26
<PAGE> FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 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.)
14th Floor, 2 North Cascade Avenue Colorado Springs 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 October 31, 1996: 6,965,328
<PAGE> PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
ASSETS Sept. 30,1996 Dec. 31,1995
(Unaudited)
CURRENT ASSETS
Cash and cash equivalents $ 5,389 $ 11,711
Notes and accounts receivable:
Trade 4,292 3,024
Notes 1,075 2,295
Other 2,850 2,956
----------- -----------
8,217 8,275
Less allowance for doubtful 913 2,515
accounts
----------- -----------
7,304 5,760
Inventories:
Coal - 645
Mine supplies 183 134
Other 145 161
----------- -----------
328 940
Other current assets 4,843 921
----------- -----------
TOTAL CURRENT ASSETS 17,864 19,332
Property, plant and equipment:
Land and mineral rights 12,327 30,029
Plant and equipment 185,808 255,149
----------- -----------
198,135 285,178
Less accumulated depreciation and 155,333 225,310
depletion
----------- -----------
42,802 59,868
Investment in Independent Power 48,831 49,069
Projects
Investment in DTA 19,141 19,326
Workers compensation bond 9,960 9,960
Prepaid pension cost 9,030 7,612
Other assets 3,714 1,940
----------- -----------
TOTAL ASSETS $ 151,342 $ 167,107
======= =======
See accompanying notes to condensed consolidated financial
statements.
<PAGE> WESTMORELAND COAL COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
Sept. 30,1996 Dec. 31,1995
(Unaudited)
LIABILITIES AND SHAREHOLDERS'
DEFICIT
CURRENT LIABILITIES
Current installments of long $ 911 $ 1,462
term debt
Accounts payable and accrued 12,764 8,027
expenses
Accrual for workers' 5,491 5,494
compensation
Accrual for postretirement 10,400 10,400
medical costs
Taxes on income - 2,905
Other 560 7,155
------------ ----------
TOTAL CURRENT LIABILITIES 30,126 35,443
Long-term debt 2,349 3,131
Accrual for pneumoconiosis 10,977 13,871
benefits
Accrual for workers' compensation 24,328 28,130
Accrual for postretirement 78,009 73,373
medical costs
Accrual for reclamation costs 4,924 10,311
Other liabilities 19,739 15,558
Deferred income taxes - 14,827
Minority interest 5,314 10,569
SHAREHOLDERS' DEFICIT
Preferred stock of $1.00 par
value
Authorized 5,000,000 shares;
Issued 575,000 shares 575 575
Common stock of $2.50 par value
Authorized 20,000,000 shares;
Issued 6,965,328 shares 17,402 17,402
Other paid-in capital 94,641 94,641
Accumulated deficit (137,042) (150,724)
------------ -----------
TOTAL SHAREHOLDERS' DEFICIT (24,424) (38,106)
------------ -----------
TOTAL LIABILITIES AND
SHAREHOLDERS' DEFICIT $ 151,342 $ 167,107
======= =======
See accompanying notes to condensed consolidated financial
statements.
<PAGE> WESTMORELAND COAL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except per share data)
(Unaudited)
Three Months Ended Nine Months Ended
Sept. 30 Sept. 30
1996 1995 * 1996 1995 *
Revenues:
Coal $ 12,000 $ 20,014 $ 33,817 $100,270
Independent Power Projects -
equity in earnings and fees 3,987 3,766 11,850 12,447
Corona 1,474 - 4,460 -
-------- -------- ------- -------
17,461 23,780 50,127 112,717
Cost and expenses:
Cost of sales - coal 10,816 22,840 33,718 100,052
Independent power projects -
related expenses 291 537 1,330 1,544
Cost of sales-Corona 1,287 - 3,818 -
Depreciation, depletion and 532 3,744 1,559 14,383
amortization
General and administrative 3,565 4,417 9,252 12,677
Heritage costs 3,105 5,315 11,233 17,088
Pension benefit (843) (465) (2,547) (1,290)
-------- -------- -------- --------
18,753 36,388 58,363 144,454
Loss on idling of Eastern coal - (70,538) - (70,538)
operations
Operating (loss) (1,292) (83,146) (8,236) (102,275)
Gains on sale of assets 3,081 - 20,262 9,538
Interest expense (82) (351) (321) (1,032)
Interest and other income 1,000 1,052 3,468 3,310
-------- -------- -------- --------
Income (loss) before income tax
expense (benefit) and minority 2,707 (82,445) 15,173 (90,459)
interest
Income tax expense (benefit):
Current 414 380 1,160 1,224
Deferred (145) (102) (427) (349)
-------- -------- -------- --------
269 278 733 875
Income (loss) before minority 2,438 (82,723) 14,440 (91,334)
interest
Minority interest 277 264 758 618
-------- -------- -------- --------
Net income (loss) 2,161 (82,987) 13,682 (91,952)
Less preferred stock dividends:
declared - - - (2,444)
in arrears (1,222) (1,222) (3,666) (1,222)
-------- -------- -------- --------
Net income (loss) applicable
to common shareholders 939 (84,209) 10,016 (95,618)
====== ====== ====== ======
Net income (loss) per share
applicable to common .14 (12.10) 1.44 (13.74)
shareholders
====== ====== ====== ======
Weighted average number of
common shares outstanding 6,965 6,961 6,965 6,961
====== ====== ====== ======
* Reclassed to conform with current classifications
See accompanying notes to condensed consolidated financial
statements.
