<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15 (d) of
The Securities and Exchange Act of 1934
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- - -----
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1994
-------------------------------------------------
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 0-16498
-------
ADDINGTON RESOURCES, INC.
----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 61-1125039
----------------------------------------------------------------------------
(State or other jurisdiction (IRS Employer ID Number)
of incorporation or organization)
1500 N. Big Run Road
Ashland, KY 41102
----------------------------------------------------------------------------
Registrant's telephone number,
including area code (606) 928-3433
--------------
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 preceeding 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 the number of shares outstanding of each of the issuer's classes
of common stock as of the latest practicable date.
Class - Common stock, $1.00 Par Value
-----
Outstanding at August 11, 1994 - 15,852,851 shares
------------------------------
1
<PAGE>
ADDINGTON RESOURCES, INC. AND SUBSIDIARIES
------------------------------------------
INDEX
-----
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I. Financial Information
ITEM 1. Financial Statements
Balance Sheets as of June 30, 1994
(Unaudited) and December 31, 1993 3-4
Statements of Operations (Unaudited)
Three Months and Six Months Ended
June 30, 1994 and 1993 5-6
Statements of Cash Flows (Unaudited)
Six Months Ended June 30, 1994
and 1993 7-8
Notes to Financial Statements
(Unaudited) 9-13
ITEM 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 14-24
PART II. Other Information 25-26
SIGNATURES 27
</TABLE>
2
<PAGE>
ITEM 1
ADDINGTON RESOURCES, INC. AND SUBSIDIARIES
------------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
ASSETS
------
<TABLE>
<CAPTION>
June 30, December 31,
1994 1993
------------- -------------
<S> <C> <C>
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 10,262,904 $ 13,744,002
Short-term investments 9,000,000 --
Accounts receivable 22,252,235 8,945,515
Net assets held for disposal -- 141,865,803
Inventories 8,663,477 11,803,046
Prepaid expenses and other 5,437,519 7,717,738
------------- -------------
Total current assets 55,616,135 184,076,104
------------- -------------
PROPERTY, PLANT AND EQUIPMENT, at cost 163,722,542 139,054,751
Less - Accumulated depreciation (26,160,048) (22,664,255)
------------- -------------
137,562,494 116,390,496
------------- -------------
MINERAL RESERVES, at cost 3,253,623 1,703,623
Less - Accumulated amortization (18,489) (18,489)
------------- -------------
3,235,134 1,685,134
------------- -------------
OTHER ASSETS 11,793,946 13,506,692
------------- -------------
Total assets $ 208,207,709 $ 315,658,426
============= =============
</TABLE>
3
<PAGE>
ADDINGTON RESOURCES, INC. AND SUBSIDIARIES
------------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<TABLE>
<CAPTION>
June 30, December 31,
1994 1993
---------- ------------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 9,340,239 $ 5,609,230
Revolving lines of credit 3,500,000 23,441,737
Current portion of long-term debt 1,542,417 126,228,033
Accrued expenses and other 17,609,555 13,714,495
Current portion of deferred income taxes 4,205,000 3,666,000
------------ ------------
Total current liabilities 36,197,211 172,659,495
------------ ------------
LONG-TERM DEBT, less current portion 23,602,955 11,954,354
------------ ------------
OTHER LONG-TERM LIABILITIES 12,732,655 2,705,213
------------ ------------
DEFERRED INCOME TAXES 3,907,496 3,406,184
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $1.00 par value; 30,000,000
shares authorized, 15,852,851 and 15,675,378
shares outstanding at June 30, 1994 and
December 31, 1993, respectively 15,852,851 15,675,378
Paid-in capital 83,789,397 81,544,648
Retained earnings 32,125,144 27,713,154
------------ -------------
Total stockholders' equity 131,767,392 124,933,180
------------ ------------
Total liabilities and stockholders' equity $208,207,709 $315,658,426
============ ============
</TABLE>
4
<PAGE>
ADDINGTON RESOURCES, INC. AND SUBSIDIARIES
------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
-------------------------- ---------------------------
June 30, June 30, June 30, June 30,
1994 1993 1994 1993
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
REVENUES:
Mining $26,444,381 $85,993,306 $58,763,359 $163,706,189
Environmental 8,866,946 5,844,504 15,718,162 10,724,038
Other 226,998 260,000 655,445 260,000
----------- ----------- ----------- ------------
35,538,325 92,097,810 75,136,966 174,690,227
----------- ----------- ----------- ------------
COSTS AND EXPENSES:
Cost of operations 28,107,521 76,766,228 59,906,671 145,477,322
Depreciation and amortization 2,168,281 7,501,906 3,711,836 14,483,325
Selling, general and administrative 3,025,120 4,428,789 5,143,091 10,100,938
----------- ----------- ----------- ------------
33,300,922 88,696,923 68,761,598 170,061,585
----------- ----------- ----------- ------------
INCOME FROM OPERATIONS 2,237,403 3,400,887 6,375,368 4,628,642
----------- ----------- ----------- ------------
INTEREST AND OTHER INCOME
(EXPENSE):
Interest income 353,307 142,882 382,335 361,439
Interest expense (129,811) (3,656,496) (155,540) (7,909,081)
Gain on sale of coal subsidiaries - - 118,498 -
Gain (loss) on sale of assets 21,811 (37,855) (58,587) (29,138)
Other (108,337) 138,380 (169,084) 529,274
----------- ----------- ----------- ------------
136,970 (3,413,089) 117,622 (7,047,506)
----------- ----------- ----------- ------------
Income (loss) before income
tax provisions (benefits) $ 2,374,373 $ (12,202) $ 6,492,990 $ (2,418,864)
----------- ----------- ----------- ------------
</TABLE>
5
<PAGE>
ADDINGTON RESOURCES, INC. AND SUBSIDIARIES
------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS (Continued)
-------------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
----------------------- -----------------------
June 30, June 30, June 30, June 30,
1994 1993 1994 1993
---------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
INCOME TAX PROVISIONS
(BENEFITS):
Federal $ 712,000 $ (3,500) $1,712,000 $ (603,500)
State 119,000 (500) 369,000 (100,500)
---------- ---------- ---------- -----------
831,000 (4,000) 2,081,000 (704,000)
---------- ---------- ---------- -----------
Net income (loss) $1,543,373 $ (8,202) $4,411,990 $(1,714,864)
========== ========== ========== ===========
NET INCOME (LOSS)
PER SHARE $.10 $.00 $.27 $(.11)
==== ==== ==== =====
Equivalent shares of
stock outstanding 16,100,117 15,548,785 16,055,844 15,501,621
========== ========== ========== ==========
</TABLE>
6
<PAGE>
ADDINGTON RESOURCES, INC. AND SUBSIDIARIES
------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
