<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 June 30, 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 August 13, 1995 - 15,923,651 shares
------------------------------
1
<PAGE>
ADDINGTON RESOURCES, INC. AND SUBSIDIARIES
------------------------------------------
INDEX
-----
Page No.
--------
PART I. Consolidated Financial Information
ITEM 1. Financial Statements
Consolidated Balance Sheets as of
June 30, 1995 (Unaudited) and
December 31, 1994 3-4
Consolidated Statements of Operations
(Unaudited) Three Months and Six Months
Ended June 30, 1995 and 1994 5-6
Consolidated Statements of Cash Flows
(Unaudited) Six Months Ended
June 30, 1995 and 1994 7-8
Notes to Consolidated Financial
Statements (Unaudited) 9-16
ITEM 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 17-28
PART II. Other Information 29-30
SIGNATURES 31
2
<PAGE>
ITEM 1
ADDINGTON RESOURCES, INC. AND SUBSIDIARIES
------------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
ASSETS
------
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
-------- ------------
(Unaudited)
<S> <C> <C>
(in thousands)
CURRENT ASSETS:
Cash and cash equivalents $ 1,090 $ 3,469
Short term investments 4,212 8,474
Accounts receivable 29,999 18,944
Inventories 7,835 6,495
Prepaid expenses and other 4,288 2,776
-------- --------
Total current assets 47,424 40,158
-------- --------
PROPERTY, PLANT AND EQUIPMENT, at cost 197,900 182,835
Less - Accumulated depreciation (30,910) (28,962)
-------- --------
166,990 153,873
-------- --------
ASSETS HELD FOR SALE 14,203 16,605
RESTRICTED CASH 5,545 4,437
OTHER 5,158 8,008
-------- --------
Total assets $239,320 $223,081
======== ========
</TABLE>
3
<PAGE>
ADDINGTON RESOURCES, INC. AND SUBSIDIARIES
------------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
-------- ------------
(Unaudited)
<S> <C> <C>
(in thousands)
CURRENT LIABILITIES:
Accounts payable $ 16,589 $ 14,049
Revolving line of credit 1,900 4,200
Current portion of long-term debt 11,171 7,257
Accrued expenses and other 14,265 13,392
Current portion of deferred income taxes 1,731 1,179
-------- --------
Total current liabilities 45,656 40,077
-------- --------
NON-CURRENT LIABILITIES:
Long-term debt, less current portion 43,113 41,118
Other long-term liabilities 18,395 18,921
Deferred income taxes 4,031 2,744
-------- --------
Total non-current liabilities $ 65,539 $ 62,783
-------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $1.00 par value;
30,000,000 shares authorized, 15,921,801
and 15,852,851 shares outstanding at
June 30, 1995 and December 31, 1994,
respectively 15,922 15,853
Paid-in capital 84,692 83,789
Retained earnings 27,511 20,579
-------- --------
Total stockholders' equity 128,125 120,221
-------- --------
Total liabilities and
stockholders' equity $239,320 $223,081
======== ========
</TABLE>
4
<PAGE>
ADDINGTON RESOURCES, INC. AND SUBSIDIARIES
------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------- -------------------
June 30, June 30, June 30, June 30,
1995 1994 1995 1994
(in thousands, except per share amounts)
<S> <C> <C> <C> <C>
REVENUES:
Mining $ 28,322 $ 26,444 $ 53,559 $ 58,764
Environmental 14,111 8,867 25,001 15,718
Other 10,419 227 11,116 655
-------- -------- -------- --------
52,852 35,538 89,676 75,137
-------- -------- -------- --------
COSTS AND EXPENSES:
Cost of operations 30,646 28,108 59,569 59,907
Depreciation and
amortization 3,610 2,168 6,249 3,712
Selling, general and
administrative 4,417 3,025 7,521 5,143
-------- -------- -------- --------
38,673 33,301 73,339 68,762
-------- -------- -------- --------
INCOME FROM OPERATIONS 14,179 2,237 16,337 6,375
-------- -------- -------- --------
INTEREST AND OTHER INCOME
(EXPENSE):
Interest income 182 353 322 382
Interest expense (396) (130) (746) (155)
Gain (loss) on sale
of subsidiaries (5,285) - (5,285) 118
(Loss) gain on sale
of assets (682) 22 195 (59)
Other, net (491) (108) (471) (168)
-------- -------- -------- --------
(6,672) 137 (5,985) 118
-------- -------- -------- --------
Income before income
tax provisions 7,507 2,374 10,352 6,493
-------- -------- -------- --------
INCOME TAX PROVISIONS:
Federal 1,985 712 2,733 1,712
State 530 119 687 369
-------- -------- -------- --------
2,515 831 3,420 2,081
-------- -------- -------- --------
Net income $ 4,992 $ 1,543 $ 6,932 $ 4,412
======== ======== ======== ========
</TABLE>
5
<PAGE>
ADDINGTON RESOURCES, INC. AND SUBSIDIARIES
------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
-------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
------------------ ------------------
June 30, June 30, June 30, June 30,
1995 1994 1995 1994
-------- -------- -------- --------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C>
NET INCOME PER SHARE $.31 $.10 $.43 $.27
==== ==== ==== =====
Equivalent shares of
stock outstanding 16,224 16,100 16,127 16,056
====== ====== ====== =======
</TABLE>
6
<PAGE>
ADDINGTON RESOURCES, INC. AND SUBSIDIARIES
------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
-------------------------
June 30, June 30,
1995 1994
--------- --------------
(in thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 6,932 $ 4,412
-------- --------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 6,249 3,712
(Gain) loss on sale of assets (195) 59
Loss (gain) on sale of subsidiaries 5,285 (118)
Change in assets and liabilities, net of effects
from acquisitions and disposals:
(Increase) decrease in:
Accounts receivable (10,890) (14,447)
Inventories (672) (757)
Prepaid expenses and other assets 70 1,372
Other assets (1,725) (1,481)
Increase (decrease) in:
Accounts payable 3,450 3,603
Accrued expenses and other liabilities 1,602 (10,792)
Deferred income taxes 1,838 1,040
-------- --------
Total adjustments 5,012 (17,809)
-------- --------
Net cash provided by (used in)
operating activities 11,944 (13,397)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets 5,824 1,581
Proceeds from sale of coal subsidiaries,
net of disposition costs - 185,074
Decrease (increase) in short-term investments 4,262 (9,000)
Acquisition of environmental companies,
net of cash acquired - (2,057)
Additions to property, plant and equipment (27,790) (25,919)
-------- --------
Net cash (used in) provided by
investing activities $(17,704) $149,679
-------- --------
</TABLE>
7
<PAGE>
ADDINGTON RESOURCES, INC. AND SUBSIDIARIES
------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
-------------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
-----------------------
June 30, June 30,
1995 1994
--------- ---------
(in thousands)
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of long-term debt $10,564 $ 14,148
Repayments of long-term debt (4,655) (134,218)
Borrowings (repayments) on revolving
lines of credit (2,300) (19,942)
Issuance of common stock 47 341
Financing costs incurred (275) (92)
------- ---------
Net cash provided by (used in)
financing activities 3,381 (139,763)
------- ---------
Net decrease in cash
and cash equivalents (2,379) (3,481)
CASH AND CASH EQUIVALENTS, beginning of period 3,469 13,744
------- ---------
CASH AND CASH EQUIVALENTS, end of period $ 1,090 $ 10,263
======= =========
</TABLE>
Note: For purposes of these statements, the Company and its subsidiaries
consider short-term investments having maturities of three months
or less at the time of purchase to be cash equivalents.
