<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 June 30, 1996
--------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
for the transition period from __________ to ___________
Commission File Number
0-752
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.)
2 North Cascade Ave., 14th Floor
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 Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days:
Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of July 7, 1996: 6,965,328
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1
FINANCIAL STATEMENTS
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
June 30, 1996 Dec. 31, 1995
------------- -------------
(Unaudited)
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 13,670 $ 11,711
Notes and accounts receivable
Coal sales 2,826 3,024
Notes 1,080 2,295
Other 3,244 2,956
--------- ---------
7,150 8,275
Less allowance for
doubtful accounts 913 2,515
--------- ---------
6,237 5,760
Inventories
Coal - 645
Mine supplies 25 134
Other 183 161
--------- ---------
208 940
Other current assets 769 921
--------- ---------
TOTAL CURRENT ASSETS 20,884 19,332
Property, plant and equipment
Land and mineral rights 30,142 30,029
Plant and equipment 198,432 255,149
--------- ---------
228,574 285,178
Less accumulated depreciation
and depletion 169,473 225,310
--------- ---------
59,101 59,868
Investment in Independent Power
Projects 49,227 49,069
Investment in DTA 19,156 19,326
Workers compensation bond 9,960 9,960
Prepaid pension cost 9,120 7,612
Other assets 3,524 1,940
--------- ---------
TOTAL ASSETS $ 170,972 $ 167,107
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
<PAGE> 3
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
June 30, 1996 Dec. 31, 1995
------------- -------------
(Unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES
Current installments of
long-term debt $ 1,215 $ 1,462
Accounts payable and accrued expenses 10,966 8,027
Accrual for workers' compensation 5,491 5,494
Accrual for postretirement
medical costs 10,400 10,400
Taxes on income - 2,905
Other 230 7,155
--------- ---------
TOTAL CURRENT LIABILITIES 28,302 35,443
Long-term debt 2,332 3,131
Accrual for pneumoconiosis
benefits 11,595 13,871
Accrual for workers' compensation 25,365 28,130
Accrual for postretirement
medical costs 77,863 73,373
Accrual of reclamation costs 7,167 10,311
Other liabilities 19,778 15,558
Deferred income taxes 14,546 14,827
Minority interest 10,609 10,569
SHAREHOLDERS' EQUITY
Preferred stock of $1.00 par value
Authorized 5,000,000 shares;
Issued 575,000 shares 575 575
Common stock of $2.50 par value
Authorized 20,000,000 shares;
Issued 6,965,328 shares 17,402 17,402
Other paid-in capital 94,641 94,641
Accumulated deficit (139,203) (150,724)
--------- ---------
TOTAL SHAREHOLDERS' (DEFICIT) (26,585) (38,106)
--------- ---------
TOTAL LIABILITIES
AND SHAREHOLDERS' EQUITY $ 170,972 $ 167,107
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE> 4
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
1996 1995* 1996 1995*
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues:
Coal $ 11,265 $ 39,468 $ 21,817 $ 80,256
Independent power projects
-equity in earnings and fees 3,251 3,786 7,483 8,681
Corona 1,529 - 2,986 -
Services 261 - 380 -
--------- --------- --------- ---------
16,306 43,254 32,666 88,937
--------- --------- --------- ---------
Cost and expenses:
Cost of coal sold 11,515 38,401 22,902 77,212
Cost of sales-Corona 1,206 - 2,531 -
Services and independent power
projects - related expenses 266 629 1,039 1,007
Depreciation, depletion
and amortization 518 5,600 1,027 10,639
Selling and administrative 3,069 3,986 5,687 8,260
Heritage costs 4,498 5,888 8,128 11,773
Pension benefit (850) (412) (1,704) (825)
--------- --------- --------- ---------
20,222 54,092 39,610 108,066
Operating loss (3,916) (10,838) (6,944) (19,129)
Gains on the sales of assets 14,740 23 17,181 9,538
Interest expense (114) (339) (239) (681)
Interest and other income 672 1,119 2,468 2,258
--------- --------- --------- ---------
Income (loss) before income tax
expense (benefit)and
minority interest 11,382 (10,035) 12,466 (8,014)
Income taxes (benefit):
Current 427 349 746 844
Deferred (280) (110) (282) (247)
--------- --------- --------- ---------
147 239 464 597
Minority interest 170 169 481 354
--------- --------- --------- ---------
Net income (loss) 11,065 (10,443) 11,521 (8,965)
Less preferred stock dividends:
