-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IaNxINe5mnGF/4keHCOaUdvQvF5OJ00DZtr6HoBUTqWk4lUotef3+0psoOJgguH2 qWB4hhMfAR3gGpbqzSTeqw== 0000950133-99-003597.txt : 19991117 0000950133-99-003597.hdr.sgml : 19991117 ACCESSION NUMBER: 0000950133-99-003597 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991115 FILER: COMPANY DATA: COMPANY CONFORMED NAME: COEUR D ALENE MINES CORP CENTRAL INDEX KEY: 0000215466 STANDARD INDUSTRIAL CLASSIFICATION: GOLD & SILVER ORES [1040] IRS NUMBER: 820109423 STATE OF INCORPORATION: ID FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-08641 FILM NUMBER: 99753453 BUSINESS ADDRESS: STREET 1: 400 COEUR D ALENE MINES BLDG STREET 2: 505 FRONT AVE CITY: COEUR D ALENE STATE: ID ZIP: 83814 BUSINESS PHONE: 2086673511 MAIL ADDRESS: STREET 1: 400 COEUR D ALENE MINES BLDG STREET 2: 505 FRONT AVE CITY: COEUR D'ALENE STATE: ID ZIP: 83814 10-Q 1 FORM 10-Q 1 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, 1999 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 29,181,217 shares were issued and outstanding as of November 5, 1999. 2 COEUR D'ALENE MINES CORPORATION INDEX Page No. -------- PART I. Financial Information Item 1. Financial Statements Consolidated Balance Sheets -- 3 September 30, 1999 and December 31, 1998 Consolidated Statements of Operations -- 5 Nine Months Ended September 30, 1999 and 1998 Consolidated Statements of Cash Flows -- 6 Nine Months Ended September 30, 1999 and 1998 Notes to Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of 14 Financial Condition and Results of Operations Item 3. Quantitative and Qualitative Disclosure of Market Risk 26 PART II. Other Information Item 1. Legal Proceedings 29 Item 4. Submission of Matters to a Vote of Security Holders 29 Item 5. Other Information 31 Item 6. Exhibits and Reports on Form 8-K 32 SIGNATURES 2 3 CONSOLIDATED BALANCE SHEETS COEUR D'ALENE MINES CORPORATION AND SUBSIDIARIES (Unaudited)
September 30, December 31, 1999 1998 ------------- ------------ ASSETS (In Thousands) CURRENT ASSETS Cash and cash equivalents $102,660 $127,335 Short-term investments 22,847 1,753 Receivables 19,836 11,647 Inventories 54,685 43,675 -------- -------- TOTAL CURRENT ASSETS 200,028 184,410 PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment 102,855 79,173 Less accumulated depreciation 58,132 37,304 -------- -------- 44,723 41,869 MINING PROPERTIES Operational mining properties 106,099 82,018 Less accumulated depletion 60,650 46,149 -------- -------- 45,449 35,869 Developmental properties 49,074 25,898 -------- -------- 94,523 61,767 OTHER ASSETS Investments in unconsolidated affiliates 46,006 66,914 Notes receivable 349 1,627 Debt issuance costs, net of accumulated amortization 5,696 6,625 Other 3,113 2,768 -------- -------- 55,164 77,934 -------- -------- $394,438 $365,980 ======== ========
See notes to consolidated financial statements. 3 4 CONSOLIDATED BALANCE SHEETS COEUR D'ALENE MINES CORPORATION AND SUBSIDIARIES (Unaudited)
September 30, December 31, 1999 1998 ------------- ------------ (In Thousands) LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 2,690 $ 3,512 Accrued liabilities 18,525 12,700 Accrued interest payable 5,112 5,412 Accrued salaries and wages 4,703 5,642 Current portion of remediation costs 1,316 3,052 Current portion of obligations under capital leases 115 255 --------- --------- TOTAL CURRENT LIABILITIES 32,461 30,573 LONG-TERM LIABILITIES 6% subordinated convertible debentures due 2002 39,506 45,803 6 3/8% subordinated convertible debentures due 2004 93,372 93,372 7 1/4% subordinated convertible debentures due 2005 107,277 107,277 Other long-term liabilities 24,347 11,888 --------- --------- TOTAL LONG-TERM LIABILITIES 264,502 258,340 SHAREHOLDERS' EQUITY Mandatory Adjustable Redeemable Convertible Securities (MARCS), par value $1.00 per share,(a class of preferred stock) - authorized 7,500,000 shares, 7,077,833 issued and outstanding 7,078 7,078 Common Stock, par value $1.00 per share- authorized 125,000,000 shares, issued 30,240,428 and 22,957,835 shares in 1999 and 1998 (including 1,059,211 shares held in treasury) 30,240 22,958 Capital surplus 393,664 379,180 Accumulated deficit (323,438) (318,796) Repurchased and nonvested shares (13,190) (13,190) Accumulated other comprehensive loss: Unrealized gain (loss) on short-term investments 3,121 (163) --------- --------- 97,475 77,067 --------- --------- $ 394,438 $ 365,980 ========= =========
See notes to consolidated financial statements. 4 5 CONSOLIDATED STATEMENTS OF OPERATIONS COEUR D'ALENE MINES CORPORATION AND SUBSIDIARIES (Unaudited)
3 MONTHS ENDED 9 MONTHS ENDED SEPTEMBER 30 SEPTEMBER 30 ---------------------------- ----------------------------- 1999 1998 1999 1998 --------- --------- --------- --------- (In thousands except for per share data) REVENUES Product sales $ 21,986 $ 23,890 $ 60,693 $ 77,312 Interest and other 16,453 1,966 18,765 7,862 --------- --------- --------- --------- Total Revenues 38,439 25,856 79,458 85,174 COSTS AND EXPENSES Production 16,216 17,200 43,965 50,651 Depreciation and amortization 3,862 6,204 13,309 22,427 Administrative and general 2,648 3,133 7,449 8,980 Exploration 1,492 2,261 5,439 6,633 Interest 4,079 3,219 12,406 10,687 Write down of mining properties and other 3,030 126 3,875 54,791 --------- --------- --------- --------- Total Cost and Expenses 31,327 32,143 86,443 154,169 --------- --------- --------- --------- NET LOSS FROM CONTINUING OPERATIONS BEFORE TAXES AND EXTRAORDINARY ITEM 7,112 (6,287) (6,985) (68,995) Income tax provision 92 79 247 497 --------- --------- --------- --------- Income (loss) before extraordinary item 7,020 (6,366) (7,232) (69,492) Extraordinary item - early retirement of debt (net of taxes) 2,590 6,345 2,590 6,345 --------- --------- --------- --------- NET INCOME (LOSS) 9,610 (21) (4,642) (63,147) Unrealized holding gain on securities 3,288 14 3,284 1,712 --------- --------- --------- --------- COMPREHENSIVE INCOME (LOSS) $ 12,898 $ (7) $ (1,358) $ (61,435) ========= ========= ========= ========= NET INCOME (LOSS) $ 9,610 $ (21) $ (4,642) $ (63,147) Preferred stock dividends (2,633) (2,633) (7,899) (7,899) --------- --------- --------- --------- NET INCOME (LOSS) ATTRIBUTABLE TO COMMON SHAREHOLDERS $ 6,977 $ (2,654) $ (12,541) $ (71,046) ========= ========= ========= ========= BASIC AND DILUTED EARNINGS PER SHARE: Weighted average number of shares of Common Stock 23,987 21,899 22,502 21,899 ========= ========= ========= ========= Income (loss) before extraordinary item $ .18 $ (.41) $ (.67) $ (3.53) Extraordinary item - early retirement of debt (net of taxes) .11 .29 .11 .29 --------- --------- --------- --------- Net income (loss) per share attributable to common $ .29 $ (.12) $ (.56) $ (3.24) ========= ========= ========= =========
See notes to consolidated financial statements. 5 6 CONSOLIDATED STATEMENTS OF CASH FLOWS COEUR D'ALENE MINES CORPORATION AND SUBSIDIARIES (Unaudited)
3 MONTHS ENDED 9 MONTHS ENDED SEPTEMBER 30 SEPTEMBER 30 ----------------------------- ------------------------------------- 1999 1998 1999 1998 ----------- ------------ ------------- ------------ (In Thousands) CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $ 9,610 $ (21) $ (4,642) $ (63,147) Add (deduct) noncash items: Depreciation, depletion, and amortization 3,862 6,204 13,309 22,427 Reclamation 306 270 831 775 Gain on early rement of debt (net of tax) (2,590) (6,345) (2,590) (6,345) Other charges (327) 1,096 954 1,382 Writedown of mining properties 2,492 2,492 54,506 Undistributed (earnings) loss of investment in unconsolidated subsidiary 189 565 751 1,245 Unrealized loss on written call options 5,826 5,826 Changes in Operating Assets and Liabilities: Receivables (6,026) (1,319) (3,098) 719 Inventories (2,570) (2,005) (8,293) (10,835) Accounts payable and accrued liabilities 4,244 129 (670) (11,128) --------- --------- --------- --------- NET CASH PROVIDED FROM (USED IN) OPERATING ACTIVITIES 15,016 (1,426) 4,870 (10,401) CASH FLOWS FROM INVESTING ACTIVITIES Purchases of short-term investments (9,359) (13,094) (17,203) Proceeds from sales of short-term investments 1,866 27,548 3,044 102,171 Investment in unconsolidated subsidiaries 492 (1,448) 196 (4,591) Purchases of property, plant and equipment (193) (543) (833) (2,908) Proceeds from sale of assets 86 852 955 8,519 Expenditures on operational mining properties (1,800) (796) (3,318) (2,554) Expenditures on developmental properties (3,639) (5,606) (7,498) (13,704) Other 2,324 (143) 998 (788) --------- --------- --------- --------- NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (10,223) 19,864 (19,550) 68,942 CASH FLOWS FROM FINANCING ACTIVITIES Retirement of long-term debt (1,624) (19,569) (1,624) (23,179) Payment of cash dividends (2,633) (2,633) (7,899) (7,899) Other (173) (274) (472) (708) --------- --------- --------- --------- NET CASH USED IN FINANCING ACTIVITIES (4,430) (22,476) (9,995) (31,786) --------- --------- --------- --------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 363 (4,038) (24,675) 26,755 Cash and cash equivalents at beginning of period 102,297 144,997 127,335 114,204 --------- --------- --------- --------- Cash and cash equivalents at September 30, 1999 $ 102,660 $ 140,959 $ 102,660 $ 140,959 ========= ========= ========= =========
See notes to consolidated financial statements. 6 7 Coeur d'Alene Mines Corporation and Subsidiaries Notes to Consolidated Financial Statements NOTE A: Basis of Presentation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with 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 generally accepted accounting principles 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-and nine-month periods ended September 30, 1999 are not necessarily indicative of the results that may be expected for the year ended December 31, 1999. The balance sheet at December 31, 1998 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles 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, 1998. NOTE B: Inventories Inventories are comprised of the following:
SEPTEMBER 30, DECEMBER 31, 1999 1998 ------------ ------------ (In Thousands) In process and on leach pads $42,012 $36,166 Concentrate and dore' inventory 7,871 3,968 Supplies 4,802 3,541 ------- ------- $54,685 $43,675 ======= =======
