<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 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 May 6, 1996 - 15,172,084 shares
--------------------------
1
<PAGE>
ADDINGTON RESOURCES, INC. AND SUBSIDIARIES
------------------------------------------
INDEX
-----
<TABLE>
<CAPTION>
Page No.
--------
<S> <C> <C>
PART I. Consolidated Financial Information
ITEM 1. Consolidated Financial Statements
Consolidated Balance Sheets as of March 31, 1996 (Unaudited) and
December 31, 1995 3-4
Consolidated Statements of Operations (Unaudited) Three Months
Ended March 31, 1996 and 1995 5
Consolidated Statements of Cash Flows (Unaudited) Three Months
Ended March 31, 1996 and 1995 6
Notes to Consolidated Financial Statements (Unaudited) 7-10
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 11-16
PART II. Other Information 17
SIGNATURES 18
</TABLE>
2
<PAGE>
ITEM 1.
ADDINGTON RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
----------- ------------
(unaudited)
(in thousands)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,976 $ 3,387
Accounts receivable, net 8,492 9,090
Prepaid expenses and other 3,417 3,246
-------- --------
Total current assets 13,885 15,723
-------- --------
PROPERTY, PLANT AND EQUIPMENT, at cost 124,933 119,414
Less accumulated depreciation (15,230) (13,667)
-------- --------
109,703 105,747
-------- --------
OTHER 6,812 6,812
-------- --------
Total Assets $130,400 $128,282
======== ========
</TABLE>
3
<PAGE>
ADDINGTON RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
----------- ------------
(unaudited)
(in thousands)
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 3,902 $ 4,743
Current portion of long-term debt 1,449 1,823
Accrued expenses and other 3,689 3,504
-------- --------
Total current liabilities 9,040 10,070
-------- --------
NON-CURRENT LIABILITIES:
Long-term debt, less current portion 15,973 14,407
Accrued closure and post-closure costs 5,627 5,168
Other long-term liabilities 5,422 7,451
-------- --------
Total non-current liabilities 27,022 27,026
-------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $1.00 par value; 30,000,000 shares
authorized, 16,169,534 shares and 16,054,301
shares outstanding at March 31, 1996 and
December 31, 1995, respectively 16,170 16,054
Paid-in capital 86,961 85,934
Retained earnings 4,832 2,823
Less treasury stock; 1,000,000 shares, at cost (13,625) (13,625)
-------- --------
Total stockholders' equity 94,338 91,186
-------- --------
Total liabilities and stockholders' equity $130,400 $128,282
======== ========
</TABLE>
4
<PAGE>
ADDINGTON RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------
1996 1995
------- -------
(in thousands,
except per share amounts)
<S> <C> <C>
REVENUES $14,315 $10,748
COSTS AND EXPENSES:
Cost of operations 8,738 6,621
Depreciation and amortization 1,971 1,261
Selling, general and administrative 1,044 1,355
------- -------
11,753 9,237
------- -------
INCOME FROM OPERATIONS 2,562 1,511
------- -------
INTEREST AND OTHER INCOME (EXPENSE):
Interest income 26 114
Interest expense (63) (51)
Other, net 227 219
------- -------
190 282
------- -------
Income before income tax provision 2,752 1,793
INCOME TAX PROVISIONS:
Federal 550 610
State 193 106
------- -------
743 716
------- -------
Income from continuing operations 2,009 1,077
DISCONTINUED OPERATIONS
Income from operations of discontinued segment
(less applicable income taxes of $189) -- 863
------- -------
NET INCOME $ 2,009 $ 1,940
======= =======
EARNINGS PER SHARE:
Income from continuing operations $ 0.13 $ 0.07
Income from discontinued operations -- 0.05
------- -------
Net income per share $ 0.13 $ 0.12
======= =======
Equivalent shares of stock outstanding 15,128 16,035
======= =======
</TABLE>
5
<PAGE>
ADDINGTON RESOURCES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------
1996 1995
------- -------
(in thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 2,009 $ 1,940
------- -------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,971 1,261
Income from discontinued operations -- (863)
Gain on sale of assets -- (903)
Change in assets and liabilities, net of effects
from acquisitions and disposals--
(Increase) decrease in--
Accounts receivable 598 719
Prepaid expenses and other (170) (893)
Other assets (408) (113)
Increase (decrease) in--
Accounts payable (841) (362)
Accrued expenses and other 185 834
Accrued closure and post-closure costs 459 409
Other long-term liabilities (2,029) (257)
------- -------
Total adjustments (235) (168)
------- -------
Net cash provided by operating activities 1,774 1,772
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of assets, net of disposal costs -- 4,125
Decrease in--
