10-Q 1 pdm105a.txt FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 ----------------- FORM 10-Q (Mark One) _X_ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2001 OR __ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________________ to ___________________ Commission File Number: 1-8641 ------- COEUR D'ALENE MINES CORPORATION (Exact name of registrant as specified on its charter) IDAHO 82-0109423 ------------------------------ ----------------------------- (State or other jurisdiction of (I.R.S. Employer Ident. No.) incorporation or organization) P. O. Box I, Coeur d'Alene, Idaho 83816-0316 --------------------------------- ---------- (Address of principal executive (Zip Code) offices) Registrant's telephone number, including area code:(208) 667-3511 ------------------------------------------------------------------------ Former name, former address and former fiscal year, if changed since last report Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO ----- ----- ------------------------- APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of each of Issuer's classes of common stock, as of the latest practicable date: Common stock, par value $1.00, of which 43,099,640 shares were issued and outstanding as of August 09, 2001. COEUR D'ALENE MINES CORPORATION INDEX ----- Page No. -------- PART I. Financial Information Item 1. Financial Statements Consolidated Balance Sheets -- 3 June 30, 2001 and December 31, 2000 Consolidated Statements of Operations and Comprehensive Loss -- 5 Three Months and Six Months Ended June 30, 2001 and 2000 Consolidated Statements of Cash Flows -- 6 Three Months and Six Months Ended June 30, 2001 and 2000 Notes to Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of 16 Financial Condition and Results of Operations Item 3. Quantitative and Qualitative Disclosure of Market Risk 27 PART II. Other Information Item 6. Exhibits and Reports on Form 8-K 28 SIGNATURES 29 2 CONSOLIDATED BALANCE SHEETS COEUR D'ALENE MINES CORPORATION AND SUBSIDIARIES (Unaudited) June 30, December 31, 2001 2000 --------- --------- ASSETS (In Thousands) CURRENT ASSETS Cash and cash equivalents $ 33,057 $ 35,227 Short-term investments 14,873 18,344 Receivables 5,783 9,710 Inventories 52,339 54,979 --------- --------- TOTAL CURRENT ASSETS 106,052 118,260 PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment 99,321 97,996 Less accumulated depreciation (62,313) (61,256) --------- --------- 37,008 36,740 MINING PROPERTIES Operational mining properties 114,552 113,409 Less accumulated depletion (75,012) (71,225) --------- --------- 39,540 42,184 Developmental properties 52,661 51,800 -------- --------- 92,201 93,984 OTHER ASSETS Investments in unconsolidated affiliates - 15,264 Notes receivable 238 263 Debt issuance costs, net of accumulated amortization 2,838 3,621 Other 3,341 3,245 --------- --------- 6,417 22,393 --------- --------- $241,678 $271,377 ========= ========= See notes to consolidated financial statements. 3 CONSOLIDATED BALANCE SHEETS COEUR D'ALENE MINES CORPORATION AND SUBSIDIARIES (Unaudited) June 30, December 31, 2001 2000 --------- --------- (In Thousands) LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 2,482 4,073 Accrued liabilities 7,368 11,008 Accrued interest payable 3,483 4,474 Accrued salaries and wages 4,436 5,723 6% convertible subordinated debentures due 2002 23,871 - --------- --------- TOTAL CURRENT LIABILITIES 41,640 25,278 LONG-TERM LIABILITIES 6% convertible subordinated debentures due 2002 2,044 26,511 6 3/8% convertible subordinated debentures due 2004 92,860 92,860 7 1/4% convertible subordinated debentures due 2005 69,180 85,198 Other long-term liabilities 22,588 24,090 --------- --------- TOTAL LONG-TERM LIABILITIES 186,672 228,659 SHAREHOLDERS' EQUITY Common Stock, par value $1.00 per share- authorized 125,000,000 shares, issued 44,158,851 and 38,109,279 shares in 2001 and 2000 (including 1,059,211 shares held in treasury) 44,159 38,109 Capital surplus 388,495 387,625 Accumulated deficit (406,637) (394,932) Shares held in treasury (13,190) (13,190) Accumulated other comprehensive income(loss) 539 ( 172) --------- --------- 13,366 17,440 --------- --------- $241,678 $271,377 ========= ========= See notes to consolidated financial statements. 4 CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS COEUR D'ALENE MINES CORPORATION AND SUBSIDIARIES Three and Six Months Ended June 30, 2001 and 2000 (Unaudited)
3 MONTHS ENDED 6 MONTHS ENDED JUNE 30 JUNE 30 --------------------- --------------------- 2001 2000 2001 2000 --------- --------- --------- --------- (In thousands except for per share data) REVENUES Product sales $ 18,213 $ 28,021 $ 36,219 $ 42,862 Interest and other 1,838 1,467 1,854 4,530 --------- --------- --------- --------- Total Revenues 20,051 29,488 38,073 47,392 COSTS AND EXPENSES Production 17,836 25,609 36,093 39,076 Depreciation and amortization 2,549 5,902 5,366 10,809 Administrative and general 2,163 2,095 4,440 5,216 Exploration 2,437 2,441 4,395 4,581 Interest 3,638 3,881 7,382 7,837 Other 856 1,028 1,073 1,163 --------- --------- --------- --------- Total Costs and Expenses 29,479 40,956 58,749 68,682 --------- --------- --------- --------- NET LOSS BEFORE INCOME TAXES AND EXTRAORDINARY ITEM (9,428) (11,468) (20,676) (21,290) Income tax provision - 105 1 205 --------- --------- --------- --------- NET LOSS BEFORE EXTRAORDIANARY ITEM (9,428) (11,573) (20,677) (21,495) Extraordinary item - early retirement of debt (net of taxes) 5,791 1,111 8,972 1,198 --------- --------- --------- --------- NET LOSS (3,637) (10,462) (11,705) (20,297) Unrealized holding gain (loss) on securities 296 (185) 711 (1,649) --------- --------- --------- --------- COMPREHENSIVE LOSS $ (3,341) $(10,647) $(10,994) $(21,946) ========= ========= ========= ========= NET LOSS (3,637) (10,462) (11,705) (20,297) Preferred stock dividends - - - 2,180 --------- --------- --------- --------- NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS $ (3,637) $(10,462) $(11,705) $(22,477) ========= ========= ========= ========= BASIC AND DILUTED LOSS PER SHARE DATA Weighted average number of shares of Common Stock 43,100 37,050 39,729 33,810 ======== ========= ========= ========= Loss before extraordinary item $ (0.21) $ (0.31) $ (0.52) $ (0.70) Extraordinary item - early Retirement of debt(net of taxes) 0.13 0.03 0.23 0.04 --------- --------- --------- --------- Net Loss per share attributable to Common Shareholders $ (0.08) $ (0.28) $ (0.29) $ (0.66) ========= ========= ========= =========
