UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended June 30, 1999. OR [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ______ to ______ Commission file number 0-25090 ------- STILLWATER MINING COMPANY ------------------------- (Exact name of registrant as specified in its charter) Delaware 81-0480654 - -------------------------------------- -------------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) One Tabor Center 1200 Seventeenth Street, Suite 900 Denver, Colorado 80202 - -------------------------------------- -------------------------------------- (Address of principal executive offices) (Zip Code) (303) 352-2060 ---------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: YES X NO ----- ----- At July 7, 1999, 37,761,760 shares of Common Stock, $0.01 par value per share, were issued and outstanding. 1 STILLWATER MINING COMPANY FORM 10-Q QUARTER ENDED JUNE 30, 1999 INDEX PAGE ---- PART I - FINANCIAL INFORMATION Item 1. Financial Statements...................................... 3 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............. 9 PART II - OTHER INFORMATION Item 1. Legal Proceedings........................................ 15 Item 2. Changes in Securities.................................... 15 Item 3. Defaults Upon Senior Securities.......................... 15 Item 4. Submission of Matters to a Vote of Security Holders...... 15 Item 5. Other Information........................................ 16 Item 6. Exhibits and Reports on Form 8-K......................... 16 SIGNATURES ......................................................... 17 2 PART I - FINANCIAL INFORMATION Item 1. Financial Statements Stillwater Mining Company Consolidated Balance Sheet (in thousands, except per share amounts) (Unaudited) June 30, December 31, 1999 1998 ------------ ------------- ASSETS Current assets Cash and cash equivalents $ 3,125 $ 49,811 Inventories 9,621 9,333 Accounts receivable 23,816 21,762 Deferred income taxes 2,980 2,980 Other current assets 2,483 1,492 ------------ ------------- Total current assets 42,025 85,378 ------------ ------------- Property, plant and equipment, net 330,655 247,556 Other noncurrent assets 4,510 3,003 ------------ ------------- Total assets $ 377,190 $ 335,937 ============ ============= LIABILITIES and SHAREHOLDERS' EQUITY Current liabilities Accounts payable $ 13,833 $ 11,980 Accrued payroll and benefits 4,778 3,332 Property, production and franchise taxes payable 3,682 3,971 Current portion of capital lease obligations 2,247 2,425 Other current liabilities 4,140 4,909 ------------ ------------- Total current liabilities 28,680 26,617 ------------ ------------- Long-term liabilities Long-term debt and capital lease obligations 18,558 58,992 Deferred income taxes 25,593 19,009 Other noncurrent liabilities 4,319 3,312 ------------ ------------- Total liabilities 77,150 107,930 ------------ ------------- Shareholders' equity Preferred stock, $0.01 par value, 1,000,000 shares authorized, none issued -- -- Common stock, $0.01 par value, 50,000,000 shares authorized, 37,732,447 and 34,548,559 shares issued issued and outstanding, respectively 377 345 Paid-in capital 267,648 214,281 Accumulated earnings 32,015 13,381 ------------ ------------- Total shareholders' equity 300,040 228,007 ------------ ------------- Total liabilities and shareholders' equity $ 377,190 $ 335,937 ============ ============= See notes to consolidated financial statements. 3 Stillwater Mining Company Consolidated Statement of Operations (Unaudited) (in thousands, except per share amounts) Three months ended Six months ended June 30, June 30, ------------------------------------- ------------------------------------- 1999 1998 1999 1998 ---------------- ---------------- ---------------- ---------------- Revenues $ 36,845 $ 26,523 $ 74,875 $ 48,036 Costs and expenses Cost of metals sold 21,168 16,953 39,399 32,557 Depreciation and amortization 3,332 2,935 6,259 5,749 ---------------- ---------------- ---------------- ---------------- Total cost of sales 24,500 19,888 45,658 38,306 General and administrative expense 1,216 1,038 2,544 1,761 ---------------- ---------------- ---------------- ---------------- Total costs and expenses 25,716 20,926 48,202 40,067 ---------------- ---------------- ---------------- ---------------- Operating income 11,129 5,597 26,673 7,969 Other income (expense) Interest income 180 257 667 513 Interest expense, net of capitalized interest of $564, $354, $1,652 and $576 (28) (877) (137) (1,905) ---------------- ---------------- ---------------- ---------------- Income before income taxes 11,281 4,977 27,203 6,577 Income tax provision (3,235) (1,916) (8,569) (2,532) ---------------- ---------------- ---------------- ---------------- Net income and comprehensive income $ 8,046 $ 3,061 $ 18,634 $ 4,045 ================ ================ ================ ================ Basic and diluted earnings per share Basic $ 0.22 $ 0.10 $ 0.52 $ 0.13 Diluted $ 0.21 $ 0.10 $ 0.48 $ 0.13 ================ ================ ================ ================ Weighted average common shares outstanding Basic 36,709 30,725 35,654 30,681 Diluted 38,767 31,334 38,607 31,103 See notes to consolidated financial statements. 