Short-term investments -- 100
Additions to property, plant and equipment (5,519) (6,391)
Net decrease in investment in discontinued operations -- 137
------- -------
Net cash used in investing activities (5,519) (2,029)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of long-term debt 191 --
Repayments of long-term debt -- (3,534)
Issuance of common stock 1,143 814
Borrowings on revolving line of credit 1,000 2,000
------- -------
Net cash provided by (used in) financing
activities 2,334 (720)
------- -------
Net decrease in cash and cash equivalents (1,411) (977)
CASH AND CASH EQUIVALENTS, beginning of period 3,387 2,719
------- -------
CASH AND CASH EQUIVALENTS, end of period $ 1,976 $ 1,742
======= =======
</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 March 31, 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 March 31, 1996 and results of
operations for the three months ended March 31, 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. 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 operations are comprised of
integrated solid waste management, which includes landfill operations and
waste collection and recycling services.
As discussed in Note 3, 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:
Three Months Ended
March 31, 1995
--------------
Operating revenue $26,076
-------
Income before income taxes 1,052
Income tax provision 189
-------
Net income from discontinued operations $ 863
-------
7
<PAGE>
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.
3. 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 March 31, 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
three months ended March 31, 1996 the Company has recorded royalty
income of $149 (included in other income in the accompanying March 31,
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 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.
8
<PAGE>
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.
4. 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.
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.
5. Related-Party Transactions
--------------------------
The Company has dealt with certain companies or individuals which are
related parties either by having stockholders in common or because they are
controlled by stockholders/officers or by relatives of
stockholders/officers of the Company. The Company recorded various expenses
(included in results of discontinued operations) to related parties
consisting of approximately $2,560 for trucking services, office rent of
$28 and flight fees of $98 for the three months ended March 31, 1995. There
were no related party transactions during the three months ended March 31,
1996.
The Company had amounts receivable from related parties of $5 as of
December 31, 1995.
9
<PAGE>
6. Stockholders' Equity
--------------------
During the three months ended March 31, 1996, 108 shares of common stock
were issued in connection with the exercise of stock options.
During the three months ended March 31, 1996 and 1995, 8 and 55
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 $116 and $55 respectively, and paid-in
capital increased $1,027 and $759 respectively, during the three months
ended March 31, 1996 and 1995.
7. 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 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.
10
<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 three months
ended March 31, 1996 and 1995 and should be read in conjunction with the
Company's unaudited 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 March 31, 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.
11
<PAGE>
Results of Operations
---------------------
Quarter Ended March 31, 1996 Compared with Same Period 1995
-----------------------------------------------------------
(amounts in thousands, except per share data)
Net income from continuing operations during the quarter ended March 31, 1996
was $2,009 or $.13 per share, compared to net income of $1,077 or $.07 per share
for the quarter ended March 31, 1995.
Total revenues increased from $10,748 generated during the quarter ended March
31, 1995 to $14,315 during the quarter ended March 31, 1996. This 33% increase
in total revenues reflects the 31% increase in tons of waste received at the
Company's landfills. During the quarter ended March 31, 1996, tonnage received
at the Company's landfills increased to 421 tons from 321 tons received during
the 1995 first quarter. 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. Additionally, the Company's first quarter 1996 performance
was adversely affected due to the harsh winter weather conditions experienced in
the Southeastern U.S.
