<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
_____ACT OF 1934
For the quarterly period ended September 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 November 11, 1994 - 15,853,351 shares
________________________________
1
<PAGE>
ADDINGTON RESOURCES, INC. AND SUBSIDIARIES
------------------------------------------
INDEX
-----
Page No.
--------
PART I. Financial Information
ITEM 1. Financial Statements
Balance Sheets as of September 30, 1994
(Unaudited) and December 31, 1993 3-4
Statements of Operations (Unaudited)
Three Months and Nine Months Ended
September 30, 1994 and 1993 5-6
Statements of Cash Flows (Unaudited)
Nine Months Ended September 30,
1994 and 1993 7-8
Notes to Financial Statements
(Unaudited) 9-15
ITEM 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 16-28
PART II. Other Information 29
SIGNATURES 30
2
<PAGE>
ITEM 1
ADDINGTON RESOURCES, INC. AND SUBSIDIARIES
------------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
ASSETS
------
<TABLE>
<CAPTION>
September 30, December 31,
1994 1993
------------ ------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 5,821,862 $ 13,744,002
Short-term investments 10,000,000 -
Accounts receivable 21,258,107 8,945,515
Net assets held for disposal - 141,865,803
Inventories 7,763,191 11,803,046
Prepaid expenses and other 5,672,160 7,717,738
----------- ------------
Total current assets 50,515,320 184,076,104
----------- ------------
PROPERTY, PLANT AND EQUIPMENT, at cost 182,882,635 139,054,751
Less - Accumulated depreciation (28,305,848) (22,664,255)
------------ ------------
154,576,787 116,390,496
------------ ------------
MINERAL RESERVES, at cost 1,141,571 1,703,623
Less - Accumulated amortization (18,489) (18,489)
------------ ------------
1,123,082 1,685,134
------------ ------------
OTHER ASSETS 11,793,675 13,506,692
------------ ------------
Total assets $218,008,864 $315,658,426
============ ============
</TABLE>
3
<PAGE>
ADDINGTON RESOURCES, INC. AND SUBSIDIARIES
------------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<TABLE>
<CAPTION>
September 30, December 31,
1994 1993
------------- ------------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 13,174,269 $ 5,609,230
Revolving lines of credit 7,500,000 23,441,737
Current portion of long-term debt 950,490 126,228,033
Accrued expenses and other 20,818,990 13,714,495
Current portion of deferred income taxes - 3,666,000
------------ ------------
Total current liabilities 42,443,749 172,659,495
------------ ------------
LONG-TERM DEBT, less current portion 40,357,688 11,954,354
------------ ------------
OTHER LONG-TERM LIABILITIES 14,215,950 2,705,213
------------ ------------
DEFERRED INCOME TAXES 1,043,525 3,406,184
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY (Note 5):
Common stock, $1.00 par value; 30,000,000
shares authorized, 15,852,851 and 15,675,378
shares outstanding at September 30, 1994 and
December 31, 1993, respectively 15,852,851 15,675,378
Paid-in capital 83,789,397 81,544,648
Retained earnings 20,305,704 27,713,154
------------ ------------
Total stockholders' equity 119,947,952 124,933,180
------------ ------------
Total liabilities and stockholders' equity $218,008,864 $315,658,426
============ ============
</TABLE>
4
<PAGE>
ADDINGTON RESOURCES, INC. AND SUBSIDIARIES
------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
-------------------------------- --------------------------------
September 30, September 30, September 30, September 30,
1994 1993 1994 1993
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUES:
Mining $ 29,280,209 $ 95,060,000 $ 88,043,568 $258,766,188
Environmental 9,942,125 6,489,426 25,660,287 17,213,464
Other 492,152 - 1,147,597 260,000
------------ ------------ ------------ ------------
39,714,486 101,549,426 114,851,452 276,239,652
------------ ------------ ------------ ------------
COSTS AND EXPENSES:
Cost of operations 31,876,440 79,582,428 91,783,110 225,059,750
Provision for asset
write down 6,023,948 - 6,023,948 -
Depreciation and
amortization 2,326,042 8,603,469 6,037,878 23,086,794
Selling, general and
administrative 3,439,001 5,733,006 8,582,092 15,833,943
------------ ------------ ------------ ------------
43,665,431 93,918,903 112,427,028 263,980,487
------------ ------------ ------------ ------------
INCOME (LOSS) FROM
OPERATIONS (3,950,945) 7,630,523 2,424,424 12,259,165
------------ ------------ ------------ ------------
INTEREST AND OTHER INCOME
(EXPENSE):
Interest income 292,006 95,451 674,341 456,890
Interest expense (265,852) (4,502,982) (421,391) (12,412,064)
Gain (loss) on sale of
coal subsidiaries (6,275,227) - (6,156,728) -
Gain (loss) on sale of
assets 61,316 (17,788) 2,729 (46,926)
Other, net (7,980,738) 286,146 (8,149,825) 815,421
------------ ------------ ------------ ------------
(14,168,495) (4,139,173) (14,050,874) (11,186,679)
------------ ------------ ------------ ------------
Income (loss) before
income taxes $(18,119,440) $ 3,491,350 (11,626,450) $ 1,072,486
------------ ------------ ------------ ------------
</TABLE>
5
<PAGE>
ADDINGTON RESOURCES, INC. AND SUBSIDIARIES
------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS (Continued)
-------------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
-------------------------------- -------------------------------
September 30, September 30, September 30, September 30,
1994 1993 1994 1993
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
INCOME TAX PROVISIONS
(BENEFITS):
Federal $ (5,400,000) $ 750,000 $(3,688,000) $ 146,500
State (900,000) 250,000 (531,000) 149,500
------------ ----------- ----------- -----------
(6,300,000) 1,000,000 (4,219,000) 296,000
------------ ----------- ----------- -----------
