INDEX TO FINANCIAL CONTENTS
Management's Discussion and Analysis of
Financial Condition and Results of Operations 38
Five-Year Review 54
Consolidated Balance Sheets 56
Consolidated Statements of Income 58
Consolidated Statements of Shareholders' Equity 59
Consolidated Statements of Cash Flows 60
Summary of Significant Accounting Policies 62
Notes to Consolidated Financial Statements 66
Market Information on Capital Stock 109
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Years Ended December 31, 1993, 1992 and 1991
Liquidity and Capital Resources
Cash provided by operating activities totalled $34,130,000 and
$4,944,000 in 1993 and 1992, respectively, compared with cash
used by operating activities of $2,456,000 in 1991. Cash
provided by operating activities increased substantially in 1993
as compared to 1992 despite a $97,646,000 net loss for 1993.
$79,250,000 of the charges related to the write-off of the
carrying value of certain mining operations and coal reserves
along with provisions for the termination of certain coal
operations and personnel recognized in 1993 had no cash impact in
1993. $39,472,000 of these charges are non-cash and are related
to the book value of assets written down and the remainder is
related to accruals for shut down costs such as employee related
costs, reclamation costs and operating losses which will be
funded over future years. Approximately $9,000,000 of the
accruals will be funded in 1994, $5,000,000 in 1995 and the
remainder in 1996 and beyond. The longer term accruals relate to
postretirement medical benefits to be funded over the lifetime of
the beneficiaries. Also included in 1993's net loss was
$10,527,000 of non-cash charges resulting from the adoption of
Statement of Financial Accounting Standards No. 106, "Employers'
Accounting For Postretirement Benefits Other than Pensions"
("SFAS 106") in January 1993. The improvement in 1993's cash
flow from operating activities is the result of an aggressive
working capital management effort, particularly in the area of
trade receivables which decreased $17,199,000, net of allowances
for doubtful accounts and inventories which decreased $5,596,000,
comparing December 31, 1993 to December 31, 1992. Westmoreland
Coal Company (the "Company" or "Westmoreland") is actively
evaluating its business relationships which require investments
in working capital and eliminating those with marginal returns in
order to conserve cash.
Cash used in investing activities was $9,769,000, $43,711,000 and
$13,813,000 in 1993, 1992 and 1991 respectively. During 1993, 1992
and 1991 the Company invested $8,298,000, $33,729,000 and
$14,975,000 respectively, in capital assets. These amounts include
capital lease obligations of $108,000, $35,000 and $152,000 in
1993, 1992 and 1991, and $3,883,000 of assets subsequently sold and
leased back under an operating lease in 1993 to finance new
equipment. Of the total capital expenditures in 1993,
approximately $3,500,000 were for expansion of production capacity
and approximately $4,800,000 were for sustaining capital. In 1992,
capital expenditures included infrastructure construction to
support a new longwall mining system at the Pierrepont Mine in
Virginia and a new coal preparation plant at Criterion. The
Company had no investment requirements in 1993 for its cogeneration
projects. In 1992 it invested $9,641,000 in cogeneration projects.
The Company plans to invest approximately $11,500,000 in capital
assets in 1994 of which approximately $4,800,000 will be for
expansion of production capacity and $6,700,000 will be for
sustaining capital. For information regarding future investments
in and capital requirements for cogeneration and independent power
facilities. (See Note 6 to the Consolidated Financial Statements.)
The Company's principal credit facilities have an outstanding
balance at December 31, 1993 of $51,385,000 and have final
maturities in July 1994. As a result of the losses incurred in the
fourth quarter of 1993, the Company is not in compliance with
certain of the financial covenants contained in these credit
facilities. The Company is engaged in negotiations with the
institutions participating in these facilities to cure the
defaults. (See Liquidity Outlook and Note 1 to the Consolidated
Financial Statements for additional details.)
Cash used in financing activities was $10,783,000 and $13,337,000
in 1993 and 1991, respectively, as compared to cash provided by
financing activities of $35,656,000 in 1992. These amounts include
payments to reduce existing debt in 1993, 1992 and 1991, and the
proceeds from the preferred stock offering and additional
borrowings in 1992. Preferred dividends in the amount of
$4,888,000 and $1,140,000 were paid in 1993 and 1992 respectively.
Dividends paid to common shareholders were $2,433,000 and
$2,640,000 in 1992 and 1991 respectively.
The Company's total debt to capitalization ratio (total debt,
including current portion of long-term debt, divided by the sum of
total debt, including current portion of long-term debt, minority
interest and shareholders' equity) was 51% at December 31, 1993 and
27% at December 31, 1992. This increase is due to the large net
loss in 1993 which reduced shareholders' equity.
The Company's cash and cash equivalents at December 31, 1993
totalled $24,262,000. At December 31, 1992, cash and cash
equivalents totalled $10,749,000. None of the cash and cash
equivalents was restricted as to use or disposition. The Company's
current ratio was .94 at December 31, 1993 down from 1.49 at
December 31, 1992. The decrease is due to the accrual for
postretirement medical benefits under SFAS 106 and the
reclassification of the Company's borrowings under its Amended and
Restated Revolving Credit Agreement, dated April 15, 1993 (the
"Amended Revolver") to current portion of long-term debt. The
Company has also classified the long-term portion, $10,350,000, of
its 10% senior unsecured notes (the "10% Notes") to current portion
of long-term debt due to the maturity date being amended to July
1994 from July 1998 as a result of a negotiation to resolve certain
covenant violations as of September 30, 1993.
Preferred stock dividends at a rate of 8.5% per annum have been
paid quarterly since the third quarter of 1992. The last quarterly
preferred stock dividend was declared on February 25, 1994 and was
paid on April 1, 1994. The continuation of payment of preferred
stock dividends is at the discretion of the Company's board of
directors. However, there are statutory restrictions limiting the
payments of preferred dividends under Delaware law, the state in
which the Company is incorporated. Under Delaware law, the Company
is only permitted to pay dividends either: (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 of no surplus, out of net profits for the fiscal year in
which a dividend is declared (or out of net profits from the
preceding fiscal year), but only to the extent that equity exceeds
par value of preferred stock ($575,000). The combined par value of
the Company's preferred and common stocks is $17,964,000.
Common stock dividend payments are restricted by covenants under
the Company's loan agreements. Currently the Company is not able
to pay common stock dividends based on these restrictive covenants.
