Note 14. Guarantor Subsidiaries

Presented below are Hecla’s unaudited interim condensed consolidating financial statements as required by Rule 3-10 of Regulation S-X of the Securities Exchange Act of 1934, as amended, resulting from the guarantees by certain of Hecla's subsidiaries (the "Guarantors") of the Senior Notes (see

Note 9

for more information). The Guarantors consist of the following of Hecla's 100%-owned subsidiaries: Hecla Limited; Silver Hunter Mining Company; Rio Grande Silver, Inc.; Hecla MC Subsidiary, LLC; Hecla Silver Valley, Inc.; Burke Trading, Inc.; Hecla Montana, Inc.; Revett Silver Company; RC Resources, Inc.; Troy Mine Inc.; Revett Exploration, Inc.; Revett Holdings, Inc.; Mines Management, Inc.; Newhi Corp.; Montanore Minerals Corp.; Hecla Alaska LLC; Hecla Greens Creek Mining Company; Hecla Admiralty Company; and Hecla Juneau Mining Company. We completed the initial offering of the Senior Notes on April 12, 2013, and a related exchange offer for virtually identical notes registered with the SEC on January 3, 2014.

The unaudited interim condensed consolidating financial statements below have been prepared from our financial information on the same basis of accounting as the unaudited interim consolidated financial statements set forth elsewhere in this Form 10-Q. Investments in the subsidiaries are accounted for under the equity method. Accordingly, the entries necessary to consolidate Hecla, the Guarantors, and Non-Guarantors are reflected in the intercompany eliminations column. In the course of preparing consolidated financial statements, we eliminate the effects of various transactions conducted between Hecla and its subsidiaries and among the subsidiaries. While valid at an individual subsidiary level, such activities are eliminated in consolidation because, when taken as a whole, they do not represent business activity with third-party customers, vendors, and other parties. Examples of such eliminations include the following:

•

Investments in subsidiaries

. The acquisition of a company results in an investment in debt or equity capital on the records of the parent company and a contribution to debt or equity capital on the records of the subsidiary. Such investments and capital contributions are eliminated in consolidation.

•

Capital contributions

. Certain of Hecla's subsidiaries do not generate cash flow, either at all or sufficient to meet their capital needs, and their cash requirements are routinely met with inter-company advances from their parent companies. On an annual basis, when not otherwise intended as debt, the boards of directors of such parent companies declare contributions of capital to their subsidiary companies, which increase the parents' investment and the subsidiaries' additional paid-in capital. In consolidation, investments in subsidiaries and related additional paid-in capital are eliminated.

•

Debt.

Inter-company debt agreements have been established between certain of Hecla's subsidiaries and their parents. The related debt liability and receivable balances, accrued interest expense (if any) and income activity (if any), and payments of principal and accrued interest amounts (if any) by the subsidiary companies to their parents are eliminated in consolidation.

•

Dividends.

Certain of Hecla's subsidiaries which generate cash flow routinely provide cash to their parent companies through inter-company transfers. On an annual basis, the boards of directors of such subsidiary companies declare dividends to their parent companies, which reduces the subsidiaries' retained earnings and increases the parents' dividend income. In consolidation, such activity is eliminated.

•

Deferred taxes

. Our ability to realize deferred tax assets and liabilities is considered on a consolidated basis for subsidiaries within the United States, with all subsidiaries' estimated future taxable income contributing to the ability to realize all such assets and liabilities. However, when Hecla's subsidiaries are viewed independently, we use the separate return method to assess the realizability of each subsidiary's deferred tax assets and whether a valuation allowance is required against such deferred tax assets. In some instances, a parent company or subsidiary may possess deferred tax assets whose realization depends on the future taxable incomes of other subsidiaries on a consolidated-return basis, but would not be considered realizable if such parent or subsidiary filed on a separate stand-alone basis. In such a situation, a valuation allowance is assessed on that subsidiary's deferred tax assets, with the resulting adjustment reported in the eliminations column of the guarantor and parent's financial statements, as is the case in the unaudited interim financial statements set forth below. The separate return method can result in significant eliminations of deferred tax assets and liabilities and related income tax provisions and benefits. Non-current deferred tax asset balances are included in other non-current assets on the consolidating balance sheets and make up a large portion of that item, particularly for the guarantor balances.

