Form 8-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): June 12, 1996
WESTMORELAND COAL COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 0-752 23-1128670
(State or other jurisdiction (Commission File (I.R.S. Employer
of incorporation or organization) Number Identification No.)
2 North Cascade Avenue, 14th Floor Colorado Springs, Colorado 80903
(Address of principal executive offices) (Zip Code)
Registrant's telephone number,
including area code: 719-442-2600
I INTRODUCTION
Good morning and thank you for attending the 1996 Annual Meeting of
Westmoreland Coal Company. As I have done in previous years, I will
report today on the past year's events, the current status of the
Company, and our goals for 1996 and beyond. My report will include
some forward looking statements and projections and, of course, actual
results could differ materially. I will try to highlight here and in
my written report some of the more important factors that could cause
these differences.
Since last year's Annual Meeting we have accomplished most of what we
set out to do over these twelve months, although as we then noted
might be the case, the idling of the Virginia Division required us to
recognize certain liabilities, most significantly the present value of
those related to post-retirement benefits, and this caused the Company
to report a deficit in shareholders' equity. Unpleasant, yes, but a
not so startling fact: as we have pointed out in the past,
Westmoreland's liquidation value is less than the long-term
obligations it must satisfy, particularly the post-retirement benefits
which, until the advent of the accounting standard FASB 106 in 1993,
were not required balance sheet items. Westmoreland should be worth
more to all concerned as an ongoing enterprise, and it is to this
future we are fully committed.
For now we must continue to manage the Company for cash flow, with
less regard for balance sheet impacts. Our short term goal is to
stabilize cash flow, and then to invest available cash in new ventures
which will help service the Company's long-term obligations to retiree
creditors and, of course, create shareholder value. We are making
good progress in this direction.
II ACCOMPLISHMENTS
We have continued to implement important steps in the turnaround plan.
Perhaps most significant is what we have accomplished at the Virginia
Division, the Company's most glaring and complex under-performing
asset.
We would have preferred to sell the Virginia Division as a single unit
for substantial cash and the transfer of many of the Division's
liabilities.
While trying unsuccessfully for several years to improve the
performance of the Virginia Division, we had diligently searched for
such a sale. Although various parties expressed interest in certain
pieces, there were no buyers for the whole or any part large enough
that they would obligate themselves for Westmoreland's post-retirement
medical, workers' compensation, equipment, or reclamation liabilities
or successorship under our collective bargaining agreement. These
obligations and the high cost of existing operations thoroughly
discouraged them.
The strategy we subsequently adopted accepts this fact, but preserves
an opportunity to realize significant value from the Division's
assets. It minimizes the carrying costs of the Division and has
already resulted in a series of significant transactions.
First, in July of last year we were able to sell Virginia Division's
principal coal supply agreement back to Duke Power Company for $23
million thereby capturing a substantial part of the value of that
contract in excess of current market conditions and Virginia's high
cost of production.
Next, the Division and the related Pine Branch Mining Company were
idled to further reduce operating losses. They were put on standby
basis as we sought individual buyers for operations and assets.
We then successfully completed transactions for the sale of various
unused pieces of mining equipment and supplies, and in January
completed an agreement with Ark Land Company for the release back to
them of certain leased reserves for $2.4 million in cash and the
assumption or release of certain obligations that brought the value of
the transaction for Westmoreland to over $3.5 million.
Most recently, we completed long and difficult negotiations with Penn
Virginia Corporation, for the relinquishment of unassigned reserves,
and the conveyance of certain idled operations and reserves to local
operators. Westmoreland received a net cash payment of $10.7 million,
an 18 month option to purchase Penn Virginia's 16% ownership interest
in Westmoreland Resources Inc., ("WRI") and assignable access rights
over Penn Virginia's land to Westmoreland's Stone Mountain Reserves in
Letcher County, Kentucky.
In simultaneous non-cash transactions with local operators, the
Company sold its idled Wentz Complex to Stonega Mining and Processing
Company and its idled Pine Branch Mine to Roaring Fork Mining Company
in return for the purchasers' assumption of reclamation, equipment and
certain environmental liabilities, along with post-retirement medical
benefits for any former Westmoreland employees hired by them.
