Form 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1994
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
0-752 .
WESTMORELAND COAL COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 23-1128670
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
700 The Bellevue, 200 South Broad Street
Philadelphia, Pennsylvania 19102
(Address of principal executive offices) (Zip Code)
Registrant's telephone number,
including area code... 215-545-2500
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 July 29, 1994: 6,956,179
PART I - FINANCIAL INFORMATION
ITEM 1
FINANCIAL STATEMENTS
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
June 30, 1994 Dec. 31, 1993*
(unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 16,590 $ 24,262
Notes and accounts receivable:
Trade 38,058 52,403
Notes 2,466 2,612
Other 466 1,595
40,990 56,610
Less allowance for
doubtful accounts 5,786 6,296
35,204 50,314
Inventories:
Coal 6,388 10,293
Mine supplies 6,085 5,763
12,473 16,056
Assets of Kentucky Criterion
held for sale 40,020 -
Other current assets 3,197 3,609
TOTAL CURRENT ASSETS 107,484 94,241
Property, plant and equipment
Land and mineral rights 30,460 50,838
Plant and equipment 294,850 320,839
325,310 371,677
Less accumulated depreciation
and depletion 223,938 225,227
101,372 146,450
Net assets of discontinued
operations (WEI) 15,634 12,972
Investment in DTA 18,725 -
Other assets 16,013 11,835
TOTAL ASSETS $ 259,228 $ 265,498
* Certain amounts have been reclassed to conform with current
classifications.
See accompanying notes to condensed consolidated financial statements.
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
June 30, 1994 Dec. 31, 1993
(unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Current portion of
long-term debt $ 50,340 $ 28,101
Accounts payable and
accrued expenses 45,539 59,080
Accrual for postretirement
medical costs 8,445 9,185
Dividends payable - 1,222
Taxes on income 3,624 2,992
Deferred income taxes - 500
TOTAL CURRENT LIABILITIES 107,948 101,080
Long-term debt 14,095 15,933
Accrual for pneumoconiosis
benefits 16,825 17,475
Accrual for workers' compensation 22,261 20,782
Accrual for postretirement
medical costs 32,525 28,105
Other liabilities 15,982 25,242
Deferred income taxes 15,196 14,373
Minority interest 10,322 10,718
SHAREHOLDERS' EQUITY
Preferred stock of $1.00 par value
Authorized 5,000,000 shares;
Issued 575,000 shares 575 575
Common stock of $2.50 par value
Authorized 20,000,000 shares;
Issued 6,956,179 shares 17,390 17,389
Other paid-in capital 94,653 94,651
Retained earnings (88,544) (80,825)
TOTAL SHAREHOLDERS' EQUITY 24,074 31,790
TOTAL LIABILITIES
AND SHAREHOLDERS' EQUITY $ 259,228 $ 265,498
See accompanying notes to condensed consolidated financial statements.
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands except per share data)
(Unaudited)
Three Months Ended Six Months Ended
June 30 June 30
1994 1993* 1994 1993*
Revenues:
Coal $ 106,422 $ 109,344 $ 203,766 $ 222,809
Other 581 812 1,397 1,664
107,003 110,156 205,163 224,473
Cost and expenses:
Cost of coal sold 96,847 98,684 187,206 201,791
Cost of sales-Other 511 523 1,419 1,005
Depreciation, depletion
and amortization 4,293 5,254 8,522 11,006
Selling and administrative 5,659 5,273 11,236 11,662
107,310 109,734 208,383 225,464
Income (loss) from
continuing operations (307) 422 (3,220) (991)
Interest expense 1,189 1,108 2,282 2,363
Interest income 178 169 436 250
Other income 553 172 799 558
Loss from continuing
operations before
income taxes (benefit)
and minority interest (765) (345) (4,267) (2,546)
Income taxes (benefit):
Current 30 (166) 543 591
Deferred 557 667 613 533
587 501 1,156 1,124
Minority interest 109 169 304 433
Net (loss) from
continuing operations (1,461) (1,015) (5,727) (4,103)
Net income (loss) from
discontinued operations(WEI) (250) 1,099 (771) 1,468
Net income (loss) (1,711) 84 (6,498) (2,635)
Less preferred stock dividends - 1,222 1,222 2.444
Net loss applicable
to common shareholders $ (1,711) $ (1,138) $ (7,720) $ (5,079)
Earnings (loss) per share applicable
to common shareholders:
Continuing operations $ (.21) $ (.32) $(1.00) $ (.94)
Discontinued operations (.04) .16 (.11) .21
Total $ (.25) $ (.16) $(1.11) $ (.73)
Weighted average number of
common shares outstanding 6,955 6,954 6,955 6,954
* Restated to reflect Westmoreland Energy, Inc. as a discontinued
operation.
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended June 30, 1994 1993(a)
(in thousands)
Cash flows from operating activities:
Net loss $ (6,498) $ (2,635)
Adjustments to reconcile net
loss to net cash provided (used) by
operating activities:
Depreciation, depletion and
amortization 7,299 11,006
Increase (decrease) in deferred
income taxes 323 (261)
Decrease in accrual for
pneumoconiosis benefits (650) (792)
Minority interest in subsidiary income 304 433
Decrease in trade receivables, net 13,945 15,062
Decrease in other receivables, net 1,020 325
Decrease (increase) in inventories 3,076 (3,425)
Decrease in accounts payable and
accrued expenses (9,978) (14,692)
Increase in income taxes payable 632 398
Increase in accrual for
postretirement medical costs 3,680 5,578
Increase in long-term accruals 54 370
Other 347 (1,518)
Net cash provided by operating
activities 13,554 9,849
Cash flows used in investing activities:
Increase in net assets of
discontinued operations (WEI) (2,662) (1,959)
Decrease in Kentucky Criterion
assets held for sale 993 -
LG&E support fee payment (3,563) -
Fixed assets additions (2,415) (1,976)
(Increase) decrease in notes and
long-term investments 65 (139)
Proceeds from sales of assets 85 151
Net cash used in investing activities (7,497) (3,923)
Cash flows used in financing activities:
Repayment of long-term debt (6,159) (5,263)
Cash transferred to collateralize
surety bonds (4,430) -
Dividends paid to shareholders (3,144) (2,564)
Other 4 (153)
Net cash used in financing activities (13,729) (7,980)
Net decrease in cash
and cash equivalents (7,672) (2,054)
Cash and cash equivalents,
beginning of period 24,262 10,749
Cash and cash equivalents,
end of period $ 16,590 $ 8,695
(a) Restated to reflect Westmoreland Energy, Inc. as a discontinued
operation.
