<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 March 31, 1995
-------------------------------------------------
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- -----
EXCHANGE ACT OF 1934
For the transition period from to
------------------------ ---------------------
Commission file number 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
- --------------------------------------------------------------------------------
(Address of principal executive offices)
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 May 2, 1995 - 15,909,801 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, 1995
(Unaudited) and December 31, 1994 3-4
Statements of Operations (Unaudited)
Three Months Ended March 31, 1995
and 1994 5
Statements of Cash Flows (Unaudited)
Three Months Ended March 31, 1995
and 1994 6-7
Notes to Financial Statements
(Unaudited) 8-12
ITEM 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 13-20
PART II. Other Information 21
SIGNATURES 22
2
<PAGE>
ITEM 1
ADDINGTON RESOURCES, INC. AND SUBSIDIARIES
------------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
ASSETS
------
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
--------- ------------
(Unaudited)
(in thousands)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 6,590 $ 3,469
Short term investments 1,374 8,474
Accounts receivable 20,443 18,944
Inventories 7,787 6,495
Prepaid expenses and other 5,067 2,776
-------- --------
Total current assets 41,261 40,158
-------- --------
PROPERTY, PLANT AND EQUIPMENT, at cost 187,466 182,835
Less - Accumulated depreciation (28,448) (28,962)
-------- --------
159,018 153,873
-------- --------
ASSETS HELD FOR SALE 13,746 16,605
RESTRICTED CASH 4,552 4,437
OTHER 5,311 8,008
-------- --------
Total assets $223,888 $223,081
======== ========
</TABLE>
3
<PAGE>
ADDINGTON RESOURCES, INC. AND SUBSIDIARIES
------------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
----------- ------------
(Unaudited)
(in thousands)
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 12,832 $ 14,049
Revolving line of credit 6,700 4,200
Current portion of long-term debt 7,551 7,257
Accrued expenses and other 11,070 13,392
Current portion of deferred income taxes 1,086 1,179
-------- --------
Total current liabilities 39,239 40,077
-------- --------
NON-CURRENT LIABILITIES:
Long-term debt, less current portion 42,636 41,118
Other long-term liabilities 16,509 18,921
Deferred income taxes 2,528 2,744
-------- --------
Total non-current liabilities $ 61,673 $ 62,783
-------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $1.00 par value; 30,000,000 shares authorized,
15,908,051 and 15,852,851 shares outstanding at March 31,
1995 and December 31, 1994, respectively 15,908 15,853
Paid-in capital 84,549 83,789
Retained earnings 22,519 20,579
-------- --------
Total stockholders' equity 122,976 120,221
-------- --------
Total liabilities and stockholders' equity $223,888 $223,081
======== ========
</TABLE>
4
<PAGE>
ADDINGTON RESOURCES, INC. AND SUBSIDIARIES
------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------
March 31, March 31,
1995 1994
--------- ---------
(in thousands, except
per share amounts)
<S> <C> <C>
REVENUES:
Mining $25,236 $32,319
Environmental 10,890 6,851
Other 698 428
------- -------
36,824 39,598
------- -------
COSTS AND EXPENSES:
Cost of operations 28,923 31,799
Depreciation and amortization 2,638 1,543
Selling, general and administrative 3,105 2,118
------- -------
34,666 35,460
------- -------
INCOME FROM OPERATIONS 2,158 4,138
------- -------
INTEREST AND OTHER INCOME (EXPENSE):
Interest income 140 29
Interest expense (350) (26)
Gain on sale of coal subsidiaries - 118
Gain (loss) on sale of assets 877 (80)
Other, net 20 (60)
------- -------
687 (19)
------- -------
Income before income tax provisions 2,845 4,119
------- -------
INCOME TAX PROVISIONS:
Federal 748 1,000
State 157 250
------- -------
905 1,250
------- -------
Net income $ 1,940 $ 2,869
======= =======
NET INCOME PER SHARE $.12 $.18
======= =======
Equivalent shares of stock outstanding 16,035 16,023
======= =======
</TABLE>
5
<PAGE>
ADDINGTON RESOURCES, INC. AND SUBSIDIARIES
------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------
March 31, March 31,
1995 1994
--------- ---------
(in thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,940 $ 2,869
-------- --------
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization, including amortization of financing costs 2,868 1,544
(Gain) loss on sale of assets (877) 80
Gain on sale of coal mining subsidiaries - (118)
Change in assets and liabilities, net of effects from acquisitions and disposals:
(Increase) decrease in -
Accounts receivable (1,499) (16,578)
