-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OEh86PAckWUU1kgIVc/dXywg58/+EfR/kWcTWEtSN36JrjqD3rSP08ngyjiZyu/K oPP5KrC/cCdkFUsGcRhGYg== 0000106455-96-000019.txt : 19961115 0000106455-96-000019.hdr.sgml : 19961115 ACCESSION NUMBER: 0000106455-96-000019 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961113 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: WESTMORELAND COAL CO CENTRAL INDEX KEY: 0000106455 STANDARD INDUSTRIAL CLASSIFICATION: BITUMINOUS COAL & LIGNITE MINING [1220] IRS NUMBER: 231128670 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-11155 FILM NUMBER: 96661656 BUSINESS ADDRESS: STREET 1: 700 THE BELLEVUE STREET 2: 200 S BROAD ST CITY: PHILADELPHIA STATE: PA ZIP: 19102 BUSINESS PHONE: 2155452500 MAIL ADDRESS: STREET 1: 700 THE BELLEVUE STREET 2: 200 S. BROAD STREET CITY: PHILADELPHIA STATE: PA ZIP: 19102 10-Q 1 26 FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1996 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.) 14th Floor, 2 North Cascade Avenue Colorado Springs 80903 - ----------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including 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 October 31, 1996: 6,965,328 PART I - FINANCIAL INFORMATION ITEM 1 - FINANCIAL STATEMENTS WESTMORELAND COAL COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands) ASSETS Sept. 30,1996 Dec. 31,1995 (Unaudited) CURRENT ASSETS Cash and cash equivalents $ 5,389 $ 11,711 Notes and accounts receivable: Trade 4,292 3,024 Notes 1,075 2,295 Other 2,850 2,956 ----------- ----------- 8,217 8,275 Less allowance for doubtful 913 2,515 accounts ----------- ----------- 7,304 5,760 Inventories: Coal - 645 Mine supplies 183 134 Other 145 161 ----------- ----------- 328 940 Other current assets 4,843 921 ----------- ----------- TOTAL CURRENT ASSETS 17,864 19,332 Property, plant and equipment: Land and mineral rights 12,327 30,029 Plant and equipment 185,808 255,149 ----------- ----------- 198,135 285,178 Less accumulated depreciation and 155,333 225,310 depletion ----------- ----------- 42,802 59,868 Investment in Independent Power 48,831 49,069 Projects Investment in DTA 19,141 19,326 Workers compensation bond 9,960 9,960 Prepaid pension cost 9,030 7,612 Other assets 3,714 1,940 ----------- ----------- TOTAL ASSETS $ 151,342 $ 167,107 ======= ======= See accompanying notes to condensed consolidated financial statements. WESTMORELAND COAL COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands) Sept. 30,1996 Dec. 31,1995 (Unaudited) LIABILITIES AND SHAREHOLDERS' DEFICIT CURRENT LIABILITIES Current installments of long $ 911 $ 1,462 term debt Accounts payable and accrued 12,764 8,027 expenses Accrual for workers' 5,491 5,494 compensation Accrual for postretirement 10,400 10,400 medical costs Taxes on income - 2,905 Other 560 7,155 ------------ ---------- TOTAL CURRENT LIABILITIES 30,126 35,443 Long-term debt 2,349 3,131 Accrual for pneumoconiosis 10,977 13,871 benefits Accrual for workers' compensation 24,328 28,130 Accrual for postretirement 78,009 73,373 medical costs Accrual for reclamation costs 4,924 10,311 Other liabilities 19,739 15,558 Deferred income taxes - 14,827 Minority interest 5,314 10,569 SHAREHOLDERS' DEFICIT Preferred stock of $1.00 par value Authorized 5,000,000 shares; Issued 575,000 shares 575 575 Common stock of $2.50 par value Authorized 20,000,000 shares; Issued 6,965,328 shares 17,402 17,402 Other paid-in capital 94,641 94,641 Accumulated deficit (137,042) (150,724) ------------ ----------- TOTAL SHAREHOLDERS' DEFICIT (24,424) (38,106) ------------ ----------- TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT $ 151,342 $ 167,107 ======= ======= See accompanying notes to condensed consolidated financial statements. WESTMORELAND COAL COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands except per share data) (Unaudited) Three Months Ended Nine Months Ended Sept. 30 Sept. 30 1996 1995 * 1996 1995 * Revenues: Coal $ 12,000 $ 20,014 $ 33,817 $100,270 Independent Power Projects - equity in earnings and fees 3,987 3,766 11,850 12,447 Corona 1,474 - 4,460 - -------- -------- ------- ------- 17,461 23,780 50,127 112,717 Cost and expenses: Cost of sales - coal 10,816 22,840 33,718 100,052 Independent power projects - related expenses 291 537 1,330 1,544 Cost of sales-Corona 1,287 - 3,818 - Depreciation, depletion and 532 3,744 1,559 14,383 amortization General and administrative 3,565 4,417 9,252 12,677 Heritage costs 3,105 5,315 11,233 17,088 Pension benefit (843) (465) (2,547) (1,290) -------- -------- -------- -------- 18,753 36,388 58,363 144,454 Loss on idling of Eastern coal - (70,538) - (70,538) operations Operating (loss) (1,292) (83,146) (8,236) (102,275) Gains on sale of assets 3,081 - 20,262 9,538 Interest expense (82) (351) (321) (1,032) Interest and other income 1,000 1,052 3,468 3,310 -------- -------- -------- -------- Income (loss) before income tax expense (benefit) and minority 2,707 (82,445) 15,173 (90,459) interest Income tax expense (benefit): Current 414 380 1,160 1,224 Deferred (145) (102) (427) (349) -------- -------- -------- -------- 269 278 733 875 Income (loss) before minority 2,438 (82,723) 14,440 (91,334) interest Minority interest 277 264 758 618 -------- -------- -------- -------- Net income (loss) 2,161 (82,987) 13,682 (91,952) Less preferred stock dividends: declared - - - (2,444) in arrears (1,222) (1,222) (3,666) (1,222) -------- -------- -------- -------- Net income (loss) applicable to common shareholders 939 (84,209) 10,016 (95,618) ====== ====== ====== ====== Net income (loss) per share applicable to common .14 (12.10) 1.44 (13.74) shareholders ====== ====== ====== ====== Weighted average number of common shares outstanding 6,965 6,961 6,965 6,961 ====== ====== ====== ====== * Reclassed to conform with current classifications See accompanying notes to condensed consolidated financial statements. WESTMORELAND COAL COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Nine Months Ended Sept. 30, 1996 1995 ------------ ------------ Cash flows from operating activities: (in thousands) Net income (loss) $ 13,682 $ (91,952) Adjustments to reconcile net income (loss) to net cash used by operating activities: Gains on sale of assets (20,262) (9,538) Loss on idling of Eastern operations - 70,538 Reversal of income tax accrual (3,540) - Equity earnings from independent power (11,414) (9,536) projects Recognition of development fee income - (1,750) Cash distributions from independent 10,545 10,370 power projects Depreciation, depletion and 1,559 14,383 amortization Minority interest in WRI income 500 618 Change in assets and liabilities, net of non-cash transactions: Accounts receivable, net of (2,086) 18,333 allowance for doubtful accounts Inventories 612 3,772 Accounts payable and accrued (2,365) (24,081) expenses Income taxes payable 200 (221) Accrual for postretirement medical 4,636 (1,252) costs Accrual for workers' compensation (3,802) 356 Accrual for pneumoconiosis benefits (2,894) (813) Other liabilities 3,986 4,745 Other (3,691) 11,028 ------------ ------------ Net cash used by operating activities (14,334) (5,000) ------------ ------------ Cash flows from investing activities: Fixed assets additions (355) (502) (Increase) decrease in notes (303) 1,774 receivable Minority interest in WRI purchase (4,200) - Proceeds from sale of Duke Power - 23,503 Contract Proceeds from sales of assets 14,643 10,131 ------------ ------------ Net cash provided by investing 9,785 34,906 activities ------------ ----------- Cash flows from financing activities: Hampton lease buyout premium - (1,103) Repayment of long-term debt (1,333) (11,791) Preferred stock dividends paid - (2,444) Dividends paid to minority (440) - shareholders ------------ ------------ Net cash used in financing activities (1,773) (15,338) ------------ ----------- Net increase (decrease) in cash and (6,322) 14,568 cash equivalents Cash and cash equivalents, beginning of 11,711 15,453 period ------------ ------------ Cash and cash equivalents, end of period $ 5,389 $ 30,021 ------------ ------------ Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 255 $ 1,035 Income taxes, net $ 1,140 $ 1,664 Supplemental disclosure of non-cash investing and financing activities: In September, 1996, the Company completed a non-cash transaction for the transfer of several of its idled Virginia Division mining operations. In exchange for these operations, the purchaser assumed responsibility for certain reclamation obligations amounting to approximately $2.2 million. In May, 1996, the Company completed non-cash transactions for the sale of its idled Wentz and Pine Branch Mining operations. The purchasers of those assets assumed reclamation and other liabilities totaling approximately $3.0 million as part of those transactions. In the first quarter of 1995, $8.0 million was distributed from debt reserve accounts of certain of the Company's independent power projects and bank letters of credit were substituted for the amounts distributed. The cash proceeds are restricted as to use and were invested in certificates of deposit of the bank issuing the letters of credit. The certificates of deposit collateralize the letters of credit and are classified on the Company's Condensed Consolidated Balance Sheets as an Investment in Independent Power Projects. See accompanying notes to condensed consolidated financial statements. NOTES TO CONDENSED 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, 1995. 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. 