<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
-----------------
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- --- ACT OF 1934
For the quarterly period ended September 30, 1999
OR
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________________ to ___________________
Commission File Number: 1-8641
------
COEUR D'ALENE MINES CORPORATION
(Exact name of registrant as specified on its charter)
IDAHO 82-0109423
- ------------------------------- ------------------------------
(State or other jurisdiction of (I.R.S. Employer Ident. No.)
incorporation or organization)
P. O. Box I, Coeur d'Alene, Idaho 83816-0316
- --------------------------------- -------------
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including area code:(208) 667-3511
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last report
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
---- ----
-------------------------
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding
of each of Issuer's classes of common stock, as of the latest practicable date:
Common stock, par value $1.00, of which 29,181,217 shares were issued and
outstanding as of November 5, 1999.
<PAGE> 2
COEUR D'ALENE MINES CORPORATION
INDEX
Page No.
--------
PART I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets -- 3
September 30, 1999 and December 31, 1998
Consolidated Statements of Operations -- 5
Nine Months Ended September 30, 1999 and 1998
Consolidated Statements of Cash Flows -- 6
Nine Months Ended September 30, 1999 and 1998
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of 14
Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosure of
Market Risk 26
PART II. Other Information
Item 1. Legal Proceedings 29
Item 4. Submission of Matters to a Vote of Security Holders 29
Item 5. Other Information 31
Item 6. Exhibits and Reports on Form 8-K 32
SIGNATURES
2
<PAGE> 3
CONSOLIDATED BALANCE SHEETS
COEUR D'ALENE MINES CORPORATION AND SUBSIDIARIES
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
ASSETS (In Thousands)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $102,660 $127,335
Short-term investments 22,847 1,753
Receivables 19,836 11,647
Inventories 54,685 43,675
-------- --------
TOTAL CURRENT ASSETS 200,028 184,410
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment 102,855 79,173
Less accumulated depreciation 58,132 37,304
-------- --------
44,723 41,869
MINING PROPERTIES
Operational mining properties 106,099 82,018
Less accumulated depletion 60,650 46,149
-------- --------
45,449 35,869
Developmental properties 49,074 25,898
-------- --------
94,523 61,767
OTHER ASSETS
Investments in unconsolidated affiliates 46,006 66,914
Notes receivable 349 1,627
Debt issuance costs, net of accumulated
amortization 5,696 6,625
Other 3,113 2,768
-------- --------
55,164 77,934
-------- --------
$394,438 $365,980
======== ========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 4
CONSOLIDATED BALANCE SHEETS
COEUR D'ALENE MINES CORPORATION AND SUBSIDIARIES
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
(In Thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable $ 2,690 $ 3,512
Accrued liabilities 18,525 12,700
Accrued interest payable 5,112 5,412
Accrued salaries and wages 4,703 5,642
Current portion of remediation costs 1,316 3,052
Current portion of obligations under
capital leases 115 255
--------- ---------
TOTAL CURRENT LIABILITIES 32,461 30,573
LONG-TERM LIABILITIES
6% subordinated convertible debentures
due 2002 39,506 45,803
6 3/8% subordinated convertible debentures
due 2004 93,372 93,372
7 1/4% subordinated convertible debentures
due 2005 107,277 107,277
Other long-term liabilities 24,347 11,888
--------- ---------
TOTAL LONG-TERM LIABILITIES 264,502 258,340
SHAREHOLDERS' EQUITY
Mandatory Adjustable Redeemable Convertible
Securities (MARCS), par value $1.00 per
share,(a class of preferred stock) -
authorized 7,500,000 shares, 7,077,833
issued and outstanding 7,078 7,078
Common Stock, par value $1.00 per share-
authorized 125,000,000 shares,
issued 30,240,428 and 22,957,835 shares
in 1999 and 1998 (including 1,059,211
shares held in treasury) 30,240 22,958
Capital surplus 393,664 379,180
Accumulated deficit (323,438) (318,796)
Repurchased and nonvested shares (13,190) (13,190)
Accumulated other comprehensive loss:
Unrealized gain (loss) on short-term
investments 3,121 (163)
--------- ---------
97,475 77,067
--------- ---------
$ 394,438 $ 365,980
========= =========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 5
CONSOLIDATED STATEMENTS OF OPERATIONS
COEUR D'ALENE MINES CORPORATION AND SUBSIDIARIES
(Unaudited)
<TABLE>
<CAPTION>
3 MONTHS ENDED 9 MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
---------------------------- -----------------------------
1999 1998 1999 1998
--------- --------- --------- ---------
(In thousands except for per share data)
<S> <C> <C> <C> <C>
REVENUES
Product sales $ 21,986 $ 23,890 $ 60,693 $ 77,312
Interest and other 16,453 1,966 18,765 7,862
--------- --------- --------- ---------
Total Revenues 38,439 25,856 79,458 85,174
COSTS AND EXPENSES
Production 16,216 17,200 43,965 50,651
Depreciation and amortization 3,862 6,204 13,309 22,427
Administrative and general 2,648 3,133 7,449 8,980
Exploration 1,492 2,261 5,439 6,633
Interest 4,079 3,219 12,406 10,687
Write down of mining properties
and other 3,030 126 3,875 54,791
--------- --------- --------- ---------
Total Cost and Expenses 31,327 32,143 86,443 154,169
--------- --------- --------- ---------
NET LOSS FROM CONTINUING
OPERATIONS BEFORE TAXES AND
EXTRAORDINARY ITEM 7,112 (6,287) (6,985) (68,995)
Income tax provision 92 79 247 497
--------- --------- --------- ---------
Income (loss) before
extraordinary item 7,020 (6,366) (7,232) (69,492)
Extraordinary item - early
retirement of debt
(net of taxes) 2,590 6,345 2,590 6,345
--------- --------- --------- ---------
NET INCOME (LOSS) 9,610 (21) (4,642) (63,147)
Unrealized holding gain
on securities 3,288 14 3,284 1,712
--------- --------- --------- ---------
COMPREHENSIVE INCOME (LOSS) $ 12,898 $ (7) $ (1,358) $ (61,435)
========= ========= ========= =========
NET INCOME (LOSS) $ 9,610 $ (21) $ (4,642) $ (63,147)
Preferred stock dividends (2,633) (2,633) (7,899) (7,899)
--------- --------- --------- ---------
NET INCOME (LOSS) ATTRIBUTABLE TO
COMMON SHAREHOLDERS $ 6,977 $ (2,654) $ (12,541) $ (71,046)
========= ========= ========= =========
BASIC AND DILUTED EARNINGS PER SHARE:
Weighted average number
of shares of Common Stock 23,987 21,899 22,502 21,899
========= ========= ========= =========
Income (loss) before
extraordinary item $ .18 $ (.41) $ (.67) $ (3.53)
Extraordinary item - early
retirement of debt
(net of taxes) .11 .29 .11 .29
--------- --------- --------- ---------
Net income (loss) per share
attributable to common $ .29 $ (.12) $ (.56) $ (3.24)
========= ========= ========= =========
</TABLE>
See notes to consolidated financial statements.
5
<PAGE> 6
CONSOLIDATED STATEMENTS OF CASH FLOWS
COEUR D'ALENE MINES CORPORATION AND SUBSIDIARIES
(Unaudited)
<TABLE>
<CAPTION>
3 MONTHS ENDED 9 MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
----------------------------- -------------------------------------
1999 1998 1999 1998
----------- ------------ ------------- ------------
(In Thousands)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 9,610 $ (21) $ (4,642) $ (63,147)
Add (deduct) noncash items:
Depreciation, depletion, and amortization 3,862 6,204 13,309 22,427
Reclamation 306 270 831 775
Gain on early rement of debt (net of tax) (2,590) (6,345) (2,590) (6,345)
Other charges (327) 1,096 954 1,382
Writedown of mining properties 2,492 2,492 54,506
Undistributed (earnings) loss of investment
in unconsolidated subsidiary 189 565 751 1,245
Unrealized loss on written call options 5,826 5,826
Changes in Operating Assets and Liabilities:
Receivables (6,026) (1,319) (3,098) 719
Inventories (2,570) (2,005) (8,293) (10,835)
Accounts payable and accrued liabilities 4,244 129 (670) (11,128)
--------- --------- --------- ---------
NET CASH PROVIDED FROM (USED IN)
OPERATING ACTIVITIES 15,016 (1,426) 4,870 (10,401)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of short-term investments (9,359) (13,094) (17,203)
Proceeds from sales of short-term investments 1,866 27,548 3,044 102,171
Investment in unconsolidated subsidiaries 492 (1,448) 196 (4,591)
Purchases of property, plant and equipment (193) (543) (833) (2,908)
Proceeds from sale of assets 86 852 955 8,519
Expenditures on operational mining properties (1,800) (796) (3,318) (2,554)
Expenditures on developmental properties (3,639) (5,606) (7,498) (13,704)
Other 2,324 (143) 998 (788)
--------- --------- --------- ---------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES (10,223) 19,864 (19,550) 68,942
CASH FLOWS FROM FINANCING ACTIVITIES
Retirement of long-term debt (1,624) (19,569) (1,624) (23,179)
Payment of cash dividends (2,633) (2,633) (7,899) (7,899)
Other (173) (274) (472) (708)
--------- --------- --------- ---------
NET CASH USED IN FINANCING ACTIVITIES (4,430) (22,476) (9,995) (31,786)
--------- --------- --------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 363 (4,038) (24,675) 26,755
Cash and cash equivalents at beginning
of period 102,297 144,997 127,335 114,204
--------- --------- --------- ---------
Cash and cash equivalents at September 30, 1999 $ 102,660 $ 140,959 $ 102,660 $ 140,959
========= ========= ========= =========
</TABLE>
See notes to consolidated financial statements.
6
<PAGE> 7
Coeur d'Alene Mines Corporation
and Subsidiaries
Notes to Consolidated Financial Statements
NOTE A: Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions for Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring adjustments) considered necessary for a fair
presentation have been included. Operating results for the three-and nine-month
periods ended September 30, 1999 are not necessarily indicative of the results
that may be expected for the year ended December 31, 1999.
The balance sheet at December 31, 1998 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Coeur d'Alene Mines
Corporation Annual Report on Form 10-K for the year ended December 31, 1998.
NOTE B: Inventories
Inventories are comprised of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------ ------------
(In Thousands)
<S> <C> <C>
In process and on leach pads $42,012 $36,166
Concentrate and dore' inventory 7,871 3,968
Supplies 4,802 3,541
------- -------
$54,685 $43,675
======= =======
</TABLE>
Inventories of ore on leach pads and in the milling process are valued
based on actual costs incurred, less costs allocated to minerals recovered
through the leaching and milling processes. Inherent in this valuation is an
estimate of the percentage of the minerals on leach pads and in process that
will ultimately be recovered. All other inventories are stated at the
lower-of-cost or market, with cost being determined using first-in, first-out
and weighted-average-cost methods. Dore' inventory includes product at the mine
site and product held by refineries.