--------------------------
June 30, June 30,
1994 1993
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 4,411,990 $ (1,714,864)
------------ ------------
Adjustments to reconcile net income to net
cash provided from operating activities:
Depreciation and amortization 3,711,836 14,483,325
Gain on sale of coal subsidiaries (118,498) -
Loss on sale of assets 58,587 29,138
Change in assets and liabilities,
net of effects of acquisitions and disposals:
(Increase) decrease in:
Accounts receivable (14,446,822) (11,389,798)
Inventories (756,807) (6,905,183)
Prepaid expenses and other 1,371,993 (6,504,138)
Other assets (1,479,835) (1,172,071)
Increase (decrease) in:
Accounts payable 3,603,337 3,222,447
Accrued expenses (11,105,100) 3,626,411
Accrued income taxes (400,000) 3,176,191
Deferred income taxes 1,040,312 5,000
Other liabilities 712,263 -
------------ ------------
Total adjustments (17,808,734) (1,428,678)
------------ ------------
Net cash used in operating activities (13,396,744) (3,143,542)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of coal subsidiaries 185,074,261 -
Proceeds from sale of assets 1,580,545 161,927
Increase in:
Short term investments (9,000,000) -
Mineral reserves (1,550,000) (32,054)
Additions to property, plant and equipment (24,369,022) (17,817,204)
Acquisition of environmental companies,
net of cash acquired (2,057,073) -
------------ ------------
Net cash provided by (used in)
investing activities $149,678,711 $(17,687,331)
------------ ------------
</TABLE>
7
<PAGE>
ADDINGTON RESOURCES, INC. AND SUBSIDIARIES
------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
-------------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
----------------------------
June 30, June 30,
1994 1993
------------- ------------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of long-term debt $ 14,148,228 $ 2,512,916
Repayments of long-term debt (134,218,710) (4,192,671)
Net repayments on revolving lines of credit (19,941,737) (216,999)
Proceeds from issuance of common stock 340,800 3,569,750
Financing costs incurred (91,646) -
------------- ------------
Net cash provided by (used in)
financing activities (139,763,065) 1,672,996
------------- ------------
Net decrease in cash and
cash equivalents (3,481,098) (19,157,877)
CASH AND CASH EQUIVALENTS, beginning of period 13,744,002 32,955,151
------------- ------------
CASH AND CASH EQUIVALENTS, end of period $ 10,262,904 $ 13,797,274
============= ============
</TABLE>
Note: For purposes of these statements, the Company and its subsidiaries consi-
der short-term investments having maturities of three months or less at
the time of purchase to be cash equivalents.
The cash amounts of interest and income taxes paid by the Company and its
subsidiaries during the six months ended June 30, 1994 and 1993 are as
follows:
<TABLE>
<CAPTION>
1994 1993
-------- ----------
<S> <C> <C>
Interest, net of amounts
capitalized of approximately
$537,000 and $1,262,000,
respectively $(76,833) $7,057,345
Income taxes 55,845 2,281,000
</TABLE>
During the six months ended June 30, 1994 and 1993, the Company acquired
property, plant and equipment and mineral reserves of approximately
$2,800,000 and $14,500,000, respectively, by assuming certain liabilities
and by the issuance of common stock. During the six months ended June 30,
1994, the Company wrote off certain assets of approximately $9.5 million
against previously established reserves and other accruals recorded in
connection with the Company's de-emphasis on its mining operations (see
Note 2 to the consolidated financial statements). Such non-cash activity
has been excluded from the above statements of cash flows.
8
<PAGE>
ADDINGTON RESOURCES, INC. AND SUBSIDIARIES
------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(Unaudited)
1. Financial Statement Presentation-
The accompanying consolidated unaudited financial statements have been
prepared in accordance with the rules and regulations of the Securities and
Exchange Commission for interim financial information. Accordingly, they
do not include all the information and footnotes required by generally
accepted accounting principles for complete financial statements.
Therefore, it is suggested that the accompanying financial statements be
read in conjunction with the financial statements and notes thereto
included in the Company's latest annual report on Form 10-K.
The accompanying consolidated financial statements as of June 30, 1994 and
1993 include the accounts of Addington Resources, Inc. (the Company) and
its wholly-owned subsidiary Addington Holding Company, Inc. and its wholly-
owned subsidiaries.
In the opinion of management, the accompanying consolidated unaudited
financial statements include all adjustments necessary to present fairly
the Company's financial position as of June 30, 1994 and results of
operations for the six months ended June 30, 1994 and 1993. All
adjustments were of a normal recurring nature. The results of operations
for such interim periods are not necessarily indicative of the results to
be expected for the full year.
2. Sale of Certain Coal Subsidiaries-
During September, 1993, the Company entered into an agreement to sell the
stock of five of its coal subsidiaries to Pittston Minerals Group, Inc.
("Pittston") for $157 million cash. Before closing, certain property,
plant and equipment (the net book value of which was approximately $43
million as of December 31, 1993) was transferred to other subsidiaries of
the Company from the subsidiaries to be sold. In addition, the Company
retained all of the net working capital (the net value of which was
approximately $30 million as of December 31, 1993) of the sold subsidiaries
as of the date of closing. In connection with the sale, the Company has
provided certain guarantees to Pittston.
This transaction was completed on January 14, 1994.
The subsidiaries sold to Pittston include: Addington, Inc. and its wholly-
owned subsidiary, Ironton Coal Company; Appalachian Mining, Inc.;
Appalachian Land Company; Vandalia Resources, Inc.; and Kanawha Development
Corporation. The operations of these subsidiaries are located in Ohio,
West Virginia and Kentucky.
9
<PAGE>
Other terms of the transaction include the Company entering into a coal
supply contract with Pittston for the sale of 4,920,000 tons over 3-1/2
years at a base price of $26 per ton. Additionally, the Company will
receive a $1 per ton production royalty for coal produced from certain West
Virginia properties being sold to Pittston with a minimum royalty of
$100,000 per month, a maximum aggregate royalty in any one year of $1.5
million, and a maximum aggregate royalty under the agreement of $3.75
million. The Company will also pay Pittston a royalty of $0.50 per ton of
coal produced by two retained highwall mining machines for 3-1/2 years.
