-----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, OG4MmeBYiQyU+PwzYAEGv1jbH+n6UXL2RFC+71/agHoNjPp3Opt3MhN+UAL5mWxi IE7EX9UpAGg0+LYeXYzNRA== 0000950134-96-004181.txt : 19960814 0000950134-96-004181.hdr.sgml : 19960814 ACCESSION NUMBER: 0000950134-96-004181 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960813 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: 96609886 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 DATED JUNE 30, 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 June 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.) 2 North Cascade Ave., 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 July 7, 1996: 6,965,328 2 PART I - FINANCIAL INFORMATION ITEM 1 FINANCIAL STATEMENTS WESTMORELAND COAL COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands)
June 30, 1996 Dec. 31, 1995 ------------- ------------- (Unaudited) ASSETS CURRENT ASSETS Cash and cash equivalents $ 13,670 $ 11,711 Notes and accounts receivable Coal sales 2,826 3,024 Notes 1,080 2,295 Other 3,244 2,956 --------- --------- 7,150 8,275 Less allowance for doubtful accounts 913 2,515 --------- --------- 6,237 5,760 Inventories Coal - 645 Mine supplies 25 134 Other 183 161 --------- --------- 208 940 Other current assets 769 921 --------- --------- TOTAL CURRENT ASSETS 20,884 19,332 Property, plant and equipment Land and mineral rights 30,142 30,029 Plant and equipment 198,432 255,149 --------- --------- 228,574 285,178 Less accumulated depreciation and depletion 169,473 225,310 --------- --------- 59,101 59,868 Investment in Independent Power Projects 49,227 49,069 Investment in DTA 19,156 19,326 Workers compensation bond 9,960 9,960 Prepaid pension cost 9,120 7,612 Other assets 3,524 1,940 --------- --------- TOTAL ASSETS $ 170,972 $ 167,107 ========= =========
See accompanying notes to condensed consolidated financial statements. 2 3 WESTMORELAND COAL COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands)
June 30, 1996 Dec. 31, 1995 ------------- ------------- (Unaudited) LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Current installments of long-term debt $ 1,215 $ 1,462 Accounts payable and accrued expenses 10,966 8,027 Accrual for workers' compensation 5,491 5,494 Accrual for postretirement medical costs 10,400 10,400 Taxes on income - 2,905 Other 230 7,155 --------- --------- TOTAL CURRENT LIABILITIES 28,302 35,443 Long-term debt 2,332 3,131 Accrual for pneumoconiosis benefits 11,595 13,871 Accrual for workers' compensation 25,365 28,130 Accrual for postretirement medical costs 77,863 73,373 Accrual of reclamation costs 7,167 10,311 Other liabilities 19,778 15,558 Deferred income taxes 14,546 14,827 Minority interest 10,609 10,569 SHAREHOLDERS' EQUITY 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 (139,203) (150,724) --------- --------- TOTAL SHAREHOLDERS' (DEFICIT) (26,585) (38,106) --------- --------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 170,972 $ 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 Six Months Ended June 30 June 30 1996 1995* 1996 1995* --------- --------- --------- --------- Revenues: Coal $ 11,265 $ 39,468 $ 21,817 $ 80,256 Independent power projects -equity in earnings and fees 3,251 3,786 7,483 8,681 Corona 1,529 - 2,986 - Services 261 - 380 - --------- --------- --------- --------- 16,306 43,254 32,666 88,937 --------- --------- --------- --------- Cost and expenses: Cost of coal sold 11,515 38,401 22,902 77,212 Cost of sales-Corona 1,206 - 2,531 - Services and independent power projects - related expenses 266 629 1,039 1,007 Depreciation, depletion and amortization 518 5,600 1,027 10,639 Selling and administrative 3,069 3,986 5,687 8,260 Heritage costs 4,498 5,888 8,128 11,773 Pension benefit (850) (412) (1,704) (825) --------- --------- --------- --------- 20,222 54,092 39,610 108,066 Operating loss (3,916) (10,838) (6,944) (19,129) Gains on the sales of assets 14,740 23 17,181 9,538 Interest expense (114) (339) (239) (681) Interest and other income 672 1,119 2,468 2,258 --------- --------- --------- --------- Income (loss) before income tax expense (benefit)and minority interest 11,382 (10,035) 12,466 (8,014) Income taxes (benefit): Current 427 349 746 844 Deferred (280) (110) (282) (247) --------- --------- --------- --------- 147 239 464 597 Minority interest 170 169 481 354 --------- --------- --------- --------- Net income (loss) 11,065 (10,443) 11,521 (8,965) Less preferred stock dividends: declared - 1,222 - 1,222 in arrears 1,222 - 2,444 1,222 --------- --------- --------- --------- Net income (loss) applicable to common shareholders $ 9,843 $ (11,665) $ 9,077 $ (11,409) ========= ========= ========= ========= Net income (loss) per share applicable to common shareholders $ 1.41 $(1.68) $ 1.30 $(1.64) ====== ====== ====== ====== * Restated to conform with current classifications Weighted average number of common shares outstanding 6,965 6,961 6,965 6,960 ========= ========= ========= =========
See accompanying notes to condensed consolidated financial statements. 4 5 WESTMORELAND COAL COMPANY AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
