SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 1995 Commission File Number 0-10610
------------------ -------
BLUE DIAMOND COAL COMPANY
- - ------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 62-0133200
- - ------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
P. O. Box 59015, 341 Troy Circle, Knoxville, TN 37950-901
- - ----------------------------------------------- ----------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (615) 588-8511
----------------------
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 September 30, 1995.
Class Outstanding at September 30, 1995
- - ------------------------------------ ---------------------------------
Common Stock, $1 Par Value 935,220 Shares
BLUE DIAMOND COAL COMPANY
INDEX
Page
PART I. FINANCIAL INFORMATION Number
------
Item 1. Financial Statements
Consolidated Condensed Balance Sheet
September 30, 1995 (Unaudited) and
March 31, 1995 (Audited)......................................3
Consolidated Condensed Statement of
Income (Unaudited) - Three-Months and Six-Months
Ended September 30, 1995 and 1994.............................4
Consolidated Condensed Statements of
Changes in Cash Flows (Unaudited)
Six-Months Ended September 30, 1995 and 1994..................5
Notes to Consolidated Condensed
Financial Statements..........................................6
Item 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition.........................9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.............................10
PART I. FINANCIAL INFORMATION
BLUE DIAMOND COAL COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
September 30 March 31
1995 1995
------------ ------------
<S> (Unaudited)
ASSETS
CURRENT ASSETS <C> <C>
Cash $ 283,980 $ 694,811
Short Term Investments -0- 1,112,100
Accounts and Notes Receivable 10,136,563 5,986,388
Inventories - Coal 4,116,697 1,938,886
Inventories - Supplies 1,745,740 1,716,129
Other Current Assets 345,921 554,146
----------- -----------
TOTAL CURRENT ASSETS $ 16,628,901 $ 12,002,460
PROPERTY, PLANT AND EQUIPMENT 119,840,406 121,849,660
Less: Accumulated Depreciation & Depletion 49,245,995 49,637,733
----------- -----------
NET PROPERTY, PLANT & EQUIPMENT 70,594,411 72,211,927
Investments 662,086 15,966
Other Assets 1,792,361 1,823,333
----------- -----------
TOTAL ASSETS $ 89,677,759 $ 86,053,686
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes Payable $ 2,341,162 $ -0-
Current Notes Payable and Capital Leases 2,854,753 2,398,852
Accounts Payable and Accrued Expenses 9,816,950 8,134,616
Current Portion of Reorganization Liabilities 473,374 1,478,147
----------- -----------
TOTAL CURRENT LIABILITIES 15,486,239 12,011,615
LONG-TERM LIABILITIES
Long-term Debt 12,393,184 14,441,990
Reserve for Health Care & Workers Compensation 28,259,477 29,137,187
Reorganization Liabilities 3,069,018 2,762,124
Deferred Income Taxes 1,935,000 1,935,000
Other Liabilities 727,343 698,469
----------- -----------
TOTAL LONG-TERM LIABILITIES 46,384,022 48,974,770
STOCKHOLDERS' EQUITY
Common Stock - $1 Par Value, 1,000,000 Shares
961,132 Issued (Including Treasury Stock) 961,132 961,132
Additional Paid-In-Capital 24,305,480 24,305,480
Treasury Stock - 25,912 Shares at 9/30 & 3/31 (2,197,420) (2,197,420)
Retained Earnings 4,739,810 2,013,784
Less: Notes Receivable Secured by
Common Stock of Company (1,504) (15,675)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 27,807,498 25,067,301
----------- -----------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 89,677,759 $ 86,053,686
=========== ===========
</TABLE>
NOTE: The Balance Sheet at March 31, 1995 has been derived from the Audited
Financial Statements of that date.
See Notes to Consolidated Condensed Financial Statements.
