November 27, 1995
File Desk
New York Stock Exchange, Inc.
20 Broad Street
New York, NY 10005
Gentlemen:
Enclosed is a one manually signed copy of Westmoreland Coal Company's Form 8-K
electronically filed with the Securities and Exchange Commission on November
14, 1995.
Very truly yours,
Robert J. Jaeger
Vice President - Finance
Treasurer, and Controller
Enclosure
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15 (d) of
the securities Exchange Act of 1934
Date of Report (Date of earliest event reported): Nov. 14, 1995
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Westmoreland Coal Company
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(Exact name of registrant as specified in its charter)
Delaware 0-752 23-1128670
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(State or other (Commission File (IRS Employer
jurisdiction of Number) Identification #)
14th Floor - Holly Sugar Bldg., 2 North Cascade Avenue
Colorado Springs, Colorado 80903
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(719) 442-2600
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Item 7. Exhibits.
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Press release dated November 14, 1995.
Press release dated December 13, 1995.
Letter to Shareholders dated December 1, 1995.
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Exhibit 1
Westmoreland Announces
Third Quarter 1995 Results
Colorado Springs, CO -- November 14, 1995 -- Westmoreland Coal Company
(NYSE:WCX) today announced its third quarter 1995 financial results.
THIRD QUARTER 1995 FINANCIAL RESULTS
Westmoreland Coal Company's net loss was $83.0 million in the third quarter of
1995 compared to a net loss of $0.7 million in the third quarter of 1994.
This loss was primarily due to the recognition of $91.2 million in liabilities
in connection with the idling of the Company's Virginia Division coal mining
operations. Net loss applicable to common shareholders was $84.2 million, or
a loss of $12.10 per share, in the third quarter of 1995 compared to a net
loss applicable to common shareholders of $1.9 million, or a loss of $0.28 per
share, in the third quarter of 1994. The difference between net loss and net
loss applicable to common shareholders is the result of the recognition of
dividends payable to preferred shareholders, even if a preferred stock
dividend was not declared.
The net loss applicable to common shareholders resulted in a shareholders'
deficit of $43.7 million. As previously reported, the preferred stock
dividend for the third quarter of 1995 was suspended in September due to the
anticipation of this deficit in shareholders' equity after the idling of the
Virginia Division.
The Company's operating loss was $83.1 million in the third quarter of 1995
compared to $0.9 million of operating income in the same period in 1994.
Operating income for Westmoreland Energy, Inc., the Company's independent
power operations segment, was $2.9 million compared to operating income of
$3.0 million in the third quarter of 1994.
The operating loss of the Coal Operations segment was $86.1 million in the
third quarter of 1995 compared to an operating loss of $2.2 million in same
period in 1994. The major factors contributing to the operating loss were (1)
an operating loss of
$79.0 million for the Virginia Division, compared with $1.0 million in
operating income for the same period in 1994, and (2) the elimination of
earnings of Criterion Coal Company which was sold in December, 1994 and the
Hampton Division which was sold in January, 1995 ($1.3 million of operating
income having been generated in the second quarter of 1994 from both
properties).
The increased operating loss at the Virginia Division is attributable to the
recognition of certain liabilities associated with idling the Division during
the third quarter and higher per ton production costs. Total liabilities
recognized were postretirement medical costs of $38.2 million, a UMWA pension
withdrawal liability of $20 million, the writedown of assets of $18.9 million,
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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 sale of its coal supply contract with Duke Power.
Coal revenues in the third quarter of 1995 were $20.0 million from 1.5 million
tons sold compared to $90.3 million from 3.6 million tons sold in the same
period in 1994. The decrease was due to (1) the sale of the assets of
Criterion Coal Company in 1994 and the sale of the Hampton Division in
January, 1995, (2) reduced sales from the idled Virginia Division and (3) a
significant reduction in brokered coal sales and the elimination of export
coal sales.
See the attached Financial Highlights for additional information.
