<PAGE 1>
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 September 30, 1995
-----------------
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
for the transition period from to
--- ----
Commission File Number
0-752
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.)
14th Floor, 2 North Cascade Avenue
Colorado Springs, Colorado 80903
- - ---------------------------------------- -------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number,
including area code... 719-442-2600
------------
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
<PAGE 2>
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 October 31, 1995: 6,960,966
<PAGE 3>
PART I - FINANCIAL INFORMATION
ITEM 1
FINANCIAL STATEMENTS
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
(Unaudited)
Sept. 30, 1995 Dec. 31, 1994
-------------- -------------
<C> <C>
<S>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 30,021 $ 15,453
Notes and accounts receivable
Coal sales 3,133 21,333
Notes 3,664 4,946
Other 1,254 2,367
------- -------
8,051 28,646
Less allowance for
doubtful accounts 2,516 3,317
------- -------
5,535 25,329
Inventories
Coal 648 3,554
Mine supplies 909 5,050
------- -------
1,557 8,604
Other current assets 807 952
------- -------
TOTAL CURRENT ASSETS 37,920 50,338
Property, plant and equipment
Land and mineral rights 30,036 30,175
Plant and equipment 248,566 278,400
------- -------
278,602 308,575
<PAGE 4)
Less accumulated depreciation
depletion, and writedown of
fixed assets 222,278 218,847
------- -------
56,324 89,728
Assets of Cleancoal Terminal Co.
held for sale - 6,149
Investment in Independent Power
Projects 42,212 43,046
Investment in DTA 19,383 20,375
Other assets 15,978 20,103
------- -------
TOTAL ASSETS $ 171,817 $ 229,739
======= =======
</TABLE>
<F1>
See accompanying notes to condensed consolidated financial statements.
<PAGE 5>
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
(Unaudited)
Sept. 30, 1995 Dec. 31, 1994
-------------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
<C> <C>
<S>
CURRENT LIABILITIES
Current installments of
long-term debt $ 1,802 $ 3,561
Accounts payable and accrued expenses 18,310 30,311
Accrual for workers' compensation 5,447 5,409
Accrual for postretirement
medical costs 10,400 8,075
Taxes on income 3,742 3,963
Deferred income taxes 500 500
------- -------
TOTAL CURRENT LIABILITIES 40,201 51,819
Long-term debt 2,338 12,370
Accrual for pneumoconiosis
benefits 14,191 15,004
Accrual for workers' compensation 21,415 21,771
Accrual for postretirement
medical costs 71,028 36,405
Other liabilities 40,925 16,613
Deferred income taxes 14,472 14,732
Minority interest 10,919 10,301
SHAREHOLDERS' EQUITY (DEFICIT)
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 6,960,966 shares at 9/30/95 17,402 -
Issued 6,957,084 shares at 12/31/94 - 17,390
<PAGE 6>
Other paid-in capital 94,641 94,653
Accumulated deficit (156,290) (61,894)
-------- -------
TOTAL SHAREHOLDERS' EQUITY (DEFICIT) (43,672) 50,724
-------- -------
TOTAL LIABILITIES
AND SHAREHOLDERS' EQUITY (DEFICIT) $ 171,817 $ 229,739
======= =======
</TABLE>
<F2>
See accompanying notes to condensed consolidated financial statements.
<PAGE 7>
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
Sept. 30 Sept. 30
1995 1994 1995 1994
--------- ---------- --------- ---------
<C> <C> <C> <C>
<S>
Revenues:
Coal $ 20,014 $ 90,281 $ 100,270 $ 295,444
Independent Power 3,766 6,471 12,447 9,305
------- ------- ------- -------
23,780 96,752 112,717 304,749
------- ------- ------- -------
Cost and expenses:
Cost of coal sold 27,690 81,753 115,850 270,378
Cost of sales-Independent
Power 537 2,407 1,544 3,720
Depreciation, depletion
and amortization 3,744 4,141 14,383 12,695
Selling and administrative 4,417 7,536 12,677 21,103
------- ------- ------- -------
36,388 95,837 144,454 307,896
------- ------- ------- -------
Loss on idling of Eastern
coal operations (70,538) - (70,538) -
------- ------ ------- ------
Operating income (loss) (83,146) 915 (102,275) (3,147)
Gains on the sales of assets - - 9,538 -
Interest expense (351) (1,595) (1,032) (3,877)
Interest and other income 1,052 456 3,310 1,770
------ ------ ------ ------
Loss before income tax
expense (benefit)
and minority interest (82,445) (224) (90,459) (5,254)
<PAGE 8>
Income taxes (benefit):
Current 380 266 1,224 1,106
Deferred (102) - (349) 324
------ ----- ------- ------
278 265 875 1,430
Minority interest 264 214 618 518
------ ------ ------ ------
Net loss (82,987) (704) (91,952) (7,202)
Less preferred stock dividends
declared 1,222 - 2,444 1,222
in arrears - 1,222 - 1,222
------ ------- ------- -------
Net loss applicable
to common shareholders $ (84,209) $ (1,926) $(94,396) $ (9,646)
======= ======= ======= =======
Net loss per share
applicable to common $ (12.10) $ (.28) $ (13.56) $ (1.39)
shareholders ======== ======= ======= =======
Weighted average number of
common shares outstanding 6,961 6,955 6,961 6,955
===== ===== ===== =====
</TABLE>
<F3>
See accompanying notes to condensed consolidated financial statements.