Inventories (487) (727)
Prepaid expenses and other (334) 1,055
Other assets 191 (731)
Increase (decrease) in:
Accounts payable (1,217) 7,123
Accrued expenses and other liabilities (3,405) (5,753)
Deferred income taxes (309) 263
-------- --------
Total adjustments (5,069) (13,842)
-------- --------
Net cash used in operating activities (3,129) (10,973)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets 8,717 374
Proceeds from sale of coal subsidiaries, net of disposition costs - 185,074
Decrease (increase) in short-term investments 7,100 (5,000)
Additions to property, plant and equipment (13,604) (9,215)
-------- --------
Net cash provided by investing activities $ 2,213 $171,233
-------- --------
</TABLE>
6
<PAGE>
ADDINGTON RESOURCES, INC. AND SUBSIDIARIES
------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
-------------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------
March 31, March 31,
1995 1994
---------- ---------
(in thousands)
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of long-term debt $ 5,817 $ 7,477
Repayments of long-term debt (4,005) (133,854)
Borrowings (repayments) on revolving
lines of credit 2,500 (21,942)
Issuance of common stock - 341
Financing costs incurred (275) -
------- ---------
Net cash provided by (used in)
financing activities 4,037 (147,978)
------- ---------
Net increase in cash
and cash equivalents 3,121 12,282
CASH AND CASH EQUIVALENTS, beginning of period 3,469 13,744
------- ---------
CASH AND CASH EQUIVALENTS, end of period $ 6,590 $ 26,026
======= =========
</TABLE>
Note: For purposes of these statements, the Company and its subsidiaries consi-
der short-term investments having maturities of three months or less at
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, 1995 and 1994 are as
follows:
1995 1994
------ ------
Interest, including amounts (in thousands)
capitalized of approximately
$601,000 and $238,000,
respectively $ 814 $ 186
Income taxes 1,013 56
During the three months ended March 31, 1995, the Company issued 55,200
shares of common stock in connection with the exercise of stock grants
which were issued to employees (see Note 6 to the consolidated financial
statements). 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.
7
<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, 1995 and
1994 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, 1995 and results of
operations for the three months ended March 31, 1995 and 1994. 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.
8
<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 would
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. During the first quarter of 1995, the Company agreed to accept a
$1.8 million payment from Pittston to buy out the estimated $2 million
remaining royalty payments under this agreement. This $1.8 million royalty
payment is reflected in mining revenues in the accompanying March 31, 1995
statement of operations. 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.
In January, 1994, 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,
established other contingency reserves due to the de-emphasis of its mining
operations and estimated the effect of various other contractual
arrangements with Pittston. 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 a
working capital adjustment dispute with Pittston and adjusting certain
other contingency reserves specifically set up in connection with this
transaction.
In January, 1995, Pittston notified the Company of certain claims for
indemnification in accordance with the terms of the transaction. The
Company is currently negotiating with Pittston concerning these matters,
but at this time does not believe that the claims will result in a material
adverse impact on the Company's financial position.
9
<PAGE>
After the transaction discussed above, the Company continued to own and
operate four eastern Kentucky mines with estimated annual production
capacity of 3,000,000 tons per year. During 1994, the Company opened
additional mines located near these four retained mines and closed two of
the retained mines. Future production from current operating coal mines
will be placed on the Pittston Coal Supply Contract, a new coal supply
contract entered into with The Cincinnati Gas & Electric Company (the "CG&E
Coal Supply Contract") and a new coal supply contract with Kentucky
Utilities (the "KU Coal Supply Contract"). The CG&E Coal Supply Contract
calls for the sale of approximately 10,037,000 tons of coal over the next
eleven years (assuming exercise of option periods) and the KU Coal Supply
Contract calls for the sale of approximately 376,000 tons of coal over the
next twelve months.
