<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
FORM 10-K/A No. 2
Pursuant to Section 13 or 15 (d) of the
Securities and Exchange Act of 1934
Amendment No. 2 to Annual Report on Form 10-K
for the Year Ended December 31, 1996
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, 1996, 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 17, 1998
<PAGE> 2
ANNUAL REPORT ON FORM 10-K
Item 8, Item 14(a), and Item 14(d)
FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
YEAR ENDED DECEMBER 31, 1996
COEUR D'ALENE MINES CORPORATION
COEUR D'ALENE, IDAHO
<PAGE> 3
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, 1996 and 1995, 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,
1996. 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, 1996 and 1995, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles.
Seattle, Washington ERNST & YOUNG LLP
February 5, 1997
except for Note C, as to which the date is
February 18, 1998,
and except for Notes D and L, as to which the date is
March 16, 1998
F-1
<PAGE> 4
CONSOLIDATED BALANCE SHEETS
COEUR D'ALENE MINES CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
December 31,
1996 1995
--------- ---------
ASSETS (In Thousands)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 43,455 $ 16,485
Funds held in escrow 2,271
Short-term investments 124,172 63,077
Receivables 11,573 13,809
Inventories 31,992 30,981
-------- ---------
TOTAL CURRENT ASSETS 211,192 126,623
PROPERTY, PLANT, AND EQUIPMENT
Property, plant and equipment 118,993 118,083
Less accumulated depreciation 50,743 34,152
--------- ---------
68,250 83,931
MINING PROPERTIES
Operational mining properties 171,517 150,656
Less accumulated depletion 38,264 38,529
--------- ---------
133,253 112,127
Developmental properties 110,985 108,820
--------- ---------
244,238 220,947
OTHER ASSETS
Investment in unconsolidated affiliate 48,231
Notes receivable 4,000 5,000
Debt issuance costs, net of accumulated
amortization 4,081 4,702
Marketable equity securities and other 338 4,443
---------- ----------
56,650 14,145
---------- ----------
$580,330 $ 445,646
========== ==========
</TABLE>
F-2
<PAGE> 5
CONSOLIDATED BALANCE SHEETS
COEUR D'ALENE MINES CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
December 31,
1996 1995
---------- ---------
(In Thousands)
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 4,327 $ 5,743
Accrued liabilities 4,976 3,525
Accrued interest payable 4,968 4,526
Accrued salaries and wages 5,242 5,039
Bank loans 8,021
Current portion of remediation costs 3,500
Current portion of obligations under
capital leases 532 2,193
--------- ---------
TOTAL CURRENT LIABILITIES 31,566 21,026
LONG-TERM LIABILITIES
6% subordinated convertible debentures 49,840 50,000
6 3/8% subordinated convertible debentures 100,000 100,000
Long-term borrowings 39,900 24,000
Obligations under capital leases 213
Other long-term liabilities 12,613 9,386
Deferred income taxes 1,402
--------- ---------
TOTAL LONG-TERM LIABILITIES 202,566 184,788
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Mandatory Adjustable Redeemable Convertible
Securities (MARCS), par value $1.00 per
share,(a class of preferred stock) -
authorized 10,000,000 shares, 7,077,833
issued and outstanding 7,078
Common Stock, par value $1.00 per share-
authorized 60,000,000 shares, issued 22,950,182
and 21,524,093 shares (including 1,059,211
shares held in treasury) 22,950 21,524
Capital surplus 400,187 247,100
Accumulated deficit (70,459) (15,889)
Unrealized gains (losses) on short-term
investments (352) 361
Repurchased and nonvested shares (13,206) (13,264)
--------- ---------
346,198 239,832
--------- ---------
$580,330 $445,646
========= =========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 6
CONSOLIDATED STATEMENTS OF OPERATIONS
COEUR D'ALENE MINES CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994
--------- --------- --------
(In Thousands Except Per Share Data)
<S> <C> <C> <C>
INCOME
Sale of concentrates and dore' $ 92,731 $ 89,239 $ 79,606
Less cost of mine operations 83,283 72,210 67,802
--------- --------- ---------
GROSS PROFITS 9,448 17,029 11,804
OTHER INCOME--interest, dividends,
and other 13,159 9,504 12,587
--------- --------- ---------
TOTAL INCOME 22,607 26,533 24,391
EXPENSES
Administration 3,716 3,677 3,825
Accounting and legal 1,753 1,626 2,473
General corporate 7,147 6,207 6,258
Mining exploration 7,695 4,854 3,878
Idle facilities 1,481 1,559
Interest 3,635 9,746 11,399
Writedown of mining properties 54,415
--------- --------- ---------
TOTAL EXPENSES 78,361 27,591 29,392
--------- --------- ---------
NET LOSS FROM CONTINUING
OPERATIONS BEFORE INCOME TAXES (55,754) (1,058) (5,001)
Provision (benefit) for income taxes (1,184) 200 (265)
--------- --------- ---------
NET LOSS FROM CONTINUING
OPERATIONS (54,570) (1,258) (4,736)
Income from discontinued operations
(net of taxes) 2,412 793
--------- --------- ---------
NET INCOME (LOSS) $(54,570) $ 1,154 $ (3,943)
========= ========= =========
