Item 3 -- "Legal Proceedings" and Notes 12 and 15 to Item 8 -- "Financial Statements and Supplementary Data."
NEVADA OPERATIONS
The Company's Nevada gold mining and processing operations generate solid waste which is subject to regulation under the federal Resource Conservation and Recovery Act ("RCRA") and similar laws of the State of Nevada. Solid waste that is considered "hazardous" is subject to extensive regulation by the U.S.
Environmental Protection Agency (the "EPA") and the State of Nevada under Subtitle C of RCRA, while non-hazardous solid waste is governed by a less stringent program under Subtitle D of RCRA and solid waste management regulations of the State of Nevada.
In 1986, the EPA determined that the regulation of "extraction" and "beneficiation" wastes from mining operations under Subtitle C of RCRA was not warranted and these wastes have been exempted from RCRA pursuant to the Bevill Amendment. However, the EPA began to develop specific regulations for such wastes under Subtitle D. The Company is participating in that process. Currently, there is not a sufficient basis to predict the potential impact of such regulations on the Company.
Wastes from the "processing" of ores and minerals (including refining wastes) at the Company's Nevada operations is subject to regulation under Subtitle C of RCRA. The Company recycles substantially all of the potentially hazardous secondary materials generated during refining operations in compliance with Subtitle C. Such compliance has not had, and is not expected to have, any material impact on the Company's operations.
The Company's Nevada operations are subject to stringent state permitting regulations for protection of surface and groundwater, as well as wildlife. These regulations may require additional capital and operating expenditures for expansion of current operations and development of new projects and may increase closure and reclamation costs for pits, tailing impoundment and leaching facilities.
Mining operations have the potential to produce fugitive dust emissions which are subject to regulation under the laws of the State of Nevada. The EPA's current regulations under the federal Clean Air Act exclude fugitive dust from surface mines in determining whether new or expanded sources need permits for construction under the regulations for prevention of significant deterioration of air quality. The 1990 amendments to the federal Clean Air Act could ultimately increase the Company's compliance costs for air pollution permitting and/or control, but the impact on the Company's mining operations is so dependent on future regulations and other contingencies that it cannot reasonably be predicted at this time.
ITEM 3. LEGAL PROCEEDINGS
In December 1983, the State of Colorado filed a lawsuit in the U.S. District Court for the District of Colorado under the Comprehensive Environmental Response Compensation and Liability Act of 1980 (CERCLA), 42 U.S.C. 9601 et seq., seeking clean-up and damages for alleged injury to natural resources due to releases of hazardous substances into the environment. This case, State of Colorado v. ASARCO, Inc., et al. (Civil Action No. 83-C-2388), was consolidated with another action, United States of America v. Apache Energy & Minerals, et al. (Civil Action No. 86-C-1676), which was filed August 6, 1986. Both cases involve allegations of environmental impairment in the vicinity of Leadville, Colorado, including the area of the operations and property of the Res-ASARCO Joint Venture which owns the Black Cloud Mine, the Yak Tunnel, and adjacent property, and seek remedial actions and damages from a number of defendants, including NMC and NGC's wholly owned subsidiary, Resurrection Mining Company ("Resurrection"), which is a partner with ASARCO in the Res-ASARCO Joint Venture. In connection with the Transaction, NGC assumed, among other things, all liabilities of NMC relating to this lawsuit. In August, 1994, the Court entered a Partial Consent Decree between and among the United States, NMC, Resurrection and certain defendants. The Partial Consent Decree obligates Resurrection to pay for and perform the cleanup of sources of contamination in various areas, pursuant to the Superfund administrative process. The precise cleanup remedy is subject to further investigation and study, EPA selection in accordance with Superfund and public comment. At this time, the precise remedy and cost have not been fixed. The proposed settlement also requires Resurrection to reimburse the governments for their past response costs. Further, Resurrection's cleanup and reimbursement obligations are subject to certain sharing percentages with at least one other defendant. The Partial Consent Decree does not resolve certain other potential liabilities, including liability for any natural resource damage and any groundwater or surface water contamination. See Note 15 to Item 8 -- "Financial Statements and Supplementary Data."
On March 6, 1995, a class action complaint was filed in the U.S. District Court for the Southern District of Ohio against NMC, Cyprus Foote Mineral Company and others. The complaint alleges that the named plaintiffs (Sue Ann Malernee and seven other individuals) and the putative class members have been exposed
to certain allegedly radioactive or otherwise hazardous waste materials produced at a ferroalloy production plant in Guernsey County, Ohio. That plant was owned until 1987 by Foote Mineral Company, a former subsidiary of NMC and predecessor to defendant Cyprus Foote. The complaint seeks recovery of response costs and establishment of a medical monitoring fund under CERCLA, 42 U.S.C. 9601 et seq. It also seeks compensatory damages under various tort law theories for, inter alia, diminution in property values, increased risk of physical injury and emotional distress. The amount of such damages are alleged to be $500 million. Punitive damages are sought against NMC in the amount of approximately $63 million. Injunctive relief requiring defendants to remove the allegedly hazardous materials from the property of the plaintiffs is also requested. NGC and NMC are investigating this newly-filed action, and intend to vigorously contest all alleged liability in this matter.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders, through the solicitation of proxies or otherwise, during the quarter ended December 31, 1994.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
NGC's executive officers as of March 9, 1995 were:
There are no family relationships by blood, marriage or adoption among any of the above executive officers of NGC. All executive officers are elected annually by the Board of Directors or until their respective successors are chosen and qualify. There is no arrangement or understanding between any of the above executive officers and any other person pursuant to which he or she was selected as an officer.
Mr. Cambre was elected Chairman of NGC on November 16, 1994 (effective January 1, 1995), President on June 1, 1994 and Chief Executive Officer on September 23, 1993 (effective November 1, 1993). He served as Vice Chairman of NGC from November 1, 1993 through December 31, 1994. Previously, he served as Vice President and Senior Technical Advisor to the office of the Chairman of Freeport-McMoRan Inc., a natural resources company, since 1988. He is also Chairman, President and Chief Executive Officer of NMC.
Mr. Clark was elected a Senior Vice President of NGC on September 11, 1991. He was designated General Counsel on October 26, 1988 (effective May 1, 1989) and elected a Vice President on December 17, 1986. Prior to his designation as General Counsel, Mr. Clark was Vice President and Western Regional Counsel of NGC. He is also Senior Vice President and General Counsel of NMC.
Mr. Kurlander was elected Senior Vice President, Administration of NGC on March 16, 1994 (effective April 1, 1994). Previously, he served as Senior Vice President, Public Affairs and Government Affairs, for Nabisco International Inc. of RJR Nabisco, Inc., a consumer products company, since 1992. Prior to that he managed worldwide communications, state government affairs and worldwide security functions for American Express Company, a financial services company. He is also Senior Vice President, Administration of NMC.
Mr. Murdy was elected Senior Vice President and Chief Financial Officer of NGC on December 16, 1992 (effective December 31, 1992). Previously, he served as Senior Vice President and Chief Financial Officer of Apache Corporation, an oil and gas exploration and production company, since May 1991. Prior to that he had been Chief Financial Officer of Apache Corporation since December 1987 and a Vice President since February 1987. He is also Senior Vice President and Chief Financial Officer of NMC.
