FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 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 August 1, 2000: 7,069,663
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1
Financial Statements
<TABLE>
Westmoreland Coal Company and Subsidiaries
Consolidated Balance Sheets
-----------------------------------------------------------------------------------------------------
(Unaudited)
June 30, 2000 December 31, 1999
-----------------------------------------------------------------------------------------------------
(in thousands)
<CAPTION>
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 11,128 $ 20,122
Receivables:
Trade 3,479 2,156
Excess of trust assets over pneumoconiosis benefit
obligation - 6,397
Terminated pension plan, net - 500
Other 690 621
-----------------------------------------------------------------------------------------------------
4,169 9,674
Other current assets 938 1,180
-----------------------------------------------------------------------------------------------------
Total current assets 16,235 30,976
-----------------------------------------------------------------------------------------------------
Property, plant and equipment:
Land and mineral rights 10,641 10,572
Plant and equipment 66,013 66,231
-----------------------------------------------------------------------------------------------------
76,654 76,803
Less accumulated depreciation and depletion 41,128 40,245
-----------------------------------------------------------------------------------------------------
35,526 36,558
Investment in independent power projects 48,458 45,225
Investment in Dominion Terminal Associates (DTA) 4,434 4,672
Workers' compensation bond 3,761 4,748
Prepaid pension cost 3,971 3,897
Excess of trust assets over pneumoconiosis benefit
obligation 5,691 5,255
Security deposits 15,368 10,148
Other assets 644 818
-----------------------------------------------------------------------------------------------------
Total Assets $ 134,088 $ 142,297
=====================================================================================================
(Continued)
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
Westmoreland Coal Company and Subsidiaries
Consolidated Balance Sheets (Continued)
-----------------------------------------------------------------------------------------------------
(Unaudited)
June 30, 2000 December 31, 1999
-----------------------------------------------------------------------------------------------------
(in thousands)
<CAPTION>
<S> <C> <C>
Liabilities and Shareholders' Equity (Accumulated Deficit)
Current liabilities:
Current installments of long-term debt $ - $ 220
Accounts payable and accrued expenses 5,863 5,942
Workers compensation 3,200 3,200
Postretirement medical costs 10,130 10,130
UMWA 1974 Pension Plan obligation 1,234 1,128
Other accrued expenses 956 970
Reorganization expenses 73 400
Reclamation costs 100 100
-----------------------------------------------------------------------------------------------------
Total current liabilities 21,556 22,090
-----------------------------------------------------------------------------------------------------
Long-term debt, less current installments - 1,343
Accrual for workers compensation 13,581 15,072
Accrual for postretirement medical costs 80,244 78,643
1974 UMWA Pension Plan obligations 10,060 10,751
Accrual for reclamation costs, less current portion 2,433 2,537
Other liabilities 2,014 1,930
Minority interest 5,705 6,874
Commitments and contingent liabilities
Shareholders' equity (accumulated deficit)
Preferred stock of $1.00 par value
Authorized 5,000,000 shares;
Issued and outstanding 208,708
shares at June 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 June 30, 2000 and December 31, 1999 17,674 17,669
Other paid-in capital 67,318 67,315
Accumulated deficit (86,706) (82,136)
-----------------------------------------------------------------------------------------------------
Total shareholders' equity (accumulated deficit) (1,505) 3,057
-----------------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity
(Accumulated Deficit) $ 134,088 $ 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 Six Months Ended
June 30, June 30,
2000 1999 2000 1999
------------------------------------------------------ ----------------- ---------------- ----------------- ----------------
(in thousands except per share data)
<CAPTION>
<S> <C> <C> <C> <C>
Revenues:
Coal $ 10,722 $ 8,675 $ 19,815 $ 17,234
Independent power - equity in earnings 4,208 4,116 8,210 26,707
DTA - share of losses (435) (397) (865) (718)
------------------------------------------------------ ----------------- ---------------- ----------------- ----------------
14,495 12,394 27,160 43,223
------------------------------------------------------ ----------------- ---------------- ----------------- ----------------
Costs and expenses:
Cost of sales - coal 9,086 7,670 16,623 14,963
Depreciation, depletion and amortization 458 378 883 744
Selling and administrative 1,576 2,102 3,177 6,777
Heritage costs 5,229 6,882 10,605 12,477
Pension benefit (37) (55) (438) (110)
Doubtful account recoveries - (83) - (91)
------------------------------------------------------ ----------------- ---------------- ----------------- ----------------