<PAGE 9>
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended Sept. 30, 1995 1994
- - ------------------------------- --------- ----------
(in thousands)
<C> <C>
<S>
Cash flows from operating activities:
Net loss $(91,952) $ (7,202)
Adjustments to reconcile net
loss to net cash provided (used) by
operating activities:
Gains on the sales of assets (9,538) -
Loss on idling of Eastern operations 70,538 -
Equity earnings from independent power
projects (9,536) (6,815)
Recognition of development fee income (1,750) -
Cash distributions from independent
power projects 10,370 1,104
Depreciation, depletion and amortization 14,383 10,900
Decrease in accrual for
pneumoconiosis benefits (813) (975)
Decrease in notes and accounts
receivable, net of allowance for
doubtful accounts 18,333 22,781
Decrease in inventories 3,772 6,699
Decrease in accounts payable and
accrued expenses (24,081) (16,851)
Increase in other long term
liabilities 5,498 -
Increase in accrual for
postretirement medical costs (1,252) 5,192
Other 11,028 2,679
------ ------
Net cash provided (used) by operating
activities (5,000) 17,512
------ ------
Cash flows from investing activities:
Fixed assets additions (502) (4,551)
<PAGE 10>
(Increase) decrease in notes receivable 1,774 (870)
Proceeds from sales of assets 10,131 98
Proceeds from sale of Duke Power Contract 23,503 -
LG&E support fee payment - (4,750)
Decrease in Kentucky Criterion assets
held for sale - 1,682
------ ------
Net cash provided (used) by
investing activities 34,906 (8,391)
------ ------
Cash flows from financing activities:
Hampton lease buyout premium (1,103) -
Repayment of long-term debt (11,791) (9,472)
Cash deposits to support
surety bonds - (4,430)
Dividends paid to preferred shareholders (2,444) (3,144)
Other - 4
------ ------
Net cash used in financing activities (15,338) (17,042)
------ ------
Net increase (decrease) in cash
and cash equivalents 14,568 (7,921)
Cash and cash equivalents,
beginning of period 15,453 24,262
------ ------
Cash and cash equivalents,
end of period $ 30,021 $ 16,341
====== ======
</TABLE>
<F4>
Supplemental disclosures of cash flow information:
<TABLE>
<CAPTION>
Cash paid during the period for:
<C> <C>
<S>
Interest $ 1,035 $ 3,978
Income taxes, net $ 1,664 $ 741
</TABLE>
<PAGE 11>
Supplemental disclosure of non-cash financing activities:
In the first quarter of 1995, $8,000,000 was distributed from debt
reserve accounts of certain of the Company's independent power
projects and bank letters of credit were substituted for the amounts
distributed. The cash proceeds are restricted as to use and were
invested in certificates of deposit of the bank issuing the letters of
credit. The certificates of deposit collateralize the letters of
credit and are classified on the Company's Condensed Consolidated
Balance Sheets as an Investment in Independent Power Projects.
See accompanying notes to condensed consolidated financial statements.
<PAGE 12>
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, 1994. 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. CONTINGENCIES
Westmoreland Energy, Inc. ("WEI")
WEI, through subsidiaries and 100%-owned partnerships, holds
general and limited interests in partnerships which were formed
to develop and own co-generation and other non-regulated
independent power plants. Ownership in these partnerships range
from 1.25 percent to 50 percent. The lenders to these
partnerships have recourse only against these projects and the
income and revenues therefrom. The project debt agreements
contain various restrictive covenants including limitations on
cash distributions to the partners. The partnerships are in
compliance with all of these covenants. The Company accounts for
partnership interests that are less than 20 percent under the
equity method except for one insignificant investment which is
accounted for under the cost method.
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 the Federal Energy Regulatory
Commission ("FERC") operating standards for a qualifying facility
("QF") in 1992. The failure was due to three factors: (i) the
facility was not dispatched by its power customer, Virginia
<PAGE 13>
Electric and Power Company ("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 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. In 1994 the Southampton Project
established a reserve for the anticipated refund obligations
relating to this issue. 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 for 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 that a denial by FERC of a waiver for the Southampton
facility would not have a material adverse effect on the
operations and liquidity of the Company.
<PAGE 14>
ROVA I Project
- - --------------
WEI owns a 50% partnership interest in Westmoreland-LG&E Partners
(the ROVA Partnership). The ROVA Partnership's principal
customer contracted to purchase the electricity generated by
ROVA I under a long-term contract. In the second quarter of
1994, that customer disputed the ROVA Partnership's
interpretation of the provisions of the contract dealing with the
payment of the capacity purchase price when the facility
experiences a forced outage day. A forced outage day is a day
when ROVA I is not able to generate a specified level of
electrical output. The ROVA Partnership believes that the
customer is required to pay the ROVA Partnership the full
capacity purchase price unless forced outage days exceed a
contractually stated annual number. The customer asserts that it
is not required to do so.