Liquidity Outlook
As of December 31, 1993, Westmoreland was not in compliance with
certain of the financial covenants contained in the Amended
Revolver maturing July 1994, the 10% Notes due July 1994 the
Company's Guarantee Obligation (the "DTA Guaranty") in connection
with a $26,560,000 letter of credit expiring in July 1994 and
related to the financing of a portion of the Dominion Terminal
Associates coal export terminal. Outstanding borrowings under the
Amended Revolver and 10% Senior Notes total $24,825,000 at
December 31, 1993.
The Company is engaged in negotiations with the institutions
participating in these credit arrangements about waivers of these
defaults, modifications of the financial covenants and
restructuring of the facilities, including the extension of the
maturities thereof pending possible asset sales.
In addition to the debt of $24,825,000 and the letter of credit
for $26,560,000 maturing in July 1994, the Company has equity
commitments related to cogeneration projects, currently projected
to be $9,600,000, of which $1,050,000 was paid in March 1994 and
the balance is payable in September 1994 and $15,392,000 payable
in December 1994 and a related payment of $4,750,000 payable on
April 29, 1994. The Company has offered for sale its cogeneration
and independent power business, Westmoreland Energy, Inc. ("WEI")
and is currently in negotiations on such a transaction. If
successful, the proceeds are anticipated to be adequate to cover
the credit facility obligations maturing in July 1994 and satisfy
the above equity commitments. In addition the Company has been
conducting a strategic review of its coal mining and related
operations which has already resulted in the write-off and planned
closure of certain mining operations and coal reserves and which
could result in the divestment of certain coal properties.
Substantially all of the net proceeds of any asset sale will be
utilized to pay down outstanding obligations until obligations
under these credit facilities are discharged and to collateralize
outstanding surety bonds(See Note 8 to the Consolidated Financial
Statements).
The Company expects the required waivers of its covenant defaults
to be obtained from the affected creditors, and that the credit
facilities will be restructured in a manner that will delay the
July 1994 maturities to accommodate the possible sale of WEI and
other assets. Although this outcome is expected, there can be no
assurance that the necessary credit facility modifications can be
obtained or that a sale of assets will be accomplished or, if
accomplished, will produce sufficient proceeds to discharge the
Company's obligations. If the credit facility modifications
cannot be obtained, and if the creditors elect to accelerate the
Company's debt, the Company would not have sufficient cash to meet
its obligations.
One of the provisions of the Retiree Medical Act of 1992 (See Note
10 to the Consolidated Financial Statements) is to make wholly
owned subsidiaries of the Company secondarily liable for the
funding of medical benefits for UMWA retirees who are retired or
will retire through September 1994. It is not known what the
potential implications of this provision might be in connection
with the Company's efforts to sell WEI or the possible sale of
coal properties.
RESULTS OF OPERATIONS:
1993 Compared to 1992
1993 1992
(in thousands)
Coal Operations:
Virginia Division $ (24,630) $ (9,332)
Hampton Division (42,266) (966)
Criterion Coal Co. 10,289 6,492
Westmoreland Resources, Inc. 3,152 5,910
West Virginia - Idled Operations (29,773) (4,309)
Other Coal (11,021) (32,737)
Total Coal (94,249) (34,942)
Other Operations 214 (384)
Income (loss) from
continuing operations $ (94,035) $(35,326)
Tons sold (in thousands) and average revenue per ton sold for 1993
and 1992 were as follows:
1993 1992
Virginia Division 4,913 4,752
Hampton Division 1,561 1,745
Criterion Coal Co. 1,853 1,786
Westmoreland Resources, Inc. 3,224 3,491
Total Westmoreland Operations 11,551 11,774
For Others . 5,136 7,606
Total tons sold 16,687 19,380
Own Operations-Inland 11,136 10,722
Own Operations-Export 415 1,052
For Others-Inland 2,261 3,845
For Others-Export 2,875 3,761
Total 16,687 19,380
Average revenue per ton sold $ 27.66 $ 27.53
Summary
Operations incurred a loss of $94,035,000 for 1993 compared
to a loss of $35,326,000 for 1992. The most significant item
in 1993 being $79,250,000 of unusual charges related to the
write-off of the carrying value of certain mining operations
and coal reserves along with provisions for the termination
of certain operations and personnel. These charges result
from the Company's continuing strategic review of its mining
operations in light of projected costs, prices and demand.
Of the $79,250,000 of charges, $43,158,000 is for the planned
discontinuation in the second quarter of 1994 of most of the
Hampton Division's operations; $20,000,000 is related to the
write-off of the Triangle mine complex idled since the early
1980's and classified within West Virginia - Idled
Operations; and $16,092,000 is for the planned closedown in
late 1994 of the Wentz mine complex and the write-off of
certain other assets within the Virginia Division(See Note 2
to the Consolidated Financial Statements).
Also impacting 1993 results was an additional $9,250,000
accrual above the anticipated expense level of approximately
$5,475,000, for Virginia Division workers' compensation
liabilities resulting from a further reassessment of
obligations related to continuing operations.
The final major variance in 1993 is the impact of SFAS 106
which was adopted in January 1993. As a result of SFAS 106,
the Company incurred an increase of $10,527,000 of non-cash
charges in 1993 as compared to 1992.
Income from operations for 1992 also included a number of
charges totalling $34,610,000. $20,489,000 was related to
loans and a guarantee obligation and other related items on
behalf of Adventure Resources, Inc. ("Adventure") a coal
supplier, that filed for bankruptcy. The Company also
increased reserves for potentially uncollectible trade
receivables and additional reclamation costs by $7,747,000
and $2,074,000 respectively. An additional $3,900,000 was
accrued for a change in estimates of previously established
workers' compensation obligations and a $400,000 valuation
adjustment was made to its mining supplies inventories.
Excluding the unusual items mentioned above from both years,
results from operations for 1993 would have been income of
$4,992,000 as compared to a loss of $716,000 for 1992.
Virginia Division
The Virginia Division incurred losses in 1993 totalling
$24,630,000 as compared to $9,332,000 in 1992.
- - Included in 1993's results were unusual charges totalling
$16,092,000(See Note 2 to the Consolidated Financial
Statements).