3. Inventories-
------------
As of March 31, 1995 and December 31, 1994 inventories consisted of:
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
--------- ------------
(Unaudited)
(in thousands)
<S> <C> <C>
Coal $ 4,493 $ 4,131
Supplies and parts 3,220 2,364
Gold and silver 74 -
------- -------
$ 7,787 $ 6,495
======= =======
</TABLE>
4. Commitments and Contingencies-
-----------------------------
(a) Coal Sales Contracts-
-------------------------
As of March 31, 1995, 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 2005. The contracts call for the Company to supply a
minimum of 13.7 million tons over the remaining lives of the contracts
at prices which are at or above market. Certain of the contracts have
sales price adjustment provisions, subject to certain limitations and
adjustments, based on changes in specified production costs.
(b) Legal Matters-
-----------------
The Company is named as defendant in various actions in the ordinary
course of its business. These actions generally involve disputes
related to contract performance, property boundaries, mining rights,
blasting damage, personal injuries, and royalty payments, as well as
other civil actions. The Company believes these proceedings are
incidental to its business and are not likely to result in materially
adverse judgments.
10
<PAGE>
While the final resolution of any matter may have an impact on the
Company's consolidated financial results for a particular reporting
period, management believes that the ultimate disposition of these
matters will not have a materially adverse effect upon the
consolidated financial position of the Company.
(c) Environmental Proceedings-
-----------------------------
The Company is involved in various environmental matters and
proceedings, including permit application proceedings, in connection
with the establishment, operation and expansion activities of certain
landfill facilities, as well as other matters or claims that could
result in additional environmental proceedings.
While the final resolution of any matter may have an impact on the
Company's consolidated financial results for a particular reporting
period, management believes that the ultimate disposition of these
matters will not have a material adverse effect upon the consolidated
financial position of the Company.
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 $2,560,000 and $1,715,000
for trucking services for the three month periods ending March 31, 1995 and
1994, respectively, and office rent of $27,500 for the three month periods
ending March 31, 1995 and 1994.
The Company had amounts payable to related parties of $445,000 and $298,000
as of March 31, 1995 and December 31, 1994, respectively.
6. Stockholders' Equity-
--------------------
During the three months ended March 31, 1994, 28,800 shares of common stock
were issued in connection with the exercise of stock options. During the
three months ended March 31, 1995, 55,200 shares of common stock were
issued in connection with stock grants being exercised which were issued to
employees in 1989. These stock grants specified that the recipient of the
stock grant must remain employed by the Company for 5 years from the date
of the grant in order to exercise the grant. As a result of these options
and grants being exercised, common stock increased $28,800 and $55,200,
respectively, and paid-in capital increased $312,000 and $759,000,
respectively, during the three months ended March 31, 1994 and 1995.
11
<PAGE>
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, 1995, which consist
solely of investments in economic development revenue bonds, are deemed as
"available-for-sale" and are reported at their fair value of approximately
$1.4 million. As the fair value approximates the cost of such investments,
there are no unrealized holding gains or losses associated with such
investments as of March 31, 1995. 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. For the three months
ended March 31, 1995, the Company received $3,100,000 in proceeds from the
sale of municipal obligations and $4,000,000 in proceeds from the sale of
corporate obligations. As the fair value of such investments approximated
their cost (using specific identification method), there were no realized
gains or losses associated with the sale of such investments.
8. Assets Held for Sale-
--------------------
Assets held for sale at March 31, 1995 include the Company's citrus
operations in Belize which had a net book value of approximately
$13,746,000. Assets held for sale at December 31, 1994 include the
Company's citrus operations in Belize and a corporate jet. The net book
value of such assets approximated $13,400,000 and $3,200,000, respectively,
as of December 31, 1994.