4 Stillwater Mining Company Consolidated Statement of Cash Flows (Unaudited) (in thousands) Six months ended June 30, --------------------------------------------- 1999 1998 ----------------- ------------------ Cash flows from operating activities Net income $ 18,634 $ 4,045 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 6,259 5,749 Deferred income taxes 6,584 2,532 Changes in operating assets and liabilities: Inventories (288) (341) Accounts receivable (2,054) (2,000) Accounts payable 1,853 1,051 Other 1,553 1,043 ----------------- ------------------ Net cash provided by operating activities 32,541 12,079 ----------------- ------------------ Cash flows from investing activities Capital expenditures (89,358) (16,087) Purchase of short-term investments - (2,256) Proceeds from maturity of short-term investments - 8,677 ----------------- ------------------ Net cash used in investing activities (89,358) (9,666) ----------------- ------------------ Cash flows from financing activities Issuance of common stock 2,311 2,663 Payments for debt issuance costs (2,657) - Payments on long-term debt and capital lease obligations (1,214) (921) Borrowings under credit facility 12,000 - Payments for conversion costs of 7% convertible notes (309) - ----------------- ------------------ Net cash provided by financing activities 10,131 1,742 ----------------- ------------------ Cash and cash equivalents Net increase (decrease) (46,686) 4,155 Balance at beginning of period 49,811 4,191 ----------------- ------------------ Balance at end of period $ 3,125 $ 8,346 ================= ================== See notes to consolidated financial statements. 5 Stillwater Mining Company Notes to Consolidated Financial Statements (Unaudited) Note 1 - General In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the Company's financial position as of June 30, 1999 and the results of operations for the three and six month periods ended June 30, 1999 and 1998 and cash flows for the six month periods ended June 30, 1999 and 1998. Certain amounts in the accompanying consolidated financial statements for 1998 have been reclassified to conform to the classifications used in 1999. The results of operations for the three and six month periods are not necessarily indicative of the results to be expected for the full year. The accompanying consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's 1998 Annual Report on Form 10-K. Note 2 - New Accounting Standards In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. This statement is effective for the fiscal year beginning January 1, 2001 and establishes accounting and reporting standards for derivative instruments and hedging activities. The effect of SFAS No. 133 is not expected to be material to the Company's financial statements. Note 3 - Inventories Inventories consisted of the following (in thousands): (Unaudited) June 30, December 31, 1999 1998 ----------------------- ------------------------ Metals inventory Raw ore $ 378 $ 267 Concentrate and in-process 4,165 4,988 ----------------------- ------------------------ 4,543 5,255 Materials and supplies 5,078 4,078 ----------------------- ------------------------ $ $9,621 $ 9,333 ======================= ======================== 6 Note 4 - Long-Term Debt In March 1999, the Company obtained a seven-year $175 million credit facility ("Scotiabank Credit Facility") from a syndicate of banks led by the Bank of Nova Scotia. The facility provides for a $125 million term loan facility and a $50 million revolving credit facility. Borrowings may be made under the term loan facility until December 31, 2000 and amortization of the term loan facility will commence on March 31, 2001. The final maturity of the term loan facility and revolving credit facility will be December 31, 2005. As of June 30, 1999, the Company has borrowed $12.0 million under the facility, and is in compliance with all operating, financial, and reporting covenants. The loans will be required to be repaid from excess cash flow, proceeds from asset sales and the issuance of debt or equity securities, subject to specified exceptions. Proceeds of the term loan facility will be used to finance a portion of the 1998 Expansion Plan. Proceeds of the revolving credit facility will be used for general corporate and working capital needs. At the Company's option, the Scotiabank Credit Facility will bear interest at LIBOR or an alternate base rate, in each case plus a margin. The interest rate may be adjusted depending upon the Company's ratio of debt to operating cash flow. Substantially all the property and assets of the Company and its subsidiaries and the stock of the Company's subsidiaries have been pledged as security for the Scotiabank Credit Facility. On May 1, 1999 the