SECURITIES AND EXCHANGE COMMISSION Washington, D. C. ----------------- 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 March 31, 1997 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 --------------------------------- ---------- (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 21,890,971 shares were issued and outstanding as of May 9, 1997. COEUR D'ALENE MINES CORPORATION INDEX Page No. -------- PART I. Financial Information Item 1. Financial Statements Consolidated Balance Sheets -- 3-4 March 31, 1997 and December 31, 1996 Consolidated Statements of Operations -- 5 Three Months Ended March 31, 1997 and 1996 Consolidated Statements of Cash Flows -- 6 Three Months Ended March 31, 1997 and 1996 Notes to Consolidated Financial Statements 7-8 Item 2. Management's Discussion and Analysis of 8-12 Financial Condition and Results of Operations PART II. Other Information. 13 Item 6. Exhibits and Reports on Form 8-K 14 SIGNATURES -2- PART I. FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS UNAUDITED COEUR D'ALENE MINES CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS ASSETS March 31, December 31, 1997 1996 ------------------------------------- (In Thousands) CURRENT ASSETS Cash and cash equivalents $ 57,633 $ 43,455 Short-term investments 97,607 124,172 Receivables 8,482 11,573 Inventories 35,882 31,992 --------- --------- TOTAL CURRENT ASSETS 199,604 211,192 PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment 114,362 118,993 Less accumulated depreciation 52,249 50,743_ --------- --------- 62,113 68,250 MINING PROPERTIES Operational mining properties 180,816 171,517 Less accumulated depletion 42,237 38,264 --------- --------- 138,579 133,253 Developmental properties 114,572 110,985 --------- --------- 253,151 244,238 OTHER ASSETS Investment in unconsolidated affiliate 48,521 48,231 Notes receivable 4,000 4,000 Debt issuance costs, net of accumulated amortization 3,924 4,081 Marketable equity securities and other 1,522 338 --------- --------- 57,967 56,650 $572,835 $580,330 ========= ========= -3- UNAUDITED COEUR D'ALENE MINES CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS LIABILITIES AND SHAREHOLDERS' EQUITY March 31, December 31, 1997 1996 ------------------------------------- (In Thousands) CURRENT LIABILITIES Accounts payable $ 4,936 $ 4,327 Accrued liabilities 4,454 4,976 Accrued interest payable 4,098 4,968 Accrued salaries and wages 6,456 5,242 Bank loans 8,010 8,021 Current portion of remediation costs 3,500 3,500 Other current liabilities 453 532 --------- --------- TOTAL CURRENT LIABILITIES 31,907 31,566 LONG-TERM LIABILITIES 6% subordinated convertible debentures 49,840 49,840 6 3/8% subordinated convertible debentures 100,000 100,000 Long-term borrowings 39,900 39,900 Other long-term liabilities 9,357 12,826 --------- --------- TOTAL LONG-TERM LIABILITIES 199,097 202,566 COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY Mandatory Adjustable Redeemable Convertible Securities (MARCS), par value $1.00 per share,(a class of preferred stock) - authorized 10,000,000 shares, 7,077,833 issued and outstanding 7,078 7,078 Common Stock, par value $1.00 per share- authorized 60,000,000 shares, issued 22,950,182 shares (including 1,059,211 shares held in treasury) 22,950 22,950 Capital surplus 397,554 400,187 Accumulated deficit (72,179) (70,459) Unrealized losses on short-term investments (377) (352) Repurchased and nonvested shares (13,195) (13,206) --------- --------- 341,831 346,198 --------- --------- $572,835 $580,330 ========= ========= See notes to consolidated financial statements. -4- UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS COEUR D'ALENE MINES CORPORATION AND SUBSIDIARIES Three Months Ended March 31, 1997 and 1996 1997 1996 ------------------------------------- (In thousands except per share amounts) INCOME Sale of concentrates and dore' $ 24,470 $ 22,609 Less cost of mine operations 26,962 19,596 --------- --------- Gross Profits (Losses) (2,492) 3,013 Other income - interest, dividends and other 7,805 1,931 --------- --------- Total Income 5,313 4,944 EXPENSES Administration 1,067 1,088 Accounting and legal 422 274 General corporate 1,783 1,650 Mining exploration 1,500 1,039 Interest 2,262 684 --------- --------- Total expenses 7,034 4,735 --------- --------- NET INCOME (LOSS) BEFORE INCOME TAXES (1,721) 209 Provision for income taxes (76) --------- --------- NET INCOME (LOSS) $ (1,721) $ 133 ========= ========= NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS $ (4,353) $ (330) ========= ========= EARNINGS PER SHARE DATA Weighted average number of shares of Common Stock and equivalents used in calculation (in thousands) 21,891 20,502 ========= ========= Net income (loss) per share $ (.08) $ .01 ========= ========= Net loss per share attributable to common shareholders $ (.20) $ (.02) ========= ========= Dividends per share to common shareholders $ .15 ========= See notes to consolidated financial statements. -5- UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS COEUR D'ALENE MINES CORPORATION AND SUBSIDIARIES Three months ended March 31, 1997 and 1996 1997 1996 ------------------------------------- (In Thousands) CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $ (1,721) $133 Add (less) noncash items: Depreciation, depletion and amortization 7,031 