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Note 15 - Guarantor Subsidiaries
 9 Months Ended
Sep. 30, 2018
Notes to Financial Statements  
Guarantor Subsidiaries [Text Block]
Note
15.
    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 and the RQ Notes (see
Note
10
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, Inc.; Montanore Minerals Corp.; Hecla Alaska LLC; Hecla Greens Creek Mining Company; Hecla Admiralty Company; and Hecla Juneau Mining Company. By
November 30, 2018,
we expect to add as Guarantors our new domestic Klondex subsidiaries. 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.
We issued the RQ Notes in
March 5, 2018.
 
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 condensed consolidated financial statements set forth elsewhere in this report. Investments in the subsidiaries are accounted for under the equity method. Accordingly, the entries necessary to consolidate Hecla, the Guarantors, and our non-guarantor subsidiaries 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 at least 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 at least 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.
 
Condensed Consolidating Balance Sheets
 
   
As of September 30, 2018
  
   
Parent
    
Guarantors
    
Non-Guarantors
    
Eliminations
    
Consolidated
  
   
(in thousands)
  
Assets
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Cash and cash equivalents
   $
28,081
     $
6,198
     $
26,577
     $
—
     $
60,856
  
Other current assets
    
15,219
      
42,515
      
79,807
      
(68
)
    
137,473
  
Properties, plants, and equipment - net
    
1,920
      
1,246,274
      
1,239,235
      
—
      
2,487,429
  
Intercompany receivable (payable)
    
256,831
      
(222,897
)
    
(138,477
)
    
104,543
      
—
  
Investments in subsidiaries
    
1,767,234
      
—
      
—
      
(1,767,234
)
    
—
  
Other non-current assets
    
149,034
      
4,390
      
11,670
      
(140,594
)
    
24,500
  
Total assets
   $
2,218,319
     $
1,076,480
     $
1,218,812
     $
(1,803,353
)
   $
2,710,258
  
Liabilities and Stockholders' Equity
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Current liabilities
   $
(79,535
)
   $
77,328
     $
55,389
     $
79,274
     $
132,456
  
Long-term debt
    
534,067
      
4,911
      
137,938
      
(134,211
)
    
542,705
  
Non-current portion of accrued reclamation
    
—
      
67,145
      
32,169
      
—
      
99,314
  
Non-current deferred tax liability
    
—
      
16,497
      
159,613
      
(11,182
)
    
164,928
  
Other non-current liabilities
    
41,718
      
5,784
      
1,284
      
—
      
48,786
  
Shareholders' equity
    
1,722,069
      
904,815
      
862,419
      
(1,767,234
)
    
1,722,069
  
Total liabilities and stockholders' equity
   $
2,218,319
     $
1,076,480
     $
1,248,812
     $
(1,833,353
)
   $
2,710,258
  
 
 
   
As of December 31, 2017
  
   
Parent
    
Guarantors
    
Non-Guarantors
    
Eliminations
    
Consolidated
  
   
(in thousands)
  
Assets
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Cash and cash equivalents
   $
103,878
     $
31,016
     $
51,213
     $
—
     $
186,107
  
Other current assets
    
47,555
      
47,608
      
40,541
      
(575
)
    
135,129
  
Properties, plants, and equipment - net
    
1,946
      
1,244,161
      
753,204
      
—
      
1,999,311
  
Intercompany receivable (payable)
    
287,310
      
(177,438
)
    
(341,182
)
    
231,310
      
—
  
Investments in subsidiaries
    
1,358,025
      
—
      
—
      
(1,358,025
)
    
—
  
Other non-current assets
    
14,409
      
7,289
      
9,283
      
(6,370
)
    
24,611
  
Total assets
   $
1,813,123
     $
1,152,636
     $
513,059
     $
(1,133,660
)
   $
2,345,158
  
Liabilities and Stockholders' Equity
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
  
 
 
 
Current liabilities
   $
(226,576
)
   $
66,550
     $
37,671
     $
234,485
     $
112,130
  
Long-term debt
    
502,229
      
2,303
      
3,890
      
—
      
508,422
  
Non-current portion of accrued reclamation
    
—
      
67,565
      
11,801
      
—
      
79,366
  
Non-current deferred tax liability
    
—
      
10,120
      
124,352
      
(10,120
)
    
124,352
  
Other non-current liabilities
    
53,588
      
5,185
      
838
      
—
      
59,611
  
Stockholders' equity
    
1,483,882
      
1,000,913
      
334,507
      
(1,358,025
)
    
