-----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, BkW4nCunzJixK3jKYAwdZ+tVkWXPNGH8Fxf1Hp60L4i1ddfaqmPj+ckYN//ufIHD UrOak47MmwKWONueEAgQmw== 0000106455-99-000019.txt : 19990518 0000106455-99-000019.hdr.sgml : 19990518 ACCESSION NUMBER: 0000106455-99-000019 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990517 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: SEC FILE NUMBER: 001-11155 FILM NUMBER: 99626306 BUSINESS ADDRESS: STREET 1: 2 NORTH CASCADE AVENUE 14TH FLOOR STREET 2: 200 S BROAD ST CITY: COLORADO SPRINGE STATE: CO ZIP: 80903 BUSINESS PHONE: 7194422600 MAIL ADDRESS: STREET 1: 2 N CASCADE AVE STREET 2: # 14THFL CITY: COLORADO SPRINGS STATE: CO ZIP: 80903-1614 10-Q 1 FORM 10-Q 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 March 31, 1999 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the transition period from __________ to ___________ Commission File Number 0-752 WESTMORELAND COAL COMPANY ------------------------- (Exact name of registrant as specified in its charter) DELAWARE 23-1128670 -------- ---------- (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 2 North Cascade Avenue 14th Floor Colorado Springs, Colorado 80903 - ---------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, area code 719-442-2600 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes [X] No [ ] Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of May 1, 1999: 7,059,663 PART I - FINANCIAL INFORMATION Item 1 Financial Statements Westmoreland Coal Company and Subsidiaries Condensed Consolidated Balance Sheets - ------------------------------------------------------------------------------------------------------ (Unaudited) March 31, 1999 December 31, 1998 - ------------------------------------------------------------------------------------------------------ (in thousands)
Assets Current assets: Cash and cash equivalents $ 56,858 $ 84,073 Receivables: Trade 853 2,566 Terminated pension plan, net 500 500 Other 1,250 2,730 - ----------------------------------------------------------------------------------------------------- 2,603 5,796 Other current assets 1,265 691 - ----------------------------------------------------------------------------------------------------- Total current assets 60,726 90,560 - ----------------------------------------------------------------------------------------------------- Property, plant and equipment: Land and mineral rights 10,990 10,990 Plant and equipment 96,269 94,989 - ----------------------------------------------------------------------------------------------------- 107,259 105,979 Less accumulated depreciation and depletion 69,395 69,029 - ----------------------------------------------------------------------------------------------------- 37,864 36,950 Investment in independent power projects 45,425 62,386 Investment in Dominion Terminal Associates (DTA) 5,207 5,475 Workers' compensation bond 4,187 4,140 Prepaid pension cost 3,803 3,748 Excess of trust assets over pneumoconiosis benefit obligation 9,911 10,891 Security deposits 10,148 - Other assets 1,190 1,456 - ----------------------------------------------------------------------------------------------------- Total Assets $ 178,461 $ 215,606 ===================================================================================================== (Continued) See accompanying Notes to Condensed Consolidated Financial Statements. Westmoreland Coal Company and Subsidiaries Condensed Consolidated Balance Sheets (Continued) - ------------------------------------------------------------------------------------------------------ (Unaudited) March 31, 1999 December 31, 1998 ---------------------------------------------------------------------------------------------------- (in thousands) Liabilities and Shareholders' Equity Current liabilities: Current installments of long-term debt $ 216 $ 200 Accounts payable and accrued expenses 7,702 11,249 Workers compensation 3,200 3,800 Postretirement medical costs 11,066 11,066 Reorganization expenses 1,670 7,900 Consent judgment payment obligation - 39,006 Reclamation costs 100 100 Income taxes 75 2,185 ---------------------------------------------------------------------------------------------------- Total current liabilities 24,029 75,506 ---------------------------------------------------------------------------------------------------- Long-term debt, less current installments 1,313 1,562 Accrual for workers compensation 17,426 17,338 Accrual for postretirement medical costs 76,174 73,143 1974 UMWA Pension Plan obligations 12,726 13,776 Accrual for reclamation costs, less current portion 3,046 3,046 Other liabilities 1,757 2,370 Minority interest 7,246 7,020 Commitments and contingent liabilities Shareholders' equity Preferred stock of $1.00 par value Authorized 5,000,000 shares; Issued and outstanding 575,000 shares 575 575 Common stock of $2.50 par value Authorized 20,000,000 shares; Issued and outstanding 7,059,663 shares 17,649 17,413 Other paid-in capital 94,783 94,630 Accumulated deficit (78,263) (90,773) ---------------------------------------------------------------------------------------------------- Total shareholders' equity 34,744 21,845 ---------------------------------------------------------------------------------------------------- Total Liabilities and Shareholders' Equity $ 178,461 $ 215,606 ====================================================================================================
See accompanying Notes to Condensed Consolidated Financial Statements. Westmoreland Coal Company and Subsidiaries Consolidated Statements of Income - ------------------------------------------------------------------------------------------------------ (Unaudited) Three Months Ended March 31, 1999 1998 - ------------------------------------------------------------------------------------------------------ (in thousands except per share data)