Mr. Baker was elected Vice President, Environmental Affairs of NGC on April 24, 1991 (effective March 11, 1991). Previously, he held various environmental positions with NGC and NMC.
Mr. Brunk was elected Vice President, Business Development of NGC on May 14, 1994. He served as Vice President, Project Development of NMC from April 24, 1991 (effective March 11, 1991) through May 13, 1994. Previously, he was Vice President of NGC since December 16, 1987 serving in various senior capacities in operations and administration.
Mr. DeGuire was elected a Vice President of NGC on May 14, 1994. He was designated Vice President, Project Development and Regional Director, Commonwealth of Independent States, in 1995. Previously, he served as Vice President, Project Development and Metallurgical Research since May 14, 1994. Prior to that he held various senior metallurgical research and environmental positions with NGC and NMC for more than five years.
Ms. Donnelly was elected Vice President, Government Relations of NGC on June 12, 1990. Prior to that date, she held various other government relations positions with NGC and NMC.
Mr. Dow was elected a Vice President of NGC on May 18, 1994 and subsequently was designated Regional Director, Indonesia and Southeast Asia. Previously, he held various senior exploration positions with NMC and its subsidiaries for more than five years.
Mr. Farmar was elected a Vice President of NGC on December 16, 1992 and Controller on October 30, 1991. He had served as Assistant Controller from January 28, 1989 through October 29, 1991. Previously, he served as Controller of Petro-Lewis Corporation, an independent oil and gas producer. He is also Vice President and Controller of NMC.
Mr. Hamer was designated Vice President, Indonesian Projects, of NGC on January 1, 1994. Previously, he served as Vice President, Project Development from January 1, 1993 through December 31, 1993. He also served as Vice President and General Manager from October 30, 1991 to December 31, 1992 and as Vice President and Resident Manager since March 11, 1991 and as Vice President, Operations from October 31, 1988 to March 10, 1991.
Mr. Harris was elected a Vice President of NGC on May 18, 1994 and subsequently was designated Regional Director South America. Previously, he held various senior metallurgical and operations positions with NGC and NMC for more than five years.
Mr. Karras has served as Vice President, Taxes of NGC since November 9, 1992. Previously, he served as Director of Taxes of Kennecott Corporation, a natural resources company, for four years. He is also Vice President, Taxes of NMC.
Mr. Krol has served as Vice President, Exploration of NGC since September 14, 1994. Previously, he had served as Director of Foreign Exploration of NGC since May 1992. Prior to that he served as Director of Metallurgical Services of NGC since 1990.
Mr. Moran was elected Vice President, Engineering Services of NGC on December 15, 1993 (effective January 17, 1994. Previously, he was employed by BHP Minerals International Inc., a natural resources company, for more than five years where he was responsible for the development and management of major construction projects.
Mr. Morris was elected Vice President, Corporate Relations of NGC on March 16, 1994 (effective April 1, 1994). Previously, he served as Director of Investor Relations and Corporate Communications for Inland Steel Industries from 1990 to 1993.
Mr. Mullin was designated Vice President and Regional Director, Nevada Operations on May 14, 1994. Previously, he served as Vice President and General Manager of NGC since December 15, 1993. He also served as Acting General Manager of NGC from January 1, 1993 to December 14, 1993. Prior to that he held various senior operating positions with NGC.
Mr. Rendu was designated Vice President, Technical Services, on January 19, 1995. Previously, he served as Vice President, Information Systems since November 26, 1991 and Vice President, Mine Engineering since March 11, 1991 having previously served as Vice President, Technical and Scientific Systems since October 31, 1988.
Mr. Schmitt was elected a Vice President of NGC on December 17, 1986 and was elected Secretary on May 25, 1988. He was designated Assistant General Counsel on October 30, 1991. He served as Controller from March 31, 1983 through October 29, 1991. He is also Vice President, Secretary and Assistant General Counsel of NMC.
Ms. Flanagan was elected Treasurer of NGC on December 16, 1992. Previously, she served as an Assistant Treasurer from November 1, 1988 through December 15, 1992. She was appointed Assistant Secretary on June 24, 1992. She is also Treasurer and Assistant Secretary of NMC.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
NGC's common stock is traded on the New York Stock Exchange. NGC's stock prices in 1994 and 1993 were:
On March 9, 1995, the approximate number of holders of record of NGC's common stock was 2,122.
A dividend of $0.12 per share of common stock outstanding was declared in each quarter of 1994, or a total of $0.48 per share. An annual dividend of $0.05 per share ($5,244,000 in the aggregate) was declared on October 25, 1993. The determination of the amount of future dividends, however, will be made by NGC's Board of Directors from time to time and will depend on the Company's future earnings, capital requirements, financial condition and other relevant factors.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
---------------
(1) As discussed in Note 2 of Item 8 -- "Financial Statements and Supplementary Data," effective January 1, 1994, Newmont Gold Company acquired essentially all of the assets and liabilities of its parent, Newmont Mining Corporation. This transaction contributed to the increase in total assets and long-term debt and decrease in stockholders' equity at December 31, 1994 compared to December 31, 1993.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Effective January 1, 1994, the Company acquired essentially all of the assets and assumed essentially all of the liabilities of its parent company, Newmont Mining Corporation ("NMC"). The transaction resulted in, among other things, the Company receiving 8,649,899 shares of its common stock held by NMC and the Company issuing 2,875,000 shares of $5.50 convertible preferred stock to NMC with identical terms to NMC's outstanding convertible preferred stock, except that the Company's preferred stock is convertible into shares of the Company instead of NMC. NMC retained approximately 89% of the outstanding common stock of the Company. The transfer of the assets and liabilities of the Company was accounted for at historical cost as a transaction between entities under common control and the difference was charged to retained earnings. This transaction is further discussed in Note 2 to Item 8
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Newmont Gold Company:
We have audited the accompanying consolidated balance sheets of Newmont Gold Company (a Delaware corporation) and subsidiaries as of December 31, 1994 and 1993, and the related statements of consolidated income, changes in stockholders' equity and cash flows for each of the three years in the period ended December 31, 1994. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Newmont Gold Company and subsidiaries as of December 31, 1994 and 1993, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1994 in conformity with generally accepted accounting principles.
As discussed in Note 6 to the consolidated financial statements, effective January 1, 1993, the Company changed its method of accounting for income taxes. In addition, as discussed in Note 11 to the consolidated financial statements, effective January 1, 1992, the Company changed its method of accounting for postretirement benefits other than pensions.
/s/ ARTHUR ANDERSEN LLP ARTHUR ANDERSEN LLP
Denver, Colorado, March 14, 1995.
NEWMONT GOLD COMPANY AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME (IN THOUSANDS, EXCEPT PER SHARE)
The accompanying notes are an integral part of these statements.
NEWMONT GOLD COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT PER SHARE)
The accompanying notes are an integral part of these statements.
NEWMONT GOLD COMPANY AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CHANGES IN STOCKHOLDERS' EQUITY (IN THOUSANDS, EXCEPT PER SHARE)
The accompanying notes are an integral part of these statements.
NEWMONT GOLD COMPANY AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS (IN THOUSANDS)
See Note 14 for supplemental cash flow information.
The accompanying notes are an integral part of these statements.
