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 March 31, 1997
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
(Debtor-in-Possession as of December 23, 1996)
---------------------------------------------------
(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 Avenue, 14th Floor
Colorado Springs, Colorado 80903
- ----------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, 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 May 1, 1997: 6,965,328
<PAGE 2>
PART I - FINANCIAL INFORMATION
ITEM 1
FINANCIAL STATEMENTS
<TABLE>
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
DEBTOR-IN-POSSESSION
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, December 31,
1997 1996
(Unaudited)
(in thousands)
<CAPTION>
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 18,341 $ 8,791
Receivables:
Trade 5,064 4,667
Other 1,226 2,218
--------- ---------
6,290 6,885
Inventories 698 688
Other current assets 608 726
--------- ---------
Total current assets 25,937 17,090
Property, plant and equipment:
Land and mineral rights 11,028 11,028
Plant and equipment 117,468 137,873
--------- ---------
128,496 148,901
Less accumulated depreciation
and depletion 88,055 106,201
--------- ---------
40,441 42,700
Investment in independent power
operations 51,258 51,386
Investment in Dominion Terminal
Associates (DTA) 19,504 19,841
Workers' compensation bond 9,200 9,960
Prepaid pension cost 11,921 11,021
Other assets 2,028 1,973
--------- ---------
Total Assets $ 160,289 $ 153,971
========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE 3>
<TABLE>
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
DEBTOR-IN-POSSESSION
CONDENSED CONSOLIDATED BALANCE SHEETS - (CONTINUED)
March 31, December 31,
1997 1996
(Unaudited)
(in thousands)
<CAPTION>
<S> <C> <C>
Liabilities and Shareholders' Equity
Current liabilities:
Current installments of long-term
debt $ 453 $ 443
Accounts payable and accrued
expenses:
Trade 3,251 847
Taxes, other than income taxes 3,777 3,437
Other accrued expenses 2,616 1,588
Reclamation costs 590 590
--------- ---------
Total current liabilities 10,687 6,905
Liabilities subject to compromise 135,634 136,191
Long-term debt, less current
installments 807 881
Accrual for reclamation costs, less
current portion 4,216 4,216
Accrual for pneumoconiosis benefits 1,324 127
Other liabilities 540 261
Minority interest 5,485 5,153
Commitments and contingent
liabilities
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 (111,022) (112,381)
--------- ---------
Total shareholders' equity 1,596 237
Total Liabilities and
Shareholders' Equity $ 160,289 $ 153,971
========== ==========
</TABLE>
See accompanying notes to condensed consolidated financial
statements.
<PAGE 4>
<TABLE>
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
DEBTOR-IN-POSSESSION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended March 31, 1997 1996*
(in thousands except
per share data)
<CAPTION>
<S> <C> <C>
Revenues:
Coal $ 12,458 $ 10,552
Services 1,927 1,576
Independent power - equity in earnings 3,735 4,232
--------- ---------
18,120 16,360
Cost and expenses:
Cost of coal sold 10,907 11,387
Cost of sales - services 2,140 2,098
Depreciation, depletion and amortization 652 509
Selling and administrative 1,795 2,618
Heritage costs 1,729 3,630
Pension benefit (900) (854)
--------- ---------
16,323 19,388
Operating income (loss) 1,797 (3,028)
Gains (losses) on the sales of assets (905) 2,441
Interest expense (145) (125)
Interest income 324 396
Other income 1,210 1,400
--------- ---------
Income before reorganization item,
income tax expense
(benefit), minority interest and
cumulative effect of change
in accounting principle 2,281 1,084
Reorganization legal and consulting fees 750 -
Income tax expense (benefit) (160) 317
Minority Interest 332 311
Cumulative effect of change in
accounting principle - (14,372)
--------- ---------
Net income 1,359 14,828
Less preferred stock dividends in arrears (1,222) (1,222)
--------- ---------
Net income (loss) applicable to common
shareholders $ 137 $ 13,606
========== ==========
Net income (loss) per share applicable to
common shareholders:
Before cumulative effect of change in
accounting principle .02 (.11)
Cumulative effect of change in
accounting principle - 2.06
--------- ---------
.02 1.95
========== ==========
Weighted average number of common shares
outstanding 6,965 6,965
</TABLE>
See accompanying notes to condensed consolidated financial
statements.