As a percentage of total revenues, cost of operations decreased to 61% for the
quarter ended March 31, 1996 as compared to 62% for the quarter ended March 31,
1995. This decrease reflects improved economies of scale realized by the Company
as certain of its fixed costs are spread over a broader revenue base.
Depreciation and amortization increased $710 (or 56%) during the quarter ended
March 31, 1996 as compared to the quarter ended March 31, 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 $311 (or 23%) during the
quarter ended March 31, 1996 as compared to the quarter ended March 31, 1995. As
a percentage of revenues, selling, general and administrative expenses declined
from 13% during the quarter ended March 31, 1995 to 7% during the quarter ended
March 31, 1996. This decline is primarily due to lower administrative expenses
incurred during 1996 due to lower corporate overhead incurred, primarily
executive salaries, resulting from overall improved operating efficiencies at
the Company's environmental operations.
Income from operations increased $1,051 (or 70%) during the quarter ended March
31, 1996 as compared to the quarter ended March 31, 1995. Income from operations
increased as a percentage of revenues from 14% to 18%. 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.
Interest income decreased to $26 during the quarter ended March 31, 1996 as
compared to $114 during the quarter ended March 31, 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 March
31, 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 was $63 during the quarter ended March 31, 1996 and remained
relatively unchanged as compared to $51 during the quarter ended March 31, 1995.
12
<PAGE>
The amount of interest capitalized during the first quarter of 1996 was $357
compared to $524 capitalized during the first quarter of 1995.
Other income was $227 during the quarter ended March 31, 1996 and remained
relatively unchanged compared to $219 during the quarter ended March 31, 1995.
The Company's effective tax rate decreased from 40% during the quarter ended
March 31, 1995 to 27% during the quarter ended March 31, 1996 primarily due to
the reduction of valuation reserves caused by the utilization of minimum tax
credits generated by certain sold subsidiaries (see Note 3).
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 3). 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:
Three Months Ended
March 31, 1995
--------------
Operating revenue $26,076
-------
Income before income taxes 1,052
Income tax provision 189
-------
Net income from discontinued operations $ 863
-------
13
<PAGE>
Financial Condition
-------------------
(amounts in thousands, except per share data)
The Company's cash and cash equivalents and short-term investments totaled
$1,976 at March 31, 1996 compared to $3,387 at December 31, 1995. This 42%
decrease is primarily due to the timing of accounts receivable collections,
accounts payable payments and capital expenditures.
Accounts receivable at March 31, 1996 totaled $8,492, compared to the balance of
$9,090 at December 31, 1995. This 7% decrease is primarily due to the timing of
accounts receivable collections.
Prepaid expenses and other at March 31, 1996 total $3,417 compared to the
balance of $3,246 at December 31, 1995. This 5% increase is primarily due to the
timing of payments on prepaid insurance and other prepaid expenses.
Property, plant and equipment, net, increased to $109,703 at March 31, 1996,
compared to $105,747 at December 31, 1995. This $3,956 increase is primarily due
to an increase in landfill equipment and other environmental related development
costs, net of depreciation charges.
Other assets remained unchanged at $6,812 at March 31, 1996.
Accounts payable at March 31,1996 decreased to $3,902 as compared to the
December 31, 1995 balance of $4,743. This 18% decrease is primarily due to the
timing of payments on accounts payable.
The Company's current portion of long-term debt outstanding decreased to $1,449
at March 31, 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 $3,689 at March 31, 1996 as
compared to the $3,504 balance at December 31, 1995. This 5% increase is
primarily due to the timing of payments relating to payroll, property taxes,
workers compensation and other expenses.