Net income (loss) $(11,819,440) $ 2,491,350 (7,407,450) $ 776,486
============ =========== =========== ===========
NET INCOME (LOSS) PER SHARE $ (.75) $ .16 $ (.47) $ .05
============ =========== =========== ===========
Average shares of stock
outstanding 15,852,851 15,935,298 15,780,170 15,860,814
============ =========== =========== ===========
</TABLE>
6
<PAGE>
ADDINGTON RESOURCES, INC. AND SUBSIDIARIES
------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-------------------------------
September 30, September 30,
1994 1993
------------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (7,407,450) $ 776,486
------------ ------------
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 6,037,878 23,086,794
Loss on sale of coal subsidiaries 6,156,728 -
Asset write downs 13,957,881 -
Gain (loss) on sale of assets (2,729) 46,926
Change in assets and liabilities, net of
effects of acquisitions and disposals:
(Increase) decrease in:
Accounts receivable (14,600,905) (12,623,417)
Inventories (754,486) (2,471,771)
Prepaid expenses and other 1,137,352 (2,685,030)
Other assets 168,574 (1,987,286)
Increase (decrease) in:
Accounts payable 7,437,366 7,687,888
Accrued expenses and other (19,249,378) 8,622,170
Accrued income taxes 597,170 131,975
Deferred income taxes (6,028,659) 776,148
Other liabilities 1,442,272 -
------------ ------------
Total adjustments (3,700,936) 20,584,397
------------ ------------
Net cash provided by (used in)
operating activities (11,108,386) 21,360,883
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of coal subsidiaries 185,074,261 -
Proceeds from sale of assets 1,713,351 268,975
Aquisitions of short-term investments (10,000,000) -
Acquisition of mineral reserves (1,550,000) (5,495,140)
Additions to property, plant and equipment (49,151,576) (33,532,786)
Acquisitions of coal sales contracts (1,203,457) -
Acquisition of environmental companies,
net of cash acquired (2,057,073) -
------------ ------------
Net cash provided by (used in)
investing activities $122,825,506 $(38,758,951)
------------ ------------
</TABLE>
7
<PAGE>
ADDINGTON RESOURCES, INC. AND SUBSIDIARIES
------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
-------------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
--------------------------------
September 30, September 30,
1994 1993
--------------- ------------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of long-term debt $ 30,516,749 $ 5,023,586
Repayments of long-term debt (134,444,519) (2,954,988)
Net repayments on revolving lines of credit (15,941,737) 1,999,422
Proceeds from issuance of common stock 340,800 3,793,500
Financing costs incurred (110,553) -
------------- ----------
Net cash provided by (used in)
financing activities (119,639,260) 7,861,520
------------- ----------
Net decrease in cash and cash
equivalents (7,922,140) (9,536,548)
CASH AND CASH EQUIVALENTS, beginning of period 13,744,002 32,955,151
------------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 5,821,862 $23,418,603
============= ===========
</TABLE>
Note: For purposes of these statements, the Company and its subsidiaries
consider 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 nine months ended September 30, 1994 and 1993 are
as follows:
<TABLE>
<CAPTION>
1994 1993
--------- -----------
<S> <C> <C>
Interest, net of amounts capitalized
of approximately $884,000
and $1,594,000, respectively $421,000 $10,965,215
Income taxes 55,845 2,281,000
</TABLE>
During the nine months ended September 30, 1994 and 1993, the Company
acquired property, plant and equipment and mineral reserves of
approximately $2,800,000 and $12,788,000, respectively, by assuming
certain liabilities and by the issuance of common stock. During the nine
months ended September 30, 1994, the Company wrote off certain assets of
approximately $9.3 million against previously established reserves and
other accruals recorded in connection with the company's de-emphasis of
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 September 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 September 30, 1994 and results of
operations for the three months and nine months ended September 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 (the "Pittston Coal Supply Contract") 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 initially 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. During the third quarter of 1994, the Company
reduced the gain recorded on this transaction by $6,275,000. The reduction
in the gain previously recorded is a result of the Company settling the
working capital adjustment dispute with Pittston and adjusting certain
other contingency reserves specifically set up in connection with this
transaction.
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
10
<PAGE>
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.
3. Inventories-
-----------
As of September 30, 1994 and December 31, 1993 inventories consisted of:
<TABLE>
<CAPTION>
September 30, December 31,
1994 1993
------------ -----------
<S> <C> <C>
(Unaudited)
Coal $5,510,361 $10,222,372
Supplies and Parts 2,252,830 1,580,674
---------- -----------
$7,763,191 $11,803,046
========== ===========
</TABLE>
4. Commitments and Contingencies-
-----------------------------
(a) 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 three customers
under three coal sales contracts. One contract 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/
officers of the Company. The Company recorded various expenses to related
parties consisting of approximately $5,083,000 and $13,263,000 for trucking
services for the nine month periods ending September 30, 1994 and 1993,
respectively, and office rent of $82,500 for the nine month periods ending
September 30, 1994 and 1993.
