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, 2000
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 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 November 1, 2000: 7,069,663
<PAGE>
<TABLE>
PART I - FINANCIAL INFORMATION
Item 1
Financial Statements
Westmoreland Coal Company and Subsidiaries
Consolidated Balance Sheets
----------------------------------------------------------------------------------------------------------------
(Unaudited)
September 30, 2000 December 31, 1999
--------------------------------------------------------------- ------------------------ -----------------------
(in thousands)
<CAPTION>
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 9,069 $ 20,122
Receivables:
Trade 2,667 2,156
Excess of trust assets over pneumoconiosis benefit
obligation - 6,397
Terminated pension plan, net - 500
Other 371 621
--------------------------------------------------------------- ------------------------ -----------------------
3,038 9,674
Other current assets 1,374 1,180
--------------------------------------------------------------- ------------------------ -----------------------
Total current assets 13,481 30,976
--------------------------------------------------------------- ------------------------ -----------------------
Property, plant and equipment:
Land and mineral rights 10,572 10,572
Plant and equipment 66,134 66,231
--------------------------------------------------------------- ------------------------ -----------------------
76,706 76,803
Less accumulated depreciation and depletion 41,708 40,245
--------------------------------------------------------------- ------------------------ -----------------------
34,998 36,558
Investment in independent power projects 50,002 45,225
Investment in Dominion Terminal Associates (DTA) 4,395 4,672
Workers' compensation bond 3,804 4,748
Prepaid pension cost 4,009 3,897
Excess of trust assets over pneumoconiosis benefit
obligation 5,800 5,255
Security deposits 15,368 10,148
Other assets 1,122 818
--------------------------------------------------------------- ------------------------ -----------------------
Total Assets $ 132,979 $ 142,297
=============================================================== ======================== =======================
(Continued)
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
Westmoreland Coal Company and Subsidiaries
Consolidated Balance Sheets (Continued)
----------------------------------------------------------------------------------------------------------------
(Unaudited)
September 30, 2000 December 31, 1999
------------------------------------------------------------- ------------------------ -----------------------
(in thousands)
<CAPTION>
<S> <C> <C>
Liabilities and Shareholders' Equity (Deficit)
Current liabilities:
Current installments of long-term debt $ - $ 220
Accounts payable and accrued expenses 5,466 5,942
Workers compensation 3,200 3,200
Postretirement medical costs 10,130 10,130
UMWA 1974 Pension Plan obligation 1,257 1,128
Other accrued expenses 692 970
Reorganization expenses 73 400
Reclamation costs 100 100
------------------------------------------------------------- ------------------------ -----------------------
Total current liabilities 20,918 22,090
------------------------------------------------------------- ------------------------ -----------------------
Long-term debt, less current installments - 1,343
Accrual for workers compensation 12,786 15,072
Accrual for postretirement medical costs 81,705 78,643
1974 UMWA Pension Plan obligations 9,734 10,751
Accrual for reclamation costs, less current portion 2,336 2,537
Other liabilities 2,199 1,930
Minority interest 5,841 6,874
Commitments and contingent liabilities
Shareholders' equity (deficit)
Preferred stock of $1.00 par value
Authorized 5,000,000 shares;
Issued and outstanding 208,708 shares at
September 30, 2000 and December 31, 1999 209 209
Common stock of $2.50 par value
Authorized 20,000,000 shares;
Issued and outstanding 7,069,663 shares at
September 30, 2000 and 7,067,663 shares at
December 31, 1999 17,674 17,669
Other paid-in capital 67,318 67,315
Accumulated deficit (87,741) (82,136)
------------------------------------------------------------- ------------------------ -----------------------
Total shareholders' equity (deficit) (2,540) 3,057
------------------------------------------------------------- ------------------------ -----------------------
Total Liabilities and Shareholders' Equity (Deficit) $ 132,979 $ 142,297
============================================================= ======================== =======================
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
Westmoreland Coal Company and Subsidiaries
Consolidated Statements of Income
----------------------------------------------------------------------------------------------------------------------------
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
------------------------------------------------------ ----------------- ---------------- ----------------- ----------------
(in thousands except per share data)
<CAPTION>
<S> <C> <C> <C> <C>
Revenues:
Coal $ 8,851 $ 11,426 $ 28,666 $ 28,660
Independent power - equity in earnings 5,768 3,283 13,978 29,990
DTA - share of losses (491) (417) (1,356) (1,135)
------------------------------------------------------ ----------------- ---------------- ----------------- ----------------
14,128 14,292 41,288 57,515
------------------------------------------------------ ----------------- ---------------- ----------------- ----------------
Costs and expenses:
Cost of sales - coal 7,508 9,980 24,131 24,943
Depreciation, depletion and amortization 580 327 1,463 1,071
Selling and administrative 1,782 1,622 4,959 8,399
Heritage costs 5,539 6,440 16,144 18,917
Pension benefit (37) (55) (475) (165)
Doubtful account recoveries (400) (74) (400) (165)
------------------------------------------------------ ----------------- ---------------- ----------------- ----------------
14,972 18,240 45,822 53,000
------------------------------------------------------ ----------------- ---------------- ----------------- ----------------
Operating income (loss) (844) (3,948) (4,534) 4,515
Other income (expense):
Gains on sales of assets - 364 - 433
Interest expense (215) (298) (696) (896)
Interest income 504 652 1,465 1,617
Minority interest (136) (297) (567) (672)
Other income (expenses) (344) 293 (1,273) 116
------------------------------------------------------ ----------------- ---------------- ----------------- ----------------
Income (loss) before income taxes (1,035) (3,234) (5,605) 5,113
Income taxes - 99 - 54
------------------------------------------------------ ----------------- ---------------- ----------------- ----------------
Net income (loss) (1,035) (3,135) (5,605) 5,167
Less preferred stock dividend requirements (444) (663) (1,332) (1,989)
------------------------------------------------------ ----------------- ---------------- ----------------- ----------------
Net income (loss) applicable to common
shareholders $ (1,479) $ (3,798) $ (6,937) $ 3,178
====================================================== ================= ================ ================= ================
Basic and diluted net income (loss) per share
applicable to common shareholders $ (.21) $ (.54) $ (.98) $ .45
Weighted average number of common shares
outstanding 7,070 7,033 7,070 7,033
====================================================== ================= ================ ================= ================
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
Westmoreland Coal Company and Subsidiaries
Consolidated Statements of Cash Flows
----------------------------------------------------------------------------------------------------------------------------
(Unaudited)
Nine Months Ended September 30, 2000 1999
---------------------------------------------------------------------------------- -------------------- -------------------
(in thousands)
<CAPTION>
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (5,605) $ 5,167
Adjustments to reconcile net income to net cash provided by (used in) operating
activities:
Equity earnings from independent power projects (13,978) (29,990)
Cash received from independent power projects 9,201 49,545
Share of losses from DTA 1,356 1,135
Cash generated by DTA 147 759
Cash contributions to DTA (1,226) (1,197)
Depreciation, depletion and amortization 1,463 1,071
Stock compensation expense - 271
Gain on disposition of assets - (433)
Minority interest 567 672
Other (304) (57)
Changes in assets and liabilities:
Accounts receivable, net of allowance for doubtful accounts 6,636 459
Other current assets (194) (805)
Workers' compensation bond 944 317
Prepaid pension asset (112) (165)
Excess of trust assets over pneumoconiosis benefit obligation (545) 2,200
Accounts payable and accrued expenses (754) (3,080)
Income tax payable - (2,110)
Accrual for workers compensation (2,286) (2,609)
Accrual for postretirement medical costs 3,062 6,464
Consent judgment payment obligation - (39,006)
1974 UMWA Pension Plan obligations (888) (1,576)
Other liabilities 68 (67)
---------------------------------------------------------------------------------- -------------------- -------------------
Net cash used in operating activities before reorganization items (2,448) (13,035)
---------------------------------------------------------------------------------- -------------------- -------------------
Changes in reorganization items (327) (6,643)
---------------------------------------------------------------------------------- -------------------- -------------------
Net cash used in operating activities (2,775) (19,678)
---------------------------------------------------------------------------------- -------------------- -------------------
Cash flows from investing activities:
Fixed asset additions (433) (1,959)
Reimbursement from mine operator 530 -
Long-term deposits (5,220) (11,079)
Net proceeds from sales of assets - 719
---------------------------------------------------------------------------------- -------------------- -------------------
Net cash used in investing activities (5,123) (12,319)
---------------------------------------------------------------------------------- -------------------- -------------------
Cash flows from financing activities:
Repayment of long-term debt (1,563) (211)
Dividends paid to minority interest (1,600) -
Exercise of stock options 8 66
Purchase of preferred stock - (20,000)
---------------------------------------------------------------------------------- -------------------- -------------------
Net cash used in financing activities (3,155) (20,145)
---------------------------------------------------------------------------------- -------------------- -------------------
Net decrease in cash and cash equivalents (11,053) (52,142)
Cash and cash equivalents, beginning of period 20,122 84,073
================================================================================== ==================== ===================
Cash and cash equivalents, end of period $ 9,069 $ 31,931
================================================================================== ==================== ===================
Supplemental disclosures of cash flow information: Cash paid during the period
for:
Interest $ 696 $ 5,708
Taxes $ - $ 2,110
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
WESTMORELAND COAL COMPANY AND SUBSIDIARIES
Notes to 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, 1999. 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. Certain
prior year amounts have been reclassified to conform to the current year
presentation.