Revenues: Coal $ 8,559 $ 12,252 Independent power - equity in earnings 22,591 4,793 DTA - (share of losses) (321) (83) - ------------------------------------------------------------------------------------------------------ 30,829 16,962 - ------------------------------------------------------------------------------------------------------ Costs and expenses: Cost of sales - coal 7,293 10,347 Depreciation, depletion and amortization 366 455 Selling and administrative 4,675 1,411 Heritage costs 5,595 4,151 Pension benefit (55) (53) Doubtful account recoveries (8) (113) - ------------------------------------------------------------------------------------------------------ 17,866 16,198 Operating income 12,963 764 Other income (expense): Gains on sales of assets 19 136 Interest expense (301) (55) Interest income 524 - Minority interest (226) (317) Other income (expense) (424) 1,556 - ------------------------------------------------------------------------------------------------------ Income from continuing operations before reorganization items and income taxes 12,555 2,084 Reorganization legal and consulting fees - (659) Reorganization interest income - 637 Income taxes (45) - - ------------------------------------------------------------------------------------------------------ Net income 12,510 2,062 Less preferred stock dividends (1,222) (1,222) - ------------------------------------------------------------------------------------------------------ Net income applicable to common shareholders $ 11,288 $ 840 ====================================================================================================== Net income per share applicable to common shareholders $ 1.62 $ .12 Weighted average number of common shares outstanding 6,980 6,965 ======================================================================================================
See accompanying Notes to Condensed Consolidated Financial Statements. Westmoreland Coal Company and Subsidiaries Consolidated Statements of Cash Flows - ---------------------------------------------------------------------------------------------------------------------------- (Unaudited) Three Months Ended March 31, 1999 1998 ---------------------------------------------------------------------------------- -------------------- ------------------- (in thousands)
Cash flows provided by operating activities: Net income $ 12,510 $ 2,062 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Equity earnings from independent power projects (22,591) (4,793) Cash received from independent power projects 39,512 3,886 Equity in losses from DTA 321 83 Cash generated by DTA 383 826 Cash contributions to DTA (436) (541) Depreciation, depletion and amortization 366 455 Gain on disposition of assets (19) (136) Pension termination receivable, net - 12,540 Minority interest 226 317 Other (268) (86) Changes in assets and liabilities: Accounts receivable, net of allowance for doubtful accounts 3,193 579 Workers' compensation bond (47) 701 Prepaid pension asset (55) (52) Excess of trust assets over pneumoconiosis benefit obligation 980 50 Security deposits (10,148) - Accounts payable and accrued expenses (3,547) (1,467) Income tax payable (2,110) - Accrual for workers compensation (512) - Accrual for postretirement medical costs 3,031 - Accrual for reorganization expenses (6,230) - Consent judgment payment obligation (39,006) - Other liabilities (613) - 1974 UMWA Pension Plan obligations (1,050) - ---------------------------------------------------------------------------------- -------------------- ------------------- Net cash provided by (used in) operating activities before reorganization items (26,110) 14,424 ---------------------------------------------------------------------------------- -------------------- ------------------- Changes in reorganization items - 3,331 ---------------------------------------------------------------------------------- -------------------- ------------------- Net cash provided by (used in) operating activities (26,110) 17,755 ---------------------------------------------------------------------------------- -------------------- ------------------- Cash flows provided by (used in) investing activities: Fixed asset additions (1,280) (75) Net proceeds from sales of assets 19 161 ---------------------------------------------------------------------------------- -------------------- ------------------- Net cash provided by (used in) investing activities (1,261) 86 ---------------------------------------------------------------------------------- -------------------- ------------------- Cash flows provided by (used in) financing activities: Repayment of long-term debt (233) (47) Issuance of common stock 389 - ---------------------------------------------------------------------------------- -------------------- ------------------- Net cash provided by (used in) financing activities 156 (47) ---------------------------------------------------------------------------------- -------------------- ------------------- Net increase (decrease) in cash and cash equivalents (27,215) 17,794 Cash and cash equivalents, beginning of period 84,073 30,664 ================================================================================== ==================== =================== Cash and cash equivalents, end of period $ 56,858 $ 48,458 ================================================================================== ==================== =================== Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 5,195 $ 27 Taxes $ 2,110 -