NEWMONT GOLD COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Newmont Gold Company and its more than 50% owned subsidiaries (collectively, the "Company"). The Company also includes its pro-rata share of assets, liabilities and operations for joint ventures in which it has an interest. All significant intercompany balances and transactions have been eliminated. Newmont Mining Corporation ("NMC") owns approximately 89% of the Company.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of all cash balances and highly liquid investments with a maturity of three months or less. Excess cash balances are primarily invested in U.S. Treasury bills with lesser amounts invested in high quality commercial paper and time deposits.
INVESTMENTS
Effective January 1, 1994, the Company adopted Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities." There was no impact on the Company's financial position as the related investments are considered to be classified as held to maturity.
Short-term investments are carried at cost, which approximates market, and include Eurodollar government and corporate obligations rated AA or higher. At December 31, 1994, approximately $6.9 million of such investments were secured by letters of credit.
Investments in companies in which the Company's ownership is 20% to 50% are accounted for by the equity method of accounting.
Investments in companies owned less than 20% are recorded at the lower of cost or net realizable value and income from such investments is recorded when dividends are paid.
INVENTORIES
Ore and in-process inventories and materials and supplies are stated at the lower of average cost or net realizable value. Precious metals are stated at market value.
Non-current inventories are stated at the lower of average cost or net realizable value and represent ore-in-stockpiles from which no material is expected to be processed for more than one year after the balance sheet date.
PROPERTY, PLANT AND MINE DEVELOPMENT
Expenditures for new facilities or expenditures which extend the useful lives of existing facilities are capitalized and depreciated using the straight-line method at rates sufficient to depreciate such costs over the estimated productive lives of such facilities, which range from two to twenty-one years.
Mineral exploration costs are expensed as incurred. When it has been determined that a mineral property can be economically developed, the costs incurred to develop such property, including the costs to further delineate the ore body and remove overburden to initially expose the ore body, are capitalized. Such costs and estimated future development costs are amortized using a unit-of-production method over the estimated life of the ore body. On-going development expenditures to maintain production are generally charged to operations as incurred.
NEWMONT GOLD COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Significant payments related to the acquisition of exploration interests are capitalized. If a mineable ore body is discovered, such costs are amortized using a unit-of-production method. If no mineable ore body is discovered, such costs are expensed in the period in which it is determined the property has no future economic value.
Interest expense allocable to the cost of developing mining properties and to constructing new facilities is capitalized until operations commence.
Gains or losses from normal sales or retirements of assets are included in other income or expense.
MINING COSTS
In general, mining costs are charged to operations as incurred. Due to the diverse waste-to-ore ratios encountered in mining certain of the Company's deposits, mining costs for the deposits, to the extent they do not relate to current production, are capitalized and then charged to operations when the applicable gold is produced.
RECLAMATION AND MINE CLOSURE COSTS
Estimated future reclamation and mine closure costs are based principally on legal and regulatory requirements and are accrued and charged over the expected operating lives of the Company's mines using a unit-of-production method.
INCOME TAXES
The Company's taxable income is included in NMC's consolidated U.S. federal income tax return. Pursuant to a tax-sharing agreement with NMC, the Company calculated its provision for income taxes as if the Company filed separate U.S. federal and state corporate income tax returns, with certain adjustments. Effective January 1, 1994, pursuant to a revised tax-sharing agreement with NMC, the Company succeeds to and assumes all corporate income tax attributes and liabilities of NMC as of January 1, 1994.
Prior to 1993, the Company recorded deferred income taxes under Accounting Principles Board Opinion No. 11, "Accounting for Income Taxes" ("APB 11"). Under the deferred method of APB 11, the Company recognized certain revenues and expenses for financial reporting purposes at different times than it recognized such amounts for income tax purposes, generating a deferred income tax charge or benefit for the year.
Effective January 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). Under the liability method of SFAS 109, the Company recognizes certain temporary differences between the financial reporting basis of the Company's liabilities and assets and the related income tax basis for such liabilities and assets.
This generates a net deferred income tax liability or net deferred income tax asset for the Company for the year, as measured by the statutory tax rates in effect as enacted. The Company then derives its deferred income tax charge or benefit by recording the change in the net deferred income tax liability or net deferred income tax asset balance for the Company for the year.
GOLD HEDGING ACTIVITIES
The Company may enter into gold loans, options contracts and forward sales contracts to hedge the effect of price changes on the gold it produces. Gains and losses realized on such instruments, as well as any cost or revenue associated therewith, are recognized in sales when the related production is delivered.
NEWMONT GOLD COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
EARNINGS PER COMMON SHARE
For periods prior to 1994, net income per share was computed by dividing net income by the weighted average number of common shares assumed to be outstanding during each period. There were no common share equivalents for these periods.
As a result of the issuance of stock options in 1994 arising from the transaction with NMC, discussed in Note 2, earnings per common and common equivalent share for 1994 are based on the sum of the weighted average number of common shares outstanding during the period, and the assumed exercise of stock options having exercise prices less than the average market prices of the common stock during the period using the treasury stock method. The convertible preferred shares issued in connection with the transaction with NMC are not common stock equivalents and were anti-dilutive for 1994. The weighted average number of shares used in the earnings per share calculations were 96.5 million in 1994, and 104.9 million in 1993 and 1992.
RECLASSIFICATIONS
Certain amounts in prior years have been reclassified to conform to the 1994 presentation.
(2) ACQUISITION OF NMC'S OPERATIONS
Effective January 1, 1994, the Company acquired all of the operations of NMC. The transaction included the following: (a) the transfer by NMC to the Company of 8,649,899 shares of the 94,500,000 shares of common stock of the Company held by NMC; (b) the transfer by NMC of all of its other assets to the Company; (c) the assumption by the Company of all the liabilities (contingent or otherwise) of NMC (including the Company's $159.6 million of advances to NMC as of December 31, 1993), but not NMC's obligations with respect to its $5.50 convertible preferred stock (the "NMC Preferred Stock") (except for accrued and unpaid dividends as of December 31, 1993) and its employee stock options exercisable for NMC's common stock; (d) the issuance by the Company to NMC of 2,875,000 shares of $5.50 convertible preferred stock with a par value of $5.00 per share, and having terms identical to the NMC Preferred Stock (except that upon conversion, NMC will be entitled to receive shares of the Company's common stock instead of NMC's common stock); and (e) the issuance by the Company to NMC of stock options exercisable for shares of the Company's common stock having terms identical to NMC's employee stock options (except upon exercise, the Company's common stock is issued instead of NMC's common stock). It is intended that the preferred stock and stock options issued by the Company to NMC will be exercised if and to the extent NMC Preferred Stock and outstanding NMC stock options are exercised and that the Company would grant to NMC additional stock options if and to the extent additional stock options were granted by NMC. As a result of the transaction (and giving effect to subsequent stock option exercises by NMC and additional stock option grants by the Company), NMC's only assets at December 31, 1994 are (i) 86,079,932 shares of common stock of the Company which approximates 89.2% of the Company's common stock outstanding, (ii) 2,875,000 shares of the Company's $5.50 convertible preferred stock and (iii) stock options to purchase 2,177,546 shares of the Company. (If the preferred stock were converted and stock options were exercised, NMC's percentage interest in the Company would increase to 90.3%.)
The Company accounted for the transaction as a transfer of assets and liabilities between entities under common control. As a result, the transferred assets and liabilities were recorded by the Company at NMC's historical cost with the difference charged to retained earnings. The 8,649,899 shares of common stock of the Company transferred by NMC to the Company were recorded as treasury stock at the book value of those shares on December 31, 1993. The Company's convertible preferred stock was recorded at its par value.