BLUE DIAMOND COAL COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENT OF INCOME
UNAUDITED
<TABLE>
<CAPTION>
Three Months Ended Sept 30 Six Months Ended Sept. 30
-------------------------- -------------------------
1995 1994 1995 1994
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
REVENUES
Net Product Sales $23,799,821 $19,387,252 $41,615,844 $37,779,430
Interest Income 20,832 16,499 24,538 29,715
Gain (Loss) on Sale
of Fixed Assets -0- (5,455) 20,982 (5,455)
---------- ---------- ---------- ----------
TOTAL REVENUES 23,820,653 19,398,296 41,661,364 37,803,690
COSTS AND EXPENSES
Operating Expenses
and Purchased Products 16,894,233 14,534,876 29,054,703 28,251,117
Other Operating Charges 3,973,798 2,341,901 6,838,933 4,386,281
Administrative, Selling &
Transportation Expenses 505,000 470,000 955,000 920,000
Interest Expense 1,010,538 1,182,997 2,060,291 2,123,566
Other Expense (35,977) 17,043 26,411 41,423
---------- ---------- ---------- ----------
TOTAL COSTS AND EXPENSES 22,347,592 18,546,817 38,935,338 35,722,387
Income Before
Income Tax Expense 1,473,061 851,479 2,726,026 2,081,303
Income Tax Expense 000 000 000 000
---------- ---------- ---------- ----------
NET INCOME $ 1,473,061 $ 851,479 $ 2,726,026 $ 2,081,303
========== ========== ========== ==========
Average Number of
Common Shares Outstanding 935,220 935,220 935,220 935,220
======= ======= ======= =======
PER SHARE OF COMMON STOCK:
Net Income Based on
Average Shares Outstanding $1.58 $0.91 $2.91 $2.23
==== ==== ==== ====
Cash Dividends Declared and Paid $0.00 $0.00 $0.00 $0.00
==== ==== ==== ====
</TABLE>
See Notes to Consolidated Condensed Financial Statements.
BLUE DIAMOND COAL COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CHANGE IN CASH FLOWS
UNAUDITED
<TABLE>
<CAPTION>
Six-Months Ended September 30
-----------------------------
1995 1994
<S> ----------- ------------
OPERATING ACTIVITIES <C> <C>
Funds Provided (Used) from Operations,
Adjusted for Depreciation and Gain on
Sale of Fixed Assets $4,786,043 $3,523,758
(Increase) Decrease in Accounts Receivables (4,150,175) (2,357,269)
(Increase) Decrease in Inventories (2,207,422) 47,914
(Increase) Decrease in Prepaid Assets 239,197 143,683
(Decrease) Increase in Accounts Payable 135,619 (1,235,961)
Other Changes from Operations 465,980 (16,109)
--------- ----------
NET CASH FLOW USED BY OPERATING ACTIVITIES $ (730,758) 106,016
FINANCING ACTIVITIES
Issuance (Reduction) of Short-Term Debt-Net 2,341,162 340,000
Issuance (Reduction) of Long-Term Debt-Net (1,484,016) (948,764)
Addition (Reduction) in Capital Lease-Net (108,889) (101,548)
--------- ----------
CASH PROCEEDS FROM FINANCING ACTIVITIES 748,257 (710,312)
INVESTMENT ACTIVITIES
Expenditures for Property, Plant and Equipment (442,501) (833,332)
(Increase) Reduction of
Employee Notes Receivable 14,171 17,027
--------- ----------
NET CASH USED BY INVESTING ACTIVITIES (428,330) (816,305)
--------- ----------
NET INCREASE (DECREASE) IN CASH
& CASH EQUIVALENTS (410,831) (1,420,601)
--------- ----------
Cash and Cash Equivalents at Beginning of Period 694,811 1,453,556
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 283,980 $ 32,955
========= ==========
</TABLE>
See Notes to Consolidated Condensed Financial Statements.
BLUE DIAMOND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
September 30, 1995
NOTE A -- FINANCIAL STATEMENTS
In the opinion of the Company, the accompanying unaudited consolidated condensed
financial statements contain all adjustments necessary to present fairly the
financial position as of September 30, 1995 and March 31, 1995, the results of
operations for the six-month period ended September 30, 1995 and 1994 and cash
flows for the six-month period ended September 30, 1995 and 1994.
