10-Q 1 sdc72a.txt 10-Q QUARTERLY REPORT - COEUR D'ALENE MINES CORP. 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 September 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 offices) (Zip Code) 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 44,318,312 shares were issued and outstanding as of November 12, 2001. COEUR D'ALENE MINES CORPORATION INDEX Page No. ---- PART I. Financial Information Item 1. Financial Statements Consolidated Balance Sheets -- 3 September 30, 2001 and December 31, 2000 Consolidated Statements of Operations and Comprehensive Income (Loss) -- 5 Three Months and Nine Months Ended September 30, 2001 and 2000 Consolidated Statements of Cash Flows -- 6 Three Months and Nine Months Ended September 30, 2001 and 2000 Notes to Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of 15 Financial Condition and Results of Operations Item 3. Quantitative and Qualitative Disclosures about Market Risk 26 PART II. Other Information Item 4. Submission of Matters to a Vote of Security Holders 27 Item 6. Exhibits and Reports on Form 8-K 28 SIGNATURES 29 2 CONSOLIDATED BALANCE SHEETS COEUR D'ALENE MINES CORPORATION AND SUBSIDIARIES (Unaudited) September 30, December 31, 2001 2000 ------------- ------------ ASSETS (In Thousands) CURRENT ASSETS Cash and cash equivalents $ 19,812 $ 35,227 Short-term investments 15,241 18,344 Receivables 6,290 9,710 Inventories 51,706 54,979 ---------- ---------- TOTAL CURRENT ASSETS 93,049 118,260 PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment 99,234 97,996 Less accumulated depreciation (62,412) (61,256) ---------- ---------- 36,821 36,740 MINING PROPERTIES Operational mining properties 114,973 113,409 Less accumulated depletion (77,087) (71,225) ---------- ---------- 37,886 42,184 Developmental properties 53,166 51,800 ---------- ---------- 91,052 93,984 OTHER ASSETS Investments in unconsolidated affiliates - 15,264 Debt issuance costs, net of accumulated amortization 3,412 3,621 Other 4,035 3,508 ---------- ---------- 7,447 22,393 ---------- ---------- $ 228,369 $ 271,377 ========== ========== See notes to consolidated financial statements. 3 CONSOLIDATED BALANCE SHEETS COEUR D'ALENE MINES CORPORATION AND SUBSIDIARIES (Unaudited) September 30, December 31, 2001 2000 ------------- ------------ (In Thousands) LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 2,064 $ 4,073 Accrued liabilities 9,050 11,008 Accrued interest payable 2,581 4,474 Accrued salaries and wages 4,532 5,723 6% convertible subordinated debentures due 2002 23,171 - ----------- ---------- TOTAL CURRENT LIABILITIES 41,398 25,278 LONG-TERM LIABILITIES 6% convertible subordinated debentures due June 2002 - 26,511 13 3/8% convertible senior subordinated debentures due December 2003 41,908 - 6 3/8% convertible subordinated debentures due January 2004 66,270 92,860 7 1/4% convertible subordinated debentures due October 2005 14,650 85,198 Other long-term liabilities 21,921 24,090 ----------- ---------- TOTAL LONG-TERM LIABILITIES 144,749 228,659 SHAREHOLDERS' EQUITY Common Stock, par value $1.00 per share - authorized 125,000,000 shares, issued 45,377,523 and 38,109,279 shares in 2001 and 2000 (including 1,059,211 shares held in treasury) 45,378 38,109 Capital surplus 388,832 387,625 Accumulated deficit (379,703) (394,932) Shares held in treasury (13,190) (13,190) Accumulated other comprehensive income (loss) 907 (172) ----------- ---------- 42,222 17,440 ----------- ---------- $ 228,369 $ 271,377 =========== ========== See notes to consolidated financial statements. 4 CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) COEUR D'ALENE MINES CORPORATION AND SUBSIDIARIES Three and Nine Months Ended September 30, 2001 and 2000 (Unaudited)
3 MONTHS ENDED 9 MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, -------------------------- -------------------------- 2001 2000 2001 2000 ----------- ----------- ----------- ----------- (In thousands except for per share data) REVENUES Product sales $ 16,224 $ 26,490 $ 52,443 $ 69,352 Interest and other 842 3,234 2,696 7 764 ----------- ----------- ----------- ----------- Total Revenues 17,066 29,724 55,139 77,116 COSTS AND EXPENSES Production 16,028 24,440 52,121 63,516 Depreciation and depletion 2,678 4,810 8,044 15,619 Administrative and general 2,561 2,320 7,001 7,536 Exploration 2,750 1,846 7,145 6,427 Interest 3,466 3,761 10,848 11,598 Other 1,909 995 2,982 2,158 ----------- ----------- ----------- ----------- Total Costs and Expenses 29,392 38,172 88,141 106,854 ----------- ----------- ----------- ----------- NET LOSS BEFORE INCOME TAXES AND EXTRAORDINARY ITEM (12,326) (8,448) (33,002) (29,738) Income tax benefit (provision) 15 (110) 14 (315) ----------- ----------- ----------- ----------- NET LOSS BEFORE EXTRAORDIANARY ITEM (12,311) (8 558) (32,988) (30,053) Extraordinary item - early retirement of debt (net of taxes) 39,245 102 48,217 1,300 ----------- ----------- ----------- ----------- NET INCOME (LOSS) 26,934 (8,456) 15,229 (28,753) Unrealized holding gain (loss) on securities 367 (68) 1,078 (1,717) ----------- ----------- ----------- ----------- COMPREHENSIVE INCOME (LOSS) $ 27,301 $ (8,524) $ 16,307 $ (30,470) =========== =========== =========== =========== NET INCOME (LOSS) $ 26,934 $ (8,456) $ 15,229 $ (28,753) Preferred stock dividends - - - 2,180 ----------- ----------- ----------- ----------- NET INCOME (LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERS $ 26,934 $ (8,456) $ 15,229 $ (30,933) =========== =========== =========== =========== BASIC AND DILUTED INCOME (LOSS) PER SHARE DATA Weighted average number of shares of Common Stock 43,639 37,050 41,047 34,898 =========== =========== =========== =========== Net loss before extraordinary item $ (0.28) $ (0.23) $ (0.80) $ (0.92) Extraordinary item - early Retirement of debt(net of taxes) 0.90 - 1.17 0.03 ----------- ----------- ----------- ----------- Net Income (loss) per share attributable to Common Shareholders $ 0.62 $ (0.23) $ 0.37 $ (0.89) =========== =========== =========== ===========