With respect to the $157,000,000 sale price and the net working capital
retained by the Company, approximately $2,500,000 was used to pay the
Company's closing costs for the transaction, including a $1,000,000 payment
to a consultant for the Company and $500,000 to the financial advisors for
their services. The Company used approximately $131,725,000 of the
proceeds to provide for the early redemption of its 12% Senior Secured
Notes due July 1, 1995, including the payment of $4,288,000 as a redemption
premium and approximately $2,437,000 in net interest through March 15, 1994
(the redemption date). In addition, the Company used certain of the
proceeds to retire all indebtedness outstanding under the Company's
revolving line of credit agreement related to its coal operations. The
outstanding balance on the line of credit as of January 14, 1994 was
$23,442,000. The Company also used approximately $3,800,000 to compensate
its employees for extraordinary efforts expended in connection with the
consummation of the transaction, including approximately $416,500 in
connection with the termination of stock options held by employees who
became employees of Pittston as a result of the transaction.
As a result of this transaction, the net assets relating to the sales
transaction appear as net assets held for disposal in the accompanying
December 31, 1993 balance sheet. Additionally, since the $125,000,000
Senior Secured Notes were redeemed in connection with the transaction, they
have been classified as a current liability in the accompanying December
31, 1993 balance sheet.
The Company recorded a pre-tax gain of approximately $118,000 in connection
with this transaction. Included in the calculation of this gain, the
Company established certain reclamation reserves due to the phase-down of
production from those mines retained by the Company. The Company also
established other contingency reserves due to the de-emphasis of its mining
operations.
After the transaction discussed above, the Company continues to own and
operate four eastern Kentucky mines with estimated annual production
capacity of 3,000,000 tons per year. Future production from these retained
coal mines will be placed on the Pittston Coal Supply Contract and a new
coal supply contract entered into with The Cincinnati Gas & Electric
Company ("the CG&E Coal Supply Contract"). The CG&E Coal Supply Contract
calls for the sale of 5,400,000 tons of coal over six years beginning
January 1, 1994.
10
<PAGE>
3. Inventories-
------------
As of June 30, 1994 and December 31, 1993 inventories consisted of:
<TABLE>
<CAPTION>
June 30, December 31,
1994 1993
---------- ------------
(Unaudited)
<S> <C> <C>
Coal $6,446,452 $10,222,372
Supplies and Parts 2,217,025 1,580,674
---------- -----------
$8,663,477 $11,803,046
========== ===========
</TABLE>
4. Commitments and Contingencies-
-----------------------------
Coal Sales Contracts-
--------------------
Following the transactions discussed in Notes 2 and 10 to the
consolidated financial statements, the Company has commitments to
deliver scheduled base quantities of coal annually to four customers
under four coal sales contracts. One contract expires in 1994, one
expires in 1996, one expires in 1997 and one expires in 2000. The
contracts have sales price adjustment provisions, subject to certain
limitations and adjustments, based on changes in specified production
costs.
5. Related Party Transactions-
--------------------------
The Company has dealt with certain companies or individuals which are
related parties either by having stockholders in common or because they are
controlled by stockholders/officers or by relatives of stockholders/of-
ficers of the Company. The Company recorded various expenses to related
parties consisting of approximately $3,430,000 and $8,593,000 for trucking
services for the six month periods ending June 30, 1994 and 1993,
respectively, and office rent of $55,000 for the six month periods ending
June 30, 1994 and 1993.
The Company had amounts payable to related parties of $272,000 and $730,000
as of June 30, 1994 and December 31, 1993, respectively.
6. Stockholders' Equity-
--------------------
During the six months ended June 30, 1993 and 1994, 361,000 and 28,800
shares, respectively, of common stock were issued in connection with the
exercise of stock options. During the six months ended June 30, 1994,
148,673 shares of common stock were issued in connection with the purchase
of a landfill as discussed in Note 9 to the consolidated financial
statements. As a result, common stock increased $361,000 and $177,473,
respectively, and paid-in capital increased $3,208,750 and $2,244,749,
respectively, during the six months ended June 30, 1993 and 1994.
11
<PAGE>
7. Short-term Investments-
----------------------
Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investment in Debt and Equity Securities" (SFAS 115), became
effective for the Company as of January 1, 1994. In accordance with SFAS
115, the Company's securities investments at June 30, 1994, which consist
solely of investments in economic development revenue bonds, are deemed as
"available-for-sale" and are reported at their fair value of $9 million.
As the fair value approximates the cost of such investments, there were no
unrealized holding gains or losses associated with such investments for the
six months ended June 30, 1994. The market value of the investments was
determined based on quoted market prices.
The investments have stated maturity dates of December 1, 2015 and January
1, 2006, but may be redeemed at face value at any time by the Company. No
investments were sold or redeemed by the Company during the six months
ended June 30, 1994.
8. Financing Arrangements-
----------------------
(a) Revenue Bonds
-----------------
In June, 1994, the Company's environmental subsidiary, Broadhurst
Environmental, Inc., together with the Wayne County Solid Waste Management
Authority agreed to issue up to $7,400,000 of tax exempt revenue bonds to
finance the construction and development of a landfill in Wayne County,
Georgia. The bonds are issued on an as needed basis as construction of the
landfill progresses. These bonds mature on July 1, 2014 and bear interest
at a rate that floats on a weekly basis. The interest rate fluctuates
based on the rate of interest that competitive securities would bear having
similar credit and maturity characteristics. The bonds are subject to a
maximum interest rate of 12% per annum. The initial interest rate of the
bonds was 3.45% per annum. The bonds are supported by an irrevocable
letter of credit issued by The First National Bank of Boston. The fee
charged by the bank for the letter of credit is 1.5% per annum.
(b) Gold Loan
-------------
In August, 1994, the Company's gold subsidiary, Addwest Minerals, Inc.,
entered into a $9,330,000 gold loan with N.M. Rothschild and Sons. The
proceeds from the loan will be utilized to develop a previously operated
gold mine in Mohave County, Arizona. The loan matures in approximately 25
months and bears interest at a rate fluctuating between 2% to 3-1/4% per
year. The loan is to be repaid, with interest, from actual gold production
from the mine beginning in the second quarter of 1995. It will take
approximately 24,300 ounces of gold to repay the principal portion of the
loan. In addition, consistent with industry practice, the Company has
entered into a hedging agreement in connection with the anticipated gold
production.
12
<PAGE>
9. Landfill Acquisitions-
---------------------
(a) Mid State Environmental, Inc.
