-----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, QHcLSrbfOgITu7DJgyJydCeGRfM4RCD2qTo0assPftU+Wl96DKCA1CQaOZEo/48S Gwwvg+8mNJAkT0LiIIP3Sg== 0000950134-96-002022.txt : 19960515 0000950134-96-002022.hdr.sgml : 19960515 ACCESSION NUMBER: 0000950134-96-002022 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960514 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: 96563010 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 FORM 10-Q FOR QUARTER ENDED MARCH 31, 1996 1 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, 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.) 2 North Cascade Avenue, 14th Floor Colorado Springs, Colorado 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 May 1, 1996: 6,965,328 2 PART I - FINANCIAL INFORMATION ITEM 1 FINANCIAL STATEMENTS WESTMORELAND COAL COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands)
March 31, 1996 Dec. 31, 1995 -------------- ------------- (Unaudited) CURRENT ASSETS ASSETS Cash and cash equivalents $ 6,321 $ 11,711 Notes and accounts receivable Coal sales 3,554 3,024 Notes 1,111 2,295 Other 3,066 2,956 -------- -------- 7,731 8,275 Less allowance for doubtful accounts 1,030 2,515 -------- -------- 6,701 5,760 Inventories: Coal 485 645 Mine supplies 134 134 Other 165 161 -------- -------- 784 940 Other current assets 803 921 -------- -------- TOTAL CURRENT ASSETS 14,609 19,332 Property, plant and equipment Land and mineral rights 30,142 30,029 Plant and equipment 222,243 255,149 -------- -------- 252,385 285,178 Less accumulated depreciation and depletion 192,940 225,310 -------- -------- 59,445 59,868 Investment in Independent Power Operations 49,489 49,069 Investment in DTA 19,131 19,326 Workers compensation bond 9,960 9,960 Prepaid pension cost 8,270 7,612 Other assets 3,575 1,940 -------- -------- TOTAL ASSETS $164,479 $167,107 ======== ========
See accompanying notes to condensed consolidated financial statements. 2 3 PART I - FINANCIAL INFORMATION ITEM 1 FINANCIAL STATEMENTS WESTMORELAND COAL COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands)
March 31, 1996 Dec. 31, 1995 -------------- ------------- (Unaudited) LIABILITIES AND SHAREHOLDERS' (DEFICIT) CURRENT LIABILITIES Current installments of long-term debt $ 1,107 $ 1,462 Accounts payable and accrued expenses 12,166 8,027 Accrual for workers' compensation 5,491 5,494 Accrual for postretirement medical costs 10,400 10,400 Taxes on income 64 2,905 Other 235 7,155 --------- --------- TOTAL CURRENT LIABILITIES 29,463 35,443 Long-term debt 2,699 3,131 Accrual for pneumoconiosis benefits 12,213 13,871 Accrual for workers' compensation 26,795 28,130 Accrual for postretirement medical costs 75,941 73,373 Accrual for reclamation costs 10,309 10,311 Other liabilities 19,581 15,558 Deferred income taxes 14,688 14,827 Minority interest 10,440 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 at 3/31/96 and 12/31/95 17,402 17,402 Other paid-in capital 94,641 94,641 Accumulated (deficit) (150,268) (150,724) --------- --------- TOTAL SHAREHOLDERS' (DEFICIT) (37,650) (38,106) --------- --------- TOTAL LIABILITIES AND SHAREHOLDERS' (DEFICIT) $ 164,479 $ 167,107 ========= =========
See accompanying notes to condensed consolidated financial statements. 3 4 WESTMORELAND COAL COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (in thousands except per share data) (Unaudited)
Three Months Ended March 31, 1996 1995* -------- -------- Revenues: Coal $ 10,552 $ 40,788 Independent Power- equity in earnings and fees 4,351 4,895 Services 1,457 -- -------- -------- 16,360 45,683 Costs and expenses: Cost of coal sold 11,387 38,811 Cost of sales -independent power and services 2,098 378 Depreciation, depletion and amortization 509 5,039 Selling and administrative 2,618 4,274 Heritage Costs 3,630 5,885 Pension Costs (854) (413) -------- -------- 19,388 53,974 Operating (loss) (3,028) (8,291) Gains on the sales of assets 2,441 9,515 Interest expense (125) (342) Interest income 396 625 Other income 1,400 514 -------- -------- Income before income tax expense (benefit) and minority interest 1,084 2,021 Income tax expense (benefit): Current 319 495 Deferred (2) (137) -------- -------- 317 358 Minority interest 311 185 -------- -------- Net income 456 1,478 Less preferred stock dividends in arrears (1,222) (1,222) -------- -------- Net income (loss) applicable to common shareholders $ (766) $ 256 ======== ======== Net income (loss) per share applicable to common shareholders $ (.11) $ .04 ======== ======== Weighted average number of common shares outstanding 6,965 6,959 ======== ========
