<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, 1996
--------------------------------------
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)
771 Corporate Drive, Suite #1000
Lexington, KY 40503
----------------------------------------
(Address of principal executive offices)
Registrant's telephone number, including area code (606) 223-3824
--------------
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the Registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes x No
---- ----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
Class - Common stock, $1.00 Par Value
-----
Outstanding at August 1, 1996 - 15,189,834 shares
----------------------------- -------------------
<PAGE>
ADDINGTON RESOURCES, INC. AND SUBSIDIARIES
------------------------------------------
INDEX
-----
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I. Consolidated Financial Information
ITEM 1. Consolidated Financial Statements
Consolidated Balance Sheets as of June 30, 1996 (Unaudited)
and December 31, 1995 3-4
Consolidated Statements of Operations (Unaudited)
Three Months and Six Months Ended June 30, 1996 and 1995 5
Consolidated Statements of Cash Flows (Unaudited)
Six Months Ended June 30, 1996 and 1995 6
Notes to Consolidated Financial Statements (Unaudited) 7-11
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 12-19
PART II. Other Information 20
SIGNATURES 21
</TABLE>
2
<PAGE>
Item 1.
ADDINGTON RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
------------ -------------
(Unaudited)
(in thousands)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 2,624 $ 3,387
Accounts receivable, net 8,957 9,090
Prepaid expenses and other 3,937 3,246
------------ -------------
Total current assets 15,518 15,723
------------ -------------
PROPERTY, PLANT AND EQUIPMENT, at cost 130,375 119,414
Less accumulated depreciation (17,177) (13,667)
------------ -------------
113,198 105,747
------------ -------------
OTHER 7,465 6,812
------------ -------------
Total assets $ 136,181 $ 128,282
============ =============
</TABLE>
3
<PAGE>
ADDINGTON RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
----------- ------------
(Unaudited)
(in thousands)
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 4,023 $ 4,743
Current portion of long-term debt 1,929 1,823
Accrued expenses and other 5,876 3,504
----------- ------------
Total current liabilities 11,828 10,070
----------- ------------
NON-CURRENT LIABILITIES:
Long-term debt, less current portion 15,987 14,407
Accrued closure and post-closure costs 6,159 5,168
Other long-term liabilities 5,422 7,451
----------- ------------
Total non-current liabilities 27,568 27,026
----------- ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $1.00 par value; 30,000,000
shares authorized, 16,189,284 shares and
16,054,301 shares outstanding at June 30,
1996 and December 31, 1995, respectively 16,189 16,054
Paid-in capital 87,145 85,934
Retained earnings 7,076 2,823
Less treasury stock; 1,000,000 shares, at cost (13,625) (13,625)
----------- ------------
Total stockholders' equity 96,785 91,186
----------- ------------
Total liabilities and stockholders' equity $ 136,181 $ 128,282
=========== ============
</TABLE>
4
<PAGE>
ADDINGTON RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
1996 1995 1996 1995
--------- -------- -------- --------
(In thousands, except share amounts)
<S> <C> <C> <C> <C>
REVENUES $ 15,380 $ 14,253 $ 29,695 $ 25,001
--------- -------- -------- --------
COSTS AND EXPENSES:
Cost of operations 8,768 7,847 17,506 14,468
Depreciation and amortization 1,908 1,930 3,879 3,191
Selling, general and administrative 1,117 1,281 2,161 2,636
--------- -------- -------- --------
11,793 11,058 23,546 20,295
--------- -------- -------- --------
Income from operations 3,587 3,195 6,149 4,706
--------- -------- -------- --------
INTEREST AND OTHER INCOME (EXPENSE):
Interest income 1 170 27 284
Interest expense (79) (123) (142) (174)
Other, net (435) (31) (208) 188
--------- -------- -------- --------
(513) 16 (323) 298
--------- -------- -------- --------
Income before income tax provision 3,074 3,211 5,826 5,004
INCOME TAX PROVISIONS:
Federal 681 1,092 1,231 1,701
State 149 193 342 300
--------- -------- -------- --------
830 1,285 1,573 2,001
--------- -------- -------- --------
Income from continuing operations 2,244 1,926 4,253 3,003
DISCONTINUED OPERATIONS
Income from operations of discontinued segment (less
applicable income taxes of $2,030 and $2,219 for
the three and six months ended June 30, 1995) -- 3,066 -- 3,929
NET INCOME $ 2,244 $ 4,992 $ 4,253 $ 6,932
========= ======== ======== ========
EARNINGS PER SHARE:
Income from continuing operations $ .15 $ .12 $ .28 $ .19
Income from discontinued operations -- .19 -- .24
----------- ---------- ---------- ----------
Net income per share $ .15 $ .31 $ .28 $ .43
=========== ========== ========== =========
Equivalent shares of stock outstanding 15,369 16,224 15,349 16,127
=========== ========== ========== =========
</TABLE>
5
<PAGE>
ADDINGTON RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
1996 1995
-------- --------
(in thousands)
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income $ 4,253 $ 6,932
-------- --------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 3,879 3,191
Income from discontinued operations -- (3,929)
Gain on sale of assets -- (903)
Change in assets and liabilities, net of effects
from acquisitions and disposals-
(Increase) decrease in-
Accounts receivable 133 (219)
Prepaid expenses and other (691) (301)
Other assets (1,022) 2,211
Increase (decrease) in-
Accounts payable (720) (207)
Accrued expenses and other 343 (2,380)
Accrued closure and post-closure costs 991 1,024
-------- --------
Total adjustments 2,913 1,513
-------- --------
Net cash provided by operating activities 7,166 5,419
-------- --------
CASH FLOW FROM INVESTING ACTIVITIES:
Proceeds from sale of assets, net of disposal costs -- 4,125
Decrease in short term investments 263
Additions to property, plant and equipment (10,961) (11,190)
Net decrease in investment in discontinued operations -- (659)
-------- --------
Net cash used in investing activities (10,961) (7,461)
-------- --------
CASH FLOW FROM FINANCING ACTIVITIES:
Repayments of long-term debt (314) (4,111)
Issuance of common stock 1,346 971
Borrowings on revolving line of credit 2,000 3,000
-------- --------
Net cash provided by (used in) financing activities 3,032 (140)
-------- --------
Net (decrease) increase in cash and cash equivalents (763) 2,182
CASH AND CASH EQUIVALENTS, beginning of period 3,387 2,719
-------- --------
CASH AND CASH EQUIVALENTS, end of period $ 2,624 $ 537
======== ========
</TABLE>
6
<PAGE>
ADDINGTON RESOURCES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(Dollar amounts in thousands, except per share data)
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, 1996 and
1995 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, 1996, and results of operations
for the six months ended June 30, 1996 and 1995. 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. Merger Transaction
------------------
On June 25, 1996, the Company signed a definitive agreement to merge with
Republic Industries, Inc. ("Republic"). Under the terms of the merger
transaction, each outstanding share of the Company's common stock would be
converted into the right to receive .90 of a share of Republic common stock.
The merger transaction, which will be accounted for on a pooling of
interests basis, is subject to customary terms and conditions, including
compliance with covenants, accuracy of representations by the companies to
the merger agreement, approval by the stockholders of the Company, the
filing and clearance of the Republic registration statement and the
Company's related proxy by the Securities and Exchange Commission and the
receipt by the Company of confirmation of the fairness opinion by
Oppenheimer & Co., Inc. as of the date the proxy statement is mailed to
Company shareholders. The merger transaction received HSR clearance on July
31, 1996.
The Company's largest stockholders, HPB Associates, L.P., and Larry, Robert
and Bruce Addington, who collectively own approximately 45% of the Company's
outstanding common stock, have agreed to vote their shares in favor of the
merger transaction, and have delivered to Republic their irrevocable
proxies.