---------------------------------
During May, 1994, the Company's environmental subsidiary, Mid State
Environmental, Inc., acquired a solid waste landfill and hauling operation
near Macon, Georgia. The purchase price included 148,673 shares of
Addington Resources, Inc. stock, approximately $1.8 million, and a future
royalty based on revenue generated from the landfill operation.
The existing landfill operation near Macon is permitted to accept
construction and demolition wastes and certain industrial wastes. A new
permit allowing the landfill to accept municipal solid waste was issued
shortly after the acquisition and has been appealed. The Company will
begin construction of a new lined area for disposal of municipal solid
waste as soon as the permit is nonappealable. The new area will be
constructed to meet current federal and state landfill standards.
Once the nonappealable permit is obtained, an additional payment of
approximately $3.6 million will be made to the seller.
(b) Dozit Company, Inc.
-----------------------
During May, 1994, the Company's environmental subsidiary, Addington
Environmental, Inc., acquired all of the outstanding stock of Dozit
Company, Inc. for approximately $425,000, assumption of certain liabilities
related to the existing landfill, and royalty payments based on tons of
waste received at the landfill.
The landfill is located in Union County, Kentucky. The acquisition
includes a newly issued contained landfill construction permit. The new
facility, which is currently under construction adjacent to the existing
landfill, will be built to current federal and state landfill standards.
The seller will continue to operate and receive all profits from the
existing landfill operation until the new facility is opened.
10. Coal Contract Acquisition-
-------------------------
During August, 1994, the Company acquired a coal contract with Kentucky
Utilities from a third party. The Company paid $1.2 million for the rights
to ship approximately 578,000 tons over the next 1.5 years at a sales price
of approximately $32.30 per ton.
13
<PAGE>
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
---------------------
QUARTER ENDED JUNE 30, 1994 COMPARED WITH SAME PERIOD IN 1993
-------------------------------------------------------------
Net income during the quarter ended June 30, 1994 was $1,543,000 or $.10 per
share, compared to net loss of $8,000 or $.00 per share for the comparable
quarter of 1993.
This significant increase in net income is primarily attributable to the Company
recognizing interest expense during the quarter ended June 30, 1994 of
approximately $130,000 compared to $3,656,000 during the quarter ended June 30,
1993. This substantial decline in interest expense is primarily due to the use
of the proceeds from the sale of the five coal subsidiaries to retire the
Company's $125,000,000 principal amount of 12% Senior Secured Notes and all
indebtedness outstanding under the Company's revolving line of credit related to
the coal operations that were sold. (See Note 2 to the consolidated financial
statements.)
The Company's mining revenues decreased from $85,993,000 in the quarter ended
June 30, 1993 to $26,444,000 in the quarter ended June 30, 1994. This decline
in mining revenues is primarily due to a decrease in tons sold from 2,773,000 in
the quarter ended June 30, 1993 to 906,000 in the quarter ended June 30, 1994.
The Company's mining revenues were also adversely affected due to the
commencement of the closure of one of the Company's major mine operations, Job
17 in Pike County, Kentucky. Job 17 contributed to mining revenues during the
first five months of 1994. The Company expects to open a new mine during the
third quarter of 1994 and eventually replace Job 17's production. The Company
also experienced a decrease in average sales price per ton from $28.59 per ton
recognized in the quarter ended June 30, 1993 to $26.11 per ton recognized in
the quarter ended June 30, 1994. These declines in mining revenues and sales
price per ton are primarily attributable to the sale of five of the Company's
coal subsidiaries in January, 1994. (See Note 2 to the consolidated financial
statements.)
Total environmental revenues and environmental income from operations increased
to $8,867,000 and $1,647,000, respectively, during the quarter ended June 30,
1994 compared to environmental revenues of $5,845,000 and environmental income
from operations of $1,006,000 during the quarter ended June 30, 1993. Included
in environmental revenues and environmental income from operations is revenue
and income from operations generated by the Company's landfill operations and
waste collection services. During the quarter ended June 30, 1994, the
Company's landfill operations generated $6,316,000 of revenue and $2,369,000 of
income from operations. During the quarter ended June 30, 1994, the Company's
waste collection services generated $2,551,000 of revenue and $722,000 of losses
14
<PAGE>
from operations. During the quarter ended June 30, 1993, the Company's landfill
operations generated $4,044,000 of revenues and $1,315,000 of income from
operations. During the quarter ended June 30, 1993, the Company's waste
collection services generated $1,801,000 of revenues and $309,000 of losses from
operations. The primary reason for the substantial increases in total
environmental revenues and income from operations is an increase in tons of
waste received from 179,000 tons during the quarter ended June 30, 1993 to
262,000 tons during the quarter ended June 30, 1994.
In June, 1992, the Company entered into a 14-year exclusive licensing agreement
that permits Joy Technologies, Inc. ("Joy") to manufacture and market a highwall
mining system that the Company developed and currently uses in its own mining
operations. In accordance with the terms of the June, 1992 agreement, Joy plans
to market the system to mining companies on the basis of a cost per ton of
material mined by the system. If Joy successfully markets the system, the
Company will receive approximately $130,000 in origination fees for each of the
first eight machines leased and approximately $255,000 in origination fees for
each machine leased thereafter, and a royalty based on tons of material mined by
these other mining companies. The agreement provides that Joy will charge a
lessee a minimum royalty per ton of material mined of $3.77, subject to
adjustment for inflation and safety-related changes. The Company will receive
30% of the minimum royalty of $3.77 (as adjusted for inflation) and generally
50% of any part of such royalty payments in excess of $3.77 (as adjusted for
inflation).
The Company generated other revenue and income from operations for the quarter
ended June 30, 1994 of $145,000 and $33,000, respectively, related to this
licensing agreement. During the quarter ended June 30, 1993, other revenue of
$260,000 and a loss from operations of $286,000 was generated from this
licensing agreement.
As a percentage of total revenues, cost of operations decreased from 83% for the
quarter ended June 30, 1993 to 79% for the quarter ended June 30, 1994. This
decrease is primarily a result of improved operating results at the Company's
mining and environmental operations.
Depreciation and amortization decreased from $7,502,000 in the quarter ended
June 30, 1993 to $2,168,000 in the quarter ended June 30, 1994. This 71%
decrease is primarily attributable to a decrease in depreciable coal mining
assets. This decrease in coal mining assets is due to the sale of the five coal
subsidiaries to Pittston on January 14, 1994.
