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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM 10-K/A
(Mark One)
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2000
[_]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 1-13627
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APEX SILVER MINES LIMITED
(Exact Name of Registrant as Specified in its Charter)
Cayman Islands, British West Indies Not Applicable
(State of Incorporation or (I.R.S. Employer Identification No.)
Organization)
Not Applicable
Caledonian House (Zip Code)
69 Jennette Street
George Town, Grand Cayman
Cayman Islands, British West Indies
(Address of principal executive
office)
(345) 949-0050
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which
Ordinary Shares, $0.01 par value registered
Ordinary Shares Subscription American Stock Exchange
Warrants American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
The aggregate market value of the voting stock held by non-affiliates of the
registrant was approximately $132,000,000 as of March 22, 2001.
The number of Ordinary Shares outstanding as of March 22, 2001 was 34,521,629.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Definitive Proxy Statement to be filed with the
Securities and Exchange Commission pursuant to Regulation 14A in connection
with the 2001 Annual Meeting of Shareholders are incorporated by reference in
Part III of this Report on Form 10-K.
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EXPLANATORY NOTE
This Annual Report on Form 10-K/A for the fiscal year ended December 31,
2000 (the "Report") is being filed solely to make the following amendments to
the signature page and to Item 8.
SIGNATURE PAGE: The signature page has been amended to reflect the
signatures of three additional directors.
ITEM 8: In Note 9 to the Financial Statements, "Cash Flow Information," the
line "Stock option compensation expense" and its associated values, which were
inadvertently omitted in the initial filing, have been added to the table.
Other minor typographical and grammatical changes have been made to Item 8.
This Form 10-K/A constitutes Amendment No. 1 to the Report.
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements and supplementary information filed as
part of this Item 8 are listed under Part IV, Item 14, "Exhibits, Financial
Statement Schedules and Reports on Form 8-K" and contained in this Form 10-K
at page F-1.
1
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
March 26, 2001 on its behalf by the undersigned, thereunto duly authorized.
Apex Silver Mines Limited
Registrant
/s/ Thomas S. Kaplan
By: _________________________________
Thomas S. Kaplan
Chairman, Board of Directors
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed by the following persons on behalf of the Registrant, in
the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Thomas S. Kaplan Director March 26, 2001
______________________________________
Thomas S. Kaplan
/s/ Harry M. Conger Director March 26, 2001
______________________________________
Harry M. Conger
/s/ Eduardo S. Elsztain Director March 26, 2001
______________________________________
Eduardo S. Elsztain
/s/ David Sean Hanna Director March 26, 2001
______________________________________
David Sean Hanna
/s/ Ove Hoegh Director March 26, 2001
______________________________________
Ove Hoegh
/s/ Keith R. Hulley Director March 26, 2001
______________________________________
Keith R. Hulley
/s/ Kevin R. Morano Director March 26, 2001
______________________________________
Kevin R. Morano
/s/ Paul Soros Director March 26, 2001
______________________________________
Paul Soros
/s/ Charles B. Smith Director March 26, 2001
______________________________________
Charles B. Smith
2
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX
Page
----
Report of Management...................................................... F-2
Report of Independent Accountants......................................... F-2
Consolidated Balance Sheet at December 31, 2000 and 1999.................. F-3
Consolidated Statement of Operations for the years ended December 31,
2000, 1999, and 1998 and for the period from December 22, 1994
(inception) through December 31, 2000.................................... F-4
Consolidated Statement of Changes in Shareholders' Equity for the years
ended December 31, 2000, 1999, and 1998 and for the period from December
22, 1994 (inception) through December 31, 2000........................... F-5
Consolidated Statement of Cash Flows for the years ended December 31,
2000, 1999, and 1998 and for the period from December 22, 1994
(inception) through December 31, 2000.................................... F-6
Notes to the Consolidated Financial Statements............................ F-7
F-1
REPORT OF MANAGEMENT
Management is responsible for the preparation of the accompanying financial
statements and for other financial and operating information appearing in the
annual report. It believes that its accounting systems and internal accounting
controls, together with other controls, provide assurance that all accounts
and records are maintained by qualified personnel in requisite detail, and
accurately and fairly reflect transactions of Apex Silver Mines Limited and
its subsidiaries in accordance with established policies and procedures.
The Board of Directors has an Audit Committee, all of whose members are
neither officers nor employees of the Company or its affiliates. The Audit
Committee recommends independent public accountants to act as auditors for the
Company for consideration by the Board of Directors; reviews the Company's
financial statements; confers with the independent accountants with respect to
the scope and results of their audit of the Company's financial statements and
their reports thereon; reviews the Company's accounting policies, tax matters
and internal controls; and oversees compliance by the Company with the
requirements of federal regulatory agencies. Access to the Audit Committee is
given to the Company's financial and accounting officers and independent
accountants.