See notes to consolidated financial statements. 5 CONSOLIDATED STATEMENTS OF CASH FLOWS COEUR D'ALENE MINES CORPORATION AND SUBSIDIARIES Three and Six Months Ended June 30, 2001 and 2000 (Unaudited)
3 MONTHS ENDED 6 MONTHS ENDED JUNE 30 JUNE 30 --------------------- --------------------- 2001 2000 2001 2000 --------- --------- --------- --------- (In Thousands) CASH FLOWS FROM OPERATING ACTIVITIES Net loss $ (3,637) $(10,462) $(11,705) $(20,297) Add (deduct) noncash items: Depreciation, depletion, and amortization 2,549 5,902 5,366 10,809 Gain on early retirement of debt (net of taxes) (5,791) (1,111) (8,972) (1,198) Other 622 954 2,811 2,543 Undistributed earnings of investment in unconsolidated subsidiary - (78) - (560) Unrealized (gain)loss on written calls 158 511 (221) (1,043) Changes in Operating Assets and Liabilities: Receivables 3,108 (2,100) 3,927 5,171 Inventories 1,600 4,683 2,640 (2,954) Accounts payable and accrued liabilities (8,603) (1,391) (9,811) (3,356) --------- --------- --------- --------- NET CASH USED IN OPERATING ACTIVITIES (9,994) (3,092) (15,965) (10,885) CASH FLOWS FROM INVESTING ACTIVITIES Purchases of short-term investments (468) (4,187) (1,723) (8,463) Proceeds from sales of short-term investments 337 - 5,603 12,073 Proceeds from sale of assets - 99 14,733 690 Expenditures on mining assets (1,908) (4,406) (3,885) (8,353) Other (303) (20) (562) 83 --------- --------- --------- --------- NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES (2,342) (8,514) 14,166 (3,970) CASH FLOWS FROM FINANCING ACTIVITIES Retirement of long-term debt - (5,841) - (5,999) Payment of cash dividends - - - (2,633) Other (75) (118) (371) (158) --------- --------- --------- --------- NET CASH USED IN FINANCING ACTIVITIES (75) (5,959) (371) (8,790) --------- --------- --------- --------- DECREASE IN CASH AND CASH EQUIVALENTS (12,411) (17,565) (2,170) (23,645) Cash and cash equivalents at beginning of period 45,468 80,855 35,227 86,935 --------- --------- --------- --------- Cash and cash equivalents at June 30 $ 33,057 $ 63,290 $ 33,057 $ 63,290 ========= ========= ========= ========= Supplemental Cash Flow disclosure During the 2nd quarter of 2001 the Company repurchased $11.0 million principal amount of its outstanding 7-1/4% Convertible Subordinated Debentures in exchange for 4,257,618 shares of common stock. During the 1st quarter of 2001, the Company repurchased $5.0 million principal amount of its outstanding 7-1/4% Convertible Subordinated Debentures in exchange for 1,787,500 shares of common stock.
See notes to consolidated financial statements. 6 Coeur d'Alene Mines Corporation and Subsidiaries Notes to Consolidated Financial Statements (Unaudited) NOTE A: Basis of Presentation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three-month and six month periods ended June 30, 2001 are not necessarily indicative of the results that may be expected for the year ended December 31, 2001. The balance sheet at December 31, 2000 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. For further information, refer to the consolidated financial statements and footnotes thereto included in the Coeur d'Alene Mines Corporation Annual Report on Form 10-K for the year ended December 31, 2000. NOTE B: Short-term Investments Coeur d'Alene Mines Corporation ("Coeur" or the "Company"), under the terms of its lease, self insurance, and bonding agreements with banks, lending institutions and regulator agencies, is required to collateralize a certain portion of the Company's obligations. The Company has collaterized these obligations by assigning certificates of deposit that have maturity dates ranging from three months to a year, to the respective institution or agency. At June 30, 2001 and December 31, 2000, the Company had certificates of deposit under these agreements of $11.1 million and $10.4 million, respectively, restricted for this purpose. The insurance company that issued the surety bond required under Nevada law to cover our estimated $17.8 million of future mine closure reclamation costs relating to the Rochester Mine recently filed for liquidation. We are currently attempting to arrange for a replacement insurer, and will be required to provide adequate financial consideration to the State of Nevada to assure our continued compliance with our reclamation liability obligation. 7 NOTE C: Inventories Inventories are comprised of the following: JUNE 30, DECEMBER 31, 2001 2000 ------------ ----------- (In Thousands) In process and on leach pads $ 43,111 43,595 Concentrate and dore' inventory 4,170 6,258 Supplies 5,058 5,126 --------- --------- $ 52,339 $ 54,979 ========= ========= Inventories of ore on leach pads and in the milling process are valued based on actual costs incurred, less costs allocated to minerals recovered through the leaching and milling processes. Inherent in this valuation is an estimate of the percentage of the minerals on leach pads and in process that will ultimately be recovered. All other inventories are stated at the lower-of-cost or market, with cost being determined using the first-in, first-out and weighted-average-cost methods. Dore inventory includes product at the mine site and product held by refineries. The Handy and Harmon refinery, to which the Rochester Mine historically sent approximately 50% of its dore, filed for Chapter 11 Bankruptcy during the first quarter of 2000. The Company has in inventory, at the refinery, approximately 67,000 ounces of silver and approximately 5,000 ounces of gold, which has not been returned pending resolution of the Bankruptcy proceeding. At this time, the Company has initiated litigation against Handy and Harmon and its former lenders in an effort to recover the gold and silver previously delivered by the Company to Handy and Harmon refining. The Company maintains that title to the metal was never transferred to Handy and Harmon and therefore believes it has a basis to recover the entire inventory being held. The book value of such inventory at June 30, 2001 was approximately $1.8 million. NOTE D: Income Taxes The Company has reviewed its net deferred tax asset as of June 30, 2001, together with net operating loss carry forwards, and has decided to forego recognition of potential tax benefits arising therefrom. In making this determination, the Company has considered the Company's history of tax losses incurred since 1989, the current level of gold and silver prices and the ability of the Company to use accelerated depletion and amortization methods in the determination of taxable income. As a result, the Company's net deferred tax asset has been fully reserved. NOTE E: Long-Term Debt In three privately negotiated transactions completed in the second quarter of 2001, the Company repurchased, in aggregate, $11 million principal amount of its outstanding 7 1/4% Convertible Subordinated Debentures due 2005 in exchange for 4,257,618 shares of common stock. As a result of the transactions completed, the Company recorded an extraordinary gain in the second quarter ending June 30, 2001 of approximately $5.8 million, net of deferred offering costs and taxes. 