Supplemental disclosures of cash flow information:
Cash paid during six months ended June 30, 1994 1993
Interest $ 2,425 $ 3,022
Income taxes, net $ 214 $ 989
Supplemental disclosure of non-cash financing activities:
The Company, in the second quarter 1994, recorded as a current
obligation and a non-current asset a $26,560,000 draw under a letter
of credit connected with Westmoreland Terminal Company (See Note 2 -
Westmoreland Terminal Company).
See accompanying notes to condensed consolidated financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The Notes contained herein should be read in conjunction with the
Notes to the Company's Consolidated Financial Statements filed on Form
10-K for the year ended December 31, 1993. The financial information
contained in this Form 10-Q is unaudited but reflects all adjustments
which are, in the opinion of management, necessary for a fair
presentation of the financial information for the periods shown. Such
adjustments are of a normal recurring nature.
1) KENTUCKY CRITERION COAL COMPANY
On July 28, 1994 Westmoreland Coal Company ("Westmoreland" or the
"Company") announced that a definitive agreement had been executed
to sell the assets of its wholly-owned subsidiary, Kentucky
Criterion Coal Company ("Criterion") to CONSOL of Kentucky, Inc., a
member of the CONSOL coal group ("CONSOL"). The cash purchase price
is $85,000,000 subject to an inventory adjustment at closing. The
Company anticipates the gain on the sale, net of taxes and other
transaction costs, to be approximately $40,000,000. The sale is
subject to third party consents.
On August 4, 1994 Westmoreland and CONSOL made filings to the
Department of Justice and The Federal Trade Commission under the
provisions of the Hart-Scott-Rodino Antitrust Improvements Act of
1976. A fourth quarter 1994 closing is expected.
Criterion accounted for $30,790,000(15%) and $23,561,000(11%) of the
Company's coal revenues during the first six months of 1994 and
1993, respectively. Criterion contributed $5,800,000 and $4,187,000
to operating income during the first six months of 1994 and 1993,
respectively.
The assets of Criterion have been reclassed as a separate item on
the Balance Sheet as a current asset. Results of operations will
continue to be shown as part of continuing operations in the
Statements of Income.
2) COMMITMENTS AND CONTINGENCIES
Westmoreland Energy, Inc.
Westmoreland Energy, Inc. ("WEI"), a wholly-owned subsidiary of the
Company, is engaged in the business of developing and owning interests
in cogeneration and other non-regulated independent power plants.
(See the Project Status Summary Table on the following page.)
In 1993, Westmoreland offered WEI for sale and WEI was reclassified as
a discontinued operation in the financial statements. On April 18,
1994, the Company announced an agreement in principle to sell the
assets of WEI, with the exception of its 1.25% interest in the Ft.
Drum Project, to several purchasers, all represented by LCRW Power
Company, L.P. for an aggregate cash purchase price expected to be in
excess of $50,000,000, plus the assumption of WEI's remaining equity
commitments for cogeneration projects.
The sale is subject to the negotiation of a definitive purchase
agreement, board and financing approvals, third party consents and
regulatory approvals. A number of developments have impeded
negotiation of the definitive purchase agreement. These include a
Federal Energy Regulatory Commission ("FERC") order relating to the
failure of the Southampton Project to meet operating standards for a
"qualifying facility" ("QF") in 1992 and a contract dispute with
Virginia Electric & Power Company ("Virginia Power") relating to the
Roanoke Valley I Project ("ROVA-I Project "). See "Recent
Developments Relating to Cogeneration Projects" below. Assuming a
definitive purchase agreement can be achieved and other conditions
met, closing of the sale would not now be expected to take place
before late in the fourth quarter of 1994.
WEI, through subsidiaries and 100%-owned partnerships, holds non-
controlling general and limited equity interests in partnerships which
were formed to build, own and operate cogeneration and other non-
regulated independent power plants. Generally, the lenders to these
partnerships have recourse only against these projects and the income
and revenues therefrom. The debt agreements contain various
restrictive covenants including restrictions on paying cash
distributions to the partners. WEI's equity interests in these
partnerships range from 1.25 percent to 50 percent.
WEI performs project development and venture management services for
the partnerships and has recognized related revenues of $451,000 and
$207,000 for the six months ended June 30, 1994 and 1993,
respectively. WEI had deferred development income of $4,000,000 at
June 30, 1994 and $3,913,000 at December 31, 1993, respectively.
Income recognition of these fees is deferred until the related project
achieves commercial operation and the required equity contribution is
made or, if the sale of WEI is completed, the balance of the income
recognition will be included in the gain from the transaction.
WEI had capitalized project acquisition costs of $1,147,000 at June
30, 1994 and $1,182,000 at December 31, 1993. Such costs are being
amortized over the term of the power contracts of the projects.
Amortization for the six months ended June 30, 1994 was not material
to the financial statements.
WEI had subordinate loans receivable from project partnerships of
$3,165,000 at June 30, 1994 and $2,230,000 at December 31, 1993,
respectively. The loans receivable are classified in the Balance
Sheet as part of net assets of discontinued operations.