Altogether, then, the Company has so far realized some $36 million in
cash and perhaps $5 to $10 million in avoided or transferred
liabilities related to the Virginia Division which, it will be
recalled, lost $45 million in 1993, 94, and 95 combined, apart from
unusual charges relating to the shutdown of operations. We have more
to do in Virginia, but let me return to that in a moment.
Since the last Annual Meeting we have also continued our aggressive
effort to reduce costs. Compared to 1991, which one could say was the
last "typical" year for Westmoreland, we have reduced General and
Administrative costs by $9.5 million or about 40%. We are on target
to reduce this amount by another 30% in 1996 so that for at least the
foreseeable future we would expect to operate on about $6 million in
annual consolidated G & A cost. The largest component of this
reduction has been direct employee related expense which we have
decreased as we closed or sold under-performing operations. Corporate
rent has been reduced by over $700,000 per year, and insurance costs
have been reduced by $1.4 million from 1991 costs.
An important part of cost control is the commitment and contribution
of individual employees. An excellent example of this is in the area
of shareholder communications. Just a few weeks ago we began
distribution of our quarterly report to shareholders utilizing an ADP
format which significantly reduces our costs. It also allows us to
reach a much larger percentage of our "street name" account holders
and on a more timely basis. Other examples of savings were a 30%
reduction in the cost of producing our Proxy Statement and a 35%
reduction in the cost of producing our Annual Report from last year.
Although these savings do not amount to millions of dollars, they do
help and reflect the efforts of our employees and consultants to
maximize value at every opportunity.
Turning to continuing operations, we funded the Roanoke Valley II
("ROVA II") project in Weldon, N.C. last October so have now met our
full equity commitment for all of Westmoreland Energy"s 8 power
projects, all of which are operational and permanently financed with
non-recourse debt. We also acquired The Corona Group, a small young
company targeting the growing opportunities created by utility
outsourcing of various services as the electric industry moves into a
deregulated, competitive marketplace for the sale of power.
Corona provides maintenance and repair services to this industry and
has developed specialized tooling which allows certain maintenance and
overhaul related jobs to be performed on-site, saving the customer
outage time and costs typically associated with shipping equipment to
a shop location.
Westmoreland Resources began shipping coal under the new Otter Tail
Power contract and secured two additional new term contract sales that
combined should result in 500,000 to 1,000,000 tons per year of
additional shipments. In October, WRI was successful in reaching a
settlement with the Montana Department of Revenue which resulted in a
$1.0 million cash payment to WRI and the right to file state income
taxes recognizing Westmoreland's losses. The Department of Interior
also approved our Lease Amendment with the Crow Indian Tribe which
sets royalty rates for the next 10 years beginning December 1, 1995.
Our interest in Dominion Terminal Associates ("DTA"), Westmoreland
Coal Sales Company's principal operation, has been successfully
transitioned into a stand-alone profit center, not dependent on
internally brokered coal or low margin, financed export sales.
In summary, we have successfully continued implementation of our plan
to divest or discontinue under-performing assets and operations, raise
cash, and eliminate liabilities in order to service on-going fixed
costs---primarily post-retirement benefit costs---and lay the
foundation for stability and future growth. We have reduced general
and administrative costs in pursuit of a more efficient, streamlined,
and focused company, and we have developed an appropriate business
plan for those assets and the operations we retain. Let me review
those for you briefly.
III CURRENT STATUS
We retain the remainder of the idled Virginia Division operations and
related coal reserves. These include the Bullitt Mine, preparation
plant and transloader, Pierrepont Mine and coal handling facility,
Holton Mine and loadout facility, and Mission Hollow and Stone
Mountain reserves. While burdened with past high production costs,
these are potentially some of the most mineable underground reserves
on the property and among the most strategic and technically efficient
facilities in the area. The Company also retains two historically
profitable independent contract mining operations.
Because of the potential value of these reserves and facilities, the
Company has kept them on "hot idle" status since last August, and
explored the potential for additional contract mining operations in
lieu of, or until appropriate sales could be made. During this
period, operations management has reduced monthly carrying costs from
$1.5 million at the outset to approximately $900,000 now. However,
this ongoing cash outflow is unacceptable in the absence of realistic,
prospects for a sale or contract operation.
Therefore, the Company intends to permanently shut down and reclaim
some or all of these operations with accompanying salvage value sales
if more attractive arrangements can not be finalized in the near term.