Company completed the underwritten call for redemption of its approximately $51.4 million principal amount of 7% Convertible Subordinated Notes due 2003, with substantially all of the indebtedness converted into equity. Note holders received approximately 56 shares of common stock for each $1,000 principal amount with cash paid in lieu of any fractional shares. The Company issued approximately 2.9 million shares of common stock in connection with the note conversions, increasing total shares of outstanding stock to approximately 37.7 million shares. Note 5 - Sales Commitments The Company may use forward sales or other commodity instruments to manage its exposure to market risk from changes in palladium and platinum commodity prices. The Company may also lease metal to counterparties to earn interest on excess metal balances. As of June 30, 1999, the Company held put options for 15,000 ounces of palladium and 6,000 ounces of platinum at an average price of $300 and $350, respectively. The Company has also sold call options for 15,000 ounces of palladium and 6,000 ounces of platinum at an average price of $400 and $373, respectively. All options expire in 1999. Note 6 - Earnings per Share The Company complies with SFAS No. 128, Earnings per Share, which requires the presentation of basic and diluted earnings per share. Outstanding options to purchase 2,395,008 and 1,858,673 shares of common stock were included in the computation of diluted earnings per share for the three month periods ended June 30, 1999 and 1998, respectively. Outstanding options to purchase 24,875 and 138,000 shares of common stock were excluded from the computation of diluted earnings per share for the three month periods ended June 30, 1999 and 1998, respectively, because to do so would have been antidilutive using the treasury stock method. Outstanding options to purchase 2,344,358 and 1,408,448 shares of common stock were included in the computation of diluted earnings per share for the six month periods ended June 30, 1999 and 1998, respectively. Outstanding options to purchase 75,525 and 588,225 shares of common stock were excluded from the computation of diluted earnings per share for the six month periods ended June 30, 1999 and 1998, respectively, because to do so would have been antidilutive using the treasury stock method. 7 In addition, 948,498 and 1,902,090 shares of common stock from assumed conversion of the Company's 7% Convertible Subordinate Notes were included in the computation of diluted earnings per share for the three month and six month periods ended June 30, 1999, respectively. 2.9 million shares of common stock issuable under the terms of the Notes were excluded from the computation of diluted earnings per share for the three month and six month periods ended June 30, 1998, because to do so would have been antidilutive. The Board of Directors declared a three-for-two stock split on the Company's common stock effective December 31, 1998 in the form of a stock dividend. All per share data, including stock option information, has been restated to reflect this stock split. Note 7 - Income Taxes The Company has reviewed its expected net deferred tax assets and liabilities for the year ended December 31, 1999 and has provided for income taxes for the six months ended June 30, 1999 at the expected annualized rate of 31.5%. 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Stillwater Mining Company Key Factors (Unaudited) Three months ended Six months ended June 30, June 30, ---------------------------------- ---------------------------------- 1999 1998 1999 1998 -------------- -------------- -------------- -------------- Ounces produced Palladium (000) 75 91 158 168 Platinum (000) 23 29 48 52 -------------- -------------- -------------- -------------- Total 98 120 206 220 Tons mined 167 183 350 347 Tons milled (000) 167 182 352 346 Mill head grade (ounces per ton) 0.66 0.72 0.65 0.70 Mill recovery (%) 91 92 91 92 Cash costs per ton milled $ 115 $ 97 $ 108 $ 96 Cash costs per ounce(1) $ 197 $ 147 $ 186 $ 150 Depreciation and amortization 35 24 30 26 -------------- -------------- -------------- -------------- Total costs per ounce produced $ 232 $ 171 $ 216 $ 176 Ounces sold(2) Palladium (000) 82 91 162 164 Platinum (000) 25 27 49 50 -------------- -------------- -------------- -------------- Total 107 118 211 214 Average realized price per ounce(3) Palladium $ 341 $ 179 $ 351 $ 174 Platinum $ 353 $ 380 $ 363 $ 391 Combined(2) $ 344 $ 225 $ 354 $ 224 Average market price per ounce(3) Palladium $ 341 $ 321 $ 342 $ 281 Platinum $ 356 $ 386 $ 360 $ 386 Combined(2) $ 345 $ 326 $ 346 $ 297 (1) Cash costs include cash costs of mine operations, processing and administrative expenses at the mine site (including overhead, taxes other than income taxes, royalties, and credits for metals produced other than palladium and platinum). Total costs of production include cash costs plus depreciation and amortization. Income taxes, corporate general and administrative expense and interest income and expense are not included in either total or cash costs. (2) Stillwater Mining reports a combined average realized price of palladium and platinum at the same ratio as ounces are produced from the base metals refinery. The same ratio is applied to the combined average market price. (3) Revenue is recognized when product is shipped from the Company's base metals refinery to external refiners. Sales are recorded and later adjusted when sales prices are finalized. Therefore, differences between realized prices and market prices may occur. 