3,526 Other changes (189) (202) --------- --------- CASH PROVIDED BY OPERATING ACTIVITIES BEFORE WORKING CAPITAL CHANGES 5,121 3,457 Change in working capital: Receivables 3,066 (666) Inventories (4,817) 1,549 Accounts payable and accrued liabilities (2,884) (2,170) Interest payable (870) (902) --------- --------- CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES (384) 1,268 CASH FLOWS FROM INVESTING ACTIVITIES Investment in unconsolidated affiliate (20) (1,418) Purchase of property, plant, and equipment (336) (580) Purchase of short-term investments and marketable equity securities (8,403) (81,007) Proceeds from sales of short-term investments and marketable securities 34,856 30,936 Expenditures on developmental properties (3,586) (2,668) Expenditures on operational mining properties (4,851) (14,453) Other assets (228) 189 --------- --------- NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 17,432 (69,001) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from MARCS issuance 135,700 Payment of cash dividends (2,633) Other (237) (534) --------- --------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (2,870) 135,166 --------- --------- INCREASE IN CASH AND CASH EQUIVALENTS 14,178 67,433 Cash and cash equivalents at beginning of year 43,455 16,485 --------- --------- CASH AND CASH EQUIVALENTS AT MARCH 31, 1997 AND 1996 $ 57,633 $ 83,918 ========= ========= See notes to consolidated financial statements. -6- Coeur d'Alene Mines Corporation and Subsidiaries Notes to Consolidated Financial Statements NOTE A: Inventories are comprised of the following: March 31, December 31, 1997 1996 ------------------------------------- (In Thousands) In process and on leach pads $ 20,179 $ 19,948 Concentrate inventory 7,977 4,996 Dore' inventory 2,208 739 Supplies 5,518 6,309 --------- --------- $ 35,882 $ 31,992 ========= ========= Inventories of ore on leach pads and in the milling process are valued based on actual costs incurred to place such ore into production, less costs allocated to minerals recovered through the leaching and milling processes. Inherent in this valuation is an estimate of the percentage of the minerals on leach pads and in process that will ultimately be recovered. Management evaluates this estimate on an ongoing basis. Adjustments to the recovery are accounted for prospectively. 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. NOTE B: In February 1997, the Financial Accounting Standards Board issued Statement No. 128, Earnings Per Share, which is required to be adopted on December 31, 1997. At that time, the Company will be required to change the method currently used to compute earnings per share and to restate all prior periods. Under the new requirements for calculating primary earnings per share, the dilutive effect of stock options will be excluded. Adoption of the standard would have had no effect on the net income (loss) per share for the first quarter ended March 31, 1997 and March 31, 1996. The Company has not yet determined what the impact of Statement 128 will be on the calculation of fully diluted earnings per share. NOTE C: Certain reclassifications of prior year balances have been made to conform to current year classifications. -7- NOTE D: Other than as stated in the notes above, in the opinion of management, the foregoing unaudited financial statements include all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of the results of operations for the periods shown. 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 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, which it wholly owns and operates; the Golden Cross Mine in New Zealand, in which the Company has an 80% operating interest; the El Bronce Mine, a wholly-owned Chilean gold mine; and the Fachinal Mine, a Chilean gold mine wholly-owned by the Company which commenced commercial production as of January 1, 1997. The Company also has significant interests in other companies that operate gold and silver mines. The Company owns 50% of Silver Valley Resources Corporation ("Silver Valley"), which owns and operates the Coeur Mine (where operations resumed in June 1996 and are expected to continue until late 1997 or early 1998) and the Galena Mine (where operations are expected to resume in May 1997) in the Coeur d'Alene Mining District of Idaho. In May 1996, the Company acquired 35% (increasing to 36% in February 1997) of Gasgoyne Gold Mines NL, an Australian gold mining company ("Gasgoyne"), which owns a 50% interest in the Yilgarn Star Gold Mine in Australia. In May 1997, the Company increased its ownership interest in Gasgoyne to 50%. A production decision at the Kensington Property, a wholly-owned developmental gold property in Alaska, is subject to a market price of gold of at least $400 per ounce and the receipt of certain required permits. The market price of gold (London final) on May 8, 1997 was $343.75 per ounce. With respect to the permits, the Company is unable to control the timing of their issuance; however, it is expected that all permits will be received during the second quarter of 1997. The Company's business plan is to continue to acquire mining properties and/or businesses that are operational or expected to become operational in the near future so that they can reasonably be expected -8- to contribute to the