A. Continuing Operations
Turning again to continuing operations, our current five-year business
plan calls for Westmoreland Energy ("WEI") to discontinue its
substantial project development efforts and to focus on maximizing
cash flows from existing assets. International opportunities for
independent power are too expensive and speculative for Westmoreland
at this time, and new domestic projects are extremely limited in the
face of an over supply of generating capacity and the imminent
competitive market for electricity. Going forward, WEI will emphasize
its asset management and project valuation expertise to reduce costs,
improve operating performance and provide increased cash for corporate
reinvestment.
Despite costs related to redefining its mission, we expect WEI to
contribute $11.5 million in cash dividends in 1996. This includes
rather substantial margins from gas remarketing at Rensselaer this
past winter. Revenues retained by VEPCO in the ongoing dispute over
forced outage day payments at Roanoke Valley I ("ROVA I") are
obviously not included.
Westmoreland Energy's other task will be to put its existing manpower,
experience and talent to work on potential expansion into other facets
of the domestic energy business, primarily service oriented or
outsourced activities such as those targeted by The Corona Group.
This is a new arena for WEI, however, and like most "start-up"
businesses will have ups and downs. While we expect Corona to grow
and make a cash contribution in the near term, it has struggled so far
this year due primarily to the deferral and cancellation of a large
number of repair and maintenance jobs it had anticipated. Even though
contracts have been awarded for work with a number of large utilities,
including Public Service of Colorado and most recently, Kentucky
Utilities, a job which alone is expected to exceed $1.5 million in
billings, Corona has suffered negative cash flow of approximately
$863,000 through April including $392,000 of capital expenditures and
debt payments.
Corona is expected to contribute cash for the remainder of the year,
but will not achieve the $1.2 million budgeted for 1996 or perhaps
even break-even for the year. As WEI and Corona seek to mesh their
organizations, they must strike the difficult balance between current
investment in people and capital with the need for near-term return on
that investment. In this regard, Westmoreland is a demanding parent
because of its intense focus on current cash flows.
One potential course for Corona which might enhance its ability to
contribute cash is the manufacture and sale of specialty equipment.
For example, Corona has this year provided a large, portable field
machinery lathe and built a specialized machinery tool to modify gas
turbines for ABB in Germany.
Turning to Westmoreland Resources, coal shipments should increase by
about 10% this year to approximately 4.85 million tons, due primarily
to deliveries to Otter Tail Power under the five year contract awarded
last year. Otter Tail, with WRI's assistance, is modifying its
precipitator which should help stabilize coal deliveries at a high
level and enhance prospects for a longer term supply relationship.
With the retirement of long time President, Joe Presley in April, we
have closed the Billings office and consolidated activities at the
Sarpy Creek Mine Site under new President, Dave Simpson, who has been
with WRI since August, 1975. Larry Mikkola, WRI's Vice President of
Finance, has relocated to our Colorado Springs office, where he also
serves as Assistant Controller at Corporate. These moves constitute
additional savings and efficiencies for WRI.
Naturally, we have monitored the events at Morrison Knudsen this past
year to assure that its problems do not adversely impact WRI where MK
is both a 24% owner and the mining contractor. We are fortunate in
having the personal attention and support of some of MK's best people,
including CEO Bob Tinstman, so would not expect the level of
performance to decline so long as they are able to provide it. This
is especially important in view of our aspirations to see WRI grow and
the fact that the operation is now 22 years old, may need certain
additional sustaining capital, and requires close attention to
operation, repair and maintenance.
Westmoreland Coal Sales Company continues to establish our interest in
DTA as a stand alone leasing operation and has entered into a take or
pay through-put agreement with American Metals & Coal International
Inc. (AMCI), a leading international coal exporter and trader, as the
cornerstone of that effort. Based on current projections, Coal Sales
should achieve a utilization rate of at least 75% of available
capacity this year and make a cash contribution to the Company.
Perhaps the biggest challenge at DTA is to gain the active and
aggressive support of the delivering railroad, CSX, in soliciting
business for the Terminal.
Coal Sales also continues its close management of our secured
interests in the assets of Adventure Resources. Adventure's financial
situation has continued to deteriorate since last year, and while
Westmoreland no longer has any exposure as sales agent or financier
for Adventure, the position we achieved as a secured creditor gives us
the ability to recapture some of the investment made there by the
Company over the years.