The following pro forma condensed consolidated income statement for 1993 gives effect to the transaction as if it had occurred January 1, 1993 and the pro forma condensed consolidated balance sheet reflects the transaction as if it had occurred December 31, 1993. These statements include the historical amounts for the
NEWMONT GOLD COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Company, adjusted to reflect the historical amounts of NMC excluding its interest in the Company and the elimination of intercompany interest amounts. These pro forma financial statements are presented for illustrative purposes only, and are not necessarily indicative of the Company's future operating results or financial condition.
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME (IN THOUSANDS, EXCEPT PER SHARE)
---------------
(A) Reflects the combined operations of NMC excluding its interest in the Company, before the cumulative effect of a change in accounting principle.
(B) Eliminates intercompany interest between the Company and NMC.
(C) Reflects the 8,650 shares of the Company's common stock transferred to the Company by NMC, adjusted for 176 common stock equivalent shares resulting from the options exercisable for the Company's common stock.
NEWMONT GOLD COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (IN THOUSANDS, EXCEPT PER SHARE)
---------------
(A) Reflects the transfer at historical cost of NMC's combined assets and liabilities excluding its interest in the Company at December 31, 1993.
(B) Eliminates intercompany advances between the Company and NMC.
(C) Reflects the issuance at par value of 2,875 shares of the Company's $5.50 convertible preferred stock, $5.00 per share par value, to NMC.
(D) Reflects the transfer at a net book value of $8.81 per share at December 31, 1993 of 8,650 shares of the Company's common stock from NMC to the Company. The number of shares to be transferred was determined by taking the average closing market price of the Company's common stock ten trading days before the public announcement of the transaction and dividing it into the agreed to value of the Company's common stock of $374 million.
NEWMONT GOLD COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(3) INVENTORIES
(4) PROPERTY, PLANT AND MINE DEVELOPMENT
(5) OTHER ACCRUED LIABILITIES
(6) INCOME TAXES
SFAS 109 requires that, effective January 1, 1993, the Company account for income taxes under the liability method, rather than the deferred method required previously under APB 11. The cumulative effect of this change in accounting for income taxes was to increase the Company's 1993 earnings $2.7 million, or $0.02 per share, attributable to fiscal years prior to 1993.
NEWMONT GOLD COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Under SFAS 109, the Company must establish deferred income tax liabilities and deferred income tax assets when temporary differences arise between the financial reporting basis and the income tax basis of the Company's liabilities and assets, as measured by the statutory rates in effect as enacted.
The Company's deferred income tax assets include certain future tax benefits such as net operating losses or tax credit carryforwards. The Company must record a valuation allowance against any portion of those deferred income tax assets which it believes it will more likely than not fail to realize.
As discussed in Note 2, effective January 1, 1994, the Company acquired essentially all of the assets and assumed essentially all of the liabilities of NMC. The Company's deferred income tax liabilities and assets at December 31, 1994, reflect the impact of this transaction. Worldwide components of the Company's resulting deferred income tax (liabilities) and assets are as follows (in thousands):
Based upon its estimate of future operations and tax planning strategies, the Company believes that it more likely than not will utilize $111.2 million of the $120.0 million of gross deferred tax assets at December 31, 1994, reflecting a valuation allowance of $8.8 million and a net increase of $6.1 million from December 31, 1993's valuation allowance.
The Company gives no outright assurance that it will generate sufficient taxable income to fully realize the $111.2 million of gross deferred tax assets at December 31, 1994. Rather the Company's future levels of taxable income will depend, in part, upon gold prices, general economic conditions and other factors beyond the Company's control.
NEWMONT GOLD COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company's pre-tax financial statement income (loss) before the cumulative effect of changes in accounting principles consists of (in thousands):
The Company's provisions (benefits) for income taxes before the cumulative effect of changes in accounting principles consist of (in thousands):
In accordance with APB 11, the Company's deferred income tax benefits for 1992, before the cumulative effect of a change in accounting principle, consisted of (in thousands):
On August 10, 1993, President Clinton signed into law the Revenue Reconciliation Act of 1993, raising the U.S. federal corporate income tax rate from 34% to 35% (retroactive to January 1, 1993). The Company's resulting provisions (benefits) for income taxes before the cumulative effect of changes in accounting
NEWMONT GOLD COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
principles differ from the amounts computed by applying the U.S. corporate income tax statutory rate for the following reasons (in thousands):
The Company's prepaid income taxes were $9.1 million and $5.7 million at December 31, 1994 and 1993, respectively. The Company's other long-term liabilities included $23.7 million and $7.2 million of taxes payable at December 31, 1994 and 1993, respectively.
(7) DEBT
LONG-TERM DEBT
Long-term debt obligations of the Company were as follows (in thousands):
No long-term debt was outstanding at December 31, 1993. Long-term indebtedness was assumed by the Company in 1994 as a result of the transaction with NMC discussed in Note 2. Scheduled minimum long-term debt repayments are zero in 1995, $14.0 million in 1996, $19.3 million in 1997, $25.0 million in 1998 and $17.9 million in 1999. Actual payments may be greater due to actual operating cash flows realized.
Sale-leaseback of the Refractory Ore Treatment Plant
In September 1994, the Company entered into a sale and leaseback agreement for its refractory ore treatment plant located in Carlin, Nevada for $349.1 million. The transaction has been accounted for as debt for financial statement purposes, with the cost of the refractory ore treatment plant recognized as an asset and depreciated. The lease is for 21 years and the aggregate future minimum lease payments, which include interest, as of December 31, 1994 were $667.9 million. These payments begin in January 1996 and are $29.7 million annually in 1996 through 1999. Principal payments are included in these amounts beginning in 1998. The lease has purchase options during and at the end of the lease at predetermined prices.
In connection with this transaction, the Company entered into certain interest rate contracts to hedge the interest cost of the financing. These contracts were settled for a gain of $11.0 million which will be recognized as a reduction of interest expense over the term of the lease. As a result of this gain, the effective interest rate is 6.15%.
NEWMONT GOLD COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8 5/8% Notes
Unsecured notes with a principal amount of $150.0 million due April 1, 2002 and bearing an annual interest rate of 8 5/8% were outstanding at December 31, 1994. Interest is payable semi-annually in April and October and the notes are not redeemable prior to maturity. Using interest rates prevailing on similar instruments at December 31, 1994, this debt is estimated to have a fair value of $151.5 million.
Medium-term Notes
Notes totalling $42.0 million with a weighted average interest rate of 7.7%, maturing on various dates ranging from mid-1999 to late 2004, were outstanding as of December 31, 1994. Using interest rates prevailing on similar instruments at December 31, 1994, this debt is estimated to have a fair value of $40.4 million.
Project Financing Facility
The Company, through a wholly-owned subsidiary, is a 50% participant in the Zarafshan-Newmont Joint Venture ("Zarafshan-Newmont") in the Republic of Uzbekistan. The other 50% participants are two entities of the Uzbekistan government. Zarafshan-Newmont was established to construct and operate a leaching facility to produce gold from low-grade ore previously mined and stockpiled at the Muruntau Mine in the Republic of Uzbekistan.