9 This Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such statements include comments regarding plans to rectify production efficiencies, anticipated capital expenditures and sources of financing for capital expenditures. In addition to factors discussed below, the factors that could cause actual results to differ materially include, but are not limited to, the following: supply and demand of palladium and platinum, unexpected events during expansion, fluctuations in ore grade, tons mined, crushed or milled, variations in smelter of refinery operation, amounts and prices of the Company's forward metals sales and geological, technical, permitting, mining or processing issues. For a more detailed description of risks attendant to the business and operations of Stillwater and to the mining industry in general, please see the Company's other SEC filings, in particular the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1998. Results of Operations Three months ended June 30, 1999 compared to three months ended June 30, 1998 - ----------------------------------------------------------------------------- Revenues -------- Revenues for the second quarter of 1999 increased $10.3 million, or 39%, to $36.8 million compared to $26.5 million in the second quarter of 1998. The increase in revenue was due to a 53% increase in the combined average realized price per ounce of palladium and platinum over the prior year period offset by a 9% decrease in the quantity of metal sold. During the second quarter of 1999, the Company sold 82,000 ounces of palladium and 25,000 ounces of platinum at average realized prices of $341 and $353, respectively, compared with sales of 91,000 ounces of palladium and 27,000 ounces of platinum at average realized prices of $179 and $380, respectively, in the prior year's comparable period. During the second quarter of 1999, the average market prices of palladium and platinum were $341 and $356, respectively. During the second quarter of 1999, the Company reports 18% lower production to 75,000 ounces of palladium and 23,000 ounces of platinum compared with production of 91,000 ounces of palladium and 29,000 ounces of platinum in the second quarter of 1998. The lower production is attributed to the normal geologic variations inherent in the ore body and to production inefficiencies created by ongoing underground construction work and other activities associated with the Company's expansion activities. Costs ----- Cost of sales increased by $4.6 million, or 23%, from $19.9 million in the second quarter of 1998 to $24.5 million in the second quarter of 1999. The cash cost per ounce produced increased 34% from $147 in the second quarter of 1998 to $197 in 1999. The increase in cash costs per ounce is the result of an 8% decrease in average ore grade processed in the second quarter of 1999, an 8% decrease in tons processed, an increase in royalties and severance taxes of $7 per ounce associated with higher metal prices, and additional labor costs associated with the increased manpower levels that are currently in place in anticipation of the planned production increases scheduled for the remainder of 1999 and 2000. Operating Income ---------------- As a result of the increase in revenues and the increase in operating costs discussed above, operating income in the second quarter of 1999 increased by $5.5 million to $11.1 million compared to $5.6 million in the comparable period of 1998. 10 Other Income (Expense) ---------------------- During the second quarter of 1999, interest expense decreased by $0.8 million to $28,000 compared with $0.9 million in the second quarter of 1998. The decrease in interest expense is due to a larger portion of interest being capitalized in 1999 and a decrease in the Company's level of long-term debt in the second quarter of 1999 compared to the second quarter of 1998. The Company's 7% Subordinated Convertible Notes were called for redemption on May 1, 1999. Capitalized interest expense increased from $0.4 million in the second quarter of 1998 to $0.6 million in the second quarter of 1999, as a result of expansion activities at the Company's various operations. Net Income ---------- The Company's income before income taxes amounted to $11.3 million in the second quarter of 1999 compared to $5.0 million in the second quarter of 1998. In the second quarter of 1999, the Company provided for $3.2 million