<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended July 31, 2000
or
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to _____________.
COMMISSION FILE NUMBER 333-59037
LODESTAR HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-3903875
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
30 ROCKEFELLER PLAZA, SUITE 4225
NEW YORK, NEW YORK 10112
(Address of principal executive offices) (Zip Code)
(859) 255-4006
(Registrant's telephone number, including area code)
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
Number of shares outstanding of each of the registrant's classes of common
stock, as of September 20, 2000:
COMMON STOCK, $1.00 PAR VALUE 1000 SHARES
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
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<S> <C>
TABLE OF CONTENTS 1
PART I. FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
Consolidated Balance Sheets as of
July 31, 2000 and October 31, 1999 2
Consolidated Statements of Operations for the Three Months Ended
July 31, 2000 and July 31, 1999 3
Consolidated Statements of Operations for the Nine Months Ended
July 31, 2000 and July 31, 1999 4
Consolidated Statements of Cash Flows for the
Nine Months Ended July 31, 2000 and July 31, 1999 5
Notes to Consolidated Financial Statements 6
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 9
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 18
PART II. OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS 19
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K 20
SIGNATURE 21
</TABLE>
1
<PAGE>
PART I. - ITEM 1 FINANCIAL STATEMENTS
LODESTAR HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands, except share data)
<TABLE>
<CAPTION>
July 31, 2000 October 31, 1999
---------------- ----------------
ASSETS
<S> <C> <C>
Current assets:
Cash $ 2,494 $ 3,454
Accounts receivable 32,910 39,828
Inventories 12,974 15,780
Prepaid expenses and other 3,090 4,121
---------------- ----------------
Total current assets 51,468 63,183
Property, plant and equipment, net 98,470 109,244
Coal and ash disposal contracts in excess of market, net of accumulated
amortization of $14,482 and $7,685, respectively 32,326 39,123
Other assets 11,337 17,655
---------------- ----------------
$ 193,601 $ 229,205
================ ================
LIABILITIES AND STOCKHOLDER'S DEFICIT
Current liabilities:
Current installments of long-term obligations (Note 5) $ 40,649 $ 1,033
Accounts payable 37,264 32,052
Accrued expenses 23,610 28,681
---------------- ----------------
Total current liabilities 101,523 61,766
Long-term obligations, excluding current installments (Note 5) 155,500 180,259
Other non-current liabilities 50,660 47,816
---------------- ----------------
Total liabilities 307,683 289,841
---------------- ----------------
Stockholder's deficit:
Common stock, $1.00 par value. Authorized, issued and outstanding
1,000 shares 1 1
Additional paid-in capital 5,000 5,000
Accumulated deficit (118,846) (65,400)
Accumulated other comprehensive loss - minimum pension liability
adjustment (237) (237)
---------------- ----------------
Total stockholder's deficit (114,082) (60,636)
---------------- ----------------
$ 193,601 $ 229,205
================ ================
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
LODESTAR HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended
----------------------------------
July 31, 2000 July 31, 1999
------------- -------------
<S> <C> <C>
Coal sales and related revenue $ 60,432 $ 67,719
Operating costs:
Cost of revenues 51,928 55,286
Depreciation, depletion and amortization 6,573 7,740
General and administrative 2,459 2,230
Asset write-downs and provisions (Note 6) 6,500 3,000
------------- -------------
67,460 68,256
------------- -------------
Operating loss (7,028) (537)
Interest expense, net (5,753) (5,152)
------------- -------------
Net loss $ (12,781) $ (5,689)
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
LODESTAR HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
----------------------------------
July 31, 2000 July 31, 1999
------------- -------------
<S> <C> <C>
Coal sales and related revenue $ 176,176 $ 172,463
Operating costs:
Cost of revenues 156,684 142,661
Depreciation, depletion and amortization 21,204 21,892
General and administrative 7,738 7,092
Asset write-downs and provisions (Note 6) 27,002 3,000
------------- -------------
212,628 174,645
------------- -------------
Operating loss (36,452) (2,182)
Interest expense, net (16,995) (14,653)
------------- -------------
Net loss $ (53,447) $ (16,835)
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
LODESTAR HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
--------------------------------
July 31, 2000 July 31, 1999
------------- -------------
<S> <C> <C>
Net cash provided by (used in) operating activities:
Net loss $ (53,447) $ (16,835)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation, depletion, and amortization 21,204 21,892
Loss on sale/disposal of property plant and equipment 22 37
Amortization of deferred financing fees 896 833
Imputed interest 533 469
Asset write-downs and provisions 27,002 3,000
Changes in operating assets and liabilities:
Accounts receivable 6,414 (6,497)
Inventories 2,572 (6,996)
Prepaid expenses and other current assets (1,269) (948)
Other assets (314) (1,113)
Accounts payable 5,297 (148)
Accrued expenses (5,654) (9,418)
Other non-current liabilities (2,483) (350)
------------- -------------
Net cash provided by (used in) operating activities 773 (16,074)
------------- -------------
Cash flows used in investing activities:
Payment for acquisitions (4,900) (10,384)
Capital expenditures (11,532) (10,686)
Proceeds from sales of property, plant and equipment 869 98
------------- -------------
Net cash used in investing activities (15,563) (20,972)
------------- -------------
Cash flows provided by financing activities:
Net borrowings from revolving credit facility 14,726 25,258
Principal payments on long-term obligations (896) (245)
------------- -------------
Net cash provided by financing activities 13,830 25,013
------------- -------------
Net decrease in cash (960) (12,033)
Cash at beginning of year 3,454 14,949
------------- -------------
Cash at end of year $ 2,494 $ 2,916
============= =============
Supplemental cash flow disclosures:
Interest paid $ 19,878 $ 17,679
============= =============
Debt incurred through acquisition of property, plant
and equipment $ 600 $ 7,251
============= =============
Other liabilities assumed through acquisition of
property, plant and equipment $ 3,100 $ 12,434
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
LODESTAR HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Nine Months ended July 31, 2000 and 1999
(unaudited - in thousands)
(1) BUSINESS
Lodestar Holdings, Inc. (formerly named Rencoal, Inc.) purchased all of the
outstanding shares of capital stock of Costain Coal, Inc. (prior to the
Acquisition, the "Predecessor Company") from Costain America, Inc. (the
"Predecessor's Parent"), effective March 14, 1997 (the "Acquisition").