Since the commencement of commercial operations in May 1994
through September 30, 1995, the customer withheld approximately
$7,431,000, including $1,271,000 during the first nine months of
1995, of capacity purchase price payments to the ROVA Partnership
because of this dispute. On October 31, 1994, the ROVA
Partnership filed a motion for judgment ("complaint") in the
Circuit Court of the City of Richmond, Virginia (the "Court") to
recover these amounts and to confirm that such payments may not
be withheld in the future. On December 12, 1994 the customer
filed a motion to dismiss the complaint and on March 17, 1995 the
Court granted this motion. The ROVA Partnership filed an amended
complaint with the Court on April 17, 1995. On April 27, 1995,
the customer filed another motion to dismiss the complaint and on
June 20, 1995 the Court held a hearing on the motion. The Court
overruled the customer's motion to dismiss the amended complaint
on August 23, 1995. Discovery and trial preparation are
currently underway. No earnings have been recognized by WEI in
1994 and 1995 for payments withheld by the customer relating to
forced outage days. The Company believes that the ROVA
Partnership's position is correct. However, the Company is
unable to predict the outcome of this proceeding, or the amount,
if any, that the customer may be ordered to pay related to this
matter.
<PAGE 15>
Other
In addition to the contingencies discussed in this Note, the
Company and its subsidiaries had various immaterial claims and
suits pending at September 30, 1995, all in the ordinary course
of business.
2) VIRGINIA DIVISION
The Company shut down the Virginia Division in the third quarter
of 1995 and is maintaining the property on a standby basis.
Associated with this idling was the recognition of certain future
liabilities. Included in these charges were the writedown of the
remaining fixed assets of $18.9 million, the recognition of
postretirement medical costs of $38.2 million, the recognition of
a UMWA pension withdrawal liability of $20.0 million, severance
and early retirement costs of $8.6 million, and other costs
totaling approximately $5.5 million. In addition, the Company
recognized approximately $3.0 million of idling costs estimated
to be incurred while the property is on standby. The Company
continues to seek buyers and/or operators for certain of its
Virginia assets and facilities. Depending upon the structure of
such transactions, the Company could recover certain of the above
referenced charges.
3) CAPITAL STOCK
The Company's preferred stock was issued in July 1992. Preferred
stock dividends at a rate of 8.5% per annum had been paid
quarterly for the third quarter of 1992 through the first quarter
of 1994. The declaration and payment of preferred stock dividends
was suspended in the second quarter of 1994 in connection with
extension agreements with the Company's principal lenders. On
February 1, 1995 the Board of Directors declared a first quarter
1995 preferred stock dividend which was paid April 1, 1995 to
holders of record as of March 10, 1995. On June 6, 1995 the
Board of Directors declared a second quarter 1995 preferred stock
dividend which was paid July 3, 1995 to holders of record as of
June 20, 1995. The preferred stock dividend for the third
<PAGE 16>
quarter of 1995 was suspended due to the anticipated
unavailability of sufficient shareholders' equity as a result of
the impact of certain non-cash charges required by the idling of
the Company's Virginia division. The four quarterly dividends
which are in arrears (those dividends whose payment dates would
have been July 1, 1994, October 1, 1994, January 1, 1995, and
October 1, 1995) amount to $4,888,000 in the aggregate ($8.50 per
preferred share or $2.125 per depository share. Each share of
preferred stock is equivalent to four depository shares.)
Payment of common stock dividends is not permitted until the
preferred stock dividends that are in arrears are made current.
There are statutory restrictions limiting the payment of
preferred stock dividends under Delaware law, the state in which
the Company is incorporated. Under Delaware law, the Company is
permitted to pay dividends only: (1) out of surplus, that being
the amount of shareholders' equity in excess of the par value of
the Company's two classes of stock (the combined par value of the
Company's two classes of stock was $17,977,000 as of September
30, 1995); or (2) in the event there is no surplus, out of net
profits for the fiscal year in which a dividend is declared
(and/or out of net profits from the preceding fiscal year), but
only to the extent that shareholders' equity exceeds the par
value of preferred stock ($575,000). The Company had a
shareholders' deficit at September 30, 1995 of $43,672,000.
The Company's Board of Directors will continue to review the
payment of quarterly preferred stock dividends as well as the
four preferred stock dividends which are in arrears, in light of
the above restrictions and the Company's ongoing business
circumstances.
4) ACCOUNTING FOR STOCK-BASED COMPENSATION
The Company has not determined the effect of the provisions of
Statement of Financial Accounting Standards No. 123,"Accounting
for Stock-Based Compensation" as of this filing.
<PAGE 17>
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS ("MD&A")
MATERIAL CHANGES IN FINANCIAL CONDITION
---------------------------------------
FROM DECEMBER 31, 1994 TO SEPTEMBER 30,1995
-------------------------------------------
Liquidity
Cash used by operating activities in the first nine months of
1995 was $5,000,000 compared to cash provided by operating
activities in the first nine months of 1994 of $17,512,000.
Unfavorable variances include:
1) Continuing and increased operating losses from the Virginia
Division;
2) The absence of a positive operating cash flow from Criterion
Coal Company which was sold in December 1994, and the Hampton
Division, sold in January 1995; and
3) The absence of the one-time cash improvement realized by the
Company in 1994 resulting from the collection of export
receivables as the Company withdrew from the export market.
These unfavorable variances were partially offset by increased
cash distributions from the Company's independent power projects
in 1995. Cash distributions from independent power projects
totaled $10,370,000 and $1,104,000 in the first nine months of
1995 and 1994, respectively.
