<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 1-13298
ZEIGLER COAL HOLDING COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 36-3344449
(State of incorporation) (I.R.S. Employer Identification No.)
50 JEROME LANE
FAIRVIEW HEIGHTS, ILLINOIS 62208 (618)394-2400
(Address of principal executive (Zip Code) (Registrant's telephone
offices) number, including area code)
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 report(s)), and (2) has been subject to
such filing requirements for the past 90 days. [x] Yes [ ] No
As of July 31, 1997, a total of 28,167,261 shares of the Registrant's common
stock were outstanding.
<PAGE> 2
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ZEIGLER COAL HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(Amounts in thousands, except per share amounts; unaudited)
<TABLE>
<CAPTION>
Three Months Six Months
------------------ ------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Coal sales .................................... $141,691 $174,120 $293,843 $347,043
Other revenues ................................ 41,712 8,581 54,212 16,676
-------- -------- -------- --------
Total revenues .............................. 183,403 182,701 348,055 363,719
-------- -------- -------- --------
Costs and expenses:
Cost of coal sales ............................ 112,302 151,609 240,533 304,635
Other costs and expenses ...................... 43,711 5,065 54,879 10,437
Selling, general and administrative expenses .. 4,887 4,865 10,159 9,523
-------- -------- -------- --------
Total costs and expenses .................... 160,900 161,539 305,571 324,595
-------- -------- -------- --------
Operating earnings .............................. 22,503 21,162 42,484 39,124
Interest expense, net ........................... 4,526 5,875 8,637 11,652
-------- -------- -------- --------
Earnings before taxes ........................... 17,977 15,287 33,847 27,472
Taxes ........................................... 3,234 2,613 6,090 4,685
-------- -------- -------- --------
Net earnings .................................... $14,743 $12,674 $27,757 $22,787
======== ======== ======== ========
Earnings per common share ....................... $0.52 $0.45 $0.98 $0.80
======== ======== ======== ========
Weighted average shares outstanding ............. 28,289 28,360 28,342 28,358
======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE> 3
ZEIGLER COAL HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
----------- ------------
(Unaudited) *
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and equivalents ............................................. $ 96,750 $ 108,321
Receivables:
Accounts receivable, less allowances of $1,666 and $2,840 ...... 67,162 51,122
Other receivables .............................................. 4,448 3,974
---------- ----------
Total receivables, net ....................................... 71,610 55,096
Inventories:
Coal finished goods ............................................ 16,362 12,525
Coal work in process ........................................... 10,831 8,744
Mine supplies .................................................. 18,906 20,093
---------- ----------
Total inventories ............................................ 46,099 41,362
Other current assets ............................................. 15,685 13,173
---------- ----------
Total current assets ......................................... 230,144 217,952
---------- ----------
PROPERTY, PLANT AND EQUIPMENT:
Land and mineral rights .......................................... 626,169 627,369
Prepaid royalties ................................................ 22,154 21,705
Plant and equipment .............................................. 506,231 493,962
---------- ----------
Total at cost ................................................ 1,154,554 1,143,036
Less - Accumulated depreciation, depletion and amortization ...... (345,515) (324,166)
---------- ----------
Property, plant and equipment, net ........................... 809,039 818,870
---------- ----------
OTHER ASSETS ....................................................... 12,673 13,803
---------- ----------
TOTAL ASSETS ....................................................... $1,051,856 $1,050,625
========== ==========
</TABLE>
* Condensed from audited financial statements.
See accompanying notes to consolidated financial statements.