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 first-in, first-out and weighted-average-cost methods. Dore' inventory includes product at the mine site and product held by refineries. 7 8 NOTE C: Income Taxes The Company has reviewed its net deferred tax asset for the nine-month period ended September 30, 1999, together with net operating loss carryforwards, 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 D: Acquisitions Purchase of Asarco Silver Assets On September 8, 1999, the Company completed the acquisition of silver assets from Asarco Incorporated ("Asarco"). The purchase price for the silver assets from Asarco was approximately $29.8 million and consisted of 7.125 million shares of Coeur common stock valued at $4.06 per share, and includes approximately $.9 million of acquisition costs. The silver assets acquired consist of Asarco's (i) 50% interest in Silver Valley Resources Corporation ("SVR"); (ii) 100% interest in Empressa Minera Manquiri S.R.L., or any successor ("Manquiri"); (iii) 1.5 million shares of common stock and 500,000 share purchase warrants of Pan American Silver Corporation; and (iv) 100% interest in Northern Peru Mining Company Inc. ("NPMC"). This acquisition was accounted for under the purchase method of accounting in accordance with APB Opinion No. 16. The carrying values of assets and liabilities other than the mining properties and long-term intangibles have been estimated to approximate fair market value. Supplemental pro forma consolidated financial information for Coeur that includes the silver assets purchased is presented for the three-month and nine-month periods ending September 30, 1999 and 1998 as if the silver assets were acquired at the beginning of each of the periods. 8 9
3 MONTHS ENDED 9 MONTHS ENDED SEPTEMBER 30 SEPTEMBER 30 -------------------------- ---------------------------- 1999 1998 1999 1998 --------- --------- --------- --------- (In Thousands) Total revenues $ 42,340 $ 29,757 $ 91,993 $ 92,656 Costs and expenses 35,227 36,046 98,396 161,655 --------- --------- --------- --------- Income (loss) before taxes and extraordinary item 7,113 (6,289) (6,403) (68,999) ========= ========= ========= ========= Net income (loss) $ 9,611 $ (23) $ (4,080) $ (63,161) ========= ========= ========= ========= Basic and diluted earnings per share $ .29 $ (.12) $ (.53) $ (3.53) ========= ========= ========= =========
Purchase of Nevada Packard Property Coeur Rochester has purchased the mineral rights of the Nevada Packard property adjacent to the Rochester Mine, in Nevada, for a sum of $2,070,800, consisting of $1.4 million in cash and 155,638 shares of common stock of Coeur equal in value to $670,800. NOTE E: Long-Term Debt During the third quarter 1999, the Company repurchased approximately $6.2 million principal amount of its outstanding 6% Subordinated Convertible Debentures due 2002 for a total purchase price of approximately $3.6 million, excluding purchased interest of approximately $85,000. Associated with this transaction, the Company eliminated $59,000 of capitalized bond issuance costs. The Company anticipates that as a result of the cancellation of the repurchased debentures, annual interest paid by the Company will be reduced by approximately $372,000. As a result of the buyback of these debentures, the Company has recorded an extraordinary gain of approximately $2.6 million, net of taxes, during the third quarter 1999 on the reduction of its indebtedness. NOTE F: Segment Reporting In 1997, the Financial Accounting Standards Board issued Statement No. 131, "Disclosures about Segments of an Enterprise and Related Information." This statement replaces Statement No. 14, "Financial Reporting for Segments of a Business Enterprise," and establishes new standards for defining and reporting the Company's operating segments and requires selected information in interim financial reports. 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 company cash flows in its respective geographic area. 9 10 The Company's reportable operating segments include the Rochester, Galena, Fachinal, and Petorca (previously named El Bronce) mining properties, Coeur Australia (50% owner of Gasgoyne Gold Mines NL), the Kensington development property, and the Company's exploration program. 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 (loss) from unconsolidated subsidiaries accounted for by the equity method such as the Company's 50% interest in Gasgoyne, 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 above. The Company evaluates performance and allocates resources based on profit or loss before interest, income taxes, depreciation and amortization, unusual and infrequent items, and extraordinary items. 10 11 COEUR D'ALENE MINES CORPORATION SEGMENT REPORTING
Golden Coeur Silver Rochester Cross Fachinal Petorca Australia Valley ---------------------------------------------------------------------------------- September 30, 1999 Net sales and revenues to external customers $ (120) - $ 5,093 $ 8,040 $ 7,450 $1,388 Intersegment net sales and revenues 37,191 - - - - - ---------------------------------------------------------------------------------- Total net sales and revenues $ 37,071 - $ 5,093 8,040 7,450 1,388 ================================================================================== Depreciation and amortization $ 6,977 - $ 2,255 $ 268 $ 3,438 $ 167 Interest income - - 57 15 43 - Interest expense - - 24 2 - - Gain on Cyprus Settlement - - - - - - Writedown of Mine Property - (2,119) - - - - Income tax expense - - - - 14 - Earnings (losses) from unconsolidated affiliates - - - - (835) - Gain on early retirement of debt - - - - - Profit (loss) 13,962 - (1,092) 1,169 91 202 Investments in unconsolidated affiliates - - - - 746,006 - Segment assets 89,942 1,413 30,686 3,203 432 23,703 Expenditures for property 3,615 - 476 169 - 255 September 1998 Net sales and revenues to external customers $ 79 - $ 12,304 $ 8,455 $ 10,740 - Intersegment net sales and revenues 45,661 - - - - - ---------------------------------------------------------------------------------- Total net sales and revenues $ 45,740 - $ 12,304 $ 8,455 $ 10,740 - ================================================================================== Depreciation and amortization $ 5,667 - $ 9,172 $ 1,781 $ 5,609 - Interest income 16 - 63 20 45 - Interest expense - - 46 235 - - Writedown of mine property - - - (53,904) - - Gain on forward sale contracts - - - - - - Income tax expense - - - - (56) - Earnings (losses) from unconsolidated affiliates - - - - (923) - Gain on early retirement of debt - - - - - - Profit (loss) 26,388 - (1,411) (2,637) 2,294 - Investments in non-consolidated affiliates - - - - 51,000 - Segment assets 81,513 9,301 76,114 3,526 148 - Expenditures for property 510 - 2,236 1,513 - - Kensington Manquiri Exploration Other Total ----------------------------------------------------------------------------------------------- September 30, 1999 Net sales and revenues to external customers - - $ (1,167) 58,774 $ 79,458 Intersegment net sales and revenues - - - (37,191) - ----------------------------------------------------------------------------------------------- Total net sales and revenues - - $ (1,167) $27,409 $ 79,458 =============================================================================================== Depreciation and amortization $ 195 - $ 84 $ 1,626 $ 15,010 Interest income - - 10 4,139 4,264 Interest expense - - - 12,381 12,407 Gain on Cyprus Settlement - - - 21,140 21,140 Writedown of Mine Property - - - (373) (2,492) Income tax expense - - - 233 247 Earnings (losses) from unconsolidated affiliates - - - 84 (751) Gain on early retirement of debt - - - 2,590 2,590 Profit (loss) - - (5,389) (1,529) 7,414 Investments in unconsolidated affiliates - - - - 46,006 Segment assets 28,005 19,554 1,507 12,833 211,278 Expenditures for property 6,055 - 548 531 11,649 September 1998 Net sales and revenues to external customers - - $ (345) $ 53,942 $ 85,174 Intersegment net sales and revenues - - - (45,661) - ----------------------------------------------------------------------------------------------- Total net sales and revenues - - $ (345) $ 8,281 $ 85,174 =============================================================================================== Depreciation and amortization $ 271 - $ 111 $ 1,636 $ 24,248 Interest income - - 32 7,491 7,666 Interest expense - - - 10,406 10,687 Writedown of mine property - - (602) - (54,506) Gain on forward sale contracts - - - 1,167 1,167 Income tax expense - - - 554 498 Earnings (losses) from unconsolidated affiliates - - - (322) (1,245) Gain on early retirement of debt - - - 6,345 6,345 Profit (loss) - - (4,431) (1,196) 19,007 Investments in non-consolidated affiliates - - - 17,665 68,665 Segment assets 139,939 - 1,421 7,330 319,294 Expenditures for property 14,368 - 405 135 19,166
Notes: (A) Segment assets consist of receivables, prepaids, inventories, property, plant and equipment, and mining properties. 11 12
Geographic Information - ---------------------- Long-Lived 1999: Revenues Assets ------------------------------------------------- United States $ 60,041,685 $ 94,504,519 Chile 11,965,788 24,177,215 Australia 7,449,599 - New Zealand - 997,958 Bolivia - 19,554,185 Other Foreign Countries 501 12,379 ------------------------------------------------- Consolidated Total $ 79,457,573 $139,246,256 ================================================= Long-Lived 1998: Revenues Assets ------------------------------------------------- United States $ 54,020,651 $187,101,296 Chile 20,418,825 70,081,666 Australia 10,739,694 - New Zealand - 8,595,111 Bolivia - - Other Foreign Countries (5,291) 180,141 ------------------------------------------------- Consolidated Total $ 85,173,879 $265,958,214 =================================================