16,312 16,894 30,850 34,760
Operating income (loss) (1,817) (4,500) (3,690) 8,463
Other income (expense):
Gains on sales of assets - 50 - 69
Interest expense (214) (297) (481) (598)
Interest income 414 441 961 965
Minority interest (212) (149) (431) (375)
Other income (expenses) (250) 247 (929) (177)
------------------------------------------------------ ----------------- ---------------- ----------------- ----------------
Income (loss) before income taxes (2,079) (4,208) (4,570) 8,347
Income taxes - - - (45)
------------------------------------------------------ ----------------- ---------------- ----------------- ----------------
Net income (loss) (2,079) (4,208) (4,570) 8,302
Less preferred stock dividend requirements (444) (663) (888) (1,326)
------------------------------------------------------ ----------------- ---------------- ----------------- ----------------
Net income (loss) applicable to common
shareholders $ (2,523) $ (4,871) $ (5,458) $ 6,976
====================================================== ================= ================ ================= ================
Basic and diluted net income (loss) per share
applicable to common shareholders $ (.35) $ (.69) $ (.77) $ .99
Weighted average number of common shares
outstanding 7,070 7,020 7,070 7,020
====================================================== ================= ================ ================= ================
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
Westmoreland Coal Company and Subsidiaries
Consolidated Statements of Cash Flows
----------------------------------------------------------------------------------------------------------------------------
(Unaudited)
Six Months Ended June 30, 2000 1999
----------------------------------------------------------------------------------- -------------------- -------------------
(in thousands)
<CAPTION>
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (4,570) $ 8,302
Adjustments to reconcile net income to net cash provided by (used in) operating
activities:
Equity earnings from independent power projects (8,210) (26,707)
Cash received from independent power projects 4,977 44,106
Share of losses from DTA 865 718
Cash generated by DTA 126 665
Cash contributions to DTA (753) (838)
Depreciation, depletion and amortization 883 744
Stock compensation expense - 271
Gain on disposition of assets - (69)
Minority interest 431 375
Other 174 (18)
Changes in assets and liabilities:
Accounts receivable, net of allowance for doubtful accounts 5,505 1,987
Other current assets 242 (1,782)
Workers' compensation bond 987 364
Prepaid pension asset (74) (110)
Excess of trust assets over pneumoconiosis benefit obligation (436) 1,754
Accounts payable and accrued expenses (93) (3,322)
Income tax payable - (2,110)
Accrual for workers compensation (1,491) (1,777)
Accrual for postretirement medical costs 1,601 5,215
Consent judgment payment obligation - (39,006)
1974 UMWA Pension Plan obligations (585) (1,313)
Other liabilities (20) (347)
---------------------------------------------------------------------------------- -------------------- -------------------
Net cash used in operating activities before reorganization items (441) (12,898)
---------------------------------------------------------------------------------- -------------------- -------------------
Changes in reorganization items (327) (6,643)
---------------------------------------------------------------------------------- -------------------- -------------------
Net cash used in operating activities (768) (19,541)
---------------------------------------------------------------------------------- -------------------- -------------------
Cash flows from investing activities:
Fixed asset additions (381) (1,656)
Reimbursement from mine operator 530 -
Long-term deposits (5,220) (10,148)
Net proceeds from sales of assets - 69
---------------------------------------------------------------------------------- -------------------- -------------------
Net cash used in investing activities (5,071) (11,735)
---------------------------------------------------------------------------------- -------------------- -------------------
Cash flows from financing activities:
Repayment of long-term debt (1,563) (222)
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) (20,156)
---------------------------------------------------------------------------------- -------------------- -------------------
Net decrease in cash and cash equivalents (8,994) (51,432)
Cash and cash equivalents, beginning of period 20,122 84,073
================================================================================== ==================== ===================
Cash and cash equivalents, end of period $ 11,128 $ 32,641
================================================================================== ==================== ===================
Supplemental disclosures of cash flow information: Cash paid during the period for:
Interest $ 481 $ 5,446
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
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 may 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 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 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.