This completes an overview of the current status of the active
operations we are looking to for operating cash inflows at this time.
What about cash outflows?
B. Cost Management
I've already spoken about overhead expenses and our efforts to
substantially reduce and control them. I want here to revisit briefly
the status of our heritage costs which I discussed in some detail last
year and which represent by far the greatest challenge to the
Company's ongoing liquidity and viability. These are primarily
Postretirement Medical and Workers' Compensation Benefits. (OH-1)
These benefits currently represent cash outflow of approximately $20
million per year.
I am not going to go through the projected numbers or detailed
elements of the postretirement medical benefits as I did last year,
but the numbers have been updated in the slides. (OH-2) I would
call to your attention that the projected post-retirement medical
costs do not include cost reductions we will discuss later in the
speech. Note also that we now expect Worker's Compensation costs to
decline more rapidly.
Post-retirement Medical Benefits for classified employees fall into
one of three categories: (OH-3)
1) those guaranteed for life by the Rockefeller Legislation (a/k/a
the 1992 Coal Act) for employees, or orphans, who retired before
January 1, 1976 (and their respective dependents) and which are
managed by and funded out of contributions made to the Multi-Employer
Combined Fund;
2) those guaranteed for life by the Coal Act for employees and
orphans (and their dependents) who retired between January 1, 1976 and
September 30, 1994 and which are managed and funded solely by
Westmoreland through its statutory individual employee plan (the "IEP"
or 1992 Plan); and
3) those guaranteed for the life of the 1993 UMWA Wage Agreement for
employees who retired after September 30, 1994 and for one year for
any laid-off employee. Again, these benefits are administered and
paid solely by Westmoreland.
Westmoreland's annual contributions to the Combined Fund (OH-4) are
about $5.2 million, although that number could be higher this year
because of catch-up costs associated with the assignment of additional
beneficiaries by the Social Security Administration. This Multi-
Employer Fund currently enjoys a substantial surplus and we have asked
the Fund to defer our contributions so that the cash can be used for
investment purposes. We have made no contributions, which are due on
a monthly basis, since January. We have offered to collateralize our
obligations with non-cash assets.
The 1992 Plan (OH-5), required the posting of security by January 1,
1996 for the estimated premiums due for a three year period, which in
Westmoreland's case is about $21 million, or annual cash payments of
$2.9 million for 9 years. The forms of security requested by the Plan
all effectively required dollar for dollar cash collateralization by
Westmoreland, so we have asked permission to post non-cash collateral
in the form of secured interests in certain assets. We have made no
cash installment payment in 1996 here either.
Discussions with these Funds are ongoing and are critical in
determining the Company's future. Our rationale is straight forward
and above board. As we have said, on a liquidation basis the Company
could not fund the present value of its combined heritage cost
obligations at this time. However, given the opportunity to raise and
use cash for reinvestment, the Company can put its tax assets, the
NOLs, to work and convert their value to the benefit of the Funds, the
beneficiaries, and ultimately, our shareholders. These tax assets are
lost if Westmoreland shuts down or is sold. In the meantime, we will
continue to pay benefits to those relying directly on Westmoreland,
the statutory and contractual IEP's, for as long as we can. Our
belief is that Westmoreland is much more valuable as an ongoing
enterprise and our hope is that we will be given the opportunity to
provide the post-retirement medical and Workers' Compensation benefits
for which so many people are dependent on us.
A related item I should mention is the Company's pension obligations
to UMWA retirees. This obligation is separate and apart from the
salaried pension plan which, as you know, is substantially overfunded.
The UMWA plan is, again, a multi-employer plan, or two actually, and
while the 1950 plan is fully funded, the 1974 plan is not.
Contributions are made based on a formula of hours worked and tons
produced and when these decline to certain levels a partial withdrawal
or plan termination liability may be triggered. Where such events
occur and the responsible party cannot make the necessary payments,
the obligation shifts to the other settlers in the trust, an event
common enough in the coal industry that the Plan has been dubbed the
"the last man's club." This liability tends to fluctuate on an annual
basis and, as reflected in the charge to earnings we took last August
when idling Virginia, Westmoreland's share is currently estimated to
be about $17.8 million in total. If triggered, Westmoreland could be
responsible at some point in the future to make cash payments for all
or some portion of that amount, which could presumably be paid over
time. It is our hope, at this point, that the final disposition of
our Virginia operations will be done in a way to satisfy the Fund that
no withdrawal is triggered because acceptable levels of mining and
contributions by our successors continue.
