SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
FORM 10-K/A No. 1
Pursuant to Section 13 or 15 (d) of the
Securities and Exchange Act of 1934
Amendment No. 1 to Annual Report on Form 10-K for the Year Ended December 31,
1997
COEUR D'ALENE MINES CORPORATION
-----------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Idaho 1-8641 82-0109423
--------------------------- ------------ --------------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification
Number)
505 Front Avenue., P.O. Box "I"
Coeur d'Alene, Idaho 83814
---------------------------------------- ----------
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (208) 667-3511
The undersigned registrant hereby amends the following items, financial
statements, exhibits or other portions of its Annual Report on Form 10-K for
the year ended December 31, 1997, as set forth in the pages attached hereto:
Items 8 & 14 - Financial Statements
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this amendment to be signed on its behalf by the
undersigned, thereunto duly authorized.
COEUR D'ALENE MINES CORPORATION
By:
/s/JAMES A. SABALA
-------------------------
James A. Sabala
Senior Vice President and
Chief Executive Officer
Date: March 24, 1998
<PAGE>
ANNUAL REPORT ON FORM 10-K
Item 8, Item 14(a), and Item 14(d)
CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
YEAR ENDED DECEMBER 31, 1997
COEUR D'ALENE MINES CORPORATION
COEUR D'ALENE, IDAHO
<PAGE>
REPORT OF ERNST & YOUNG LLP INDEPENDENT AUDITORS
Shareholders and Board of Directors
Coeur d'Alene Mines Corporation
We have audited the accompanying consolidated balance sheets of Coeur d'Alene
Mines Corporation and subsidiaries as of December 31, 1997 and 1996, and the
related consolidated statements of operations, changes in shareholders'
equity, and cash flows for each of the three years in the period ended
December 31, 1997. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Coeur d'Alene Mines Corporation and subsidiaries at December 31, 1997 and
1996, and the consolidated results of their operations and their cash flows
for each of the three years in the period ended December 31, 1997, in
conformity with generally accepted accounting principles.
Seattle, Washington /s/ERNST & YOUNG LLP
February 20, 1998
F-1
<PAGE>
CONSOLIDATED BALANCE SHEETS
COEUR D'ALENE MINES CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
December 31,
1997 1996
--------- ---------
ASSETS (In Thousands)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $114,204 $ 43,455
Funds held in escrow 400
Short-term investments 98,437 124,172
Receivables 11,103 11,573
Inventories 35,927 31,992
--------- ---------
TOTAL CURRENT ASSETS 260,071 211,192
PROPERTY, PLANT, AND EQUIPMENT
Property, plant and equipment 119,808 118,993
Less accumulated depreciation 58,097 50,743
--------- ---------
61,711 68,250
MINING PROPERTIES
Operational mining properties 245,979 171,517
Less accumulated depletion 61,477 38,264
--------- ---------
184,502 133,253
Developmental properties 134,236 110,985
--------- ---------
318,738 244,238
OTHER ASSETS
Investment in unconsolidated affiliate 48,231
Notes receivable 8,498 4,000
Debt issuance costs, net of accumulated
amortization 8,809 4,081
Other 3,595 338
--------- ---------
20,902 56,650
--------- ---------
$661,422 $580,330
========= =========
</TABLE>
F-2
<PAGE>
CONSOLIDATED BALANCE SHEETS
COEUR D'ALENE MINES CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
December 31,
1997 1996
---------- ---------
(In Thousands)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 5,983 $ 4,327
Accrued liabilities 6,345 4,976
Accrued interest payable 6,631 4,968
Accrued salaries and wages 7,553 5,242
Bank loans 4,406 8,021
Current portion of remediation costs 7,300 3,500
Current portion of obligations under
capital leases 243 532
--------- ---------
TOTAL CURRENT LIABILITIES 38,461 31,566
LONG-TERM LIABILITIES
6% subordinated convertible debentures due 2002 49,840 49,840
6 3/8% subordinated convertible debentures due 2004 95,000 100,000
7 1/4% subordinated convertible debentures due 2005 143,750
Long-term borrowings 1,159 39,900
Other long-term liabilities 8,403 12,826
Deferred income taxes 2,720
--------- ---------
TOTAL LONG-TERM LIABILITIES 300,872 202,566
COMMITMENTS AND CONTINGENCIES
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 60,000,000 shares, issued 22,949,779
and 22,950,182 shares in 1997 and 1996
(including 1,059,211 shares held in treasury) 22,950 22,950
Capital surplus 389,648 400,187
Accumulated deficit (84,542) (70,459)
Unrealized gains (losses) on short-term
investments 145 (352)
Repurchased and nonvested shares (13,190) (13,206)
--------- ---------
322,089 346,198
--------- ---------
$661,422 $580,330
========= =========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
COEUR D'ALENE MINES CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995
---- ---- ----
(In Thousands Except Per Share Data)
<S> <C> <C> <C>
INCOME
Sale of concentrates and dore' $139,037 $ 92,731 $ 89,239
Less cost of mine operations 141,873 83,283 72,210
--------- --------- ---------
GROSS PROFITS (LOSS) (2,836) 9,448 17,029
--------- --------- ---------
OTHER INCOME--interest, dividends, and other 20,945 13,159 9,504
TOTAL INCOME 18,109 22,607 26,533
EXPENSES
Administration 4,430 3,716 3,677
Accounting and legal 2,230 1,753 1,626
General corporate 6,732 7,147 6,207
Mining exploration 8,722 7,695 4,854
Interest 10,320 3,635 9,746
Writedown of mining properties 54,415
Idle facilities 1,481
--------- --------- ---------
TOTAL EXPENSES 32,434 78,361 27,591
--------- --------- ---------
NET LOSS FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES (14,325) (55,754) (1,058)
Provision (benefit) for income taxes (242) (1,184) 200
--------- --------- ---------
NET LOSS FROM CONTINUING OPERATIONS (14,083) (54,570) (1,258)
Income from discontinued operations
(net of taxes) 2,412
--------- --------- ---------
NET INCOME (LOSS) $(14,083) $(54,570) $ 1,154
========= ========= =========
NET INCOME(LOSS) ATTRIBUTABLE TO
COMMON SHAREHOLDERS $(24,614) $(62,967) $ 1,154
========= ========= =========
BASIC AND DILUTED EARNINGS PER SHARE DATA
Weighted average number of shares
of Common Stock (in thousands) 21,890 21,465 15,879
========= ========= =========
Net loss from continuing operations $ (.64) $ (2.54) $ (.08)
Income from discontinued operations .15
--------- --------- ---------
Net income (loss) per share $ (.64) $ (2.54) $ .07
========= ========= =========
Net loss attributable to Common Shareholders:
Net loss from continuing operations $ (1.12) $ (2.93) $ (.08)
Income from discontinued operations .15
--------- --------- ---------
Net income (loss) per share $ (1.12) $ (2.93) $ .07
========= ========= =========
CASH DIVIDENDS PER COMMON SHARE $ .15 $ .15
========= =========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN
SHAREHOLDERS' EQUITY For Years Ended
December 31, 1997, 1996, and 1995
(In Thousands)
<TABLE>
<CAPTION>
Preferred Stock Unrealized
(MARCS) Common Stock Gains Repurchased and
------------------- ------------------ (Losses) on Non-Vested Shares
Par Par Capital Accumulated Short-Term ------------------
Shares Value Shares Value Surplus Deficit Investments Shares Amount Total
-------- -------- -------- --------- --------- --------- ------------ ------- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 16,633 $16,633 $182,881 $(17,043) $(8,820) (1,059) $(13,358) $160,293
1, 1995
Net Income 1,154 1,154
Cash Dividends (2,339) (2,339)
Issuance of Shares Under
Stock Compensation Plan
(net)
24 24 384 94 502
Unrealized Gains on 9,181 9,181
Marketable Securities
Conversion of 7%
Debentures
4,867 4,867 66,174 71,041
----- ------ ------ ------ --------- -------- -------- ------- -------- ---------
Balance at December 31,
1995
21,524 21,524 247,100 (15,889) 361 (1,059) (13,264) 239,832
Net Loss (54,570) (54,570)
Issuance of MARCS 7,078 $7,078 137,548 144,626
Cash Dividends (11,028) (11,028)
Issuance of Shares
Under Stock
Compensation Plan (net) 58 58
Shares Issued on
Acquisition of 1,420 1,420 26,467 27,887
Unconsolidated
Affiliate
Unrealized Loss on
Marketable Securities (713) (713)
Conversion of 6% 6 6 150 156
Debentures
Other (50) (50)
----- ------ ------ ------ --------- -------- -------- ------- -------- ---------
Balance at December 7,078 7,078 22,950 22,950 400,187 (70,459) (352) (1,059) (13,206) 346,198
31, 1996
Net Loss (14,083) (14,083)
Cash Dividends (10,532) (10,532)
Issuance of Shares
Under Stock
Compensation Plan (net) 16 16
Unrealized Gains
on
Marketable Securities 497 497
Other (7) (7)
----- ------ ------ ------ --------- -------- -------- ------- -------- ---------
Balance at December 31,
1997 7,078 $7,078 22,950 $22,950 $389,648 $(84,542) $ 145 (1,059) $(13,190) $322,089
===== ====== ====== ======= ========= ========= ======== ======= ========= =========
</TABLE>
See notes to consolidated financial statements.