After the Acquisition, Costain Coal, Inc. was renamed Lodestar Energy, Inc.
Lodestar Holdings, Inc. and its subsidiaries, Lodestar Energy, Inc.,
Eastern Resources, Inc. and Industrial Fuels Minerals Company, (the
"Company") a wholly-owned subsidiary of The Renco Group, Inc., ("Renco")
began operations on March 15, 1997. On May 15, 1998, the Company sold
and issued $150.0 million of 11.5% Senior Notes due 2005 (the "Notes").
The Company's principal operations consist of surface and underground
coal mining operations in Kentucky and underground coal mining operations
in Utah and Colorado which began production in 1999 and 2000,
respectively. Coal shipments are made to a wide variety of utilities
throughout the United States.
The Company has incurred significant losses since it commenced operations
and negative cash flows during fiscal 2000, 1999, and 1998. The amount of
the Company's losses has been impacted, by generally unfavorable factors
affecting the coal industry in the Eastern United States, as well as the
Company's own specific operational problems. Beginning in 1999, the Company
began a concentrated effort to upgrade its low-sulfur reserve base in order
to address one of its primary operational problems. During this effort, the
Company has expended $16,084 in cash, committed $7,851 in debt payments and
assumed short and long-term obligations of $15,734 in an effort to improve
its low-sulfur reserve base. The return on these invested funds has not
materialized as expected due to deteriorating market conditions,
significant increases in fuel and transportation costs, and unanticipated
operational problems affecting the underground operations in Utah.
The Company has substantial leverage and significant debt service
obligations. As of July 31, 2000, the Company had outstanding indebtedness
of $196.1 million. The significant leverage of the Company combined with
the accumulated losses and the lack of liquidity has resulted in serious
ongoing problems in all areas of the Company's business.
The Company's operating results in the third quarter show improvement when
compared to the second quarter from an adjusted EBITDA, as defined in
Note 3, page 11, standpoint ($6.0 million compared to $1.4 million for
the third and second quarters, respectively). Generally, the operational
improvements are attributable to somewhat improved market conditions and
the continuing positive impact of the aforementioned capital
expenditures on the Company's cost structure. Nevertheless, third
quarter results were negatively impacted by the recognition of a $6.5
million non-cash write-off associated with the White Oak mine in Utah.
Additionally, the financial impact of the third quarter operational
improvements is minor in comparison to the cumulative effect of the
financial problems which have to be addressed.
The Company anticipates that the Company will not be making the scheduled
November interest payment on the Notes and intends to attempt to negotiate
a restructuring of the Notes with the Noteholders. The Company's continued
financial viability is dependent upon its ability to successfully
complete the integration of its newly acquired properties with existing
operations in a manner which improves operational results and the
Company's ability to sustain operations until such results can
materially impact its financial condition. In order to improve the
liquidity of the Company, management is investigating the sale of
certain of the Company's assets and possible sources of additional
capital. There can be no assurance that the Company has either the
resources required or the availability of third party participation to
resolve the current liquidity crisis in a manner which allows it to
sustain its operations. Furthermore, any solution that could be achieved
is dependent upon remediation of the defaults under the Senior Credit
Facility and access to new sources of financing which would enable the
Company to maintain appropriate levels of liquidity until the necessary
operational improvements can be attained. Pending the implementation of
potential corrective measures as previously described, there can be no
assurance that the Company's business will generate adequate cash flow
from operations, that anticipated growth and operating improvements will
be realized or that future borrowings will be available under the Senior
Credit Facility or from any other source in an amount sufficient to
enable the Company to service its indebtedness, including the Senior
Notes due 2005, or to fund its other liquidity needs.
6
<PAGE>
(2) BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared from
the accounting records of Lodestar Holdings, Inc. and its subsidiaries,
without audit. For tax purposes, Renco is a Subchapter S corporation and
the Company has been designated a qualified Subchapter S subsidiary. The
consolidated financial statements reflect all adjustments which are, in the
opinion of management, necessary for a fair statement of results for the
interim periods presented. The results of operations presented for the nine
month period ended July 31, 2000 are not necessarily indicative of the
results to be expected for the full year.
(3) INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
July 31, 2000 October 31, 1999
----------------- ------------------
<S> <C> <C>
Coal $ 9,967 $ 12,366
Materials and supplies 3,007 3,414
----------------- ------------------
$ 12,974 $ 15,780
================= ==================
</TABLE>
(4) ACQUISITION OF ASSETS IN NOVEMBER 1999
On November 12, 1999, Lodestar Energy, Inc. ("Lodestar"), a wholly-owned
subsidiary of the Company, acquired certain mining rights, leases of real
property and equipment in Eastern Kentucky (collectively, "Bent Mountain")
from Quaker Coal Company, Inc. and affiliates ("Quaker"). The consideration
paid to Quaker was $4.9 million in cash, a deferred payment obligation of
$0.6 million due one year from the date of the acquisition, and the
assumption of certain other liabilities. This transaction was funded
through a supplemental loan under the Company's $120.0 million senior
credit facility (the "Senior Credit Facility"). (See Note 5). This
acquisition provides Lodestar with a surface mining operation with
approximately 15.4 million tons of demonstrated reserves. Lodestar began
production on Bent Mountain in December 1999 and expects to generate annual
production of approximately 1.5 million tons.
(5) AMENDMENT TO SENIOR CREDIT FACILITY
In order to secure the necessary funds to consummate the Bent Mountain
transaction (See Note 4), in November 1999 Lodestar entered into an
amendment to its Senior Credit Facility providing for a supplemental loan
of $6.7 million. This supplemental loan bears interest at the prime rate
plus 0.75% and is payable in four equal quarterly installments which began
February 1, 2000. In conjunction with such amendment, the Company is
subject to, among other things, minimum monthly earnings tests during the
remaining life of its credit facility. At July 31, 2000, $3,350 remained
outstanding under the supplemental loan with equal payments due on August
1st (which has been made) and November 1st.