Equity Support Agreement
On April 15, 1993, the Company entered into an equity support
agreement (the "Equity Guarantee") with LG&E Power ("LG&E") whereby
WEI's and Westmoreland's obligation to fund the aggregate equity
commitments of the ROVA-I and Rensselaer Projects (up to $30,900,000)
and the anticipated equity commitment of the Roanoke Valley II Project
(up to $4,600,000) are guaranteed by LG&E. As consideration for this
Equity Guarantee, the Company has pledged its interest in these
projects as security to LG&E. In addition, the Company is obligated
to pay a fee of 1.25 percent per annum on the aggregate amount of the
Equity Guarantee and a fee of $4,750,000, of which $3,562,500 was paid
during the second quarter of 1994 and the remaining $1,187,500 was
paid on August 1, 1994. These fees are being amortized over the
period beginning on April 15, 1993 through the required equity funding
dates of the respective projects. A total of $4,003,000 has been
amortized from April 15, 1993 through June 30, 1994.
Project Equity Commitments Summary
The following summarizes the Company's estimated remaining equity
commitments as of August 15, 1994 related to WEI's cogeneration
projects (in thousands):
Maximum Expected
Contractual Commitments (1994) $ 30,900 $ 23,700
Contractual Commitments (1995) 6,600 4,600
$ 37,500 $ 28,300
The Rensselaer and ROVA-I Projects achieved commercial operations in
April and May 1994, respectively. An estimated $8,600,000 of equity
funding by the Company through WEI is currently scheduled for the
Rensselaer Project on September 12, 1994 although the Rensselaer
Project's equity participants have requested that the project lenders
defer the equity funding date to December 1994. If the $8,600,000
deferral is not obtained, the Company expects to fund this
cogeneration project equity commitment out of available cash
resources. The $15,100,000 of estimated equity funding on the ROVA-I
Project is due by December 31, 1994. If the sale of WEI's assets is
completed prior to the equity commitment funding dates, then the
remaining equity commitments for cogeneration projects will be assumed
by the buyers. If the sale of WEI has not been completed prior to the
equity commitment funding dates, then the Company expects to fund the
equity commitments for cogeneration projects from the proceeds of the
sale of the assets of Criterion.
Recent Developments Relating to Cogeneration Projects
Southampton Project. WEI owns a 30% general partnership interest in
LG&E-Westmoreland Southampton ("Southampton Partnership"), which owns
the Southampton Project. The Southampton Project, which was engaged
in start-up and testing operations from September 1991 through March
1992, failed to meet FERC operating standards for a QF in 1992. The
failure was due to three factors: (i) the facility was not dispatched
by Virginia Power on a baseload schedule as anticipated, (ii) the
facility was engaged in start-up and testing operations during a
portion of that year, and (iii) the facility operator mistakenly
delivered non-sequential steam to the host over a significant period
of time. On February 23, 1994, the Southampton Partnership filed a
request with the FERC for a waiver of the FERC's QF operating standard
for 1992. Virginia Power intervened in the FERC proceeding, opposed
the granting of a waiver, and alleged that its power contract with the
Southampton Partnership had been breached due to the failure of the
facility to maintain QF status in 1992.
On July 7, 1994, the FERC issued an order (1) denying the application
of the Southampton Partnership for a waiver of the FERC's QF operating
standard in 1992 with respect to the Southampton Project and (2)
directing the Southampton Partnership to show cause why it should not
be required to file rate schedules with the FERC governing its 1992
electricity sales for resale to Virginia Power. On August 9, 1994,
the Southampton Partnership filed a request for rehearing of FERC's
order or, alternatively, a motion for reconsideration. If the FERC
were to deny the requested waiver on rehearing and to determine that
the Southampton Partnership had been a "public utility" in 1992, then
the Southampton Partnership's 1992 actions could be subject to
regulation under the Federal Power Act and state laws and regulations;
two other cogeneration projects in which the Company holds ownership
interests could also be subject to such regulation; the Company and
certain of its subsidiaries could become subject to regulation in 1992
under the Public Utility Holding Company Act; and defaults might be
created under certain existing agreements. No assurance can be
provided as to the timing of the FERC's decision or the outcome. The
Company believes the risk is remote that FERC's denial of a waiver for
the Southampton facility will have a material adverse effect on the
financial condition of the Company.
ROVA I Project. WEI owns a 50% general partnership interest in
Westmoreland-LG&E Partners (the "ROVA I Partnership"), which owns the
ROVA I Project. Virginia Power has contracted to purchase power from
the ROVA I Project. In the second quarter of 1994, Virginia Power
disputed the ROVA I Partnership's interpretation of the provisions of
the power purchase agreement relating to "forced outage" days. The
ROVA I Partnership believes that Virginia Power is required to pay
the ROVA I Partnership for forced outage days, notwithstanding that
the ROVA I Project is not generating power on such days. Virginia
Power asserts that it is not required to do so. On August 3, 1994,
Virginia Power withheld approximately $1.6 million from its first
monthly payment to the ROVA I Partnership because of this dispute. If
Virginia Power were to withhold payment for each forced outage day
that the ROVA I Partnership believes the ROVA I Project is allowed
under the power purchase agreement, the annual revenue of the ROVA I
Partnership would be reduced by $6.3 million. WEI and its partner in
the ROVA I Partnership, LG&E, are currently attempting to resolve this
dispute through negotiations with Virginia Power. If negotiations are
not successful, the ROVA I Partnership will file suit against Virginia
Power to confirm its rights under the contract. The Company believes
that it is likely it will recover the withheld amounts if it brings
legal action against Virginia Power.
Westmoreland Terminal Company
Westmoreland Terminal Company ("WTC"), a wholly-owned subsidiary of
the Company, has a 20% interest in Dominion Terminal Associates
("DTA"), a partnership formed for the construction and operation of a
coal-storage and vessel-loading facility in Newport News, Virginia.