Net cash used by operating activities was $5,000,000 during the
first nine months of 1995 primarily due to operating losses at
the Virginia Division. During the third quarter of 1995, net cash
provided by operating activities totaled $2,673,000, primarily
due to a decrease in trade receivables as a result of the idling
of the Virginia Division. For the first nine months of 1995, net
cash provided by investing activities included
<PAGE 18>
$33,634,000 of net cash from the disposition of various assets,
primarily through the sale of the Hampton Division in the first
quarter and the sale of the Duke coal contract in the third
quarter. Due to the losses at the Virginia Division in its idled
state which are expected to be approximately $1,000,000 per month
and are expected to continue until such time as operating
facilities are reopened under new ownership or are closed and the
ongoing cash costs related to post-retirement medical and
workers' compensation benefits, the Company's liquidity resources
would be inadequate to meet operating requirements after the
first quarter of 1996. Management expects to address this near-
term problem by continuing to reduce costs and/or selling all or
a part of the Virginia Division's assets and/or related
businesses.
Cash provided by investing activities in the first nine months of
1995 was $34,906,000, including proceeds of $9,045,000 from the
sale of the assets of the Company's Hampton Division, $925,000
from the sale of Virginia Division's Dump Train and $23,503,000
from the sale of the Duke Coal Supply Agreement. WEI collected
$1,774,000 of its subordinated loans receivable from project
partnerships in the first nine months of 1995. In January of 1995
the Company sold the assets of its Hampton Division located in
Boone and Logan Counties, West Virginia to Burco Resources
Corporation and Wind River Resources Corporation and sold its
Hampton Division mineral lease to the lessor, Penn Virginia
Resources Corporation ("Penn Virginia"), for $9,045,000 in cash.
Penn Virginia holds an 18.94% voting interest in the
Company at September 30, 1995. The Company wrote off a
substantial portion of the Hampton Division's assets in 1993. The
proceeds to the Company were approximately $7,376,000 after
payments related to a capital lease. The elimination of this
capital lease resulted in a further reduction of the Company's
long-term debt. The gain on the sale was $9,088,000 after the
reversal of certain liabilities. The purchasers (including Penn
Virginia) assumed the reclamation and environmental liabilities
associated with the Hampton Division as part of the sales
transaction.
In July of 1995, the Company reached an agreement with Duke Power
Company whereby Duke bought out the remaining term of a coal
supply agreement with Westmoreland originally entered into on
January 1, 1986. The coal shipped to Duke under this agreement
<PAGE 19>
was sourced from the Virginia Division. Westmoreland received
approximately $23,500,000 in cash from the buyout transaction in
August, 1995. Cash used by investing activities in the first
nine months of 1994 amounted to $8,391,000. The Company paid
$4,750,000 in fees during the first nine months of 1994 in
connection with the Equity Support Agreement for three
independent power projects. Fixed asset additions were $502,000
and $4,551,000 in the first nine months of 1995 and 1994,
respectively. The decrease in 1995 is a result of a decrease in
the production of coal and the subsequent idling of Eastern coal
operations.
Cash used in financing activities totaled $15,338,000 and
$17,042,000 in the first nine months of 1995 and 1994,
respectively. Repayment of long-term debt amounted to
$11,791,000 (including $566,000 related to the Hampton capital
lease and $8,864,000 related to the sale of Cleancoal Terminal)
and $9,472,000 in the first nine months of 1995 and 1994,
respectively. Also included in the first nine months of 1995 was
a payment of $1,103,000 for the buyout premium for leased assets
of the Hampton Division. In the first nine months of 1994 the
Company transferred $4,430,000 to a cash deposit account to
collateralize the Company's outstanding surety bonds for its
workers' compensation self-insurance programs. The Company paid
preferred stock dividends of $2,444,000 in each of the first nine
months of 1995 and 1994, respectively.
The Company's current ratio was .94 at September 30, 1995
compared to .97 at December 31, 1994. The Company's total debt
to capitalization ratio (total debt divided by the sum of total
debt, minority interest and shareholders' equity) was not
meaningful at September 30, 1995 due to the stockholders' deficit
position compared to 21% at December 31, 1994. Debt balances at
September 30, 1995 were $4,140,000 compared to $15,931,000 at
December 31, 1994 largely as a result of the release of the
Company from its $8,864,000 loan guarantee obligation by the CSX
in conjunction with the sale of the assets of Cleancoal Terminal
in 1995.
The Company's consolidated cash and cash equivalents at September
30, 1995 totaled $30,021,000 (including $5,274,000 at WRI). At
December 31, 1994, cash and cash equivalents totaled $15,453,000
(including $2,445,000 at WRI). None of the Company's cash and
<PAGE 20>
cash equivalents was or is restricted as to use or disposition.
The cash at WRI, a 60% owned subsidiary, is available to the
Company only through dividends. In addition, the Company had
restricted cash, which was not classified as cash and cash
equivalents on the Company's Condensed Consolidated Balance
Sheets, of $17,960,000 at September 30, 1995 compared to
$9,210,000 at December 31, 1994. The $17,960,000 is comprised of
two items: a $9,960,000 interest-bearing cash deposit account,
which collateralizes the Company's outstanding surety bonds for
its workers' compensation self-insurance programs and is
classified on the Company's Condensed Consolidated Balance Sheets
as long-term in Other assets at September 30, 1995 and at
December 31, 1994; and $8,000,000 invested in certificates of
deposit at September 30, 1995 which is classified on the
Company's Condensed Consolidated Balance Sheets as an Investment
in Independent Power Projects (also a long-term asset). The
$8,000,000 in certificates of deposit represents cash proceeds
which were transferred from debt reserve accounts of certain of
the Company's independent power projects and for which bank
letters of credit were substituted. The cash proceeds are
restricted as to use and were invested in certificates of deposit
of the bank issuing the letters of credit. The certificates of
deposit collateralize the letters of credit.