While the Company believes that the disclosures presented are adequate to make
the information not misleading, it is suggested that these condensed financial
statements be read in conjunction with the financial statements and related
notes included in the Company's March 31, 1995 Annual Report on Form 10-K.
NOTE B -- INCOME TAXES
Due to the Company's net operating loss and investment tax credit carry-forward
position, no provision for federal income tax is required for the current fiscal
year.
NOTE C -- CHAPTER 11 REORGANIZATION PROCEEDINGS
On May 17, 1991, Blue Diamond Coal Company (the "Company") filed a voluntary
petition for reorganization under Chapter 11 of the Federal Bankruptcy Code in
the United States Bankruptcy Court for the Eastern District of Tennessee (the
"Bankruptcy Court"). The filing had been preceded by a merger of all
significant wholly-owned subsidiaries into the Company. This filing was
precipitated by cash flow problems resulting from extensive capital expenditures
for new coal processing facilities coupled with operating losses at existing
mines.
As Debtor-in-Possession, the Company continued to operate its business and
formulated a business plan for future operations. This plan formed the basis
for the Company's proposed plan of reorganization that was intended to enable
the Company to satisfy its pre-petition obligations and emerge from Chapter 11.
This proposed plan of reorganization developed into the Fourth Amended Plan of
Reorganization dated December 10, 1992 (as implemented and approved by the
Confirmation Order, the "Plan of Reorganization"). On December 11, 1992, the
Bankruptcy Court entered an order confirming the Plan of Reorganization. On
April 6, 1995, the Bankruptcy Court entered a final decree that the Company's
bankruptcy case is closed.
NOTE D -- WORKERS' COMPENSATION AND UMWA RETIREE HEALTHCARE BENEFITS
The Company is required under Federal and State legislation to pay
injury-related and pneumoconiosis (black lung) benefits to eligible employees,
certain former employees and dependents. Effective June 19, 1991, the Company
obtained commercial insurance to cover these State and Federal benefits. Prior
to that time, the Company was self-insured and maintained a Workers'
Compensation Benefit Trust (the "Trust") through which the Company's portion of
the ultimate payment of claims was funded.
The Company had letters of credit with a bank totaling $11,642,389 to satisfy
the statutory requirement of securing the payment of workers' compensation
benefits to employees. As a result of the Company's 1991 bankruptcy filing, the
Commonwealth of Kentucky revoked the Company's self-insurance certificate and
assumed responsibility for state workers' compensation benefits related to
claimants last employed by the Company on and before June 18, 1991. The State
called a $10,642,389 letter of credit, deposited the funds in an account of the
State and proceeded to pay benefits and defense costs of the benefit claims
assumed. An insurance company also called a $1,000,000 letter of credit due to
the bank's refusal to renew the letter of credit securing its bond; one-half of
the proceeds are being held in escrow on behalf of the Company, $500,000 having
been returned to the Company and, in turn, paid to the U.S. Department of Labor
pursuant to an agreement with the D.O.L. The bank liquidated the assets of the
Trust and required the Company to sell other collateral to recover its payments
under these letters of credit.
With the liquidation of the Trust, the Office of Workers' Compensation Programs
of the DOL assumed responsibility for the payment of approved federal claims of
the Company. During fiscal 1993, a settlement agreement was reached with the
DOL in connection with the Company's Plan of Reorganization.
As a condition of a settlement agreement reached during 1993 between the Company
and the State of Kentucky, the Company is now responsible for payments of claims
commencing August 1, 1995. Based on claims settled, filed or expected to be
filed, the Company performed an internal valuation of the future liability and
recorded a provision of $7,604,179, which was the estimated present value of
future payments which will be made by the Company. During 1995, the valuation
was updated and the reserve increased by $499,578 for interest expense during
the year. The discount rate used in determining the reserve was 7% in 1995 and
1994. Due to cash payments exceeding interest accruals, the reserve amount is
$8,118,167 at September 30, 1995.