The cash amounts of interest and income taxes paid by the Company and its
subsidiaries during the six months ended June 30, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
------ ----
(in thousands)
<S> <C> <C>
Interest, including amounts capitalized of
approximately $1,344,000 and $537,000,
respectively $2,090 $692
Income taxes 658 56
</TABLE>
During the six months ended June 30, 1995, the Company issued 62,700 shares of
common stock in connection with the exercise of stock grants which were issued
to employees. The issuance of common stock in connection with the exercise of
stock grants increased paid in capital by $862,125 and increased common stock by
$62,700 for the six months ended June 30, 1995 (see Note 8 to the consolidated
financial statements). During the six months ended June 30, 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 June 30, 1995 and
1994 include the accounts of Addington Resources, Inc. (the Company) and
its wholly-owned direct and indirect subsidiaries.
In the opinion of management, the accompanying consolidated unaudited
financial statements include all adjustments necessary to present fairly
the Company's financial position as of June 30, 1995 and results of
operations for the six months ended June 30, 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.
In addition to the sale of the five coal subsidiaries, the Company also
entered 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. During the second
quarter of 1995, the Company agreed to accept a $3.8 million payment from
Pittston to reduce the remaining tons to be sold to
9
<PAGE>
Pittston by 33%. The expiration date of this contract remains the same;
however, the monthly tonnage sold to Pittston by the Company has been reduced
from 120,000 tons to 80,000 tons. This $3.8 million payment is reflected in
mining revenues in the accompanying statement of operations for the three months
and six months ending June 30, 1995.
Other terms of the transaction to sell the five coal subsidiaries included the
Company receiving a $1 per ton production royalty for coal produced from certain
West Virginia properties 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 statements of operations for the six months ending
June 30, 1995. 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.
10
<PAGE>
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.
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. The Company also owns coal reserves in Tennessee
through its wholly-owned subsidiary, Tennessee Mining, Inc.
3. Sale of Australian Mining Technology Patents-
--------------------------------------------
During the second quarter of 1995, the Company entered into a mining
technology exchange agreement with BHP Australia Coal Pty Ltd. (BHPAC). The
agreement provides for the sale of the Company's Australian patents on
highwall mining machines and certain other related technology. BHPAC will
restrict its use of the highwall mining technology to Australia and its own
mining equipment and operations. The agreement does not restrict the right
of the Company to license and use the technology worldwide, except for
certain restrictions on its use in Australia.
The Company also entered into a contract mining agreement with BHPAC to
mine coal reserves located at BHPAC's Moura Mine in Queensland, Australia.
In addition, the Company entered into an agreement with BHPAC and Joy
Technologies, Inc. (Joy) that provides for the exchange of certain
information related to developments in the highwall mining technology. The
Company and Joy have previously entered into a licensing agreement for the
manufacture and marketing of highwall mining machines using highwall mining
technology invented by the Company. This agreement with Joy will remain in
force although the Company will not receive any payments from Joy related
to coal production by BHPAC using highwall mining machines. Joy consented
to the sale of technology by BHPAC.
In consideration of the transfer of the patents and related technology, the
Company received $10 million upon execution of the agreement and will
receive an additional $4 million following the Company's initial successful
mining of coal at the contract mining operation at the Moura Mine. BHPAC
has also agreed to reimburse the Company up to $1 million for equipment
used by the Company in its contract mining operations at the Moura Mine.
Although no assurances can be given, the Company expects to be contract
mining at the Moura Mine by the end of 1995.
The agreement also provides for contingent payments to the Company of $3
million upon the satisfaction of certain production requirements related to
BHPAC's use of a highwall mining system incorporating the Company's
technology.
11
<PAGE>
The Company recorded $10 million in mining revenues and accounts receivable
and approximately $1 million of administrative expenses related to this
transaction in the accompanying June 30, 1995 financial statements.
4. Addwest Minerals, Inc.-
----------------------
Addwest Minerals, Inc. (Addwest) is a wholly-owned subsidiary of the
Company and is a development stage enterprise which was organized to mine,
extract and market precious and industrial metals. Currently, gold and
silver operations are being developed in Arizona and Alaska. Since the
inception of significant development activities, Addwest has primarily been
involved in planning, obtaining financing, acquiring assets and developing
mines. All costs related to these activities have been capitalized as mine
development costs in the accompanying financial statements. Costs incurred
by Addwest which do not specifically relate to these activities have been
expensed in the accompanying statements of operations.
As a development stage enterprise, Addwest has made a significant
investment in long-term assets, carried at cost, which were acquired or
developed in order to commence operations. However, successful future
operations of Addwest are subject to substantial uncertainties, including
the quantity of economically recoverable reserves, regulatory legislation,
and the ability of Addwest to successfully mine and market the minerals.
The realization of Addwest's investment is dependent upon the success of
its exploration and future operations. Also, additional time is likely to
elapse before significant revenues are realized. During this time, Addwest
may require additional financing or refinancing of its existing debt, which
may not be available on favorable terms.
On June 26, 1995, the Company agreed in principle to sell the stock of
Addwest to Cornucopia Resources Ltd. (Cornucopia). Terms of the agreement
in principle include payment to the Company of approximately $7 million in
cash (subject to certain adjustments which, as of June 30, 1995, would
result in a reduction of approximately $3.7 million), the issuance of 6
million restricted shares of Cornucopia's common stock, the assumption of
all obligations under the Addwest gold loan agreement with N.M. Rothschild
& Sons Ltd. in an amount equal to approximately $9,330,000, and payment to
the Company of up to $6 million in the form of a 5% net smelter royalty
interest on Addwest's Alaskan properties. The net smelter royalty may be
converted by either party into the right to receive additional shares of
Cornucopia common stock upon certain terms and conditions. As of June 30,
1995, the Company had invested approximately $24,600,000 in the projects to
be sold, including amounts drawn under the Rothschild loan and
approximately $537,000 of other obligations to be assumed by Cornucopia.