<PAGE> WESTMORELAND COAL COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended Sept. 30, 1996 1995
------------ ------------
Cash flows from operating activities:
(in thousands)
Net income (loss) $ 13,682 $ (91,952)
Adjustments to reconcile net income
(loss) to net cash
used by operating activities:
Gains on sale of assets (20,262) (9,538)
Loss on idling of Eastern operations - 70,538
Reversal of income tax accrual (3,540) -
Equity earnings from independent power (11,414) (9,536)
projects
Recognition of development fee income - (1,750)
Cash distributions from independent 10,545 10,370
power projects
Depreciation, depletion and 1,559 14,383
amortization
Minority interest in WRI income 500 618
Change in assets and liabilities, net
of non-cash transactions:
Accounts receivable, net of (2,086) 18,333
allowance for doubtful accounts
Inventories 612 3,772
Accounts payable and accrued (2,365) (24,081)
expenses
Income taxes payable 200 (221)
Accrual for postretirement medical 4,636 (1,252)
costs
Accrual for workers' compensation (3,802) 356
Accrual for pneumoconiosis benefits (2,894) (813)
Other liabilities 3,986 4,745
Other (3,691) 11,028
------------ ------------
Net cash used by operating activities (14,334) (5,000)
------------ ------------
Cash flows from investing activities:
Fixed assets additions (355) (502)
(Increase) decrease in notes (303) 1,774
receivable
Minority interest in WRI purchase (4,200) -
Proceeds from sale of Duke Power - 23,503
Contract
Proceeds from sales of assets 14,643 10,131
------------ ------------
Net cash provided by investing 9,785 34,906
activities
------------ -----------
Cash flows from financing activities:
Hampton lease buyout premium - (1,103)
Repayment of long-term debt (1,333) (11,791)
Preferred stock dividends paid - (2,444)
Dividends paid to minority (440) -
shareholders
------------ ------------
Net cash used in financing activities (1,773) (15,338)
------------ -----------
Net increase (decrease) in cash and (6,322) 14,568
cash equivalents
Cash and cash equivalents, beginning of 11,711 15,453
period
------------ ------------
Cash and cash equivalents, end of period $ 5,389 $ 30,021
------------ ------------
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 255 $ 1,035
Income taxes, net $ 1,140 $ 1,664
Supplemental disclosure of non-cash investing and financing
activities:
In September, 1996, the Company completed a non-cash transaction
for the transfer of several of its idled Virginia Division mining
operations. In exchange for these operations, the purchaser
assumed responsibility for certain reclamation obligations
amounting to approximately $2.2 million.
In May, 1996, the Company completed non-cash transactions for the
sale of its idled Wentz and Pine Branch Mining operations. The
purchasers of those assets assumed reclamation and other
liabilities totaling approximately $3.0 million as part of those
transactions.
In the first quarter of 1995, $8.0 million was distributed from
debt reserve accounts of certain of the Company's independent
power projects and bank letters of credit were substituted for
the amounts distributed. The cash proceeds are restricted as to
use and were invested in certificates of deposit of the bank
issuing the letters of credit. The certificates of deposit
collateralize the letters of credit and are classified on the
Company's Condensed Consolidated Balance Sheets as an Investment
in Independent Power Projects.