1. Nature of Operations
The Company's current principal activities, conducted within the United States,
are: (i) the production and sale of coal in the Powder River Basin in Eastern
Montana; (ii) the development, management and ownership of interests in
cogeneration and other non-regulated independent power plants; and (iii) the
leasing of capacity at Dominion Terminal Associates, a coal storage and vessel
loading facility.
2. 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 "Chapter 11 Cases"). Pursuant to the request of the
Debtor Corporations, the Chapter 11 Cases were dismissed by order of the
Bankruptcy Court entered on December 23, 1998. Upon dismissal, the Debtor
Corporations were no longer subject to the protections afforded or restrictions
imposed by the Bankruptcy Code.
3. Contingencies
Westmoreland Energy, Inc. ("WEI") - WEI Project Contingencies
Southampton Project - In October, 1998, the Southampton Partnership and Virginia
Power entered into a settlement agreement of their administrative proceeding
before the Federal Energy Regulatory Commission ("FERC") concerning the
Southampton project's compliance with Qualifying Facility ("QF") criteria and
payments arising out of plant performance in 1992. The settlement provided for,
among other items, payments by the Southampton Partnership to Virginia Power of
$1,000,000 annually for the years 1999-2001, followed by a reduction in capacity
payments from Virginia Power to the Southampton Partnership of $500,000 for each
of the years 2002-2008. Following 2008, Virginia Power could elect to terminate
its power purchases from the Southampton Partnership or continue to be entitled
to the $500,000 annual reduction in capacity payments for the remainder of the
power purchase agreement. The settlement was approved by the FERC.
Resolution of the administrative proceeding confirmed the Southampton
Partnership's QF status after 1992, inapplicability of the Federal Power Act to
both the Southampton project and the upstream partners and owners, including WEI
and Westmoreland, and, assuming continued compliance with loan covenants and
appropriate project financial performance, the ability to distribute earnings to
the project partners.
Following resolution of the administrative proceeding, Fourfold L.P., a limited
partner of LG&E-Southampton L.P. and a subsidiary of Chrysler Capital, made a
demand on the Southampton Partnership and the related Louisville Gas and
Electric ("LG&E") and Westmoreland entities for reimbursement in the amount of
$1,979,000 in connection with its share of the settlement. The Westmoreland
entities have made a similar demand against the LG&E entities in the amount of
$3,300,000. Pursuant to a mediation effort in 1999, the project participants
(general partners, including a Westmoreland subsidiary, Westpower-Franklin
("Westpower"), and operator) agreed to compromise and settle Fourfold L.P.'s
claim. Westpower, without admitting liability, contributed $100,000 of a
significantly larger settlement to Fourfold. The mediation which resolved the
Fourfold claim did not successfully resolve the Westpower claims to the
Company's satisfaction. Westpower is evaluating its options and possible legal
remedies. The outcome of the dispute cannot currently be determined and
accordingly the Company has not recognized any gain related to the dispute.
<PAGE>
ROVA I Project - WEI owns a 50% partnership interest in Westmoreland-LG&E
Partners (the "ROVA Partnership"). The ROVA Partnership's principal customer,
Virginia Power, contracted to purchase the electricity generated by ROVA I, one
of two units included in the ROVA Partnership, under a long-term contract (the
"Power Purchase and Operating Agreement"). In the second quarter of 1994, that
customer disputed the ROVA Partnership's interpretation of 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 is not able to generate a specified level of electrical output. The ROVA
Partnership believed that the customer was required to pay the ROVA Partnership
the full capacity purchase price unless forced outage days exceed a
contractually stated allowed annual number. The customer asserted that it was
not required to do so.
In October 1994, the ROVA Partnership filed a complaint against Virginia Power
seeking damages, contending that Virginia Power breached the Power Purchase and
Operating Agreement ("PPOA") in withholding such forced outage capacity
payments. The case was tried beginning on October 26, 1998 in the Circuit Court
of the City of Richmond, Virginia. On December 2, 1998, the Circuit Court
entered judgment in the ROVA Partnership's favor for the amount of $14,800,000
(the amount that Virginia Power had withheld at the trial date) plus interest
for a total of $19,336,214. On December 21, 1998, Virginia Power posted its
appeal bond and on December 29, 1998, noted its appeal of the Circuit Court's
decision to the Virginia Supreme Court. Interest continued to accrue on the
judgement. The Virginia Supreme Court heard oral arguments on January 11, 2000
and on March 3, 2000 reversed the trial court's decision because the trial court
had excluded certain oral evidence. The Virginia Supreme Court remanded the
matter for further proceedings, and the Circuit Court set those proceedings for
October 30 of this year. However, the trial date has been postponed and not
rescheduled. From May 1994, through October 2000, Virginia Power withheld
approximately $21,355,000 of capacity payments during periods of forced outages.
Interest continues to accrue on this amount.
On September 25, 2000, the ROVA Partnership announced that an agreement to
settle the ROVA contract dispute had been reached for cash and other
considerations. The settlement is subject to certain conditions, including
mutually acceptable completed documentation of a revised and mutually beneficial
PPOA and consent of project lenders. To date, the Company has not recognized any
revenue on its 50% portion of the capacity payments being withheld by Virginia
Power.
Rensselaer - On March 15, 1999, LG&E-Westmoreland Rensselaer ("LWR") completed
the sale of the Rensselaer Project to Fulton Cogeneration Associates, L.P.