Liquidity Outlook
As part of its plan to improve cash flow, the Company is
continuing to implement cost and cash saving measures and to
eliminate non-strategic or under-performing assets so that the
Company can attempt to reposition itself and try to achieve
meaningful and sustainable positive cash flow, and eventually,
profitability.
Continued and increased operating losses at the Virginia Division
over the first half of 1995 forced the Company to announce on
June 20, 1995 that it was issuing notices, pursuant to the Worker
Adjustment and Retraining Notification ("WARN") Act, to its
employees and to the employees of its wholly owned subsidiary,
Pine Branch Mining Incorporated ("Pine Branch"), working in Lee
County and Wise County, Virginia that it would close the Holton
Low Splint Mine, which employed 25 people, on August 23, 1995,
<PAGE 21>
and that during the fourteen day period beginning August 23,
1995, it expected to implement a further significant layoff at
its other Virginia mining facilities. Although the notices were
issued for all Westmoreland and Pine Branch employees working in
Virginia, the letters of notification also stated: "The Company
is working on tentative plans which could result in the retention
of a reduced work force to continue to operate certain
facilities." By August 23, 1995 an agreement could not be
reached with a purchaser of the Virginia assets that would allow
for the continued operation of some of the facilities and
consequently, the Virginia Division was idled and placed on
standby in August 1995. The notices were issued to comply with
the WARN Act. Management deems that the sale of a portion or all
of the Virginia Division's assets and/or profitable operation of
related facilities is essential to the long-term viability of the
Company.
In conjunction with issuing the WARN notices to its employees,
the Company also offered an Early Retirement Incentive Program
(the "ERIP") on July 7, 1995 to all salaried Westmoreland and
Pine Branch employees working in Lee County and Wise County,
Virginia. The ERIP was principally funded out of Westmoreland's
Pension Plan surplus.
The Virginia Division's assets have been written down to reflect
fair value as a result of the charges described above.
The major factor hampering the Company's long-term liquidity outlook
is its significant "heritage costs." These heritage costs consist
primarily of cash payments for postretirement medical benefits and
for workers' compensation. The Company has ongoing cash expenditures
in excess of $15,500,000 per year for postretirement medical benefits
and over $6,500,000 per year for workers' compensation benefits.
During the first nine months of 1995, the Company incurred cash
heritage costs of $16,500,000.
In addition, the Coal Industry Retiree Health Benefit Act of 1992
(the "Act") authorized the Trustees of the 1992 UMWA Benefit Plan
to implement security provisions pursuant to the Act. In May,
1995, the Trustees issued proposed security provisions which give
contributors to the Plan several options for satisfying the Act's
security requirements, and set the level of security to be
<PAGE 22>
provided by the Company at approximately $22,000,000. The
provisions are now final but the Company has not made a final
determination as to which option it will select. Currently, the
least costly option from a cash point of view that would be
available to the Company appears to be the funding of a cash
collateral account with installments of approximately $2,500,000
per annum (over 9 years) plus an annual finance fee of 2.5% on
the remaining unfunded balance. The first installment, estimated
to be approximately $2,900,000, would be due in January 1996.
The Company expects to fund its near-term heritage costs out of
current cash balances, regular cash distributions from the
Company's independent power projects and WRI, the divestment of
all or a part of the Virginia Division, continued divestment or
improvement of under-performing assets and further cost
reductions. The Company is currently involved in discussions
relating to these items. As previously mentioned, if at least
some of these actions are not accomplished in the short term, the
Company's cash resources would be inadequate to meet its
operating requirements after the first quarter of 1996.
The Company will be required to take additional steps, such as
the acquisition of new income-producing properties, to generate
enough cash to meet its cash requirements through 1996 and
beyond. The Company, however, cannot give assurances at this
time that these steps can be accomplished.
<PAGE 23>
Other
Westmoreland Energy, Inc. ("WEI)
- - ---------------------------------
Equity Funding Commitments
As of September 30, 1995 WEI had one remaining equity funding
commitment in the amount of $4,600,000 for the Roanoke Valley II
Project ("ROVA II") which was paid on October 19, 1995.
Equity Support Agreement
On April 15, 1993, the Company entered into an equity support
agreement with LG&E Power Inc. ("LG&E") whereby WEI's equity
funding commitments of the Roanoke Valley I Project ("ROVA I"),
the Rensselaer Project and ROVA II were guaranteed by LG&E. The
anticipated $4,600,000 equity funding commitment of ROVA II was
guaranteed by LG&E. As consideration for this guarantee and
those previous guarantees supporting ROVA I and the Rensselaer
Project, the Company pledged its interest in all three of these
Projects as security to LG&E. WEI's ownership interest in the
Rensselaer Project, ROVA I and ROVA II are no longer pledged to
LG&E since the ROVA II equity funding commitment was satisfied on
October 19, 1995. The Company paid fees of 1.25 percent per
annum on the aggregate amount of the unfunded guarantees and also
paid a one-time fee of $4,750,000 in 1994. The $4,750,000 fee is
amortized through the required equity funding dates of the
respective projects and as of September 30, 1995 the amount
remaining to be amortized is insignificant.
Acquisition
On November 1, 1995, WEI completed the purchase of The Corona
Group Inc. ("Corona) from OESI Power Corporation. The purchase
price was $2,500,000 in cash plus the assumption of various notes
in exchange for 100% of the stock of The Corona Group. Corona
provides technical services and repair and maintenance services
to the electric power industry.