The agreement in principle provides that Addwest will have no continuing
liabilities at the closing, except for the Rothschild loan and ongoing
commitments under existing property/lease agreements.
12
<PAGE>
Completion of the transaction is conditioned upon, among other items,
negotiation and execution of a definitive purchase agreement, approval by
the shareholders of Cornucopia, successful completion by Cornucopia of its
due diligence investigation, receipt of financing by Cornucopia, and the
receipt of necessary regulatory approvals and consents on terms acceptable
to the parties, including a release of the guarantee by the Company of
obligations under the Rothschild gold loan agreement. The Company has
recorded a $5.3 million loss on the sale of this subsidiary in the
accompanying June 30, 1995 financial statements in connection with this
proposed transaction. Based on discussions with Cornucopia, there can be no
assurance that the sale will be consummated on the terms contemplated, nor
that the loss ultimately recorded on the disposition of this subsidiary
will not be significantly greater than the $5.3 million loss reflected in
the June 30, 1995 financial statements. The Company is reviewing its
alternatives in the event that the sale to Cornucopia is not consummated.
5. Inventories-
-----------
As of June 30, 1995 and December 31, 1994 inventories consisted of:
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
----------- ------------
(Unaudited)
(in thousands)
<S> <C> <C>
Coal $4,790 $4,131
Supplies and parts 2,935 2,364
Gold and silver 110 -
------ ------
$7,835 $6,495
====== ======
</TABLE>
6. Commitments and Contingencies-
-----------------------------
(a) Coal Sales Contracts-
-------------------------
As of June 30, 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
11.1 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.
13
<PAGE>
(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.
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.
(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.
(d) Landfill Acquisitions-
-------------------------
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.
7. Related-Party Transactions-
--------------------------
The Company has dealt with certain companies or individuals which are
related parties either by having stockholders in common or because they are
controlled by stockholders/officers or by relatives of stockholders/
officers of the Company. The Company recorded various expenses to related
parties consisting of approximately $5,222,000 and $3,430,000 for trucking
services for the six month periods ending June
14
<PAGE>
30, 1995 and 1994, respectively, office rent of $55,000 for the six month
periods ending June 30, 1995 and 1994, and flight fees of $184,300 for the
six months ended June 30, 1995.
The Company had amounts payable to related parties of $574,000 and $298,000
as of June 30, 1995 and December 31, 1994, respectively. (See Note 10 to
the consolidated financial statements concerning potential additional
related party transactions.)
8. Stockholders' Equity-
--------------------
During the six months ended June 30, 1994 and 1995, 28,800 and 6,250
shares, respectively, of common stock were issued in connection with the
exercise of stock options. During the six months ended June 30, 1994,
148,673 shares of common stock were issued in connection with the
acquisition of a landfill company. In accordance with the landfill
acquisition agreement, in early June 1995, the Company received a request
from the holder of these shares of common stock that the Company register
them for resale. The agreement provides that under certain conditions the
Company is obligated to the holder for the difference, if any, between the
per share market price on the date of receipt of the holder's request for
registration (approximately $13.75 per share) and the per share market
price on the date immediately preceding the effective date of the
registration statement for resale. Because of the pending March 1 proposal,
the Company has not yet filed the requested registration statement (see
Note 10 to the consolidated financial statements). During the six months
ended June 30, 1995, 62,700 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 and shares being issued, common stock increased $177,473
and $68,950, respectively, and paid-in capital increased $2,244,749 and
$902,750, respectively, during the six months ended June 30, 1994 and 1995.
9. Assets Held for Sale-
--------------------
Assets held for sale at June 30, 1995 include the Company's citrus
operations in Belize. Assets held for sale at December 31, 1994 include the
Company's citrus operations in Belize and a corporate jet. In February
1995, the Company sold the corporate jet.
10. Withdrawal of Proposal to Purchase Non-Environmental Businesses
---------------------------------------------------------------
and Reconstitution of the Company's Board of Directors-
------------------------------------------------------
On March 1, 1995, the Company received an offer from a group of senior
management (who are or were also members of the Board of Directors and
major shareholders) to purchase the Company's non-environmental businesses.
15
<PAGE>
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.
On July 11, 1995, this offer was withdrawn and the Special Committee was
disbanded. In connection with reviewing this proposed transaction, the
Company incurred approximately $700,000 in legal and professional fees,
which are recorded as other expense in the accompanying June 30, 1995
financial statements.
On August 4, 1995, the Company appointed four new members to its Board of
Directors and accepted the resignation of one of the existing members of
the Board of Directors.
The Company also stated that it was the intention of the reconstituted
Board of Directors that the Company focus solely on its environmental
businesses. To that end, the Board intends to pursue the prompt but prudent
sale of the Company's non-environmental businesses, with the net proceeds
from such sales being deployed to expand the Company's environmental
operations.
On August 15, 1995, Bruce Addington resigned from the Board of Directors of
the Company.
16
<PAGE>
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Recent Developments
-------------------
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 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. On July 11, 1995, this offer was withdrawn
and the Special Committee was disbanded. In connection with reviewing this
proposed transaction, the Company incurred approximately $700,000 in legal and
professional fees.
On August 4, 1995, the Company appointed four new members to its Board of
Directors, Howard P. Berkowitz (Chairman), Richard Ravitch, James Grosfeld and
Harold Blumenstein, and accepted the resignation of Robert Addington from the
current Board. With these changes, the reconstituted Board of Directors
consisted of eight members: Larry Addington, Bruce Addington, Jack C. Fisher,
Carl R. Whitehouse, and the four new members.
The Board changes follow the execution of a definitive agreement on August 4,
1995 between Larry, Bruce and Robert Addington for their sale of an aggregate of
2,000,000 shares of the Company's common stock to HPB Associates, L.P., of which
Howard Berkowitz is managing general partner and Messrs. Ravitch and Blumenstein
are limited partners. HPB Associates, L.P. purchased 577,003 of these shares on
August 4, 1995, with the balance of the purchase to occur following Hart-Scott-
Rodino clearance.
On August 15, 1995, Bruce Addington resigned from the Board of Directors.
The Company also stated that it was the intention of the reconstituted Board of
Directors that the Company focus solely on its environmental businesses. To
that end, the Board intends to pursue the prompt but prudent sale of the
Company's non-environmental businesses, with the net proceeds from such sales
being deployed to expand the Company's environmental operations.
17
<PAGE>
RESULTS OF OPERATIONS
---------------------
Quarter Ended June 30, 1995 Compared With Same Period In 1994
-------------------------------------------------------------
Net income during the quarter ended June 30, 1995 was $4,992,000 or $.31 per
share, compared to net income of $1,543,000 or $.10 per share for the comparable
quarter of 1994. Included in net income for the quarter ended June 30, 1995, was
$9 million of pre-tax income from the sale of its Australian mining technology
patents.