("Fulton"). LWR received approximately $68,000,000 in cash as consideration for
the sale of the Rensselaer plant and operating contracts. After payment of
expenses and remaining debts, WEI's share of the proceeds was approximately
$33,000,000.
<PAGE>
Westmoreland Resources, Inc.
Westmoreland Resources, Inc. ("WRI") has incurred costs of approximately
$4,100,000 to repair the dragline at the Absaloka mine since 1998. WRI's mining
contractor, Morrison Knudsen ("MK"), has reimbursed WRI for $530,000 of these
costs. The Company believes, under the terms of WRI's agreements with Morrison
Knudsen, that MK is responsible for all dragline repairs. WRI has expended these
amounts to assure continued, uninterrupted production at WRI, and has demanded
reimbursement from Morrison Knudsen for the full cost of the repair plus
interest. On February 24, 2000, MK notified WRI that it sought to arbitrate the
issue. Believing the issue to not be subject to arbitration, on March 7, 2000,
WRI commenced litigation against Morrison Knudsen in the United States District
Court for the District of Montana seeking, among other things, payment by
Morrison Knudsen of approximately $3,600,000 of dragline repair costs paid or
expected to be paid by WRI, plus accrued interest. The Company has not recorded
in its financial statements any additional amounts that may be recovered from
Morrison Knudsen.
4. 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 with 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, described below, 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 quarterly dividends which are accumulated but unpaid
through and including October 1, 2000 amount to $10,644,000 in the aggregate
($51.00 per preferred share or $12.75 per depositary share). Common stock
dividends may not be declared until the preferred stock dividends that are
accumulated but unpaid are made current.
On March 10, 1999, the Company offered to purchase up to 1,052,631 depositary
shares, each representing one quarter of a share of its Series A Convertible
Exchangeable Preferred Stock ("Series A Preferred Stock"). The offer price of
$19 per share was in full satisfaction of claims to accumulated but unpaid
dividends on the depositary shares tendered. On April 7, 1999, the offer expired
and 1,683,903 depositary shares were tendered in response to the offer. Because
the number of shares tendered exceeded the maximum number of shares the Company
had offered to purchase, a proration factor of approximately 62.5% was applied
to all shares tendered. A total of 1,052,631 depositary shares were purchased
for $20,000,000. The balance sheet effect of this transaction was to reduce cash
and shareholders' equity by $20,000,000. Following completion of the tender
offer, the depositary shares purchased in the offer were converted into shares
of Series A Preferred Stock, the shares of Series A Preferred Stock were
retired, and the capital of the Company was reduced by the par value of the
shares of Series A Preferred Stock retired. This reduced the number of shares of
Series A Preferred Stock outstanding from 575,000 to 311,843, accumulated but
unpaid dividends from $21,994,000 to $11,928,000, and the ongoing quarterly
preferred dividend requirement from $1,222,000 to $663,000.
On September 16, 1999, the Company made a second offer to purchase up to an
additional 631,000 depositary shares at $19 per depositary share. The offer
price of $19 per share was in full satisfaction of claims to accumulated but
unpaid dividends on the depositary shares tendered. On October 26, 1999, the
offer expired and 412,536 depositary shares were tendered in response to the
offer. The balance sheet effect of the transaction was to reduce cash and
shareholders' equity by $7,838,000. Following completion of the tender offer,
the depositary shares purchased in the offer were converted to shares of Series
A Preferred Stock, the shares of Series A Preferred Stock were retired, and the
capital of the Company was reduced by the par value of the shares of Series A
Preferred Stock retired. This reduced the number of shares of Series A Preferred
Stock outstanding from 311,843 to 208,708, accumulated but unpaid dividends from
$13,253,000 to $8,870,000 and the ongoing quarterly dividend requirement from
$663,000 to $444,000.
<PAGE>
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 (which par value was $208,708 at September
30, 2000). The Company had an accumulated deficit at September 30, 2000 of
$2,540,000 and the par value of all outstanding shares of preferred stock and
shares of common stock aggregated $17,883,000 at September 30, 2000.
5. DISPOSITION
On July 27, 1999, the Company sold all remaining book assets of its idled
Virginia Division. The assets consisted of the Bullitt Preparation Plant and
Transloader Complex. The Company received approximately $650,000 in cash and the
purchaser assumed reclamation liabilities of approximately $600,000. The
transaction resulted in a net gain of approximately $360,000.
6. DEBT
During the first quarter of 2000, WRI retired its remaining long-term debt in
the principal amount of $1,563,000 plus accrued interest.
7. BUSINESS SEGMENT INFORMATION
The Company's current operations have been classified into three segments: coal,
independent power operations and terminal operations. The coal segment includes
the production and sale of coal from the Powder River Basin in eastern Montana.
The independent power operations segment includes the development, management
and ownership of interests in cogeneration and other non-regulated independent
power plants. The terminal operation segment consists of the leasing of capacity
at Dominion Terminal Associates, a coal storage and vessel loading facility. The
"Corporate" classification noted in the tables represents all costs not
otherwise classified, including corporate office charges, heritage costs, and
all residual costs of the idled Virginia Division. Summarized financial
information by segment for the quarters and nine months ended September 30, 2000
and 1999, respectively, is as follows:
<PAGE>
<TABLE>
Quarter ended September 30, 2000
Coal Independent Terminal
Power Operations Corporate Total
--------------- ---------------- -------------- --------------- -------------
(in thousands)
<CAPTION>
<S> <C> <C> <C> <C> <C>
Revenues:
Coal revenue $ 8,851 $ - $ - $ - $ 8,851
Equity in earnings (share
of losses) - 5,768 (491) - 5,277
-----------------------------------------------------------------------------
8,851 5,768 (491) - 14,128
Costs and expenses:
Cost of sales - coal 7,508 - - - 7,508
Depreciation, depletion,
and amortization 548 8 - 24 580
Selling and administrative
expense 161 133 30 1,458 1,782
Heritage costs - - - 5,539 5,539
Pension benefit - - - (37) (37)
Doubtful account recoveries - - - (400) (400)
-----------------------------------------------------------------------------
Operating income (loss) $ 634 $ 5,627 $ (521) $ (6,584) $ (844)
=============================================================================
Capital expenditures $ 46 $ 2 $ - $ 4 $ 52
=============================================================================
Property, plant and
equipment (net) $ 34,879 $ 68 $ 8 $ 43 $ 34,998
=============================================================================
</TABLE>
Information for the Company's reportable segments relates to September 30, 2000
consolidated totals as follows:
in thousands
------------------------
Operating loss $ (844)
Interest expense (215)
Interest income 504
Minority interest (136)
Other expense (344)
-------------------------
Loss before income taxes $ (1,035)
=========================
<PAGE>
<TABLE>
Quarter ended September 30, 1999
Coal Independent Terminal
Power Operations Corporate Total
--------------- ----------------- --------------- --------------- ------------
(in thousands)
<CAPTION>
<S> <C> <C> <C> <C> <C>
Revenues:
Coal revenue $ 11,426 $ - $ - $ - $ 11,426
Equity in earnings (share of
losses) - 3,283 (417) - 2,866
-----------------------------------------------------------------------------
11,426 3,283 (417) - 14,292
Costs and expenses:
Cost of sales - coal 9,980 - - - 9,980
Depreciation, depletion,
and amortization 290 7 - 30 327
Selling and administrative
expense (benefit) 147 (8) 71 1,412 1,622
Heritage costs - - - 6,440 6,440