* Certain amounts have been reclassified to conform to the current
presentation.
<PAGE 5>
<TABLE>
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
DEBTOR-IN-POSSESSION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended March 31, 1997 1996
(in thousands)
<CAPTION>
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,359 $ 14,828
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Cumulative effect of change in accounting
for pneumoconiosis benefits - (14,372)
Equity in earnings from independent
power projects (3,735) (4,232)
Cash distributions from independent
power projects 3,889 2,705
Depreciation, depletion and
amortization 652 509
(Gains) losses on the sales of assets 905 (2,441)
Minority interest in WRI's income 332 311
Changes in assets and liabilities, net of
non-cash transactions:
Accounts receivable, net of allowance
for doubtful accounts 875 (719)
Inventories (10) 156
Accounts payable and accrued expenses 3,773 (2,781)
Income taxes payable - (2,841)
Accrual for workers' compensation (167) (1,338)
Accrual for postretirement medical costs 536 2,568
Accrual for pneumoconiosis benefits 1,197 (1,658)
Other liabilities (35) 4,023
Other (844) (961)
Net cash provided by (used in) operating --------- ---------
activities 8,727 (6,243)
Cash flows from investing activities:
Fixed asset additions (15) (137)
Increase in notes receivable - (222)
Net proceeds from sales of assets 902 2,441
--------- ---------
Net cash provided by investing activities 887 2,082
Cash flows from financing activities:
Repayment of long-term debt (64) (789)
Dividends paid to minority shareholders - (440)
--------- ---------
Net cash used in financing activities (64) (1,229)
Net increase (decrease) in cash and cash
equivalents 9,550 (5,390)
Cash and cash equivalents, beginning of
period 8,791 11,711
--------- ---------
Cash and cash equivalents, end of period $ 18,341 $ 6,321
========= =========
Supplemental disclosures of cash flow information:
Cash paid during the period for interest $ 31 $ 227
</TABLE>
See accompanying notes to condensed consolidated financial
statements.
<PAGE 6>
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, 1996. 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. CHAPTER 11 REORGANIZATION PROCEEDINGS
On December 23, 1996 ("Petition Date"), Westmoreland Coal Company and
four subsidiaries, Westmoreland Resources, Inc., Westmoreland Coal
Sales Company, Westmoreland Energy, Inc., and Westmoreland Terminal
Company (the "Debtor Corporations"), filed voluntary petitions for
reorganization under Chapter 11 of the United States Bankruptcy Code
in the United States Bankruptcy Court for the District of Colorado.
The Debtor Corporations are in possession of their respective
properties and assets and are operating as debtors in possession
pursuant to provisions of the Bankruptcy Code. The Company
anticipates proposing a plan of reorganization for these entities
pursuant to Chapter 11 of the Bankruptcy Code.
The condensed consolidated financial statements contained herein have
been prepared in accordance with generally accepted accounting
principles applicable to a going concern and do not purport to reflect
or to provide for all of the possible consequences of the ongoing
Chapter 11 reorganization cases. Specifically, the condensed
consolidated financial statements do not present the amount which will
ultimately be paid to settle liabilities and contingencies which may
be allowed in the Chapter 11 reorganization cases or the effect of any
changes which may be made in connection with the Debtor Corporations'
capitalization or operations resulting from a plan of reorganization.
Costs incurred related to the reorganization in the first quarter of
1997 were approximately $750,000 and were immaterial in 1996. The
Debtor Corporations have not filed a plan of reorganization as of
March 31, 1997, but expect to file one in the near term.
Because of the ongoing nature of the reorganization cases, the outcome
of which is not presently determinable, the condensed consolidated
financial statements contained herein are subject to material
uncertainties and may not be indicative of the results of the
Company's future operations or financial position. No assurance can
be given that the Company will be successful in reorganizing its
affairs within the Chapter 11 bankruptcy proceedings.
