations for 1997 will be as projected.
The variability of metals prices requires that the Company, in assessing the
impact of prices on recoverability of its metals segment assets, exercise
judgment as to whether price changes are temporary or are likely to persist.
The Company performs a comprehensive evaluation of the recoverability of its
assets on a periodic basis. This evaluation includes a review of estimated
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future net cash flows against the carrying value of the Company's assets.
Moreover, a review is made on a quarterly basis to assess the impact of
significant changes in market conditions and other factors. Asset write-downs
may occur if the Company determines that the carrying values attributed to
individual assets are not recoverable given reasonable expectations for future
production and market conditions.
At the Company's Grouse Creek mine in which Hecla had an 80% interest in 1996,
following the end of the third quarter of 1996, the Company completed
metallurgical testing and economic analysis of the Grouse deposit which had been
ongoing throughout 1996. Based on the information gathered through such period,
as well as then current metals prices, the Company determined that the ore
contained in the Grouse deposit was not economical at the then current metals
prices, and the Company determined to suspend operations at the Grouse Creek
mine. The mine will be placed on a care-and-maintenance status upon completion
of mining at the Sunbeam pit which is estimated to occur during the second
quarter of 1997. In connection with the decision to suspend operations at the
Grouse Creek mine, the Company determined that certain third quarter 1996
adjustments were required to properly reflect the Company's interest in the
property at net realizable value totaling approximately $5.3 million and future
severance, holding, reclamation, and closure costs totaling approximately $22.5
million.
On January 31, 1997, Great Lakes Minerals Inc. (Great Lakes) and the Company
entered into a letter agreement terminating the Grouse Creek joint venture and
conveying Great Lakes' 20% interest in the Grouse Creek project to Hecla. Great
Lakes retained a 5% defined net proceeds interest in the project. The Company
has assumed 100% of the interests and obligations associated with the property.
In September 1996, the Company announced that the operator of the American Girl
gold mine, in which the Company has a 47% joint-venture interest, had determined
that operations at the American Girl mine would be suspended effective November
4, 1996. During the first six months of 1996 and continuing into the third
quarter of 1996, the American Girl gold mine experienced significantly higher
than anticipated operating costs and lower than expected recovered gold ore
grade. Based on its periodic review of the carrying value of the Company's
mining properties, the Company determined that a third quarter carrying value
adjustment totaling $7.6 million was required to properly reflect the estimated
net realizable value of its interest in the American Girl joint venture. The
amount of the adjustment was based on the Company's carrying value of its
interest in the American Girl mine in excess of estimated discounted future cash
flows. In addition to the carrying value adjustment, the Company also recorded
a $0.3 million provision for closed operations to increase the Company's
recorded liability for reclamation and closure costs to its estimate of its
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interest in future closure and reclamation costs at the American Girl mine.
In 1996, Hecla and Santa Fe Pacific Gold Corporation (Santa Fe) entered into an
agreement for a 50/50 joint venture to develop the Company's Rosebud property in
Pershing County, Nevada. Pursuant to the agreement, a limited liability
corporation was established, with each party owning a 50% interest, to develop
the Rosebud gold property, which is an underground, oxide gold deposit. Under
the terms of the agreement, Hecla will manage the mining activities and ore will
be trucked approximately 100 miles to Santa Fe's Twin Creeks Pinon mill for
processing. Total mine-site capital expenditures are currently estimated to be
approximately $20.0-$25.0 million. Under the terms of the joint venture, Santa
Fe is responsible for funding the first $12.5 million of mine-site development
costs plus road and mill facility improvements. Santa Fe also contributed to
the joint venture exploration property adjacent to the Rosebud property, and
will fund the first $1.0 million in exploration expenditures, and two-thirds of
future expenditures beyond the initial $1.0 million for further exploration
efforts at the project.
Following the decision to develop the Rosebud project, Euro-Nevada Mining
Corporation Inc. (Euro-Nevada) exercised its option to purchase an additional
1.5% Net Smelter Return royalty (NSR) from the Company for $2.5 million. The
Company received and recorded a gain of $2.5 million in the fourth quarter of
1996 from this transaction, and Euro-Nevada now holds a 4% NSR royalty on
production from the Rosebud property. Production at the Rosebud joint venture
project is expected to begin in May 1997.
In connection with signing the Rosebud joint-venture agreement, a separate joint
venture agreement concerning the Golden Eagle property in Ferry County,
Washington, was entered into between Hecla and Santa Fe. Santa Fe paid Hecla
$2.5 million for an immediate 75% interest in the Golden Eagle joint venture.
The Company recorded a gain on the transaction totaling $0.6 million. In
addition, Santa Fe is obligated to fund all expenditures required at the Golden
Eagle through the feasibility stage.
In July 1996, operations recommenced at the Greens Creek silver mine in Alaska.
Grinding and flotation circuit activities in the mill commenced ahead of
schedule. The Company holds a 29.73% interest in the mine through a joint
venture with Kennecott Greens Creek Mining Company, the operator of the
property. Production levels continued to increase following the recommencement
of operations in July 1996, and full production levels were achieved in January
1997.
In 1997, the Company expects to produce between 145,000 and 157,000 ounces of
gold compared to actual 1996 gold production of approximately 169,000 ounces of
gold. The 1997 estimated gold
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production includes 69,000 to 72,000 ounces from the Company's La Choya mine,
38,000 to 43,000 ounces from the Company's interest in the Rosebud mine, 18,000
to 20,000 ounces from the Company's Grouse Creek mine, 20,000 to 22,000 ounces
from the Company's interest in the Greens Creek mine and other sources. The
Company's share of silver production for 1997 is expected to be between 5.7 and
6.2 million ounces compared to 1996 production of approximately 3.0 million
ounces. The 1997 estimated silver production includes 2.1 to 2.3 million ounces
from the Lucky Friday mine, 3.4 to 3.7 million ounces from the Company's
interest in the Greens Creek mine and an additional 0.2 million ounces from
other sources.
In 1996, the Company shipped approximately 1,072,000 tons of industrial
minerals, including ball clay, kaolin, feldspar, and specialty aggregates. The
Company's shipments of industrial minerals are expected to increase in 1997 to
approximately 1,095,000 tons. Additionally, the Company expects to ship
approximately 930,000 cubic yards of landscape material from its Mountain West
Products subsidiary in 1997 compared to 996,000 cubic yards in 1996.
RESULTS OF OPERATIONS
1996 vs 1995
The Company incurred a net loss of approximately $32.4 million ($0.63 per common
share) in 1996 compared to a net loss of approximately $101.7 million ($2.11 per
common share) in 1995. After $8.1 million in dividends to holders of the
Company's Series B Cumulative Convertible Preferred Stock, the Company's loss
applicable to common shareholders for 1996 was approximately $40.4 million, or
$0.79 per common share compared to $109.8 million, or $2.28 per common share in
1995. The 1996 decreased loss was due to a variety of factors, the most
significant of which was the write-down of the Company's interest in the Grouse
Creek mine in the third quarter of 1995 totaling $97.0 million, compared to 1996
adjustments totaling $35.7 million for severance, holding, reclamation, closure
costs, and carrying value adjustments for property, plant, and equipment and
certain other assets at the Grouse Creek and American Girl mines.
Sales of the Company's products increased by approximately $6.6 million, or
4.4%, in 1996 as compared to 1995, principally the result of (1) increased
product sales totaling approximately $16.8 million, most notably from the
industrial minerals operations where shipment volumes increased at all
operations, increased production at the La Choya mine where gold production
increased approximately 8,000 ounces, as well as at the Greens Creek mine where
the first shipment of product occurred in November 1996 following the
recommencement of operations in July 1996; and (2) an increase in the average
price of lead. These two factors were partially offset by decreased sales of
approximately $10.2 million attributable to
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(1) decreased gold and silver production in 1996 at the Grouse Creek mine and
Republic gold mine, the latter of which completed operations in February 1995;
(2) decreased sales from the Apex processing facility which was sold in
September 1995; and (3) decreased gold production at the Cactus mine due to the
completion of operations in 1995.
Comparing the average metal prices for 1995 with 1996, gold increased by 1.0%
from $384 per ounce to $388 per ounce, silver decreased slightly from $5.19 per
ounce to $5.18 per ounce, lead increased by 20.7% from $0.29 per pound to $0.35
per pound, and zinc decreased slightly from $0.47 to $0.46 per pound.
Cost of sales and other direct production costs increased approximately $5.3
million, or 4.4%, in 1996 compared to 1995, primarily a result of (1) increased
production costs of $6.9 million incurred at the industrial minerals operations
which correlates to the increased sales volume at these operations; (2)
production costs increased at the Lucky Friday mine totaling approximately $2.8
million due to increased mining costs and the nonrecurring 1995 receipt of $1.1
million in insurance proceeds related to an ore conveyance accident in August
1994; (3) increased costs at the La Choya mine of $1.2 million resulting from
increased production at the mine; (4) increased costs at the American Girl mine
of $0.5 million due to difficulties associated with mining in the Oro Cruz ore
body, partially offset by reduced costs following the shutdown of operations in
1996; and (5) increased costs at Greens Creek where costs associated with the
first shipment were recognized in the amount of $0.5 million. These increases in
cost of sales and other direct production costs were partially offset by
decreases in operating costs at other operations, including (1) decreased costs
associated with the Apex processing facility totaling $4.1 million resulting
from the processing plant being sold in September 1995; (2) decreased costs at
the Cactus Unit totaling approximately $1.0 million associated with the
completion of operations in 1995; (3) decreased costs at the Grouse Creek mine
totaling $0.9 million which is associated with the second quarter 1996 temporary
shutdown of operations and the third quarter 1996 decision to suspend
operations, as well as higher costs in 1995 associated with the start-up of
operations; and (4) decreased operating costs at the Republic mine totaling
approximately $0.6 million due to the completion of operations in February 1995.
Cost of sales and other direct production costs as a percentage of sales from
products remained constant at 80.2% in 1995 and 1996.
Depreciation, depletion, and amortization decreased $3.0 million, or 12.8%, from
1995 to 1996 principally due to decreased depreciation at the Grouse Creek mine
($6.8 million) primarily due to the write-down of the carrying value of
property, plant, and equipment in the third quarter of 1995, partially offset by
increased depreciation at (1) the La Choya mine ($1.9 million) due
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to increased gold production; (2) the Greens Creek mine where operations
recommenced on a start-up basis in 1996 ($1.4 million); (3) the American Girl
mine ($0.3 million) due to the increased depreciable base associated with
development costs of the Oro Cruz, partly offset by the write-down of the
carrying value of the American Girl mine property, plant, and equipment, in the
third quarter of 1996; and (4) various industrial minerals operations totaling
approximately $0.2 million.
Cash operating cost, total cash cost, and total production cost per gold ounce
decreased from $286, $288, and $398 in 1995 to $273, $276, and $364 in 1996,
respectively. The decreases in the cash operating cost and total cash cost per
ounce are primarily due to decreases in the cost per ounce amounts at the Grouse
Creek and La Choya mines, offset by increased cost per ounce amounts at the
American Girl mine. Total production costs per ounce decreased principally due
to the decreased depreciation, depletion, and amortization expense at the Grouse
Creek mine in 1996 which is the result of the 1995 carrying value adjustment,
partially offset by increased total production cost per ounce at the American
Girl.
Cash operating costs, total cash costs, and total production costs per silver
ounce decreased from $4.57, $4.57, and $5.76 in 1995 to $4.24, $4.24, and $5.47
in 1996, respectively. The decreases in the cost per silver ounce are due
primarily to increased by-product production and prices, principally lead, in
the 1996 period at the Lucky Friday mine. Lead and zinc are by-products at the
Lucky Friday mine, the net revenues of which are deducted from production costs
in the calculation of production cost per silver ounce.
Other operating expenses decreased by approximately $68.6 million, or 57.7%,
from 1995 to 1996, due principally to (1) the decreased reduction in carrying
value of mining properties of $84.5 million, consisting of the Company's 1995
reduction in carrying value of the Company's interest in the Grouse Creek mine
($97.0 million) and the Company's interest in the ConSil Corp.'s Silver Summit
mine ($0.4 million), partly offset by the 1996 reductions in carrying values of
mining properties at the American Girl mine totaling approximately $7.6 million
and the Grouse Creek mine totaling approximately $5.3 million; and (2) decreased
exploration expenditures of approximately $2.3 million. These decreases were
partially offset by an $18.2 million increase in provision for closed operations
and environmental matters, consisting of (1) the 1996 provision for the Grouse
Creek mine totaling approximately $22.5 million; (2) the increased 1996
provision over the 1995 provision for remediation costs associated with the
Coeur d'Alene River Basin of $2.4 million; (3) the American Girl mine closure
cost accrual of $0.3 million in 1996; and (4) provision for environmental
matters at the Company's former Yellow Pine mine of $0.2 million, partially
offset by (1) the 1995 provision totaling $3.4 million for the Bunker Hill
Superfund Site; (2) receipt of $2.6 million in insurance proceeds in 1996
related to the
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remediation liability at Bunker Hill; and (3) decreased expenditures at the
closed Star Unit Area of $1.2 million primarily due to timber sale proceeds of
$0.9 million.