F-5 / F-6
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
COEUR D'ALENE MINES CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss from continuing operations $ (14,083) $ (54,570) $ (1,258)
Add (deduct) noncash items:
Depreciation, depletion, and
amortization 35,631 13,381 16,893
Deferred income taxes (594) (1,402) (1,786)
(Gain) loss on disposition of property,
plant and equipment (102) (985) 458
Loss on foreign currency
transactions 985 155 597
(Gain) loss on disposition of
marketable securities 947 (1,262) 885
Writedown of mining property 54,415
Undistributed (earnings) loss of investment
in unconsolidated subsidiary 214 (1,905)
Changes in Operating Assets and Liabilities:
Receivables 1,907 3,493 (1,239)
Inventories (3,256) 1,824 3,234
Accounts payable and
accrued liabilities (4,426) (5,360) 2,528
----------- ----------- -----------
Net cash provided by continuing operations 17,223 7,784 20,312
Income from discontinued operations 2,412
Add (deduct) noncash items:
Depreciation, depletion and amortization 85
Gain on disposition of
discontinued operations (3,964)
Deferred income taxes 1,608
Change in operating assets and liabilities
Receivables 601
Inventories (30)
Accounts payable and accrued liabilities (109)
----------- ----------- -----------
Net cash provided by discontinued operations 603
----------- ----------- -----------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 17,223 7,784 20,915
CASH FLOWS USED IN INVESTING ACTIVITIES
Purchases of short-term investments (180,511) (148,952) (2,424)
Proceeds from sales of short-term investments
and marketable securities 204,981 92,167 70,112
Acquisition of Gasgoyne Gold Mines NL (14,643) (19,301)
Purchases of property, plant and
equipment (2,898) (4,799) (44,895)
Proceeds from sale of assets 505 2,372 1,177
Proceeds from collection of notes receivable 1,363 2,566
Proceeds from sale of discontinued operations 3,133
Expenditures on operational mining properties (14,838) (44,432) (21,027)
Expenditures on developmental properties (14,351) (13,066) (42,510)
Other (3,400) 2,148 (1,418)
----------- ----------- -----------
NET CASH USED IN
INVESTING ACTIVITIES (23,792) (131,297) (37,852)
</TABLE>
F-7
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS,
COEUR D'ALENE MINES CORPORATION AND SUBSIDIARIES
(continued)
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Retirement of obligations under capital leases (501) (2,041) (2,041)
Payment of cash dividends (10,532) (11,028) (2,339)
Proceeds from MARCS issuance 144,626
Proceeds from 71/4% debentures issuance 138,090
Proceeds from bank borrowings 19,186 24,000
Payment of debenture costs (1,346)
Retirement of long-term debt (49,513)
Retirement of other long-term liabilities (226) (260)
----------- ----------- -----------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 77,318 150,483 18,274
----------- ----------- -----------
INCREASE IN CASH AND CASH EQUIVALENTS 70,749 26,970 1,337
Cash and cash equivalents at beginning
of year:
Related to continuing operations 43,455 16,485 14,707
Related to discontinued operations 441
----------- ----------- -----------
43,455 16,485 15,148
----------- ----------- -----------
Cash and cash equivalents at end
of year related to continuing operations $ 114,204 $ 43,455 $ 16,485
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-8
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollar amounts in thousands, unless otherwise specified)
NOTE A--BUSINESS OF COEUR D'ALENE MINES CORPORATION
Coeur d'Alene Mines Corporation (Coeur or the Company) is principally
engaged through its subsidiaries in the exploration, development, operation
and/or ownership of silver and gold mining properties located in the United
States (Nevada, Idaho and Alaska), Australasia (New Zealand and Australia),
and South America (Chile).
NOTE B--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements
include the wholly-owned subsidiaries of the Company, the most significant of
which are Coeur Rochester Inc., Callahan Mining Corporation and its subsidiary
Coeur New Zealand, Inc., Coeur Alaska, Inc., CDE Fachinal Ltd. and Compania
Minera CDE El Bronce. The consolidated financial statements also include all
entities in which voting control of more than 50% is held by the Company.
Related minority interests are not material and are included in other assets
and/or liabilities. Intercompany balances and transactions have been
eliminated in consolidation. Investments in joint ventures, where the Company
can take its share of production in physical product and fund its
proportionate share of expenses, are accounted for on a proportionate
consolidation basis.
REVENUE RECOGNITION: Revenue is recognized when title to gold and silver
passes at the shipment or delivery point. The effects of forward sales are
reflected in revenue at the date the related precious metals are delivered or
the contracts expire.
CASH AND CASH EQUIVALENTS: The Company considers all highly liquid
investments with a maturity of three months or less when purchased to be cash
equivalents. As of December 31, 1997 and 1996, cash and cash equivalents
included $15.6 million and $15.9 million of cash, respectively. The balance of
the reported amounts consists principally of investment grade commercial
paper. Amounts reported represent cost which approximates fair value.
INVENTORIES: Inventories of ore on leach pads and in the milling process
are valued based on actual costs incurred to place such ores into production,
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.
Management evaluates this estimate on an ongoing basis. Adjustments to the
recovery rate are accounted for prospectively. All other inventories are
stated at the lower of cost or market, with cost being determined using the
first-in, first-out and weighted average cost methods. Dore' inventory
includes product at the mine site and product held by refineries.
PROPERTY, PLANT, AND EQUIPMENT: Property, plant, and equipment are
recorded at cost. Depreciation, using the straight-line method, is provided
over the estimated useful lives of the assets, which are 7 to 31 years for
buildings and improvements, 3 to 13 years for machinery and equipment and 3 to
F-9
<PAGE>
7 years for furniture and fixtures. Certain mining equipment is depreciated
using the units-of-production method based upon estimated total reserves.
Maintenance and repairs are charged to operations as incurred.
MINING PROPERTIES: Values for mining properties represent acquisition
costs and/or the fair value of consideration paid plus developmental costs.
Cost depletion has been recorded based on the units-of-production method based
on proven and probable reserves. Management evaluates the net carrying value
of all operations, property by property, on a regular basis to reach a
judgment concerning possible permanent impairment of value and the need for a
write-down in asset value to net realizable value. The Company utilizes the
methodology set forth pursuant to Financial Standards Board Statement No. 121
- - Accounting for the Impairment of Long Lived Assets to be Disposed Of ("FAS
121") to evaluate the recoverability of capitalized mineral property costs.