Zarafshan-Newmont has secured $105.0 million of project financing from a consortium of banks. The loan is payable out of the proceeds of the project, beginning the earlier of three months after the first interest payment date after project completion tests are satisfied or July 20, 1996, in semi-annual installments over three years. The average interest rate on the loan is 2.25 percentage points over the three month London Interbank Offered Rate prior to satisfaction of project completion tests and 3.75 percentage points over the three month London Interbank Offered Rate after satisfaction of project completion tests. The weighted average interest rate for 1994 was 6.9% and the interest rate at December 31, 1994 was 7.8%. The full amount under the facility had been drawn down as of December 31, 1994. The Company expects that the facility will be amended to allow Zarafshan-Newmont to draw down an additional $30 million under the facility in 1995.
The Company has guaranteed one-half of the payment of any amounts due under such loan until the requirements of the project completion tests have been satisfied, at which time the loan will become non-recourse debt. Such completion tests must be satisfied no later than October 1996. The Company has obtained political risk insurance coverage for its investment and loan guarantee.
Revolving Credit Facility
The Company has a $400.0 million revolving credit facility with a consortium of banks. The facility expires in April 1998. No amounts were outstanding under the facility as of December 31, 1994. Interest rates are variable and adjust subject to changes in the Company's long-term debt ratings and to usage of the facility in terms of borrowings as a percentage of commitments. Currently, the Company's interest rate is the lenders' base rate plus 0.25%. The Company has the option to fix the rate for up to six months. There is an annual facility fee which will also adjust subject to the Company's debt ratings. This fee is presently 0.15% of the lenders' total commitment.
The revolving credit facility contains certain covenants that limit consolidated indebtedness, as defined, to 67% of total capitalization; require minimum net worth, as defined, of $250.0 million in 1994, which then increases $25.0 million annually through 1997; and require an interest coverage ratio, as defined, of not less than 2.5 to 1.
NEWMONT GOLD COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
SHORT-TERM DEBT
All short-term debt at December 31, 1994 consisted of bank debt. The Company currently has unsecured demand bank lines of credit aggregating $16.0 million, of which $15.7 million was outstanding at December 31, 1994. These facilities bear interest at customary short-term rates for borrowers with similar credit ratings. The interest rate on this short-term debt had a weighted average of 6.5% in 1994 and was 8.5% at December 31, 1994.
CAPITALIZED INTEREST
Capitalized interest was $19.7 million in 1994. No interest was capitalized in 1993 or 1992.
(8) RELATED PARTY TRANSACTIONS
Prior to the transaction discussed in Note 2, which was effective January 1, 1994, the Company engaged in various transactions with NMC and other companies then affiliated with NMC in the ordinary course of its business. Such transactions included, among other things, advances or borrowings.
Prior to January 1, 1994, the Company and NMC were parties to a management services agreement whereby the Company agreed to provide NMC general executive, administrative and other services. Pursuant to this agreement, the Company charged NMC $21.8 million and $19.6 million in 1993 and 1992, respectively.
Advances to parent at December 31, 1993 reflect NMC effectively investing the Company's cash in less than 90 day money market instruments. The Company was credited with the average rate of earnings NMC received on its invested funds. During 1993 and 1992, the Company was credited with interest at average rates of 2.9% and 3.3%, respectively. As the advances earned market interest investment rates, the Company estimated that the recorded amounts approximated fair value at December 31, 1993 and 1992.
Exploration, mine development and metallurgical research costs incurred for and charged to the Company by a company which was an affiliate of NMC prior to January 1, 1994, amounted to $19.4 million and $21.6 million in 1993 and 1992, respectively.
(9) STOCKHOLDERS' EQUITY
PREFERRED STOCK
Effective January 1, 1994, as a result of the transaction discussed in Note 2, the Company issued to NMC 2.875 million shares of $5.00 par value Convertible Preferred Stock at a value of $100 per share.
The $5.50 annual dividend per share is cumulative from January 1, 1994 and is payable quarterly commencing June 15, 1994. The shares are convertible at any time at the option of the holder into shares of common stock of the Company at a conversion price of $36.395 for each share of common stock, subject to certain adjustments. The Convertible Preferred Stock is not redeemable prior to November 15, 1995. On and after such date it is redeemable, in whole or in part, at the option of the Company, at a beginning redemption price of $103.85 per share. Such redemption price then declines $0.55 per share annually until it reaches $100 per share on November 15, 2002, which is also the liquidation preference per share. The Convertible Preferred Stock, except in limited circumstances, does not have voting rights.
As discussed in Note 2, the terms of the Preferred Stock mirror the NMC Preferred Stock. Through the Preferred Stock, the Company facilitates compliance by NMC with its continuing obligations under the NMC Preferred Stock. Dividends paid by the Company to NMC on account of the Preferred Stock are in turn paid by NMC to the holders of the NMC Preferred Stock. The Company will only exercise its redemption right under the Preferred Stock if and to the extent the corresponding right is exercised by NMC. In addition, NMC intends to convert its shares of the Company's Preferred Stock only if and to the extent the NMC
NEWMONT GOLD COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Preferred Stock is converted. This will insure that the number of outstanding shares of the Company's Common Stock held by NMC will equal the number of outstanding shares of NMC Common Stock.
(10) STOCK OPTIONS
As part of the transaction with NMC discussed in Note 2, the Company issued options to NMC to purchase shares of the Company's Common Stock. The Company issued options in the same number and with the same exercise prices as all of the NMC options (the "NMC Options") then outstanding. Additional options have been and will continue to be issued by the Company to NMC to match the terms of additional NMC Options granted. NMC has exercised and will continue to exercise the stock options issued to it by the Company if and to the extent the corresponding NMC stock options have been or will be exercised.
Substantially all of the NMC Options have been granted to participants under NMC's 1982 Key Employees Stock Option Plan, 1987 Key Employees Stock Option Plan and 1992 Key Employees Stock Plan (collectively, the "plans"). NMC continues to grant NMC Options to eligible participants under its 1987 Key Employees Stock Option Plan and 1992 Key Employees Stock Plan.
Under NMC's stock option plans, NMC Options to purchase shares of NMC are granted to key employees at the fair market value of such shares on the date of grant. NMC Options under these plans are subject to certain restrictions, generally vest over a two year period and are exercisable over a period not exceeding ten years. At December 31, 1994, 996,053 shares were available for future grants under NMC's stock option plans.
In 1994, 1993 and 1992, certain key executives were granted NMC Options that, although the exercise price is generally equal to the fair market value on the date of grant, cannot be exercised when vested until the market price of NMC's common stock is a defined amount above the option exercise price. In addition, the same executives were granted NMC Options in 1994, 1993 and 1992 whose exercise prices are in excess of the fair market value on the date of grant. Generally, these key executive NMC Options vest over a period of one to five years and are exercisable over a ten year period. At December 31, 1994, 846,909 of these NMC Options were outstanding.
The following table summarizes annual stock option activity for the year ended December 31, 1994:
At December 31, 1994, 1,007,998 options were exercisable.
(11) EMPLOYEE BENEFIT PLANS
PENSION BENEFITS
Prior to January 1, 1994, the Company had one qualified non-contributory defined benefit pension plan which covered substantially all hourly employees. As a result of the transaction with NMC discussed in Note 2, the Company now has two qualified non-contributory defined benefit pension plans, one which covers salaried employees and the other which covers substantially all hourly employees. In addition, as a result of the transaction with NMC discussed in Note 2, the Company has a non-qualified supplemental pension plan for salaried employees whose benefits under the qualified plan are limited by federal legislation. The vesting
NEWMONT GOLD COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
period is five years of service for each plan. The plans' benefit formulas are based on an employee's years of credited service and either such employee's last five years average pay (salaried plan) or a flat dollar amount (hourly plan).