Separate financial statements of the Guarantors are not presented because the guarantees by the Guarantors are joint and several and full and unconditional, except for certain customary release provisions, including: (1) the sale or disposal of all or substantially all of the assets of the Guarantor; (2) the sale or other disposition of the capital stock of the Guarantor; (3) the Guarantor is designated as an unrestricted entity in accordance with the applicable provisions of the indenture; (4) Hecla ceases to be a borrower as defined in the indenture; and (5) upon legal or covenant defeasance or satisfaction and discharge of the indenture.

Effective December 31, 2015, Hecla Limited (our wholly owned subsidiary) sold 100% of its ownership of Hecla Alaska LLC (its wholly owned subsidiary) to Hecla Mining Company for consideration totaling approximately $240.8 million. The consideration consisted of satisfaction of inter-company debt between Hecla Limited and Hecla Mining Company and an obligation by Hecla Mining Company, under certain circumstances, to fund a limited amount of the capital requirements of Hecla Limited for up to five years. Hecla Alaska LLC owns a 29.7331% interest in the joint venture which owns the Greens Creek mine.

Condensed Consolidating Balance Sheets

	As of September 30, 2016
	Parent			Guarantors			Non- Guarantors			Eliminations			Consolidated
	(in thousands)
Assets
Cash and cash equivalents	$	109,756		$	39,255		$	18,833		$	—		$	167,844
Other current assets		51,486			58,839			46,082			(14,250	)		142,157
Properties, plants, and equipment - net		2,226			1,255,019			765,864			—			2,023,109
Intercompany receivable (payable)		477,706			(322,988	)		(325,799	)		171,081			—
Investments in subsidiaries		1,359,813			—			—			(1,359,813	)		—
Other non-current assets		1,896			190,705			8,245			(170,277	)		30,569
Total assets	$	2,002,883		$	1,220,830		$	513,225		$	(1,373,259	)	$	2,363,679
Liabilities and Stockholders' Equity
Current liabilities	$	(6,626	)	$	84,493		$	57,908		$	(628	)	$	135,147
Long-term debt		500,666			4,019			2,513			—			507,198
Non-current portion of accrued reclamation		—			55,512			28,086			—			83,598
Non-current deferred tax liability		—			15,258			121,973			(12,846	)		124,385
Other non-current liabilities		46,860			4,856			(376	)		28			51,368
Shareholders' equity		1,461,983			1,056,692			303,121			(1,359,813	)		1,461,983
Total liabilities and stockholders' equity	$	2,002,883		$	1,220,830		$	513,225		$	(1,373,259	)	$	2,363,679

	As of December 31, 2015
	Parent		Guarantors			Non- Guarantors			Eliminations			Consolidated
	(in thousands)
Assets
Cash and cash equivalents	$	94,167	$	42,692		$	18,350		$	—		$	155,209
Other current assets		15,972		58,453			32,273			7,626			114,324
Properties, plants, and equipment - net		2,281		1,147,770			746,760			—			1,896,811
Intercompany receivable (payable)		540,665		(301,291	)		(332,553	)		93,179			—
Investments in subsidiaries		1,252,191		—			—			(1,252,191	)		—
Other non-current assets		2,200		165,080			1,781			(113,480	)		55,581
Total assets	$	1,907,476	$	1,112,704		$	466,611		$	(1,264,866	)	$	2,221,925
Liabilities and Stockholders' Equity
Current liabilities	$	21,087	$	84,559		$	30,636		$	(9,198	)	$	127,084
Long-term debt		499,729		6,128			3,183			—			509,040
Non-current portion of accrued reclamation		—		45,494			29,055			—			74,549
Non-current deferred tax liability		—		3,264			119,836			(3,477	)		119,623
Other non-current liabilities		47,734		5,834			(865	)		—			52,703
Stockholders' equity		1,338,926		967,425			284,766			(1,252,191	)		1,338,926
Total liabilities and stockholders' equity	$	1,907,476	$	1,112,704		$	466,611		$	(1,264,866	)	$	2,221,925