Other income was approximately $7.7 million in 1996 compared to $10.8 million in
1995. The $3.1 million decrease was primarily due to (1) decreased gains on
investments of $3.2 million due to the nonrecurring sale of certain common stock
investments in 1995; (2) increased net interest cost of $0.3 million; and (3)
miscellaneous expense in 1996 compared to miscellaneous income in 1995, the
impact of which was $0.3 million. These decreases were partially offset by
increased interest and other income in 1996 over 1995 totaling $0.5 million.
Total interest cost increased $1.1 million in 1996, principally due to higher
borrowings in 1996 under the Company's revolving and term loan facility.
Capitalized interest costs increased $0.8 million principally due to capitalized
interest costs associated with the Greens Creek development, the Rosebud
project, the Lucky Friday expansion project, and development at the American
Girl's Oro Cruz ore body.
Income taxes reflect a provision of $0.7 million in 1996 compared to a provision
of $0.3 million in 1995. The provision in 1996 primarily reflects the
provisions for foreign income taxes as well as a provision for state income
taxes, partially offset by the carryback of certain 1996 expenditures to reduce
U.S. income taxes previously provided. The provision in 1995 primarily reflects
the provisions for U.S. and foreign income taxes as a result of certain asset
and certain common stock investment dispositions made during 1995, as well as a
provision for state income taxes, partially offset by the carryback of certain
1995 expenditures to reduce U.S. income taxes previously provided.
RESULTS OF OPERATIONS
1995 vs 1994
The Company incurred a net loss of approximately $101.7 million ($2.11 per
common share) in 1995 compared to a net loss of approximately $24.6 million
($0.56 per common share) in 1994. After $8.1 million in dividends to holders of
the Company's Series B Cumulative Convertible Preferred Stock, the Company's
loss applicable to common shareholders for 1995 was approximately $109.8
million, or $2.28 per common share compared to $32.7 million, or $0.74 per
common share in 1994. The 1995 loss was due to a variety of factors, the most
significant of which was the third quarter write-down of the Company's interest
in the Grouse Creek mine.
Sales of the Company's products increased by approximately $26.3 million, or
21.0%, in 1995 as compared to 1994, principally the result of (1) increased
product sales totaling $49.7 million, most notably from the Grouse Creek mine
where gold and silver production commenced in December 1994, and increased
production at the La
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Choya and Lucky Friday mines; as well as from several industrial minerals
operations; and (2) an increase in the average price of lead. These two factors
were partially offset by decreased sales of approximately $23.5 million
attributable to (1) decreased gold and silver production in 1995 at the Republic
gold mine which completed operations in February 1995; and (2) decreased gold
production at the American Girl mine due to the completion of most underground
mining operations there in February 1995.
Comparing the average metal prices for 1994 with 1995, gold remained fairly
constant at $384 per ounce, silver decreased by 1.7% from $5.28 per ounce to
$5.19 per ounce, lead increased by 16% from $0.25 per pound to $0.29 per pound,
and zinc increased by 4% from $0.45 to $0.47 per pound.
Cost of sales and other direct production costs increased approximately $20.3
million, or 20.0%, in 1995 compared to 1994, primarily a result of (1) increased
production costs of $24.7 million incurred at the Grouse Creek mine in 1995
where production commenced in December 1994; (2) increased production costs at
Kentucky-Tennessee Clay Company's (K-T Clay's) kaolin and ball clay divisions
totaling approximately $4.0 million, principally due to the Langley kaolin
acquisition in 1995; (3) increased production costs at Mountain West Products
($3.4 million) due principally to increased production, as well as increased
freight and raw materials costs; (4) increased production costs at the La Choya
mine ($2.7 million) primarily due to increased production; (5) increased
production costs at Colorado Aggregate Company ($1.2 million) related
principally to a change in product mix requirements; and (6) increased
production costs at Lucky Friday of $1.2 million due to increased production in
1995. These increases in cost of sales and other direct production costs were
partially offset by decreases in operating costs at other operations, the three
most notable of which are (1) decreased production costs of $10.4 million at the
Republic mine due to completion of operations in February 1995; (2) decreased
standby costs at the Greens Creek mine totaling $2.6 million in the 1995 period,
a direct result of management's decision to further develop the mine and
recommence production; and (3) decreased cost of sales in 1995 at the American
Girl mine totaling $2.6 million due to decreased gold production.
Cost of sales and other direct production costs as a percentage of sales from
products decreased slightly from 80.8% in 1994 to 80.2% in 1995.
Depreciation, depletion, and amortization increased $9.2 million, or 64.8%, from
1994 to 1995 principally due to (1) increased depreciation at the Grouse Creek
mine ($8.6 million) which commenced production in December 1994; and (2)
increased depreciation at the La Choya mine ($2.4 million) due to increased
production; both of which were partially offset by decreased
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depreciation at the Republic mine ($2.2 million) due to the curtailment of
operations in February 1995.
Cash operating costs, total cash costs, and total production costs per gold
ounce increased from $267, $273, and $334 in 1994 to $286, $288, and $398 in
1995, respectively. The increases were mainly attributed to the increased per
ounce production costs at the Grouse Creek and American Girl mines during 1995,
partially offset by decreased per ounce production costs at the La Choya mine.
Cash operating costs, total cash costs, and total production costs per silver
ounce decreased from $5.81, $5.81, and $7.17 in 1994 to $4.57, $4.57, and $5.76
in 1995, respectively. The decreases were due primarily to (1) increased
production in 1995 at the Lucky Friday mine; and (2) increased average prices of
lead and zinc in 1995. Lead and zinc are by-products at the Lucky Friday mine,
the net revenues of which are deducted from production costs in the calculation
of production cost per silver ounce.
Other operating expenses increased by approximately $79.6 million, or 203%, from
1994 to 1995, due principally to (1) the third quarter 1995 reduction in
carrying value of the Company's interest in the Grouse Creek mine ($97.0
million) and the Company's interest in the ConSil Corp.'s Silver Summit mine
($0.4 million); and (2) the third quarter 1995 adjustment to increase the
Company's liability for environmental remediation activity costs at the Bunker
Hill Superfund Site ($3.4 million) and the Coeur d'Alene Mining District ($0.3
million). These increases were partially offset by (1) the 1994 increase in the
provision for closed operations and environmental matters related to the
reclamation accruals for the Republic mine and the Coeur d'Alene Mining District
totaling $7.3 million and $1.1 million, respectively; (2) the 1994 $7.9 million
reduction in carrying value of mining properties adjustment related to the
Republic mine ($7.2 million), the Zenda property ($0.4 million), and exploration
equipment ($0.3 million); (3) decreased general and administrative costs of $1.8
million in 1995, primarily due to the nonrecurring 1994 expenses of
approximately $2.1 million related to the acquisition of Equinox Resources Ltd.;
and (4) a decrease of approximately $1.3 million in exploration expense in 1995.
Other income was approximately $10.8 million in 1995 compared to $5.2 million in
1994. The increase was primarily due to (1) the 1995 gain of $4.0 million on
the sales of certain common stock investments; and (2) the 1995 gain of $3.2
million on the sale of the Apex processing facility; both of which were
partially offset by (1) the 1995 write-down of $1.1 million for certain common
stock investments; and (2) the 1994 gain on the sale of certain common stock
investments. Total interest cost decreased $0.6 million in 1995, principally
due to the June 1994 retirement of long-term debt, partially offset by interest
expense during 1995 related to
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new borrowing under the Company's revolving and term credit facility.
In 1994, the Company recorded an extraordinary loss totaling approximately $0.8
million on the early retirement of long-term debt. The loss related principally
to the write-off of the unamortized balance of deferred issuance costs related
to the debt.
Income taxes reflect a provision of $0.3 million in 1995 compared to a benefit
of $0.5 million in 1994. The provision in 1995 primarily reflects the
provisions for U.S. and foreign taxes due as a result of certain asset and
certain common stock investment dispositions made during 1995, as well as a
provision for state income taxes, partially offset by the carryback of certain
1995 expenditures to reduce income taxes previously provided. The benefit in
1994 primarily reflects the carryback of 1994 and prior year net operating
losses to reduce income taxes previously provided, partially offset by an
Internal Revenue Service settlement and a provision for state income taxes.
FINANCIAL CONDITION AND LIQUIDITY
A substantial portion of the Company's revenue is derived from the sale of
products, the prices of which are affected by numerous factors beyond the
Company's control. Prices may change dramatically in short periods of time and
such changes have a significant effect on revenues, profitability and liquidity
of the Company. The Company is subject to many of the same inflationary
pressures as the U.S. economy in general. The Company continues to implement
cost-cutting measures in an effort to reduce per unit production costs.
Management believes, however, that the Company may not be able to continue to
offset the impact of inflation over the long term through cost reductions alone.
However, the market prices for products produced by the Company have a much
greater impact than inflation on the Company's revenues and profitability.
Moreover, the discovery, development and acquisition of mineral properties are
in many instances unpredictable events. Future metals prices, the success of
exploration programs, changes in legal and regulatory requirements, and other
property transactions can have a significant impact on the need for capital (see
"Investment Considerations" of Part I, Part 1 of the Company's December 31,
1995, Form 10-K).
At December 31, 1996, assets totaled approximately $268.4 million and
shareholders' equity totaled approximately $145.5 million. Cash and cash
equivalents increased by $4.3 million to $8.3 million at December 31, 1996 from
$4.0 million at the end of 1995. Operating activities provided $22.3 million of
cash during 1996. The primary sources of cash were from the La Choya mine and
the Company's industrial minerals operations. Partially offsetting these
sources were (1) a $4.2 million increase in inventories, primarily at the Greens
Creek mine and the La Choya mine; and (2)
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payments for reclamation and other noncurrent liabilities which required cash of
$5.2 million. Principal noncash charges included in operating activities
include (1) provisions for reclamation, holding, severance, and closure costs of
approximately $28.3 million; (2) depreciation, depletion, and amortization costs
of approximately $20.8 million; and (3) adjustments for reduction in the
carrying value of mining properties totaling approximately $12.9 million.
The Company's investing activities used $35.5 million of cash during 1996. The
most significant use of cash was $33.7 million for property, plant, and
equipment additions described below and the transfer of $4.3 million to
restricted investments for additional reclamation funding and surety bonding
collateral requirements related to ongoing and closed operations. These uses
were partially offset by proceeds from the sales of assets ($3.6 million),
primarily for the sale of an interest in the Golden Eagle joint venture and the
sale of the Apex mine, and proceeds from sales of certain common stock
investments ($0.1 million). During 1996, the most significant asset additions
were $19.0 million at the Greens Creek mine, $3.8 million at the Grouse Creek
mine, $2.5 million at the Lucky Friday mine, $2.4 million in capitalized
interest at Greens Creek, Rosebud, Lucky Friday, and American Girl, and capital
expenditures of $1.7 million at K-T Clay's kaolin division and $1.6 million at
the American Girl mine.
During 1996, $17.4 million of cash was provided from financing activities. The
major sources of cash were borrowings on long-term debt of $51.6 million from
the Company's revolving credit facility, proceeds totaling approximately $22.0
million from the issuance of 2.875 million common shares in an underwritten
offering completed in January 1996, and borrowing against cash surrender value
of life insurance of $0.8 million, partially offset by repayments on long-term
debt of $48.9 million and payment of preferred stock dividends of $8.1 million.