LIABILITIES SUBJECT TO COMPROMISE
The filing of the Chapter 11 cases by the Debtor Corporations (i)
automatically stayed actions by creditors and other parties in
interest to recover any claim that arose prior to the commencement of
the cases, and (ii) served to accelerate, for purposes of allowance,
all prepetition liabilities of the Company, whether or not those
liabilities were liquidated or contingent as of the Petition Date. In
accordance with AICPA Statement of Position 90-7 ("Financial Reporting
by Entities in Reorganization under the Bankruptcy Code"), the
following table sets forth the liabilities of the Company subject to
compromise as of March 31, 1997 and December 31, 1996:
<PAGE 7>
March 31, 1997 December 31, 1996
- --------------------------------------------------------------------
Trade and other liabilities $ 8,318,000 $ 8,318,000
Long-term debt 1,607,000 1,607,000
1974 UMWA Pension Trust 13,800,000 13,800,000
Workers' compensation 26,432,000 27,339,000
1992 UMWA Benefit Plan 28,115,000 28,115,000
1993 Wage Agreement Plan 44,794,000 44,619,000
Other postretirement benefits 12,568,000 12,393,000
- --------------------------------------------------------------------
Total $ 135,634,000 $ 136,191,000
====================================================================
1974 UMWA PENSION TRUST. Although the Company has not formally
withdrawn from this plan in accordance with ERISA, the Company
maintains that for bankruptcy purposes, to the extent any withdrawal
liability under the Multiemployer Pension Act ("MPPA") is in respect
of consideration furnished by employees of the Company prior to the
Petition Date, such liability was incurred prior to the Petition Date
and constitutes a liability subject to compromise, even if the
withdrawal payment is due and payable postpetition. The Company
believes that except for a small percentage (i.e., 2% to 3%) of the
estimated aggregate withdrawal liability of $13,800,000, such
liability is in respect of consideration furnished by employees of the
Company prior to the Petition Date. No litigation has occurred in the
Bankruptcy Court regarding this matter.
WORKERS' COMPENSATION BENEFITS. The Company maintains that to the
extent workers' compensation benefits pertain to matters and
transactions arising prior to the Petition Date, such liabilities
constitute liabilities subject to compromise. The Company believes
that substantially all of its liability on workers' compensation
benefits arose and was incurred prepetition and constitute prepetition
claims. No litigation has occurred in the Bankruptcy Court regarding
this matter.
1992 UMWA BENEFIT PLAN. Until shortly before the Petition Date, the
Company provided health care benefits under its individual employer
plan for beneficiaries who were age- and service-eligible to receive
benefits under the Coal Act as of February 1, 1993, and who retired
before October 1, 1994, and their dependents. Prepetition, the
Company ceased providing such benefits. The Company maintains that
pursuant to applicable law, prior to the Petition Date, the 1992 Plan
became obligated to provide health care coverage for such
beneficiaries and their dependents. The Company further maintains
that, as a result thereof and in accordance with law, all claims of
the 1992 Plan arising under the Coal Act were incurred by the Company
before the Petition Date and constitute prepetition liabilities
subject to compromise. The Company estimates the present value of the
Company's liabilities, not including the unrecognized net transition
obligation and the unrecognized loss totaling $71,963,000, to the 1992
Plan total approximately $28,115,000. The Company believes that for
bankruptcy purposes the sum of these amounts, $100,078,000, comprise
the present value of the liability subject to compromise.
<PAGE 8>
Following the Petition Date, the Trustees of the 1992 Plan commenced
an adversary proceeding against the Company requesting that the
Bankruptcy Court: (a) enter a permanent injunction requiring the
Company to "reinstate" its individual employer plan for those
beneficiaries who were eligible and were receiving benefits under the
individual employer plan as of February 1, 1993 and who retired before
October 1, 1994, and their dependents; (b) enter a declaratory
judgment that the pre-funding premiums and monthly per-beneficiary
premiums that arise under the 1992 Plan constitute "taxes" and
administrative liabilities of the estate; and (c) enter an injunction
requiring all of the Debtor Corporations to pay these pre-funding
premiums and monthly per-beneficiary premiums under the 1992 Plan as
and when statements are submitted by the Trustees. The Company has
filed answers and counterclaims in the Bankruptcy Court vigorously
opposing this requested relief.
The Trustees of the 1992 Plan have filed a motion with the Bankruptcy
Court requesting that the Bankruptcy Court enter summary judgment in
their favor with respect to substantially all of the relief requested
in the above-referenced adversary proceeding. The Company has filed
pleadings in the Bankruptcy Court opposing this motion. The
Bankruptcy Court held a hearing on May 8, 1997 and took the matter
under advisement. The Court also set aside September 17-19 for trial
of any issues not resolved by summary judgment.