Since FAS 121 requires the use of forward-looking projections, the Company
must use estimates to generate a life-of-mine cash flow statement which may
forecast several years into the future. These estimates may be based on
projected mineable resources and mine life and/or reports of the Company's
engineers and geologists, projected operating and capital costs necessary to
process the estimated resources, each project's mine plan including the type,
quantity and ore grade expected to be mined, estimated metallurgical recovery
and all other factors which may have an impact upon a project's cash flow. In
addition, the Company is required to estimate the selling price of metal
produced which is based upon historical averages which are updated annually to
give effect to changing markets over time.
RECLAMATION COSTS: Post-closure reclamation and site restoration costs
are estimated based upon environmental regulatory requirements and are accrued
ratably over the life of the mine using the units-of-production method.
Current expenditures relating to ongoing environmental and reclamation
programs are expensed as incurred. Although the ultimate amount of the
obligations to be incurred is uncertain at December 31, 1997 and 1996, the
Company has recorded accrued reclamation costs of $7.8 million and $6.0
million, net of salvage values, as of December 31, 1997 and 1996,
respectively. These amounts are included as other long-term liabilities.
EXPLORATION AND DEVELOPMENT: The carrying value of exploration
properties acquired is capitalized at the fair market value of the
consideration paid. After it is determined that proven and probable reserves
exist on a particular property, the property is classified as a
development-stage property and all costs incident to the further development
of the property are capitalized. Prior to the establishment of proven and
probable reserves, all costs relative to exploration and evaluation of a
property are expensed as incurred. In order to classify a reserve as economic,
the Company must complete an evaluation of an ore body to determine that it
may be mined profitably. The determination is made based upon geologic and
engineering studies which analyze the nature of the ore body, the appropriate
mining and metallurgical process, estimates of operating costs, metallurgical
recoveries and forecast metal prices over the estimated mine life. Mine
development costs incurred to access reserves on producing mines are also
capitalized. Interest costs are capitalized on development properties until
the properties are placed into operation. In the event the Company determines
that the value of any capitalized property cannot be recovered by either the
mining of commercial reserves or by sale pursuant to prevailing market prices,
an evaluation of whether an impairment of value under the provisions of FAS
121 has occurred is undertaken. If such an impairment is determined to exist,
a writedown would be effected.
F-10
<PAGE>
SHORT-TERM INVESTMENTS: The Company invests in debt and equity
securities which are classified as available-for-sale, according to provisions
of Financial Accounting Standard No. 115 "Accounting for Certain Investments
in Debt and Equity Securities". Accordingly, securities are carried at fair
value, determined by quoted prices. Unrealized holding gains and losses on
such securities are excluded from earnings and are reported as a separate
component of shareholders' equity until realized.
FOREIGN CURRENCIES: Monetary assets and liabilities of the Company's
foreign operations are translated into U.S. dollars at year-end exchange rates
and revenue and expenses are translated at average exchange rates. The
Company's foreign subsidiaries have the U.S. dollar as their functional
currency, and therefore, translation gains and losses are reflected in income.
Non-monetary assets and liabilities are converted at historical rates.
Realized gains and losses from foreign currency transactions are reflected in
operations.
FOREIGN CURRENCY FORWARD EXCHANGE CONTRACTS: As part of its program to
manage foreign currency risk, the Company has entered into foreign currency
forward exchange contracts. Contracts related to firm commitments are
designated and effective as hedges. Gains and losses are deferred and
recognized in the same period as the related transactions.
FORWARD DELIVERY CONTRACTS: The Company sells refined gold and silver
from its mines to various precious metals refiners pursuant to forward
contracts or at spot prices prevailing at the time of sale. Revenue from
forward sales transactions is recognized as metal is delivered.
EARNINGS PER SHARE: In 1997, the Financial Accounting Standards Board
issued Statement No. 128, "Earnings per Share." Statement 128 replaced the
calculation of primary and fully diluted earnings per share with basic and
diluted earnings per share. Unlike primary earnings per share, basic earnings
per share excludes any dilutive effects of options, warrants and convertible
securities. Diluted earnings per share is very similar to the previously
reported fully diluted earnings per share. All earnings per share amounts for
all periods have been presented, and where appropriate, restated to conform to
the Statement 128 requirements.
USE OF ESTIMATES: The Company's management has made a number of
estimates and assumptions relating to the reporting of assets, liabilities,
and expenses to prepare these financial statements in conformity with
generally accepted accounting principles. Actual results could differ from
those estimates.
RECLASSIFICATION: Certain reclassifications of prior year balances have
been made to conform to current year presentation.
NOTE C--INVESTMENT IN MINING COMPANIES
EL BRONCE: In July 1994, the Company had an agreement pursuant to which
the Company acquired operating control, a 51% interest in operating profits,
and an option to acquire a 51% equity interest in the producing El Bronce
Mine. On September 4, 1996, the Company exercised its option to acquire that
51% equity interest and also purchased the remaining 49% of the shares of El
Bronce, bringing its total ownership interest to 100%. The terms of the
purchase included the payment of $10.5 million in cash, prepayment of the
F-11
<PAGE>
remainder of the option price in the approximate amount of $3.8 million and a
net smelter return royalty of 3% to be paid to the seller quarterly,
commencing on January 1, 1997. The acquisition has been accounted for as a
purchase with the excess of the purchase price over the net book value of the
mine ($4.9 million) being allocated to mining properties.
GASGOYNE: In May 1996, Coeur acquired approximately 35% of the
outstanding shares of Gasgoyne Gold Mines NL ("Gasgoyne"), an Australian gold
mining company, by issuing a total of 1,419,832 shares of the Company's Common
Stock and paying cash totaling approximately $15.4 million to Gasgoyne
shareholders. As a result of a selective reduction of capital effected by
Gasgoyne in February 1997 by purchasing its publicly held shares from the
shareholders other than Coeur and Sons of Gwalia, Coeur's ownership interest
increased to 36% of Gasgoyne's outstanding shares. In May 1997, the Company
acquired, for approximately US$14.6 million in cash, an additional 14%
interest in Gasgoyne, increasing its total ownership to 50%. The acquisition
has been accounted for as a purchase. Concurrent with the increase in
ownership in 1997, the Company entered into several agreements with the other
50% owner which entitled the Company to take a 50% share of Gasgoyne gold
production in kind and which requires the Company to pay 50% of Gasgoyne's
liabilities. The Company reports its share of Gasgoyne earnings pursuant to
the equity method.
The following table sets forth a condensed summary of the results of
operations of Gasgoyne for the twelve-month period ended December 31, 1997 and
1996.
<TABLE>
<CAPTION>
For the Twelve Months Ended
December 31, 1997 December 31, 1996
----------------- -----------------
<S> <C> <C>
Total Revenues $30,385 $35,098
Operating Profit $ 3,021 $13,191
Net Income $ 1,129 $12,087
</TABLE>
F-12
<PAGE>
The following pro forma information reflects the Company's results of
operations as if the acquisition of the additional 14% of Gasgoyne, increasing
its total ownership interest to 50%, that occurred in May 1997, had occurred
at the beginning of the periods presented.