In October 1994, the ROVA Partnership filed a complaint against Virginia Power
seeking damages, contending that Virginia Power breached the Power Purchase
Agreement 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 has now set those proceedings for
October 30 of this year.
From May 1994, through July 2000, Virginia Power has withheld approximately
$21,090,161 of capacity payments during periods of forced outages. Interest
continues to accrue on this amount. The outcome of the dispute cannot currently
be determined and accordingly, 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 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 July 1, 2000 amount to $10,201,000 in the aggregate
($48.88 per preferred share or $12.22 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.
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 June 30,
2000). The Company had an accumulated deficit at June 30, 2000 of $1,505,000 and
the par value of all outstanding shares of preferred stock and shares of common
stock aggregated $17,883,000 at June 30, 2000.
<PAGE>
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 six months ended June 30, 2000 and
1999, respectively, is as follows:
<PAGE>
<TABLE>
Quarter ended June 30, 2000
Coal Independent Power Terminal
Operations Corporate Total
--------------- ------------------- ---------------- ---------------- ----------------
(in thousands)
<CAPTION>
<S> <C> <C> <C> <C> <C>
Revenues:
Coal revenue $ 10,722 $ - $ - $ - $ 10,722
Equity in earnings (share
of losses) - 4,208 (435) - 3,773
--------------- ------------------- ---------------- ---------------- ----------------
10,722 4,208 (435) - 14,495
Costs and expenses:
Cost of sales - coal 9,086 - - - 9,086
Depreciation, depletion,
and amortization 418 9 - 31 458
Selling and administrative
expense 158 88 143 1,187 1,576
Heritage costs - - - 5,229 5,229
Pension benefit - - - (37) (37)
--------------- ------------------- ---------------- ---------------- ----------------
Operating income (loss) $ 1,060 $ 4,111 $ (578) $ (6,410) $ (1,817)
=============== =================== ================ ================ ================
Capital expenditures $ 193 $ - $ - $ - $ 193
=============== =================== ================ ================ ================
Property, plant and
equipment (net) $ 35,383 $ 72 $ 8 $ 63 $ 35,526
=============== =================== ================ ================ ================
Information for the Company's reportable segments relates to June 30, 2000
consolidated totals as follows:
in thousands
Operating loss $ (1,817)
Interest expense (214)
Interest income 414
Minority interest (212)
Other expense (250)
--------------------------
Loss before income taxes $ (2,079)
==========================
</TABLE>
<PAGE>
<TABLE>
Quarter ended June 30, 1999
Coal Independent Power Terminal
Operations Corporate Total
--------------- ------------------- ---------------- ---------------- ----------------
(in thousands)
<CAPTION>
<S> <C> <C> <C> <C> <C>
Revenues:
Coal revenue $ 8,675 $ - $ - $ - $ 8,675
Equity in earnings (share
of losses) - 4,116 (397) - 3,719
-------------- ------------------- ----------------- --------------- -----------------
8,675 4,116 (397) - 12,394
Costs and expenses:
Cost of sales - coal 7,670 - - - 7,670
Depreciation, depletion,
and amortization 343 8 - 27 378
Selling and administrative
Expense 300 84 188 1,530 2,102
Heritage costs - - - 6,882 6,882
Pension benefit - - - (55) (55)
Doubtful account recoveries - - - (83) (83)
-------------- ------------------- ----------------- --------------- -----------------
Operating income (loss) $ 362 $ 4,024 $ (585) $ (8,301) $ (4,500)
============== =================== ================= =============== =================
Capital expenditures $ 352 $ 6 $ - $ 18 $ 376
============== =================== ================= =============== =================
Property, plant and
equipment (net) $ 37,614 $ 76 $ 8 $ 164 $ 37,862
============== =================== ================= =============== =================
Information for the Company's reportable segments relates to June 30, 1999
consolidated totals as follows:
in thousands
Operating income $ (4,500)
Gain on sale of assets 50
Interest expense (297)
Interest income 441
Minority interest (149)
Other expense 247
-------------------------
Loss before income taxes $ (4,208)
=========================
</TABLE>
<PAGE>
<TABLE>
Six months ended June 30, 2000