Revenues are geographically separated based upon the country in which operations and the underlying assets generating those revenues reside. NOTE G: Settlement The Company received settlement from Cyprus Minerals Company during the third quarter of 1999 for Coeur's lawsuit against Cyprus relating to the Golden Cross Mine in New Zealand of $31.5 million. Coeur's lawsuit against Cyprus, instituted in July 1996 in the District Court of Kootenai County, Idaho, arose from Cyprus' sale in April 1993 to Coeur of the New Zealand-based corporation that owned an 80% interest in the Golden Cross Mine located in that country. Coeur's lawsuit, as amended, sought damages arising from ground movement and instability, threatening the integrity of the mine site. Due to such ground movement and instability, Coeur effected a $53 million write-down of its interest in the Golden Cross Mine and a nearby property during the second quarter of 1996. During the second quarter of 1997, Coeur received its 80% share of a $10 million flood insurance recovery relating to the business interruption and property damage at the Golden Cross Mine, which proceeds were recorded by Coeur as other income in 1997. In May 1999 Coeur settled the class action lawsuit filed by certain purchasers of its common stock in July 1997 in the Federal District Court for the District of Colorado against Coeur and certain of its officers. The plaintiffs in that lawsuit alleged that the 12 13 defendants knew but did not publicly disclose adverse financial information relating to certain mining properties, including the Golden Cross Mine. Although Coeur denied the plaintiffs' allegations, it determined it would be in the best interests of Coeur to settle the class action and entered into a settlement agreement that was approved by the Court in July 1999. The terms of that settlement provided that the plaintiffs would be entitled to 50% of the net proceeds, up to a maximum of $6 million, recovered by Coeur from its lawsuit against Cyprus after Coeur has first recouped its costs and expenses incurred in litigating the lawsuit. Total legal expenses incurred to date are $3.1 million. As a result of the settlement of this lawsuit, Coeur has recorded other income of approximately $21.1 million during the third quarter of 1999. This is the net amount of settlement proceeds after the deduction of the $4.4 million payment to Coeur's flood insurance carrier and $6 million payment to the plaintiffs in the class action. NOTE H: Hedging On July 1, 1999, Coeur commenced marking to market its metal call options sold, whereby any change in value is recorded in earnings currently. Prior to July 1, all gold call options sold were given hedge accounting treatment in accordance with common industry practice, with the change in market value being deferred until the original option designation date. For the third quarter of 1999 this change resulted in a $5.8 million non-cash charge to earnings. At September 30, 1999, based on the spot gold price of $299 per ounce, the Company's complete hedging position was valued at $1.3 million, including the call options sold. NOTE I: New Accounting Standard In June 1998, the Financial Standards Board issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS 133) which establishes accounting and reporting standards for derivative instruments and hedging activities. Effective for all fiscal quarters in years beginning after June 15, 2000, SFAS 133 requires the Company to recognize all derivative instruments as either assets or liabilities in the statement of financial position and measure those instruments at fair value on an on-going basis. The Company is currently assessing the effect of adopting SFAS No. 133 on its financial statements and plans to adopt the statement on January 1, 2001. In April 1998, the AICPA issued SOP 98-5, "Reporting the Costs of Start-up Activities." The SOP is effective beginning on January 1, 1999, and requires that start-up costs capitalized prior to January 1, 1999 be written-off and any future start-up costs to be expensed as incurred. The Company has adopted SOP 98-5 and has determined that this has no effect on the Company's financial condition or results of operations. 13 14 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 Company's currently operating mines are the Rochester mine in Nevada, the Coeur and Galena mines in the Coeur d'Alene Mining District of Idaho (which the Company has recently increased its share by 50% to 100%) and the Fachinal and Petorca (or El Bronce) mines in Chile, all of which are wholly-owned and operated by the Company. The Company also owns 50% of Gasgoyne Gold Mines NL, an Australian gold mining company, ("Gasgoyne") that owns 50% of the Yilgarn Star gold mine in Australia. The average price of gold in the third quarter of 1999 was $273.46 per ounce. The market price of silver (Handy & Harman) and gold (London Final) on November 5, 1999 were $5.16 per ounce and $289.70 per ounce, respectively. The Company is required by Financial Accounting Standards Statement No. 121, "Accounting for the Impairment of Long-lived Assets and for Long-lived Assets to be Disposed Of", to review the valuations of its mining properties. Such a review was recently completed with respect to all of the Company's properties. In 1998, the Company had writedowns totaling $219 million with respect to its Petorca and Fachinal Mines and its Kensington development property. In December 1998, the Company announced the completion of an optimization study relating to the Kensington property, a wholly-owned developmental gold property in Alaska, designed to improve the economic viability of the project. A new mine plan was formulated as a result of the optimization study, which will require extensive permit modifications. Based on the results of the study, the Company estimates that the project's cash operating costs per ounce should be reduced to approximately $190 and total capital costs to develop the mine should be reduced to approximately $192 million. The Company does not intend to develop Kensington unless the optimization study and development program demonstrate results required to make Kensington an economically viable project. Based on current mine design and market price of gold, there can be no assurances at this 14 15 time that the Company will proceed to place the Kensington project into commercial production. The Company's business plan is to continue to acquire competitive, low-cost mining properties and/or businesses that are operational or expected to become operational in the near future so that they can reasonably be expected to contribute to the Company's near-term cash flow from operations and expand the Company's silver production. 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. As announced by the Company on August 2, 1999, the firm of Ernst & Young ceased to serve as the Company's independent accountants on July 27, 1999. On October 25, 1999, the Company engaged the firm of Arthur Andersen LLP to serve as the Company's independent accounting firm. 15 16 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- and nine-month periods ended September 30, 1999 and 1998:
Three Months Ended Nine Months Ended September 30, September 30, --------------------------- --------------------------- 1999 1998 1999 1998 ---------- ---------- ----------- ---------- ROCHESTER MINE Gold ozs 19,609 19,295 52,432 64,942 Silver ozs 1,520,043 1,814,459 4,540,061 5,055,676 Cash Costs per equiv. oz./silver $ 3.27 $ 3.98 $ 3.94 $ 4.21 Full Costs per equiv. oz./silver $ 3.98 $ 4.68 $ 4.77 $ 4.82 GALENA MINE Silver ozs 577,579 441,988 1,448,589 1,206,910 Cash Costs per oz./silver $ 4.74 $ 3.94 $ 4.76 $ 4.26 Full Costs per oz./silver $ 5.74 $ 4.97 $ 5.82 $ 5.31 PRIMARY SILVER MINES ---------- ---------- ---------- ---------- Consolidated Cash Costs per oz $ 3.67 $ 3.97 $ 4.08 $ 4.24 ---------- ---------- ---------- ---------- YILGARN STAR MINE Gold ozs 7,014 7,544 20,568 31,289 Cash Costs per oz./gold $ 252 $ 232 $ 285 $ 225 Full Costs per oz./gold $ 458 $ 422 $ 482 $ 417 FACHINAL MINE Gold ozs 6,081 7,443 19,664 21,247 Silver ozs 276,402 397,773 878,185 1,255,687 Cash Costs per equiv. oz./gold $ 277 $ 353 $ 293 $ 329 Full Costs per equiv. oz./gold $ 337 $ 542 $ 354 $ 523 PETORCA MINE Gold ozs 7,946 7,060 23,341 28,702 Silver ozs 18,308 10,087 44,926 53,738 Cash Costs per oz./gold $ 287 $ 267 $ 272 $ 371 Full Costs per oz./gold $ 287 $ 267 $ 272 $ 429 OTHER (GOLDEN CROSS & COEUR) Gold ozs N/A N/A N/A 15,858 Silver ozs N/A N/A N/A 180,169 Cash Costs per oz./gold N/A N/A N/A $ 211 Full Costs per oz./gold N/A N/A N/A $ 211 Cash Costs per oz./silver N/A N/A N/A $ 5.34 Full Costs per oz./silver N/A N/A N/A $ 6.37 PRIMARY GOLD MINES ---------- ---------- ---------- ---------- Consolidated Cash Costs per oz $ 273 $ 301 $ 285 $ 297 ---------- ---------- ---------- ---------- CONSOLIDATED TOTALS Gold ozs 40,650 41,342 116,005 162,038 Silver ozs 2,392,332 2,664,307 6,911,791 7,752,180
NOTES TO SIGNIFICANT CHANGES IN PRODUCTION AND/OR COST PER OUNCE DATA Rochester Mine For the quarter ended September 30, 1999, the mine produced 1,520,043 ounces of silver and 19,609 ounces of gold compared to 16 17 1,814,459 ounces of silver and 19,295 ounces of gold produced in the third quarter of 1998. The increase in the gold production was primarily a result of higher gold ore grades. In the third quarter of 1999, cash costs were $3.27 per silver equivalent ounce compared to $3.98 per silver equivalent ounce in the third quarter of 1998. Depreciation and depletion was $.65 and the reclamation reserve was $.06 per ounce for a total cost of $3.98 per ounce. The stage IV leach pad expansion was completed during the quarter ahead of schedule and $.7 million under budget. Loading of crushed ore on the pad commenced immediately. The new pad provides the mine with primary leaching capacity for the next three years. The Company expects production in the fourth quarter to be positively impacted by initiating leaching of the new pad and by the expected increase in pit ore grades. Coeur Rochester has purchased the mineral rights of the Nevada Packard property adjacent to the Rochester Mine, in Nevada, for a sum of $2,070,800, consisting of $1.4 million in cash and 155,638 shares of common stock of Coeur equal in value to $670,800. The total acquisition will add 6.5 million tons of ore containing 8.5 million ounces of silver and 17,000 ounces of gold. This results in an acquisition cost of approximately $.22 per equivalent contained ounce. The estimated production cost estimated to mine the Nevada Packard area is approximately $3.47 per equivalent silver ounce. Acquisition of the Nevada Packard property is expected to enhance Rochester's production by approximately 5.4 million equivalent ounces over the period 2001-2004. Silver Valley Resources The Company has acquired from Asarco, Inc. its 50% interest in Silver Valley Resources, bringing its share to 100% of SVR. Silver Valley Resources is the operator of the Coeur unit and Galena mines. Silver Valley Resources discontinued operations at the Coeur unit in July 1998 and has concentrated its efforts on the Galena mine. The Company's share of ounces produced from Silver Valley Resources amounted to 577,579 ounces of silver in the third quarter of 1999 compared to 441,988 ounces of silver produced in the third quarter of 1998. The increase was due to the 50% increased ownership in September 1999. The third quarter consolidated cash cost of production per ounce of silver produced at Silver Valley Resources was $4.74 compared to $3.94 in the prior year's third quarter. Depreciation and reclamation in the third quarter of 1999 was $1.00 per ounce for a full cost of $5.74 per ounce compared to $4.97 per ounce for the third quarter of 1998. Yilgarn Star Mine Coeur's share of production for the third quarter of 1999 from the Yilgarn Star Mine amounted to 7,014 ounces of gold compared to 7,544 ounces of gold for the third quarter of 1998. Cash cost of production amounted to $252 per ounce compared to $232 per ounce during the same period of 1998. Noncash costs were $206 per ounce 17 18 for a full cost of $458 per ounce in the third quarter of 1999 compared to $422 per ounce reported in the same period of 1998. Fachinal Mine Fachinal produced 276,402 ounces of silver and 6,081 ounces of gold in the third quarter of 1999 compared with 397,773 ounces of silver