See notes to consolidated financial statements. 5 CONSOLIDATED STATEMENTS OF CASH FLOWS COEUR D'ALENE MINES CORPORATION AND SUBSIDIARIES Three and Nine Months Ended September 30, 2001 and 2000 (Unaudited)
3 MONTHS ENDED 9 MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, -------------------------- -------------------------- 2001 2000 2001 2000 ----------- ----------- ----------- ----------- (In thousands) CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $ 26,934 $ (8,456) $ 15,229 $ (28,753) Add (deduct) noncash items: Depreciation and depletion 2,678 4,810 8,044 15,619 Gain on early retirement of debt (net of taxes) (39,245) (100) (48,217) (1,300) Other 743 2,038 3,554 4,583 Undistributed earnings of investment in unconsolidated subsidiary - (319) - (879) Unrealized gain on written calls (259) (2,146) (480) (3,189) Changes in Operating Assets and Liabilities: Receivables (508) (3,112) 3,419 2,059 Inventories 186 1,317 2,826 (1,637) Accounts payable and accrued liabilities (311) (211) (10,122) (3,567) ----------- ----------- ----------- ----------- NET CASH USED IN OPERATING ACTIVITIES (9,782) (6,179) (25,747) (17,064) CASH FLOWS FROM INVESTING ACTIVITIES Purchases of short-term investments - (2,327) (1,255) (10,790) Proceeds from sales of short-term investments - 1,700 5,603 13,773 Proceeds from sale of assets - (425) 14,733 (1,411) Expenditures on mining assets (900) (4,423) (5,253) (11,790) Other (5) (11) (567) 72 ----------- ----------- ----------- ----------- NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES (905) (5,376) 13,261 (9,346) CASH FLOWS FROM FINANCING ACTIVITIES Retirement of long-term debt (445) (241) (753) (6,240) Payment of cash dividends - - - (2,180) Payment of Exchange Offer costs (1,951) - (1,951) - Other (162) (111) (225) (269) ----------- ----------- ----------- ----------- NET CASH USED IN FINANCING ACTIVITIES (2,558) (352) (2,929) (9,142) ----------- ----------- ----------- ----------- DECREASE IN CASH AND CASH EQUIVALENTS (13,245) (11,907) (15,415) (35,552) Cash and cash equivalents at beginning of period 33,057 63,290 35,227 86,935 ----------- ----------- ----------- ----------- Cash and cash equivalents at September 30 $ 19,812 $ 51,383 $ 19,812 $ 51,383 =========== =========== =========== =========== Supplemental Cash Flow disclosure: During the 3rd quarter of 2001, the Company issued a total of $43.2 million principal amount of 13 3/8% Convertible Senior Subordinated Notes in connection with an exchange offer extended to the holders of outstanding convertible subordinated debentures. See Note F. During the 3rd quarter of 2001, $1.3 million of the newly issued 13 3/8% notes were converted to approximately 1.2 million shares of common stock. 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 nine-month periods ended September 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 : Cash and Available Operating Cash Available operating cash as of September 30, 2001, consists of $35.1 million of cash, cash equivalents and short-term investments. In June 2002, the Company is obligated to repay its 6 3/8% Convertible Debentures that are currently recorded at $23.2 million. Additionally, as of September 30, 2001, $11.1 million of the short-term investments collateralize reclamation bonds. These items, together with its recent operating deficits, its remaining debt service costs and capital development plans, require that the Company continue to aggressively pursue further opportunities to reduce debt, restructure its reclamation bonding requirements, and/or sell certain of its assets in order to enhance its financial position. NOTE C: 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 7 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 September 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 working with the State of Nevada to provide financial assurance satisfactory to the State to our future reclamation liability obligation. Such financial assurance could be in the form of a replacement bond, cash or security interest in the Rochester mine or combination thereof. NOTE D: Inventories Inventories are comprised of the following: SEPTEMBER 30, DECEMBER 31, 2001 2000 ------------- ------------ (In thousands) In process and on leach pads $ 43,875 $ 43,595 Concentrate and dore' inventory 2,783 6,258 Supplies 5,048 5,126 -------- -------- $ 51,706 $ 54,979 ======== ======== Inventories of ore on leach pads and in the milling process are valued based on the lower of market or 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 inventory being held. The fair value of such inventory at September 30, 2001 was estimated at $1.2 million. Handy & Harmon's Chapter 11 liquidation plan was confirmed by the Bankruptcy Court in August 2001 8 and on November 3, 2001, the Company received approximately $294,000 from Handy & Harmon as a partial payment under the plan. NOTE E: Income Taxes The Company has reviewed its net deferred tax asset as of September 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 F: Long-Term Debt 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 Company can elect to pay interest in cash or stock, at its sole discretion. The conversion price is $1.35 per share, subject to adjustment. At any time prior to December 31, 2003, the holders of the 13 3/8% Notes may elect to convert their Notes to equity. The Company may elect to automatically convert the Notes during the first two years after issuance if the closing price of the common stock exceeds 200% of the conversion price for at least 20 trading days during a 30-day trading day period ending within five trading days prior to the notice of automatic conversion. If an automatic conversion occurs within the first two years after issuance, or if holders elect to convert their Notes within the first two years after issuance and prior to notice of any automatic 9 conversion, the Company will make a payment to holders in cash, or at the Company's option, in common stock, equal to two full years of interest, less interest actually paid. 