Thomas S. Kaplan Mark A. Lettes
Chairman Vice President and Chief Financial
Apex Silver Mines Limited Officer
Apex Silver Mines Corporation
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholders of Apex Silver Mines Limited
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of changes in shareholders' equity and
of cash flows present fairly, in all material respects, the financial position
of Apex Silver Mines Limited (successor to Apex Silver Mines LDC) and its
subsidiaries at December 31, 2000 and 1999, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 2000 and the period from December 22, 1994 (inception)
through December 31, 2000, in conformity with accounting principles generally
accepted in the United States of America. These financial statements are the
responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with auditing standards generally
accepted in the United States of America which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
PricewaterhouseCoopers LLP
Denver, Colorado
February 16, 2001
F-2
APEX SILVER MINES LIMITED
An Exploration and Development Stage Company
CONSOLIDATED BALANCE SHEET
(Expressed in United States dollars)
December 31, December 31,
2000 1999
------------ ------------
Assets
Current assets
Cash and cash equivalents........................ $ 61,103,263 $ 96,296,577
Accrued interest receivable...................... 214,259 61,119
Prepaid expenses and other assets................ 227,764 301,485
------------ ------------
Current assets................................. 61,545,286 96,659,181
Property, plant and equipment (net).............. 77,351,505 50,561,766
Value added tax recoverable...................... 5,024,021 3,810,460
Other............................................ 132,739 45,997
------------ ------------
Total assets................................... $144,053,551 $151,077,404
============ ============
Liabilities and Shareholders' Equity
Current liabilities
Accrued salaries, wages and benefits............. $ 159,465 $ 118,108
Accounts payable................................. 2,398,064 2,092,477
Current portion of notes payable................. 1,703,712 901,459
------------ ------------
Current liabilities............................ 4,261,241 3,112,044
Notes payable...................................... 1,896,396 3,137,368
Commitments and contingencies (Note 10)............ -- --
Shareholders' equity
Ordinary Shares, $.01 par value, 75,000,000
shares authorized; 34,486,629 and 34,466,168
shares issued and outstanding, respectively
(Note 1e)....................................... 344,866 344,662
Contributed surplus.............................. 192,742,800 192,274,553
Accumulated deficit.............................. (55,191,752) (47,791,223)
------------ ------------
Total shareholders' equity..................... 137,895,914 144,827,992
------------ ------------
Total liabilities and shareholders' equity..... $144,053,551 $151,077,404
============ ============
The accompanying notes form an integral part of these consolidated financial
statements.
F-3
APEX SILVER MINES LIMITED
An Exploration and Development Stage Company
CONSOLIDATED STATEMENT OF OPERATIONS
(Expressed in United States dollars)
For the
period
December 22,
1994
(inception)
Year ended Year ended Year ended through
December December December 31, December 31,
31, 2000 31, 1999 1998 2000
----------- ----------- ------------ ------------
Income
Interest and other
income............... $ 5,652,010 $ 1,113,547 $ 2,444,357 $ 11,223,697
----------- ----------- ------------ ------------
Total income........ 5,652,010 1,113,547 2,444,357 11,223,697
----------- ----------- ------------ ------------
Expenses
Exploration........... 4,440,931 6,013,535 9,965,999 52,607,640
Administrative........ 8,375,859 2,846,057 3,338,812 17,465,431
Amortization and
depreciation......... 235,749 232,987 169,116 901,264
----------- ----------- ------------ ------------
Total expense....... 13,052,539 9,092,579 13,473,927 70,974,335
----------- ----------- ------------ ------------
Loss before minority
interest............... (7,400,529) (7,979,032) (11,029,570) (59,750,638)
Minority interest in
loss of consolidated
subsidiary............. -- -- -- 4,558,886
----------- ----------- ------------ ------------
Net loss for the
period............. $(7,400,529) $(7,979,032) $(11,029,570) $(55,191,752)
=========== =========== ============ ============
Net loss per Ordinary
Share--Basic and
diluted(1)............. $ (0.21) $ (0.29) $ (0.42) $ (2.31)
=========== =========== ============ ============
Weighted average
Ordinary Shares
outstanding (Notes 1e
and 2h)................ 34,472,548 27,601,362 26,212,009 23,894,940
=========== =========== ============ ============
- --------
(1) Diluted earnings per share were antidilutive for all periods presented.
The accompanying notes form an integral part of these consolidated financial
statements.
