<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15 (d) of
The Securities 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 March 31, 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 preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes x No
----- -----
Indicate 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 May 10, 1994 - 15,704,178 shares
---------------------------
1
<PAGE>
ADDINGTON RESOURCES, INC. AND SUBSIDIARIES
------------------------------------------
INDEX
-----
Page No.
--------
PART I. Financial Information
ITEM 1. Financial Statements
Balance Sheets as of March 31, 1994
(Unaudited) and December 31, 1993 3-4
Statements of Operations (Unaudited)
Three Months Ended March 31, 1994
and 1993 5
Statements of Cash Flows (Unaudited)
Three Months Ended March 31, 1994
and 1993 6-8
Notes to Financial Statements
(Unaudited) 9-12
ITEM 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 13-20
PART II. Other Information 21-22
SIGNATURES 23
2
<PAGE>
ITEM 1
ADDINGTON RESOURCES, INC. AND SUBSIDIARIES
------------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
ASSETS
------
<TABLE>
<CAPTION>
March 31, December 31,
1994 1993
------------ ------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 26,025,608 $ 13,744,002
Short term investments 5,000,000 -
Net assets held for disposal - 141,865,803
Accounts receivable 24,127,158 8,945,515
Inventories 8,623,926 11,803,046
Prepaid expenses and other 5,710,212 7,717,738
------------ ------------
Total current assets 69,486,904 184,076,104
------------ ------------
PROPERTY, PLANT AND EQUIPMENT, at cost 146,494,953 139,054,751
Less - Accumulated depreciation (24,141,259) (22,664,255)
------------ ------------
122,353,694 116,390,496
------------ ------------
MINERAL RESERVES, at cost 1,703,623 1,703,623
Less - Accumulated amortization (18,489) (18,489)
------------ ------------
1,685,134 1,685,134
------------ ------------
OTHER ASSETS 14,292,617 13,506,692
------------ ------------
Total assets $207,818,349 $315,658,426
============ ============
</TABLE>
3
<PAGE>
ADDINGTON RESOURCES, INC. AND SUBSIDIARIES
------------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<TABLE>
<CAPTION>
March 31, December 31,
1994 1993
------------ ------------
(Unaudited)
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 12,732,512 $ 5,609,230
Revolving line of credit 1,500,000 23,441,737
Current portion of long-term debt 1,294,057 126,228,033
Accrued expenses and other 18,030,307 13,714,495
Current portion of deferred income taxes 3,802,331 3,666,000
------------ ------------
Total current liabilities 37,359,207 172,659,495
------------ ------------
LONG-TERM DEBT, less current portion 17,293,644 11,954,354
------------ ------------
OTHER LONG-TERM LIABILITIES 21,490,048 2,705,213
------------ ------------
DEFERRED INCOME TAXES 3,532,853 3,406,184
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $1.00 par value; 30,000,000
shares authorized, 15,704,178 and
15,675,378 shares outstanding at March 31,
1994 and December 31, 1993, respectively 15,704,178 15,675,378
Paid-in capital 81,856,648 81,544,648
Retained earnings 30,581,771 27,713,154
------------ ------------
Total stockholders' equity 128,142,597 124,933,180
------------ ------------
Total liabilities and stockholders' equity $207,818,349 $315,658,426
============ ============
</TABLE>
4
<PAGE>
ADDINGTON RESOURCES, INC. AND SUBSIDIARIES
------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------
March 31, March 31,
1994 1993
----------- -----------
<S> <C> <C>
REVENUES:
Mining $32,318,978 $77,712,883
Environmental 6,851,215 4,879,534
Other 428,447 -
----------- -----------
39,598,640 82,592,417
