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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For The Quarterly Period Ended September 30, 1995
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 1-10012
SUNSHINE MINING AND REFINING COMPANY
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(Exact name of registrant as specified in its charter)
DELAWARE 75-2231378
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
877 W. Main, Suite 600, Boise, Idaho 83702
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(Address of principal executive offices)
Registrant's telephone number including area code (208) 345-0660
----------------
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Former name, former address and former fiscal year, if changed
since last report
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
--- ---
Number of Shares Outstanding
Title of Each Class of Common Stock at October 30, 1995
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Common Stock, $.01 par value 193,071,928
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SUNSHINE MINING AND REFINING COMPANY
CONSOLIDATED BALANCE SHEETS
(In Thousands)
ASSETS
September 30,1995 December 31,1994
-------------------- --------------------
Current assets:
Cash and cash investments $ 18,993 $ 26,581
Silver bullion 8,987 8,408
Accounts receivable 2,013 416
Inventories (Note 2) 1,698 3,151
Marketable securities 39 1,097
Other current assets 1,455 1,367
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Total current assets 33,185 41,020
Property, plant and equipment, at cost 138,002 137,798
Less accumulated depreciation,
depletion and amortization (69,113) (66,390)
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68,889 71,408
Investments and other assets 3,415 4,229
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Total assets $ 105,489 $ 116,657
==================== ====================
See accompanying notes.
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SUNSHINE MINING AND REFINING COMPANY
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Per Share Amounts)
LIABILITIES AND STOCKHOLDERS' EQUITY
September 30,1995 December 31,1994
------------------------ --------------------
Current liabilities:
Accounts payable 719 435
Accrued expenses $ 1,804 $ 2,048
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Total current liabilities 2,523 2,483
Long-term debt 1,519 1,519
Accrued pension and other postretirement benefits 6,561 6,811
Other long-term liabilities and deferred credits 5,440 5,436
Stockholders' equity:
Cumulative redeemable preferred stock--
aggregate redemption value:
September 30, 1995 - $126,071
December 31, 1994 - $119,675 81,928 80,707
Common stock--$.01 par value;
400,000 shares authorized; shares issued:
September 30, 1995 - 196,726
December 31, 1994 - 196,659 1,967 1,967
Paid-in capital 623,325 623,181
Deficit (617,737) (605,410)
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89,483 100,445
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Less treasury stock, at cost:
3,664 shares 37 37
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89,446 100,408
Total liabilities and
stockholders' equity $ 105,489 $ 116,657
======================== ====================
See accompanying notes.
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SUNSHINE MINING AND REFINING COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1995 AND 1994
(In Thousands, Except Per Share Amounts)
(Unaudited)
QUARTER NINE MONTHS
------------------------------- ---------------------------------
1995 1994 1995 1994
----------- ------------- ------------ --------------
Operating revenues $ 5,149 $ 5,009 $ 13,178 $ 12,492
Costs and expenses:
Cost of sales 4,233 4,977 14,203 12,035
Depreciation, depletion
and amortization 1,047 970 2,724 3,232
Exploration 1,702 563 4,045 1,408
Selling, general and
administrative expense 1,386 1,393 4,263 4,114
Curtailment gain on postretirement benefits
other than pensions (Note 3) - - - (6,936)
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8,368 7,903 25,235 13,853
----------- ------------- ------------ --------------
Operating income (loss) (3,219) (2,894) (12,057) (1,361)
Other income (expense):
Interest income 291 363 1,024 792
Interest expense (232) (322) (575) (953)
Other, net 260 25 502 830
----------- ------------- ------------ --------------
319 66 951 669
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Net income (loss) (2,900) (2,828) (11,106) (692)
Preferred dividend requirements (2,500) (2,591) (7,617) (7,902)
----------- ------------- ------------ --------------
Income (loss) applicable to common shares $ (5,400) $ (5,419) $ (18,723) $ (8,594)
=========== ============= ============ ==============
Income (loss) per common share $ ($0.03) $ ($0.03) $ ($0.10) $ ($0.05)
=========== ============= ============ ==============
Weighted average common
shares outstanding 193,059 189,072 193,031 184,188
=========== ============= ============ ==============
See accompanying notes.
