UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

OR

Commission file number 1-13053

STILLWATER MINING COMPANY

(406) 322-8700

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: YES þ NO o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2): YES þ NO o

At October 28, 2004 the company had outstanding 90,362,209 shares of common stock, par value $0.01 per share.

STILLWATER MINING COMPANY

FORM 10-Q

QUARTER ENDED SEPTEMBER 30, 2004

INDEX

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PART 1 — FINANCIAL INFORMATION

Item 1. Financial Statements

Stillwater Mining Company
Consolidated Statements of Operations and Comprehensive (Loss) Income
(Unaudited)
(in thousands, except per share amounts)

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Stillwater Mining Company
Consolidated Balance Sheets
(Unaudited)
(in thousands, except share and per share amounts)

See notes to consolidated financial statements

4

Stillwater Mining Company
Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)

See notes to consolidated financial statements.

5

Stillwater Mining Company
Notes to Consolidated Financial Statements
(Unaudited)

Note 1 — General

     In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the company’s financial position as of September 30, 2004 and the results of its operations and its cash flows for the quarter and nine-month periods ended September 30, 2004 and 2003. Certain prior period amounts have been reclassified to conform with the current year presentation. The results of operations for the quarter and nine-month periods are not necessarily indicative of the results to be expected for the full year. The accompanying consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the company’s 2003 Annual Report on Form 10-K.

Note 2 – Stock-Based Compensation Costs

     The company has elected to account for stock options and other stock-based compensation awards using the intrinsic value method in accordance with Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees. Accordingly, because stock options are granted at fair market value, no compensation expense has been recognized for stock options issued under the company’s stock option plans. The company records compensation expense for other stock-based compensation awards ratably over the vesting periods. The company has adopted the disclosure provisions of Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation. The following pro forma disclosures illustrate the effect on net income (loss) and earnings (loss) per share as if the fair value based method of accounting, as set forth in SFAS No. 123, had been applied.

(in thousands)

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Note 3 – Comprehensive Income

     Comprehensive income consists of earnings items and other gains and losses affecting stockholders’ equity that, under accounting principles generally accepted in the United States (GAAP), are excluded from current net income. For the company, such items consist of unrealized gains and losses on derivative financial instruments related to commodity price and interest rate hedging activities.

     The net of tax balance in accumulated other comprehensive loss at September 30, 2004 and December 31, 2003 was $3.0 million and $0.8 million, respectively.

     The company had commodity instruments relating to fixed forward metal sales and financially settled forwards outstanding during the first nine-months of 2004. The net unrealized loss on these instruments, $3.0 million at September 30, 2004, will be reflected in other comprehensive income until these instruments are settled. All commodity instruments outstanding at September 30, 2004 are expected to be settled within the next twenty-four months (see Note 8).

     The company’s interest rate swaps, which were accounted for as hedging instruments, matured on March 4, 2004 (see Note 8).

     The following summary sets forth the changes in other comprehensive loss accumulated in stockholders’ equity:

(in thousands)

Note 4 — Inventories

     Inventories consisted of the following:

     Inventories are stated at the lower of current market value (taking into consideration the company’s long-term sales contracts), or average unit cost. Metal inventory costs include direct labor and materials, depreciation and amortization, and overhead costs relating to mining and processing activities.

Note 5 – Long-Term Debt

Credit Facility

     On August 3, 2004, the Company entered into a new $180 million credit facility with a syndicate of financial institutions that replaced the Company’s previous $250 million credit facility. The new credit facility consists of a $140 million six-year term loan facility maturing July 30, 2010, bearing interest at a variable rate plus a margin (London Interbank Offer Rate (LIBOR) plus 325 basis points, or about 5.13% at September 30, 2004) and a $40

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million five-year revolving credit facility bearing interest when drawn at a variable rate plus a margin (LIBOR plus 300 basis points, or 4.88% at September 30, 2004) expiring July 31, 2009. The revolving credit facility includes a letter of credit facility; undrawn letters of credit issued under this facility carry an annual fee of 3.13%. The remaining unused portion of the revolving credit facility bears an annual commitment fee of 0.75%. Amortization of the term loan facility commenced on August 31, 2004.

     As of September 30, 2004, the company has $139.7 million outstanding under the term loan facility. During 2004, the company obtained a letter of credit in the amount of $7.5 million as surety for its long-term reclamation obligation at East Boulder Mine, which reduces amounts available under the revolving credit facility to $32.5 million at September 30, 2004.

     The new credit facility requires as prepayments 50% of the company’s annual excess cash flow, plus any proceeds from asset sales and the issuance of debt or equity securities, subject to specified exceptions. Such prepayments are to be applied first against the term loan facility balance, and once that is reduced to zero, against any outstanding revolving credit facility balance. Proceeds of the term loan facility were used to refinance the company’s previous credit facility and for general corporate purposes. Proceeds of the new revolving credit facility may be used for general corporate and working capital needs. The company’s term loan facility allows the company to choose between LIBOR loans of various maturities plus a spread of 3.25% or alternate base rate loans plus a spread of 2.25%. The alternate base rate is a rate determined by the administrative agent under the terms of the credit facility, and has generally been equal to the prevailing bank prime loan rate, which is 4.75% at September 30, 2004. The alternate base rate applies only to that portion of the term loan facility in any period for which the company has not elected to use LIBOR contracts. Substantially all the property and assets of the company are pledged as security for the new credit facility.