8 In the first quarter of 2001, the Company repurchased $5 million principal amount of its outstanding 7-1/4% Convertible Subordinated Debentures due 2005 in exchange for 1,787,500 shares of common stock. As a result of the repurchase, the Company has recorded an extraordinary gain of approximately $3.0 million, net of taxes of zero, during the first quarter of 2001 on the reduction of its indebtedness. The share price used as consideration in all of these transactions was based upon market prices at the time of each respective transaction. On June 29, 2001, the Company commenced an offer to exchange newly issued 13-3/8% Convertible Senior Subordinated Notes due December 31, 2003 ("13-3/8% Notes") for the Company's outstanding 7-1/4% Convertible Subordinated Debentures due October 31, 2005 ("7 1/4% Debentures"), 6-3/8% Convertible Subordinated Debentures due January 31, 2004("6-3/8% Debentures") and 6% Convertible Subordinated Debentures due June 10, 2002 ("6% Debentures") (the "Exchange Offer"). The Company offered to issue up to a total of $71,340,000 principal amount of 13-3/8% Notes in exchange for up to 80% of its outstanding 7-1/4% and 6-3/8% Debentures and up to 25% of its outstanding 6% Debentures. The Company offered $1,000 principal amount of 13-3/8% Notes for each $2,000 principal amount of 7-1/4% or 6-3/8% Debentures, and $1,000 principal amount of 13-3/8% Notes for each $1,000 principal amount of 6% Debentures validly tendered and accepted in the exchange offer. The 13-3/8% Notes are Senior in right of payment to the outstanding 7-1/4%, 6-3/8% and 6% Debentures. In addition, the 13-3/8% Notes are convertible into Coeur common stock, at any time following the date of issuance on August 1, 2001, and prior to maturity. The minimum conversion price is $1.35 per share, subject to adjustment. The 13-3/8% Notes are redeemable at the option of the Company two years after issuance, subject to certain conditions, and at the option of the holders in the event of a change in control. On July 30, 2001 the Company completed the Exchange Offer. The principal amounts of Debentures validly tendered and accepted for exchange were as follows: $54,530,000 of the 7-1/4% Debentures, $26,526,000 of the 6-3/8% Debentures and $2,044,000 of the 6% Debentures. As a result of the Exchange Offer, the Company issued on August 1, 2001, $42,572,000 principal amount of its 13-3/8% Notes in exchange for the outstanding 7-1/4%, 6-3/8% and 6% Debentures which were tendered and accepted in the Exchange Offer. The Exchange Offer has reduced Coeur's outstanding long-term debt by approximately $39.9 million and increased shareholders' equity by approximately $38.6 million. 9 In addition, the Company also offered for sale to holders of Coeur's outstanding Debentures who participated in the Exchange Offer, the right to purchase for cash additional 13-3/8% Notes (the "Cash Offer"). The Company sold $74,000 principal amount of 13-3/8% Notes in the Cash Offer. NOTE F: Segment Reporting Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker, or decision making group, in deciding how to allocate resources and in assessing performance. The Company's chief operating decision making group is comprised of the Chief Executive Officer, Chief Financial Officer and the Chief Operating Officer. The operating segments are managed separately because each segment represents a distinct use of Company resources and contribution to the Company's cash flows in its respective geographic area. The Company's reportable operating segments include the Rochester, Coeur Silver Valley, Fachinal, and Petorca mining properties, the Kensington development property, and the Company's exploration programs, which includes the San Bartolome silver development property. All operating segments are engaged in the discovery and/or mining of gold and silver and generate the majority of their revenues from the sale of these precious metals. Intersegment revenues consist of precious metal sales to the Company's metals marketing division and are transferred at the market value of the respective metal on the date of the transfer. The Other segment includes earnings from unconsolidated subsidiaries accounted for by the equity method, the corporate headquarters, elimination of intersegment transactions and other items necessary to reconcile to consolidated amounts. Revenues in the other segment are generated principally from interest received from the Company's cash and investments that are not allocated to the operating segments. The accounting policies of the operating segments are the same as those described in the summary of significant accounting policies in the Company's Annual Report on Form 10-K. The Company evaluates performance and allocates resources based on each segments profit or loss before interest, income taxes, depreciation and amortization, unusual and infrequent items, and extraordinary items. 10 Segment Reporting (In Thousands)