NET INCOME(LOSS) ATTRIBUTABLE TO
COMMON SHAREHOLDERS $(62,967) $ 1,154 $ (3,943)
========= ========= =========
EARNINGS PER SHARE DATA
Weighted average number of shares
of Common Stock and equivalents
used in calculation (in thousands) 21,469 15,888 15,388
========= ========= =========
Net loss from continuing operations $ (2.54) $ (.08) $ (.31)
Income from discontinued operations .15 .05
--------- --------- ---------
Net income (loss) per share $ (2.54) $ .07 $ (.26)
========= ========= =========
Net income (loss) attributable to
Common Shareholders:
Net loss from continuing operations $ (2.93) $ (.08) $ (.31)
Income from discontinued operations .15 .05
--------- --------- ---------
Net income (loss) per share $ (2.93) $ .07 $ (.26)
========= ========= =========
CASH DIVIDENDS PER COMMON SHARE $ .15 $ .15 $ .15
========= ========= =========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 7
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For Years Ended December 31, 1996, 1995, and 1994
(In Thousands)
<TABLE>
<CAPTION>
Preferred Stock
(MARCS) Common Stock
---------------------- -----------------------
Par Par Capital Accumulated
Shares Value Shares Value Surplus Deficit
-------- -------- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1994 16,394 $16,394 $181,038 $(13,100)
Net Loss (3,943)
Cash Dividends (2,303)
Issuance of Shares Under
Stock Compensation Plan
(net) 19 19 366
Unrealized Losses on
Marketable Securities
Other 220 220 3,780
-------- -------- -------- --------- --------- ---------
Balance at December 31, 1994 16,633 16,633 182,881 (17,043)
Net Income 1,154
Cash Dividends (2,339)
Issuance of Shares Under
Stock Compensation Plan
(net) 24 24 384
Unrealized Gains on
Marketable Securities
Conversion of 7% Debentures 4,867 4,867 66,174
-------- -------- -------- --------- --------- ---------
Balance at December 31, 1995 21,524 21,524 247,100 (15,889)
Net Loss (54,570)
Issuance of MARCS 7,078 7,078 137,548
Cash Dividends (11,028)
Issuance of Shares Under
Stock Compensation Plan
(net)
Shares Issued on
Acquisition of 1,420 1,420 26,467
Unconsolidated
Affiliate
Unrealized Loss on
Marketable Securities
Conversion of 6% Debentures 6 6 150
Other (50)
-------- -------- -------- --------- --------- ---------
7,078 $ 7,078 22,950 $22,950 $400,187 $(70,459)
======== ======== ======== ========= ========= =========
<CAPTION>
Unrealized
Gains Repurchased and
(Losses) on Nonvested Shares
Short-Term ----------------------
Investments Shares Amount Total
----------- -------- --------- ---------
<S> <C> <C> <C> <C>
Balance at January 1, 1994 (1,058) $(13,483) $170,849
Net Loss (3,943)
Cash Dividends (2,303)
Issuance of Shares Under
Stock Compensation Plan
(net) 125 510
Unrealized Losses on
Marketable Securities $(8,820) (8,820)
Other (1) 4,000
--------- -------- --------- ---------
Balance at December 31, 1994 (8,820) (1,059) (13,358) 160,293
Net Income 1,154
Cash Dividends (2,339)
Issuance of Shares Under
Stock Compensation Plan
(net) 94 502
Unrealized Gains on
Marketable Securities 9,181 9,181
Conversion of 7% Debentures 71,041
--------- -------- --------- ---------
Balance at December 31, 1995 361 (1,059) (13,264) 239,832
Net Loss (54,570)
Issuance of MARCS 144,626
Cash Dividends (11,028)
Issuance of Shares Under
Stock Compensation Plan
(net) 58 58
Shares Issued on
Acquisition of 27,887
Unconsolidated
Affiliate
Unrealized Loss on
Marketable Securities (713) (713)
Conversion of 6% Debentures 156
Other (50)
--------- -------- --------- ---------
$ (352) (1,059) $(13,206) $346,198
========= ======== ========= =========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 8
CONSOLIDATED STATEMENTS OF CASH FLOWS
COEUR D'ALENE MINES CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994
--------- --------- --------
(In Thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss from continuing
operations $(54,570) $ (1,258) $ (4,736)
Add (less) noncash items:
Depreciation, depletion, and
amortization 13,381 16,893 17,537
Deferred income taxes (1,402) (1,786) (629)
(Gain) loss on disposition of property,
plant and equipment (985) 458 132
(Gain) loss on foreign currency
transactions 155 597 (784)
(Gain) loss on disposition of
marketable securities (1,262) 885 (1,542)
Writedown of mining property 54,415
Undistributed earnings of investment in
unconsolidated subsidiary (1,905)
Changes in Operating Assets and Liabilities:
Receivables 3,493 (1,239) (2,932)
Inventories 1,824 3,234 (953)
Accounts payable and
accrued liabilities (5,360) 2,528 759
--------- --------- --------
Net cash provided by continuing operations 7,784 20,312 6,852
Income from discontinued operations 2,412 793
Add (less) noncash items:
Depreciation, depletion and amortization 85 289
Gain (loss) on disposition of
discontinued operations (3,964) 2
Deferred income taxes 1,608 529
Change in operating assets and liabilities
Receivables 601 (267)
Inventories (30) (323)
Accounts payable and accrued liabilities (109) 23