declared - 1,222 - 1,222
in arrears 1,222 - 2,444 1,222
--------- --------- --------- ---------
Net income (loss) applicable
to common shareholders $ 9,843 $ (11,665) $ 9,077 $ (11,409)
========= ========= ========= =========
Net income (loss) per share
applicable to common shareholders $ 1.41 $(1.68) $ 1.30 $(1.64)
====== ====== ====== ======
* Restated to conform with current classifications
Weighted average number of
common shares outstanding 6,965 6,961 6,965 6,960
========= ========= ========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE> 5
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30, 1996 1995
- --------------------------------------------------------------------------
(in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 11,521 $ (8,965)
Adjustments to reconcile net income
(loss) to net cash used by
operating activities:
Gains on the sales of assets (17,181) (9,538)
Reversal of income tax accrual (3,540) -
Equity earnings from independent power
projects (7,483) (6,076)
Recognition of development fee income - (1,750)
Cash distributions from independent
power projects 6,218 5,087
Depreciation, depletion and amortization 1,027 10,639
Deferred income tax (281) (247)
Minority interest in WRI income 480 354
Change in assets and liabilities, net of
non-cash transactions:
Accounts receivable, net of allowance
for doubtful accounts (169) 9,668
Inventories 732 2,018
Accounts payable and accrued expenses (4,163) (11,557)
Income taxes payable 597 (340)
Accrual for postretirement
medical costs 4,490 3,037
Accrual for workers' compensation (2,768) 427
Accrual for pneumoconiosis benefits (2,276) (195)
Other liabilities 4,062 (364)
Other (1,360) 129
-------- --------
Net cash used by operating activities (10,094) (7,673)
-------- --------
Cash flows from investing activities:
Fixed assets additions (351) (342)
(Increase) decrease in notes receivable (308) 1,592
Proceeds from sales of assets 14,198 10,131
-------- --------
Net cash provided by investing activities 13,539 11,381
-------- --------
Cash flows from financing activities:
Hampton lease buyout premium - (1,103)
Repayment of long-term debt (1,046) (2,132)
Preferred stock dividends paid - (1,222)
Dividends paid to minority shareholders (440) -
-------- --------
Net cash used in financing activities (1,486) (4,457)
-------- --------
Net increase (decrease) in cash
and cash equivalents 1,959 (749)
Cash and cash equivalents,
beginning of period 11,711 15,453
-------- --------
Cash and cash equivalents,
end of period $ 13,670 $ 14,704
======== ========
</TABLE>
5
<PAGE> 6
Supplemental disclosures of cash flow information:
Cash paid during the period for:
<TABLE>
<S> <C> <C>
Interest $ 258 $ 768
Income taxes, net $ 760 $ 1,184
</TABLE>
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.
6
<PAGE> 7
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, 1995. 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 is engaged in the business of owning and managing interests in independent
power projects.
WEI PROJECT CONTINGENCIES
SOUTHAMPTON. The Southampton plant, a 62.7 megawatt coal-fired cogeneration
facility in Franklin, Virginia, supplies process steam to a nearby chemical
manufacturer and bulk electric power under contract to Virginia Electric and
Power Company ("Virginia Power") as a qualifying facility (QF) under the Public
Utility Regulatory Policies Act ("PURPA"). The plant began commercial
operation in 1992. On July 7, 1994, the Federal Energy Regulatory Commission
("FERC") denied the request of LG&E-Westmoreland Southampton ("the
Partnership", in which WEI has a 30% interest) for a waiver of certain QF
requirements and directed the Partnership to show cause as to why it should not
be required to file new cost- based rates for its 1992 electric sales to
Virginia Power.
The Partnership filed a request for rehearing and a motion to consider its
request for rehearing as timely filed, or in the alternative, to treat its
request for rehearing as a motion for reconsideration, in August 1994, one day
out of time. The Partnership sought a reversal of FERC's prior order, or, in
the alternative, a clarification of FERC's order stating that, with the
exception of rates, the Partnership remains a QF for 1992 exempt from
regulation as a public utility under the Public Utility Holding Company Act
("PUHCA"), utility laws of Virginia and various portions of the Federal Power
Act.