The Company does not expect to recognize a loss on the sale of the citrus
operations. In February 1995, the Company sold the corporate jet for
$4,125,000.
9. Proposal to Purchase Non-Environmental Businesses-
-------------------------------------------------
On March 1, 1995, the Company received an offer from a group of senior
management (who are also members of the Board of Directors and major
shareholders) to purchase the Company's non-environmental businesses.
Subject to certain conditions contained in the offer, the group offered to
the Company to exchange the shares of the Company's common stock owned by
the group (approximately 45% of the Company's outstanding shares), $5
million cash, and other consideration for the Company's coal and gold
mining operations, its mining equipment manufacturing and licensing unit,
citrus operations and smaller operations. The Company's Board of Directors
authorized a special committee comprised of the Company's outside directors
to evaluate the proposal. On April 3, 1995, the Board of Directors also
authorized the special committee to manage the business and affairs of the
Company's environmental operations.
12
<PAGE>
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
Proposal to Purchase Non-Environmental Operations
On March 1, 1995, the Company received a proposal from Larry Addington, Robert
Addington, and Bruce Addington to purchase the Company's non-environmental
businesses. Subject to certain conditions contained in the offer, the Addington
brothers proposed to the Company to exchange the shares of the Company's common
stock owned by the Addington brothers (approximately 45% of the Company's
outstanding shares), $5 million cash, and other consideration for the Company's
coal and gold mining operations, its mining equipment manufacturing and
licensing unit, citrus operations and smaller operations. The Addington
brothers have proposed to direct half of the royalties from the exclusive
licensing agreement with respect to highwall mining machines described herein to
the Company. The proposal states that the assets and liabilities of each of the
Company's subsidiaries would generally be retained by each entity after the
transfer. The Company's Board of Directors authorized a special committee
comprised of the Company's outside directors to evaluate the proposal.
On April 3, 1995, the Company's Board of Directors increased the number of its
members to nine. The Board of Directors then appointed the following as new
members to the Board and the special committee: Howard P. Berkowitz, Richard
Ravitch and Stephen D. Weinress. The Board of Directors also appointed Robert
Anderson, Jr. to the Board, but Mr. Anderson declined the nomination in light of
certain mining regulatory considerations. On April 3, 1995, the Board of
Directors also authorized the special committee to manage the business and
affairs of the Company's environmental operations. The special committee has
retained the investment banking firm of Donaldson, Lufkin & Jenrette Securities
Corporation and legal counsel of Schulte, Roth & Zabel to assist the committee
in the evaluation of the proposal.
The proposal states that completion of the transaction is contingent upon
several items, including the receipt of a fairness opinion from an investment
banking firm, financing commitments obtained by the Addington family
shareholders to provide working capital for the businesses they propose to own
and operate and to fulfill other commitments, an Internal Revenue Service
private letter ruling approving the tax-free status of the transaction, the
negotiation and execution of definitive transaction documents, the receipt of
all governmental, regulatory and third-party consents and releases required or
desirable to effect the transaction, and shareholder approval, including by a
majority of the non-Addington family shareholders. No assurances can be given
concerning whether a transaction will be consummated.
13
<PAGE>
RESULTS OF OPERATIONS
Quarter Ended March 31, 1995 Compared With Same Period In 1994
Net income during the quarter ended March 31, 1995 was $1,940,000 or $.12 per
share, compared to net income of $2,869,000 or $.18 per share for the comparable
quarter of 1994.
The Company's mining revenues decreased from $32,319,000 in the first quarter of
1994 to $25,236,000 in the first quarter of 1995. This decline in mining
revenues is primarily due to a decrease in tons sold from 1,176,000 in the first
quarter of 1994 to 726,000 in the first quarter of 1995. The decline in mining
revenues is primarily attributable to the sale of five of the Company's coal
subsidiaries in January, 1994. During the first quarter of 1994, the Company
had mining revenues of $9,068,000 from 347,000 tons sold from the five
subsidiaries prior to their sale on January 14, 1994. The Company experienced an
increase in average sales price per ton from $26.41 recognized in the first
quarter of 1994 to $29.31 per ton recognized in the first quarter of 1995.