If the Trustees prevail with respect to the above-described relief,
then substantially all of the Trustees' claims likely would not
constitute a liability subject to compromise, but, instead, the
Company probably would be required to satisfy those liabilities as
postpetition obligations of some or all of the Chapter 11 estates.
Such a determination in favor of the Trustees likely would have a
materially adverse effect on the Company's ability to meet its
obligations and successfully emerge from Chapter 11.
Prior to the Petition Date, on or about August 21, 1996, the Company
entered into a "Pledge Agreement" with the 1992 Plan and the "Combined
Benefit Fund" under which, among other things, the Company pledged its
interest in certain subsidiaries to secure obligations specified
therein to the 1992 Plan and the Combined Benefit Fund. In pleadings
filed before the Bankruptcy Court, the Company has maintained that the
1992 Plan does not hold any allowed secured claims against the Company
by reason of the Pledge Agreement. The Trustees have not yet
responded to these contentions, but it is expected that the Trustees
will dispute the Company's contentions. If the Bankruptcy Court
ultimately determines that the 1992 Plan holds allowed secured claims,
then to that extent, such claims would constitute secured liabilities
of the Company. In such event, whether or not those secured
liabilities would be subject to compromise would depend upon the
outcome of the above-described adversary proceeding.
UMWA COMBINED BENEFIT PLAN. The UMWA Combined Benefit Plan is a
multiemployer plan established for purposes of providing health care
benefits under the Coal Act to beneficiaries, and their dependents,
who were age- and service-eligible as of July 20, 1992 under the 1950
UMWA Benefit Plan or the 1974 UMWA Benefit Plan. Prior to the
Petition Date, the Company ceased making payments under the Combined
Benefit Plan. The Company maintains that any liability of the Company
to the Combined Benefit Fund arose and was incurred pre-petition and
constitutes pre-petition liabilities subject to compromise. It is
anticipated that the Combined Benefit Fund will vigorously oppose this
contention. To date, no litigation has been commenced in the
Bankruptcy Court by the Combined Benefit Fund against the Company and
visa versa. The Company estimates the present value of the Company's
liabilities to the Combined Benefit Fund total approximately
$46,200,000 and is not included in the foregoing table.
<PAGE 9>
Although the Company has not commenced any litigation with the
Combined Benefit Fund regarding the validity of any security interest
of the Combined Benefit Fund arising under the Pledge Agreement, the
Company anticipates it likely will maintain that the Combined Benefit
Fund does not hold any allowed secured claims under the Pledge
Agreement. The Company expects that the Combined Benefit Fund will
dispute any such contention.
1993 WAGE AGREEMENT PLAN. The 1993 Wage Agreement between the Company
and the UMWA requires the Company to establish and provide benefits
under an individual employer plan for certain retirees. The Company
currently provides such benefits through its individual employer plan.
The 1993 Benefit Plan is a multiemployer benefit plan providing health
care benefits to specified beneficiaries entitled to such benefits
under bargaining agreements, where employers fail to provide such
benefits through their individual employer plan, as required under
such agreements. The Company's liabilities under the 1993 Benefit
Plan, whether provided under the Company's individual employer plan or
by the 1993 Plan, are shown as subject to compromise, by virtue of the
provisions of Bankruptcy Code sections 1113 and 1114, which authorizes
the rejection of collective bargaining agreements and modification of
such benefits subject to terms and conditions specified therein,
respectively. The Company estimates the present value of the
Company's liabilities, after the effect of the unrecognized net loss
of $3,767,000, to the 1993 Plan total approximately $44,794,000. The
Company believes that for bankruptcy purposes the sum of these
amounts, $48,561,000, comprise the present value of the liability
subject to compromise.
Current financial reporting by the Company assumes that the Company
would enter into a successor agreement to the 1993 Agreement Between
Westmoreland Coal Company and United Mine Workers of America ("1993
Wage Agreement") prior to expiration of that agreement and would
thereby continue to provide retiree health benefits to such
beneficiaries. The Company believes that it is unlikely that the
Company will enter into a successor agreement. Further, the Company
maintains that any obligation of the Company to provide benefits under
the 1993 Wage Agreement with respect to the 1993 Plan (or the related
individual employer plan) extends only through the scheduled
expiration of the 1993 Wage Agreement. No litigation has been
commenced in the Chapter 11 cases regarding the Company's liabilities
under the 1993 Plan (or the related individual employer plan).