Pension benefit - - - (55) (55)
Doubtful account recoveries - - - (74) (74)
-----------------------------------------------------------------------------
Operating income (loss) $ 1,009 $ 3,284 $ (488) $ (7,753) $ (3,948)
=============================================================================
Capital expenditures $ 276 $ 14 $ - $ 13 $ 303
=============================================================================
Property, plant and
equipment (net) $ 36,720 $ 80 $ 8 $ 146 $ 36,954
=============================================================================
</TABLE>
Information for the Company's reportable segments relates to September 30, 1999
consolidated totals as follows:
in thousands
-------------------------
Operating income $ (3,948)
Gain on sale of assets 364
Interest expense (298)
Interest income 652
Minority interest (297)
Other income (expense) 293
-------------------------
Loss before income taxes $ (3,234)
=========================
<PAGE>
<TABLE>
Nine months ended September 30, 2000
Coal Independent Terminal
Power Operations Corporate Total
--------------- ----------------- --------------- --------------- ------------
(in thousands)
<CAPTION>
<S> <C> <C> <C> <C> <C>
Revenues:
Coal revenue $ 28,666 $ - $ - $ - $ 28,666
Equity in earnings (share
of losses) - 13,978 (1,356) - 12,622
-----------------------------------------------------------------------------
28,666 13,978 (1,356) - 41,288
Costs and expenses:
Cost of sales - coal 24,131 - - - 24,131
Depreciation, depletion,
and amortization 1,354 22 - 87 1,463
Selling and administrative
expense 471 324 303 3,861 4,959
Heritage costs - - - 16,144 16,144
Pension benefit - - - (475) (475)
Doubtful account recoveries - - - (400) (400)
-----------------------------------------------------------------------------
Operating income (loss) $ 2,710 $ 13,632 $ (1,659) $ (19,217) $ (4,534)
=============================================================================
Capital expenditures $ 421 $ 8 $ - $ 4 $ 433
=============================================================================
Property, plant and
equipment (net) $ 34,879 $ 68 $ 8 $ 43 $ 34,998
=============================================================================
</TABLE>
Information for the Company's reportable segments relates to September 30, 2000
consolidated totals as follows:
in thousands
------------------------
Operating loss $ (4,534)
Interest expense (696)
Interest income 1,465
Minority interest (567)
Other expense (1,273)
-------------------------
Loss before income taxes $ (5,605)
=========================
<PAGE>
<TABLE>
Nine months ended September 30, 1999
Coal Independent Terminal
Power Operations Corporate Total
--------------- ----------------- --------------- --------------- ------------
(in thousands)
<CAPTION>
<S> <C> <C> <C> <C> <C>
Revenues:
Coal revenue $ 28,660 $ - $ - $ - $ 28,660
Equity in earnings (share of
losses) - 29,990 (1,135) - 28,855
------------------------------------------------------------------------------
28,660 29,990 (1,135) - 57,515
Costs and expenses:
Cost of sales - coal 24,943 - - - 24,943
Depreciation, depletion,
and amortization 962 23 - 86 1,071
Selling and administrative
expense 610 974 626 6,189 8,399
Heritage costs - - - 18,917 18,917
Pension benefit - - - (165) (165)
Doubtful account recoveries - - - (165) (165)
------------------------------------------------------------------------------
Operating income (loss) $ 2,145 $ 28,993 $ (1,761) $ (24,862) $ 4,515
==============================================================================
Capital expenditures $ 1,908 $ 20 $ - $ 31 $ 1,959
==============================================================================
Property, plant and
equipment (net) $ 36,720 $ 80 $ 8 $ 146 $ 36,954
==============================================================================
</TABLE>
Information for the Company's reportable segments relates to September 30, 1999
consolidated totals as follows:
in thousands
-------------------------
Operating income $ 4,515
Gain on sale of assets 433
Interest expense (896)
Interest income 1,617
Minority interest (672)
Other income (expense) 116
-------------------------
Income before income taxes $ 5,113
=========================
<PAGE>
Item 2
--------------------------------------------------------------------------------
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Material Changes in Financial Condition From December 31, 1999 to September 30,
2000
Forward-Looking Disclaimer
Certain statements in this report which are not historical facts or information
are "forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934,
including, but not limited to, the information set forth in Management's
Discussion and Analysis of Financial Condition and Results of Operations. Any
statements contained herein that are not statements of historical fact may be
deemed to be forward-looking statements. For example, words such as "may,"
"will," "should," "estimates," "predicts," "potential," "continue," "strategy,"
"believes," "anticipates," "plans," "expects," "intends," and similar
expressions are intended to identify forward-looking statements. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors which may cause the actual results, levels of activity,
performance or achievements of the Company, or industry results, to be
materially different from any future results, levels of activity, performance or
achievements expressed or implied by such forward-looking statements. Such
factors include, among others, the following: general economic and business
conditions; the ability of the Company to implement its business strategy; the
Company's access to financing; the Company's ability to successfully identify
new business opportunities; the Company's ability to achieve anticipated cost
savings and profitability targets; changes in the industry; competition; the
Company's ability to utilize its tax net operating losses; the ability to
reinvest excess cash at an acceptable rate of return; weather conditions; the
availability of transportation; price of alternative fuels; costs of coal
produced by other countries; demand for electricity; the effect of regulatory
and legal proceedings and other factors discussed in Item 1 of the Company's
Form 10-K for the year ended December 31, 1999. As a result of the foregoing and
other factors, no assurance can be given as to the future results and
achievement of the Company. Neither the Company nor any other person assumes
responsibility for the accuracy and completeness of these statements.
Liquidity and Capital Resources
Cash used in operating activities was $2,775,000 for the nine months ended
September 30, 2000. Cash used in operating activities was $19,678,000 for the
nine months ended September 30, 1999. The change in cash used in operations in
2000 compared to 1999 is mainly due to the receipt in 2000 of one-time cash
distributions from the overfunded pneumoconiosis trust and workers' compensation
bond and the additional payment of cumulative pre-petition liabilities, one-time
reorganization costs and alternative minimum income taxes offset by the proceeds
received on the sale of Rensselaer in 1999.
Cash used in investing activities was $5,123,000 for the nine months ended
September 30, 2000. Cash used in investing activities for the nine months ended
September 30, 1999 was $12,319,000. Cash used in investing activities in 2000
included fixed asset additions of $433,000 (including $421,000 at WRI) offset by
the partial reimbursement from the mine operator of $530,000. Cash used in
investing activities in 1999 included fixed asset additions of $1,908,000 at WRI
offset by proceeds from sales of assets elsewhere of $719,000. Cash used in
investing activities also included funding collateral required for long-term
security deposits and bond obligations of $5,220,000 in 2000 and $11,079,000 in
1999.
<PAGE>
Cash used in financing activities for the nine months ended September 30, 2000
and 1999 totaled $3,155,000 and $20,145,000, respectively. Cash used in
financing activities in 2000 related to the retirement of debt as well as
dividends paid to minority shareholders of WRI. Cash used in 1999 is primarily
related to repayment of debt at WRI as well as cash paid for the purchase of
preferred stock during the Company's first tender offer.