2
<PAGE> 4
ZEIGLER COAL HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
---------- ------------
(Unaudited) *
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ............................................... $ 49,987 $ 38,895
Dividends payable .............................................. 2,112 2,128
Taxes payable .................................................. 23,572 24,740
Accrued payroll ................................................ 20,906 23,807
Other accrued expenses ......................................... 35,146 43,452
---------- ----------
Total current liabilities .................................. 131,723 133,022
LONG-TERM DEBT ................................................... 344,142 344,770
ACCRUED POSTRETIREMENT BENEFIT OBLIGATIONS ....................... 248,495 245,385
ACCRUED PNEUMOCONIOSIS BENEFITS .................................. 39,150 46,256
ACCRUED MINE CLOSING COSTS ....................................... 65,829 75,663
DEFERRED TAXES ................................................... 16,799 13,033
OTHER LONG-TERM LIABILITIES ...................................... 55,079 59,890
---------- ----------
Total liabilities .......................................... 901,217 918,019
---------- ----------
SHAREHOLDERS' EQUITY:
Preferred stock - $0.01 par value per share - authorized
shares, 1,000 - issued shares, none ......................... - -
Common stock - $0.01 par value - authorized shares, 50,000 -
issued shares, 28,410 shares and 28,377 shares ............... 284 284
Capital in excess of par value ................................. 72,673 72,191
Retained earnings .............................................. 83,630 60,131
Treasury stock ................................................. (5,948) -
---------- ----------
Total shareholders' equity ....................................... 150,639 132,606
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ....................... $1,051,856 $1,050,625
========== ==========
</TABLE>
* Condensed from audited financial statements.
See accompanying notes to consolidated financial statements.
3
<PAGE> 5
ZEIGLER COAL HOLDING COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(Amounts in thousands; unaudited)
<TABLE>
<CAPTION>
1997 1996
--------- --------
<S> <C> <C>
OPERATING ACTIVITIES:
Net earnings ................................................. $ 27,757 $ 22,787
Adjustments for differences between net earnings and
cash flows from operating activities:
Depreciation, depletion, and amortization ................. 28,764 29,725
Other noncash items ....................................... (20,491) (4,420)
Net increase in working capital .......................... (17,954) (15,402)
--------- --------
Net cash provided by operating activities ............... 18,076 32,690
--------- --------
INVESTING ACTIVITIES:
Additions to property, plant and equipment .................... (20,606) (13,016)
Cash paid in connection with sale of Indiana assets ........... (4,000) (7,000)
Proceeds from sales of property, plant and equipment .......... 5,327 2,835
--------- --------
Net cash (used in) investing activities .................... (19,279) (17,181)
--------- --------
FINANCING ACTIVITIES:
Payment of dividends .......................................... (4,258) (2,836)
Purchase of treasury stock .................................... (5,998) -
Other ......................................................... (112) 58
--------- --------
Net cash (used in) financing activities ..................... (10,368) (2,778)
--------- --------
INCREASE (DECREASE) IN CASH AND EQUIVALENTS .................... (11,571) 12,731
Beginning cash and equivalents .................................. 108,321 13,119
--------- --------
ENDING CASH AND EQUIVALENTS ..................................... $ 96,750 $ 25,850
========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 6
ZEIGLER COAL HOLDING COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands; unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements, in the
opinion of management, include all adjustments necessary for a fair
presentation of the results for the interim periods presented. These
adjustments include normal recurring accruals. The consolidated financial
statements are presented in accordance with the requirements of Form 10-Q and,
consequently, do not include all the disclosures required by generally accepted
accounting principles. For further information, refer to the consolidated
financial statements and notes thereto included in the Company's Annual Report
on Form 10-K for the year ended December 31, 1996.
2. REDUCTIONS OF LIABILITIES
The results of operations for the three and six month periods ended June
30, 1997 were significantly impacted by changes in accounting estimates of
liabilities. In the quarter ended June 30, 1997, management reduced the
recorded liabilities for pneumoconiosis benefits, mine closing costs,
post-retirement benefits and other items by $5,725, $4,281, $1,417 and 900,
respectively. The downward revisions of pneumoconiosis and post-retirement
benefit estimates were based on the results of preliminary 1997 studies by the
Company's independent actuaries. The lower estimate of mine closing costs
reflects changes in management's plans for the reclamation of properties in
Illinois and Kentucky. In the quarter ended March 31, 1997, management reduced
the liabilities for mine closing costs, lost coal claims and pneumonconiosis
benefits by $4,748, $2,000 and 750, respectively, primarily to account for the
effects of settlements negotiated with current and former landowners.
