SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
FORM 10-Q/A No. 1
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Amendment No. 1 to Quarterly Report on Form 10-Q for the period ended
June 30, 2002.
COEUR D'ALENE MINES CORPORATION
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(Exact name of Registrant as specified in its charter)
Idaho 1-8641 82-0109423
---------------------- ------------------- --------------------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification Number)
505 Front Avenue, P.O. Box "I"
Coeur d'Alene, Idaho 83814
-------------------------------- -----------------
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (208) 667-3511
The undersigned registrant hereby includes the following portion of its
Quarterly Report on Form 10-Q for the period ended June 30, 2002, as set forth
in the pages attached hereto:
Part I. Item 1. Financial Statements.
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this amendment to be signed on its behalf by the
undersigned, thereunto duly authorized.
COEUR D'ALENE MINES CORPORATION
Date: August 29, 2002 By: /s/ Wayne L. Vincent
-------------------------------------
Wayne L. Vincent
Controller and Chief Accounting Officer
COEUR D'ALENE MINES CORPORATION
AMENDMENT NO. 1 TO QUARTERLY REPORT ON FORM 10-Q
FOR THE PERIOD ENDED JUNE 30, 2002
We filed our original Quarterly Report on Form 10-Q for the quarter
ended June 30, 2002 with the Securities and Exchange Commission on August 19,
2002. We are filing this Amendment No. 1 to the Quarterly Report on Form 10-Q to
amend and restate Part I, Item 1 in its entirety. This Amendment No. 1 to the
Quarterly Report on Form 10-Q revises Note I ("New Accounting Standards and
Requirements") of the Notes to the Consolidated Financial Statements to state
that the Company has adopted SFAS No. 145. No other revisions to the Quarterly
Report Form 10-Q for the quarter ended June 30, 2002 are made by this amendment.
PART I - Financial Information (unaudited)
Item 1.
COEUR D'ALENE MINES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, December 31,
2002 2001
---------- ------------
ASSETS (In Thousands)
CURRENT ASSETS
Cash and cash equivalents $ 11,955 $ 14,714
Short-term investments 763 3,437
Receivables and prepaid expenses 6,217 5,902
Inventories 47,636 46,286
--------- ---------
TOTAL CURRENT ASSETS 66,571 70,339
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment 100,580 99,096
Less accumulated depreciation (69,390) (65,422)
--------- ---------
31,190 33,674
MINING PROPERTIES
Operational mining properties 121,410 117,555
Less accumulated depletion (82,936) (79,697)
--------- ---------
38,474 37,858
Developmental properties 46,724 46,685
--------- ---------
85,198 84,543
OTHER ASSETS
Restricted investments 11,591 11,219
Debt issuance costs, net of accumulated
amortization 3,585 3,262
Other 4,537 7,343
--------- ---------
19,713 21,824
--------- ---------
$ 202,672 $ 210,380
========= =========
See notes to consolidated financial statements.
3
COEUR D'ALENE MINES CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30, December 31,
2002 2001
---------- ------------
(In Thousands)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 5,637 $ 3,721
Accrued liabilities 8,044 7,561
Accrued interest payable 2,274 2,720
Accrued salaries and wages 3,947 4,542
6% convertible subordinated debentures
due 2002 - 23,171
--------- ---------
TOTAL CURRENT LIABILITIES 19,902 41,715
LONG-TERM LIABILITIES
13 3/8% convertible senior subordinated
notes due December 2003 (Series I) 25,327 41,399
13 3/8% convertible senior subordinated
notes due December 2003 (Series II)
(net of discount of $5,175) 16,304 -
6 3/8% convertible subordinated debentures
due January 2004 65,457 66,270
7 1/4% convertible subordinated debentures
due October 2005 14,394 14,650
Reclamation and mine closure 13,696 14,462
Other long-term liabilities 5,663 5,096
--------- ---------
TOTAL LONG-TERM LIABILITIES 140,841 141,877
SHAREHOLDERS' EQUITY
Common Stock, par value $1.00 per share-
authorized 125,000,000 shares, issued
80,090,060 and 49,278,232 shares at June 30,
2002 and December 31, 2001 (including 1,059,211
shares held in treasury), respectively 80,090 49,278
Capital surplus 395,607 388,050
Accumulated deficit (420,750) (397,999)
Shares held in treasury (13,190) (13,190)
Accumulated other comprehensive income 172 649
--------- ---------
41,929 26,788
--------- ---------
$ 202,672 $ 210,380
========= =========
See notes to consolidated financial statements.