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, $26,590,000 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, $42,629,000 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. 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 $25,000 principal amount of 13-3/8% Notes in the Cash 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. As a result of the Exchange Offer the Company recorded $39.2 million in extraordinary gain, net of offer costs. Subsequent to the Exchange Offer, $1.3 million of the 13 3/8% Notes were converted to approximately 1.2 million shares of common stock. 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. 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 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. 10 The share price used as consideration in all of these transactions was based upon market prices at the time of each respective transaction. NOTE G: 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 San Bartolome and Kensington development properties, and the Company's exploration programs. All operating segments are engaged in the discovery, development and/or mining of silver and gold 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. 11 Segment Reporting (In Thousands)
Silver Rochester Valley Fachinal Petorca Exploration Other Total --------- --------- --------- --------- ----------- --------- --------- Nine Months Ended September 30, 2001 Total net sales and revenues $ 35,814 $ 11,703 $ 221 $ 5,960 $ - $ 1,441 $ 55,139 ================================================================================================================== Depreciation and amortization 6,583 2,317 - 398 17 722 10,037 Interest income - - 2 3 - 1,444 1,448 Interest expense - - - - - 10,848 10,848 Gain on forward sale contracts - - - - - 480 480 Income tax (credit) expense - 1 - - - (15) (14) Gain on early retirement of debt - - - - - 48,217 48,217 Profit (loss) 4,067 (1,122) (2,861) (1,222) (1,110) (7,110) (9,357) Segment assets (A) 75,140 28,037 23,182 1,289 55 58,168 185,869 Capital expenditures for property 815 2,376 801 - - 1,260 5,252 Nine Months Ended September 30, 2000 Total net sales and revenues $ 38,810 $ 12,293 $ 8,357 $ 4,851 $ 6,841 $ (270) $ 45,019 ================================================================================================================== Depreciation and amortization 11,192 2,013 3,843 171 64 2,750 20,033 Interest income - - 13 5 10 3,512 3,540 Interest expense - - 14 1 - 11,583 11,598 Income tax (credit) expense - 1 - - - 314 315 Earnings (losses) from non-consolidated affiliates - - - - - 1,237 1,237 Gain on early retirement of debt - - - - - 1,300 1,300 Profit (loss) $ 10,957 $ 209 $ (3,825) $ (1,251) $ (3,959) $ (3,427) $ (1,296) Investments in non- consolidated affiliates - - - - - 28,071 28,071 Segment assets (A) $ 3,552 $ 26,770 $ 28,492 $ 3,740 $ 53,767 $ 7,217 $203,538 Capital expenditures for property $ 1,669 $ 4,305 $ 2,281 $ 387 $ 4,518 $ 42 $ 13,202 Notes: (A) Segment assets consist of receivables, prepaids, inventories, property, plant and equipment, and mining properties
Segment Reporting Cont. Nine Months Ended September 30, (In Thousands) 2001 2000 ---------- ---------- (Loss) Total loss from reportable segments $ (9,357) $ (1,296) Gain on Metal Hedging 480 3,189 Depreciation, depletion and amortization expense (10,037) (20,033) Interest expense (10,848) (11,598) Other (3,240) --------- --------- Loss before income taxes $ (33,002) $ (29,738) ========= ========= Nine Months Ended September 30, 2001 2000 ---------- ---------- Assets Total assets for reportable segments $ 185,869 $ 203,538 Cash and cash equivalents 19,812 51,383 Short-term investments 15,241 18,869 Other assets 7,447 36,104 --------- --------- Total consolidated assets $ 228,369 $ 309,894 ========= ========= 12 Geographic Information (In thousands) Long-Lived As of September 30, 2001: Revenues Assets ---------- ---------- United States $ 51,983 $ 87,211 Chile 3,548 21,263 Bolivia - 18,856 Other Foreign Countries (392) 543 --------- --------- Consolidated Total $ 55,139 $ 127,873 ========= ========= Long-Lived As of September 30, 2000: Revenues Assets ---------- ---------- United States $ 57,337 $ 93,948 Chile 12,937 21,467 Bolivia - 18,856 Other Foreign Countries 6,842 547 --------- --------- Consolidated Total $ 77,116 $ 134,815 ========- ========= Revenues are geographically separated based upon the country in which operations and the underlying assets generating those revenues reside. NOTE H: Hedging For the first nine months of 2001 the Company recorded a realized gain of approximately $.4 million in connection with the hedge program and an additional $.5 million of mark to market gain on the call options. The Company has 12,000 ounces in forward sales in its gold protection program (in 2001 4,500 ounces, and in 2002 7,500 ounces), whereby over the next two years the Company will receive an average price of $287.59 per ounce. The following table summarizes the information at September 30, 2001 associated with the Company's financial and derivative financial instruments that are sensitive to changes in interest rates, 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 forward sales, the table presents ounces contracted to be delivered and the related average price per ounce in U.S. dollars.