Coal Independent Power Terminal
Operations Corporate Total
--------------- ------------------- ---------------- ---------------- ----------------
(in thousands)
<CAPTION>
<S> <C> <C> <C> <C> <C>
Revenues:
Coal revenue $ 19,815 $ - $ - $ - $ 19,815
Equity in earnings (share
of losses) - 8,210 (865) - 7,345
--------------- ------------------- ---------------- ---------------- ----------------
19,815 8,210 (865) - 27,160
Costs and expenses:
Cost of sales - coal 16,623 - - - 16,623
Depreciation, depletion,
and amortization 806 14 - 63 883
Selling and administrative
expense 310 191 273 2,403 3,177
Heritage costs - - - 10,605 10,605
Pension benefit - - - (438) (438)
--------------- ------------------- ---------------- ---------------- ----------------
Operating income (loss) $ 2,076 $ 8,005 $ (1,138) $ (12,633) $ (3,690)
=============== =================== ================ ================ ================
Capital expenditures $ 375 $ 6 $ - $ - $ 381
=============== =================== ================ ================ ================
Property, plant and
equipment (net) $ 35,383 $ 72 $ 8 $ 63 $ 35,526
=============== =================== ================ ================ ================
Information for the Company's reportable segments relates to June 30, 2000
consolidated totals as follows:
in thousands
Operating loss $ (3,690)
Interest expense (481)
Interest income 961
Minority interest (431)
Other expense (929)
--------------------------
Loss before income taxes $ (4,570)
==========================
</TABLE>
<PAGE>
<TABLE>
Six months ended June 30, 1999
Coal Independent Power Terminal
Operations Corporate Total
--------------- ------------------- ---------------- ---------------- ----------------
(in thousands)
<CAPTION>
<S> <C> <C> <C> <C> <C>
Revenues:
Coal revenue $ 17,234 $ - $ - $ - $ 17,234
Equity in earnings (share of
losses) - 26,707 (718) - 25,989
--------------- ------------------- ---------------- ---------------- ----------------
17,234 26,707 (718) - 43,223
Costs and expenses:
Cost of sales - coal 14,963 - - - 14,963
Depreciation, depletion,
and amortization 672 16 - 56 744
Selling and administrative
expense 463 982 555 4,777 6,777
Heritage costs - - - 12,477 12,477
Pension benefit - - - (110) (110)
Doubtful account recoveries - - - (91) (91)
--------------- ------------------- ---------------- ---------------- ----------------
Operating income (loss) $ 1,136 $ 25,709 $ (1,273) $ (17,109) $ 8,463
=============== =================== ================ ================ ================
Capital expenditures $ 1,632 $ 6 $ - $ 18 $ 1,656
=============== =================== ================ ================ ================
Property, plant and
equipment (net) $ 37,614 $ 76 $ 8 $ 164 $ 37,862
=============== =================== ================ ================ ================
Information for the Company's reportable segments relates to June 30, 1999
consolidated totals as follows:
in thousands
Operating income $ 8,463
Gain on sale of assets 69
Interest expense (598)
Interest income 965
Minority interest (375)
Other expense (177)
-------------------------
Income before income taxes $ 8,347
=========================
</TABLE>
<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 June 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 $768,000 for the six months ended June 30,
2000. Cash used by operating activities was $19,541,000 for the six months ended
June 30, 1999. The change in cash used by operations in 2000 compared to 1999 is
mainly due to the addition of one-time cash distributions from the overfunded
pneumoconiosis trust and workers' compensation bond in 2000 and the additional
payment of cumulative pre-petition liabilities and one-time reorganization costs
and the payment of alternative minimum income taxes offset by the proceeds
received on the sale of Rensselaer in 1999.
Cash used in investing activities was $5,071,000 for the six months ended June
30, 2000. Cash used in investing activities for the six months ended June 30,
1999 was $11,735,000. Cash used in investing activities in 2000 included fixed
asset additions of $381,000 (including $375,000 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 $1,632,000 at WRI offset by
proceeds from sales of assets of $69,000. Cash used in investing activities also
included collateral required for long-term security deposits and bond
obligations of $5,220,000 in 2000 and $10,148,000 in 1999.
