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
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STILLWATER MINING COMPANY
-------------------------
(Exact name of registrant as specified in its charter)
Delaware 81-0480654
- -------------------------------------- --------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification 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)