DTA's annual throughput capacity is 20 million tons, and its ground
storage capacity is 1.7 million tons. The Company utilizes the
terminal's facilities for coal exporting and for supplying coal to
domestic customers via coastal waterways. The Company also leases the
ground storage space and the vessel-loading facilities to some of its
customers and to unaffiliated producers.
The facility began operations in March 1984. Financing was provided
through $132,800,000 of refunding 30-year, non-amortizing, tax-exempt
bonds (the "DTA Bonds"). Rates of interest on the DTA Bonds are reset
periodically (each 180 days or less). The holders of the DTA Bonds
have a right to put for repayment the DTA Bonds on each resetting
date. As a 20% owner, WTC and Westmoreland have a several obligation
for interest and principal obligations ($26,560,000 principal balance)
with respect to the DTA Bonds. Until June 9, 1994, these obligations
were supported by a letter of credit issued by a group of banks for
which Westmoreland is the ultimate obligor.
As reported previously, Westmoreland was in violation of certain
covenant requirements in connection with the guarantee obligations
supporting the letter of credit. As a result, on June 9, 1994 the
issuing banks elected to cause a $26,560,000 draw (the "Reimbursement
Obligation") under the letter of credit supporting Westmoreland's
share of the DTA Bonds. The proceeds of the draw were used to
purchase $26,560,000 (par value) of DTA Bonds. These repurchased DTA
Bonds secure Westmoreland's Reimbursement Obligation to the letter of
credit banks. The Reimbursement Obligation is currently due. It is
expected that the banks will take no further action regarding this
Reimbursement Obligation pending an agreement with Westmoreland for an
extension of the reimbursement due date.
In addition, the DTA partners have a Throughput and Handling Agreement
whereby WTC is committed to fund its proportionate share of DTA's
operating expenses. WTC's total cash funding obligations were
$1,438,000 during the first six months of 1994 and $1,511,000 during
the first six months of 1993. The Company's negative investment in
DTA, due to the recording of depreciation expense, was $7,835,000 and
$7,401,000 at June 30, 1994 and December 31, 1993, respectively. As a
result of the June 9, 1994 draw under the letter of credit, the
Company recorded the entire $26,560,000 Reimbursement Obligation as
current debt and a corresponding amount as an investment in non-
current assets in the Balance Sheet of the Company. The Company's
negative investment in DTA previously recorded as a non-current
liability was reclassed to the non-current investment account thus
reducing the investment in DTA to $18,725,000.
The Company has been taking steps to disengage from the export sales
market at this time due to the export market's recent decline and the
amount of working capital needed to participate in that market. The
Company is currently conducting studies to further evaluate the future
of the export coal market and to explore other potential uses of its
share of the DTA terminal facility. The Company is also evaluating
the option of selling its share of DTA. Based upon the results of
these studies the Company may write-down the carrying value of its
investment in DTA at a future date.
Adventure Resources, Inc.
Westmoreland Coal Sales Company, a wholly-owned subsidiary of the
Company, had been acting as the exclusive sales agent for Adventure
Resources, Inc. ("Adventure"), whose other affiliated companies
include M.A.E. Services Inc. and Maben Energy Corporation. On
December 2, 1992 Adventure and certain of its affiliates filed
voluntary petitions for reorganization under Chapters 7 and 11 of the
Bankruptcy Code with the United States Bankruptcy Court for the
Southern District of West Virginia. As of June 30, 1994 the Company
has $7,397,000 in notes and $5,842,000 of long-term loans receivable
from Adventure. In addition, the Company has guaranteed payment of
certain defaulted obligations of Adventure totalling $8,864,000. All
of these amounts were fully reserved in 1992, and are components of
the Company's claims as a secured creditor in the bankruptcy
proceedings.
As sales agent and debtor-in-possession financer for Adventure, the
Company purchases clean coal production at the time it is produced and
sells the production to unaffiliated customers, thus financing
inventory and accounts receivable related to the sale of Adventure's
coal production. The Company has notified Adventure and its customers
that it intends to terminate this relationship. Adventure is
negotiating with other interested parties to replace Westmoreland as
Adventure's sales agent and financer.
As of June 30, 1994 the Company had outstanding inventory and trade
accounts receivable related to Adventure of $2,366,000 and $6,411,000,
respectively. The Company fully expects to recover these amounts as
its interest in the inventory is protected by an order in the
bankruptcy proceeding and the accounts receivable are owed by
unrelated third parties.
The Company is seeking to recoup the pre-petition amounts owed to it
in the Chapters 7 and 11 bankruptcy proceeding as a secured creditor.
The Company has been making interest payments on behalf of Adventure
on the $8,864,000 of guaranteed debt and is also contingently liable
for the February 1998 scheduled repayment of the full principal
balance.
Sales to domestic customers from Adventure's production accounted for
$24,093,000(12%) and $19,137,000(9%) of Westmoreland's total coal
revenues during the first six months of 1994 and 1993, respectively.
STRATEGIC REVIEW DEVELOPMENTS
The Company continues its strategic review of operations, including
its Eastern coal properties, as part of its plan to improve cash
flows, de-emphasize non-strategic or underperforming assets and
reposition the Company so that it can achieve meaningful and
sustainable profitability. This process may lead to the sale of one
or more additional properties. The proceeds from the sales of assets,
including Criterion and WEI, are expected to be used, to the extent
possible, to provide collateral for its outstanding surety bonds (not
to exceed $4,570,000), to repay all maturing debt obligations, to
fund WEI equity commitments for cogeneration projects, to reinvest in
new properties or businesses and for general corporate purposes.
Other
In addition to the contingencies discussed in this Note, the Company
and its subsidiaries had various claims and suits pending at June 30,
1994, all in the ordinary course of business.
3) CAPITAL STOCK
Preferred stock dividends at a rate of 8.5% per annum were paid quarterly
from the third quarter of 1992 through the first quarter of 1994. The
preferred stock was issued in July 1992. The last quarterly preferred
stock dividend was declared on February 25, 1994 and was paid on April 1,
1994.