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/A for the year ended December 31, 1998. The financial information contained in this Form 10-Q is unaudited but reflects all adjustments which are, in the opinion of management, necessary for a fair presentation of the financial information for the periods shown. Such adjustments are of a normal recurring nature. Certain prior year amounts have been reclassified to conform to the current year presentation. 1. Nature of Operations The Company's principal activities, conducted within the United States are: (i) the production and sale of coal from a contractor operated mine in the Powder River Basin in Eastern Montana; (ii) the ownership of interests in cogeneration and other non-regulated independent power plants; and (iii) the leasing of capacity at Dominion Terminal Associates, a coal storage and vessel loading facility. Chapter 11 Reorganization Proceedings On December 23, 1996 ("Petition Date"), Westmoreland Coal Company and four subsidiaries, Westmoreland Resources, Inc., Westmoreland Coal Sales Company, Westmoreland Energy, Inc., and Westmoreland Terminal Company (the "Debtor Corporations"), filed voluntary petitions for reorganization under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court for the District of Colorado (the "Chapter 11 Cases"). By order of the Bankruptcy Court entered on December 23, 1998, pursuant to the request of the Debtor Corporations, the Chapter 11 Cases were dismissed. There were no objections during the ten day stay period that expired on January 4, 1999. Upon the dismissal, the Debtor Corporations were and are no longer subject to the protections afforded or restrictions imposed by the Bankruptcy Code. 2. Contingencies Westmoreland Energy, Inc. ("WEI") - WEI Project Contingencies Southampton Project - In October, 1998, the Southampton Partnership and Virginia Power Company entered into a settlement agreement of their administrative proceeding before the Federal Energy Regulatory Commission concerning the project's compliance with Qualifying Facility ("QF") criteria and payments arising out of plant performance in 1992. The settlement provided for, among other items, payments by the Southampton Partnership to Virginia Power of $1,000,000 annually for the years 1999-2001, followed by a reduction in capacity payments from Virginia Power to the Southampton Partnership of $500,000 for the years 2002-2008. Following 2008, Virginia Power may elect to terminate its power purchases from the Southampton Partnership or continue to receive the $500,000 annual reduction in capacity payments for the remainder of the power purchase agreement. The settlement was approved by the FERC. Resolution of the FERC QF issue provides the Southampton Partnership an answer about QF status in 1992, regulatory certainty regarding application of the Federal Power Act to both the Southampton project and the upstream partners and owners, including WEI and Westmoreland, and assuming continued compliance with loan covenants and appropriate project financial performance, the ability to distribute earnings to the project partners. A limited partner of LG&E-Southampton, L.P. has made a demand on the Southampton Partnership and related LG&E and Westmoreland entities for reimbursement in the amount of $1,979,000 in connection with its share of the settlement. The Westmoreland entities have made a similar demand against the LG&E entities. ROVA I Project - WEI owns a 50% partnership interest in Westmoreland-LG&E Partners (the "ROVA Partnership"). The ROVA Partnership's principal customer, Virginia Power, contracted to purchase the electricity generated by ROVA I, one of two units included in the ROVA partnership, under a long-term contract. In the second quarter of 1994, that customer disputed the ROVA Partnership's interpretation of provisions of the contract dealing with the payment of the capacity purchase price when the facility experiences a "forced outage" day. A forced outage day is a day when ROVA I is not able to generate a specified level of electrical output. The ROVA Partnership believes that the customer is required to pay the ROVA Partnership the full capacity purchase price unless forced outage days exceed a contractually stated allowed annual number. The customer asserts that it is not required to do so. From May, 1994, through March, 1999, Virginia Power withheld approximately $15,200,000 of these capacity payments during periods of forced outages. To date, the Company has not recognized any revenue on its 50% portion of the capacity payments being withheld by Virginia Power. In October 1994, the ROVA Partnership commenced litigation against Virginia Power seeking damages, contending that Virginia Power breached the Power Purchase Agreement in withholding such payments. The case was tried beginning on October 26, 1998 in the Circuit Court of the City of Richmond, Virginia. On December 2, 1998, the Court entered judgment in the ROVA Partnership's favor for the amount of $14,800,000 plus interest for a total of $19,336,214. On December 21, 1998, Virginia Power posted its appeal bond and on December 29, 1998, noted its appeal of the Court's decision to the Virginia Supreme Court. The Court has not indicated whether it will hear the appeal. Due to the uncertainty of the appeal, the financial statements do not reflect any portion of this judgment. Rensselaer - On March 15, 1999, LG&E-Westmoreland Rensselaer ("LWR") completed the sale of the Rensselaer Project to Fulton Cogeneration Associates, L.P. ("Fulton"). LWR received approximately $68,000,000 in cash as consideration for the sale of the Rensselaer plant and operating contracts. After payment of expenses and remaining debts, Westmoreland Energy Inc.'s share of the proceeds was approximately $33,000,000. Other In accordance with a Master Agreement entered into among the Company, the UMWA Health and Benefit Funds, the Official Committee of Equity Security Holders, and the United Mine Workers of America ("UMWA"), pursuant to which the parties supported Westmoreland's dismissal from bankruptcy, the Company agreed to pay "the reasonable and necessary professional fees and expenses of the Equity Committee professionals, Andrews and Kurth, L.L.P. and Putnam Hayes and Bartlett, for services rendered in connection with the Chapter 11 cases". The Company paid a large portion of those fees but has disputed and not paid remaining amounts which total approximately $488,000. On April 7, 1999, Andrews & Kurth, L.L.P. and Putnam Hayes and Bartlett filed suit in District court in the State of Colorado seeking payment of the amounts allegedly owed. The Company believes the charges were not reasonable and necessary in accordance with the Bankruptcy Code and the Master Agreement and will vigorously contest the case. The likely outcome of the dispute is unknown at this time. The Company accrued the entire amount demanded on its records at December 31, 1998. 