The Company has failed to meet the minimum monthly earnings tests for each
month since January 31, 2000. The lenders waived the Company's
non-compliance with the monthly earnings test requirements for the periods
ended January 31, 2000 and February 29, 2000. As of March 31, 2000 and
continuing through the date of submission of this document, unremedied
events of default exist under the covenants of the Company's Senior Credit
Facility. Although Lodestar's lenders could pursue various remedies in
accordance with their contractual rights, as of September 20, 2000, they
have continued to fund and have taken no action to restrict Lodestar from
operating in the normal course of business. Management is pursuing various
alternatives in an effort to resolve the Company's current default
situation. However, since there can be no assurance that this situation
will be resolved, amounts outstanding under the Senior Credit Facility have
been classified as current liabilities as of July 31, 2000.
7
<PAGE>
Simultaneous with the amendment to the Senior Credit Facility, Renco
entered into an agreement with the Company's lenders (the "Subordinated
Loan Letter") to provide, in certain circumstances, subordinated loans of
up to $6.0 million to the Company should the Company fail to maintain
certain financial covenants required by the terms of the Senior Credit
Facility or should the Company not meet minimum daily loan availability
requirements of $6.0 million. The proceeds of the subordinated loan can
only be used to reduce the outstanding borrowings under the Senior Credit
Facility thereby reducing the minimum daily loan availability shortfall, if
any, and in certain cases creating additional availability under the Senior
Credit Facility.
The Senior Credit Facility was further amended in March and August 2000. In
conjunction with such amendments, Renco and the lenders under the Senior
Credit Facility agreed that Renco may at its election provide $6.0 million
of cash collateral to the lenders, in $1.0 million installments from March
to August 2000. The lenders, in turn, will provide additional availability
to the Company equal to the amount of cash collateral provided. As of July
31, 2000, $5.0 million of additional availability had been provided in
accordance with such amendment. As of September 20, 2000, a total of $6.0
million of additional availability has been provided in accordance with
such amendments. The cash collateral provided satisfies the liability of
Renco to make advances under the Subordinated Loan Letter.
(6) ASSET WRITE-DOWNS AND PROVISIONS
During the three months ended April 30, 2000, Lodestar recorded a pre-tax
non-cash charge of approximately $20.5 million, in response to market
conditions. Lodestar implemented new mining strategies primarily in its
Eastern Kentucky operations that resulted in significant changes in the
timing and extent to which certain Central Appalachia coal assets have been
deployed. Based upon the centralization of mining activity at certain
primary sites, the idling or closure of certain high operating cost mines,
and the re-evaluation of the economics of future mining on certain other
properties controlled by Lodestar, the Company recorded approximately $15.0
million of pre-tax non-cash charges to write-off or establish appropriate
provisions for the impairment of certain long-term contracts, adjust
reclamation liability reserves, accelerate amortization of deferred
development, write-off potentially unrecoupable advance royalties and to
adjust reserves for collectability, litigation and coal inventory
valuations. Additionally, as a result of the performance of the Company, a
$5.5 million charge was recorded to write-off goodwill.
In July 2000, Lodestar management determined that efforts to improve the
White Oak mine operating results had been unsuccessful. The decision was
made to close this mine when retreat mining methods have been exhausted,
which is expected to occur during the second quarter of fiscal 2001. During
the three months ended July 31, 2000, Lodestar recorded a pre-tax non-cash
charge of $6.5 million to establish provisions required in conjunction with
the closure of this operation.
No impact on the Company's cash flow has occurred as a result of the $27.0
million in charges for asset write-downs and provisions.
8
<PAGE>
PART I. - ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Lodestar Holdings, Inc. (the "Company") was formed in August 1996 to acquire all
of the capital stock of Costain Coal Inc. from Costain America Inc. (the
"Acquisition"). The Acquisition, which was effective March 14, 1997, was
accounted for using the purchase method of accounting. After the Acquisition,
Costain Coal Inc. was renamed Lodestar Energy, Inc. ("Lodestar"). On May 15,
1998, the Company sold and issued (the "Notes Offering") $150.0 million of 11.5%
Senior Notes due 2005 (the "Notes").
Lodestar Holdings, Inc. is a holding company whose wholly-owned direct and
indirect subsidiaries are Lodestar Energy, Inc., Eastern Resources, Inc. and
Industrial Fuels Minerals Company. These subsidiaries have guaranteed the Notes.
Lodestar Holdings, Inc. has no operations or assets separate from its investment
in its subsidiaries. Accordingly, separate financial information of the
subsidiaries is not considered necessary to include, as in management's opinion,
it would not be material to investors.
The Company, through its wholly-owned subsidiary, Lodestar, is engaged in the
mining and marketing of bituminous coal used principally for the generation of
electricity, as well as for other industrial applications. Lodestar's Western
Kentucky coal product is mid to high sulfur and competes primarily in the
regional utility market. Lodestar's Eastern Kentucky coal product, as compared
to its Western Kentucky coal product, is generally higher in energy (as measured
in British thermal units (Btu)) content and lower in sulfur content and is
marketed in the Eastern, South Central and Great Lakes regions of the United
States. Lodestar's Mountain reserves located in Utah and Colorado are
super-compliance coal (sulfur dioxide content less than 0.5%) marketed to
regional utilities, as well as in the Midwest and Midsouth utility markets.
Lodestar also owns and operates an ash disposal facility in Eastern Kentucky.
Lodestar's principal source of revenues is from the sale of coal pursuant to
long-term contracts, or through coal sales on the spot market. In addition,
Lodestar derives additional revenue from ancillary services related to its coal
operations, including ash disposal, contract mining, and processing of
third-party coal.
CERTAIN EVENTS AND FACTORS AFFECTING OPERATIONS
The primary variable factors which affect Lodestar's operations are: (i)
market conditions; (ii) productivity; (iii) for underground operations, the
ratio of coal available for sale to material extracted (the "salable yield");
(iv) for surface mining operations, the ratio of yards of overburden moved to
tons of coal produced (the "mining ratio"); and (v) the heat and sulfur content
of the coal produced (the "coal quality").