--------- --------- --------
Net cash provided by discontinued
operations 603 1,046
--------- --------- --------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 7,784 20,915 7,898
CASH FLOWS USED IN INVESTING ACTIVITIES
Purchases of short-term investments (148,952) (2,424) (107,901)
Investment in unconsolidated affiliate (19,301)
Proceeds from sales of short-term investments
and marketable securities 92,167 70,112 43,349
Purchases of property, plant and
equipment (4,799) (44,895) (9,248)
Proceeds from sale of assets 2,372 1,177 488
Proceeds from sale of discontinued
operations 2,566 3,133
Expenditures on operational mining
properties (44,432) (21,027) (12,737)
Expenditures on developmental
properties (13,066) (42,510) (12,760)
Other 2,148 (1,418) 70
--------- --------- --------
NET CASH USED IN
INVESTING ACTIVITIES (131,297) (37,852) (98,739)
</TABLE>
F-6
<PAGE> 9
CONSOLIDATED STATEMENTS OF CASH FLOWS
COEUR D'ALENE MINES CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994
--------- ---------- ---------
(continued) (In Thousands)
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Retirement of obligations under
capital leases (2,041) (2,041) (1,900)
Payment of cash dividends (11,028) (2,339) (2,303)
Proceeds from MARCS issuance 144,626
Proceeds from bond issuance 95,514
Proceeds from bank borrowings 19,186 24,000
Payment of bond conversion costs (1,346)
Retirement of other long-term liabilities (260)
--------- ---------- ---------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 150,483 18,274 91,311
--------- ---------- ---------
INCREASE IN CASH AND CASH EQUIVALENTS 26,970 1,337 470
Cash and cash equivalents at beginning
of year:
Related to continuing operations 16,485 14,707 14,389
Related to discontinued operations 441 289
--------- ---------- ---------
16,485 15,148 14,678
--------- ---------- ---------
Cash and cash equivalents at end
of year:
Related to continuing operations 43,455 16,485 14,707
Related to discontinued operations 441
--------- ---------- ---------
$ 43,455 $ 16,485 $ 15,148
========= ========== =========
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE> 10
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.
Intercompany balances and transactions have been eliminated in consolidation.
Investments in joint ventures are accounted for on a proportionate
consolidation basis, the most significant of which are the Golden Cross Mine
(80%) and Silver Valley Resources Corporation(50%).
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.
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 and 3 to 13 years for machinery and equipment. Assets
recorded under capital leases are depreciated over the shorter of the lease
terms or estimated useful lives of the assets. Certain mining equipment is
depreciated using the units-of-production method based upon
F-8
<PAGE> 11
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 market value of Common Stock issued for properties 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.
These reviews require judgment and the use of estimates, and are affected by
the risks and uncertainties inherent in normal operations. 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
("FAS121") 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 include an
estimate of projected mineable resources and mine life 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, 1996 and 1995, the Company has
recorded accrued liabilities of $6.0 million and $4.3 million as of December
31, 1996 and 1995, 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. This 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
write-down would be effected.
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, 1996 and 1995, cash and cash equivalents
included $15.9 million and $15.3 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.
Short-term Investments: The Company invests in debt and equity
securities which are classified as available for sale, according to provisions
of FAS 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.
F-9
<PAGE> 12
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.
Nonmonetary 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: Earnings per share is calculated based on the
weighted average number of common stock and common stock equivalents
outstanding, unless the addition of common stock equivalents would be
anti-dilutive.
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.
New Accounting Standard: In 1996, the Company adopted the
disclosure-only requirement of Financial Accounting Standards Board (FASB)
Statement No. 123 "Accounting for Stock-Based Compensation." Accordingly, no
compensation expense has been recognized for options issued under the plan.
The adoption of this disclosure standard has no material effect on the
disclosed results of the Company.
Reclassification: Certain reclassifications of prior year balances
have been made to conform to current year classifications.