1. Contingencies Liquidity The Company's current sources of cash flow, principally cash distributions from its independent power projects, dividends from Westmoreland Resources, Inc., and cash from operations of Dominion Terminal Associates, will not be sufficient by themselves to cover operating expenses and the Company's postretirement medical benefits, workers' compensation costs and UMWA pension benefits for the next 12 months. The Company expects to improve its near-term cash position by selling non- strategic assets and restructuring certain of its post retirement benefit obligations. No assurance can be given that the aforementioned actions will be executed in the time frame and to the extent management anticipates. See the "Liquidity Outlook" section of Management's Discussion and Analysis of Financial Condition and Results of Operations for more information. UMWA Benefit Funds Discussions The Company has entered into agreements with two of the UMWA Benefit Funds regarding interim arrangements in satisfaction of certain obligations. If the Company is unable to reach an agreement with these parties on a long-term basis, it would experience liquidity problems. In July, 1996, the Company entered into an interim agreement with the Combined Fund, pursuant to which the Company was required to escrow $2.5 million, the amount of unpaid premiums to that date, and to make additional payments of $.4 million per month beginning July 25, 1996 until the escrow account is terminated, as a precondition to negotiations toward a long-term settlement. The entire escrow amount is recorded on the Condensed Consolidated Balance Sheet as a component of Other current assets. See the "Liquidity Outlook" section of Management's Discussion and Analysis of Financial Condition and Results of Operations for more information. Westmoreland Energy, Inc. ("WEI") WEI is engaged in the business of owning and managing interests in independent power projects. WEI Project Contingencies Southampton. The Southampton plant, a 62.7 megawatt coal-fired cogeneration facility in Franklin, Virginia, supplies process steam to a nearby chemical manufacturer and bulk electric power under contract to Virginia Electric and Power Company ("Virginia Power") as a qualifying facility ("QF") under the Public Utility Regulatory Policies Act ("PURPA"). The plant began commercial operation in 1992. On July 7, 1994, the Federal Energy Regulatory Commission ("FERC") denied the request of LG&E- Westmoreland Southampton ("the Partnership", in which WEI has a 30% interest) for a waiver of certain QF requirements and directed the Partnership to show cause as to why it should not be required to file new cost-based rates for its 1992 electric sales to Virginia Power. The Partnership filed a request for rehearing and a motion to consider its request for rehearing as timely filed, or in the alternative, to treat its request for rehearing as a motion for reconsideration, in August 1994, one day out of time. The Partnership sought a reversal of FERC's prior order, or, in the alternative, a clarification of FERC's order stating that, with the exception of rates, the Partnership remains a QF for 1992 exempt from regulation as a public utility under the Public Utility Holding Company Act ("PUHCA"), utility laws of Virginia and various portions of the Federal Power Act. On August 1, 1996, FERC entered its decision in the Southampton case. FERC determined that the Partnership's request for reconsideration should be treated as timely filed, but that the Southampton facility was not in complete compliance with the QF requirements for 1992. FERC ordered Southampton to comply with Section 205 of the Federal Power Act (FPA), and file, for FERC's review, rates for calendar year 1992 for wholesale power sales to Virginia Power. Otherwise, the Southampton project remains exempt from regulation under PUCHA, utility laws of Virginia and the other provisions of the FPA. In August 1996, the Partnership filed a motion seeking clarification of the August 1, 1996 order. The Partnership also filed an additional request for rehearing. Virginia Power has filed responses opposing both the request for clarification and the request for rehearing. These matters are still pending before the FERC. Ultimate resolution of this matter has not yet been completed. The FERC order does not completely settle what the applicable rate is for 1992. The rate must be determined through negotiations with Virginia Power and further FERC proceedings and may result in refunds to Virginia Power, the ultimate amount of which cannot be determined at this time. The Company is also evaluating its options which may include an appeal of the FERC decision and possible recovery of damages from third parties. Until the appropriate rate is determined and related matters are resolved it is not possible to determine whether the order will ultimately have a material adverse effect on the Company's consolidated results of operations, its financial condition or liquidity. Roanoke Valley I ("ROVA"). The Company owns a 50% interest in Westmoreland-LG&E Partners ("WLP"), the sole owner of Roanoke Valley I, a cogeneration facility selling electric power to Virginia Power and steam energy to Patch Rubber Company. Under the Power Purchase Agreement ("PPA") between WLP and Virginia Power, WLP is entitled to receive capacity payments based on availability. From May 1994 through September 1996, Virginia Power withheld approximately $11.3 million of these capacity payments during periods of forced outages. To date, the Company has not realized any income on its 50% portion of the capacity payments being withheld