- - In connection with the continuing review of the Virginia
Division, which has resulted in the closure of high cost
operations and reduction in manpower, the Company engaged a
consulting firm in 1992 to assess its exposure to workers'
compensation claims. As a result, the Company increased its
workers' compensation accruals in 1992. With the advice of
the outside consultant and the further case history
development in 1993, the Company recognized a need for an
additional $9,250,000 adjustment, above the $5,475,000 which
was anticipated for the year, in the fourth quarter of 1993.
As a result of this further reassessment, total workers'
compensation expense for the Virginia Division in 1993 was
$14,725,000, an increase of $3,625,000 over 1992 which was
$11,100,000.
- - The adoption of SFAS 106 increased expenses in the
Virginia Division by $6,173,000 in 1993 compared to 1992.
- - Finally, the Duke Power Company contract price was reduced
in 1993 under a market reopener, which resulted in decreased
revenues and earnings of $7,100,000.
Excluding all of the above items, the Virginia Division's
1993 earnings would have been a profit of approximately
$8,360,000 compared to loss of $9,332,000 in 1992
representing a $17,692,000 improvement in operating
efficiency over 1992. This improvement is mainly
attributable to increased productivity levels and better
mining conditions. Also, the Pierrepont mine had its
longwall mining system in place for the entire year of
1993 compared to 1992 when it was only operational in the
fourth quarter.
Hampton Division
The Hampton Division lost $42,266,000 in 1993 compared to a
loss of $966,000 in 1992.
- - Included in the 1993 loss were unusual charges of
$43,158,000(See Note 2 to the Consolidated Financial
Statements).
- - Also included in 1993's losses were the increased expenses
related to SFAS 106 totalling $652,000.
- - 1992's losses are mainly attributable to environmental
costs of $946,000 related to the treatment of water being
discharged from a closed mine.
Criterion Coal Company
Criterion Coal Company profits improved by $3,797,000 in
1993. Profits for 1993 were $10,289,000 as compared to
$6,492,000 in 1992. Operating costs at Criterion have been
reduced as a result of its new preparation plant becoming
operational in the first quarter of 1993. The increased
profitability is also attributable to a higher average
revenue per ton, due to tons sold under contract that were
previously sold on the spot market.
Westmoreland Resources, Inc.
Westmoreland Resources, Inc. had profits totalling $3,152,000
in 1993 as compared to $5,910,000 in 1992. Included in 1993
was a settlement of a coal severance tax dispute between WRI
and the state of Montana which decreased earnings by
$900,000. Included in 1992's earnings was income from a
settlement of a dispute with a customer totalling $3,000,000.
Net of the above non-recurring items, operating profits for
1993 improved by $1,142,000.
West Virginia - Idled Operations
West Virginia - Idled Operations consists of costs associated
with mining operations in West Virginia which have been idled
or disposed of. In 1993 these operations had costs totalling
$29,773,000 versus costs of $4,309,000 in 1992. Included in
1993 were $20,000,000 of unusual charges for the write-off of
the partially developed Triangle Mine Complex(See Note 2 to
the Consolidated Financial Statements). Also impacting West
Virginia - Idled Operations in 1993 was $2,730,000 of
incremental postretirement medical expense resulting from the
adoption of SFAS 106 in 1993 and $2,400,000 of charges
related to retirees, which in previous years had been
allocated to the Company's active mining operations.
Other Coal
Other Coal operations, which include corporate expense, the
coal brokering activities of Westmoreland Coal Sales Company
and the operations of Pine Branch Mining Co., lost
$11,021,000 in 1993 as compared to a loss of $32,737,000 in
1992. 1992's losses include $20,489,000 of charges related
to loans and a guarantee obligation and other related items
on behalf of Adventure. Also included in 1992 was an
increase in the reserves for potentially uncollectible trade
receivables and reclamation costs in the amounts of
$7,747,000 and $2,074,000, respectively. In the third
quarter of 1993, the Company reduced its work force by 32
people at its Corporate office and Westmoreland Coal Sales
Company. The Company accrued $1,700,000 in severance and
other expenses related to this work force reduction. Also
impacting 1993's losses is a 32% reduction in the volume of
tons sold for other mining companies. This reduction in
volume is primarily due to the closing of two mines in the
second quarter of 1992 by Adventure, the cessation of
operations in January 1993 of another West Virginia coal
producer, for which the Company acted as sales agent, and a
depressed export market. These lower sales levels are
expected to continue.
Other Operations
Other Operations, which includes the results of Cleancoal
Terminal Company ("Cleancoal"), the rail-to-barge
transloading and ground storage facility located on the Ohio
River in Kentucky, and some minor non-coal related
transactions reported income of $214,000 in 1993 as compared
to a loss of $384,000 for 1992. Cleancoal experienced a 17%
increase in tons transloaded over 1992, resulting in a loss
of $126,000 compared to a loss of $854,000 in 1992.
Other Accounts
Interest expense increased $796,000 or 19% in 1993 due to
interest payments being made on a $8,864,000 loan being
guaranteed by the Company on behalf of Adventure.
Interest income increased $135,000, or 22%, due to higher
overall investments.
Other income in 1993 reflects increased income from scrap
sales and royalties.
Income taxes in 1993 and 1992 principally reflected the
provision for WRI, which is not consolidated with the Company
for Federal income tax purposes, and alternative minimum tax
and state taxes related to the Company's other operations.
Also included in 1993 was a $683,000 benefit related to the
settlement of a state income tax dispute.
Discontinued Operations - Cogeneration
The Company's cogeneration business unit, WEI, was offered
for sale by the Company in 1993 and is being accounted for as
a discontinued operation(See Note 6 to the Consolidated
Financial Statements).
WEI's income from operations in 1993 was $805,000, which includes
$2,000,000 gain recognized from the sale of a portion of its
interest in the Fort Lupton project. WEI's income from operations
in 1992 was $1,679,000 which included $2,300,000 in development
fees partially offset by a $1,500,000 reduction in the carrying
value of an investment in a plant under development.
Inflation did not have a material impact on the Company's
operations in 1993.