     In accordance with the terms of the new credit facility, the company is required to offer 25% of the net proceeds from sales of palladium received in the Norilsk Nickel transaction to prepay its term loan facility. Accordingly, $15.4 million of the long-term debt has been classified as a current liability representing that portion of the term loan facility expected to be prepaid under this arrangement during the next twelve months. The company’s new credit facility contains a provision that exempts the company from offering prepayments related to the sales of palladium received in the Norilsk Nickel transaction until a certain cumulative level of palladium sales is met. As of September 30, 2004, the company has not offered, and has not been required to offer any prepayments on the new credit facility in connection with the sales of palladium received in the Norilsk Nickel transaction.

     Covenants in the new credit facility include restrictions on the company’s ability to: (1) incur additional indebtedness; (2) pay dividends or redeem capital stock; (3) grant liens; (4) make investments, acquisitions, dispositions or enter into mergers; (5) enter into transactions with affiliates; (6) make capital expenditures; (7) refinance or prepay subordinated debt; (8) change the nature of the company’s business or cease operations at the principal operating properties; and (9) enter into commodity hedging. The company is also subject to financial covenants including a debt to earnings before interest, taxes, depreciation and amortization (EBITDA) ratio, a debt service coverage ratio and a minimum liquidity requirement.

     Events of default under the terms of the new credit facility include: (1) a cross-default linked to other indebtedness of the company; (2) any material modification to the life-of-mine plans; (3) a change of control of the company subject to exceptions, and (4) any material breach by a counterparty to a material sales contract or any termination of such a sales contract. The company is in compliance with its covenants under the new credit facility at September 30, 2004.

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     The following is a schedule by year of required principal payments to be made in quarterly installments on the amounts outstanding under the term facility at December 31, 2004 without regard to the prepayments required to be offered from sales of palladium received the Norilsk Nickel transaction or out of excess cash flow:

Note 6 – Earnings per Share

     Outstanding options to purchase 1,668,053 and 2,726,710 shares of common stock were excluded from the computation of diluted earnings per share for the three-month periods ended September 30, 2004 and 2003, respectively, because the effect would have been antidilutive using the treasury stock method. All stock options were antidilutive at September 30, 2003 because the company reported a net loss and inclusion of any of these options would have reduced the net loss per share amounts. At September 30, 2004 certain stock options were excluded as antidilutive for purposes of calculating earnings per share using the treasury stock method because the exercise price of the options was greater than the average market price of the common shares during the quarter.

     The effect of outstanding stock options on diluted weighted average shares outstanding was an increase of 68,674 and 0 shares for the three-month periods ended September 30, 2004 and 2003, respectively.

     Similarly, outstanding options to purchase 1,671,381 and 2,726,710 shares of common stock were excluded from the computation of diluted earnings per share for the nine-month periods ended September 30, 2004 and 2003, respectively. All stock options were antidilutive at September 30, 2003 because the company reported a net loss and inclusion of any of these options would have reduced the net loss per share amounts. At September 30, 2004 certain stock options were excluded as antidilutive for purposes of calculating earnings per share using the treasury stock method because the exercise price of the options was greater than the average market price of the common shares during the nine-month period.

     The effect of outstanding stock options on diluted weighted average shares outstanding was an increase of 65,346 and 0 shares for the nine-month periods ended September 30, 2004 and 2003, respectively.

     On April 29, 2004, 6,816 shares of restricted stock were granted to the non-management directors serving on the company’s Board of Directors. These shares of restricted stock will vest on October 29, 2004. On May 7, 2004, 348,170 shares of restricted stock were granted to members of management. These shares of restricted stock are scheduled to vest on May 7, 2007. During 2002, the company granted 135,119 shares of restricted stock to certain officers and employees which shares vested during 2003 and 2002. The effect of outstanding restricted stock on diluted weighted average shares outstanding was an increase of 354,986 and 0 shares for the three-month periods ended September 30, 2004 and 2003, respectively. The effect of outstanding restricted stock on diluted weighted average shares outstanding was an increase of 190,648 and 3,098 shares for the nine-month periods ending September 30, 2004 and 2003, respectively. Amortization expense for restricted stock compensation of $0.4 million and $0 was recorded for the three-month periods ended September 30, 2004 and 2003, respectively. Amortization expense for restricted stock compensation of $0.7 million and $0.7 million was recorded for the nine-month periods ended September 30, 2004 and 2003.

Note 7 – Long-Term Sales Contracts

     During 1998, the company entered into three platinum group metals (PGM) supply contracts with its customers that contain guaranteed floor and ceiling prices for a portion of the metal delivered. The company has since amended these contracts to extend the terms and to modify the pricing mechanisms. One of these contracts applies to the

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company’s production through December 2010, one to the company’s production through December 2006 and the third is expected to be fulfilled in 2007. Under these supply contracts, the company has committed 80% to 100% of its mined palladium production and 70% to 80% of its mined platinum production annually through 2010. Metal sales are priced at a small volume discount to market, subject to floor and ceiling prices. The company’s remaining production is not committed under these contracts and remains available for sale at prevailing market prices.