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SUNSHINE MINING AND REFINING COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1995 AND 1994
(In Thousands)
(Unaudited)
1995 1994
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Cash used by operating activities:
Net loss $ (11,106) $ (692)
Adjustments to reconcile loss from operations
to net cash used by operations:
Depreciation, depletion and amortization 2,724 3,232
Exploration Expenditures 4,045 1,408
Curtailment gain on postretirement benefits - (6,936)
Realized and unrealized (gains) losses on
marketable equity securities (134) -
Issuances of common stock for interest
on Silver Indexed Bonds and other 143 379
Net (increase) decrease in:
Silver bullion (579) 102
Accounts receivable (1,597) (751)
Inventories 1,453 (2,252)
Other assets and deferred charges 148 (63)
Net increase (decrease) in:
Accounts payable and accrued expenses 40 (1,331)
Accrued pension and other postretirement benefits (250) 79
Other liabilities and deferred credits 4 (415)
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Net cash used by operations (5,109) (7,240)
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Cash provided (used) by investing activities:
Additions to property, plant and equipment and
exploration expenditures (4,249) (1,512)
Proceeds from investments 1,770 52
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Net cash provided by investing activities (2,479) (1,460)
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Cash provided by financing activities:
Issuance of common stock (Note 4) - 29,735
Decrease in restricted cash - 236
Principal repayments and retirements of long-term debt - (305)
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Net cash provided by financing activities - 29,666
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Increase (decrease) in cash and cash investments (7,588) 20,966
Cash and cash investments, January 1 26,581 4,304
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Cash and cash investments, September 30 $ 18,993 $ 25,270
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Supplemental cash flow information -
Interest paid in cash $ 146 $ 329
=================== =====================
See accompanying notes.
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SUNSHINE MINING AND REFINING COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS
September 30, 1995
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed financial statements
of Sunshine Mining and Refining Company ("Sunshine" or the "Company")
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions
to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have
been included. Certain previously reported amounts have been
reclassified to conform to the September 1995 presentation. Operating
results for the nine month period ended September 30, 1995 are not
necessarily indicative of the results that may be expected for the
year ended December 31, 1995. For further information, refer to the
consolidated financial statements and footnotes thereto included in
Sunshine's report on Form 10-K for the year ended December 31, 1994.
2. INVENTORIES
The components of inventory consist of the following:
September 30 December 31
1995 1994
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Precious Metals Inventories:
Work in process $ 723 $ 2,241
Finished goods 256 173
Materials and supplies inventories 719 737
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$ 1,698 $ 3,151
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3. CURTAILMENT GAIN
During the first nine months of 1994, the Company recognized a
curtailment gain of $6.9 million due to the termination of certain
employee postretirement medical benefits. See "Management's
Discussion and Analysis of Financial Condition."
4. COMMON STOCK OFFERING
During the first nine months of 1994, the Company realized net
proceeds of $30.1 million from a Rights Offering of Units to its
stockholders. See "Management's Discussion and Analysis of Financial
Condition."
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SUNSHINE MINING AND REFINING COMPANY
Management's Discussion and Analysis of Financial
Condition and Results of Operations for the
Nine Months Ended September 30, 1995 and 1994
LIQUIDITY AND CAPITAL RESOURCES
As the price of silver since 1985 has been only slightly in excess of,
or less than, the Company's cash cost to produce an ounce of silver, the
Company's operations have not been able to generate cash flow sufficient to
cover its costs of exploration, research, general and administrative expenses,
and interest, as well as non-cash charges such as depreciation, depletion, and
amortization. Until such time as the price of silver increases significantly
or higher production is achieved at a lower cost, the Company will continue to
generate a negative cash flow from operations. However, the Company had
approximately $30.7 million of working capital, including approximately $28.0
million of cash and silver bullion held for investment at September 30, 1995.
These balances are deemed adequate to fund the Company's expected cash
requirements for several years.
The Company anticipates capital expenditures in its existing
operations over the next twelve months to be approximately $1 million. If the
Company successfully develops new reserves in the West Chance Area of the
Sunshine Mine, as presently anticipated, capital expenditures would increase by
approximately $4 million. Exploration expenditures for the first nine months of
1995 totaled approximately $4.0 million, and are anticipated to continue at a
comparable rate for the next twelve months.
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Preferred Stock
The dividend on Sunshine's $11.94 (Stated Value) Cumulative Redeemable
Preferred Stock (the "Preferred Stock") has neither been declared nor paid
since December 31, 1990. Given current silver prices, the Company does not
expect any resumption of dividends in the foreseeable future. Dividends are
cumulative. The amount of aggregate redemption value disclosed on the balance
sheet includes $40 million in dividends in arrears.