3. Capital Stock Preferred stock dividends at a rate of 8.5% per annum were paid quarterly from the third quarter of 1992 through the first quarter of 1994. The declaration and payment of preferred stock dividends was suspended in the second quarter of 1994 in connection with extension agreements with the Company's principal lenders. Upon the expiration of these extension agreements, the Company paid a quarterly dividend on April 1, 1995 and July 1, 1995. Pursuant to the requirements of Delaware law, described below, the preferred stock dividend was suspended in the third quarter of 1995 as a result of recognition of losses and the subsequent shareholders' deficit. The eighteen quarterly dividends which are accumulated but unpaid (dividend payment dates July 1, 1994, October 1, 1994, January 1, 1995, October 1, 1995, January 1, 1996, April 1, 1996, July 1, 1996, October 1, 1996, January 1, 1997, April 1, 1997, July 1, 1997, October 1, 1997, January 1, 1998, April 1, 1998, July 1, 1998, October 1, 1998, January 1, 1999, and April 1, 1999) amount to $21,994,000 in the aggregate ($38.25 per preferred share or $9.56 per depositary share). Common stock dividends may not be declared until the preferred stock dividends that are accumulated but unpaid are made current. On March 10, 1999, the Company offered to purchase up to 1,052,631 depositary shares, each representing one quarter of a share of its Series A Convertible Exchangeable Preferred Stock. The offer price of $19 per share is in full satisfaction of claims to accumulated but unpaid dividends on the depositary shares tendered. On April 7, 1999, the offer expired and 1,683,903 depositary shares were tendered in response to the offer. Because the number of shares tendered exceeded the maximum number of shares offered, a proration factor of approximately 62.5% was applied to all shares tendered. A total of 1,052,631 depositary shares were purchased for $20,000,000. The balance sheet effect of this transaction will be to reduce cash and shareholders' equity by $20,000,000. At the same time, total preferred shares outstanding will be reduced from 575,000 shares to 311,842, accumulated but unpaid dividends to $11,928,000, and the ongoing quarterly preferred dividend will be reduced from $1,222,000 to $663,000. There are statutory restrictions limiting the payment of preferred stock dividends under Delaware law, the state in which the Company is incorporated. Under Delaware law, the Company is permitted to pay preferred stock dividends only: (1) out of surplus, surplus being the amount of shareholders' equity in excess of the par value of the Company's two classes of stock; or (2) in the event there is no surplus, out of net profits for the fiscal year in which a preferred stock dividend is declared (and/or out of net profits from the preceding fiscal year), but only to the extent that shareholders' equity exceeds the par value of the preferred stock ($575,000 at March 31, 1999). The Company had shareholders' equity at March 31, 1999 of $34,744,000 and the par value of all outstanding depositary shares and shares of common stock aggregated $18,224,000 at March 31, 1999. The Company is also subject to certain financial ratio tests under the terms of the Master Agreement, compliance with which is secured by a $12 million contingency note, and is prohibited in any event from payment of dividends, either common or preferred, until after June 30, 1999. 4. BUSINESS SEGMENT INFORMATION The Company's operations have been classified into three segments: coal, independent power operations and terminal operations. The coal segment includes the production and sale of coal from the Powder River Basin in eastern Montana. The independent power operations includes the ownership of interests in cogeneration and other non-regulated independent power plants. The terminal operation segment consists of the leasing of capacity at Dominion Terminal Associates, a coal storage and vessel loading facility. Summarized financial information by segment for the quarters ending March 31, 1999 and 1998 is as follows: --------------------------------------- -------------- ----------------- ---------------- --------------- ---------------- Independent Power Terminal Coal Operations Operations Corporate Total --------------------------------------- -------------- ----------------- ---------------- --------------- ---------------- (in thousands) March 31, 1999
Revenues $ 8,559 $ 22,591 $ (321) $ - $ 30,829 Operating income (loss) 1,011 21,751 (724) (9,075) 12,963 Total assets 52,570 81,226 6,396 38,269 178,461 Reconciliation of operating income to income from continuing operations before income taxes: Operating income (loss) 1,011 21,751 (724) (9,075) 12,963 Gains on sale of assets - - - 19 19 Interest expense (36) - - (265) (301) Interest income 134 237 3 150 524 Minority interest (226) - - - (226) Other income (expense) (7) (485) 28 40 (424) ======================================= ============== ================= ================ =============== ================ Income (loss) from continuing operations before income taxes $ 876 $ 21,503 $ (693) $ (9,131) $12,555 ======================================= ============== ================= ================ =============== ================ March 31, 1998 Revenues $ 12,252 $ 4,793 $ (83) $ - $16,962 Operating income (loss) 1,281 4,300 (504) (4,313) 764 Total assets 52,123 75,281 20,374 38,420 186,198 Reconciliation of operating income to income from continuing operations before income taxes: Operating income (loss) 1,281 4,300 (504) (4,313) 764 Gains on sale of assets - - - 136 136 Interest expense (41) (7) - (7) (55) Interest income 150 239 5 243 637 Minority interest (317) - - - (317) Other income (expense) 6 (57) 24 1,583 1,556 Reorganization costs (61) (53) (48) (497) (659) ======================================= ============== ================= ================ =============== ================ Income (loss) from continuing operations before income taxes $ 1,018 $ 4,422 $ (523) $ (2,855) $ 2,062 ======================================= ============== ================= ================ =============== ================
Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations - -------------------------------------------------------------------------------- Material Changes in Financial Condition From December 31, 1998 to March 31, 1999 Forward-Looking Disclaimer Certain statements in this report which are not historical facts or information are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including, but not limited to, the information set forth in Management's Discussion and Analysis of Financial Condition and Results of Operations. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, levels of activity, performance or achievements of the Company, or industry results, to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others, the following: general economic and business conditions; the ability of the Company to implement its business strategy; the Company's access to financing; the Company's ability to successfully identify new business opportunities; the Company's ability to achieve anticipated cost savings and profitability targets; changes in the industry; competition; the Company's ability to utilize its tax net operating losses; the ability to reinvest excess cash at an acceptable rate of return; weather conditions; the availability of transportation; price of alternative fuels; costs of coal produced by other countries; the effect of regulatory and legal proceedings and other factors discussed in Item 1 of the Company's Form 10-K/A. As a result of the foregoing and other factors, no assurance can be given as to the future results and achievement of the Company. Neither the Company nor any other person assumes responsibility for the accuracy and completeness of these statements. Bankruptcy Proceeding Westmoreland Coal Company and four subsidiaries, Westmoreland Resources, Inc., Westmoreland Coal Sales Company, Westmoreland Energy, Inc., and Westmoreland Terminal Company ("the Debtor Corporations"), filed voluntary petitions for protection under Chapter 11 of the Bankruptcy Code on December 23, 1996. On December 23, 1998, the Bankruptcy Court granted the Debtors' Motion to Dismiss the cases. The automatic stay period pursuant to the Federal Rules of Bankruptcy Procedure expired on January 4, 1999. Continued financial improvement of the Debtors during the bankruptcy provided the basis for dismissal and settlement with the UMWA Health and Benefit Funds ("Funds"), the Company's principal creditors. On October 15, 1998, the Company, the Funds, the United Mine Workers of America ("UMWA") and the Official Committee of Equity Security Holders ("Equity Committee") reached agreement on a settlement term sheet, which contained the principal terms of an agreement among them and provided for, among other things, the resolution of the Chapter 11 cases. The agreement, which facilitated a consensual dismissal of the bankruptcy cases, was announced during scheduled hearings on Westmoreland's Motion to Dismiss and the Equity Committee's Motion to Convert to Chapter 7, and the hearings were subsequently recessed. The agreement was subsequently documented in certain stipulated judgments and in a Master Agreement among the Company, the Funds, the UMWA, and the Equity Committee. On October 30, 1998, the Debtor Corporations, the Funds, the UMWA, and the Equity Committee filed a joint motion with the Bankruptcy Court, setting forth the outline of a procedure for dismissal of the Chapter 11 Cases combined with the entry of "consent judgments" in connection with certain of the pending litigation. The Debtor Corporations filed motions requesting approval of the consent judgments on or around November 18, 1998. Notices of the filing of these motions were mailed to creditors as directed by the Bankruptcy Court. There were no allowable objections and dismissal of the Chapter 11 Cases occurred on December 23, 1998. The Master Agreement was executed on January 29, 1999. Liquidity and Capital Resources Cash used in operating activities was $26,110,000 for the three months ended March 31, 1999. Cash provided by operating activities was $17,755,000 for the same period in 1998. The decrease in the three months ending March 31, 1999 compared to the same period in 1998 is a result of approximately, $52,000,000 of payments related to the bankruptcy dismissal that occurred on January 4, 1999 as well as approximately $10,000,000 of security deposits required under the Master Agreement. Offsetting the large dismissal payment and security deposits was the receipt of approximately $33,000,000 relating to the sale of the Rensselaer project. During the quarter ended March 31, 1998, the Company received approximately $12,500,000 from the termination of its overfunded salaried pension plan. Cash used in investing activities was $1,261,000 for the three months ended March 31, 1999. This is the result of additions to property, plant and equipment of $1,280,000, offset by proceeds from sales of Virginia Division assets of $19,000. Cash provided by investing activities for the three months ending March 31, 1998 was $86,000, all of which was received from the sale of idled Virginia Division assets. Cash provided by financing activities was $156,000 for the three months ending March 31, 1999. Cash used in financing activities for the same period in 1998 totaled $47,000. Cash provided in 1999 is primarily related to the issuances of stock and the exercise of stock options offset by repayment of debt at WRI. Consolidated cash and cash equivalents at March 31, 1999 totaled $56,858,000 (including $13,891,000 at WRI.) At December 31, 1998, cash and cash equivalents totaled $84,073,000 (including $14,712,000 at WRI). 