First Nine Months 1995 Financial Results
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Westmoreland Coal Company's net loss was $92.0 million in the first nine
months of 1995 compared to a net loss of $7.2 million in the first nine months
of 1994. Again, this loss was primarily due to the recognition of $91.2
million in liabilities in connection with the third quarter idling of the
Company's Virginia Division coal mining operations. Net loss applicable to
common shareholders was $94.4 million, or a loss of $13.56 per share, in the
first nine months of 1995 compared to a net loss applicable to common
shareholders of $9.7 million, or a loss of $1.39 per share, in the first nine
months of 1994.
Results for the nine months of 1995 included $9.6 million of gains on asset
sales. Operating income for Westmoreland Energy, Inc. was $9.9 million for
the first nine months of 1995 compared to $2.2 million for the same period in
1994.
The Company's operating loss was $99.1 million higher in the 1995 period than
in 1994 principally due to (1) $96.5 million of increased operating losses at
the Virginia Division and (2) the elimination of earnings of Criterion Company
and the Hampton Division ($7.6 million in the first nine months of 1994 from
both properties). This was offset by a $7.7 million improvement in operating
income at Westmoreland Energy, Inc.
Coal revenues for the first nine months of 1995 were $100.3 million from 5.5
million of tons sold compared to $295.4 million from 11.6 million tons sold in
the first nine months of 1994.
See the attached Financial Highlights for additional information.
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Liquidity Outlook
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Due to the carrying costs of the Virginia Division in its idled state and the
ongoing cash costs related to postretirement medical and workers' compensation
benefits, the Company's liquidity resources would be inadequate to meet
operating requirements after the first quarter of 1996 without additional
steps being taken. Accordingly, management expects to address this near-term
problem by continuing to reduce costs and seeking buyers and/or operators for
all or part of the Virginia Division's assets and/or related businesses. The
Company, however, cannot give assurances at this time that these steps can be
accomplished.
Christopher K. Seglem, Westmoreland's President and Chief Executive Officer
said, Our strategy to divest under-performing assets and disengage from
business lines with low margins and high working capital costs resulted in the
continued viability of the Company during 1995, and the accumulation of cash
resources for investment in strong new cash generating assets such as our ROVA
II cogeneration facility and the Corona Group, our latest acquisition, which
provides technical services and repair and maintenance services to the
electric power industry.
However, the idling of the Virginia Division operations became crucial due to
continuing and increasing losses in the first half of the year. The idling
resulted in the recognition of substantial liabilities associated with those
operations as well as the creation of a shareholders' deficit. Some of these
charges may be reversed depending on the final disposition of the Virginia
Division. We continue to aggressively seek suitable agreements for the sale
or operation of the Virginia Division's assets and facilities. The Virginia
Division's assets should be a source, not a use of cash in the near term. The
operating facilities cannot be maintained in idled status indefinitely,
however, due to high carrying costs. Likewise, it is essential that we
promptly resolve a substantial portion of our heritage costs (liabilities
for workers' compensation and postretirement medical benefits) and reclamation
and pension obligations. As we have said before, meeting the cost of these
continuing obligations represents the Company's greatest challenge.
Our carrying and heritage costs drain over $3.0 million per month of cash from
the Company's reserves. Unless settled promptly, they will eliminate
important resources of cash for reinvestment and continued operations. After
more than three years of successfully implementing the necessary pieces of a
turnaround plan, we remain squarely focused on these issues which must be
satisfactorily resolved before Westmoreland can fully go forward to reinvest,
grow and regain sustainable financial stability.
Third Quarter 10-Q Filed
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Westmoreland today filed its third quarter Form 10-Q with the Securities and
Exchange Commission. Shareholders interested in receiving a copy of the Form
10-Q can request a copy from Westmoreland Coal Company by writing to the
Company at the following address: Westmoreland Coal Company, Shareholder
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Relations Department, 2 North Cascade Ave., 14th Floor, Colorado Springs, CO,
80903. The Form is also available electronically through the Securities and
Exchange Commission's EDGAR system
EXHIBIT 2
Westmoreland Announces
Transaction with Ark Land Company
Colorado Springs, CO -- December 13, 1995 -- Westmoreland Coal Company
(NYSE:WCX) today announced today that it has reached agreement with Ark Land
Company, a subsidiary of Arch Minerals for the release to Ark of approximately
1.5 million tons of coal Westmoreland held under lease from Ark in Letcher
County, Kentucky, and Wise County, Virginia, where Westmoreland's Virginia
Division operations are located. In exchange for this, Westmoreland will
receive approximately $2.5 million cash in January, 1996 and will receive a
reduction in future minimum annual rentals for the portion of the Ark Lease
retained by Westmoreland. As Part of transaction, Westmoreland will receive a
credit for minimum rentals payable in January, 1996, and resolve a boundary
dispute. Ark will also consent to any future transfer of other reserves
Westmoreland holds under leases with Ark.