Frontier Insurance Company ("Frontier") is the surety on performance bonds in
the total amount of approximately $62.4 million as of July 31, 2000, posted by
Lodestar with various governmental agencies and third parties. Frontier's credit
rating was downgraded by A.M. Best to B in March, 2000 and further downgraded to
C++ in April, 2000. Also, effective June 1, 2000, Frontier is no longer included
in the U. S. Department of Treasury Circular 570 listing of acceptable sureties
on bonds posted with federal agencies.
On May 8, 2000, Lodestar received notice from the Kentucky Natural Resources and
Environmental Protection Cabinet ("DNR") that it was not accepting bonds
prospectively with Frontier as surety. As part of its reclamation activities,
Lodestar had approximately $40.2 million of Frontier performance bonds
outstanding in favor of the DNR, as of July 31, 2000. Although the DNR has not
required replacement of existing reclamation bonds, Kentucky Administrative
Regulations provide that DNR would do so in the event of bankruptcy or
insolvency of the surety, and that coal extraction and processing operations
would be suspended if such replacement was not accomplished within ninety days.
Alternatives for replacing these bonds, if required, as well as for providing
reclamation bonds to DNR prospectively, include posting (i) performance bonds
with adequate surety or (ii) collateral bonds with cash deposits, certificates
of deposit, or letters of credit. If replacement of reclamation bonds was
required and could not be accomplished, Lodestar could be required to suspend
coal extraction and processing activities on the affected mining permits.
9
<PAGE>
Besides the aforementioned notice from the Kentucky DNR, Lodestar has received
notifications from various state and federal government agencies requesting
replacement of approximately $12.5 million of Frontier bonds, in accordance with
various time frames. Failure to resolve these requests could have a negative
impact in numerous aspects of Lodestar's operations including its mining
operations in Colorado and Utah, as well as, certain ancillary activities in
Kentucky.
Lodestar management is actively seeking an alternative surety for its bonding
requirements, but to date has been unsuccessful, primarily because of its
current financial condition. There is no assurance that Lodestar will be able to
make alternative surety arrangements, nor is there assurance that Lodestar has
enough liquidity to provide for the future bonding requirements which will be
necessary in its ordinary course of business.
Frontier also was the surety on performance bonds in the total amount of $16.8
million posted by Lodestar in favor of the Kentucky Department of Workers Claims
(the "DWC") relating to Lodestar's self-insured, workers' compensation liability
in Kentucky. On March 31, 2000, Lodestar received notice from DWC that Lodestar
was required to replace the surety on those bonds with an approved bonding
company or other satisfactory surety. On July 10, 2000, DWC released those bonds
in exchange for Lodestar providing the DWC with a letter of credit in the amount
of $12.8 million to secure Lodestar's self-insured obligations. Effective
September 20, 2000, Lodestar obtained commercial workers' compensation
insurance for the period through September 19, 2001 for its Kentucky
operations which will require letters of credit approximating $1.7 million.
The cost of such coverage will not materially increase Lodestar's cost during
the coverage period.
Lodestar began an underground mining operation in Utah at its White Oak mine in
August of 1999. The White Oak mine represents approximately 13.3% of the
reserves comprising the Mountain operation. The White Oak operation has incurred
significant losses resulting in negative EBITDA, as defined in Note 3, page 11,
of $3.1 million during the first nine months of fiscal year 2000 and operating
losses are continuing during the fourth quarter. The losses incurred have been
attributable to equipment, personnel and geologic conditions. During August
2000, management determined that efforts to improve the White Oak mine operating
results had been unsuccessful. The decision was made to close this mine when
retreat mining methods have been exhausted, which is expected to occur during
second quarter of fiscal 2001. The financial results for the three months ended
July 31, 2000, include a pre-tax non-cash charge of $6.5 million to establish
provisions for certain liabilities and for the impairment of certain assets
associated with the White Oak mine. The White Oak mine contributed 477,400 sold
tons, or 6.4%, of the total sold tonnage and $7.4 million, or 4.2%, of total
coal sales and related revenue during the nine months ended July 31, 2000.
The Company's Utah workers' compensation and black lung coverage is scheduled
to expire on October 20, 2000. The Company is pursuing various options
including alternative sources of insurance but there can be no assurance that
a permanent resolution of these coverage issues can be achieved. Management
does not expect the ultimate resolution of this issue to have a material
impact on its financial condition or its results of operations.
Approximately 400 employees at Lodestar's Western Kentucky operations, who are
represented by the United Mine Workers of America, (the "UMWA"), have approved a
new labor contract, replacing the collective bargaining agreement which expired
May 13, 2000. The new contract, which among other issues, addresses scheduling
guidelines, pay increases, and certain pension and benefit enhancements, was
effective August 1, 2000 and extends through December 31, 2004, which parallels
the expected remaining production life of the Baker mine. Lodestar agreed to
participate in the UMWA 1974 Pension Plan and Trust (a multi-employer plan
providing pension benefits to retired miners), subject to approval of its
participation by the Plan's Trustees.
Although the Company continues to be adversely affected by weak market
conditions, certain indications, which include increased electrical generation,
increased natural gas prices, stagnant nuclear plant development, weak hydro
capacity from dry weather conditions, and rising quoted and spot coal prices,
suggest that a stronger coal market may materialize. Due to the high volume of
contracted shipments, the Company expects that potential market improvements
would have a minimal impact upon its performance for the remainder of the fiscal
year. The continuation of this trend into fiscal 2001, however, could be
significant since approximately 44.4% of the Company's projected 2001 sales
will be dependent on market pricing.
10
<PAGE>
RESULTS OF OPERATIONS:
<TABLE>
<CAPTION>
Three Months Ended
July 31, 2000 July 31, 1999
------------- -------------
<S> <C> <C>
OPERATIONS AND OTHER DATA:
Coal sales and related revenue $ 60,432 $ 67,719
Cost of revenues 51,928 55,286
Depreciation, depletion and amortization 6,573 7,740
General and administrative (1) 2,459 2,230
Asset write-downs and provisions (1)(2) 6,500 3,000
----------- -----------
Operating loss (7,028) (537)
Interest expense, net 5,753 5,152
----------- -----------
Net loss $ (12,781) $ (5,689)
=========== ===========
EBITDA (3) $ 6,045 $ 10,203
=========== ===========
OTHER FINANCIAL DATA:
Net cash used in operating activities $ 3,684 $ 10,642
Net cash used in investing activities $ 449 $ 10,244
Net cash provided by financing activities $ 4,073 $ 21,335
Capital expenditures (4) $ 1,009 $ 10,269
OTHER OPERATING DATA:
Tons of coal shipped 2,594 2,642
Coal sales and related revenue per ton shipped $ 23.30 $ 25.63
Cost of coal sales and related revenues per ton shipped $ 20.02 $ 20.93
Coal sales revenue per ton shipped $ 22.80 $ 25.10
Cost of coal sales revenues per ton shipped $ 19.86 $ 20.77
</TABLE>
(1) Three months ended July 31, 1999 reflects a reclassification from general
and administrative to asset write-downs and provisions for $3.0 million of
charges incurred in conjunction with due diligence on a potential
acquisition that did not occur.