<PAGE 24>
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 22
million tons, and its ground storage capacity is 1.7 million
tons.
Historically, the Company utilized the terminal for most of its
coal exporting business. In 1994, the Company disengaged from
the export sales market due to poor margins and the amount of
working capital required to participate in that market. The
Company also leases the ground storage space and the vessel-
loading facilities to certain unaffiliated parties (the "leasing
activities").
The Company continues to believe it will recover its investment
in DTA as a leasing facility. The Company will continue to
market the use of its share of DTA, aggressively manage related
costs and monitor the performance and value of this asset.
The DTA partners have a Throughput and Handling Agreement
whereby WTC is committed to fund its proportionate share of DTA
operating expenses. WTC's total cash funding obligations were
$1,436,000, including certain rebates related to the total
throughput at the DTA terminal, and $2,152,000 during the first
nine months of 1995 and 1994, respectively. The decrease in the
cash funding obligation for the first nine months of 1995
compared to the same period of 1994 is largely attributable to
the elimination of interest expense on fees related to the DTA
Bonds during the first nine months of 1994, and certain
adjustments in the first quarter of 1995 related to an
overpayment of interest expense in the fourth quarter of 1994.
<PAGE 25>
Cleancoal Terminal Company
- - --------------------------
The Company sold the assets of Cleancoal Terminal Company to CSX
on September 1, 1995. In exchange for the assets of Cleancoal
and payment of $2,500,000, CSX agreed to release the Company from
an $8,864,000 loan guarantee obligation. The loan guarantee
obligation was made to CSX in 1987 in connection with a loan from
CSX to affiliates of Adventure Resources, Inc. The Company was
also released from related interest payments to CSX of
approximately $840,000 per year. Cleancoal's operations were
discontinued in January 1995 and the majority of its employees
were laid off on January 31, 1995. The loss on the sale of the
assets of Cleancoal Terminal Company was recorded in the fourth
quarter of 1994.
Miscellaneous
- - -------------
In July 1995, the Board of Directors of the Company approved and
authorized the terms of a letter agreement with Penn Virginia
Equities Corporation (Equities) dated June 29, 1995 executed by
respective officers of the companies which (i) authorized the
withdrawal of Equities Demand Notice for a Demand Registration
(as defined in the Agreement of July 9, 1992 by and among the
Company, Penn Virginia Corporation and Equities) delivered on
March 13, 1995 to the Company, (ii) acknowledged that Equities is
entitled to one remaining Demand Registration, (iii) extended the
Termination Date of Equities Demand Registration to the earlier
of 90 days after the Company files its 1995 Annual Report on Form
10-K or September 29, 1996 and (iv) obtained Equities agreement
not to deliver another Demand Notice to the Company prior to the
earlier of May 31, 1996 or the date on which the company files
its 1995 Annual Report on Form 10-K.
<PAGE 26>
- - -----------------------------------------------------------------
RESULTS OF OPERATIONS:
THIRD QUARTER ENDED SEPT. 30,1995 COMPARED
TO THIRD QUARTER ENDED SEPT. 30,1994
<TABLE>
<CAPTION>
Three Months Ended
Sept. 30,
1995 1994
--------- --------
(in thousands)
<C> <C>
<S>
Coal Operations:
Virginia Division $ (78,977) $ 976
Pine Branch Mining Incorporated (3,000) 182
Westmoreland Resources, Inc. 925 922
Westmoreland Coal Sales Company (554) (157)
Net corporate expenses (2,626) (3,081)
West Virginia - Idled Operations (2,240) (2,156)
Hampton Division - 644
Criterion Coal Company - 626
Cleancoal Terminal Company 377 (126)
------ -------
Total Coal Operations (86,095) (2,170)
------ -----
Independent Power Operations:
Westmoreland Energy, Inc. 2,949 3,085
------ -----
Operating income (loss) $ (83,146) $ 915
====== =====
</TABLE>
<F5>
<PAGE 27>
Details of tons sold (in thousands) and average revenue per ton
sold were as follows:
<TABLE>
<CAPTION>
Three Months Ended
Sept. 30,
1995 1994*
----- -----
<C> <C>
<S>
By Source and Geographic Sector:
Tons Sold:
Own Operations - Inland 1,494 2,936
Own Operations - Export - 42
For Others - Inland 32 568
For Others - Export - 86
----- -----
Total Tons Sold 1,526 3,632
===== =====
By Segment:
Virginia Division* 266 1,224
Westmoreland Resources, Inc. 1,228 1,028
Hampton Division - 253
Criterion Coal Company - 472
----- -----
Total Westmoreland Operations 1,494 2,977
For Others 32 655
----- -----
Total Tons Sold 1,526 3,632
===== =====
Average revenue per ton sold:
Eastern Operations $ 39.69 $ 28.86
Westmoreland Resources, Inc. 7.19 7.38
----- -----
Weighted Average 13.58 24.86
===== =====
<F6>
*Includes tons:
Sold by Pine Branch Mining Incorporated 26 16
Purchased from unaffiliated producers 43 82
Purchased from Pine Branch Mining Co. - 244
-- ---
69 342
</TABLE>
<PAGE 28>
COAL OPERATIONS
- - ---------------
Coal operations reported operating losses of $86,095,000 and
$2,170,000 for the third quarter of 1995 and 1994, respectively.