<TABLE>
<CAPTION>
For the Twelve Months Ended
December 31, 1997 December 31, 1996
----------------- -----------------
<S> <C> <C>
Total income $ 17,994 $ 21,532
Net loss $(14,014) $(55,159)
Basic and diluted net
loss per share $ (.64) $ (2.57)
</TABLE>
NOTE D--WRITE-DOWN OF MINING PROPERTIES
On April 30, 1993, the Company acquired an 80% operating interest in the
Golden Cross Mine and at which mining activities were substantially
discontinued in December 1997. The mine is a gold and silver surface and
underground mining operation located near Waihi, New Zealand. During the
second quarter of 1996, the Company determined that certain adjustments were
required to properly reflect the estimated net realizable value of certain
mining properties in accordance with the standards set forth in FASB Statement
No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of" ("FAS No. 121"). The impetus for this
determination began in late July 1995 when physical evidence indicated that
the land adjacent to the tailings impoundment appeared to have sustained some
movement. An investigation to determine the significance of this movement was
undertaken promptly. By September, 1995, consultants advised Coeur Gold New
Zealand Ltd. that the adjacent land had moved and that it may have affected
the tailings dam. However, they advised that certain data would have to be
collected before they could confirm that assessment. That investigation
included the drilling of holes in the land with measurement devices inserted
in the holes (these devices are called "inclinometers"). Further additional
measurement devices called "piezometers" were inserted in still different
holes drilled in the land and the data collected from those and other sources
was sufficient to lead the consultants to conclude by February, 1996 that
significant remedial measures would have to be taken. Based on those
recommendations Coeur Gold estimated the cost of implementation would be
approximately $4 million. That estimate was made in February 1996 and
presented to the Company's Board of Directors at its regular March 1996
meeting.
Continuing evaluation after March 1996 revealed that the geographical
extent of the land movement was larger, wider, longer and more complex than
identified in the February 1996 estimate. By May 1996, as the planned remedial
measures were implemented, the Company determined that the measures, upon
which its previous cost estimates had been based, were not wholly effective.
Additional data was needed, which required more hole drillings and more work
on the ground. It was not until late May 1996 that the Golden Cross managers
and the Company engineers concluded that the cost of remediation would exceed
the initial February 1996 estimate. The estimate was revised to approximately
$11 million in July to account for the more extensive remediation efforts. In
addition, because of the significance of the ground movement, the Company
determined that (i) production could be expected to significantly decrease as
a result of the Company's inability to implement a previously planned mill
optimization because the tailings dam had not been stabilized, and,
consequently, it was believed the government would not likely consent to a
F-13
<PAGE>
raising of the tailings dam crest to obtain necessary tailings storage
capacity to accommodate the increased mill throughput, and (ii) capital and
operating costs could be expected to significantly increase due to the
production shortfall and ground movement remediation program costs.
As a result of the foregoing factors, there was an indication of
potential impairment requiring assessment under FAS No. 121. Consequently, the
Company recorded a charge in the second quarter of 1996 totaling $53 million
relating to its investment in the Golden Cross mine and in the nearby Waihi
East property. The charge included amounts necessary to increase the Company's
recorded remediation and reclamation liabilities at Golden Cross to
approximately $7 million, net of salvage values, as of December 31, 1996.
In addition, the Faride property in Chile, was written-down by $1.2
million due to management's decision not to exercise its final option payment
on the project.
The Company's 80% interest in the Golden Cross Mine joint venture,
accounted for by the proportionate consolidation method, is summarized as
follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1997 1996
---- ----
<S> <C> <C>
Sales of dore' $ 28,525 $ 26,293
Cost of mine operations (25,585) (28,069)
Insurance proceeds 8,000
Writedown of mining property (52,036)
Net income (loss) before
income taxes $ 10,940 $ (53,812)
========== ==========
</TABLE>
In 1997, $8 million of the reported income was related to the Golden
Cross insurance recovery not measurable or anticipated at the time of the
original writedown. The remaining $2.9 million is related to residual
mining activities which benefited from lower depletion.
<TABLE>
<S> <C> <C>
Assets $ 6,152 $ 2,408
Liabilities (37,933) (47,271)
---------- ----------
Shareholders' deficit $ (31,781) $ (44,863)
========== ==========
</TABLE>
NOTE E--DISCONTINUED OPERATIONS
FLEXAUST COMPANY: On May 2, 1995, the Company sold the assets of its flexible
hose and tubing division, The Flexaust Company, and shares of a related
subsidiary for approximately $10.0 million, of which approximately $4.0
million was paid at the time of closing and the balance was payable over the
next five years. The results of operations and the gain on sale of the
Flexaust manufacturing segment are presented as "Discontinued Operations." The
Company recorded a pre-tax gain on the sale of approximately $4.0 million
($2.4 million net of income taxes) during 1995. Flexaust generated revenues of
$3.9 million and net income from operations of $.056 million in the period
from January 1, 1995 to May 5, 1995 the latter of which is reflected as a
component of income from discontinued operations.
F-14
<PAGE>
NOTE F--SHORT-TERM INVESTMENTS AND MARKETABLE SECURITIES
The amortized cost of available-for-sale securities is adjusted for
premium and discount amortization. Such amortization is included in Other
Income. The following is a summary of available-for-sale securities as of
December 31, 1997 and 1996.
<TABLE>
<CAPTION>
Available-For-Sale Securities
----------------------------------------------------------------------------------
(in thousands) Gross Gross Estimated
Unrealized Unrealized Fair
1997 Cost Losses Gains Value
----------------- ------------- ---------------- ------------------ ----------------
<S> <C> <C> <C> <C>
U.S. Corporate $ 49,127 $ 3 $ $ 49,124
U.S. Government 47,570 273 47,843
--------- --------- --------- ---------
Total Debt Securities 96,697 3 273 96,967
Equity Securities 2,373 135 10 2,248
--------- --------- --------- ---------
$ 99,070 $ 138 $ 283 $ 99,215
========= ========= ========= =========
1996
-----------------
U.S. Corporate $ 83,236 $ 40 $ 2 $ 83,198
U.S. Government 39,658 25 97 39,730
--------- --------- --------- ---------
Total Debt 122,894 65 99 122,928
Securities
Equity Securities 1,672 389 3 1,286
--------- --------- --------- ---------
$ 124,566 $ 454 $ 102 $ 124,214
========= ========= ========= =========
</TABLE>
The gross realized gains on sales of available-for-sale securities
totaled $0 and $1.3 million during 1997 and 1996, respectively. The gross
realized losses totaled $1.6 million and $.05 million during 1997 and 1996,
respectively. The gross realized gains and losses are based on a carrying
value (cost net of discount or premium) of $206.5 million and $90.9 million of
short-term investments sold during 1997 and 1996, respectively. Short-term
investments mature at various dates through November 1998.
On January 26, 1996, for a total consideration of approximately US$10.7
million, the Company acquired 5.5 million shares and options to acquire an
additional 5.0 million shares of Orion Resources NL, an Australian gold mining
company (Orion). Prior to 1996, Coeur had acquired a total of 3.3 million
shares of Orion for a total cost of US$3.8 million. On March 27, 1996, the
Company exercised its option to acquire the additional 5.0 million shares of
Orion. As a result of these transactions, Coeur then held approximately 19.2%
of Orion's outstanding shares. On September 28, 1996, the Company sold its
holdings of Orion of 13.8 million shares for A$1.80 per share or A$24,894,000,
(US$ 19.6 million). As a result, the Company recorded a gain on the sale of
approximately US$1.3 million during 1996.
NOTE G--INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
December 31,
-----------------------
1997 1996
---- ----
<S> <C> <C>
In process and on leach pads $ 24,617 $ 19,948
Concentrate and dore' inventory 5,839 5,735
Supplies 5,471 6,309
-------- --------
$ 35,927 $ 31,992
======== ========
</TABLE>
F-15
<PAGE>
During the fourth quarter of 1997, based on detailed metallurgical
evaluations, the Company changed its estimates of the percentage of minerals
recovered through the leaching process at its Rochester Mine. The change
resulted in increased recovery rates from 55% for silver and 85% for gold to
59% for silver and 90% for gold. Management evaluates this estimate on an
ongoing basis. Adjustments to the recovery rates are accounted for
prospectively. The effects of the change during the fourth quarter decreased
the cost of mine operations by approximately $7 million.