The Company's long-term debt outstanding increased to $15,973 at March 31, 1996
as compared to $14,407 at December 31, 1995. During the first quarter of 1996
the Company borrowed $1,000 on its line of credit to fund certain landfill
construction and development costs. Additional debt was also incurred to acquire
landfill equipment.
Accrued closure and post-closure costs at March 31, 1996 increased to $5,627 as
compared to the $5,168 balance 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 quarter of 1996.
The Company's other long-term liabilities decreased to $5,422 at March 31, 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.
14
<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 $1,411 and $977 for
the quarters ended March 31, 1996 and 1995, respectively. Such net decreases
reflect net cash used in operating, investing and financing activities.
Net cash provided by operations was $1,774 and $1,772 for the quarters ended
March 31, 1996 and 1995, respectively. This fluctuation between years is
primarily a result of improved operating income during the first quarter 1996
offset in 1995 by gains on the sale of certain assets.
Net cash used in investing activities was $5,519 and $2,029 for the quarters
ended March 31, 1996 and 1995, respectively. Both amounts represent acquisitions
of environmental company assets as well as landfill construction and
development.
Net cash provided by (used in) financing activities was $2,334 and ($720) for
the quarters ended March 31, 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 March 31, 1996 was approximately $4,845, compared to
approximately $5,653 as of December 31, 1995.
As of March 31, 1996, the Company had approximately $22,526 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 July 31, 1997, is $50,000,
reduced by issued letters of credit of approximately $26,474 and borrowings of
$1,000.
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 $3,252.
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 March 31, 1996, the
Company had accrued expenses for closure costs of approximately $5,627. Because
of the long-term nature of these obligations, there is a possibility that such
obligations, when ultimately paid, may differ substantially from the recorded
accrued expense, thus affecting the Company's liquidity.
Considering the existing accruals with respect to the Company's landfills at
March 31, 1996, and assuming significant additional future capital costs are
made to complete expansion efforts over the expected lives of the landfills,
approximately $87,000 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.
15
<PAGE>
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.
The Company projects capital expenditures for existing landfill facilities for
the remainder of 1996 to be $13.8 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 $8.7 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.
- --------------------------------------------------------------------------------
16
<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 Separation Agreement and General Release effective as of
January 12, 1996, between Addington Resources, Inc., Addington
Holding Company, Inc., Addington Environmental, Inc. and Kirby
J. Taylor.
Exhibit 27 Financial Data Schedule.
(b) Reports on Form 8-K.
-------------------
None.
17
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ADDINGTON RESOURCES, INC.
(Registrant)
Date: May 15, 1996 By: /s/ R. Douglas Striebel
-------------------------------- --------------------------------
R. Douglas Striebel
Vice President and
Chief Financial Officer
18
<PAGE>
Exhibit 10.1
SEPARATION AGREEMENT AND GENERAL RELEASE
----------------------------------------
This Separation Agreement and General Release (the "Agreement") is entered into
by ADDINGTON RESOURCES, INC., ADDINGTON HOLDING COMPANY, INC. and ADDINGTON
ENVIRONMENTAL, INC. (collectively, the "Companies"), and KIRBY J. TAYLOR ("Mr.
Taylor").
RECITALS
Mr. Taylor has been employed under the terms of an Employment Agreement dated as
of June 2, 1994 between Addington Resources, Inc. and Mr. Taylor (the
"Employment Agreement") and serves as President of the Companies; and Mr. Taylor
will resign from his employment with the Companies effective as of January 12,
1996; and Mr. Taylor and the Companies desire to resolve fully and finally all
claims and differences between them including, but not limited to, all disputes
arising out of Mr. Taylor's employment with the Companies and his resignation
from that employment.