F-4
APEX SILVER MINES LIMITED
An Exploration and Development Stage Company
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(Expressed in United States dollars)
Accumulated
Deficit & Total
Shares Contributed Comprehensive Shareholders'
Outstanding Amount Surplus Deficit Equity
----------- -------- ------------ ------------- -------------
Issuance of shares upon
incorporation December
22, 1994 ($0.85 per
share)................. 8,822,546 $ 88,225 $ 5,571,398 $ -- $ 5,659,623
Net loss................ -- -- -- (213,165) (213,165)
---------- -------- ------------ ------------ ------------
Balance, December 31,
1994................... 8,822,546 88,225 5,571,398 (213,165) 5,446,458
Net loss and
comprehensive loss..... -- -- -- (1,861,185) (1,861,185)
---------- -------- ------------ ------------ ------------
Balance, December 31,
1995................... 8,822,546 88,225 5,571,398 (2,074,350) 3,585,273
Issuance of shares in
private placement
($8.00 per share)...... 4,256,700 42,567 32,406,783 -- 32,449,350
Net loss and
comprehensive loss..... -- -- -- (11,723,313) (11,723,313)
---------- -------- ------------ ------------ ------------
Balance, December 31,
1996................... 13,079,246 130,792 37,978,181 (13,797,663) 24,311,310
Purchase of minority
interest in ASC Bolivia
($11.00 per share)..... 268,496 2,685 2,950,771 -- 2,953,456
Issuance of shares to
associates ($11.00 per
share)................. 138,595 1,386 1,523,159 -- 1,524,545
Issuance of shares for
services ($1.49 per
share)................. 115,207 1,152 231,566 -- 232,718
Stock option
compensation expense... -- -- 416,562 -- 416,562
Issuance of shares upon
Initial Public Offering
($11.00 per share)..... 5,523,372 55,234 54,719,730 -- 54,774,964
Net loss and
comprehensive loss..... -- -- -- (14,984,958) (14,984,958)
---------- -------- ------------ ------------ ------------
Balance, December 31,
1997................... 19,124,916 191,249 97,819,969 (28,782,621) 69,228,597
Exchange of Apex LDC
shares................. 7,079,006 70,790 (70,790) -- --
Stock options exercised
($7.91 per share)...... 25,001 250 197,473 -- 197,723
Stock awards ($8.50 per
share)................. 21,838 218 185,407 -- 185,625
Unearned compensation... -- -- (185,625) -- (185,625)
Net loss and
comprehensive loss..... -- -- -- (11,029,570) (11,029,570)
---------- -------- ------------ ------------ ------------
Balance, December 31,
1998................... 26,250,761 262,507 97,946,434 (39,812,191) 58,396,750
Stock options exercised
($8.77 per share)...... 25,549 256 223,900 -- 224,156
Sale of Ordinary Share
units ($12.00 per
share)................. 8,090,132 80,901 94,004,628 -- 94,085,529
Commissions paid in
stock ($12.00 per
share)................. 84,184 842 (842) -- --
Stock awards ($12.06 per
share)................. 15,542 156 187,475 -- 187,631
Unearned compensation
(net).................. -- -- (87,042) -- (87,042)
Net loss and
comprehensive loss..... -- -- -- (7,979,032) (7,979,032)
---------- -------- ------------ ------------ ------------
Balance, December 31,
1999................... 34,466,168 344,662 192,274,553 (47,791,223) 144,827,992
Stock compensation
($10.88 per share) .... 5,100 51 55,412 -- 55,463
Stock awards ($9.13 per
share) ................ 15,361 153 140,168 -- 140,321
Unearned compensation... -- -- 272,667 -- 272,667
Net loss and
comprehensive loss..... -- -- -- (7,400,529) (7,400,529)
---------- -------- ------------ ------------ ------------
Balance, December 31,
2000................... 34,486,629 $344,866 $192,742,800 $(55,191,752) $137,895,914
========== ======== ============ ============ ============
The accompanying notes form an integral part of these consolidated financial
statements.
F-5
APEX SILVER MINES LIMITED
An Exploration and Development Stage Company
CONSOLIDATED STATEMENT OF CASH FLOWS
(Expressed in United States dollars)
For the
period
December 22,
1994
(inception)
Year ended Year ended Year ended through
December 31, December 31, December 31, December 31,
2000 1999 1998 2000
------------ ------------ ------------ ------------
Cash flows from
operating activities:
Net cash used in
operating activities
(Note 9)............. $ (7,243,649) $ (8,288,609) $(11,463,133) $(60,896,487)
------------ ------------ ------------ ------------
Cash flows from
investing activities:
Purchase of property,
plant, and
equipment............ (27,510,946) (15,705,206) (19,085,903) (68,760,351)
------------ ------------ ------------ ------------
Net cash used in
investing
activities......... (27,510,946) (15,705,206) (19,085,903) (68,760,351)
------------ ------------ ------------ ------------
Cash flows from
financing activities:
Net proceeds from
issuance of Ordinary
Shares............... -- 94,085,529 -- 191,761,070
Payment of notes...... (438,719) (236,534) (464,639) (1,139,892)
Proceeds from exercise
of stock options..... -- 224,156 197,723 421,879
Deferred
organizational and
financing costs...... -- -- -- (282,956)
------------ ------------ ------------ ------------
Net cash provided by
(used in) financing
activities......... (438,719) 94,073,151 (266,916) 190,760,101
------------ ------------ ------------ ------------
Net increase (decrease)
in cash and cash
equivalents............ (35,193,314) 70,079,336 (30,815,952) 61,103,263
Cash and cash
equivalents beginning
of period.............. 96,296,577 26,217,241 57,033,193 --
------------ ------------ ------------ ------------
Cash and cash
equivalents end of
period................. $ 61,103,263 $ 96,296,577 $ 26,217,241 $ 61,103,263
============ ============ ============ ============
Supplemental non-cash
transactions:
Acquisition of mining
properties for
asssumption of debt.. $ -- $ 260,000 $ --
Capitalized
development costs at
San Cristobal for
which a note payable
was issued........... $ -- $ 2,000,000 $ --
Non-cash debt
extinguished by one-
time early cash
payment.............. $ -- $ -- $ 826,196
The accompanying notes form an integral part of these consolidated financial
statements.