The nature of the Chapter 11 cases is to have all claims against and
interests in the Company resolved. Accordingly, the Company
anticipates that during the Chapter 11 cases the Bankruptcy Court will
establish a deadline on the filing of proofs of claim and interest.
No such deadline has yet been established, and, accordingly, the
Company's estimate of liabilities is subject to modification and
amendment based upon the Company's review of the proofs of claims to
be filed in response to such deadline.
<PAGE 10>
2. CONTINGENCIES
WESTMORELAND ENERGY, INC. ("WEI") - WEI PROJECT CONTINGENCIES
SOUTHAMPTON PROJECT - WEI owns a 30% general partnership interest in
LG&E-Westmoreland Southampton ("Southampton Partnership"), which owns
the Southampton Project. The Southampton Project, which was engaged
in start-up and testing operations from September 1991 through March
1992, failed to meet Federal Energy Regulatory Commission ("FERC")
operating standards for a qualifying facility ("QF") in 1992. The
failure was due to three factors: (i) the facility was not dispatched
by its power customer, Virginia Electric and Power Company ("Virginia
Power"), on a baseload schedule as anticipated, (ii) the facility was
engaged in start-up and testing operations during a portion of that
year, and (iii) the facility operator mistakenly delivered non-
sequential steam to the host over a significant period of time. On
February 23, 1994, the Southampton Partnership filed a request with
the FERC for a waiver of the FERC's QF operating standard for 1992.
Virginia Power intervened in the FERC proceeding, opposed the granting
of a waiver, and alleged that its power contract with the Southampton
Partnership had been breached due to the failure of the facility to
maintain QF status in 1992.
On July 7, 1994, the FERC issued an order (1) denying the application
of the Southampton Partnership for a waiver of the FERC's QF operating
standard in 1992 with respect to the Southampton Project and (2)
directing the Southampton Partnership to show cause why it should not
be required to file rate schedules with the FERC governing its 1992
electricity sales for resale to Virginia Power. In 1994 the
Southampton Project established a reserve for the anticipated refund
obligations relating to this issue. On August 9, 1994, the Southampton
Partnership filed a request for rehearing of FERC's order or,
alternatively, a motion for reconsideration.
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 for 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 the Public
Utility Holding Company Act ("PUHCA"), 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. These
matters are still pending before the FERC.
Ultimate resolution of this matter has not yet been determined. 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.
<PAGE 11>
ROVA I PROJECT - WEI owns a 50% partnership interest in Westmoreland-
LG&E Partners (the "ROVA Partnership"). The ROVA Partnership's
principal customer contracted to purchase the electricity generated by
ROVA I under a long-term contract. In the second quarter of 1994,
that customer disputed the ROVA Partnership's interpretation of the
provisions of the contract dealing with the payment of the capacity
purchase price when the facility experiences a forced outage day. A
forced outage day is a day when ROVA I experiences an interruption in
the facility's ability to generate electrical output. The ROVA
Partnership believes that the customer is required to pay the ROVA
Partnership the full capacity purchase price unless forced outage days
exceed a contractually stated allowed annual number. The customer
asserts that it is not required to do so.
From May 1994 through March 31, 1997, Virginia Power withheld
approximately $13,721,000 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, The ROVA Partnerships filed a complaint
against Virginia Power seeking damages of at least $5,700,000,
contending that Virginia Power breached the Power Purchase Agreement
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. The ROVA Partnerships 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 the ROVA
Partnerships' 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. Virginia
Power filed a second summary judgment motion on March 1, 1996. On
March 18, 1996, the Court granted Virginia Power'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. No earnings
were recognized by WEI in 1995 or 1996 for payments withheld by the
customer relating to forced outage days.
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, along
with other independent power producers, has entered into negotiations
with NIMO to restructure or terminate its contract. No definitive
terms have been reached and the ultimate effect of such an agreement
cannot be determined at this time.