Condensed Consolidating Statements of Operations

	Three Months Ended September 30, 2016
	Parent			Guarantors			Non- Guarantors			Eliminations			Consolidated
	(in thousands)
Revenues	$	(4,072	)	$	116,016		$	67,449		$	—		$	179,393
Cost of sales		—			(62,376	)		(31,685	)		—			(94,061	)
Depreciation, depletion, amortization		—			(15,504	)		(11,143	)		—			(26,647	)
General and administrative		(5,355	)		(5,469	)		(331	)		—			(11,155	)
Exploration and pre-development		(33	)		(1,343	)		(3,033	)		—			(4,409	)
Gain/(loss) on derivative contracts		7			—			—			—			7
Acquisition costs		(1,766	)		1			—			—			(1,765	)
Equity in earnings of subsidiaries		52,606			—			—			(52,606	)		—
Other (expense) income		(15,597	)		1,187			1,211			7,078			(6,121	)
Income (loss) before income taxes		25,790			32,512			22,468			(45,528	)		35,242
(Provision) benefit from income taxes		—			(8,994	)		6,621			(7,080	)		(9,453	)
Net income (loss)		25,790			23,518			29,089			(52,608	)		25,789
Preferred stock dividends		(138	)		—			—			—			(138	)
Income (loss) applicable to common shareholders		25,652			23,518			29,089			(52,608	)		25,651
Net income (loss)		25,790			23,518			29,089			(52,608	)		25,789
Changes in comprehensive income (loss)		(615	)		—			985			(985	)		(615	)
Comprehensive income (loss)	$	25,175		$	23,518		$	30,074		$	(53,593	)	$	25,174

	Nine Months Ended September 30, 2016
	Parent			Guarantors			Non- Guarantors			Eliminations			Consolidated
	(in thousands)
Revenues	$	(15,866	)	$	285,277		$	212,301		$	—		$	481,712
Cost of sales		—			(156,333	)		(95,002	)		—			(251,335	)
Depreciation, depletion, amortization		—			(47,348	)		(35,071	)		—			(82,419	)
General and administrative		(17,069	)		(13,671	)		(988	)		—			(31,728	)
Exploration and pre-development		(191	)		(3,990	)		(7,465	)		—			(11,646	)
Gain/(loss) on derivative contracts		—			—			—			—			—
Acquisition costs		(2,160	)		(7	)		—			—			(2,167	)
Equity in earnings of subsidiaries		68,727			—			—			(68,727	)		—
Other (expense) income		15,844			8,147			(43,039	)		(11,481	)		(30,529	)
Income (loss) before income taxes		49,285			72,075			30,736			(80,208	)		71,888
(Provision) benefit from income taxes		—			(22,213	)		(11,871	)		11,481			(22,603	)
Net income (loss)		49,285			49,862			18,865			(68,727	)		49,285
Preferred stock dividends		(414	)		—			—			—			(414	)
Income (loss) applicable to common shareholders		48,871			49,862			18,865			(68,727	)		48,871
Net income (loss)		49,285			49,862			18,865			(68,727	)		49,285
Changes in comprehensive income (loss)		1,689			8			3,238			(3,246	)		1,689
Comprehensive income (loss)	$	50,974		$	49,870		$	22,103		$	(71,973	)	$	50,974

	Three Months Ended September 30, 2015
	Parent			Guarantors			Non- Guarantors			Eliminations			Consolidated
	(in thousands)
Revenues	$	4,663		$	63,604		$	36,674		$	—		$	104,941
Cost of sales		—			(53,375	)		(25,898	)		—			(79,273	)
Depreciation, depletion, amortization		—			(16,669	)		(11,560	)		—			(28,229	)
General and administrative		(4,965	)		(4,131	)		(365	)		—			(9,461	)
Exploration and pre-development		(210	)		(2,800	)		(4,226	)		—			(7,236	)
Gain on derivative contracts		3,347			—			—			—			3,347
Acquisition costs		1,538			(1,553	)		—			—			(15	)
Equity in earnings of subsidiaries		(11,299	)		—			—			11,299			—
Other expense		(2,964	)		3,289			21,549			(21,338	)		536
Income (loss) before income taxes		(9,890	)		(11,635	)		16,174			(10,039	)		(15,390	)
(Provision) benefit from income taxes		—			1,606			(17,444	)		21,338			5,500
Net income (loss)		(9,890	)		(10,029	)		(1,270	)		11,299			(9,890	)
Preferred stock dividends		(138	)		—			—			—			(138	)
Income (loss) applicable to common shareholders		(10,028	)		(10,029	)		(1,270	)		11,299			(10,028	)
Net income (loss)		(9,890	)		(10,029	)		(1,270	)		11,299			(9,890	)
Changes in comprehensive income (loss)		(391	)		(4	)		(302	)		306			(391	)
Comprehensive income (loss)	$	(10,281	)	$	(10,033	)	$	(1,572	)	$	11,605		$	(10,281	)