During the three months ended June 30, 1996, $750 is included in other
expense in the accompanying June 30, 1996, Consolidated Statements of
Operations in connection with professional fees incurred by the Company
related to this merger transaction.
The Company anticipates that the merger transaction will be consummated in
the fourth quarter of 1996.
3. Discontinued Operations
-----------------------
During the third quarter of 1995, the Company implemented a formal plan to
dispose of all of its non-environmental operations. These discontinued
operations consisted primarily of the following: coal mining, mining
equipment manufacturing and licensing, citrus properties in Belize, precious
and industrial metals mining and incidental limestone properties.
Accordingly, the Company's continuing
7
<PAGE>
operations are comprised of integrated solid waste management, which
includes landfill operations and waste collection and recycling services.
As discussed in Note 4, as of December 31, 1995, the Company had sold all of
its subsidiaries included in discontinued operations, hence fully disposing
of all non-environmental operations. The recorded transactions reflect the
disposal of all of the Company's non-environmental segments and,
accordingly, the operating results of these segments have been classified as
discontinued operations for all periods presented in the accompanying
consolidated financial statements. Operating results from the discontinued
operations were as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1995 JUNE 30, 1995
------------------ ----------------
<S> <C> <C>
Operating revenue $ 38,599 $ 64,675
-------- --------
Income before income taxes 5,096 6,148
Income tax provision 2,030 2,219
-------- --------
Net income from discontinued operations $ 3,066 $ 3,929
======== ========
</TABLE>
Most of the Company's revenues from discontinued operations were generated
under long-term coal sales contracts with electric utilities or other coal-
related organizations located in the Eastern U.S. Revenues were recognized
on coal sales in accordance with the sales agreement, which was usually when
the coal was shipped to the customer.
4. Sale of Subsidiaries (included in Discontinued Operations)
----------------------------------------------------------
a. Coal Mining, Mining Equipment Manufacturing and Licensing -
---------------------------------------------------------
On September 22, 1995, in a related party transaction, the Company
entered into a stock purchase agreement with Addington Enterprises,
Inc. (a company f/k/a Addington Acquisition Company, Inc., owned by
Larry Addington, Robert Addington and Bruce Addington; collectively,
the Addington Brothers) whereby the Company would receive $30,000,
subject to a working capital adjustment, in exchange for all the issued
and outstanding shares of common stock of its subsidiaries, Addington
Mining, Inc., Mining Technologies, Inc., Addwest Mining, Inc. and
Addington Coal Holding, Inc. This sale was consummated on November 2,
1995, at which time the proceeds received were used by the Company to
pay down its revolving line of credit. In addition, the Company
retained the right to receive certain contingent payments due under the
Company's technology sale to BHP Australia Coal Pty. Ltd. As of June
30, 1996, the Company estimates such payments may aggregate $3,000.
Included in the transaction described above and pursuant to an option
agreement dated August 4, 1995, the Company sold to the Addington
Brothers all the issued and outstanding shares of common stock of its
subsidiary, Tennessee Mining, Inc. According to the terms of the option
agreement, the Addington Brothers will pay the Company a royalty based
on tons of coal delivered under a certain coal sales contract, up to a
maximum aggregate royalty of $12,500. During the six months ended June
30, 1996, the Company has recorded royalty income of $403 (included in
other income in the accompanying June 30,1996, Consolidated Statement
of Operations) from the Addington Brothers under this agreement.
b. Citrus Properties -
-----------------
On September 22, 1995, in a related party transaction, the Company
entered into an agreement to sell all of the issued and outstanding
shares of common stock of its subsidiary, Belize River Fruit Co., to
Larry and Bruce Addington in exchange for 1,000 shares of common stock
of the Company owned by Larry and Bruce Addington. This transaction was
consummated on November 2, 1995, at which time the Company acquired the
1,000 shares
8
<PAGE>
valued at $13,625 and recorded them, at cost, as treasury stock. The
Company retained no obligations in connection with the sale and has
fully divested its investment in citrus operations.
c. Addwest Minerals, Inc. -
----------------------
Addwest Minerals, Inc. (Addwest), a wholly-owned subsidiary of the
Company, was organized to mine, extract and market precious and
industrial metals. On November 1, 1995, the Company entered into a
letter agreement, which was later finalized as a Stock Purchase
Agreement (the Agreement), that provided for the sale to an unrelated
party of all the capital stock of Addwest. On December 29, 1995, the
Company consummated the sale of Addwest.
The terms of the Agreement required the Company to contribute
additional capital to Addwest in an amount sufficient to pay
substantially all existing liabilities of Addwest through the date of
the Agreement, with the exception of the remaining balance on the
Rothschild gold loan. The proceeds received from the sale ($3,525) were
used to retire the remaining balance on the Rothschild gold loan and
the Company has been fully released from its obligations under that
loan.
d. New River Lime -
--------------
On November 17, 1995, the Company sold all of the real property, as
well as all buildings, structures and improvements of its wholly owned
subsidiary, New River Lime, Inc. (NRL), to an unrelated party for
$2,500 in cash. The Company retained no obligations in connection with
the sale and has fully divested its investment in NRL.
5. Commitments and Contingencies
-----------------------------
a. Legal Matters -
-------------
In the normal course of its operations, the Company may become involved
in a variety of legal disputes. Currently, the Company is a party to
certain litigation, including workers' compensation matters and other
minor business disputes.
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 on the consolidated
financial position of the Company.
b. 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 on the consolidated
financial position of the Company.
c. Environmental Service Contracts -
-------------------------------
The Company has commitments (primarily with municipalities) to operate
landfills and provide waste hauling services under various contracts
for terms of up to 40 years. Revenues for such contracts are generally
at stated rates but may be adjusted periodically for inflation.
9
<PAGE>
d. Environmental Insurance -
-----------------------
In order to meet existing government requirements, the Company has
obtained environmental impairment liability insurance coverage for
certain environmental risks arising from the operation of its landfill
facilities. However, if an environmental impairment were of a magnitude
that exceeded the Company's coverage, it could have a material adverse
effect on the Company's business or its financial condition and results
of operations.
e. Sale of Certain Subsidiaries -
----------------------------
During January 1994, the Company sold the stock of five of its coal
subsidiaries to Pittston Minerals Group, Inc. (Pittston). In connection
with the sale, the Company provided certain guarantees of
indemnification to Pittston. In connection with the sale of coal
subsidiaries to the Addington Brothers (see Note 4), the Company
received indemnification related to its guarantees to Pittston as well
as other matters, including its guaranty of certain mineral lease
royalty obligations and workers' compensation benefits.
6. 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 (included in results
of discontinued operations) to related parties consisting of approximately
$5,461 for trucking services, office rent and flight fees for the six months
ended June 30, 1995. There were no related party transactions during the six
months ended June 30, 1996.
The Company had amounts receivable from related parties of $5 as of December
31, 1995.
7. Stockholders' Equity
--------------------
During the six months ended June 30, 1996, and 1995, 120 and 6 respectively,
shares of common stock were issued in connection with the exercise of stock
options.
During the six months ended June 30, 1996 and 1995, 15 and 63 respectively,
shares of common stock were issued in connection with stock grants issued to
employees in 1989 and 1990. These stock grants specified that the recipient
of the stock grant remain employed by the Company for five 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 $135 and $69 respectively, and paid-in
capital increased $1,211 and $903 respectively, during the six months ended
June 30, 1996 and 1995.