7
<PAGE> 8
NOTE C: Income Taxes
The Company has reviewed its net deferred tax asset for the nine-month
period ended September 30, 1999, together with net operating loss carryforwards,
and has decided to forego recognition of potential tax benefits arising
therefrom. In making this determination, the Company has considered the
Company's history of tax losses incurred since 1989, the current level of gold
and silver prices and the ability of the Company to use accelerated depletion
and amortization methods in the determination of taxable income. As a result,
the Company's net deferred tax asset has been fully reserved.
NOTE D: Acquisitions
Purchase of Asarco Silver Assets
On September 8, 1999, the Company completed the acquisition of silver
assets from Asarco Incorporated ("Asarco"). The purchase price for the silver
assets from Asarco was approximately $29.8 million and consisted of 7.125
million shares of Coeur common stock valued at $4.06 per share, and includes
approximately $.9 million of acquisition costs. The silver assets acquired
consist of Asarco's (i) 50% interest in Silver Valley Resources Corporation
("SVR"); (ii) 100% interest in Empressa Minera Manquiri S.R.L., or any successor
("Manquiri"); (iii) 1.5 million shares of common stock and 500,000 share
purchase warrants of Pan American Silver Corporation; and (iv) 100% interest in
Northern Peru Mining Company Inc. ("NPMC"). This acquisition was accounted for
under the purchase method of accounting in accordance with APB Opinion No. 16.
The carrying values of assets and liabilities other than the mining properties
and long-term intangibles have been estimated to approximate fair market value.
Supplemental pro forma consolidated financial information for Coeur that
includes the silver assets purchased is presented for the three-month and
nine-month periods ending September 30, 1999 and 1998 as if the silver assets
were acquired at the beginning of each of the periods.
8
<PAGE> 9
<TABLE>
<CAPTION>
3 MONTHS ENDED 9 MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
-------------------------- ----------------------------
1999 1998 1999 1998
--------- --------- --------- ---------
(In Thousands)
<S> <C> <C> <C> <C>
Total revenues $ 42,340 $ 29,757 $ 91,993 $ 92,656
Costs and expenses 35,227 36,046 98,396 161,655
--------- --------- --------- ---------
Income (loss) before taxes
and extraordinary item 7,113 (6,289) (6,403) (68,999)
========= ========= ========= =========
Net income (loss) $ 9,611 $ (23) $ (4,080) $ (63,161)
========= ========= ========= =========
Basic and diluted earnings per share $ .29 $ (.12) $ (.53) $ (3.53)
========= ========= ========= =========
</TABLE>
Purchase of Nevada Packard Property
Coeur Rochester has purchased the mineral rights of the Nevada Packard
property adjacent to the Rochester Mine, in Nevada, for a sum of $2,070,800,
consisting of $1.4 million in cash and 155,638 shares of common stock of Coeur
equal in value to $670,800.
NOTE E: Long-Term Debt
During the third quarter 1999, the Company repurchased approximately $6.2
million principal amount of its outstanding 6% Subordinated Convertible
Debentures due 2002 for a total purchase price of approximately $3.6 million,
excluding purchased interest of approximately $85,000. Associated with this
transaction, the Company eliminated $59,000 of capitalized bond issuance costs.
The Company anticipates that as a result of the cancellation of the repurchased
debentures, annual interest paid by the Company will be reduced by approximately
$372,000. As a result of the buyback of these debentures, the Company has
recorded an extraordinary gain of approximately $2.6 million, net of taxes,
during the third quarter 1999 on the reduction of its indebtedness.
NOTE F: Segment Reporting
In 1997, the Financial Accounting Standards Board issued Statement No. 131,
"Disclosures about Segments of an Enterprise and Related Information." This
statement replaces Statement No. 14, "Financial Reporting for Segments of a
Business Enterprise," and establishes new standards for defining and reporting
the Company's operating segments and requires selected information in interim
financial reports. Operating segments are defined as components of an enterprise
about which separate financial information is available that is evaluated
regularly by the chief operating decision maker, or decision making group, in
deciding how to allocate resources and in assessing performance. The Company's
chief operating decision making group is comprised of the Chief Executive
Officer, Chief Financial Officer and the Chief Operating Officer.
The operating segments are managed separately because each segment
represents a distinct use of Company resources and contribution to company cash
flows in its respective geographic area.
9
<PAGE> 10
The Company's reportable operating segments include the Rochester, Galena,
Fachinal, and Petorca (previously named El Bronce) mining properties, Coeur
Australia (50% owner of Gasgoyne Gold Mines NL), the Kensington development
property, and the Company's exploration program. All operating segments are
engaged in the discovery and/or mining of gold and silver and generate the
majority of their revenues from the sale of these precious metals. Intersegment
revenues consist of precious metal sales to the Company's metals marketing
division and are transferred at the market value of the respective metal on the
date of the transfer. The Other segment includes earnings (loss) from
unconsolidated subsidiaries accounted for by the equity method such as the
Company's 50% interest in Gasgoyne, the corporate headquarters, elimination of
intersegment transactions and other items necessary to reconcile to consolidated
amounts. Revenues in the Other segment are generated principally from interest
received from the Company's cash and investments that are not allocated to the
operating segments. The accounting policies of the operating segments are the
same as those described in the summary of significant accounting policies above.
The Company evaluates performance and allocates resources based on profit or
loss before interest, income taxes, depreciation and amortization, unusual and
infrequent items, and extraordinary items.
10
<PAGE> 11
COEUR D'ALENE MINES CORPORATION
SEGMENT REPORTING
<TABLE>
<CAPTION>
Golden Coeur Silver
Rochester Cross Fachinal Petorca Australia Valley
----------------------------------------------------------------------------------
September 30, 1999
<S> <C> <C> <C> <C> <C> <C>
Net sales and revenues
to external customers $ (120) - $ 5,093 $ 8,040 $ 7,450 $1,388
Intersegment net sales
and revenues 37,191 - - - - -
----------------------------------------------------------------------------------
Total net sales
and revenues $ 37,071 - $ 5,093 8,040 7,450 1,388
==================================================================================
Depreciation and
amortization $ 6,977 - $ 2,255 $ 268 $ 3,438 $ 167
Interest income - - 57 15 43 -
Interest expense - - 24 2 - -
Gain on Cyprus
Settlement - - - - - -
Writedown of Mine
Property - (2,119) - - - -
Income tax expense - - - - 14 -
Earnings (losses) from
unconsolidated
affiliates - - - - (835) -
Gain on early
retirement of debt - - - - -
Profit (loss) 13,962 - (1,092) 1,169 91 202
Investments in
unconsolidated
affiliates - - - - 746,006 -
Segment assets 89,942 1,413 30,686 3,203 432 23,703
Expenditures for
property 3,615 - 476 169 - 255
September 1998
Net sales and revenues
to external customers $ 79 - $ 12,304 $ 8,455 $ 10,740 -
Intersegment net sales
and revenues 45,661 - - - - -
----------------------------------------------------------------------------------
Total net sales and
revenues $ 45,740 - $ 12,304 $ 8,455 $ 10,740 -
==================================================================================
Depreciation and
amortization $ 5,667 - $ 9,172 $ 1,781 $ 5,609 -
Interest income 16 - 63 20 45 -
Interest expense - - 46 235 - -
Writedown of mine
property - - - (53,904) - -
Gain on forward sale
contracts - - - - - -
Income tax expense - - - - (56) -
Earnings (losses) from
unconsolidated
affiliates - - - - (923) -
Gain on early
retirement of debt - - - - - -
Profit (loss) 26,388 - (1,411) (2,637) 2,294 -
Investments in
non-consolidated
affiliates - - - - 51,000 -
Segment assets 81,513 9,301 76,114 3,526 148 -
Expenditures for
property 510 - 2,236 1,513 - -
<CAPTION>
Kensington Manquiri Exploration Other Total
-----------------------------------------------------------------------------------------------
September 30, 1999
<S> <C> <C> <C> <C> <C>
Net sales and revenues
to external customers - - $ (1,167) 58,774 $ 79,458
Intersegment net sales
and revenues - - - (37,191) -
-----------------------------------------------------------------------------------------------
Total net sales
and revenues - - $ (1,167) $27,409 $ 79,458
===============================================================================================
Depreciation and
amortization $ 195 - $ 84 $ 1,626 $ 15,010
Interest income - - 10 4,139 4,264
Interest expense - - - 12,381 12,407
Gain on Cyprus
Settlement - - - 21,140 21,140
Writedown of Mine
Property - - - (373) (2,492)
Income tax expense - - - 233 247
Earnings (losses) from
unconsolidated
affiliates - - - 84 (751)
Gain on early
retirement of debt - - - 2,590 2,590
Profit (loss) - - (5,389) (1,529) 7,414
Investments in
unconsolidated
affiliates - - - - 46,006
Segment assets 28,005 19,554 1,507 12,833 211,278
Expenditures for
property 6,055 - 548 531 11,649
September 1998
Net sales and revenues
to external customers - - $ (345) $ 53,942 $ 85,174
Intersegment net sales
and revenues - - - (45,661) -
-----------------------------------------------------------------------------------------------
Total net sales and
revenues - - $ (345) $ 8,281 $ 85,174
===============================================================================================
Depreciation and
amortization $ 271 - $ 111 $ 1,636 $ 24,248
Interest income - - 32 7,491 7,666
Interest expense - - - 10,406 10,687
Writedown of mine
property - - (602) - (54,506)
Gain on forward sale
contracts - - - 1,167 1,167
Income tax expense - - - 554 498
Earnings (losses) from
unconsolidated
affiliates - - - (322) (1,245)
Gain on early
retirement of debt - - - 6,345 6,345
Profit (loss) - - (4,431) (1,196) 19,007
Investments in
non-consolidated
affiliates - - - 17,665 68,665
Segment assets 139,939 - 1,421 7,330 319,294
Expenditures for
property 14,368 - 405 135 19,166
</TABLE>
Notes:
(A) Segment assets consist of receivables, prepaids, inventories, property,
plant and equipment, and mining properties.