Trends and Uncertainties
There are a number of factors that may impact the future
earnings of the Company. Based on information available to
the Company at this time, the following factors or future
actions have been identified for which the impact is
uncertain but could be substantial:
- - On July 1, 1993, the Company,as part of the Independent
Bituminous Coal Bargaining Alliance ("IBCBA") entered into an
interim agreement with the United Mine Workers of America
("UMWA"). This agreement provided mechanisms for the Company
and the UMWA at the local level to work together to reduce
health care costs, to make more efficient use of the
Company's assets, to recognize special local operating and
competitive conditions, to provide flexibility in work and
scheduling, to create incentive programs, recognize
employees' skills and performance, to involve and integrate
employees and the UMWA in the success of their mines and the
Company, and to improve overall labor management relations.
These features were retained in a five-year agreement that
succeeds the interim agreement, and became effective as of
December 1993 ("1994 Agreement").
- - The Company and the UMWA are in the process of
implementing the health care cost reduction provisions of the
1994 Agreement. In addition, other steps are being taken at
individual operations as part of the implementation of the
1994 Agreement which should make the Company's operations
more competitive. The 1994 Agreement provides for a wage
increase of $.50 per hour, retroactive to February 1, 1993.
Employees will receive the retroactive portion of this wage
increase in the form of an additional $.50 per hour until the
retroactive portion is paid. The financial impact of the
retroactive pay increase, $972,000, was accrued in 1993. The
1994 Agreement also provides for additional wage increases of
$.40 per hour on December 16, 1994 and December 16, 1995, and
the right to negotiate for wage increases in 1996 and 1997.
- - The Company makes payments into certain United Mine
Workers' of America Benefit Trust Funds (the "Funds")
including the Funds designed to pay medical benefits to
employees who retired prior to 1976 and to those UMWA
retirees whose companies are no longer in business (the
"UMWA Retiree Medical Funds"). Prior to February 1993, the
Company's contribution to UMWA Retiree Medical Funds were
based on hours worked or tons produced. The Coal Industry
Retiree Health Benefit Act of 1992 (the "Retiree Medical Act
of 1992") significantly modified the funding of the UMWA
Retiree Medical Funds (See Note 10 to the Consolidated
Financial Statements for the method and amount of payments
into these Funds.) The Company's liability for future
funding obligations to the UMWA Retiree Medical Funds is
estimated to be approximately $50,000,000, determined on a
net present value basis. One of the provisions of the
Retiree Medical Act of 1992 is to make wholly owned
subsidiaries of the Company secondarily liable for the
funding of medical benefits for UMWA retirees who are retired
or will retire through September 1994. It is not known what
the potential implications of these provisions might be in
connection with the Company's efforts to sell WEI or the
possible sale of coal properties.
- - The Company is also continuing in its efforts to improve
the profitability and competitiveness of its Virginia
Division by steps such as the closing of the Wentz mine and
preparation plant complex in 1994. However, subsequent to
the expiration of two above-market sales contracts in April
1995 and July 1996, the ability of the Virginia Division to
operate profitably will require coal price increases,
operating cost reductions or some combination of the two.
Some industry experts are predicting price increases, and in
cooperation with our work force we have made significant
strides in addressing costs. However, it would be premature
to predict the Virginia Division's ability to operate
profitably at market prices after 1996 when its two major
sales contracts will have expired.
- - The continued consolidation of the coal industry along
with weakened market conditions have significantly impacted
the Company's coal brokering operations. A significant
portion of the Company's sales has historically been related
to coal produced by smaller producers seeking to utilize the
Company's expertise in the marketing of coal. In 1993,
5,136,000 tons of the total 16,687,000 tons sold by the
Company were sold for other producers. Of the 5,136,000 tons
sold for others, approximately 37% were produced by
Adventure. Adventure filed for bankruptcy in December 1992.
At this point in time, due to the Company's need to conserve
working capital, it is unlikely that the current relationship
with Adventure will be maintained and therefore sales volumes
and margins could be reduced in the future.
- - In 1992, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 112, "Employers'
Accounting for Postemployment Benefits" ("SFAS 112"). Under SFAS
112, the cost of benefits provided to former or inactive
employees, after employment but before retirement, are required
to be accrued. SFAS 112 requires an employer to record the cost
of postemployment benefits that are probable and estimable
either over the periods in which benefit accumulate or vests or
when the event occurs. Adoption of SFAS 112 is effective for
fiscal years beginning after December 15, 1993. At the time of
adoption the entire estimated liability should be reported as a
change in accounting principle; SFAS 112 does not offer a "phase
in" method of adoption. The Company does not expect this
statement to have a material impact on its earnings.
RESULTS OF OPERATIONS:
1992 Compared to 1991
Income (loss) from operations for 1992 and 1991 was as follows:
1992 1991
(in thousands)
Coal Operations:
Virginia Division $ (9,332) $ (11,781)
Hampton Division (966) (5,508)
Criterion Coal Co. 6,492 6,319
Westmoreland Resources, Inc. 5,910 4,198
West Virginia - Idled Operations (4,309) (1,358)
Other Coal (32,737) 2,627
Total Coal (34,942) (5,503)
Other Operations (384) (1,275)
Income (loss) from
continuing operations $ (35,326) $ (6,778)
Tons sold (in thousands) and average revenue per ton sold for 1992 and
1991 were as follows:
1992 1991
Virginia Division 4,752 4,325
Hampton Division 1,745 1,543
Criterion Coal Co. 1,786 1,600
Westmoreland Resources, Inc. 3,491 4,102
Total Westmoreland Operations 11,774 11,570
For Others . 7,606 9,057
Total tons sold 19,380 20,627
Own Operations-Inland 10,722 10,229
Own Operations-Export 1,052 1,341
For Others-Inland 3,845 4,560
For Others-Export 3,761 4,497
Total tons sold 19,380 20,627
Average revenue per ton sold $ 27.53 $ 27.38
Coal Operations
The Company's loss from coal operations in 1992 primarily
reflects the effect of several material fourth quarter
charges. These charges include reserves established for
$20,489,000 related to loans and a guarantee obligation on
behalf of Adventure. (See Note 7 to the Consolidated
Financial Statements). The Company also increased reserves
for potentially uncollectible trade receivables and
additional reclamation costs by $7,747,000 and $2,074,000,
respectively. An additional $3,900,000 was accrued in the
fourth quarter for a change in estimates of previously
established workers' compensation obligations and a $400,000
valuation adjustment was made to its mining supplies
inventories.