by Virginia Power. In October 1994, WLP filed a complaint against Virginia Power seeking damages of at least $5.7 million, contending that Virginia Power breached the PPA in withholding such payments. In December, 1994, Virginia Power filed a motion to dismiss the complaint and in March, 1995, the court granted this motion. WLP filed an amended complaint in April, 1995. Virginia Power filed another motion to dismiss the complaint and in June 1995, the Circuit Court of the City of Richmond, Virginia denied Virginia Power's motion to dismiss WLP's amended complaint. In November 1995, Virginia Power filed with the court a motion for summary judgment, and a hearing on the motion was held in early December 1995. In late January 1996, the court denied Virginia Power's motion for summary judgment. The customer filed a second summary judgment motion on March 1, 1996. On March 18, 1996, the Court granted the customer's second summary judgment motion and effectively dismissed the complaint. The ROVA partnership has appealed the Court's decision granting summary judgment. The matter is pending before the Virginia Supreme Court. Regardless of the outcome, the Company believes Roanoke Valley I will operate profitability and generate positive cash flows. Rensselaer. The Company has been informed through public filings that Niagara Mohawk Power Corporation ("NIMO")(which is the purchasing utility for the Company's Rensselaer cogeneration facility in which the Company has a 50% interest) believes that, absent significant relief from its power purchase arrangements with independent power producers (including qualifying cogenerators), it may be forced either to file voluntary bankruptcy or attempt to condemn and purchase the cogeneration facilities through eminent domain. The Company intends to oppose any efforts by NIMO to nullify its contract for the Rensselaer project. 2. Acquisitions In September, 1996, the Company increased its ownership in Westmoreland Resources, Inc. ("WRI") from 60% to 80% through the completion of separate transactions with Morrison Knudsen ("MK") and Penn Virginia Corporation. The Company had targeted 80% ownership to allow consolidation for income tax purposes, and application of its tax basis net loss carryforwards (NOLs) which will generate additional cash flow to the owners. As a result of these transactions, MK will now be a 20% owner and will continue as the contract operator for WRI. Westmoreland purchased a 4% share of WRI from MK for $1.2 million. The parties also agreed to certain control related changes to the articles of incorporation and stockholders' agreement of the profitable Powder River Basin surface coal mining operation. Westmoreland also exercised a previously negotiated option with Penn Virginia Corporation for the purchase of Penn Virginia's 16% share of WRI for $3.0 million, bringing Westmoreland's ownership to 80%. The total purchase price of $4.2 million represented a discount to book value of approximately $1.1 million which was recorded as a reduction of land and mineral rights. In addition, the ability to consolidate and use the Company's NOL's resulted in a reversal of approximately $14.4 million of deferred income tax liabilities which was offset against land and mineral rights. In October, 1996, approximately $1.1 million of the money for these purchases was reimbursed from cash escrowed under Westmoreland's agreement with the United Mine Workers of America ("UMWA") Combined Benefit Fund. 3. Capital Stock The Company's preferred stock was issued in July, 1992. 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 of 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, 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 eight quarterly dividends which are in arrears (dividend payment dates of July 1, 1994, October 1, 1994, January 1, 1995, October 1, 1995, January 1, 1996, April 1, 1996, July 1, 1996, and October 1, 1996) amount to $9.7 million in the aggregate ($17.00 per preferred share). Common stock dividends may not be declared until the preferred stock dividends that are in arrears are made current. There are statutory restrictions limiting the payment of preferred stock dividends under Delaware law, the state in which the Company is incorporated. Under Delaware law, the Company is permitted to pay preferred stock dividends only: (1) out of surplus, surplus being the amount of shareholders' equity in excess of the par value of the Company's two classes of stock; or (2) in the event there is no surplus, out of net profits for the fiscal year in which a preferred stock dividend is declared (and/or out of net profits from the preceding fiscal year), but only to the extent that shareholders' equity exceeds the par value of the preferred stock ($575,000). The Company had a shareholders' deficit at September 30, 1996 of $25.3 million. In addition, the Company is prohibited from paying dividends under an interim pledge agreement with the UMWA Benefit Funds dated August 21, 1996. Under the terms of the Preferred Shareholder Agreement, the preferred