F-6
APEX SILVER MINES LIMITED
An Exploration and Development Stage Company
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in United States dollars)
1. Incorporation, Recapitalization, Initial Public Offering, Subsequent
Offerings, Ownership and Operations
a. Apex Silver Mines Limited ("Apex Limited" or the "Company") was formed
under the laws of the Cayman Islands in March of 1996 for the sole purpose of
serving as a holding company for certain ownership interests in Apex Silver
Mines LDC ("Apex LDC"). On April 15, 1996, holders of approximately 55% of the
then-outstanding shares of Apex LDC elected to participate, effective as of
the completion of a proposed private placement of shares of Apex Limited which
was completed as of August 6, 1996, in a recapitalization effected by an
exchange, on a one-for-one basis, of their shares in Apex LDC for identical
equity instruments of Apex Limited (the "Recapitalization"). The balance of
shareholders retained a direct ownership interest in Apex LDC. As a result of
this Recapitalization, Apex LDC became a majority-owned subsidiary of Apex
Limited. The accompanying financial statements reflect the historical accounts
of the Company's predecessor, Apex LDC. For purposes of the accompanying
consolidated financial statements of Apex Limited, the Recapitalization has
been given retroactive effect to the date of incorporation of Apex LDC, with
the results of operations and equity attributable to the other ownership
interests in Apex LDC being reflected in "minority interest in consolidated
subsidiary". Consequently, for purposes of these financial statements, Apex
Limited is considered the successor to Apex LDC.
b. In August of 1996, Apex Limited issued 4,256,700 Ordinary Shares in a
private placement transaction (the "Private Placement") for net proceeds of
$32.4 million. These proceeds were contributed to Apex LDC in exchange for the
issuance by Apex LDC of 4,256,700 shares of its share capital. As a result of
this Private Placement, the Company's ownership interest in Apex LDC was
increased from approximately 55% to 65%.
c. On December 1, 1997, the Company closed its initial public offering of
Ordinary Shares. The Company sold 5,000,000 Ordinary Shares at a price of $11
per share on the American Stock Exchange under the symbol "SIL". In addition,
on December 23, 1997, the underwriters exercised an option to purchase an
additional 523,372 Ordinary Shares at the initial price of $11 per share. Net
proceeds raised in the offering were approximately $54.8 million. These
proceeds were contributed to Apex LDC in exchange for the issuance by Apex LDC
of 5,523,372 shares of its capital.
d. The Company's principal activities are the exploration and development of
mineral properties. The Company participates in the acquisition and
exploration of mineral properties for possible future development directly and
indirectly through its subsidiaries.
e. In conjunction with the Recapitalization and the Private Placement, Apex
Limited and the shareholders of Apex LDC entered into a Buy-Sell Agreement
(the "Buy-Sell Agreement") which was intended to maintain the same beneficial
interest in Apex LDC attributable to all shareholders of Apex LDC prior to the
Recapitalization and Private Placement. During 1998, pursuant to the terms of
the Buy-Sell Agreement, Apex Limited exchanged 7,079,006 of its Ordinary
Shares for an equal number of Apex LDC shares. Such shares are included in the
34,486,629 Apex Limited Ordinary Shares outstanding at December 31, 2000. At
December 31, 2000, Apex Silver Mines Limited owned 100 percent of Apex LDC.
Per the provisions of the Buy-Sell Agreement, all of the outstanding shares of
Apex LDC are considered Ordinary Shares outstanding for the purposes of
computing net loss per Ordinary Share for the periods presented.
f. In November 1999, pursuant to a shelf registration statement filed with
the Securities and Exchange Commission, the Company sold 8,090,132 Ordinary
Share units, resulting in proceeds before commissions and fees of
approximately $97.1 million and net proceeds of approximately $94.1 million.
The Ordinary Share units, each priced at $12.00 per unit, were comprised of
one Ordinary Share and a warrant which is exercisable into
F-7
APEX SILVER MINES LIMITED
An Exploration and Development Stage Company
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Expressed in United States dollars)
one-half of an Ordinary Share at any time on or before November 4, 2002 at a
price of $18.00 per Ordinary Share. The warrants, if exercised, would raise an
additional $73.6 million for the Company and would result in the issuance of
4,045,066 Ordinary Shares.
g. The Company, through indirect subsidiaries, is active in Mexico, Central
America and South America and currently holds interests in, or is the
beneficial owner of, non-producing silver resource properties in Bolivia,
Honduras, Mexico and Peru. The Company is in the process of evaluating certain
of its properties to determine the economic feasibility of bringing one or
more of the properties into production.
2. Summary of Significant Accounting Policies
These consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of America
("GAAP"). The preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect the reported
amounts and disclosures in the financial statements. Actual results could
differ from those estimates. The policies adopted, considered by management to
be significant, are summarized as follows:
a. Basis of consolidation
These consolidated financial statements include the accounts of the Company
and its majority-owned subsidiaries. Investments in unincorporated joint
ventures are proportionately consolidated.
b. Translation of foreign currencies
Substantially all expenditures are made in United States dollars.