Company's near-term cash flow from operations and expand the Company's gold and/or silver production. This report contains certain forward-looking statements relating to the Company's gold and silver mining business, including estimated production data, expected operating schedules and other operating data. Actual production, operating schedules and results of operations could differ materially from those projected in the forward-looking statements. The factors that could cause actual results to differ materially from those projected in the forward-looking statements include (i) changes in the market prices of gold and silver, (ii) the uncertainties inherent in the Company's production, exploratory and developmental activities, including risks related to permitting and regulatory delays, (iii) the uncertainties inherent in the estimation of gold and silver ore reserves, (iv) changes that could result from the Company's future acquisition of new mining properties or businesses, (v) the risks and hazards inherent in the mining business (including environmental hazards, industrial accidents, weather or geologically related conditions), (vi) the effects of environmental and other governmental regulations, and (vii) the risks inherent in the ownership or operation of or investment in mining properties or businesses in foreign countries. 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. RESULTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31, 1996. ---------------------------------------------------------- SALES AND GROSS PROFITS Sales of concentrates and dore' in the first quarter of 1997 increased by $1.9 million, or 8%, over the first quarter of 1996. The increase in sales is primarily attributable to increased metal sales from the El Bronce Mine due to (i) the fact the Company increased its ownership in that facility from 50% to 100% during the third quarter of 1996 and (ii) the recommencement of operations at Silver Valley's Coeur Mine during the second quarter of 1996. Although the Fachinal Mine reached commercial production effective January 1, 1997, no sales were recorded due to the fact that the first quarter production was shipped early in the second quarter of 1997. The Company will receive $6.3 million from this sale in the second quarter. In the first quarter of 1997, the Company produced a total of 2,542,273 ounces of silver and 59,963 ounces of gold compared to 2,191,685 ounces of silver and 45,201 ounces of gold in the first quarter of 1996. Silver and gold prices averaged $5.02 and $351.17 per ounce, respectively, -9- in the first quarter of 1997, compared with $5.54 and $400.14 per ounce, respectively, in the first quarter of 1996. In the first quarter of 1997, the Company realized average gold and silver prices of $359.21 and $5.03, respectively, compared with average market prices of $351.17 and $5.02, respectively, realized in the prior year's first quarter. The cost of mine operations in the first quarter of 1997 increased by $7.4 million, or 38%, over the prior year's comparable quarter. The increase is primarily due to the fact the Company increased its ownership in the El Bronce Mine from 50% to 100% commencing in the third quarter of 1996, which resulted in a proportionate increase in cost of mine operations in the first quarter of 1997. In addition, Silver Valley Resources commenced operations at its Coeur Mine during the second quarter of 1996. Finally, Fachinal commenced commercial operations in the first quarter of 1997 and recorded costs of sales of $2.2 million related to the adjustment of inventory values to reflect the current market value of work-in-progress inventory were recognized in the first quarter of 1997. Of the $7.4 million increase in the cost of mine operations, approximately $3.5 million was attributable to the 99% increase in depreciation, depletion and amortization expenses recorded in the first quarter of 1997 over the prior year's first quarter. The increase in those non-cash expenses primarily resulted from the Company's increased El Bronce ownership interest and the fact that no such expenses were being recorded by Silver Valley or Fachinal in the first quarter of 1996. Gross losses from mining operations in the first quarter of 1997 amounted to $2.5 million compared to gross profit from mining operations of $3.0 million in the first quarter of 1996. The $5.5 million decrease in gross profit is due to the above mentioned changes in sales and cost of mine operations coupled with lower gold and silver prices realized in the first quarter of 1997. OTHER INCOME Interest and other income in the first quarter of 1997 increased by $5.9 million, or 304%, compared with the first quarter of 1996. The increase is due primarily to a gain of $5.3 million arising from the sale of gold purchased on the open market which was delivered pursuant to fixed-price forward contracts. EXPENSES Total expenses in the first quarter of 1997 increased by $2.3 million over the prior year's first quarter. The increase is primarily due to an increase in interest expense of $1.6 million. The increase is primarily attributable to the reclassification of the Fachinal Mine from a development-stage project to an operating property. Effective in 1997's first quarter, interest expense on the Fachinal construction