(2) See Note 6 to the Consolidated Financial Statements for further discussion
of the $6.5 million charge incurred during the three months ended July 31,
2000.
(3) EBITDA represents earnings before net interest expense, other income
(expense), extraordinary items, income taxes, depreciation, depletion and
amortization and asset write-downs and provisions. The trends of EBITDA
generally follow the trends of operating income. Information regarding
EBITDA is presented because management believes that certain investors use
EBITDA as one measure of an issuer's ability to service its debt. EBITDA
should not be considered an alternative to, or more meaningful than,
operating income, net income or cash flow as defined by generally accepted
accounting principles or as an indicator of an issuer's operating
performance. Furthermore, caution should be used in comparing EBITDA to
similarly titled measures of other companies as the definitions of these
measures may vary.
(4) Capital expenditures for the three months ended July 31, 1999 include $5.0
million in cash payments for acquisitions.
PRODUCTION AND REVENUE SOURCES:
The following table summarizes the tons shipped by region for the periods
presented:
<TABLE>
<CAPTION>
Three Months ended July 31,
REGION 2000 1999
------------ ------------
<S> <C> <C>
Eastern Kentucky 950 1,019
Western Kentucky 1,249 1,510
Mountain 283 -
Brokered 112 113
------------ ------------
Total 2,594 2,642
============ ============
</TABLE>
11
<PAGE>
THREE MONTHS ENDED JULY 31, 2000 COMPARED TO THREE MONTHS ENDED JULY 31, 1999
COAL SALES AND RELATED REVENUE for the three months ended July 31, 2000 (the
"2000 Quarter") were $60.4 million, a decrease of $7.3 million or 10.8% compared
to the three months ended July 31, 1999 (the "1999 Quarter"). Overall, coal
sales and related revenue per ton shipped decreased from $25.63 in the 1999
Quarter to $23.30 in the 2000 Quarter, or 9.1%. Of this $2.33 decrease, 98.7%,
or $2.30, represents a decline in the average coal sales revenue per ton shipped
during the 2000 Quarter as compared to the 1999 Quarter. Factors contributing to
this decline include a continuing soft market demand for coal produced in the
Illinois and Appalachian Coal basins, the impact of reduced pricing on certain
Western Kentucky contracts, and increased volume of sold tonnage from the
Mountain operation, which earns lower realizations, as compared to the Illinois
and Appalachian basin products.
Although total shipment volume was relatively unchanged, decreasing 1.8% or
48,000 sold tons from the 1999 Quarter to the 2000 Quarter, this volume change
includes the net of 261,000 less sold tons from the Western Kentucky operation,
which generated an average realization of $22.06 per sold ton, and an increase
of 283,000 sold tons from the Mountain operation, which generated an average
realization of $14.65 per sold ton. The 17.3% decrease in shipments from the
Western Kentucky operations, as compared to the 1999 Quarter, was primarily the
result of the shutdown of the Smith underground mine and the Wheatcroft contract
mine in 1999, as well as coal quality problems experienced during the 2000
Quarter which limited the ability to blend and ship customer order
specifications at maximum efficiency. The average sales price per sold ton of
Western Kentucky coal decreased $2.14 or 8.8%, from an average of $24.20 during
the 1999 Quarter to an average of $22.06 during the 2000 Quarter. The Western
Kentucky coal shipments contributed 1.5 million tons, or 57.7%, of the total
shipments during the 1999 Quarter, as well as 1.2 million tons, or 46.2%, of the
total 2000 Quarter shipments. The decline in Western Kentucky coal prices is
primarily the result of the expiration of certain coal contracts, reduced
pricing on certain contracts due to negotiated price re-opener provisions, spot
market coal shipments reflecting soft market demand, as well as the impact of
lower coal quality produced by the Smith surface operation.
COST OF REVENUES were $51.9 million during the 2000 Quarter, a decrease of $3.4
million, or 6.1%, as compared to $55.3 million during the 1999 Quarter. The
average cost of coal sales revenues per sold ton decreased $0.91 or 4.3%, from
$20.77 during the 1999 Quarter to $19.86 during the 2000 Quarter. Primary
factors contributing to this decrease include an increased volume of coal from
the Mountain operations, at an average cost of coal sales during the 2000
Quarter of $14.67 per sold ton as compared to $20.50 for the Kentucky
operations, an improved strip mining ratio in the Eastern Kentucky operations of
14.4 as compared to 15.8 during the 2000 and 1999 Quarters, respectively, as
well as an improved salable yield percentage on underground mine production of
62.2% as compared to 59.9% during the 2000 and 1999 Quarters, respectively.
Additionally, the average cost of coal sales revenue reflects a $0.65 per ton
benefit related primarily to the favorable resolution of certain litigation
settlements.
DEPRECIATION, DEPLETION, AND AMORTIZATION of $6.6 million for the 2000 Quarter
decreased from the 1999 Quarter by $1.1 million, or 14.3%. This decrease is
primarily the result of the write-off of goodwill and certain impaired assets of
the Eastern Kentucky operation, during the second quarter of fiscal year 2000,
as well as reduced levels of capital expenditures and increased acquisition of
equipment through operating leases.
GENERAL AND ADMINISTRATIVE costs were $2.5 million in the 2000 Quarter, an
increase of $0.3 million or 13.6% from the $2.2 million for the 1999 Quarter,
primarily due to costs associated with the development of administrative support
functions in the Mountain operations, as offset by cost reductions for Year 2000
expenditures that negatively impacted the 1999 Quarter.