Accordingly, the Company uses the United States dollar as its functional
currency.
c. Cash, cash equivalents and short-term investments
The Company considers all highly-liquid investments with a maturity of three
months or less when purchased to be cash equivalents. Short-term investments
include certificates of deposit with maturities greater than three months, but
not exceeding twelve months. Short-term investments are recorded at cost which
approximates fair value.
d. Mining properties, exploration and development costs
The Company expenses general prospecting costs and the costs of acquiring
and exploring unevaluated mining properties. When a property is determined to
have proven and probable reserves, development costs are capitalized. When ore
reserves are developed and operations commence, capitalized costs will be
amortized using the units-of-production method. Upon abandonment or sale of
projects, all capital costs relating to the specific project are written off
in the period abandoned or sold and a gain or loss is recognized. Beginning
September 1, 1997, all costs associated with the Company's San Cristobal
Project have been capitalized. As of December 31, 2000, capitalized property
and development costs related to the San Cristobal Project amounted to
$72,819,859. No other amounts related to mineral properties have been
capitalized.
e. Property, plant and equipment
Mineral properties include costs to acquire development properties and
property development costs. Mineral properties brought into production are
charged to operations using the units-of-production method based on
F-8
APEX SILVER MINES LIMITED
An Exploration and Development Stage Company
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Expressed in United States dollars)
estimated recoverable reserves. Buildings are stated at cost and are
depreciated using the straight-line method, over useful lives of thirty to
forty years. Mining equipment and machinery are stated at cost and are
depreciated using the straight-line method over useful lives of three to eight
years. Other furniture and equipment are stated at cost and are depreciated
using the straight-line method over estimated useful lives of three to five
years.
f. Asset impairment
The Company evaluates its long-lived assets for impairment when events or
changes in circumstances indicate that the related carrying amount may not be
recoverable. If the sum of estimated future net cash flows on an undiscounted
basis is less than the carrying amount of the related asset, an asset
impairment is considered to exist. The related impairment loss is measured by
comparing estimated future net cash flows on a discounted basis to the
carrying amount of the asset. Changes in significant assumptions underlying
future cash flow estimates may have a material effect on the Company's
financial position and results of operations. To date no such impairments have
been identified.
g. Stock compensation
As permitted under Statement of Financial Accounting Standards ("SFAS") No.
123, "Accounting for Stock-Based Compensation," the Company has elected to
measure compensation expense as prescribed by Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees." Under that method,
the difference between the exercise price and the estimated fair value of the
shares at the date of grant is charged to compensation expense ratably over
the vesting period.
h. Net loss per ordinary share
Basic earnings per share excludes dilution and is computed by dividing net
earnings available to ordinary shareholders by the weighted average number of
shares outstanding for the period. Diluted earnings per share reflect the
potential dilution that would occur if securities or other contracts to issue
Ordinary Shares were exercised or converted into Ordinary Shares.
Outstanding options to purchase 1,498,128, 915,817 and 626,571 Ordinary
Shares were not included in the computation of diluted earnings per share at
December 31, 2000, 1999, and 1998 respectively, because to do so would have
been antidilutive.
i. Derivative financial instruments
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Accounting Standards No. 133, Accounting for Derivative
Instruments and Hedging Activities ("FAS 133"). FAS 133, as amended by FAS
137, is effective for all fiscal quarters of all fiscal years beginning after
June 15, 2000 (January 1, 2001 for the Company). FAS 133 requires that all
derivative instruments be recorded on the balance sheet at their fair value.
Changes in the fair value of derivatives are recorded each period in current
earnings or other comprehensive income, depending on whether a derivative is
designated as part of a hedge transaction and, if it is, the type of hedge
transaction. For fair-value hedge transactions in which the Company is hedging
changes in the fair value of an asset, liability, or firm commitment, changes
in the fair value of the derivative instrument will generally be offset by
changes in the hedged item's fair value. For cash flow hedge transactions, in
which the Company is hedging the variability of cash flows related to a
variable-rate asset, liability or forecasted transaction, changes in the fair
value of the derivative instrument will be reported in other comprehensive
F-9
APEX SILVER MINES LIMITED
An Exploration and Development Stage Company
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Expressed in United States dollars)
income. The gains and losses on the derivative instrument that are reported in
other comprehensive income will be reclassified as earnings in the periods in
which earnings are impacted by the variability of cash flows of the hedged
item. The ineffective portion of all hedges will be recognized in current-
period earnings.
The Company engages in limited metals trading activities utilizing puts and
calls, and we mark the open positions to market recording the difference in
the carrying value to current earnings, in accordance with FAS 133, which will
be effective January 1, 2001. During 2000, the Company recorded mark to market
gains of approximately $446,000, which is included in interest and other
income in the Consolidated Statement of Operations.
j. Reclassification of prior year balances
Certain prior year balances have been reclassified to conform to the
classifications being presented at December 31, 2000.