The change is primarily attributable to the recognition of
liabilities associated with the idling of the Virginia division,
the continued and increased operating loss from the Company's
Virginia Division and the absence of operating profits from
Criterion Coal Company, sold in December, 1994 and the Hampton
Division, sold in January 1995.
Those business units reporting significant changes in results of
operations are discussed below.
Virginia Division - $79,953,000 worse
- - -------------------------------------
The Virginia Division had an operating loss of $78,977,000 in the
third quarter of 1995 compared to operating income of $976,000 in
the third quarter of 1994. The increased operating loss at the
Virginia Division is largely attributable to higher costs per ton
of coal mined as a result of increasingly difficult mining
conditions in the third quarter of 1995 compared to the third
quarter of 1994 and the recognition of certain liabilities
associated with cessation of mining activities during the third
quarter, 1995. Included in these charges were medical costs of
$38.2 million, recognition of a UMWA pension withdrawal liability
of $20.0 million, writedown of fixed assets of $18.9 million,
severance and early retirement costs of $8.6 million and other
costs totaling approximately $5.5 million. The Virginia Division
also recognized a $23.5 million gain during the third quarter
from the early contract buyout of the Duke Power Coal Purchase
Agreement.
Pine Branch Mining Incorporated ("Pine Branch") - $3,182,000
worse
- - -------------------------------------------------------------
Pine Branch is a mountain top surface operation which had an
operating loss of $3,000,000 and operating income of $182,000 in
the third quarter of 1995 and 1994, respectively. The decline is
<PAGE 29>
due to the shutdown of Pine Branch operations and recognition of
certain liabilities and charges associated with the shutdown.
Included in the charges were $1.4 million for the write-off of
fixed assets, $121,000 of medical charges, and $900,000 for final
reclamation obligations.
Westmoreland Coal Sales Co. ("WCSC") - $397,000 worse
- - -----------------------------------------------------
WCSC had operating losses of $554,000 and $157,000 in the third
quarter of 1995 and 1994, respectively. The increase in 1995's
operating loss was primarily due to the absence of profits from
participating in the export market and a decrease in its domestic
brokering business which businesses were for the most part
discontinued because of low margins and high working capital
requirements. WCSC has continued to make significant reductions
in selling and administrative expenses as a result of the
continued decline in coal marketing and sales.
<PAGE 30>
- - -----------------------------------------------------------------
RESULTS OF OPERATIONS:
NINE MONTHS ENDED SEPT. 30,1995 COMPARED
TO NINE MONTHS ENDED SEPT. 30,1994
<TABLE>
<CAPTION>
Nine Months Ended
Sept. 30,
1995 1994*
--------- --------
(in thousands)
<C> <C>
<S>
Coal Operations:
Virginia Division $ (94,897) $ 1,649
Pine Branch Mining Incorporated (3,367) (1,499)
Westmoreland Resources, Inc. 2,251 2,213
Westmoreland Coal Sales Company (654) 406
Net corporate expenses (8,244) (7,913)
West Virginia - Idled Operations (6,978) (7,062)
Hampton Division - 1,225
Criterion Coal Company - 6,426
Cleancoal Terminal Company (324) (835)
------- -----
Total Coal Operations (112,213) (5,390)
------- -----
Independent Power Operations:
Westmoreland Energy, Inc. 8,188 2,243
WEI - recognition of deferred income 1,750 -
----- -----
Total Independent Power Operations 9,938 2,243
------ -----
Operating loss $(102,275) $ (3,147)
====== =====
Gains on the sales of assets $ 9,538 $ -
====== ======
</TABLE>
<F7>
* Certain amounts have been reclassed to agree with current
classifications.
<PAGE 31>
Details of tons sold (in thousands) and average revenue per ton
sold were as follows:
<TABLE>
<CAPTION>
Nine Months Ended
Sept. 30,
1995 1994*
------ ------
<C> <C>
<S>
By Source and Geographic Sector:
Tons Sold:
Own Operations - Inland 5,298 8,907
Own Operations - Export - 187
For Others - Inland 202 1,687
For Others - Export - 849
----- -----
Total Tons Sold 5,500 11,630
===== ======
By Segment:
Virginia Division* 1,923 3,545
Westmoreland Resources, Inc. 3,375 3,112
Hampton Division - 918
Criterion Coal Company - 1,518
----- ------
Total Westmoreland Operations 5,298 9,093
For Others 202 2,537
----- ------
Total Tons Sold 5,500 11,630
===== ======
Average revenue per ton sold:
Eastern Operations $ 35.90 $ 32.07
Westmoreland Resources, Inc. 7.10 7.15
----- -----
Weighted Average 18.23 25.40
===== =====
<F8>
*Includes tons:
Sold by Pine Branch Mining Incorporated 157 196
Purchased from unaffiliated producers 458 603
</TABLE>
<PAGE 32>
COAL OPERATIONS
- - ---------------
Coal operations reported operating losses of $112,213,000 and
$5,390,000 for the first nine months of 1995 and 1994,
respectively. The change is primarily attributable to the
recognition of certain liabilities associated with the idling of
the Virginia business, unexpected continued and increased
operating loss from the Company's Virginia Division and the
absence of operating profits from Criterion Coal Company, sold in
December 1994 and the Hampton Division, sold in January 1995.
Those business units reporting significant changes in results of
operations are discussed below.