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 or cash equivalents, of $14,335,000 at March 31, 1999 and $4,140,000 at December 31, 1998. The restricted cash represents interest-bearing cash deposit accounts which collateralize the Company's Contingent Note ($6,000,000) required by the Master Agreement and the surety bond for the security required by the 1992 UMWA Benefit Plan ($4,148,000), as well as $4,187,000 that collateralizes the outstanding surety bonds for its workers compensation self-insurance programs. The Company also has $8,000,000 in interest-bearing debt reserve accounts for certain of the Company's independent power projects. This cash is restricted as to its use and is classified as part of the investment in independent power projects. In addition, there is a surplus in the Company's pneumoconiosis trust of approximately $9,911,000, that may be available to pay postretirement health benefits dependent upon future actuarial calculations. Preferred stock dividends at a rate of 8.5% per annum were paid quarterly from the third quarter of 1992 through the first quarter of 1994. The declaration and payment of preferred stock dividends was suspended in the second quarter of 1994 in connection with extension agreements with the Company's principal lenders. Upon the expiration of these extension agreements, the Company paid a quarterly dividend on April 1, 1995 and July 1, 1995. Pursuant to the requirements of Delaware law, described below, the preferred stock dividend was suspended in the third quarter of 1995 as a result of recognition of losses and the subsequent shareholders' deficit. The eighteen quarterly dividends which are accumulated but unpaid (dividend payment dates July 1, 1994, October 1, 1994, January 1, 1995, October 1, 1995, January 1, 1996, April 1, 1996, July 1, 1996, October 1, 1996, January 1, 1997, April 1, 1997, July 1, 1997, October 1, 1997, January 1, 1998, April 1, 1998, July 1, 1998, October 1, 1998, January 1, 1999, and April 1, 1999) amount to $21,994,000 in the aggregate ($38.25 per preferred share or $9.56 per depositary share). Common stock dividends may not be declared until the preferred stock dividends that are accumulated but unpaid are made current. On March 10, 1999, the Company offered to purchase up to 1,052,631 depositary shares, each representing one quarter of a share of its Series A Convertible Exchangeable Preferred Stock. The offer price of $19 per share is in full satisfaction of claims to accumulated but unpaid dividends on the depositary shares tendered. On April 7, 1999, the offer expired and 1,683,903 depositary shares were tendered in response to the offer. Because the number of shares tendered exceeded the maximum number of shares offered, a proration factor of approximately 62.5% was applied to all shares tendered. A total of 1,052,631 depositary shares were purchased for $20,000,000. The balance sheet effect of this transaction will be to reduce cash and shareholders' equity by $20,000,000. At the same time, total preferred shares outstanding will be reduced from 575,000 shares to 311,842, accumulated but unpaid dividends to $11,928,000, and the ongoing quarterly preferred dividend will be reduced from $1,222,000 to $663,000. The use of cash to pay dividends or redeem equity securities is restricted under the Master Agreement. Except for the $20,000,000 tender offer referred to above, the Company may not redeem any equity security for cash or make any cash distributions to preferred or common shareholders for any purpose prior to June 30, 1999. Thereafter, covenant limitations included in the Master Agreement regarding liquidity, operating cash flow and debt coverage could restrict the amount of cash available for dividends through 2005. There are also 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 for the preceding fiscal year), but only to the extent that shareholders' equity exceeds the par value of the preferred stock ($575,000 at March 31, 1999). The Company had shareholders' equity at March 31, 1999 of $34,744,000 and the par value of all outstanding depositary shares and shares of common stock aggregated $18,224,000 at March 31, 1999. Going forward the Company's Board of Directors will review the payment of quarterly preferred stock dividends, the preferred stock dividends which are accumulated but unpaid, and common stock dividends, in light of the above restrictions and consideration of the shareholders' best interests. Liquidity Outlook The major factors impacting the Company's liquidity outlook are its significant "heritage costs" and its ongoing and future business needs. 