Selling, general and administrative expenses decreased from $4,429,000 during
the quarter ended June 30, 1993 to $3,025,000 during the quarter ended June 30,
1994. This decrease is primarily attributable to a decline in sales commissions
paid based on coal sold under certain coal supply contracts. This decline is
due to the sale of the five coal subsidiaries to Pittston on January 14, 1994.
15
<PAGE>
Interest expense decreased from $3,656,000 during the quarter ended June 30,
1993 to $130,000 during the quarter ended June 30, 1994. This decrease is due
to the retirement of the Company's Senior Secured Notes and payoff of the
Company's revolving line of credit relating to the coal operations that were
sold. The amount of interest capitalized for the quarter ended June 30, 1994
and 1993 was $299,000 and $966,000, respectively.
Interest income increased from $143,000 during the quarter ended June 30, 1993
compared to $353,000 during the quarter ended June 30, 1994. This increase is
due to an increase in the average amount of short-term investments outstanding.
The Company's effective tax rate during the quarter ended June 30, 1993 was 33%
and remained relatively unchanged as compared to the 35% tax rate recognized
during the quarter ended June 30, 1994.
The Company has initiated a study to determine the advisability of distributing
to the Company's shareholders the stock of one or more of its subsidiaries.
Until the conclusion of the study, the Company cannot predict whether the
spinoff or similar corporate transaction will be pursued.
16
<PAGE>
SIX MONTHS ENDED JUNE 30, 1994 COMPARED WITH SAME PERIOD IN 1993
----------------------------------------------------------------
Net income during the six months ended June 30, 1994 was $4,412,000 or $.27 per
share, compared to net loss of $1,715,000 or $.11 per share for the comparable
six months of 1993. This significant increase in net income is primarily
attributable to the following:
(1) Pursuant to the Stock Purchase Agreement dated September 24, 1993,
(the "Agreement"), the Company entered into an agreement to sell the
stock of five of its coal subsidiaries to an indirect wholly-owned
subsidiary of The Pittston Company ("Pittston") for $157 million cash.
The Agreement also contemplated that, before closing, certain
property, plant and equipment (the net book value of which was
approximately $43,000,000 as of December 31, 1993) would be
transferred to other subsidiaries of the Company from the subsidiaries
to be sold. In addition, the Company will retain all of the net
working capital (the net book value of which was approximately
$30,000,000 as of December 31, 1993) of the sold subsidiaries as of
the date of closing (the "Closing Date"). The Agreement also required
that within 60 days after the Closing Date, the Company would deliver
to Pittston a statement of working capital for the subsidiaries
showing the subsidiaries' combined net working capital, as defined in
the Agreement, as of the close of business on the Closing Date. If
the combined net working capital exceeds zero, Pittston is to pay the
Company an appropriate adjustment. If the combined net working
capital is less than zero, the Company is to pay Pittston an
appropriate adjustment. The transaction was completed on January 14,
1994. By letter dated March 15, 1994, the Company asserted that
Pittston should make a payment in the amount of $2,286,000 to the
Company in light of the subsidiaries' combined net working capital as
of the Closing Date. By letter dated April 12, 1994, Pittston
asserted that the Company should make a payment in the amount of
$3,866,739 to Pittston in light of the subsidiaries' combined net
working capital as of the Closing Date. In accordance with the terms
of the agreement, the Company and Pittston are currently seeking to
resolve their differences with respect to the subsidiaries' combined
net working capital as of the Closing Date. Because the parties are
not in agreement with respect to the appropriate adjustment, the
Company cannot predict at this time the amount which will be owed by
one party to the other with respect to such an adjustment. In
connection with the sale, the Company has provided certain guarantees
to Pittston.
Other terms of the transaction include the Company entering into a
coal supply contract with Pittston for the sale of 4,920,000 tons over
3-1/2 years at a base price of $26 per ton. Additionally, the Company
will receive a $1 per ton production royalty for coal produced from
certain West Virginia properties being sold to Pittston with a minimum
royalty of $100,000 per month, a maximum aggregate royalty in any one
17
<PAGE>
year of $1.5 million, and a maximum aggregate royalty under the
agreement of $3.75 million. The Company will also pay Pittston a
royalty of $0.50 per ton of coal produced by two retained highwall
mining machines for 3-1/2 years.
With respect to the $157,000,000 sale price and the net working
capital retained by the Company, approximately $2,500,000 was used to
pay the Company's closing costs for the transaction, including a
$1,000,000 payment to a consultant for the Company and $500,000 to the
financial advisors for their services. The Company used approximately
$131,725,000 of the proceeds to provide for the early redemption of
its 12% Senior Secured Notes due July 1, 1995, including the payment
of $4,288,000 as a redemption premium and approximately $2,437,000 in
net interest through March 15, 1994 (the redemption date). In
addition, the Company used certain of the proceeds to retire all
indebtedness outstanding under the Company's revolving line of credit
agreement related to its coal operations. The outstanding balance on
the line of credit as of January 14, 1994 was $23,442,000. The
Company also used approximately $3,800,000 to compensate its employees
for extraordinary efforts expended in connection with the consummation
of the transaction, including approximately $416,500 in connection
with the termination of stock options held by employees who became
employees of Pittston as a result of the transaction.
As a result of this transaction, the net assets relating to the sales
transaction appear as net assets held for disposal in the accompanying
December 31, 1993 balance sheet. Additionally, since the $125,000,000
Senior Secured Notes were redeemed in connection with the transaction,
they have been classified as a current liability in the accompanying
December 31, 1993 balance sheet.
The Company recorded a pre-tax gain of approximately $118,000 in
connection with this transaction. Included in the calculation of this
gain, the Company established certain reclamation reserves due to the
phase-down of production from those mines retained by the Company.
The Company also established other contingency reserves due to the de-
emphasis of its mining operations.
After the transaction discussed above, the Company continues to own
and operate four eastern Kentucky mines with estimated annual
production capacity of 3,000,000 tons per year. Future production
from these retained coal mines will be placed on the Pittston Coal
Supply Contract, a new coal supply contract entered into with The
Cincinnati Gas & Electric Company ("the CG&E Coal Supply Contract")
and a new coal supply contract with Kentucky Utilities ("the KU Coal
Supply Contract" - see Note 10 to the consolidated financial
statements). The CG&E Coal Supply Contract calls for the sale of
5,400,000 tons of coal over six years beginning January 1, 1994. The
KU Coal Supply Contract calls for the sale of 578,000 tons of coal
over 1.5 years beginning August, 1994.