Average sales price increased during the first quarter of 1995 compared to the
first quarter of 1994 primarily due to $1,800,000 being included in mining
revenues during 1995 related to the early buy out of a royalty agreement related
to the sale of five of the Company's coal subsidiaries in Janaury, 1994. (See
Note 2 to the consolidated financial statements.)
During the first quarter of 1995, income from mining operations was adversely
affected by the poor performance of the Company's contract mining operations.
The Company's contract mining operations generated a loss from operations during
the first quarter of 1995 of $3,321,000, compared to income from operations of
$38,000 for the first quarter of 1994. The Company has experienced difficulty
in placing its highwall mining machines into longer-term, profitable contract
mining operations. In addition to severe weather conditions temporarily idling
highwall mining machines in the Company's contract mining operations during the
first quarter of 1995, the Company has experienced difficulty with geological
formations at certain of its contract mining sites. During the first quarter of
1995, the Company experienced a pre-tax loss of approximately $2,501,000 at one
contract mining site, primarily due to poor geological conditions. The Company
has recently established new criteria with respect to the evaluation of contract
mining opportunities, but there can be no assurance that these new criteria will
result in successful contract mining operations.
Environmental revenues and income from operations for the three months ended
March 31, 1995 and 1994, respectively, are comprised of the following (in
thousands):
14
<PAGE>
<TABLE>
<CAPTION>
Landfill Waste Collection Total
Operations Services Environmental
---------------- ---------------- -----------------
For the three months ended March 31,
---------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1995 1994 1995 1994 1995 1994
------ ------ ------ ------ ------- ------
Revenues $7,882 $4,687 $3,008 $2,164 $10,890 $6,851
Income from
operations 2,467 1,505 (402) (485) 2,065 1,020
Tonnage received 321 233
</TABLE>
The primary reason for the substantial increases in total environmental revenues
and income from operations is an increase in tons of waste received from 233,000
tons during the three months ended March 31, 1994 to 321,000 tons during the
three months ended March 31, 1995. While it is common industry practice, the
Company does not allow a discount on its waste collection services for waste
delivered to Company landfills.
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, during the first thirty months of the agreement,
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 from the date of
the agreement and increases in 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) and increases in safety-related expenses. While Joy has not met the
Company's anticipated results for leases under the June 1992 agreement, Joy has
indicated to the Company that it will continue to aggressively pursue the
marketing of these machines during 1995.
The Company generated other revenue during the first quarter of 1995 of $698,000
related to the highwall mining system licensing agreement with Joy. During the
first quarter of 1994, other revenue of $428,000 was generated from the highwall
mining licensing agreement.
As a percentage of total revenues, cost of operations decreased from 80% for the
first quarter of 1994 to 79% for the first quarter of 1995. This decrease is
primarily a result of improved operating results at the Company's environmental
operations.
Depreciation and amortization increased from $1,543,000 in the first quarter of
1994 to $2,638,000 in the first quarter of 1995. This 71% increase is primarily
attributable to an increase in environmental depreciable assets and depreciation
from certain mining equipment purchased during December, 1994 which had
previously been leased.
15
<PAGE>
Selling, general and administrative expenses increased from $2,118,000 during
the first quarter of 1994 to $3,105,000 during the first quarter of 1995. This
increase is primarily attributable to an increase in the environmental
division's selling, general and administrative expenses due to additional
landfills being opened since March 31, 1994.
Interest expense increased from $26,000 during the first quarter of 1994 to
$350,000 during the first quarter of 1995. This increase is primarily due to an
increase in the amount borrowed under the Company's revolving line of credit
related to its coal operations and an increase in long-term debt outstanding
related to buying coal mining equipment that had previously been leased. The
amount of interest capitalized for the three months ended March 31, 1995 and
1994 was $601,000 and $238,000, respectively.