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 pension and pneumoconiosis benefits; however, both of these future obligations have a funding surplus at present. The Company has ongoing cash expenditures of approximately $16,000,000 per year for postretirement medical benefits which will remain fairly constant over the next five years and then decline to zero over the next approximately thirty-seven years. In addition, the Company has cash expenditures of approximately $3,000,000 per year for workers' compensation benefits which will steadily decline to zero over the next approximately twenty years. Since the UMWA pension plan is a multiemployer plan under ERISA, a contributing company is liable for its share of unfunded vested liabilities upon termination or withdrawal from the plan. The Company believes the plan was fully funded at the time of the Company's withdrawal in 1998. However, the plan has asserted a claim of $13,800,000, which the Company vigorously contests. The Company is contesting this amount through arbitration, as provided under ERISA. In accordance with the Multiemployer Pension Plan Amendments Act of 1980, the Company has made monthly principal and interest payments to the plan while it pursues its rights and will continue to make such monthly payments until arbitration is completed. Depending upon the results of arbitration, the Company may be entitled to a refund or it could pay any remaining obligation over no more than nine and one half years. Under the Coal Act, the Company is required to provide postretirement medical benefits for UMWA miners by making premium payments into three benefit plans: (i) the UMWA Combined Benefit Fund (the "Combined Fund"), a multiemployer plan which benefits miners who retired before January 1, 1976 or who retired thereafter but whose last employer did not provide benefits pursuant to an operator-specific Individual Employer Plan ("IEP"), (ii) an IEP for miners who retired after January 1, 1976 and (iii) the 1992 UMWA Benefit 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 and its allocated portion of the pool of retired miners whose previous employers have gone out of business. The Company, as a result of its improved financial position and subsequent dismissal from bankruptcy, satisfied all of its premium obligations to the Combined Fund through the end of 1998, and made a prepayment to the Combined Fund for its premiums for the first quarter of 1999. The payment was made on January 4, 1999. In addition, the Coal Act authorized the Trustees of the 1992 UMWA Benefit Plan to implement security provisions pursuant to the Act. In 1995, the Trustees issued security provisions which give contributors to the Plan several options for satisfying the Coal Act's security requirements, and set the level of security to be provided by the Company at approximately $21,000,000. The Company secured its obligation to provide retiree health benefits under the 1992 Plan by posting a bond in the amount of three years benefits (or $20.8 million). The amount to be secured and the bond amount will be reviewed and adjusted on an annual basis. The Company's current principal sources of cash flow include cash distributions from its independent power projects, dividends from WRI, cash from operations of DTA and interest earned on its cash reserves. In addition, the Company will receive its share of the judgment in the ROVA litigation if VEPCO's appeal to the Virginia Supreme Court is unsuccessful and will review a possible distribution from the overfunded pneumoconiosis trust. Management believes that cash generated from these sources and cash reserves should be sufficient to pay the Company's heritage costs and fund its ongoing operations and other capital requirements for the foreseeable future. Capital commitments include a requirement to spend up to a total of $4,800,000 to repair the dragline at WRI. Approximately $2,000,000 was expended in 1998 with the remainder to be expended in 1999. The Company has undertaken to spend these amounts in order to assure continued, uninterrupted production at WRI, but the Company believes the obligation to repair the dragline is solely Morrison-Knudsen's and, therefore, is in discussion with them on this and a variety of matters, including enforcement of the Company's right to require Morrison-Knudsen to pay for the repair. The Company hopes to further improve its long-term liquidity in a number of ways, including the development of additional cash flow from existing and new business operations, selling the remaining Virginia Division assets and monetizing assets where proceeds on sale would exceed the expected return from continued operation. The Company also plans to seek further cost reductions wherever feasible and prudent, and attempt to reduce certain postretirement medical, workers' compensation and related payments. The Company is also monitoring certain legislative developments, such as the proposed inclusion of prescription drug costs under Medicare coverage, which could significantly reduce the Company's retiree health care expenses. Although management expects to improve the Company's profitability, the time required to realize such increases cannot be estimated at this time nor can assurances be given that the Company can achieve any such improvements. Year 2000 The Year 2000 ("Y2K") problem concerns the inability of information and technology-based operating systems to properly recognize and process date-sensitive information beyond December 31, 1999. This could result in systems failures and miscalculations which could cause business disruptions. Equipment that uses a date, such as computers and operating control systems, may be affected. This includes equipment used by our customers and suppliers, as well as the Company's independent power projects. Some of the Company's systems and related software are already Y2K compliant. The Company is actively reviewing all hardware and software associated with its computers, personal computers and client/servers, telecommunications and embedded systems found in equipment throughout its operations. This program consists of identifying and inventorying all software applications and systems, making required replacements, modifications, and testing. One of the independent power projects recently completed Y2K testing. The project operated normally with only minor errors in the reporting process. Similar test methods will be used at the remaining projects with a scheduled completion date of September 30, 1999, for testing at all facilities. A number of critical systems and components at all of the projects have been replaced or will be replaced or modified