ASSET WRITE-DOWNS AND PROVISIONS recorded during the 2000 Quarter were $6.5
million. As a result of management's decision to begin retreat mining and to
permanently idle the Mountain operation White Oak mine during fiscal year 2001,
$6.5 million was recorded to establish required provisions. See Note 6 to the
Consolidated Financial Statements and Certain Events and Factors Affecting
Operations. The 1999 Quarter reflects a non-recurring charge of $3.0 million
incurred in conjunction with due diligence on a potential acquisition that did
not occur.
OPERATING LOSS for the 2000 Quarter was $7.0 million as compared to $0.5 million
for the 1999 Quarter. The $6.5 million increase in operating loss during the
2000 Quarter is primarily the result of $3.5 million of increased charges to
asset write-downs and provisions, as compared to the 1999 Quarter, as well as,
$3.0 million of reduced margin as a result of operating performance as
previously described.
12
<PAGE>
INTEREST EXPENSE, NET was $5.8 million for the 2000 Quarter, an increase of $0.6
million as compared to $5.2 million for the 1999 Quarter. This is the result of
interest expense associated with increased borrowing on the Company's Senior
Credit Facility and other increased indebtedness relative to acquisitions
occurring since the 1999 Quarter.
NET LOSS increased from $5.7 million during the 1999 Quarter to $12.8 million
during the 2000 Quarter as a result of the factors described above.
13
<PAGE>
RESULTS OF OPERATIONS:
<TABLE>
<CAPTION>
Nine Months Ended
July 31, 2000 July 31, 1999
------------- -------------
<S> <C> <C>
OPERATIONS AND OTHER DATA:
Coal sales and related revenue $ 176,176 $ 172,463
Cost of revenues 156,684 142,661
Depreciation, depletion and amortization 21,204 21,892
General and administrative (1) 7,738 7,092
Asset write-downs and provisions (1)(2) 27,002 3,000
---------- ----------
Operating loss (36,452) (2,182)
Interest expense, net 16,995 14,653
---------- ----------
Net loss $ (53,447) $ (16,835)
========== ==========
EBITDA $ 11,754 $ 22,710
========== ==========
OTHER FINANCIAL DATA:
Net cash provided by (used in) operating activities $ 773 $ (16,074)
Net cash used in investing activities $ 15,563 $ 20,972
Net cash provided by financing activities $ 13,830 $ 25,013
Capital expenditures (3) $ 16,432 $ 21,070
OTHER OPERATING DATA:
Tons of coal shipped 7,493 6,785
Coal sales and related revenue per ton shipped $ 23.51 $ 25.42
Cost of coal sales and related revenues per ton shipped $ 20.91 $ 21.03
Coal sales revenue per ton shipped $ 23.03 $ 24.18
Cost of coal sales revenues per ton shipped $ 20.71 $ 20.45
</TABLE>
(1) Nine months ended July 31, 1999 reflects a reclassification from general
and administrative to asset write-downs and provisions for $3.0 million of
charges incurred in conjunction with due diligence on a potential
acquisition that did not occur.
(2) See Note 6 to the Consolidated Financial Statements for further discussion
of the $27.0 million charge incurred during the nine months ended July 31,
2000.
(3) Capital expenditures for the nine months ended July 31, 2000 and 1999
include $5.0 million and $10.4 million, respectively, in cash payments for
acquisitions.
PRODUCTION AND REVENUE SOURCES:
The following table summarizes the tons shipped by region for the periods
presented:
<TABLE>
<CAPTION>
Nine Months ended July 31,
REGION 2000 1999
----------- -----------
<S> <C> <C>
Eastern Kentucky 2,938 2,838
Western Kentucky 3,576 3,717
Mountain 677 -
Brokered 302 230
----------- -----------
Total 7,493 6,785
=========== ===========
</TABLE>
14
<PAGE>
NINE MONTHS ENDED JULY 31, 2000 COMPARED TO NINE MONTHS ENDED JULY 31, 1999
COAL SALES AND RELATED REVENUE for the nine months ended July 31, 2000 (the
"2000 Period") were $176.2 million, an increase of $3.7 million or 2.2% compared
to the nine months ended July 31, 1999 (the "1999 Period"). The increase
resulted from $10.9 million of increased shipments of 708,000 tons, or 10.4%, of
which 677,000 tons, or 9.6%, was sourced from the Mountain operation, offset by
$2.4 million of decreased pricing primarily in the Western Kentucky operation
during the 2000 Period, and by a $4.8 million decrease in revenue associated
with other related ancillary services primarily due to the completion of
contract mining activity in Eastern Kentucky during the 1999 Period.
Overall, coal sales revenue per ton shipped decreased $1.15 or 4.7% from $24.18
in the 1999 Period to $23.03 in the 2000 Period, primarily, as a result of the
introduction of 677,000 tons of coal from the Mountain operation with an average
realization of $15.03 per ton shipped. Exclusive of the impact of Mountain coal,
the average realization per sold ton for the Eastern and Western operations for
the 2000 and 1999 Periods were $23.83 and $24.18, respectively, a decrease of
1.5%.
COST OF REVENUES were $156.7 million in the 2000 Period, as compared to $142.7
million in the 1999 Period. Components of this $14.0 million or 9.8% increase
include $12.6 million cost of revenue on 708,000 additional shipped tons, $12.0
million of which is attributable to the Mountain operation, $4.2 million of
increased operating costs in the Western Kentucky and Eastern Kentucky
operations, offset by $2.8 million of reduced cost of revenues primarily
associated with the completion of contract mining activity during the 1999
Period. As noted, operating costs in the Western Kentucky and Eastern Kentucky
operations increased by $4.2 million, or 3.0% on a per sold ton basis, primarily
as a result of decreased salable yield in Western Kentucky and higher diesel
fuel, transportation costs, and royalty expense in Eastern Kentucky. The
productivity levels at the Mountain operation have continued to be impacted by
adverse geological conditions during the 2000 Period which have resulted in cost
of revenues in excess of coal sales and related revenue of $1.8 million.