NOTE C--ACQUISITION OF A MINING COMPANY AND UNCONSOLIDATED AFFILIATE
El Bronce: In July 1994, the Company had made 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 remainder of the option price in the
F-10
<PAGE> 13
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 a publicly listed Australian gold producer, Gasgoyne Gold
Mines NL ("Gasgoyne"), by issuing a total of 1,419,832 shares of the Company's
Common Stock and paying a total of approximately $15.4 million to Gasgoyne
shareholders. Coeur cash payments to Gasgoyne shareholders were financed by a
$20.0 million loan facility with Rothschild Australia Ltd., which provided for
borrowings at an annual interest rate equal to LIBOR plus 1.5%. Borrowings
under the agreement were $18.9 million as of December 31, 1996. During the
second quarter ended June 30, 1996, Coeur began reporting its share of
Gasgoyne's net results of operations pursuant to the equity method of
accounting for investments. Such amounts are reflected as a component of
interest and other income.
The following table sets forth a condensed summary of the results of
operations of Gasgoyne for the twelve-month period ended December 31, 1996.
Coeur's proportionate share of Gasgoyne net income is included from May to
December 1996 under the caption "Other Income" in the Company's consolidated
statement of operations.
<TABLE>
<CAPTION>
December 31, 1996
-----------------
<S> <C>
Total Revenues $35,098
Operating Profit $13,191
Net Income $12,087
</TABLE>
The following pro forma information reflects the Company's results of
operations as if the Gasgoyne transaction, that occurred in May 1996, had
occurred at the beginning of the periods presented.
<TABLE>
<CAPTION>
For the Twelve Months Ended
December 31, 1996 December 31, 1995
----------------- -----------------
<S> <C> <C>
Total Income $ 22,878 $ 25,985
Net Loss $(54,447) $ (189)
Net Loss per share $ (2.54) $ (.01)
</TABLE>
F-11
<PAGE> 14
NOTE D--WRITE-DOWN OF MINING PROPERTIES
During the second quarter of 1996, the Company determined that certain
adjustments were required to properly reflect the estimated net realizable
values of certain mining properties in accordance with 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 drilling 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
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 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.
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 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-12
<PAGE> 15
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, 1996 and 1995.
<TABLE>
<CAPTION>
Available-For-Sale Securities
----------------------------------------------------------------------------------
(in thousands) Gross Gross Estimated
Unrealized Unrealized Fair
1996 Cost Losses Gains Value
----------------- ------------- ---------------- ------------------ ----------------
<S> <C> <C> <C> <C>
U.S. Corporate $ 83,236 $ 40 $ 2 $ 83,198
U.S. Government 39,658 25 97 39,730
------------- ------------ ----------- ------------
Total Debt Securities 122,894 65 99 122,928
Equity Securities 1,672 389 3 1,286
------------- ------------ ----------- ------------
$124,566 $ 454 $ 102 $124,214
1995
-----------------
U.S. Corporate $ 27,369 $ 6 $ 109 $ 27,472
U.S. Government 30,239 87 30,152
------------- ------------ ----------- ------------
Total Debt Securities 57,608 93 109 57,624
Equity Securities 9,498 239 584 9,843
------------- ------------ ----------- ------------
$ 67,106 $332 $693 $ 67,467
============= ============ =========== ============
</TABLE>
The gross realized gains on sales of available-for-sale securities
totaled $1.3 million and $.3 million during 1996 and 1995, respectively. The
gross realized losses totaled $.05 million and $1.2 million during 1996 and
1995, respectively. The gross realized gains and losses are based on a
carrying value (cost net of discount or premium) of $90.9 million and $71.3
million of short-term investments sold during 1996 and 1995, respectively.
Short-term investments mature at various dates through December 1997.
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
F-13
<PAGE> 16
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,
1996 1995
---------- ---------
<S> <C> <C>
In process and on leach pads $ 19,948 $ 25,728
Concentrate inventory 4,996
Dore' inventory 739 2,052
Supplies 6,309 3,201
---------- ---------
$ 31,992 $ 30,981
========== =========
</TABLE>
NOTE H--PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment consists of the following:
<TABLE>
<CAPTION>
December 31,
1996 1995
--------- --------
<S> <C> <C>
Land $ 1,350 $ 2,509
Buildings and improvements 60,851 63,444
Machinery and equipment 47,697 43,780
Capital leases of buildings
and equipment 9,095 8,350
--------- ---------
$118,993 $118,083
========= =========
</TABLE>
Assets subject to capital leases consist of the following:
<TABLE>
<CAPTION>
December 31,
1996 1995
-------- --------
<S> <C> <C>
Buildings $ 5,105 $ 5,105
Equipment 3,990 3,245
-------- --------
TOTAL BUILDINGS AND EQUIPMENT 9,095 8,350
Rochester operational mining
property 7,871 7,871
-------- --------
16,966 16,221
Less allowance for accumulated
amortization and depletion 9,863 9,255
-------- --------
NET ASSETS SUBJECT TO CAPITAL
LEASES $ 7,103 $ 6,966
======== ========
</TABLE>
Lease amortization is included in depreciation and depletion expense.
F-14
<PAGE> 17
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. The total rent expense charged to
operations under these agreements was $4.6 million, $4.4 million and $3.7
million for 1996, 1995, and 1994, respectively.