with scheduled completion dates near mid-year, 1999. Computer systems at WRI's coal operations have been or will be replaced or appropriately modified by mid-1999. WRI's mining contractor and rail supplier have embarked on aggressive campaigns to bring their systems into compliance and the Company is carefully monitoring those activities. Compliance at Dominion Terminal Associates ("DTA") has been nearly completed through replacement of non-compliant systems. Efforts to upgrade the few remaining systems will be completed by mid-1999. The terminal is dependent on efficient and timely rail service and DTA is closely monitoring the compliance efforts of the terminal's rail service providers. The nature of the Company's operations make substantive contingency plans extremely difficult. No reasonable alternatives exist for the inability of the railroads to provide timely service to WRI and the DTA terminal. As previously mentioned, the Company is closely following the compliance efforts of the railroads and other major suppliers. Based on information currently available, it is estimated that the costs to replace and modify Company systems to achieve Y2K compliance will not exceed $125,000, of which approximately $5,000 has been incurred through March 31, 1999. The goal is to have all critical Company systems Y2K compliant during the first half of 1999. This should allow time before December 31, 1999, to validate the system modifications and complete contingency plans for customers, suppliers and others who may not be Y2K compliant. While there can be no assurance that all such modifications and plans will be successful, the Company does not expect that any disruptions will have a material adverse effect on its overall financial position, results of operations, or liquidity. The foregoing constitutes a "forward-looking statement" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. It is based on management's current expectations, estimates and projections, which could ultimately prove to be inaccurate. Factors which could affect the Company's ability to be Y2K compliant by the end of 1999 include the failure of customers, suppliers, governmental entities and others to achieve compliance and the inaccuracy of certifications received from them. RESULTS OF OPERATIONS - -------------------------------------------------------------------------------- Quarter Ended March 31, 1999 Compared to Quarter Ended March 31, 1998. Revenues for the quarter ending March 31, 1999 were $30,829,000 compared to $16,962,000 for the quarter ending March 31, 1998. The increase is due to the recognition of a gain of approximately $17,000,000 from the sale of the Rensselaer project, offset by lower coal sales at WRI due to scheduled maintenance at a large customer's plant. Equity in losses at DTA were higher in the first quarter of 1999 compared to the first quarter of 1998 because of a decrease in throughput volumes. Costs and expenses for the quarter ending March 31, 1999 were $17,866,000 compared to $16,198,000 for the quarter ending March 31, 1998. The increase is due to a decline in the overfunded pneumoconiosis trust of approximately $980,000 as a result of bond market changes, $2,600,000 of bonuses paid to employees, and approximately $700,000 of Workers Compensation expense and bond procurement fees, offset by reduced coal contract mining costs of $3,030,000 due to the decrease in sales volume at WRI mentioned above. Gains of $19,000 and $136,000 on the sales of assets during the first quarter of 1999 and 1998 resulted from the sale of various pieces of equipment from the Company's idled Virginia Division. Interest income for the quarters ending March 31, 1999 and March 31, 1998 was $524,000 and $637,000, respectively. The decline is due to the reduction in cash as a result of the payment of all bankruptcy related pre-petition liabilities on January 4, 1999. Other expense for the quarter ending March 31, 1999, relates primarily to miscellaneous asset management costs of $548,000 at WEI, net of management fee income of $109,000 from the independent power projects. Other income for the quarter ending March 31, 1998 included a $711,000 gain relating to the buyout of a royalty agreement and the recognition of a $854,000 gain relating to the resolution of a tax escrow account established in conjunction with a previous sale of property. PART II - OTHER INFORMATION ITEM 1 LEGAL PROCEEDINGS - -------------------------------------------------------------------------------- See Note 1 "Chapter 11 Reorganization Proceedings" of Notes to Condensed Consolidated Financial Statements, which is incorporated by reference herein. ITEM 3 DEFAULTS UPON SENIOR SECURITIES - -------------------------------------------------------------------------------- See Note 3 "Capital Stock" of Notes to Condensed Consolidated Financial Statements, which is incorporated by reference herein. Item 6 Exhibits and Reports on Form 8-K - -------------------------------------------------------------------------------- a) Exhibit 27 - Financial Data Schedule b) On February 4, 1999, the Company filed a report on Form 8-K announcing that it had successfully emerged from bankruptcy. c) On March 24, 1999, the Company filed a report on Form 8-K announcing that it had completed the sale of all of its remaining interest in its cogeneration project in Rensselaer, New York. 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: May 17, 1999 /s/ Robert J. Jaeger ------------ --------------------------------------- Robert J. Jaeger Senior Vice President - Finance and Treasurer /s/ Larry W. Mikkola --------------------------------------- Larry W. Mikkola Controller EX-27 2
5 1,000 3-MOS DEC-31-1999 MAR-31-1999 56,858 0 2,603 0 0 60,726 107,259 69,395 178,461 24,029 0 0 575 17,649 16,520 178,461 30,829 30,829 7,293 17,866 107 0 301 12,555 45 12,510 0 0 0 12,510 1.62 1.62
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