loan, which was previously capitalized during the development stage, -10- is now charged to operating expense. In addition, mining exploration expense in the first quarter of 1997 increased by $.5 million, or 44%, over the prior year's first quarter. NET INCOME (LOSS) The Company's loss before income taxes amounted to $1.7 million in the first quarter of 1997 compared to a net income before income taxes of $.2 million in the first quarter of 1996. The Company received a benefit of $.1 million for income taxes in the first quarter of 1996. As a result, the Company reports a net loss of $1.7 million, or $.08 per share, in the first quarter of 1997 compared to a net income of $.1 million, or .01 per share, in the first quarter of 1996. In the first quarter of 1997, the Company paid dividends of $2.6 million on its Mandatory Adjustable Redeemable Convertible Securities (MARCS). As a result, the loss attributable to Common Shareholders was $4.4 million, or $.20 per share, compared to $.3 million, or $.02 per share, in the first quarter of 1996. LIQUIDITY AND CAPITAL RESOURCES WORKING CAPITAL; CASH AND CASH EQUIVALENTS The Company's working capital at March 31, 1997 was approximately $167.7 million compared to $179.6 million at December 31, 1996. The ratio of current assets to current liabilities was 6.3 to one at March 31, 1997 compared to 6.7 to one at December 31, 1996. Net cash used in operating activities in the first quarter of 1997 was $(.4) million compared to $1.3 million provided by operating activities in the first quarter of 1996. Cash provided by operating activities before working capital changes was $5.1 million in the first quarter of 1997 compared to $3.5 million in 1996's comparable quarter. In the first quarter of 1997, operating cash flow was impacted by the buildup of work-in-progress inventories at Fachinal. These inventories were sold early in the second quarter of 1997 and it is expected that inventories will be reduced from first quarter levels during the rest of the year. Net cash provided by investing activities in the first quarter of 1997 was $17.4 million compared to $(69.0) million used in investing activities in the prior year's comparable period. Net cash used in financing activities in the first quarter of 1997 was $2.9 million, compared to $135.2 million provided by financing activities in the first quarter of 1996. As a result of the above, cash and cash equivalents increased by $14.2 million in the first quarter of 1997 compared to a $67.4 million increase for the comparable period in 1996. -11- INCREASE IN INTEREST IN GASGOYNE In February 1997, Gasgoyne effected a selective reduction of capital by repurchasing its publicly held shares from those shareholders other than Coeur and Sons of Gwalia, as a result of which Coeur's ownership interest increased from 35% to 36% of Gasgoyne's outstanding shares. It is the intent of the Company and Sons of Gwalia to equalize their respective ownership interests in Gasgoyne, thereby giving the Company a 50% interest in that company or its underlying assets. The equalization will be completed in the second quarter of 1997 and that the total cost to Coeur will be approximately $18 million. This acquisition will be funded out of the Company's existing cash resources. FEDERAL NATURAL RESOURCES ACTION On March 22, 1996, an action was filed in the United States District Court for the District of Idaho (Civ. No. 96-0122-N-EJL) by the United States against various defendants, including the Company, asserting claims under the Comprehensive Environmental Resources Compensation and Liability Act and the Clean Water Act for alleged damages to Federal natural resources in the Coeur d'Alene River Basin of northern Idaho as a result of alleged releases of hazardous substances from mining activities conducted in the area since the late 1800s. No specific monetary damages are identified in the complaint. However, in July 1996, the government indicated damages may approximate $982 million. The United States asserts that the defendants are jointly and severally liable for costs and expenses incurred by the U.S. government in investigation, removal and remedial action and the restoration or replacement of affected natural resources. In 1986 and 1992 the Company had settled similar issues with the State of Idaho and the Coeur d'Alene Indian Tribe, respectively, and believes that those prior settlements exonerate it of further involvement with alleged natural resource damage in the Coeur d'Alene River Basin. Accordingly, the Company intends to vigorously defend this matter. On March 27, 1997, the Company filed a motion for summary judgment with the court seeking an order of dismissal. The motion is pending decision by the court. At this initial stage of the proceeding it is not possible to predict its ultimate outcome. -12- PART II. Other Information. ITEM 5. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) EXHIBITS No. 27 Financial Data Schedule (b) REPORTS ON FORM 8-K None -13- 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 May 15, 1997 /s/ Dennis E. Wheeler ----------------------- DENNIS E. WHEELER Chairman, President and Chief Executive Officer Dated May 15, 1997 /s/ James A. Sabala ----------------------- JAMES A. SABALA Senior Vice President and Chief Financial Officer -14-