4
COEUR D'ALENE MINES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
Three and Six Months Ended June 30, 2002 and 2001
(Unaudited)
3 MONTHS ENDED 6 MONTHS ENDED
JUNE 30 JUNE 30
-------------------- --------------------
2002 2001 2002 2001
-------- -------- -------- --------
(In thousands except for per share data)
REVENUES
Product sales $ 19,565 $ 18,213 $ 36,034 $ 36,219
Interest and other 2,564 1,838 3,092 1,854
-------- -------- -------- --------
Total Revenues 22,129 20,051 39,126 38,073
COSTS AND EXPENSES
Production 16,262 17,836 34,276 36,093
Depreciation and amortization 3,533 2,549 5,411 5,366
Administrative and general 2,464 2,163 4,569 4,440
Exploration 983 1,882 1,611 3,274
Prefeasibility 960 555 1,782 1,121
Interest 5,447 3,638 9,848 7,382
Other 667 856 1,460 1,073
Loss (gain) on retirement of
debt 2,668 (5,791) 2,920 (8,972)
-------- -------- -------- --------
Total Costs and Expenses 32,984 23,688 61,877 49,777
-------- -------- -------- --------
LOSS BEFORE INCOME TAXES (10,855) (3,637) (22,751) (11,704)
Income tax provision - - - 1
-------- -------- -------- --------
NET LOSS (10,855) (3,637) (22,751) (11,705)
Unrealized holding gain
(loss) on securities (578) 296 (477) 711
-------- -------- -------- --------
COMPREHENSIVE LOSS $(11,433) $ (3,341) $(23,228) $(10,994)
======== ======== ======== ========
BASIC AND DILUTED LOSS PER
SHARE DATA
Weighted average number of
shares of Common Stock 67,654 43,100 60,008 39,729
======== ======== ======== ========
Net Loss per share
attributable to Common
Shareholders $ (0.16) $ (0.08) $ (0.38) $ (0.29)
======== ======== ======== ========
See notes to consolidated financial statements.
5
COEUR D'ALENE MINES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three and Six Months Ended June 30, 2002 and 2001
(Unaudited)
3 MONTHS ENDED 6 MONTHS ENDED
JUNE 30 JUNE 30
-------------------- --------------------
2002 2001 2002 2001
-------- -------- -------- --------
(In Thousands)
CASH FLOWS FROM OPERATING
ACTIVITIES
Net loss $(10,855) $ (3,637) $(22,751) $(11,705)
Add (deduct) noncash items:
Depreciation, depletion, and
amortization 3,533 2,549 5,411 5,366
(Gain) loss on early
retirement of debt 2,920 (5,791) 2,920 (8,972)
Other 100 622 917 2,811
Non-cash interest expense 4,185 - 5,388 -
Unrealized loss (gain) on
written calls - 158 - (221)
Changes in Operating Assets
and Liabilities:
Receivables 864 3,108 (435) 3,927
Inventories (1,348) 1 600 1,374 2,640
Accounts payable and
accrued liabilities 698 (8,603) 1,754 (9,811)
-------- -------- -------- --------
NET CASH PROVIDED BY (USED
IN) OPERATING ACTIVITIES 97 (9,994) (5,422) (15,965)
CASH FLOWS FROM INVESTING
ACTIVITIES
Purchases of short-term
investments (782) (468) (782) (1,723)
Proceeds from sales of short-
term investments 2,420 337 3,684 5,603
Proceeds from sale of assets 6 - 6 14,733
Expenditures on mining assets (3,177) (1,908) (4,731) (3,885)
Other 115 (303) (22) (562)
-------- -------- -------- --------
NET CASH (USED IN) PROVIDED
BY INVESTING ACTIVITIES (1,418) (2,342) (1,845) 14,166
CASH FLOWS FROM FINANCING
ACTIVITIES
Retirement of debt (9,427) - (9,427) -
Proceeds from issuance of
long-term debt, net of
issuance costs 14,050 - 14,050 -
Other (54) (75) (115) (371)
-------- -------- -------- --------
NET CASH PROVIDED BY (USED
IN) FINANCING ACTIVITIES 4,569 (75) 4,508 (371)
-------- -------- -------- --------
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 3,248 (12,411) (2,759) (2,170)
Cash and cash equivalents at
beginning of period 8,707 45,468 14,714 35,227
-------- -------- -------- --------
Cash and cash equivalents at
end of period $ 11,955 $ 33,057 $ 11,955 $ 33,057
======== ======== ======== ========
See notes to consolidated financial statements.
6
Coeur d'Alene Mines Corporation
and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
NOTE A: Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States for interim financial information and the instructions for Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all the
information and footnotes required by accounting principles generally accepted
in the United States for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation have been included. Operating
results for the three-month and six month periods ended June 30, 2002 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 2002.
The balance sheet at December 31, 2001 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by accounting principles generally accepted in the United
States for complete financial statements. For further information, refer to the
consolidated financial statements and footnotes thereto included in the Coeur
d'Alene Mines Corporation ("Coeur" or the "Company") Annual Report on Form 10-K
for the year ended December 31, 2001.