of income taxes compared to $1.9 million in the second quarter of 1998. As a result, the Company reports net income of $8.0 million, or $0.22 per basic share ($0.21 per diluted share) in the second quarter of 1999, compared to net income of $3.1 million, or $0.10 per basic and diluted share in the second quarter of 1998. Six months ended June 30, 1999 compared to six months ended June 30, 1998 - ------------------------------------------------------------------------- Revenues -------- Revenues for the first half of 1999 increased $26.9 million, or 56%, to $74.9 million compared to $48.0 million in the first half of 1998. The increase in revenue was primarily due to a 58% increase in the combined average realized price per ounce of palladium and platinum as compared to the first half of 1998. During the first half of 1999, the Company sold 162,000 ounces of palladium and 49,000 ounces of platinum at average realized prices of $351 and $363, respectively, compared with sales of 164,000 ounces of palladium and 50,000 ounces of platinum at average realized prices of $174 and $391, respectively, in the prior year's comparable period. During the first half of 1999, the average market prices of palladium and platinum were $342 and $360, respectively. During the first half of 1999, production decreased 6% to 158,000 ounces of palladium and 48,000 ounces of platinum compared with production of 168,000 ounces of palladium and 52,000 ounces of platinum in the first half of 1998. The lower production is attributed to the normal geologic variations inherent in the ore body and to production inefficiencies created by ongoing underground construction work and other activities associated with the Company's expansion activities. Specifically, the Company estimates these factors resulted in a production shortfall of approximately 93,000 tons, which would have resulted in production of approximately 45,000 ounces of palladium and approximately 14,000 ounces of platinum. The Company is implementing strategic plans to rectify these production inefficiencies. Costs ----- Cost of sales increased by $7.4 million, or 19%, from $38.3 million in the first half of 1998 to $45.7 million in the first half of 1999. The cash cost per ounce produced increased 24% from $150 in the first half of 1998 to $186 in 1999. The increase in cash costs per ounce is the result of a 7% decrease in average ore grade processed in the first half of 1999, an increase in royalties and severance taxes of $5 per ounce associated with higher metal prices and additional labor costs associated with the increased manpower levels that are currently in place in anticipation of the planned production increases scheduled for the remainder of 1999 and 2000. Operating Income ---------------- As a result of the increase in revenues and the increase in operating costs discussed above, operating income in the first half of 1999 increased by $18.7 million to $26.7 million compared to $8.0 million in the comparable period of 1998. 11 Other Income (Expense) ---------------------- During the first half of 1999, interest expense decreased by $1.8 million to $0.1 million compared with $1.9 million in the first half of 1998. The decrease in interest expense is due to a larger portion of interest being capitalized in 1999 and a decrease in the Company's level of long-term debt in the first half of 1999 compared to the first half of 1998. The Company's 7% Subordinated Convertible Notes were called for redemption on May 1, 1999. Capitalized interest expense increased from $0.6 million in the first half of 1998 to $1.7 million in the first half of 1999 as a result of expansion activities at the Company's various operations. Net Income ---------- The Company's income before income taxes amounted to $27.2 million in the first half of 1999 compared to $6.6 million in the first half of 1998. In the first half of 1999, the Company provided for $8.6 million of income taxes compared to $2.5 million in the first half of 1998. As a result, the Company reports net income of $18.6 million, or $0.52 per basic share ($0.48 per diluted share) in the first half of 1999, compared to a net income of $4.0 million, or $0.13 per basic and diluted share in the first half of 1998. Liquidity and Capital Resources The Company's working capital at June 30, 1999 was $13.3 million compared to $58.8 million at December 31, 1998. The ratio of current assets to current liabilities was 1.5 at June 30, 1999 compared to 3.2 at December 31, 1998. Net cash provided by operations for the six months ended June 30, 1999 was $32.5 million compared with $12.1 million in the comparable period of 1998, an increase of $20.5 million. The increase is primarily the result of increased net income of $14.6 million and an increase in the provision for deferred income taxes of $4.1 million in the first half of 1999, which was partially offset by a change in operating assets and liabilities of $1.3 million. A total of $89.4 million of cash