The Company currently estimates that capital expenditures to be incurred in 1997
will be in the range of $19.0 million to $32.5 million, including $0.8 million
of capitalized interest. These expenditures, excluding capitalized interest,
consist primarily of (1) the Company's share of development expenditures at the
Rosebud project ($10.0-$11.0 million), the Lucky Friday expansion project ($2.0-
$14.0 million), industrial minerals capitalized expenditures ($2.6-$2.8
million), Greens Creek mine capitalized expenditures ($2.0-$2.2 million); and
(2) expenditures at other operating locations totaling $1.6-$1.7 million. The
high end of the estimates with respect to the Lucky Friday expansion project
expenditures are subject to preparation of a final feasibility study, final
engineering estimates, as well as Board of Directors approval. These planned
capital expenditures will depend, in large part, on the Company's ability to
obtain the required funds from operating activities, amounts available under its
revolving and
11
16
term loan credit facility, and other potential financing arrangements. As
market circumstances permit, the Company may also seek to finance certain of its
cash requirements through the sale of equity or debt securities, as appropriate.
There can be no assurance that actual capitalized expenditures will be as
projected based upon the uncertainties associated with the estimates for
development of the Lucky Friday expansion project and the Company's ability to
generate adequate funding for the projected capital expenditures.
The Company's estimate of its capital expenditure requirements assumes, with
respect to the Greens Creek and Rosebud properties, that the Company's joint-
venture partners will not default with respect to their respective portions of
development costs and capital expenditures.
Pursuant to a Registration Statement filed with the Securities and Exchange
Commission and declared effective in the third quarter of 1995, the Company can,
at its option, issue debt securities, common shares, preferred shares or
warrants in an amount not to exceed $100.0 million in the aggregate. In January
1996, the Company issued 2.875 million shares of its common stock to facilitate
the funding of the Company's capital expenditures in 1996. The Company used
$21.0 million of the net proceeds of approximately $22.0 million from the sale
of Common Stock initially to pay down debt under its existing bank revolving
credit facility. As of December 31, 1996 and February 18, 1997, a total of
$17.0 million and $10.0 million, respectively, remained available under the
credit facility.
The Company has a revolving and term loan facility (the Bank Agreement) that
allows it to borrow up to $55.0 million. Amounts may be borrowed on a revolving
credit basis through July 31, 1998, and are repayable in eight quarterly
installments beginning on October 31, 1998. During the commitment period, the
Company pays an annual facility fee ranging from $178,750 to $261,250, the
amount of which is based on average quarterly borrowings. The Bank Agreement,
as amended, includes certain collateral provisions, including the pledging of
the common stock of certain of the Company's subsidiaries and providing the
lenders a security interest in accounts receivable. Under the amended terms of
the Bank Agreement, the Company is required to maintain certain financial
ratios, and meet certain net worth and indebtedness tests for which the Company
was in compliance at December 31, 1996. Amounts available under the amended
Bank Agreement are based on a defined debt to cash flow test. As of December
31, 1996, the Company had borrowings of $38.0 million and the ability to borrow
the remaining $17.0 million under the facility. The interest rate for
borrowings under the Bank Agreement as of December 31, 1996 was 7.16%.
12
17
The Company's planned net environmental and reclamation expenditures for 1997
are expected to be approximately $9.4 million, principally for environmental and
reclamation activities at the Bunker Hill Superfund Site, the Coeur d'Alene
River Basin, and the Republic property.
Exploration expenditures for 1997 are currently estimated to be approximately
$4.0-$5.0 million, although the Company is currently evaluating a number of
opportunities that could potentially increase this range by an additional $2.0-
$4.0 million. The Company's exploration strategy is to focus further
exploration at, or in the vicinity of, its currently owned domestic and foreign
properties. Accordingly, 1997 domestic exploration expenditures will be
incurred principally at the Greens Creek, Rosebud, and Lucky Friday properties.
Foreign exploration efforts in 1997 will center primarily on targets in Mexico.
In the normal course of its business, the Company uses forward sales commitments
and commodity put and call option contracts to manage its exposure to
fluctuations in the prices of certain metals which it produces. Contract
positions are designed to ensure that the Company will receive a defined minimum
price for certain quantities of its production. Gains and losses, and the
related costs paid or premiums received, for option contracts which hedge the
sales prices of commodities are deferred and included in income as part of the
hedged transaction. Revenues from the aforementioned contracts are recognized
at the time contracts are closed out by delivery of the underlying commodity or
settlement of the net position in cash. The Company is exposed to certain
losses, generally the amount by which the contract price exceeds the spot price
of a commodity, in the event of nonperformance by the counterparties to these
agreements.
At December 31, 1996, the Company had forward sales commitments through January
31, 1997, for 1,000 ounces of gold at an average price of $412 per ounce. The
estimated fair value of these forward sales commitments was $43,000 at December
31, 1996. The Company has also purchased options to put 34,440 ounces of gold
to counterparties at an average price of $396 per ounce. Concurrently, the
Company sold options to allow the counterparties to call 34,440 ounces of gold
from the Company at an average price of $461 per ounce. There was no net cost
associated with the purchase and sale of these options which expire on a monthly
basis through December 1997. The London Final gold price at year end was $369.
At December 31, 1996, the estimated fair value of the Company's purchased gold
put options was approximately $772,000. If the Company had chosen to close its
offsetting short gold call option position, it would have incurred a liability
of approximately $2,000. Additionally, the Company has entered into spot
deferred sales commitments for 25,000 ounces of gold at $381 per ounce for
delivery on January 15, 1997. The nature and purpose of these forward sales
contracts, however, does not presently
13
18
expose the Company to any significant net loss. All of the aforementioned
contracts are designated as hedges at December 31, 1996.
In November 1994, the Company entered into a court-approved Consent Decree
requiring the Company and certain other mining companies to undertake specific
remediation work with respect to the Bunker Hill Superfund Site in northern
Idaho. At December 31, 1996, the Company's allowance for Bunker Hill Superfund
Site remedial action costs was approximately $9.4 million, which the Company
believes is adequate based on current estimates of aggregate costs.
In addition, as described in Note 6 of Notes to Consolidated Financial
Statements forming part of the Company's audited Consolidated Financial
Statements for the year ended December 31, 1996, the Company is a defendant in
an action filed in November 1990 by Star Phoenix Mining Company (Star Phoenix)
and certain principals of Star Phoenix, asserting that the Company breached the
terms of Star Phoenix's lease agreement for the Company's Star Morning mine and
that the Company interfered with certain contractual relationships of Star
Phoenix relating to the Company's 1990 termination of such lease agreement. In
June 1994, judgment was entered by the Idaho State District Court against the
Company in the legal proceeding in the amount of $10.0 million in compensatory
damages and $10.0 million in punitive damages based on a jury verdict rendered
in the case in late May 1994. The verdict was appealed to the Idaho Supreme
Court which heard arguments in April 1996 and is prepared to render its opinion
in the near future. Post-judgment interest will accrue during the appeal
period; the current interest rate is 10.875%. In order to stay the ability of
Star Phoenix to collect on the judgment during the pending of the appeal, the
Company posted an appeal bond in the amount of $27.2 million representing 136%
of the District Court judgment. The Company pledged U.S. Treasury securities
totaling $10.0 million as collateral for the $27.2 million appeal bond. The
Company has vigorously pursued its appeal to the Idaho Supreme Court and it has
been the Company's position, and at the current time it remains the Company's
position, that it will not enter into a settlement with Star Phoenix for any
material amount. Although the ultimate outcome of the appeal of the judgment is
subject to the inherent uncertainties of any legal proceeding, based on the
Company's analysis of the factual and legal issues associated with the
proceeding before the District Court and based upon the opinions of outside
counsel, as of the date hereof, it is management's belief that the Company
should ultimately prevail in this matter, although there can be no assurance in
this regard. In the event of an unfavorable outcome in this proceeding, the
Company expects that the judgment would be paid from the pledged collateral
totaling $10.0 million with the remaining balance to be paid from bank
borrowings, other potential financing arrangements or proceeds from certain
asset sales.
14
19
Although there can be no assurance as to the ultimate outcome of the above
matter and the other proceedings disclosed in Note 6 of Notes to Consolidated
Financial Statements forming part of the Company's audited Consolidated
Financial Statements for the year ended December 31, 1996, it is the opinion of
the Company's management, based upon the information available at this time,
that the expected outcome of these matters, individually or in the aggregate,
will not have a material adverse effect on the results of operations and
financial condition of the Company and its subsidiaries.
15
20
Exhibit 99.2
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors and Shareholders
Hecla Mining Company
We have audited the accompanying consolidated balance sheets of Hecla
Mining Company and subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of operations, changes in shareholders' equity
and cash flows for each of the three years in the period ended December 31,
1996. These financial statements are the responsibility of the Company's man-
agement. Our responsibility is to express an opinion on these financial
statements based on our audits.
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 provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Hecla Mining
Company and subsidiaries as of December 31, 1996 and 1995, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
As discussed in Note 1 to the consolidated financial statements, the
Company changed its method of accounting for environmental remediation
liabilities in 1996, the impairment of long-lived assets in 1995, and its method
of accounting for investments in 1994.
/s/ COOPERS & LYBRAND L.L.P.
Spokane, Washington
February 7, 1997
16
21
HECLA MINING COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
__________
ASSETS
December 31,
----------------------------
1996 1995
--------- -
---------
Current assets
Cash and cash equivalents $ 8,256 $ 4,024
Accounts and notes receivable 24,168 25,571
Income tax refund receivable 1,262 737
Inventories 22,879 20,915
Other current assets 2,284 2,038
---------- ----------
Total current assets 58,849 53,285
Investments 1,723 2,200
Restricted investments 20,674 16,254
Properties, plants and equipment, net 177,755 177,374
Other noncurrent assets 9,392 9,077
---------- ----------
Total assets $ 268,393 $ 258,190
========== ==========
LIABILITIES
Current liabilities
Accounts payable and accrued expenses $ 17,377 $ 14,145
Accrued payroll and related benefits 3,232 3,217
Preferred stock dividends payable 2,012 2,012
Accrued taxes 1,427 1,042
Accrued reclamation and closure costs 8,664 5,549
---------- ----------
Total current liabilities 32,712 25,965
Deferred income taxes 359 359
Long-term debt 38,208 36,104
Accrued reclamation and closure costs 45,953 26,782
Other noncurrent liabilities 5,653 4,864
---------- ----------
Total liabilities 122,885 94,074
---------- ----------
Commitments and contingencies (Notes 1, 2 and 6)
SHAREHOLDERS' EQUITY
Preferred stock, $0.25 par value,
authorized 5,000,000 shares;
issued and outstanding - 2,300,000 shares,
liquidation preference $117,012 575 575
Common stock, $0.25 par value, authorized 100,000,000 shares;
issued 1996 - 51,199,324 shares, issued 1995 - 48,317,324 shares 12,800 12,079
Capital surplus 351,559 330,352
Accumulated deficit (213,610) (173,206)
Net unrealized gain (loss) on investments (32) 100
Foreign currency translation adjustment (4,898) (4,898)
Less treasury stock, at cost;
1996 - 62,085 common shares, 1995 - 62,072 common shares (886) (886)
---------- ----------
Total shareholders' equity 145,508 164,116
---------- ----------
Total liabilities and shareholders' equity $ 268,393 $ 258,190
========== ==========
The accompanying notes are an integral part of the consolidated financial statements.
17
22
HECLA MINING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(dollars and shares in thousands, except per share amounts)
__________
Year Ended December 31,
-------------------------------------
1996 1995 1994
--------- ---------- ---------
Sales of products $ 158,252 $ 151,615 $ 125,342
--------- ---------- ---------
Cost of sales and other direct production costs 126,878 121,546 101,278
Depreciation, depletion and amortization 20,451 23,462 14,233
--------- --------- ---------
147,329 145,008 115,511
--------- --------- ---------
Gross profit 10,923 6,607 9,831
--------- --------- ---------
Other operating expenses
General and administrative 9,365 9,371 11,132
Exploration 4,843 7,109 8,397
Depreciation and amortization 338 367 524
Provision for closed operations and environmental
matters 22,806 4,615 11,353
Reduction in carrying value of mining properties 12,902 97,387 7,864
--------- --------- ---------
50,254 118,849 39,270
--------- --------- ---------
Loss from operations (39,331) (112,242) (29,439)
--------- --------- ---------
Other income (expense)
Interest and other income 8,630 8,089 5,227
Miscellaneous income (expense) (250) 18 (234)
Gain (loss) on investments (28) 3,169 1,053
Interest expense:
Interest costs (3,058) (1,960) (2,606)
Less amount capitalized 2,360 1,516 1,751
--------- --------- ---------
7,654 10,832 5,191
--------- --------- ---------
Loss before income taxes and extraordinary item (31,677) (101,410) (24,248)
Income tax (provision) benefit (677) (309) 468
--------- --------- ---------
Loss before extraordinary item (32,354) (101,719) (23,780)
Extraordinary loss on retirement of long-term debt - - - - (833)
--------- --------- ---------
Net loss (32,354) (101,719) (24,613)
Preferred stock dividends (8,050) (8,050) (8,050)
--------- --------- ---------
Loss applicable to common shareholders $ (40,404) $ (109,769) $ (32,663)
========= ========= =========
Loss per common share
Loss before extraordinary item $(0.79) $(2.28) $(0.72)
Extraordinary item - - - - (0.02)
------ ------ ------
$(0.79) $(2.28) $(0.74)
====== ====== ======
Weighted average number of common shares outstanding 51,133 48,192 43,944
====== ====== ======
The accompanying notes are an integral part of the consolidated financial statements.