11
<PAGE> 12
<TABLE>
<CAPTION>
Geographic Information
- ----------------------
Long-Lived
1999: Revenues Assets
-------------------------------------------------
<S> <C> <C>
United States $ 60,041,685 $ 94,504,519
Chile 11,965,788 24,177,215
Australia 7,449,599 -
New Zealand - 997,958
Bolivia - 19,554,185
Other Foreign Countries 501 12,379
-------------------------------------------------
Consolidated Total $ 79,457,573 $139,246,256
=================================================
<CAPTION>
Long-Lived
1998: Revenues Assets
-------------------------------------------------
United States $ 54,020,651 $187,101,296
Chile 20,418,825 70,081,666
Australia 10,739,694 -
New Zealand - 8,595,111
Bolivia - -
Other Foreign Countries (5,291) 180,141
-------------------------------------------------
Consolidated Total $ 85,173,879 $265,958,214
=================================================
</TABLE>
Revenues are geographically separated based upon the country
in which operations and the underlying assets generating
those revenues reside.
NOTE G: Settlement
The Company received settlement from Cyprus Minerals Company during the
third quarter of 1999 for Coeur's lawsuit against Cyprus relating to the Golden
Cross Mine in New Zealand of $31.5 million.
Coeur's lawsuit against Cyprus, instituted in July 1996 in the District
Court of Kootenai County, Idaho, arose from Cyprus' sale in April 1993 to Coeur
of the New Zealand-based corporation that owned an 80% interest in the Golden
Cross Mine located in that country. Coeur's lawsuit, as amended, sought damages
arising from ground movement and instability, threatening the integrity of the
mine site. Due to such ground movement and instability, Coeur effected a $53
million write-down of its interest in the Golden Cross Mine and a nearby
property during the second quarter of 1996.
During the second quarter of 1997, Coeur received its 80% share of a $10
million flood insurance recovery relating to the business interruption and
property damage at the Golden Cross Mine, which proceeds were recorded by Coeur
as other income in 1997.
In May 1999 Coeur settled the class action lawsuit filed by certain
purchasers of its common stock in July 1997 in the Federal District Court for
the District of Colorado against Coeur and certain of its officers. The
plaintiffs in that lawsuit alleged that the
12
<PAGE> 13
defendants knew but did not publicly disclose adverse financial information
relating to certain mining properties, including the Golden Cross Mine. Although
Coeur denied the plaintiffs' allegations, it determined it would be in the best
interests of Coeur to settle the class action and entered into a settlement
agreement that was approved by the Court in July 1999.
The terms of that settlement provided that the plaintiffs would be entitled
to 50% of the net proceeds, up to a maximum of $6 million, recovered by Coeur
from its lawsuit against Cyprus after Coeur has first recouped its costs and
expenses incurred in litigating the lawsuit. Total legal expenses incurred to
date are $3.1 million.
As a result of the settlement of this lawsuit, Coeur has recorded other
income of approximately $21.1 million during the third quarter of 1999. This is
the net amount of settlement proceeds after the deduction of the $4.4 million
payment to Coeur's flood insurance carrier and $6 million payment to the
plaintiffs in the class action.
NOTE H: Hedging
On July 1, 1999, Coeur commenced marking to market its metal call options
sold, whereby any change in value is recorded in earnings currently. Prior to
July 1, all gold call options sold were given hedge accounting treatment in
accordance with common industry practice, with the change in market value being
deferred until the original option designation date. For the third quarter of
1999 this change resulted in a $5.8 million non-cash charge to earnings. At
September 30, 1999, based on the spot gold price of $299 per ounce, the
Company's complete hedging position was valued at $1.3 million, including the
call options sold.
NOTE I: New Accounting Standard
In June 1998, the Financial Standards Board issued Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" (SFAS 133) which establishes accounting and reporting standards for
derivative instruments and hedging activities. Effective for all fiscal quarters
in years beginning after June 15, 2000, SFAS 133 requires the Company to
recognize all derivative instruments as either assets or liabilities in the
statement of financial position and measure those instruments at fair value on
an on-going basis. The Company is currently assessing the effect of adopting
SFAS No. 133 on its financial statements and plans to adopt the statement on
January 1, 2001.
In April 1998, the AICPA issued SOP 98-5, "Reporting the Costs of Start-up
Activities." The SOP is effective beginning on January 1, 1999, and requires
that start-up costs capitalized prior to January 1, 1999 be written-off and any
future start-up costs to be expensed as incurred. The Company has adopted SOP
98-5 and has determined that this has no effect on the Company's financial
condition or results of operations.
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<PAGE> 14
NOTE J: Reclassification
Certain reclassifications of prior-year balances have been made to conform
to current year classifications.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
The results of the Company's operations are significantly affected by the
market prices of gold and silver which may fluctuate widely and are affected by
many factors beyond the Company's control, including, without limitation,
interest rates, expectations regarding inflation, currency values, governmental
decisions regarding the disposal of precious metals stockpiles, global and
regional political and economic conditions, and other factors.
The Company's currently operating mines are the Rochester mine in Nevada,
the Coeur and Galena mines in the Coeur d'Alene Mining District of Idaho (which
the Company has recently increased its share by 50% to 100%) and the Fachinal
and Petorca (or El Bronce) mines in Chile, all of which are wholly-owned and
operated by the Company. The Company also owns 50% of Gasgoyne Gold Mines NL, an
Australian gold mining company, ("Gasgoyne") that owns 50% of the Yilgarn Star
gold mine in Australia.
The average price of gold in the third quarter of 1999 was $273.46 per
ounce. The market price of silver (Handy & Harman) and gold (London Final) on
November 5, 1999 were $5.16 per ounce and $289.70 per ounce, respectively.
The Company is required by Financial Accounting Standards Statement No.
121, "Accounting for the Impairment of Long-lived Assets and for Long-lived
Assets to be Disposed Of", to review the valuations of its mining properties.
Such a review was recently completed with respect to all of the Company's
properties. In 1998, the Company had writedowns totaling $219 million with
respect to its Petorca and Fachinal Mines and its Kensington development
property.
In December 1998, the Company announced the completion of an optimization
study relating to the Kensington property, a wholly-owned developmental gold
property in Alaska, designed to improve the economic viability of the project. A
new mine plan was formulated as a result of the optimization study, which will
require extensive permit modifications. Based on the results of the study, the
Company estimates that the project's cash operating costs per ounce should be
reduced to approximately $190 and total capital costs to develop the mine should
be reduced to approximately $192 million. The Company does not intend to develop
Kensington unless the optimization study and development program demonstrate
results required to make Kensington an economically viable project. Based on
current mine design and market price of gold, there can be no assurances at this
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<PAGE> 15
time that the Company will proceed to place the Kensington project into
commercial production.
The Company's business plan is to continue to acquire competitive, low-cost
mining properties and/or businesses that are operational or expected to become
operational in the near future so that they can reasonably be expected to
contribute to the Company's near-term cash flow from operations and expand the
Company's silver production.
This document contains numerous forward-looking statements relating to the
Company's gold and silver mining business. The United States Private Securities
Litigation Reform Act of 1995 provides a "safe harbor" for certain forward
looking statements. Operating, exploration and financial data, and other
statements in this document are based on information the company believes
reasonable, but involve significant uncertainties as to future gold and silver
prices, costs, ore grades, estimation of gold and silver reserves, mining and
processing conditions, changes that could result from the Company's future
acquisition of new mining properties or businesses, the risks and hazards
inherent in the mining business (including environmental hazards, industrial
accidents, weather or geologically related conditions), regulatory and
permitting matters, and risks inherent in the ownership and operation of, or
investment in, mining properties or businesses in foreign countries. Actual
results and timetables could vary significantly from the estimates presented.
Readers are cautioned not to put undue reliance on forward-looking statements.
The Company disclaims any intent or obligation to update publicly these
forward-looking statements, whether as a result of new information, future
events or otherwise.
As announced by the Company on August 2, 1999, the firm of Ernst & Young
ceased to serve as the Company's independent accountants on July 27, 1999. On
October 25, 1999, the Company engaged the firm of Arthur Andersen LLP to serve
as the Company's independent accounting firm.
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<PAGE> 16
The following table sets forth the amounts of gold and silver produced by
the mining properties owned by the Company or in which the Company has an
interest, based on the amounts attributable to the Company's ownership interest,
and the cash and full costs of such production during the three- and nine-month
periods ended September 30, 1999 and 1998:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------- ---------------------------
1999 1998 1999 1998
---------- ---------- ----------- ----------
<S> <C> <C> <C> <C>
ROCHESTER MINE
Gold ozs 19,609 19,295 52,432 64,942
Silver ozs 1,520,043 1,814,459 4,540,061 5,055,676
Cash Costs per equiv. oz./silver $ 3.27 $ 3.98 $ 3.94 $ 4.21
Full Costs per equiv. oz./silver $ 3.98 $ 4.68 $ 4.77 $ 4.82
GALENA MINE
Silver ozs 577,579 441,988 1,448,589 1,206,910
Cash Costs per oz./silver $ 4.74 $ 3.94 $ 4.76 $ 4.26
Full Costs per oz./silver $ 5.74 $ 4.97 $ 5.82 $ 5.31
PRIMARY SILVER MINES
---------- ---------- ---------- ----------
Consolidated Cash Costs per oz $ 3.67 $ 3.97 $ 4.08 $ 4.24
---------- ---------- ---------- ----------
YILGARN STAR MINE
Gold ozs 7,014 7,544 20,568 31,289
Cash Costs per oz./gold $ 252 $ 232 $ 285 $ 225
Full Costs per oz./gold $ 458 $ 422 $ 482 $ 417
FACHINAL MINE
Gold ozs 6,081 7,443 19,664 21,247
Silver ozs 276,402 397,773 878,185 1,255,687
Cash Costs per equiv. oz./gold $ 277 $ 353 $ 293 $ 329
Full Costs per equiv. oz./gold $ 337 $ 542 $ 354 $ 523
PETORCA MINE
Gold ozs 7,946 7,060 23,341 28,702
Silver ozs 18,308 10,087 44,926 53,738
Cash Costs per oz./gold $ 287 $ 267 $ 272 $ 371
Full Costs per oz./gold $ 287 $ 267 $ 272 $ 429
OTHER (GOLDEN CROSS & COEUR)
Gold ozs N/A N/A N/A 15,858
Silver ozs N/A N/A N/A 180,169
Cash Costs per oz./gold N/A N/A N/A $ 211
Full Costs per oz./gold N/A N/A N/A $ 211
Cash Costs per oz./silver N/A N/A N/A $ 5.34
Full Costs per oz./silver N/A N/A N/A $ 6.37
PRIMARY GOLD MINES
---------- ---------- ---------- ----------
Consolidated Cash Costs per oz $ 273 $ 301 $ 285 $ 297
---------- ---------- ---------- ----------
CONSOLIDATED TOTALS
Gold ozs 40,650 41,342 116,005 162,038
Silver ozs 2,392,332 2,664,307 6,911,791 7,752,180
</TABLE>
NOTES TO SIGNIFICANT CHANGES IN PRODUCTION AND/OR COST PER OUNCE DATA
Rochester Mine
For the quarter ended September 30, 1999, the mine produced 1,520,043
ounces of silver and 19,609 ounces of gold compared to
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<PAGE> 17
1,814,459 ounces of silver and 19,295 ounces of gold produced in the third
quarter of 1998. The increase in the gold production was primarily a result of
higher gold ore grades. In the third quarter of 1999, cash costs were $3.27 per
silver equivalent ounce compared to $3.98 per silver equivalent ounce in the
third quarter of 1998. Depreciation and depletion was $.65 and the reclamation
reserve was $.06 per ounce for a total cost of $3.98 per ounce.