Environmental revenues and income from operations for the three months ended
June 30, 1995 and 1994, respectively, are comprised of the following (in
thousands):
<TABLE>
<CAPTION>
Landfill Waste Collection Total
Operations Services Environmental
--------------- ------------------ ---------------
For the three months ended June 30,
----------------------------------------------------
1995 1994 1995 1994 1995 1994
------- ------ -------- -------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
Revenues $10,766 $6,316 $3,345 $2,551 $14,111 $8,867
Income from
operations 3,827 2,369 (435) (722) 3,392 1,647
Tonnage
received 476 262
</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 262,000
tons during the three months ended June 30, 1994 to 476,000 tons during the
three months ended June 30, 1995. This increase in tons is primarily
attributable to the Company operating 10 landfills as of June 30, 1995, compared
to operating 7 landfills as of June 30, 1994. While it is common industry
practice, the Company does not allow a discount on its waste collection services
for waste delivered to Company landfills.
The Company's direct mining revenues decreased from $24,779,000 in the second
quarter of 1994 to $24,239,000 in the second quarter of 1995. Included in mining
revenues during the second quarter of 1995 is $3.8 million related to the sale
of a portion of a coal contract to Pittston during the second quarter of 1995
(see Note 2 to the consolidated financial statements). During the second quarter
of 1995, tons of coal sold declined from 906,000 tons sold during the second
quarter of 1994 to 735,000 tons sold during the second quarter of 1995. The
decline in tons sold is primarily attributable to the expiration of a western
Kentucky coal contract that was in existence during the second quarter of 1994
but no longer in existence during the second quarter of 1995. The Company
shipped 157,000 tons from western Kentucky under this contract during 1994. The
Company experienced an increase in average sales price per ton from $26.11
recognized in the second quarter of 1994 to $27.03 per ton recognized in the
second quarter of 1995. The average sales price per ton increased during the
second quarter of 1995 compared to the second quarter of 1994 primarily due to a
higher percentage of the Company's tonnage being placed on higher priced
contract sales during the second quarter of 1995 as compared to the second
quarter of 1994. The Company's coal mining operations generated income from
operations of $3.1 million during the second quarter of 1995 compared to $1.8
million during the second quarter of 1994. This improvement in income from
operations is primarily due to the increase in the average sales price per ton,
coupled with reduced operating cost.
18
<PAGE>
The Company's contract highwall mining operations generated revenues of $4.1
million during the second quarter of 1995, compared to revenues of $1.7 million
during the second quarter of 1994. The contract highwall mining operations
generated a loss from operations during the second quarter of 1995 of $299,000,
compared to loss from operations of $12,000 for the second quarter of 1994. 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 in the future.
During the second quarter of 1995, the Company recorded $10 million of revenue
and $9 million of income from operations from the sale of its Australian mining
technology patents (see Note 3 to the consolidated financial statements). The
Company also generated other revenue during the second quarter of 1995 of
$419,000 related to the highwall mining system licensing agreement with Joy.
During the second quarter of 1994, other revenue of $227,000 was generated from
the highwall mining licensing agreement.
As a percentage of total revenues, cost of operations decreased from 79% for the
second quarter of 1994 to 58% for the second quarter of 1995. This decrease is
primarily a result of an increase in revenues from the sale of its Australian
mining technology patents (see Note 3 to the consolidated financial statements),
along with improved operating results at the Company's environmental and coal
operations. Excluding revenues from the sale of the Australian mining technology
patents, cost of operations for the second quarter of 1995 would have been 72%
of total revenues.
Depreciation and amortization increased from $2,168,000 in the second quarter of
1994 to $3,610,000 in the second quarter of 1995. This 67% 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.
Selling, general and administrative expenses increased from $3,025,000 during
the second quarter of 1994 to $4,417,000 during the second quarter of 1995.
This 46% increase is primarily attributable to an increase in the environmental
division's selling, general and administrative
19
<PAGE>
expenses due to additional landfills being opened since June 30, 1994, along
with $1 million of administrative expenses incurred related to the sale of its
Australian mining technology patents during the second quarter of 1995.
Interest income decreased from $353,000 during the second quarter of 1994
compared to $182,000 during the second quarter of 1995. This decrease is due to
a decrease in the average amount of short-term investments outstanding partially
offset by an increase in the interest rate yields on short-term investments
during the second quarter of 1995.
Interest expense increased from $130,000 during the second quarter of 1994 to
$396,000 during the second quarter of 1995. This increase is primarily due to
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 June 30, 1995 and 1994 was $743,000 and $299,000,
respectively.
Loss on sale of subsidiaries was $5.3 million during the second quarter of 1995.
Loss from the sale of subsidiaries was incurred in connection with the proposed
disposition of Addwest Minerals, Inc. (see Note 4 to the consolidated financial
statements).
The Company's effective tax rate during the second quarter of 1995 was 34% and
remained relatively unchanged as compared to the 35% tax rate recognized during
the second quarter of 1994.
Six Months Ended June 30, 1995 Compared With Same Period In 1994
----------------------------------------------------------------
Net income during the six months ended June 30, 1995 was $6,932,000 or $.43 per
share, compared to net income of $4,412,000 or $.27 per share for the comparable
quarter of 1994.
Environmental revenues and income from operations for the six months ended June
30, 1995 and 1994, respectively, are comprised of the following (in thousands):
<TABLE>
<CAPTION>
Landfill Waste Collection Total
Operations Services Environmental
---------------- ---------------- ----------------
For the six months ended June 30,
----------------------------------------------------
1995 1994 1995 1994 1995 1994
------- ------- ------ -------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Revenues $18,648 $11,003 $6,353 $4,715 $25,001 $15,718
Income from
operations 6,294 3,874 (837) (1,207) 5,457 2,667
Tonnage
received 797 495
</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 495,000
tons during the six months ended June 30, 1994 to 797,000 tons during the six
months ended June 30, 1995. The increase in tons is primarily attributable to
the Company operating 10 landfills as of June 30, 1995, compared to operating 7
landfills as of June 30, 1994. While it is common industry practice, the Company
does not allow a discount on its waste collection services for waste delivered
to Company landfills.
20
<PAGE>
The Company's direct mining revenues decreased from $56,094,000 during the six
months ended June 30, 1994 to $45,982,000 during the six months ended June 30,
1995. Included in mining revenues during the six months ended June 30, 1995 is
$3.8 million related to the sale of a portion of a coal contract to Pittston
during the second quarter of 1995 (see Note 2 to the consolidated financial
statements). Tons of coal sold declined from 2,082,000 tons during the six
months ended June 30, 1994 to 1,461,000 tons during the six months ended June
30, 1995. The decline in tons sold is primarily attributable to the sale of
certain coal subsidiaries to Pittston on January 14, 1994 (see Note 2 to the
consolidated financial statements) and due to the expiration of a western
Kentucky coal contract that was in existence during the six months ended June
30, 1994 but no longer in existence during the six months ended June 30, 1995.