<PAGE>
Cash used in financing activities for the six months ended June 30, 2000 and
1999 totaled $3,155,000 and $20,156,000, 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 June 30, 2000 totaled $11,128,000
(including $7,701,000 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 $19,129,000 at June 30,
2000 and $14,896,000 at December 31, 1999. Restricted cash at June 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 $3,761,000
that collateralizes the outstanding surety bonds for its workers compensation
self-insurance programs. Restricted cash increased $5,220,000 in 2000,
representing additional 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 $5,691,000, that may be available to pay postretirement health
benefits dependent upon future actuarial calculations, as well as $3,971,000 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 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 when the Company withdrew the plan was
not fully funded and has asserted a claim of $13,800,000, which the Company is
vigorously contesting through arbitration which is set to begin on October 16,
2000, as provided under ERISA. 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 $450,000. 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. It is currently anticipated
that arbitration will be concluded by the first quarter of 2001.
<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
employers remain 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.
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 June 30, 2000. The bond amount and the amount to be secured will be reviewed
and adjusted on an annual basis.
The Combined Benefit Fund, faced with an impending solvency crisis because
benefit expenses are exceeding premiums from covered companies, sought
additional funding relief from Congress in 1999. Under the sponsorship of
Senators Byrd and Rockefeller of West Virginia, the House and Senate conference
committee approved, as a part of the Interior and Related Agencies
appropriations bill, a transfer of $68,000,000 of accumulated interest in the
Abandoned Mine Land Reclamation Fund to the Combined Fund. This bill was signed
by the President and the funds were transferred. 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. On
January 27, 2000 the Administration announced it will include $346,000,000 in
its current budget proposal for the UMWA Combined Benefit Fund to secure the
long-term solvency of the Fund. There can be no assurance that this proposal
will be enacted into law.
Over the course of the past year, varying versions of a Medicare prescription
drug benefit have also generated a great deal of interest both on Capitol Hill
and in the press around the country. While health care generally remains one of
the most discussed matters of public policy, Congress has 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.
<PAGE>
A Medicare prescription drug benefit that includes Medicare eligible
beneficiaries covered by the Coal Act would address one of the Company's largest
and fastest growing costs at a time when funding for coal field retirees is in
serious jeopardy. 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.
The Company is closely monitoring energy deregulation. 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.
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.
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), ongoing increased project earnings from a favorable ROVA decision,
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.
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 July 1, 2000 amount to $10,201,000 in the
aggregate ($48.88 per preferred share or $12.22 per depositary share). Common
stock dividends may not be declared until the preferred stock dividends that are
accumulated but unpaid are made current.
<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 June 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 June 30, 2000 of $1,505,000 and the par
value of all outstanding depositary shares and shares of common stock aggregated
$17,883,000 at June 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 sustain dividend payments in the future.
Following the dismissal of its bankruptcy case, the Company developed a
strategic plan for growth. 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.
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.
<PAGE>
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
Operation.
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 growth strategy is predicated on expanding the
Company's existing core operations and acquiring new 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 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. The Company also
retained Rothschild Inc. and NM Rothschild & Sons LLC as financial advisor to
the Company in support of certain acquisition opportunities including Knife
River Corporation.
Although management expects to improve the Company's profitability, cash flows,
and shareholder 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 June 30, 2000 Compared to Quarter Ended June 30, 1999.
Revenues for the quarter ended June 30, 2000 were $14,495,000 compared to
$12,394,000 for the quarter ended June 30, 1999. The increase is due to greater
sales volume at WRI.
Costs and expenses for the quarter ended June 30, 2000 were $16,312,000 compared
to $16,894,000 for the quarter ended June 30, 1999. Sales volumes at WRI have
increased, increasing costs and expenses accordingly. However, a decrease in
selling and administrative expenses related to the expenses incurred in 1999 as
a result of the proxy contest resulted in lower comparative costs in 2000. 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.
<PAGE>
Interest expense was $214,000 and $297,000 for the quarters ended June 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 $414,000 for the quarter ended June 30, 2000, compared to
$441,000 for the quarter ended June 30, 1999. The decrease is due the reduction
in invested cash balances.