3. Income Taxes
The provision for income taxes includes United States federal, state and
foreign income taxes currently payable and deferred based on currently enacted
tax laws. Deferred income taxes are provided for the tax consequences of
differences between the financial statement and tax bases of assets and
liabilities. A valuation allowance is recognized if, based on the weight of
available evidence, it is more likely than not that some portion or all of the
deferred tax asset will not be realized.
There is currently no taxation imposed by the Cayman Islands. If any form of
taxation were to be enacted, the Company has been granted exemption therefrom
to January 16, 2015. The Company's subsidiaries which do business in other
countries have not generated income and therefore are not liable for local
income taxes.
As of December 31, 2000 and 1999, operating loss carryforwards generated by
ASC Bolivia amounted to approximately $16.6 and $16.1 million, respectively.
Operating losses (as adjusted for inflation) may be carried forward and
deducted from taxable income indefinitely. The deferred tax asset resulting
from the operating loss carryforwards has been entirely offset by a valuation
allowance.
No net deferred tax assets related to operating losses generated through
December 31, 2000 by the Company's other foreign subsidiaries have been
included in the accompanying financial statements, as all such assets have
been entirely offset by a valuation allowance of approximately $15.9 million.
4. Value Added Tax Recoverable
The Company has recorded value added tax ("VAT") paid in Bolivia and Mexico
as recoverable assets. Bolivian law states that VAT paid prior to production
is recoverable as a credit against Bolivian taxes arising from production,
including income tax. The VAT paid in Bolivia is expected to be recovered
through production from the proven and probable reserves at the San Cristobal
Project that the Company intends to develop. The VAT paid in Mexico is related
to exploration activities and is recoverable upon application to the tax
authorities. The Company received VAT refunds relating to VAT paid in Mexico
through 1998. Applications for refund of the remaining VAT paid in Mexico
through 2000 have been filed and payment is expected in due course. At
December 31, 2000, the recoverable VAT recorded for Bolivia and Mexico is
$4,731,003 and $293,018, respectively.
F-10
APEX SILVER MINES LIMITED
An Exploration and Development Stage Company
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Expressed in United States dollars)
Because of the uncertainty of the recoverability of VAT paid in Peru, VAT
costs incurred in Peru are charged to expense as incurred.
5. Property, Plant and Equipment
The components of property, plant, and equipment were as follows:
December
December 31, 31,
2000 1999
------------ -----------
Mineral properties................................ $ 72,819,859 $48,056,283
Buildings......................................... 1,166,868 1,137,173
Mining equipment and machinery.................... 3,317,827 1,267,679
Other furniture and equipment..................... 805,289 765,241
------------ -----------
78,109,843 51,226,376
Less: Accumulated depreciation.................... (758,338) (664,610)
------------ -----------
$ 77,351,505 $50,561,766
============ ===========
Depreciation expense for the periods ended December 31, 2000, 1999 and 1998
totaled $210,278, $176,395 and $112,471, respectively. For the periods ended
December 31, 2000, 1999 and 1998 respectively, $195,505, $168,461 and $135,561
of depreciation associated with the San Cristobal Project was capitalized.
6. Notes Payable
The Company's Notes Payable consists of the following:
December 31, December 31,
2000 1999
------------ ------------
San Cristobal Area Properties.................... $ 1,847,369 $2,238,827
San Cristobal Foundation......................... 1,752,739 1,800,000
----------- ----------
Sub-total...................................... 3,600,108 4,038,827
Less current portion............................. (1,703,712) (901,459)
----------- ----------
Total.......................................... $ 1,896,396 $3,137,368
=========== ==========
In 1996, 1997 and 1998 the Company exercised options to purchase the Toldos
and other properties in the San Cristobal area. The following outstanding
notes payable were recorded on the Company's books:
Banco de Santa Cruz--The Company will make annual payments of $68,914 for
each of the next five years, plus interest at Banco de Santa Cruz'
preferential rate of interest which was approximately 14% as of December
31, 2000. The note plus accrued interest was being carried on the Company's
books for $344,571 at December 31, 2000.
Barex--The Company will make one payment of $900,000 on December 1, 2001.
No interest is due on this note.
Monica de Prudencio--The Company makes monthly payments of $12,000 per
month through June 2004 and a final payment of $8,000 due July 15, 2004. No
interest is due on this debt. The note was being carried on the Company's
books for $512,000 at December 31, 2000.
F-11
APEX SILVER MINES LIMITED
An Exploration and Development Stage Company
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Expressed in United States dollars)
Oscar Bonifaz--The note was being carried on the Company's books for
$60,000 at December 31, 2000. No interest is due on this debt. The note
will be repaid in 2001.
San Cristobal Foundation--In 1999 the Company executed a note agreement
with the San Cristobal Foundation for $2 million payable by the end of
2005. Payments in the amount of $47,261 and $200,000 were made on the note
during 2000 and 1999 respectively.