shareholders are entitled to elect two directors because the Company is in arrears on six preferred dividends. The Company held a special meeting of the preferred shareholders on September 11, 1996 and Messrs. Robert Killen and James Sight were elected ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS MATERIAL CHANGES IN FINANCIAL CONDITION FROM DECEMBER 31, 1995 TO SEPTEMBER 30,1996 Liquidity Cash used by operating activities was $14.3 million, and $5.0 million in the first nine months of 1996 and 1995, respectively. The increase in cash used in 1996 is attributable to a significant reduction in accounts receivable collections that resulted from the idling of eastern coal operations in 1995. See the Consolidated Statements of Cash Flows for additional information. Cash provided by investing activities was $9.8 million and $34.9 million in the first nine months of 1996 and 1995, respectively. Included in the first nine months of 1996 were cash proceeds of $10.7 million for the relinquishment of coal reserves back to Penn Virginia Corporation and $2.4 million for the sale of coal reserves to Ark Land Company. Cash expenditures of $4.2 million were made for the purchase of an additional 20% of WRI. Included in the first nine months of 1995 were proceeds of $9.0 million related to the sale of the assets of the Company's Hampton Division and $23.5 million related to the sale of the Duke Power contract. Fixed asset additions were $0.4 million and $0.5 million in the first nine months of 1996 and 1995, respectively. Cash used in financing activities totaled $1.8 million and $15.3 million in the first nine months of 1996 and 1995, respectively. Repayment of long-term debt amounted to $1.3 million and $11.8 million in the first nine months of 1996 and 1995, respectively. The Company's consolidated cash and cash equivalents at September 30, 1996 totaled $5.4 million (including $3.7 million at WRI). At December 31, 1995, cash and cash equivalents totaled $11.7 million (including $3.2 million at WRI). None of the Company's cash and cash equivalents was or is restricted as to use or disposition. See "Liquidity Outlook" section for additional information. The cash at WRI, an 80% owned subsidiary, is available to the Company only through dividends. In addition, the Company had restricted cash, which was not classified as cash and cash equivalents on the Company's Condensed Consolidated Balance Sheets, of $18.0 million at September 30, 1996 and at December 31, 1995. The $18.0 million is comprised of two items: a $10.0 million interest-bearing cash deposit account, which collateralizes the Company's outstanding surety bonds for its workers' compensation self-insurance programs; and $8.0 million invested in certificates of deposit at September 30, 1996 which is classified on the Company's Condensed Consolidated Balance Sheets as an Investment in Independent Power Projects. The $8.0 million in certificates of deposit represents cash proceeds which were transferred from debt reserve accounts of certain of the Company's independent power projects and were substituted with bank letters of credit. The cash proceeds are restricted as to use and were invested in certificates of deposit of the bank issuing the letters of credit. The certificates of deposit collateralize the letters of credit. Liquidity Outlook The major factor impacting the Company's liquidity outlook is its significant "heritage costs". These heritage costs consist primarily of cash payments for postretirement medical benefits, workers' compensation costs and UMWA pension benefits. The Company also is obligated for its own pension and pneumoconiosis benefits; however, both of these future obligations enjoy a funding surplus at present. The Company has ongoing cash expenditures in excess of $15.0 million per year for postretirement medical benefits which could continue over the next approximately 45 years. The Company has approximately $3.8 million per year of cash expenses for workers' compensation benefits which will decline to zero over the next 20 years. The Company is required under the national contract with the UMWA to make contributions based on hours worked or tons processed to the UMWA Retirement Funds with respect to unionized employees. These contributions are not currently material. However, since the retirement fund is a multiemployer plan, under ERISA, a contributing company is liable for its share of unfunded vested liabilities upon partial or complete termination or withdrawal from the plan. The Company's liability for complete withdrawal is estimated to be approximately $17.8 million. The Company has not nor has there been a determination by the UMWA trustees that the Company has incurred a partial or complete withdrawal. Under Federal law (the Coal Industry Retiree Health Benefit Act of 1992), 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 and (iii) the 1992 UMWA Benefits Plan, a multiemployer plan which benefits (A) miners who were eligible to retire on February 1, 1993, who did retire 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 