In late August 1994, Virginia Power filed a motion for leave to respond to the
Partnership's request for rehearing and response to request for rehearing, and
a response to the Partnership's show cause order. In September 1994, the
Partnership filed with FERC its answer to Virginia Power's motion and response.
Also in September 1994, FERC granted itself an extension of time to act on the
Partnership's request for rehearing, tolling the 30-day period in which FERC
was to have acted on the Partnership's rehearing request. On August 1, 1996,
FERC entered its decision in the pending Southampton case. FERC determined
that the Partnership's request for reconsideration should be treated as timely
filed, but that the Southampton facility was not in complete compliance with
the QF requirements for 1992. FERC ordered Southampton to comply with Section
205 of the Federal Power Act (FPA), and file, for FERC's review, rates for
calendar year 1992 for wholesale power sales to Virginia Power. Otherwise, the
Southampton project remains exempt from regulation under PUCHA, utility laws of
Virginia and the other provisions of the FPA.
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<PAGE> 8
Ultimate resolution of this matter has not yet been completed. The FERC order
does not completely settle what the applicable rate is for 1992. The rate must
be determined through negotiations with Virginia Power and further FERC
proceedings and may result in refunds to Virginia Power, the amount of which
cannot be determined at this time. The Company is also evaluating its options
which may include an appeal of the FERC decision and possible recovery of
damages from third parties. Until the appropriate rate is determined and
related matters are resolved it is not possible to determine whether the order
will have a material adverse affect in the Company's consolidated results of
operations, its financial condition or liquidity.
ROANOKE VALLEY I ("ROVA"). The Company owns a 50% interest in
Westmoreland-LG&E Partners ("WLP"), the sole owner of Roanoke Valley I, a
cogeneration facility selling electric power to Virginia Power and steam energy
to Patch Rubber Company. Under the Power Purchase Agreement ("PPA") between
WLP and Virginia Power, WLP is entitled to receive capacity payments based on
availability. From May 1994 through June 1996, Virginia Power withheld
approximately $10,400,000 of these capacity payments during periods of forced
outages. To date, the Company has not realized any income on its 50% portion
of the capacity payments being withheld by Virginia Power. In October 1994,
WLP filed a complaint against Virginia Power seeking damages of at least
$5,700,000, contending that Virginia Power breached the PPA in withholding such
payments. In December, 1994, Virginia Power filed a motion to dismiss the
complaint and in March, 1995, the court granted this motion. WLP filed an
amended complaint in April, 1995. Virginia Power filed another motion to
dismiss the complaint and in June 1995, the Circuit Court of the City of
Richmond, Virginia denied Virginia Power's motion to dismiss WLP's amended
complaint. In November 1995, Virginia Power filed with the court a motion for
summary judgment, and a hearing on the motion was held in early December 1995.
In late January 1996, the court denied Virginia Power's motion for summary
judgment. The customer filed a second summary judgment motion on March 1,
1996. On March 18, 1996, the Court granted the customer's second summary
judgment motion and effectively dismissed the complaint. The ROVA partnership
has appealed the Court's decision granting summary judgment. The matter is
pending before the Virginia Supreme Court. Regardless of the outcome, the
Company believes Roanoke Valley I will operate profitability and generate
positive cash flows.
RENSSELAER. The Company has been informed through public filings that Niagara
Mohawk Power Corporation ("NIMO")(which is the purchasing utility for the
Company's Rensselaer cogeneration facility in which the Company has a 50%
interest) believes that, absent significant relief from its power purchase
arrangements with independent power producers (including qualifying
cogenerators), it may be forced either to file voluntary bankruptcy or attempt
to condemn and purchase the cogeneration facilities through eminent domain.
The Company intends to oppose any efforts by NIMO to nullifiy its contract for
the Rensselaer project.