NOTE H--PROPERTY, PLANT, AND EQUIPMENT
<TABLE>
Property, plant, and equipment consists of the following:
<CAPTION>
December 31,
-----------------------
1997 1996
---- ----
<S> <C> <C>
Land $ 1,814 $ 1,350
Buildings and improvements 53,740 60,851
Machinery and equipment 55,159 47,697
Capital leases of buildings
and equipment 9,095 9,095
-------- --------
$119,808 $118,993
======== ========
</TABLE>
<TABLE>
Assets subject to capital leases consist of the following:
<CAPTION>
December 31,
-----------------------
1997 1996
---- ----
<S> <C> <C>
Buildings $ 5,105 $ 5,105
Equipment 3,990 3,990
-------- --------
TOTAL BUILDINGS AND EQUIPMENT 9,095 9,095
Rochester operational mining
property 7,871 7,871
-------- --------
16,966 16,966
Less allowance for accumulated
amortization and depletion 10,648 9,863
-------- --------
NET ASSETS SUBJECT TO CAPITAL
LEASES $ 6,318 $ 7,103
======== ========
</TABLE>
Lease amortization is included in depreciation and depletion expense.
The Company has a lease agreement for the Rochester mineral processing
facilities through October 1998. Upon expiration of the lease, the Company is
entitled to purchase the facilities for the lesser of $5.9 million or fair
market value.
The Company has entered into various operating lease agreements which
expire over a period of five to seven years. Total rent expense charged to
operations under these agreements was $4.5 million, $4.6 million and $4.4
million for 1997, 1996, and 1995, respectively.
F-16
<PAGE>
Minimum lease payments under leases are as follows:
<TABLE>
<CAPTION>
Year Ending
December 31 Capital Operating
----------- --------- ---------
<S> <C> <C>
1998 $ 361 $ 4,648
1999 92 2,436
2000 1,212
2001 1,075
2002-2003 2,647
------- -------
TOTAL MINIMUM PAYMENTS DUE 453 $12,018
=======
Less amount representing
interest 31
-------
PRESENT VALUE OF NET
MINIMUM LEASE PAYMENTS 422
Less current maturities 243
-------
$ 179
=======
</TABLE>
NOTE I - MINING PROPERTIES
<TABLE>
<CAPTION>
Capitalized costs for mining properties December 31,
consist of the following: 1997 1996
---- ----
<S> <C> <C>
Operational mining properties:
Rochester Mine, less accumulated
depletion of $41,727
and $36,904 $ 34,585 $ 42,372
Silver Valley Resources, less accumulated
depletion of $1,080 and $224 16,620 13,207
El Bronce Mine less accumulated
depletion of $2,844 and $350 38,577 36,222
Fachinal Mine, less accumulated depletion
of $7,760 in 1997 42,811 41,452
Gasgoyne Gold Mines NL, less accumulated
depletion of $6,401 51,909
-------- --------
TOTAL OPERATIONAL MINING PROPERTIES 184,502 133,253
Developmental mining properties:
Kensington 122,457 108,100
Other 11,779 2,885
-------- --------
TOTAL DEVELOPMENTAL MINING PROPERTIES 134,236 110,985
-------- --------
TOTAL MINING PROPERTIES $318,738 $244,238
======== ========
</TABLE>
OPERATIONAL MINING PROPERTIES
THE ROCHESTER MINE: The Company owns and operates this silver and gold
surface mining operation. The Company has conducted operations at the
Rochester Mine since September 1986. The mine utilizes the heap-leaching
process to extract both silver and gold from ore mined using open pit methods.
Rochester is one of the largest primary silver mines in the United States and
is a significant gold producer as well. A prior owner of the property has
retained a royalty interest that varies up to 5% of the net smelter revenues
of the Rochester property, provided the market price of silver is at least
$18.07 per ounce.
SILVER VALLEY RESOURCES, INC.: On January 1, 1995, the Company entered
into an agreement with Asarco Incorporated and formed a new company named
Silver Valley Resources Corporation (Silver Valley). Both Coeur and Asarco
F-17
<PAGE>
contributed to Silver Valley their respective interests in the Galena and
Coeur Mines as well as other assets and waived certain cash flow entitlements
at the Galena Mine in return for shares of capital stock of Silver Valley. The
transaction resulted in no gain or loss to the Company. Coeur's 50% investment
is included on the balance sheet as operational mining properties. In June
1996, Silver Valley reopened the Coeur Mine and plans to continue mining
existing reserves through the second quarter of 1998. Exploration at the Coeur
Mine is ongoing in an effort to increase silver reserves and extend the mine's
life beyond 1998. Silver Valley also resumed production at the Galena Mine in
1997, which has ore reserves sufficient to sustain approximately 10 years of
operation. The two mines had previously been on standby basis.
FACHINAL MINE: The Fachinal Mine is a gold and silver open pit and
underground mine located in southern Chile which operated in pre-production
from October 1995 to December 31, 1996. During the fourth quarter of 1995 and
for the year ended December 31, 1996, operating costs were capitalized as
start up costs. Revenue generated during the pre-production period was
credited against deferred start up costs. During 1996, the Company incurred
costs and expenses of $6.0 million in excess of revenues. This amount has been
added to the operational mining property and will be amortized using the units
of production method based on total reserves. The property was classified as
an operating property for financial reporting purposes on January 1, 1997.
EL BRONCE MINE: The El Bronce Mine is a gold and silver underground mine
located in central Chile approximately 90 miles north of Santiago. On
September 4, 1996, the Company exercised its option to acquire 51%, and
purchased the remaining 49%, of the shares of Compania Minera CDE El Bronce,
resulting in an ownership interest of 100%.
DEVELOPMENTAL PROPERTIES
KENSINGTON: On July 7, 1995, the Company became the 100% owner and
operator of the Kensington property near Juneau, Alaska, by acquiring the 50%
interest held by its former joint venture partner. The interest was acquired
for $32.5 million plus a scaled net returns royalty on future gold production
after Coeur recoups the $32.5 million purchase price and its construction
expenditures incurred after July 7, 1995 in connection with placing the
property into commercial production. The royalty ranges from 1% at $400 gold
prices to a maximum of 2 1/2% at gold prices above $475, with a royalty to be
capped at 1 million ounces of production.
NOTE J--LONG-TERM DEBT
In October 1997, the Company completed an offering of $143,750,000
principal amount of 7.25% Convertible Subordinated Debentures due 2005 which
are convertible into shares of common stock on or before October 31, 2005,
unless previously redeemed, at a conversion price of $17.45 per share, subject
to adjustment in certain events. The Company is required to make semi-annual
interest payments. The debentures are redeemable at the option of the Company
on or after October 31, 2000, have no other funding requirements until
maturity, and mature October 31, 2005.
The $49.8 million principal amount of 6% Convertible Subordinated
Debentures Due 2002 are convertible into shares of Common Stock prior to
maturity, unless previously redeemed, at a conversion rate of approximately 38
shares of Common Stock for each one thousand dollars of principal (equivalent
F-18
<PAGE>
to a conversion price of $25.57 per share of Common Stock). The Company is
required to make an annual interest payment. The debentures are redeemable at
the option of the Company and mature June 10, 2002.
The $95 million principal amount of 6 3/8% Convertible Subordinated
Debentures Due 2004 are convertible into shares of Common Stock on or before
January 31, 2004, unless previously redeemed, at a conversion price of $25.77
per share. The Company is required to make semi-annual interest payments. The
debentures are redeemable at the option of the Company on or after January 31,
1997. The debentures, which have no other funding requirements until maturity,
mature January 31, 2004.