Fair Value (dollars in thousands) 2001 2002 2003 2004 2005 Total 9/30/01 ---------------------------------------------------------------------------------------------------- Liabilities Long Term Debt $ - $23,171 $41,908 $66,270 $14,650 $145,999 $ 78,724 Fixed Rate Average Interest Rate 6.717% 6.782% 6.843% 7.190% 7.250%
13
Derivative Financial Instruments Gold Forward Sales - USD Ounces 4,500 7,500 - - - 12,000 $ 1,111 Price Per Ounce $286.40 $288.31 $ - $ - $ - Gold Call Options Sold - USD Ounces (1) - - - - 24,640 24,640 $ (641) Price Per Ounce - $ - $ - $ - $346.46 (1) The call options sold have a knock-out provision whereby the calls for 24,640 ounces will terminate if gold trades below $300 per ounce after December 27, 2002.
NOTE I: New Accounting Standard In June 2001, The Financial Acconting Standards Board ("FASB") issued Statement of Financial Accounting Standard ("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. In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligations" that established standards for recognition and measurement of a liability for an asset retirement obligation and the associated asset retirement cost. The statement provides for an initial recognition of the fair value of a liability for an asset retirement obligation in the period in which it is incurred when a reasonable estimate of fair value can be made. The asset retirement obligation is recorded as a liability with a corresponding increase to the carrying amount of the related long-lived asset. Subsequently, the asset retirement cost is allocated to expense using a systematic and rational allocation method and is adjusted to reflect period-to-period changes in the liability resulting from passage of time and revisions to either timing or the amount of the original estimate. The statement is effective for fiscal years beginning after June 15, 2002 and the Company does not anticipate a significant impact upon adoption. In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" that established a single accounting model, based on the framework of SFAS No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", for long-lived assets to be disposed of by sale. The statement is effective for fiscal years beginning after December 15, 2001 and the Company does not expect any significant impact upon adoption. 14 NOTE J: 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. 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 fair market value of the inventory has been estimated to be $1.2 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 recovery, it is premature to predict the outcome of the lawsuit. Handy & Harmon's Chapter 11 15 liquidation plan was confirmed by the Bankruptcy Court in August 2001 and on November 3, 2001, the Company received approximately $294,000 from Handy & Harmon as a partial payment under the plan. NOTE K: 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 market price of silver and gold for the first nine months of 2001 was $4.42 and $269 per ounce, respectively. The market prices of silver (Handy & Harmon) and gold (London Final) on November 9, 2001 were $4.10 per ounce and $277.00 per ounce, respectively. Results for the nine month period of 2001 include activities from 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 care and maintenance at the end of August 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 16 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. 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 nine-month periods ended September 30, 2001 and 2000: Three Months Ended Nine Months Ended September 30, September 30, ----------------------- ----------------------- 2001 2000 2001 2000 ---------- ---------- ---------- ---------- ROCHESTER MINE Gold ozs. 18,171 19,334 58,194 53,694 Silver ozs. 1,483,382 1,649,567 4,473,629 4,948,039 Cash Costs per oz./silver $3.80 $4.01 $3.80 $4.01 Full Costs per oz./silver $4.56 $5.12 $4.57 $5.15 Galena Mine Silver ozs. 1,060,191 1,156,262 3,201,098 2,853,617 Cash Costs per oz./silver $4.97 $3.93 $4.64 $4.73 Full Costs per oz./silver $5.80 $4.56 $5.36 $5.43 PRIMARY SILVER MINES Consolidated Cash Cost per Equivalent oz. of silver $4.14 $3.99 $4.04 $4.20 YILGARN STAR MINE (A) Gold ozs. N/A 6,628 N/A 19,221 Cash Costs per oz./gold N/A $232 N/A $233 Full Costs per oz./gold N/A $346 N/A $350 FACHINAL MINE (B) Gold ozs. N/A 4,449 N/A 13,868 Silver ozs. N/A 240,226 N/A 799,655 Cash Costs per oz./gold N/A $413 N/A $375 Full Costs per oz./gold N/A $561 N/A $511 PETORCA MINE (C) Gold ozs. 3,563 7,437 17,494 19,077 Silver ozs. 27,274 14,251 85,012 42,190 Cash Costs per oz./gold $300 $337 $339 $350 Full Costs per oz./gold $325 $345 $359 $359 PRIMARY GOLD MINES Consolidated Cash Cost per Equivalent oz. of gold $300 $336 $339 $327 CONSOLIDATED PRODUCTION TOTALS Gold ozs. 21,734 37,848 75,688 105,860 Silver ozs. 2,570,847 3,060,306 7,759,738 8,643,501 Note A: On February 7, 2001, the Company sold its interest in the Yilgarn Star Mine, effective December 31, 2000. 