and 7,443 ounces of gold in the third quarter of 1998. Cash costs, including smelting and refining, were $277 per gold equivalent ounce compared to $353 in the third quarter of 1998. Depreciation was $51 per equivalent gold ounce and the reserve for reclamation was $9 per equivalent gold ounce for a full cost of $337 per equivalent gold ounce in the third quarter of 1999. This compares with a full cost for the third quarter of 1998 of $542.30 per equivalent gold ounce. The lower full cost was due to the reduction of the carrying amount associated with the write-down taken in the fourth quarter of 1998. Petorca In the third quarter of 1999, the mine produced 7,946 ounces of gold compared to 7,060 ounces reported in the third quarter of 1998. Cash costs in the third quarter of 1999 were $287 per ounce compared to $267 per ounce in the third quarter of 1998. RESULTS OF OPERATIONS Three Months Ended September 30, 1999 Compared to Three Months Ended September 30, 1998. Revenues Product sales in the third quarter of 1999 decreased by $1.9 million, or 8%, from the third quarter of 1998 to $22.0 million. The decrease in sales is primarily attributable to decreased production. In the third quarter of 1999, the Company produced a total of 2,392,332 ounces of silver and 40,650 ounces of gold compared to 2,664,307 ounces of silver and 41,342 ounces of gold in the third quarter of 1998. In the third quarter of 1999, the Company realized average silver and gold prices of $5.22 and $328.60, respectively, compared with realized average prices of $5.18 and $300.87, respectively, in the prior year's third quarter. The decreases in the ounces of silver and gold produced during the third quarter of 1999 are primarily attributable to (i) a reduction in the gold grade at the Rochester Mine, (ii) the discontinuation of operations at the Coeur Mine in July 1998, (iii) the mining of lower-than-anticipated grade of gold at the Yilgarn Star Mine due to ground control problems and flooding resulting from heavy rainfall, (iv) the discontinuation of operations at the Golden Cross Mine in April 1998 and (v) a planned reduction in production at the Petorca Mine. Costs and Expenses Production costs in the third quarter of 1999 decreased by $1.0 million, or 5.7%, from the third quarter of 1998 to $16.2 million. 18 19 The decrease in production costs is primarily a result of cost reduction programs initiated in 1998 at the Company's operations. Depreciation and amortization decreased in the third quarter of 1999 by $2.3 million, or 37.7%, from the prior year's third quarter, primarily due to writedown of mining properties taken in the fourth quarter of 1998. Administrative and general expenses decreased $485,000 in the third quarter of 1999 compared to 1998, due to cost reduction programs initiated in June 1999. Writedown of mining properties and other costs and expenses increased in the third quarter of 1999 by $2.9 million from the third quarter of 1998 due to litigation costs incurred to pursue the Cyprus suit and asset values writedown at the Golden Cross mine. Interest and other income in the third quarter of 1999 increased by $14.5 million, or 736.9%, compared with the third quarter of 1998. The increase is due primarily to the $21.1 million gain recorded from the Cyprus settlement offset by $5.8 million unrealized loss on the mark to market adjustment on the call option portion of the Company's hedge program. The 1998 third quarter results included a gain on early retirement of debt of $6.3 million. Net Income (Loss) As a result of the above mentioned factors, the Company's net income amounted to $9.6 million in the third quarter of 1999 compared to a net loss of $21,000 in the third quarter of 1998. The net income resulted primarily from the settlement recieved from Cyprus. Net loss, excluding the non-recurring charges in the third quarters of 1998 and 1999, was $6.1 million, as compared to $6.3 million for the comparable period of 1998. In the third quarter of 1999, the Company paid dividends of $2.6 million on its Mandatory Adjustable Redeemable Convertible Securities (MARCS). As a result, the income attributable to common shareholders was $7.0 million, or $.29 per share, for the third quarter 1999, compared to a loss of $2.7 million, or $.12 per share, for the third quarter of 1998. Nine Months Ended September 30, 1999 Compared to Nine Months Ended September 30, 1998 Revenues Product sales for the nine months ended September 30, 1999 decreased by $16.6 million, or 21.5%, from the nine months ended September 30, 1998 to $60.7 million. The decrease in sales is primarily attributable to lower production at the Company's operations. For the nine months ended September 30, 1999, the Company produced a total of 6,911,791 ounces of silver and 116,005 ounces of gold compared to 7,752,180 ounces of silver and 162,038 ounces of gold in the nine months ended September 30, 1998. For the nine months ended September 30, 1999, the Company realized average silver and 19 20 gold prices of $5.20 and $321.18, respectively, compared with realized average prices of $5.76 and $314.87, respectively, in the prior year. Interest and other income for the nine months ended September 30, 1999 increased by $10.9 million, or 138.7%, compared with the third quarter of 1998. The increase is due primarily to the gain recorded of $21.1 million on the settlement of the Cyprus suit, reduced by the $5.8 million unrealized loss on the call options mark to market adjustment and lower interest received on investments. The decreases in the ounces of silver and gold produced during the nine months ended September 30, 1999 are primarily attributable to (i) a reduction in the gold grade at the Rochester Mine, (ii) the discontinuation of operations at the Coeur Mine in July 1998, (iii) the mining of lower-than-anticipated grade of gold at the Yilgarn Star Mine due to ground control problems and flooding resulting from heavy rainfall, (iv) the discontinuation of operations at the Golden Cross Mine in April 1998 and (v) a planned reduction in production at the Petorca Mine. Costs and Expenses Production costs decreased in the nine months ended September 30, 1999 by $6.7 million, or 13.2%, from the nine months ended September 30, 1998 to $44.0 million. The decrease was primarily due to the decrease in production at several of the operations as discussed above. Depreciation and amortization decreased in the nine months ended September 30, 1999 by $9.1 million, or 40.7%, from the prior nine months ended September 30, 1998, primarily due to the decreased depreciation and depletion from the Fachinal and Petorca mines after they were written off in 1998. Administrative and general expenses decreased $1.5 million in the nine months ended September 30, 1999 compared to the same period in 1998 due to a cost savings plan initiated at the corporate office. Writedown of mining properties and other costs and expenses decreased by $50.9 million in the nine months ended September 30, 1999 due to the writedown of the Petorca Mine of $54.5 million during the first quarter of 1998, offset by a Company-wide severance payout for reduction in workforce of $.3 million and due to increased legal expenses incurred in the Company's lawsuit against Cyprus of $1.8 million in the first nine months of 1999. Net Loss As a result of the above mentioned factors, the Company's net loss amounted to $4.6 million for the nine months ended September 30, 1999 compared to a net loss of $63.1 million for the nine months ended September 30, 1998. For the nine months ended September 30, 1999, the Company paid dividends of $7.9 million on its Mandatory 20 21 Adjustable Redeemable Convertible Securities (MARCS). As a result, the loss attributable to common shareholders was $12.5 million, or $.56 per share, for the nine months ended September 30, 1999, compared to a loss of $71.0 million, or $3.24 per share, for the nine months ended September 30, 1998. LIQUIDITY AND CAPITAL RESOURCES Working Capital; Cash and Cash Equivalents The Company's working capital at September 30, 1999 was approximately $167.6 million compared to $153.8 million at December 31, 1998. The ratio of current assets to current liabilities was 6.2 to 1.0 at September 30, 1999 compared to 6.0 to 1.0 at December 31, 1998. Net cash provided from (used in) operating activities in the nine months ended September 30, 1999 was $4.9 million compared to $(10.4) million in the nine months ended September 30, 1998. Net cash used in investing activities in the 1999 period was $19.6 million compared to net cash provided by investing activities of $68.9 million in the prior year's comparable period. The cash provided in the 1998 period was attributable to proceeds received from sales of short-term investments and marketable securities in the first nine months of 1998. Net cash used in financing activities was $10.0 million in the first nine months of 1999 and $31.8 million in the first nine months of 1998. As a result of the above, cash and cash equivalents decreased by $24.7 million in the first nine months of 1999 compared to a $26.8 million increase for the comparable period in 1998. Acquisition of Silver Assets from ASARCO Incorporated On September 8, 1999, the Company acquired most of ASARCO's silver mining assets in exchange for the issuance of 7.125 million shares of the Company's Common Stock. The silver mining assets involved include ASARCO's 50% interest in Silver Valley Resources Corporation; ASARCO's wholly-owned subsidiary, Empressa Minera Manquiri S.R.L., which owns the San Bartolome property, an early stage silver development property in Bolivia; 1.5 million shares, representing an approximate 5% interest in Pan American Silver Corporation of Vancouver, British Columbia and warrants for an additional 500,000 shares; and a 100% interest in NPMC, Inc., which owns a 20% net profits interest in the Quiruvilca Silver Mine in Peru operated by Pan American Silver Corporation. Federal Natural Resources Action On March 22, 1996, an action was filed in the United States District 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 21 22 activities conducted in the area since the late 1800s. No specific monetary damages were identified in the complaint. However, in July 1996, the government indicated that damages may approximate $982 million. The United States asserts that the defendants are jointly and severally liable for costs and expenses incurred by the United States in connection with the investigation, removal and remedial action and the restoration or replacement of affected natural resources. In 1986 and 1992, the Company had settled similar issues with the State of Idaho and the Coeur d'Alene Indian Tribe, respectively, and believes that those prior settlements exonerate it of further involvement with alleged natural resource damage in