Silver Rochester Valley Fachinal Petorca Exploration Other Total -------------------------------------------------------------------------------------------- June 30, 2001 Total net sales and revenues $ 24,408 $ 8,531 $ 160 $ 3,451 $ - $ 1,522 $ 38,073 ================================================================================================================================== Depreciation and amortization 4,501 1,459 - 265 11 609 6,846 Interest income - - 1 2 - 1,147 1,151 Interest expense - - - - - 7,382 7,382 Gain on forward sale contracts - - - - - 221 221 Income tax (credit) expense - 1 - - - - 1 Gain on early retirement of debt - - - - - 8,972 8,972 Profit (loss) 2,702 (418) (1,528) (1,050) (810) (4,492) (5,596) Investments in non-consolidated affiliates - - - - - 12 12 Segment assets (A) 76,437 27,526 23,296 2,885 183 57,003 187,330 Capital expenditures for property 611 1,730 801 - 30 713 3,885 June 30, 2000 Total net sales and revenues $ 25,279 $ 7,815 $ 4,157 $ 2,703 $ (90) $ 7,520 $ 47,392 ================================================================================================================================== Depreciation and amortization 7,372 1,289 2,550 108 44 1,822 13,185 Interest income - - 8 4 9 2,520 2,542 Interest expense - - 14 - - 7,824 7,837 Income tax (credit) expense - 1 - - - 204 205 Earnings (losses) from non-consolidated affiliates - - - - - 561 561 Gain on early retirement of debt - - - - - 1,198 1,198 Profit (loss) 6,800 (692) (3,367) (844) (2,593) 429 (267) Investments in non-consolidated affiliates - - - - - 28,389 28,389 Segment assets (A) 84,763 25,361 29,042 2,534 52,055 8,046 201,800 Capital expenditures for property 760 2,508 2,048 129 2,873 34 8,353 Notes: (A) Segment assets consist of receivables, prepaids, inventories, property, plant and equipment, and mining properties
11 Segment Reporting Cont. (In Thousands)
June 30, 2001 2000 ------------------------- ------------------------ (Loss) ------ Total loss from reportable segments $ (5,596) $ (267) Depreciation, depletion and amortization expense (6,846) (13,185) Interest expense (7,382) (7,837) Other (852) - ------------------------- ------------------------ Loss before income taxes $(20,676) $ (21,290) ========================= ======================== June 30, 2001 2000 ------------------------- ------------------------ Assets ------ Total assets for reportable segments $ 187,330 $ 201,800 Cash and cash equivalents 33,057 63,290 Short-term investments 3,951 18,309 Other assets 17,340 36,629 ------------------------- ------------------------ Total consolidated assets $ 241,678 $ 320,028 ========================= ======================== Geographic Information ---------------------- (In thousands) Long-Lived 2001: Revenues Assets ------------------------- ------------------------ United States $36,016 $88,394 Chile 1,857 21,406 Bolivia - 18,850 Other Foreign Countries 200 559 ------------------------- ------------------------ Consolidated Total $38,073 $ 129,209 ========================= ======================== Long-Lived 2000: Revenues Assets ------------------------- ------------------------ United States $35,720 $ 93,186 Chile 6,774 22,175 Bolivia - 18,850 Other Foreign Countries 4,898 662 ------------------------- ------------------------ Consolidated Total $47,392 $134,873 ========================= ========================
Revenues are geographically separated based upon the country in which operations and the underlying assets generating those revenues reside. NOTE G: Hedging For the first half of 2001 the Company recorded a realized gain of approximately $.3 million in connection with the hedge program and an additional $.2 million of mark to market gain on the call options. The Company has 34,500 ounces in forward sales in its gold protection program (2001-15,000 ounces, 2002-19,500 ounces), whereby over the next two years the Company will receive an average price of $308.28. The following table summarizes the information at June 30, 2001 associated with the Company's financial and derivative financial instruments that are sensitive to changes in interest rates, 12 commodity prices and foreign exchange rates. For long-term debt obligations, the table presents principal cash flows and related average interest rates. For gold call options and amortizing forward sales, the table presents ounces contracted to be delivered and the related average price per ounce in U.S. dollars. For foreign currency exchange contracts, the table presents the notional amount in Chilean Peso's to be purchased along with the average foreign exchange rate.
Fair Value (dollars in thousands) 2001 2002 2003 2004 Thereafter Total 6/30/01 ------------------------------------------------------------------------------------------------------------------------- Liabilities Long Term Debt (prior to exchange) $ - $ 25,915 $ - $ 92,860 $ 69,180 $ 187,955 $ 92,387 Fixed Rate Average Interest Rate 6.717% 6.782% 6.843% 7.190% 7.250% Derivative Financial Instruments Gold Forward Sales - USD Ounces 15,000 19,500 - - - 34,500 $ 1,111 Price Per Ounce $299.42 $ 315.10 $ - $ - $ - Gold Call Options Sold - USD Ounces (1) - - - - 56,000 56,000 $ (641) Price Per Ounce - $ - $ - $ - $ 346.46 Foreign Currency Contracts Chilean Peso's $ 2,700 $ - $ - $ - $ 2,700 $ (251) Exchange Rate (Chilean Peso to US$) $573.09 $ - $ - $ - $ - (1) The call options sold have a knock-out provision whereby the calls for 56,000 ounces will terminate if gold trades below $300 per ounce after December 27, 2002.
NOTE H: New Accounting Standard In June 2001, The FASB issued SFAS No. 141 "Business Combinations" and SFAS No. 142 "Goodwill and Other Intangible Assets", which requires all business combinations to be accounted for using the purchase method and changes the treatment of goodwill created in a business combination. The adoption of these two statements is not expected to have an impact on the Company. On July 5th, 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations". That standard requires entities to record the fair value of a liability for an asset retirement obligation in the period in which it is incurred. When the liability is initially recorded, the entity capitalizes a cost by increasing the carrying amount of the related long-lived asset. Over time, the liability is accreted to its present value each period, and the capitalized cost is depreciated over the useful life of the related asset. Upon settlement of the liability, an entity either settles 13 the obligation for its recorded amount or incurs a gain or loss upon settlement. The standard is effective for fiscal years beginning after June 15, 2002. The Company is currently assessing the effect of adopting SFAS No. 143 on its financial statements and will adopt the statement on January 1, 2003. NOTE I: Litigation On March 22, 1996, an action was filed in the United States District Court for the District of Idaho by the United States against various defendants, including the Company, asserting claims under CERCLA and the Clean Water Act for alleged damages to federal natural resources in the Coeur d'Alene River Basin of Northern Idaho as a result of alleged releases of hazardous substances from mining activities conducted in the area since the late 1800s. On March 16, 2001, the Company and representatives of the U.S. Government, including