2. CAPITAL STOCK
The Company's preferred stock was issued in July, 1992. Preferred stock
dividends at a rate of 8.5% per annum were paid quarterly from the third
quarter of 1992 through the first quarter of 1994. The declaration and payment
of preferred stock dividends was suspended in the second quarter of 1994 in
connection with extension agreements of the Company's principal lenders. Upon
the expiration of these extension agreements, the Company paid a quarterly
dividend on April 1, 1995 and July 1, 1995. Pursuant to the requirements of
Delaware law, the preferred stock dividend was suspended in the third quarter
of 1995 as a result of recognition of
8
<PAGE> 9
losses and the subsequent shareholders' deficit. The seven quarterly dividends
which are in arrears (dividend payment dates July 1, 1994, October 1, 1994,
January 1, 1995, October 1, 1995, January 1, 1996, April 1, 1996, and July 1,
1996) amount to $8,552,600 in the aggregate ($14.88 per preferred share).
Common stock dividends may not be declared 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 preferred stock dividends
only: (1) out of surplus, surplus being the amount of shareholders' equity in
excess of the par value of the Company's two classes of stock; or (2) in the
event there is no surplus, out of net profits for the fiscal year in which a
preferred stock 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 the preferred stock ($575,000). The Company had a
shareholders' deficit at June 30, 1996 of $26,585,000.
Under the terms of the Preferred Shareholder Agreement, the preferred
shareholders are entitled to elect two directors because the Company is in
arrears on six preferred dividends. The Company intends to hold a special
meeting of the preferred shareholders to elect those directors this year.
- --------------------------------------------------------------------------------
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
MATERIAL CHANGES IN FINANCIAL CONDITION
FROM DECEMBER 31, 1995 TO JUNE 30,1996
LIQUIDITY
Cash used by operating activities was $10,094,000, and $7,673,000 in the first
six months of 1996 and 1995, respectively. The increase in cash used in 1996
reflects the idling of the Virginia Division in the third quarter of 1995 and
the resultant reduction in coal sales revenue. See the Consolidated Statements
of Cash Flows for additional information.
Cash provided by investing activities was $13,539,000 and $11,381,000 in the
first six months of 1996 and 1995, respectively. Included in the first six
months of 1996 were cash proceeds of $10,678,000 for the sale of coal reserves
back to Penn Virginia Corporation and $2,441,000 for the sale of coal reserves
to Ark Land Company. Included in the first six months of 1995 were proceeds of
$9,045,000 related to the sale of the assets of the Company's Hampton Division.
Fixed asset additions were $351,000 and $342,000 in the first six months of
1996 and 1995, respectively.
Cash used in financing activities totaled $1,486,000 and $4,457,000 in the
first six months of 1996 and 1995, respectively. Repayment of long-term debt
amounted to $1,046,000 and $2,132,000 in the first quarter of 1996 and 1995,
respectively.
9
<PAGE> 10
The Company's consolidated cash and cash equivalents at June 30, 1996 totaled
$13,670,000 (including $3,531,000 at WRI). At December 31, 1995, cash and cash
equivalents totaled $11,711,000 (including $3,213,000 at WRI). None of the
Company's cash and cash equivalents was or is restricted as to use or
disposition except for $2,975,000 escrowed with a UMWA Trust Fund in July,
1996. See "Liquidity Outlook" section for additional information. 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 June 30, 1996 and at December 31, 1995. 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 $8,000,000 invested
in certificates of deposit at June 30, 1996 which is classified on the
Company's Condensed Consolidated Balance Sheets as an Investment in Independent
Power Projects. 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 were substituted with bank letters of
credit. 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
The major factor impacting the Company's liquidity outlook is its significant
"heritage costs". These heritage costs consist primarily of cash payments for
postretirement medical benefits, workers' compensation costs and UMWA pension
benefits. The Company also is obligated for its own pension and pneumoconiosis
benefits; however, both of these future obligations enjoy a funding surplus at
present. The Company has ongoing cash expenditures in excess of $15,000,000
per year for postretirement medical benefits which could continue over the next
approximately 45 years and approximately $6,500,000 per year for workers'
compensation benefits which will decline to zero over the next 20 years. The
Company is required under the national contract with the UMWA to pay amounts
based on hours worked or tons processed to the UMWA Retirement Funds with
respect to unionized employees. Since this is a multiemployer plan, under
ERISA, a contributing company is liable for its share of unfunded vested
liabilities upon termination or withdrawal from the plan. The Company's
liability for complete withdrawal is estimated to be approximately $17,800,000,
however, there has been no determination by the UMWA trustees that the Company
has incurred a partial or complete withdrawal.