closed to new beneficiaries as of July 20, 1992. The premiums paid by the Company cover its own retirees, its current workforce and its allocated portion of the pool of retired miners whose previous employers have gone out of business. The Company met all of its premium obligations through the end of 1995, but ceased paying the premiums to the Combined Fund in 1996. Prior to cessation, the Company made a proposal to the Combined Fund to defer these and a portion of its future premiums. The Company's current annual premiums to the Combined Fund are approximately $5.0 million. As of July 9, 1996, the Company entered into an interim agreement with the Combined Fund, pursuant to which the Company was required to escrow $2.5 million, the amount of unpaid premiums to that date, and to make additional payments of $0.4 million per month beginning July 25, 1996 until the escrow account is terminated, as a precondition to negotiations toward a long-term agreement. Termination of this account will occur on November 29, 1996, as amended, unless a long term agreement is reached by November 14, 1996, or if a monthly payment is not made, or if the Company and the Combined Fund otherwise agree to terminate it, or if it is extended by mutual agreement. If the escrow account is terminated as a result of reaching November 14, 1996 without a long term agreement, or the failure to make a monthly payment, then the entire escrowed amount will be paid to the Combined Fund in satisfaction of the liability that has accrued through that date. If the Company and the Combined Fund agree to terminate the escrow account, then the disposition of the funds in the account will be determined at that time. In addition, the Coal Industry Retiree Health Benefit Act of 1992 (the "Act") authorized the Trustees of the 1992 UMWA Benefit Plan ("the 1992 Plan") to implement security provisions pursuant to the Act. In 1995, the Trustees issued security provisions which give contributors to the Plan several options, all of which would require the Company to commit or restrict cash, for satisfying the Act's security requirements, and set the level of security to be provided by the Company at approximately $22.0 million. The Act required the security to be provided by January 1, 1996. On August 21, 1996, the Company entered into an interim pledge agreement under which it pledged its stock in its affiliates, Westmoreland Energy, Inc., Westmoreland Resources, Inc., and Westmoreland Coal Sales Company, in place of the cash security requirements to the 1992 Plan and certain cash premium payments to the Combined Fund. The pledge agreement secures the Company's future obligations to the 1992 Plan. The pledge of stock also secures Combined Fund premiums to be paid into the escrow account as well as retroactive premiums for additional assigned beneficiaries expected to be assessed in the future. The pledge agreement provides that the pledged stock may be foreclosed upon if a long term agreement is not reached by November 29, 1996. The Company is in continuing discussions with the 1992 Plan and the Combined Fund regarding an extension of this date as well as the long-term agreement itself. The Company's current principal on-going sources of cash flow include cash distributions from its independent power projects, dividends from WRI and cash from operations of DTA. Management believes that cash generated from these sources and cash reserves alone will not be sufficient to pay the Company's heritage costs and operating expenses for the next 12 months. The Company expects to improve its very near-term cash reserve position in a number of ways including divesting the remainder of the Virginia Division, selling certain other non-strategic assets and obtaining cash from liquidation of certain assets given as collateral by Adventure Resources. The Company continues to seek further cost reductions wherever feasible and prudent, and is attempting to reduce or defer certain postretirement medical, workers' compensation and related payments. No assurance can be given that future operations will generate cash as expected or that the aforementioned actions will be executed in the time frame and to the extent management anticipates. The Company's current sources of cash flow, as described above, will not be sufficient by themselves to cover operating expenses and the Company's "heritage costs" on a long-term basis. Management of the Company believes that in order to meet ongoing cash requirements or restore the Company to profitability it may, among other things, have to acquire income-producing businesses and properties that can use the Company's substantial tax loss carryforwards and generate earnings and cash flow. Management of the Company has devoted significant time and effort to this strategy and several candidates have been preliminarily identified. WEI made a small acquisition in late 1995. The ability or time required to implement a successful acquisition strategy is impossible to estimate, and no assurances can be given