3. CAPITAL STOCK
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 ten 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,
July 1, 1996, October 1, 1996, January 1, 1997 and April 1, 1997)
amount to $12,219,000 in the aggregate ($21.26 per preferred share).
Common stock dividends may not be declared until the preferred stock
dividends that are in arrears are made current.
<PAGE 12>
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 shareholders' equity at March 31, 1997 of $1,596,000.
As a result of the filing of voluntary petitions for reorganization
under Chapter 11 of the United States Bankruptcy Code, the Company is
prohibited from paying dividends, either common or preferred.
<PAGE 13>
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
MATERIAL CHANGES IN FINANCIAL CONDITION FROM DECEMBER 31, 1996 TO
MARCH 31, 1997
BANKRUPTCY PROCEEDING
Westmoreland Coal Company and four subsidiaries, Westmoreland
Resources, Inc., Westmoreland Coal Sales Company, Westmoreland Energy,
Inc., and Westmoreland Terminal Company ("the Debtor Corporations"),
filed voluntary petitions for reorganization under Chapter 11 of the
United States Bankruptcy Code on December 23, 1996. The Debtor
Corporations are in possession of their respective properties and
assets and are operating as debtors in possession pursuant to
provisions of the Bankruptcy Code.
Recognizing that it would not be able to meet its retiree benefit
obligations to the United Mine Workers of America Pension and Benefit
Funds ("the Funds") on a current basis, Westmoreland initiated
discussions with the Funds in November 1995. The Company submitted
several proposals. After the Funds failed to accept any of
Westmoreland's proposals and offered no realistic counter proposals,
the Company made the decision to file for protection under Chapter 11
of the United States Bankruptcy Code to protect the Company's value
from the demands of the Funds.
The Company believes that cash generated from existing operations and
the proceeds from the sale of its non-operating assets are not
sufficient to meet these Fund liabilities and that substantial value
would be lost if the Company liquidated, including that of its tax
loss carryforwards.
The Chapter 11 filings raise substantial doubt about the Company's
ability to continue as a going concern. However, the condensed
consolidated financial statements contained herein have been prepared
in accordance with generally accepted accounting principles applicable
to a going concern and do not purport to reflect or to provide for all
of the consequences of the ongoing Chapter 11 reorganization cases.
Specifically, the condensed consolidated financial statements do not
present the amount which will ultimately be paid to settle liabilities
and contingencies which may be allowed in the Chapter 11
reorganization cases or the effect of any changes which may be made in
connection with the Debtor Corporations' capitalization or operations
resulting from a plan of reorganization. The Debtor Corporations have
not filed a plan of reorganization as of March 31, 1997, but expect to
file one in the near term. No assurances can be given that the Company
will be successful in reorganizing its affairs within the Chapter 11
bankruptcy proceedings.
Because of the ongoing nature of the reorganization cases, the outcome
of which is not presently determinable, the condensed consolidated
financial statements contained herein are subject to material
uncertainties and may not be indicative of the results of the
Company's future operations or financial position.
<PAGE 14>
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities was $8,727,000 in the first
quarter of 1997. Cash used by operating activities was $6,243,000 in
the first quarter of 1996. The increase in cash is due to the non-
payment of prepetition claims which resulted from the automatic stay
associated with the bankruptcy filing described in Note 1. The
Company also continues to reduce costs associated with its idled
Virginia Division assets.
Cash provided by investing activities was $887,000 and $2,082,000 in
the first quarter of 1997 and 1996, respectively. Included in the
first quarter of 1997 were cash proceeds of $902,000 relating to sales
of various pieces of equipment from the idled Virginia Division.
Included in the first quarter of 1996 were cash proceeds of $2,441,000
for the sale of coal reserves to Ark Land Company. Fixed asset
additions were $15,000 and $137,000 in the first quarter of 1997 and
1996 respectively.
Cash used in financing activities totaled $64,000 and $1,229,000 in
the first quarter of 1997 and 1996, respectively. Repayment of long-
term debt amounted to $64,000 and $789,000 in the first quarter of
1997 and 1996, respectively.