Under a Federal law (the Coal Industry Retiree Health Benefit Act of 1992), the
Company is required to provide postretirement medical benefits for UMWA miners
by making premium payments into three benefit plans: (i) the UMWA Combined
Benefit Fund (the "Combined Fund"), a multiemployer plan which benefits miners
who retired before January 1, 1976 or who retired thereafter but whose last
employer did not provide benefits pursuant to an operator-specific Individual
Employer Plan ("IEP"), (ii) an IEP for miners who retired after January 1, 1976
and (iii) the 1992 UMWA Benefits Plan, a multiemployer plan which benefits (A)
miners who were eligible to retire on February 1, 1993, who did retire on or
before September 30, 1994 and whose former employers are no longer in business,
(B) miners receiving benefits under an IEP whose former employer goes out of
business and ceases to maintain the IEP, and (C) new spouses or new dependents
of retirees in the Combined Fund who would be
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eligible for coverage thereunder but for the fact that the Combined Fund closed
to new beneficiaries as of July 20, 1992. The premiums paid by the Company
cover its own retirees, its current workforce and its allocated portion of the
pool of retired miners whose previous employers have gone out of business.
The Company met all of its premium obligations through the end of 1995, but
ceased paying the premiums to the Combined Fund in 1996. The Company's current
annual premiums to the Combined Fund are approximately $5,000,000. Prior to
cessation, the Company made a proposal to the Combined Fund to defer these and
a portion of its future premiums, and discussions are ongoing. The Company may
modify its proposal based on these discussions, but its objective is to
conserve cash for acquisitions so that it can give the Combined Fund adequate
assurance that the Company will not only be able to make up its current
premiums but be able to pay future obligations as well. The plan trustees
could reject any proposal from the Company and could initiate legal action to
recover overdue premiums. If the Company is required to pay all premiums on a
current basis, it would experience liquidity problems if current plans as
described below do not materialize.
As of July 9, 1996, the Company entered into an interim agreement with the
Combined Fund, pursuant to which the Company was required to escrow $2,545,000,
the amount of unpaid premiums to that date, and to make additional payments of
$430,000 per month beginning July 25, 1996 until the escrow account is
terminated, as a precondition to negotiations toward a long-term agreement.
Termination of this account will occur on November 7, 1996 unless a long term
agreement is reached, or if a monthly payment is not made, or if the Company
and the Combined Fund otherwise agree to terminate it. If the escrow account
is terminated as a result of reaching November 7, 1996, or the failure to make
a monthly payment, then the entire escrowed amount will be paid to the Combined
Fund in satisfaction of the liability that has accrued through that date. If
the Company and the Combined Fund agree to terminate the escrow account, then
the disposition of the funds in the account will be determined at that time.
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 1995, the Trustees issued security
provisions which give contributors to the Plan several options, all of which
would require the Company to commit or restrict cash, for satisfying the Act's
security requirements, and set the level of security to be provided by the
Company at approximately $22,000,000. The Act required the security to be
provided by January 1, 1996. Instead, the Company has proposed to the 1992
UMWA Benefit Plan that Company assets be used as security for its obligation.
Although discussions remain ongoing, management believes the Company will be
able to satisfy the security requirements through a mutually agreeable non-cash
alternative, however, there can be no assurance the 1992 UMWA Benefit Plan
trustees will accept such an alternative and will not initiate legal action to
enforce its security requirements.
The Company is in final negotiations for and expects to execute a pledge
agreement with the Combined Fund and the 1992 Plan on or about August 13, 1996.
Pursuant to the terms of the pledge agreement at this stage of negotiations,
the Company will pledge its shares in Westmoreland Energy, Inc., Westmoreland
Coal Sales Company and Westmoreland Resources, Inc. as collateral for the
obligations due to the Combined Fund and the 1992 Plan. The agreement will
expire November 22, 1996.