The Company's loss from operations in 1992 also reflects the
impact of a 6% decrease in total tons sold from 1991. This
decline is due to a generally softened export market; the
closing of two mines affiliated with Adventure and electric
utility customers of WRI requiring lower tonnage due to the
mild weather in their service areas in 1992.
Virginia Division
The Virginia Division incurred losses in 1992 totalling
$9,332,000 compared to losses of $11,781,000 in 1991.
Production in Virginia's company-operated mines increased 20%
in 1992 due largely to the startup of the longwall system at
the Pierrepont Mine. The Bullitt Mine continued to face
adverse geological conditions which began at the end of 1991;
mining plans for the Bullitt Mine were altered during the
year in order to minimize the effect of the conditions. A
review of Virginia's previously established workers'
compensation obligations began at the end of 1991 which
resulted in an increased accrual in 1992 of $6,319,000
compared to 1991, including a $3,900,000 accrual in the
fourth quarter of 1992.
Hampton Division
The Company's Hampton Division lost $966,000 in 1992 as
compared to a $5,508,000 loss in 1991. 1991's losses
included a $4,780,000 expense for reclamation of a surface
mine abandoned by a contractor who went out of business.
1992's losses are mainly attributable to environmental costs
of $946,000 related to the treatment of water being
discharged from a closed mine.
Criterion and WRI
Criterion and WRI continued to achieve and exceed their 1992
earnings goals. WRI's 1992 earnings of $5,910,000, included
$3,000,000 from a settlement of a dispute with a customer.
Criterion's 1992 earnings increased slightly, over 1991's
level, to $6,492,000.
West Virginia - Idled Operations
West Virginia - Idled Operations consists of costs associated
with mining operations in West Virginia which have been idled
or disposed of.
In 1992 the medical benefits paid to retired employees and
their dependents increased $3,191,000 when compared to 1991.
Costs of this type are included in the Company's provision
for other postretirement benefits under SFAS 106 effective in
1993.
Other Coal
Other Coal operations, which include corporate expense, the
coal brokering activities of Westmoreland Coal Sales Company
and the operations of Pine Branch Mining Co., lost
$32,737,000 in 1992 as compared to a profit of $2,627,000 in
1991. 1992's losses include $20,489,000 of charges related
to loans and a guarantee obligation and other related items
on behalf of Adventure, a coal supplier related to the
Company's coal brokering activities. Also included in 1992
was an increase in the reserves for potentially uncollectable
trade receivables and reclamation costs in the amount of
$7,747,000 and $1,200,000 respectively.
Other Operations
The loss from other operations decreased primarily due to
decreased losses from the Company's joint venture through a
subsidiary with Stinnes Coal Company, Inc. Although
Cleancoal, the rail-to-barge transloading and ground storage
facility located on the Ohio River in Kentucky, experienced a
less than 1% decrease in tons transloaded, its loss from
operations increased $115,000, or 16%. This was largely due
to increased costs due to customer mix.
Other Accounts
Interest income decreased $1,097,000, or 65%, due to lower
overall investments and lower interest rates.
Other income in 1992 included a $358,000 increase from the
reversal of a provision for franchise tax established in a
prior year. Other income in 1991 was reduced by the write-
off of a $500,000 investment in a firm engaged in coal
research and development activities.
Income taxes in 1992 principally reflected the provision for
WRI, which is not consolidated with the Company for Federal
income tax purposes, and alternative minimum tax and state
taxes.
Discontinued Operations - Cogeneration
Income from the Company's cogeneration business unit, WEI,
increased substantially in 1992. This increase is directly
attributable to the commencement of operations of three
plants in 1992: Southampton, Altavista and Hopewell.
Cogeneration income also included $2,300,000 in development
fees partially offset by a $1,500,000 reduction in the
carrying value of WEI's investment in a plant under
development.
Inflation did not have a material impact on the Company's
operations in 1992.
Westmoreland Coal Company and Subsidiaries
Five-Year Review
1993 1992 1991 1990* 1989*
Consolidated Income Statements
(in thousands)
Revenue -Coal $461,593 $533,473 $564,823 $548,853 $549,755
-Other (1) 3,662 2,816 2,252 2,246 50,281
Total revenues 465,255 536,289 567,075 551,099 600,036
Cost and expenses 480,040 571,615 573,853 534,250 580,615
Unusual charges (1993)/Gain on sales
of assets, net (1990, 1989) (2) (79,250) - - 1,339 167
Income (loss) from continuing operations (94,035) (35,326) (6,778) 18,188 19,588
Interest expense 4,934 4,138 4,390 4,700 9,634
Interest and other income 2,231 1,466 1,887 4,718 4,311
Income (loss) from continuing operations before
income taxes and minority interest (96,738) (37,998) (9,281) 18,206 14,265
Income taxes 1,385 3,495 2,753 3,064 984
Minority interest (3) 748 1,543 1,120 2,007 1,654
Net income (loss) from continuing operations (98,871) (43,036) (13,154) 13,135 11,627
Net income (loss) from discontinued operation (4) 1,225 2,012 (248) (606) (153)
Net income (loss) (97,646) (41,024) (13,402) 12,529 11,474
Less preferred stock dividend (5) 4,888 2,362 - - -
Net income (loss) from continuing operations
available to common shareholders (102,534) (43,386) (13,402) 12,529 11,474
Common Stock Information
(in thousands except per share data)
Income (loss) from continuing operations
available to common shareholders $ (14.92) $ (5.94) $ (1.59) $ 1.58 $1.41
Income (loss) from discontinued operation
available to common shareholders .18 .26 (.03) (.07) (.02)
Income (loss) available to common shareholders (14.74) (5.68) (1.62) 1.51 1.39
Dividends declared per common share - .32 .32 .32 -
Weighted average number of common
and common equivalent shares (6) 6,954 7,635 8,250 8,296 8,250
Balance Sheet Data
(in thousands)
Working capital (deficit) (7) $ (5,839) $ 33,650 $ 42,215 $ 60,854 $ 59,510
Net property, plant and equipment (2) 146,450 204,051 193,155 201,130 209,316
Total assets (2) 265,498 324,625 320,724 338,090 345,356
Total debt 44,034 53,191 38,352 47,076 55,764
Shareholders' equity (2) 31,790 134,477 144,279 160,462 150,739
Additions to property, plant and equipment 8,298 33,729 15,766 15,243 7,494
Percentage of debt to capitalization 51% 24% 16% 18% 22%
<FN>
* Certain amounts have been reclassified to conform with current classifications.