7. Stock Option Plans
The Company has established a plan to issue share options and other awards
to be valued by reference to the Company's shares for officers, employees,
consultants and agents of the Company and its subsidiaries (the "Plan"). Under
the Plan, the total number of options and other awards outstanding at any time
cannot exceed ten percent of the Company's share capital. Options granted and
other awards under the Plan are non-assignable. Options exist for a term, not
to exceed ten years, as fixed by the Compensation Committee of the Board of
Directors of the Company ("the Committee"). Options vest ratably over periods
of up to four years with the first tranche vesting on the date of grant or the
anniversary of the date of grant. Unexercised options expire ten years after
the date of grant.
The Company has established a share option plan for its non-employee
directors (the "Director Plan"). Under the Director Plan, the total number of
options outstanding at any one time cannot exceed five percent of the
Company's share capital. Pursuant to the Director Plan non-employee directors
receive (i) at the effective date of their initial election to the Company's
Board of Directors, an option to purchase the number of Ordinary Shares equal
to $50,000 divided by the closing price of the Ordinary Shares on the American
Stock Exchange (the "AMEX") on such date, (ii) at the close of business of
each annual meeting of the Company's shareholders, an option to purchase the
number of Ordinary Shares equal to $50,000 divided by the closing price of the
Ordinary Shares on the AMEX on such date, and (iii) at the close of business
of each meeting of the Company's Board of Directors, an option valued at
$3,000 calculated using the Black-Scholes option-pricing model to purchase
Ordinary Shares with an exercise price equal to that of the closing price of
the Ordinary Shares on the AMEX on such date. Options granted to a non-
employee director vest on the date of the grant and expire 10 years after the
date of the grant or one year after the date that such non-employee director
ceases to be a director of the Company. Options granted under the Director
Plan are transferable only in limited circumstances.
A summary of the Company's stock options at December 31, 2000, 1999 and 1998
and changes during those years is presented in the following table:
2000 1999 1998
----------------------- ------------------------ ------------------------
Number of Average Price Number of Average Price Number of Average Price
Options Shares Per Share Shares Per Share Shares Per Share
------- --------- ------------- --------- ------------- --------- -------------
Outstanding beginning of
period................. 915,817 $9.98 626,571 $ 8.84 455,625 $ 8.00
Granted during period... 582,311 $9.79 358,847 $11.76 195,947 $10.69
Forfeited or expired
during period.......... -- -- (44,052) $ 8.97 -- $ --
Exercised during
period................. -- -- (25,549) $ 8.77 (25,001) $ 7.91
--------- ----- --------- ------ --------- ------
Outstanding end of
period................. 1,498,128 $9.91 915,817 $ 9.98 626,571 $ 8.84
========= ===== ========= ====== ========= ======
Exercisable at end of
period................. 713,602 563,898 391,222
Weighted average of fair
value of options
granted during period.. $1.76 $ 1.36 $ 1.98
Weighted average
remaining contractual
life................... 8.0 years 8.3 years 8.3 years
F-12
APEX SILVER MINES LIMITED
An Exploration and Development Stage Company
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Expressed in United States dollars)
Options granted during 2000, 1999 and 1998 ranged in exercise price from
$9.13 to $11.63, $7.94 to $14.88 and $8.25 to $12.75 respectively.
Pro forma information regarding net income is required by SFAS No. 123, and
has been determined as if the Company has accounted for its stock options
under the fair value method of SFAS No. 123. For purposes of calculating the
fair value of options, volatility for the three years presented is based on
the historical volatility of the Company's stock over its public trading life.
The Company currently does not foresee the payment of dividends in the near
term. The fair value for these options was estimated at the date of grant
using the Black-Scholes option-pricing model with the following assumptions:
Year ended Year ended Year ended
December 31, December 31, December 31,
2000 1999 1998
------------ ------------ ------------
Weighted average risk-free interest
rate............................... 6.21% 5.64% 5.55%
Volatility.......................... 40.50% 42.10% 48.10%
Expected dividend yield............. -- -- --
Weighted average expected life (in
years)............................. 2.83 2.73 2.53
For the purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The
Company's pro forma information follows:
Year ended Year ended Year ended
December December December 31,
31, 2000 31, 1999 1998
----------- ----------- ------------
As reported
Net loss.......................... $(7,400,529) $(7,979,032) $(11,029,570)
Net loss per Ordinary Share....... $ (0.21) $ (0.29) $ (0.42)
Pro forma
Net loss.......................... $(8,837,116) $(8,509,350) $(11,548,400)
Net loss per Ordinary Share....... $ (0.26) $ (0.31) $ (0.44)
In addition, on December 13, 2000, December 14, 1999 and December 15, 1998,
the Company issued 15,361, 15,542 (net of forfeitures) and 21,838 respectively
of its Ordinary Shares to employees as a portion of performance bonuses paid
during these years.
8. Related Party Transactions
Apex LDC engaged Tigris Financial Group Ltd. ("Tigris") to provide
management advisory services to Apex LDC and its subsidiaries. Tigris is
wholly owned by Mr. Thomas S. Kaplan, a director and officer of Apex LDC and a
director and shareholder of the Company. The consulting arrangement with
Tigris was terminated at the end of 1999. During the years ended December 31,
1999 and 1998 fees and reimbursed expenses paid to Tigris for such services
amounted to $20,495 and $39,637 respectively.