8. New Accounting Pronouncements
-----------------------------
a. Long Lived Assets -
-----------------
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of" (SFAS No. 121), effective for fiscal years beginning after
December 15, 1995. The new standard requires that long-lived assets and
certain identified intangibles be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. In performing such impairment review,
companies are required to estimate the sum of future cash flows from an
asset and compare such amount to the asset's carrying amount. Any
excess of carrying amount over expected cash flows will result in a
possible write-down of an
10
<PAGE>
asset to its fair value. The Company adopted the provisions of SFAS No.
121 as of January 1, 1996. The adoption had no effect on the results of
operations or financial position of the Company.
b. Stock-Based Compensation -
------------------------
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" (SFAS No. 123), effective for fiscal years
beginning after December 15, 1995. The new standard encourages, but
does not require, a fair value based method of accounting for employee
stock options or similar equity instruments. It also allows an entity
to elect to continue to measure compensation cost under Accounting
Principles Board Opinion No. 25 "Accounting for Stock Issued to
Employees" (APB No. 25), but requires pro forma disclosures of net
income and earnings per share as if the fair value based method of
accounting had been applied. The Company expects to adopt SFAS No. 123
for its annual 1996 financial statements. In addition, the Company will
elect to continue to measure compensation cost under APB No. 25 and
comply with the pro forma disclosure requirements.
11
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations
- -------------
(amounts in thousands, except for per share data)
The following discussion reviews the Company's operations for the six months
ended June 30, 1996 and 1995, and should be read in conjunction with the
Company's audited consolidated financial statements and related notes thereto
included in the Company's annual report on Form 10-K for the year ended December
31, 1995. The Company has restated its previously issued financial statements in
connection with the Company's determination to discontinue its operations
relating primarily to coal mining, mining equipment manufacturing and licensing,
citrus properties in Belize, precious and industrial metals mining and
incidental limestone properties. The Company's continuing operations are
comprised of integrated solid waste management including landfill operations and
waste collection and recycling services.
As part of the Company's plan to dispose of all of its non-environmental
operations, it has taken the following actions:
(1) On September 22, 1995, the Company entered into a stock purchase
agreement with Addington Acquisition Company, Inc., Larry Addington, Robert
Addington and Bruce Addington (collectively, the "Addingtons") whereby the
Company agreed to sell, for $30,000, subject to certain working capital
adjustments, in exchange for all the issued and outstanding shares of common
stock of its subsidiaries, Addington Mining, Inc., Mining Technologies,
Inc., Addwest Mining, Inc. and Addington Coal Holding, Inc. In addition, the
Company retained the right to receive certain payments (anticipated to
aggregate $3,000 after June 30, 1996) due under the Company's technology
sale to BHP Australia Coal Pty. Ltd. The sale was consummated on November 2,
1995.
(2) Included in this transaction and pursuant to an option agreement dated
August 4, 1995, the Company sold to the Addingtons all of the issued and
outstanding shares of common stock of its subsidiary, Tennessee Mining, Inc.
The Company is entitled to receive a royalty based on tons of coal delivered
under a certain coal sales contract, up to a maximum aggregate royalty of
$12,500.
(3) On September 22, 1995, the Company entered into an agreement to sell
all of the issued and outstanding shares of common stock of its subsidiary,
Belize River Fruit Co., to Larry and Bruce Addington in exchange for 1,000
shares of common stock of the Company owned by Larry and Bruce Addington.
The transaction was consummated on November 2, 1995.
(4) On November 17, 1995, the Company sold all of the real property, as
well as all buildings, structures and improvements of its wholly owned
subsidiary, New River Lime, Inc. (NRL), to an unrelated party for $2,500 in
cash.
(5) On November 1, 1995, the Company entered into a letter agreement that
provided for the sale to an unrelated party of all the capital stock of
Addwest Minerals, Inc. (Addwest). On December 29, 1995, the Company
consummated the sale of the capital stock of Addwest. The total amount of
proceeds received by the Company with the sale of Addwest was $3,525.
On June 25, 1996, the Company signed a definitive agreement to merge with
Republic Industries, Inc. ("Republic"). Under the terms of the merger
transaction, each outstanding share of the Company's common stock would be
converted into the right to receive .90 of a share of Republic common stock.
The merger transaction, which will be accounted for on a pooling of interests
basis, is subject to customary terms and conditions, including compliance with
covenants, accuracy of representations by the companies to the merger agreement,
approval by the stockholders of the Company, the filing and clearance of the
Republic registration statement and the Company's related proxy by the
Securities and Exchange Commission and the receipt by the Company of
confirmation of the fairness opinion by Oppenheimer & Co. as of the date the
proxy statement is mailed to Company shareholders. The merger transaction
received HSR clearance on July 31, 1996.
The Company's largest stockholders, HPB Associates, L.P., and Larry, Robert and
Bruce Addington, who collectively own approximately 45% of the Company's
outstanding common stock, have agreed to vote their shares in favor of the
merger transaction, and have delivered to Republic their irrevocable proxies.
The Company anticipates that the merger transaction will be consummated in the
fourth quarter of 1996.
12
<PAGE>
Results of Operations
---------------------
Quarter Ended June 30, 1996 Compared with Same Period 1995
----------------------------------------------------------
(amounts in thousands, except per share data)
Net income from continuing operations during the quarter ended June 30, 1996,
was $2,244 or $.15 per share, compared to net income of $1,926 or $.12 per share
for the quarter ended June 30, 1995.
Total revenues increased from $14,253 generated during the quarter ended June
30, 1995, to $15,380 during the quarter ended June 30, 1996. This 8% increase in
total revenues is primarily a result of the replacement of low revenue tonnage
with higher revenue tonnage at existing facilities. During the quarters ended
June 30, 1996 and 1995, tonnage received at the Company's landfills was
approximately 475 tons.
As a percentage of total revenues, cost of operations remained relatively
unchanged at 57% for the quarter ended June 30, 1996, as compared to 55% for the
quarter ended June 30,1995.
Depreciation and amortization remained relatively unchanged at $1,908 during the
quarter ended June 30,1996, as compared to $1,930 for the quarter ended June
30,1995, reflecting similar volumes during the periods. Capitalized landfill
development costs are amortized as permitted airspace of the landfill or the
related cell, as applicable, is consumed.
Selling, general and administrative expenses decreased $164 (or 13%) during the
quarter ended June 30,1996, as compared to the quarter ended June 30,1995. As a
percentage of revenues, selling, general and administrative expenses declined
from 9% during the quarter ended June 30,1995, to 7.3% during the quarter ended
June 30,1996. This decline is primarily due to lower administrative expenses
incurred during 1996 due to lower corporate overhead incurred, primarily payroll
related expenses, resulting from overall improved operating efficiencies at the
Company's environmental operations.
Income from operations increased $392 (or 12%) during the quarter ended June 30,
1996, as compared to the quarter ended June 30,1995. Income from operations
increased as a percentage of revenues from 22% during the three months ended
June 30, 1995, to 23% during the three months ended June 30, 1996. The increase
in income from operations in dollars and as a percentage of revenues is
attributable to the higher revenues generated by the Company's landfill
operations allowing the Company to spread its fixed costs over a larger revenue
base, and also a result of lower selling, general and administrative expenses
incurred during the three months ended June 30, 1996, compared to the three
months ended June 30, 1995.
Interest income decreased to $1 during the quarter ended June 30,1996, as
compared to $170 during the quarter ended June 30,1995. The Company has from
time to time paid amounts into escrow under state regulations related to closure
and post-closure cost of its landfills. The decrease in interest income reflects
the decrease in escrow cash balances outstanding during the quarter ended June
30, 1996, as compared to 1995. During the fourth quarter of 1995, the Company
issued letters of credit in exchange for reducing or eliminating virtually all
of its escrow accounts.