NOW, THEREFORE, in consideration of the mutual promises contained in this
Agreement, Mr. Taylor and the Companies agree as follows:
PART I
In consideration of the promises and covenants made by Mr. Taylor in this
Agreement, the parties agree as follows:
1.1 The Companies agree to pay Mr. Taylor a lump sum amount of $200,000.00 less
deductions required by law, which amount shall be payable seven days following
Taylor's execution of this Agreement, provided he has not at that date revoked
it in accordance with Section 3.2 hereof.
1.2 As additional consideration for the promises and covenants of Mr. Taylor
contained in this Agreement, the Companies agree that Mr. Taylor may keep and
retain the computer and computer equipment that Mr. Taylor used during his
employment with the Companies.
PART II
In consideration of promises made by the Companies and Mr. Taylor in Parts I and
III of this Agreement, the Companies and Mr. Taylor agree as follows:
2.1 Mr. Taylor agrees to and does hereby resign from his employment with the
Companies and their subsidiaries, and from his status as officer of the
Companies and their subsidiaries, effective on January 12, 1996.
2.2 Mr. Taylor agrees to waive any and all rights to rehiring or reinstatement
with the Companies.
2.3 Except as otherwise expressly provided in this Agreement:
20
<PAGE>
(a) Mr. Taylor agrees to release the Companies from any and all legal and
equitable claims which he has, or may have, arising out of his employment
with the Companies or termination of that employment.
Specifically, Mr. Taylor, for himself and his heirs, executors,
administrators, insurers, and assigns, irrevocably and unconditionally
releases and discharges the Companies and its present and former agents,
directors, shareholders, commissioners, officers, employees,
representatives, attorneys, divisions, parents, subsidiaries and
affiliates, and their predecessors, successors, heirs, executors,
administrators and assigns (said parties, including the Companies referred
to hereinafter as the "Releasees") from any and all actions, causes of
action, suits, debts, charges, complaints, claims, liabilities,
obligations, promises, agreements (including, but not limited to, Mr.
Taylor's Employment Agreement and any Stock Option Agreements except as set
forth below), controversies, damages and expenses (including attorneys'
fees and costs actually incurred) of any nature whatsoever in law or
equity, whether known or unknown, which he ever had, now has or may have
had against Releasees since the beginning of time and which arose prior to
the date of complete execution of this Agreement. Provided, however, this
Agreement does not release, discharge or affect Mr. Taylor's rights under
that certain Stock Option Agreement dated as of October 24, 1994 relating
to Mr. Taylor's option to purchase 13,333 common stock of Addington
Resources, Inc., said option having vested on October 24, 1995.
Claims being released include, but are not limited to, (1) any and all
claims against Releasees arising under any federal, state or local
statutes, ordinances, resolutions, regulations or constitutional provisions
and/or common law(s) including any tort or contract claims, and
specifically including claims of discrimination in employment on the basis
of race, sex, religion, national origin, age, disability and/or veteran's
status arising under or pursuant to Title VII of the Civil Rights Act of
1964, as amended, 42 U.S.C. (S)2000e, et seq.; the Kentucky Civil Rights
Act, as amended KRS Chapter 344; the Americans With Disabilities Act, as
amended, the Federal Rehabilitation Act of 1973, as amended, Executive
Order 111246, and KRS Chapter 202, as amended; (2) any and all tort claims
including, but not limited to claims of wrongful termination, assault,
battery and intentional or negligent infliction of emotional distress and
outrage, (3) any and all claims of breach of any express or implied
employment contract, (4) any and all claims for unpaid benefits,
commissions or entitlements asserted under any Companies plan or policy,
benefits offering or program, and (5) any and all claims for attorneys'
fees, interest, costs or injunctive relief to which Mr. Taylor is, or may
be, entitled either by statute or otherwise. It is specifically agreed
however, that Mr. Taylor shall retain all rights under his 401(k) Plan
account.
(b) The Companies agree to release Mr. Taylor from any and all legal and
equitable claims which it has, or may have, arising out of Mr. Taylor's
employment and service as an officer and Director with the Companies or
termination of that employment and service.