the Coeur d'Alene River Basin. Accordingly, the Company intends to vigorously defend this matter. In March 1997, the Company filed a motion for partial summary judgement relating to the issue of trusteeship, essentially arguing that the United States does not have authority to sue for damages to state natural resources and that the 1986 settlement with the state bars the federal claims. That motion remains pending. In September 1997, the Company filed an additional motion for partial summary judgement raising the statute of limitations as to natural resource damages. That motion was granted by the Court on September 30, 1998. The Court's granting of that motion limits the United States' natural resource damage claims to the 21 square mile Bunker Hill Superfund site area rather than the entire Coeur d'Alene Basin. Although that ruling limits the geographic coverage of the United States' action, the ruling does not prohibit the EPA from attempting to utilize its hazard ranking system which could potentially broaden the scope of the United States' allegations. On March 31, 1998, the Court entered an order denying the plaintiffs' motion to allow the United States to prove a portion of its case pursuant to an administrative record, requiring the parties to submit further facts as to the issue of trusteeship. Furthermore, in March 1998, the EPA announced its intent to perform a remedial investigation/feasibility study upon all or parts of the Coeur d'Alene Basin and, thereby, to apparently focus upon response costs rather than natural resource damages. In September 1998, the Company filed an additional motion for partial summary judgment asserting that CERCLA as applied to the Company in the action is not constitutional under the takings and due process provisions of the United States Constitution. At this stage of the proceeding, it is not possible to predict its ultimate outcome. Settlement of Golden Cross Lawsuit On July 15, 1996, the Company filed a complaint against Cyprus Amax Minerals Company ("Cyprus") in the District Court of the State of Idaho, Kootenai County alleging violations by Cyprus of the anti-fraud provisions of the Idaho and Colorado Securities Acts as well as common law fraud in connection with Cyprus' sale in April 1993 to the Company of Cyprus Exploration and Development Corporation, which owned all the shares of Cyprus Gold New Zealand Limited, which, in turn, owned an 80% interest in the Golden Cross Mine in New Zealand. The Company's lawsuit seeks recession and an unspecified amount of damages arising from alleged misrepresentations and failure to 22 23 disclose material facts alleged to have been known by Cyprus officials regarding ground movement and instability, threatening the integrity of the mine site at the time of Coeur's purchase of the property. In October 1997, Cyprus filed a counterclaim alleging libel by the Company in its press release announcing the write-off of the Golden Cross Mine and seeking an unspecified amount of damages. On February 3, 1999, the Company filed a second amended complaint which specifies damages in the amount of approximately $54 million together with pre-judgement and post-judgement interest as well as unspecified costs incurred resulting from the violations of law alleged. Cyprus filed, on February 17, 1999, a motion to vacate the trial date and a motion to dismiss the second amended complaint. On July 12, 1999, the Court entered an order denying the motion to dismiss and the motion to vacate the trial date. During the third quarter of 1999, the Company received settlement from Cyprus Minerals Company for Coeur's lawsuit against Cyprus relating to the Golden Cross Mine in New Zealand of $31.5 million. As a result of the settlement of this lawsuit, Coeur has recorded other income of approximately $21.1 million during the third quarter of 1999. This is the net amount of settlement proceeds after the deduction of the $4.4 million payment to Coeur's flood insurance carrier and $6 million payment to the plaintiffs in the class action. Class Action Securities Lawsuit On July 2, 1997, a suit was filed by purchasers of the Company's Common Stock in Federal District Court for the District of Colorado naming the Company and certain of its officers and its independent auditor as defendants. Plaintiff alleges that the Company violated the Securities Exchange Act of 1934 during the period January 1, 1995 to July 11, 1996, and seeks certification of the law suit as a class action. The class members are alleged to be those persons who purchased publicly traded debt and equity securities of the Company during the time period stated. On September 22, 1997, an amended complaint was filed in the proceeding adding other security holders as additional plaintiffs. The action seeks unspecified compensatory damages, pre-judgment and post-judgment interest, attorney's fees and costs of litigation. The complaint asserts that the defendants knew material adverse non-public information about the Company's financial results which was not disclosed, and which related to the Golden Cross and Fachinal Mines; and that the defendants intentionally and fraudulently disseminated false statements which were misleading and failed to disclose material facts. On April 16, 1998, the Court entered an order dismissing the auditors from the suit and denying the Company's and the individual defendants' motions to dismiss. On October 9, 1998, the Court heard arguments on the question on whether a class should be certified and on December 14, 1998, the Court entered an order certifying a class. 23 24 In December 1998, the parties to the suit determined that the further conduct of the case would be protracted and expensive and commenced discussions with a view toward settlement of the action. Although the Company continued to deny each of the plaintiffs' claims and allegations, the Company determined it would be in the best interests of the Company to settle the suit and agreed to enter into a Stipulation of Settlement which was filed by the parties with the Court on March 1, 1999. The terms of the proposed settlement provide that (i) the Company's directors and officers liability insurance carrier will pay $7 million to a settlement fund for the benefit of the plaintiffs; and (ii) the plaintiffs will be entitled to 50% of the net proceeds, up to a maximum of $6 million, (after the Company has first recouped its costs and expenses incurred in litigating its above-described lawsuit against Cyprus relating to Golden Cross and after deducting an $8 million reserve against the asserted subrogation claim of the Company's flood insurance carrier) actually received by the Company from its Golden Cross lawsuit against Cyprus. The Stipulation of Settlement contains strong denials of liability by the defendants as well as acknowledgments by the plaintiffs that they were unable to identify significant evidence to support a large portion of their claims. Final consummation of the settlement is subject to Court approval and to dismissal with prejudice of the derivative action described below. On July 15, 1999, the Court gave final approval to the settlement and authorized the submission of the settlement terms to the class action shareholders. Derivative Action On or about August 17, 1998, a purported derivative action was filed on behalf of the Company against Dennis E. Wheeler, James A. Sabala, James J. Curran, Joseph C. Bennett, James A. McClure, Cecil D. Andrus and Duane B. Hagadone in Federal District Court for the District of Idaho. The complaint alleged that the defendant officers and directors breached their fiduciary duties by authorizing the Company to purchase the Golden Cross Mine in New Zealand in 1993 and by allegedly causing or permitting the Company to make statements that the plaintiffs in the class action securities lawsuit described above claim were false or misleading during the period from January 1, 1995 through July 11, 1996. The plaintiff sought unspecified damages on behalf of the Company. On September 9, 1998, the plaintiff voluntarily dismissed the lawsuit without prejudice in light of Idaho Code Sec. 30-1-742, which requires a demand to be served on a company at least 90 days prior to the filing of a derivative action. On September 25, 1998, the plaintiff sent a letter to the Company's Board of Directors demanding that the Company, among other things, commence all reasonable steps to settle the class action securities lawsuit described above, and pursue claims against any officers, directors or third-party professionals who may have known about the potential problems with the Golden Cross Mine before the Company purchased an interest in it. The Board appointed a Special Committee of directors to respond to that demand. On March 9, 1999, the Special Committee recommended that the demand be rejected. The action previously dismissed without prejudice has been dismissed with prejudice. 24 25 Year 2000 Issue Management of the Company believes it has an effective program in place to resolve the Year 2000 issue in a timely manner. Actual costs associated with implementation of the Company's Year 2000 program are expected to be insignificant to the Company's operations and financial condition. As of September 30, 1999, the Company has incurred approximately $220,000 of costs related to the Y2K issue. The Company presently estimates that the remaining projected costs, primarily for professional consulting services, will be less than $80,000. The Company currently has a program underway to ensure that all significant computer systems are substantially Year 2000 compliant by the year ended December 31, 1999. The program is divided into three major components: (1) identification of all information technology systems ("IT Systems") and non-information technology systems ("Non-IT Systems") that are not Year 2000 compliant; (2) repair or replacement of the identified non-compliant systems; and (3) testing of the repaired or replaced systems. The Company has no "in house" developed or proprietary IT Systems. The Company uses commercially-developed software, the majority of which is regularly upgraded through existing maintenance contracts. Parts (1), (2) and (3) of the Year 2000 program are currently underway. Part (1), identification and review of non-compliant accounting and financial reporting systems is finished and the Company is continuing to review Non-IT Systems that have embedded microprocessors in various types of equipment. Part (2), repairing and replacing, currently continues. Software vendors have made Year 2000 compliant software revisions available, which the Company is installing under maintenance agreements. The Company estimates that approximately 85% of its IT systems and approximately 3% of its non-IT systems have completed Part (2). Parts (1) and (2) of the process are scheduled to be completed in the Company's fourth quarter ended December 31, 1999. Part (3), testing currently continues and is scheduled to finish in December 1999. The Company began contacting key suppliers and business partners about the Year 2000 issue during the third quarter of 1998 and continues to survey these parties. While no assurance can be given that key suppliers and business partners will remedy their own Year 2000 issues, the Company, to date, has not identified any material impact on its ability to continue normal business operations with suppliers or other third parties who fail to address the issue. The Company will continue to monitor and evaluate the impact of the Year 2000 issue on its operations. Until the Company is into the final testing stages of its program, the risks from potential Year 2000 failures cannot be fully assessed. Due to this situation, the Company cannot at this stage begin final contingency plans. These plans will be developed as potential Year 2000 failures are identified in the final testing stages. 