the Environmental Protection Agency, the Department of Interior and the Department of Agriculture, reached an agreement to settle the lawsuit, which represents the only suit in which the Company has been named a party. Pursuant to the terms of the Consent Decree dated May 14, 2001, the Company has paid the U.S. Government a total of approximately $3.9 million, of which $3.3 million was paid in May 2001 and the remaining $.6 million was paid in June 2001. In addition, the Company will (i) pay the United States 50% of any future recoveries from insurance companies for claims for defense and indemnification coverage under general liability insurance policies in excess of $600,000, (ii) accomplish certain cleanup work on the Mineral Point property (i.e., the former Coeur Mine site) and Calladay property, and (iii) make available certain real property to be used as a waste repository. Finally, commencing five years after effectiveness of the settlement, the Company will be obligated to pay net smelter royalties on its operating properties, up to a maximum of $3 million, amounting to a 2% net smelter royalty on silver production if the price of silver exceeds $6.50 per ounce, and a $5.00 per ounce net smelter royalty on gold production if the price of gold exceeds $325 per ounce. The royalty would run for 15 years commencing five years after effectiveness of the settlement. Lawsuit to Recover Inventory During the first quarter of 2000, Handy and Harmon Refining Group, Inc., to which the Rochester Mine had historically sent approximately 50% of its dore, filed for Chapter 11 bankruptcy. The Company had an inventory at the refinery of approximately 67,000 ounces of silver and 5,000 ounces of gold that has been delivered to certain creditors of Handy and Harmon. The dore inventory has a cost basis of $1.8 million. On February 27, 2001, the Company commenced a lawsuit against Handy and Harmon and certain others in the U.S. Bankruptcy Court for the District of Connecticut seeking recovery of the metals and/or damages. Although the Company believes it has a 14 basis for full recovery, it is premature to predict the outcome of the lawsuit. NOTE J: Reclassification Certain reclassifications of prior-year balances have been made to conform to current year classifications. Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ------------------------------------------------- General The results of the Company's operations are significantly affected by the market prices of gold and silver which may fluctuate widely and are affected by many factors beyond the Company's control, including, without limitation, interest rates, expectations regarding inflation, currency values, governmental decisions regarding the disposal of precious metals stockpiles, global and regional political and economic conditions, and other factors. The average price of silver and gold for the first half of 2001 was $4.48 and $266 per ounce, respectively. The market prices of silver (Handy & Harmon) and gold (London Final) on August 9, 2001 were $4.18 per ounce and $270.00 per ounce, respectively. The Company's currently operating mines are the Rochester mine in Nevada, the Galena mine in the Coeur d'Alene Mining District of Idaho, and the Petorca mine in Chile, which was shut-down and placed on a care and maintenance the end of July 2001. This document contains numerous forward-looking statements relating to the Company's gold and silver mining business. The United States Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for certain forward-looking statements. Operating, exploration and financial data, and other statements in this document are based on information the company believes reasonable, but involve significant uncertainties as to future gold and silver prices, costs, ore grades, estimation of gold and silver reserves, mining and processing conditions, changes that could result from the Company's future acquisition of new mining properties or businesses, the risks and hazards inherent in the mining business (including environmental hazards, industrial accidents, weather or geologically related conditions), regulatory and permitting matters, and risks inherent in the ownership and operation of, or investment in, mining properties or businesses in foreign countries. Actual results and timetables could vary significantly from the estimates presented. Readers are cautioned not to put undue reliance on forward-looking statements. The Company disclaims any intent or obligation to update publicly these forward-looking statements, whether as a result of new information, future events or otherwise. 15 The following table sets forth the amounts of gold and silver produced by the mining properties owned by the Company or in which the Company has an interest, based on the amounts attributable to the Company's ownership interest, and the cash and full costs of such production during the three-month and six-month periods ended June 30, 2001 and 2000:
Three Months Ended Six Months Ended June 30, June 30, ------------------------ ----------------------- 2001 2000 2001 2000 ---------- ---------- ---------- ---------- ROCHESTER MINE Gold ozs. 20,504 18,903 40,023 34,360 Silver ozs. 1,488,598 1,760,212 2,990,247 3,298,472 Cash Costs per oz./silver $3.72 $3.78 $3.80 $4.00 Full Costs per oz./silver $4.35 $4.91 $4.59 $5.16 Galena Mine Silver ozs. 1,032,966 906,593 2,140,907 1,697,355 Cash Costs per oz./silver $4.61 $4.79 $4.48 $5.27 Full Costs per oz./silver $5.30 $5.57 $5.15 $6.02 PRIMARY SILVER MINES Consolidated Cash Cost per Equivalent oz. of silver $3.96 $4.65 $3.99 $4.31 YILGARN STAR MINE Gold ozs. N/A 6,474 N/A 12,593 Cash Costs per oz./gold N/A $201 N/A $234 Full Costs per oz./gold N/A $326 N/A $352 FACHINAL MINE Gold ozs. N/A 4,004 N/A 9,419 Silver ozs. N/A 295,703 N/A 559,429 Cash Costs per oz./gold N/A $379 N/A $358 Full Costs per oz./gold N/A $517 N/A $489 PETORCA MINE Gold ozs. 6,772 6,468 13,931 11,640 Silver ozs. 35,611 17,297 57,738 27,939 Cash Costs per oz./gold $342 $339 $347 $359 Full Costs per oz./gold $361 $348 $367 $369 PRIMARY GOLD MINES Consolidated Cash Cost per Equivalent oz. of gold $342 $329 $348 $323 CONSOLIDATED PRODUCTION TOTALS Gold ozs. 27,276 35,849 53,954 68,012 Silver ozs. 2,557,174 2,979,805 5,188,891 5,583,195 Note A: On February 7, 2001, the Company sold its interest in the Yilgarn Star Mine, effective December 31, 2000. Note B: The Company placed the Fachinal Mine on temporary standby effective December 7, 2000.