Two individuals, one of whom is an officer of a subsidiary and a shareholder
of the Company, the second of whom is an officer of certain of the Company's
subsidiaries, are shareholders and directors of Begeyge Minera Ltda.
("Begeyge"), from whom the Company has the right to purchase the Suyatal
Project in Honduras for an aggregate purchase price of $3,000,000.
F-13
APEX SILVER MINES LIMITED
An Exploration and Development Stage Company
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Expressed in United States dollars)
9. Cash Flow Information
A reconciliation of net earnings to cash from operations is as follows:
For the
period
December 22,
1994
(inception)
Year ended Year ended Year ended through
December December December 31, December 31,
31, 2000 31, 1999 1998 2000
----------- ----------- ------------ ------------
Cash flows from operating
activities:
Net loss............... $(7,400,529) $(7,979,032) $(11,029,570) $(55,191,752)
Adjustments to
reconcile net loss to
net cash used in
operating activities:
Amortization and
depreciation........ 235,749 232,987 169,116 901,264
Minority interest in
loss of consolidated
subsidiary.......... -- -- -- (4,558,886)
Stock option
compensation
expense............. 468,451 100,589 -- 985,602
Shares issued in
consideration for
services............ -- -- -- 1,524,545
Changes in operating
assets and
liabilities:
(Increase) decrease
in accrued interest
receivable.......... (153,140) 65,213 (23,920) (214,259)
(Increase) decrease
in prepaid expenses
and other assets.... (13,021) 896,137 (229,572) (314,506)
Increase in value
added tax
recoverable......... (1,213,561) (1,084,657) (1,374,799) (5,024,021)
(Increase) decrease
in amounts due from
affiliates.......... -- -- 722,717 --
Increase (decrease)
in accrued salaries,
wages & benefits.... 41,357 (36,692) 114,064 159,465
Increase (decrease)
in accounts
payable............. 305,587 (520,182) 205,331 330,075
Other increase
(decrease).......... 485,458 37,028 (16,500) 505,986
----------- ----------- ------------ ------------
Net cash used in
operating activities.... $(7,243,649) $(8,288,609) $(11,463,133) $(60,896,487)
=========== =========== ============ ============
10. Commitments and Contingencies
The Company has lease commitments associated with the corporate headquarters
office space as follows:
2001 2002 2003 2004 2005
-------- ----- ----- ----- -----
Corporate headquarters office lease....... $187,987 $ -- $ -- $ -- $ --
Payments associated with this lease were recorded to rent expense by the
Company in the amounts of $203,759, $146,714 and $140,650 for the years ended
December 31, 2000, 1999 and 1998 respectively.
F-14
APEX SILVER MINES LIMITED
An Exploration and Development Stage Company
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(Expressed in United States dollars)
11. Fair Value of Financial Instruments
The Company's financial instruments consist of cash and cash equivalents,
receivables, value added tax recoverable, accounts payable, other current
liabilities and long-term debt. Except for the value added tax and long-term
debt, the carrying amounts of these financial instruments approximate fair
value due to their short maturities. The estimated fair values of the
Company's long-term financial instruments, as measured on December 31, 2000
and 1999, are as follows:
2000 1999
--------------------- ---------------------
Carrying Carrying
Amount Fair Value Amount Fair Value
---------- ---------- ---------- ----------
Value added tax recoverable.... $5,024,021 $4,283,122 $3,810,460 $2,999,445
Notes payable.................. 1,896,396 1,532,900 3,137,368 2,402,260
The fair values of the value added tax recoverable and the long-term debt
are estimated based on the expected timing of future cash flows.
12. Segment Information
In 1998, the Company adopted SFAS 131, "Disclosure about Segments of an
Enterprise and Related Information." The Company's sole activity is
exploration for and development of silver properties and, consequently, the
Company has only one operating segment--mining.
Substantially all of the Company's long-lived assets are in Bolivia.
13. Quarterly Results of Operations (Unaudited)
The following table summarizes the Company's quarterly results of operations
for the years ended December 31, 2000 and 1999:
First Second Third Fourth
Quarter Quarter Quarter Quarter
---------- ---------- ---------- ----------
2000
- ----
Interest and other income......... $1,734,862 $1,421,052 $1,382,814 $1,113,282
Net loss for the period........... 723,296 1,888,071 2,148,069 2,641,093
Net loss per Ordinary Share--basic
and diluted...................... $ 0.02 $ 0.05 $ 0.06 $ 0.08
1999
- ----
Interest and other income......... $ 255,239 $ 233,348 $ 87,698 $ 537,262
Net loss for the period........... 2,439,552 2,087,444 2,230,055 1,221,981
Net loss per Ordinary Share--basic
and diluted...................... $ 0.09 $ 0.08 $ 0.08 $ 0.04
F-15
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
April 6, 2001 on its behalf by the undersigned, thereunder duly authorized.
Apex Silver Mines Limited
Registrant
/s/ Keith R. Hulley
By___________________________________
Keith R. Hulley
Director