Interest income increased from $29,000 during the first quarter of 1994 compared
to $140,000 during the first quarter of 1995. This increase is due to an
increase in the average amount of short-term investments outstanding coupled
with an increase in the interest rate yields on short-term investments during
the first quarter of 1995.
The Company's effective tax rate during the first quarter of 1994 was 30% and
remained relatively unchanged as compared to the 32% tax rate recognized during
the first quarter of 1995.
The Company's cash, cash equivalents and short-term investments totalled
$7,964,000 at March 31, 1995, compared to $11,943,000 at December 31, 1994.
This decrease is primarily due to the timing of account receivable collections
and account payable payments.
Accounts receivable at March 31, 1995 totalled $20,443,000, compared to the
balance of $18,944,000 at December 31, 1994. This increase is due to timing in
collections of accounts receivable and increased volumes in the Company's
environmental division.
Inventories increased from $6,495,000 at December 31, 1994, compared to
$7,787,000 at March 31, 1995, primarily due to an increase in tons of coal in
inventory at March 31, 1995.
Prepaid expenses and other at March 31, 1995 totalled $5,067,000 compared to the
balance of $2,776,000 at December 31, 1994. This increase is primarily due to
the timing of payments on prepaid insurance and other prepaid expenses.
Property, plant and equipment increased to $187,466,000 at March 31, 1995,
compared to $182,835,000 at December 31, 1994. This 3% increase is primarily
due to an increase in landfill and other environmental related development costs
and costs capitalized in association with the development of the Company's gold
mining project in Arizona.
16
<PAGE>
Restricted cash increased from $4,437,000 at December 31, 1994 to $4,552,000 at
March 31, 1995. This 3% increase is primarily due to additions to escrows for
the future closure and post-closure costs associated with the Company's
environmental division's landfill operations.
Assets held for sale decreased from $16,605,000 at December 31, 1994 to
$13,746,000 at March 31, 1995 due to the sale of one of the Company's aircraft.
The aircraft was sold for $4,125,000, generating a gain of $908,000. The
proceeds from this sale were primarily used to reduce the $3,328,000 in debt
related to the aircraft. The remaining balance of assets held for sale is
related to the Company's citrus operations which remain held for sale at March
31, 1995. The Company does not expect to recognize a loss on the sale of the
citrus operations, although there can be no assurances concerning the ultimate
amount realized from these assets.
Other assets decreased from $8,008,000 at December 31, 1994 to $5,311,000 at
March 31, 1995. This decrease is primarily attributable to a decrease in the
amount of capitalized advance royalty payments related to the Company's coal
operations.
Accounts payable at March 31, 1995 decreased to $12,832,000 as compared to the
December 31, 1994 balance of $14,049,000. This decrease is primarily due to the
timing of payments on accounts payable.
Accrued expenses and other liabilities decreased to $11,070,000 at March 31,
1995 compared to the $13,392,000 balance at December 31, 1994. This decrease is
attributable to the payment of certain expenses accrued at December 31, 1994.
The Company's coal line of credit balance at March 31, 1995 totalled $6,700,000
compared to the December 31, 1994 balance of $4,200,000. This increase is
primarily due to the timing of collections of accounts receivable and funding of
operating losses at the Company's contract highwall mining operations.
The Company's current portion of long-term debt remained relatively unchanged
from $7,257,000 at December 31, 1994, as compared to $7,551,000 at March 31,
1995.
The Company's long-term debt outstanding increased from $41,118,000 at December
31, 1994 to $42,636,000 at March 31, 1995. This increase is primarily due to
the net of $2,000,000 borrowed against the Company's environmental subsidiary's
line of credit during the three months ended March 31, 1995, $2,742,000 in
mining equipment financing and $3,328,000 in debt associated with the Company's
aircraft being paid off due to the sale of the aircraft.
The Company's other long-term liabilities decreased from $18,921,000 at December
31, 1994 to $16,509,000 at March 31, 1995. This decrease is primarily due to
the reduction in coal reclamation reserves as a result of the reclamation
performed during the first quarter of 1995, offset by the normal increases in
landfill closure and post-closure costs accrued during the first quarter of
1995.