RESULTS OF OPERATIONS
--------------------------------------------------------------------------------
Six Months Ended June 30, 2000 Compared to Six Months Ended June 30, 1999.
Revenues for the six months ended June 30, 2000 were $27,160,000 compared to
$43,223,000 for the six months ended June 30, 1999. The decrease is due to lower
equity in earnings from the independent power projects which included a gain on
the sale of the Rensselaer facility of approximately $17,000,000 early in 1999,
and an increased loss from terminal operations in 2000 due to a further decline
in the export market for coal.
Costs and expenses for the six months ended June 30, 2000 were $30,850,000
compared to $34,760,000 for the six months ended June 30, 1999. Sales volumes at
WRI have increased with costs and expenses increasing accordingly. Selling and
administrative expenses decreased compared to 1999. During 1999 bonuses were
paid to employees in the amount of $2,600,000. In addition there were expenses
incurred in 1999 relating to a proxy contest in connection with the Annual
Meeting of Shareholders. (The Company notes that a Consent Solicitation has been
launched in 2000 by certain members of the dissident group which initiated a
proxy contest in 1999 and, as a result, the Company will report related expenses
in the second half of 2000.). 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.
Interest expense was $481,000 and $598,000 for the six months ended June 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.
<PAGE>
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 June 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
SUBMISION OF MATTERS TO A VOTE OF SECURITY HOLDERS
--------------------------------------------------------------------------------
An Annual Meeting of was held on June 9, 2000. Proxies for the meeting were
solicited pursuant to Section 14A of the Securities Exchange Act of 1934. Three
proposals were voted upon at the meeting.
The first proposal was the election by the holders of Common Stock of five
members of the Board of Directors. The tabulation of the votes cast with respect
to each of the nominees for election as a Director is set forth as follows:
--------------------------------------------------------------------------------
Name Votes For Votes Withheld
--------------------------------------------------------------------------------
Pemberton Hutchinson 5,885,362 883,337
William R. Klaus 5,885,362 883,337
Thomas W. Ostrander 5,885,367 883,332
Christopher K. Seglem 5,885,362 883,337
Thomas J. Coffey 5,885,365 883,334
--------------------------------------------------------------------------------
Messrs. Hutchinson, Klaus, Ostrander, Seglem, and Coffey were elected.
There were no abstentions or broker non-votes.
The second proposal was the election by the holders of Depositary Shares of two
members of the Board of Directors. Each Depositary Share represents one-quarter
share of the Company's Series A Convertible Exchangeable Preferred Stock
("Series A Preferred Stock"), the terms of which entitle the holders to elect
two directors if the Company is in arrears on six or more Preferred Stock
dividends. The tabulation of the votes cast with respect to each of the nominees
for election as a Director, expressed in terms of the number of Depositary
Shares, is as follows:
--------------------------------------------------------------------------------
Name Votes For Votes Withheld
--------------------------------------------------------------------------------
Robert E. Killen 575,193 187,018
James W. Sight 575,193 187,018
--------------------------------------------------------------------------------
Messrs. Killen and Sight were elected.
There were no abstentions or broker non-votes.
The third proposal was the approval of the 2000 Long-Term Incentive Stock Plan
(the"Plan"). The Plan provides for the grant of incentive stock options,
non-qualified stock options and stock awards by the Compensation and Benefits
Committee of the Board of Directors to executives, managers and key employees of
the Company and designated subsidiaries. Holders of Common Stock and Depositary
Shares voted together on this proposal. The tabulation of votes is as follows:
Votes For Votes Against Abstentions
--------- ------------- -----------
6,268,452 1,221,921 40,537
There were no broker non-votes.
Item 6
Exhibits and Reports on Form 8-K
--------------------------------------------------------------------------------
a) Exhibit 27 - Financial Data Schedule
No Form 8-K's were filed during the reporting period.
<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: August 14, 2000 /s/ Robert J. Jaeger
--------------- ----------------------
Robert J. Jaeger
Senior Vice President - Finance
and Treasurer
/s/ Laurel B. Placido
-----------------------
Laurel B. Placido
Controller