Six Months Ended June 30, 1996 1995 - -------------------------------------------------------------------------- (in thousands) Cash flows from operating activities: Net income (loss) $ 11,521 $ (8,965) Adjustments to reconcile net income (loss) to net cash used by operating activities: Gains on the sales of assets (17,181) (9,538) Reversal of income tax accrual (3,540) - Equity earnings from independent power projects (7,483) (6,076) Recognition of development fee income - (1,750) Cash distributions from independent power projects 6,218 5,087 Depreciation, depletion and amortization 1,027 10,639 Deferred income tax (281) (247) Minority interest in WRI income 480 354 Change in assets and liabilities, net of non-cash transactions: Accounts receivable, net of allowance for doubtful accounts (169) 9,668 Inventories 732 2,018 Accounts payable and accrued expenses (4,163) (11,557) Income taxes payable 597 (340) Accrual for postretirement medical costs 4,490 3,037 Accrual for workers' compensation (2,768) 427 Accrual for pneumoconiosis benefits (2,276) (195) Other liabilities 4,062 (364) Other (1,360) 129 -------- -------- Net cash used by operating activities (10,094) (7,673) -------- -------- Cash flows from investing activities: Fixed assets additions (351) (342) (Increase) decrease in notes receivable (308) 1,592 Proceeds from sales of assets 14,198 10,131 -------- -------- Net cash provided by investing activities 13,539 11,381 -------- -------- Cash flows from financing activities: Hampton lease buyout premium - (1,103) Repayment of long-term debt (1,046) (2,132) Preferred stock dividends paid - (1,222) Dividends paid to minority shareholders (440) - -------- -------- Net cash used in financing activities (1,486) (4,457) -------- -------- Net increase (decrease) in cash and cash equivalents 1,959 (749) Cash and cash equivalents, beginning of period 11,711 15,453 -------- -------- Cash and cash equivalents, end of period $ 13,670 $ 14,704 ======== ========
5 6 Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 258 $ 768 Income taxes, net $ 760 $ 1,184
Supplemental disclosure of non-cash financing 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 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. 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 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. 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. On August 1, 1996, FERC entered its decision in the pending 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. 7 8 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 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 have a material adverse affect in 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 June 1996, Virginia Power withheld approximately $10,400,000 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 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 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 8 9 losses and the subsequent shareholders' deficit. The seven quarterly dividends which are in arrears (dividend payment dates July 1, 1994, October 1, 1994, January 1, 1995, October 1, 1995, January 1, 1996, April 1, 1996, and July 1, 1996) amount to $8,552,600 in the aggregate ($14.88 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 June 30, 1996 of $26,585,000. 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. - -------------------------------------------------------------------------------- ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS MATERIAL CHANGES IN FINANCIAL CONDITION FROM DECEMBER 31, 1995 TO JUNE 30,1996 LIQUIDITY Cash used by operating activities was $10,094,000, and $7,673,000 in the first six months of 1996 and 1995, respectively. The increase in cash used in 1996 reflects the idling of the Virginia Division in the third quarter of 1995 and the resultant reduction in coal sales revenue. See the Consolidated Statements of Cash Flows for additional information. Cash provided by investing activities was $13,539,000 and $11,381,000 in the first six months of 1996 and 1995, respectively. Included in the first six months of 1996 were cash proceeds of $10,678,000 for the sale of coal reserves back to Penn Virginia Corporation and $2,441,000 for the sale of coal reserves to Ark Land Company. Included in the first six months of 1995 were proceeds of $9,045,000 related to the sale of the assets of the Company's Hampton Division. Fixed asset additions were $351,000 and $342,000 in the first six months of 1996 and 1995, respectively. Cash used in financing activities totaled $1,486,000 and $4,457,000 in the first six months of 1996 and 1995, respectively. Repayment of long-term debt amounted to $1,046,000 and $2,132,000 in the first quarter of 1996 and 1995, respectively. 9 10 The Company's consolidated cash and cash equivalents at June 30, 1996 totaled $13,670,000 (including $3,531,000 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 except for $2,975,000 escrowed with a UMWA Trust Fund in July, 1996. See "Liquidity Outlook" section for additional information. 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 June 30, 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 June 30, 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 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. 