C. Liquidity
So, where does this leave us? Let me refer you to an updated version
of a slide (OH-6) we presented last year which summarizes operating
cash flow excluding Virginia Division and before reinvestment. This
is based on current 1996 projections and will vary based on actual
results, which could differ materially due to a variety of factors.
It illustrates that with a temporary deferral of a portion of the
heritage costs (the Combined Fund portion), and the ability to use
non-cash assets as security so that we can invest cash, it may be
realistic to overcome the near-term shortfall, then meet the Combined
Fund obligation, and, finally, fund the deferred amounts. Now, how do
we get there?
IV. GOING FORWARD
We expect continued improvement in cash flow from each of our existing
operations as Westmoreland Energy settles into its concentration on
maximizing cash, Corona develops, and Westmoreland Coal Sales proceeds
with its efforts at DTA.
A. Increase Ownership at WRI
At Westmoreland Resources we are seeking to improve the return on our
investment by increasing ownership to 80% so we can consolidate for
tax purposes and apply our NOLs to reduce tax payments. Our recent
transaction with Penn Virginia was a key component of this strategy,
giving us an 18 month option on Penn Virginia's 16% share. Thus, we
are looking to buy at least the additional 4% we need from MK.
Discussions are at an early stage.
B. Make Acquisitions
In addition to these improvements, and central to our success, is the
addition of new sources of income. As I said in the Annual Letter to
Shareholders, WEI, WRI and DTA are solid operations. Corona can
become one. We simply need more like them to cover our heritage costs
and generate cash for further growth and profitability.
This may be the most challenging part of Westmoreland's turn-around.
Because of the on-going operating cash shortfall caused by the
heritage costs, time is of the essence. Cash used to sustain
operations and benefit payments is gone forever for acquisition
purposes and makes implementation of the acquisition plan increasingly
difficult.
We have assembled a team and network of experts and contacts to
support this plan. Our employees recognize that this is a critical
part of their mission and the Company's Board of Directors endorses
and will oversee this strategy. We invite you as shareholders to
participate if you can. Senior Management, as a group, must lead this
effort. It must be focused, responsive, and decisive. I believe this
will again prove to be one of our strengths.
As one investment banker we talked to recently said of our focus on
acquisitions, "There is a crowd trying to cross that street." We
don't expect this to be easy in any event.
At this point we are heavily into the identification phase, what we
call "prospecting." We have evaluated a number of opportunities over
the past twelve months and look for this phase to pick up
significantly now. We very much hope to move ahead and complete an
acquisition this year, in addition to increasing our ownership at WRI.
Our business plan also anticipates this activity continuing for at
least the next several years, but we cannot predict what, if anything,
we will be able to find and close that meets our needs.
Preliminarily, we have established 5 key acquisition criteria. (OH-7)
Let me review them with you.
First, we are looking for historically profitable enterprises with
minimum cash flow of $2 million annually. While we would love to see
growth potential, too, our primary focus is on cash returns, so we are
looking at more mature versus developing businesses.
Second, we seek returns on invested capital of twenty percent (20%) on
an EBIT basis. We look at acquisition opportunities on an EBIT basis
because of our NOLs, and relate it to a lower return for tax paying
competitors, hopefully giving us some advantage as a buyer. Further,
combined with our minimum cash flow criteria, you can see we will look
at smaller businesses which may not be targeted by financial buyers.
Third, we place value on having a successful management structure in
place and positioned to remain so. This is especially important in
opportunities removed from our own first hand experience. We are not
a company looking for a place to "stash" currently underutilized
employees. This may be attractive to certain sellers.
Fourth, we seek opportunities which are preferably, but not
necessarily, coal, natural resources or energy related. Naturally,
we'd like to stay close to what we know, but this may be a mistake
from a financial perspective. Our impression is that good coal
properties are selling at a premium to current margins due to
consolidation in the industry and larger companies' gamble on an
eventual increase in coal prices. This might be good strategy, but we
can't take such a gamble or wait. The secondary market activity for
independent power projects has driven returns there into single
digits. Niche or troubled projects may present our best opportunity
domestically, but there is usually a fatal flaw in such opportunities,
at least for us.