Consolidated cash and cash equivalents at September 30, 2000 totaled $9,069,000
(including $5,829,000 at WRI). At December 31, 1999, cash and cash equivalents
totaled $20,122,000 (including $14,314,000 at WRI). Subject to WRI's working
capital requirements, the cash at WRI, an 80%-owned subsidiary, is available to
the Company through dividends. In addition, the Company had restricted cash,
which was not classified as cash or cash equivalents, of $19,172,000 at
September 30, 2000 and $14,896,000 at December 31, 1999. Restricted cash at
September 30, 2000 represents interest-bearing cash deposit accounts which
collateralize the Company's Contingent Promissory Note required by the Master
Agreement dated as of January 4, 1999 ("Master Agreement") among the Company,
its four principal subsidiaries, the UMWA 1992 Benefit Plan and its trustees,
the UMWA Combined Benefit Fund and its trustees, the UMWA 1974 Pension Trust and
its trustees, the UMWA, and the Official Committee of Equity Security Holders in
the Company's chapter 11 case, and the surety bond for the security required by
the 1992 UMWA Benefit Plan of $6,000,000 and $9,368,000, respectively, as well
as $3,804,000 that collateralizes the outstanding surety bonds for its workers
compensation self-insurance programs. Restricted cash increased $5,220,000 in
2000, representing additional funding of collateral for the 1992 UMWA Benefit
Plan bond. The Company also has $8,000,000 in interest-bearing debt reserve
accounts for certain of the Company's independent power projects. This cash is
restricted as to its use and is classified as part of the investment in
independent power projects. In addition, there is a surplus in the Company's
pneumoconiosis trust of approximately $5,800,000, that may be available to pay
postretirement health benefits dependent upon future actuarial calculations, as
well as $4,009,000 of surplus in the salaried pension plan, a portion of which
may not be available depending upon the form of distribution.
Liquidity Outlook
The major factor impacting the Company's liquidity outlook is its significant
"heritage costs". The heritage costs consist primarily of cash payments for
postretirement medical benefits and workers' compensation costs. The Company
also is obligated for salaried employee pension and pneumoconiosis benefits;
however, both of these future obligations have a funding surplus at present. The
Company has ongoing cash expenditures in excess of $16,000,000 per year for
postretirement medical benefits which the Company believes, in the absence of
possible legislative action, will remain fairly constant over the next four
years and then steadily decline to zero over the next approximately thirty-six
years. In addition, the Company has cash expenditures of approximately
$3,000,000 per year for workers' compensation benefits which will steadily
decline to zero over the next approximately nineteen years.
One element of heritage cost is UMWA pensions under the 1974 (Retirement) Plan.
Since this plan 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 believes the Plan was fully funded at the
time the Company terminated its last UMWA employees in 1998 and withdrew from
the Plan. However, the plan claims that the Company withdrawal occurred at a
different date, and when the Company withdrew the plan was not fully funded. The
Plan has asserted a claim of $13,800,000, which the Company is vigorously
contesting through arbitration as provided under ERISA. The arbitration
proceeding was set to begin on October 16, 2000; however, it has been continued
until June 4, 2001. In accordance with the Multiemployer Pension Plan Amendments
Act of 1980, the Company has made monthly principal and interest payments to the
plan while it pursues its rights and will continue to make such monthly payments
until arbitration is completed. Included in the payments made in 2000 is
interest of approximately $665,000. At the conclusion of arbitration the Company
may be entitled to a refund or it could be required to pay any remaining
obligation in installments through 2008.
<PAGE>
Under the Coal Industry Retiree Health Benefits Act ("Coal Act"), 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 whose last
employer remains in business and maintains an IEP, and (iii) the 1992 UMWA
Benefit Plan, a multiemployer plan which benefits (A) miners who were eligible
to retire on February 1, 1993, who retired 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 was closed to new beneficiaries as of July 20, 1992. The premiums paid by
the Company cover its own retirees and its allocated portion of the pool of
retired miners whose previous employers have gone out of business.
On January 4, 1999, in connection with its dismissal from bankruptcy, the
Company satisfied all of its premium obligations to the Combined Fund from the
date of filing in December, 1996 through the end of 1998 plus interest, and made
prepayments to the Combined Fund for its premiums for the first three quarters
of 1999. Normal monthly payments resumed in October 1999. Beginning on that
date, however, the Company also began receiving credits against its Combined
Fund premiums at a rate of approximately $200,000 per month through April, 2000,
for a total of $1,400,000 as a result of a recalculation of premiums by the
Combined Fund pursuant to an order of the U.S. District Court for the Northern
District of Alabama entered July 20, 1995 in National Coal Association v.
Chater. In October 2000, the Company received notification that its normal
monthly premiums would decline approximately $80,000 per month for the next
twelve months due to a reduction in the Combined Fund's costs.
The Combined Benefit Fund, faced with an impending solvency crisis because
benefit expenses are exceeding premiums from contributing companies, again
sought additional funding relief from Congress in 2000. On January 27, 2000 the
Administration announced it would include $346,000,000 in its current budget
proposal for the UMWA Combined Benefit Fund to secure the long-term solvency of
the Combined Fund. Under the sponsorship of Senators Byrd and Rockefeller of
West Virginia, the House and Senate conference committee subsequently approved,
as a part of the Interior and Related Agencies appropriations bill, a transfer
of $94,000,000 of accumulated interest in the Abandoned Mine Land Reclamation
Fund ("AML") to the Combined Fund. As a part of its report, the conference
committee noted that this was a short-term solution and urged that the
Congressional committees with jurisdiction over the matter work with the
concerned parties to insure the long-term solvency of the Combined Fund. The
conference committee went on to admonish the parties not to ask for additional
funding from AML in the future.
The Coal Act authorized the Trustees of the 1992 UMWA Benefit Plan to implement
security provisions for the future payment of benefits pursuant to the Act. The
Trustees set the level of security for each company at an amount equal to three
years' benefits. In Westmoreland's case this obligation was stayed during the
pendency of the bankruptcy. The Company secured its obligation to provide
retiree health benefits under the 1992 Plan by posting a bond in the amount of
$22 million in 1999 which was increased to $23 million in 2000. The Company's
bonding agent required collateral equal to 40% of the bonded amount. The bond is
collateralized by U.S. Government-backed securities in the amount of $9,368,000
at September 30, 2000. The bond amount and the amount to be secured will be
reviewed and adjusted on an annual basis.
<PAGE>
Over the course of the past year, varying versions of a Medicare prescription
drug benefit have also generated a great deal of interest by both political
parties, their candidates and in the press around the country. While health care
generally remains one of the most discussed matters of public policy,
politicians have begun to focus increasingly on the specific concern of meeting
the pharmaceutical needs of the United States' Medicare-eligible population.
Congress has included $40 billion over five years in its FY 2001 budget to fund
some form of prescription drug benefit. Several bills have been introduced in
both the House and Senate. The House has passed a prescription drug benefit. The
Senate Finance Committee is studying several alternative proposals. A constant
theme for both major political party presidential candidates has been a
prescription drug benefit.
A Medicare prescription drug benefit that covers Medicare eligible beneficiaries
covered by the Coal Act would address one of the Company's largest and fastest
growing costs. Westmoreland currently expends over $16 million per year on
retirees' health care costs and over 50% of that expense is for prescription
drugs. There is no assurance at this time what, if any, proposal will be enacted
into law or what effect, if any, that it may have on the Company's obligations
and payments.