(1) In 1989, the Company sold Central Supply Company.
(2) In 1993, the Company recorded unusual charges related to
the write-off of the carrying value of certain mining
operations and coal reserves along with provisions for the
termination of certain coal operations and personnel. (See
Note 2 to the Consolidated Financial Statements.)
In 1990, the Company released, to a wholly owned subsidiary
of Penn Virginia, its rights in certain coal reserves in
Virginia in exchange for cash resulting in a gain of
$950,000. In 1990, the Company also reported a gain of
$389,000 in connection with its sale of Central Supply.
The gain was the net of the curtailment of Central Supply's
pension plan and certain expenses related to the sale.
In 1989, the Company released, to a wholly owned subsidiary
of Penn Virginia, its rights in certain coal reserves and a
surface loading facility in Virginia in exchange for cash
and the release of certain claims and demands resulting in
a gain of $1,883,000. In 1989, the Company also
established provisions in the amount of $1,610,000 for the
valuation of assets relating to its mining operations in
Virginia and recorded an immaterial loss relating to the
sale of Central Supply.
(3) Reflects the 40% interest in Westmoreland Resources, Inc.
not owned by the Company.
(4) Westmoreland Energy, Inc. has been offered for sale by the
Company and is being accounted for as a discontinued
operation. (See Note 6 to the Consolidated Financial
Statements.)
(5) On July 1, 1992, the Company issued 575,000 shares of
Preferred Stock previously authorized. Two quarterly
dividends at 8.5% per annum were declared in 1992 and four
quarterly dividends in the same amount in 1993. (See Note
3 to the Consolidated Financial Statements.)
(6) In 1993, the Company issued 1,066 common shares.
In 1992, the Company purchased 1,295,589 of its own shares
from Penn Virginia and in December 1992 retired the shares.
(7) The decrease in working capital from 1992 to 1993 resulted
from the reclassification of long-term debt to current, the
adoption of SFAS 106 and the accruals for mine closure
costs, all in 1993.
Westmoreland Coal Company and Subsidiaries
CONSOLIDATED BALANCE SHEETS
December 31, 1993 1992
(in thousands)
Assets
Current assets:
Cash and cash equivalents $24,262 $10,749
Receivables:
Coal sales 52,087 72,439
Notes 2,612 3,382
Other 1,911 2,143
56,610 77,964
Less allowance for doubtful accounts 6,296 9,203
50,314 68,761
Inventories:
Coal 10,293 15,743
Mine supplies 5,763 5,909
16,056 21,652
Other current assets 4,609 903
Total current assets 95,241 102,065
Net assets of discontinued operation held for sale 12,972 -
Property, plant and equipment:
Land and mineral rights 32,838 58,629
Plant and equipment 338,839 357,392
371,677 416,021
Less accumulated depreciation and depletion 225,227 211,970
146,450 204,051
Investment in cogeneration - 11,736
Other assets 10,835 6,773
Total Assets $ 265,498 $ 324,625
<FN>
See accompanying Summary of Significant Accounting Policies and
Notes to Consolidated Financial Statements.
December 31, 1993 1992
(in thousands except share data)
Liabilities and Shareholders' Equity
Current liabilities:
Current installments of long-term debt $ 28,101 $ 6,663
Accounts payable and accrued expenses:
Trade 22,080 32,203
Taxes, other than taxes on income 5,757 4,687
Payroll 2,739 2,303
Workers' compensation 5,675 3,957
Postretirement medical costs 9,185 -
Other 22,829 14,523
68,265 57,673
Preferred dividends payable 1,222 1,222
Taxes on income 2,992 2,357
Deferred income taxes 500 500
Total current liabilities 101,080 68,415
Long-term debt 15,933 46,528
Accrual for pneumoconiosis benefits 17,475 19,522
Accrual for workers' compensation 20,782 12,413
Accrual for postretirement medical costs 28,105 -
Other liabilities 25,242 17,714
Deferred income taxes 14,373 15,226
Minority interest 10,718 10,330
Commitments and contingent liabilities
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 6,955,477 shares at 12/31/93
Issued 6,954,411 shares at 12/31/92 17,389 17,386
Other paid-in capital 94,651 94,807
Retained earnings (deficit) (80,825) 21,709
Total shareholders' equity 31,790 134,477
Total Liabilities and Shareholders' Equity $ 265,498 324,625
Westmoreland Coal Company and Subsidiaries
Consolidated Statements of Income
Years Ended December 31, 1993 1992* 1991*
(in thousands except per share data)
Revenues:
Coal $461,593 $533,473 $564,823
Other 3,662 2,816 2,252
465,255 536,289 567,075
Cost and expenses:
Cost of coal sold 430,737 496,169 525,277
Cost of sales-other 2,337 2,036 2,371
Depreciation, depletion and amortization 21,440 22,539 23,107
Selling and administrative 25,783 21,816 22,991
Provision for doubtful accounts (257) 29,055 107
480,040 571,615 573,853
Unusual charges (79,250) - -
Income (loss) from continuing operations (94,035) (35,326) (6,778)
Interest expense 4,934 4,138 4,390
Interest income 738 603 1,700
Other income 1,493 863 187
Income (loss) before income taxes and
minority interest (96,738) (37,998) (9,281)
Income taxes 1,385 3,495 2,753
Minority interest 748 1,543 1,120
Net income (loss) from continuing operations (98,871) (43,036) (13,154)
Net income (loss) from discontinued operation,
net of taxes 1,225 2,012 (248)
Net income (loss) (97,646) (41,024) (13,402)
Less preferred stock dividend 4,888 2,362 -
Net income (loss) available to common
shareholders $ (102,534) $(43,386) $(13,402)
Net income (loss) per share available to
common shareholders:
Continuing Operations $ (14.92) $ (5.94) $ (1.59)
Discontinued Operation .18 .26 (.03)
Total (14.74) (5.68) (1.62)
Weighted average number of common
shares outstanding 6,954 7,635 8,250
<FN>
* Certain amounts have been reclassified to
conform with current classifications.
See accompanying Summary of Significant Accounting Policies and Notes to
Consolidated Financial Statements.