Minimum lease payments under leases are as follows:
<TABLE>
<CAPTION>
Year Ending
December 31 Capital Operating
----------- --------- ---------
<S> <C> <C> <C>
1997 602 5,818
1998 228 3,820
1999 1,351
2000 343
2001-2003 463
-------- -------
TOTAL MINIMUM PAYMENTS DUE 830 $11,795
=======
Less amount representing
interest 85
--------
PRESENT VALUE OF NET
MINIMUM LEASE PAYMENTS 745
Less current maturities 532
--------
$ 213
========
</TABLE>
F-15
<PAGE> 18
NOTE I - MINING PROPERTIES
<TABLE>
<CAPTION>
Capitalized costs for mining properties December 31,
consist of the following: 1996 1995
--------- ---------
<S> <C> <C>
Operational mining properties:
Rochester Mine, less accumulated
depletion of $36,904
and $32,712 $ 42,372 $ 40,072
Silver Valley Resources, net investment
in mining property 13,207 8,706
El Bronce Mine less accumulated
depletion of $1,360 and $554 36,222 16,469
Fachinal Mine, pre-production phase 41,452 34,200
Golden Cross Mine, less
accumulated depletion of
$5,263 in 1995 12,680
--------- ---------
TOTAL OPERATIONAL MINING PROPERTIES 133,253 112,127
Developmental mining properties:
Kensington 108,100 95,403
Other 2,885 13,417
--------- ---------
TOTAL DEVELOPMENTAL MINING PROPERTIES 110,985 108,820
--------- ---------
TOTAL MINING PROPERTIES $244,238 $220,947
========= =========
</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. It 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 $17.71.
Golden Cross Mine: On April 30, 1993, the Company acquired an 80%
operating interest in the Golden Cross Mine. The mine is a gold and silver
surface and underground mining operation located near Waihi, New Zealand.
F-16
<PAGE> 19
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,
1996 1995
---------- ----------
<S> <C> <C>
Sales of dore' $ 26,293 $ 32,341
Cost of mine operation (28,069) (26,598)
Writedown of mining property (52,036)
---------- ----------
Net income (Loss) before
income taxes $(53,812) $ 5,743
========= =========
Assets $ 2,408 $ 41,926
Liabilities (47,271) (32,809)
--------- ---------
Shareholders' equity (deficit) $(44,863) $ 9,117
========= =========
</TABLE>
See Note D for discussion of 1996 writedown of mining properties.
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
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. On February
9, 1996, Silver Valley reopened the Coeur and Galena Mines with full production
at the Coeur Mine beginning in June 1996. The two mines had previously been on
standby status.
Fachinal Mine: The Fachinal Mine is a gold and silver open pit and
underground mine located in southern Chile which commenced pre-production in
October 1995 which continued until 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. Commencing in 1997, the property will be
accounted for as an operating property.
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 ownership interest of 100%.
F-17
<PAGE> 20
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, for $32.5 million plus a
scaled net returns royalty on 1 million ounces of 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
On December 19, 1995, the Company completed the underwritten call for
redemption of its approximately $75.0 million principal amount of 7%
Convertible Subordinated Debentures due 2002 with the entire debenture
indebtedness converted into equity. Debenture holders received approximately
64.6 shares of common stock for each one thousand dollar principal amount with
cash paid in lieu of any fractional shares. Coeur issued a total of
approximately 4.9 million shares of common stock in connection with the
debenture conversions, increasing its total shares of outstanding common stock
to approximately 21.5 million shares.
In 1996, the Company completed a refinancing of the project loan
agreement 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 $24.0 million. The
interest rate on the facility is equal to LIBOR plus 1.5%. The borrowing is
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 Ltd. As of December 31, 1996,
current borrowings amounted to $18.9 million at an annual interest rate equal
to LIBOR plus 1.5%. The borrowing is repayable by April 30, 1999. On October
19, 1996, at the Company's discretion, $30.0 million of the total commitment
was canceled, leaving $1.1 million of undrawn commitments in place. The
Company's shareholdings of Gasgoyne Gold Mines Ltd. are mortgaged as collateral
against the loan.
The $50 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 dollar of principal (equivalent 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. The debentures mature June 10, 2002.
F-18
<PAGE> 21
The $100 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.
The carrying amounts and fair values of long-term borrowings, which
are based on published values on December 31, 1996 and 1995, consisted of the
following:
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
-------------------------- ---------------------------
Carrying Fair Carrying Fair
Amount Value Value Value
--------- --------- -------- -------
<S> <C> <C> <C> <C> <C>
6% Convertible
Subordinated
Debentures
Due 2002 $ 49,840 $ 45,105 $50,000 $44,375
6.375% Convertible
Subordinated
Debentures
Due 2004 $100,000 $ 93,500 $100,000 $93,375
</TABLE>
Total interest accrued in 1996, 1995, and 1994 was $13.1 million,
$17.1 million, and $15.6 million, respectively, of which $9.5 million, $7.4
million, and $4.2 million, was capitalized as a cost of the mines under
development.