See accompanying Notes to Consolidated Financial Statements. * Certain amounts have been reclassified to conform to the current presentation. 4 5 WESTMORELAND COAL COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Three Months Ended March 31, 1996 1995 - -------------------------------------------------------------------------------- (in thousands) Cash flows from operating activities: Net income (loss) $ 456 $ 1,478 Adjustments to reconcile net income (loss) to net cash (used) provided by operating activities: Gains on the sales of assets (2,441) (9,515) Reversal of income tax accrual (3,540) -- Equity earnings from independent power projects (4,232) (2,735) Recognition of development fee income -- (1,750) Cash distributions from independent power projects 2,705 1,880 Depreciation, depletion and amortization 509 5,039 Increase (decrease) in deferred income taxes (139) (137) Minority interest in WRI's income 311 185 Changes in assets and liabilities, net of noncash transactions: Accounts receivable, net of allowance for doubtful accounts (719) 10,738 Inventories 156 (1,224) Accounts payable and accrued expenses (2,781) (5,777) Income taxes payable 699 5 Accrual for postretirement medical costs 2,568 1,891 Accrual for worker's compensation (1,338) 121 Accrual for pneumoconiosis benefits (1,658) (618) Other liabilities 4,023 (717) Other (822) 665 -------- -------- Net cash (used in)operating activities (6,243) (471) -------- -------- Cash flows from investing activities: Fixed assets additions (137) (188) (Increase) decrease in notes receivable (222) 1,405 Net proceeds from sales of assets 2,441 10,068 -------- -------- Net cash provided by investing activities 2,082 11,285 -------- -------- Cash flows from financing activities: Hampton lease buyout premium -- (1,103) Repayment of long-term debt (789) (1,521) Dividends paid to minority shareholders (440) -- -------- -------- Net cash used in financing activities (1,229) (2,624) -------- -------- Net increase (decrease) in cash and cash equivalents (5,390) 8,190 Cash and cash equivalents, beginning of period 11,711 15,453 -------- -------- Cash and cash equivalents, end of period $ 6,321 $ 23,643 ======== ========
5 6 Supplemental disclosures of cash flow information:
Cash paid during the period for: Interest $ 227 $ 467 Income taxes $ 0 $ 903
Supplemental disclosure on non-cash investing activities: In the first quarter of 1995, $8,000,000 was distributed 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 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. 6 7 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 Westmoreland Energy, Inc. ("WEI") WEI PROJECT CONTINGENCIES SOUTHAMPTON. The Southampton plant, a 70 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 is seeking 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. 7 8 In late August 1994, Virginia Power filed a motion for leave to respond to the Partnership's request for rehearing and response to request for rehearing, and a response to the Partnership's show cause order. In September 1994, the Partnership filed with FERC its answer to Virginia Power's motion and response. Also in September 1994, FERC granted itself an extension of time to act on the Partnership's request for rehearing, tolling the 30-day period in which FERC was to have acted on the Partnership's rehearing request. The parties have fully briefed and submitted to FERC their respective motions with respect to the request for rehearing and are awaiting FERC's decision. As FERC had not acted on the Partnership's request for rehearing, in December 1995, the Partnership filed with FERC a motion to request a settlement conference. Virginia Power subsequently filed a response in which it did not object to the proposed settlement conference. The parties are awaiting FERC action, but expect a settlement proceeding to be initiated in the first half of 1996. The Company believes that FERC will grant the Partnership the relief that it is seeking and, accordingly, the ultimate resolution of the matter is not expected to have a material adverse effect on its consolidated results of operations, its financial condition or liquidity. However, in light of FERC's July 7, 1994 order, and the arguable lateness of the filing of the request for rehearing one day out of time, the Company cannot predict what action FERC ultimately will take. Possible consequences from an adverse decision include refunds, third party lawsuits, and potential regulatory and other problems under PUHCA, Virginia utility law and the Federal Power Act, the scope and amount of which cannot be determined at this time. ROANOKE VALLEY I. 