The Certificate of Designation of Rights and Preferences (the
"Certificate") governing the Preferred Stock prohibits partial redemptions
while dividends are in arrears. Therefore, the Company has not made annual
redemptions of approximately 808 thousand shares of the Preferred Stock since
1991.
Pursuant to the Certificate, the Company may make dividend payments
and redemptions of the Preferred Stock using cash or by issuing shares of its
common stock valued in accordance with a specified formula. There are no
penalties for the Company failing to make dividend payments or partial
redemptions.
The Company recently announced that it had reached agreements with
each of the three largest holders of Preferred Stock on the terms of a
transaction which would result in the conversion of the entire outstanding
issue (approximately 7,166,000 shares) of Preferred Stock into common stock of
the Company. If completed pursuant to the terms of the agreements, the
transaction would eliminate the Preferred Stock and extinguish all dividend
arrearages, redemption requirements, and other rights of the Preferred Stock.
The terms of the transaction provide for Sunshine to be merged with
and into its wholly-owned subsidiary, Sunshine Merger Company, after the
approval by the holders of a majority of the outstanding shares of the
Preferred Stock voting as a class and the holders of a majority of the
outstanding shares of common stock voting as a class. The three holders
who have agreed to support the transaction hold approximately 25% of the
Preferred Stock outstanding.
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After the merger, the subsidiary would immediately change its name to
Sunshine Mining and Refining Company. Pursuant to the terms of the merger,
each common share of Sunshine would automatically become a common share of the
new company, and each Preferred share would be converted to (a) newly-issued
shares of common stock, the quantity to be determined by a formula, and (b)
either .9 shares of common stock for each Preferred share, or, at the option of
the Preferred holder, two warrants to purchase common stock.
The Company has filed Proxy Prospectus materials with the Securities
and Exchange Commission (the "SEC") and expects to mail the Prospectus to
shareholders after the SEC review process is completed.
Operating, Investing, and Financing Activities
Cash used in operating activities in the first nine months of 1995 was
$5.1 million compared to $7.2 million in the first nine months of 1994. Cash
operating losses increased in the first nine months of 1995 by $1.7 million.
This is offset by changes in working capital components, principally
inventories.
Approximately $2.5 million of cash was used by investing activities in
the first nine months of 1995 compared to $1.5 million in the 1994 period. The
$1.0 million increase was primarily due to increased exploration expenditures
of $2.6 million partially offset by the sale of certain marketable securities.
Cash provided by financing activities was $30 million in the first
quarter of 1994 as a result of the Company's Rights Offering. There was no
cash provided by financing activities in the first nine months of 1995.
Other
Beginning in 1996 the Company will be subject to 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 Company's current method of accounting for permanent
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impairment of its mining properties is consistent with the provisions of SFAS
No. 121.
RESULTS OF OPERATIONS
THE THREE MONTHS ENDED SEPTEMBER 30, 1995 COMPARED TO THE THREE MONTHS ENDED
SEPTEMBER 30, 1994
Consolidated operating revenues increased approximately $140 thousand
for the third quarter of 1995 compared to the third quarter of 1994 due to mark
to market increases on work in process inventories and investment bullion
during the quarter ($730 thousand increase in the third quarter of 1995
compared to $669 thousand increase in the same period in 1994), and an increase
in by-product revenues.
Cost of sales decreased $744 thousand (15%) (from $5.0 million in the
third quarter of 1994 to $4.2 million in the third quarter of 1995) due to
lower unit production costs. Unit production costs decreased primarily due to
increases in silver production from 1994 to 1995 (571 thousand ounces produced
from 29,056 tons at 20.27 ounces per ton in 1995 versus 469 thousand ounces
from 25,599 tons at 18.92 ounces per ton in 1994). Production in the third
quarter more nearly approximates production objectives during this exploration
period.
Exploration expense increased $1.1 million (202%) for the third
quarter of 1995 compared to the same period in 1994 in keeping with the
Company's plan to increase exploration spending at the Sunshine mine and as
well as other sites in Arizona, Colorado, Argentina, and Peru.
Depreciation, depletion and amortization increased approximately $77
thousand. Higher depletion expense is a result of higher production figures in
the quarter.
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THE NINE MONTHS ENDED SEPTEMBER 30, 1995 COMPARED TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1994
Consolidated operating revenues increased approximately $686 thousand
(5.5%) for the first nine months of 1995 compared to the first nine months of
1994 due to higher sales volume (2.0 million ounces in the first nine months of
1995 compared to 1.9 million ounces in the same period of 1994) due to the
inventory drawdown discussed below.