<TABLE>
<CAPTION>
As of March 31, 1995, estimated future undiscounted payments for workers'
compensation claims which will be made by the Company were summarized as
follows:
<S> <C>
1996 $ 1,500,000
1997 1,575,000
1998 1,275,000
1999 1,020,000
2000 960,000
Thereafter 5,442,708
----------
Total Estimated Future Undiscounted Payments 11,772,708
Amounts Representing Interest 3,668,951
----------
Present Value of Estimated Future Payments
(Including $1,010,206 Classified as Current) $ 8,103,757
==========
</TABLE>
During 1994, the Company received notice from the Social Security Administration
claiming the Company is responsible for health care and death benefit premiums
for certain retired coal miners who were members of the United Mine Workers of
America (UMWA) and their beneficiaries under the newly-effective Coal Industry
Retiree Health Benefit Act of 1992 (the Coal Act). The premiums are assessed
annually and relate to retired miners who are said to have worked for the
Company. These payments should tend to diminish over time, but could continue
as long as there are eligible participants.
Based on information received from various sources and initial actuarial
assumptions and analysis, an extraordinary provision of $24,624,737 (net of tax
benefits totaling $1,493,366) was recorded in 1994 to reflect payments made
during 1994 and the present value of the estimated future payments ($25,634,851)
related to this legislation, in accordance with the conclusions of the Financial
Accounting Standards Board's Emerging Issues Task Force. The tax benefit
related to this charge will be realized as these cash payments are made.
The reserve for coal miners retiree health care decreased from $25,634,851 at
March 31, 1994, to $23,346,874 at March 31, 1995, due to payments made exceeding
interest expense during the year. The reserve balance at September 30, 1995 was
$22,645,656; however, additional individuals have since been tentatively
assigned to the Company.
<TABLE>
<CAPTION>
As of March 31, 1995, estimated future undiscounted payments for coal miners
retiree health care were summarized as follows:
<S> <C>
1996 $ 2,894,107
1997 2,393,000
1998 2,283,000
1999 2,178,000
2000 2,078,000
Thereafter 24,209,157
----------
Total Estimated Future Undiscounted Payments 36,035,264
Amounts Representing Interest 12,688,390
----------
Present Value of Estimated Future Payments
(Including $1,303,238 Classified as Current) $23,346,874
==========
</TABLE>
NOTE E -- CONTINGENT GAINS
Since the Company has not had a contractual relationship with the UMWA since
1964 and never bargained for nor guaranteed any health care or death benefits, a
lawsuit was filed which challenges the constitutionality of the Act discussed
in the preceding note. During 1995, this lawsuit was dismissed by the Federal
District Court; however, an appeal has been filed. If the Company prevails in
this lawsuit, its obligations under the Act would be eliminated.
The Company has also made a request to the Social Security Administration for
relief based on an administrative review of approximately one-third of the
assigned individuals. This matter could cause future payments under the Act to
be reduced significantly.