The Company is closely monitoring energy deregulation as it might effect both
WEI and WRI. At both the national and state level, there is an ongoing debate
about removing regulatory constraints and allowing competition and market forces
to determine the price of electricity. Several states have already passed
legislation either permitting immediate wholesale and/or retail competition or
providing a mechanism for transitioning to a competitive marketplace. The
Commonwealth of Virginia has passed legislation which allows wholesale
competition to begin in 2004 and retail competition to begin in 2007. At this
time, the promulgation of state legislation is not expected to have any
immediate impact on existing long-term power purchase agreements. Several
proposed bills, calling for deregulation of the traditional utility monopolies,
are pending in the U.S. Congress. When, or if, some form of national
deregulation legislation will be enacted is uncertain. The Company is unable to
predict the effect of deregulation on WEI or WRI.
The Company's principal current sources of cash flow from operations include
cash distributions from its independent power projects, dividends from WRI and
interest earned on cash reserves. Management believes that available cash should
be sufficient to pay the Company's heritage costs and fund its ongoing
operations for the foreseeable future. In addition, the Company is engaged in
two acquisitions, the coal businesses of Montana Power and Knife River, that, if
consummated, the Company anticipates would be accretive to operating earnings
and cash flow. The Company expects to finance these acquisitions from various
sources including lender financing and the proceeds from the settlement of the
ROVA forced outage day issue.
The Company agreed to secure its obligations to the UMWA Funds under the Master
Agreement for a period of six years by providing a Contingent Promissory Note
("Note"). The original principal amount of the Note is $12 million; the
principal amount of the Note decreases to $6 million in 2002 and terminates in
2005. The Note is payable only in the event the Company does not meet its Coal
Act obligations, fails to meet certain ongoing financial tests specified in the
Note, or fails to maintain the required balance of $6 million in an escrow
account established in connection with the Note. If the cash flows from the ROVA
project exceed $8 million per year after 2001, then the $6 million held in
escrow will be returned to the Company at the beginning of 2002.
Potential sources of additional liquidity include the Company's 50% share of any
recovery in the ROVA litigation and reimbursement of amounts paid to the 1974
UMWA Pension Plan. Other sources of possible additional liquidity include the
sale of non-strategic assets, remaining overfunded amounts from the black lung
trust (in February 2000, the Company obtained a $6,400,000 distribution from
this trust) and the salaried pension plan, ongoing increased project earnings
from a revised and mutually beneficial PPOA for ROVA, a recovery from Morrison
Knudsen for dragline repairs and the effect of any future legislation that
causes Medicare to cover the cost of prescription drug benefits for the
Company's retirees.
<PAGE>
Dividends and Growth
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 with 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 Delaware law, the
preferred stock dividend was suspended in the third quarter of 1995 as a result
of the recognition of losses related to the idling of the Virginia division and
the subsequent shareholders' deficit. Quarterly dividends which are accumulated
but unpaid through and including October 1, 2000 amount to $10,644,000 in the
aggregate ($51.00 per preferred share or $12.75 per depositary share). Common
stock dividends may not be declared until the preferred stock dividends that are
accumulated but unpaid 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 (which par value was $208,708 at September
30, 2000). The Company conducted two tender offers for its Preferred Stock in
1999; the Company's purchases of preferred stock from preferred stockholders in
1999 pursuant to these two offers reduced shareholders' equity by $27,800,000.
The Company had an accumulated deficit at September 30, 2000 of $2,540,000 and
the par value of all outstanding depositary shares and shares of common stock
aggregated $17,883,000 at September 30, 2000.
In light of the impact of post-retirement health benefit costs under the Coal
Act and constraints upon the payment of dividends imposed by Delaware law and
resulting from the financial ratio requirements of the Master Agreement,
management believes that the execution of a growth strategy is vital to the
Company's ability to pay accumulated dividends on the Preferred Stock and to the
Company's ability to resume and sustain dividend payments in the future.
Following the dismissal of its bankruptcy case, the Company undertook an
extensive review, analysis and development of its strategic plan for growth
which was communicated to shareholders in the Annual Letter to Shareholders in
March 2000. Among the issues the Company considered in the course of its
strategic planning were:
o The market for energy in the United States, including forecasts under
various economic assumptions about levels of demand for different
sources of power, forecasts about levels of supply for different
sources of power, and forecasts as to cost and price data.
o The continuing impact of de-regulation on the energy market.
o The continuing impact of laws and regulations designed to protect the
environment on the supply of and demand for power produced from
different sources, and the opportunities that presently exist and that
may arise to balance the country's desire for affordable energy and a
clean environment.
<PAGE>
o The business opportunities that presently exist and that the Company
believes will arise in the energy sector.
o The Company's availability of over $200 million of net operating loss
carryforwards ("NOLs"), which shield the Company's future profits from
federal income taxation and thereby increase the return the Company
receives from profitable investments (as compared with the return a
tax paying entity that cannot shield its income from federal income
tax would receive), and which the Company believes make the Company an
especially attractive vehicle for investment, growth, and stockholder
value.
o Paths to optimize the value of the Company's assets, including sales
of assets, if the price is favorable to the Company, recognizing that
the Company's asset base delivers tax-shielded cash flow to the
Company and are burdened by the Coal Industry Retiree Health Benefit
Act of 1992 ("Coal Act"), both of which make these assets more
valuable to the Company than to potential tax-paying buyers.
o Potential sources of additional cash that might become available to
the Company, including (1) reimbursement of the Company's expenditures
to repair the dragline at Westmoreland Resources, Inc., (2) recoveries
from Virginia Power concerning the ROVA "forced outage" issue, and (3)
the other potential sources described in the "Liquidity Outlook"
section of Management's Discussion and Analysis of Financial Condition
and Results of Operations.
o The financial effect of possible legislative developments, such as a
prescription drug program that could substantially reduce the
Company's obligations under the Coal Act since over 50% of the
Company's post-retirement medical costs are for retiree prescription
drug benefits.
o The importance of properly prioritizing and sequencing the Company's
efforts, given the fact that the Company does not currently have
sufficient cash to meet all of its different strategic business
objectives, including the tax-advantaged expansion of the Company
through acquisitions, and the ability to pay accumulated and future
stock dividends.
The Company's strategic plan is predicated on expanding the Company's existing
core operations and acquiring profitable businesses in the energy sector. (The
acquisition of profitable businesses will allow the Company to use its NOLs to
shield the cash flow from those tax paying businesses from federal income tax
resulting in higher rates of return to the Company from these businesses.) The
Company is seeking to do this in niche markets that will minimize exposure to
competition and maximize opportunities for cash flows. The Company is also
seeking opportunities where the tension between the cost of power and the
environment can be effectively addressed.
The availability of the Company's net operating loss carryforwards, ("NOLs"),
which the Company hopes to fully utilize through its growth strategy, is
governed by Section 382 of the Internal Revenue Code of 1986 ("Code"). The Code
limits the utilization of a corporation's NOLs if an "ownership change" within
the meaning of the Code (an "Ownership Change") occurs with respect to that
corporation. In general, an Ownership Change occurs if, among other things,
"5-percent shareholders" within the meaning of the Code (5-Percent
Shareholders") increase their percentage ownership of the corporation's stock by
more than 50 percentage points over any three-year period. A 5-Percent
Shareholder is any person who owns 5 percent or more of the value of the
corporation's stock, and the value of the corporation's stock is the sum of the
market values of all of the corporation's outstanding shares. The Company
continues to monitor the ongoing status of ownership changes by 5-Percent
Shareholders and cautions its current shareholders and potential investors that
the creation of new 5-Percent Shareholders or trading by existing 5-Percent
Shareholders could negatively impact the calculation of the ownership change.