As part of its lender negotiations, Westmoreland announced on May 9, 1994
that it would suspend the declaration and payment of dividends on its
preferred stock in order to conserve its cash resources. The Company plans
to begin the payment of preferred stock dividends again after the sale of
the assets of Criterion are completed and maturing credit obligations are
repaid.
Dividends on the preferred stock are cumulative. As of June 30, 1994 there
was $1,222,000 of undeclared, unpaid dividends.
Presently, common stock dividend payments are not permitted under the
covenants contained in the Company's principal credit facilities.
4) DEBT
Westmoreland's three principal credit facilities have an aggregate
outstanding balance of $46,885,000 at June 30, 1994. These credit
facilities are summarized below:
- - - a Revolving Credit Agreement with a total commitment and
outstanding balance of $9,000,000 as of June 30, 1994 and a stated
maturity date of July 15, 1994, since extended to August 26, 1994
(the "Revolver");
- - - 10% Senior Notes with an outstanding balance of $11,325,000 as of
June 30, 1994 and a stated maturity of July 15, 1994, since
extended to August 26, 1994 (the "10% Notes"); and
- - - The Reimbursement Obligation as of June 30, 1994 as a result of a
$26,560,000 draw on June 9, 1994 under a letter of credit issued by
a group of banks in connection with Westmoreland's interest in the
DTA coal export terminal which is currently due.
Since December 31, 1993 Westmoreland has not been in compliance with
certain loan covenants contained in these credit facilities and in an
operating lease.
The Company has been in negotiations with the institutions
participating in these credit facilities and the operating lease to
obtain waivers of these defaults, modifications of the financial
covenants and restructuring of the maturities. It is expected that
final maturity dates on the three credit facilities summarized above
will be extended until the expected fourth quarter 1994 sale of the
Criterion assets. The Company further reduced the outstanding
balance of these credit facilities by making principal payments
totalling $2,000,000 in July 1994. As part of its lender
negotiations, Westmoreland announced on May 9, 1994 that it would
suspend the declaration and payment of dividends on its preferred
stock in order to conserve its cash resources.
On June 9, 1994 the banks, which issued the letter of credit to
support Westmoreland's share of the DTA Bonds, elected to cause a
$26,560,000 draw under the letter of credit. The proceeds of the draw
were used to purchase $26,560,000 (par value) of DTA Bonds. These
repurchased DTA Bonds secure Westmoreland's Reimbursement Obligation.
The Reimbursement Obligation is currently due. It is expected that
the banks will take no further action regarding this Reimbursement
Obligation pending an agreement with Westmoreland for an extension of
the reimbursement due date.
As of August 15, 1994, the institutions participating in the Revolver
and the 10% Notes extended to August 26, 1994 the maturity dates for
the repayment of these credit facilities. It is expected that the
final maturities on these two credit facilities as well as the
Reimbursement Obligation, will be extended until the expected fourth
quarter 1994 closing of the Criterion asset sale.
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
MATERIAL CHANGES IN FINANCIAL CONDITION
FROM DECEMBER 31, 1993 TO JUNE 30,1994
Liquidity
Credit facilities
See Note 4 to the Condensed Consolidated Financial Statements.
Equity Commitments
The Company, as of August 15, 1994, has equity commitments related to
cogeneration projects under construction, currently projected to be
$23,700,000 for the remainder of 1994. $8,600,000 of this amount is
payable in September 1994 and $15,100,000 is payable in December
1994. The Rensselaer Project's equity participants have requested
that the project lenders defer the equity funding date to December
1994. If the $8,600,000 deferral is not obtained, the Company
expects to fund this cogeneration project equity contribution out of
available cash resources. If the sale of WEI's assets is completed
prior to the equity commitment funding dates, then the remaining
equity commitments will be assumed by the buyers. If the sale of WEI
has not been completed prior to the equity commitment funding dates,
then the Company expects to fund the commitments from the proceeds of
the Criterion asset sale.
The Company paid fees totalling $4,750,000 in 1994 (of which
$3,562,500 was paid during the first six months and $1,187,500 was
paid in the third quarter) related to the Equity Guarantee by LG&E
which guarantees the payment of the funding of the Company's portion
of the equity commitment obligations related to its cogeneration
projects under construction.
Sale of assets
The Company announced on July 28, 1994 that it reached a definitive
agreement to sell the assets of Criterion to CONSOL. A fourth
quarter 1994 closing is expected. See Note 1.
On April 18, 1994, the Company announced that it reached an
agreement in principle to sell certain assets of WEI to several
purchasers, all represented by LCRW Power Company, L.P. Assuming a
definitive purchase agreement can be achieved and other conditions
can be met, closing of the sale would not now be expected to take
place before late in the fourth quarter of 1994. See Note 2 -
Westmoreland Energy, Inc.
The Company continues its strategic review of operations, including
its Eastern coal properties, as part of its plan to improve cash
flows, de-emphasize non-strategic or underperforming assets and
reposition the Company so that it can achieve meaningful and
sustainable profitability. This process may lead to the sale of one
or more additional properties. The proceeds from the sales of assets,
including Criterion and WEI, are expected to be used, to the extent
possible, to provide collateral for its outstanding surety bonds (not
to exceed $4,570,000), to repay all maturing debt obligations, to
fund WEI equity commitments for cogeneration projects, to reinvest in
new properties or businesses and for general corporate purposes.
Surety Bonds
During 1993 the State of Virginia increased its bonding requirements
for the Company's self-insured workers' compensation and
pneumoconiosis benefit plans. As a result, the Company's surety
bond underwriter required a commitment for cash collateral for its
outstanding surety bonds. As of December 31, 1993, $1,000,000 was
deposited in a cash collateral account. Additional amounts of
$4,430,000 were deposited in the cash collateral account during the
first six months of 1994. The Company has agreed to provide up to
an additional $4,570,000 into this cash collateral account upon the
sale of assets.