18
<PAGE>
During the six months ended June 30, 1993, these mines produced
1,077,000 tons with an average cost of operations of $26.01 per ton.
The average sales price received by the Company from coal produced by
these eastern Kentucky mines during the six months ended June 30, 1993
was $30.93 per ton.
During the six months ended June 30, 1994, these mines produced
1,087,000 tons with an average cost of operations of $23.07 per ton.
The average sales price received by the Company from coal produced by
these eastern Kentucky mines during the six months ended June 30, 1994
was $26.71 per ton.
(2) During the six months ended June 30, 1994, the Company recognized in-
terest expense of approximately $156,000 compared to $7,909,000 during
the six months ended June 30, 1993. This substantial decline in
interest expense is primarily due to the use of the proceeds from the
sale of the five coal subsidiaries to retire the Company's
$125,000,000 principal amount of 12% Senior Secured Notes and all
indebtedness outstanding under the Company's revolving line of credit
related to the coal operations that were sold. (See Note 2 to the
consolidated financial statements.)
(3) Adverse wet weather conditions during the first quarter of 1993 caused
major inefficiencies at the Company's mining operations, causing a
major increase in production costs.
The Company's mining revenues decreased from $163,706,000 in the six months
ended June 30, 1993 to $58,763,000 in the six months ended June 30, 1994. This
decline in mining revenues is primarily due to a decrease in tons sold from
5,098,000 tons in the six months ended June 30, 1993 to 2,082,000 tons in the
six months ended June 30, 1994. The Company also experienced a decrease in
average sales price per ton from $29.32 recognized in the six months ended June
30, 1993 to $26.05 per ton recognized in the six months ended June 30, 1994.
These declines in mining revenues and sales prices per ton are primarily
attributable to the sale of five of the Company's coal subsidiaries in January,
1994. (See Note 2 to the consolidated financial statements.) Additionally, the
Company recognized revenue of $4,827,000 associated with the sale of a highwall
mining machine sold to Pittston during the six months ended June 30, 1993.
Total environmental revenues and environmental income from operations increased
to $15,718,000 and $2,667,000, respectively, during the six months ended June
30, 1994 compared to total environmental revenues of $10,724,000 and
environmental income from operations of $1,857,000 during the six months ended
June 30, 1993. Included in environmental revenues and environmental income from
operations is revenue and income from operations generated by the Company's
landfill operations and waste collection services. During the six months ended
June 30, 1994, the Company's landfill operations generated $11,003,000 of
revenue and $3,874,000 of income from operations. During the six months ended
June 30, 1994, the Company's waste collection services generated $4,715,000 of
revenues
19
<PAGE>
and $1,207,000 of losses from operations. During the six months ended June 30,
1993, the Company's landfill operations generated $7,371,000 of revenues and
$2,489,000 of income from operations. During the six months ended June 30, 1993,
the Company's waste collection services generated $3,353,000 of revenues and
$632,000 of losses from operations. The primary reason for the substantial
increases in total environmental revenues and income from operations is an
increase in tons of waste received from 324,000 tons during the six months ended
June 30, 1993 to 495,000 tons during the six months ended June 30, 1994.
The Company generated other revenue and income from operations for the six
months ended June 30, 1994 of $573,000 and $248,000, respectively, related to
the highwall mining system licensing agreement. During the six months ended
June 30, 1993, other revenue of $260,000 and a loss from operations of $802,000
was generated from the highwall mining system licensing agreement.
As a percentage of total revenues, cost of operations decreased from 83% for the
six months ended June 30, 1993 to 80% for the six months ended June 30, 1994.
This decrease is primarily a result of improved operating results at the
Company's mining and environmental operations.
Depreciation and amortization decreased from $14,483,000 in the six months ended
June 30, 1993 to $3,712,000 in the six months ended June 30, 1994. This 74%
decrease is primarily attributable to a decrease in depreciable coal mining
assets. This decrease in coal mining assets is due to the sale of the five coal
subsidiaries to Pittston on January 14, 1994.
Selling, general and administrative expenses decreased from $10,101,000 during
the six months ended June 30, 1993 to $5,143,000 during the six months ended
June 30, 1994. This decrease is primarily attributable to a decline in sales
commissions paid based on coal sold under certain coal supply contracts. This
decline is due to the sale of the five coal subsidiaries to Pittston on January
14, 1994.
Interest expense decreased from $7,909,000 during the six months ended June 30,
1993 to $156,000 during the six months ended June 30, 1994. This decrease is
due to the retirement of the Company's Senior Secured Notes and payoff of the
Company's revolving line of credit relating to the coal operations that were
sold. The amount of interest capitalized for the six months ended June 30, 1994
and 1993 was $537,000 and $1,262,000, respectively.
Interest income remained relatively unchanged at $361,000 for the six months
ended June 30, 1993 compared to $382,000 for the six months ended June 30, 1994.
The Company's effective tax rate during the six months ended June 30, 1993 was
29% and remained relatively unchanged as compared to the 32% tax rate recognized
during the six months ended June 30, 1994.
The Company's cash, cash equivalents and short-term investments totalled
$19,263,000 at June 30, 1994, compared to $13,744,000 at December 31, 1993.
This increase is primarily due to excess cash generated from the sale of the
coal operations. (See Note 2 to the consolidated financial statements.)
20
<PAGE>
Accounts receivable at June 30, 1994 totalled $22,252,000, compared to the
balance of $8,946,000 at December 31, 1993. As of December 31, 1993, the
accounts receivable related to the coal subsidiaries sold to Pittston were
included in net assets held for disposal. The increase since that date
represents accounts receivable generated by 1994 coal sales from the Company's
retained mining operations (see Note 2 to the consolidated financial
statements).
Inventories decreased to $8,663,000 at June 30, 1994, compared to $11,803,000 at
December 31 1993, primarily due to a decrease in tons of coal in inventory at
June 30, 1994.
Prepaid expenses and other at June 30, 1994 totalled $5,438,000, compared to the
balance of $7,718,000 at December 31, 1993. This decrease is primarily due to
deferred selling costs of approximately $1,100,000 related to the sale of coal
subsidiaries to Pittston on January 14, 1994 included in prepaid expenses at
December 31, 1993 and a reduction in prepaid insurance associated with a
decrease in the Company's mining operations.
Property, plant and equipment increased to $163,723,000 at June 30, 1994,
compared to $139,055,000 at December 31, 1993. This 18% increase is primarily
due to an increase in landfill and other environmental related development
costs, the manufacture of additional highwall mining machines to be utilized by
the Company in its third party contract mining operations and costs capitalized
in association with the development of the Company's gold mining project in
Arizona.