The Company believes that based on public information currently on file there
has not been an ownership change, but that the percentage of change is
approximately 40%. If the percentage of change begins to approach the 50%
limitation, then the Company may ask shareholders for their assistance in
minimizing the change.
<PAGE>
The Company is actively pursuing opportunities in coal, oil and gas, and power
production. In June 2000, the Company entered into negotiations on an exclusive
basis for the sale of Knife River Corporations' coal operations. Knife River
Corporation is a subsidiary of MDU Resources Group, Inc. On September 28, 2000,
the Company and Knife River Corporation announced that the Company had agreed to
acquire Knife River Corporation's coal operations for $28.8 million in cash,
excluding final settlement cost adjustments, and other consideration. The Knife
River Corporation's operations produced approximately 3 million tons in 1999.
Closing of the transaction is expected to occur following regulatory approval
and financing, among other conditions and is subject to board approval. On
September 15, 2000, the Company announced that Westmoreland had agreed to
acquire Montana Power Company's coal business unit for $138 million in cash. The
Montana Power Company's coal operations produced approximately 20 million tons
of coal in 1999. Closing is expected to occur following regulatory approval and
financing, among other conditions. The Company retained Rothschild Inc. and NM
Rothschild & Sons LLC as financial advisor to the Company in support of these
opportunities.
Although management expects to improve the Company's profitability, cash flows,
and shareholders' equity within a reasonable period of time, such improvements
cannot be guaranteed.
Going forward, the Company's Board of Directors will consider payments of
preferred stock dividends on a quarterly basis, in light of the above described
legal restrictions and the progress on implementing its growth strategy.
RESULTS OF OPERATIONS
--------------------------------------------------------------------------------
Quarter Ended September 30, 2000 Compared to Quarter Ended September 30, 1999.
Revenues for the quarter ended September 30, 2000 were $14,128,000 compared to
$14,292,000 for the quarter ended September 30, 1999. Coal sales revenue for the
quarter was lower than last year as a result of a decline in tons sold. This
reduction in coal sales revenue was offset by increased independent power equity
in earnings as a result of increased earnings at the Company's independent power
projects. The increase in earnings at the Company's Independent Power Projects
is a result of reduced operating expenses and the reversal of approximately $1
million of accrued major maintenance expenses at all the projects. The share of
losses at DTA (Dominion Terminal Associates) increased due to low throughput
volume as a result of the ongoing decline in the export market.
Costs and expenses for the quarter ended September 30, 2000 were $14,972,000
compared to $18,240,000 for the quarter ended September 30, 1999. Sales volumes
at WRI decreased during the third quarter, compared to last year, decreasing
costs and expenses accordingly. There was a reduction in the Company's heritage
costs as a result of adjustments in the pneumoconiosis benefit obligation due to
interest rate changes. In 1999 an expense of $446,000 was recognized during the
third quarter and in 2000 income of $109,000 was recognized during the third
quarter. Expenses related to the accrual of postretirement medical expenses were
lower by $386,000 during the quarter ended September 30, 2000 compared to the
quarter ended September 30, 1999 as a result of a decline in projected expense
as determined by the most recent actuarial studies. Doubtful account recoveries
were greater in 2000 due to the collection of proceeds from the sales of assets
related to the Adventure Resources bankruptcy proceedings.
<PAGE>
In 1999, the Company sold all remaining book assets of its idled Virginia
Division. The assets consisted of the Bullitt Preparation Plant and Transloader
Complex. The transaction resulted in a net gain of approximately $360,000 and is
shown as a gain on sale of assets.
Interest expense was $215,000 and $298,000 for the quarters ended September 30,
2000 and 1999, respectively. The decrease is due to a reduction in the interest
portion on installment payments being made monthly to the 1974 UMWA Pension Plan
pending resolution of the Company's arbitration proceeding with the Plan, as
well as the repayment of the WRI's long-term debt in March 2000.
Interest income was $504,000 for the quarter ended September 30, 2000, compared
to $652,000 for the quarter ended September 30, 1999. The decrease is due to the
reduction in invested cash balances.
Other expenses for the quarter ended September 30, 2000 were $344,000 compared
to other income of $293,000 for the quarter ended September 30, 1999. During the
third quarter of 2000, franchise taxes for 1999 and estimated franchise taxes
for 2000 for the independent power projects were paid. In 1999 a distribution
was received from an independent power project in the amount of $217,000.
RESULTS OF OPERATIONS
--------------------------------------------------------------------------------
Nine Months Ended September 30, 2000 Compared to Nine Months Ended September 30,
1999.
Revenues for the nine months ended September 30, 2000 were $41,288,000 compared
to $57,515,000 for the nine months ended September 30, 1999. The decrease is due
to lower equity in earnings from the independent power projects in 2000. In
early 1999, there was a gain on the sale of the Rensselaer facility of
approximately $17,000,000. The share of losses at DTA (Dominion Terminal
Associates) increased due to low throughput volume as a result of the ongoing
decline in the export market.
Costs and expenses for the nine months ended September 30, 2000 were $45,822,000
compared to $53,000,000 for the nine months ended September 30, 1999. Cost of
coal sales is lower in 2000 partially as a result of slightly lower tonnage at
WRI. This reduction in tons resulted in lower contract mining and royalty
expenses. Selling and administrative expenses decreased for the nine months
ended September 30, 2000 compared to 1999. During 1999 bonuses were paid to
employees in the amount of $2,600,000. In addition there were expenses of
$610,000 incurred in the first nine months of 1999 relating to a proxy contest
in connection with the Annual Meeting of Shareholders. (A Consent Solicitation
was launched in 2000 by certain members of the dissident group which initiated a
proxy contest in 1999 and, as a result, the Company recorded related expenses
through September 30, 2000 of $34,000. See Item 4 of Part II "Submission of
Matters to a Vote of Security Holders" for additional information.) In addition
there was a reduction in the Company's heritage costs as a result of adjustments
in the pneumoconiosis benefit obligation due to interest rate changes. In 1999
an expense of $1,754,000 was recognized for the first nine months and in 2000
income of $436,000 was recognized for the same period. Expenses related to the
accrual of postretirement medical expenses were lower during the nine months
ended September 30, 2000 compared to the nine months ended September 30, 1999.
For the nine months ended September 30, 1999 there were expenses of $12,475,000
related to the accrual for postretirement medical expenses. As a result of a
decrease in the actuarially determined expenses for various postretirement
medical plans there was an expense of $11,850,000 for the nine months ended
September 30, 2000. The pension benefit increased in 2000 as a result of the
Company's receipt of the final distribution from the terminated salaried pension
plan and its associated net gain of approximately $364,000. Doubtful account
recoveries were greater in 2000 due to the collection of proceeds from the sales
of assets related to the Adventure Resources bankruptcy proceedings.
<PAGE>
In 1999, the Company sold all remaining book assets of its idled Virginia
Division. The assets consisted of the Bullitt Preparation Plant and Transloader
Complex. The transaction resulted in a net gain of approximately $360,000. In
addition, the idled Virginia division had scrap sales of $69,000 in 1999. These
amounts are shown as gains on sales of assets.
Interest expense was $696,000 and $896,000 for the nine months ended September
30, 2000 and 1999, respectively. The decrease is due to a reduction in the
interest portion on installment payments being made monthly to the 1974 UMWA
Pension Plan pending resolution of the Company's arbitration proceeding with the
Plan, as well as the repayment of the Company's long-term debt in March 2000.