----------- -----------
COSTS AND EXPENSES:
Cost of operations 31,799,149 68,711,094
Depreciation and amortization 1,543,556 6,981,419
Selling, general and administrative 2,117,970 5,672,149
----------- -----------
35,460,675 81,364,662
----------- -----------
INCOME FROM OPERATIONS 4,137,965 1,227,755
----------- -----------
INTEREST AND OTHER INCOME
(EXPENSE):
Interest income 29,029 218,557
Interest expense (25,728) (4,252,585)
Gain on sale of coal subsidiaries 118,498 -
(Loss)/gain on sale of assets (80,398) 8,717
Other (60,749) 390,894
----------- -----------
(19,348) (3,634,417)
----------- -----------
Income (loss) before income tax provisions 4,118,617 (2,406,662)
----------- -----------
INCOME TAX PROVISIONS (BENEFITS):
Federal 1,000,000 (600,000)
State 250,000 (100,000)
----------- -----------
1,250,000 (700,000)
----------- -----------
Net income (loss) $ 2,868,617 $(1,706,662)
=========== ===========
NET INCOME (LOSS) PER SHARE $.18 $(.11)
==== =====
Equivalent shares of stock outstanding 16,022,641 15,453,934
=========== ===========
</TABLE>
5
<PAGE>
ADDINGTON RESOURCES, INC. AND SUBSIDIARIES
------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------
March 31, March 31,
1994 1993
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 2,868,617 $(1,706,662)
------------ -----------
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization, including
amortization of financing costs 1,543,556 7,274,115
Loss/(gain) on sale of assets 80,398 (8,717)
Gain on sale of coal mining subsidiaries (118,498) -
Change in assets and liabilities, net of effects
from acquisitions and disposals:
(Increase) decrease in -
Accounts receivable (16,578,268) (4,764,486)
Inventories (726,502) (5,793,433)
Prepaid expenses and other 1,055,422 (3,153,550)
Other assets (731,243) (940,636)
Increase (decrease) in:
Accounts payable 7,123,282 4,839,391
Accrued expenses (5,667,144) 6,077,280
Income taxes payable (400,000) 3,266,975
Deferred income taxes 263,000 (3,431,000)
Other liabilities 313,835 -
------------ -----------
Total adjustments (13,842,162) 3,365,939
------------ -----------
Net cash provided by (used in)
operating activities (10,973,545) 1,659,277
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets 373,636 37,076
Net proceeds from sale of coal subsidiaries 185,074,261 -
Increase in short-term investments (5,000,000) -
Additions to property, plant and equipment (9,214,786) (7,204,458)
Acquisition of mineral reserves - (32,054)
------------ -----------
Net cash provided by (used in)
investing activities $171,233,111 $(7,199,436)
------------ -----------
</TABLE>
6
<PAGE>
ADDINGTON RESOURCES, INC. AND SUBSIDIARIES
------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
-------------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------
March 31, March 31,
1994 1993
------------- -----------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of long-term debt $ 7,476,651 $ 12,916
Repayments of long-term debt (133,853,674) (861,984)
Borrowings (repayments) on revolving
lines of credit (21,941,737) -
Issuance of common stock 340,800 3,004,250
------------- -----------
Net cash provided by (used in)
financing activities (147,977,960) 2,155,182
------------- -----------
Net increase (decrease) in cash
and cash equivalents 12,281,606 (3,384,977)
CASH AND CASH EQUIVALENTS, beginning of period 13,744,002 32,955,151
------------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 26,025,608 $29,570,174
============= ===========
</TABLE>
Note: For purposes of these statements, the Company and its subsidiaries
consider short-term investments having maturities of three months or
less at time of purchase to be cash equivalents.