Interest paid was $12.1 million, $16.3 million, and $12.1 million in
1996, 1995, and 1994, respectively.
NOTE K--INCOME TAXES
The components of the provision (benefit) for income taxes in the
consolidated statements of operations are as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------
1996 1995 1994
--------- -------- --------
<S> <C> <C> <C>
From Continuing Operations:
Current $ 203 $ 1,986 $ 364
Deferred (1,387) (1,786) (629)
-------- --------- ---------
PROVISION (BENEFIT) FOR
INCOME TAX $(1,184) $ 200 $ (265)
========= ========= =========
From Discontinued Operations:
Current
Deferred 1,608 528
--------- ---------
PROVISION FOR INCOME TAX $ 1,608 $ 528
========= =========
Total:
Current $ 203 $ 1,986 $ 364
Deferred (1,387) (178) (101)
-------- --------- --------
PROVISION (BENEFIT) FOR
INCOME TAX $(1,184) $ 1,808 $ 263
======== ========= =========
</TABLE>
F-19
<PAGE> 22
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,
----------------------------------------------------
1996 1995 1994
--------- -------- --------
<S> <C> <C> <C>
Reserve for loss on
mine closure $ (971) $ 100 $ 123
Net mine exploration and
development costs (9,299) (2,715) 1,249
Net lease payments 591 498 470
Regular tax expense(benefit)
on utilization of net
operating losses (32,967) 3,673 (1,197)
Adjustments to net operating
loss and credit carryforwards 1,046 (2,083) (159)
Environmental costs (478) 87 430
Amortization of bond premium 689 (689)
Unrealized investment losses 3,087 (3,087)
Change in valuation
allowance 41,501 (2,420) 2,692
Change in deferred
state taxes (412) (40)
Other (810) (682) 107
-------- -------- ---------
Deferred income tax expense
(benefit) (1,387) (178) (101)
-------- -------- ---------
Less differences attributable to
discontinued operations 1,608 528
-------- -------- ---------
Deferred income tax expense
(benefit) from continuing
operations $(1,387) $(1,786) $ (629)
======== ======== =========
</TABLE>
F-20
<PAGE> 23
As of December 31, 1996 the significant components of the Company's net
deferred tax liability were as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------
1996 1995
--------- ---------
<S> <C> <C>
Deferred tax liabilities:
PP&E, net $ 14,132 $ 15,599
State taxes 15
--------- ---------
Total deferred tax liabilities 14,132 15,614
Deferred tax assets:
Net operating loss carryforwards 80,977 20,690
AMT credit carryforwards 1,650 2,097
Business credit carryforward 542 542
--------- ---------
Total deferred tax assets 83,169 23,329
Valuation allowance for deferred
tax assets (69,037) (9,118)
--------- ---------
Net deferred tax assets 14,132 14,211
--------- ---------
Net deferred tax liabilities $ -0- $ 1,403
========= ==========
</TABLE>
Changes in the valuation allowance in 1996 relate primarily to losses
which are not currently recognized. The Company has reviewed its net deferred
tax asset, together with net operating loss carryforwards, and has determined
not to currently recognize potential tax benefits arising therefrom on the view
that it is more likely than not that the deferred deductions and losses will
not be realized in future years. 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.
Coeur d'Alene Mines Corporation 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, 1996. It is not
practicable to estimate the tax liabilities which would result upon such
repatriation.
F-21
<PAGE> 24
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,
------------------------------------
1996 1995 1994
-------- ------- -------
<S> <C> <C> <C>
Tax benefit on continuing operations
computed at statutory rates (35.0%) (35.0%) (35.0%)
Percentage depletion (3.3%) (190.0%) (46.1%)
Dividend received deduction (15.4%) (5.2%)
Interest on foreign subsidiary debt 177.7% 37.8%
Equity in earnings of unconsolidated
subsidiaries 49.0%
State income tax provision (25.0%) 0.9%
Change in valuation allowance 38.1% 2.7% 43.4%
Utilization of net operating losses (73.4%) (4.4%)
Federal tax assessments and
withholding 116.7% 9.3%
Other (net) (1.9%) 11.6% (6.0%)
-------- ------- --------
EFFECTIVE TAX RATE ON CONTINUING
OPERATIONS (2.1%) 18.9% (5.3%)
======== ======= ========
</TABLE>
For tax purposes, as of December 31, 1996, the Company has an
operating loss carryforward as follows:
<TABLE>
<CAPTION>
U.S. New Zealand Chile Total
-------- ----------- -------- --------
<S> <C> <C> <C> <C>
Regular losses $129,003 $103,365 $11,436 $243,804
AMT losses 86,494 86,494
AMT credits 1,650 1,650
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) $ (4,887)
2006 (11,041) (4,352)
2007 (10,702)
2008 (10,417) (4,664)
2009 (8,994) (7,282)
2010
2011 (73,238) (65,309)
-------- ---------
Total $(129,003) $(86,494)
========== =========
</TABLE>
New Zealand and Chilean laws provide for indefinite carryforwards of net
operating losses. Under certain circumstances,including a change of ownership
as determined under the Internal Revenue Code, the future utilization of net
operating losses may be limited.
