10-K/A 1 0001.txt FORM 10-K/A ------------------------------------------------------------------------------- ------------------------------------------------------------------------------- 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 ---------------- 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. ------------------------------------------------------------------------------- ------------------------------------------------------------------------------- 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