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<PAGE> 12
The Company's current principal on-going sources of cash flow include cash
distributions from its independent power projects, dividends from WRI and cash
from operations of DTA. Management believes that cash generated from these
sources and cash reserves alone will not be sufficient to pay the Company's
heritage costs and operating expenses for the next 12 months. The Company
expects to improve its very near-term cash reserve position in a number of ways
including divesting the remainder of the Virginia Division, selling certain
other non-strategic assets and obtaining cash from liquidation of certain
assets given as collateral by Adventure Resources. The Company continues to
seek further cost reductions wherever feasible and prudent, and is attempting to
reduce or defer certain postretirement medical, workers' compensation and
related payments. No assurance can be given that future operations will
generate cash as expected or that the aforementioned actions will be executed
in the time frame and to the extent management anticipates.
The Company's current sources of cash flow, as described above, will not be
sufficient by themselves to cover operating expenses and the Company's
"heritage costs" on a long-term basis. Management of the Company believes it
can only meet ongoing cash requirements or restore the Company to profitability
by adopting a strategy of acquiring income-producing businesses and properties
that can use the Company's substantial tax loss carryforwards and generate
earnings and cash flow. Management of the Company has devoted significant time
and effort to this strategy and several candidates have been preliminarily
identified. WEI made a small acquisition in late 1995. The ability or time
required to implement a successful acquisition strategy is impossible to
estimate, and no assurances can be given that the Company can successfully
implement the strategy or achieve long-term viability.
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- --------------------------------------------------------------------------------
RESULTS OF OPERATIONS:
QUARTER ENDED JUNE 30,1996 COMPARED
TO QUARTER ENDED JUNE 30, 1995
<TABLE>
<CAPTION>
Three Months Ended
June 30,
1996 1995*
---- ----
(in thousands)
<S> <C> <C>
Coal Operations:
Virginia Division $ (1,336) $ (5,296)
Westmoreland Resources, Inc. 513 627
Westmoreland Coal Sales Company (210) (635)
Heritage costs (4,498) (5,888)
Net corporate expenses (1,891) (2,847)
Pension costs 850 412
--------- --------
Total Coal Operations (6,572) (13,627)
--------- --------
Independent Power Operations:
Westmoreland Energy, Inc. 2,994 2,789
Corona Group (338) -
--------- --------
Total Independent Power Operations 2,656 2,789
--------- --------
Operating loss $ (3,916) $(10,838)
--------- --------
Gains on the sales of assets $ 14,740 $ 23
========= ========
</TABLE>
* Certain amounts have been reclassed to agree with current classifications.
Details of tons sold (in thousands) and average revenue per ton sold were as
follows:
<TABLE>
<CAPTION>
Three Months Ended
June 30,
1996 1995
---- ----
<S> <C> <C>
By Segment:
Virginia Division* - 794
Westmoreland Resources, Inc. 861 1,141
------ ------
Total Westmoreland Operations 861 1,935
For Others 139 94
------ -----
Total Tons Sold 1,000 2,029
====== ======
Average revenue per ton sold:
Westmoreland Resources, Inc. $ 7.32 $ 6.96
------ ------
*Includes tons:
Sold by Pine Branch Mining Incorporated - 61
Purchased from unaffiliated producers - 164
</TABLE>
COAL OPERATIONS
Coal operations which includes substantial heritage costs reported operating
losses of $6,572,000 and $13,627,000 for the second quarter of 1996 and 1995,
respectively.
13
<PAGE> 14
The improvement in results of operations is primarily attributable to decreases
in operating costs due to the idling of Virginia Division and Pine Branch
mining operations during the third quarter of 1995.
Those business units reporting significant changes in results of operations are
discussed below.
VIRGINIA DIVISION - $3,960,000 BETTER
The Virginia Division had operating losses of $1,336,000 and $5,296,000 in the
second quarter of 1996 and 1995, respectively. The Company idled the Virginia
Division and Pine Branch Mining in the third quarter of 1995 and is maintaining
the properties on a standby basis except for portions currently being operated
by two independent mining contractors. Associated with this idling was the
recognition of certain future liabilities. Operating losses in 1996 represent
costs incurred while the properties remain on standby.