17 Note B: The Company placed the Fachinal Mine on temporary standby effective December 7, 2000. Note C: The Company placed the Petorca Mine on temporary standby effective August 2001. Operating Highlights North America Rochester Mine (Nevada) Coeur's Rochester mine produced 1.5 million ounces of silver and 18,171 ounces of gold, together equal to 2.6 million silver equivalent ounces, during the third quarter of 2001 compared to 1.6 million ounces of silver and 19,334 ounces of gold, together equal to 2.7 million silver equivalent ounces, in the third quarter of the prior year. Total cash costs for the latest three-month period declined to $3.80 per ounce as compared to $4.01 in the third quarter of 2000. Mining operations during the quarter were largely confined to a gold-rich section of the Rochester pit that is expected to continue for the remainder of the year. Both silver and gold output were slightly lower than the comparable quarter in 2000 solely as a result of drought conditions that have persisted throughout much of this year in Nevada which have significantly reduced solution flow to the leach pads. The Company expects that the gold and silver delivered to the leach pads during the drought period will be recovered in subsequent quarters. Despite the lower production, operating improvements instituted this year and in 2000 resulted in more than a 5% decline in cash costs from the previous year's third quarter to $3.80 per ounce. Coeur is continuing its program to reduce costs at Rochester as well as to replace reserves mined in 2001 and define new resources. A total of 37,000 feet in 88 reverse circulation holes have been drilled at and near the Rochester pit so far this year mainly to the south and west of the current pit boundary. Results are currently being analyzed and will be incorporated into an updated reserve model by year-end. At the Nevada Packard satellite deposit, all work required for permitting the deposit for mining has been submitted to regulatory authorities. In October of this year, Coeur's Rochester mine was officially presented with the Sentinels of Safety Award for metal and non-metal surface mining operations. This is the industry's highest safety award. In addition, Rochester has also received a Certificate of Honor from the Joseph H. Holmes Safety Association for working over four million hours without incurring a single permanently disabling injury or fatality. 18 Coeur Silver Valley - Galena Mine (Idaho) In the latest quarter, silver production from Coeur Silver Valley was 1.06 million ounces, down slightly from the 1.16 million ounces produced in the third quarter of 2000. For the nine months ended September 30, 2001 silver production climbed 12% to 3.2 million ounces as compared to the first nine month of 2000. Total cash costs for the current quarter rose to $4.97 per ounce compared to $3.93 per ounce in the third quarter of the prior year. Cash costs for the first nine months of 2001 declined to $4.64 per ounce compared to $4.73 per ounce in the first nine months of 2000. Throughout much of the most recent quarter, normal mining operations were hampered by difficult ground conditions which have also temporarily set back production from areas where the Company has implemented trackless mining. Measures have been taken to alleviate the situation and Coeur expects to be back on track with the mechanized mining initiative by late in the fourth quarter. Much of the exploration drilling carried out in 2001 has focused on extending the high-grade 117 vein up to and beyond the 3,400 level in the mine. The most recent results have encountered this vein structure on the 3,000 level and definition drilling continues. Work is also continuing to extend the high-grade 72 vein and Polaris Fault Zone and test a possible extension of the Silver Vein, historically one of the most prolific systems in the Galena mine at the 1,600 level. As a result of these efforts, Coeur expects to fully replace silver ounces mined in 2001. Development Projects South America Cerro Bayo (Chile) At Coeur's Cerro Bayo property (formerly the Fachinal mine) in Southern Chile, the Company has completed a detailed three-year plan based on mining proven and probable reserves only. The plan projects annual production of approximately 70,000 gold equivalent ounces at an estimated total cash cost of $195 per ounce. The plan proposes a combination of open pit and shallow underground mining. Construction of two ramps to intersect the high grade Lucero vein, the heart of the Cerro Bayo deposit, commenced on November 1, 2001. Initial production is scheduled for May 2002. The total investment to develop Cerro Bayo for production is estimated at $5 to $6 million, which includes a significant recoverable working capital component. Independent third party studies have confirmed Coeur's belief that the mining of Cerro Bayo can provide an attractive rate of return at current gold and silver prices. 