Other
Cash provided from operating activities totalled $13,554,000 and
$9,849,000 during the six months ended June 30,1994 and June 30,
1993, respectively. The most significant source of cash in 1994 was
a $12,200,000 increase in cash provided due to the Company's decision
to exit from the export sales market and to discontinue relationships
with certain unaffiliated producers. Export receivables were reduced
by $16,500,000, export inventory was reduced by $2,700,000 and
payables related to unaffiliated producers decreased by $7,000,000.
Cash used in investing activities was $7,497,000 and $3,923,000 in
the six month period ending June 30, 1994 and 1993, respectively.
During the first six months of 1994 the Company paid fees totalling
$3,562,500 related to the Equity Guarantee by LG&E, which guarantees
the funding of the Company's portion of the equity commitment
obligations related to its cogeneration projects under construction.
The Company invested $2,415,000 and $1,976,000 in capital assets
during the first six months of 1994 and 1993, respectively. The
majority of the 1994 additions were for underground equipment at the
Virginia Division. Included in increase in net assets held for sale
were additional loans to cogeneration projects under construction
totalling $1,113,000 during the first six months of 1994.
Cash used in financing activities was $13,729,000 and $7,980,000
during the first six months of 1994 and 1993, respectively. In 1994,
$4,430,000 was used to provide collateral for the surety bonds
previously discussed. Debt payments of $6,159,000 and $5,263,000 were
paid in 1994 and 1993, respectively. Preferred stock dividends in
the amount of $2,444,000 were paid in 1994 and 1993.
The Company's total debt to capitalization ratio (total debt,
including current portion of long-term debt, divided by the sum of
total debt, including current portion of long-term debt, minority
interest and shareholders' equity) was 65% at June 30, 1994 and 51%
at December 31, 1993. The increase is due to the $26,560,000
Reimbursement Obligation, which was incurred in the second quarter
of 1994, related to the DTA bonds.
The Company's cash and cash equivalents totalled $16,590,000
(including $2,254,000 of a 60% owned subsidiary) and $24,262,000
(including $2,772,000 of a 60% owned subsidiary) at June 30, 1994 and
December 31, 1993, respectively. None of the cash and cash
equivalents was restricted as to use or disposition.
The Company's current ratio was 1.00 at June 30, 1994 compared to
.93 at December 31, 1993.
Capital Stock
See Note 3.
RESULTS OF OPERATIONS:
SECOND QUARTER ENDED JUNE 30,1994 COMPARED
TO SECOND QUARTER ENDED JUNE 30,1993
Three Months Ended
June 30,
1994 1993
(in thousands)
Coal operations:
Virginia Division $ 1,120 $ 108
Hampton Division 610 153
Criterion Coal Co. 3,456 2,500
Pine Branch Mining Co. (501) (294)
Westmoreland Resources, Inc. 507 690
Westmoreland Coal Sales Co. (63) 1,125
Net corporate expenses (2,574) (2,014)
West Virginia, idle costs (2,631) (1,872)
Total Coal (76) 396
Other operations (231) 26
Operating income (loss) $ (307) $ 422
Other income $ 553 $ 172
Discontinued operations (WEI) $ (250) $ 1,099
Tons sold and coal production sources were as follows:
Three Months Ended
June 30,
1994 1993
Tons Sold:
Inland 3,860 3,160
Export 412 695
Total Tons Sold 4,272 3,855
Coal Sources:
Virginia Division * 1,249 1,190
Hampton Division 359 355
Criterion Coal Co. 570 436
Westmoreland Resources, Inc. 1,089 612
Total Westmoreland Operations 3,267 2,593
From unaffiliated producers 1,005 1,262
Total Coal Sources 4,272 3,855
* Includes tons purchased from:
Pine Branch Mining Co. 63 51
Unaffiliated producers 207 226
Total Virginia Division Purchases 270 277
These coals are blended with Company produced coal to meet current
sales demand and offset uneven production levels. These tons are
included in Virginia Division's tonnage shown above.
COAL OPERATIONS
Virginia Division - $1,012,000 better
Virginia Division's improvement was due to improved production yields
related to higher levels of utilization of the Pierrepont longwall
miner in 1994 and a decrease in depreciation expense due to the write-
down of certain plant and equipment in the fourth quarter of 1993.
Hampton Division - $457,000 better
Hampton's results improved due to the elimination of losses related to
that portion of the Hampton operations that were shut down on April
30, 1994. Reserves for these operating losses and shutdown costs were
accrued for in the fourth quarter of 1993. The reserve balances as of
June 30, 1994 are deemed adequate for future needs. The operating
profit during the second quarter of 1994 relates to a large surface
mine which continues to be operated by a contractor on the Hampton
property. This portion of the Hampton operation was not included in
the 1993 shut-down accruals.
Criterion Coal Company - $956,000 better
Criterion's sales tons and average revenue per ton increased in 1994
compared to 1993. Criterion began shipping coal during the first half
of 1994 against three long-term contracts with two utilities and a
cogeneration facility.
Westmoreland Resources, Inc.("WRI") - $183,000 worse
The decrease in earnings is due to lower "take or pay" payments
received in 1994 compared to 1993 from contracts which have since
expired. Also, the price received from WRI's second largest customer
was reduced as a result of a contract renewal. This deterioration was
offset by earnings on higher levels of shipments in 1994.
On July 8, 1994 WRI announced a new long-term coal supply agreement
with Otter Tail Power for 1.7 million tons of coal per year for 4-1/2
years starting in mid-1995 through 1999. This agreement is expected
to have a positive impact on WRI's future earnings.