21
<PAGE>
2.4 In specific consideration of the Companies' agreement set forth in Part I,
Sections 1.1 and 1.2, of this Agreement, the sufficiency of which is hereby
acknowledged, for himself and his heirs, executors, administrators and assigns,
Mr. Taylor hereby irrevocably and unconditionally releases and discharges
Releasees from any and all age discrimination claims or liability arising under
federal, state or local law including, but not limited to, the Age
Discrimination in Employment Act, as amended, 29 U.S.C. (S)626 et seq., the
Kentucky Civil Rights, as amended, KRS Chapter 344, and any other statute, local
or municipal ordinance, resolution or regulation governing age discrimination in
employment.
Mr. Taylor acknowledges that the Companies have advised and encouraged him to
seek the advice of an attorney regarding the content and effect of this
Agreement and that he has been afforded 21 days in which to seek his attorney's
advice.
2.5 Mr. Taylor agrees that he will not seek to recover legal or equitable
remedies against the Companies arising out of his employment or his resignation
from that employment, that he will not request or permit any other person or
agency to seek such recovery on his behalf and that he will not permit himself
to be a member of any class seeking such recovery. Mr. Taylor further agrees
that he will not counsel or assist any other person or agency in the prosecution
of any claim for such recovery, whether such claim is filed on his own behalf or
on behalf of others, unless he is under a court order to do so. Mr. Taylor
agrees that if any such claim referenced herein is filed, pursued or otherwise
prosecuted by him, individually or collectively, or by persons or entities
acting by or through him, individually or collectively, Mr. Taylor waives his
rights to relief from such claim, including the right to attorneys' fees, costs
and any and all other relief, whether legal or equitable, sought in such claim,
and agrees to indemnify and hold the Releasees harmless from such claim,
including attorneys' fee and costs.
2.6 Mr. Taylor agrees and acknowledges that, during the course of his
employment with the Companies he has come into possession of proprietary
information and that he is under a continuing obligation to keep the said
proprietary information confidential and to abide by all Companies policies
regarding proprietary and confidential information.
2.7 Mr. Taylor covenants and agrees that the termination and release contained
in Section 2.3 above shall not affect Section 18 of Mr. Taylor's Employment
Agreement relating to Restrictive Covenant, which shall survive this Agreement
and remain in full force and effect. Mr. Taylor also hereby expressly
acknowledges that this covenant will not prevent him from finding other gainful
employment.
2.8 Mr. Taylor agrees to turn over possession of the Companies' automobile that
has been available for his use during his employment. Mr. Taylor shall deliver
the automobile to the Companies' offices in Lexington, Kentucky no later than
Friday January 19, 1996, at which time he shall receive payment of the sum
described in Section 1.1.
22
<PAGE>
PART III
3.1 It is understood and agreed by the parties that this Agreement is executed
in settlement of any present or future claims and that neither it, nor the fact
of settlement, constitutes an admission of any liability, violation of law or
wrongdoing of any kind or nature whatsoever on the part of any party hereto.
3.2 Mr. Taylor and the Companies agree that, for a period of seven (7) days
following the execution of this Agreement, Mr. Taylor may revoke this Agreement
by notifying the President of the Companies, in writing, of his intent to do so.
3.3 It is understood and agreed by the parties that no release, waiver or other
promise set forth in this Agreement shall be construed to prohibit either party
from enforcing the terms of this Agreement in a court of competent jurisdiction.
3.4 This Agreement is made and entered into in the Commonwealth of Kentucky and
shall in all respects be interpreted, enforced and governed under the laws of
Kentucky. The language of all parties of this Agreement shall in all cases be
interpreted as a whole, according to its fair meaning, and not strictly for or
against any of the parties, regardless of which is the drafter of this
Agreement.
3.5 Should any provision of this Agreement be declared or determined by any
court to be illegal or invalid, the validity of the remaining parts, terms or
provisions shall not be affected thereby and said illegal or invalid part, term
or provision shall be deemed not to be a part of this Agreement.