See accompanying notes to condensed consolidated financial
statements.
<PAGE>
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
Liquidity
The Company's current sources of cash flow, principally cash
distributions from its independent power projects, dividends from
Westmoreland Resources, Inc., and cash from operations of
Dominion Terminal Associates, will not be sufficient by
themselves to cover operating expenses and the Company's
postretirement medical benefits, workers' compensation costs and
UMWA pension benefits for the next 12 months. The Company
expects to improve its near-term cash position by selling non-
strategic assets and restructuring certain of its post retirement
benefit obligations. No assurance can be given that the
aforementioned actions will be executed in the time frame and to
the extent management anticipates. See the "Liquidity Outlook"
section of Management's Discussion and Analysis of Financial
Condition and Results of Operations for more information.
UMWA Benefit Funds Discussions
The Company has entered into agreements with two of the UMWA
Benefit Funds regarding interim arrangements in satisfaction of
certain obligations. If the Company is unable to reach an
agreement with these parties on a long-term basis, it would
experience liquidity problems. In July, 1996, the Company
entered into an interim agreement with the Combined Fund,
pursuant to which the Company was required to escrow $2.5
million, the amount of unpaid premiums to that date, and to make
additional payments of $.4 million per month beginning July 25,
1996 until the escrow account is terminated, as a precondition to
negotiations toward a long-term settlement. The entire escrow
amount is recorded on the Condensed Consolidated Balance Sheet as
a component of Other current assets. See the "Liquidity Outlook"
section of Management's Discussion and Analysis of Financial
Condition and Results of Operations for more information.
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.
On August 1, 1996, FERC entered its decision in the 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. In August 1996, the Partnership
filed a motion seeking clarification of the August 1, 1996 order.
The Partnership also filed an additional request for rehearing.
Virginia Power has filed responses opposing both the request for
clarification and the request for rehearing. These matters are
still pending before the FERC.
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 ultimate 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
ultimately have a material adverse effect on 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 September 1996, Virginia
Power withheld approximately $11.3 million 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 $5.7 million, 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 nullify its contract for the Rensselaer
project.
2. Acquisitions
In September, 1996, the Company increased its ownership in
Westmoreland Resources, Inc. ("WRI") from 60% to 80% through the
completion of separate transactions with Morrison Knudsen ("MK")
and Penn Virginia Corporation. The Company had targeted 80%
ownership to allow consolidation for income tax purposes, and
application of its tax basis net loss carryforwards (NOLs) which
will generate additional cash flow to the owners. As a result of
these transactions, MK will now be a 20% owner and will continue
as the contract operator for WRI.
Westmoreland purchased a 4% share of WRI from MK for $1.2
million. The parties also agreed to certain control related
changes to the articles of incorporation and stockholders'
agreement of the profitable Powder River Basin surface coal
mining operation.
Westmoreland also exercised a previously negotiated option with
Penn Virginia Corporation for the purchase of Penn Virginia's 16%
share of WRI for $3.0 million, bringing Westmoreland's ownership
to 80%.
The total purchase price of $4.2 million represented a discount
to book value of approximately $1.1 million which was recorded as
a reduction of land and mineral rights. In addition, the ability
to consolidate and use the Company's NOL's resulted in a reversal
of approximately $14.4 million of deferred income tax liabilities
which was offset against land and mineral rights.
In October, 1996, approximately $1.1 million of the money for
these purchases was reimbursed from cash escrowed under
Westmoreland's agreement with the United Mine Workers of America
("UMWA") Combined Benefit Fund.
3. 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 losses and the subsequent
shareholders' deficit. The eight quarterly dividends which are
in arrears (dividend payment dates of July 1, 1994, October 1,
1994, January 1, 1995, October 1, 1995, January 1, 1996, April
1, 1996, July 1, 1996, and October 1, 1996) amount to $9.7
million in the aggregate ($17.00 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 September 30, 1996 of $25.3 million. In
addition, the Company is prohibited from paying dividends under
an interim pledge agreement with the UMWA Benefit Funds dated
August 21, 1996.
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 held a special meeting of the
preferred shareholders on September 11, 1996 and Messrs.
Robert Killen and James Sight were elected
<PAGE>
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
MATERIAL CHANGES IN FINANCIAL CONDITION FROM DECEMBER 31, 1995 TO
SEPTEMBER 30,1996
Liquidity
Cash used by operating activities was $14.3 million, and $5.0
million in the first nine months of 1996 and 1995, respectively.