NOTE B: Summary of Significant Accounting Policies
Principles of Consolidation: The consolidated financial statements include
the wholly-owned subsidiaries of the Company, the most significant of which are
Coeur Rochester, Inc., Coeur Silver Valley, Inc., Coeur Alaska, Inc., CDE Cerro
Bayo Ltd., Compania Minera CDE Petorca, Coeur Australia and Empressa Minera
Manquiri S.R.L. The consolidated financial statements also include all entities
in which voting control of more than 50% is held by the Company. The Company has
no investments in entities in which it has greater than 50% ownership interest
accounted for using the equity method. Intercompany balances and transactions
have been eliminated in consolidation. Investments in corporate joint ventures
where the Company has ownership of 50% or less and funds its proportionate share
of expenses are accounted for under the equity method. The Company has no
investments in entities in which it has greater than 20% ownership interest
accounted for using the cost method.
Revenue Recognition: Revenue is recognized when title to silver and gold
passes at the shipment or delivery point to the buyer. The effects of forward
sales contracts and purchased put contracts are reflected in revenue at the date
the related precious
7
metals are delivered or the contracts expire. All by-product sales and third
party smelting and refining costs are recorded as revenue product sales.
By-product sales are primarily derived from copper which is produced as part of
the silver recovery process at Coeur Silver Valley. On an annual basis,
by-product sales represent less than 5% of revenues recognized as product sales.
Cash and Cash Equivalents: Cash and cash equivalents include all
highly-liquid investments with a maturity of three months or less at the date of
purchase. The Company minimizes its credit risk by investing its cash and cash
equivalents with major international banks and financial institutions located
principally in the United States and Chile with a minimum credit rating of A1 as
defined by Standard & Poor's. The Company's management believes that no
concentration of credit risk exists with respect to investment of its cash and
cash equivalents.
Short-term Investments: Short-term investments principally consist of
highly-liquid United States, foreign government and corporate securities with
original maturities in excess of three months and less than one year. The
Company classifies all short-term investments as available-for-sale securities.
Unrealized gains and losses on these investments are recorded in accumulated
other comprehensive income as a separate component of shareholders' equity. Any
decline in market value judged to be other than temporary is recognized in
determining net income. Realized gains and losses from the sale of these
investments are included in determining net loss.
Inventories: Inventories include ore on leach pads, ore in the milling
processes, concentrates, dore and ore in stock piles. The classification of
inventory is determined by the stage at which the ore is in the production
process. The gold and silver content of inventories of ore on leach pads is
calculated based on samples taken of the ore prior to placement on the leach
pad. The ore on leach pads is then valued based on the lower of actual costs
incurred or estimated net realizable value based upon the period ending prices
of gold and silver. Material that does not contain a minimum quantity of gold
and silver is not placed on the leach pad and is classified as waste with no
value. Inventories of ore in stock piles and ore in the milling process are also
sampled for gold and silver content and are valued based on the lower of actual
costs incurred or estimated net realizable value based upon the period ending
prices of gold and silver. Material that does not contain a minimum quantity of
gold and silver to cover estimated processing expense to recover the contained
gold and silver is not classified as inventory and is assigned no value.
Inherent in estimating net realizable value is an estimate of the percentage of
the minerals on leach pads and in process that will ultimately be recovered.
There have been no adjustments to the recovery rates used in estimated net
realizable value for the periods presented in these financial statements.
Management evaluates this estimate on an ongoing basis and adjustments are
accounted for prospectively. All inventories are stated at the lower of cost or
market, with cost being determined using the first-in, first-out and weighted
average cost methods. Concentrate and dore inventory includes product at the
mine site and product held by refineries and are also valued at lower of cost or
market.
Property, Plant, and Equipment: Expenditures for new facilities, new assets
or expenditures that extend the useful lives of existing facilities are
capitalized and depreciated using the straight-line method at rates sufficient
to depreciate such costs
8
over the shorter of estimated productive lives of such facilities or the useful
life of the individual assets. Productive lives range from 7 to 31 years for
buildings and improvements, 3 to 13 years for machinery and equipment and 3 to 7
years for furniture and fixtures. Certain mining equipment is depreciated using
the units-of-production method based upon estimated total proven and probable
reserves. Maintenance and repairs are expensed as incurred.
Operational Mining Properties and Mine Development: Mineral exploration
costs are expensed as incurred. When it has been determined that a mineral
property can be economically developed as a result of establishing proven and
probable reserves, the costs incurred to develop such property including costs
to further delineate the ore body and remove over burden to initially expose the
ore body, are capitalized. Such costs are amortized using the unit-of-production
method over the estimated life of the ore body based on proven and probable
reserves. Significant payments related to the acquisition of the land and
mineral rights are capitalized as incurred. Prior to acquiring such land or
mineral rights the Company generally makes a preliminary evaluation to determine
that the property has significant potential to develop an economic ore body. The
time between initial acquisition and full evaluation of a property's potential
is variable and is determined by many factors including: location relative to
existing infrastructure, the property's stage of development, geological
controls and metal prices. If a mineable ore body is discovered, such costs are
amortized when production begins using the units-of-production method based on
proven and probable reserves. If no mineable ore body is discovered, such costs
are expensed in the period in which it is determined the property has no future
economic value. Interest expense allocable to the cost of developing mining
properties and to construct new facilities is capitalized until assets are ready
for their intended use. Gains or losses from sales or retirements of assets are
included in other income or expense.