The cash amounts of interest and income taxes paid by the Company and its
subsidiaries during the three months ended March 31, 1994 and 1993 are as
follows:
<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Interest, including amounts
capitalized of approximately
$238,000 and $296,000,
respectively $186,384 $ 79,970
Income taxes 55,845 2,242,800
</TABLE>
7
<PAGE>
During the three months ended March 31, 1993, the Company acquired property,
plant and equipment and mineral reserves of approximately $14.5 million by
assuming certain liabilities. During the three months ended March 31, 1994,
the Company wrote off certain assets of approximately $9.5 million against
previously established contingency 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 March 31, 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 March 31, 1994 and results of operations
for the three months ended March 31, 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 March 31, 1994 and December 31, 1993 inventories consisted of:
<TABLE>
<CAPTION>
March 31, December 31,
1994 1993
----------- ------------
(Unaudited)
<S> <C> <C>
Coal $ 7,139,385 $10,222,372
Supplies and Parts 1,484,541 1,580,674
---------- -----------
$8,623,926 $11,803,046
========== ===========
</TABLE>
4. Commitments and Contingencies-
-----------------------------
(a) Coal Sales Contracts-
-------------------------
Subsequent to the transaction discussed in Note 2, the Company has
commitments to deliver scheduled base quantities of coal annually to three
customers under three coal sales contracts. One contract expires in 1994,
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.
(b) Potential Landfill Acquisitions-
------------------------------------
The Company is negotiating agreements to purchase two landfills at an
estimated purchase price of approximately $8 million, which includes cash
and stock of the Company. The Company expects to finalize the purchase
during May, 1994.
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 $1,715,000 and $4,351,000 for trucking services
for the three month periods ending March 31, 1994 and 1993, respectively,
and office rent of $27,500 for the three month periods ending March 31, 1994
and 1993.
The Company had amounts payable to related parties of $387,000 and $640,000
as of March 31, 1994 and December 31, 1993, respectively.
11
<PAGE>
6. Stockholders' Equity-
--------------------
During the three months ended March 31, 1993 and 1994, 303,000 and 28,800
shares, respectively, of common stock were issued in connection with the
exercise of stock options. As a result, common stock increased $303,000 and
$28,800, respectively, and paid-in capital increased $2,701,250 and
$312,000, respectively, during the three months ended March 31, 1993 and
1994.
7. Short-term Investments-
----------------------
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments 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 March 31, 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 $5 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 three
months ended March 31, 1994. The market value of the investments was
determined based on quoted market prices.
The investments have a stated maturity date of December 1, 2015, but may be
redeemed at face value at any time by the Company. No investments were sold
or redeemed by the Company during the three months ended March 31, 1994.
12
<PAGE>
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
---------------------
QUARTER ENDED MARCH 31, 1994 COMPARED WITH SAME PERIOD IN 1993
--------------------------------------------------------------
Net income during the quarter ended March 31, 1994 was $2,869,000 or $.18 per
share, compared to net loss of $1,707,000 or $.11 per share for the comparable
quarter 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 subsidiaires 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.
13
<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 will become
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
14
<PAGE>
CG&E Coal Supply Contract calls for the sale of 5,400,000 tons of coal
over six years beginning January 1, 1994.
During the first quarter of 1993, these mines produced 571,500 tons
with an average cost of operations of $27.17 per ton. The average sales
price received by the Company from coal produced by these eastern
Kentucky mines during 1993 was $32.10 per ton.
During the first quarter of 1994, these mines produced 528,000 tons
with an average cost of operations of $23.24 per ton. The average sales
price received by the Company from coal produced by these eastern
Kentucky mines during 1994 was $26.74 per ton.
(2) During the first quarter of 1994, the Company recognized interest
expense of approximately $26,000 compared to $4,253,000 during the
first quarter of 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 its coal operations. (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 $77,713,000 in the first quarter of
1993 to $32,319,000 in the first quarter of 1994. This decline in mining
revenues is primarily due to a decrease in tons sold from 2,325,000 in the first
quarter of 1993 to 1,176,000 in the first quarter of 1994. The Company also
experienced a decrease in average sales price per ton from $30.15 recognized in
the first quarter of 1993 to $26.74 per ton recognized in the first quarter of
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 $3,957,000 associated with the sale of a highwall
mining machine sold to Pittston during the first quarter of 1993.