This is a significant step in our plan to realize value from our idled
Virginia Division operations. We appreciate the cooperation of Ark Land
Company in resolving the underlying boundary dispute and are glad that we
could reach an agreement that benefits both companies, said Christopher K.
Seglem, Westmoreland's President and Chief Executive Officer.
###
For information contact Diane Jones (719) 448-5814.
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SIGNATURE
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: December 1, 1995 By:
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Robert J. Jaeger
Vice President - Finance,
Treasurer, and Controller
December 1, 1995
Dear Fellow Shareholder:
We recently filed our 1995 third quarter Form 10-Q report with the
Securities and Exchange Commission. We also issued a news release which
summarized the quarter's financial results; a copy is attached for your
convenience and information. The purpose of this letter is to give you
a brief summary and update of the issues behind the results discussed in
the Form 10-Q and our previous communications with you.
Virginia Division
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As you will recall, substantial and increasing losses at the Virginia
Division caused us to idle those operations in late summer and sell the
above-market priced Duke Power coal contract in order to preserve as
much of that asset's value as possible. We had been seeking a buyer for
the Virginia Division for some time, and on July 31, 1995, we reported
that we had entered into negotiations with A.T. Massey Coal Company for
the sale of the remaining assets of the Virginia Division and Pine
Branch Mining Incorporated, a small surface mining subsidiary which
provided coal to the Division. Unfortunately, those negotiations proved
unsuccessful, as have discussions with other companies for the sale of
the Division as a whole. The biggest problem has been the possible
exposure of any purchaser to Westmoreland's very large people-related
heritage costs. Current coal market prices and the cost of production
have also been issues.
We have maintained the Virginia Division operations on hot idle status
over the past three months in the hope that a sale could be consummated
which would include reactivation of a substantial portion of the
previous operations, along with the re-employment of mine workers and
the transfer of certain liabilities, including reclamation obligations.
This hot idle status has cost us just over $1 million per month, and
although significantly less than the losses we were incurring while
operating the property, is not something we can allow to continue.
However, rather than converting certain operations to cold idle status
and sealing and permanently reclaiming others, we have initiated efforts
to implement an alternative strategy which may satisfy our primary
objectives - the elimination of operating losses and the transfer of
operating liabilities.
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This alternative strategy is to allow capable and responsible contract
miners to reopen idled mines. Westmoreland would not be involved in any
operating role. Our role would be purely to retain primary liability for
the heritage costs. We would expect the contractors to assume primary
responsibility for operating liabilities. The key to their success, of
course, will be their ability to produce coal competitively.
We are currently in discussions with a number of potential contractors
and will report further to you at the appropriate time. Of course, we
will remain open to possibilities for the sale of various assets,
operations, or the whole Division as opportunities may arise.
Recognition of Liabilities
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The substantial loss reported in the third quarter and the resulting
shareholders' deficit were driven by the recognition of liabilities
associated with the idled Virginia Division. Although we had earlier
reported that the recognition of liabilities would be necessary with the
idling of the Virginia Division, we could not definitively determine
their magnitude until negotiations for the possible sale of assets were
completed. When a sale had not materialized by the end of the third
quarter, we were required for accounting purposes to recognize virtually
all of those liabilities. If future transactions are consummated with
potential contract operators or buyers, we may be able to recover
certain of the accounting charges.
As a result of these charges, the declaration and payment of a preferred
dividend is not legally permissible under Delaware law at this time.
The Board of Directors will consider reinstatement of the dividend at
such time as shareholders' equity and earnings have reached the levels
required by Delaware law.