Interest expense declined 36% to $79 during the quarter ended June 30,1996,
compared to $123 during the quarter ended June 30, 1995. The decline in interest
expense is primarily attributable to the Company utilizing the cash received
from the sale of subsidiaries (See Note 4) to reduce outstanding indebtedness.
The amount of interest capitalized during the second quarter of 1996 was $401
compared to $644 capitalized during the second quarter of 1995.
Other expense was $435 during the quarter ended June 30,1996, compared to other
expense of $31 during the quarter ended June 30,1995. Included in other expense
during the quarter ended June 30, 1996, are $750 of professional fees related to
the proposed merger with Republic Industries, Inc.(See Note 2) net of royalty
income of $254 related to the sale of Tennessee Mining, Inc. (See Note 4).
The Company's effective tax rate for continuing operations decreased from 40%
during the quarter ended June 30, 1995, to 27% during the quarter ended June 30,
1996, primarily due to the reduction of valuation reserves.
13
<PAGE>
As of December 31, 1995, the Company had sold all of its subsidiaries included
in discontinued operations, fully disposing of all non-environmental operations
(see Note 4). The recorded transactions reflect the disposal of all of the
Company's non-environmental segments and accordingly, the operating results of
these segments have been classified as discontinued operations for all periods
presented in the accompanying consolidated financial statements. Operating
results from the discontinued operations were as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30, 1995
------------------
<S> <C>
Operating revenue $38,599
-------
Income before income taxes 5,096
Income tax provision 2,030
-------
Net income from discontinued operations $ 3,066
=======
</TABLE>
14
<PAGE>
Results of Operations
Six Months Ended June 30, 1996, Compared with Same Period 1995
--------------------------------------------------------------
(amounts in thousands, except per share data)
Net income from continuing operations during the six months ended June 30, 1996,
was $4,253 or $.28 per share, compared to net income of $3,003 or $.19 per share
for the six months ended June 30, 1995.
Total revenues increased from $25,001 generated during the six months ended June
30, 1995, to $29,695 during the six months ended June 30, 1996. This 19%
increase in total revenues primarily reflects the 13% increase in tons of waste
received at the Company's landfills. During the six months ended June 30, 1996,
tonnage received at the Company's landfills increased to 896 tons from 796 tons
received during the 1995 first six months. This increase in tons is primarily
attributable to internal growth, including additional tonnage received at the
Company's East Carolina and Epperson sites under new contracts entered into in
May and June 1995, respectively.
As a percentage of total revenues, cost of operations remained relatively
unchanged at 59% for the six months ended June 30, 1996, as compared to 58% for
the six months ended June 30, 1995.
Depreciation and amortization increased $688 (or 22%) during the six months
ended June 30, 1996, as compared to the six months ended June 30, 1995. This
increase is primarily attributable to an increase in tonnage received as well as
the purchase and development of additional capital assets within the
environmental operations. Capitalized landfill development costs are amortized
as permitted airspace of the landfill or the related cell, as applicable, is
consumed.
Selling, general and administrative expenses decreased $475 (or 18%) during the
six months ended June 30, 1996, as compared to the six months ended June 30,
1995. As a percentage of revenues, selling, general and administrative expenses
declined from 10.5% during the six months ended June 30, 1995, to 7.3% during
the six months ended June 30, 1996. This decline is primarily due to lower
administrative expenses incurred during 1996 due to lower corporate overhead
incurred, primarily payroll related expenses, resulting from overall improved
operating efficiencies at the Company's environmental operations.
Income from operations increased $1,443 (or 31%) during the six months ended
June 30, 1996, as compared to the six months ended June 30, 1995. Income from
operations increased as a percentage of revenues from 19% during the six months
ended June 30, 1995, to 21% during the six months ended June 30, 1996. The
increase in income from operations in dollars and as a percentage of revenues is
attributable to the higher revenues generated by the Company's landfill
operations allowing the Company to spread its fixed costs over a larger revenue
base and also as a result of lower selling, general and administrative expenses
incurred during six months ended June 30, 1996, compared to the six months ended
June 30, 1995.
Interest income decreased to $27 during the six months ended June 30, 1996, as
compared to $284 during the six months ended June 30, 1995. The Company has
from time to time paid amounts into escrow under state regulations related to
closure and post-closure cost of its landfills. The decrease in interest income
reflects the decease in escrow cash balances outstanding during the six months
ended June 30, 1996, as compared to 1995. During the fourth quarter of 1995,
the Company issued letters of credit in exchange for reducing or eliminating
virtually all of its escrow accounts.
Interest expense declined 18% to $142 during the six months ended June 30, 1996,
as compared to $174 during the six months ended June 30, 1995. The decline in
interest expense is primarily attributable to the Company utilizing the cash
received from the sale of subsidiaries (See Note 4) to reduce outstanding
indebtedness. The amount of interest capitalized during the six months of 1996
was $758 compared to $1,168 capitalized during the first six months of 1995.
Other expense was $208 during the six months ended June 30, 1996, compared to
other income of $188 during the six months ended June 30, 1995. Included in
other expense during the quarter ended June 30, 1996, are approximately $750 of
professional fees related to the proposed merger with Republic Industries, Inc.
(See Note 2) net of $403 of royalty income related to the sale of Tennessee
Mining, Inc. (See Note 4).
15
<PAGE>
The Company's effective tax rate for continuing operations decreased from 40%
during the six months ended June 30, 1995, to 27% during the six months ended
June 30, 1996, primarily due to the reduction of valuation reserves.
As of December 31, 1995, the Company had sold all of its subsidiaries included
in discontinued operations, fully disposing of all non-environmental operations
(see Note 4). The recorded transactions reflect the disposal of all of the
Company's non-environmental segments and accordingly, the operating results of
these segments have been classified as discontinued operations for all periods
presented in the accompanying consolidated financial statements. Operating
results from the discontinued operations were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, 1995
----------------
<S> <C>
Operating revenue $64,675
-------
Income before income taxes 6,148
Income tax provision 2,219
-------
Net income from discontinued operations $ 3,929
=======
</TABLE>
16
<PAGE>
Financial Condition
-------------------
(amounts in thousands, except per share data)
The Company's cash and cash equivalents and short-term investments totaled
$2,624 at June 30, 1996, compared to $3,387 at December 31, 1995. This 23%
decrease is primarily due to the timing of accounts receivable collections,
accounts payable payments and capital expenditures.
Accounts receivable at June 30, 1996, totaled $8,957 compared to the balance of
$9,090 at December 31, 1995. This 1.5% decrease is primarily due to the timing
of accounts receivable collections.
Prepaid expenses and other at June 30, 1996, totaled $3,937 compared to the
balance of $3,246 at December 31, 1995. This 21% increase is primarily due to
the timing of payments on prepaid insurance and other prepaid expenses.
Property, plant and equipment, net, increased to $113,198 at June 30, 1996, as
compared to $105,747 at December 31, 1995. This $7,451 (7%) increase is
primarily due to an increase in landfill equipment, cell construction at
existing landfills and other capitalized environmental related development
costs, net of depreciation charges.
Accounts payable at June 30, 1996, decreased to $4,023 as compared to the
December 31, 1995, balance of $4,743. This 15% decrease is primarily due to the
timing of payments on accounts payable.
The Company's current portion of long-term debt outstanding increased to $1,929
at June 30, 1996, as compared to $1,823 at December 31, 1995, primarily due to
timing of certain debt payments.
Accrued expenses and other liabilities increased to $5,876 at June 30, 1996, as
compared to the $3,504 balance at December 31, 1995. This 68% increase is
primarily due to the timing of payments relating to income taxes and other
expenses.