On October 31, 1997, the Company paid $24 million to retire the existing
loan balance with a bank syndicate lead by N.M. Rothschild & Sons Ltd., which
substituted a general corporate loan financing for the limited recourse
project financing. The agreement provides for a borrowing of up to $24.0
million. The interest rate on the facility is equal to LIBOR plus 1.5%. The
borrowing was repayable in sixteen equal quarterly installments commencing in
the third quarter of 1997.
On June 30, 1996, the Company secured a $50.0 million revolving line of
credit with Rothschild Australia Ltd., in connection with the acquisition of
the Company's investment in Gasgoyne Gold Mines NL. As of December 31, 1996,
borrowings amounted to $18.9 million at an annual interest rate equal to LIBOR
plus 1.5%. In late 1997, all outstanding amounts under the operating line were
repaid in full and the line discontinued.
The carrying amounts and fair values of long-term borrowings, as of
December 31, 1997 and 1996, consisted of the following:
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
-------------------------- ---------------------------
Carrying Fair Carrying Fair
Amount Value Value Value
--------- --------- -------- -------
<S> <C> <C> <C> <C> <C>
6% Convertible
Subordinated
Debentures
Due 2002 $ 49,840 $ 36,750 $ 49,840 $ 45,105
6.375% Convertible
Subordinated
Debentures
Due 2004 $ 95,000 $ 74,338 $100,000 $ 93,500
7.25% Convertible
Subordinated
Debentures
Due 2005 $143,750 $108,902
</TABLE>
Total interest accrued in 1997, 1996, and 1995 was $16.2 million, $13.1
million, and $17.1 million, respectively, of which $5.7 million, $9.5 million,
and $7.4 million, respectively, was capitalized as a cost of the mines under
development.
Interest paid was $13.7 million, $12.1 million, and $16.3 million in
1997, 1996, and 1995, respectively.
NOTE K--INCOME TAXES
The components of the provision (benefit) for income taxes in the
consolidated statements of operations are as follows:
F-19
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------
1997 1996 1995
--------- -------- --------
<S> <C> <C> <C>
From Continuing Operations:
Current $ (242) $ 203 $ 1,986
Deferred (1,387) (1,786)
-------- -------- --------
PROVISION (BENEFIT) FOR
INCOME TAX $ (242) $(1,184) $ 200
======== ======== ========
From Discontinued Operations:
Current
Deferred $ 1,608
--------
PROVISION FOR INCOME TAX $ 1,608
========
Total:
Current $ (242) $ 203 $ 1,986
Deferred (1,387) (178)
-------- -------- --------
PROVISION (BENEFIT) FOR
INCOME TAX $ (242) $(1,184) $ 1,808
======== ======== ========
</TABLE>
Deferred taxes arise due to temporary differences in deductions
for tax purposes and for financial statement accounting purposes.
The tax effect and sources of these differences are as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------
1997 1996 1995
--------- -------- --------
<S> <C> <C> <C>
Reserve for loss on
mine closure $ (1,175) $ (971) $ 100
Net mine exploration and
development costs 1,671 (9,299) (2,715)
Net lease payments 60 591 498
Regular tax expense (benefit)
on utilization of net
operating losses (6,142) (32,967) 3,673
Adjustments to net operating
loss and credit carryforwards (8,660) 1,046 (2,083)
Environmental costs (478) 87
Amortization of bond premium 689
Unrealized investment losses 3,087
Change in valuation
allowance 14,701 1,501 (2,420)
Change in deferred
state taxes (412)
Other (455) (810) (682)
--------- --------- ---------
Deferred income tax expense
(benefit) 0 (1,387) (178)
Less differences attributable
to discontinued operations 1,608
--------- --------- ---------
Deferred income tax expense
(benefit) from continuing
operations $ 0 $ (1,387) $ (1,786)
========= ========= =========
</TABLE>
F-20
<PAGE>
As of December 31, 1997 the significant components of the Company's net
deferred tax liability were as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1997 1996
---- ----
<S> <C> <C>
Deferred tax liabilities:
PP&E, net $ 8,527 $ 14,132
--------- ---------
Total deferred tax liabilities 8,527 14,132
Deferred tax assets:
Net operating loss carryforwards 90,319 80,977
AMT credit carryforwards 1,404 1,650
Business credit carryforwards 542 542
--------- ---------
Total deferred tax assets 92,265 83,169
Valuation allowance for deferred
tax assets (83,738) (69,037)
--------- ---------
Net deferred tax assets 8,527 14,132
--------- ---------
Net deferred tax liabilities $ -0- $ -0-
========= =========
</TABLE>
Changes in the valuation allowance relate primarily to losses which are
not currently recognized. The Company has reviewed its net deferred tax
assets, 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.
The Company intends to reinvest the unremitted earnings of its non-U.S.
subsidiaries and postpone their remittance indefinitely. Accordingly, no
provision for U.S. income taxes was required on such earnings during the
three-year period ended December 31, 1997. It is not practicable to estimate
the tax liabilities which would result upon such repatriation.
A reconciliation of the Company's effective income tax rate with the
federal statutory tax rate for the periods indicated is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------
1997 1996 1995
--------- -------- --------
<S> <C> <C> <C>
Tax benefit on continuing operations
computed at statutory rates (35.0%) (35.0%) (35.0%)
Tax effect of foreign affiliates'
statutory rates 17.6%
Percentage depletion (12.3%) (3.3%) (190.0%)
Dividend received deduction (15.4%)
Interest on foreign subsidiary debt 177.7%
Equity in earnings of unconsolidated
subsidiaries .6% 49.0%
State income tax provision (25.0%)
Change in valuation allowance 27.4% 38.1% 2.7%
Utilization of net operating losses (73.4%)
Federal tax assessments and
withholding .2% 116.7%
Other (net) (.2%) (1.9%) 11.6%
-------- -------- --------
EFFECTIVE TAX RATE ON CONTINUING
OPERATIONS (1.7%) (2.1%) 18.9%
======== ======== ========
</TABLE>
For tax purposes, as of December 31, 1997, the Company has operating
loss carryforwards as follows:
<TABLE>
<CAPTION>
U.S. New Zealand Australia Chile Total
-------- ----------- --------- -------- --------
<S> <C> <C> <C> <C> <C>
Regular losses $133,350 $ 85,582 $ 716 $100,838 $320,486
AMT losses 91,366 91,366
AMT credits 1,404 1,404
General business credits 542 542
</TABLE>
The operating loss carryforwards by year of expiration are as follows:
<TABLE>
<CAPTION>
Year of
Expiration Regular Tax Amt Tax
---------- ----------- ---------
<S> <C> <C>
2004 $ 8,262
2005 6,349 $ 4,888
2006 11,041 4,352
2007 10,702
2008 10,417 1,084
2009 8,994 9,632
2010
2011 72,146 70,549
2012 5,439 861
---------- ---------
Total $ 133,350 $ 91,366
========== =========
</TABLE>
New Zealand, Australian and Chilean laws provide for indefinite carryforwards
of net operating losses. Utilization of U.S. net operating losses may be
subject to limitations due to potential changes in ownership.
As of December 31, 1997, Callahan Mining Corporation, a subsidiary, has
net operating loss carryforwards of approximately $17.4 million and
alternative minimum tax loss carryforwards of approximately $9.2 million which
expire through 2006. The utilization of Callahan Mining Corporation's net
operating losses are subject to limitations.