The increase in cash used in 1996 is attributable to a
significant reduction in accounts receivable collections that
resulted from the idling of eastern coal operations in 1995. See the
Consolidated Statements of Cash Flows for additional information.
Cash provided by investing activities was $9.8 million and $34.9
million in the first nine months of 1996 and 1995, respectively.
Included in the first nine months of 1996 were cash proceeds of
$10.7 million for the relinquishment of coal reserves back to
Penn Virginia Corporation and $2.4 million for the sale of coal
reserves to Ark Land Company. Cash expenditures of $4.2 million
were made for the purchase of an additional 20% of WRI. Included
in the first nine months of 1995 were proceeds of $9.0 million
related to the sale of the assets of the Company's Hampton
Division and $23.5 million related to the sale of the Duke Power
contract. Fixed asset additions were $0.4 million and $0.5
million in the first nine months of 1996 and 1995, respectively.
Cash used in financing activities totaled $1.8 million and $15.3
million in the first nine months of 1996 and 1995, respectively.
Repayment of long-term debt amounted to $1.3 million and $11.8
million in the first nine months of 1996 and 1995, respectively.
The Company's consolidated cash and cash equivalents at September
30, 1996 totaled $5.4 million (including $3.7 million at WRI).
At December 31, 1995, cash and cash equivalents totaled $11.7
million (including $3.2 million at WRI). None of the Company's
cash and cash equivalents was or is restricted as to use or
disposition. See "Liquidity Outlook" section for additional
information. The cash at WRI, an 80% 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 $18.0 million at September 30, 1996 and at
December 31, 1995. The $18.0 million is comprised of two items:
a $10.0 million interest-bearing cash deposit account, which
collateralizes the Company's outstanding surety bonds for its
workers' compensation self-insurance programs; and $8.0 million
invested in certificates of deposit at September 30, 1996 which
is classified on the Company's Condensed Consolidated Balance
Sheets as an Investment in Independent Power Projects. The $8.0
million 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 $15.0 million per year for
postretirement medical benefits which could continue over the
next approximately 45 years. The Company has approximately $3.8
million per year of cash expenses 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
make contributions based on hours worked or tons processed to the
UMWA Retirement Funds with respect to unionized employees. These
contributions are not currently material. However, since the
retirement fund is a multiemployer plan, under ERISA, a
contributing company is liable for its share of unfunded vested
liabilities upon partial or complete termination or withdrawal
from the plan. The Company's liability for complete withdrawal
is estimated to be approximately $17.8 million. The Company has
not nor has there been a determination by the UMWA trustees that
the Company has incurred a partial or complete withdrawal.
Under 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 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. Prior to cessation, the Company made a proposal to the
Combined Fund to defer these and a portion of its future
premiums. The Company's current annual premiums to the Combined
Fund are approximately $5.0 million.
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 $2.5 million, the amount of unpaid premiums to
that date, and to make additional payments of $0.4 million 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
29, 1996, as amended, unless a long term agreement is reached by
November 14, 1996, or if a monthly payment is not made, or if
the Company and the Combined Fund otherwise agree to terminate it,
or if it is extended by mutual agreement. If the escrow account is
terminated as a result of reaching November 14, 1996 without a long
term agreement, 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
("the 1992 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 $22.0 million. The
Act required the security to be provided by January 1, 1996.
On August 21, 1996, the Company entered into an interim pledge
agreement under which it pledged its stock in its affiliates,
Westmoreland Energy, Inc., Westmoreland Resources, Inc., and
Westmoreland Coal Sales Company, in place of the cash security
requirements to the 1992 Plan and certain cash premium payments
to the Combined Fund. The pledge agreement secures the Company's
future obligations to the 1992 Plan. The pledge of stock also
secures Combined Fund premiums to be paid into the escrow account
as well as retroactive premiums for additional assigned
beneficiaries expected to be assessed in the future. The pledge
agreement provides that the pledged stock may be foreclosed upon
if a long term agreement is not reached by November 29, 1996.
The Company is in continuing discussions with the 1992 Plan and
the Combined Fund regarding an extension of this date as well as
the long-term agreement itself.
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 that in order to meet ongoing
cash requirements or restore the Company to profitability it may,
among other things, have to acquire 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 by means of it.