25 26 As noted above, the Company has not yet completed all necessary phases of the Year 2000 program. In the event that the Company does not complete any additional phases, sales functions and other processes could be impacted. In addition, disruptions in the economy generally resulting from Year 2000 issues could also materially adversely affect the Company. The Company could be subject to litigation for computer systems' failure to properly date business records. The amount of potential liability and lost revenue cannot be reasonably estimated at this time. 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 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 Australia, Bolivia, New Zealand 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. 26 27 All of the Company's long term debt at September 30, 1999 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. The following table summarizes the information at September 30, 1999 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 put and call options and amortizing forward sales, the table presents ounces expected to be delivered and the related average price per ounce in Australian dollars. For foreign currency exchange contracts, the table presents the notional amount in New Zealand dollars to be purchased along with the average foreign exchange rate. 27 28
(dollars in thousands) 1999 2000 2001 2002 2003 Thereafter - --------------------------------------------------------------------------------------------------------------------------------- LIABILITIES Long Term Debt Fixed Rate $ - $ - $ - $42,629 $ - $200,649 Average Interest Rate 6.695% 6.695% 6.695% 6.771% 6.843% 7.190% DERIVATIVE FINANCIAL INSTRUMENTS Gold Put Options Purchased - AUD Ounces 7,500 30,000 30,000 30,000 30,000 - Price Per Ounce $ 604.85 $ 604.85 $597.00 $597.00 $597.00 $ - Gold Call Options Sold - AUD Ounces - 15,000 - - - - Price Per Ounce $ - $ 545.00 $ - $ - $ - $ - Gold Put Options Purchased - USD Ounces 14,000 36,000 - - - - Price Per Ounce $ 265.00 $ 265.00 $ - $ - $ - $ - Gold Call Options Sold - USD ptions Ounces - - - - 56,000 Price Per Ounce $ - $ - - $ - $ - $ 345.00 Amortizing Forward Sales Sales Ounces 10,000 40,000 40,000 40,000 40,000 180,000 Price Per Ounce $ 348.58 $348.58 $348.50 $348.50 $348.50 $ 348.50 Foreign Currency Contracts New Zealand Dollar $ 1,500 $ 3,600 $ - $ - $ - $ - Exchange Rate (NZ$ to US$) 2.106 2.124 - - - - Chilean Pesos $2,383,338 $ - $ - $ - $ - $ - Exchange Rate (Peso to US$) 512.546 - - - - - Fair Value (dollars in thousands) Total 9/30/99 - --------------------------------------------------------------------------- LIABILITIES Long Term Debt $154,147 Fixed Rate Average Interest Rate $243,278 DERIVATIVE FINANCIAL INSTRUMENTS Gold Put Options Purchased - AUD $ 11,706 Ounces 127,500 Price Per Ounce Gold Call Options Sold - AUD ptions $ - Ounces 15,000 Price Per Ounce Gold Put Options Purchased - USD $ - Ounces 50,000 Price Per Ounce Gold Call Options Sold - USD ptions $ - Ounces 56,000 Price Per Ounce Amortizing Forward Sales Sales $ 2,479 Ounces 350,000 Price Per Ounce Foreign Currency Contracts $ 209 New Zealand Dollar $ 5,100 Exchange Rate (NZ$ to US$) $(154) Chilean Pesos $2,383,338 Exchange Rate (Peso to US$)
(1) Of the put options purchased, 108,000 ounces have a knock-out provision whereby the options will terminate if gold trades above $350 per ounce prior to the exercise date. (2) The majority of the call options sold have a knock-out provision; whereby calls for 56,000 ounces will terminate if gold trades below $300 per ounce after March 31, 2001, and calls for 300,000 ounces will terminate if gold trades below $310 per ounce at any time after March 31, 2001. 28 29 PART II. Other Information Item 1. Legal Proceedings As reported in the Company's Form 8-K filed on September 8, 1999, and discussed above under "Management's Discussion and Analysis of Financial Condition and Results of Operations-Liquidity and Capital Resources," the Company's Board of Directors announced on September 8, 1999 that it accepted the offer of Cyprus Minerals Company ("Cyprus") to settle the Company's lawsuit against Cyprus relating to the Golden Cross Mine in New Zealand for $31.5 million. Item 2. Change in Securities and Use Proceeds (c) Unregistered Issuance of Equity Securities. On August 13, 1999, the Company issued 155,638 shares of Common Stock to the two holders of all the outstanding capital stock of Packard Mining, Inc. ("Packard") in exchange for such Packard capital stock. Packard has a leasehold interest in the Nevada Packard Property which is located south of and adjacent to the Company's Rochester Mine. The purchase price of the Packard stock was $670,800 and the number of shares of the Company's Common Stock issued in payment of such purchase price was determined by the average closing price of the Common Stock on the New York Stock Exchange during the 90-day period preceding the execution of the agreement between the Company and the shareholders of Packard entered into on July 14, 1999. On August 6, 1999, the Company also acquired seven patented and 37 unpatented mining claims located on the Nevada Packard Property from the owners thereof for a cash purchase price of $1.4 million. The Company plans to continue its exploratory drilling activities on the Nevada Packard Property. Item 4. Submission of Matters to a Vote of Security Holders The Company's Annual Meeting of Shareholders was held on September 8, 1999. A total of 21,900,579 shares of Common Stock and 7,077,833 shares of Mandatory Adjustable Redeemable Convertible Securities ("MARCS") were outstanding and entitled to vote 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 (24,411,536 for and 917,351 withheld), Joseph C. Bennett (24,434,805 for and 894,082 withheld), James J. Curran (24,462,697 for and 866,190 withheld), James A. McClure (24,044,004 for and 1,284,883 withheld), Robert E. Mellor (24,409,824 for and 919,063 withheld), John H. Robertson (24,433,379 for and 895,508 withheld), Timothy R. Winterer 29 30 (24,439,058 for and 889,829 withheld) and Dennis E. Wheeler (24,423,789 for and 905,098 withheld). The second proposal was the proposed issuance of 7.125 million shares of the Company's Common Stock for the acquisition of certain silver assets of Asarco Incorporated. The proposal was approved by more than the required majority of the shares of Common Stock and MARCS voting as a single class at the meeting. The proposal was approved by a vote of 12,626,863 shares for (representing 95.7% of the shares voting), 568,706 shares against with 258,849 shares abstaining. The third proposal was a proposed amendment to Article II of the proposed Restated and Amended Articles of Incorporation increasing the number of authorized shares of Common Stock from 60 million to 125 million shares. The proposal as approved by more than the required majority of the outstanding shares of Common Stock and MARCS voting as a class at the meeting. The proposal was approved by the vote of 22,568,762 shares for (representing 89.1% of the shares voting), 2,449,326 shares against with 310,799 shares abstaining. The proposal therefore was adopted. The fourth proposal was a proposed amendment to Article II of the proposed Restated and Amended Articles of Incorporation increasing the number of authorized shares of Preferred Stock from 10 million to 20 million shares. The proposal was required to be approved by both (i) a majority of the shares of Common Stock and MARCS voting as a single class at the meeting and (ii) a majority of the outstanding shares of MARCS. The proposal failed to be approved by a majority of the outstanding MARCS, with 3,381,791 shares of MARCS voting for (representing 47.8% of the outstanding MARCS), 671,892 shares of MARCS voting against with 61,460 shares of MARCS abstaining. The proposed amendment was therefore not adopted. The fifth proposal was a proposed amendment to Article VI of the proposed Restated and Amended Articles of Incorporation conforming the language relating to the limitation of the liability of directors to the provisions of the Idaho Business Corporation Act, as amended effective July 1, 1997 (the "New Idaho Act"). The proposal was approved by more than the required majority of the shares of Common Stock and MARCS voting as a class at the meeting. The proposal was approved by a vote of 22,608,569 shares for (representing 89.3% of the shares voting), 2,008,943 shares against with 711,375 shares abstaining. The proposal therefore was adopted. The sixth proposal was to approve Article VII of the proposed Restated and Amended Articles of Incorporation providing a new provision relating to the indemnification of directors that is permitted under the New Idaho Act. The proposal was approved by more than the required majority of the outstanding shares of Common Stock and MARCS voting as a class at the meeting. The proposal was approved by a vote of 22,694,383 shares for (representing 89.6% of the shares voting), 1,860,438 shares against and 774,066 shares abstaining. 30 31 The seventh proposal consisted of revisions to two provisions in the Company's prior Articles of Incorporation. The first revision was to set forth the new street address of the Company's registered office and name of registered agent as required by the New Idaho Act and the other revision sets forth the name and address of each of the Company's original incorporators as called for by the New Idaho Act. The proposal was approved by more than the required majority of the shares of Common Stock and MARCS voting as a class at the meeting. The proposal was approved by a vote of 23,535,321 shares for (representing 92.9% of the shares voting), 1,154,416 shares against with 639,150 shares abstaining. The proposal therefore was adopted. The Restated and Amended Articles of Incorporation contain fewer provisions than are contained in the prior Articles of Incorporation as a result of the deletion of five of the prior articles that are no longer called for by the New Idaho Act. The following list identifies the changes made in the Restated and Amended Articles of Incorporation:
New Article Article Number in Number in Restated and Prior Amended Articles Articles of Incorporation of Incorporation Nature of Change -------------------------------- ----------------------------------- ----------------- I I No Change II - Deleted III III New street address of registered office and name of registered agent IV - Deleted V - Deleted VI II Increase in authorized number of shares of Common Stock VII IV Name and address of each of the Company's original incorporators VIII - Deleted IX V No change X VI Revision in language regarding the limitation of director liability to conform with the New Idaho Act XI - Deleted - VII New provision relating to director indemnification as permitted under the New Idaho Act
A copy of the Restated and Amended Articles of Incorporation, as filed with the Secretary of State of the State of Idaho effective September 13, 1999, is filed as an exhibit to this Form 10-Q. Item 5. Other Information As reported by the Company in its Form 8-K filed on September 9, 1999, and discussed above under "Management's Discussion and Analysis of Financial Condition and Results of Operations-Acquisition of Silver Assets of Asarco Incorporated," the Company consummated its acquisition of certain silver mining assets of Asarco Incorporated ("Asarco") on September 9, 1999 in exchange for the issuance of 7.125 million shares of the Company's Common Stock. Pursuant to the Transition Agreement between the Company and Asarco, the Board of Directors appointed Francis R. McAllister, Chairman of the Board and 31 32 Chief Executive Officer of Asarco, and Kevin R. Morano, President and Chief Operating Officer of Asarco, to serve as members of the Company's Board of Directors. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits. The following exhibits are filed here-with: Exhibit No. Document 3 Restated and Amended Articles of Incorporation of the Registrant as filed with the Secretary of State of the State of Idaho effective September 13, 1999. 27 Financial Data Schedule (b) Forms 8-K. The Company filed Current Reports on Form 8-K on August 3, 1999 (reporting the Company's determination on July 27, 1999 that the firm of Ernst & Young LLP would no longer serve as the Company's independent accounting firm), September 8, 1999 (reporting the Company's acceptance of the offer of Cyprus Minerals Company to settle the Company's lawsuit against Cyprus relating to the Golden Cross Mine in New Zealand), September 9, 1999 (reporting the consummation on that date of the Company's acquisition of silver mining assets of Asarco Incorporated) and October 27, 1999 (reporting the Company's engagement on October 25, 1999 of Arthur Andersen LLP to serve as the Company's independent accounting firm). 32 33 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 12, 1999 /s/ Dennis E. Wheeler ---------------------- DENNIS E. WHEELER Chairman, President and Chief Executive Officer Dated November 12, 1999 /s/ Geoffrey A. Burns ---------------------- GEOFFREY A. BURNS Vice President and Chief Financial Officer 33 EX-3 2 EXHIBIT 3 1 Exhibit 3 RESTATED AND AMENDED ARTICLES OF INCORPORATION OF COEUR D'ALENE MINES CORPORATION Pursuant to the provisions of Section 30-1-1007 of the Idaho Business Corporation Act, the undersigned corporation, pursuant to resolutions duly adopted by its board of directors and shareholders, hereby adopts the following restated and amended articles of incorporation: ARTICLE I That the name of said corporation shall be "COEUR D'ALENE MINES CORPORATION." ARTICLE II (a) The corporation is authorized to issue two classes of shares of capital stock to be designated, respectively, "common stock" and "preferred stock". The total number of such shares which the corporation shall have the authority to issue shall be 135 million. The total number of shares of common stock authorized to be issued shall be 125 million shares, $1.00 par value per share, and the total number of shares of preferred stock authorized to be issued shall be 10 million, $1.00 par value per share. (b) The shares of preferred stock may be issued from time to time in one or more series. The Board of Directors is hereby authorized to establish from time to time by resolution of resolutions the number of shares to be included in each such series, and to fix the designation, powers, preferences and relative participating, optional, conversion and other special rights of the shares of each such series and the qualifications, limitations or restrictions thereof, including but not limited to the fixing or alteration of the dividend rights, dividend rate or rates, conversion rights, voting rights, rights and terms of redemption (including sinking fund provisions), the redemption price or prices, and the liquidation preferences of any wholly unissued series of shares of preferred stock, or any or all of them, all to the fullest extent now or hereafter permitted by the Idaho Business Corporation Act; and to increase or decrease the authorized number of shares of any series subsequent to the issue of shares of that series. In case the number of shares of any 2 series shall be so decreased, the shares constituting such decrease shall resume the status which they had prior to the adoption of the resolution originally fixing the number of shares of such series. No vote of the holders of the common stock or preferred stock shall, unless otherwise provided in the resolutions adopted by the Board of Directors creating any particular series of preferred stock, be a prerequisite to the issuance of any shares of any series of the preferred stock authorized by and complying with the conditions of this Article. (c) Holders of the corporation's common stock shall have no preemptive rights to acquire unissued or treasury shares or securities convertible into such shares of the corporation's capital stock or carrying a right to subscribe to or acquire shares. Holders of the corporation's preferred stock shall have no preemptive rights to acquire unissued or treasury shares of the corporation's capital stock or carrying a right to subscribe to acquire shares, except to the extent provided under the resolution or resolutions adopted by the Board of Directors, creating any particular series of such preferred stock. ARTICLE III The street address of the corporation's registered office is 505 Front Avenue, Coeur d'Alene, Idaho 83814 and the name of its registered agent at that address is Dennis E. Wheeler. ARTICLE IV The name and address of each incorporator is Joseph R. Gunn of Spokane, Washington, George Turner of Spokane, Washington, R.W. Nuzum of Spokane, Washington and Fred T. Fudge of Kellogg, Idaho. ARTICLE V Section 1. Vote Required for Certain Business Combinations A. Higher Vote for Certain Business Combinations. In addition to any affirmative vote required by law or these Articles of Incorporation, and except as otherwise expressly provided in Section 2 of this Article V: (i) any merger or consolidation of the Company or any Subsidiary (as hereinafter defined) with (a) any Interested Shareholder (as hereinafter defined) or (b) any other corporation or other person (whether or not itself an Interested Shareholder) which is, or after 2 3 such merger or consolidation would be, an Affiliate (as hereinafter defined) of an Interested Shareholder; or (ii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition (in one transaction or a series of transactions) to or with any Interested Shareholder or any Affiliate of any Interested Shareholder of any assets of the Company or any Subsidiary (in one transaction or a series of transactions) of any securities of the Company or any Subsidiary to any Interested Shareholder or any Affiliate of any Interested Shareholder in exchange for cash, securities or other property (or a combination thereof) having an aggregate Fair Market Value of $20 million or more; or (iii) the issuance or transfer by the Company or any Subsidiary (in one transaction or a series of transactions) of any securities of the Company or any Subsidiary to any Interested Shareholder or any Affiliate of any Interested Shareholder in exchange for cash, securities or other property (or a combination thereof) having an aggregate Fair Market Value of $20 million or more; or (iv) the adoption of any plan or proposal for the liquidation or dissolution of the Company proposed by or on behalf of an Interested Shareholder or any Affiliate of any Interested Shareholder; or (v) any reclassification of securities (including any reverse stock split), or recapitalization of the Company, or any merger or consolidation of the Company with any of its Subsidiaries or any other transaction (whether or not with or into or otherwise involving an Interested Shareholder) which has the effect, directly or indirectly, of increasing the proportionate share of the outstanding shares of any class of equity or convertible securities of the Company or any Subsidiary which is directly or indirectly owned by any Interested Shareholder or any Affiliate of any Interested Shareholder; shall require the affirmative vote of the holders of at least 80% of the shares of Common Stock of the Company entitled to vote generally in the election of directors (the "Common Stock"). Such affirmative vote shall be required notwithstanding the fact that no vote may be required, or that a lesser percentage may be specified, by law or in any agreement. B. Definition of "Business Combination". The term 3 4 "Business Combination" as used in this Article V shall mean any transaction which is referred to in any one or more of clauses (i) through (v) of paragraph A of this Section 1. Section 2. When Higher Vote is Not Required. The provisions of Section 1 of this Article V shall not be applicable to any particular Business Combination, and such Business Combination shall require only such affirmative vote as is required by law and any other provision of these Articles of Incorporation, if all of the conditions specified in either of the following paragraphs A and B are met: A. Approval by Continuing Directors. The Business Corporation shall have been approved by a majority of the Continuing Directors (as hereinafter defined). B. Price and Procedure Requirements. All of the following conditions shall have been met: (i) The aggregate amount of the cash and the Fair Market Value (as hereinafter defined) as of the date of the consummation of the Business Combination of consideration other than cash to be received per share by holders of Common Stock in such Business