17
<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, proceeds from the
sale of certain coal subsidiaries to Pittston, a sale/leaseback arrangement with
respect to one of its highwall mining machines, and cash generated through
operations.
The overall net increase in cash and cash equivalents was $3,121,000 and
$12,282,000 for the three months ended March 31, 1995 and 1994, respectively.
Such net increases reflect net cash used in operating, investing and financing
activities.
Net cash used in operations was $3,129,000 and $10,973,000 for the three months
ended March 31, 1995 and 1994, respectively. This fluctuation between years is
primarily a result of payments for reclamation activities for retained
properties and retained obligations related to the sale of certain coal
subsidiaries to Pittston. In addition, the fluctuation reflects other changes
in working capital items whereby increases in net working capital would cause a
decline in net cash provided by operating activities. Such other changes
consist of a $1,499,000 increase in accounts receivable, a $3,405,000 decrease
in accrued expenses and a $1,217,000 decrease in accounts payable. During the
three months ended March 31, 1994, such other changes consisted of a $16,578,000
increase in accounts receivable and a $5,753,000 decrease in accrued expenses,
net of a $7,123,000 increase in accounts payable.
Net cash provided by investing activities was $2,213,000 and $171,233,000 for
the three months ended March 31, 1995 and 1994, respectively. The March 31,
1995 amount primarily consists of proceeds of $8,717,000 from the sale of assets
and $7,100,000 from the sale of investments, net of property, plant and
equipment purchases of $13,604,000. The March 31, 1994 amount primarily
consists of net proceeds of $185,074,000 from the sale of coal subsidiaries, net
of investment purchases of $5,000,000 and property, plant and equipment
purchases of $9,215,000.
Net cash provided by (used in) financing activities was $4,037,000 and
$(147,978,000) for the three months ended March 31, 1995 and 1994, respectively.
The March 31, 1995 amount primarily represents borrowings of long-term debt of
$5,817,000 and borrowings on the Company's revolving line of credit of
$2,500,000, net of $4,005,000 repayments of long-term debt. The March 31, 1994
amount primarily represents a $125,000,000 payment for the retirement of the
Company's senior secured notes and net repayments on the Company's lines of
credit of $21,942,000, net of proceeds from the issuance of long-term debt of
$7,477,000.
Net working capital as of March 31, 1995 was approximately $2,022,000, compared
to approximately $81,000 as of December 31, 1994. This increase is primarily
attributable to proceeds from the sale of assets and proceeds from the sale of
investments in addition to increases in accounts receivable and decreases in
accounts payable and accrued expenses.
As of March 31, 1995, the Company had approximately $24,979,000 available under
financing agreements, including $8,191,000 remaining under its coal line of
credit, secured by certain accounts receivable, coal inventory and certain
mining equipment, bearing interest at prime, and $16,788,000 remaining under its
environmental line of credit, secured by substantially all of its environmental
assets, bearing interest at prime plus 3/4%.
18
<PAGE>
During the first quarter of 1995, the Company entered into a sale/leaseback
transaction whereby the Company sold a highwall mining machine for approximately
$4,000,000 and leased it back from the purchaser. The Company has successfully
financed the construction of three additional highwall mining machines in
previous years through sale/leaseback arrangements. The Company expects that it
will continue to be able to use this method to finance the construction of
future highwall mining machines.
Assets held for sale at March 31, 1995 was $13,746,000, which represents the
Company's citrus operations. Assets held for sale at December 31, 1994 was
$16,605,000. This amount consisted of approximately $13,400,000 related to the
Company's citrus operations and approximately $3,200,000 invested in a corporate
jet. The corporate jet was sold for $4,125,000 during the first quarter of
1995. Approximately $3,200,000 of the proceeds from this sale were used to
reduce outstanding debt on the aircraft. The sale of the citrus operations may
also generate cash for the Company.