Asset Impairment: Management reviews and evaluates its long-lived assets
for impairment when events or changes in circumstances indicate that the related
carrying amounts may not be recoverable. The Company utilizes the methodology
set forth in Statement of Financial Accounting Standard ("SFAS") No. 121,
"Accounting for the Impairment of Long Lived Assets and Long Lived Assets to be
Disposed Of" to evaluate the recoverability of capitalized mineral property
costs. An impairment is considered to exist if total estimated future cash flows
or probability-weighted cash flows on an undiscounted basis, is less than the
carrying amount of the assets, including property plant and equipment, mineral
property, development property, and any deferred costs such as deferred
stripping. An impairment loss is measured and recorded based on discounted
estimated future cash flows or the application of an expected present value
technique to estimate fair value in the absence of a market price. Future cash
flows include estimates of proven and probable
9
recoverable ounces, gold and silver prices (considering current and historical
prices, price trends and related factors), production levels, capital and
reclamation costs, all based on detailed engineering life-of-mine plans.
Assumptions underlying future cash flow estimates are subject to risks and
uncertainties. Any differences between significant assumptions and market
conditions and/or the Company's performance could have material effect on the
Company's financial position and results of operations. In estimating future
cash flows, assets are grouped at the lowest level for which there are
identifiable cash flows that are largely independent of cash flows from other
groups. Generally, in estimating future cash flows, all assets are grouped at a
particular mine for which there is identifiable cash flow.
In August 2001, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets,"
that established a single accounting model, based on the framework of SFAS No.
121, for long-lived assets to be disposed of by sale. The statement was adopted
on January 1, 2002, and there was no impact on the Company upon adoption.
Restricted Investments: The Company, under the terms of its lease, self
insurance, and bonding agreements with certain banks, lending institutions and
regulatory agencies, is required to collateralize certain portions of the
Company's obligations. The Company has collateralized these obligations by
assigning certificates of deposit that have maturity dates ranging from three
months to a year, to the respective institutions or agency. At June 30, 2002 and
December 31, 2001, the Company had certificates of deposit under these
agreements of $11.6 million and $11.2 million, respectively, restricted for this
purpose. The ultimate timing for the release of the colaterallized amounts is
dependent on the timing and closure of each mine. In order to release the
collateral, the Company must seek approval from certain government agencies
responsible for monitoring the mine closure status. Collateral could also be
released to the extent the Company was able to secure alternative financial
assurance satisfactory to the regulatory agencies. The Company believes there is
a reasonable probability that the collateral will remain in place beyond the
twelve-month period ending December 31, 2002, and has therefore classified these
investments as long-term.
Deferred Stripping Costs: Deferred stripping costs are unique to the mining
industry and are determined based on the Company's estimates for the life of
mine strip ratio for each mine. These costs are capitalized in periods when the
life of mine ratio is below the current mining strip ratio, and amortized during
periods where the life of mine strip ratio is above the current strip ratio. The
Rochester mine is the only mine that has previously capitalized deferred
stripping costs. The life of mine strip ratio that was used to accumulate the
deferred stripping amounts was 1.8 to 1 (waste to ore) and was based on the
estimated average stripping ratio for the life of the mine, compared to the then
current ratio of 2.2 to 1 (waste to
10
ore) for the periods presented in the Statements of Operations. The deferred
stripping costs have been amortized as waste and ore have been removed from the
Rochester mine pit. At present the remaining life of mine plan estimates the
future stripping ratio as 1.1 to 1 (waste to ore), and the remaining costs will
be amortized over the remaining life of the mine. At June 30, 2002 and December
31, 2001 the carrying amount of the deferred stripping costs were $1.6 million
and $1.7 million, respectively, and are included in other assets in the
accompanying balance sheet. No additional deferred stripping costs were
capitalized during the periods presented. Based on current reserves and current
production levels the amortization would be no less than four years. The amounts
that were amortized for the six months ended June 30, 2002 and June 30, 2001
were $0.1 million and $0.2 million, respectively which we included in
depreciation and depletion in the Statement of Operations.
Reclamation and Remediation Costs: Estimated future costs are based
principally on legal and regulatory requirements. Such costs related to active
mines are accrued and charged over the expected operating lives of the mines
using the unit-of-production method. Future remediation costs for inactive mines
are accrued based on management's best estimate at the end of each period of the
undiscounted costs expected to be incurred at the site. Such cost estimates
include, where applicable, ongoing care and maintenance and monitoring costs.
Changes in estimates are reflected in earnings in the period an estimate is
revised.
In August 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations," which established a uniform methodology for accounting
for estimated reclamation and abandonment costs. The statement will be adopted
January 1, 2003, when the Company will record the estimated present value of
reclamation liabilities and change the carrying amount of the related asset.
Subsequently, the reclamation costs will be allocated to expense over the life
of the related assets and will be adjusted for changes resulting from the
passage of time and revisions to either the timing or amount of the original
present value estimate. The Company is in the process of quantifying the effect
of adoption.