Liquidity
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Measures taken to date have assured sufficient liquidity of the Company
through the end of 1995 and into 1996. However, due to the carrying
costs of the Virginia Division in its idled state and more
significantly, the ongoing cash costs related to postretirement medical
and workers' compensation benefits, the Company's liquidity resources
would be inadequate to meet operating requirements after the first
quarter of 1996 unless additional steps are taken. The Company remains
committed to implementing such steps.
We have targeted three principle areas for aggressive and innovative
action. First, of course, are the steps discussed above with respect to
the Virginia Division. Second, is the containment and reduction of the
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heritage costs, including the improved management of medical and
workers' compensation benefits. A key component to our strategy in this
area is the full implementation of the managed health care program which
was negotiated with the United Mine Workers of America (UMWA) in the
1993 Coal Wage Agreement. While the managed care program is only
mandatory for active UMWA employees, it is especially important that we
get the voluntary participation of retirees. We believe this is in
everyone's best interest. Tom Sharpe, formerly our Corporate Controller,
has been assigned full time to lead our efforts in this area. Third, is
the continued reduction of costs and the generation of cash from
additional sources. The sale of Cleancoal Terminal, which was completed
since we last wrote, will save us $840,000 a year in interest payments.
Other steps such as leveraging our assets are being pursued. We expect
additional cash flows from Roanoke Valley II, the equity portion of
which we fully funded in October, and from our investment in Dominion
Terminal Associates. Help may even come from Washington, D.C. Along
with a number of similarly situated companies, we have supported
legislation which would permit us to receive surplus pension assets
without paying heavy excise taxes. Additionally, in our case, the
utilization of our net operating tax loss carryforwards (NOLs) would
allow us not to pay income taxes on the amounts received. While we
cannot assure the successful outcome of any of these steps, we can
assure you that we are aggressively pursuing them.
Growth
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As we have previously reported, the key to Westmoreland's long-term
success is growth. We must find new sources of operating income and make
use of our NOLs, which shelter taxable income, to offset the heritage
costs. In other words, instead of paying taxes, we will pay
postretirement benefits. To do this, new sources of income must be
acquired and developed. From there we can go on to build shareholder
value.
Even with the situation at Virginia Division not yet finally resolved,
we have been moving into this next growth stage. In October we funded
Roanoke Valley II, a 50 MW plant in North Carolina, and will have the
full benefit of its earnings and cash distributions in 1996 and beyond.
We also completed our first strategic acquisition on November 1, 1995,
with the purchase of The Corona Group, Inc. from OESI Power Corporation.
The Corona Group provides technical repair and maintenance services to
the electric power industry. Corona also manufactures and utilizes
specialized tools and equipment allowing power plant outage work to be
performed on-site with increased efficiency, saving time and money.
This business has an excellent growth potential in light of current
trends in the power industry to reduce costs and become more
competitive, in part, by outsourcing various functions. Westmoreland
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paid $2.5 million in cash and assumed various notes in exchange for 100%
of the stock of Corona.
Drawing upon its solid fuel expertise and proven track record as a
successful developer, Westmoreland Energy, Inc. also recently received
initial siting approval from the City of Madison, Illinois, for a new 66
MW waste fuel power project. The new project, called Metro East, is 80%
owned by Westmoreland and will sell power to Illinois Power. The
project has been under development for over a year, and is expected to
reach financial closing late in 1996 or early 1997.
We are increasingly spending time looking for new opportunities.
Identifying good opportunities and raising the capital to finance them
will be formidable challenges with no guarantee of success, but we are
anxious to get on with it. It is critical that our cash be used for
these purposes.
In closing, let me thank you for your continued support. Many of you
have contacted us over the past three months, and we appreciate the
quality of your questions, comments, and suggestions. Don't hesitate to
contact us, and in particular Diane Jones, who officially assumed
responsibility for Shareholder Relations in late September, with your
concerns or suggestions at any time. We will continue to send these
letters every ninety days or so, but we appreciate the fact that you may
want to talk to someone more frequently. We welcome your calls.
All of us here at Westmoreland wish you a joyous and safe Holiday
Season.
Sincerely,
Christopher K. Seglem
Enclosure