Interest income was $1,465,000 for the nine months ended September 30, 2000,
compared to $1,617,000 for the nine months ended September 30, 1999. The
decrease is due the reduction in invested cash balances.
Other expenses for the nine months ended September 30, 2000 were $1,273,000
compared to other income of $116,000 for the nine months ended September 30,
1999. During the third quarter of 2000, franchise taxes for 1999 and estimated
franchise taxes for 2000 for the independent power projects were paid. In
addition an expense related to the repayment of the Company's long term debt of
$367,000 was incurred in 2000. In 1999 a distribution was received from an
independent power project in the amount of $443,000.
Item 3
QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
--------------------------------------------------------------------------------
The Company is exposed to market risk, including the effects of changes in
commodity prices as discussed below.
Commodity Price Risk
The Company produces and sells coal to third parties from its coal mine in
Montana and produces and sells electricity and steam to third parties from its
independent power projects located in the eastern United States. Currently, all
of the Company's coal production and all of its electricity and steam production
is sold through long-term contracts with customers. These long-term contracts
serve to minimize the Company's exposure to changes in commodity prices. The
Company generally has not entered into derivative contracts to manage its
exposure to changes in commodity prices, and is not a party to any such
contracts at September 30, 2000.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1
LEGAL PROCEEDINGS
--------------------------------------------------------------------------------
See Note 2 "Chapter 11 Reorganization Proceedings" and Note 3 "Contingencies" of
Notes to Consolidated Financial Statements, which are incorporated by reference
herein.
ITEM 3
DEFAULTS UPON SENIOR SECURITIES
--------------------------------------------------------------------------------
See Note 4 "Capital Stock" of Notes to Consolidated Financial Statements, which
is incorporated by reference herein.
ITEM 4
Submission of Matters to a Vote of Security Holders
--------------------------------------------------------------------------------
On July 14, 2000, three stockholders, calling themselves the "Westmoreland
Committee to Enhance Share Value" (the "Committee"), filed preliminary consent
solicitation materials with the Securities and Exchange Commission
("Commission"). The Committee filed definitive consent solicitation materials
with the Commission on July 31, 2000. The Committee sought to remove the two
members from the Company's Board of Directors, Robert E. Killen and James W.
Sight, who were elected by the holders of the Company's depositary shares
("Depositary Shares"), each representing one-quarter of a share of the Company's
Series A Convertible Exchangeable Preferred Stock, par value $1.00 per share,
and replace Messrs. Killen and Sight with Frank E. Williams, Jr. and Guy O.
Dove, III.
The Company's Board of Directors determined to oppose the Committee's
solicitation in July 2000, and the Company mailed a consent revocation statement
to all holders of Depositary Shares commencing September 1, 2000.
Under the law of Delaware (the state in which the Company is incorporated), in
order for the Committee's proposals to be effective, it was necessary for the
Committee to deliver valid, unrevoked consents signed by the holders of 417,417
Depositary Shares within the period provided by law. The Committee delivered
written consents to the Company on October 6, 2000. On October 26, 2000, IVS
Associates, Inc., the independent inspector of election appointed to tabulate
the consents and revocations of consent, reported that consents representing
only 411,470 Depositary Shares had consented to the actions proposed by the
Committee within the statutory period. As a result, the Committee's proposals
failed.
ITEM 5
OTHER INFORMATION
--------------------------------------------------------------------------------
On October 31, 2000, the Company announced that Michael Armstrong had joined its
Board of Directors. Mr. Armstrong, 49, is a private investor specializing in
value investment situations and owns 11,334 depositary shares, each representing
one-quarter of a share of Westmoreland's Series A Convertible Exchangeable
Preferred Stock. Mr. Armstrong was formerly a licensed stockbroker with Quinn
Southwest (a division of Southwest Securities, Inc.) in Santa Fe, NM, and has
worked in the accounting and tax fields in Australia and the United Kingdom. Mr.
Armstrong was brought to the attention of the Company as a potential Board
candidate by a representative of Quinn Southwest. Customers of Quinn Southwest
hold approximately 24% of the total outstanding preferred shares in their
accounts.
<PAGE>
Mr. Armstrong joined the Board as a preferred stock director. Under the terms of
the Certificate of Designation governing the Series A Preferred Stock, the
holders of such stock are entitled to elect two members of the Company's Board
when there are six or more accumulated but unpaid preferred stock dividends. The
holders of the Series A Preferred Stock have elected directors to Westmoreland's
Board since 1996.
Mr. Armstrong's appointment occurred at the request of Robert E. Killen and
James W. Sight. Messrs. Killen and Sight voluntarily resigned from their
preferred seats on the board in order to permit the appointment of individuals
who have significant preferred stockholdings as preferred stock directors. At
the request of the Company's directors, Messrs. Killen and Sight have agreed to
remain on the Board as directors at large. Messrs. Killen and Sight were elected
to the Board as preferred stock directors in 1996 with the support of the
Company's then-largest preferred stockholder. They were reelected in June 2000
at the Company's annual meeting with the favorable votes of the holders of
approximately 75% of the preferred shares voting at the meeting. Following the
annual meeting, a consent solicitation was initiated by a dissident group, the
Committee to Enhance Share Value ("Committee"), to remove Messrs. Killen and
Sight from their preferred seats on the Board on grounds that they did not
personally hold material numbers of preferred shares. On October 26, 2000 the
independent inspector of elections reported that the Committee had obtained an
insufficient number of valid consents during the statutory period of
solicitation to remove Messrs. Killen and Sight from the Board.
In announcing Mr. Armstrong's appointment, and consistent with the Company's
repeated efforts to reach a compromise with the Committee, the Company renewed
its invitation to Mr. Guy Dove to join the Company's Board as the second
preferred stock director subject to certain standstill conditions. Mr. Dove is
one of the three members of the Committee. The Company continues to seek a
compromise in the hope that it would eliminate further contests by the
dissidents allowing all to turn full attention to implementing the Company's
strategic business plan which it believes will benefit all shareholders,
including those holding preferred shares.
In the event that the Committee itself continues to reject the Company's offer,
the Company has requested that preferred stockholders call to its attention
other potential candidates to fill the vacant preferred stock directorship. The
Company intends to consider these candidates if Mr. Dove fails to accept the
Company's offer promptly. Potential candidates should own significant shares of
preferred stock and meet the criteria for service on the Board of a public
company.
Item 6
Exhibits and Reports on Form 8-K
--------------------------------------------------------------------------------
a) Exhibit 27 - Financial Data Schedule
On September 15, 2000, the Company filed a report on Form 8-K
announcing that it has agreed to acquire Montana Power Company's coal
business unit for $138 million in cash.
On September 25, 2000, the Company filed a report on Form 8-K
announcing that an agreement to settle the Roanoke Valley Independent
Power facility ("ROVA") Unit 1 Forced Outage Day contract dispute has
been reached for cash and other consideration.
On September 28, 2000, the Company filed a report on Form 8-K
announcing that Westmoreland has agreed to acquire Knife River
Corporations' coal operations for $28.8 million in cash, excluding
final settlement cost adjustments, and other consideration.
On October 31, 2000, the Company filed a report on Form 8-K announcing
that Michael Armstrong had joined its Board of Directors.
<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 14, 2000 /s/ Robert J. Jaeger
----------------- -------------------------
Robert J. Jaeger
Senior Vice President - Finance and
Treasurer
/s/ Laurel B. Placido
-------------------------
Laurel B. Placido
Controller