<PAGE>
RESULTS OF OPERATIONS:
FOR THE THIRD QUARTER ENDED SEPTEMBER 30, 1996 AND SEPTEMBER 30,
1995
Revenues for the quarter ending September 30, 1996, were $17.5
million versus $23.8 million for the quarter ending September 30,
1995. The decline is attributable to active coal sales that took
place in the Virginia Division during July and August of 1995
prior to the idling in September, 1995. Other than small amounts
sold on behalf of contractors, there have been no coal sales in
1996 at the Virginia Division. Corona was acquired in October,
1995, and consequently there is no revenue for that entity during
the quarter ending September 30, 1995.
Costs and expenses were $19.6 million for the quarter ending
September 30, 1996, versus $36.4 million for the quarter ending
September 30, 1995. The decline is due to the idling of the
Virginia Division noted above and the curtailment of the costs of
coal sold associated with the sales that took place in July and
August, 1995. Heritage costs for the quarter ending September
30, 1996, are 25% lower than during the same period in 1995,
because no workers' compensation expense has been recorded in
1996. The total expected obligation for future workers'
compensation claims was actuarially determined and recorded at
December 31, 1995, and no further expense is expected to be
recognized. Selling and administrative expenses have declined
due to downsizing and relocation of the corporate office in
September, 1995.
The loss on idling of Eastern coal operations recorded in
September, 1995, included charges for medical costs of $38.2
million, recognition of a UMWA pension withdrawal liability of
$20.0 million, writedown of fixed assets of $18.9 million,
severance and early retirement costs of $8.6 million and other
costs totaling approximately $5.5 million. The Virginia Division
also recognized a $23.5 million gain during the third quarter of
1995 from the early contract buyout of the Duke Power Coal
Purchase Agreement. No costs associated with the idling of
Eastern operations have been recorded in 1996.
Gains on sales of assets during the third quarter, 1996 include
the sale of various facilities and mineral rights of the Virginia
Division to Intrepid Coal Corp. No cash was included in the
transaction, but approximately $2.2 million of reclamation and
environmental obligations were assumed by Intrepid. The
remaining gains resulted from the sale of various assets at the
Virginia Division. No gains were reported during the third
quarter ending September 30, 1995.
<PAGE>
RESULTS OF OPERATIONS:
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND SEPTEMBER 30,
1995
Revenues for the nine months ending September 30, 1996, were
$50.1 million versus $112.7 million for the nine months ending
September 30, 1995. The decline is attributable to active coal
sales that took place in the Virginia Division during 1995 prior
to the idling in September, 1995. Other than small amounts sold
on behalf of contractors, there have been no coal sales in 1996
at the Virginia Division. Corona was acquired in October, 1995,
and consequently there is no revenue for that entity during the
nine months ending September 30, 1995.
Costs and expenses were $59.2 million for the nine months ending
September 30, 1996, versus $144.5 million for the nine months
ending September 30, 1995. The decline is due to the idling of
the Virginia Division noted above and the curtailment of the
costs of coal sold associated with sales that took place in 1995.
Heritage costs as of September 30, 1996 are 29% lower than during
the same period in 1995, because no workers' compensation expense
has been recorded in 1996. The total expected obligation for
future workers' compensation claims was actuarially determined
and recorded at December 31, 1995, and no further expense is
expected to be recognized. Selling and administrative expenses
have declined due to downsizing and relocation of the corporate
office in September, 1995.
The loss on idling of Eastern coal operations recorded in
September, 1995, included charges for medical costs of $38.2
million, recognition of a UMWA pension withdrawal liability of
$20.0 million, writedown of fixed assets of $18.9 million,
severance and early retirement costs of $8.6 million and other
costs totaling approximately $5.5 million. The Virginia Division
also recognized a $23.5 million gain during the third quarter of
1995 from the early contract buyout of the Duke Power Coal
Purchase Agreement. No costs associated with the idling of
Eastern operations have been recorded in 1996.