NOTE L--SHAREHOLDERS' EQUITY AND STOCK PLANS
On March 8, 1996, the Company completed a public preferred stock
offering of $140.0 million of Mandatory Adjustable Redeemable Convertible
Securities (MARCS). The Company issued 6,588,235 shares of MARCS which were
offered at a public offering price of $21.25 per share. Each share of MARCS is
mandatorily convertible four years after issuance into 1.111 shares of Common
Stock of the Company, subject to adjustment in certain events, unless
converted earlier by the holder into Common Stock or redeemed for Common Stock
by the Company. The annual dividend payable on the MARCS is $1.488 per share,
payable quarterly. The dividends are deducted in computing net income
attributable to Common Shareholders. On April 8, 1996, the Company sold an
additional 489,598 shares of MARCS to the underwriters as a result of their
exercise of an overallotment option granted to them in connection with the
public offering. With the exercise of the overallotment option, the Company
sold a total of 7,077,833 shares of MARCS for a total offering price of $150.4
F-22
<PAGE>
million which resulted in net proceeds to the Company of $144.6 million.
In June 1989, the shareholders adopted a shareholder rights plan which
entitles each holder of the Company's Common Stock to one right. Each right
entitles the holder to purchase one one-hundredth of a share of newly
authorized junior preferred stock. The exercise price is $100, making the
price per full preferred share ten thousand dollars. The rights will not be
distributed and become exercisable unless and until ten days after a person
acquires 20% of the outstanding common shares or commences an offer that would
result in the ownership of 30% or more of the shares. Each right also carries
the right to receive upon exercise that number of Coeur common shares which
has a market value equal to two times the exercise price. Each preferred share
issued is entitled to receive 100 times the dividend declared per share of
Common Stock and 100 votes for each share of Common Stock and is entitled to
100 times the liquidation payment made per common share. The Board may elect
to redeem the rights prior to their exercisability at a price of one cent
($.01) per right. Any preferred shares issued are not redeemable. At December
31, 1997 and 1996, there were a total of 21,890,971 outstanding rights which
was equal to the number of outstanding shares of common stock.
The Company has an Annual Incentive Plan (the "Annual Plan") and a
Long-Term Incentive Plan (the "Long-Term Plan"). Under the Annual Plan in
1995, benefits were payable in cash and in shares of Common Stock. Under the
Annual Plan in 1997 and 1996, benefits are payable in cash only. For the year
ended December 31, 1995, the Company awarded 21,656 shares of Common Stock
under the Annual Plan, representing additional compensation of $.4 million
based on the fair market value of the shares at the date of the award.
Under the Long-Term Plan, benefits consist of (i) non-qualified and
incentive stock options that are exercisable at prices equal to the fair
market value of the shares on the date of grant and vest cumulatively at an
annual rate of 25% during the four-year period following the date of grant,
and (ii) performance units comprised of Common Stock and cash, the value of
which is determined four years after the award. The first award performance
units were granted in 1994. During 1997, options for 365,381 shares were
issued under the plan. As of December 31, 1997 and December 31, 1996,
nonqualified and incentive stock options to purchase 612,447 shares and
314,727 shares, respectively, were outstanding under the Long-Term and
Directors' Plans. The options are exercisable at prices ranging from $13.125
to $27.00 per share.
The Company has a Non-Employee Directors' Stock Option Plan under which
200,000 shares of Common Stock are authorized for issuance and which was
approved by the shareholders in May 1995. Under the Plan, options are granted
only in lieu of an optionee's foregone annual directors' fees. As of December
31, 1997, December 31, 1996 and December 31, 1995, a total of 16,600, 12,210
and 11,287 options, respectively, had been granted in lieu of $.1 million, $.1
million and $.1 million, respectively, of foregone directors' fees.
In 1996, the Company adopted Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation" which establishes
accounting and reporting standards for stock-based employee compensation
plans. This statement defines a fair value based method of accounting for
these equity instruments. The method measures compensation expense based on
the estimated fair value of the award and recognizes that cost over the
vesting period. The Company has adopted the disclosure-only provision of
F-23
<PAGE>
Statement No. 123 and therefore continues to account for stock options in
accordance with APB Opinion No. 25, "Accounting for Stock Issued to
Employees." Accordingly, because options are granted at fair market value, no
compensation expense has been recognized for options issued under the
Company's stock option plans. Had compensation cost been recognized based on
the fair value at the date of the grant for the options awarded under the
plans, pro-forma amounts of the Company's net income (loss) and net income
(loss) per share would have been as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------
1997 1996 1995
--------- -------- --------
<S> <C> <C> <C>
Net income (loss) as reported $(14,083) $(54,570) $ 1,154
Net income (loss) pro forma $(14,482) $(54,772) $ 1,067
Basic and diluted net income
(loss) per share as reported $ (.64) $ (2.54) $ .07
Basic and diluted net income
(loss) per share pro forma $ (.66) $ (2.55) $ .07
</TABLE>
The fair value of each option grant was estimated using the Black
Scholes option pricing model with the following weighted average assumptions:
risk free interest rate of 5.75% to 7.95%; expected option life of 4 years for
officers and directors; expected volatility of .385 to .399; and no expected
dividends. The weighted average value of options granted during the years
ended December 31, 1997, 1996 and 1995 were $5.67, $8.19 and $6.65,
respectively. The effect of applying Statement No. 123 for providing pro forma
disclosures for fiscal years 1997, 1996 and 1995 is not likely to be
representative of the effects in future years because options vest over a
4-year period and additional awards generally are made each year.
Total compensation expense charged to operations under the Plans was
$1.5 million, $.9 million, and $1.1 million for 1997, 1996, and 1995,
respectively. A summary of the Company's stock option activity and related
information for the years ended December 31 follows:
<TABLE>
<CAPTION>
Weighted Average
Shares Exercise Price
----------- --------------
<S> <C> <C>
Stock options outstanding
at 1/1/96 252,401 $ 17.64
Issued 62,326 20.88
-------- --------
Stock options outstanding
at 12/31/96 314,727 18.28
Issued 365,381 14.52
Canceled (67,661) 18.22
-------- --------
Stock options outstanding
at 12/31/97 612,447 $ 16.05
======== ========
</TABLE>
Stock options exercisable at December 31, 1997 and 1996 were 236,761 and
257,493, respectively.
F-24
<PAGE>
The following table summarizes information for options currently outstanding
at December 31, 1997:
<TABLE>
Options Outstanding Options Exercisable
---------------------------------------------- -----------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Prices Outstanding Life (Yrs.) Price Exercisable Price
----------------- ----------- ----------------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C>
$13.125 to $14.99 254,627 9.1 $13.16 13,500 $ 13.75
$15.000 to $17.99 200,159 7.3 $16.53 114,064 $ 15.95
$18.000 to $27.00 157,661 6.2 $20.09 109,197 $ 20.35
------- ---------
612,447 7.8 $16.05 236,761 $ 17.86
======= =========
</TABLE>
As of December 31, 1997 and 1996, 243,244 shares and 447,696 shares,
respectively, were available for future grants under the Plans and 13,873,438
shares of Common Stock were reserved for potential conversion of Convertible
Subordinated Debentures.
NOTE M--EMPLOYEE BENEFIT PLANS
The Company provides a noncontributory defined contribution retirement
plan for all eligible U.S. employees. Total plan expense charged to operations
was $.8 million, $.6 million, and $.5 million for 1997, 1996, and 1995,
respectively, which is based on a percentage of salary of qualified employees.
Effective January 1, 1995, the Company adopted a savings plan (which
qualifies under Section 401(k) of the U.S. Internal Revenue code) covering all
full-time U.S. employees. Under the plan, employees may elect to contribute up
to 10% of their cash compensation, subject to ERISA limitations. The Company
is required to make matching cash contributions equal to 50% of the employee's
contribution or up to 3% of the employee's compensation. Employees have the
option of investing in five different types of investment funds. Total plan
expenses charged to operations were $.4 million, $.4 million and $.3 million
in 1997, 1996 and 1995, respectively.