Virginia Division - $96,546,000 worse
- - -------------------------------------
The Virginia Division had an operating loss of $94,897,000 in the
first nine months of 1995 compared to operating income of
$1,649,000 in the first nine months of 1994. The operating loss
at the Virginia Division is partially attributable to higher
costs per ton of coal mined as a result of production shortfalls
from Company mines and increasing difficult mining conditions in
the first nine months of 1995 compared to the first nine months
of 1994. The major contributor to the increased operating losses
at the Virginia Division in the first nine months of 1995
compared to the first nine months of 1994 was the recognition of
charges relating to the idling of the Virginia division during
the third quarter of 1995. Included in these charges were
medical costs of $38.2 million, recognition of a UMWA pension
withdrawal liability of $20.0 million, writedown of fixed assets
of $18.9 million, severance and early retirement costs of $8.6
million and other costs totaling approximately $5.5 million. The
Virginia Division also recognized a $23.5 million gain during the
third quarter from the early contract buyout of the Duke Power
Coal Purchase Agreement.
Pine Branch - $1,868,000 worse
- - -------------------------------
Pine Branch is a mountain top surface operation which had
operating losses of $3,367,000 and $1,499,000 in the first nine
<PAGE 33>
months of 1995 and 1994, respectively. Operating losses in 1995
are largely attributable to the recognition of certain
liabilities and charges associated with the shutdown of Pine
Branch operations in the third quarter of 1995. Included in the
charges were $1.4 million for the write-off of fixed assets,
$121,000 of medical costs, and $900,000 for final reclamation
obligations. Unusually severe weather conditions in the first
quarter of 1994 adversely impacted production and operating
costs.
Westmoreland Coal Sales Co. ("WCSC") - $1,060,000 worse
- - -----------------------------------------------------
WCSC had operating losses of $654,000 in the first nine months of
1995 compared to operating income of $406,000 in the first nine
months of 1994. Included in the first nine months of 1995
results was $967,000 in income generated from the reversal of bad
debt allowances related to reserved accounts receivable
subsequently collected. Excluding this benefit, the decrease in
1995's operating income was primarily due to the absence of
profits from participating in the export market and a decrease in
its domestic brokering business which businesses were for the
most part discontinued because of low margins and high working
capital requirements. WCSC continues to reduce its selling and
administrative expenses as a result of the decline in coal
marketing and sale activity.
Net Corporate Expenses - $331,000 worse
- - ---------------------------------------
Net corporate expenses were $8,244,000 and $7,913,000 in the
first nine months of 1995 and 1994, respectively. Expenses in
1995 increased due to a $1,411,000 non-cash charge for an early
retirement incentive program related to the restructuring and the
relocation and downsizing of the Corporate office. The early
retirement will be funded principally out of Westmoreland's
Pension Plan surplus. Excluding the $1,411,000 charge in the
first quarter of 1995, the reduction in net corporate expenses
for the first nine months of 1995 compared to the same period of
1994 is due to decreased staffing and lower legal expenses.
<PAGE 34>
INDEPENDENT POWER OPERATIONS - $7,695,000 better
- - ------------------------------------------------
The Company's Independent Power Operations, through its wholly-
owned subsidiary, WEI, recorded operating income of $9,938,000 in
the first nine months of 1995 compared to operating income of
$2,243,000 in the first nine months of 1994. The improvement is
due to three factors:
1) increased equity earnings of $3,653,000 from the ROVA I,
Rensselaer and Ft. Lupton Projects which became operational in
the second quarter of 1994; and ROVA II which became operational
in the second quarter of 1995;
2) the recognition of $1,750,000 of deferred development fees
received in prior years in connection with the ROVA I; and
3) decreased expenses of $1,989,000 related to the amortization
of an equity support agreement for three independent power
projects.
GAINS ON THE SALES OF ASSETS
- - ----------------------------
In January of 1995 the Company sold the assets of its Hampton
Division located in Boone and Logan Counties, West Virginia to
Burco Resources Corporation and Wind River Resources Corporation
and sold its Hampton Division mineral lease to the lessor, Penn
Virginia Resources Corporation, for $9,045,000 in cash. The net
proceeds to the Company were approximately $7,376,000 after
payments related to a capital lease. The elimination of this
capital lease resulted in a further reduction of the Company's
long-term debt. The Company wrote off a substantial portion of
the Hampton Division's assets in 1993. The gain on the sale was
$9,088,000 after the reversal of certain liabilities. The
purchasers assumed the reclamation and environmental liabilities
associated with the Hampton Division as part of the sales
transaction. In February 1995, the Company sold the Virginia
Division's Dump Train for cash of $945,000 and the related gain
on the sale was $425,000.
Inflation did not have a material impact on the Company's
operations in 1995.
<PAGE 35>
PART II - OTHER INFORMATION
ITEM 6
EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
a) Exhibit 27 - Financial Data Schedule.
b) On August 23, 1995, the Company filed a report on Form 8-K,
which distributed a copy of a letter to the shareholders dated
August 11, 1995, and announced that on June 20, 1995, the Company
had issued WARN notices to its employees at its Virginia
Division, announced the second quarter 1995 financial results on
July 21, 1995 and announced on July 26, 1995 that the Company had
elected two new directors.
On September 1, 1995, the Company filed a report on Form 8-K
announcing that on August 25, 1995 the Company had completed the
sale of the coal supply agreement with Duke Power Company and had
received a favorable ruling on independent power litigation
relating to the ROVA forced outage issue.
<PAGE 36>
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: November 14, 1995
Robert J. Jaeger
Vice President - Finance,
Treasurer, and Controller
Larry W. Mikkola
Assistant Controller