Foreign Currency: Substantially all assets and liabilities of foreign
subsidiaries are translated at exchange rates in effect at the end of each
period. Revenues and expenses are translated at the average exchange rate for
the period. Foreign currency transaction gains and losses are included in the
determination of net income.
Derivative Financial Instruments: The Company uses derivative financial
instruments as part of an overall risk-management strategy. These instruments
are used as a means of hedging exposure to precious
11
metals prices and foreign currency exchange rates. The Company does not hold or
issue derivative financial instruments for trading purposes. Written options do
not qualify for hedge accounting and are marked to market each reporting period
with corresponding changes in fair value recorded to operations as other income.
The Company uses forward sales contracts and combinations of put and call
options to fix a portion of its exposure to precious metals prices. The
underlying production for forward sales contracts is designated for physical
delivery at the inception of the derivative. If the Company enters into
derivatives that qualify for hedge accounting, deferral accounting is applied
only if the derivatives continue to reduce the price risk associated with the
underlying hedged production. Contracted prices on forward sales contracts are
recognized in product sales as the designated production is delivered or sold.
In the event of early settlement of hedge contracts, gains and losses are
deferred and recognized in income at the originally designated delivery date.
The Company uses foreign currency contracts to hedge its exposure to
movements in the foreign currency translation amounts for anticipated
transactions. These contracts are marked-to-market to earnings each reporting
period.
Income Taxes: The Company accounts for income taxes using the liability
method, recognizing certain temporary differences between the financial
reporting basis of the Company's liabilities and assets and the related income
tax basis for such liabilities and assets. This method generates a net deferred
income tax liability or asset for the Company as of the end of the year, as
measured by the statutory tax rates in effect as enacted. The Company derives
its deferred income tax charge or benefit by recording the change in the net
deferred income tax liability or asset balance for the year.
The Company's deferred income tax assets include certain future tax
benefits. The Company records a valuation allowance against any portion of those
deferred income tax assets that it believes will more likely than not fail to be
realized.
Comprehensive Income: In addition to net loss, comprehensive income
includes all changes in equity during a period, except those resulting from
investments by and distributions to owners. Items of comprehensive income
include foreign currency exchanges, the effective portions of hedges and
unrealized gains and losses on investments classified as available-for-sale.
Loss Per Share: Loss per share is computed by dividing the net loss
attributable to common stock by the weighted average number of common shares
outstanding during each period. All stock options outstanding at each period end
have been excluded from the weighted
12
average share calculation. The effect of potentially dilutive stock options
outstanding was antidilutive in 2001 and 2000.
Use of Estimates: The preparation of financial statements in conformity
with accounting principles generally accepted in the United States requires the
Company's management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, the disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Reclassifications: Certain reclassifications of prior year balances have
been made to conform to current year presentation. The Company has reclassified
restricted investments to long-term restricted investments on December 30, 2001
balance sheet to conform to the June 30, 2002 balance sheet.
Note C: Business Acquisitions
On April 2, 2002, the Company completed the acquisition of Compania Minera
Polimet S.A. ("Polimet") from Yamana Resources Inc. ("Yamana") for $2.5 million
in cash. The acquisition of Polimet has been accounted for under the purchase
method of accounting in accordance with APB No. 16. The carrying values of
assets and liabilities other than the mining properties have been estimated to
approximate fair market value. Polimet owns 100% of the Martha Mine and an
exploration land package consisting of approximately 202,000 acres located in
the western portion of the Santa Cruz Province, Argentina. The results of
operations of Polimet has been included in the Company's financial statements
for the time period after the date of acquisition, April 2, 2002. Coeur also
acquired warrants to purchase 10 million common shares of Yamana for an
additional $600,000. The Company purchased 5 million shares in May, and may
purchase 2.5 million shares in September, and 2.5 million shares in December.
NOTE D: Inventories
Inventories are comprised of the following:
JUNE 30, DECEMBER 31,
2002 2001
---------- ------------
(In Thousands)
In process, stockpiles and on leach pads $ 36,603 $ 39,794
Concentrate and dore' inventory 5,886 1,567
Supplies 5,147 4,925
-------- --------
$ 47,636 $ 46,286
======== ========
Long-term in process and on leach pads $ - $ 2,725
======== ========
Inventories of ore on leach pads and in the milling process are valued
based on actual costs incurred or estimated net realized value,
13
less costs allocated to minerals recovered through the leaching and milling
processes. Inherent in estimating net realized value is an estimate of the
percentage of the minerals on leach pads and in process that will ultimately be
recovered. All inventories are stated at the lower-of-cost or market, with cost
being determined using the first-in, first-out and weighted-average-cost
methods. Concentrate and dore inventory includes product at the mine site and
product held by refineries.