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 March 1996, Virginia Power withheld approximately $8,700,000 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 $5,700,000, contending that Virginia Power breached the PPA in withholding such payments. In June 1995, the Circuit Court of the City of Richmond, Virginia denied Virginia Power's motion to dismiss WLP's complaint. In 8 9 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 is evaluating its options, including possible appeal of the Court's decision granting summary judgment. 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) believe 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 nullifiy its contract for the Rensselaer project. 2. 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 six quarterly dividends which are in arrears (dividend payment dates July 1, 1994, October 1, 1994, January 1, 1995, October 1, 1995, January 1, 1996 and April 1, 1996) amount to $7,330,800 in the aggregate ($12.75 per preferred share). Common stock dividends may not be declared until the preferred stock dividends that are in arrears are made current. 9 10 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 March 31, 1996 of $37,650,000. 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 intends to hold a special meeting of the preferred shareholders to elect those directors this year. 10 11 - -------------------------------------------------------------------------------- ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS MATERIAL CHANGES IN FINANCIAL CONDITION FROM DECEMBER 31, 1995 TO MARCH 31,1996 LIQUIDITY Cash used by operating activities was $6,243,000, and $471,000 in the first quarter of 1996 and 1995, respectively. The increase in cash used in 1996 is attributable to a significant reduction in accounts receivable collections in the first quarter of 1996 compared to the first quarter of 1995 and idle costs from the Virginia Division while it remains on standby. See the Consolidated Statements of Cash Flows for additional information. Cash provided by investing activities was $2,082,000 and $11,285,000 in the first quarter of 1996 and 1995, respectively. Included in the first quarter of 1996 were cash proceeds of $2,441,000 for the sale of coal reserves to Ark Land Company. Included in the first quarter of 1995 were proceeds of $9,045,000 related to the sale of the assets of 11 12 the Company's Hampton Division. Fixed asset additions were $137,000 and $188,000 in the first quarter of 1996 and 1995, respectively. Cash used in financing activities totaled $1,229,000 and $2,624,000 in the first quarter of 1996 and 1995, respectively. Repayment of long-term debt amounted to $789,000 and $1,521,000 in the first quarter of 1996 and 1995, respectively. The Company's consolidated cash and cash equivalents at March 31, 1996 totaled $6,321,000 (including $3,133,000 at WRI). At December 31, 1995, cash and cash equivalents totaled $11,711,000 (including $3,213,000 at WRI). None of the Company's cash and cash equivalents was or is restricted as to use or disposition. The cash at WRI, a 60% 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 $17,960,000 at March 31, 1996 and at December 31, 1995. The $17,960,000 is comprised of two items: a $9,960,000 interest-bearing cash deposit account, which collateralizes the Company's outstanding surety bonds for its workers' compensation self-insurance programs; and $8,000,000 invested in certificates of deposit at March 31, 1996 which is classified on the Company's Condensed Consolidated Balance Sheets as an Investment in Independent Power Projects. The $8,000,000 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 $15,000,000 per 12 13 year for postretirement medical benefits which could continue over the next approximately 45 years and approximately $6,500,000 per year 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 pay amounts based on hours worked or tons processed to the UMWA Retirement Funds with respect to unionized employees. Since this 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's liability for complete withdrawal is estimated to be approximately $17,800,000, however, there has been no determination by the UMWA trustees that the Company has incurred a partial or complete withdrawal. If the Company is required to fund a withdrawal, it would be over several years and would start on an unspecified date. The Company's current principal 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 may not be sufficient to pay the Company's heritage costs and operating expenses for the next 12 months. The Company hopes to improve its very near-term cash reserve position in a number of ways including using independent contractors to mine coal at the Virginia Division or by divesting all or part of that Division, by selling certain other non-strategic assets and by receiving cash from liquidation of