NOTE N--FINANCIAL INSTRUMENTS
OFF-BALANCE SHEET RISKS
The Company enters into forward foreign exchange contracts denominated
in foreign currencies to hedge certain firm commitments. The purpose of the
Company's foreign exchange hedging program is to protect the Company from risk
that the eventual dollar cash flows resulting from the firm commitments will
be adversely affected by changes in exchange rates. At December 31, 1997,
1996, and 1995, the Company had forward foreign exchange contracts of $3.0
million, $15.8 million, and $41.0 million, respectively.
The Company enters into forward metal sales contracts to manage a
portion of its cash flows against fluctuating gold and silver prices. As of
December 31, 1997, the Company had sold 175,000 ounces of gold for delivery on
various dates through 2003 at an average price of $387.86. For metal delivery
contracts, the realized price pursuant to the contract is recognized when
physical gold or silver is delivered in satisfaction of the contract. The
Company realized gains of $5.3 million and $4.4 million arising from the sale
F-25
<PAGE>
of silver and gold purchased on the open market which was then delivered
pursuant to fixed-price forward contracts during 1997 and 1995, respectively.
Further discussions of other financial instruments held by the Company
are included in Note F and Note J.
The table below summarizes, by contract, the contractual amounts of the
Company's forward exchange and forward metals contracts at December 31, 1997,
1996 and 1995.
<TABLE>
<CAPTION>
1997 1996 1995
-------------------------- ------------------------- -------------------------
Forward Unrealized Forward Unrealized Forward Unrealized
Contracts Gain (Loss) Contracts Gain (Loss) Contracts Gain (Loss)
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Currency:
New Zealand $ 3,024 $ (7) $ 15,845 $ (10) $ 23,269 $ (27)
Chilean $ 17,699 $ (1,993)
Forward Metal Sales $ 67,875 $ 7,404 $ 61,823 $ 3,702 $ 29,535 $ 1,528
</TABLE>
Gains and losses related to contracts associated with firm commitments
are deferred and will be recognized as the related commitments mature. For the
years ended December 31, 1997, 1996, and 1995, the Company realized gains
(losses) from its foreign exchange hedging programs of $(.9) million, $1.4
million and $1.9 million, respectively.
The credit risk exposure related to all hedging activities is limited to
the unrealized gains on outstanding contracts based on current market prices.
To reduce counter-party credit exposure, the Company deals only with a group
of large credit-worthy financial institutions, and limits credit exposure to
each. In addition, to allow for situations where positions may need to be
reversed, the Company deals only in markets that it considers highly liquid.
The Company does not anticipate nonperformance by any of these counter
parties.
NOTE O--LITIGATION
On March 22, 1996, an action was filed in the United States District for
the District of Idaho (Civ. No. 96-0122-N-EJL) by the United States against
various defendants, including Coeur, asserting claims under CERCLA and the
Clean Water Act for alleged damages to federal natural resources in the Coeur
d'Alene River Basin of Northern Idaho as a result of alleged releases of
hazardous substances from mining activities conducted in the area since the
late 1800s. 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 and on March 27, 1997, filed a motion for summary judgment
seeking dismissal of the Company from the action. In September 1997, the
Company filed a motion for summary judgement raising the statute of
limitations. Both motions are pending decision. In March 1998, the EPA
F-26
<PAGE>
announced its intent to perform a remedial investigation/feasibility study
(RI/FS) at all or parts of the Basin, and thereby, apparently focus upon
response costs rather than natural resource damages. At this stage of the
proceeding, it is not possible to predict the ultimate outcome thereof.
On July 15, 1996, Coeur 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 Coeur 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.
Coeur's lawsuit seeks recession and an unspecified amount of damages arising
from alleged misrepresentations and failure to 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 Coeur in its press release announcing the write-off of the
Golden Cross Mine and seeking an unspecified amount of damages. Coeur also
filed an action in federal court for the District of Idaho on July 15, 1996
against Cyprus which makes the same allegations as the Idaho State complaint,
but including violations of federal securities laws. The Company voluntarily
dismissed that action in January 1998.
On July 2, 1997, a suit was filed by a shareholder 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 purchasers 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. The Company
believes the allegations are without merit and intends to vigorously defend
against them. On October 27, 1997, the Company, its auditors and the
individual defendants filed with the Court motions to dismiss the amended
complaint on the ground that it fails to state a valid claim. The motions were
argued on January 8, 1998 and are pending decision by the court. No assurances
can be given at this early stage of the action as to its ultimate outcome.
The Company is also subject to other pending or threatened legal actions
that arise in the normal course of business. In the opinion of management,
liabilities arising from these claims, if any, will not have a material effect
on the financial position of the Company. Depending on the timing of any
future liabilities relating to these matters, the amount of which cannot now
be reasonably estimated, such amounts could possibly have a material impact on
the results of operations for a given period.
F-27
<PAGE>
NOTE P--GEOGRAPHIC SEGMENT INFORMATION
The following table sets forth certain financial information relating to
international and domestic operations.
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------
1997 1996 1995
--------- -------- --------
<S> <C> <C> <C>
REVENUES AND OTHER INCOME:
United States $ 83,125 $ 75,815 $ 65,903
Australasia 44,923 27,285 32,967
South America 31,934 2,790 (127)
---------- ---------- ----------
Consolidated revenues $ 159,982 $ 105,890 $ 98,743
========== ========== ==========
NET INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES:
United States $ 6,684 $ 6,167 $ (3,558)
Australasia 4,882 (55,491) 5,773
South American Operations (20,705) 531 311
South American Exploration (5,186) (6,961) (3,584)
---------- ---------- ----------
Consolidated net loss from
continuing operations before
income taxes $ (14,325) $ (55,754) $ (1,058)
========== ========== ==========
IDENTIFIABLE ASSETS:
United States $ 437,582 $ 379,635 $ 286,318
Australasia 85,223 51,848 47,114
South America 138,617 148,847 112,214
---------- ---------- ----------
Consolidated assets $ 661,422 $ 580,330 $ 445,646
========== ========== ==========
</TABLE>
F-28
<PAGE>
NOTE Q--SUMMARY OF QUARTERLY FINANCIAL DATA
The following table sets forth a summary of the quarterly results of
operations for the years ended December 31, 1997 and 1996:
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
(000's-Except Per Share Data)
<S> <C> <C> <C> <C>
1997
Net Sales $ 24,670 $ 33,659 $ 38,628 $ 42,280
Gross profit (loss) $ (2,492) $ (1,849) $ (2,056) $ 3,561(d)
Net loss $ (1,721) $ (275)(c) $ (6,268) $ (5,819)
Net loss attributable to
common shareholders $ (4,353) $ (2,908)(c) $ (8,903) $ (8,450)
Basic and diluted net loss
per share (b) $ (.08) $ (.01) $ (.29) $ (.27)
Basic and diluted net loss
per share attributable
to common shareholders (b) $ (.20) $ (.13) $ (.41) $ (.39)
1996
Net Sales $ 22,609 $ 18,752 $ 21,559 $ 29,811
Gross Margin $ 3,013 $ 206 $ 3,079 $ 3,150
Net income (loss) $ 133 $(56,881)(a) $ 1,878 $ 300
Net loss attributable
to common shareholders $ (365) $(59,514) $ (755) $ (2,333)
Basic and diluted net income
(loss) per share (b) $ .01 $ (2.63) $ .09 $ .01
Basic and diluted net loss
per share attributable to
common shareholders (b) $ (.02) $ (2.75) $ (.03) $ (.11)
<FN>
(a) Includes writedown of mining properties of approximately $54.0 million.
(b) The 1996 and first three quarters of 1997 earnings per share amounts
have been restated to comply with Statement of Financial Accounting
Standard No. 128, "Earnings Per Share."
(c) Includes the receipt of $8 million of insurance proceeds for business
interruption and property damage at the Golden Cross Mine.
(d) Includes the effects of the change in recovery rates at the Rochester
Mine, whereby costs of mine operations decreased by approximately $7
million.
</FN>
</TABLE>
F-29