19 The Company has completed confirmation drilling and the latest phase of its exploration program which has led to the development of additional reserves and resources. The latest reserve and resource calculations have all been endorsed by independent third party consultants. To date, a proven and probable reserve of 217,000 gold equivalent ounces has been defined at a fully diluted average grade of 0.27 gold equivalent ounces per ton. Total reserves plus resources amount to 535,000 gold equivalent ounces at an average grade of 0.24 ounces per ton. Perhaps more significant is the fact that a majority of the reserves and resources identified to date are located in two high grade zones that average in excess of one-half ounce per ton gold equivalent. Furthermore, Coeur believes that the majority of the Cerro Bayo resources will be converted to mineable reserves as operations progress. Recent progress has confirmed that considerable exploration potential at Cerro Bayo remains beyond that described above. Not only have significant resources been identified, but the high-grade Lucero vein remains open at depth and along strike. Exploration drilling of the Lucero vein continues. In addition, the Company has identified a large number of high-grade veins on surface which have not as yet been drill tested. Coeur will continue to evaluate whether to sell any of its Chilean precious metals assets, including Cerro Bayo. Any offer must reflect the fair value of the properties and their substantial additional exploration potential. San Bartolome (Bolivia) Coeur is also pleased to report a number of positive developments at its San Bartolome silver project near Potosi, Bolivia. The final feasibility study is scheduled for completion in the first quarter of 2002. Coeur is confident that this study will succeed in upgrading a large portion of the 122-million ounce resource to proven and probable reserves. The Company recently acquired additional exploration and development rights in the immediate area. Based on work completed to date, Coeur expects a significant increase in the 122-million ounce silver resource outlined to date. In addition, a number of recent developments have enabled Coeur to continue to move this project forward: o Coeur's wholly owned Bolivian subsidiary, Empresa Minera Manquiri S.A., has been awarded a grant of $760,000 by the U.S. Trade and Development Agency to complete the final feasibility study for the project. o Expected favorable tax rulings in Bolivia will result in significant reductions in up front working capital requirements. o Water rights and electric power have been secured at rates which are lower than expected. 20 o An alternative tailings disposal plan is being prospected which could significantly reduce capital requirements. The Company is also pursuing other opportunities in the Potosi area to further enhance the potential economic returns of its San Bartolome project. RESULTS OF OPERATIONS Three Months Ended September 30, 2001 Compared to Three Months Ended September 30, 2000. -------------------------------------------------------------------- Revenues Due to sharply lower realized gold and silver prices, product sales in the third quarter of 2001 decreased by $10.3 million, or 39%, from the third quarter of 2000 to $16.2 million. The decrease in sales is primarily attributable to decreased production of silver from the Rochester and Galena mines and decreased silver and gold production due to the suspension of operations at the Petorca and Fachinal mines and the sale of the Yilgarn star mine earlier this year, as well as lower gold and silver prices realized, compared to the same three month period in 2000. In the third quarter of 2001, the Company produced a total of 2,570,847 ounces of silver and 21,734 ounces of gold compared to 3,060,306 ounces of silver and 37,848 ounces of gold in the second quarter of 2000. In the third quarter of 2001, the Company realized average silver and gold prices of $4.26 and $278, respectively, compared with realized average prices of $4.93 and $302, respectively, in the prior year's third 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 third quarter of 2001 decreased by $2.4 million compared with the third quarter of 2000. The decrease is primarily due to $2.2 million mark to market gain on the call option portion of the Company's hedge program recorded in the third quarter of 2000 and lower interest income received as a result of lower interest rates and lower cash balances. Costs and Expenses Production costs in the third quarter of 2001 decreased by $8.4 million, or 34%, from the third quarter of 2000 to $16.0 million. The decrease in production costs is primarily a result of decreased production at Fachinal for the third quarter of 2001 from the third quarter of 2000 and the sale of Yilgarn Star mine in the first quarter of 2001. 21 Depreciation and amortization decreased in the third quarter of 2001 by $2.1 million, or 44%, from the prior year's third 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. Exploration expense increased $.9 million for the third quarter of 2001 over the third quarter of 2000 to $2.8 million, primarily due to increased expense at the San Bartolome and Cerro Bayo development properties. Net Income As a result of the above mentioned factors, as well as the extraordinary item recorded in connection with the debt retirement discussed below under "Debt Reduction Program," the Company's net income amounted to $26.9 million in the third quarter of 2001 compared to a net loss of $8.5 million in the third quarter of 2000. The net income attributable to common shareholders was $0.62 per share for the third quarter of 2001, compared to a net loss of $0.23 per share for the third quarter of 2000. Nine Months Ended September 30,2001 Compared to Nine Months Ended September 30, 2000. --------------------------------------------------------------------------- Revenues Product sales in the first half of 2001 decreased by $16.9 million, or 24%, from the first nine months of 2000 to $52.4 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, Petorca and Fachinal mines, offset in part by increased gold production at the Rochester mine, compared to the same nine month period in 2000. In the first nine months of 2001, the Company produced a total of 7,759,738 ounces of silver and 75,688 ounces of gold compared to 8,643,501 ounces of silver and 105,860 ounces of gold in the first nine months of 2000. In the first nine months of 2001, the Company realized average silver and gold prices of $4.40 and $274, respectively, compared with realized average prices of $5.05 and $310, respectively, in the prior year's first nine months. 