Westmoreland Coal Company and Subsidiaries
Consolidated Statements of Shareholders' Equity
Years Ended December 31, 1991, 1992 and 1993
Class A
Convertible
Exchangeable Retained
Preferred Common Paid-In Earnings
(in thousands except per share) Stock Stock Capital (Deficit) Total
Balance at January 1, 1991 $ - 20,625 56,267 83,570 160,462
Net loss (13,402) (13,402)
Cash dividends paid:
Common stock ($.32 per share) (2,640) (2,640)
Incentive Stock Option transactions (141) (141)
Balance at December 31, 1991 - 20,625 56,126 67,528 144,279
Net loss (41,024) (41,024)
Net proceeds from issuance
of Preferred stock 575 53,953 54,528
Cash dividends paid:
Common stock ($.32 per share) (2,433) (2,433)
Preferred stock (8.5% per annum
for six months) (2,362) (2,362)
Purchase of treasury stock (1) (3,239) (15,257) (18,496)
Incentive Stock Option transactions (15) (15)
Balance at December 31, 1992 575 17,386 94,807 21,709 134,477
Net loss (97,646) (97,646)
Cash dividends paid:
Preferred stock (8.5% per annum) (4,888) (4,888)
Other 3 (156) (153)
Balance at December 31, 1993 $ 575 17,389 94,651 (80,825) 31,790
<FN>
(1) Treasury shares (1,295,589) were retired by the Company in December 1992.
See accompanying Summary of Significant Accounting Policies
and Notes to Consolidated Financial Statements.
Westmoreland Coal Company and Subsidiaries
Consolidated Statements
of Cash Flows
Years Ended December 31, 1993 1992* 1991*
(in thousands )
Cash flows from operating activities:
Net income (loss) $(97,646) $(41,024) $(13,402)
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Unusual charges 79,250 - -
Depreciation, depletion and amortization 21,440 22,539 23,107
(Increase) decrease in deferred
income taxes (853) 766 (482)
Decrease in accrual for pneumoconiosis benefits (2,047) (1,979) (1,443)
Minority interest in WRI income 748 1,543 1,120
(Increase) decrease in customers' accounts
receivable net of allowance for doubtful
accounts 17,199 3,140 (13,558)
(Increase) decrease in other receivables 476 3,680 (2,299)
(Increase) decrease in inventories 5,596 5,403 (4,264)
Increase (decrease) in trade payables (9,828) (9,928) 12,732
Increase (decrease) in other accounts payable
and accrued expenses 4,935 5,177 (6,226)
Increase in income taxes payable 635 472 552
Increase in accrual for postretirement
medical costs 18,738 - -
Increase in long-term accruals 3,103 16,395 1,093
Other (7,616) (1,240) 614
Net cash provided (used) by operating activities 34,130 4,944 (2,456)
Cash flows from investing activities:
Fixed asset additions (8,078) (33,662) (15,559)
Decrease in long-term investments 347 2,333 1,544
Proceeds from sales of investments and assets 253 275 189
(Increase) decrease of net assets held for sale (2,291) (12,657) 13
Net cash used in investing activities (9,769) (43,711) (13,813)
Cash flows from financing activities:
Proceeds from sale/leaseback 3,883 - -
Proceeds from long-term debt - 14,500 -
Repayment of long-term debt (9,330) (8,468) (8,863)
Net proceeds from issuance of preferred stock - 54,528 -
Purchase of treasury shares - (18,496) -
Dividends paid to shareholders (4,888) (3,573) (2,640)
Dividends paid and other adjustments relative
to minority shareholders (360) (2,809) (1,680)
Other (153) (15) (141)
Net cash provided (used) in financing activities (10,848) 35,667 (13,324)
Net increase (decrease) in cash and cash
equivalents 13,513 (3,100) (29,593)
Cash and cash equivalents, beginning of year 10,749 13,849 43,442
Cash and cash equivalents, end of year $ 24,262 $ 10,749 $ 13,849
<FN>
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 5,152 $ 4,057 $ 4,416
Income taxes, net 1,642 2,950 2,709
Supplemental disclosures of non-cash investing
and financing activities:
The Company incurred capital lease obligations of $108,000, $35,000 and $152,000
in 1993, 1992 and 1991, respectively, to finance new equipment.
The Company, in 1992, recorded a loan guarantee it had provided on behalf of one
of its coal suppliers for $8,864,000. (See Note 7.)
*Certain amounts have been reclassified to conform with current classifications.
See accompanying Summary of Significant Accounting Policies and Notes to
Consolidated Financial Statements.
Westmoreland Coal Company and Subsidiaries
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidation Policy
The consolidated financial statements include the accounts of
the Company and its subsidiaries after elimination of
intercompany balances and transactions. To the extent that
the Company owns 20% or more in any subsidiary, corporate
joint venture or partnership, but less than a majority
interest, it accounts for such investments using the equity
method. The excess of the cost of an increase in the
investment in WRI, a 60%-owned subsidiary, over the portion
of net assets acquired in 1979, equal to $11,600,000, has
been allocated to coal reserves. Such excess is being
amortized at a fixed rate per ton based on estimated
recoverable coal reserves.
Discontinued Operation -
Cogeneration and Independent Power Development
In connection with the development of cogeneration and
independent power projects, certain costs are incurred during
the development process. These costs are expensed in the
period incurred until certain events have taken place,
including the execution of certain contracts which are
critical to a project's construction and operation. After
these events have taken place all subsequent costs are
capitalized as part of a project's investment basis. At the
time when non-recourse bank financing has been obtained,
costs previously expensed by the Company, to the extent
reimbursed, are reported as income. All other income in
connection with a project's development is deferred until the
project reaches commercial operation. WEI was offered for
sale by the Company in 1993 and is being accounted for as a
discontinued operation.
Cash and Cash Equivalents
Cash equivalents of $21,892,000 at December 31, 1993 consist
of Eurodollar time deposits and bank repurchase agreements.
Cash equivalents of $498,000 at December 31, 1992 consist of
bank repurchase agreements. All are carried at cost and have
maturities of not longer than fifteen days. The Company
considers all highly liquid debt instruments purchased with
maturities of three months or less to be cash equivalents.
Inventory Valuation
Inventories are stated at the lower of average cost or
market.