During 1994, the Company acquired a landfill near Macon, Georgia. The existing
landfill operation is permitted to accept construction and demolition waste and
certain industrial wastes. A new permit allowing the landfill to accept
municipal solid waste was issued in June 1994 and was appealed. The appellate
court remanded the permit to the Georgia Environmental Protection Department for
further consideration. Once the permit is nonappealable, an additional payment
of approximately $3.6 million will be made to the seller.
The Company has various operating leases for mining and other equipment. The
Company also leases certain coal reserves which require minimum annual royalties
to be paid regardless of the amount of coal mined. Approximate noncancellable
minimum payments for the following twelve month period under the operating
leases total $6,928,000 and minimum royalties related to leases total
$1,395,000.
The Company has experienced lower-than-expected ore grades and other start up
problems at its gold mine project. During 1994, the Company's gold mining
subsidiary entered into a loan agreement guaranteed by the Company pursuant to
which $9,330,000 was borrowed to finance the development of the project.
Following an amendment to the agreement extending the repayment terms by one
quarter, the loan matures in January, 1997 and is repayable in varying quarterly
installments of principal and interest which may be made in cash or gold,
beginning with 16% of the principal amount due on October 31, 1995, and
approximately 31% of the principal amount due on January 31, 1996. Although the
Company at this time expects the project will be profitable, if the Company were
unable to successfully operate its gold mining project and also could not
renegotiate its gold loan agreement if necessary, a default under this agreement
and potential defaults triggered thereby under other financing arrangements
would cause a significant deficiency in the Company's liquidity.
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
19
<PAGE>
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, 1995, the Company had accrued expenses for reclamation and
closure costs of approximately $12,958,000. 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 expense, thus affecting
the Company's liquidity. Considering the existing accruals with respect to the
Company's landfills at March 31, 1995, approximately $58 million of additional
accruals are to be provided over the remaining lives of these facilities. Such
additional accruals to be provided have been estimated on current costs and
existing regulatory requirements and assume that the landfills will be filled to
capacity. Due to uncertainties and significant judgments used in determining
the amounts of additional accruals to be provided, the actual amounts to be
expended may differ substantially.
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 March 31, 1995, the Company had a reserve for workers' compensation,
including black lung benefits, of approximately $4,154,000. 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 and internal financial
resources, and assuming the Company's continuing ability to finance the
construction of highwall mining machines using a sale/leaseback arrangement,
provides adequate capital reserves and liquidity.
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.
-----------------
None.
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 27. Financial Data Schedule.
(b) Reports on Form 8-K.
--------------------
During the quarter ended March 31, 1995, the Company filed a Form
8-K Current Report dated March 1, 1995 concerning Item 5, Other
Events reporting the proposal by Larry Addington, Robert
Addington and Bruce Addington to purchase the Company's non-
environmental businesses.
21
<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, 1995 By: /s/ Larry Addington
---------------------------- ----------------------------------------
Larry Addington
Chief Executive Officer, Director
Date: May 12, 1995 By: /s/ R. Douglas Striebel
---------------------------- ----------------------------------------
R. Douglas Striebel
Vice President and
Chief Financial Officer
22
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Consolidated
Balance Sheet as of March 31, 1995 and Consolidated Statements of Operations for
the three months then ended and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 6,590
<SECURITIES> 1,374
<RECEIVABLES> 20,443
<ALLOWANCES> 0
<INVENTORY> 7,787
<CURRENT-ASSETS> 41,261
<PP&E> 187,466
<DEPRECIATION> (28,448)
<TOTAL-ASSETS> 223,888
<CURRENT-LIABILITIES> 39,239
<BONDS> 42,636
<COMMON> 15,908
0
0
<OTHER-SE> 107,068
<TOTAL-LIABILITY-AND-EQUITY> 223,888
<SALES> 36,824
<TOTAL-REVENUES> 36,824
<CGS> 28,923
<TOTAL-COSTS> 34,666
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 350
<INCOME-PRETAX> 2,845
<INCOME-TAX> 905
<INCOME-CONTINUING> 1,940
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,940
<EPS-PRIMARY> 0.12
<EPS-DILUTED> 0.12
</TABLE>