The Company had amounts payable to related parties of $355,000 and $391,000
as of September 30, 1994 and December 31, 1993, respectively.
6. Stockholders' Equity-
--------------------
During the nine months ended September 30, 1994 and 1993, 28,800 and
386,000 shares, respectively, of common stock were issued in connection
with the exercise of stock options. During the nine months ended
September 30, 1994, 148,673 shares of common stock were issued in
connection with the
11
<PAGE>
purchase of a landfill as discussed in Note 9 to the consolidated financial
statements. As a result, common stock increased $177,473 and $386,000,
respectively, and paid-in capital increased $2,244,749 and $3,407,500,
respectively, during the nine months ended September 30, 1994 and 1993.
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 September 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 $10
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 nine months ended September 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
nine months ended September 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 interest rate as of September 30, 1994 was
4.05% 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
12
<PAGE>
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.
In October, 1994, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 119, "Disclosure about Derivative
Financial Instruments and Fair Value of Financial Instruments", which
requires certain disclosures about financial instruments such as the
aforementioned hedging agreement. The Statement becomes effective for
financial statements issued for fiscal years ending after December 15,
1994. The Company does not expect the new Statement to have a material
effect on its consolidated financial statements.
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
included a newly issued contained landfill construction permit. The new
facility is located adjacent to the existing landfill, was built to current
federal and state landfill standards, and opened in November, 1994.
13
<PAGE>
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.
11. Restructuring and Other Charges-
-------------------------------
During the third quarter of 1994, the Company recorded certain
restructuring charges and other one-time charges. The charges that are
included in the provision for asset write-downs in operating expenses in
the Company's September 30, 1994 consolidated statement of operations are
as follows:
(a) $3.4 million to write off the Company's investment in its limestone
project. Due to financing constraints, the Company has determined
that it will no longer pursue the development of its limestone assets.
As a result, the entire investment in these assets has been written
off.
(b) $2 million to write off certain coal assets that will no longer be
utilized or recovered in the remaining coal operations. These asset
write-offs include approximately $1.1 million of receivables that have
been deemed to be uncollectable and a $900,000 write-down associated
with a dock owned by the Company which is no longer being utilized.
(c) $670,000 associated with certain environmental projects. The Company
had previously incurred costs associated with certain environmental
projects which will no longer be pursued. As a result, such costs
associated with these projects have been written off.
The charges that are included in other expense in the Company's September
30, 1994 consolidated statement of operations are as follows:
(a) $6.8 million associated with reserving for the remaining balance of a
note receivable taken in connection with a sale of a coal subsidiary
in April, 1992 and certain other expenses associated with this
transaction. During April, 1992, the Company sold all of the
outstanding stock of one of its subsidiaries, Southern Illinois Mining
Company, Inc., to Marion Mining Corp. ("Marion") for $1 million cash
and an approximately $10.4 million promissory note. Subsequent to
this transaction, Marion has filed bankruptcy.
During the fourth quarter of 1993, the Company established a $5.8
million reserve against this note receivable. Such valuation was
determined considering the estimated ultimate realizable value of the
assets that would be recovered from bankruptcy. During the third
quarter of 1994, the Company determined that the net value of the
assets that will be recovered from bankruptcy will be substantially
less than previously expected. Therefore, the Company fully reserved
for this note receivable during the third quarter of 1994 and reserved
for
14
<PAGE>
certain other expenses that will be incurred in connection with
bringing this bankruptcy proceeding to a conclusion.
(b) $1.2 million associated with writing off the Company's investment in a
recycling company. The Company had initially invested in a company
that developed certain recycling technology. This company is presently
experiencing substantial financial difficulties and management
believes its carrying value is permanently impaired. As a result, the
Company decided to write off its entire investment in this company
during the third quarter of 1994.
15
<PAGE>
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
---------------------
QUARTER ENDED SEPTEMBER 30, 1994 COMPARED WITH SAME PERIOD IN 1993
------------------------------------------------------------------
Net loss during the quarter ended September 30, 1994 was $11,819,000 or $.75 per
share compared to net income of $2,491,000 or $.16 per share for the comparable
quarter of 1993. Net income during the third quarter of 1994 was adversely
affected due to certain restructuring charges and other one-time charges,
including the following:
(1) The charges that are included in operating expenses are as follows:
(a) $3.4 million to write off the Company's investment in its limestone
project. Due to financing constraints, the Company has determined
that it will no longer pursue the development of its limestone assets.
As a result, the entire investment in these assets has been written
off.
(b) $2 million to write off certain coal assets that will no longer be
utilized or recovered in the remaining coal operations. These asset
write-offs include approximately $1.1 million of receivables that have
been deemed to be uncollectable and a $900,000 write down associated
with a dock owned by the Company which is no longer being utilized.
(c) $670,000 associated with certain environmental projects. The Company
had previously incurred costs associated with certain environmental
projects which will no longer be pursued. As a result, such costs
associated with these projects have been written off.
(d) $670,000 in selling, general and administrative expenses related
to certain non-recurring one-time expenses associated with certain
management and legal fees in connection with the Company's attempts to
sell its remaining coal operations and other one-time corporate
charges.