Gains on sales of assets during the nine months ended September
30, 1996, include the January sale back to Ark Land of certain
coal reserves held under lease from Ark for $2.4 million. In
May, 1996, the Company relinquished to Penn Virginia Corp.
certain coal reserves for a cash payment of $10.7 million. In
addition, the Company obtained an 18 month option to purchase
Penn Virginia's 16% interest in Westmoreland Resources for $3.0
million. As discussed in Note 2 the Company exercised its option
in September 1996. The Company also sold its idled Wentz Complex
to Stonega Mining and Processing and its idled Pine Branch Mining
Inc. to Roaring Fork Mining Co. in non-cash transactions. Each
purchaser assumed specific reclamation and other liabilities. In
September, 1996, the Company sold various facilities and mineral
rights of the Virginia Division to Intrepid Coal Corp. No cash
was included in the transaction, but approximately $2.2 million
of reclamation and environmental obligations were assumed by
Intrepid. The remaining gains resulted from the sale of various
assets at the Virginia Division.
In January, 1995, the Company sold the assets of its Hampton
Division located in Boone and Logan Counties, West Virginia to
Burco Resources Corp. and Wind River Resources Corp. and sold its
Hampton Division mineral lease to the lessor, Penn Virginia, for
$9.0 million in cash. The net proceeds to the Company were
approximately $7.4 million 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. In February,
1995, the Company sold the Virginia Division's Dump Train for
cash of $0.95 million and the related gain on the sale was $0.43
million.
<PAGE>
PART II - OTHER INFORMATION
ITEM 4
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
1. The annual meeting of shareholders of Westmoreland was held
on June 12, 1996. Proxies for the meeting were solicited
pursuant to Section 14A of the Securities Exchange Act of 1934,
and there was no solicitation in opposition to management's
solicitation. Two proposals were voted upon at the meeting.
A. The first proposal was to elect a Board of Directors, to
which the issue of broker non-votes did not apply. The
tabulation of the votes cast with respect to each of the nominees
for election as a Director, in aggregate constituting the full
Board of Directors, is set forth as follows:
NAME VOTES FOR VOTES WITHHELD
Pemberton Hutchinson 7,957,889 130,006
Hutchinson
William R. Klaus 7,880,100 207,795
Christopher K. Seglem 7,963,119 124,776
Edwin E. Tuttle 7,883,311 240,584
James W. Sight 7,974,848 113,047
Thomas W. Ostrander 7,974,948 112,947
No nominee for election as a Director received less than 85.0% of
the 9,265,328 shares of the Company's securities entitled to vote
at the meeting, and no nominee received less than 97.4% of the
votes cast at the meeting.
B. The second proposal was to approve the adoption of the 1996
Directors' Stock Option Plan. The proposal was approved and the
Plan was adopted. The tabulation of the votes is set forth as
follows:
Votes for Votes Against Abstentions Broker Non-
votes
4,931,312 526,957 116,515 2,513,111
The 4,931,312 shares of voting securities voted for adoption of
the Plan represented 53.2% of the 9,265,328 shares of the
Company's securities entitled to vote at the meeting, and 61.0%
of the total shares cast with respect to the proposal, the latter
calculation including abstentions and broker non-votes in the
determination of the quorum.
2. A special meeting of holders of depositary shares of
Westmoreland was held on September 11, 1996. The only proposal
was to elect two directors to the Board of Directors. Each
depositary share represents one-quarter share of Preferred Stock,
the terms of which entitle the holders to elect two directors if
the Company is in arrears on six or more Preferred Stock
dividends. The tabulation of the votes cast with respect to each
of the nominees for election as a Director is set forth as
follows:
NAME VOTES FOR VOTES WITHHELD
Robert E. Killen 2,014,782 66,130
James W. Sight 2,018,582 62,330
No nominee for election as a Director received less than 87.6% of
the 2,300,000 shares of the Company's securities entitled to vote
at the meeting, and no nominee received less than 96.8% of the
votes cast at the meeting.
<PAGE>
ITEM 6
EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibit 27 - Financial Data Schedule.
b) On August 30, 1996, the Company filed a report on Form 8-K,
announcing that it had reached an interim agreement with the UMWA
Combined Benefit Fund to provide security to the 1992 plan.
c) On October 1, 1996, the Company filed a report on Form 8-K,
announcing that it had completed a non-cash transaction for the
transfer of ownership of several of its Virginia Division
operations which were idled July 31, 1995 to Intrepid Coal. The
Company also announced that it had increased its ownership in
Westmoreland Resources, Inc. from 60% to 80% through the
completion of separate transactions with Morrison Knudsen and
Penn Virginia Corporation.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
WESTMORELAND COAL COMPANY
Date: November 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
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