The stage IV leach pad expansion was completed during the quarter ahead of
schedule and $.7 million under budget. Loading of crushed ore on the pad
commenced immediately. The new pad provides the mine with primary leaching
capacity for the next three years. The Company expects production in the fourth
quarter to be positively impacted by initiating leaching of the new pad and by
the expected increase in pit ore grades.
Coeur Rochester has purchased the mineral rights of the Nevada Packard
property adjacent to the Rochester Mine, in Nevada, for a sum of $2,070,800,
consisting of $1.4 million in cash and 155,638 shares of common stock of Coeur
equal in value to $670,800. The total acquisition will add 6.5 million tons of
ore containing 8.5 million ounces of silver and 17,000 ounces of gold. This
results in an acquisition cost of approximately $.22 per equivalent contained
ounce. The estimated production cost estimated to mine the Nevada Packard area
is approximately $3.47 per equivalent silver ounce. Acquisition of the Nevada
Packard property is expected to enhance Rochester's production by approximately
5.4 million equivalent ounces over the period 2001-2004.
Silver Valley Resources
The Company has acquired from Asarco, Inc. its 50% interest in Silver
Valley Resources, bringing its share to 100% of SVR. Silver Valley Resources is
the operator of the Coeur unit and Galena mines. Silver Valley Resources
discontinued operations at the Coeur unit in July 1998 and has concentrated its
efforts on the Galena mine. The Company's share of ounces produced from Silver
Valley Resources amounted to 577,579 ounces of silver in the third quarter of
1999 compared to 441,988 ounces of silver produced in the third quarter of 1998.
The increase was due to the 50% increased ownership in September 1999. The third
quarter consolidated cash cost of production per ounce of silver produced at
Silver Valley Resources was $4.74 compared to $3.94 in the prior year's third
quarter. Depreciation and reclamation in the third quarter of 1999 was $1.00 per
ounce for a full cost of $5.74 per ounce compared to $4.97 per ounce for the
third quarter of 1998.
Yilgarn Star Mine
Coeur's share of production for the third quarter of 1999 from the Yilgarn
Star Mine amounted to 7,014 ounces of gold compared to 7,544 ounces of gold for
the third quarter of 1998. Cash cost of production amounted to $252 per ounce
compared to $232 per ounce during the same period of 1998. Noncash costs were
$206 per ounce
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<PAGE> 18
for a full cost of $458 per ounce in the third quarter of 1999 compared to $422
per ounce reported in the same period of 1998.
Fachinal Mine
Fachinal produced 276,402 ounces of silver and 6,081 ounces of gold in the
third quarter of 1999 compared with 397,773 ounces of silver and 7,443 ounces of
gold in the third quarter of 1998. Cash costs, including smelting and refining,
were $277 per gold equivalent ounce compared to $353 in the third quarter of
1998. Depreciation was $51 per equivalent gold ounce and the reserve for
reclamation was $9 per equivalent gold ounce for a full cost of $337 per
equivalent gold ounce in the third quarter of 1999. This compares with a full
cost for the third quarter of 1998 of $542.30 per equivalent gold ounce. The
lower full cost was due to the reduction of the carrying amount associated with
the write-down taken in the fourth quarter of 1998.
Petorca
In the third quarter of 1999, the mine produced 7,946 ounces of gold
compared to 7,060 ounces reported in the third quarter of 1998. Cash costs in
the third quarter of 1999 were $287 per ounce compared to $267 per ounce in the
third quarter of 1998.
RESULTS OF OPERATIONS
Three Months Ended September 30, 1999 Compared to Three Months
Ended September 30, 1998.
Revenues
Product sales in the third quarter of 1999 decreased by $1.9 million, or
8%, from the third quarter of 1998 to $22.0 million. The decrease in sales is
primarily attributable to decreased production. In the third quarter of 1999,
the Company produced a total of 2,392,332 ounces of silver and 40,650 ounces of
gold compared to 2,664,307 ounces of silver and 41,342 ounces of gold in the
third quarter of 1998. In the third quarter of 1999, the Company realized
average silver and gold prices of $5.22 and $328.60, respectively, compared with
realized average prices of $5.18 and $300.87, respectively, in the prior year's
third quarter. The decreases in the ounces of silver and gold produced during
the third quarter of 1999 are primarily attributable to (i) a reduction in the
gold grade at the Rochester Mine, (ii) the discontinuation of operations at the
Coeur Mine in July 1998, (iii) the mining of lower-than-anticipated grade of
gold at the Yilgarn Star Mine due to ground control problems and flooding
resulting from heavy rainfall, (iv) the discontinuation of operations at the
Golden Cross Mine in April 1998 and (v) a planned reduction in production at the
Petorca Mine.
Costs and Expenses
Production costs in the third quarter of 1999 decreased by $1.0 million, or
5.7%, from the third quarter of 1998 to $16.2 million.
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<PAGE> 19
The decrease in production costs is primarily a result of cost reduction
programs initiated in 1998 at the Company's operations.
Depreciation and amortization decreased in the third quarter of 1999 by
$2.3 million, or 37.7%, from the prior year's third quarter, primarily due to
writedown of mining properties taken in the fourth quarter of 1998.
Administrative and general expenses decreased $485,000 in the third quarter
of 1999 compared to 1998, due to cost reduction programs initiated in June 1999.
Writedown of mining properties and other costs and expenses increased in
the third quarter of 1999 by $2.9 million from the third quarter of 1998 due to
litigation costs incurred to pursue the Cyprus suit and asset values writedown
at the Golden Cross mine.
Interest and other income in the third quarter of 1999 increased by $14.5
million, or 736.9%, compared with the third quarter of 1998. The increase is due
primarily to the $21.1 million gain recorded from the Cyprus settlement offset
by $5.8 million unrealized loss on the mark to market adjustment on the call
option portion of the Company's hedge program. The 1998 third quarter results
included a gain on early retirement of debt of $6.3 million.
Net Income (Loss)
As a result of the above mentioned factors, the Company's net income
amounted to $9.6 million in the third quarter of 1999 compared to a net loss of
$21,000 in the third quarter of 1998. The net income resulted primarily from the
settlement recieved from Cyprus. Net loss, excluding the non-recurring charges
in the third quarters of 1998 and 1999, was $6.1 million, as compared to $6.3
million for the comparable period of 1998. In the third quarter of 1999, the
Company paid dividends of $2.6 million on its Mandatory Adjustable Redeemable
Convertible Securities (MARCS). As a result, the income attributable to common
shareholders was $7.0 million, or $.29 per share, for the third quarter 1999,
compared to a loss of $2.7 million, or $.12 per share, for the third quarter of
1998.
Nine Months Ended September 30, 1999 Compared to Nine Months
Ended September 30, 1998
Revenues
Product sales for the nine months ended September 30, 1999 decreased by
$16.6 million, or 21.5%, from the nine months ended September 30, 1998 to $60.7
million. The decrease in sales is primarily attributable to lower production at
the Company's operations. For the nine months ended September 30, 1999, the
Company produced a total of 6,911,791 ounces of silver and 116,005 ounces of
gold compared to 7,752,180 ounces of silver and 162,038 ounces of gold in the
nine months ended September 30, 1998. For the nine months ended September 30,
1999, the Company realized average silver and
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<PAGE> 20
gold prices of $5.20 and $321.18, respectively, compared with realized average
prices of $5.76 and $314.87, respectively, in the prior year.
Interest and other income for the nine months ended September 30, 1999
increased by $10.9 million, or 138.7%, compared with the third quarter of 1998.
The increase is due primarily to the gain recorded of $21.1 million on the
settlement of the Cyprus suit, reduced by the $5.8 million unrealized loss on
the call options mark to market adjustment and lower interest received on
investments.
The decreases in the ounces of silver and gold produced during the nine
months ended September 30, 1999 are primarily attributable to (i) a reduction in
the gold grade at the Rochester Mine, (ii) the discontinuation of operations at
the Coeur Mine in July 1998, (iii) the mining of lower-than-anticipated grade of
gold at the Yilgarn Star Mine due to ground control problems and flooding
resulting from heavy rainfall, (iv) the discontinuation of operations at the
Golden Cross Mine in April 1998 and (v) a planned reduction in production at the
Petorca Mine.
Costs and Expenses
Production costs decreased in the nine months ended September 30, 1999 by
$6.7 million, or 13.2%, from the nine months ended September 30, 1998 to $44.0
million. The decrease was primarily due to the decrease in production at several
of the operations as discussed above.
Depreciation and amortization decreased in the nine months ended September
30, 1999 by $9.1 million, or 40.7%, from the prior nine months ended September
30, 1998, primarily due to the decreased depreciation and depletion from the
Fachinal and Petorca mines after they were written off in 1998.
Administrative and general expenses decreased $1.5 million in the nine
months ended September 30, 1999 compared to the same period in 1998 due to a
cost savings plan initiated at the corporate office.
Writedown of mining properties and other costs and expenses decreased by
$50.9 million in the nine months ended September 30, 1999 due to the writedown
of the Petorca Mine of $54.5 million during the first quarter of 1998, offset by
a Company-wide severance payout for reduction in workforce of $.3 million and
due to increased legal expenses incurred in the Company's lawsuit against Cyprus
of $1.8 million in the first nine months of 1999.
Net Loss
As a result of the above mentioned factors, the Company's net loss amounted
to $4.6 million for the nine months ended September 30, 1999 compared to a net
loss of $63.1 million for the nine months ended September 30, 1998. For the nine
months ended September 30, 1999, the Company paid dividends of $7.9 million on
its Mandatory
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<PAGE> 21
Adjustable Redeemable Convertible Securities (MARCS). As a result, the loss
attributable to common shareholders was $12.5 million, or $.56 per share, for
the nine months ended September 30, 1999, compared to a loss of $71.0 million,
or $3.24 per share, for the nine months ended September 30, 1998.