The Company's long-term debt outstanding increased to $15,987 at June 30, 1996,
as compared to $14,407 at December 31, 1995. During the first six months of 1996
the Company borrowed $2,000 on its line of credit to fund certain landfill
construction and development costs.
Accrued closure and post-closure costs at June 30, 1996, increased to $6,159 as
compared to $5,168 at December 31, 1995. The accrual for closure and post-
closure cost is based upon the estimated aggregate closure and post-closure
costs to be incurred at the time that the landfills cease to accept waste and
are closed. The amount of the accrual is calculated using the number of tons
received by the landfills each year. Therefore, the increase in this accrual is
due to the landfills receiving additional tons during the first six months of
1996.
The Company's other long-term liabilities decreased to $5,422 at June 30, 1996,
as compared to $7,451 at December 31, 1995. This accrual primarily relates to
income taxes and the remaining reserve recorded to cover costs associated with
the disposal of the discontinued operations.
17
<PAGE>
Liquidity and Capital Resources
-------------------------------
(amounts in thousands, except per share data)
The working capital needs of the Company have been met primarily through a
combination of funds provided by banks, proceeds from the sale of non-
environmental operations, and cash generated through operations.
The overall net decrease in cash and cash equivalents was $763 for the six
months ended June 30, 1996, and an increase of $2,182 for the six months ended
June 30, 1995.
Net cash provided by operations was $7,166 and $5,419 for the six months ended
June 30, 1996, and 1995, respectively. This fluctuation between years is
primarily a result of improved operating income during the first six months of
1996.
Net cash used in investing activities was $10,961 and $7,461 for the six months
ended June 30, 1996, and 1995, respectively. Both amounts represent acquisitions
of environmental company assets as well as capitalized landfill construction and
development costs.
Net cash provided by (used in) financing activities was $3,032 and ($140) for
the six months ended June 30, 1996 and 1995, respectively. The 1996 amount
primarily represents the Company borrowing on its line of credit. The 1995
amount primarily represents repayments of certain long-term debt net of
borrowings on the revolving line of credit.
Net working capital as of June 30, 1996, was approximately $3,690 compared to
approximately $5,653 as of December 31, 1995.
As of June 30, 1996, the Company had approximately $19,846 available under its
line of credit. The line of credit is secured by substantially all of the
Company's assets and bears interest at rates ranging from the Eurodollar rate
plus 1.75% to 2.75% to the bank's base rate plus 0% to .75%. The maximum amount
available under the line of credit, which expires October 31, 1997, is $50,000,
reduced by issued letters of credit of approximately $28,154 and borrowings of
$2,000.
The Company has various operating and capital leases for transportation and
other equipment. Total non-cancelable minimum lease payments for the remainder
of 1996 will be approximately $2,300.
There are certain environmental contingencies, primarily consisting of landfill
closure obligations, related to the Company's integrated solid waste disposal
system operations. The Company estimates and records its costs associated with
closure and post-closure monitoring and maintenance for operating landfills
based upon relevant government regulation. 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, 1996, the
Company had accrued expenses for closure costs of approximately $6,159. 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
June 30, 1996, and assuming significant additional future capital costs are made
to complete expansion efforts over the expected lives of the landfills,
approximately $85,700 of additional expense accruals are to be provided over the
remaining lives as permitted airspace of these facilities is consumed. Such
additional accruals to be provided have been estimated based 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 amount of additional accruals to be provided, the actual amount
to be expended may differ substantially.
The Company is required to provide financial assurance to various regulatory
bodies for certain of its estimated closure and post-closure monitoring and
maintenance costs. The Company has provided letters of credit and established
trust funds in response to such requirements.
18
<PAGE>
The Company projects capital expenditures for existing landfill facilities for
the remainder of 1996 to be $10.3 million, although the amounts expended may
differ substantially from this amount. The Company is actively pursuing
additional landfill facilities through acquisitions, privatization of
municipally owned facilities, as well as start-up facilities. In addition to
planned expenditures for existing facilities, the Company anticipates that the
Person County landfill and the new Mid-State landfill will be constructed in
1996 at a cost of approximately an additional $6.2 million during the remainder
of 1996, but there can be no assurance that these landfills will become
operational in 1996 nor that the amounts actually expended will not differ
substantially from this amount.
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.
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 the state of the economy, changes
in existing governmental and environmental regulations and the availability of
expansion opportunities.
Environmental Matters
---------------------
The Company, during its normal course of business, is faced with the need to
expend funds for environmental protection and remediation, however, such
expenditures are not expected to have a materially adverse effect on its
financial condition or results of operations considering its business is based
upon compliance with environmental laws and regulations and its services are
priced accordingly. Though it is possible that such costs might increase in the
future, the Company believes that in general it benefits from increased
government regulation based on an increased demand for its services and adequate
resources and experience to manage environmental risk. As part of its ongoing
operations, the Company provides for its estimated closure and post-closure
monitoring and maintenance costs as remaining permitted airspace at its landfill
facilities are consumed. Closure and post-closure monitoring and maintenance
costs include final capping of the site, site inspections, groundwater
monitoring, leachate management, methane gas control and recovery, and operation
and maintenance costs as the remaining permitted airspace of such facilities is
consumed.
- --------------------------------------------------------------------------------
The statements contained in this Form 10-Q contain forward looking statements
which involve risks and uncertainties. The Company's actual results may vary
significantly from those stated in any forward looking statements. Factors that
may cause such difference include, but are not limited to, regulatory changes,
loss or failure to obtain governmental permits, competition, the ongoing
consolidation of the solid waste management business and the availability of
acquisition and expansion opportunities on attractive terms.
- --------------------------------------------------------------------------------
19
<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 Agreement and Plan of Merger, dated as of June 25, 1996, by and
among Republic Industries, Inc., RI/AR Merger Corp. and Addington
Resources, Inc. (The "Agreement") (including exhibits referenced
in the Agreement), incorporated by reference to the Company's
Form 8-K dated June 25, 1996. Omitted from this Exhibit, as
filed, are the schedules referenced in the Agreement. The Company
will furnish supplementally a copy of any such schedules to the
Commission upon request.
Exhibit 10.2 Voting Agreement, dated as of June 25, 1996, by HPB Associates,
L.P., Harold Blumenstein, James Grosfield, Larry Addington,
Robert Addington and Bruce Addington with Republic Industries,
Inc., incorporated by reference to the Company's Form 8-K dated
June 25, 1996.
Exhibit 10.3 Sixth Amendment dated March 20, 1996, and Seventh Amendment dated
July 23, 1996, to Amended and Restated Revolving Credit Agreement
dated as of May 31, 1994.
Exhibit 27 Financial Data Schedule.
(b) Reports on Form 8-K
-------------------
During the quarter ended June 30, 1996, the Company filed a
Current Report on Form 8-K dated May 31, 1996, Item 5 Other
Events (reporting execution of an agreement in principle with
Republic Industries, Inc. ("Republic") for Republic to acquire
the Company in a merger transaction). Following the end of the
quarter ended June 30, 1996, the Company filed a Form 8-K Current
Report dated June 25, 1996, Item 5 Other Events (reporting
execution of a definitive agreement with Republic for Republic to
acquire the Company in a merger transaction and execution of a
voting agreement between principal stockholders of the Company
and Republic whereby they have agreed to vote all shares owned by
them in favor of the merger).
No financial statements were filed with any of the above-
referenced reports.