And fifth, we want businesses capable of utilizing Westmoreland's net
operating tax loss carryforwards (NOLs). NOLs may not shelter taxes
on gains from the sale of acquired assets for a period of 5 years.
Hence, this is not a quick in, quick out or bust up strategy on our
part. Certain other operating criteria may be applicable for tax
purpose as well, but can only be evaluated on a case by case basis.
(OH-8) sets forth our current NOL position of $174 million, $24
million of which expires this year. Because of the heritage costs,
however, new NOLs are being generated.
Cash for acquisitions is an important element of this strategy. Set
forth on (OH-9) are a list of potential sources. Amounts and the
timing of their availability are uncertain at this point. This
activity must be aggressively managed to assure funds are available
when needed. The Benefit Funds support of our effort and a legal
structure that insulates the acquired company from Westmoreland's
liabilities will also be required for any necessary financing.
C. Reduce Benefit Costs
This takes us back to the cash outflow side of the equation and our
biggest opportunity to permanently reduce costs---better management of
benefit costs themselves.
A key challenge for Westmoreland Coal Company over the past year has
been to identify opportunities to reduce the direct cost of providing
medical and prescription drug benefits for our active, retired and
laid off workers, plus workers' compensation benefits for employees
injured on the job. As we discuss the efforts we have made and the
progress - to - date, it is important to remember a couple key facts.
First, because of the Coal Act and the labor agreement, Westmoreland
is precluded from making any plan design changes that would lower the
level of benefits for these recipients who enjoy virtually a 100%
level of benefit, with minimal if any out-of-pocket expenses. Second,
the beneficiaries have no restrictions whatsoever as to the medical
providers or facilities they use, so long as a medical need can be
demonstrated. These facts prevent implementation of many cost
containment measures that would otherwise be available to us.
Absolutely the most critical factor for reducing costs in this area
will be earning the purely voluntary participation and commitment of
our employees and retirees.
In 1995, Westmoreland Coal spent $21.9 million on claims and
administrative costs associated with our benefit plans, including
workers' compensation. This represents a 4% increase over 1994. (OH-
10) breaks this cost down for you.
We have launched a number of initiatives to achieve necessary cost-
savings in these various categories, including:
Renegotiating reduced administrative fees;
Lowering thresholds for claims reviews;
Initiating a re-enrollment process to confirm the eligibility of
claimants and to be certain we are capturing Medicare eligible
covered retirees and spouses, as well as secondary insurance
providers of our enrolled population;
Auditing all claims for duplicate payments, so for example an
individual filing a claim for prescription drugs that are Black
Lung related will not also be compensated by our Prescription
Drug provider;
Negotiating exclusive provider contracts, as for example, with
Beltone for hearing aid services, which reduces the average claim
by 500 to 600%; We are also presently exploring similar
exclusive provider contracts with vendors of durable medical
equipment, ambulance services and vision services;
Conducting monthly retiree meetings to educate our people regarding
ways they can partner with us in reducing our costs, such as
increasing generic drug utilization over name brands, and
increasing mail order prescriptions;
Implementing a disease management program for diabetes, the
incidence rate of which is extremely high amongst Westmoreland's
retirees;
Implementing a Drug Utilization Review program to encourage
physicians and pharmacists on the use of generic drugs, mail
orders, and formularies, which are lists of more effective yet
less expensive drugs;
Providing stronger case management in partnership with our claims
administrator of Worker's Compensation cases;
Obtaining reimbursement by the Black Lung Trust Fund of $100,000 in
annual administration fees per year related to Black Lung claims;
Forming new partnerships to develop and manage hospital, physician,
specialist and ancillary service networks on behalf of
Westmoreland; After we develop this new physician network, which
we expect to have in place in all communities no later than
December 31, 1996, we expect deeper and more effective discounts
with physicians based on fee schedules pegged at a percent of
Medicare;
And, for the first time, we are putting agreements in place with
specialists.
Obviously, reduction of benefit costs is a complex matter. Success
again will depend most upon the voluntary cooperation of retirees and
their medical care providers, so there can be no assurance that the
savings we are striving for will be attained.