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23
HECLA MINING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
Year Ended December 31,
-------------------------------------------
1996 1995 1994
---------- ---------- ----------
Operating activities
Net loss $ (32,354) $ (101,719) $ (24,613)
Noncash elements included in net loss
Depreciation, depletion and amortization 20,789 23,829 14,757
Gain on disposition of properties, plants
and equipment (706) (3,417) (354)
(Gain) loss on investments 28 (3,169) (1,053)
Accretion of interest on long-term debt - - - - 2,495
Reduction in carrying value of mining properties 12,902 97,387 7,864
Provision for reclamation and closure costs 28,284 8,071 11,353
Loss on retirement of long-term debt - - - - 833
Change in
Accounts and notes receivable 192 (849) (4,675)
Income tax refund receivable (525) (490) (247)
Inventories (4,239) (2,299) (4,086)
Other current assets (479) (441) 406
Accounts payable and accrued expenses 3,232 575 (4,088)
Accrued payroll and related benefits 15 493 668
Accrued taxes 385 117 (3)
Accrued reclamation and closure costs
and other noncurrent liabilities (5,210) (6,326) (4,608)
---------- ---------- ----------
Net cash provided (used) by operating activities 22,314 11,762 (5,351)
---------- ---------- ----------
Investing activities
Additions to properties, plants and equipment (33,731) (45,308) (66,559)
Proceeds from disposition of properties, plants
and equipment 3,641 3,822 13,809
Proceeds from sale of investments 130 5,196 32,067
Purchase of restricted investments (4,308) (2,701) (13,553)
Purchase of investments and change in cash surrender
value of life insurance, net (726) (1,047) 114
Other, net (480) (2,407) (325)
---------- ---------- ----------
Net cash used by investing activities (35,474) (42,445) (34,447)
---------- ---------- ----------
Financing activities
Common stock issued under stock option plans
and warrants - - 1,335 1,765
Common stock issuance, net of issuance costs 21,928 - - 63,499
Preferred stock dividends (8,050) (8,050) (8,050)
Borrowings against cash surrender value of life insurance 801 - - - -
Borrowings on long-term debt 51,631 48,000 - -
Repayment of long-term debt (48,918) (13,856) - -
Retirement of long-term debt including $16,283
of accreted interest - - - - (50,169)
---------- ---------- ----------
Net cash provided by financing activities 17,392 27,429 7,045
---------- ---------- ----------
Change in cash and cash equivalents
Net increase (decrease) in cash and cash equivalents 4,232 (3,254) (32,753)
Cash and cash equivalents at beginning of year 4,024 7,278 40,031
---------- ---------- ----------
Cash and cash equivalents at end of year $ 8,256 $ 4,024 $ 7,278
========== ========== ==========
Supplemental disclosure of cash flow information
Cash paid during year for:
Interest (net of amount capitalized), including
$16,283 of accreted interest in 1994 $ 249 $ (136) $ 16,528
========== ========== ==========
Income tax payments, net $ 148 $ 216 $ 436
========== ========== ==========
See Notes 3 and 5 for noncash investing and financing activities.
The accompanying notes are an integral part of the consolidated financial statements.
19
24
HECLA MINING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the Years Ended December 31, 1996, 1995 and 1994
(dollars and shares in thousands, except per share amounts)
_______________
Unrealized Foreign
Gain Currency
Preferred Stock Common Stock Capital Accumulated (Loss) on Translation Treasury
----------------- -----------------
Shares Amount Shares Amount Surplus Deficit Investments Adjustment Stock
------- ------- ------- -------- -------- ---------- ----------- ----------- --------
Balances, December 31, 1993 2,300 $ 575 40,320 $10,080 $ 265,687 $ (30,774) $ (8) $ - - $ (888)
Effect of change in
accounting for investments 635
Net loss (24,613)
Preferred stock dividends
($3.50 per share) (8,050)
Stock issued under stock
option plans and exercise
of warrants 349 87 1,678
Stock issued for cash,
net of issuance costs 7,475 1,869 61,630
Net change in unrealized
gain (loss) on investments 2,769
Net change in foreign
currency translation
adjustment (3,158)
Treasury stock purchased (1)
----- ------ ------ ------- -------- --------- ------- ------- ------
Balances, December 31, 1994 2,300 575 48,144 12,036 328,995 (63,437) 3,396 (3,158) (889)
Net loss (101,719)
Preferred stock dividends
($3.50 per share) (8,050)
Stock issued under stock
option plans and exercise
of warrants 166 41 1,294
Stock issued to directors 7 2 63
Net change in unrealized
gain (loss) on investments (3,296)
Net change in foreign
currency translation
adjustment (1,740)
Treasury stock issued 3
----- ------ ------ ------- -------- --------- ------- ------- ------
Balances, December 31, 1995 2,300 575 48,317 12,079 330,352 (173,206) 100 (4,898) (886)
Net loss (32,354)
Preferred stock dividends
($3.50 per share) (8,050)
Stock issued for cash,
net of issuance costs 2,875 719 21,154
Stock issued to directors 7 2 53
Net change in unrealized
gain (loss) on investments (132)
----- ------ ------ ------- -------- --------- ------- ------- ------
Balances, December 31, 1996 2,300 $ 575 51,199 $12,800 $351,559 $(213,610) $ (32) $(4,898) $ (886)
===== ====== ====== ======= ======== ========= ======= ======= ======
The accompanying notes are an integral part of the consolidated financial statements.
20
25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
________
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. BASIS OF PRESENTATION -- The accompanying consolidated financial statements
include the accounts of Hecla Mining Company (Hecla or the Company), its
majority-owned subsidiaries and its proportionate share of the accounts of the
joint ventures in which it participates. All significant intercompany
transactions and accounts are eliminated in consolidation.
The Company's revenues and profitability are strongly influenced by world prices
for gold, silver, lead, and zinc, which fluctuate widely and are affected by
numerous factors beyond the Company's control, including inflation and worldwide
forces of supply and demand. The aggregate effect of these factors is not
possible to accurately predict.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the dates of the financial statements and
the reported amounts of revenues and expenses during the reporting periods.
Actual results could differ materially from those estimates.
Certain consolidated financial statement amounts have been reclassified to
conform to the 1996 presentation. These reclassifications had no effect on the
net loss or accumulated deficit as previously reported.
B. COMPANY'S BUSINESS AND CONCENTRATIONS OF CREDIT RISK -- The Company is
engaged in mining and mineral processing activities, including exploration,
extraction, processing, and reclamation. The Company's principal products are
metals (primarily gold, silver, lead, and zinc) and industrial minerals
(primarily clay, aggregate and landscape products). Substantially all of the
Company's operations are conducted in the United States and Mexico. Sales of
metals products are made principally to domestic and foreign custom smelters and
metal traders. The Company sells substantially all of its metallic concentrates
to smelters which are subject to extensive regulations including environmental
protection laws. The Company has no control over the smelters' operations or
their compliance with environmental laws and regulations. If the smelting
capacity available to the Company were significantly reduced because of
environmental requirements or otherwise, it is possible that the Company's
silver operations could be adversely affected. Industrial minerals are sold
principally to domestic and Mexican manufacturers and wholesalers.
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26
Sales to significant metals customers, as a percentage of total sales of metals,
were as follows:
1996 1995 1994
---- ---- ----
Custom smelters 18.4% 8.9% 9.3%
Custom metal traders
Customer A 31.2% 32.8% 38.3%
Customer B 29.5% 30.6% 19.2%
Customer C 7.7% 11.6% 12.9%
Customer D 7.5% 7.9% 11.9%
During 1996, 1995 and 1994, the Company sold 9.8%, 7.0% and 13.0%, respectively,
of its products to companies in foreign countries.
The Company's financial instruments that are exposed to concentrations of credit
risk consist primarily of cash and cash equivalents and trade accounts
receivable. The Company places its cash and temporary cash investments with
institutions of high credit-worthiness. At times such investments may be in
excess of the FDIC insurance limit. The Company routinely assesses the
financial strength of its customers and, as a consequence, believes that its
trade accounts receivable credit risk exposure is limited.
C. INVENTORIES -- Inventories are stated at the lower of average cost or
estimated net realizable value.
D. INVESTMENTS -- The Company uses the equity method to account for
investments in common stock of operating companies 20% to 50% owned.
Investments in nonoperating companies that are not intended for resale or are
not readily marketable are valued at the lower of cost or net realizable value.
Marketable equity securities are categorized as available for sale. Effective
January 1994, the Company adopted the provisions of Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities."
Realized gains and losses on the sale of securities are recognized on a specific
identification basis. Unrealized gains and losses are included as a component
of shareholders' equity net of related deferred income taxes, unless a permanent
impairment in value has occurred, which is then charged to operations.
Restricted investments held at December 31, 1996 and 1995, primarily represent
investments in money market funds and U.S. Treasury securities. These
investments are restricted for reclamation funding, as well as reclamation
surety bond and appeal bond collateral requirements.
E. PROPERTIES, PLANTS AND EQUIPMENT -- Properties, plants and equipment are
stated at the lower of cost or estimated net
22
27
realizable value. Maintenance, repairs and renewals are charged to operations.
Betterments of a major nature are capitalized. When assets are retired or sold,
the costs and related allowances for depreciation and amortization are
eliminated from the accounts and any resulting gain or loss is reflected in
operations. Idle facilities, placed on a standby basis, are carried at the
lower of net book value or estimated net realizable value.
Management of the Company reviews the net carrying value of all facilities,
including idle facilities, on a regular, periodic basis. These reviews
consider, among other factors, (1) the net realizable value of each major type
of asset, on a property-by-property basis, to reach a judgment concerning
possible permanent impairment of value and any need for a write-down in asset
value; (2) the ability of the Company to fund all care, maintenance and standby
costs; (3) the status and usage of the assets, while in a standby mode, to
thereby determine whether some form of amortization is appropriate; and (4)
current estimates of metal prices that affect the decision to reopen or make a
disposition of the assets. The Company estimates the net realizable value of
each property based on the estimated undiscounted future cash flows that will be
generated from operations at each property, the estimated salvage value of the
surface plant and equipment and the value associated with property interests.
These estimates of undiscounted future cash flows are dependent upon estimates
of metal to be recovered from proven and probable ore reserves and, where
appropriate, from the continuity of existing, developed ore bodies, future
production costs and future metals prices over the estimated remaining mine
life. If undiscounted cash flows are less than the carrying value of a
property, an impairment loss is recognized based upon the estimated expected
future net cash flows from the property discounted at an interest rate
commensurate with the risk involved. Effective January 1, 1995, the Company
adopted the provisions of Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of" (SFAS No. 121). The adoption of the provisions of SFAS No. 121
had no material effect on the results of operations or financial condition of
the Company.
Management's estimates of metals prices, recoverable proven and probable ore
reserves, and operating, capital and reclamation costs are subject to risks and
uncertainties of change affecting the recoverability of the Company's investment
in various projects. Although management has made its best estimate of these
factors based on current conditions, it is reasonably possible that changes
could occur in the near term which could adversely affect management's estimate
of net cash flows expected to be generated from its operating properties and the
need for asset impairment write-downs.
Depreciation is based on the estimated useful lives of the assets and is
computed using straight-line, declining-balance, and
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28
unit-of-production methods. Depletion is computed using the unit-of-production
method.
Management's calculations of proven and probable ore reserves are based on
engineering and geological estimates including minerals prices and operating
costs. Changes in the geological and engineering interpretation of various ore
bodies, mineral prices and operating costs may change the Company's estimates of
proven and probable reserves. It is reasonably possible that certain of the
Company's estimates of proven and probable reserves will change in the near term
resulting in a change to amortization and reclamation accrual rates in future
reporting periods.
F. MINE EXPLORATION AND DEVELOPMENT -- Exploration costs are charged to
operations as incurred, as are normal development costs at operating mines.