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. Interest and other income in the first nine months of 2001 decreased by $5.1 million compared with the first nine months of 2000. The decrease is primarily due to less interest income received 22 as a result of lower interest rates and lower cash balances and a $3.3 million gain recorded in the first nine months 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 $11.4 million, or 18%, from the first nine months of 2000 to $52.1 million. The decrease in production costs is primarily a result of decreased production at Fachinal for the first nine months of 2001 over the first nine months of 2000 and the sale of Yilgarn Star mine in the first quarter of 2001. Depreciation and amortization decreased in the first nine months of 2001 by $7.6 million, or 48%, from the prior year's first nine months, 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 $.5 million in the first nine months of 2001 compared to 2000, due to continuing efforts to conserve cash. Exploration expenses increased $.7 million in the first nine months of 2001 compared to 2000, due to increased expenses at the San Bartolome and Cerro Bayo properties. Interest expenses decreased $.8 million in the first nine months of 2001 compared to 2000, due to the Company's debt reduction program discussed below. Net Loss As a result of the above mentioned factors, as well as the extraordinary item recorded in connection with the debt retirement discussed below under "Debt Reduction Program," the Company's net income amounted to $15.2 million in the first nine months of 2001 compared to a net loss of $28.8 million in the first nine months of 2000. The net income attributable to common shareholders was $0.37 per share for the first nine months of 2001, compared to a net loss $0.89 per share for the first nine months of 2000. LIQUIDITY AND CAPITAL RESOURCES Working Capital; Cash and Cash Equivalents Available operating cash as of September 30, 2001, consists of $35.1 million of cash, cash equivalents and short-term investments. In June 2002, the Company is obligated to repay its 6 3/8% 23 Convertible Debentures that are currently recorded at $23.2 million. Additionally, as of September 30, 2001, $11.1 million of the short-term investments collateralize reclamation bonds. These items, together with its recent operating deficits, its remaining debt service costs and capital development plans, require that the Company continue to aggressively pursue further opportunities to reduce debt, restructure its reclamation bonding requirements, and/or sell certain of its assets in order to enhance its financial position. The Company's working capital at September 30, 2001 decreased by $41.3 million to approximately $51.7 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. The ratio of current assets to current liabilities was 2.2 to 1.0 at September 30, 2001 compared to 4.7 to 1.0 at December 31, 2000. Net cash used in operating activities in the quarter ended September 30, 2001 was $9.8 million compared to $6.2 million in the quarter ended September 30, 2000, primarily as a result of lower realized gold and silver prices and lower production in the comparable period. Net cash received in investing activities in the quarter ended September 30, 2001 was $.9 million compared to net cash used in investing activities of $5.4 million in the prior year's comparable period. The decrease primarily resulted from a reduction in capital expenditures. Net cash used in financing activities was $2.6 million in the quarter ended September 30, 2001, compared to $.4 million used in the quarter ended September 30, 2000. Approximately $.4 million of debt payments and approximately $2.0 million of Exchange Offer costs were paid in the third quarter 2001. As a result of the above, cash and cash equivalents decreased by $13.2 million in the third quarter of 2001 compared to a decrease of $11.9 million for the comparable period in 2000. Net cash used in operating activities in the nine months ended September 30, 2001 was $25.7 million compared to $17.1 million in the nine months ended September 30, 2000, primarily resulting from lower realized prices for gold and silver, lower production of gold and silver, along with decreases of certain liabilities. Net cash provided by investing activities in the 2001 period was $13.3 million compared to net cash used in investing activities of $9.3 million in the prior year's comparable period. The decrease primarily resulted from receipt of proceeds from the sale of the Company's interest in the Yilgarn Star mine in Australia. Net cash used in financing activities was $2.6 million for the first nine months of 2001, compared to $9.1 million used in the first nine months of 2000. As a result of the above, cash and cash equivalents decreased by $15.4 million in the first nine months of 2001 compared to a decrease of $35.6 million for the comparable period in 2000. 