LIQUIDITY AND CAPITAL RESOURCES
Working Capital; Cash and Cash Equivalents
The Company's working capital at September 30, 1999 was approximately
$167.6 million compared to $153.8 million at December 31, 1998. The ratio of
current assets to current liabilities was 6.2 to 1.0 at September 30, 1999
compared to 6.0 to 1.0 at December 31, 1998.
Net cash provided from (used in) operating activities in the nine months
ended September 30, 1999 was $4.9 million compared to $(10.4) million in the
nine months ended September 30, 1998. Net cash used in investing activities in
the 1999 period was $19.6 million compared to net cash provided by investing
activities of $68.9 million in the prior year's comparable period. The cash
provided in the 1998 period was attributable to proceeds received from sales of
short-term investments and marketable securities in the first nine months of
1998. Net cash used in financing activities was $10.0 million in the first nine
months of 1999 and $31.8 million in the first nine months of 1998. As a result
of the above, cash and cash equivalents decreased by $24.7 million in the first
nine months of 1999 compared to a $26.8 million increase for the comparable
period in 1998.
Acquisition of Silver Assets from ASARCO Incorporated
On September 8, 1999, the Company acquired most of ASARCO's silver mining
assets in exchange for the issuance of 7.125 million shares of the Company's
Common Stock. The silver mining assets involved include ASARCO's 50% interest in
Silver Valley Resources Corporation; ASARCO's wholly-owned subsidiary, Empressa
Minera Manquiri S.R.L., which owns the San Bartolome property, an early stage
silver development property in Bolivia; 1.5 million shares, representing an
approximate 5% interest in Pan American Silver Corporation of Vancouver, British
Columbia and warrants for an additional 500,000 shares; and a 100% interest in
NPMC, Inc., which owns a 20% net profits interest in the Quiruvilca Silver Mine
in Peru operated by Pan American Silver Corporation.
Federal Natural Resources Action
On March 22, 1996, an action was filed in the United States District for
the District of Idaho by the United States against various defendants, including
the Company, asserting claims under CERCLA and the Clean Water Act for alleged
damages to federal natural resources in the Coeur d'Alene River Basin of
Northern Idaho as a result of alleged releases of hazardous substances from
mining
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<PAGE> 22
activities conducted in the area since the late 1800s. No specific monetary
damages were identified in the complaint. However, in July 1996, the government
indicated that damages may approximate $982 million. The United States asserts
that the defendants are jointly and severally liable for costs and expenses
incurred by the United States in connection with the investigation, removal and
remedial action and the restoration or replacement of affected natural
resources. In 1986 and 1992, the Company had settled similar issues with the
State of Idaho and the Coeur d'Alene Indian Tribe, respectively, and believes
that those prior settlements exonerate it of further involvement with alleged
natural resource damage in the Coeur d'Alene River Basin. Accordingly, the
Company intends to vigorously defend this matter.
In March 1997, the Company filed a motion for partial summary judgement
relating to the issue of trusteeship, essentially arguing that the United States
does not have authority to sue for damages to state natural resources and that
the 1986 settlement with the state bars the federal claims. That motion remains
pending. In September 1997, the Company filed an additional motion for partial
summary judgement raising the statute of limitations as to natural resource
damages. That motion was granted by the Court on September 30, 1998. The Court's
granting of that motion limits the United States' natural resource damage claims
to the 21 square mile Bunker Hill Superfund site area rather than the entire
Coeur d'Alene Basin. Although that ruling limits the geographic coverage of the
United States' action, the ruling does not prohibit the EPA from attempting to
utilize its hazard ranking system which could potentially broaden the scope of
the United States' allegations. On March 31, 1998, the Court entered an order
denying the plaintiffs' motion to allow the United States to prove a portion of
its case pursuant to an administrative record, requiring the parties to submit
further facts as to the issue of trusteeship. Furthermore, in March 1998, the
EPA announced its intent to perform a remedial investigation/feasibility study
upon all or parts of the Coeur d'Alene Basin and, thereby, to apparently focus
upon response costs rather than natural resource damages. In September 1998, the
Company filed an additional motion for partial summary judgment asserting that
CERCLA as applied to the Company in the action is not constitutional under the
takings and due process provisions of the United States Constitution. At this
stage of the proceeding, it is not possible to predict its ultimate outcome.
Settlement of Golden Cross Lawsuit
On July 15, 1996, the Company filed a complaint against Cyprus Amax
Minerals Company ("Cyprus") in the District Court of the State of Idaho,
Kootenai County alleging violations by Cyprus of the anti-fraud provisions of
the Idaho and Colorado Securities Acts as well as common law fraud in connection
with Cyprus' sale in April 1993 to the Company of Cyprus Exploration and
Development Corporation, which owned all the shares of Cyprus Gold New Zealand
Limited, which, in turn, owned an 80% interest in the Golden Cross Mine in New
Zealand. The Company's lawsuit seeks recession and an unspecified amount of
damages arising from alleged misrepresentations and failure to
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<PAGE> 23
disclose material facts alleged to have been known by Cyprus officials regarding
ground movement and instability, threatening the integrity of the mine site at
the time of Coeur's purchase of the property. In October 1997, Cyprus filed a
counterclaim alleging libel by the Company in its press release announcing the
write-off of the Golden Cross Mine and seeking an unspecified amount of damages.
On February 3, 1999, the Company filed a second amended complaint which
specifies damages in the amount of approximately $54 million together with
pre-judgement and post-judgement interest as well as unspecified costs incurred
resulting from the violations of law alleged. Cyprus filed, on February 17,
1999, a motion to vacate the trial date and a motion to dismiss the second
amended complaint. On July 12, 1999, the Court entered an order denying the
motion to dismiss and the motion to vacate the trial date.
During the third quarter of 1999, the Company received settlement from
Cyprus Minerals Company for Coeur's lawsuit against Cyprus relating to the
Golden Cross Mine in New Zealand of $31.5 million.
As a result of the settlement of this lawsuit, Coeur has recorded other
income of approximately $21.1 million during the third quarter of 1999. This is
the net amount of settlement proceeds after the deduction of the $4.4 million
payment to Coeur's flood insurance carrier and $6 million payment to the
plaintiffs in the class action.
Class Action Securities Lawsuit
On July 2, 1997, a suit was filed by purchasers of the Company's Common
Stock in Federal District Court for the District of Colorado naming the Company
and certain of its officers and its independent auditor as defendants. Plaintiff
alleges that the Company violated the Securities Exchange Act of 1934 during the
period January 1, 1995 to July 11, 1996, and seeks certification of the law suit
as a class action. The class members are alleged to be those persons who
purchased publicly traded debt and equity securities of the Company during the
time period stated. On September 22, 1997, an amended complaint was filed in the
proceeding adding other security holders as additional plaintiffs. The action
seeks unspecified compensatory damages, pre-judgment and post-judgment interest,
attorney's fees and costs of litigation. The complaint asserts that the
defendants knew material adverse non-public information about the Company's
financial results which was not disclosed, and which related to the Golden Cross
and Fachinal Mines; and that the defendants intentionally and fraudulently
disseminated false statements which were misleading and failed to disclose
material facts.
On April 16, 1998, the Court entered an order dismissing the auditors from
the suit and denying the Company's and the individual defendants' motions to
dismiss. On October 9, 1998, the Court heard arguments on the question on
whether a class should be certified and on December 14, 1998, the Court entered
an order certifying a class.
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<PAGE> 24
In December 1998, the parties to the suit determined that the further conduct of
the case would be protracted and expensive and commenced discussions with a view
toward settlement of the action. Although the Company continued to deny each of
the plaintiffs' claims and allegations, the Company determined it would be in
the best interests of the Company to settle the suit and agreed to enter into a
Stipulation of Settlement which was filed by the parties with the Court on March
1, 1999. The terms of the proposed settlement provide that (i) the Company's
directors and officers liability insurance carrier will pay $7 million to a
settlement fund for the benefit of the plaintiffs; and (ii) the plaintiffs will
be entitled to 50% of the net proceeds, up to a maximum of $6 million, (after
the Company has first recouped its costs and expenses incurred in litigating its
above-described lawsuit against Cyprus relating to Golden Cross and after
deducting an $8 million reserve against the asserted subrogation claim of the
Company's flood insurance carrier) actually received by the Company from its
Golden Cross lawsuit against Cyprus. The Stipulation of Settlement contains
strong denials of liability by the defendants as well as acknowledgments by the
plaintiffs that they were unable to identify significant evidence to support a
large portion of their claims. Final consummation of the settlement is subject
to Court approval and to dismissal with prejudice of the derivative action
described below. On July 15, 1999, the Court gave final approval to the
settlement and authorized the submission of the settlement terms to the class
action shareholders.
Derivative Action
On or about August 17, 1998, a purported derivative action was filed on
behalf of the Company against Dennis E. Wheeler, James A. Sabala, James J.
Curran, Joseph C. Bennett, James A. McClure, Cecil D. Andrus and Duane B.
Hagadone in Federal District Court for the District of Idaho. The complaint
alleged that the defendant officers and directors breached their fiduciary
duties by authorizing the Company to purchase the Golden Cross Mine in New
Zealand in 1993 and by allegedly causing or permitting the Company to make
statements that the plaintiffs in the class action securities lawsuit described
above claim were false or misleading during the period from January 1, 1995
through July 11, 1996. The plaintiff sought unspecified damages on behalf of the
Company. On September 9, 1998, the plaintiff voluntarily dismissed the lawsuit
without prejudice in light of Idaho Code Sec. 30-1-742, which requires a demand
to be served on a company at least 90 days prior to the filing of a derivative
action. On September 25, 1998, the plaintiff sent a letter to the Company's
Board of Directors demanding that the Company, among other things, commence all
reasonable steps to settle the class action securities lawsuit described above,
and pursue claims against any officers, directors or third-party professionals
who may have known about the potential problems with the Golden Cross Mine
before the Company purchased an interest in it. The Board appointed a Special
Committee of directors to respond to that demand. On March 9, 1999, the Special
Committee recommended that the demand be rejected. The action previously
dismissed without prejudice has been dismissed with prejudice.
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<PAGE> 25
Year 2000 Issue
Management of the Company believes it has an effective program in place to
resolve the Year 2000 issue in a timely manner. Actual costs associated with
implementation of the Company's Year 2000 program are expected to be
insignificant to the Company's operations and financial condition. As of
September 30, 1999, the Company has incurred approximately $220,000 of costs
related to the Y2K issue. The Company presently estimates that the remaining
projected costs, primarily for professional consulting services, will be less
than $80,000.