As of December 31, 1996, Callahan Mining Corporation, a subsidiary, has a
net operating loss carryforward of approximately $17.0 million and an
alternative minimum tax loss carryforward of approximately $9.6 million which
expire through 2006. The utilization of Callahan Mining Corporation's net
operating losses is 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 earlier
converted by the holder into Common Stock or redeemed for Common Stock by the
Company. The annual dividend payable on
F-22
<PAGE> 25
the MARCS will be $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 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, 1996, there were a total of 22,890,971, 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 1996
and 1995, benefits were payable 50% in cash and 50% in shares of Common Stock.
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 1996, options for 62,306 shares were issued under the plan.
As of December 31, 1996 and December 31, 1995, nonqualified and
incentive stock options to purchase 314,727 shares and 257,493 shares,
respectively, were outstanding under the Long-Term Plan. The options are
exercisable at prices ranging from $13.75 to $27.00 per share.
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. In 1996, there were no awards granted under the plan.
F-23
<PAGE> 26
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, 1996, 23,497 options were granted in lieu of $.2 million 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 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,
1996 1995
---- ----
<S> <C> <C>
Net Income (loss) as reported $(54,570) $ 1,154
Net Income (loss) pro forma $(54,772) $ 1,067
Net Inoome (loss) per share
as reported $ (2.54) $ .07
Net income (loss) per share
pro forma $ (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; and no
expected dividends. The weighted average fair value of options granted during
the year ended December 31, 1996 is $8.19. The effect of applying Statement
No. 123 for providing pro forma disclosures for fiscal years 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
$.9 million, $1.1 million, and $1.4 million for 1996, 1995, and 1994,
respectively.
<TABLE>
<CAPTION>
Weighted Average
Options Exercise Price
----------- -----------------
<S> <C> <C>
Stock options outstanding
at 1/1/95 153,600 $ 18.31
Issued 111,979 16.80
Exercised (3,425) 15.13
Canceled (9,753) 19.45
----------- ---------
Stock options outstanding
at 12/31/95 252,101 17.64
Issued 62,326 20.88
----------- --------
Stock options outstanding
at 12/31/96 314,727 $ 18.28
=========== =========
</TABLE>
The following table summarizes information for options currently outstanding at
December 31, 1996:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
----------------------------------------- -------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Range of Exercise Number Contractual Exercise Number Exercise
Prices Outstanding Life (Yrs.) Price Exercisable Price
------ ----------- ----------- ----- ----------- -----
<S> <C> <C> <C> <C> <C>
$13.75 to $14.99 13,500 $2.25 $13.75 13,500 $13.75
$15.000 to $17.99 106,504 $6.08 $15.77 97,734 $15.78
$18.000 to $27.00 194,723 $7.29 $19.97 146,259 $20.13
------- -------
314.727 $6.67 $18.28 257,493 $18.14
======= =======
</TABLE>
As of December 31, 1996 and 1995, 447,696 shares and 427,443 shares,
respectively, were available for future grants under the Plans and 5,829,640
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 employees. Total plan expense charged to operations was
$.6 million, $.5 million, and $.5 million for 1996, 1995, and 1994,
respectively, which is based on a percentage of salary of qualified employees.
Effective January 1, 1995, the Company has 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 and $.3 million in 1996
and 1995, respectively.
F-24
<PAGE> 27
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, 1996, 1995,
and 1994, the Company had forward foreign exchange contracts of $15.8 million,
$41.0 million, and $31.8 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, 1996, the Company had sold 146,670 ounces of gold for delivery on
various dates through 1999 at an average price of $421.51. On January 13, 1997,
the Company realized net profits of approximately $5.3 million from the sale of
gold purchased in the open market which was then delivered pursuant to fixed
price forward contracts for 146,670 ounces of gold.
During 1996, the Company entered into interest rate swap agreements to
reduce the impact of changes in interest rates on its Fachinal financing
facility. Coeur entered into an interest rate swap agreement, which expires on
July 3, 2000, that effectively converts $24.0 million of its floating rate
borrowing into a fixed-rate obligation. Coeur is currently paying a fixed rate
of 5.375%. The Company has no current plans to buy out these agreements.
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,
1996, 1995 and 1994.
<TABLE>
<CAPTION>
1996 1995 1994
-------------------------- ------------------------ ------------------------------
Forward Unrealized Forward Unrealized Forward Unrealized
Contracts Gain (Loss) Contracts Gain (Loss) Contracts Gain
------------- ------------ ----------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Currency:
New Zealand $ 15,845 $ (10) $ 23,269 $ (27) $ 6,218 $ 731
Chilean $ 17,699 $(1,993) $ 22,136 $ 569
Australian $ 3,418 $ 181
Forward Metal
Sales $ 61,823 $ 3,702 $ 29,535 $ 1,528 $ 31,288 $ 358
</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, 1996, 1995, and 1994, the Company realized gains from
its foreign exchange hedging
F-25
<PAGE> 28
programs of $1.4 million, $1.9 million and $1.5 million, respectively. During
1996, the Company capitalized a $2.1 million loss in connection with
development projects.