20
<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 13, 1996 By: /s/ R. Douglas Striebel
--------------- -------------------------
R. Douglas Striebel
Vice President and
Chief Financial Officer
21
<PAGE>
Exhibit 10.3
SIXTH AMENDMENT TO
AMENDED AND RESTATED
REVOLVING CREDIT AGREEMENT
--------------------------
THIS SIXTH AMENDMENT TO AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT
(this "Sixth Amendment") is made and entered into as of the 20th day of March,
1996, by and among ADDINGTON ENVIRONMENTAL, INC., a Kentucky corporation (the
"Parent"), GREEN VALLEY ENVIRONMENTAL CORP. ("Green Valley"). MID-STATE
ENVIRONMENTAL, INC. ("Mid-State"), the Subsidiaries of the Parent listed on
Schedule 1 hereto, (the "Subsidiaries", the Parent, Green Valley, Mid-State, and
such Subsidiaries herein collectively referred to as the "Borrowers"), each of
which Borrowers is a Kentucky corporation, and (unless otherwise listed on
Schedule 1 hereto) each of which Borrowers has its principal place of business
at 771 Corporate Drive, Suite 900, Lexington, Kentucky 40503, ADDINGTON
RESOURCES, INC. ("ARI") and ADDINGTON HOLDING COMPANY, INC., ("AHC"), each of
which companies is a Delaware corporation with its principal place of business
at 771 Corporate Drive, Suite 900, Lexington, Kentucky 40503 (collectively, the
"Guarantors," and, individually, a "Guarantor"), THE FIRST NATIONAL BANK OF
BOSTON ("FNBB"), a national banking association having its principal place of
business at 100 Federal Street, Boston, Massachusetts 02110, BANK OF AMERICA
ILLINOIS (formerly Continental Bank and Continental Bank N.A.), having its
principal place of business at 231 South LaSalle Street, Chicago, Illinois 60697
(each a "Bank" and collectively, the "Banks"), and FNBB as agent for the Banks
(the "Agent").
WHEREAS, the Borrowers, the Guarantors, the Banks and the Agent have
entered into an Amended and Restated Revolving Credit Agreement dated as of May
31, 1994 as amended June 30, 1994, October 12, 1994, February 21, 1995, December
15, 1995, and January 24, 1996 (as further amended and in effect from time to
time, the "Credit Agreement") pursuant to which the Banks extended credit to the
Borrowers on the terms set forth therein;
WHEREAS, the Banks and the Borrowers have agreed to amend the Credit
Agreement as hereinafter set forth:
NOW, THEREFORE, for good and valuable consideration the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. Definitions. Capitalized terms used herein without definition have the
meanings ascribed to them in the Credit Agreement.
<PAGE>
2
2. AMENDMENT TO (S)1.1
(a) The following definitions appearing in (S)1.1 of the Credit
Agreement are hereby deleted in their entirety and the following substituted in
place thereof:
"Applicable L/C Fee. The applicable Letter of Credit Fee set forth in
the following table:
<TABLE>
<CAPTION>
APPLICABLE L/C FEE FOR APPLICABLE L/C FEE FOR
PRICING RATIO LETTERS OF CREDIT BACKING ALL OTHER LETTERS OF CREDIT
NON-FINANCIAL OBLIGATIONS (INCLUDING LETTERS OF
(INCLUDING LETTERS OF CREDIT BACKING IRBS AND
CREDIT ISSUED DIRECTLY TO BONDS FOR LANDFILL CLOSURE
GOVERNMENTAL AND POST-CLOSURE)
AUTHORITIES FOR
PERFORMANCE CONTRACTS
AND LANDFILL CLOSURE/
POST-CLOSURE OBLIGATIONS)
<S> <C> <C>
- --------------------------------------------------------------------------------
less than 1.5:1 0.5% per annum 1.00% per annum
- --------------------------------------------------------------------------------
greater than or equal 0.625% per annum 1.25% per annum
to 1.5:1 but less than
2:1
- --------------------------------------------------------------------------------
greater than or equal 0.75% per annum 1.50% per annum
to 2:1 but less than
2.5:1
- --------------------------------------------------------------------------------
greater than or equal 0.875% per annum 1.75% per annum
to 2.5:1 but less than
3:1
- --------------------------------------------------------------------------------
greater than or equal 1.00% per annum 2.00% per annum
to 3:1
- --------------------------------------------------------------------------------
</TABLE>
Any change in the Applicable L/C Fee shall be reflected in the next quarterly
invoice for Letter of Credit Fees issued by the Agent after receipt by the Banks
of financial statements delivered pursuant to (S)6.4(a) or (b) hereof which
indicate a change in the Pricing Ratio and in the Applicable L/C Fee in
accordance with the above table, and the Applicable L/C Fee payable shall be the
Applicable L/C Fee in effect on the date of issuance of such invoice."
"Applicable Rate: The applicable rate per annum of interest on the
Loans set forth in the following table:
<PAGE>
3
<TABLE>
<CAPTION>
PRICING RATIO APPLICABLE RATE FOR APPLICABLE RATE FOR
BASE RATE LOANS EURODOLLAR LOANS
<S> <C> <C>
- --------------------------------------------------------------------------------
less than 1.5:1 Base Rate Eurodollar Rate plus
0.75%
- --------------------------------------------------------------------------------
greater than or equal Base Rate Eurodollar Rate plus
to 1.5:1 but less than 1.00%
2:1
- --------------------------------------------------------------------------------
greater than or equal Base Rate Eurodollar Rate Plus
to 2:1 but less than 1.25%
2:5
- --------------------------------------------------------------------------------
greater than or equal Base Rate Eurodollar Rate plus
to 2.5:1 but less than 1.50%
3:1
- --------------------------------------------------------------------------------
greater than or equal Base Rate Eurodollar Rate plus 1.75%
to 3:1
- --------------------------------------------------------------------------------
</TABLE>
Each Applicable Rate shall become effective (a) with respect to Base Rate Loans,
on the first day after receipt by the Banks of financial statements delivered
pursuant to (S)(S)6.4(a) or (b) hereof which indicate a change in the Pricing
Ratio and in the Applicable Rate in accordance with the above table, and (b)
with respect to Eurodollar Loans, on the first day of each Interest Period which
begins after receipt by the Banks of such financial statements.
"Pricing Ratio. As at the end of any fiscal quarter of the Borrowers, the
ratio of (a) Indebtedness of the Borrowers for borrowed money (other than the
Subordinated Note to Addington Holding Company dated November 1, 1995) to (b)
EBITDA for the four fiscal quarters ending on such date."
(b) The following definition is hereby added to (S)1.1 of the Credit
Agreement:
"Applicable Commitment Fee. The applicable commitment fee set forth in
the following table:
<PAGE>
4
<TABLE>
<CAPTION>
APPLICABLE
PRICING RATIO COMMITMENT FEE
<S> <C>
------------------------------------------------------------------
less than 1.5:1 0.25% per annum
------------------------------------------------------------------
greater than or equal to 1.5:1 but less than 0.375% per annum
2.5:1
------------------------------------------------------------------
greater than or equal to 2.5:1 0.5% per annum
------------------------------------------------------------------
</TABLE>
The effective date of a change in the Applicable Commitment Fee shall be
the first day after receipt by the Lenders of financial statements
delivered pursuant to (S)6.4(a) or (b) hereof which indicate a change in
the Pricing Ratio and in the Applicable Commitment Fee in accordance with
the above table."
3. AMENDMENT TO (S)2.4 OF THE CREDIT AGREEMENT. The first sentence of
(S)2.4 of the Credit Agreement is hereby deleted in its entirety and the
following substituted in place thereof:
"The outstanding principal amount of the Loans shall bear interest at
the rate per annum equal to the Applicable Rate."