HERITAGE COSTS - $1,390,000 BETTER
Heritage costs were $4,498,000 and $5,888,000 for the second quarter of 1996
and 1995, respectively. The second quarter of 1995 included $1,715,000 of
workers' compensation charges. As a result of the idling of the Virginia
Division and Pine Branch the Company does not expect to incur any additional
workers' compensation claims during 1996.
NET CORPORATE EXPENSES - $956,000 BETTER
Net corporate expenses were $1,891,000 and $2,847,000 in the second quarter of
1996 and 1995, respectively. Expenses in 1996 decreased due to downsizing and
relocation of the Corporate office.
GAINS ON THE SALES OF ASSETS - $14,717,000 BETTER
In May, 1996 the Company relinquished to Penn Virginia Corporation certain coal
reserves for a cash payment of $10,678,000. In addition, the Company obtained
an 18 month option to purchase Penn Virginia's 16% interest in Westmoreland
Resources for $3,000,000. The Company also sold its idled Wentz Complex to
Stonega Mining and Processing and its idled Pine Branch Mining Inc. to Roaring
Fork Mining Company in non-cash transactions. Each purchaser assumed specific
reclamation and other liabilities.
14
<PAGE> 15
- --------------------------------------------------------------------------------
RESULTS OF OPERATIONS:
SIX MONTHS ENDED JUNE 30,1996 COMPARED
TO SIX MONTHS ENDED JUNE 30,1995
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1996 1995*
---- ----
(in thousands)
<S> <C> <C>
Coal Operations:
Virginia Division $ (3,895) $(10,077)
Westmoreland Resources, Inc. 1,563 1,326
Westmoreland Coal Sales Company 234 (100)
Heritage costs (8,128) (11,773)
Net corporate expenses (4,021) (6,319)
Pension costs 1,704 825
-------- --------
Total Coal Operations (12,543) (26,118)
-------- --------
Independent Power Operations:
Westmoreland Energy, Inc. 6,303 6,989
Corona Group (704) -
-------- --------
Total Independent Power Operations 5,599 6,989
-------- --------
Operating loss $ (6,944) $(19,129)
========= ========
Gains on the sales of assets $ 17,181 $ 9,538
======== ========
</TABLE>
* Certain amounts have been reclassed to agree with current
classifications.
15
<PAGE> 16
Details of tons sold (in thousands) and average revenue per ton sold were as
follows:
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1996 1995
---- ----
<S> <C> <C>
By Segment:
Virginia Division* - 1,657
Westmoreland Resources, Inc. 2,237 2,147
----- -----
Total Westmoreland Operations 2,237 3,804
For Others 285 170
----- -----
Total Tons Sold 2,522 3,974
===== =====
Average revenue per ton sold:
Westmoreland Resources, Inc. 7.05 7.05
----- -----
*Includes tons:
Sold by Pine Branch Mining Incorporated - 131
Purchased from unaffiliated producers - 415
</TABLE>
16
<PAGE> 17
COAL OPERATIONS
Coal operations reported operating losses of $12,543,000 and $26,118,000 for
the first six months of 1996 and 1995, respectively. The improvement in
results of operations is attributable to decreases in operating costs due to
idling of the Virginia Division and Pine Branch Mining Inc. operations during
the third quarter of 1995.
Those continuing business units reporting significant changes in results of
operations are discussed below.
VIRGINIA DIVISION - $6,182,000 BETTER
The Virginia Division had operating losses of $3,895,000 and $10,077,000 in the
first six months of 1996 and 1995, respectively. The Company idled the
Virginia Division and Pine Branch Mining in the third quarter of 1995 and is
maintaining the properties on a standby basis except for portions currently
being operated by two mining contractors. Associated with this idling was the
recognition of certain future liabilities. Operating losses in 1996 represent
costs incurred while the properties remain on standby. The Company continues
to seek buyers and/or operators for its remaining Virginia Division assets and
facilities. Depending upon the structure of such transactions, the Company may
be able to recover some of the above referenced idling charges.
HERITAGE COSTS - $3,645,000 BETTER
Heritage costs were $8,128,000 and $11,773,000 for the first six months of 1996
and 1995, respectively. The first six months of 1995 included $3,645,000 of
workers' compensation charges. As a result of the idling of the Virginia
Division and Pine Branch the Company does not expect to incur any additional
workers' compensation claims during 1996.