The Company currently has a program underway to ensure that all significant
computer systems are substantially Year 2000 compliant by the year ended
December 31, 1999. The program is divided into three major components: (1)
identification of all information technology systems ("IT Systems") and
non-information technology systems ("Non-IT Systems") that are not Year 2000
compliant; (2) repair or replacement of the identified non-compliant systems;
and (3) testing of the repaired or replaced systems. The Company has no "in
house" developed or proprietary IT Systems. The Company uses
commercially-developed software, the majority of which is regularly upgraded
through existing maintenance contracts. Parts (1), (2) and (3) of the Year 2000
program are currently underway. Part (1), identification and review of
non-compliant accounting and financial reporting systems is finished and the
Company is continuing to review Non-IT Systems that have embedded
microprocessors in various types of equipment. Part (2), repairing and
replacing, currently continues. Software vendors have made Year 2000 compliant
software revisions available, which the Company is installing under maintenance
agreements. The Company estimates that approximately 85% of its IT systems and
approximately 3% of its non-IT systems have completed Part (2). Parts (1) and
(2) of the process are scheduled to be completed in the Company's fourth quarter
ended December 31, 1999. Part (3), testing currently continues and is scheduled
to finish in December 1999.
The Company began contacting key suppliers and business partners about the
Year 2000 issue during the third quarter of 1998 and continues to survey these
parties. While no assurance can be given that key suppliers and business
partners will remedy their own Year 2000 issues, the Company, to date, has not
identified any material impact on its ability to continue normal business
operations with suppliers or other third parties who fail to address the issue.
The Company will continue to monitor and evaluate the impact of the Year
2000 issue on its operations. Until the Company is into the final testing stages
of its program, the risks from potential Year 2000 failures cannot be fully
assessed. Due to this situation, the Company cannot at this stage begin final
contingency plans. These plans will be developed as potential Year 2000 failures
are identified in the final testing stages.
25
<PAGE> 26
As noted above, the Company has not yet completed all necessary phases of
the Year 2000 program. In the event that the Company does not complete any
additional phases, sales functions and other processes could be impacted. In
addition, disruptions in the economy generally resulting from Year 2000 issues
could also materially adversely affect the Company. The Company could be subject
to litigation for computer systems' failure to properly date business records.
The amount of potential liability and lost revenue cannot be reasonably
estimated at this time.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to various market risks as a part of its operations.
As an effort to mitigate losses associated with these risks, the Company may ,
at times, enter into derivative financial instruments. These may take the form
of forward sales contracts, foreign currency exchange contracts and interest
rate swaps. The Company does not actively engage in the practice of trading
derivative securities for profit. This discussion of the Company's market risk
assessments contains "forward looking statements" that contain risks and
uncertainties. Actual results and actions could differ materially from those
discussed below.
The Company's operating results are substantially dependent upon the world
market prices of silver and gold. The Company has no control over silver and
gold prices, which can fluctuate widely and are affected by numerous factors,
such as supply and demand and investor sentiment. In order to mitigate some of
the risk associated with these fluctuations, the Company will at times, enter
into forward sale contracts. The Company continually evaluates the potential
benefits of engaging in these strategies based on the then current market
conditions. The Company may be exposed to nonperformance by counterparties as a
result of its hedging activities. This exposure would be limited to the amount
that the spot price of the metal falls short of the contract price.
The Company operates in several foreign countries, specifically Australia,
Bolivia, New Zealand and Chile, which exposes it to risks associated with
fluctuations in the exchange rates of the currencies involved. As part of its
program to manage foreign currency risk, the Company will enter into foreign
currency forward exchange contracts. These contracts enable the Company to
purchase a fixed amount of foreign currencies. Gains and losses on foreign
exchange contracts that are related to firm commitments are designated and
effective as hedges and are deferred and recognized in the same period as the
related transaction. All other contracts that do not qualify as hedges are
mark-to-market and the resulting gains or losses are recorded in income. The
Company continually evaluates the potential benefits of entering into these
contracts to mitigate foreign currency risk and proceeds when it believes that
the exchange rates are most beneficial.
26
<PAGE> 27
All of the Company's long term debt at September 30, 1999 is fixed-rate
based. The Company's exposure to interest rate risk, therefore, is limited to
the amount it could pay at current market rates. The Company currently does not
have any derivative financial instruments to offset the fluctuations in the
market interest rate. It may choose to use instruments, such as interest rate
swaps, in the future to manage the risk associated with interest rate changes.
The following table summarizes the information at September 30, 1999
associated with the Company's financial and derivative financial instruments
that are sensitive to changes in interest rates, commodity prices and foreign
exchange rates. For long term debt obligations, the table presents principal
cash flows and related average interest rates. For gold put and call options and
amortizing forward sales, the table presents ounces expected to be delivered and
the related average price per ounce in Australian dollars. For foreign currency
exchange contracts, the table presents the notional amount in New Zealand
dollars to be purchased along with the average foreign exchange rate.
27
<PAGE> 28
<TABLE>
<CAPTION>
(dollars in thousands) 1999 2000 2001 2002 2003 Thereafter
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
LIABILITIES
Long Term Debt
Fixed Rate $ - $ - $ - $42,629 $ - $200,649
Average Interest Rate 6.695% 6.695% 6.695% 6.771% 6.843% 7.190%
DERIVATIVE FINANCIAL INSTRUMENTS
Gold Put Options
Purchased - AUD
Ounces 7,500 30,000 30,000 30,000 30,000 -
Price Per Ounce $ 604.85 $ 604.85 $597.00 $597.00 $597.00 $ -
Gold Call Options
Sold - AUD
Ounces - 15,000 - - - -
Price Per Ounce $ - $ 545.00 $ - $ - $ - $ -
Gold Put Options
Purchased - USD
Ounces 14,000 36,000 - - - -
Price Per Ounce $ 265.00 $ 265.00 $ - $ - $ - $ -
Gold Call Options
Sold - USD ptions
Ounces - - - - 56,000
Price Per Ounce $ - $ - - $ - $ - $ 345.00
Amortizing Forward Sales
Sales
Ounces 10,000 40,000 40,000 40,000 40,000 180,000
Price Per Ounce $ 348.58 $348.58 $348.50 $348.50 $348.50 $ 348.50
Foreign Currency
Contracts
New Zealand Dollar $ 1,500 $ 3,600 $ - $ - $ - $ -
Exchange Rate
(NZ$ to US$) 2.106 2.124 - - - -
Chilean Pesos $2,383,338 $ - $ - $ - $ - $ -
Exchange Rate
(Peso to US$) 512.546 - - - - -
<CAPTION>
Fair
Value
(dollars in thousands) Total 9/30/99
- ---------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES
Long Term Debt $154,147
Fixed Rate
Average Interest Rate $243,278
DERIVATIVE FINANCIAL INSTRUMENTS
Gold Put Options
Purchased - AUD $ 11,706
Ounces 127,500
Price Per Ounce
Gold Call Options
Sold - AUD ptions $ -
Ounces 15,000
Price Per Ounce
Gold Put Options
Purchased - USD $ -
Ounces 50,000
Price Per Ounce
Gold Call Options
Sold - USD ptions $ -
Ounces 56,000
Price Per Ounce
Amortizing Forward Sales
Sales $ 2,479
Ounces 350,000
Price Per Ounce
Foreign Currency
Contracts $ 209
New Zealand Dollar $ 5,100
Exchange Rate
(NZ$ to US$)
$(154)
Chilean Pesos $2,383,338
Exchange Rate
(Peso to US$)
</TABLE>
(1) Of the put options purchased, 108,000 ounces have a knock-out provision
whereby the options will terminate if gold trades above $350 per ounce
prior to the exercise date.
(2) The majority of the call options sold have a knock-out provision; whereby
calls for 56,000 ounces will terminate if gold trades below $300 per ounce
after March 31, 2001, and calls for 300,000 ounces will terminate if gold
trades below $310 per ounce at any time after March 31, 2001.
28
<PAGE> 29
PART II. Other Information
Item 1. Legal Proceedings
As reported in the Company's Form 8-K filed on September 8, 1999, and
discussed above under "Management's Discussion and Analysis of Financial
Condition and Results of Operations-Liquidity and Capital Resources," the
Company's Board of Directors announced on September 8, 1999 that it accepted the
offer of Cyprus Minerals Company ("Cyprus") to settle the Company's lawsuit
against Cyprus relating to the Golden Cross Mine in New Zealand for $31.5
million.
Item 2. Change in Securities and Use Proceeds
(c) Unregistered Issuance of Equity Securities.
On August 13, 1999, the Company issued 155,638 shares of Common Stock to
the two holders of all the outstanding capital stock of Packard Mining, Inc.
("Packard") in exchange for such Packard capital stock. Packard has a leasehold
interest in the Nevada Packard Property which is located south of and adjacent
to the Company's Rochester Mine. The purchase price of the Packard stock was
$670,800 and the number of shares of the Company's Common Stock issued in
payment of such purchase price was determined by the average closing price of
the Common Stock on the New York Stock Exchange during the 90-day period
preceding the execution of the agreement between the Company and the
shareholders of Packard entered into on July 14, 1999. On August 6, 1999, the
Company also acquired seven patented and 37 unpatented mining claims located on
the Nevada Packard Property from the owners thereof for a cash purchase price of
$1.4 million. The Company plans to continue its exploratory drilling activities
on the Nevada Packard Property.
Item 4. Submission of Matters to a Vote of Security Holders
The Company's Annual Meeting of Shareholders was held on September 8, 1999.
A total of 21,900,579 shares of Common Stock and 7,077,833 shares of Mandatory
Adjustable Redeemable Convertible Securities ("MARCS") were outstanding and
entitled to vote at the Annual Meeting.
The first proposal was the election of directors. The following persons
were nominated and elected to serve as members of the Board of Directors for one
year or until their successors are elected and qualified by the votes indicated:
Cecil D. Andrus (24,411,536 for and 917,351 withheld), Joseph C. Bennett
(24,434,805 for and 894,082 withheld), James J. Curran (24,462,697 for and
866,190 withheld), James A. McClure (24,044,004 for and 1,284,883 withheld),
Robert E. Mellor (24,409,824 for and 919,063 withheld), John H. Robertson
(24,433,379 for and 895,508 withheld), Timothy R. Winterer
29
<PAGE> 30
(24,439,058 for and 889,829 withheld) and Dennis E. Wheeler (24,423,789 for and
905,098 withheld).
The second proposal was the proposed issuance of 7.125 million shares of
the Company's Common Stock for the acquisition of certain silver assets of
Asarco Incorporated. The proposal was approved by more than the required
majority of the shares of Common Stock and MARCS voting as a single class at the
meeting. The proposal was approved by a vote of 12,626,863 shares for
(representing 95.7% of the shares voting), 568,706 shares against with 258,849
shares abstaining.