DEPRECIATION, DEPLETION, AND AMORTIZATION of $21.2 million for the 2000 Period
decreased from the 1999 Period by $0.7 million, or 3.1%. This decrease is
primarily the result of the write-off of goodwill and certain impaired assets of
the Eastern Kentucky operation, during the second quarter of fiscal year 2000,
as well as reduced levels of capital expenditures and increased acquisition of
equipment through operating leases.
GENERAL AND ADMINISTRATIVE costs were $7.7 million in the 2000 Period, an
increase of $0.6 million or 8.5%, as compared to $7.1 million in the 1999
Period. This increase is primarily associated with the development of
administrative support functions in the Mountain operation with various other
increases in general and administrative costs offset by reduced expenses for
Year 2000 expenditures during the 2000 Period.
ASSET WRITE-DOWNS AND PROVISIONS recorded during the 2000 Period were $27.0
million. As a result of revised plans for the deployment of certain coal
properties, $16.5 million of pre-tax non-cash charges to revalue associated
assets and liabilities were recorded. Additionally, $5.5 million of goodwill was
written off based on the performance of the Company, and approximately $5.0
million was written off, reflecting the impairment of certain coal contracts
based on their current pricing. See Note 6 to the Consolidated Financial
Statements and Certain Events and Factors Affecting Operations. The 1999 Period
reflects a non-recurring charge of $3.0 million incurred in conjunction with due
diligence on a potential acquisition that did not occur.
OPERATING LOSS for the 2000 Period was $36.5 million as compared to $2.2 million
for the 1999 Period. The $34.3 million increase in operating loss during the
2000 Period is primarily the result of $24.0 million of additional charges to
asset write-downs and provisions, as well as, $10.3 million of reduced margin as
a result of operating performance, as previously described, as compared to the
1999 Period.
INTEREST EXPENSE, NET was $17.0 million for the 2000 Period, an increase of $2.3
million as compared to $14.7 million for the 1999 Period. This is the result of
interest expense associated with increased borrowings on the Company's Senior
Credit Facility and other increased indebtedness relative to acquisitions
occurring since the 1999 Period.
NET LOSS increased from $16.8 million during the 1999 Period to $53.4 million
during the 2000 Period as a result of the factors described above.
15
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary source of liquidity is cash provided by operating
activities. The Company also has available a $120.0 million senior credit
facility (the "Senior Credit Facility") that provides for advances by the lender
to a maximum of $90.0 million, based on specific percentages of eligible
receivables and inventories, and for letters of credit of up to $30.0 million,
based on a percentage of appraised value of equipment and mineral reserves. The
indenture governing the Notes and the Senior Credit Facility contain numerous
covenants and prohibitions that impose limitations on the Company, including
requirements that the Company satisfy certain financial ratios and limitations
on the incurrence of additional indebtedness. Due to the Company's operating
performance in fiscal 2000, Lodestar is in violation of certain covenants of the
Senior Credit Facility. See Note 5 to the Consolidated Financial Statements.
Although Lodestar's lenders could pursue various remedies in accordance with
their contractual rights, as of September 20, 2000, they have continued to fund
and have taken no actions to restrict Lodestar from operating in the normal
course of business. The ability of the Company to receive a waiver for its
current default conditions, to meet its future debt service requirements and to
comply with covenants will be dependent upon future operating performance and
financial results which will be subject to financial, economic, political,
competitive and other factors affecting the Company, many of which are beyond
its control.
The Company's liquidity requirements primarily arise from working capital
requirements, capital investments, interest payment obligations, debt service of
supplemental loans outstanding under the Senior Credit Facility, and
collateralization of various performance bonds. As of July 31, 2000, the Senior
Credit Facility debt was $39.0 million, and $25.3 million of letters of credit
were outstanding. Based upon eligible collateral as of July 31, 2000, the net
unused borrowing and letter of credit availability thereunder was $1.4 million
and $0.0 million, respectively.
Cash provided from the Company's operating activities for the 2000 Period was
$0.8 million, compared to $16.1 million of cash used in the 1999 Period. The
$0.8 million of cash provided by operating activities was primarily a result of
working capital changes. The primary components of the working capital changes
were a reduction in accounts receivable of $6.4 million, which includes the
benefit of collecting $4.8 million from the resolution of the Cedar Bay
litigation, and an increased level of accounts payable of $5.3 million as the
result of a general increased aging of accounts payable.
Net cash used in investing activities was $15.6 million during the 2000 Period,
which includes $4.9 million for the Bent Mountain acquisition, and $21.0 million
during the 1999 Period, which includes $5.4 million for the Tug River
acquisition and $5.0 million for the Mountain acquisition. For the nine months
ended July 31, 2000, capital expenditures were $11.5 million as compared to
$10.7 million during the 1999 Period. The Company had less than $0.5 million of
capital expenditure commitments at July 31, 2000 and projects total capital
expenditures for fiscal year 2000 will approximate $12.0 million.
During the 2000 Period, borrowings under the Company's Senior Facility increased
from $24.3 million to $39.0 million and the availability under its borrowing
line decreased from $9.8 million to $1.4 million. Cash provided by operating
activities has not been enough to offset the cost of the Bent Mountain
acquisition of $4.9 million, the interest payments of $19.9 million and the
capital expenditures of $11.5 million during the 2000 Period. Borrowing
availability was temporarily benefited in November 1999 by the supplemental loan
as described in Note 5 of the Consolidated Financial Statements, however, such
loan required four $1.675 million quarterly outflows, the third of which was
paid on August 1, 2000.
As of September 15, 2000, the Company's borrowing and letter of credit
availability under its Senior Credit Facility was approximately $3.8 million
and $1.0 million, respectively, and outstanding borrowings and letters of
credit under the Senior Credit Facility were $38.0 million and $25.2 million,
respectively. Lodestar's day-to-day operations are being hampered by a
significant liquidity shortage. Although, the Company expects to have minimal
(under $0.5 million) capital expenditure requirements during the remainder of
fiscal year 2000, it is obligated, as previously described, to make the final
$1.675 million supplemental loan repayment on November 1st, as well as a
semi-annual interest payment of $8.625 million on the Notes on November 15th.