The ultimate outcome of each of these proceedings is uncertain at the present
time.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
Results of the Company's coal operations for the three-month and six-month
periods ended September 30, 1995 and 1994 are summarized as follows:
<TABLE>
<CAPTION>
Three-Months Ended Sept.30 Six-Months Ended Sept. 30
------------------------- --------------------------
1995 1994 1995 1994
----------------------- ----------- -----------
<S> <C> <C> <C> <C>
Net Product sales $23,799,821 $19,387,252 $41,615,844 $37,779,430
Operating expenses and
purchased products 16,894,233 14,534,876 29,054,703 28,251,117
Other operating expense 3,973,798 2,341,901 6,838,933 4,386,281
Adm. Selling and
Transportation expenses 505,000 470,000 955,000 920,000
---------- ---------- ---------- ----------
Total Expenses 21,373,031 17,346,777 36,848,636 33,557,398
---------- ---------- ---------- ----------
INCOME FROM COAL
OPERATIONS $ 2,426,790 $ 2,040,475 $ 4,767,208 $ 4,222,032
========== ========== ========== ==========
Tons sold 789,813 667,915 1,370,021 1,308,739
Sales per ton $30.13 $29.03 $30.38 $28.87
Cost of sales per ton 27.06 25.97 26.90 25.64
----- ----- ----- -----
Margin per ton $ 3.07 $ 3.06 $ 3.48 $ 3.23
===== ===== ===== =====
</TABLE>
The Company's income from coal operations for the six-month period ended
September 30, 1995, amounted to $4,767,200 of which $2,426,790 (51%) was
generated in the second fiscal quarter. Fifty-eight (58%) percent of the
current fiscal year's tonnage was shipped in the second quarter. Per ton coal
prices for the year have increased approximately $1.50 (5%) over the preceding
year, reflecting the pass-through of workers' compensation costs and higher
tonnages shipped to stoker and metallurgical markets. Per ton costs have also
increased about five (5%) percent over the preceding year's costs due primarily
to workers' compensation costs. Production from the Company's reserves
continued to provide about 95% of total coal shipped. Management anticipates
shipments will continue at current levels for the remainder of the fiscal year.
The current year's six-month earnings from coal operations were offset by
interest expense accruing on the Company's future obligations under the Coal
Industry Retiree Health Benefit Act of 1992 ($807,000) and Kentucky Workers'
Compensation ($286,800), as well as bank debt and reorganization liabilities
($966,500). Interest expense is comparable for the quarter and year-to-date
periods of both years, except that bank debt interest decreased $34,600 in the
second quarter, reflecting renegotiated bank loan terms. Administrative,
selling and transportation costs have increased $35,000 primarily due to
increased reserves for uncollected notes receivable from operators.
FINANCIAL CONDITION AND LIQUIDITY
Operating activities for the current year have not generated significant cash
due to increased inventories and trade accounts receivable, reflecting higher
levels of production and shipments. Capital expenditures of $442,500 for the
first six-months represent a rate of expenditures lower than the year's
projected $1,250,000 rate. Long-term debt and capital leases have been reduced
by $2,049,000 during the first six months. Coal Act premium payments
($1,508,100) and Kentucky Workers' Compensation payments ($309,800) continued to
challenge the Company's liquidity.
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits - None
(b) Reports on Form 8-K - No current reports were filed during the quarter
ended September 30, 1995.
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.
BLUE DIAMOND COAL COMPANY
---------------------------------
Registrant
Date: November 13, 1995 Ted B. Helms
---------------------------------
Ted B. Helms
President
Date: November 13, 1995 W. S. Lyon, III
---------------------------------
W. S. Lyon, III
Treasurer
<TABLE> <S> <C>
<ARTICLE>5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED CONDENSED BALANCE SHEET AT SEPTEMBER 30, 1995 (UNAUDITED)
AND THE CONSOLIDATED CONDENSED STATEMENT OF INCOME FOR THE SIX MONTHS
ENDED SEPTEMBER 30, 1995 (UNAUDITED) AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 283,980
<SECURITIES> 0
<RECEIVABLES> 10,136,563
<ALLOWANCES> 0
<INVENTORY> 5,862,437
<CURRENT-ASSETS> 16,628,901
<PP&E> 119,840,406
<DEPRECIATION> 49,245,995
<TOTAL-ASSETS> 89,677,759
<CURRENT-LIABILITIES> 15,486,239
<BONDS> 12,393,184
<COMMON> 961,132
0
0
<OTHER-SE> 26,846,366
<TOTAL-LIABILITY-AND-EQUITY> 89,677,759
<SALES> 41,615,844
<TOTAL-REVENUES> 41,661,364
<CGS> 35,893,636
<TOTAL-COSTS> 35,893,636
<OTHER-EXPENSES> 981,411
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,060,291
<INCOME-PRETAX> 2,726,026
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,726,026
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,726,026
<EPS-PRIMARY> 2.91
<EPS-DILUTED> 2.91
</TABLE>