The Company shipped 335,000 tons from western Kentucky under this contract
during the six months ended June 30, 1994. The Company experienced an increase
in average sales price per ton from $26.05 recognized during the six months
ended June 30, 1994 to $26.96 per ton recognized during the six months ended
June 30, 1995. The average sales price per ton increased during the six months
ended June 30, 1995 compared to the six months ended June 30, 1994 primarily due
to a higher percentage of the Company's tonnage being placed on higher priced
contract sales during the six months ended June 30, 1995 as compared to the six
months ended June 30, 1994. The Company's coal mining operations generated
income from operations of $6.7 million during the six months ended June 30, 1995
compared to $5.1 million during the six months ended June 30, 1994. This
improvement in income from operations is primarily due to the increase in the
average sales price per ton, coupled with reduced operating costs. The Company
has been able to reduce its operating costs by acquiring access to additional
coal reserves which can be mined at lower cost and closing higher cost coal
mines. The Company has been able to effectively replace the production coming
from the higher cost jobs that have been closed with lower cost coal coming from
new jobs which were started utilizing these new reserves.
21
<PAGE>
The Company's contract highwall mining operations generated revenues of
$7,574,000 during the six months ended June 30, 1995, compared to revenues of
$2,669,000 for the six months ended June 30, 1994. The contract highwall mining
operations generated a loss from operations during the six months ended June 30,
1995 of $3,508,000, compared to income from operations of $26,000 during the six
months ended June 30, 1994. The Company has 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 in the future.
During the six months ended June 30, 1995, the Company recorded $10 million of
revenue and $9 million of income from operations from the sale of its Australian
mining technology patents (see Note 3 to the consolidated financial statements).
The Company also generated other revenue during the six months ended June 30,
1995 of $1,116,000 related to the highwall mining system licensing agreement
with Joy. During the six months ended June 30, 1994, other revenue of $655,000
was generated from the highwall mining licensing agreement.
As a percentage of total revenues, cost of operations decreased from 80% for the
six months ended June 30, 1994 to 67% for the six months ended June 30, 1995.
This decrease is primarily a result of an increase in revenues from the sale of
its Australian mining technology patents (see Note 3 to the consolidated
financial statements), along with improved operating results at the Company's
environmental and coal operations.
Depreciation and amortization increased from $3,712,000 during the six months
ended June 30, 1994 to $6,249,000 during the six months ended June 30, 1995.
This 68% 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.
Selling, general and administrative expenses increased from $5,143,000 during
the six months ended June 30, 1994 to $7,521,000 during the six months ended
June 30, 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 June 30, 1994, along with $1 million of
administrative expenses incurred related to the sale of its Australian mining
technology patents during the six months ended June 30, 1995.
Interest income was $382,000 during the six months ended June 30, 1994 and
remained relatively unchanged as compared to $322,000 during the six months
ended June 30, 1995.
22
<PAGE>
Interest expense increased from $155,000 during the six months ended June 30,
1994 to $746,000 during the six months ended June 30, 1995. This increase is
primarily due to 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 six months ended June 30, 1995 and 1994 was $1,344,000 and
$537,000, respectively.
Gain on sale of subsidiaries was $118,000 during the six months ended June 30,
1994, compared to a loss of $5,285,000 during the six months ended June 30,
1995. Loss from the sale of subsidiaries during the six months ended June 30,
1995 was incurred in connection with the anticipated disposition of Addwest
Minerals, Inc. pursuant to an agreement in principle with Cornucopia Resources
Ltd. Based on the Company's discussions with Cornucopia Resources Ltd., there
can be no assurance that the sale will be consummated on the terms contemplated,
nor that the loss ultimately recorded on the disposition of this subsidiary will
not be significantly greater than the $5.3 million loss reflected in the June
30, 1995 financial statements (see Note 4 to the consolidated financial
statements).
The Company's effective tax rate during the six months ended June 30, 1995 was
33% and remained relatively unchanged as compared to 32% during the six months
ended June 30, 1994.
FINANCIAL CONDITION
-------------------
The Company's cash, cash equivalents and short-term investments totalled
$5,302,000 at June 30, 1995, compared to $11,943,000 at December 31, 1994. This
decrease is primarily due to the timing of accounts receivable collections and
accounts payable payments, as well as the continuing investment in the Company's
gold and highwall mining projects.
Accounts receivable at June 30, 1995 totalled $29,999,000, compared to the
balance of $18,944,000 at December 31, 1994. This increase is due to the
$10,000,000 receivable related to the sale of the Australian mining technology
patents (see Note 3 to the consolidated financial statements).
Inventories increased from $6,495,000 at December 31, 1994, compared to
$7,835,000 at June 30, 1995, primarily due to an increase in tons of coal in
inventory at June 30, 1995.
Prepaid expenses and other at June 30, 1995 totalled $4,288,000, 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 $197,900,000 at June 30, 1995,
compared to $182,835,000 at December 31, 1994. This 8% 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.
Restricted cash increased from $4,437,000 at December 31, 1994 to $5,545,000 at
June 30, 1995. This 25% 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.
23
<PAGE>
Assets held for sale decreased from $16,605,000 at December 31, 1994 to
$14,203,000 at June 30, 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 June
30, 1995.
Other assets decreased from $8,008,000 at December 31, 1994 to $5,158,000 at
June 30, 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 June 30, 1995 increased to $16,589,000, as compared to the
December 31, 1994 balance of $14,049,000. This increase is primarily due to the
timing of payments on accounts payable.
Accrued expenses and other liabilities were $14,265,000 at June 30, 1995,
compared to the $13,392,000 balance at December 31, 1994. This increase is due
to the administrative expenses related to the sale of the Australian mining
technology patents (see Note 3 to the consolidated financial statements).
The Company's drawings under its coal line of credit at June 30, 1995 totalled
$1,900,000, compared to the December 31, 1994 balance of $4,200,000. This
decrease is primarily due to the timing of collections of accounts receivable.
The Company's current portion of long-term debt increased from $7,257,000 at
December 31, 1994 to $11,171,000 at June 30, 1995. This increase is primarily
due to the amount of long-term debt related to the Company's gold operations due
in the next 12 months, along with borrowings related to the Company's highwall
mining contract mining operations.