But, we will continue to try to build partnerships with them in a
collaborative spirit. Through these efforts we expect to save $1.8
million, while maintaining the high quality of care our current and
former employees deserve. At the same time, medical benefits for the
"laid-off" employees of the Virginia Division expire in August. This
represents another approximately $1.4 million in savings for the
balance of 1996 and over $4.2 million per year going forward. Hence,
we do expect significant benefit cost reductions in the near term.
V. CONCLUSION
From here it looks like that with a positive response from the Multi-
employer Benefit Funds, reasonable performance at retained operations,
realistic reductions in benefit costs, and an effective acquisition
program, our mission of being able to fully service our heritage costs
over the long haul and creating value for our shareholders can be
achieved. It will, however, continue to take a tremendous effort by
our team.
Along the way we must be careful not to speculate with our assets for
the possible benefit of our shareholders, at the expense of our
creditors. But at this juncture it would appear Westmoreland is
worth more to both as an ongoing enterprise.
We must also recognize that six preferred dividends have been missed,
and assure that the interests of our preferred shareholders are
appropriately represented.
We will hold a special election this Fall so they may elect an
additional director to our Board. Mr. Sight, who was appointed to the
Board in July, 1995, as a representative of the preferred shareholders
in advance of our reaching the arearages trigger, will resign from the
Board on, or prior to that date, and also stand for election by the
preferred shareholders at that time. Westmoreland strongly supports
Mr. Sight's election and expects to nominate the other candidate after
consultation with major preferred shareholders. If you are a
preferred shareholder, you will receive a proxy in the mail regarding
this election.
Our Board is also changing due to the resignation of Mr. Black in May,
and the retirements of Messrs. Leisenring and Halsey as of this
meeting. A sincere expression of thanks is given to these gentlemen
as they leave the Board. They have been leaders in their industries
and communities for decades, and we have been honored by their
presence on our Board and favored by their friendship and service.
They have been steadfast in the most difficult of times and deserve
our respect and appreciation. We wish them good health and good
fortune in their future endeavors.
The composition of this Board is critical to our success as its
members must provide guidance, assistance and insight that helps us
achieve our mission. This must be an active Board. A number of
outstanding people are under consideration now for nomination, and we
look forward to adding new members who can contribute to our effort.
Westmoreland and its shareholders have endured some tough times over
the past several years, but we keep getting stronger. People inside
and outside of the Company are encouraged by our accomplishments, but
we cannot stop now. The businesses we have retained provide a solid
base for the Company's future. We must manage them well and add new
cash producing businesses as quickly as possible with the money we
have and will raise. Full utilization of our tax assets can then be
used to deliver an additional and substantial increment of value to
our creditors and shareholders. I fully expect in this fashion to
achieve long term financial health and stability. Why not another 142
years?
The key is the great team of people we have in Westmoreland. Our
employees are especially dedicated and I would like to take this
opportunity to recognize and thank them again for their efforts. Many
of them are present today and I encourage you to speak with them about
the Company.
Thank you for your attention.
Description of overheads used in Mr. Seglem's Annual Meeting speech.
Overhead 1
Titled [Heritage Costs] Brief description of coverage for post
retirement medical benefits and workers compensation benefits.
Overhead 2
Titled [Heritage Costs - Projected Payments Before Cost Reduction
Efforts] Table showing anticipated annual payments for postretirement
medical and workers compensation from 1996 through 2045.
Overhead 3
Titled [Postretirement Medical Benefits] Provides descriptions of
the multi-employer plan and each of the two single employer plans.
Overhead 4
Continuation of overhead 3
Overhead 5
Continuation of overhead 3
Overhead 6
Titled [Major Operating Cash Flows (excluding Virginia Division and
without reinvestment)] Description of major cash inflows and major
cash outflows on an annual basis.
Overhead 7
Titled [Acquisition Criteria] Description of the criteria used to
identify acquisition candidates.
Overhead 8
Titled [Net Operating Loss Carryforwards] Table showing expiration
dates by tax year of net operating loss carryforward amounts.
Overhead 9
Titled [Benefit Costs - Actual Payments] Table showing actual costs
paid for medical benefits during 1994 and 1995.
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: June 12, 1996 By:_______________________
Robert J. Jaeger
Senior Vice President - Finance,
Treasurer, and Controller