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 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 10 11 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. The Company's current annual premiums to the Combined Fund are approximately $5,000,000. Prior to cessation, the Company made a proposal to the Combined Fund to defer these 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 plan trustees could reject any proposal from the Company and could initiate legal action to recover overdue premiums. If the Company is required to pay all premiums on a current basis, it would experience liquidity problems if current plans as described below do not materialize. 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 $2,545,000, the amount of unpaid premiums to that date, and to make additional payments of $430,000 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 7, 1996 unless a long term agreement is reached, or if a monthly payment is not made, or if the Company and the Combined Fund otherwise agree to terminate it. If the escrow account is terminated as a result of reaching November 7, 1996, 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 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. Instead, the Company has proposed to the 1992 UMWA Benefit Plan that Company assets be used as security for its obligation. Although discussions remain ongoing, management believes the Company will be able to satisfy the security requirements through a mutually agreeable non-cash 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 is in final negotiations for and expects to execute a pledge agreement with the Combined Fund and the 1992 Plan on or about August 13, 1996. Pursuant to the terms of the pledge agreement at this stage of negotiations, the Company will pledge its shares in Westmoreland Energy, Inc., Westmoreland Coal Sales Company and Westmoreland Resources, Inc. as collateral for the obligations due to the Combined Fund and the 1992 Plan. The agreement will expire November 22, 1996. 11 12 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 it can only meet ongoing cash requirements or restore the Company to profitability by adopting a strategy of acquiring 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. 12 13 - -------------------------------------------------------------------------------- RESULTS OF OPERATIONS: QUARTER ENDED JUNE 30,1996 COMPARED TO QUARTER ENDED JUNE 30, 1995
Three Months Ended June 30, 1996 1995* ---- ---- (in thousands) Coal Operations: Virginia Division $ (1,336) $ (5,296) Westmoreland Resources, Inc. 513 627 Westmoreland Coal Sales Company (210) (635) Heritage costs (4,498) (5,888) Net corporate expenses (1,891) (2,847) Pension costs 850 412 --------- -------- Total Coal Operations (6,572) (13,627) --------- -------- Independent Power Operations: Westmoreland Energy, Inc. 2,994 2,789 Corona Group (338) - --------- -------- Total Independent Power Operations 2,656 2,789 --------- -------- Operating loss $ (3,916) $(10,838) --------- -------- Gains on the sales of assets $ 14,740 $ 23 ========= ========
* 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 June 30, 1996 1995 ---- ---- By Segment: Virginia Division* - 794 Westmoreland Resources, Inc. 861 1,141 ------ ------ Total Westmoreland Operations 861 1,935 For Others 139 94 ------ ----- Total Tons Sold 1,000 2,029 ====== ====== Average revenue per ton sold: Westmoreland Resources, Inc. $ 7.32 $ 6.96 ------ ------ *Includes tons: Sold by Pine Branch Mining Incorporated - 61 Purchased from unaffiliated producers - 164
COAL OPERATIONS Coal operations which includes substantial heritage costs reported operating losses of $6,572,000 and $13,627,000 for the second quarter of 1996 and 1995, respectively. 13 14 The improvement in results of operations 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 - $3,960,000 BETTER The Virginia Division had operating losses of $1,336,000 and $5,296,000 in the second 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 independent 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. HERITAGE COSTS - $1,390,000 BETTER Heritage costs were $4,498,000 and $5,888,000 for the second quarter of 1996 and 1995, respectively. The second quarter of 1995 included $1,715,000 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 claims during 1996. NET CORPORATE EXPENSES - $956,000 BETTER Net corporate expenses were $1,891,000 and $2,847,000 in the second quarter of 1996 and 1995, respectively. Expenses in 1996 decreased due to downsizing and relocation of the Corporate office. GAINS ON THE SALES OF ASSETS - $14,717,000 BETTER In May, 1996 the Company relinquished to Penn Virginia Corporation certain coal reserves for a cash payment of $10,678,000. In addition, the Company obtained an 18 month option to purchase Penn Virginia's 16% interest in Westmoreland Resources for $3,000,000. The Company also sold its idled Wentz Complex to Stonega Mining and Processing and its idled Pine Branch Mining Inc. to Roaring Fork Mining Company in non-cash transactions. Each purchaser assumed specific reclamation and other liabilities. 14 15 - -------------------------------------------------------------------------------- RESULTS OF OPERATIONS: SIX MONTHS ENDED JUNE 30,1996 COMPARED TO SIX MONTHS ENDED JUNE 30,1995