was used in investing activities in the first half of 1999 compared to $9.7 million in the same period of 1998. The increase was primarily due to higher capital expenditures as a result of the development of the East Boulder project, the Stillwater Mine expansion and expansion of the Company's smelter and base metals refinery. For the period ended June 30, 1999, cash flow provided by financing activities was $10.1 million compared to $1.7 million for the comparable period of 1998. The increase is primarily the result of proceeds from the drawdown of the Company's credit facility. As a result of the above, cash and cash equivalents decreased by $46.7 million for the period ended June 30, 1999, compared with an increase of $4.2 million in the comparable period of 1998. In 1998, the Company announced plans to expand the Stillwater Mine and to develop East Boulder. Total capital to fund the expansion is expected to approximate $385 million. Of this, the Stillwater Mine expansion is expected to cost approximately $75 million; East Boulder is expected to cost approximately $270 million; and approximately $40 million is designated for the expansion of the Company's smelter and base metals refinery located in Columbus, Montana. During the remainder of 1999, the Company expects to invest approximately $109 million on capital items, including capitalized interest of $2.3 million. Cash flow from operating activities is not expected to be sufficient to cover 1999 capital expenditures. Based on cash and cash equivalents on hand and expected cash flows from operations, along with existing credit facilities of $175 million, management believes there is sufficient liquidity to meet 1999 operating and capital needs. The Company may, from time to time, also seek to raise additional capital from the public or private securities markets or from other sources. 12 In March 1999, the Company obtained a seven-year $175 million credit facility ("Scotiabank Credit Facility") from a syndicate of banks led by the Bank of Nova Scotia. The facility provides for a $125 million term loan facility and a $50 million revolving credit facility. Borrowings may be made under the term loan facility until December 31, 2000 and amortization of the term loan facility will commence on March 31, 2001. The final maturity of the term loan facility and revolving credit facility will be December 31, 2005. As of June 30, 1999, the Company has borrowed $12.0 million under the facility, and is in compliance with all operating, financial, and reporting covenants. The loans will be required to be prepaid from excess cash flow, proceeds from asset sales and the issuance of debt or equity securities, subject to specified exceptions. Proceeds of the term loan facility will be used to finance a portion of the 1998 Expansion Plan. Proceeds of the revolving credit facility will be used for general corporate and working capital needs. At the Company's option, the Scotiabank Credit Facility will bear interest at LIBOR or an alternate base rate, in each case plus a margin. The interest rate may be adjusted depending upon the Company's ratio of debt to operating cash flow. Substantially all the property and assets of the Company and its subsidiaries and the stock of the Company's subsidiaries have been pledged as security for the Scotiabank Credit Facility. Market Risk The Company may from time to time utilize derivative instruments to manage financial risk. The Company has no material derivative exposures as of June 30, 1999 (see Note 5 - Sales Commitments). During the third quarter of 1998, the Company entered into sales contracts with General Motors Corporation, Ford Motor Company, Mitsubishi Corporation and KEMET Corp. These contracts cover the Company's PGM production over the five-year period from January 1999 through December 2003. During this period, the Company has committed between 90% to 100% of its actual palladium production and approximately 20% of its planned annual platinum production. Palladium and platinum sales are priced at a slight discount to market, with floor prices on substantially all of the Company's production committed under these contracts averaging $225 per ounce of palladium and $350 per ounce of platinum. The Company has also agreed to an average maximum price of approximately $400 per ounce on approximately 30% of its palladium production and $425 per ounce on approximately 20% of its planned annual platinum production. Year 2000 Issues Year 2000 will impact computer programs written using two digits rather than four to define the applicable year. Any programs with time-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in a system failure or miscalculation causing disruptions of operations, including a temporary inability to process transactions, send invoices or engage in other ordinary activities. This problem largely affects software programs written years ago, before the issue came to prominence. The Company primarily uses third-party software