3.6 This Agreement sets forth the entire agreement between Mr. Taylor and the
Companies and fully supersedes any and all prior agreements or understandings
between them relating to the subject matter hereof.
3.7 Mr. Taylor agrees that the fact and the terms of this Agreement shall be
strictly confidential and that he shall not divulge, directly or indirectly,
explicitly or implicitly, the terms of this Agreement to any person other than
his attorney(s) and tax advisor(s), or as otherwise required by law or to assure
compliance with the terms of this Agreement, and in the event of disclosure to
these persons, will provide such persons with a copy of this Section 3.7 and
take all necessary actions to obtain such persons' written agreement to comply
with the terms of this paragraph so as to protect and ensure the confidentiality
of this Agreement. Except as required by law, the Companies agree not to issue
any public statements concerning this Agreement or the amounts paid hereunder,
although it may issue a press release regarding the fact that Taylor has
resigned.
3.8. If requested, Mr. Taylor agrees that he will cooperate with the Companies
in the preparation and issuance of a press release concerning his resignation.
In addition, Mr. Taylor shall not make disparaging or adverse statements or
comments about the Companies, or any of its directors, officers, employees,
customers and agents. The Companies agree not to issue any public statements
disparaging Taylor's efforts on behalf of the Companies while employed.
3.9. In the event that the terms of Sections 2.6, 2.7, 3.7 or 3.8 are violated,
the parties agree that irreparable harm may come to the other and that the
parties should therefore be entitled to an injunction of such actions, and
monetary damages and any other relief in law or in equity that may be
appropriate, including attorneys' fees incurred in a successful action for
breach of this Agreement.
23
<PAGE>
PLEASE READ CAREFULLY
---------------------
THIS SEPARATION AGREEMENT AND GENERAL RELEASE INCLUDES A GENERAL RELEASE OF ALL
KNOWN AND UNKNOWN CLAIMS, EXCEPT FOR CLAIMS ASSERTING BREACH OF THIS AGREEMENT.
IN WITNESS WHEREOF, and intending to be legally bound hereby, Mr. Taylor
and the Companies have executed the foregoing Separation Agreement and General
Release on the dates indicated:
ADDINGTON RESOURCES, INC.
By /s/ R. Douglas Striebel
-----------------------
Title: Vice President
----------------
Date: January 12, 1996
-----------------
ADDINGTON HOLDING COMPANY, INC.
By /s/ R. Douglas Striebel
-------------------------
Title: Secretary/Treasurer
--------------------
Date: January 12, 1996
-----------------
ADDINGTON ENVIRONMENTAL, INC.
By /s/ Jack Baker
----------------
Title: Chief Executive Officer
------------------------
Date: January 12, 1996
-----------------
/s/ Kirby J. Taylor
--------------------
Kirby J. Taylor
Date: January 12, 1996
-----------------
24
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from
Consolidated Balance Sheet as of March 31, 1996 and Consolidated Statements of
Operations for the three months then ended and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 1,976
<SECURITIES> 0
<RECEIVABLES> 8,492
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 13,885
<PP&E> 124,933
<DEPRECIATION> (15,230)
<TOTAL-ASSETS> 130,400
<CURRENT-LIABILITIES> 9,040
<BONDS> 7,400
<COMMON> 15,170
0
0
<OTHER-SE> 79,168
<TOTAL-LIABILITY-AND-EQUITY> 130,400
<SALES> 14,315
<TOTAL-REVENUES> 14,315
<CGS> 8,738
<TOTAL-COSTS> 11,753
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 63
<INCOME-PRETAX> 2,752
<INCOME-TAX> 743
<INCOME-CONTINUING> 2,009
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,009
<EPS-PRIMARY> 0.13
<EPS-DILUTED> 0.13
</TABLE>