Mineral reserves increased to 3,254,000 at June 30, 1994 compared to 1,704,000
at December 31, 1993, primarily due to the acquisition of certain coal reserve
interests in Illinois during 1994.
Accounts payable at June 30, 1994 increased to $9,340,000 as compared to the
December 31, 1993 balance of $5,609,000, primarily due to the timing of
payments.
The Company's new line of credit balance at June 30, 1994 totalled $3,500,000
compared to the December 31, 1993 balance of $23,442,000 drawn on the Company's
previous line of credit related to its coal operations. This decrease is
primarily due to the payoff of the Company's line of credit during the first
quarter of 1994.
The Company's current portion of long-term debt outstanding decreased from
$126,228,000 at December 31, 1993 to $1,542,000 at June 30, 1994, primarily due
to proceeds from the sale of the five coal subsidiaries being utilized to reduce
certain long-term debt. (See Note 2 to the consolidated financial statements.)
Accrued expenses and other liabilities increased to $17,610,000 at June 30, 1994
compared to the $13,714,000 balance at December 31, 1993. This increase is
attributable to an increase in the Company's accrual for reclamation on the
Company's retained coal operations. (See Note 2 to the consolidated financial
statements.)
21
<PAGE>
The Company's long-term debt outstanding increased from $11,954,000 at December
31, 1993 to $23,603,000 at June 30, 1994. This increase is primarily due to the
$6,000,000 borrowed against the Company's environmental subsidiary's line of
credit during 1994 and the issuance of $2,251,000 in tax exempt revenue bonds to
finance the construction of a landfill in Wayne County, Georgia as described in
Note 8 to the consolidated financial statements.
The Company's other long-term liabilities increased from $2,705,000 at December
31, 1993 to $12,733,000 at June 30, 1994. This increase is primarily due to the
normal increase in landfill closure and post-closure costs accrued, as well as
an increase in the long-term accrual for reclamation on the Company's coal
mining properties and contingency reserves recorded in connection with the
Company's disposal described in Note 2 to the consolidated financial statements.
22
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
The working capital needs of the Company have been met primarily through a
combination of funds provided by banks and other institutions and cash generated
through operations.
As of June 30, 1994, the Company had the following amounts available under the
various financing arrangements:
$3,332,000 remaining available under its coal line of credit, secured by
certain accounts receivable and coal inventory, bearing
interest at prime.
$15,235,000 remaining available under its environmental line of credit,
secured by substantially all of its environmental assets,
bearing interest at prime plus 3/4%.
$5,149,000 remaining available under its environmental revenue bonds. (See
Note 8 to the consolidated financial statements.)
Subsequent to June 30, 1994, the Company entered into a $9,330,000 gold loan to
finance the development of certain gold operations. (See Note 8 to the
consolidated financial statements.)
There are certain environmental contingencies related to the Company's coal
operations and integrated solid waste disposal system operations, primarily land
reclamation obligations and landfill closure obligations, respectively. Under
current federal and state surface mining laws, the Company is required to
reclaim land where surface mining operations are conducted. Accruals for the
estimated cost of restoring the land are provided as mining takes place, based
upon engineering estimates of costs. The Company also estimates and records its
costs associated with closure and post-closure monitoring and maintenance for
operating landfills based upon relevant government regulations. Accruals for
these closure and post-closure costs are provided as permitted airspace of the
landfill is consumed. The Company revises its estimates on a periodic basis.
As of June 30, 1994, the Company had accrued expenses for reclamation and
closure costs of approximately $16,886,000. Because of the long-term nature of
these obligations, there is a possibility that such obligations, when ultimately
paid, may differ substantially from the recorded accrued expenses, thus
affecting the Company's liquidity.
In 1990, the Company implemented a self-insurance program to cover most of its
employees for workes' compensation, including black lung benefits. Black lung
expense is being provided, based upon a recent actuarial study, over the
estimated remaining working lives of the miners using accounting methods similar
to that of a defined benefit pension plan. Benefits provided are subject to
federal and state law and, thus, are not under the control of the Company. As
of June 30, 1994, the Company had a reserve for workers' compensation, including
black lung benefits, of approximately $2,600,000. Because of the long-term
nature of these obligations, there is a possibility that workers' compensation
(including black lung) obligations, when ultimately settled and paid, may differ
substantially from the recorded balance and thus affect the Company's liquidity.
23
<PAGE>
The Company believes that its present financial condition, considering the funds
available under the existing financing agreements, the proceeds received from
the sale of certain coal subsidiaries (see Note 2 to the consolidated financial
statements), and internal financial resources, provides adequate capital
reserves and liquidity.
The overall net decrease in cash and cash equivalents was $3,481,000 and
$19,158,000 for the six months ended June 30, 1994 and 1993, respectively. Such
net decrease reflects net cash used in operating, investing and financing
activities.
Net cash used in operating activities was $13,397,000 and $3,144,000 for the six
months ended June 30, 1994 and 1993, respectively. These fluctuations among
years primarily reflect changes in working capital items whereby increases in
net working capital would cause a decline in net cash provided by operating
activities.
During the six months ended June 30, 1994, the Company's working capital (net of
non-cash activity) increased by $21,461,000, which primarily consists of a
$14,447,000 increase in accounts receivable and a $11,105,000 decrease in
accrued expenses, net of a $3,603,000 increase in accounts payable. During the
six months ended June 30, 1993, the Company's working capital increased by
$15,941,000, which primarily consists of a $6,905,000 increase in inventories, a
$11,390,000 increase in accounts receivable and a $6,504,000 increase in prepaid
expenses and other, net of a $3,626,000 increase in accrued expenses and a
$3,222,000 increase in accounts payable.
Net cash provided by (used in) investing activities was $149,679,000 and
($17,687,000) for the six months ended June 30, 1994 and 1993, respectively.
The 1994 amount primarily consists of net proceeds of $185,074,000 from the sale
of coal subsidiaries, net of property, plant and equipment purchases of
$24,369,000 and investment purchases of $9,000,000. The 1993 amount primarily
consists of property, plant and equipment purchases.
Net cash provided by (used in) financing activities was ($139,763,000) and
$1,673,000 for the six months ended June 30, 1994 and 1993, respectively. The
1994 amount primarily represents net repayments of long-term debt and the
revolving lines of credit. The 1993 amount primarily represents proceeds of
$3,570,000 from the issuance of common stock, net of repayments of long-term
debt of $4,193,000.