5
<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
RESULTS OF OPERATIONS
Revenues - Total revenues were $183.4 million for the quarter ended June
30, 1997 compared to $182.7 million for the same period in 1996. Coal sales
declined $32.4 million, or 19%, in the second quarter of 1997 due to the 1996
closings of Old Ben Mine #24, Old Ben Mine #26, and Old Ben Mine #20, the 1996
expiration of a coal supply contract with Western Farmers Electric Cooperative,
and lower sales to Shell Coal International Limited because of a contract
dispute which, subsequent to June 30, 1997, has been settled by an amendment to
the contract. Other revenues increased $33.1 million for the quarter ended
June 30, 1997, reflecting the first full quarter of power and gas trading
revenues at the Company's new energy trading and marketing subsidiary, EnerZ
Corporation ("EnerZ").
Total revenues were $348.1 million for the first six months of 1997, down
4% from total revenues of $363.7 million for the first half of 1996. Coal
sales decreased $53.2 million, or 15%, versus one year earlier primarily due to
the mine closings, contract expiration and contract dispute described above.
Other revenues were up $37.5 million during the period, primarily reflecting
the January 1997 commencement of EnerZ's power and gas trading activities.
Operating earnings - Operating earnings increased $1.3 million, or 6%,
during the quarter ended June 30, 1997, and $3.4 million, or 9%, during the six
months then ended, versus the same periods a year ago. Operating earnings for
the coal segment were up $6.9 million, or 31%, in the second quarter and $10.9
million, or 26%, for the first half of the year. The $6.9 million and $10.9
million improvements reflect the impact of productivity enhancement programs,
changes in estimates for mine closing, employee benefit obligations and lost
coal claims, and the effects in 1996 of shipping disruptions on the Company's
Carolina Power & Light Company and Georgia Power Company coal supply contracts,
which more than offset the effect on operating earnings of the decline in coal
revenues described above. Operating earnings for Zeigler's other segments were
down a combined $5.5 million for the quarter and $6.9 million for the first
half of 1997, resulting in operating losses of $2.0 million and $.8 million,
respectively. The technology segment was impacted by the December 1996
expiration of Department of Energy co-funding of the clean coal demonstration
plant in Wyoming. In the power segment, EnerZ had net trading losses in both
periods. Operating earnings for the asset management segment were down for the
quarter and year to date due to reduced sales of surplus assets, and lower
throughput and higher costs at the terminals compared to 1996.
A significant portion of the Company's operating income in 1997 is
attributable to the reduction in certain liability reserves resulting from the
reassessment of those reserves. (See "Reduction of Liabilities" above). The
Company's coal mining business, without the impact of such liability reserve
reductions, had operating income of approximately $33.5 million during the
first six months of 1997 and $42.4 million during the first six months of
1996. It is uncertain that similar savings will continue to result after
1997 from reductions in liability reserves. The Company's ability to sustain
and increase the income levels reported for the first six months of 1997 in
future periods after 1997 is therefore dependent in large part on the Company's
success in effecting acquisitions and investments that will enhance earnings
and on the Company's coal and non-coal business segments achieving significant
improvement in profit levels.
FINANCIAL CONDITION
A comparison of key elements of the Company's financial condition at the
end of the second quarter, as compared to the end of the prior year, follows:
June 30, December 31,
1997 1996
------- ------------
Working capital (in thousands) $98,421 $84,930
Current ratio 1.75 1.64
Total debt to total capital 69.6% 72.2%
Net debt to net capital 62.2% 64.1%
The Company's interest coverage ratio (operating earnings, divided by
interest expense) was 3.8 times for the six months ended June 30, 1997 compared
to 3.4 times for the same period one year earlier. The increase in the
interest coverage ratio reflects earnings growth and a reduction in interest
rates.