Consolidated cash and cash equivalents at March 31, 1997 totaled
$18,341,000. As a result of the Chapter 11 bankruptcy filings, the
Company is not allowed to consolidate the individual cash balances for
each filed subsidiary. As of March 31, 1997, the cash balances at the
filed subsidiaries were: Westmoreland Resources, Inc. - ("WRI")
$6,151,000; Westmoreland Coal Sales Company - $323,000; Westmoreland
Terminal Company - $1,001,000; and Westmoreland Energy, Inc. -
$5,486,000. The cash balance for Westmoreland Coal Company was
$5,085,000. As of December 31, 1996, the cash balances at the filed
subsidiaries were: Westmoreland Resources, Inc. -$3,095,000;
Westmoreland Coal Sales Company - $26,000; Westmoreland Terminal
Company - $403,000; and Westmoreland Energy, Inc. - $1,701,000. The
cash balance for Westmoreland Coal Company was $3,028,000. The
fluctuation in cash balances between December 31, 1996 and March 31,
1997 is attributable to periodic asset sales, semi-annual
distributions at an independent power project and operational cash
flow.
The Company's cash and cash equivalents are not restricted as to use
or disposition under the normal course of business, except for the
bankruptcy restrictions. 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 or cash
equivalents, of $9,200,000 at March 31, 1997. The amount represents
an interest-bearing cash deposit account, which collateralizes the
Company's outstanding surety bonds for its workers' compensation self-
insurance programs. Subsequent to the date of the bankruptcy filing
described in Note 1, the Company, as a result of the automatic stay
imposed by the Bankruptcy Court, cannot directly pay workers'
compensation claims. However, during the first quarter of 1997, with
permission granted by the Bankruptcy Court, the Company made
arrangements to pay workers compensation claims from the cash deposit
account. The arrangement is likely to remain in place until the
bankruptcy proceeding is resolved or the cash deposit account is
depleted.
<PAGE 15>
In addition to the deposit described above, at December 31, 1996, the
Company had $8,000,000 invested in certificates of deposit which were
classified as an Investment in independent power projects. The
certificates of deposit represented cash proceeds which were
transferred from debt reserve accounts of certain of the Company's
independent power projects and for which bank letters of credit were
substituted. During the first quarter of 1997, the letters of credit
were called and the certificates of deposit were used to repay the
letters of credit obligations. The $8,000,000 was returned to the
debt reserve accounts and continue to be classified as an Investment
in independent power projects.
RESULTS OF OPERATIONS
QUARTER ENDED MARCH 31, 1997 COMPARED TO QUARTER ENDED MARCH 31, 1996.
Revenues for the quarter ending March 31, 1997 were $18,120,000
compared to $16,360,000 for the quarter ending March 31, 1996. The
increase is due to a higher volume of tons sold at WRI.
Costs and expenses for the quarter ending March 31, 1997 were
$16,323,000 compared to $19,388,000 for the quarter ending March 31,
1996. The majority of the decline is due to a substantial reduction
in the accrual for heritage costs. As a result of the bankruptcy
filing as previously described in Note 1, the Company is no longer
accruing costs associated with the 1992 Plan. In addition, the
Company continues to reduce costs associated with its idled Virginia
Division.
Losses on the sales of assets were $905,000 during the quarter ending
March 31, 1997, of which a loss of $1,609,000 related to the removal
and final sale of a longwall mining machine at the idled Virginia
Division. Cash proceeds of $3,200,000 were received from the sale of
the longwall mining machine but were offset by $2,000,000 of costs to
remove the machine, $1,500,000 of remaining book value, and $1,300,000
relating to the buy-out of the lease on the machine. Proceeds of
$704,000 were received from the sale of various equipment from the
idled Virginia Division, all of which was recorded as a gain. Gains
on the sales of assets were $2,441,000 for the quarter ending March
31, 1996. In January, 1996, the Company sold 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.
<PAGE 16>
PART II - OTHER INFORMATION
ITEM 1
LEGAL PROCEEDINGS
See Note 1 "Chapter 11 Reorganization Proceedings" of Notes to
Condensed Consolidated Financial Statements, which is incorporated by
reference herein.
ITEM 6
EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibit 27 - Financial Data Schedule
b) On January 6, 1997 the Company filed a report on Form 8-K
announcing that the Company and four of its subsidiaries filed a
voluntary petition under Chapter 11 of the United States
Bankruptcy Code.
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: May 13, 1997 /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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