NOTE E: Income Taxes
The Company has reviewed its net deferred tax asset as of June 30, 2002,
together with net operating loss carry forwards, and has decided to forego
recognition of potential tax benefits arising therefrom. In making this
determination, the Company has considered the Company's history of tax losses
incurred since 1989, the current level of gold and silver prices and the ability
of the Company to use accelerated depletion and amortization methods in the
determination of taxable income. As a result, the Company's net deferred tax
asset has been fully reserved at June 30, 2002 and December 31, 2001.
NOTE F: Long-Term Debt and Supplemental Cash Flow Information
In May 2002, The Company issued $21.5 million principal amount of new
Series II 13 3/8% Convertible Senior Subordinated Notes ("Series II Notes") due
December 2003, for proceeds of approximately $14.1 million, net of discount of
$5.5 million and offering costs of approximately $1.9 million. Proceeds from
this transaction were used to retire the outstanding $9.4 million of 6%
Convertible Subordinated Debentures due June 10, 2002 upon their maturity along
with accrued interest and for general corporate purposes. The new Series II
Notes were issued on similar terms, subject to certain contingent provisions, as
the Company's previously issued, currently outstanding Series I 13 3/8%
Convertible Senior Subordinated Notes ("Series I Notes") due December 31, 2003.
During the 2nd quarter of 2002, the Company repurchased $10.3 million, $0.8
million and $0.3 million principal amount of its outstanding 6%, 6-3/8% and
7-1/4% Convertible Subordinated Debentures, respectively, in exchange for 11.9
million shares of common stock and recorded a loss on retirement of debt of
approximately $2.9 million. In addition, holders of $10.3 million of the Series
I Notes voluntarily converted such Notes, under the terms of the indenture, into
approximately 7.7 million shares of common stock. The Company also issued 2.7
million shares of common stock as payment of $4.2 million of accrued interest on
the 13 3/8% Notes.
During the 1st quarter of 2002, the Company repurchased $3.5 million
principal amount of its outstanding 6% Convertible Subordinated Debentures in
exchange for approximately 3.4 million shares of common stock. In addition,
holders of $5.7 million
14
principal amount of Series I Notes voluntarily converted their Notes into 5.1
million shares of common stock.
During the 2nd quarter of 2001, the Company repurchased $11.0 million
principal amount of its outstanding 7-1/4% Convertible Subordinated Debentures
in exchange for 4.3 million shares of common stock.
During the 1st quarter of 2001, the Company repurchased $5.0 million
principal amount of its outstanding 7-1/4% Convertible Subordinated Debentures
in exchange for 1.8 million shares of common stock.
NOTE G: Segment Reporting
Operating segments are defined as components of an enterprise about which
separate financial information is available that is evaluated regularly by the
chief operating decision maker, or decision making group, in deciding how to
allocate resources and in assessing performance. The Company's chief operating
decision making group is comprised of the Chief Executive Officer, the Chief
Financial Officer and the Chief Operating Officer.
The operating segments are managed separately because each segment
represents a distinct use of Company resources and contribution to the Company's
cash flows in its respective geographic area. The Company's reportable operating
segments are the Rochester, Coeur Silver Valley and Cerro Bayo mining
properties, the Kensington development property, and the Company's exploration
programs, which includes the San Bartolome silver development property. 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 precious metal
concentrates and/or refined precious metals. The Coeur Silver Valley and Cerro
Bayo mines sell precious metal concentrates, typically under long term contracts
to smelters located in Canada (Noranda Inc. and Cominco Ltd.), in the United
States (Asarco Inc.) and Japan (Sumitomo Ltd. and DOWA Mining Company). Refined
gold and silver produced by the Rochester mine is primarily sold on a spot basis
to precious metal trading banks such as Goldman Sachs, Morgan Stanley, Mitsui
and N.M. Rothschild.
Intersegment revenues consist of precious metal sales to the Company's
metals marketing division and are transferred at the market value of the
respective metal on the date of the transfer. The other segment includes
earnings from unconsolidated subsidiaries accounted for by the equity method,
the corporate headquarters, elimination of intersegment transactions and other
items necessary to reconcile to consolidated amounts. Revenues in the other
segment are generated principally from interest received from the Company's cash
and investments that are not allocated to the operating segments. The
15
accounting policies of the operating segments are the same as those described in
the summary of significant accounting policies in the Company's Annual Report on
Form 10-K. The Company evaluates performance and allocates resources based on
each segments profit or loss before interest, income taxes, depreciation and
amortization, unusual and infrequent items, and extraordinary items.