The Company anticipates that the Company will not be making the scheduled
November interest payment on the Notes and intends to attempt to negotiate a
restructuring of the Notes with the Noteholders. Additionally due to the
surety problems impacting the Company's ability to satisfy its reclamation
and workers compensation bonding obligations, the Company has committed to
post $1.7 million of letters of credit to collateralize its Kentucky workers'
compensation insurance by October 3, 2000 and will have further liquidity
requirements to collateralize other bonding and insurance obligations. (See
Note 1 to the Consolidated Financial Statements.)
16
<PAGE>
FORWARD - LOOKING STATEMENTS
This report includes "forward-looking statements," within the meaning of the
Private Securities Litigation Reform Act of 1995, which involve known and
unknown risks, uncertainties and other important factors that could cause the
actual results, performance or achievements of the Company to differ materially
from any future results, performance or achievements expressed or implied by
such forward-looking statements. Such risks, uncertainties and other important
factors include, among others: general economic and business conditions;
industry capacity; demand; industry trends, including coal pricing; competition;
the loss of any significant customers or long-term contracts; availability of
qualified personnel; major equipment failures; changes in, or failure or
inability to comply with, government regulation, including, without limitation,
environmental regulations; outcome of litigation; ability to meet its liquidity
needs and other factors referenced in this report. These forward-looking
statements speak only as of the date of this report. The Company expressly
disclaims any obligation or undertaking to disseminate any updates or revisions
to any forward-looking statement contained herein to reflect any change in the
Company's expectations with regard thereto or any change in events, conditions
or circumstances on which any such statement is based.
17
<PAGE>
PART I. - ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company, in the normal course of business, is exposed to inherent market
risks relative to coal prices, which the Company attempts to mitigate through
its portfolio of long-term contracts, which provide stability in pricing for
much of its production.
The Company is exposed to interest rate change market risk with respect to its
borrowings under the Senior Credit Facility, as well as certain other debt and
long-term liabilities, that are recorded at discounted values. Without extreme
interest rate volatility, which has been absent from the current business
environment, fluctuations in interest rates are not expected to have a
significant impact on the Company's operating results.
The Company currently holds no market sensitive instruments, derivatives or
other financial instruments the disclosure of which would be required by Item
305 Regulation S-K, nor does the Company participate in any business activity
for speculative purposes.
18
<PAGE>
PART II. - ITEM 1 LEGAL PROCEEDINGS
On November 15, 1996, Lodestar and Shipyard River Coal Terminal Co.
("Shipyard"), an affiliate of AEI Resources, Inc., entered into various
agreements relating to a mining project in Pike County, Kentucky, including a
Coal Purchase Agreement (the "CPA") and a Contract Mining Agreement (the "CMA").
Lodestar purchased coal from Shipyard pursuant to the CPA and conducted mining
for Shipyard pursuant to the CMA. On December 1, 1997, Lodestar and East
Kentucky Energy Corporation ("EKE"), also an affiliate of AEI Resources, Inc.,
entered a Lease and Sublease Agreement (the "Lease"), pursuant to which Lodestar
leased certain coal properties in Knott County, Kentucky. Lodestar has not mined
on the property subject to the Lease and presently has no plans to do so. In
December 1999, Lodestar management and representatives of Shipyard and EKE began
negotiations aimed at resolving several outstanding issues between the
companies, including issues under the CPA, the CMA, and the Lease. However, on
May 16, 2000, EKE filed suit against Lodestar in the Boyd County, Kentucky,
Circuit Court, seeking damages for alleged breach of the Lease. EKE alleges that
Lodestar failed to timely make a minimum royalty payment due under the Lease,
resulting in forfeiture of the Lease. EKE claims that, despite its forfeiture of
the Lease, Lodestar is liable for (i) minimum royalties that would have been due
under the lease had it not been terminated ($25,000 per month from February 2000
through November 2002), and (ii) royalty income, in the amount of $7.5 million,
lost because Lodestar did not mine the property subject to the Lease. Lodestar
believes that EKE's claims are without merit, and has filed a counterclaim
seeking damages of $9.7 million for wrongful termination of the Lease. On May
24, 2000, Shipyard filed a separate suit against Lodestar in the Pike County
Circuit Court, seeking damages under the CPA. Shipyard claims that Lodestar has
failed to make payment for coal due under the CPA in the amount of $1.5 million.
Lodestar has filed a counterclaim seeking damages of approximately $1.0 million
from Shipyard for failure to make all payments due under the CMA. Management of
the Company does not expect the resolution of these legal proceedings to have a
material adverse impact on the results of operations or the financial condition
of the Company.
Lodestar is involved in various other claims and lawsuits incidental to the
ordinary course of its business that are not expected to have a material adverse
effect on the financial condition or results of operations of the Company.
19
<PAGE>
PART II. - ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
Exhibits:
A list of exhibits required to be filed as part of this Report Form
10-Q is set forth in the "Exhibit Index", which immediately precedes
such exhibits, and is incorporated herein by reference.
Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter for which this
report is filed.
20
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LODESTAR HOLDINGS, INC.
(REGISTRANT)
By: /s/ Michael E. Donohue
-------------------------
Michael E. Donohue
Vice President and Chief Financial Officer
(duly authorized officer, principal
financial and accounting officer)
Date: September 20, 2000
------------------------
21
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<S> <C> <C>
10 MATERIAL CONTRACTS
10.14 Subordination Agreement, dated November 15, 1999, among Congress Financial Corporation, The
CIT Group/Business Credit, Inc. and The Renco Group, Inc.
10.15 Subordinated Loan Letter, dated November 15, 1999, among Lodestar Energy, Inc., Congress
Financial Corporation, and The CIT Group/Business Credit, Inc.
10.15.1 Amendment No. 1 to Subordinated Loan Letter, dated March 10, 2000, among Lodestar Energy,
Inc., Congress Financial Corporation, and The CIT Group/Business Credit, Inc.
10.16 Cash Collateral Pledge Agreement, dated March 10, 2000, between The Renco Group, Inc.
and Congress Financial Corporation.
10.16.1 Amendment No. 1 to Cash Collateral Pledge Agreement, dated August 1, 2000, between The
Renco Group, Inc. and Congress Financial Corporation.
27 FINANCIAL DATA SCHEDULE
</TABLE>
22
