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 December 31, 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 (423) 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 December 31, 1995.
Class Outstanding at December 31, 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
December 31, 1995 (Unaudited) and
March 31, 1995 (Audited)......................................3
Consolidated Condensed Statement of
Income (Unaudited) - Three-Months and Nine-Months
Ended December 31, 1995 and 1994..............................5
Consolidated Condensed Statements of
Changes in Cash Flows (Unaudited)
Nine-Months Ended December 31, 1995 and 1994..................6
Notes to Consolidated Condensed
Financial Statements..........................................7
Item 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition.................,......11
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.............................12
PART I. FINANCIAL INFORMATION
BLUE DIAMOND COAL COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
December 31 March 31
1995 1995
------------ -----------
<S> (Unaudited)
ASSETS
CURRENT ASSETS <C> <C>
Cash $ 9,053 $ 694,811
Short Term Investments -0- 1,112,100
Accounts and Notes Receivable 10,191,181 5,986,388
Inventories - Coal 3,122,369 1,938,886
Inventories - Supplies 1,815,543 1,716,129
Other Current Assets 648,537 554,146
----------- -----------
TOTAL CURRENT ASSETS $ 15,786,683 $ 12,002,460
PROPERTY, PLANT AND EQUIPMENT 119,974,603 121,849,660
Less: Accumulated Depreciation & Depletion 50,365,955 49,637,733
----------- -----------
NET PROPERTY, PLANT & EQUIPMENT 69,608,648 72,211,927
Investments 651,735 15,966
Other Assets 1,737,486 1,823,333
----------- -----------
TOTAL ASSETS $ 87,784,552 $ 86,053,686
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes Payable $ 320,025 $ -0-
Current Notes Payable and Capital Leases 3,019,293 2,398,852
Accounts Payable and Accrued Expenses 10,083,175 8,134,616
Current Portion of Reorganization Liabilities 481,698 1,478,147
----------- -----------
TOTAL CURRENT LIABILITIES 13,904,191 12,011,615
LONG-TERM LIABILITIES
Long-term Debt 11,682,448 14,441,990
Reserve for Health Care & Workers Compensation 27,602,755 29,137,187
Reorganization Liabilities 2,964,661 2,762,124
Deferred Income Taxes 1,935,000 1,935,000
Other Liabilities 757,342 698,469
----------- -----------
TOTAL LONG-TERM LIABILITIES 44,942,206 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 12/30 & 3/31 (2,197,420) (2,197,420)
Retained Earnings 5,868,963 2,013,784
Less: Notes Receivable Secured by
Common Stock of Company 0 (15,675)
TOTAL STOCKHOLDERS' EQUITY 28,938,155 25,067,301
----------- -----------
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 87,784,552 $ 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 Dec. 31 Nine Months Ended Dec. 31
-------------------------- -------------------------
1995 1994 1995 1994
----------- ------------ ----------- ---------
<S> <C> <C> <C> <C>
REVENUES
Net Product Sales $24,171,052 $21,239,794 $65,786,896 $59,019,224
Interest Income 31,567 7,304 56,105 37,019
Gain (Loss) on Sale
of Fixed Assets 12,030 0 33,012 (5,455)
---------- ---------- ---------- ----------
TOTAL REVENUES 24,214,649 21,247,098 65,876,013 59,050,788
COSTS AND EXPENSES
Operating Expenses
& Purchased Products 17,670,256 15,584,135 46,724,959 43,835,252
Other Operating Chgs. 4,024,404 2,691,308 10,863,337 7,077,589
Adm., Selling &
Transportation Exp. 400,000 500,000 1,355,000 1,420,000
Interest Expense 972,526 1,078,774 3,032,817 3,202,340
Other Expense 18,309 36,268 44,720 77,691
---------- ---------- ---------- ----------
TOTAL COSTS & EXPENSES 23,085,495 19,890,485 62,020,833 55,612,872
Income Before
Income Tax Expense 1,129,154 1,356,613 3,855,180 3,437,916
Income Tax Expense 000 000 000 000
---------- ---------- ---------- ----------
NET INCOME $ 1,129,154 $ 1,356,613 $ 3,855,180 $ 3,437,916
========== ========== ========== ==========
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 $1.21 $1.45 $4.12 $3.68
==== ==== ==== ====
Cash Dividends Declared
and Paid $0.00 $0.00 $0.00 $0.00
==== ==== ==== ====
</TABLE>
BLUE DIAMOND COAL COMPANY AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CHANGES IN CASH FLOWS
UNAUDITED
<TABLE>
<CAPTION>
Nine Months Ended December 31
-----------------------------
1995 1994
<S> ----------- ----------
OPERATING ACTIVITIES <C> <C>
Funds Provided (Used) from Operations,
Adjusted for Depreciation and Gain on
Sale of Fixed Assets $7,059,006 $5,699,370
(Increase) Decrease in Accounts Receivables (4,204,793) (3,665,098)
(Increase) Decrease in Inventories (1,282,897) (1,483,575)
(Increase) Decrease in Prepaid Assets (8,544) 51,407
(Decrease) Increase in Accounts Payable (320,912) (1,277,292)
Other Changes from Operations 476,331 (20,894)
--------- ----------
NET CASH FLOW USED BY OPERATING ACTIVITIES $1,718,191 (696,082)
FINANCING ACTIVITIES
Issuance (Reduction) of Short-Term Debt-Net 320,025 1,809,972
Issuance (Reduction) of Long-Term Debt-Net (1,974,326) (1,435,420)
Addition (Reduction) in Capital Lease-Net (164,775) (153,666)
--------- ----------
CASH PROCEEDS FROM FINANCING ACTIVITIES (1,819,076) 220,886
INVESTMENT ACTIVITIES
Expenditures for Property, Plant
and Equipment (600,548) (999,002)
(Increase) Reduction of
Employee Notes Receivable 15,675 24,803
--------- ---------
NET CASH USED BY INVESTING ACTIVITIES (584,873) (974,199)
--------- ---------
NET INCREASE (DECREASE) IN CASH
& CASH EQUIVALENTS (685,758) (1,449,395)
--------- ----------
Cash and Cash Equivalents
at Beginning of Period 694,811 1,453,556
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 9,053 $ 4,161
========= ==========
See Notes to Consolidated Condensed Financial Statements.