Segment Reporting
(In Thousands)
Rochester Galena Cerro Bayo Petorca Exploration Other Total
--------------------------------------------------------------------------------------
Six Months Ended June 30, 2002
Total net sales and revenues $ 24,992 $ 13,275 $ - $ - $ - $ 859 $ 39,126
===================================================================================================================================
Depreciation and depletion 2,137 1,629 1,407 - 9 229 5,411
Interest income - - - - - 181 181
Interest expense - - 776 - - 9,072 9,848
Gain on forward sale contracts - - - - - 62 62
Write-down of mine property and other 245 396 819 1,460
Loss on early retirement of debt - - - - - (2,920) (2,920)
Profit (loss) (1,420) 4,004 1,193 - (375) (6,451) (3,049)
Investments in non-consolidated affiliates - - - - - - -
Segment assets (A) 63,144 27,642 28,641 501 35 51,863 171,826
Capital expenditures for property 300 582 2,164 - - 1,685 4,731
Six Months Ended June 30, 2001
Total net sales and revenues $ 24,409 $ 8,531 $ 160 $ 3,451 $ - $ 1,522 $ 38,073
===================================================================================================================================
Depreciation and depletion 3,775 1,154 - 265 11 161 5,366
Interest income - - 1 2 - 1,148 1,151
Interest expense - - - - - 7,382 7,382
Gain on forward sale contracts - - - - - 221 221
Income tax (credit) expense - 1 - - - - 1
Gain on early retirement of debt - - - - - 8,972 8,972
Profit (loss) 1,976 (1,723) (1,528) (1,050) (810) (4,941) (7,076)
Investments in non-consolidated affiliates - - - - - 12 12
Segment assets (A) 76,437 27,526 23,296 2,885 183 57,003 187,330
Capital expenditures for property 611 1,730 801 - 30 713 3,885
Notes:
(A) Segment assets consist of receivables, prepaids, inventories, property, plant and equipment, and mining properties
16
Segment Reporting Cont.
(In Thousands) Six Months Ended June 30,
2002 2001
---------- ----------
(Loss)
Total loss from reportable segments $ (3,049) $ (7,076)
Depreciation, depletion and amortization
expense (5,411) (5,366)
Interest expense (9,848) (7,382)
(Loss) gain on early retirement of debt (2,920) 8,972
Other (1,523) (852)
--------- ---------
Loss before income taxes $ (22,751) $ (11,704)
========= =========
June 30,
2002 2001
---------- ----------
Assets
Total assets for reportable segments $ 171,826 $ 187,330
Cash and cash equivalents 11,955 33,057
Short-term investments 763 3,951
Other assets 18,128 17,340
--------- ---------
Total consolidated assets $ 202,672 $ 241,678
========= =========
Geographic Information
(In thousands) Long-Lived
June 30, 2002 Revenues Assets
---------- ----------
United States $ 39,419 $ 75,080
Chile (293) 21,922
Bolivia - 18,850
Other Foreign Countries - 2,121
--------- ---------
Consolidated Total $ 39,126 $ 117,973
========= =========
Long-Lived
June 30, 2001 Revenues Assets
---------- ----------
United States $ 36,016 $ 88,394
Chile 1,857 21,406
Bolivia - 18,850
Other Foreign Countries 200 559
--------- ---------
Consolidated Total $ 38,073 $ 129,209
========= =========
Revenues are geographically separated based upon the country in which operations
and the underlying assets generating those revenues reside.
NOTE H: Hedging
For the first half of 2001 the Company recorded a realized loss of
approximately $0.2 million in connection with its hedge program. The Company has
14,000 ounces in forward sales in its gold protection program, whereby over the
next six months the Company will receive an average price of $320.
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The following table summarizes the information at June 30, 2002 associated
with the Company's financial and derivative financial instruments that are
sensitive to changes in interest rates, commodity prices and foreign exchange
rates. For long-term debt obligations, the table presents principal cash flows
and related average interest rates. For gold call options and amortizing forward
sales, the table presents ounces contracted to be delivered and the related
average price per ounce in U.S. dollars. For foreign currency exchange
contracts, the table presents the notional amount in Chilean Peso's to be
purchased along with the average foreign exchange rate.
Fair
Value
(dollars in thousands) 2002 2003 2004 2005 2006 Thereafter Total 6/30/02
-------------------------------------------------------------------------------------------------------------------
Liabilities
Long Term Debt (prior
to exchange) $128,820
Fixed Rate $ - $46,806 $ 65,457 $ 14,394 $ - $ - $126,657
Average Interest Rate 10.668% 9.061% 7.006% 7.250%
Derivative Financial
Instruments
Gold Forward
Sales - USD $ 21
Ounces 14,000 - - - - - -
Price Per Ounce $320.00 - - - - - -
Foreign Currency
Contracts
Chilean Peso - USD $ 1,500 $ 2,100 - - - - - $-(A)
Exchange Rate 705 705 - - - - -
(CLP to USD)
(A. Entered into
August 1, 2002)
Fair value is determined by trading information on or near the balance
sheet date. Long term debt represents the face amount of the outstanding
convertible debentures and timing of when these become due. Interest rates
presented in the table are calculated using the weighted average of the
outstanding face amount of each debenture for the period remaining in each
period presented. All long term debt is denominated in US dollars.
NOTE I: New Accounting Standards and Requirements
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements
No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections" ("SFAS 145"). Under SFAS 145, most gains and losses from
extinguishments of debt will not be classified as extraordinary items unless
they meet much more narrow criteria in Accounting Principles Board Opinion No.