Major mine development expenditures at operating properties and at new mining
properties not yet producing are capitalized.
G. RECLAMATION OF MINING AREAS -- All of the Company's operations are subject
to reclamation and closure requirements. Minimum standards for mine reclamation
have been established by various governmental agencies which affect certain
operations of the Company. A reserve for mine reclamation costs has been
established for restoring certain abandoned and currently disturbed mining areas
based upon estimates of cost to comply with existing reclamation standards.
Mine reclamation costs for operating properties are accrued using the
unit-of-production method and charged to cost of sales and other direct
production costs. The estimated amount of metals or minerals to be recovered
from a mine site is based on internal and external geological data and is
reviewed by management on a periodic basis. Changes in such estimated amounts
which affect reclamation cost accrual rates are reflected on a prospective basis
unless they indicate there is a current impairment of an asset's carrying value
and a decision is made to permanently close the property, in which case they are
recognized currently and charged to provision for closed operations and
environmental matters. It is reasonably possible that the Company's estimate of
its ultimate accrual for reclamation costs will change in the near term due to
possible changes in laws and regulations, and interpretations thereof, and
changes in cost estimates.
H. REMEDIATION OF MINING AREAS -- The Company accrues costs associated with
environmental remediation obligations when it is probable that such costs will
be incurred and they are reasonably estimable. Accruals for estimated losses
from environmental remediation obligations generally are recognized no later
than completion of the remedial feasibility study and are charged to provision
for closed operations and environmental matters. Costs of future expenditures
for environmental remediation are not discounted to their present value; such
costs are based on
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management's current estimate of amounts that are expected to be incurred when
the remediation work is performed within current laws and regulations.
Recoveries of environmental remediation costs from other parties are recorded as
assets when their receipt is deemed probable.
In October 1996, the American Institute of Certified Public Accountants issued
Statement of Position 96-1, "Environmental Remediation Liabilities" (SOP 96-1).
SOP 96-1 provides authoritative guidance with respect to specific accounting
issues that are present in the recognition, measurement, display, and disclosure
of environmental remediation liabilities. The provisions of SOP 96-1 are
effective for fiscal years beginning after December 15, 1996. The Company
adopted the provisions of the SOP 96-1 during 1996. The adoption of the
provisions of SOP 96-1 had no material effect on the results of operations or
financial condition of the Company.
It is reasonably possible that, due to uncertainties associated with defining
the nature and extent of environmental contamination, application of laws and
regulations by regulatory authorities, and changes in remediation technology,
the ultimate cost of remediation could change in the future. The Company
periodically reviews its accrued liabilities for such remediation costs as
evidence becomes available indicating that its remediation liability has
changed.
I. INCOME TAXES -- The Company records deferred tax liabilities and assets for
the expected future income tax consequences of events that have been recognized
in its financial statements. Deferred tax liabilities and assets are determined
based on the temporary differences between the financial statement carrying
amounts and the tax bases of assets and liabilities using enacted tax rates in
effect in the years in which the temporary differences are expected to reverse.
J. LOSS PER COMMON SHARE -- Loss per common share is computed by adding
preferred stock dividends to the net loss and dividing the result by the
weighted average number of shares of common stock and common stock equivalents
(stock options) outstanding during each reporting period unless the common stock
equivalents are antidilutive. Due to the losses in 1996, 1995 and 1994, common
stock equivalents are antidilutive and therefore have been excluded from the
computation.
K. REVENUE RECOGNITION -- Sales of metal products sold directly to smelters
are recorded when title and risk of loss transfer to the smelter, at estimated
metal prices. Recorded values are adjusted periodically and upon final
settlement. Metal in products tolled (rather than sold to smelters) is sold
under contracts for future delivery; such sales are recorded at contractual
amounts when products are available to be processed by the smelter or
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refinery. Sales of industrial minerals are recognized as the minerals are
delivered.
L. INTEREST EXPENSE -- Interest costs incurred during the construction of
qualifying assets are capitalized as part of the asset cost.
M. CASH EQUIVALENTS -- The Company considers cash equivalents to consist of
highly liquid investments with a remaining maturity of three months or less when
purchased.
N. FOREIGN CURRENCY TRANSLATION -- The Company operates in Mexico with its two
wholly owned subsidiaries: Minera Hecla, S.A. de C.V. (Minera Hecla) and K-T
Clay de Mexico S.A. de C.V. (K-T Mexico). The functional currency for Minera
Hecla and K-T Mexico is the U.S. dollar. Accordingly, the Company translates
the monetary assets and liabilities of both subsidiaries at the year-end
exchange rate while nonmonetary assets and liabilities are translated at
historical rates. Income and expense accounts are translated at the average
exchange rate for each period. Translation adjustments and transaction gains
and losses are reflected in the net loss for the period.
Prior to the second quarter of 1995, K-T Mexico's functional currency was the
Mexican peso. During the second quarter of 1995, K-T Mexico commenced invoicing
its customers in U.S. dollars instead of the Mexican peso. This change
indicated a change in the functional currency from the Mexican peso to the U.S.
dollar. The change in the functional currency has been accounted for
prospectively commencing in the second quarter of 1995. Accumulated translation
adjustments from prior periods are included as a separate component of
shareholders' equity. The translated amounts for nonmonetary assets prior to
the change have become the accounting basis for those assets.
O. RISK MANAGEMENT CONTRACTS -- In the normal course of its business, the
Company uses forward sales commitments and commodity put and call option
contracts to manage its exposure to fluctuations in the prices of certain metals
which it produces. Contract positions are designed to ensure that the Company
will receive a defined minimum price for certain quantities of its production.
Gains and losses, and the related costs paid or premium received, for contracts
which hedge the sales prices of commodities are deferred and subsequently
included in income as part of the hedged transaction. Revenues from the
aforementioned contracts are recognized at the time metals are available for
shipment to the refineries. The Company is exposed to certain losses, generally
the amount by which the contract price exceeds the spot price of a commodity, in
the event of nonperformance by the counterparties to these agreements.
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P. ACCOUNTING FOR STOCK OPTIONS -- In October 1995, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" (SFAS No. 123). SFAS No. 123
establishes financial accounting and reporting standards for stock-based
employee compensation plans. SFAS No. 123 encourages all entities to adopt a
fair value based method of accounting, but allows an entity to continue to
measure compensation cost for those plans using the intrinsic value method of
accounting prescribed by Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees." The Company adopted the disclosure provisions
only of SFAS No. 123 in 1996.
NOTE 2: INVENTORIES
Inventories consist of the following (in thousands):
December 31,
------------------
1996 1995
------- --------
Concentrates, bullion, metals in transit
and other products $ 4,839 $ 2,519
Industrial minerals products 8,902 8,671
Materials and supplies 9,138 9,725
------- --------
$22,879 $20,915
======= ========
At December 31, 1996, the Company had forward sales commitments through January
31, 1997, for 1,000 ounces of gold at an average price of $412 per ounce and
spot deferred contracts for 25,000 ounces of gold at an average price of $381
for delivery on January 15, 1997. The Company has also purchased options to put
34,440 ounces of gold to counterparties at an average price of $396 per ounce.
Concurrently, the Company sold options to allow the counterparties to call
34,440 ounces of gold from the Company at an average price of $461 per ounce.
There was no net cost associated with the purchase and sale of these options
which expire, in tandem, on a monthly basis through December 31, 1997. All of
the aforementioned contracts are designated as hedges at December 31, 1996. The
London Final gold price at December 31, 1996 was $369 per ounce.
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NOTE 3: PROPERTIES, PLANTS AND EQUIPMENT
The major components of properties, plants and equipment are (in thousands):
December 31,
---------------------
1996 1995
--------- ---------
Mining properties $ 39,893 $ 45,023
Development costs 99,659 122,842
Plants and equipment 246,091 209,100
Land 6,142 6,501
--------- ---------
391,785 383,466
Less accumulated depreciation,
depletion and amortization 214,030 206,092
--------- ---------
Net carrying value $ 177,755 $ 177,374
========= =========
In the third quarter of 1996, based on its periodic reviews of the status of
various mining properties, the Company determined that certain adjustments were
appropriate to properly reflect estimated net realizable values. These
adjustments, totaling $12.9 million, consisted of write-downs of properties,
plants and equipment, inventories and production notes payable for the Company's
interest in the American Girl mine ($7.6 million), and properties, plants and
equipment and inventories for the Company's interest in the Grouse Creek mine
($5.3 million). The American Girl write-down was due to lower than expected ore
reserves and lower ore grade associated with the Oro Cruz ore body which
resulted in the operator's decision to close the mine effective November 4,
1996. The Grouse Creek write-down was associated with the Company's decision to
suspend operations after determining that the ore contained in the Grouse ore
body was not economical to mine at current metals prices. Mine operations will
be suspended late in the second quarter of 1997 once mining of the Sunbeam
deposit is complete.
In 1995, adjustments to the carrying value of mining properties totaling $97.4
million were recorded to write down the Company's interest in the Grouse Creek
mine ($97.0 million) and for the Company's interest in ConSil Corp.'s Silver
Summit mine ($0.4 million).
In 1994, the major portion of the $7.9 million adjustment was related to the
$7.2 million write-down of property, plant, equipment and supplies inventory at
the Republic mine, which completed operations in February 1995. Also included
was a $0.7 million write-down of exploration equipment and other property.
The net carrying values of the major mining properties of the Company that were
on a standby or idle basis at December 31, 1996
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and 1995, were approximately $4.0 million and $7.6 million, respectively.
On September 6, 1996, Hecla and Santa Fe Pacific Gold Corporation (Santa Fe)
entered into a joint venture agreement with respect to the development and
operation of the Rosebud project. Pursuant to the agreement, a limited
liability corporation was established with each party owning a 50% interest in
the project. No gain or loss was recognized in connection with the agreement.
Under the terms of the agreement, Hecla will manage the mining activities and
Santa Fe will manage mill processing. Total mine-site capital expenditures to
bring the mine into production are expected to be approximately $20.0-$25.0
million, of which $11.1 has been expended through December 31, 1996. Under the
terms of the agreement, Santa Fe funded the first $12.5 million of mine-site
development and is also responsible to fund costs of road and mill facility
improvements. Santa Fe also contributed exploration property adjacent to the
Rosebud property, and will fund the first $1.0 million in exploration
expenditures, and two-thirds of future exploration expenditures beyond the
initial $1.0 million.
In 1996, Euro-Nevada Mining Corporation Inc. (Euro-Nevada) exercised its option
to purchase an additional 1.5% Net Smelter Return royalty (NSR) on the Rosebud
property for $2.5 million, the proceeds of which were retained by Hecla under
the terms of the agreement with Santa Fe. After the exercise of its option,
Euro-Nevada holds a 4% NSR on production from the Rosebud property. The Company
recognized a gain of $2.5 million associated with this transaction.
In 1996, the Company and Santa Fe entered into a joint-venture agreement for the
Golden Eagle property located adjacent to the Company's Republic mine. Santa Fe
purchased an immediate 75% interest in the joint venture for $2.5 million. The
Company recorded a gain on the transaction totaling $0.6 million. Under the
agreement, Santa Fe is to fund all expenditures at the property through the
economic feasibility stage.
On September 27, 1995, the Company sold its Apex Unit processing facility for
$8.0 million, plus certain working capital items totaling an additional $1.4
million, recognizing a gain on the sale totaling approximately $3.2 million.
The Company received $4.4 million in cash at closing and accepted a note
receivable for the remaining $5.0 million. Under the note, $3.0 million, plus
accrued interest, was paid on September 27, 1996, and the balance of $2.0
million, plus accrued interest, is due on September 27, 1997.
On February 8, 1994, the Company sold a 20% interest in its Grouse Creek gold
project to Great Lakes Minerals Inc. of Toronto, Ontario (Great Lakes). The
purchase price of $6.8 million represents 20% of the amount spent by the Company
on acquisition, exploration and development of the project through June 30,
1993, and a fixed
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premium of $1.25 million. On January 31, 1997, Great Lakes and the Company
entered into a letter agreement terminating the Grouse Creek Joint Venture and
conveying Great Lakes' interest in the Grouse Creek project to Hecla. Great
Lakes retained a 5% defined net proceeds interest in the project. The Company
has assumed 100% of the interests and obligations associated with the property.