certain assets given as collateral by Adventure Resources. The Company has begun to seek further cost reductions wherever feasible and prudent, and attempt 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 the aforementioned actions will be executed in the time frame and to the extent management anticipates. Under a 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 13 14 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 has not paid a premium to the Combined Fund in 1996. The Company's current annual premiums to the Combined Fund are approximately $5,000,000. The Company has made a proposal to the staff of the Combined Fund to address these late premiums and a portion of its future premiums, and discussions are ongoing. The Company may modify its proposal based on these discussions, but its objective is to conserve cash for acquisitions so that it can give the Combined Fund adequate assurance that the Company will not only be able to make up its current premiums but be able to pay future obligations as well. The Company has requested the Combined Fund staff to consider the Company's proposal and the Company's financial situation and present the proposal to the plan trustees. Any decision in this matter must be made by the plan trustees, who could reject any proposal from the Company. The trustees could initiate legal action to recover overdue premiums. If the Company is required to pay all premiums on a current basis, it could experience liquidity problems if current plans as described above do not materialize. In addition, the Coal Industry Retiree Health Benefit Act of 1992 (the "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, 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 $22,000,000. The Act required the security to be provided by January 1, 1996; however, the Company has not yet provided 14 15 security as required under any of the options. Instead, the Company has proposed to the staff of the 1992 UMWA Benefit Plan that Company assets be used as collateral for its obligation. Although discussions remain ongoing, management believes the Company will be able to satisfy the security requirements through a mutually agreeable alternative, however, there can be no assurance the 1992 UMWA Benefit Plan trustees will accept such an alternative and will not initiate legal action to enforce its security requirements. 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 it can only restore the Company to profitability or meet ongoing cash requirements by adopting a strategy of acquiring income-producing businesses and properties that will generate earnings and cash flow and applying the Company's substantial net tax loss carryforwards to that income. Management of the Company has devoted significant time and effort to this strategy, with one small acquisition being completed in 1995, and the preliminary identification of additional candidates. The time required to implement an 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. 15 16 - -------------------------------------------------------------------------------- RESULTS OF OPERATIONS: QUARTER ENDED MARCH 31,1996 COMPARED TO QUARTER ENDED MARCH 31,1995
Three Months Ended March 31, 1996 1995 -------- -------- (in thousands) Coal Operations: Virginia Division $ (2,559) $ (4,781) Westmoreland Resources, Inc. 1,050 699 Westmoreland Coal Sales Company 444 535 Heritage costs (3,630) (5,885) Net corporate expenses (2,130) (3,472) Pension costs 854 413 -------- -------- Total Coal Operations (5,971) (12,491) -------- -------- Independent Power Operations: Westmoreland Energy, Inc. 3,309 4,200 Corona Group (366) -------- -------- Total Independent Power Operations 2,943 4,200 -------- -------- Operating loss $ (3,028) $ (8,291) -------- -------- Gains on the sales of assets $ 2,441 $ 9,515 ======== ========
* Certain amounts have been reclassed to agree with current classifications. Details of tons sold (in thousands) and average revenue per ton sold were as follows:
Three Months Ended March 31, 1996 1995 ------ ------ By Segment: Virginia Division* -- 863 Westmoreland Resources, Inc. 1,098 1,006 ------ ------ Total Westmoreland Operations 1,098 1,869 For Others 119 76 ------ ------ Total Tons Sold 1,217 1,945 ====== ====== Average revenue per ton sold: Westmoreland Resources, Inc. $ 7.31 $ 7.15 ------ ------ *Includes tons: Sold by Pine Branch Mining Incorporated -- 70 Purchased from unaffiliated producers -- 251