The Company's long-term debt outstanding increased from $41,118,000 at December
31, 1994 to $43,113,000 at June 30, 1995. This increase is primarily due to the
net of $3,000,000 borrowed against the Company's environmental subsidiary's line
of credit during the six months ended June 30, 1995 to primarily finance
landfill construction, plus $2,742,000 in mining equipment financing offset by
$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 $18,395,000 at June 30, 1995, reflecting coal reclamation performed
during the six months ended June 30, 1995, offset by the normal increases in
landfill closure and post-closure costs accrued during the six months ended June
30, 1995.
24
<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
asset sales (see Note 2 to the consolidated financial statements), a
sale/leaseback arrangement with respect to one of its highwall mining machines,
cash proceeds received from the sale of the Australian mining technology patents
(see Note 3 to the consolidated financial statements), and cash generated
through operations.
The overall net decrease in cash and cash equivalents was $2,379,000 and
$3,481,000 for the six months ended June 30, 1995 and 1994, respectively. Such
net decreases reflect net cash used in operating, investing and financing
activities.
Net cash generated by (used in) operations was $11,944,000 and $(13,397,000) for
the six months ended June 30, 1995 and 1994, respectively. This fluctuation
between years is primarily a result of improved income due to an increase in
average coal sales prices being coupled with a decrease in the cost of mining
coal, depreciation and amortization of $6,249,000 and a loss on sale of
subsidiaries of $5,285,000. In addition, the fluctuation reflects other changes
in working capital items whereby decreases in net working capital would cause an
increase in net cash provided by operating activities. Such other changes
consist of a $3,450,000 increase in accounts payable and a $1,602,000 increase
in accrued expenses, offset by a $10,890,000 increase in accounts receivable.
During the six months ended June 30, 1994, such other changes consisted of a
$10,792,000 decrease in accrued expenses and a $14,447,000 increase in accounts
receivable, net of a $3,603,000 increase in accounts payable.
Net cash (used in) provided by investing activities was $(17,704,000) and
$149,679,000 for the six months ended June 30, 1995 and 1994, respectively. The
June 30, 1995 amount primarily consists of proceeds of $5,824,000 from the sale
of assets and $4,262,000 from the sale of investments, net of property, plant
and equipment purchases of $27,790,000. The June 30, 1994 amount primarily
consists of net proceeds of $185,074,000 from the sale of coal subsidiaries, net
of investment purchases of $9,000,000, property, plant and equipment purchases
of $25,919,000 and acquisitions of environmental companies of $2,057,000.
Net cash provided by (used in) investing activities during the six months ended
June 30, 1995 included property, plant and equipment purchases of $8,422,000
related to the Company's Arizona gold mining project. The Company had expected
that the project would be producing gold on a commercial basis and would have
completed its development stage by the end of the first quarter of 1995. During
the project's start-up phase, the Company has experienced lower than anticipated
ore grade from its mining operations. The Company has also experienced
25
<PAGE>
certain equipment problems and difficulty in hiring experienced underground
miners, resulting in insufficient ore tonnage. During the first quarter of 1995,
the Company reviewed its gold operations and made certain adjustments to its
mining plan designed to increase the ore grades. There are no assurances that
the ore grade will increase and the production will reach profitable levels. On
June 26, 1995, the Company agreed in principle to sell the stock of its precious
metals mining subsidiary (see Note 4 to the consolidated financial statements).
Net cash provided by (used in) financing activities was $3,381,000 and
$(139,763,000) for the six months ended June 30, 1995 and 1994, respectively.
The June 30, 1995 amount primarily represents borrowings of long-term debt of
$10,564,000 and net of repayments on the Company's revolving line of credit of
$2,300,000 and $4,655,000 repayments of long-term debt. The June 30, 1994 amount
primarily represents a $132,371,000 payment for the retirement of the Company's
senior secured notes and net repayments on the Company's lines of credit of
$19,942,000, net of proceeds from the issuance of long-term debt of $14,148,000.
Net working capital as of June 30, 1995 was approximately $1,768,000, compared
to approximately $81,000 as of December 31, 1994. This increase is primarily
attributable to proceeds from the sale of assets, in addition to increases in
accounts receivable, including from the sale of the Company's Australian mining
technology, and decreases in accounts payable and accrued expenses.
As of June 30, 1995, the Company had approximately $28,504,000 available under
financing agreements, including $12,716,000 remaining under its coal line of
credit, secured by certain accounts receivable, coal inventory and certain
mining equipment, bearing interest at prime, and $15,788,000 remaining under its
environmental line of credit, secured by substantially all of its environmental
assets, bearing interest at rates ranging from the Eurodollar Rate plus 2.5%
to prime plus 1/2%.
Assets held for sale at June 30, 1995 was $14,203,000, 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 $3,328,000 of the proceeds from this sale were used to
reduce outstanding debt on the aircraft.
26
<PAGE>
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. If the permit becomes final and 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 $6,869,000 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 Road 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. The Company
is discussing with its lender a further modification of the terms of the loan in
light of the weak performance of its gold mine project. If the proposed sale of
Addwest Minerals is not consummated and the Company were unable to obtain a
modification of the gold loan terms, the Company will be required to refinance
the gold loan. Any such loan may be on terms less favorable to the Company than
its existing facility.
There are certain environmental contingencies related to the Company's coal
operations and integrated solid waste disposal system operations, primarily land
reclamation obligations and landfill closure obligations, respectively. Under
current federal and state surface mining laws, the Company is required to
reclaim land where surface mining operations are conducted. Accruals for the
estimated cost of restoring the land are provided as mining takes place, based
upon engineering estimates of costs. The Company also estimates and records its
costs associated with closure and post-closure monitoring and maintenance for
operating landfills based upon relevant government regulations. Accruals for
these closure and post-closure costs are provided as permitted airspace of the
landfill is consumed. The Company revises its estimates on a periodic basis.
As of June 30, 1995, the Company had accrued expenses for reclamation and
closure costs of approximately $14,347,000. 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.
27
<PAGE>
Considering the existing accruals with respect to the Company's landfills at
June 30, 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 June 30, 1995, the Company had a reserve for workers' compensation, including
black lung benefits, of approximately $3,614,000. 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 provides adequate capital reserves and liquidity. The Company intends
to divest its non-environmental businesses as promptly as prudently practicable.
Inflation has not had a significant effect on the Company's business, primarily
because the United States economy has been experiencing a period of relatively
low inflation.
The Company's capital needs, earnings and cash flow are somewhat dependent on
events beyond the Company's control, such as weather patterns, the state of the
economy, and changes in existing governmental and environmental regulations.
28
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
-----------------
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 10.1 Form of Amended and Restated Indemnity
Agreement between the Registrant and its
directors and officers.
Exhibit 27. Financial Data Schedule.
(b) Reports on Form 8-K.