NOTE 4: INCOME TAXES
Major components of the Company's income tax provision (benefit) are (in
thousands):
1996 1995 1994
------ ------ ------
Current
Federal $(749) $ (298) $ (805)
State 341 307 337
Foreign 1,085 300 - -
----- ------ ------
Income tax provision (benefit) $ 677 $ 309 $ (468)
===== ====== ======
Domestic and foreign components of income (loss) before income taxes and
extraordinary item for the years ended December 31, 1996, 1995 and 1994 are as
follows (in thousands):
December 31,
----------------------------------
1996 1995 1994
-------- ---------- --------
Domestic $(36,468) $(104,050) $(23,698)
Foreign 4,791 2,640 (550)
-------- --------- --------
Total $(31,677) $(101,410) $(24,248)
======== ========= ========
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The components of the net deferred tax liability were as follows (in thousands):
December 31,
-------------------------
1996 1995
-------- ---------
Deferred tax assets
Accrued reclamation costs $ 17,988 $ 10,832
Investment valuation differences 1,924 1,969
Capital loss carryover 2,826 3,431
Postretirement benefits other
than pensions 967 898
Other liabilities 13 230
Deferred compensation 795 612
Accounts receivable 456 456
Properties, plants and equipment - - 10,969
Foreign net operating losses 3,048 2,314
Federal net operating losses 72,686 57,398
State net operating losses 7,514 4,867
Tax credit carryforwards 2,659 3,435
Miscellaneous 2,518 2,103
-------- ---------
Total deferred tax assets 113,394 99,514
Valuation allowance (107,937) (97,705)
-------- ---------
Net deferred tax assets 5,457 1,809
-------- ---------
Deferred tax liabilities
Properties, plants and equipment (3,903) - -
Deferred income (210) (287)
Pension costs (951) (624)
Inventories (393) (898)
Deferred state income taxes, net (359) (359)
-------- ---------
Total deferred tax liabilities (5,816) (2,168)
-------- ---------
Net deferred tax liability $ (359) $ (359)
======== =========
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The Company has recorded a valuation allowance to reflect the estimated amount
of deferred tax assets which may not be realized principally due to the
expiration of net operating losses and tax credit carryforwards. The changes in
the valuation allowance for the years ended December 31, 1996, 1995 and 1994,
are as follows (in thousands):
1996 1995 1994
--------- --------- ---------
Balance at beginning of year $ (97,705) $(67,149) $(58,529)
Increase related to nonutilization
of net operating loss carry-
forwards and nonrecognition
of deferred tax assets due to
uncertainty of recovery (10,232) (30,556) (8,620)
---------- -------- --------
Balance at end of year $(107,937) $(97,705) $(67,149)
========= ======== ========
The annual tax provision (benefit) is different from the amount which would be
provided by applying the statutory federal income tax rate to the Company's
pretax loss. The reasons for the difference are (in thousands):
1996 1995 1994
-------------------- ------------------- -------------------
Computed "statutory"
benefit $ (10,770) (34)% $ (34,479) (34)% $ (8,244) (34)%
Nonutilization of net
operating losses and
effect of foreign tax
provisions, if applicable 11,716 37 34,782 34 8,085 33
State income taxes, net
of federal tax benefit (269) (1) 6 0 (309) (1)
--------- ---- --------- ---- --------- ----
$ 677 2% $ 309 0% $ (468) (2)%
========= ==== ========= ==== ========= ====
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Substantially all of the Company's net operating loss carryovers are attributed
to preference related items, and therefore are not available to offset
alternative minimum taxable income. However, they are available to offset
future regular taxable income. At December 31, 1996, the Company had tax basis
net operating loss carryovers available to offset future regular and alternative
minimum (AMT) and foreign taxable income. These carryovers expire as follows
(in thousands):
Regular Foreign
Tax Net AMT Net Net Investment
Operating Operating Operating Tax Credit
Losses Losses Losses Carryovers
----------- ---------- ----------- -----------
1997 $ 2,020 $ 695 $ - - $ 117
1998 11,005 308 235 468
1999 6,235 1,199 7,923 310
2000 3,089 789 810 240
2001 4,538 1,683 - - 115
2002 2,717 346 - - - -
2003 1,792 623 - - - -
2004 16,406 532 - - - -
2005 10,744 878 - - - -
2006 23,766 3,105 - - - -
2007 27,134 8,285 - - - -
2008 28,179 21,827 - - - -
2009 11,670 5,274 - - - -
2010 19,087 14,743 - - - -
2011 45,400 44,000 - - - -
---------- ---------- ---------- --------
$ 213,782 $ 104,287 $ 8,968 $ 1,250
========== ========== ========== ========
At December 31, 1996, for income tax purposes, the Company had approximately
$17.9 million and $8.5 million, respectively, of regular and alternative minimum
tax net operating loss carryovers from Equinox Resources Ltd. (Equinox) and CoCa
Mines Inc. Due to these mergers, there will be limitations on the amount of
these net operating losses that can be utilized in any given year to reduce
certain future taxable income.
The Company has approximately $0.5 million in alternative minimum tax credit
carryovers eligible to reduce future regular tax liabilities.
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NOTE 5: LONG-TERM DEBT AND CREDIT AGREEMENT
Long-term debt consists of the following (in thousands):
December 31,
----------------------
1996 1995
--------- ---------
Revolving credit agreement $ 38,000 $ 35,000
Notes payable - Sunbeam 346 692
Production notes payable - - 609
Other long-term debt 208 149
--------- ---------
38,554 36,450
Less current portion (346) (346)
--------- ---------
$ 38,208 $ 36,104
========= =========
Revolving Credit Agreement
The Company has a revolving and term loan facility (the Bank Agreement) that
allows it to borrow up to $55.0 million. Amounts may be borrowed on a revolving
credit basis through July 31, 1998, and are repayable in eight quarterly
installments beginning on October 31, 1998. During the commitment period, the
Company pays an annual facility fee ranging from $178,750 to $261,250, the
amount of which is based on average quarterly borrowings. The Bank Agreement,
as amended, includes certain collateral provisions, including the pledging of
the common stock of certain of the Company's subsidiaries and providing the
lenders a security interest in accounts receivable. Under the amended terms of
the Bank Agreement, the Company is required to maintain certain financial
ratios, and meet certain net worth and indebtedness tests for which the Company
was in compliance at December 31, 1996. Amounts available under the amended
Bank Agreement are based on a defined debt to cash flow test. As of December
31, 1996, the Company had borrowings of $38.0 million and the ability to borrow
the remaining $17.0 million under the facility. The interest rate for
borrowings under the Bank Agreement as of December 31, 1996 was 7.16%.
Zero Coupon Convertible Notes
On June 13, 1994, the Company redeemed its Zero Coupon Convertible Notes with a
face value of approximately $50.2 million. The Company recorded an
extraordinary loss on retirement of long-term debt totaling approximately $0.8
million, which related principally to the write-off of the unamortized balance
of deferred issuance costs of the notes.
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Notes Payable - Sunbeam
The notes are non-interest bearing, discounted at 15% and payable in three
annual equal amounts. The first two installments of the notes, totaling
approximately $346,000 each, were paid in January 1995 and January 1996. The
final installment was paid in January 1997.
Production Notes Payable
When the Company acquired Equinox in March 1994, the then outstanding production
participating preferred shares were converted to production notes and recorded
as long-term debt. The attributes of the production notes are identical to their
predecessor production participating preferred shares. The valuation of the
production notes is based on the present value of the estimated cumulative net
cash flow discounted at 10% from the American Girl/Oro Cruz project. Based upon
the repayment terms of the production notes and the shutdown of operations at
the American Girl mine in November 1996, prior to the mine reaching positive
cumulative cash flow, the Company does not expect to pay the notes. Therefore,
the notes were written off in 1996.
NOTE 6: COMMITMENTS AND CONTINGENCIES
Commitments
The Company leases various facilities and equipment under noncancelable
operating lease arrangements. The major facilities and equipment leases are for
terms of three to ten years. Future minimum lease payments under these
noncancelable operating leases as of December 31, 1996, are as follows (in
thousands):
Year ending December 31,
------------------------
1997 $ 4,381
1998 2,123
1999 1,832
2000 1,118
2001 562
Thereafter 312
--------
Total minimum lease payments $ 10,328
========
Approximately $1.6 million of the above minimum lease payments relate to
equipment used at the Company's Grouse Creek mine which was written down in 1996
and 1995 (see Note 4). In 1996, the Company announced plans to suspend
operations at the Grouse Creek mine once the Sunbeam ore reserves are mined and
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processed. The lease obligations for 1997 have been accrued and charged to
operations in 1996. The Company anticipates making arrangements such that there
will be no material additional lease obligations in connection with the Grouse
Creek mine beyond 1997. However, there can be no assurance that the Company
will be successful in making such arrangements.
Rent expense incurred for operating leases during the years ended December 31,
1996, 1995 and 1994 was approximately $4.2 million, $3.8 million and $2.2
million, respectively.
Contingencies
Bunker Hill
In October 1989, and again in February 1990, the Company was notified by the
Environmental Protection Agency (EPA) that the EPA considered the Company a
potentially responsible party (PRP) at the Bunker Hill Superfund Site located at
Kellogg, Idaho (Bunker Hill Site). In February 1994, the Company and three
other mining companies, as PRPs, entered into a Consent Decree with EPA and the
State of Idaho pursuant to which the Company and two of the three companies
signing the decree agreed to implement remediation work at a portion of the
Bunker Hill Site. The remediation has primarily involved the removal and
replacement of lead-contaminated soils in residential yards within the site and
is estimated to be completed by the participating mining companies over the
period of the next four to six years. The Consent Decree also provides for the
mining companies to reimburse EPA for a portion of the government's past costs
incurred at the Bunker Hill Site. The Consent Decree was approved and entered
by the Federal District Court in Idaho on November 17, 1994. The Consent Decree
settles the Company's response-cost liability under Superfund at the Bunker Hill
Site. Based upon the terms of the Consent Decree and an agreement between the
participating mining companies relating to the allocation of the cost for work
under the Consent Decree, the Company has estimated and established a total
allowance for liability for remedial activity costs at the Bunker Hill Site of
$9.4 million as of December 31, 1996. As with any estimate of this nature, it
is reasonably possible that the Company's recorded estimate of this obligation
may change in the near term.
Coeur d'Alene River Basin Natural Resource Damage Claims
- - Coeur d'Alene Tribe Claims
In July 1991, the Coeur d'Alene Indian Tribe (the Tribe) brought a lawsuit,
under the Comprehensive Environmental Response Liability Act of 1980, as amended
(CERCLA), in Idaho Federal District Court against the Company and a number of
other mining
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companies asserting claims for damages to natural resources
located downstream from the Bunker Hill Site over which the Tribe alleges some
ownership or control. The Company has answered the Tribe's complaint denying
liability for natural resource damages. In July 1992, in a separate action
between the Tribe and the State of Idaho, the Idaho Federal District Court
determined that the Tribe does not own the beds, banks and waters of Lake
Coeur d'Alene and the lower portion of its tributaries, the ownership of which
is the primary basis for the natural resource damage claims asserted by the
Tribe against the Company. Based upon the Tribe's appeal of this decision, the
Court in the natural resource damage litigation stayed the court proceedings in
the natural resource damage litigation until a final decision is made on the
question of the Tribe's ownership. On December 9, 1994, the 9th Circuit Court
reversed the decision of the Idaho Federal District Court and remanded the case
of the Tribe's ownership for trial before the Idaho Federal District Court. In
April 1996, the U.S. Supreme Court accepted the appeal from the 9th Circuit
Court decision to the U.S. Supreme Court. A decision in the case is expected by
approximately June 1997. In July 1994, the United States, as Trustee for the
Coeur d'Alene Tribe, initiated a separate suit in Idaho Federal District Court
seeking a determination that the Coeur d'Alene Tribe owns approximately the
lower one-third of Lake Coeur d'Alene. The State has denied the Tribe's
ownership of any portion of Lake Coeur d'Alene and its tributaries. In October
1996, the legal proceeding related to the Tribe's natural resource damage claims
was consolidated with the United States Natural Resources Damage litigation
described below.