16 17 COAL OPERATIONS Coal operations which includes substantial heritage costs reported operating losses of $5,971,000 and $12,491,000 for the first quarter of 1996 and 1995, respectively. The improvement is primarily attributable to decreases in operating costs due to the idling of Virginia Division and Pine Branch mining operations during the third quarter of 1995. Those business units reporting significant changes in results of operations are discussed below. VIRGINIA DIVISION - $2,222,000 BETTER The Virginia Division had operating losses of $2,559,000 and $4,781,000 in the first quarter of 1996 and 1995, respectively. The Company idled the Virginia Division and Pine Branch Mining in the third quarter of 1995 and is maintaining the properties on a standby basis except for portions currently being operated by two mining contractors. Associated with this idling was the recognition of certain future liabilities. Operating losses in 1996 represent costs incurred while the properties remain on standby. The Company continues to seek buyers and/or operators for its Virginia Division assets and facilities. Depending upon the structure of such transactions, the Company may be able to recover some of the above referenced charges. 17 18 WESTMORELAND RESOURCES, INC. (WRI) - $351,000 BETTER WRI is a large surface mining operation located in eastern Montana which had operating income of $1,050,000 and $699,000 in the first quarter of 1996 and 1995, respectively. Included in the first quarter 1996 results were additional coal sales of approximately 10% compared to the first quarter of 1995. Also included in 1996 were additional coal BTU premiums of approximately $200,000 compared to the same period in 1995 due to better than expected coal quality. HERITAGE COSTS - $2,255,000 BETTER Heritage costs were $3,630,000 and $5,885,000 for the first quarter of 1996 and 1995, respectively. The first quarter of 1995 included $1,711,000 of workers' compensation charges. As a result of the idling of the Virginia Division and Pine Branch the Company does not expect to incur any additional workers' compensation charges during 1996 and, therefore, none have been accrued. NET CORPORATE EXPENSES - $1,342,000 BETTER Net corporate expenses were $2,130,000 and $3,436,000 in the first quarter of 1996 and 1995, respectively. Expenses in 1996 decreased due to downsizing and relocation of the Corporate office. INDEPENDENT POWER OPERATIONS - $1,257,000 WORSE The Company's Independent Power Operations, through its wholly-owned subsidiary, WEI, recorded operating income of $2,943,000 and $4,200,000 in the first quarter of 1996 and 1995, respectively. The decline is due to $1,750,000 of deferred development fees received in prior years in connection with the ROVA I and Rensselaer Projects which were recognized as income in the first quarter of 1995. Currently, there are no development fees to be recognized in the future. GAINS ON THE SALES OF ASSETS - $7,074,000 WORSE In January, 1996 the Company sold to Ark Land Company certain coal reserves held under lease from Ark. Cash proceeds from the transaction was $2,441,000, all of which was recorded as a gain during the first quarter. 18 19 In January of 1995 the Company sold the assets of its Hampton Division located in Boone and Logan Counties, West Virginia to Burco Resources Corporation and Wind River Resources Corporation and sold its Hampton Division mineral lease to the lessor, Penn Virginia, for $9,045,000 in cash. The net proceeds to the Company were approximately $7,376,000 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. The Company wrote off a substantial portion of the Hampton Division's assets in 1993. The gain on the sale was $9,090,000 after the reversal of certain liabilities. The purchasers assumed the reclamation and environmental liabilities associated with the Hampton Division as part of the sales transaction. In February 1995, the Company sold the Virginia Division's Dump Train for cash of $945,000 and the related gain on the sale was $425,000. 19 20 PART II - OTHER INFORMATION ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K a) Exhibit 27 - Financial Data Schedule. b) Reports on Form 8-K - No reports on Form 8-K were filed by the Company during the quarter ended March 31, 1996. 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 15, 1996 /s/ ROBERT J. JAEGER ---------------------------------- Robert J. Jaeger Senior Vice President of Finance, Treasurer and Controller /s/ LARRY W. MIKKOLA ---------------------------------- Larry W. Mikkola Assistant Controller 20 21 INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 27 - Financial Data Schedule
EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS DEC-31-1995 MAR-31-1996 6,321 0 7,731 1,030 784 14,609 252,385 192,941 164,479 29,463 0 17,402 0 575 (55,627) 164,479 16,360 16,360 13,485 19,388 (4,237) 0 125 1,084 317 456 0 0 0 456 (.11) (.11)
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