--------------------
Since March 31, 1995, the Registrant has filed the following
Current Reports on Form 8-K:
(i) Current Report on Form 8-K dated April 3, 1995, Item 5
Other Events (reporting the appointment of additional
members to the Registrant's Board of Directors and
Special Committee).
(ii) Current Report on Form 8-K dated June 26, 1995, Item 5
Other Events (reporting an agreement in principle to
sell the Registrant's precious metals mining
subsidiary and the Registrant's entry into a mining
technology exchange agreement to sell Australian
patents of highwall mining machines and certain other
related technology).
29
<PAGE>
(iii) Current Report on Form 8-K dated July 11, 1995, Item 5
Other Events (reporting the withdrawal of the proposal
of March 1, 1995 of Larry, Robert and Bruce Addington
to exchange their common stock of the Registrant and
other consideration for the Registrant's non-
environmental operations and the resignation of
certain members of the Board of Directors and the
Special Committee).
(iv) Current Report on Form 8-K dated August 2, 1995, Item
5 Other Events (reporting amendments to the agreement
in principle to sell the Registrant's precious metals
mining subsidiary).
(v) Current Report on Form 8-K dated August 4, 1995, Item
5 Other Events (reporting the appointment of four new
members to the Registrant's Board of Directors and
the sale of shares of the Registrant's common stock
by Larry, Robert and Bruce Addington to HPB
Associates, L.P.).
No financial statements were filed with any of the above-referenced
reports.
30
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ADDINGTON RESOURCES, INC.
(Registrant)
Date: August 21, 1995 By: /s/ Larry Addington
----------------------- -----------------------------------
Larry Addington
Chief Executive Officer, Director
Date: August 21, 1995 By: /s/ R. Douglas Striebel
----------------------- -----------------------------------
R. Douglas Striebel
Vice President and
Chief Financial Officer
31
<PAGE>
FORM OF AMENDED AND RESTATED INDEMNITY AGREEMENT
This Agreement is made as of the _____ day of _____________,
19___, between Addington Resources, Inc., a Delaware corporation
(the "Corporation"), and _________________ (the "Indemnitee"), a
director and/or officer of the Corporation.
RECITALS
A. The Indemnitee is currently serving as a director and/or
officer of the Corporation and the Corporation wishes the Indemni-
tee to continue in such capacity. The Indemnitee is willing, under
certain circumstances, to continue in such capacity.
B. The Corporation's By-laws (the "By-laws") provide that
the Corporation shall indemnify each of its directors and officers
(among others) to the fullest extent permitted by law. The General
Corporation Law of the State of Delaware (the "Statute"), by its
terms, recognizes that such indemnification is not exclusive of
other rights that may arise by agreement, vote of shareholders or
as otherwise therein provided.
C. The Corporation may decide to purchase policies of
directors' and officers' liability insurance ("D&0 Insurance").
However, D&0 Insurance coverage has been severely limited, the
premium costs have increased severalfold, and the availability of
such insurance at a reasonable price is uncertain. Accordingly,
any policy which the Corporation may be able to obtain for its
directors and officers may apply only to the extent that the Cor-
poration is not permitted by law to indemnify its directors and
officers or if the Corporation is financially unable to pay the
indemnification permitted by law.
D. The indemnities available under the Corporation's By-laws
and the D&0 Insurance may not be adequate to protect the Indemnitee
against the risks associated with service to the Corporation.
AGREEMENT
NOW, THEREFORE, in order to induce the Indemnitee to continue
to serve as a director and/or officer of the Corporation and in
consideration for his or her continued services, and in order to do
everything possible to procure and maintain adequate D&O Insurance
coverage, the Corporation hereby agrees to indemnify the Indemnitee
as follows:
1. Indemnity. The Corporation shall indemnify to the
fullest extent permitted under applicable law and pay on behalf of
the Indemnitee, and his executors, administrators or assigns, any
amount which the Indemnitee is or becomes legally obligated to pay
because of any claim, action, suit or proceeding of any kind
(whether civil, criminal, administrative, investigative, formal or
informal) made or threatened against the Indemnitee because of any
<PAGE>
act or omission or neglect or breach of duty, including any actual
or alleged error or misstatement or misleading statement, which the
Indemnitee commits or suffers while acting in the capacity as a
director or officer of the Corporation or, at the request of the
Corporation, as an officer, director or trustee of a partnership,
joint venture, trust or other enterprise (including service with
respect to employee benefit plans) and solely because of being a
director, officer or trustee. The payments which the Corporation
shall be obligated to make hereunder shall include, among other
things, damages (including punitive or exemplary damages),
judgments, settlements, fines, penalties and other liabilities and
costs, costs of investigation and costs of defense of legal actions
(including attorney's fees), claims or proceedings, and appeals
therefrom, and costs of attachments or similar bonds; provided
however, that the Corporation shall not be obligated to make any
payments hereunder, including fines, fees or other obligations
imposed by law which it is prohibited by applicable law from paying
by way of indemnity (or any other reason) to the Indemnitee.
2. Enforcement. If a claim under this Agreement is not paid
by the Corporation, or on its behalf, within sixty (60) days after
a written claim has been received by the Corporation, the claimant
may at any time thereafter bring suit against the Corporation to
recover the unpaid amount of the claim, and if successful in whole
or in part, the claimant shall be entitled to be paid also the
expense of prosecuting such claim.
3. Subrogation. In the event of payment under this Agree-
ment, the Corporation shall be subrogated to the extent of such
payment to all of the rights of recovery of the Indemnitee, who
shall execute all papers required and shall do everything that may
be necessary to secure such rights, including the execution of such
documents necessary to enable the Corporation effectively to bring
suit to enforce such rights.
4. Exclusions. The Corporation shall not be liable under
this Agreement to make any payment in connection with any claim
made against the Indemnitee:
(a) for which payment is actually made to the Indemni-
tee under a valid and collectible insurance policy,
except in respect of any deductible relating to
such insurance or any excess beyond the amount of
payment under such insurance;
(b) for which the Indemnitee is indemnified by the
Corporation otherwise than pursuant to this Agreement;
(c) if it is proved by final judgment in a court of law
or other adjudication to have been based upon or
attributable to the Indemnitee gaining in fact any
personal profit or advantage to which the
Indemnitee was not legally entitled;
(d) for an accounting of profits made from the purchase
or sale by the Indemnitee of securities of the
Corporation within the meaning of Section 16(b) of
the Securities Exchange Act of 1934 and amendments
thereto or similar provisions of any state statu-
tory law or common law;
<PAGE>
(e) brought about or contributed to by the dishonesty
of the Indemnitee seeking payment hereunder; however,
notwithstanding the foregoing, the Indemnitee
shall be protected under this Agreement as to any
claims upon which suit may be brought against the
Indemnitee by reason of any alleged dishonesty of
such Indemnitee, unless a judgment or other final
adjudication thereof adverse to the Indemnitee
shall establish that the Indemnitee committed (i)
acts of active and deliberate dishonesty (ii) with
actual dishonest purpose and intent and, which acts
were material to the cause of action so adjudicated; or
(f) if it is proved by final judgment in a court of law
that payment is prohibited by applicable law or is
against public policy.