- - U.S. Government Claims
On March 22, 1996, the United States filed a lawsuit in Idaho Federal District
Court against the Company and other mining companies who conducted historic
mining operations in the Silver Valley of northern Idaho. The lawsuit asserts
claims under CERCLA and the Clean Water Act and seeks recovery for alleged
damages to or loss of natural resources located in the Coeur d'Alene River Basin
(the Basin) in northern Idaho over which the United States asserts to be the
trustee under CERCLA. The lawsuit asserts that the defendants' historic mining
activity resulted in releases of hazardous substances and damaged natural
resources within the Basin. The suit also seeks declaratory relief that the
Company and other defendants are jointly and severally liable for response costs
under CERCLA for historic mining impacts in the Basin outside the Bunker Hill
Site. The Company answered the complaint on May 17, 1996, denying liability to
the United States under CERCLA and the Clean Water Act and asserted a
counterclaim against the United States for the federal government's involvement
in mining activity in the Basin which contributed to the releases and damages
alleged by the United States. The Company believes it
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also has a number of defenses to the United States' claims. In
October 1996, the Court consolidated the Coeur d'Alene Tribe Natural Resource
Damage litigation with this lawsuit for discovery and other limited pretrial
purposes.
- - State of Idaho Claims
On March 22, 1996, the Company entered into an agreement (the Agreement) with
the State of Idaho pursuant to which the Company agreed to continue certain
financial contributions to environmental cleanup work in the Basin being
undertaken by a State Trustees group. In return, the State agreed not to sue
the Company for damage to natural resources for which the State is a trustee for
a period of five years, to pursue settlement with the Company of the State's
natural resource damage claims and to grant the Company credit against any such
State claims for all expenditures made under the Agreement and certain other
Company contributions and expenditures for environmental cleanup in the Basin.
With respect to the Basin litigation, the Company increased its accrual for
closed operations and environmental matters by approximately $2.7 million in
1996. At December 31, 1996, the Company's accrual for remediation activity in
the Basin totals $2.2 million. These expenditures are anticipated to be made
over the next four years. Depending on the results of the aforementioned
lawsuits, it is reasonably possible that the Company's estimate of its
obligation may change in the near term.
In 1991, the Company initiated litigation in the Idaho State District Court in
Kootenai County, Idaho, against a number of insurance companies which provided
comprehensive general liability insurance coverage to the Company and its
predecessors. The Company believes that the insurance companies have a duty to
defend and indemnify the Company under their policies of insurance for all
liabilities and claims asserted against the Company by the EPA and the Tribe
under CERCLA related to the Bunker Hill Site and Coeur d'Alene River Basin in
northern Idaho. In 1992, the Court ruled that the primary insurance companies
had a duty to defend the Company in the Tribe's lawsuit. During 1995 and 1996,
the Company entered into settlement agreements with a number of the insurance
carriers named in the litigation. The Company has received a total of
approximately $7.2 million under the terms of the settlement agreements. Thirty
percent of these settlements were paid to the EPA to reimburse the U.S.
Government for past costs under the Bunker Hill Site Consent Decree. Litigation
is still pending against one insurer with trial continued until the underlying
environmental claims against the Company are resolved or settled. The remaining
insurer is providing the Company with a partial defense in all Basin
environmental litigation. As of
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December 31, 1996, the Company had not reduced its accrual for
reclamation and closure costs to reflect the receipt of any anticipated
insurance proceeds.
Star Phoenix
In June 1994, a judgment was entered against the Company in the Idaho State
District Court in the amount of $10.0 million in compensatory damages and $10.0
million in punitive damages based on a jury verdict rendered in late May 1994
with respect to a lawsuit previously filed against the Company by Star Phoenix
Mining Company (Star Phoenix), a former lessee of the Star Morning mine, over a
dispute between the Company and Star Phoenix concerning the Company's November
1990 termination of the Star Phoenix lease of the Star Morning mine property.
On May 3, 1995, the District Court issued its final opinion and order on a
number of post-trial issues pending before the Court. The opinion and order
included the Court's denial of the post-trial motions filed by Star Phoenix and
certain of its principals regarding claims which had been previously dismissed
by the Court during trial. The Court also awarded Star Phoenix approximately
$300,000 in attorneys' fees and costs. The judgement was appealed to the Idaho
State Supreme Court which heard arguments in April 1996 and is expected to
render its opinion in the near future. Post-judgment interest will accrue
during the appeal period. In order to stay the ability of Star Phoenix to
collect on the judgment during the pendency of the appeal, the Company has
posted an appeal bond in the amount of $27.2 million representing 136% of the
District Court judgment. The Company pledged U.S. Treasury securities totaling
$10.0 million as collateral for the appeal bond. This collateral amount is
included in restricted investments at December 31, 1996, and December 31, 1995.
The Company has vigorously pursued its appeal to the Idaho Supreme Court and it
has been the Company's position, and at the current time it remains the
Company's position, that it will not enter into a settlement with Star Phoenix
for any material amount. Although the ultimate outcome of the appeal of the
Idaho District Court judgment is subject to the inherent uncertainties of any
legal proceeding, based upon the Company's analysis of the factual and legal
issues associated with the proceeding before the Idaho District Court and based
on the opinions of outside counsel, as of the date hereof, it is management's
belief that the Company should ultimately prevail in this matter, although there
can be no assurance in this regard. Accordingly, the Company has not accrued
any liability associated with this litigation.
The Company is subject to other legal proceedings and claims which have arisen
in the ordinary course of its business and have not been finally adjudicated.
Although there can be no assurance as to the ultimate disposition of these
matters and the proceedings disclosed above, it is the opinion of the
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Company's management, based upon the information available at
this time, that the expected outcome of these matters, individually or in the
aggregate, will not have a material adverse effect on the results of operations
and financial condition of the Company.
NOTE 7: EMPLOYEE BENEFIT PLANS
The Company and certain subsidiaries have defined benefit pension plans covering
substantially all employees. One plan covering eligible salaried and hourly
employees provides retirement benefits and is based on the employee's
compensation during the highest 36 months of the last 120 months before
retirement. Three other pension plans covering eligible hourly employees
provide benefits of stated amounts for each year of service. It is the
Company's policy to make contributions to these plans sufficient to meet the
minimum funding requirements of applicable laws and regulations, plus such
additional amounts, if any, as the Company and its actuarial consultants
consider appropriate. Contributions are intended to provide not only for
benefits attributed to service to date, but also for those expected to be earned
in the future. Plan assets for these plans consist principally of equity
securities, insurance contracts and corporate and U.S. government obligations.
Net periodic pension cost (income) for the plans consisted of the following in
1996, 1995 and 1994 (in thousands):
1996 1995 1994
------- ------ -------
Service cost $ 881 $ 778 $ 938
Interest cost 2,196 2,021 1,938
Return on plan assets (3,499) (2,607) (2,737)
Amortization of transition asset (419) (434) (434)
Amortization of unrecognized
prior service cost 91 70 70
Amortization of unrecognized net
gain from earlier periods (60) (12) (4)
------- ------ -------
Net pension income $ (810) $ (184) $ (229)
======= ====== =======
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The following table sets forth the funded status of the plans and amounts
recognized in the Company's consolidated balance sheets (in thousands):
December 31,
-------------------------
1996 1995
-------- --------
Actuarial present value of
benefit obligations:
Vested benefits $ 29,917 $ 30,203
Nonvested benefits 321 155
-------- --------
Accumulated benefit obligations 30,238 30,358
Effect of projected future salary
and wage increases 1,842 2,014
-------- --------
Projected benefit obligations $ 32,080 $ 32,372
======== ========
Plan assets $ 44,984 $ 39,881
Projected benefit obligations (32,080) (32,372)
-------- --------
Plan assets in excess of projected
benefit obligations 12,904 7,509
Unrecognized net gain (9,260) (3,976)
Unrecognized prior service cost 1,378 932
Unrecognized net asset
at January 1 (2,213) (2,647)
--------- --------
Pension asset recognized in
consolidated balance sheets $ 2,809 $ 1,818
======== ========
The projected benefit obligation was calculated by applying the following rates:
1996 1995
------ -----
Discount rate 7.50% 7.00%
Long-term compensation increase 4.00% 4.00%
Long-term rate of return on
plan assets 9.00% 8.00%
The Company provides certain postretirement benefits, principally health care
and life insurance benefits for qualifying retired employees. The costs of
these benefits are being funded out of general corporate funds and are accrued
over the period in which active employees provide services to the Company. Net
periodic postretirement benefit cost included the following components (in
thousands):
1996 1995 1994
------- ------- --------
Service cost $ 16 $ 13 $ 24
Interest cost 145 154 141
Amortization of gain (24) (18) (13)
------ ----- ------
Net postretirement benefit cost $ 137 $ 149 $ 152
====== ====== ======
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The following table sets forth the status of the postretirement benefits
programs (other than pensions) and amounts recognized in the Company's
consolidated balance sheets (in thousands):
December 31,
--------------------
1996 1995
-------- --------
Accumulated postretirement
benefit obligations:
Retirees $ 1,236 $ 1,353
Fully eligible, active plan
participants 441 400
Other active plan participants 234 310
-------- --------
1,911 2,063
Unrecognized net gain 571 374
-------- --------
Accumulated postretirement
benefit obligations recognized
in consolidated balance sheets $ 2,482 $ 2,437
======== ========
The actuarial assumptions used in determining the Company's accumulated
postretirement benefit obligation are provided in the table below. Due to the
short period which the Company provides medical benefits to its retirees, the
increases in medical costs are assumed to be 6% in each year. A 1% change in
the assumed health care cost trend rate would not have a significant impact on
the accumulated postretirement benefit obligation or the aggregate of service
and interest costs for 1996 or 1995.
1996 1995
------- -------
Discount rate 7.50% 7.00%
Trend rate for medical benefits 6.00% 6.00%
The Company has a nonqualified deferred compensation plan which permits eligible
officers, directors and key employees to defer a portion of their compensation.
The deferred compensation, which together with Company matching amounts and
accumulated interest is accrued and partially funded, is distributable in cash
after retirement or termination of employment, and at December 31, 1996 and
1995, amounted to approximately $2.3 million and $1.8 million, respectively.
The Company amended the Deferred Compensation Plan effective January 1, 1995.
The amended plan allows the participants to defer up to a maximum of 50% of base
salary and up to 100% of annual bonuses. The participant may elect to receive
such deferred amounts, together with interest at the Moody's Corporate Bond
Yield rate, in one payment at retirement, or on any plan anniversary after the
completion of three years, as elected.
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The Company has an employees' Capital Accumulation Plan which is available to
all salaried and certain hourly employees after completion of six months of
service. Employees may contribute from 2% to 15% of their compensation to the
plan. The Company makes a matching contribution of 25% of an employee's
contribution up to, but not exceeding, 5% of the employee's earnings.
Commencing in 1997, the Company's matching contribution will be 25% of an
employee's contribution up to, but not exceeding, 6% of the employee's earnings.
The Company's contribution was approximately $190,000 in 1996, $173,000 in 1995,
and $170,000 in 1994.
NOTE 8: SHAREHOLDERS' EQUITY
Preferred Stock
The Company has 2.3 million shares of Series B Cumulative Convertible Preferred
Stock (the Preferred Shares) outstanding. Holders of the Preferred Shares are
entitled to receive cumulative cash dividends at the annual rate of $3.50 per
share payable quarterly, when and if declared by the Board of Directors.
The Preferred Shares are convertible, in whole or in part, at the option of the
holders thereof, into shares of common stock at an initial conversion price of
$15.55 per share of common stock. The Preferred Shares were not redeemable by
the Company prior to July 1, 1996. After such date, the shares are redeemable
at the option of the Company at any time, in whole or in part, initially at
$52.45 per share and thereafter at prices declining ratably on each July 1 to
$50 per share on or after July 1, 2003.
Holders of the Preferred Shares have no voting rights except if the Company
fails to pay the equivalent of six quarterly dividends. If these dividends are
not paid, the holders of Preferred Shares, voting as a class, shall be entitled
to elect two additional directors. The holders of Preferred Shares also have
voting rights related to certain amendments to the Company's Articles of
Incorporation.
The Preferred Shares rank senior to the common stock and any outstanding shares
of Series A Preferred Shares. The Preferred Shares have a liquidation
preference of $50 per share plus all declared and unpaid dividends which
aggregate $117,012,000 at December 31, 1996.
Shareholder Rights Plan
In 1996, the Company adopted a new Shareholder Rights Plan replacing the 1986
Shareholder Rights Plan which had expired. Pursuant to this plan, holders of
common stock received one
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preferred share purchase right for each common share held. The rights will be
triggered once an Acquiring Person, as defined in the plan, acquires 15% or more
of the Company's outstanding common shares. The 15% triggering threshold may be
reduced by the Board of Directors to not less than 10%. When exercisable, the
right would, subject to certain adjustments and alterations, entitle
rightholders, other than the Acquiring Person or group, to purchase common stock
of the Company or the acquiring company having a market value of twice the $50
exercise price of the right. The rights are nonvoting, may be redeemed at any
time at a price of one cent per right, and expire in May 2006. Additional
details are set forth in the Rights Agreement filed with the Securities and
Exchange Commission on May 10, 1996.