Inflation has not had a significant effect on the Company's business primarily
because the United States economy has been experiencing a period of relatively
low inflation.
The Company's capital needs, earnings and cash flow are somewhat dependent on
events beyond the Company's control, such as weather patterns, the state of the
economy, and changes in existing governmental and environmental regulations.
24
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
-----------------
Reference is hereby made to the discussion under Item 3, Legal
Proceedings of the Company's Form 10-K for the fiscal year ended
December 31, 1993 concerning litigation between the Company and
Consumers Power Company ("Consumers Power") in Boyd Circuit Court in
Boyd County, Kentucky. In June, 1994, the Company and Consumers Power
settled all claims between them related to the litigation. In
accordance with the settlement, the Company will pay Pittston Coal
Sales Corp. ("Pittston Coal Sales"), as the Company's successor in the
contract with Consumers Power, $2.78 per ton of coal shipped under the
contract with Consumers Power after January 1, 1994. The per ton
payment is to be paid only on the first 720,000 tons of coal shipped,
in an amount not to exceed $2,000,000. Payments are due to Pittston
Coal Sales in January of the year following the shipments of coal,
e.g., the first payment is due in January, 1995. Pursuant to the
settlement, on August 8, 1994, the Kentucky Court of Appeals dismissed
the appeal of Consumers Power with respect to the grant of summary
judgment. Pursuant to the settlement, on August 11, 1994, the Boyd
Circuit Court dismissed with prejudice all claims between the Company
and Consumers Power.
Item 2. Changes in Securities.
---------------------
None.
Item 3. Defaults upon Senior Securities.
-------------------------------
None.
Item 4. Submission of Matters to a Vote of Security Holders.
---------------------------------------------------
(a) A special meeting of stockholders (the "Special Meeting") was held
on January 11, 1994. The annual meeting of stockholders (the "Annual
Meeting") was held on July 12, 1994.
(b) Not applicable.
(c) Briefly described below is each matter voted upon at the Special
Meeting and the Annual Meeting, and the number of votes cast for,
against or withheld, as well as the number of abstentions. There were
no broker non-votes on any matters.
(1) A proposal to sell all of the Company's stock in five
indirectly owned subsidiaries to a subsidiary of The Pittston Company
was approved at the Special Meeting. The results of the vote were:
10,501,167 shares were voted For; 750 shares were voted Against; and
3,306 shares Abstained.
25
<PAGE>
(2) Vote count on re-election of Directors at the Annual Meeting:
<TABLE>
<CAPTION>
Director For Withheld
------------------ ---------- --------
<S> <C> <C>
Larry Addington 14,247,866 42,215
Bruce Addington 14,247,966 42,115
Robert Addington 14,247,966 42,115
Carl R. Whitehouse 14,247,966 42,115
Jack C. Fisher 14,247,966 42,115
</TABLE>
(3) Arthur Andersen & Co. was appointed as the Company's
independent public accountants for the fiscal year ending December 31,
1994 at the Annual Meeting. The results of the vote were: 14,289,181
shares were voted For; 550 shares were voted Against; and 350 shares
Abstained.
Item 5. Other Information.
-----------------
None.
Item 6. Exhibits and Reports on Form 8-K.
--------------------------------
(a) List of Exhibits Filed.
----------------------
Exhibit 10.1 Letter Agreement dated as of May 21, 1994
between the Company and Kirby Taylor relating to employment.
(b) Reports on Form 8-K.
-------------------
None.
26
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ADDINGTON RESOURCES, INC.
(Registrant)
Date: August 11, 1994 By: /s/ Larry Addington
---------------------------- ----------------------------------------
Larry Addington
President, Chief Executive Officer,
Director
Date: August 11, 1994 By: /s/ R. Douglas Striebel
---------------------------- ----------------------------------------
R. Douglas Striebel
Vice President, Chief Financial Officer
27
<PAGE>
EXHIBIT 10.1
------------
May 26, 1994
Mr. Kirby Taylor
115 E. Stone Ave.
Lake Forest, IL 60045
Dear Kirby:
This letter will serve as an offer to you to become the President of
Addington Resources, Inc.
PROPOSAL
--------
Salary
- - ------
$225,000/year starting; raise to $250,000/year on
January 1, 1995; to be paid semi-monthly.
Sign-on Bonus
- - -------------
$100,000 less required deductions; $50,000 to be paid
within 15 days of employment; the other $50,000 at the
end of the first six months of employment.
Performance Bonus
- - -----------------
Your bonus will be calculated as follows:
For after tax company profits of $1.00 per share,
you will be paid 40% of your base salary. For
after tax profits of $2.00 or more per share,
you will be paid 70% of your base salary. For
after tax profits between $1.00 and $2.00
per share, you will be paid on a pro rata basis.
Stock Options
- - -------------
40,000 shares at date of employment, 20,000 shares per
year for three years, for a total of 100,000 shares.
1
<PAGE>
Severance
- - ---------
In the event you are discharged for undue cause, the company
will pay you two times your base salary.
Company Car
- - -----------
An automobile and operating expenses will be provided by the
company.
Company Insurance
- - -----------------
The medical and life insurance plan now in effect will be
available to you. A physical exam is required.
401(k) Plan
- - -----------
You will be eligible to participate in the company's 401(k)
plan up to the IRS specified limit.
Relocation Expenses
- - -------------------
The company will reimburse you for expenses incurred in
relocating to the Ashland area, not to exceed $40,000.
Vacation
- - --------
You will be eligible for vacation according to the existing
company plan.
Board of Directors
- - ------------------
A seat on the Board of Directors will be available to you
upon the successful completion of one year of employment.
The various company plans and benefit programs are in a constant state of
evaluation and change. It is anticipated that you, as President, will be
actively involved in the evaluation and improvements of our benefits program.
It is understood that this offer is not to be construed as a contract of
employment for any specified period of time and either party may terminate the
employment relationship with or without cause and with or without notice.
We at Addington Resources are excited about you coming to work for the
company. As we have discussed, the potential for the company to grow and
prosper is enormous. In order for it to reach its potential, we are offering
you the position of "team captain". Welcome to the A-Team.
2
<PAGE>
If this offer is acceptable, please sign where indicated, date and fax a
copy to me.
Sincerely,
/s/ Larry Addington
Larry Addington
Chairman
AGREED TO AND ACCEPTED BY:
By: /s/ Kirby J. Taylor
-------------------
Kirby J. Taylor
Date: June 2, 1994
-----------------
3