For purposes of clause (e) above, "deliberate
dishonesty" and "dishonest purpose and intent" shall
not include any violation of federal securities law
reporting and disclosure requirements or breach of
fiduciary duties if the Indemnitee relied in good faith
upon advice of the Corporation's counsel or auditors or
otherwise reasonably believed there was no such
violation or breach of duty.
5. Partial Indemnity. If the Indemnitee is entitled under
any provision of this Agreement to indemnification by the Corpo-
ration for a portion of any costs, charges, or expenses, but not,
however, to indemnification for all of the total amount thereof,
the Corporation shall nevertheless indemnify the Indemnitee for the
portion of such costs, charges, or expenses to which the Indemnitee
is entitled.
6. Consent. No costs, charges or expenses for which indem-
nity shall be sought thereunder shall be incurred without the
Corporation's consent, which consent shall not be unreasonably
withheld.
7. Notice of Claim. The Indemnitee, as a condition prece-
dent to the Indemnitee's right to be indemnified under this Agree-
ment, shall give to the Corporation notice in writing as soon as
practicable of any claim made against the Indemnitee for which
indemnity will or could be sought under this Agreement. Notice to
the Corporation shall be directed to the attention of the Corporate
Secretary, Addington Resources, Inc.,1500 North Big Run Road,
Ashland, Kentucky 41101 (or such other address as the Corporation
shall designate in writing to the Indemnitee); notice shall be
deemed received if personally delivered, telecopied or sent by
prepaid mail properly addressed, the date of such notice being the
date postmarked. In addition, the Indemnitee shall give the
Corporation such information and cooperation as it may reasonably
require and as shall be within the Indemnitee's power.
8. Advancement of Expenses. Costs and expenses (including
attorneys' fees) incurred by the Indemnitee in defending or inves-
tigating any action, suit, proceeding or investigation shall be
paid by the Corporation in advance of the final disposition of such
matter, if the Indemnitee shall undertake in writing to repay any
<PAGE>
such advances in the event that it is ultimately determined that
the Indemnitee is not entitled to indemnification under the terms
of this Agreement. The advances to be made hereunder shall be paid
by the Corporation to the Indemnitee within twenty (20) days
following delivery of a written request therefore, together with
the required written undertaking, by the Indemnitee to the Corpora-
tion.
Notwithstanding the foregoing or any other provision of this
Agreement, if, in the opinion of the Corporation's counsel,
applicable law permits indemnification in any matter only as
authorized in a specific case upon a determination that the
Indemnitee has met a standard of conduct, no advance shall be made
by the Corporation if a determination is reasonably and promptly
made by the Board of Directors, by a majority vote of a quorum of
disinterested directors, or (if such a quorum is not obtainable or,
even if obtainable, a quorum of disinterested directors so directs)
by independent legal counsel, that, based upon the facts known to
the Board or counsel at the time such determination is made, such
standard of conduct has not been met.
The Indemnitee shall be entitled to a hearing before any such
determination and shall be entitled to be represented by counsel at
the expense of the Corporation in such hearing. The Indemnitee
will be presumed to have met the required standard of conduct and
the Corporation shall have the burden of proof in making any
determination contrary to such presumption.
9. Employee Benefit Plans. For purposes of this Agreement,
the Indemnitee's capacity as a director of the Corporation shall
include any service by the Indemnitee, on behalf or at the request
of the Corporation, as a fiduciary with respect to any employee
benefit plan, its participants, or beneficiaries; references to
"fines" shall include any excise taxes asserted on a person with
respect to any employee benefit plan.
10. Counterparts. This Agreement may be executed in any
number of counterparts, all of which taken together shall consti-
tute one instrument.
11. Non-Exclusivity. Nothing herein shall be deemed to
diminish or otherwise restrict the Indemnitee's right to indemni-
fication under any provision of the Restated Certificate of Incor-
poration or Bylaws of the Corporation or under Delaware law.
12. Governing Law. This Agreement shall be governed by and
construed in accordance with Delaware law.
13. Successors and Assigns. This Agreement shall be binding
upon all successors and assigns of the Corporation (including any
transferee of all or substantially all of its assets and any
successor by merger or operation of law) and shall inure to the
benefit of the heirs, personal representatives and estate of the
Indemnitee.
14. Separability; Interpretation of Agreement. If any pro-
visions of this Agreement shall be held to be invalid, illegal or
unenforceable for any reason whatsoever (i) the validity, legality
and enforceability of the remaining provisions of this Agreement
(including without limitation, all portions of any paragraphs of
<PAGE>
this Agreement containing any such provision held to be invalid,
illegal or unenforceable, that are not by themselves invalid,
illegal or unenforceable) shall not in any way be affected or
impaired thereby, and (ii) to the fullest extent possible, the
provisions of this Agreement (including, without limitation, all
portions of any paragraph of this Agreement containing any such
provision held to be invalid, illegal or unenforceable, that are
not themselves invalid, illegal or unenforceable) shall be con-
strued so as to give effect to the intent of the parties that the
Corporation provides indemnification to the Indemnitee to the
fullest extent permissible.
15. Savings Clause. Whenever there is a conflict between any
provision of this Agreement and any applicable present or future
statute, law or regulation contrary to which the Corporation and
the Indemnitee have no legal right to contract, the latter shall
prevail, but in such event the affected provisions of this Agree-
ment shall be curtailed and restricted only to the extent necessary
to bring them within applicable legal requirements.
16. Coverage. The provisions of this Agreement shall apply
with respect to the Indemnitee's service as an officer and/or
director of the Corporation prior to the date of this Agreement and
with respect to all periods of such service after the date of this
Agreement, even though the director and/or officer may have ceased
to be a director and/or officer of the Corporation.
17. Modification and Waiver. No supplement, modification or
amendment of this Agreement shall be binding unless executed in
writing by both of the parties hereto. The modification of
provisions in the Corporation's Restated Certificate of
Incorporation relating to indemnification shall have no effect on
the scope of indemnification provided under this Agreement. No
waiver of any of the provisions of this Agreement shall be deemed
or shall constitute a waiver of any other provision hereof (whether
or not similar) nor shall such waiver constitute a continuing
waiver.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and signed as of the day and year
first above written.
ADDINGTON RESOURCES, INC.,
a Delaware corporation
By
Name: _______________________
Title: ______________________
INDEMNITEE
By
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<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
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