Westmoreland Coal Sales Co. - $1,188,000 worse
Westmoreland Coal Sales Co.'s results decreased in 1994 primarily due
to a decrease in export tons and lower export margins. Export sales
decreased 283,000 tons(41%). The Company has been taking steps to
identify, disengage from and eliminate business relationships which
require investments in working capital and offer limited future
return potential. Most of these relationships involve the selling of
coal for unaffiliated producers and export sales. Export sales
accounted for $11,561,000(13%) and $19,920,000(18%) of the Company's
Coal revenues during the second quarter of 1994 and 1993,
respectively.
Net corporate expenses - $560,000 worse
Included in 1994 is the recognition of $763,000 of penalties that will
be paid in connection with the expected fourth quarter 1994 repayment
of $11,325,000 of 10% Senior Notes. This was partially offset by cost
reductions related to a smaller corporate staff in 1994.
West Virginia, idle costs - $759,000 worse
These expenses increased due to a $300,000 settlement of a dispute
involving an idled operation and increased retiree benefit costs,
particularly an increase in the Company's obligation to make increased
payments into the UMWA Benefit Trust Funds as a result of the Coal
Industry Retiree Health Benefit Act of 1992.
Other operations - $257,000 worse
The decrease in earnings from other operations was primarily due to a
37% decrease in tonnage and related revenues at Cleancoal Terminal.
Other income - $381,000 better
Other income increased due to a $472,000 gain on the sale of surface
and mineral rights in the second quarter of 1994.
Discontinued operations - $1,349,000 worse
The Company's cogeneration business unit, WEI, was offered for sale by
the Company in 1993 and WEI was reclassified as a discontinued
operation in the financial statements.
The decrease in WEI's earnings is principally due to a $2,000,000 gain
recorded in 1993 on the sale of a portion of the Company's interest in
the Fort Lupton cogeneration project.
RESULTS OF OPERATIONS:
SIX MONTHS ENDED JUNE 30,1994 COMPARED
TO SIX MONTHS ENDED JUNE 30,1993
Six Months Ended
June 30,
1994 1993
(in thousands)
Coal operations:
Virginia Division $ 552 $ 319
Hampton Division 580 (436)
Criterion Coal Co. 5,800 4,187
Pine Branch Mining Co. (1,681) (374)
Westmoreland Resources, Inc. 1,291 1,734
Westmoreland Coal Sales Co. 564 2,211
Net corporate expenses (4,832) (5,005)
West Virginia, idle costs (4,906) (3,752)
Total Coal (2,632) (1,116)
Other operations (588) 125
Operating loss $ (3,220) $ (991)
Discontinued operations (WEI) $ (771) $ 1,468
Tons sold and coal production sources were as follows:
Six Months Ended
June 30,
1994 1993
Tons Sold:
Inland 7,090 6,453
Export 908 1,602
Total Tons Sold 7,998 8,055
Coal Sources:
Virginia Division * 2,321 2,441
Hampton Division 665 674
Criterion Coal Co. 1,046 857
Westmoreland Resources, Inc. 2,084 1,446
Total Westmoreland Operations 6,116 5,418
From unaffiliated producers 1,882 2,637
Total Coal Sources 7,998 8,055
* Includes tons purchased from:
Pine Branch Mining Co. 98 103
Unaffiliated producers 359 384
Total Virginia Division Purchases 457 487
These coals are blended with Company produced coal to meet current
sales demand and offset uneven production levels. These tons are
included in Virginia Division's tonnage shown above.
COAL OPERATIONS
Virginia Division - $233,000 better
Virginia Division was negatively impacted by lower production levels
and shipments in the first quarter of 1994 caused by adverse weather
conditions and water accumulation problems in the Pierrepont Mine
offset by lower depreciation levels for the first six months of 1994
and improved productivity levels in the second quarter of 1994.
Hampton Division - $1,016,000 better
Hampton's results improved due to the elimination of losses related to
that portion of the Hampton operations that were shut down on April
30, 1994. Reserves for these operating losses and shutdown costs were
accrued for in the fourth quarter of 1993. The operating profit
during the first six months of 1994 relates to a large surface mine
which continues to be operated by a contractor on the Hampton
property. This portion of the Hampton operation was not included in
the 1993 shut-down accruals.
Criterion Coal Company - $1,613,000 better
Criterion's sales tons and average revenue per ton increased in 1994
compared to 1993. Criterion began shipping coal during the first half
of 1994 under three long-term contracts with two utilities and a
cogeneration facility.
Pine Branch Mining Co. - $1,307,000 worse
Unusually adverse weather conditions in the first quarter of 1994
contributed to poor production and increased costs as Pine Branch
Mining's losses in the first quarter of 1994 increased $1,100,000
compared to the first quarter of 1993.
Westmoreland Resources, Inc. ("WRI") - $443,000 worse
The decrease in earnings is due to lower "take or pay" payments
received in 1994 compared to 1993 from contracts which have since
expired. Also, the price received from WRI's second largest customer
was reduced as a result of a contract renewal. This deterioration was
offset by earnings on higher levels of shipments in 1994.
Westmoreland Coal Sales Co. - $1,647,000 worse
Westmoreland Coal Sales' results in 1994 were worse than 1993
primarily due to a decrease in export tons and lower export margins.
Export sales decreased 694,000 tons(43%). This was partially offset
in 1994 by $650,000 in income from the sale of a coal supply
contract. Export sales accounted for $26,805,000(13%) and
$46,008,000(21%) of the Company's Coal revenues during the first six
months of 1994 and 1993, respectively.
Net corporate expenses - $173,000 better
Included in 1994 is the recognition of $763,000 of penalties that will
be paid in connection with the expected fourth quarter 1994 repayment
of $11,325,000 of 10% Senior Notes. In 1993, $805,000 of bank and
legal expenses related to debt restructuring were incurred. Other
expenses were $131,000 lower in 1994 than 1993.