	Nine Months Ended September 30, 2015
	Parent			Guarantors			Non- Guarantors			Eliminations			Consolidated
	(in thousands)
Revenues	$	6,056		$	218,069		$	104,105		$	—		$	328,230
Cost of sales		—			(146,324	)		(74,481	)		—			(220,805	)
Depreciation, depletion, amortization		—			(49,732	)		(30,917	)		—			(80,649	)
General and administrative		(13,780	)		(11,416	)		(1,281	)		—			(26,477	)
Exploration and pre-development		(549	)		(5,379	)		(12,654	)		—			(18,582	)
Gain/(loss) on derivative contracts		8,252			—			—			—			8,252
Acquisition costs		(517	)		(1,645	)		—			—			(2,162	)
Equity in earnings of subsidiaries		28,005			—			—			(28,005	)		—
Other (expense) income		(51,472	)		10,355			30,011			(4,899	)		(16,005	)
Income (loss) before income taxes		(24,005	)		13,928			14,783			(32,904	)		(28,198	)
(Provision) benefit from income taxes		—			(5,296	)		4,590			4,899			4,193
Net income (loss)		(24,005	)		8,632			19,373			(28,005	)		(24,005	)
Preferred stock dividends		(414	)		—			—			—			(414	)
Income (loss) applicable to common shareholders		(24,419	)		8,632			19,373			(28,005	)		(24,419	)
Net income (loss)		(24,005	)		8,632			19,373			(28,005	)		(24,005	)
Changes in comprehensive income (loss)		390			(15	)		485			(470	)		390
Comprehensive income (loss)	$	(23,615	)	$	8,617		$	19,858		$	(28,475	)	$	(23,615	)

Condensed Consolidating Statements of Cash Flows

	Nine Months Ended September 30, 2016
	Parent			Guarantors			Non - Guarantors			Eliminations			Consolidated

Cash flows from operating activities	$	14,525		$	51,599		$	61,710		$	45,280		$	173,114
Cash flows from investing activities:
Additions to properties, plants, and equipment		(348	)		(71,265	)		(48,623	)		—			(120,236	)
Acquisition of Mines Management, net of cash acquired		(3,931	)					—			—			(3,931	)
Other investing activities, net		(24,696	)		(816	)		(3,647	)		—			(29,159	)
Cash flows from financing activities:
Dividends paid to shareholders		(3,296	)		—			—			—			(3,296	)
Proceeds from (payments on) debt		—			(7,477	)		(658	)		—			(8,135	)
Other financing activity, net		33,335			24,522			(8,926	)		(45,280	)		3,651
Effect of exchange rates on cash		—			—			627			—			627
Changes in cash and cash equivalents		15,589			(3,437	)		483			—			12,635
Beginning cash and cash equivalents		94,167			42,692			18,350			—			155,209
Ending cash and cash equivalents	$	109,756		$	39,255		$	18,833		$	—		$	167,844

	Nine Months Ended September 30, 2015
	Parent			Guarantors			Non- Guarantors			Eliminations			Consolidated
	(in thousands)
Cash flows from operating activities	$	11,043		$	63,831		$	32,258		$	(28,164	)	$	78,968
Cash flows from investing activities:
Additions to properties, plants, and equipment		(436	)		(69,930	)		(25,033	)		—			(95,399	)
Acquisition of Revett, net of cash acquired		(809	)					—			—			(809	)
Other investing activities, net		61			172			(903	)		—			(670	)
Cash flows from financing activities:
Dividends paid to shareholders		(3,210	)		—			—			—			(3,210	)
Proceeds from (payments on) debt		—			(7,109	)		(940	)		—			(8,049	)
Other financing activity, net		(29,949	)		24,294			(24,507	)		28,164			(1,998	)
Effect of exchange rates on cash		—			—			(4,044	)		—			(4,044	)
Changes in cash and cash equivalents		(23,300	)		11,258			(23,169	)		—			(35,211	)
Beginning cash and cash equivalents		146,885			33,824			28,956			—			209,665
Ending cash and cash equivalents	$	123,585		$	45,082		$	5,787		$	—		$	174,454