Pension costs are determined annually by independent actuaries and pension contributions to the qualified plans are made based on funding standards established under the Employee Retirement Income Security Act of 1974 ("ERISA"). The Company maintains a trust for the purpose of funding the supplemental pension plan as well as death benefits for officers of the Company. This trust is funded at the discretion of the Company and had a balance of $1.9 million (which approximated market) at December 31, 1994. Although the trust's assets can be used to pay benefits for the supplemental pension plan, they cannot be used in determining the net pension liability for the supplemental pension plan. The qualified plans' assets consist of stocks, bonds and cash.
The components of pension expense, in the aggregate, consist of (in thousands):
The following tables set forth the funded status of the Company's pension plans and the amounts recognized in the Company's consolidated balance sheets at December 31, 1994 and 1993, respectively (in thousands):
NEWMONT GOLD COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In accordance with the provisions of Statement of Financial Accounting Standards No. 87, an adjustment was required to reflect a minimum liability for the supplemental pension plan in 1994. Such adjustment resulted in recording an intangible asset and, to the extent the minimum liability adjustment exceeded the unrecognized net transition liability, a reduction of $2.8 million in stockholders' equity, which was net of related deferred income tax benefits for 1994.
In measuring the projected benefit obligation for the plans, the following actuarial assumptions were used:
The weighted average expected long-term rate of return on plan assets was assumed to be 8.25% for 1994, 8.25% for 1993 and 9.25% for 1992.
RETIREE BENEFITS OTHER THAN PENSIONS
The Company provides defined medical benefits to qualified retirees who were salaried employees and their eligible dependents, and it provides defined life insurance benefits to qualifying retirees who were salaried employees. In general, participants become eligible for these benefits upon retirement directly from the Company if they are at least 55 years old and the combination of their age and years of service with the Company equals 75 or more.
The defined medical benefits cover most of the reasonable and customary charges for hospital, surgical, diagnostic and physician services and prescription drugs. Life insurance benefits are based on a percentage of final base annual salary and decline over time after retirement commences.
The Company adopted Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" ("SFAS 106"), effective January 1, 1992. The statement requires that postretirement benefits other than pensions be accrued during an employee's service to the Company. Previously, the Company recorded the expense when benefit payments were made for retirees.
The actuarially-determined accumulated postretirement benefit obligation ("APBO") calculated in accordance with SFAS 106 at January 1, 1992 was $7.2 million. The Company expensed $6.4 million of this amount as a cumulative effect of a change in accounting principle. The remainder of approximately $0.8
NEWMONT GOLD COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
million was charged to NMC pursuant to the then effective management services agreement with NMC. Effective January 1, 1994 with the transaction discussed in Note 2, NMC's actuarially-determined APBO of $11.6 million was transferred to the Company.
The components of expense for postretirement benefits other than pensions for 1994, 1993 and 1992 are shown in the table below (in thousands):
The Company charged NMC $0.2 million in 1993 and 1992 for NMC's share of these costs in accordance with the provisions of the then effective management services agreement.
The following table sets forth the components of the liability for the Company's plans for postretirement benefits other than pensions recognized in its balance sheet (in thousands):
At December 31, 1994, $3.0 million of assets, which were transferred in the transaction with NMC discussed in Note 2, with market values of approximately the same amounts, were designated in a trust to pay postretirement benefits other than pensions. Since these assets could be used to pay other employee benefits, they cannot be used for the postretirement benefit calculations. The Company has no formal policy for funding postretirement benefit obligations.
Weighted average discount rates of 8.5% and 7.5% were used in calculating the APBO at December 31, 1994 and 1993, respectively. The assumed health care cost trend rates to measure the expected cost of benefits at December 31, 1994 start at a 10% annual increase for coverage before the age of 65 and a 9% annual increase for coverage after the age of 64. These rates were assumed to decrease one percentage point each year until a 6% annual rate of increase was reached, at which point a 6% annual rate of increase was assumed thereafter. The effect of a one percentage point annual increase in the assumed cost trend rates would increase the aggregate of service and interest costs and the APBO for 1994 by approximately 22%.
SAVINGS PLAN
The Company has two qualified defined contribution savings plans, one which covers salaried employees and the other which covers substantially all hourly employees. In addition, the Company has a non-qualified supplemental savings plan for salaried employees whose benefits under the qualified plan are limited by federal regulations.
NEWMONT GOLD COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
After six months or one year of service for the salaried and hourly plans, respectively, the Company generally matches 100% of employee contributions of up to 6% and 4% of base salary for the salaried and hourly plans, respectively.
The Company's matching contributions to such plans were $3.3 million, $2.0 million and $1.9 million in 1994, 1993 and 1992, respectively.
(12) OTHER EXPENSES
The Company is involved in several matters concerning environmental obligations primarily associated with former mining activities, as discussed in Note 15. Included in other expenses for the year ended December 31, 1994 is a charge of $36.1 million related to these matters.
Costs related to the transaction with NMC discussed in Note 2 of $0.6 million and $3.5 million were expensed in 1994 and 1993, respectively. Also during 1994, the Company incurred $4.1 million of costs associated with defeating a referendum placed on the Oregon ballot which would have effectively prevented open pit mining.
The Company expensed $0.7 million, $0.5 million and $3.8 million in 1994, 1993 and 1992, respectively, when it wrote down the carrying value of certain assets.
(13) MAJOR CUSTOMERS AND EXPORT SALES
The Company is not economically dependent on a limited number of customers for the sale of its product, primarily gold, because gold commodity markets are well-established worldwide. During 1994, there were three customers which accounted for $125.2 million, $99.6 million and $88.5 million of total sales, each of which represented more than 10% of total sales and together accounted for 52% of annual sales. In 1993, sales to three such major customers accounted for $104.9 million, $97.3 million and $78.3 million, or 47% of total sales. In 1992, sales to two such major customers accounted for $124.9 million and $65.2 million, or 35% of total sales.
Export sales were $497.2 million, $269.1 million and $242.5 million for 1994, 1993 and 1992, respectively.
(14) SUPPLEMENTAL CASH FLOW INFORMATION
Net cash provided by operating activities includes the following cash payments (in thousands):
NEWMONT GOLD COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Excluded from the statements of consolidated cash flows are the effects of certain non-cash transactions. The following reflects the adjustments made to the Company's balance sheet effective as of January 1, 1994 for the transaction with NMC discussed in Note 2 (in thousands):
Other non-cash transactions include the recognition in 1994 of an income tax benefit of $16.2 million resulting from the resolution of certain tax issues associated with prior years and in 1992 the exchange of $10.6 million of employee housing property for $7.7 million of notes receivable and $2.9 million in cash.
(15) COMMITMENTS AND CONTINGENCIES
ENVIRONMENTAL OBLIGATIONS
The Company's mining and exploration activities are subject to various federal and state laws and regulations governing the protection of the environment. These laws and regulations are continually changing and are generally becoming more restrictive. The Company conducts its operations so as to protect the public health and environment and believes its operations are in compliance with all applicable laws and regulations. The Company has made, and expects to make in the future, expenditures to comply with such laws and regulations. The Company cannot predict such future expenditures.