24 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 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 fair market value of the inventory has been estimated to be $1.2 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 25 the Company believes it has a basis for recovery, it is premature to predict the outcome of the lawsuit. Handy & Harmon's Chapter 11 liquidation plan was confirmed by the Bankruptcy Court in August 2001 and on November 3, 2001, the Company received approximately $294,000 from Handy & Harmon as a partial payment under the plan. Debt Reduction Program 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 Company can elect to pay interest in cash or stock, at its sole discretion. The conversion price is $1.35 per share, subject to adjustment. At any time prior to December 31, 2003, the holders of the 13 3/8% Notes may elect to convert their Notes to equity. The Company may elect to automatically convert the Notes during the first two years after issuance if the closing price of the common stock exceeds 200% of the conversion price for at least 20 trading days during a 30-day trading day period ending within five trading days prior to the notice of automatic conversion. If an automatic conversion occurs within the first two years after issuance, or if holders elect to convert their Notes within the first two years after issuance and prior to notice of any automatic conversion, the Company will make a payment to holders in cash, or at the Company's option, in common stock, equal to two full years of interest, less interest actually paid. 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. 26 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, $26,590,000 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, $42,629,000 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. 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 $25,000 principal amount of 13-3/8% Notes in the Cash 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. As a result of the Exchange Offer the Company recorded $39.2 million in extraordinary gain, net of offer costs. Subsequent to the Exchange Offer, $1.3 million of the 13 3/8% Notes were converted to approximately 1.2 million shares of common stock. 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. 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 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. 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 27 risks, the Company may, at times, enter into derivative financial instruments. These may take at various times, 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 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 September 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 H - Hedging, to the consolidated financial statements for a table which summarizes the Company's gold and foreign exchange hedging activities at September 30, 2001. 28 PART II. Other Information Item 4. Submission of Matters to a Vote of Security Holders The Company's Annual Meeting of Shareholders was held on October 9, 2001. Of the Company's total 43,662,973 shares of common stock outstanding on August 17, 2001 (the record date), 37,555,088 shares (or 86% of the outstanding) were represented in person or by proxy at the Annual Meeting. The first proposal was the election of directors. The following persons were nominated and elected to serve as members of the Board of Directors for one year or until their successors are elected and qualified by the votes indicated: Cecil D Andrus - 36,165,805 for and 1,389,283 withheld; Joseph C. Bennett - 36,213,296 for and 1,341,792 withheld; James J. Curran - 36,252,692 for and 1,302,396 withheld; James A. McClure - 36,191,455 for and 1,363,633 withheld; Robert E. Mellor - 36,185,045 for and 1,370,043 withheld; John H. Robinson - 36,187,525 for and 1,367,563 withheld; Timothy R. Winterer - 36,243,322 for and 1,311,766 withheld; Daniel Tellechea Salido - 36,213,827 for and 1,341,261 withheld; Xavier Garcia de Quevedo Topete - 36,214,991 for and 1,340,097 withheld; and Dennis E. Wheeler - 36,093,090 for and 1,461,998 withheld. The second proposal was the proposed amendment of the Company's Executive Compensation Program to authorize the reservation of an additional 1,000,000 shares of common stock for issuance under the program. The proposal was approved by the holders of more than the required majority of the shares of common stock voting at the meeting. The proposal was approved by a vote of 33,185,675 shares for (representing 76% of the shares voting), 3,928,150 shares against with 441,263 shares abstaining. The third proposal was the proposed amendment of the Company's Non-Employee Directors' Stock Option Plan to authorize the reservation of an additional 500,000 shares of common stock for issuance under options to be granted under the plan. The proposal was approved by the holders of more than the required majority of the shares of common stock voting at the meeting. The proposal was approved by a vote of 33,393,585 shares for (representing 76.48% of the shares voting), 3,708,076 shares against with 453,427 shares abstaining. The fourth proposal was the proposed ratification of the Board of Directors' selection of Arthur Andersen LLP as the Company's independent accounting firm for the year ended December 31, 2001. The proposal was approved by the holders of more than the required majority of the shares of common stock voting at the meeting. The proposal was approved by a vote of 36,584,999 shares for (representing 83.79% of the shares voting), 596,177 shares against with 373,912 shares abstaining. 29 Item 6. Exhibits and Reports on Form 8-K a) Exhibits. None. b) Reports on Form 8-K. None. 30 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 November 14, 2001 /S/ Dennis E. Wheeler ------------------------------------- DENNIS E. WHEELER Chairman, President and Chief Executive Officer Dated November 14, 2001 /s/ Geoffrey A. Burns ------------------------------------- GEOFFREY A. BURNS Vice President and Chief Financial Officer 31