Operating Highlights -------------------- North America Rochester Mine (Nevada) ---------------------- Coeur's Rochester Mine produced 1.49 million ounces of silver and 20,504 ounces of gold during the second quarter of 2001 compared 16 to 1.76 million ounces of silver and 18,903 ounces of gold in the second quarter of the previous year. Cash costs for the latest period declined to $3.72 per silver equivalent ounce from $3.78 per ounce in 2000. As planned, mining is currently taking place in a gold-rich area of the open pit, which accounts for the higher gold production and slightly lower silver production. Operations continue to benefit from a number of improvements carried out last year and earlier in the current year. The most recent of these was the installation of new crusher screens, which has already increased crusher throughput. Additional reverse circulation drilling was carried out at Rochester to follow up last year's excellent results. By the end of June, 47 holes totaling 21,020 feet were completed and the drill data is currently being analyzed and evaluated. Much of the drill program so far has been focused on areas to the south and west of current pit operations where additional reserves and resources can likely be developed most rapidly. At the nearby Nevada Packard deposit, Coeur has completed 38 reverse circulation holes comprising 11,360 feet, which has successfully extended mineralization, especially in the East zone discovered last year. Drilling will recommence at Nevada Packard by mid-August. Some of the best results obtained so far include 130 feet grading 4.44 silver equivalent ounces per ton from an area south of the current Rochester pit and a 110-foot intersection from the East zone at Nevada Packard, grading 8.34 silver equivalent ounces per ton. The Coeur Rochester team also received a Certificate of Honor from the Joseph H. Holmes Safety Association for working over 4 million hours without incurring a single fatality or permanently disabling accident. Coeur Silver Valley (Idaho) --------------------------- Silver production from Coeur Silver Valley increased by almost 14 percent to 1.03 million ounces in the second quarter of 2001 compared to 0.91 million ounces in the second quarter of the prior year. Total cash costs for the quarter declined to $4.61 per ounce form $4.79 per ounce in 2000. The increase in production and corresponding decrease in cash costs is directly the result of the accelerated underground development program to develop new vein structures that are wider and higher in grade than many of the other vein systems mined to date. These vein structures are enabling Coeur to implement trackless mining in selected areas. When operational late in the third quarter, the trackless mining initiative will lead to further increases in production and reductions in cash costs. Most of Coeur's exploration drilling at Silver Valley this year is focused on defining and expanding the most productive vein structures, such as the 117 and 72 veins. Drilling on the 72 vein between the 4600 and 4900 levels have delineated significant high-grade resources, which is the up-dip extension of ore-grade mineralization discovered last year. More recently, the Company has begun to trace the 117 vein upward from the 3,700 level to the 3,400 17 level with excellent results. Development of the 117 high-grade vein on the 3,700 level is now underway. South America Chile ----- At the end of last year, Coeur made the decision to suspend operations at its Fachinal mine in Chile. This was done partially in response to high costs and low precious metals prices, but mainly to evaluate the new Cerro Bayo discovery. At the end of June, the decision was also made to suspend operations at the Petorca mine. In the first quarter, after careful consideration, Coeur decided to place all of its Chilean mining assets up for sale subject to receiving an appropriate price. Although this process is continuing, Coeur is concurrently carrying out a confirmation drilling program in conjunction with the development of a detailed mine plan for Cerro Bayo. Results to date indicate that mining of this new zone can provide a good economic return even at current metal prices, which Coeur is prepared to do if it does not receive an acceptable offer. Development Projects San Bartolome (Bolivia) ---------------------- In 2000, Coeur completed a comprehensive feasibility study at its San Bartolome silver development project in Bolivia. Results of the study confirmed a technically feasible and economically attractive silver mining project. Coeur's study concludes that following a capital investment of $60 to $70 million, a mining and milling operation could produce, on average, approximately 6 million ounces of silver annually for eight years at an estimated cash cost of $3.50 per ounce. In addition, the study identified a number of optimization opportunities that if successful, could significantly enhance the economic returns of the project using an average life-of-mine silver price of $5.00 per ounce. Coeur is aggressively pursuing these optimization opportunities, which the Company believes will not only enhance the economic return but will also improve the technical merits and substantially reduce project risk. As an example, Coeur is pleased to announce that it has recently acquired substantial exploration and mining rights over a large prospective area immediately adjacent to the San Bartolome property. In mid-June, Coeur reached an agreement to secure these rights from the Bolivian State Mining Company, La Corporacion Minera de Bolivia ("Comibol") for nominal rental payments and a four percent net smelter royalty. Detailed evaluation of the area covered by the agreement is already underway. Coeur believes that these lands could provide a substantial increase in the existing 122 million-ounce resource. 18 In addition, the Company is very encouraged with results obtained from its most recent technical and cost optimization studies. Coeur will continue to advance this project and intends to conduct a formal feasibility study later this year. RESULTS OF OPERATIONS --------------------- Three Months Ended June 30, 2001 Compared to Three Months Ended June 30, 2000. --------------------------------------------------------- Revenues -------- Due to sharply lower realized gold and silver prices, product sales in the second quarter of 2001 decreased by $9.8 million, or 35%, from the second quarter of 2000 to $18.2 million. The decrease in sales is primarily attributable to decreased production of silver from the Rochester mine and decreased gold production from the Yilgarn Star and Fachinal mines, as well as lower gold and silver prices realized, compared to the same three month period in 2000. In the second quarter of 2001, the Company produced a total of 2,557,175 ounces of silver and 27,276 ounces of gold compared to 2,979,805 ounces of silver and 35,849 ounces of gold in the second quarter of 2000. In the second quarter of 2001, the Company realized average silver and gold prices of $4.37 and $273, respectively, compared with realized average prices of $5.04 and $310, respectively, in the prior year's second quarter. The decline in gold production was due primarily to the sale of the Company's interest in Gasgoyne, as well as the lack of production from Fachinal. This was partially offset by higher gold production at Rochester and Petorca. Interest and other income in the second quarter of 2001 increased by $0.4 million compared with the second quarter of 2000. The increase is primarily due to gain recorded on the sale of short-term investments offset in part by lower interest income received as a result of lower interest rates and lower cash balances. Costs and Expenses ------------------ Production costs in the second quarter of 2001 decreased by $7.8 million, or 30%, from the second quarter of 2000 to $17.8 million. The decrease in production costs is primarily a result of decreased production at Fachinal and Yilgarn Star mines for the second quarter of 2001 from the second quarter of 2000. Depreciation and amortization decreased in the second quarter of 2001 by $3.4 million, or 57%, from the prior year's second quarter, primarily due to no depletion or amortization taken at the Fachinal mine due to temporary suspension of