(2) The charges that are included in other expense in the Company's
September 30, 1994 consolidated statement of operations are as follows:
(a) $6.8 million associated with reserving for the remaining balance of a
note receivable taken in connection with a sale of a coal subsidiary
in April, 1992 and certain other expenses associated with this
transaction. During April, 1992, the Company sold all of the
outstanding stock of one of its subsidiaries, Southern Illinois Mining
Company, Inc., to Marion Mining Corp. ("Marion") for $1 million cash
and an ap-
16
<PAGE>
proximately $10.4 million promissory note. Subsequent to this
transaction, Marion has filed bankruptcy.
During the fourth quarter of 1993, the Company established a $5.8
million reserve against this note receivable. Such valuation was
determined considering the estimated ultimate realizable value of the
assets that would be recovered from bankruptcy. During the third
quarter of 1994, the Company determined that the net value of the
assets that will be recovered from bankruptcy will be substantially
less than previously expected. Therefore, the Company fully reserved
for this note receivable during the third quarter of 1994 and reserved
for certain other expenses that will be incurred in connection with
bringing this bankruptcy proceeding to a conclusion.
(b) $1.2 million associated with writing off the Company's investment in a
recycling company. The Company had initially invested in a company
that developed certain recycling technology. This company is
presently experiencing substantial financial difficulties and
management believes its carrying value is permanently impaired. As a
result, the Company decided to write off its entire investment in this
company during the third quarter of 1994.
(c) $6.3 million associated with the settlement of the working capital ad-
justment dispute associated with the sale of certain coal subsidiaries
to The Pittston Company ("Pittston"). (See Note 2 to the consolidated
financial statements.)
The Company's mining revenues decreased from $95,060,000 in the quarter ended
September 30, 1993 to $29,280,000 in the quarter ended September 30, 1994.
This decline in mining revenues is primarily due to a decrease in tons sold from
2,908,000 in the quarter ended September 30, 1993 to 980,000 tons sold in the
quarter ended September 30, 1994. The Company also experienced a decrease in
average sales price per ton from $29.72 per ton recognized in the quarter ended
September 30, 1993 to $26.14 per ton recognized in the quarter ended September
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 increased to $9,942,000 during the three months
ended September 30, 1994 compared to $6,489,000 during the three months ended
September 30, 1993. Income from environmental operations decreased to $751,000
for the three months ended September 30, 1994 compared to $857,000 for the three
months ended September 30, 1993. The primary reason for the substantial increase
in total environmental revenues is an increase in tons of waste received from
199,000 tons during the quarter ended September 30, 1993 to 305,000 tons during
the quarter ended September 30, 1994. Income from operations decreased as a
result of incurred costs of $670,000 related to abandoned environmental projects
being written off during the three months ended September 30, 1994 and one-time
restructuring charges of $282,000 incurred during the three months ended
September 30, 1994.
17
<PAGE>
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 September
30, 1994, the Company's landfill operations generated $6,361,000 of revenue and
$2,741,000 of income from operations. During the quarter ended September 30,
1994, the Company's waste collection services generated $3,581,000 of revenue
and $1,036,000 of losses from operations. During the quarter ended September
30, 1993, the Company's landfill operations generated $4,351,000 of revenue and
$1,504,000 of income from operations. During the quarter ended September 30,
1993, the Company's waste collection services generated $2,138,000 of revenue
and $647,000 of losses from operations.
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 revenue of $372,000 related to this licensing agreement
with Joy for the three months ended September 30, 1994. The Company generated
no revenue from this licensing agreement during the three months ended September
30, 1993.
As a percentage of total revenues, cost of operations increased from 78% for the
three months ended September 30, 1993 to 80% for the three months ended
September 30, 1994. This increase is primarily due to the sale of a major
portion of the Company's coal operations to Pittston in January, 1994. Included
in the sale were various high-priced coal contracts contributing high operating
margins to the Company. (See Note 2 to the consolidated financial statements.)
Depreciation and amortization decreased from $8,603,000 in the three months
ended September 30, 1993 to $2,326,000 in the three months ended September 30,
1994. This 73% 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.
18
<PAGE>
Selling, general and administrative expenses decreased from $5,733,000 during
the three months ended September 30, 1993 to $3,439,000 during the three months
ended September 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 $4,503,000 during the three months ended
September 30, 1993 to $266,000 during the three months ended September 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 September 30, 1994 and 1993 was $347,000 and $332,000, respectively.
Interest income increased from $95,000 during the quarter ended September 30,
1993 to $292,000 during the quarter ended September 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 September 30, 1993 was
29% compared to the 35% tax rate recognized during the quarter ended September
30, 1994. Prior to the sale of a substantial portion of the Company's coal
operations in January, 1994 (see Note 2 to the consolidated financial
statements), the Company was able to utilize certain depletion deductions to
reduce its tax rate below the statutory levels. After the sale, the Company has
not generated as much depletion deductions. Therefore, the Company's effective
tax rate is higher.
In addition to the restructuring charges and other one-time charges incurred
during the quarter ended September 30, 1994, the Company has also determined to
place the Company's citrus operations in Belize and a corporate jet for sale.
The Company is currently evaluating the market value of its citrus operations in
Belize and its corporate jet. At September 30, 1994, the book value of the
citrus operations was $12,798,000 and the book value of the corporate jet was
$3,311,000. The Company does not expect to recognize a loss on the disposals.