As a result of the transaction with NMC discussed in Note 2, the Company assumed several environmental obligations primarily associated with former mining activities. Based upon the Company's best estimate of its liability for these matters, $64.3 million was accrued at December 31, 1994, excluding $18.4
NEWMONT GOLD COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
million also accrued for reclamation costs relating to currently producing mineral properties. The amounts are included in reclamation liabilities and other current liabilities. The $64.3 million at December 31, 1994 includes charges of $16.1 million taken in 1994 as a result of the Company revising its estimate of the costs associated with these matters. Depending upon the ultimate resolution of these matters, the Company believes that it is reasonably possible that the liability for these matters could be as much as 65% greater or 15% lower than the amount accrued at December 31, 1994.
A discussion of the environmental obligations and related insurance receivables associated with former mining activities as of December 31, 1994 follows.
Idarado Mining Company ("Idarado") -- 80.1% owned
In July 1992, NMC and Idarado signed a consent decree with the State of Colorado ("State") which was agreed to by the U.S. District Court of Colorado to settle a lawsuit brought by the State under the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"), generally referred to as the "Superfund Act." Idarado settled natural resources damages, past and future response costs and provided habitat enhancement work. In addition, Idarado agreed in the consent decree to undertake specified remediation work related to its former mining activities in the Telluride/Ouray area of Colorado. The Company's best estimate of the cost of this work is included in the gross liability, as previously discussed. If the remediation work does not meet certain measurement criteria specified in the consent decree, the State and court reserve the right to require Idarado to perform other remediation work. Idarado and the Company have obtained a $16.3 million letter of credit to secure their obligations under the consent decree.
Resurrection Mining Company ("Resurrection") -- 100% owned
In 1983, the State of Colorado filed a lawsuit under the Superfund Act which involves a joint venture mining operation near Leadville, Colorado in which Resurrection is a joint venturer. This action was subsequently consolidated with a lawsuit filed by the U. S. Environmental Protection Agency ("EPA") in 1986. The EPA is taking the lead role on cleanup issues. The proceedings sought to compel the defendants to remediate the impacts of pre-existing mining activities which the government agencies claim are causing substantial environmental problems in the area. The mining operations of the joint venture are operated by ASARCO, the other joint venturer. The lawsuits have named NMC, Resurrection, the joint venture and ASARCO defendants in the proceedings. They are also proceeding against other companies with interests in the area.
The EPA divided the remedial work into two phases. Phase I addresses a drainage and access tunnel owned by the joint venture -- the Yak Tunnel. Phase II addresses the remainder of the site.
In 1988 and 1989, the EPA issued administrative orders with respect to Phase I work for the Yak Tunnel. The joint venture, ASARCO, Resurrection and NMC have collectively implemented those orders by constructing a water treatment plant which was placed in operation in early 1992. The joint venture is in negotiations regarding remaining remedial work for Phase I, which primarily consists of monitoring and environmental maintenance activities.
The parties have entered into a consent decree with respect to Phase II which apportions liabilities and responsibilities for the site among the various parties. The EPA has not yet completed work to define the remedies for Phase II. Accordingly, the Company cannot yet determine the full extent or cost of its share of remedial action which will be required under Phase II. Moreover, in addition to such remedial action, the government agencies may seek to recover for damages to natural resources.
Although the ultimate amount of Resurrection's and the Company's share of such costs for Phase I and Phase II cannot be presently determined, the Company's best estimate of its potential exposure for these costs is included in the gross liability for these matters, as previously discussed.
NEWMONT GOLD COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Dawn Mining Company ("Dawn") -- 51% owned
Dawn leased a currently inactive open-pit uranium mine on the Spokane Indian Reservation in the State of Washington. The mine is subject to regulation by agencies of the U. S. Department of Interior, the Bureau of Indian Affairs and the Bureau of Land Management, as well as the EPA. Dawn also owns a nearby uranium millsite facility.
In 1991, Dawn's lease was formally terminated. As a result, Dawn was required to file a formal reclamation plan. Dawn does not have sufficient funds to pay for such a reclamation plan or to pay for the closure of its mill. The Company's best estimate for the future costs related to these matters is included in the gross liability for environmental matters, as previously discussed. Dawn has developed and has received a license for a mill closure plan which could potentially generate the necessary funds to reclaim the mine and the mill. The plan, however, is currently being challenged administratively by third parties.
The Department of Interior previously notified Dawn that when the lease was terminated, it would seek to hold Dawn and NMC (as Dawn's then 51% owner) liable for any costs incurred as a result of Dawn's failure to comply with the lease and applicable regulations. The Company would vigorously contest any such claims. The Company cannot reasonably predict the likelihood or outcome of any future action against Dawn or the Company arising from this matter.
Insurance Receivables
Included in accounts receivable at December 31, 1994 was a net $16.7 million attributable to insurance carriers for both a portion of the costs previously expended and for estimated future costs associated with environmental obligations covered by insurance policies associated with former mining activities. The amount is net of a $20.0 million valuation allowance established in 1994.
Prior to 1993, three of the insurance companies commenced actions against the Company seeking judgments that they had no liability. In the fall of 1993, the Company instituted a comprehensive lawsuit against its carriers. In addition, in 1993, the Company designated new lead counsel for all the insurance recovery actions.
Based on the views of prior lead counsel, the Company had believed that significant progress in certain settlement discussions would have been achieved by mid-summer 1994, but that expectation was not realized. The absence of such anticipated progress in settlement discussions, as well as the Company's discussions with new lead counsel for the insurance recovery actions regarding its review of such actions, caused the Company in the second quarter of 1994 to provide a $20.0 million valuation allowance on its insurance receivables resulting in the net balance outstanding at December 31, 1994. Subsequent to December 31, 1994, settlement in the insurance litigation was reached enabling the Company to realize the December 31, 1994 receivable. Settlement discussions continue with respect to some of the litigation. The Company will continue to vigorously pursue recovery in the remaining litigation and believes that it is reasonably possible that additional amounts will be recovered.
CLASS ACTION COMPLAINT
In March 1995, a class action complaint was filed against NMC and others in which the plaintiffs allege exposure to certain allegedly radioactive or otherwise hazardous waste materials produced at a ferroalloy production plant in Guernsey County, Ohio. This plant was owned until 1987 by Foote Mineral Company, a former subsidiary of NMC. The complaint seeks $500 million of compensatory damages jointly and severally against all defendants, $63 million in punitive damages against NMC, the recovery of response costs and the establishment of a medical monitoring fund under CERCLA. Injunctive relief requiring defendants to remove the allegedly hazardous materials from the property of the plaintiffs is also requested.
NEWMONT GOLD COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company is investigating this recently filed action and intends to vigorously contest all alleged liability in this matter.
GUARANTEE OF THIRD PARTY INDEBTEDNESS
As a result of the transaction with NMC discussed in Note 2, the Company assumed NMC's guarantee of $35.7 million of Magma Copper Company's (a former NMC subsidiary) Pollution Control Revenue Bonds due 2009. It is expected the Company will be required to remain liable on this guarantee so long as the bonds relating thereto are outstanding.