BLUE DIAMOND COAL COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
December 31, 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 December 31, 1995 and
March 31, 1995, the results of operations for the nine-month period
ended December 31, 1995 and 1994 and cash flows for the nine-month
period ended December 31, 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 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 $7,643,877 at December 31, 1995.
</TABLE>
<TABLE>
<CAPTION> 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
$26,624,737 (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 December 31, 1995 was $22,557,900; 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>
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.
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
nine-month periods ended December 31, 1995 and 1994 are summarized as
follows:
<TABLE>
<CAPTION>
Three-Months Ended Dec 31 Nine-Months Ended Dec. 31
------------------------- --------------------------
1995 1994 1995 1994
------------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Net Product sales $24,171,052 $21,239,794 $65,786,896 $59,019,224
Operating expenses
& purch. products 17,670,256 15,584,135 46,724,959 43,835,252
Other operating exp. 4,024,404 2,691,308 10,863,337 7,077,589
Adm. Selling and
Transportation Exp. 400,000 500,000 1,355,000 1,420,000
---------- ---------- ---------- ----------
Total Expenses 22,094,660 18,775,443 58,943,296 52,332,841
---------- ---------- ---------- ----------
INCOME FROM COAL
OPERATIONS $ 2,076,392 $ 2,464,351 $ 6,843,600 $ 6,686,383
========== ========== ========== ==========
Tons sold 821,320 723,568 2,191,341 2,032,307
Sales per ton $29.43 $29.35 $30.02 $29.04
Cost of sales per ton 26.90 25.95 26.90 25.75
----- ----- ----- -----
Margin per ton $ 2.53 $ 3.40 $ 3.12 $ 3.29
===== ===== ===== =====
</TABLE>
The Company's coal operations have generated $2,340,400, $2,426,800
and $2,076,400 during the first, second and third quarters,
respectively, of the current fiscal year. These results compare with
$2,181,600, $2,040,400 and $2,464,400 for the same quarters of the
preceding fiscal year. Annual shipped tons are anticipated to
increase to approximately 3,000,000 from last years shipments of
2,634,200. Continued market pressures have required the Company to
ship higher quality, higher cost, coal with no corresponding increase
in selling price, thus reducing margins. These pressures will
continue and will require careful selection of additional coal markets
and a mix of production capacity. The Company and its contract
producers have been able to obtain Workers' Compensation coverage in
the voluntary market at favorable rates; however, Kentucky Workers'
Compensation costs continue to pose serious challenges.
Interest expense accrued for the nine months ended December 31, 1995
and 1994 was as follows:
<TABLE>
<CAPTION>
1995 1994 Change
---------- ---------- ---------
<S> <C> <C> <C>
UMWA Coal Act $1,204,800 $1,292,300 $(87,500)
Workers Compensation 426,500 371,700 54,800
Bank Debt 1,401,500 1,538,300 (136,800)
--------- --------- -------
TOTAL $3,032,800 $3,202,300 $(169,500)
========= ========= ========
</TABLE>
Lower bank debt interest reflects more favorable terms in the current
year. Other changes in interest expense were reflections of changes
in balances of reserve.
FINANCIAL CONDITION AND LIQUIDITY
Nine months of current year operating activities have generated
$7,100,000, but have required $5,341,000, reflecting an increase inactivity
for the period. Capital expenditures of $600,500 compare
with an annual projection of $1,100,000. The Company has paid
$1,993,800 in governmental imposed Coal Act premiums and $923,900 in
assumed Kentucky Workers' Compensation obligations during the nine
months ended December 31, 1995. Coal Act premiums and Kentucky
Workers' Compensation payments are expected to continue at current
levels and challenge the Company's future 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 December 31, 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: February 13, 1996 Ted B. Helms
----------------------- --------------------------
Ted B. Helms
President
Date: February 13, 1996 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 DECEMBER 31, 1995
(UNAUDITED) AND THE CONSOLIDATED CONDENSED STATEMENT OF INCOME FOR THE
NINE MONTHS ENDED DECEMBER 31, 1995 (UNAUDITED) AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 9,053
<SECURITIES> 0
<RECEIVABLES> 10,191,181
<ALLOWANCES> 0
<INVENTORY> 4,937,912
<CURRENT-ASSETS> 15,786,683
<PP&E> 119,974,603
<DEPRECIATION> 50,365,955
<TOTAL-ASSETS> 87,784,552
<CURRENT-LIABILITIES> 13,904,191
<BONDS> 11,682,448
0
0
<COMMON> 961,132
<OTHER-SE> 27,977,023
<TOTAL-LIABILITY-AND-EQUITY> 87,784,552
<SALES> 65,786,896
<TOTAL-REVENUES> 65,876,013
<CGS> 57,588,296
<TOTAL-COSTS> 57,588,296
<OTHER-EXPENSES> 1,399,720
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,032,817
<INCOME-PRETAX> 3,855,180
<INCOME-TAX> 0
<INCOME-CONTINUING> 3,855,180
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,855,180
<EPS-PRIMARY> 4.12
<EPS-DILUTED> 4.12
</TABLE>