The Company also implemented new capital expenditures, budgeting and forecasting
procedures.
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.
19
<PAGE>
NINE MONTHS ENDED SEPTEMBER 30, 1994 COMPARED WITH SAME PERIOD IN 1993
----------------------------------------------------------------------
Net loss during the nine months ended September 30, 1994 was $7,407,000 or $.47
per share, compared to net income of $776,000 or $.05 per share for the
comparable period of 1993. This significant decrease in net income is primarily
atributable to the following:
(1) Certain restructuring charges and other one-time charges included in
operating expenses are as follows:
(a) $3.4 million to write off the Company's investment in its limestone
project. Due to financing constraints, the Company has determined
that it will no longer pursue the development of its limestone assets.
As a result, the entire investment in these assets has been written
off.
(b) $2 million to write off certain coal assets that will no longer be
utilized or recovered in the remaining coal operations. These asset
write-offs include approximately $1.1 million of receivables that have
been deemed to be uncollectable and a $900,000 write down associated
with a dock owned by the Company which is no longer being utilized.
(c) $670,000 associated with certain environmental projects. The Company
had previously incurred costs associated with certain environmental
projects which will no longer be pursued. As a result, such costs
associated with these projects have been written off.
(d) $670,000 in general and administrative expenses related to certain
non-recurring one-time expenses associated with certain management and
legal fees in connection with the Company's attempts to sell its
remaining coal operations and other one-time corporate charges.
(2) Certain charges that are included in other expense in the Company's
September 30, 1994 consolidated statement of operations are as follows:
(a) $6.8 million associated with reserving for the remaining balance of a
note receivable taken in connection with a sale of a coal subsidiary
in April, 1992 and certain other expenses associated with this
transaction. During April, 1992, the Company sold all of the
outstanding stock of one of its subsidiaries, Southern Illinois Mining
Company, Inc., to Marion Mining Corp. ("Marion") for $1 million cash
and an approximately $10.4 million promissory note. Subsequent to
this transaction, Marion has filed bankruptcy.
During the fourth quarter of 1993, the Company established a $5.8
million reserve against this note receivable. Such valuation was
determined considering the estimated ultimate realizable value of the
assets that would be recovered from bankruptcy. During the third
quarter of 1994, the Company determined that the net value of the
assets that will be recovered from bankruptcy will be substantially
less than previously expected. Therefore, the Company fully reserved
for
20
<PAGE>
this note receivable during the third quarter of 1994 and reserved
for certain other expenses that will be incurred in connection with
bringing this bankruptcy proceeding to a conclusion.
(b) $1.2 million associated with writing off the Company's investment in a
recycling company. The Company had initially invested in a company
that developed certain recycling technology. This company is
presently experiencing substantial financial difficulties and
management believes its carrying value is permanently impaired. As a
result, the Company decided to write off its entire investment in this
company during the third quarter of 1994.
(3) 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 Minerals Group, Inc. ("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 million 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.
Other terms of the transaction include the Company entering into a
coal supply contract with Pittston (the "Pittston Coal Supply
Contract") 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 oustanding 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 ex-
21
<PAGE>
traordinary 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 initially 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. During the
third quarter of 1994, the Company reduced the gain recorded on this
transaction by $6,275,000. The reduction in the gain previously
recorded is a result of the Company settling the working capital
adjustment dispute with Pittston and adjusting certain other
contingency reserves specifically set up in connection with this
transaction.
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")
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.
During the nine months ended September 30, 1993, these mines produced
1,581,000 tons with an average cost of operations of $27.24 per ton.
The average sales price received by the Company from coal produced by
these eastern Kentucky mines during the nine months ended September
30, 1993 was $31.09 per ton.
During the nine months ended September 30, 1994, these mines produced
1,797,000 tons with an average cost of operations of $24.23 per ton.
The average sales price received by the Company from coal produced by
these eastern Kentucky mines during the nine months ended September
30, 1994 was $27.13 per ton.
(4) During the nine months ended September 30, 1994, the Company recog-
nized interest expense of approximately $421,000 compared to
$12,412,000 during the nine months ended September 30, 1993. This
22
<PAGE>
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.)
(5) 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 $258,766,000 in the nine months
ended September 30, 1993 to $88,044,000 in the nine months ended September 30,
1994. This decline in mining revenues is primarily due to a decrease in tons
sold from 8,006,000 tons in the nine months ended September 30, 1993 to
3,063,000 tons in the nine months ended September 30, 1994. The Company also
experienced a decrease in average sales price per ton from $32.00 recognized in
the nine months ended September 30, 1993 to $27.13 per ton recognized in the
nine months ended September 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.) Additionally, the Company recognized revenue of
$4,827,000 associated with the sale of a highwall mining machine sold to
Pittston during the nine months ended September 30, 1993.