4. AMENDMENT TO (S)4.1(a) OF THE CREDIT AGREEMENT. The first sentence
of (S)4.1(a) of the Credit Agreement is hereby deleted in its entirety and
the following substituted in place thereof:
"The Borrowers agree to pay to the Banks a commitment fee equal to the
Applicable Commitment Fee on the unused portion of the Total Commitment
during each calendar quarter or portion thereof from the Closing Date to
the Maturity Date (or to the date of termination in full of the Total
Commitment, if earlier."
5. AMENDMENT TO (S)4.1(b) OF THE CREDIT AGREEMENT. Section 4.1(b) of
the Credit Agreement is hereby deleted in its entirety and the following
substituted in place thereof:
"(b) LETTER OF CREDIT FEE. The Borrowers shall pay to the Agent with
respect to each Letter of Credit (i) an issuance fee in the amount of one-
eighth of one percent (0.125%) of the Maximum Drawing Amount of such Letter
of Credit, and (ii) a fee (the "Letter of Credit Fee") equal to the
Applicable L/C Fee, from the date of issuance of each Letter of Credit to
its expiration date. Such issuance fee shall be payable on the date of
issuance of such Letter of Credit, and such Letter of Credit Fee shall be
payable in arrears on the last day of each calendar quarter for the quarter
ending on such date, and on the Maturity Date. The issuance fee shall be
retained solely by the Agent, and the Letter of Credit
<PAGE>
5
Fee shall be shared by the Banks pro-rata in accordance with their
Commitment Percentages. The Borrowers agree to pay to the Agent any
customary fees associated with the administration of any Letters of
Credit in accordance with the Agent's customary practice."
6. Ratification, etc,
------------------
Except as expressly amended hereby, the Credit Agreement, the other
Loan Documents and all documents, instruments and agreements related thereto are
hereby ratified and confirmed in all respects and shall continue in full force
and effect. This Sixth Amendment and the Credit Agreement shall hereafter be
read and construed together as a single document, and all references in the
Credit Agreement or any related agreement or instrument to the Credit Agreement
shall hereafter refer to the Credit Agreement as amended by this Sixth
Amendment. By executing this Sixth Amendment where indicated below, each of the
Guarantors hereby ratifies and confirms it guaranty of the Obligations.
4. GOVERNING LAW.
--------------
THIS SIXTH AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS AND SHALL TAKE EFFECT AS A
SEALED INSTRUMENT IN ACCORDANCE WITH SUCH LAWS.
5. Counterparts. This Sixth Amendment may be executed in any number
of counterparts and by different parties hereto on separate counterparts, each
of which when so executed and delivered shall be an original, but all of which
counterparts taken together shall be deemed to constitute one and the same
instrument. Complete sets of counterparts shall be lodged with the Banks.
6. Effectiveness. This Sixth Amendment shall become effective as of
March 20, 1996 upon its execution and delivery by the respective parties
hereto.
7. Entire Agreement. THE CREDIT AGREEMENT AS AMENDED REPRESENTS THE
FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE
NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
<PAGE>
6
IN WITNESS WHEREOF, the undersigned have duly executed this Agreement under
seal as of March 20, 1996.
THE BORROWERS:
ADDINGTON ENVIRONMENTAL, INC.
By: /s/ R. Douglas Striebel
-------------------------------
Title: Chief Financial Officer
----------------------------
COLLECTION SERVICES, INC.
By: /s/ R. Douglas Striebel
-------------------------------
Title: Vice President
----------------------------
OHIO COUNTY BALEFILL, INC.
By: /s/ R. Douglas Striebel
-------------------------------
Title: Vice President
----------------------------
EPPERSON WASTE DISPOSAL, INC.
By: /s/ R. Douglas Striebel
-------------------------------
Title: Vice President
----------------------------
TRI-K LANDFILL, INC.
By: /s/ R. Douglas Striebel
-------------------------------
Title: Vice President
----------------------------
UWHARRIE ENVIRONMENTAL, INC.
By: /s/ R. Douglas Striebel
-------------------------------
Title: Vice President
----------------------------
<PAGE>
7
GREEN VALLEY ENVIRONMENTAL CORP.
By: /s/ R. Douglas Striebel
-----------------------------
Title: Vice President
--------------------------
EAST CAROLINA ENVIRONMENTAL, INC.
By: /s/ R. Douglas Striebel
-----------------------------
Title: Vice President
--------------------------
BROADHURST ENVIRONMENTAL, INC.
By: /s/ R. Douglas Striebel
-----------------------------
Title: Vice President
--------------------------
MID-STATE ENVIRONMENTAL, INC.
By: /s/ R. Douglas Striebel
-----------------------------
Title: Vice President
--------------------------
DOZIT CO., INC.
By: /s/ R. Douglas Striebel
-----------------------------
Title: Vice President
--------------------------
MULLIS TREE SERVICE, INC.
By: /s/ R. Douglas Striebel
-----------------------------
Title: Vice President
--------------------------
PINELLAS ENVIRONMENTAL, INC.
By: /s/ R. Douglas Striebel
-----------------------------
Title: Vice President
--------------------------
<PAGE>
8
THE GUARANTORS:
--------------
ADDINGTON RESOURCES, INC.
By: /s/ R. Douglas Striebel
-----------------------------
Title: Vice President and
Chief Financial Officer
--------------------------
ADDINGTON HOLDING COMPANY, INC.
By: /s/ R. Douglas Striebel
-----------------------------
Title: Secretary/Treasurer
--------------------------
THE BANKS:
---------
THE FIRST NATIONAL BANK OF BOSTON,
INDIVIDUALLY AND AS AGENT
By:
-----------------------------
Title:
--------------------------
BANK OF AMERICA ILLINOIS
(FORMERLY CONTINENTAL BANK AND
CONTINENTAL BANK N.A.)
By:
-----------------------------
Title:
--------------------------
<PAGE>
8
THE GUARANTORS:
--------------
ADDINGTON RESOURCES, INC.
By:
--------------------------
Title:
-----------------------
ADDINGTON HOLDING COMPANY,
INC.
By:
--------------------------
Title:
-----------------------
THE BANKS:
---------
THE FIRST NATIONAL BANK OF
BOSTON, individually and as Agent
By: /s/ Arthur Oberheim
--------------------------
Title: VICE PRESIDENT
-----------------------
BANK OF AMERICA ILLINOIS
(formerly Continental Bank and
Continental Bank N.A.)
By:
--------------------------
Title:
-----------------------
<PAGE>
8
THE GUARANTORS:
--------------
ADDINGTON RESOURCES, INC.
By:
--------------------------
Title:
-----------------------
ADDINGTON HOLDING COMPANY,
INC.
By:
--------------------------
Title:
-----------------------
THE BANKS:
---------
THE FIRST NATIONAL BANK OF
BOSTON, individually and as Agent
By:
--------------------------
Title:
-----------------------
BANK OF AMERICA ILLINOIS
(formerly Continental Bank and
Continental Bank N.A.)