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. During 1995, the Company realized a gain of $4.4
million arising from the sale of silver and gold purchased on the open market
which was delivered pursuant to forward contracts.
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
Court for the District of Idaho (Civ. No. 96-0122-N-EJL) by the United States
against various defendants, including the Company, asserting claims under the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980
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 releases of
hazardous substances from mining activities conducted in the area since the
late 1800s. No specific monetary damages are identified in the complaint.
However, in July 1996, the government indicated damages may approximate $982
million. The United States asserts that the defendants are jointly and
separately liable for costs and expenses incurred by the United States in
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 at an appropriate stage will seek to be dismissed from this action. At this
initial stage of the proceedings, it is not possible to predict 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, the amount of which cannot now be reasonably
estimated, relating to these matters, such amounts could possibly have a
material impact on the results of operations for a given period.
F-26
<PAGE> 29
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,
------------------------------------------
1996 1995 1994
----------- ---------- ----------
<S> <C> <C> <C>
Revenues and Other Income:
-------------------------
United States $ 75,815 $ 65,903 $ 63,048
Australasia 27,285 32,967 27,450
South America 2,790 (127) 1,695
---------- ---------- ----------
Consolidated revenues $ 105,890 $ 98,743 $ 92,193
========== ========== ==========
Income (Loss) From Continuing
-----------------------------
Operations Before Income Taxes:
-------------------------------
United States $ 6,167 $ (3,558) $ (5,068)
Australasia (55,491) 5,773 (803)
South American Operations 531 311 921
South American Exploration (6,961) (3,584) (51)
---------- ---------- ----------
Consolidated loss from continuing
operations before taxes $ (55,754) $ (1,058) $ (5,001)
========== ========== =========
Depreciation, Depletion, and Amortization:
-----------------------------------------
United States $ 8,815 $ 9,657 $ 10,707
Australasia 3,182 6,699 6,632
South America 1,384 537 198
--------- --------- -----------
Total $ 13,381 $ 16,893 $ 17,537
========== ========== ==========
Property, Plant, and Equipment Additions
(Including Noncash Expenditures):
--------------------------------
United States $ 2,103 $ 1,512 $ 5,253
Australasia 133 1,975 303
South America 2,563 41,408 3,692
---------- ---------- ----------
Total $ 4,799 $ 44,895 $ 9,248
========== ========== ==========
Identifiable Assets:
-------------------
United States $ 379,635 $ 286,318 $ 318,590
Australasia 51,848 47,114 46,613
South America 148,847 112,214 47,158
---------- ---------- ----------
Consolidated assets $ 580,330 $ 445,646 $ 412,361
========== ========== ==========
</TABLE>
F-27
<PAGE> 30
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, 1996 and 1995:
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
--------- --------- ----------- ---------
(000's-Except Per Share Data)
<S> <C> <C> <C> <C>
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)(b) 1,878 300
Net income (loss) per share .01 (2.63) .09 .01
Net loss per share
attributable to common
shareholders (.02) (2.75) (.03) (.11)
Fully diluted income (loss)
per share (c) (c) .09 (c)
1995
----
Net Sales $ 17,891 $ 23,621 $ 24,803 $ 22,925
Gross Margin $ 1,851 $ 5,689 $ 5,651 $ 3,838
Net income (loss) from
continuing operations $ (3,367) $ 1,239 $ 2,039 $ (1,169)
Net income (loss) $ (3,175) $ 3,408(a) $ 2,039 $ (1,118)
Net Income (loss) per share $ (.20) $ .22(a) $ .13 $ (.07)
Fully diluted income (loss)
per share $ (c) $ .19 $ .12 $ (c)
</TABLE>
(a) Includes income from discontinued operations(net of tax), of
approximately $2.4 million ($.15 per share) related to the sale of
the Flexaust Company in May 1995.
(b) Includes writedown of mining properties of approximately $54.0
million.
(c) Effect of fully diluted earnings per share is antidilutive and is
therefore not presented.
F-28
<PAGE> 31
EXHIBIT 23
Consent of Ernst & Yong LLP, Independent Auditors
We consent to the incorporation by reference in the Registration Statement
(Form S-8) pertaining to the Long-Term Incentive Plan of Coeur d'Alene Mines
Corporation of our report dated February 5, 1997 except for Note C, as to shich
the Date is February 18, 1998, and except for Notes D and L, as to which the
date is March 16, 1998, with respect to the consolidated financial statements
of Coeur d'Alene Mines Corporation included in the Annual Report (Form 10-K)
for the year ended December 31, 1996.
ERNST & YOUNG LLP
Seattle, Washington
March 17, 1998