NET CORPORATE EXPENSES - $2,298,000 BETTER
Net corporate expenses were $4,021,000 and $6,319,000 in the first six months
of 1996 and 1995, respectively. Expenses in 1996 decreased due to downsizing
and relocation of the Corporate office but remain higher than anticipated due
to the recognition of $700,000 of non-recurring, non-cash charges relating to
adjustments in various benefit accruals.
PENSION COSTS - $879,000 BETTER
Pension credits of $1,704,000 and $825,000 were recorded in the first six
months of 1996 and 1995, respectively. The improvement is due to downsizing
and higher than expected investment gains.
INDEPENDENT POWER OPERATIONS - $1,390,000 WORSE
The Company's Independent Power Operations, through its wholly-owned
subsidiary, WEI, recorded operating income of $5,599,000 and $6,989,000 in the
first six months of 1996 and 1995, respectively. The decline is due to two
factors:
17
<PAGE> 18
1) losses of $700,000 at the Corona Group which was acquired in the third
quarter of 1995;
2) the recognition in 1995 of $1,750,000 of deferred development fees received
in prior years in connection with the ROVA I; and
Additionally, ROVA II commenced commercial operations on June 1, 1995.
GAINS ON THE SALES OF ASSETS
In January, 1996 the Company sold back to Ark Land Company certain coal
reserves held under lease from Ark. Cash proceeds from the transaction was
$2,441,000, all of which was recorded as a gain during the first quarter. In
May, 1996 the Company relinquished to Penn Virginia Corporation certain coal
reserves for a cash payment of $10,678,000. In addition, the Company obtained
an 18 month option to purchase Penn Virginia's 16% interest in Westmoreland
Resources for $3,000,000. The Company also sold its idled Wentz Complex to
Stonega Mining and Processing and its idled Pine Branch Mining Inc. to Roaring
Fork Mining Company in non-cash transactions. Each purchaser assumed specific
reclamation and other liabilities.
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, 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 $9,090,000
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 1996
18
<PAGE> 19
PART II - OTHER INFORMATION
ITEM 6
EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibit 27 - Financial Data Schedule.
b) On May 15, 1996, the Company filed a report on Form 8-K,
announcing that the Company had completed a transaction with Penn Virginia
Corporation which provides for the relinquishment of certain leases of
Westmoreland coal reserves back to Penn Virginia in exchange for a cash payment
of $10,678,000 and other consideration from Penn Virginia. In addition to
cash, Westmoreland received an 18 month option to purchase Penn Virginia's 16%
ownership interest in Westmoreland Resources, Inc.
Also announced were completion of non-cash transactions which provide for sale
of its idled Wentz Complex to Stonega Mining and Processing Company and its
idled Pine Branch Mining Inc. to Roaring Fork Mining Company.
19
<PAGE> 20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WESTMORELAND COAL COMPANY
Date: August 13, 1996 /s/ ROBERT J. JAEGER
Robert J. Jaeger
Senior Vice President - Finance,
Treasurer and Controller
/s/ LARRY W. MIKKOLA
Larry W. Mikkola
Assistant Controller
20
<PAGE> 21
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
27 - Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 13,670
<SECURITIES> 0
<RECEIVABLES> 7,150
<ALLOWANCES> (913)
<INVENTORY> 208
<CURRENT-ASSETS> 20,884
<PP&E> 228,574
<DEPRECIATION> 169,473
<TOTAL-ASSETS> 170,972
<CURRENT-LIABILITIES> 28,302
<BONDS> 0
<COMMON> 17,402
0
575
<OTHER-SE> (44,562)
<TOTAL-LIABILITY-AND-EQUITY> 170,972
<SALES> 32,666
<TOTAL-REVENUES> 32,666
<CGS> 26,472
<TOTAL-COSTS> 39,610
<OTHER-EXPENSES> (19,649)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 239
<INCOME-PRETAX> 12,466
<INCOME-TAX> 464
<INCOME-CONTINUING> 11,521
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,521
<EPS-PRIMARY> 1.30
<EPS-DILUTED> 1.30
</TABLE>