During the first quarter of 1995 the Company suspended operation of
its silver refinery. As a result, the Company began selling silver and copper
concentrate to a third-party smelter instead of refining silver bullion and
copper metal for sale to commercial and industrial customers. This resulted in
a shorter processing time before sales recognition, causing a drawdown of
work-in-process inventories versus an inventory buildup in the first nine
months of 1994. Cost of sales increased $2.2 million from the first nine months
of 1995 compared to 1994, due to this drawdown in inventories and an increase
in unit production costs. Unit production costs increased primarily due to
declines in silver production from 1994 to 1995 (1.3 million ounces produced
from 79,025 tons at 17.46 ounces per ton in 1995 versus 1.6 million ounces from
78,655 tons at 21.44 ounces per ton in 1994). Mine production declined due to
a reduction in mill head grades as a result of extensive underground
development activities. Additionally, the operation experienced earlier than
expected mineout and adverse mining conditions in many of the mine's productive
stopes. Production levels have been improving gradually since April, and the
third quarter production more nearly approximates production objectives during
this exploration period.
Exploration expense increased $2.6 million (187%) for the first nine
months of 1995 compared to the same period in 1994 in keeping with the
Company's plan to
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increase exploration spending at the Sunshine mine and as well as other sites
in Arizona, Colorado, Argentina, and Peru.
Depreciation, depletion and amortization declined by approximately
$508 thousand. Lower depletion expense is a result of lower production figures
in the nine month period.
Interest income increased by $232 thousand (29.3%) due to higher cash
balances after the Company's rights offering in March 1994.
Interest expense was reduced $378 thousand (39.7%) due to the
reduction of approximately $8 million (84%) in the aggregate principal amount
of debt outstanding in the first quarter of 1994.
Sunshine's net income in 1994 included a $6.9 million gain on the
curtailment of certain postretirement medical benefits for certain of its
employees and retirees.
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SUNSHINE MINING AND REFINING COMPANY
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
By letter dated July 17, 1995, Sunshine and Sunshine Precious
Metals, Inc. ("SPMI"), its wholly owned subsidiary, were
notified that they have been identified by the United States
Department of the Interior, Fish and Wildlife Service, as PRPs
for alleged natural resource damage in the Coeur d'Alene
Basin. The letter further served as notice that the
Department of the Interior intends to bring suit against
Sunshine, SPMI and other identified PRPs to recover natural
resource damages under CERCLA. The Department of Interior has
not set forth any amount of damages. The Company believes
that the settlement by SPMI of all natural resource claims
with the State of Idaho in May, 1986, bars these claims.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
99.1 Agreement between Sunshine and Elliott
Associates, L.P. dated October 19, 1995
("ELLIOTT") whereby ELLIOTT agrees to
vote all of its shares of Preferred Stock
for the proposed merger of Sunshine and its
wholly owned subsidiary.
99.2 Agreement between Sunshine and Grace
Holdings, L.P. dated October 23, 1995
("GRACE") whereby GRACE agrees to vote all
of its shares of Preferred Stock for the
proposed merger of Sunshine and its wholly
owned subsidiary.
99.3 Agreement between Sunshine and Lloyd I.
Miller, III dated October 20, 1995
("MILLER") whereby Miller agrees to vote
all of his shares of Preferred Stock for
the proposed merger of Sunshine and its
wholly owned subsidiary.
27 Financial Data Schedule.
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(b) Reports on Form 8-K
None
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereto duly authorized.
SUNSHINE MINING AND REFINING COMPANY
Dated: November 6, 1995 By: /s/ William W. Davis
--------------------------------
William W. Davis
Senior Vice President,
Chief Financial Officer and
Chief Accounting Officer
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INDEX TO EXHIBITS
Exhibits Description
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99.1 Agreement between Sunshine and Elliott Associates, L.P. dated October
19, 1995 ("ELLIOTT") whereby ELLIOTT agrees to vote all of its shares of
Preferred Stock for the proposed merger of Sunshine and its wholly owned
subsidiary.
99.2 Agreement between Sunshine and Grace Holdings, L.P. dated October 23,
1995 ("GRACE") whereby GRACE agrees to vote all of its shares of Preferred
Stock for the proposed merger of Sunshine and its wholly owned subsidiary.
99.3 Agreement between Sunshine and Lloyd I. Miller, III dated October 20,
1995 ("MILLER") whereby Miller agrees to vote all of his shares of Preferred
Stock for the proposed merger of Sunshine and its wholly owned subsidiary.
27 Financial Data Schedule.