Total environmental revenues and environmental income from operations increased
to $25,660,000 and $3,419,000, respectively, during the nine months ended
September 30, 1994 compared to total environmental revenues of $17,213,000 and
environmental income from operations of $2,713,000 during the nine months ended
September 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 nine months ended
September 30, 1994, the Company's landfill operations generated $17,365,000 of
revenue and $6,615,000 of income from operations. During the nine months ended
September 30, 1994, the Company's waste collection services generated $8,295,000
of revenues and $2,243,000 of losses from operations. Income from operations for
the nine months ended September 30, 1994 included incurred costs of $670,000
related to abandoned environmental projects being written off and one-time
restructuring charges of $282,000. During the nine months ended September 30,
1993, the Company's landfill operations generated $11,722,000 of revenue and
$3,993,000 of income from operations. During the nine months ended September 30,
1993, the Company's waste collection services generated $5,491,000 of revenue
and $1,280,000 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 523,000 tons during the nine months
ended September 30, 1993 to 801,000 tons during the nine months ended September
30, 1994.
23
<PAGE>
The Company generated other revenue for the nine months ended September 30, 1994
of $945,000 related to the highwall mining system licensing agreement with Joy.
During the nine months ended September 30, 1993, other revenue of $260,000 was
generated from the highwall mining system licensing agreement.
As a percentage of total revenues, cost of operations decreased from 81% for the
nine months ended September 30, 1993 to 80% for the nine months ended September
30, 1994. This decrease is primarily a result of improved operating results at
the Company's environmental operations.
Depreciation and amortization decreased from $23,087,000 in the nine months
ended September 30, 1993 to $6,038,000 in the nine months ended September 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 $15,834,000 during
the nine months ended September 30, 1993 to $8,582,000 during the nine months
ended September 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
Pittson on January 14, 1994.
Interest expense decreased from $12,412,000 during the nine months ended
September 30, 1993 to $421,000 during the nine months ended September 30, 1994.
The 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 nine months ended
September 30, 1994 and 1993 was $884,000 and $1,594,000, respectively.
Interest income increased from $457,000 during the nine months ended September
30, 1993 compared to $674,000 during the nine months ended September 30, 1994.
This 47% increase is due to an increase in the average amount of short-term
investments outstanding.
The Company's effective tax rate increased from 28% during the nine months ended
September 30, 1993 compared to 36% during the nine months ended September 30,
1994. Prior to the sale of a substantial portion of the Company's coal
operations in January, 1994 (see Note 2 to the consolidated financial
statements), the Company was able to utilize certain depletion deductions to
reduce its tax rate below the statutory levels. After the sale, the Company has
not generated as much depletion deductions. Therefore, the Company's effective
tax rate is higher.
The Company's cash, cash equivalents and short-term investments totalled
$15,822,000 at September 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.)
24
<PAGE>
Accounts receivable at September 30, 1994 totalled $21,258,000, 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 $7,763,000 at September 30, 1994, compared to
$11,803,000 at December 31, 1993, primarily due to a decrease in tons of coal in
inventory at September 30, 1994.
Prepaid expenses and other at September 30, 1994 totalled $5,672,000, 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 $182,883,000 at September 30, 1994
compared to $139,055,000 at December 31, 1993. This 32% 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 decreased to $1,142,000 at September 30, 1994 compared to
$1,704,000 at December 31, 1993, primarily due to the write off of certain
limestone reserves during 1994. (See Note 11 to the consolidated financial
statements.)
Accounts payable at September 30, 1994 increased to $13,174,000 as compared to
the December 31, 1993 balance of $5,609,000, primarily due to accounts payable
related to the coal subsidiaries sold to Pittston being included in net assets
held for disposal at December 31, 1993.
The Company's new line of credit balance at September 30, 1994 totalled
$7,500,000 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 with the proceeds generated from the sale of certain coal
subsidiaries.
The Company's current portion of long-term debt outstanding decreased from
$126,228,000 at December 31, 1993 to $950,000 at September 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.)
25
<PAGE>
Accrued expenses and other liabilities increased to $20,819,000 at September 30,
1994 as 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 and
other contingency reserves related to the Company's retained coal operations.
(See Note 2 to the consolidated financial statements.)
The Company's long-term debt outstanding increased from $11,954,000 at December
31, 1993 to $40,358,000 at September 30, 1994. This increase is primarily due
to the $8,000,000 borrowed against the Company's environmental subsidiary's line
of credit during 1994, the issuance of $7,400,000 in tax exempt revenue bonds to
finance the construction of a landfill in Wayne County, Georgia and $10,131,000
in loans related to the Company's gold mining operations. (See Note 8 to the
consolidated financial statements.)
The Company's other long-term liabilities increased from $2,705,000 at December
31, 1993 to $14,216,000 at September 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 recorded in connection with the Company's disposal
described in Note 2 to the consolidated financial statements.
26
<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 September 30, 1994, the Company had the following amounts available under
the various financing arrangements:
$7,500,000 remaining available under its coal line of credit, secured
by certain accounts receivable, coal inventory and certain
mining equipment, bearing interest at prime.
$13,000,000 remaining available under its environmental line of credit,
secured by substantially all of its environmental assets,
bearing interest at prime plus 3/4%.
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 Septmber 30, 1994, the Company had accrued expenses for reclamation and
closure costs of approximately $16,000,000. 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 workers' 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 September 30, 1994, the Company had a reserve for workers' compensation,
including black lung benefits, of approximately $3,701,000. 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.
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
27
<PAGE>
statements) and internal financial resources, provides adequate capital reserves
and liquidity.
The overall net decrease in cash and cash equivalents was $7,922,000 and
$9,537,000 for the nine months ended September 30, 1994 and 1993, respectively.
Such net decrease reflects net cash used in operating, investing and financing
activities.