GOLD PRICE HEDGING CONTRACTS
In 1994, the Company entered into several hedging transactions that begin in January 1996 and continue through December 2000 for future production from its Indonesian property, Minahasa. These transactions consist of forward sales of 125,000 ounces per year at an average floor price of $454 per ounce, plus the Company will receive 40% of the difference in the market price above the forward sale price. The Company may enter into additional hedging transactions in the future. No production through 1994 had been hedged.
GUARANTEE OF PROJECT FINANCING INDEBTEDNESS
The Company has a 38% interest in Minera Yanacocha S.A. ("Yanacocha"), a Peruvian gold operation which commenced operations in 1993. During 1994, Yanacocha secured project financing of $23.5 million from a consortium of banks. The Company agreed to guarantee approximately $8.9 million of this amount until the earlier of the repayment of all amounts due pursuant to the project financing or the satisfaction of a project completion test. Yanacocha expects that the project completion test will be satisfied in mid-1995.
OTHER COMMITMENTS AND CONTINGENCIES
In December 1992, the Company entered an agreement with Barrick Goldstrike Mines, Inc. ("Barrick") which provides for Barrick to mine the Company's Post deposit which extends beyond the Company's property boundaries onto Barrick's property. The Company and Barrick share the costs so that each ounce of gold mined bears the same mining cost. The Company is obligated to pay Barrick for such costs as Barrick mines the deposit. In addition, the Company is obligated to share dewatering costs which are associated with the Post deposit. The Company incurred $39.0 million and $26.6 million of such mining and dewatering costs in 1994 and 1993, respectively, and expects to incur $50 million to $60 million annually for the next two years.
The Company has minimum royalty obligations on one of its producing mines of 80,000 ounces of gold in 1995, 55,000 ounces of gold in 1996 and no more than 40,000 ounces of gold per year thereafter for the life of the mine. The amount to be paid to meet the royalty obligations is based upon a defined average market gold price. Any amounts paid due to the minimum royalty obligation not being met in any year are recoverable in future years when the minimum royalty obligation is exceeded. The Company expects the mine's production will meet the minimum royalty requirements.
The Company is from time to time involved in various legal proceedings of a character normally incident to its business. It does not believe that adverse decisions in any pending or threatened proceedings or any amounts which it may be required to pay by reason thereof will have a material adverse effect on its financial condition or results of operations.
NEWMONT GOLD COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(16) UNAUDITED SUPPLEMENTARY DATA
The following is a summary of selected quarterly financial information (amounts in millions except per share amounts):
---------------
(1) Sales less costs applicable to sales and depreciation, depletion and amortization.
(2) Includes a $17.6 million after-tax charge related to environmental obligations associated with former mining activities and an income tax benefit of $16.2 million resulting from the resolution of certain tax issues associated with prior years, with a net effect charge of $0.01 per share.
(3) Cumulative effect of change in accounting for income taxes (see Note 6).
NEWMONT GOLD COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
RATIO OF EARNINGS TO FIXED CHARGES
As a result of the transaction with NMC discussed in Note 2, the Company's capital structure is essentially the same as NMC's. In that the Company's financial results had been fully consolidated into NMC's and the Company's capital structure is now essentially that of NMC's, management believes that NMC's historical consolidated ratio of earnings to fixed charges for the four years ended December 31, 1993 is more relevant than the Company's. They represent essentially what the Company's ratios would have been had it acquired NMC's assets and assumed its liabilities at the beginning of 1990. From 1990 to 1993, the Company had no significant fixed charges.
The ratio of earnings to fixed charges for the Company was 1.7 for the year ended December 31, 1994. The ratio of earnings to fixed charges for NMC was 6.3, 6.5, 10.3, and 6.6 for the years ended December 31, 1993, 1992, 1991 and 1990, respectively. The Company guarantees certain third party debt which had total interest obligations of $1.0 million, $0.8 million, $3.3 million, $4.0 million and $4.5 million for the years ended December 31, 1994, 1993, 1992, 1991 and 1990, respectively. The Company and NMC have not been required to pay any of these amounts, nor does the Company expect to have to pay any amounts; therefore, such amounts have not been included in the ratio of earnings to fixed charges.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
There have been no disagreements with Arthur Andersen LLP, NGC's independent public accountants, regarding any matter of accounting principles or practices or financial statement disclosure.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning NGC's directors will be contained in NGC's definitive Proxy Statement to be filed pursuant to Regulation 14A promulgated under the Securities Exchange Act of 1934 for the 1995 annual meeting of stockholders and is incorporated herein by reference. Information concerning NGC's executive officers is set forth under Part I of this report.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
Information concerning this item will be contained in NGC's definitive Proxy Statement to be filed pursuant to Regulation 14A promulgated under the Securities Exchange Act of 1934 for the 1995 annual meeting of stockholders and is incorporated herein by reference.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information concerning this item will be contained in NGC's definitive Proxy Statement to be filed pursuant to Regulation 14A promulgated under the Securities Exchange Act of 1934 for the 1995 annual meeting of stockholders and is incorporated herein by reference.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information concerning this item will be contained in NGC's definitive Proxy Statement to be filed pursuant to Regulation 14A promulgated under the Securities Exchange Act of 1934 for the 1995 annual meeting of stockholders and is incorporated herein by reference.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this report:
1. Financial Statements
2. Financial Statement Schedules
All schedules have been omitted since they are either not required, are not applicable, or the required information is shown in the financial statements or related notes.
3. Exhibits
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the registrant during the quarter ended December 31, 1994.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
NEWMONT GOLD COMPANY
By /s/ TIMOTHY J. SCHMITT ----------------------------------- Timothy J. Schmitt Vice President, Secretary and Assistant General Counsel March 30, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.
Appendix I
The following is a narrative description of certain maps in image form which have been included in the paper version of the Form 10-K but which have been excluded from the EDGAR version of the Form 10-K.
1. Map of Location of the Carlin Trend Operations in Nevada -- Page 3 of the Form 10-K.
On page 3 of the Form 10-K, the registrant has included a map of Nevada with an enlargement of the geographical location of its operations on the Carlin Trend discussed on pages 1 through 5 of the Form 10-K. The map also includes a chart indicating the location of various deposits with proven and probable reserves.
2. Map of Location of the Yanacocha Project in Peru -- Page 7 of the Form 10-K.
On page 7 of the Form 10-K, the registrant has included a map of the Country of Peru showing the geographical location of the Yanacocha project discussed on pages 5 and 6 of the Form 10-K. The map also includes a notation that Minera Yanacocha S.A., the Peruvian corporation which owns the Yanacocha project, is 38% owned by Newmont Gold.
3. Map of Location of the Zarafshan-Newmont Project in Uzbekistan -- Page 8 of the Form 10-K.
On page 8 of the Form 10-K, the registrant has included a map of the Republic of Uzbekistan showing the geographical location of the Zarafshan-Newmont project discussed on pages 7 and 8 of the Form 10-K. The map also includes a notation that the Zarafshan-Newmont joint venture, which owns the project, is 50% owned by Newmont Gold.
4. Map of Locations of the Minahasa Project and the Batu Hijau Project in Indonesia -- Page 9 of the Form 10-K.
On page 9 of the Form 10-K, the registrant has included a map of the Republic of Indonesia showing the geographical location of the Minahasa project and the Batu Hijau project, each of which is discussed on pages 8 and 9 of the Form 10-K. The map also includes a notation that each of the Indonesian companies that own the Minahasa project and the Batu Hijau project is 80% owned by Newmont Gold.
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