The third proposal was a proposed amendment to Article II of the proposed
Restated and Amended Articles of Incorporation increasing the number of
authorized shares of Common Stock from 60 million to 125 million shares. The
proposal as approved by more than the required majority of the outstanding
shares of Common Stock and MARCS voting as a class at the meeting. The proposal
was approved by the vote of 22,568,762 shares for (representing 89.1% of the
shares voting), 2,449,326 shares against with 310,799 shares abstaining. The
proposal therefore was adopted.
The fourth proposal was a proposed amendment to Article II of the proposed
Restated and Amended Articles of Incorporation increasing the number of
authorized shares of Preferred Stock from 10 million to 20 million shares. The
proposal was required to be approved by both (i) a majority of the shares of
Common Stock and MARCS voting as a single class at the meeting and (ii) a
majority of the outstanding shares of MARCS. The proposal failed to be approved
by a majority of the outstanding MARCS, with 3,381,791 shares of MARCS voting
for (representing 47.8% of the outstanding MARCS), 671,892 shares of MARCS
voting against with 61,460 shares of MARCS abstaining. The proposed amendment
was therefore not adopted.
The fifth proposal was a proposed amendment to Article VI of the proposed
Restated and Amended Articles of Incorporation conforming the language relating
to the limitation of the liability of directors to the provisions of the Idaho
Business Corporation Act, as amended effective July 1, 1997 (the "New Idaho
Act"). The proposal was approved by more than the required majority of the
shares of Common Stock and MARCS voting as a class at the meeting. The proposal
was approved by a vote of 22,608,569 shares for (representing 89.3% of the
shares voting), 2,008,943 shares against with 711,375 shares abstaining. The
proposal therefore was adopted.
The sixth proposal was to approve Article VII of the proposed Restated and
Amended Articles of Incorporation providing a new provision relating to the
indemnification of directors that is permitted under the New Idaho Act. The
proposal was approved by more than the required majority of the outstanding
shares of Common Stock and MARCS voting as a class at the meeting. The proposal
was approved by a vote of 22,694,383 shares for (representing 89.6% of the
shares voting), 1,860,438 shares against and 774,066 shares abstaining.
30
<PAGE> 31
The seventh proposal consisted of revisions to two provisions in the
Company's prior Articles of Incorporation. The first revision was to set forth
the new street address of the Company's registered office and name of registered
agent as required by the New Idaho Act and the other revision sets forth the
name and address of each of the Company's original incorporators as called for
by the New Idaho Act. The proposal was approved by more than the required
majority of the shares of Common Stock and MARCS voting as a class at the
meeting. The proposal was approved by a vote of 23,535,321 shares for
(representing 92.9% of the shares voting), 1,154,416 shares against with 639,150
shares abstaining. The proposal therefore was adopted.
The Restated and Amended Articles of Incorporation contain fewer provisions
than are contained in the prior Articles of Incorporation as a result of the
deletion of five of the prior articles that are no longer called for by the New
Idaho Act. The following list identifies the changes made in the Restated and
Amended Articles of Incorporation:
<TABLE>
<CAPTION>
New Article
Article Number in
Number in Restated and
Prior Amended Articles
Articles of Incorporation of Incorporation Nature of Change
-------------------------------- ----------------------------------- -----------------
<S> <C> <C>
I I No Change
II - Deleted
III III New street address of registered office and
name of registered agent
IV - Deleted
V - Deleted
VI II Increase in authorized number of shares of
Common Stock
VII IV Name and address of each of the Company's
original incorporators
VIII - Deleted
IX V No change
X VI Revision in language regarding the
limitation of director liability to conform
with the New Idaho Act
XI - Deleted
- VII New provision relating to director
indemnification as permitted under the New
Idaho Act
</TABLE>
A copy of the Restated and Amended Articles of Incorporation, as filed with
the Secretary of State of the State of Idaho effective September 13, 1999, is
filed as an exhibit to this Form 10-Q.
Item 5. Other Information
As reported by the Company in its Form 8-K filed on September 9, 1999, and
discussed above under "Management's Discussion and Analysis of Financial
Condition and Results of Operations-Acquisition of Silver Assets of Asarco
Incorporated," the Company consummated its acquisition of certain silver mining
assets of Asarco Incorporated ("Asarco") on September 9, 1999 in exchange for
the issuance of 7.125 million shares of the Company's Common Stock. Pursuant to
the Transition Agreement between the Company and Asarco, the Board of Directors
appointed Francis R. McAllister, Chairman of the Board and
31
<PAGE> 32
Chief Executive Officer of Asarco, and Kevin R. Morano, President and Chief
Operating Officer of Asarco, to serve as members of the Company's Board of
Directors.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits. The following exhibits are filed here-with:
Exhibit No. Document
3 Restated and Amended Articles of Incorporation of the
Registrant as filed with the Secretary of State of the
State of Idaho effective September 13, 1999.
27 Financial Data Schedule
(b) Forms 8-K. The Company filed Current Reports on Form 8-K on
August 3, 1999 (reporting the Company's determination on July 27,
1999 that the firm of Ernst & Young LLP would no longer serve as
the Company's independent accounting firm), September 8, 1999
(reporting the Company's acceptance of the offer of Cyprus
Minerals Company to settle the Company's lawsuit against Cyprus
relating to the Golden Cross Mine in New Zealand), September 9,
1999 (reporting the consummation on that date of the Company's
acquisition of silver mining assets of Asarco Incorporated) and
October 27, 1999 (reporting the Company's engagement on October
25, 1999 of Arthur Andersen LLP to serve as the Company's
independent accounting firm).
32
<PAGE> 33
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COEUR D'ALENE MINES CORPORATION
-------------------------------
(Registrant)
Dated November 12, 1999 /s/ Dennis E. Wheeler
----------------------
DENNIS E. WHEELER
Chairman, President and
Chief Executive Officer
Dated November 12, 1999 /s/ Geoffrey A. Burns
----------------------
GEOFFREY A. BURNS
Vice President and
Chief Financial Officer
33
<PAGE> 1
Exhibit 3
RESTATED AND AMENDED ARTICLES OF INCORPORATION
OF
COEUR D'ALENE MINES CORPORATION
Pursuant to the provisions of Section 30-1-1007 of the Idaho Business
Corporation Act, the undersigned corporation, pursuant to resolutions duly
adopted by its board of directors and shareholders, hereby adopts the following
restated and amended articles of incorporation:
ARTICLE I
That the name of said corporation shall be "COEUR D'ALENE MINES
CORPORATION."
ARTICLE II
(a) The corporation is authorized to issue two classes of shares of capital
stock to be designated, respectively, "common stock" and "preferred stock". The
total number of such shares which the corporation shall have the authority to
issue shall be 135 million. The total number of shares of common stock
authorized to be issued shall be 125 million shares, $1.00 par value per share,
and the total number of shares of preferred stock authorized to be issued shall
be 10 million, $1.00 par value per share.
(b) The shares of preferred stock may be issued from time to time in one or
more series. The Board of Directors is hereby authorized to establish from time
to time by resolution of resolutions the number of shares to be included in each
such series, and to fix the designation, powers, preferences and relative
participating, optional, conversion and other special rights of the shares of
each such series and the qualifications, limitations or restrictions thereof,
including but not limited to the fixing or alteration of the dividend rights,
dividend rate or rates, conversion rights, voting rights, rights and terms of
redemption (including sinking fund provisions), the redemption price or prices,
and the liquidation preferences of any wholly unissued series of shares of
preferred stock, or any or all of them, all to the fullest extent now or
hereafter permitted by the Idaho Business Corporation Act; and to increase or
decrease the authorized number of shares of any series subsequent to the issue
of shares of that series. In case the number of shares of any
<PAGE> 2
series shall be so decreased, the shares constituting such decrease shall resume
the status which they had prior to the adoption of the resolution originally
fixing the number of shares of such series. No vote of the holders of the common
stock or preferred stock shall, unless otherwise provided in the resolutions
adopted by the Board of Directors creating any particular series of preferred
stock, be a prerequisite to the issuance of any shares of any series of the
preferred stock authorized by and complying with the conditions of this Article.
(c) Holders of the corporation's common stock shall have no preemptive
rights to acquire unissued or treasury shares or securities convertible into
such shares of the corporation's capital stock or carrying a right to subscribe
to or acquire shares. Holders of the corporation's preferred stock shall have no
preemptive rights to acquire unissued or treasury shares of the corporation's
capital stock or carrying a right to subscribe to acquire shares, except to the
extent provided under the resolution or resolutions adopted by the Board of
Directors, creating any particular series of such preferred stock.
ARTICLE III
The street address of the corporation's registered office is 505 Front
Avenue, Coeur d'Alene, Idaho 83814 and the name of its registered agent at that
address is Dennis E. Wheeler.
ARTICLE IV
The name and address of each incorporator is Joseph R. Gunn of Spokane,
Washington, George Turner of Spokane, Washington, R.W. Nuzum of Spokane,
Washington and Fred T. Fudge of Kellogg, Idaho.
ARTICLE V
Section 1. Vote Required for Certain Business Combinations
A. Higher Vote for Certain Business Combinations. In addition to any
affirmative vote required by law or these Articles of Incorporation, and except
as otherwise expressly provided in Section 2 of this Article V:
(i) any merger or consolidation of the Company or any Subsidiary (as
hereinafter defined) with (a) any Interested Shareholder (as hereinafter
defined) or (b) any other corporation or other person (whether or not
itself an Interested Shareholder) which is, or after
2
<PAGE> 3
such merger or consolidation would be, an Affiliate (as hereinafter
defined) of an Interested Shareholder; or
(ii) any sale, lease, exchange, mortgage, pledge, transfer or other
disposition (in one transaction or a series of transactions) to or with any
Interested Shareholder or any Affiliate of any Interested Shareholder of
any assets of the Company or any Subsidiary (in one transaction or a series
of transactions) of any securities of the Company or any Subsidiary to any
Interested Shareholder or any Affiliate of any Interested Shareholder in
exchange for cash, securities or other property (or a combination thereof)
having an aggregate Fair Market Value of $20 million or more; or
(iii) the issuance or transfer by the Company or any Subsidiary (in
one transaction or a series of transactions) of any securities of the
Company or any Subsidiary to any Interested Shareholder or any Affiliate of
any Interested Shareholder in exchange for cash, securities or other
property (or a combination thereof) having an aggregate Fair Market Value
of $20 million or more; or
(iv) the adoption of any plan or proposal for the liquidation or
dissolution of the Company proposed by or on behalf of an Interested
Shareholder or any Affiliate of any Interested Shareholder; or
(v) any reclassification of securities (including any reverse stock
split), or recapitalization of the Company, or any merger or consolidation
of the Company with any of its Subsidiaries or any other transaction
(whether or not with or into or otherwise involving an Interested
Shareholder) which has the effect, directly or indirectly, of increasing
the proportionate share of the outstanding shares of any class of equity or
convertible securities of the Company or any Subsidiary which is directly
or indirectly owned by any Interested Shareholder or any Affiliate of any
Interested Shareholder;
shall require the affirmative vote of the holders of at least 80% of the shares
of Common Stock of the Company entitled to vote generally in the election of
directors (the "Common Stock"). Such affirmative vote shall be required
notwithstanding the fact that no vote may be required, or that a lesser
percentage may be specified, by law or in any agreement.