Net cash provided by (used in) operating activities was $(11,108,000) and
$21,361,000 for the nine months ended Septmember 30, 1994 and 1993,
respectively. These fluctuations among years primarily reflect changes in
working capital items whereby increases in net working capital would cause
decline in net cash provided by operating activities.
During the nine months ended September 30, 1994, the Company's working capital
(net of non-cash activity) increased by $29,851,000, which primarily consists of
a $14,601,000 increase in accounts receivable and a $19,249,000 decrease in
accrued expenses, net of a $7,437,000 increase in accounts payable. During the
nine months ended September 30, 1993, the Company's working capital increased by
$2,549,000, which primarily consists of a $2,472,000 increase in inventories, a
$12,623,000 increase in accounts receivable, and a $2,685,000 increase in
prepaid expenses and other, net of a $8,622,000 increase in accrued expenses and
a $7,688,000 increase in accounts payable.
Net cash provided by (used in) investing activities was $122,826,000 and
$(38,759,000) for the nine months ended September 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 $49,152,000, and investment purchases of $10,000,000.
The 1993 amount primarily consists of property, plant and equipment purchases of
$33,533,000 and mineral reserve acquisitions of $5,495,000.
Net cash provided by (used in) financing activities was $(119,639,000) and
$7,862,000 for the nine months ended September 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
$3,794,000 from the issuance of common stock and proceeds of $5,024,000 from the
issuance of long-term debt, net of repayments of long-term debt of $2,955,000.
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.
28
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
-----------------
The Company is named as defendant in various actions in the ordinary
course of its business. These actions generally involve such matters as
property boundaries, mining rights, blasting damage, personal injuries,
and royalty payments. The Company believes these proceedings are
incidental to its business and are not likely to result in adverse
judgments which are material to the results of operations and financial
conditions.
Item 2. Changes in Securities.
---------------------
None.
Item 3. Defaults upon Senior Securities.
-------------------------------
None.
Item 4. Submission of Matters to a Vote of Security Holders.
---------------------------------------------------
None.
Item 5. Other Information.
-----------------
None.
Item 6. Exhibits and Reports on Form 8-K.
--------------------------------
(a) List of Exhibits Filed.
----------------------
Exhibit 10.1. Release dated as of September 15, 1994 between the
Company and William R. Nelson relating to employment.
Exhibit 27. Financial Data Schedule.
(b) Reports on Form 8-K.
-------------------
During the quarter ended September 30, 1994, the Company did not
file a Form 8-K Current Report. Following the end of the quarter
ended September 30, 1994, the Company filed a Form 8-K Current
Report dated October 19, 1994, concerning Item 5, Other Events
reporting the Company's financial results for the period ended
September 30, 1994.
29
<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: November 11, 1994 By: /s/ Larry Addington
---------------------------- ---------------------------------------
Larry Addington
Chief Executive Officer, Director
Date: November 11, 1994 By: /s/ R. Douglas Striebel
---------------------------- --------------------------------------
R. Douglas Striebel
Chief Financial Officer
30
<PAGE>
EXHIBIT 10.1
------------
RELEASE
-------
This Release, made and entered into this 15th day of September, 1994,
by and between ADDINGTON ENVIRONMENTAL, INC. (hereinafter "Addington"), and
WILLIAM R. NELSON (hereinafter the "Employee").
W I T N E S S E T H:
THAT, for good and valuable consideration in the amount of Two Hundred
Seventeen Thousand One Hundred Dollars ($217,100.00), the receipt of which is
hereby acknowledged, and in the further consideration of the mutual covenants
herein contained, the parties, desiring to sever their relationship under a
certain Employment Agreement between Addington and the Employee, dated as of
July 14, 1992 (the "Employment Agreement"), do hereby mutually covenant and
agree as follows:
1. The Employee does hereby terminate the Employment Agreement, with
the exception of Section 19 relating to Restrictive Covenants, which shall
remain in full force and effect for the period stated therein, and does release
and discharge Addington, its respective past and/or present affiliates,
successors, assigns, partners, employees, attorneys and agents, including but
not limited to Addington Resources, Inc. and its subsidiaries, from any and all
liabilities, obligations, causes of actions, suits, debts, covenants, employment
agreements, contracts, controversies, agreements, including but not limited to
bonuses or stock options under the Employment Agreement or otherwise,
warranties, representations, promises, damages, understandings, privileges,
<PAGE>
including but not limited to employee benefits, perquisites, demands and claims
of whatsoever kind and nature, whether written or oral, known and unknown, now
existing or hereafter arising, which the Employee now has or had or may have
against Addington whether in law or in equity (hereinafter collectively the
"Claims"), including but not limited to claims for accounting, breach of
contract, quasi-contract, quantum merit, fraud (whether fraud in the inducement,
fraud in the factum, constructive fraud or otherwise), misrepresentation,
indemnity, breach of fiduciary duty, or any other tort or tortious act, whether
of commission or omission, including but not limited to any claims arising under
any state or federal statute, regulation or rule now or hereafter enacted,
including any claims arising under the Kentucky Blue Sky Law, the Federal
Securities Act of 1933, the Securities Exchange Act of 1934, or the federal RICO
law, arising out of or related to the negotiation, execution, administration or
performance of the parties under the Employment Agreement.