1,461,277
  
Total liabilities and stockholders' equity
   $
1,813,123
     $
1,152,636
     $
513,059
     $
(1,133,660
)
   $
2,345,158
  
 
Condensed Consolidating Statements of Operations
 
   
Three Months Ended September 30, 2018
  
   
Parent
    
Guarantors
    
Non-Guarantors
    
Eliminations
    
Consolidated
  
   
(in thousands)
  
Revenues
   $
5,020
     $
60,155
     $
78,474
     $
—
     $
143,649
  
Cost of sales
    
(157
)
    
(39,733
)
    
(53,719
)
    
—
      
(93,609
)
Depreciation, depletion, amortization
    
—
      
(12,427
)
    
(31,037
)
    
—
      
(43,464
)
General and administrative
    
(4,802
)
    
(4,866
)
    
(659
)
    
—
      
(10,327
)
Exploration and pre-development
    
(1
)
    
(4,056
)
    
(9,549
)
    
—
      
(13,606
)
Research and development
    
—
      
(444
)
    
(825
)
    
—
      
(1,269
)
Loss on derivative contracts
    
19,460
      
—
      
—
      
—
      
19,460
  
Foreign exchange gain (loss)
    
4,640
      
74
      
(6,926
)
    
—
      
(2,212
)
Lucky Friday suspension-related costs
    
—
      
(5,388
)
    
(1,131
)
    
—
      
(6,519
)
Acquisition costs
    
(5,741
)
    
(245
)
    
(153
)
    
—
      
(6,139
)
Equity in earnings of subsidiaries
    
(54,618
)
    
—
      
—
      
54,618
      
—
  
Other (expense) income
    
13,016
      
881
      
(5,900
)
    
(19,824
)
    
(11,827
)
Income (loss) before income taxes
    
(23,183
)
    
(6,049
)
    
(31,425
)
    
34,794
      
(25,863
)
(Provision) benefit from income taxes
    
(1
)
    
(18,552
)
    
1,408
      
19,824
      
2,679
  
Net income (loss)
    
(23,184
)
    
(24,601
)
    
(30,017
)
    
54,618
      
(23,184
)
Preferred stock dividends
    
(138
)
    
—
      
—
      
—
      
(138
)
Income (loss) applicable to common shareholders
    
(23,322
)
    
(24,601
)
    
(30,017
)
    
54,618
      
(23,322
)
Net income (loss)
    
(23,184
)
    
(24,601
)
    
(30,017
)
    
54,618
      
(23,184
)
Changes in comprehensive income (loss)
    
3,746
      
—
      
3
      
(3
 )    
3,746
  
Comprehensive income (loss)
   $
(19,438
)
   $
(24,601
)
   $
(30,014
)
   $
54,615
     $
(19,438
)
 
 
   
Nine Months Ended September 30, 2018
  
   
Parent
    
Guarantors
    
Non-Guarantors
    
Eliminations
    
Consolidated
  
   
(in thousands)
  
Revenues
   $
8,332
     $
205,563
     $
216,722
     $
—
     $
430,617
  
Cost of sales
    
245
      
(111,923
)
    
(135,240
)
    
—
      
(246,918
)
Depreciation, depletion, amortization
    
—
      
(35,683
)
    
(67,652
)
    
—
      
(103,335
)
General and administrative
    
(13,250
)
    
(12,916
)
    
(1,683
)
    
—
      
(27,849
)
Exploration and pre-development
    
(128
)
    
(9,059
)
    
(22,037
)
    
—
      
(31,224
)
Research and development
    
—
      
(2,505
)
    
(2,537
)
    
—
      
(5,042
)
Loss on derivative contracts
    
40,271
      
—
      
—
      
—
      
40,271
  
Foreign exchange gain (loss)
    
(9,795
)
    
—
      
12,651
      
—
      
2,856
  
Lucky Friday suspension-related costs
    
—
      
(17,206
)
    
(1,131
)
    
—
      
(18,337
)
Acquisition costs
    
(9,041
)
    
(313
)
    
(302
)
    
—
      
(9,656
)
Equity in earnings of subsidiaries
    
(31,105
)
    
—
      
—
      
31,105
      
—
  
Other (expense) income
    
11,602
      
(2,512
)
    
(15,801
)
    
(29,026
)
    
(35,737
)
Income (loss) before income taxes
    
(2,869
)
    
13,446
      
(17,010
)
    
2,079
      
(4,354
)
(Provision) benefit from income taxes
    
(1
)
    