Combination shall be at least equal to the higher of the following: (a) (if applicable) the highest per share price (including any brokerage commissions, transfer taxes and soliciting dealers' fees) paid by the Interested Shareholder for any shares of Common Stock acquired by it (1) within the two-year period immediately prior to the first public announcement of the proposal of the Business Combination (the "Announcement Date") or (2) in the transaction in which it became an Interested Shareholder, whichever is higher; and (b) the Fair Market Value per share of Common Stock on the Announcement Date or on the date on which the Interested Shareholder became an Interested Shareholder (such latter date is referred to in this Article V as the "Determination Date"), whichever is higher. (ii) The consideration to be received by holders of the Common Stock shall be in cash or in the same form as the Interested Shareholder has previously paid for shares of such Common Stock. If the Interested 4 5 Shareholder has paid for shares of Common Stock with varying forms of consideration, the form of consideration for such Common Stock shall be either cash or the form used to acquire the largest number of shares of such Common Stock previously acquired by it. (iii) After such Interested Shareholder has become an Interested Shareholder, such Interested Shareholder shall not have received the benefit, directly or indirectly (except proportionately as a shareholder), of any loans, advances, guarantees, pledges or other financial assistance or any tax credits or other tax advantages provided by the Company, whether in anticipation of or in connection with such Business Combination or otherwise. (iv) A proxy or information statement describing the proposed Business Combination and complying with the requirements of the Securities Exchange Act of 1934 and the rules and regulations thereunder (or any subsequent provisions replacing such Act, rules or regulations) shall be mailed to public shareholders of the Company at least 30 days prior to the consummation of such Business Combination (whether or not such proxy or information statement is required to be mailed pursuant to such Act or subsequent provisions). Section 3. Certain Definitions. For the purposes of this Article V: A. A "person" shall mean any individual, firm, corporation or other entity. B. "Interested Shareholder" shall mean any person (other than the Company or any Subsidiary of the Company) which: (i) is the beneficial owner, directly or indirectly, of more than 10% of the outstanding shares of the Company's Common Stock; or (ii) is an Affiliate of the Company and at any time within the two-year period immediately prior to the date in question was the beneficial owner, directly or indirectly, of 10% or more of the then outstanding Common Stock; or (iii) is an assignee of or has otherwise succeeded to any shares of Common Stock which were at any time within the two-year period immediately prior to the date in question beneficially owned by any Interested Shareholder, if such assignment or 5 6 succession shall have occurred in the course of a transaction or series of transactions not involving a public offering within the meaning of the Securities Act of 1933; provided, however, that a person shall not be an Interested Shareholder if such person became the beneficial owner of more than 10% of the Company's Common Stock prior to April 3, 1985. C. A person shall be a "beneficial owner" of any Common Stock: (i) which such person or any of its Affiliates or Associates (as hereinafter defined) beneficially owns, directly or indirectly; or (ii) which such person or any of its Affiliates or Associates has (a) the right to acquire (whether such right is exercisable immediately or only after the passage of time), pursuant to any agreement, arrangement or understanding or upon the exercise of conversion rights, exchange rights, warrants or options, or otherwise, or (b) the right to vote pursuant to any agreement, arrangement or understanding; or (iii) which are beneficially owned, directly or indirectly, by any other person with which such person or any of its Affiliates or Associates has any agreement, arrangement or understanding or the purpose of acquiring, holding, voting or disposing of any shares of Common Stock. D. For the purpose of determining whether a person is an Interested Shareholder pursuant to paragraph B of this Section 3, the number of shares of Common Stock deemed to be outstanding shall include shares deemed owned through application of paragraph C of this Section 3 but shall not include any other shares of Common Stock which may be issuable pursuant to any agreement, arrangement or understanding, or upon exercise of conversion rights, warrants or options, or otherwise. E. "Affiliate" or "Associate" shall have the respective meanings ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as in effect on April 3, 1985. F. "Subsidiary" means any corporation of which a majority of any class of equity security is owned, directly or indirectly, by the Company, provided, however, that for the purposes of the 6 7 definition of Interested Shareholder, set forth in paragraph B of this Section 3, the term "Subsidiary" shall mean only a corporation of which a majority of each class of equity security is owned, directly or indirectly, by the Company. G. "Continuing Director" means any member of the Board of Directors of the Company (the "Board") who is unaffiliated with the Interested Shareholder and was a member of the Board prior to the time that the Interested Shareholder became an Interested Shareholder, and any successor of a Continuing Director who is unaffiliated with the Interested Shareholder and is recommended to succeed a Continuing Director by the majority of Continuing Directors than on the Board. H. "Fair Market Value" means: (i) in the case of stock, the highest closing sale price during the 30-day period immediately preceding the date in question of a share of such stock on the Composite Tape for New York Stock Exchange Listed Stocks, or, if such stock is not quoted on the Composite Tape, on the New York Stock Exchange, or, if such stock is not listed on such Exchange, on the principal United States securities exchange registered under the Securities Exchange Act of 1934 on which such stock is listed, or, if such stock is not listed on any such exchange, the highest closing bid quotation with respect to a share of such stock during the 30-day period preceding the date in question on the National Association of Securities Dealers, Inc. Automated Quotations System or any system then in use, or if no such quotations are available, the fair market value on the date in question of a share of such stock as determined by the Board in good faith; and (ii) in the case of property other than cash or stock, the fair market value of such property on the date in question as determined by the Board in good faith. I. In the event of any Business Combination in which the Company survives, the phrase "other consideration to be received" as used in paragraph B(i) of Section 2 of this Article V shall include the shares of Common Stock retained by the holders of such shares. Section 4. Powers of the Board of Directors. A majority of the directors of the Company shall have the power and duty to determine for the purposes of this Article V, on the basis of information known to it after reasonable inquiry, (A) whether a person is an Interested Shareholder, (B) the number of shares of Common Stock beneficially owned by any person, (C) whether a person is an Affiliate or Associate of another and (D) whether the assets which are the subject of any Business Combination have, or the consideration to be received for the issuance or transfer of securities by the Company or any Subsidiary in any Business Combination has, an aggregate Fair Market Value of $20 million or more. Any such determination made in good faith shall 7 8 be binding and conclusive on all parties. Section 5. No Effect on Fiduciary Obligations of Interested Shareholders. Nothing contained in this Article V shall be construed to relieve any Interested Shareholder from any fiduciary obligation imposed by law. Section 6. Amendment, Repeal, etc. Notwithstanding any other provision of or the By-Laws of the Company (and notwithstanding the fact that a lesser percentage may be specified by law, these Articles of Incorporation or the By-Laws of the Company), the affirmative vote of the holders of 80% or more of the outstanding shares of the Company's Common Stock shall be required to amend or repeal, or adopt any provisions inconsistent with this Article V. ARTICLE VI The personal liability of a director of the corporation to the corporation or its shareholders for money damages for any action taken, or any failure to take any action, as a director, shall be eliminated; provided, however, that the liability of a director shall not be eliminated for (i) the amount of a financial benefit received by a director to which he is not entitled, (ii) an intentional infliction of harm on the corporation or the shareholders, (iii) a violation of Section 30-1-833 of the Idaho Business Corporation Act, or (iv) an intentional violation of criminal law. ARTICLE VII The corporation shall be obligated to indemnify any individual who is a party to a proceeding because he is a director of the corporation against liability to any person for action taken, or any failure to take any action, as a director, and expenses incurred in the proceeding to the fullest extent provided by law in accordance with Section 30-1-851(1)(b) of the Idaho Business Corporation Act, except liability for (i) receipt of a financial benefit to which he is not entitled, (ii) an intentional infliction of harm on the corporation or its shareholders, (iii) a violation of Section 30-1-833 of the Idaho Business Corporation Act, or (iv) an intentional violation of criminal law. 8 9 The foregoing Restated and Amended Articles of Incorporation, which include amendments to the Articles of Incorporation, correctly set forth the provisions of the Articles of Incorporation as heretofore and hereby amended, and supersede the original Articles of Incorporation and all previous amendments thereto. Dated September 8, 1999 By: /s/ Dennis E. Wheeler --------------------------- Dennis E. Wheeler Its Chairman of the Board, President and Chief Executive Officer and: /s/ William F. Boyd --------------------------- William F. Boyd Its Acting Secretary 9 EX-27 3 FINANCIAL DATA SCHEDULE
5 9-MOS DEC-31-1999 JAN-01-1999 SEP-30-1999 102,660 22,847 19,836 0 54,685 200,028 313,222 118,782 394,438 32,461 240,155 7,078 0 30,240 393,664 304,438 60,693 79,458 43,965 57,274 16,763 0 12,406 (6,985) 247 (7,232) 0 2,590 0 (4,642) (.56) (.56)
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