operations, resulting in no production, and no depletion associated with the Yilgarn Star mine due to sale of the Company's interest in early February 2001. Net Loss -------- As a result of the above mentioned factors, as well as debt retirement discussed below, the Company's net loss amounted to $3.6 19 million in the second quarter of 2001 compared to a net loss of $10.5 million in the second quarter of 2000. The net loss attributable to common shareholders was $0.08 per share for the second quarter of 2001, compared to $0.28 per share for the second quarter of 2000. Debt Reduction Program ---------------------- During the second quarter of 2001, the Company completed three transactions, exchanging a total of 4,257,618 common shares for a principal amount of $11 million of its 7 1/4 percent Convertible Subordinated Debentures due 2005. As a consequence of these transactions, Coeur's total outstanding convertible debt had been reduced to $188.1 million at June 30, 2001, and interest expense will decrease by approximately $1.2 million annually. Six Months Ended June 30, 2001 Compared to Six Months Ended June 30, 2000. ----------------------------------------------------- Revenues -------- Product sales in the first half of 2001 decreased by $6.5 million, or 15%, from the first half of 2000 to $36.2 million. The decrease in sales is primarily attributable to lower realized gold and silver prices and decreased production of silver from the Rochester mine and decreased gold production from the Yilgarn Star and Fachinal mines, compared to the same six month period in 2000. In the first half of 2001, the Company produced a total of 5,188,892 ounces of silver and 53,954 ounces of gold compared to 5,583,195 ounces of silver and 68,012 ounces of gold in the first half of 2000. In the first half of 2001, the Company realized average silver and gold prices of $4.45 and $272, respectively, compared with realized average prices of $5.09 and $319, respectively, in the prior year's first half. The decline in gold production was due primarily to the sale of the Company's interest in Gasgoyne, as well as the lack of production from Fachinal. This was partially offset by higher gold production at Rochester and Petorca. Interest and other income in the first half of 2001 decreased by $2.7 million compared with the first half of 2000. The decrease is primarily due to less interest income received as a result of lower interest rates and lower cash balances and a $1.1 million gain recorded in the first half of 2000 on the mark to market adjustment of the call option portion of the Company's hedge program. Costs and Expenses ------------------ Production costs in the first half of 2001 decreased by $3.0 million, or 8%, from the first half of 2000 to $36.1 million. The decrease in production costs is primarily a result of decreased 20 production at Fachinal and Yilgarn Star mines for the first half of 2001 over the first half of 2000. Depreciation and amortization decreased in the first half of 2001 by $5.4 million, or 50%, from the prior year's first half, primarily due to no depletion or amortization taken at the Fachinal mine due to temporary suspension of operations, resulting in no production, and no depletion associated with the Yilgarn Star mine due to sale of the Company's interest in early February 2001. Administrative and general expenses decreased $.8 million in the first half of 2001 compared to 2000, due to continuing efforts to conserve cash. Net Loss -------- As a result of the above mentioned factors, as well as debt retirement discussed below, the Company's net loss amounted to $11.7 million in the first half of 2001 compared to a net loss of $20.3 million in the first half of 2000. The net loss attributable to common shareholders was $0.29 per share for the first half of 2001, compared to $0.66 per share for the first half of 2000. Debt Reduction Program ---------------------- One of the Company's major objectives over the past three years has been to reduce the level of its long-term debt and consequent interest payments. To the end of July 2001, Coeur had reduced its long-term debt by more than $140 million, recognizing extraordinary gains of approximately $81 million over the past three years. On March 19, 2001, the Company exchanged 1,787,500 of its common shares for $5 million principal value of its 7 1/4 percent Convertible Subordinated Debentures due 2005, recording an extraordinary gain of $3.0 million in the first half of 2001. On April 30, 2001, the Company announced that it completed three similar transactions, exchanging a total of 4,257,618 common shares for a principal amount of $11 million of its 7 1/4 percent Convertible Subordinated Debentures due 2005. As a consequence of these latest transactions, Coeur's total outstanding convertible debt had been reduced to $188.1 million at April 30, 2001, and annual interest expense will decrease by approximately $1.2 million. LIQUIDITY AND CAPITAL RESOURCES ------------------------------- Working Capital; Cash and Cash Equivalents The Company's working capital at June 30, 2001 decreased by $28.6 million to approximately $64.4 million compared to $93.0 million at December 31, 2000. The decrease is primarily a result of reclassification of a portion of the Company's 6% Convertible Subordinated Debentures Due 2002 to a current liability in June 2001. 21 The ratio of current assets to current liabilities was 2.5 to 1.0 at June 30, 2001 compared to 4.7 to 1.0 at December 31, 2000. Net cash used in operating activities in the three months ended June 30, 2001 was $10.0 million compared to $3.1 million in the three months ended June 30, 2000, primarily resulting from a decrease in current liabilities. Net cash used in investing activities in the 2001 period was $2.3 million compared to net cash used in investing activities of $8.5 million in the prior year's comparable period. The decrease primarily resulted from a reduction in capital expenditures and a reduction in purchases of short-term investments. Net cash used in financing activities was $75,000 in the second quarter of 2001, compared to $6.0 million used in the second quarter of 2000. Approximately $5.9 million of debt payments were made in the second quarter of 2000. As a result of the above, cash and cash equivalents decreased by $12.4 million in the second quarter of 2001 compared to a decrease of $17.6 million for the comparable period in 2000. Net cash used in operating activities in the six months ended June 30, 2001 was $16.0 million compared to $10.9 million in the six months ended June 30, 2000 primarily resulting from a decrease in current liabilities. Net cash received in investing activities in the 2001 period was $14.1 million compared to net cash used in investing activities of $4.0 million in the prior year's comparable period. The decrease primarily resulted from the proceeds from the sale of the Company's 50% interest in Gasgoyne Gold Mines and a reduction in capital expenditures. Net cash used in financing activities was $371,000 in the six months of 2001, compared to $8.8 million used in the six months of 2000. Approximately $6.0 million of debt payments and approximately $2.6 million of dividend payments on the MARCS were made in the second quarter of 2000. As a result of the above, cash and cash equivalents decreased by $2.2 million in the six months of 2001 compared to a decrease of $23.6 million for the comparable period in 2000. Federal Natural Resources Action On March 22, 1996, an action was filed in the United States District Court for the District of Idaho by the United States against various defendants, including the Company, asserting claims under CERCLA and the Clean Water Act for alleged damages to federal natural resources in the Coeur d'Alene River Basin of Northern Idaho as a result of alleged releases of hazardous substances from mining activities conducted in the area since the late 1800s. On March 16, 2001, the Company and representatives of the U.S. Government, including the Environmental Protection Agency, the Department of Interior and the Department of Agriculture, reached an agreement to settle the lawsuit, which represents the only suit in which the Company has been named a party. Pursuant to the terms of the Consent Decree dated May 14, 2001, the Company has paid the