2. Addington does hereby terminate the Employee's employment
obligations under the Employment Agreement, with the exception of Section 19
relating to Restrictive Covenants, which shall remain in full force and effect
for the period stated therein, and does release and discharge the Employee from
his employment obligations, and covenants, contracts, agreements, warranties,
representations, privileges, damages, liabilities, obligations, causes of
action, suits, debts, controversies, promises, understandings, and demands of
whatsoever kind and nature, whether written or oral, known and
Page - 2 -
<PAGE>
unknown, now existing or hereafter arising, which Addington now has or had or
may have against the Employee whether in law or in equity (hereinafter
collectively the "Claims") including but not limited to claims for accounting,
breach of contract, quasi-contract, quantum merit, fraud (whether fraud in the
inducement, fraud in the factum, constructive fraud or otherwise),
misrepresentation, indemnity, breach of fiduciary duty, or any other tort or
tortious act, whether of commission or omission, including but not limited to
any claims arising under any state or federal statute, regulation or rule now or
hereafter enacted, including any claims arising under the Kentucky Blue Sky Law,
the Federal Securities Act of 1933, the Securities Exchange Act of 1934, or the
federal RICO law, arising out of or related to the negotiation, execution,
administration or performance of the parties under the Employment Agreement.
3. This Release is unconditional and shall have immediate effect.
This Release shall not be construed as an executory accord or as being subject
to any further contingency or condition whatsoever.
4. The Employee hereby represents and warrants that the payments
received in consideration of this Release represent all payment obligations,
whether existing or future, direct or indirect, of Addington to the Employee.
5. The Employee hereby covenants and agrees that he shall not make
any statements about Addington, its respective past and/or present affiliates,
successors, assigns, partners, employees,
Page - 3 -
<PAGE>
attorneys and agents, including but not limited to Addington Resources, Inc. and
its subsidiaries (the "Addington Group"), written or oral, which would be
adverse or detrimental to the Addington Group. This provision is not intended
to prevent or discourage the Employee from truthfully testifying under oath if
Employee believes that such truthful testimony could be adverse or detrimental
to the Addington Group.
6. Addington and the Addington Group hereby covenants and agrees that
it shall not make any statements about the Employee, whether written or oral,
except as authorized by the Employee and only to verify dates of employment.
7. All disputes or differences whatsoever which shall at any time
hereafter arise between the parties touching or concerning this Agreement or its
construction or effect or as to the rights, duties or liabilities of the parties
or any of them under or by virtue of this Agreement, or as to any other matter
in any way connected with or arising out of or in relation to the subject matter
of this Agreement, shall be referred to arbitration in accordance with the
provisions set out in this Clause.
(a) The arbitration of disputes arising under this Agreement
shall take place in Fayette County, Kentucky.
(b) There shall be one Arbitrator (the "Arbitrator"), who shall be
appointed upon the application of any party at any time after any dispute or
difference has arisen by the Chief Justice of the Supreme Court of Kentucky.
The Arbitrator shall be familiar with all aspects of employment law.
Page - 4 -
<PAGE>
(c) The Arbitrator shall, at the request of either party, hold
a full hearing in relation to the matters before him and may adjourn, postpone,
and order such hearing as he sees fit.
(d) Subject as herein before provided, any arbitration undertaken
hereunder shall be governed by the provisions of Chapter 417 of the Kentucky
Revised Statutes.
8. Employee acknowledges and agrees that he is responsible for
payment for any taxes not withheld that may be owed as a result of the
consideration paid under this Agreement.
IN WITNESS WHEREOF, the parties have hereunto caused their names to be
subscribed as of the day and year first above written.
ADDINGTON ENVIRONMENTAL, INC.
By: /s/ Jack Baker
-------------------------------------
Its: Exec. Vice Pres. and Gen. Counsel
------------------------------------
THE ADDINGTON GROUP (BY ITS PARENT, ADDINGTON
RESOURCES, INC. AS TO
PARAGRAPH 6)
By: /s/ Kirby J. Taylor
--------------------------------------
KIRBY J. TAYLOR, PRESIDENT
/s/ William R. Nelson
-----------------------------------------
WILLIAM R. NELSON
Page - 5 -
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from
Consolidated Balance Sheet as of September 30, 1994 and Consolidated Statements
of Operations for the nine months then ended and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> SEP-30-1994
<EXCHANGE-RATE> 1
<CASH> 5,821,862
<SECURITIES> 10,000,000
<RECEIVABLES> 21,258,107
<ALLOWANCES> 0
<INVENTORY> 7,763,191
<CURRENT-ASSETS> 50,515,320
<PP&E> 182,882,635
<DEPRECIATION> (28,305,848)
<TOTAL-ASSETS> 218,008,864
<CURRENT-LIABILITIES> 42,443,749
<BONDS> 40,357,688
<COMMON> 15,852,851
0
0
<OTHER-SE> 104,095,101
<TOTAL-LIABILITY-AND-EQUITY> 218,008,864
<SALES> 114,851,452
<TOTAL-REVENUES> 114,851,452
<CGS> 91,783,110
<TOTAL-COSTS> 112,427,028
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 421,391
<INCOME-PRETAX> (11,626,450)
<INCOME-TAX> (4,219,000)
<INCOME-CONTINUING> (7,407,450)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,407,450)
<EPS-PRIMARY> (.47)
<EPS-DILUTED> (.47)
</TABLE>