that the Company can successfully implement the strategy or achieve long-term viability by means of it. RESULTS OF OPERATIONS: FOR THE THIRD QUARTER ENDED SEPTEMBER 30, 1996 AND SEPTEMBER 30, 1995 Revenues for the quarter ending September 30, 1996, were $17.5 million versus $23.8 million for the quarter ending September 30, 1995. The decline is attributable to active coal sales that took place in the Virginia Division during July and August of 1995 prior to the idling in September, 1995. Other than small amounts sold on behalf of contractors, there have been no coal sales in 1996 at the Virginia Division. Corona was acquired in October, 1995, and consequently there is no revenue for that entity during the quarter ending September 30, 1995. Costs and expenses were $19.6 million for the quarter ending September 30, 1996, versus $36.4 million for the quarter ending September 30, 1995. The decline is due to the idling of the Virginia Division noted above and the curtailment of the costs of coal sold associated with the sales that took place in July and August, 1995. Heritage costs for the quarter ending September 30, 1996, are 25% lower than during the same period in 1995, because no workers' compensation expense has been recorded in 1996. The total expected obligation for future workers' compensation claims was actuarially determined and recorded at December 31, 1995, and no further expense is expected to be recognized. Selling and administrative expenses have declined due to downsizing and relocation of the corporate office in September, 1995. The loss on idling of Eastern coal operations recorded in September, 1995, included charges for medical costs of $38.2 million, recognition of a UMWA pension withdrawal liability of $20.0 million, writedown of fixed assets of $18.9 million, severance and early retirement costs of $8.6 million and other costs totaling approximately $5.5 million. The Virginia Division also recognized a $23.5 million gain during the third quarter of 1995 from the early contract buyout of the Duke Power Coal Purchase Agreement. No costs associated with the idling of Eastern operations have been recorded in 1996. Gains on sales of assets during the third quarter, 1996 include the sale of various facilities and mineral rights of the Virginia Division to Intrepid Coal Corp. No cash was included in the transaction, but approximately $2.2 million of reclamation and environmental obligations were assumed by Intrepid. The remaining gains resulted from the sale of various assets at the Virginia Division. No gains were reported during the third quarter ending September 30, 1995. RESULTS OF OPERATIONS: FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND SEPTEMBER 30, 1995 Revenues for the nine months ending September 30, 1996, were $50.1 million versus $112.7 million for the nine months ending September 30, 1995. The decline is attributable to active coal sales that took place in the Virginia Division during 1995 prior to the idling in September, 1995. Other than small amounts sold on behalf of contractors, there have been no coal sales in 1996 at the Virginia Division. Corona was acquired in October, 1995, and consequently there is no revenue for that entity during the nine months ending September 30, 1995. Costs and expenses were $59.2 million for the nine months ending September 30, 1996, versus $144.5 million for the nine months ending September 30, 1995. The decline is due to the idling of the Virginia Division noted above and the curtailment of the costs of coal sold associated with sales that took place in 1995. Heritage costs as of September 30, 1996 are 29% lower than during the same period in 1995, because no workers' compensation expense has been recorded in 1996. The total expected obligation for future workers' compensation claims was actuarially determined and recorded at December 31, 1995, and no further expense is expected to be recognized. Selling and administrative expenses have declined due to downsizing and relocation of the corporate office in September, 1995. The loss on idling of Eastern coal operations recorded in September, 1995, included charges for medical costs of $38.2 million, recognition of a UMWA pension withdrawal liability of $20.0 million, writedown of fixed assets of $18.9 million, severance and early retirement costs of $8.6 million and other costs totaling approximately $5.5 million. The Virginia Division also recognized a $23.5 million gain during the third quarter of 1995 from the early contract buyout of the Duke Power Coal Purchase Agreement. No costs associated with the idling of Eastern operations have been recorded in 1996. Gains on sales of assets during the nine months ended September 30, 1996, include the January sale back to Ark Land of certain coal reserves held under lease from Ark for $2.4 million. In May, 1996, the Company relinquished to Penn Virginia Corp. certain coal reserves for a cash payment of $10.7 million. In addition, the Company obtained an 18 month option to purchase Penn Virginia's 16% interest in Westmoreland