Total environmental revenues and environmental income from operations increased
to $6,851,000 and $1,020,000, respectively, during the first quarter of 1994
compared to total environmental revenues of $4,880,000 and environmental income
from operations of $851,000 during the first quarter of 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 first quarter of 1994, the Company's landfill
operations generated $4,687,000 of revenue and $1,505,000 of income from
operations. During the first quarter of 1994, the Company's waste collection
services generated $2,164,000 of revenues and $485,000 of losses from
operations.
15
<PAGE>
During the first quarter of 1993, the Company's landfill operations generated
$3,327,000 of revenues and $1,174,000 of income from operations. During the
first quarter of 1993, the Company's waste collection services generated
$1,552,000 of revenues and $324,000 of losses from operations. The primary
reasons for the substantial increases in total environmental revenues and income
from operations is an increase in tons of waste received from 145,000 tons
during the quarter ended March 31, 1993 to 233,000 tons during the quarter ended
March 31, 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).
Included in the Company's other revenues in the first quarter of 1994 was
$127,500 in origination fees received from Joy. These fees relate to a highwall
miner leased by Joy to a third party during the first quarter of 1994. During
the first quarter of 1994, Joy paid per ton royalty fees of approximately
$300,000. The Company did not receive any revenues related to this agreement
during the first quarter of 1993.
As a percentage of total revenues, cost of operations decreased from 83% for the
first quarter of 1993 to 80% for the first quarter of 1994. This decrease is
primarily a result of improved operating results at the Company's mining and
environmental operations.
Depreciation and amortization decreased from $6,981,000 in the first quarter of
1993 to $1,544,000 in the first quarter of 1994. This 78% 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 $5,672,000 during
the first quarter of 1993 to $2,118,000 during the first quarter of 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.
16
<PAGE>
Interest expense decreased from $4,253,000 during the first quarter of 1993 to
$26,000 during the first quarter of 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 its coal operations. The amount of
interest capitalized for the three months ended March 31, 1994 and 1993 was
$238,000 and $296,000, respectively.
Interest income decreased from $219,000 during the first quarter of 1993
compared to $29,000 during the first quarter of 1994. This 87% decrease is due
to a decrease in the average amount of short-term investments outstanding
coupled with a decrease in the interest rate yields on short-term investments.
The Company's effective tax rate during the first quarter of 1993 was 29% and
remained relatively unchanged as compared to the 30% tax rate recognized during
the first quarter of 1994.
The Company's cash and cash equivalents totalled $26,026,000 at March 31, 1994,
compared to $13,744,000 at December 31, 1993. This increase is primarily due to
additional cash generated from the sale of five coal subsidiaries to Pittston on
January 14, 1994.
Accounts receivable at March 31, 1994 totalled $24,127,000, 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 from $11,803,000 at December 31, 1993, compared to
$8,624,000 at March 31, 1994, primarily due to a decrease in tons of coal in
inventory at March 31, 1994.
Prepaid expenses and other at March 31, 1994 totalled $5,710,000 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 $146,495,000 at March 31, 1994,
compared to $139,055,000 at December 31, 1993. This 5% 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.
17
<PAGE>
Accounts payable at March 31, 1994 increased to $12,733,000 as compared to the
December 31, 1993 balance of $5,609,000. As of December 31, 1993, the accounts
payable related to the coal subsidiaries sold to Pittston were included in net
assets held for disposal. The increase since that date represents accounts
payable generated by the Company's retained mining operations during 1994 (see
Note 2 to the consolidated financial statements).
Accrued expenses and other liabilities increased to $18,030,000 at March 31,
1994 compared to the $13,714,000 balance at December 31, 1993. This increase is
attributable to an increase in reclamation reserves.
The Company's new line of credit balance at March 31, 1994 totalled $1,500,000
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 long-term debt outstanding increased from $11,954,000 at December
31, 1993 to $17,294,000 at March 31, 1994. This increase is primarily due to
the $3,000,000 borrowed against the Company's environmental subsidiary's line of
credit during 1994.
The Company's other long-term liabilities increased from $2,705,000 at December
31, 1993 to $21,490,000 at March 31, 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 as described in Note 2.