6
<PAGE> 8
Cash and equivalents decreased $11.6 million during the six months ended
June 30, 1997. Cash flow provided by operating activities of $18.1 million and
existing cash reserves were used to fund $20.6 million of capital expenditures
and $6.0 million of treasury stock purchases.
The Company has the financial capacity available for reinvestment in
existing businesses and strategic acquisitions. In the second quarter, the
Company made progress in completing a new credit facility which, when it
becomes effective, will replace the Company's existing $200.0 million revolving
credit facility.
FORWARD LOOKING STATEMENTS
Statements in this Report that are not strictly historical may be
"forward-looking" statements that are subject to risks and uncertainties
inherent in the Company's business. The Company's actual results could differ
materially from those anticipated in these forward-looking statements as a
result of risks and uncertainties, including those set forth herein and in the
Company's Annual Report on Form 10-K for the year ended December 31, 1996. The
Company's operations are subject to factors that can negatively or positively
affect the Company's results including, without limitation, the following:
weather; unexpected maintenance problems; variations in coal seam thickness,
amount of overburden, rock and other natural materials; disruption of
transportation services; labor problems; disputes and/or interruption of
deliveries under coal contracts due to circumstances affecting the customer;
permitting and other regulatory uncertainties; financing risks; legal
proceedings; engineering and construction risks; regulatory changes that limit
or slow the advance of deregulation in the utility marketplace; competition in
the wholesale power market; interruptions and uncertainties relating to fuel
supply and transportation; and other conditions.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company incorporates herein by reference the "Legal Proceedings" section
beginning on page 9 of its Form 10-Q for the quarter ended March 31, 1997.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
a) The Annual Meeting of Shareholders of the Company was held on May 6, 1997.
b) At the Annual Meeting of Shareholders, the following matters were
submitted to a vote of the Shareholders of the Company:
1. The election of five directors to the Board of Directors to serve
until the next annual meeting of shareholders or until their successors
are elected and qualified:
Director Votes For Votes Withheld
-------- --------- --------------
Roland E. Casati 26,951,146 58,571
Robert W. Ericson 26,951,132 58,581
John F. Manley 26,951,146 58,571
Michael K. Reilly 26,951,146 58,571
Chand B. Vyas 26,951,146 58,571
7
<PAGE> 9
2. The ratification of the appointment of Deloitte & Touche LLP as the
Company's independent public auditors for the 1997 fiscal year:
Votes For Votes Against Votes Withheld
--------- ------------- --------------
26,980,117 8,920 20,680
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
b) Reports on Form 8-K
The Company filed no Reports on Form 8-K during the quarter ended June 30,
1997.
8
<PAGE> 10
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 hereunto duly authorized.
ZEIGLER COAL HOLDING COMPANY
----------------------------
(Registrant)
August 14, 1997 /s/ Paul D. Femmer
----------------------------
Paul D. Femmer
Controller
(Principal Accounting Officer
and duly authorized officer)
9
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 96,750
<SECURITIES> 0
<RECEIVABLES> 71,610
<ALLOWANCES> 1,666
<INVENTORY> 46,099
<CURRENT-ASSETS> 230,144
<PP&E> 1,154,554
<DEPRECIATION> 345,515
<TOTAL-ASSETS> 1,051,856
<CURRENT-LIABILITIES> 131,723
<BONDS> 344,142
0
0
<COMMON> 284
<OTHER-SE> 150,355
<TOTAL-LIABILITY-AND-EQUITY> 1,051,856
<SALES> 293,843
<TOTAL-REVENUES> 348,055
<CGS> 240,533
<TOTAL-COSTS> 250,692
<OTHER-EXPENSES> 54,879
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,637
<INCOME-PRETAX> 33,847
<INCOME-TAX> 6,090
<INCOME-CONTINUING> 27,757
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 27,757
<EPS-PRIMARY> .98
<EPS-DILUTED> .98
</TABLE>