Six Months Ended June 30, 1996 1995* ---- ---- (in thousands) Coal Operations: Virginia Division $ (3,895) $(10,077) Westmoreland Resources, Inc. 1,563 1,326 Westmoreland Coal Sales Company 234 (100) Heritage costs (8,128) (11,773) Net corporate expenses (4,021) (6,319) Pension costs 1,704 825 -------- -------- Total Coal Operations (12,543) (26,118) -------- -------- Independent Power Operations: Westmoreland Energy, Inc. 6,303 6,989 Corona Group (704) - -------- -------- Total Independent Power Operations 5,599 6,989 -------- -------- Operating loss $ (6,944) $(19,129) ========= ======== Gains on the sales of assets $ 17,181 $ 9,538 ======== ========
* Certain amounts have been reclassed to agree with current classifications. 15 16 Details of tons sold (in thousands) and average revenue per ton sold were as follows:
Six Months Ended June 30, 1996 1995 ---- ---- By Segment: Virginia Division* - 1,657 Westmoreland Resources, Inc. 2,237 2,147 ----- ----- Total Westmoreland Operations 2,237 3,804 For Others 285 170 ----- ----- Total Tons Sold 2,522 3,974 ===== ===== Average revenue per ton sold: Westmoreland Resources, Inc. 7.05 7.05 ----- ----- *Includes tons: Sold by Pine Branch Mining Incorporated - 131 Purchased from unaffiliated producers - 415
16 17 COAL OPERATIONS Coal operations reported operating losses of $12,543,000 and $26,118,000 for the first six months of 1996 and 1995, respectively. The improvement in results of operations is attributable to decreases in operating costs due to idling of the Virginia Division and Pine Branch Mining Inc. operations during the third quarter of 1995. Those continuing business units reporting significant changes in results of operations are discussed below. VIRGINIA DIVISION - $6,182,000 BETTER The Virginia Division had operating losses of $3,895,000 and $10,077,000 in the first six months 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 remaining Virginia Division assets and facilities. Depending upon the structure of such transactions, the Company may be able to recover some of the above referenced idling charges. HERITAGE COSTS - $3,645,000 BETTER Heritage costs were $8,128,000 and $11,773,000 for the first six months of 1996 and 1995, respectively. The first six months of 1995 included $3,645,000 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 claims during 1996. NET CORPORATE EXPENSES - $2,298,000 BETTER Net corporate expenses were $4,021,000 and $6,319,000 in the first six months of 1996 and 1995, respectively. Expenses in 1996 decreased due to downsizing and relocation of the Corporate office but remain higher than anticipated due to the recognition of $700,000 of non-recurring, non-cash charges relating to adjustments in various benefit accruals. PENSION COSTS - $879,000 BETTER Pension credits of $1,704,000 and $825,000 were recorded in the first six months of 1996 and 1995, respectively. The improvement is due to downsizing and higher than expected investment gains. INDEPENDENT POWER OPERATIONS - $1,390,000 WORSE The Company's Independent Power Operations, through its wholly-owned subsidiary, WEI, recorded operating income of $5,599,000 and $6,989,000 in the first six months of 1996 and 1995, respectively. The decline is due to two factors: 17 18 1) losses of $700,000 at the Corona Group which was acquired in the third quarter of 1995; 2) the recognition in 1995 of $1,750,000 of deferred development fees received in prior years in connection with the ROVA I; and Additionally, ROVA II commenced commercial operations on June 1, 1995. GAINS ON THE SALES OF ASSETS In January, 1996 the Company sold back 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. In May, 1996 the Company relinquished to Penn Virginia Corporation certain coal reserves for a cash payment of $10,678,000. In addition, the Company obtained an 18 month option to purchase Penn Virginia's 16% interest in Westmoreland Resources for $3,000,000. The Company also sold its idled Wentz Complex to Stonega Mining and Processing and its idled Pine Branch Mining Inc. to Roaring Fork Mining Company in non-cash transactions. Each purchaser assumed specific reclamation and other liabilities. 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. Inflation did not have a material impact on the Company's operations in 1996 18 19 PART II - OTHER INFORMATION ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K a) Exhibit 27 - Financial Data Schedule. b) On May 15, 1996, the Company filed a report on Form 8-K, announcing that the Company had completed a transaction with Penn Virginia Corporation which provides for the relinquishment of certain leases of Westmoreland coal reserves back to Penn Virginia in exchange for a cash payment of $10,678,000 and other consideration from Penn Virginia. In addition to cash, Westmoreland received an 18 month option to purchase Penn Virginia's 16% ownership interest in Westmoreland Resources, Inc. Also announced were completion of non-cash transactions which provide for sale of its idled Wentz Complex to Stonega Mining and Processing Company and its idled Pine Branch Mining Inc. to Roaring Fork Mining Company. 19 20 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: August 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 20 21 INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 27 - Financial Data Schedule
EX-27 2 FINANCIAL DATA SCHEDULE
5 1,000 6-MOS DEC-31-1996 JUN-30-1996 13,670 0 7,150 (913) 208 20,884 228,574 169,473 170,972 28,302 0 17,402 0 575 (44,562) 170,972 32,666 32,666 26,472 39,610 (19,649) 0 239 12,466 464 11,521 0 0 0 11,521 1.30 1.30
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