18
<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 March 31, 1994, the Company had approximately $20,500,000 remaining
available under its lines of credit secured by certain accounts receivable and
coal inventory and substantially all of its environmental assets bearing
interest at rates ranging from prime to prime plus 1/2%.
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 March 31, 1994, the Company had accrued expenses for reclamation and
closure costs of approximately $20,000,000. 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.
Workers' compensation (including black lung) expense for the three months ended
March 31, 1994 was approximately $55,000. 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 lines of credit, the proceeds received from the
sale of certain coal subsidiaries (see Note 2 of the consolidated financial
statements), and internal financial resources, provide adequate capital reserves
and liquidity.
The overall net increase (decrease) in cash and cash equivalents was $12,282,000
and ($3,385,000) for the three months ended March 31, 1994 and 1993,
respectively. Such net increase (decrease) reflects net cash provided by (used
in) operating, investing and financing activities.
19
<PAGE>
Net cash provided by (used in) operating activities was ($10,974,000) and
$1,659,000 for the three months ended March 31, 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 three months ended March 31, 1994, the Company's working capital (net
of non-cash activity) increased by $15,348,000, which primarily consists of a
$16,578,000 increase in accounts receivable and a $5,667,000 decrease in accrued
expenses, net of a $7,123,000 increase in accounts payable. During the three
months ended March 31, 1993, the Company's working capital increased by
$3,899,000, which primarily consists of a $5,793,000 increase in inventories, a
$4,764,000 increase in accounts receivable and a $3,431,000 decrease in deferred
income tax liabilities, net of a $6,077,000 increase in accrued expenses and a
$4,839,000 increase in accounts payable.
Net cash provided by (used in) investing activities was $171,233,000 and
($7,199,000) for the three months ended March 31, 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
$9,215,000 and investment purchases of $5,000,000. The 1993 amount primarily
consists of property, plant and equipment purchases.
Net cash provided by (used in) financing activities was ($147,978,000) and
$2,155,000 for the three months ended March 31, 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
$3,004,000 from the issuance of common stock, net of repayments of long-term
debt of $862,000.
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.
20
<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 a suit filed by Bill Robinson, Sr.
against Addwest Gold, Inc., Addwest Mining, Inc., Addington Resources,
Inc., Addington Holding Co., Inc., Larry Addington, and Larry
Harrington. Settlement documents have been executed in which Mr.
Robinson released all parties from all claims. In connection with the
settlement, the Company paid Mr. Robinson $3,450,000 on April 18, 1994.
On April 15, 1994, the action was dismissed by the U.S. District Court
for the District of Montana, Butte Division.
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.
----------------------
None.
(b) Reports on Form 8-K.
--------------------
During the quarter ended March 31, 1994, the Company filed a
Current Report on Form 8-K dated January 14, 1994 concerning Item
2, Acquisition or Disposition of Assets, reporting the Company's
sale of five of the Company's indirect wholly-owned coal
subsidiaries. The subsidiaries constituted a substantial portion
of the Company's coal operations. The following pro forma
financial information was included in the Form 8-K:
(1) Addington Resources, Inc. Pro Forma Condensed Consolidated
Statement of Operations for the nine months ended September
30, 1993, with accompanying notes (unaudited).
21
<PAGE>
(2) Addington Resources, Inc. Pro Forma Condensed Consolidated
Statement of Operations for the year ended December 31, 1992,
with accompanying notes (unaudited).
(3) Addington Resources, Inc. Pro Forma Condensed Consolidated
Balance Sheet as of September 30, 1993, with accompanying
notes (unaudited).
22
<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: May 12, 1994 By: \s\ Larry Addington
---------------------------- ----------------------------------------
Larry Addington
President, Chief Executive Officer,
Director
Date: May 12, 1994 By: \s\ R. Douglas Striebel
---------------------------- ----------------------------------------
R. Douglas Striebel
Vice President and
Chief Financial Officer
23