West Virginia, idle costs - $1,154,000 worse
These expenses increased due to a $300,000 settlement of a dispute
involving an idled operation and increased retiree benefit costs,
particularly an increase in the Company's obligation to make increased
payments into the UMWA Benefit Trust Funds as a result of the Coal
Industry Retiree Health Benefit Act of 1992.
Other operations - $713,000 worse
The decrease in earnings from other operations was primarily due to a
37% decrease in tonnage and related revenues at Cleancoal Terminal.
Discontinued operations - $2,239,000 worse
The Company's cogeneration business unit, WEI, was offered for sale by
the Company in 1993 and WEI was reclassified as a discontinued
operation in the financial statements.
The decrease in WEI's earnings is principally due to a $2,000,000 gain
recorded in 1993 on the sale of a portion of the Company's interest in
the Fort Lupton cogeneration project. The change is also due to the
amortization of the LG&E equity guarantee fees which started in April
1993. The total amount amortized during the first six months of 1994
was $1,544,000 compared to $694,000 in the first six months of 1993.
Inflation did not have a material impact on the Company's operations
in 1994.
PART II - OTHER INFORMATION
ITEM 4
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of shareholders of Westmoreland was held on June 6,
1994. Proxies for the meeting were solicited pursuant to Section 14A
of the Securities Exchange Act of 1934, and there was no solicitation
in opposition to management's solicitation.
The only proposal voted upon at the meeting was for the election of
Directors. Therefore, the issue of broker non-votes did not apply.
The tabulation of the votes cast with respect to each of the nominees
for election as a Director, in aggregate constituting the full Board
of Directors, is set forth as follows:
NAME VOTES FOR VOTES WITHHELD
Pemberton Hutchinson 7,503,800 189,770
Lennox K. Black 7,514,466 179,104
Brenton S. Halsey 7,506,638 186,932
William R. Klaus 7,505,938 187,632
E. B. Leisenring, Jr. 7,511,969 181,601
Christopher K. Seglem 7,516,371 177,199
Edwin E. Tuttle 7,503,983 189,587
No nominee for election as a Director received less than 81.1% of the
9,255,477 shares of the Company's securities entitled to vote at the
meeting, and no nominee received less than 97.5% of the votes cast at
the meeting.
PART II - OTHER INFORMATION
ITEM 6
EXHIBITS AND REPORTS ON FORM 8-K
a) WEI Project Status Summary.
b) On April 21, 1994, the Company filed a report on Form 8-K
reporting the qualified opinion given by its independent
auditors, KPMG Peat Marwick on the Company's 1993 financial
statements.
On April 21, 1994, the Company filed a report on Form 8-K,
announcing that it had reached an agreement in principle to
sell the assets of its cogeneration operations to several
purchasers.
On May 12, 1994, the Company filed a report on Form 8-K,
announcing that it had temporarily suspended the declaration
and payment of dividends on its preferred stock.
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.
WESTMORELAND COAL COMPANY
Date: August 15, 1994
Francis J. Boyle
Senior Vice President,
Chief Financial Officer
and Treasurer
Thomas C. Sharpe
Controller
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<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> DEC-31-1993
<PERIOD-END> JUN-30-1994
<CASH> 16,590
<SECURITIES> 0
<RECEIVABLES> 40,990
<ALLOWANCES> 5,786
<INVENTORY> 12,473
<CURRENT-ASSETS> 107,484
<PP&E> 325,310
<DEPRECIATION> 223,938
<TOTAL-ASSETS> 259,228
<CURRENT-LIABILITIES> 107,948
<BONDS> 0
<COMMON> 17,390
0
575
<OTHER-SE> 6,109
<TOTAL-LIABILITY-AND-EQUITY> 259,228
<SALES> 205,163
<TOTAL-REVENUES> 205,163
<CGS> 188,625
<TOTAL-COSTS> 208,383
<OTHER-EXPENSES> (1,235)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,282
<INCOME-PRETAX> (4,571)
<INCOME-TAX> 1,156
<INCOME-CONTINUING> (5,727)
<DISCONTINUED> (771)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,498)
<EPS-PRIMARY> (1.11)
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<TABLE>
WESTMORELAND ENERGY, INC.
Project Status Summary
August 15, 1994
<CAPTION>
Roanoke Roanoke
Southampton Altavista Hopewell Valley I Valley II Ft. Drum Ft. Lupton Rensselaer
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Location Southampton, Altavista, Hopewell, Weldon, North Weldon, North Watertown, Ft. Lupton Rensselaer
Virginia Virginia Virginia Carolina Carolina New York Colorado New York
Status Operational Operational Operational Operational Construction Operational Operational Operational
Gross
Megawatt
Capacity 70 MW 70 MW 70 MW 180 MW 50 MW 55.5 MW 290 MW 81 MW
WEI
Equity
Ownership 30.0% 30.0% 30.0% 50.0% 50.0% 1.25% 4.49% 50.0%
Equity
Partner LG&E Power LG&E Power LG&E Power LG&E Power LG&E Power Jones Group Thermo, Inc. LG&E Power
Electri- North North
city Virginia Virginia Virginia Carolina Carolina Niagara Public Ser- Niagara
Purchaser Power Power Power Power Power Mohawk vice of CO Mohawk
Steam Hercules, The Lane Firestone Patch Patch U. S. Army Rocky Mt. BASF Corp.
Host Inc. Company,Inc Tire & Rubber Co. Rubber Co. Produce Ltd.
Rubber Co.
Fuel Type Coal Coal Coal Coal Coal Coal Natural Gas Natural Gas
Fuel United Coal Westmore- United TECO Coal Co./ TECO Coal Co./ Westmore- Thermo Western Gas
Supplier Co. land Coal Coal Co. Westmoreland Westmoreland land Co. Fuels, Inc. Marketing, Ltd.
Co. Coal Co. Coal Co.
Commer-
cial
Opera-
tions
Date 1992 1992 1992 May 1994 1995 1989 June 1994 April 1994
(projected)
</TABLE>