Resources for $3.0 million. As discussed in Note 2 the Company exercised its option in September 1996. The Company also sold its idled Wentz Complex to Stonega Mining and Processing and its idled Pine Branch Mining Inc. to Roaring Fork Mining Co. in non-cash transactions. Each purchaser assumed specific reclamation and other liabilities. In September, 1996, the Company sold various facilities and mineral rights of the Virginia Division to Intrepid Coal Corp. No cash was included in the transaction, but approximately $2.2 million of reclamation and environmental obligations were assumed by Intrepid. The remaining gains resulted from the sale of various assets at the Virginia Division. In January, 1995, the Company sold the assets of its Hampton Division located in Boone and Logan Counties, West Virginia to Burco Resources Corp. and Wind River Resources Corp. and sold its Hampton Division mineral lease to the lessor, Penn Virginia, for $9.0 million in cash. The net proceeds to the Company were approximately $7.4 million after payments related to a capital lease. The elimination of this capital lease resulted in a further reduction of the Company's long term debt. In February, 1995, the Company sold the Virginia Division's Dump Train for cash of $0.95 million and the related gain on the sale was $0.43 million. PART II - OTHER INFORMATION ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 1. The annual meeting of shareholders of Westmoreland was held on June 12, 1996. Proxies for the meeting were solicited pursuant to Section 14A of the Securities Exchange Act of 1934, and there was no solicitation in opposition to management's solicitation. Two proposals were voted upon at the meeting. A. The first proposal was to elect a Board of Directors, to which the issue of broker non-votes did not apply. The tabulation of the votes cast with respect to each of the nominees for election as a Director, in aggregate constituting the full Board of Directors, is set forth as follows: NAME VOTES FOR VOTES WITHHELD Pemberton Hutchinson 7,957,889 130,006 Hutchinson William R. Klaus 7,880,100 207,795 Christopher K. Seglem 7,963,119 124,776 Edwin E. Tuttle 7,883,311 240,584 James W. Sight 7,974,848 113,047 Thomas W. Ostrander 7,974,948 112,947 No nominee for election as a Director received less than 85.0% of the 9,265,328 shares of the Company's securities entitled to vote at the meeting, and no nominee received less than 97.4% of the votes cast at the meeting. B. The second proposal was to approve the adoption of the 1996 Directors' Stock Option Plan. The proposal was approved and the Plan was adopted. The tabulation of the votes is set forth as follows: Votes for Votes Against Abstentions Broker Non- votes 4,931,312 526,957 116,515 2,513,111 The 4,931,312 shares of voting securities voted for adoption of the Plan represented 53.2% of the 9,265,328 shares of the Company's securities entitled to vote at the meeting, and 61.0% of the total shares cast with respect to the proposal, the latter calculation including abstentions and broker non-votes in the determination of the quorum. 2. A special meeting of holders of depositary shares of Westmoreland was held on September 11, 1996. The only proposal was to elect two directors to the Board of Directors. Each depositary share represents one-quarter share of 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 is set forth as follows: NAME VOTES FOR VOTES WITHHELD Robert E. Killen 2,014,782 66,130 James W. Sight 2,018,582 62,330 No nominee for election as a Director received less than 87.6% of the 2,300,000 shares of the Company's securities entitled to vote at the meeting, and no nominee received less than 96.8% of the votes cast at the meeting. ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K a) Exhibit 27 - Financial Data Schedule. b) On August 30, 1996, the Company filed a report on Form 8-K, announcing that it had reached an interim agreement with the UMWA Combined Benefit Fund to provide security to the 1992 plan. c) On October 1, 1996, the Company filed a report on Form 8-K, announcing that it had completed a non-cash transaction for the transfer of ownership of several of its Virginia Division operations which were idled July 31, 1995 to Intrepid Coal. The Company also announced that it had increased its ownership in Westmoreland Resources, Inc. from 60% to 80% through the completion of separate transactions with Morrison Knudsen and Penn Virginia Corporation. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. WESTMORELAND COAL COMPANY Date: November 13, 1996 /s/ Robert J. Jaeger _________________________________ Robert J. Jaeger Senior Vice President - Finance, Treasurer and Controller /s/ Larry W. Mikkola _________________________________ Larry W. Mikkola Assistant Controller EX-27 2
5 1,000 9-MOS DEC-31-1996 SEP-30-1996 5,389 0 8,217 (913) 328 17,864 198,135 155,333 151,342 30,126 0 0 575 17,402 (42,401) 151,342 50,127 50,127 38,866 58,363 (23,730) 0 321 15,173 733 13,682 0 0 0 13,682 1.44 1.44
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