U.S. Government a total of approximately $3.9 million, of which $3.3 million was paid in May 2001 and the remaining $.6 million was paid 22 in June 2001. In addition, the Company will (i) pay the United States 50% of any future recoveries from insurance companies for claims for defense and indemnification coverage under general liability insurance policies in excess of $600,000, (ii) accomplish certain cleanup work on the Mineral Point property (i.e., the former Coeur Mine site) and Calladay property, and (iii) make available certain real property to be used as a waste repository. Finally, commencing five years after effectiveness of the settlement, the Company will be obligated to pay net smelter royalties on its operating properties, up to a maximum of $3 million, amounting to a 2% net smelter royalty on silver production if the price of silver exceeds $6.50 per ounce, and a $5.00 per ounce net smelter royalty on gold production if the price of gold exceeds $325 per ounce. The royalty would run for 15 years commencing five years after effectiveness of the settlement. As a result of the settlement, the Company recorded a charge to other expense of $4.2 million in the fourth quarter of 2000 which includes $3.9 million of settlement payments, the land transfer expenses and related legal fees. Lawsuit to Recover Inventory During the first quarter of 2000, Handy and Harmon Refining Group, Inc., to which the Rochester Mine had historically sent approximately 50% of its dore, filed for Chapter 11 bankruptcy. The Company had an inventory at the refinery of approximately 67,000 ounces of silver and 5,000 ounces of gold that has been delivered to certain creditors of Handy and Harmon. The dore inventory has a cost basis of $1.8 million. On February 27, 2001, the Company commenced a lawsuit against Handy and Harmon and certain others in the U.S. Bankruptcy Court for the District of Connecticut seeking recovery of the metals and/or damages. Although the Company believes it has a basis for full recovery, it is premature to predict the outcome of the lawsuit. Recent Exchange Offer On June 29, 2001, the Company commenced an offer to exchange newly issued 13-3/8% Convertible Senior Subordinated Notes due December 31, 2003 ("13-3/8% Notes") for the Company's outstanding 7-1/4% Convertible Subordinated Debentures due October 31, 2005 ("7 1/4% Debentures"), 6-3/8% Convertible Subordinated Debentures due January 31, 2004 ("6-3/8% Debentures") and 6% Convertible Subordinated Debentures due June 10, 2002 ("6% Debentures") (the "Exchange Offer"). The Company offered to issue up to a total of $71,340,000 principal amount of 13-3/8% Notes in exchange for up to 80% of its outstanding 7-1/4% and 6-3/8% Debentures and up to 25% of its 23 outstanding 6% Debentures. The Company offered $1,000 principal amount of 13-3/8% Notes for each $2,000 principal amount of 7-1/4% or 6-3/8% Debentures, and $1,000 principal amount of 13-3/8% Notes for each $1,000 principal amount of 6% Debentures validly tendered and accepted in the exchange offer. The 13-3/8% Notes are Senior in right of payment to the outstanding 7-1/4%, 6-3/8% and 6% Debentures. In addition, the 13-3/8% Notes are convertible into Coeur common stock, at any time following the date of issue on August 1, 2001, and prior to maturity. The conversion price is $1.35 per share, subject to adjustment. The 13-3/8% Notes are redeemable at the option of the Company two years after issuance, subject to certain conditions, and at the option of the holders in the event of a change in control. On July 30, 2001 the Company completed the Exchange Offer. The principal amounts of Debentures validly tendered and accepted for exchange were as follows: $54,530,000 of the 7-1/4% Debentures, $26,526,000 of the 6-3/8% Debentures and $2,044,000 of the 6% Debentures. As a result of the Exchange Offer, the Company issued on August 1, 2001, $42,572,000 principal amount of its 13-3/8% Notes in exchange for the outstanding 7-1/4%, 6-3/8% and 6% Debentures which were tendered and accepted in the Exchange Offer. The Exchange Offer has reduced Coeur's outstanding long-term debt by approximately $39.9 million and increased shareholders' equity by approximately $38.6 million. Shareholders' equity at June 20, 2001, as adjusted for that increase, amounts to $52.0 million. In addition, the Company also offered for sale to holders of Coeur's outstanding Debentures who participated in the Exchange Offer, the right to purchase for cash additional 13-3/8% Notes (the "Cash Offer"). The Company sold $74,000 principal amount of 13-3/8% Notes in the Cash Offer. Item 3. Quantitative and Qualitative Disclosures About Market Risk ---------------------------------------------------------- The Company is exposed to various market risks as a part of its operations. As an effort to mitigate losses associated with these risks, the Company may, at times, enter into derivative financial instruments. These may take the form of forward sales contracts, foreign currency exchange contracts and interest rate swaps. The Company does not actively engage in the practice of trading derivative securities for profit. This discussion of the Company's market risk assessments contains "forward looking statements" that contain risks and uncertainties. Actual results and actions could differ materially from those discussed below. The Company's operating results are substantially dependent upon the world market prices of silver and gold. The Company has no control over silver and gold prices, which can fluctuate widely and are affected by numerous factors, such as supply and demand and 24 investor sentiment. In order to mitigate some of the risk associated with these fluctuations, the Company will at times, enter into forward sale contracts. The Company continually evaluates the potential benefits of engaging in these strategies based on the then current market conditions. The Company may be exposed to nonperformance by counterparties as a result of its hedging activities. This exposure would be limited to the amount that the spot price of the metal falls short of the contract price. The Company operates in several foreign countries, specifically Bolivia and Chile, which exposes it to risks associated with fluctuations in the exchange rates of the currencies involved. As part of its program to manage foreign currency risk, the Company will enter into foreign currency forward exchange contracts. These contracts enable the Company to purchase a fixed amount of foreign currencies. Gains and losses on foreign exchange contracts that are related to firm commitments are designated and effective as hedges and are deferred and recognized in the same period as the related transaction. All other contracts that do not qualify as hedges are mark-to-market and the resulting gains or losses are recorded in income. The Company continually evaluates the potential benefits of entering into these contracts to mitigate foreign currency risk and proceeds when it believes that the exchange rates are most beneficial. All of the Company's long-term debt at June 30, 2001 is fixed-rate based. The Company's exposure to interest rate risk, therefore, is limited to the amount it could pay at current market rates. The Company currently does not have any derivative financial instruments to offset the fluctuations in the market interest rate. It may choose to use instruments, such as interest rate swaps, in the future to manage the risk associated with interest rate changes. See Note G - Hedging, to the consolidated financial statements for a table which summarizes the Company's gold and foreign exchange hedging activities at June 30, 2001. PART II. Other Information Item 6. Exhibits and Reports on Form 8-K a) Exhibits. 4. Indenture, dated as of August 1, 2001, between the registrant and The Bank of New York, as Trustee, relating to the 13 3/8% Convertible Senior Subordinated Notes due December 31, 2003. b) Reports on Form 8-K. None. 25 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. COEUR D'ALENE MINES CORPORATION (Registrant) Dated August 9, 2001 /s/ Dennis E. Wheeler ------------------------- DENNIS E. WHEELER Chairman, President and Chief Executive Officer Dated August 9, 2001 /s/ Geoffrey A. Burns ------------------------- GEOFFREY A. BURNS Vice President and Chief Financial Officer 26