programs written and updated by outside firms, and the Company is in the process of determining whether this software is Year 2000 compliant. In May 1996, the Company began the implementation of a new information technology infrastructure that the Company believes will be fully Year 2000 compliant. This infrastructure will be in place by the fourth quarter of 1999. The Company does not believe that the costs associated with additional Year 2000 compliance will be material. The Company has set in motion an effort to obtain written assurances from its material suppliers regarding their Year 2000 compliance. As a result of this effort, the Company expects to generate by the third quarter of 1999 a validated list of suppliers that are Year 2000 compliant, and will use the entities on this list to obtain its supplies. 13 The Company has also begun the process of obtaining written assurances from the Company's material customers regarding their Year 2000 compliance. The Company's goal is to obtain by the third quarter of 1999 written assurances from customers that they are Year 2000 compliant or that they are expecting to become Year 2000 compliant before December 31, 1999. In addition, the Company is developing contingency plans to deal with potential Year 2000 risks that could occur as a result of power failures or the failure of other critical systems. Although the Company has taken significant steps to address the Year 2000 problem, there can be no assurance that the failure of the Company and/or its material customers or suppliers to timely attain Year 2000 compliance will not materially reduce the Company's revenues or income, or that these failures and/or the impacts of broader compliance failures by telephone, mail, data transfer or other utility or general service providers or government or private entities will not have a material adverse effect on the Company. Other Developments The Company and the Paper, Allied Industrial, Chemical and Energy Workers International Union, under which the Company's employees are organized, reached agreement on a five-year collective bargaining agreement, dated July 1, 1999, which covers substantially all hourly employees at the Company's facilities. 14 PART II - OTHER INFORMATION Item 1. Legal Proceedings ----------------- Not applicable Item 2. Changes in Securities --------------------- None Item 3. Defaults Upon Senior Securities ------------------------------- None Item 4. Submission of Matters to a Vote of Security Holders --------------------------------------------------- (a) The annual meeting of stockholders was held on May 27, 1999. (b) The following individuals were elected to continue as Directors at the meeting : John E. Andrews Douglas D. Donald Richard E. Gilbert Lawrence M. Glaser Apolinar Guzman William E. Nettles Ted Schwinden Peter Steen (c) Set forth below are the votes cast for the election of Directors: For (*) Withheld ----------------- ------------- John E. Andrews 28,402,990 57,193 Douglas D. Donald 28,404,046 57,193 Richard E. Gilbert 28,402,524 57,193 Lawrence M. Glaser 28,404,286 57,193 Apolinar Guzman 28,404,358 57,193 William E. Nettles 28,402,990 57,193 Ted Schwinden 28,402,267 57,193 Peter Steen 28,402,750 57,193 Stockholders were asked to amend the Company's Restated Certificate of Incorporation to alter the required number of directors, to provide the Board of Directors with the flexibility to increase and decrease the size of the Board from seven to ten members. Votes cast in favor were 24,110,578 representing approximately 70% of the shares entitled to vote, against were 129,682, and abstaining were 205,354. Additionally, stockholders were asked to ratify the appointment of PricewaterhouseCoopers LLP as the Company's independent accountants for the fiscal year ending December 31, 1999. Votes cast in favor were 28,427,746 representing approximately 100% of the shares entitled to vote, against were 20,092, and abstaining were 12,682. * Stockholders have cumulative voting rights in connection with the election of Directors. (d) None 15 Item 5. Other Information ----------------- None Item 6. Exhibits and Reports on Form 8-K -------------------------------- (a) Exhibits: 10.22 Contract between the Company and the Paper, Allied Industrial, Chemical and Energy Workers International Union dated July 1, 1999 27 Financial Data Schedule (b) Reports on Form 8-K: Form 8-K dated April 1, 1999, announcing the redemption of the Company's 7% Convertible Subordinated Notes Due 2003. 16 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on behalf of the undersigned thereunto duly authorized. STILLWATER MINING COMPANY (Registrant) Date: July 15, 1999 By: /s/ William E. Nettles ----------------------------------- William E. Nettles Chairman and Chief Executive Officer (Principal Executive Officer) Date: July 15, 1999 By: /s/ James A. Sabala ----------------------------------- James A. Sabala Vice President and Chief Financial Officer (Principal Financial Officer)