B. Definition of "Business Combination". The term
3
<PAGE> 4
"Business Combination" as used in this Article V shall mean any transaction
which is referred to in any one or more of clauses (i) through (v) of paragraph
A of this Section 1.
Section 2. When Higher Vote is Not Required. The provisions of Section 1 of
this Article V shall not be applicable to any particular Business Combination,
and such Business Combination shall require only such affirmative vote as is
required by law and any other provision of these Articles of Incorporation, if
all of the conditions specified in either of the following paragraphs A and B
are met:
A. Approval by Continuing Directors. The Business Corporation shall have
been approved by a majority of the Continuing Directors (as hereinafter
defined).
B. Price and Procedure Requirements. All of the following conditions
shall have been met:
(i) The aggregate amount of the cash and the Fair Market Value (as
hereinafter defined) as of the date of the consummation of the Business
Combination of consideration other than cash to be received per share by
holders of Common Stock in such Business Combination shall be at least
equal to the higher of the following:
(a) (if applicable) the highest per share price (including any
brokerage commissions, transfer taxes and soliciting dealers' fees)
paid by the Interested Shareholder for any shares of Common Stock
acquired by it (1) within the two-year period immediately prior to the
first public announcement of the proposal of the Business Combination
(the "Announcement Date") or (2) in the transaction in which it became
an Interested Shareholder, whichever is higher; and
(b) the Fair Market Value per share of Common Stock on the
Announcement Date or on the date on which the Interested Shareholder
became an Interested Shareholder (such latter date is referred to in
this Article V as the "Determination Date"), whichever is higher.
(ii) The consideration to be received by holders of the Common Stock
shall be in cash or in the same form as the Interested Shareholder has
previously paid for shares of such Common Stock. If the Interested
4
<PAGE> 5
Shareholder has paid for shares of Common Stock with varying forms of
consideration, the form of consideration for such Common Stock shall be
either cash or the form used to acquire the largest number of shares of
such Common Stock previously acquired by it.
(iii) After such Interested Shareholder has become an Interested
Shareholder, such Interested Shareholder shall not have received the
benefit, directly or indirectly (except proportionately as a shareholder),
of any loans, advances, guarantees, pledges or other financial assistance
or any tax credits or other tax advantages provided by the Company, whether
in anticipation of or in connection with such Business Combination or
otherwise.
(iv) A proxy or information statement describing the proposed Business
Combination and complying with the requirements of the Securities Exchange
Act of 1934 and the rules and regulations thereunder (or any subsequent
provisions replacing such Act, rules or regulations) shall be mailed to
public shareholders of the Company at least 30 days prior to the
consummation of such Business Combination (whether or not such proxy or
information statement is required to be mailed pursuant to such Act or
subsequent provisions).
Section 3. Certain Definitions. For the purposes of this Article V:
A. A "person" shall mean any individual, firm, corporation or other
entity.
B. "Interested Shareholder" shall mean any person (other than the Company
or any Subsidiary of the Company) which:
(i) is the beneficial owner, directly or indirectly, of more than 10%
of the outstanding shares of the Company's Common Stock; or
(ii) is an Affiliate of the Company and at any time within the
two-year period immediately prior to the date in question was the
beneficial owner, directly or indirectly, of 10% or more of the then
outstanding Common Stock; or
(iii) is an assignee of or has otherwise succeeded to any shares of
Common Stock which were at any time within the two-year period immediately
prior to the date in question beneficially owned by any Interested
Shareholder, if such assignment or
5
<PAGE> 6
succession shall have occurred in the course of a transaction or series of
transactions not involving a public offering within the meaning of the
Securities Act of 1933;
provided, however, that a person shall not be an Interested Shareholder if
such person became the beneficial owner of more than 10% of the Company's
Common Stock prior to April 3, 1985.
C. A person shall be a "beneficial owner" of any Common Stock:
(i) which such person or any of its Affiliates or Associates (as
hereinafter defined) beneficially owns, directly or indirectly; or
(ii) which such person or any of its Affiliates or Associates has (a)
the right to acquire (whether such right is exercisable immediately or only
after the passage of time), pursuant to any agreement, arrangement or
understanding or upon the exercise of conversion rights, exchange rights,
warrants or options, or otherwise, or (b) the right to vote pursuant to any
agreement, arrangement or understanding; or
(iii) which are beneficially owned, directly or indirectly, by any
other person with which such person or any of its Affiliates or Associates
has any agreement, arrangement or understanding or the purpose of
acquiring, holding, voting or disposing of any shares of Common Stock.
D. For the purpose of determining whether a person is an Interested
Shareholder pursuant to paragraph B of this Section 3, the number of shares of
Common Stock deemed to be outstanding shall include shares deemed owned through
application of paragraph C of this Section 3 but shall not include any other
shares of Common Stock which may be issuable pursuant to any agreement,
arrangement or understanding, or upon exercise of conversion rights, warrants or
options, or otherwise.
E. "Affiliate" or "Associate" shall have the respective meanings ascribed
to such terms in Rule 12b-2 of the General Rules and Regulations under the
Securities Exchange Act of 1934, as in effect on April 3, 1985.
F. "Subsidiary" means any corporation of which a majority of any class of
equity security is owned, directly or indirectly, by the Company, provided,
however, that for the purposes of the
6
<PAGE> 7
definition of Interested Shareholder, set forth in paragraph B of this Section
3, the term "Subsidiary" shall mean only a corporation of which a majority of
each class of equity security is owned, directly or indirectly, by the Company.
G. "Continuing Director" means any member of the Board of Directors of the
Company (the "Board") who is unaffiliated with the Interested Shareholder and
was a member of the Board prior to the time that the Interested Shareholder
became an Interested Shareholder, and any successor of a Continuing Director who
is unaffiliated with the Interested Shareholder and is recommended to succeed a
Continuing Director by the majority of Continuing Directors than on the Board.
H. "Fair Market Value" means: (i) in the case of stock, the highest closing
sale price during the 30-day period immediately preceding the date in question
of a share of such stock on the Composite Tape for New York Stock Exchange
Listed Stocks, or, if such stock is not quoted on the Composite Tape, on the New
York Stock Exchange, or, if such stock is not listed on such Exchange, on the
principal United States securities exchange registered under the Securities
Exchange Act of 1934 on which such stock is listed, or, if such stock is not
listed on any such exchange, the highest closing bid quotation with respect to a
share of such stock during the 30-day period preceding the date in question on
the National Association of Securities Dealers, Inc. Automated Quotations System
or any system then in use, or if no such quotations are available, the fair
market value on the date in question of a share of such stock as determined by
the Board in good faith; and (ii) in the case of property other than cash or
stock, the fair market value of such property on the date in question as
determined by the Board in good faith.
I. In the event of any Business Combination in which the Company survives,
the phrase "other consideration to be received" as used in paragraph B(i) of
Section 2 of this Article V shall include the shares of Common Stock retained by
the holders of such shares.
Section 4. Powers of the Board of Directors. A majority of the directors of
the Company shall have the power and duty to determine for the purposes of this
Article V, on the basis of information known to it after reasonable inquiry, (A)
whether a person is an Interested Shareholder, (B) the number of shares of
Common Stock beneficially owned by any person, (C) whether a person is an
Affiliate or Associate of another and (D) whether the assets which are the
subject of any Business Combination have, or the consideration to be received
for the issuance or transfer of securities by the Company or any Subsidiary in
any Business Combination has, an aggregate Fair Market Value of $20 million or
more. Any such determination made in good faith shall
7
<PAGE> 8
be binding and conclusive on all parties.
Section 5. No Effect on Fiduciary Obligations of Interested Shareholders.
Nothing contained in this Article V shall be construed to relieve any Interested
Shareholder from any fiduciary obligation imposed by law.
Section 6. Amendment, Repeal, etc. Notwithstanding any other provision of
or the By-Laws of the Company (and notwithstanding the fact that a lesser
percentage may be specified by law, these Articles of Incorporation or the
By-Laws of the Company), the affirmative vote of the holders of 80% or more of
the outstanding shares of the Company's Common Stock shall be required to amend
or repeal, or adopt any provisions inconsistent with this Article V.
ARTICLE VI
The personal liability of a director of the corporation to the corporation
or its shareholders for money damages for any action taken, or any failure to
take any action, as a director, shall be eliminated; provided, however, that the
liability of a director shall not be eliminated for (i) the amount of a
financial benefit received by a director to which he is not entitled, (ii) an
intentional infliction of harm on the corporation or the shareholders, (iii) a
violation of Section 30-1-833 of the Idaho Business Corporation Act, or (iv) an
intentional violation of criminal law.
ARTICLE VII
The corporation shall be obligated to indemnify any individual who is a
party to a proceeding because he is a director of the corporation against
liability to any person for action taken, or any failure to take any action, as
a director, and expenses incurred in the proceeding to the fullest extent
provided by law in accordance with Section 30-1-851(1)(b) of the Idaho Business
Corporation Act, except liability for (i) receipt of a financial benefit to
which he is not entitled, (ii) an intentional infliction of harm on the
corporation or its shareholders, (iii) a violation of Section 30-1-833 of the
Idaho Business Corporation Act, or (iv) an intentional violation of criminal
law.
8
<PAGE> 9
The foregoing Restated and Amended Articles of Incorporation, which include
amendments to the Articles of Incorporation, correctly set forth the provisions
of the Articles of Incorporation as heretofore and hereby amended, and supersede
the original Articles of Incorporation and all previous amendments thereto.
Dated September 8, 1999
By: /s/ Dennis E. Wheeler
---------------------------
Dennis E. Wheeler
Its Chairman of the
Board, President and
Chief Executive Officer
and: /s/ William F. Boyd
---------------------------
William F. Boyd
Its Acting Secretary
9
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