(27,755
)
    
214
      
29,026
      
1,484
  
Net income (loss)
    
(2,870
)
    
(14,309
)
    
(16,796
)
    
31,105
      
(2,870
)
Preferred stock dividends
    
(414
)
    
—
      
—
      
—
      
(414
)
Income (loss) applicable to common shareholders
    
(3,284
)
    
(14,309
)
    
(16,796
)
    
31,105
      
(3,284
)
Net income (loss)
    
(2,870
)
    
(14,309
)
    
(16,796
)
    
31,105
      
(2,870
)
Changes in comprehensive income (loss)
    
(3,520
)
    
—
      
41
      
(41
)
    
(3,520
)
Comprehensive income (loss)
   $
(6,390
)
   $
(14,309
)
   $
(16,755
)
   $
31,064
     $
(6,390
)
 
 
   
Three Months Ended September 30, 2017
  
   
Parent
    
Guarantors
    
Non-Guarantors
    
Eliminations
    
Consolidated
  
   
(in thousands)
  
Revenues
   $
(626
)
   $
61,887
     $
79,578
     $
—
     $
140,839
  
Cost of sales
    
687
      
(29,320
)
    
(39,725
)
    
—
      
(68,358
)
Depreciation, depletion, amortization
    
—
      
(12,607
)
    
(16,911
)
    
—
      
(29,518
)
General and administrative
    
(4,217
)
    
(4,464
)
    
(848
)
    
—
      
(9,529
)
Exploration and pre-development
    
(129
)
    
(4,339
)
    
(4,544
)
    
—
      
(9,012
)
Research and development
    
—
      
(1,130
)
    
—
      
—
      
(1,130
)
Gain on derivative contracts
    
(11,226
)
    
—
      
—
      
—
      
(11,226
)
Foreign exchange gain (loss)
    
12,153
      
—
      
(17,070
)
    
—
      
(4,917
)
Lucky Friday suspension costs
    
—
      
(4,780
)
    
—
      
—
      
(4,780
)
Equity in earnings of subsidiaries
    
(7,369
)
    
—
      
—
      
7,369
      
—
  
Other expense
    
11,041
      
1,202
      
(4,676
)
    
(14,752
)
    
(7,185
)
Income (loss) before income taxes
    
314
      
6,449
      
(4,196
)
    
(7,383
)
    
(4,816
)
(Provision) benefit from income taxes
    
—
      
(1,338
)
    
(8,284
)
    
14,752
      
5,130
  
Net income (loss)
    
314
      
5,111
      
(12,480
)
    
7,369
      
314
  
Preferred stock dividends
    
(138
)
    
—
      
—
      
—
      
(138
)
Income (loss) applicable to common shareholders
    
176
      
5,111
      
(12,480
)
    
7,369
      
176
  
Net income (loss)
    
314
      
5,111
      
(12,480
)
    
7,369
      
314
  
Changes in comprehensive income (loss)
    
7,636
      
—
      
1,022
      
(1,022
)
    
7,636
  
Comprehensive income (loss)
   $
7,950
     $
5,111
     $
(11,458
)
   $
6,347
     $
7,950
  
 
 
   
Nine Months Ended September 30, 2017
  
   
Parent
    
Guarantors
    
Non-Guarantors
    
Eliminations
    
Consolidated
  
   
(in thousands)
  
Revenues
   $
(3,912
)
   $
215,184
     $
206,390
     $
—
     $
417,662
  
Cost of sales
    
353
      
(112,908
)
    
(111,982
)
    
—
      
(224,537
)
Depreciation, depletion, amortization
    
—
      
(41,875
)
    
(45,111
)
    
—
      
(86,986
)
General and administrative
    
(16,407
)
    
(10,877
)
    
(1,760
)
    
—
      
(29,044
)
Exploration and pre-development
    
(439
)
    
(8,736
)
    
(12,508
)
    
—
      
(21,683
)
Research and development
    
—
      
(2,125
)
    
—
      
—
      
(2,125
)
Gain/(loss) on derivative contracts
    
(16,548
)
    
—
      
—
      
—
      
(16,548
)
Foreign exchange gain (loss)
    
22,286
      
(43
)
    
(32,501
)
    
—
      
(10,258
)
Lucky Friday suspension costs
    
—
      
(14,385
)
    
—
 
    
—
      
(14,385
)
Equity in earnings of subsidiaries
    
(9,708
)
    
—
      
—
      
9,708
      
—
  
Other (expense) income
    
24,822
      
(1,207
)
    