By: /s/ Lori R. Woodland
--------------------------
Title: Vice President
-----------------------
<PAGE>
SEVENTH AMENDMENT TO
AMENDED AND RESTATED
REVOLVING CREDIT AGREEMENT
--------------------------
THIS SEVENTH AMENDMENT TO AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT
(this "Seventh Amendment") is made and entered into as of the 23rd day of July,
1996, by and among ADDINGTON ENVIRONMENT, INC., a Kentucky corporation (the
"Parent"), GREEN VALLEY ENVIRONMENTAL CORP. ("Green Valley"), MID-STATE
ENVIRONMENTAL, INC. ("Mid-State"), the Subsidiaries of the Parent listed on
Schedule 1 hereto, (the "Subsidiaries," the Parent, Green Valley, Mid-State and
such Subsidiaries herein collectively referred to as the "Borrowers"), each of
which Borrowers is a Kentucky corporation, and (unless otherwise listed on
Schedule 1 hereto) each of which Borrowers has its principal place of business
at 771 Corporate Drive, Suite 900, Lexington, Kentucky 40503, ADDINGTON
RESOURCES, INC. ("ARI") and ADDINGTON HOLDING COMPANY, INC. ("AHC"), each of
which companies is a Delaware corporation with its principal place of business
at 771 Corporate Drive, Suite 900, Lexington, Kentucky 40503 (collectively, the
"Guarantors," and individually, a "Guarantor"), THE FIRST NATIONAL BANK OF
BOSTON ("FNBB"), a national banking association having its principal place of
business at 100 Federal Street, Boston, Massachusetts 02110, BANK OF AMERICA
ILLINOIS (formerly Continental Bank and Continental Bank N.A.), having its
principal place of business at 231 South LaSalle Street, Chicago, Illinois 60697
(each a "Bank" and collectively, the "Banks"), and FNBB as agent for the Banks
(the "Agent").
WHEREAS, the Borrowers, the Guarantors, the Banks and the Agent have
entered into an Amended and Restated Revolving Credit Agreement dated as of
May 31, 1994 as amended June 30, 1994, October 12, 1994, February 21, 1995,
December 15, 1995, January 24, 1996 and March 20, 1996 (as further amended and
in effect from time to time, the "Credit Agreement") pursuant to which Banks
extended credit to the Borrowers on the terms set forth therein;
WHEREAS, the Banks, the Borrowers, and the Guarantors have agree to amend
the Credit Agreement as hereinafter set forth;
NOW, THEREFORE, for good and valuable consideration the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. DEFINITIONS. Capitalized terms used herein without definition have the
meanings ascribed to them in the Credit Agreement.
2. AMENDMENT TO (S)1.1. The following definition appearing in (S)1.1 of
the Credit Agreement is hereby deleted in its entirety and the following
substituted in place thereof:
"Maturity Date" October 31, 1997.
3. AMENDMENT TO (S)3.1. Section 3.1 of the Credit Agreement is hereby
amended to delete the amount "$30,000,000" appearing in the fifteenth line of
Subclause (a) thereof, and to substitute the amount "$40,000,000" in place
thereof.
4. RATIFICATION, ETC.
Except as expressly amended hereby, the Credit Agreement, the other Loan
Documents and all documents, instruments and agreements related thereto are
hereby ratified and confirmed in all respects and shall continue in full force
and effect. This Seventh Amendment and the Credit Agreement shall hereafter be
read and construed together as a single document, and all references in the
Credit Agreement or any related agreement or instrument to the Credit Agreement
shall hereafter refer to the Credit Agreement as
22
<PAGE>
amended by this Seventh Amendment. By executing this Seventh Amendment where
indicated below, each of the Guarantors hereby acknowledges and consents to the
terms of this Seventh Amendment and ratifies and confirms its guaranty of the
Obligations.
5. GOVERNING LAW. THIS SEVENTH AMENDMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS AND
SHALL TAKE EFFECT AS A SEALED INSTRUMENT IN ACCORDANCE WITH SUCH LAWS.
6. COUNTERPARTS. This Seventh Amendment may be executed in any number of
counterparts and by different parties hereto on separate counterparts, each of
which when so executed and delivered shall be an original, but all of which
counterparts taken together shall be deemed to constitute one and the same
instrument. Complete sets of counterparts shall be lodged with the Banks.
7. EFFECTIVENESS. This Seventh Amendment shall become effective upon the
satisfaction of each of the following conditions.
(a) This Seventh Amendment shall be executed and delivered by the
respective parties hereto; and
(b) The Borrowers shall have paid to the Agent a fee in the amount of
$50,000, such fee to be shared pro rata by the Banks in accordance with
their respective Commitment Percentages.
8. ENTIRE AGREEMENT. THE CREDIT AGREEMENT AS AMENDED REPRESENTS THE
FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE
NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
IN WITNESS WHEREOF, the undersigned have duly executed this Agreement
under seal as of the date first set forth above.
THE BORROWERS:
-------------
ADDINGTON ENVIRONMENTAL, INC.
By: /s/ Jack T. Baker
-----------------------------------
Title: President
--------------------------------
COLLECTION SERVICES, INC.
By: /s/ Jack T. Baker
-----------------------------------
Title: President
--------------------------------
OHIO COUNTY BALEFILL, INC.
By: /s/ Jack T. Baker
-----------------------------------
Title: President
--------------------------------
24
<PAGE>
EPPERSON WASTE DISPOSAL, INC.
By: /s/ Jack T. Baker
-----------------------------------
Title: President
--------------------------------
TRI-K LANDFILL, INC.
By: /s/ Jack T. Baker
-----------------------------------
Title: President
--------------------------------
UWHARRIE ENVIRONMENTAL, INC.
By: /s/ Jack T. Baker
-----------------------------------
Title: President
--------------------------------
GREEN VALLEY ENVIRONMENTAL CORP.
By: /s/ Jack T. Baker
-----------------------------------
Title: President
--------------------------------
EAST CAROLINA ENVIRONMENTAL, INC.
By: /s/ Jack T. Baker
-----------------------------------
Title: President
--------------------------------
BROADHURST ENVIRONMENTAL, INC.
By: /s/ Jack T. Baker
-----------------------------------
Title: President
--------------------------------
MID-STATE ENVIRONMENTAL, INC.
By: /s/ Jack T. Baker
-----------------------------------
Title: President
--------------------------------
DOZIT CO., INC.
By: /s/ Jack T. Baker
-----------------------------------
Title: President
--------------------------------
MULLIS TREE SERVICE, INC.
By: /s/ Jack T. Baker
-----------------------------------
Title: President
--------------------------------
24
<PAGE>
PINELLAS ENVIRONMENTAL, INC.
By: /s/ Jack T. Baker
-----------------------------------
Title: President
--------------------------------
THE GUARANTORS:
--------------
ADDINGTON RESOURCES, INC.
By: /s/ Jack T. Baker
-----------------------------------
Title: President
--------------------------------
ADDINGTON HOLDING COMPANY, INC.
By: /s/ Jack T. Baker
-----------------------------------
Title: President
--------------------------------
THE BANKS:
---------
THE FIRST NATIONAL BANK OF BOSTON,
Individually and as Agent
By:
-----------------------------------
Title:
--------------------------------
BANK OF AMERICA ILLINOIS
(Formerly Continental Bank and
Continental Bank N.A.)
By:
-----------------------------------
Title:
--------------------------------
25
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
BALANCE SHEET AS OF JUNE 30, 1996 AND CONSOLIDATED STATEMENTS OF OPERATIONS FOR
THE SIX MONTHS THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 2,624
<SECURITIES> 0
<RECEIVABLES> 8,957
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 15,518
<PP&E> 130,375
<DEPRECIATION> (17,177)
<TOTAL-ASSETS> 136,181
<CURRENT-LIABILITIES> 11,828
<BONDS> 7,400
0
0
<COMMON> 15,189
<OTHER-SE> 81,596
<TOTAL-LIABILITY-AND-EQUITY> 136,181
<SALES> 29,695
<TOTAL-REVENUES> 29,695
<CGS> 17,506
<TOTAL-COSTS> 23,546
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 142
<INCOME-PRETAX> 5,826
<INCOME-TAX> 1,573
<INCOME-CONTINUING> 4,253
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,253
<EPS-PRIMARY> 0.28
<EPS-DILUTED> 0.28
</TABLE>