Stock Option Plans
At December 31, 1996, executives, key employees and directors had been granted
options to purchase common shares under stock option plans described below. The
Company has adopted the disclosure-only provisions of SFAS No. 123. No
compensation expense has been recognized in 1996 or 1995 for unexercised options
related to the stock option plans. Had compensation cost for the Company's
stock option plans been determined based on the fair value at the grant date for
awards in 1996 and 1995 consistent with the provisions of SFAS No. 123, the
Company's loss and per share loss applicable to common shareholders would have
been increased to the pro forma amounts indicated below (in thousands, except
per share amounts):
1996 1995
---------- ----------
Loss applicable to common
shareholders:
As reported $ 40,404 $109,769
Pro forma $ 41,261 $109,826
Loss applicable to common
shareholders per share:
As reported $ 0.79 $ 2.28
Pro forma $ 0.81 $ 2.28
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions:
Expected dividend yield 0.00%
Expected stock price volatility 42.65%
Risk-free interest rate: 5.63%
Expected life of options 4.1 years
The weighted average grant-date fair value of options granted in 1996 and 1995
was $3.40 and $4.17, respectively.
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The Company adopted a nonstatutory stock option plan in 1987. The plan provides
that options may be granted to certain officers and key employees to purchase
common stock at a price of not less than 50% of the fair market value at the
date of grant. The plan also provides that options may be granted with a
corresponding number of stock appreciation rights and/or tax offset bonuses to
assist the optionee in paying the income tax liability that may exist upon
exercise of the options. All of the outstanding stock options under the 1987
plan were granted at an exercise price equal to the fair market value at the
date of grant and with an associated tax offset bonus. In 1995, 15,000 options
under the 1987 plan were granted. Outstanding options under the 1987 plan are
immediately exercisable for periods up to ten years. At December 31, 1996,
there were 53,748 shares available for grant in the future under the plan. The
plan expires on February 13, 1997.
In 1995, the Company adopted the new Hecla Mining Company Stock Plan for
Nonemployee Directors (the Directors' Stock Plan), which is subject to
termination by the Board of Directors at any time. Each nonemployee director is
credited with 1,000 shares of the common stock of the Company on May 30 of each
year. Nonemployee directors joining the Board of Directors after May 30 of any
year are credited with a pro-rata number of shares based upon the date they join
the Board. All credited shares are held in trust for the benefit of each
director until delivered to the Director. Delivery of the shares from the trust
occurs upon the earliest of (1) death or disability; (2) retirement; (3) a
cessation of the director's service for any other reason; or (4) a change in
control of the Company. Subject to certain restrictions, directors may elect to
receive delivery of shares on such date or in annual installments thereafter
over 5, 10 or 15 years. The shares of common stock credited to nonemployee
directors pursuant to the Directors' Stock Plan may not be sold until at least
six months following the date they are delivered. The maximum number of shares
of common stock which may be granted pursuant to the Directors' Stock Plan is
120,000. During 1996 and 1995, 7,000 and 6,539 shares, respectively, were
credited to the nonemployee directors. At December 31, 1996, there were 106,461
shares available for grant in the future under the plan.
In 1995, the shareholders of the Company approved the 1995 Stock Incentive Plan
which provides for a variety of stock-based grants to the Company's officers and
key employees. The plan provides for the grant of stock options, stock
appreciation rights, restricted stock and performance units to eligible officers
and key employees of the Company. Stock options under the plan are required to
be granted at 100% of the market value of the stock on the date of the grant.
There were no options to acquire shares granted in 1995 under the 1995 plan.
The terms of such options shall be no longer than ten years from the date
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of grant. During 1996, 278,000 options to acquire shares were granted to the
Company's officers and key employees of which 215,000 of these options to
acquire shares have vesting requirements of 20% on the grant date and 20% on
each of the next four anniversary dates from the grant date. During 1996, 1,500
options to acquire shares expired under the 1995 plan. At December 31, 1996,
there were 1,723,500 options to acquire shares available for grant in the future
under the plan.
Transactions concerning stock options pursuant to all of the above described
plans are summarized as follows:
Weighted Average
Shares Exercise Price
-------- --------------
Outstanding, December 31, 1993 301,660 $10.39
Year ended December 31, 1994
Granted 120,000 $ 9.63
Exercised (61,037) $ 8.69
Expired (13,123) $11.23
-------
Outstanding, December 31, 1994 347,500 $10.35
Year ended December 31, 1995
Granted 15,000 $ 9.38
Exercised (12,500) $ 9.81
Expired (33,508) $ 8.62
-------
Outstanding, December 31, 1995 316,492 $10.51
-------
Year ended December 31, 1996
Granted 278,000 $ 8.28
Exercised - - - -
Expired (48,500) $10.57
-------
Outstanding, December 31, 1996 545,992 $ 9.37
=======
The following table presents information about the options outstanding as of
December 31, 1996.
<CAPTION
Weighted Average
---------------------------------
Range of Remaining
Shares Exercise Price Exercise Price Life (Years)
-------- -------------- -------------- -------------
Exercisable options 221,915 $ 6.75 - $ 9.63 $ 8.85 8.2
Exercisable options 152,077 $10.38 - $12.25 $11.26 2.9
--------
Total exercisable options 373,992 $ 6.75 - $12.25 $ 9.84 6.0
Unexercisable options 172,000 $ 6.75 - $ 8.63 $ 8.37 9.2
--------
Total all options 545,992 $ 6.75 - $12.25 $ 9.37 7.1
========
The aggregate amounts charged (credited) to operations in connection with the
plans were $0, $(21,000) and $(23,000) in 1996, 1995 and 1994, respectively.
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As a result of the acquisition of Equinox Resources Ltd. (Equinox) in 1994, the
outstanding options under the Equinox stock option plan became exercisable for
Hecla common shares. Transactions concerning the Equinox options, giving effect
to the common share exchange ratio, are as follows:
Exercise
Shares Price
------------ ---------------------
Outstanding, December 31, 1993 252,300 $ 3.78 - $19.56
Year ended December 31, 1994
Exercised (251,400) $ 3.45 - $17.82
-----------
Outstanding, December 31, 1994 900 $17.82
Year ended December 31, 1995
Expired (900) $17.82
-----------
Outstanding, December 31, 1995 - - - -
===========
1996 Common Stock Offering
On January 23, 1996, 2,875,000 shares of the Company's common stock were sold
under the Company's existing Registration Statement which provides for the
issuance of up to $100.0 million of equity and debt securities. The net
proceeds from the offering of approximately $22.0 million were used principally
to reduce the outstanding borrowings under the Company's bank credit agreement.
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NOTE 9: BUSINESS SEGMENTS (IN THOUSANDS)
1996 1995 1994
------------ ----------- -----------
Net sales to unaffiliated customers
Metals (including $32,034, $27,729
and $18,493 from Mexican operations
in 1996, 1995 and 1994) $ 81,409 $ 79,810 $ 60,828
Industrial minerals (including $4,204,
$2,664 and $2,885 in Mexico in 1996,
1995 and 1994) 76,843 67,391 60,229
Specialty metals - - 4,414 4,285
------------ ----------- -----------
$ 158,252 $ 151,615 $ 125,342
============ =========== ===========
Income (loss) from operations
Metals (including $7,734, $6,396
and $2,307 from Mexican operations
in 1996, 1995 and 1994) $ (38,711) $ (109,449) $ (24,658)
Industrial minerals (including $92,
$(341) and $(810) in Mexico in 1996,
1995 and 1994) 9,083 6,690 6,872
Specialty metals - - 255 3
General corporate (9,703) (9,738) (11,656)
------------ ----------- -----------
$ (39,331) $ (112,242) $ (29,439)
============ =========== ===========
Capital expenditures
Metals (including $411, $2,319 and
$466 in Mexico in 1996, 1995
and 1994) $ 30,388 $ 32,838 $ 62,002
Industrial minerals (including
$93, $183 and $1,352 in Mexico
in 1996, 1995 and 1994) 3,075 11,811 3,615
Specialty metals - - 81 453
General corporate assets 268 578 489
------------ ----------- -----------
$ 33,731 $ 45,308 $ 66,559
============ =========== ===========
Depreciation, depletion and amortization
Metals $ 15,728 $ 18,859 $ 9,699
Industrial minerals 4,723 4,580 4,501
Specialty metals - - 23 33
General corporate assets 338 367 524
------------ ----------- -----------
$ 20,789 $ 23,829 $ 14,757
============ =========== ===========
Identifiable assets
Metals (including $7,268, $15,702
and $19,241 in Mexico in 1996,
1995 and 1994) $ 155,082 $ 144,246 $ 179,258
Industrial minerals (including
$3,513, $4,888 and $6,192 in
Mexico in 1996, 1995 and 1994) 70,613 71,163 59,502
Specialty metals - - - - 6,288
General corporate assets 34,520 35,998 36,507
Idle facilities 8,178 6,783 53,027
------------ ------------ -----------
$ 268,393 $ 258,190 $ 334,582
============ =========== ===========
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Net sales and identifiable assets of each segment are those that are directly
identified with those operations. General corporate assets consist primarily of
cash, receivables, investments and corporate property, plant and equipment. As
a result of depressed metals prices, operations were suspended at the Greens
Creek mine in April 1993, and the property was placed on a care-and-maintenance
basis pending resumption of operations. At December 31, 1994, the Company's
recorded net book value of identifiable assets at the Greens Creek mine was
approximately $50.3 million. This amount was classified in the idle facilities
category at December 31, 1994. On May 17, 1995, the Company announced plans for
redevelopment of the Greens Creek mine and at December 31, 1996 and 1995, the
recorded net book value of identifiable assets at the Greens Creek mine was
classified in the metals category. The Greens Creek mine recommenced operations
in July 1996 and full production levels were achieved in January 1997.
NOTE 10: FAIR VALUE OF FINANCIAL INSTRUMENTS
The following estimated fair value amounts have been determined using available
market information and appropriate valuation methodologies. However,
considerable judgment is required to interpret market data and to develop the
estimates of fair value. Accordingly, the estimates presented herein are not
necessarily indicative of the amounts the Company could realize in a current
market exchange.
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value. Potential income tax ramifications related to the realization of
unrealized gains and losses that would be incurred in an actual sale or
settlement have not been taken into consideration.
The carrying amounts for cash and cash equivalents, accounts and notes
receivable, restricted investments and current liabilities are a reasonable
estimate of their fair values. Fair value for equity securities investments
available for sale is determined by quoted market prices. The fair value of
long-term debt is based on the discounted value of contractual cash flows. The
discount rate is estimated using the rates currently offered for debt with
similar remaining maturities.
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The estimated fair values of financial instruments are as follows (in
thousands):
December 31,
-------------------------------------------------
1996 1995
----------------------- ---------------------
Carrying Fair Carrying Fair
Amounts Value Amounts Value
---------- -------- -------- --------
Financial assets
Cash and cash equivalents $ 8,256 $ 8,256 $ 4,024 $ 4,024
Accounts and notes receivable 24,168 24,168 25,571 25,571
Investments
Equity securities available
for sale 165 165 455 455
Restricted 20,674 20,674 16,254 16,254
Gold spot deferred contracts - - 299 - - - -
Gold forward sales contracts - - 43 - - 228
Gold put options - - 772 - - 436
Financial liabilities
Current liabilities 32,712 32,712 25,965 25,965
Long-term debt - principal 38,208 38,208 36,104 35,563
Gold call options - - 2 - - 134
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Exhibit 23.1
Commission File No. 1-8491
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements of
Hecla Mining Company and subsidiaries on Forms S-3 (File No. 33-72832 and No.
33-59659) and Forms S-8 (File No. 33-7833, 33-41833, 33-14758, 33-40691, 33-
60095 and 33-60099) of our report, which includes an explanatory paragraph
concerning changes in accounting for environmental remediation liabilities in
1996, impairment of long-lived assets in 1995, and accounting for investments in
1994, dated February 7, 1997, on our audits of the consolidated financial
statements of Hecla Mining Company and subsidiaries as of December 31, 1996 and
1995, and for the years ended December 31, 1996, 1995 and 1994, which report is
included in this Form 8-K.
/s/ Coopers & Lybrand L.L.P.
Spokane, Washington
February 18, 1997