30 "Reporting the Results of Operations--Reporting the Effects of Disposal of a
Segment of a
18
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions" ("APB 30"). SFAS 145 may be early adopted, but is otherwise
effective for fiscal years beginning after May 15, 2002, and must be adopted
with retroactive effect.
The Company has elected to early adopt this standard and under SFAS No.
145, the Company has made the determination that its gains and losses from early
extinguishment of debt do not fall under APB Opinion No. 30. Consequently, the
Company has reclassified all prior extraordinary items relating to the early
extinguishment of debt to be included as part of loss from continuing
operations.
NOTE J: Litigation and Other Events
Federal Natural Resources Action
On March 22, 1996, an action was filed in the United States District Court
for the District of Idaho by the United States against various defendants,
including the Company, asserting claims under CERCLA and the Clean Water Act for
alleged damages to federal natural resources in the Coeur d'Alene River Basin of
Northern Idaho as a result of alleged releases of hazardous substances from
mining activities conducted in the area since the late 1800s.
On March 16, 2001, the Company and representatives of the U.S. Government,
including the Environmental Protection Agency, the Department of Interior and
the Department of Agriculture, reached an agreement to settle the lawsuit.
Pursuant to the terms of the Consent Decree dated May 14, 2001, the Company has
paid the U.S. Government a total of approximately $3.9 million, of which $3.3
million was paid in May 2001 and the remaining $.6 million was paid in June
2001. In addition, the Company will (i) pay the United States 50% of any future
recoveries from insurance companies for claims for defense and indemnification
coverage under general liability insurance policies in excess of $600,000, (ii)
accomplish certain cleanup work on the Mineral Point property (i.e., the former
Coeur Mine site) and Calladay property, and (iii) make available certain real
property to be used as a waste repository. Finally, commencing five years after
effectiveness of the settlement, the Company will be obligated to pay net
smelter royalties on its operating properties, up to a maximum of $3 million,
amounting to a 2% net smelter royalty on silver production if the price of
silver exceeds $6.50 per ounce, and a $5.00 per ounce net smelter royalty on
gold production if the price of gold exceeds $325 per ounce. The royalty would
run for 15 years commencing five years after effectiveness of the settlement.
Noranda Smelter Strike
On June 18, 2002 we received notification from Noranda that the employees
working at the smelter in Quebec were on strike. This
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smelter is where Coeur Silver Valley ships essentially 100% of its concentrate.
Under the terms of our contract with Noranda, they have declared a "Force
Majure" and do not have to accept the concentrate sent to them by the Company's
Galena Mine. Noranda has agreed to accept 650 tonnes of the Galena concentrate,
which represents almost 100% of the concentrate produced by Coeur Silver Valley.
Although there is no written contract for Noranda to continue to accept this
amount, the Company is currently looking for alternative purchasers of the
concentrate, and has been able to spot sell 400 tonnes to an alternative
purchaser. Management believes that Noranda will continue to purchase all
produced concentrate from Coeur Silver Valley. However, the Company would see a
significant decrease in product sales from Coeur Silver Valley in the event
Noranda does not continue to do so.
Lawsuit to Recover Inventory
During the first quarter of 2000, Handy & Harman Refining Group,
Inc.("Handy & Harman"), to which the Rochester Mine had historically sent
approximately 50% of its dore, filed for Chapter 11 bankruptcy. The Company had
inventory at the refinery of approximately 67,000 ounces of silver and 5,000
ounces of gold that has been delivered to certain creditors of Handy & Harman.
On February 27, 2001 the Company commenced a lawsuit against Handy & Harman and
certain others in the U.S. Bankruptcy Court for the District of Connecticut
seeking recovery of the metals and/or damages. Handy & Harman's Chapter 11
liquidation plan was confirmed by the Bankruptcy Court in August 2001 and on
November 3, 2001, the Company received approximately $294,000 from Handy &
Harman as a partial payment under the plan. The liquidating custodian of Handy &
Harman under the liquidation plan recently advised the Company that Handy &
Harman intends to file suit against the Company prior to March 28, 2002 for the
value of 100,000 ounces of silver (i.e., approximately $500,000) as a preference
based on the Company's draw-down of its account at Handy & Harman in mid-March
2000. Based on this more recent legal action, the Company has determined that
the recovery of any additional amounts would be remote. As a result the Company
has recorded a $1.4 million write-down of the carrying amount in the fourth
quarter of 2001. Management of the Company and legal counsel believe that the
threatened claims are without merit, and will vigorously defend any such suit.
Bunker Hill Action
On January 7, 2002, a private class action suit captioned Baugh vs. Asarco,
et al., was filed in the Idaho District Court for the First District (Lawsuit
No. 2002131) in Kootenai County, Idaho against the companies that have been
defendants in the prior Bunker Hill and natural resources litigation in the
Coeur d'Alene Basin, including the Company, by eight northern Idaho residents
seeking medical benefits and property compensation from the mining companies
involved in the Bunker Hill Superfund site. At this early stage of the
litigation, the Company cannot predict the outcome of this suit.
20