(14,146
)
    
(38,682
)
    
(29,213
)
Income (loss) before income taxes
    
447
      
23,028
      
(11,618
 )    
(28,974
)
    
(17,117
)
(Provision) benefit from income taxes
    
—
      
(9,239
)
    
(11,879
)
    
38,682
      
17,564
  
Net income (loss)
    
447
      
13,789
      
(23,497
)
    
9,708
      
447
  
Preferred stock dividends
    
(414
)
    
—
      
—
      
—
      
(414
)
Income (loss) applicable to common shareholders
    
33
      
13,789
      
(23,497
)
    
9,708
      
33
  
Net income (loss)
    
447
      
13,789
      
(23,497
)
    
9,708
      
447
  
Changes in comprehensive income (loss)
    
13,718
      
—
      
1,780
      
(1,780
)
    
13,718
  
Comprehensive income (loss)
   $
14,165
     $
13,789
     $
(21,717
)
   $
7,928
     $
14,165
  
 
 
Condensed Consolidating Statements of Cash Flows
 
   
Nine Months Ended September 30, 2018
  
   
Parent
    
Guarantors
    
Non-Guarantors
    
Eliminations
    
Consolidated
  
                                         
Cash flows from operating activities
   $
(52,473
)
   $
63,796
     $
(15,107
)
   $
78,994
     $
75,210
  
Cash flows from investing activities:
                                        
Additions to properties, plants, and equipment
    
—
      
(39,740
)
    
(43,545
)
    
—
      
(83,285
)
Acquisition of Klondex, net of cash acquired
    
(139,326
)
    
 
      
—
      
—
      
(139,326
)
Other investing activities, net
    
(375,495
)
    
4,603
      
(294
)
    
409,209
      
38,023
  
Cash flows from financing activities:
                                        
Dividends paid to shareholders
    
(3,607
)
    
—
      
—
      
—
      
(3,607
)
Borrowings on debt
    
78,024
      
—
      
—
      
—
      
78,024
  
Proceeds from (payments on) debt
    
(47,000
)
    
(3,094
)
    
(37,934
)
    
—
      
(88,028
)
Other financing activity, net
    
464,080
      
(50,409
)
    
72,463
      
(488,203
)
    
(2,069
)
Effect of exchange rates on cash
    
—
      
—
      
(215
)
    
—
      
(215
)
Changes in cash, cash equivalents and restricted cash and cash equivalents
    
(75,797
)
    
(24,844
)
    
(24,632
)
    
—
      
(125,273
)
Beginning cash, cash equivalents and restricted cash and cash equivalents
    
103,878
      
32,048
      
51,213
      
—
      
187,139
  
Ending cash, cash equivalents and restricted cash and cash equivalents
   $
28,081
     $
7,204
     $
26,581
     $
—
     $
61,866
  
 
 
   
Nine Months Ended September 30, 2017
  
   
Parent
    
Guarantors
    
Non-Guarantors
    
Eliminations
    
Consolidated
  
   
(in thousands)
  
Cash flows from operating activities
   $
35,764
     $
41,071
     $
21,435
     $
(24,155
)
   $
74,115
  
Cash flows from investing activities:
                                        
Additions to properties, plants, and equipment
    
—
      
(28,220
)
    
(42,170
)
    
—
      
(70,390
)
Acquisitions of other companies, net of cash acquired
    
—
      
 
      
—
      
—
      
—
  
Other investing activities, net
    
176
      
5,779
      
(584
)
    
(5,339
)
    
32
  
Cash flows from financing activities:
                                        
Dividends paid to shareholders
    
(3,392
)
    
—
      
—
      
—
      
(3,392
)
Proceeds from (payments on) debt
    
—
      
(4,518
)
    
(1,017
)
    
—
      
(5,535
)
Other financing activity, net
    
(44,762
)
    
(21,500
)
    
42,909
      
29,494
      
6,141
  
Effect of exchange rates on cash
    
—
      
—
      
1,051
      
—
      
1,051
  
Changes in cash, cash equivalents and restricted cash and cash equivalents
    
(12,214
)
    
(7,388
)
    
21,624
      
—
      
2,022
  
Beginning cash, cash equivalents and restricted cash and cash equivalents
    
113,275
      
26,588
      
32,114
      
—
      
171,977
  
Ending cash, cash equivalents and restricted cash and cash equivalents
   $
101,061
     $
19,200
     $
53,738
     $
—
     $
173,999