Property, Plant and Equipment
Property, plant and equipment are carried at cost and include
expenditures for new facilities and those expenditures that
substantially increase the productive lives of existing plant
and equipment. Maintenance and repair costs are expensed as
incurred. Mineral rights are depleted at a rate based upon
the cost of the mineral properties and estimated recoverable
tonnage therein. The Company uses the straight-line
depreciation method over the assets' estimated useful lives,
ranging from 3 to 40 years, which conforms to prevalent
industry practice. When an asset is retired or sold, its
cost and related accumulated depreciation are removed from
the accounts. The difference between undepreciated cost and
proceeds of disposition is recorded as a gain or loss. Fully
depreciated plant and equipment remaining in use are not
eliminated from the accounts. The development costs of mines
in the pre-operating stage are capitalized and amortized over
the assets' estimated useful lives after commercial
operations commence.
Financial Instruments
Financial instruments are presented at either cost or fair
value as required by generally accepted accounting
principles. The fair value of the Company's financial
instruments approximate carrying value.
Coal Revenues
Coal revenues include the sale of coal loaded at Company
operations and sales of coal produced by other mining
companies where the Company, through a subsidiary, is a sales
agent or acts as a broker. The Company recognizes the full
sales revenue of the coal sold for other companies since the
Company assumes the credit risk for the sale, performs other
services such as invoicing, quality control and shipment
monitoring, and in most cases takes title to the coal. Coal
revenues pertaining to coal sold for other companies amounted
to $157,788,000, $227,046,000 and $282,676,000 in 1993, 1992
and 1991, respectively. For all coal sales the Company
recognizes revenue at the time title passes to the customer.
Reclamation
Reclamation costs are accrued over the expected mine life
using the units of production method based on recoverable
reserves and environmental and regulatory requirements.
Estimates are periodically reviewed and adjustments are made
in accruals to provide for future costs, as needed.
Postretirement Benefits Other Than Pensions
The Company adopted the provisions of Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions" (SFAS 106) on
January 1, 1993. Under SFAS 106 the cost of postretirement
benefits other than pensions must be recognized on an accrual
basis. The Company elected to amortize its accumulated
postretirement benefit obligation at the time of adoption,
called the transition obligation, over 20 years.
The Company is subject to the Coal Industry Retiree Health
Benefit Act of 1992. The Company pays a premium each month
based upon the number of beneficiaries assigned to it. This
amount is expensed at the time it is paid by the Company.
Income Taxes
The Company adopted the provisions of Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes"
("SFAS 109") in 1991. SFAS 109 requires a company to
recognize deferred tax liabilities and assets for the
expected future tax consequences of events that have been
recognized in a company's financial statements or tax
returns. Under this method, deferred tax liabilities and
assets are determined based on the difference between the
financial statement carrying amounts and tax bases of assets
and liabilities using enacted tax rates in effect in the
years in which the differences are expected to reverse. The
Company has not recognized the benefit of any net operating
loss carryforwards as the result of adopting SFAS 109.
Net Income (Loss) Per Share Available to Common
Shareholders
Net income (loss) per share available to common shareholders
was computed by dividing net income (loss) available to
common shareholders by the weighted average number of shares
of common stock and common stock equivalents outstanding
during the year. Common stock equivalents are not included
when they would have an anti-dilutive effect on income (loss)
per share.
Westmoreland Coal Company and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1993, 1992 and 1991
1. Liquidity
Although the Company generated $34,130,000 of net cash
provided by operating activities in 1993, the Company's
viability as a going concern is dependent on (1) obtaining
waivers to the violation of and modification of certain
financial covenants contained in its principal credit
facilities; (2) modifying the final maturities of the
$51,385,000 balance of these credit facilities from the
scheduled July 1994 maturities; and (3) selling assets
sufficient to discharge debt obligations.
As of December 31, 1993, the Company was not in compliance with
certain of the financial covenants contained in the Amended
Revolver maturing July 1994, the 10% Notes due July 1994, or the
Company's DTA Guaranty in connection with by a $26,560,000 letter
of credit expiring in July 1994 and related to the financing of a
portion of the Dominion Terminal Associates coal export terminal.
Outstanding borrowings under the Amended Revolver and 10% Senior
Notes total $24,825,000 at December 31, 1993.
The Company is engaged in negotiations with the institutions
participating in these credit arrangements to obtain waivers of
these defaults, modifications of the financial covenants and
restructuring of the facilities, including the extension of the
maturities thereof pending possible asset sales.
In addition to the debt of $24,825,000 and the letter of credit for
$26,560,000 maturing in July 1994, the Company has equity commitments
related to cogeneration projects, currently projected to be
$9,600,000, of which $1,050,000 was paid in March 1994 and the
balance is payable in September 1994 and $15,392,000 payable in
December 1994 and a related payment of $4,750,000 payable on April
29, 1994. The Company has offered for sale its cogeneration and
independent power business, WEI, and is currently in negotiations on
such a transaction. If successful, the proceeds are anticipated to
be adequate to cover the credit facility obligations maturing in July
1994 and satisfy the above equity commitments. In addition the
Company has been conducting a strategic review of its coal mining and
related operations which has already resulted in the write-off and
planned closure of certain mining operations and coal reserves and
which could result in the divestment of certain coal properties.
Substantially all of the net proceeds of any asset sale will be
utilized to pay down outstanding obligations until obligations under
these credit facilities are discharged and to collateralize
outstanding surety bonds. (See Note 8.)
The Company expects the required waivers of its covenant
defaults to be obtained from the affected creditors, and that
the credit facilities will be restructured in a manner that
will delay the July 1994 maturities to accommodate the
possible sale of WEI and other assets. Although this outcome
is expected, there can be no assurance that the necessary
credit facility modifications can be obtained or that a sale
of assets will be accomplished or, if accomplished, will
produce sufficient proceeds to discharge the Company's
obligations. If the credit facility modifications cannot be
obtained, and if the creditors elect to accelerate the
Company's debt, the Company would not have sufficient cash to
meet its obligations.
One of the provisions of the Retiree Medical Act of 1992 (See
Note 10) is to make wholly owned subsidiaries of the Company
secondarily liable for the funding of medical benefits for
UMWA retirees who are retired or will retire through
September 1994. It is not known what the potential
implications of these provisions might be in connection with
the Company's efforts to sell WEI or the possible sale of
coal properties.
2. Unusual Charges
The Company incurred unusual charges totaling $79,250,000
related to the write-off in the carrying value of certain
mining operations and coal reserves along with provisions for
the termination of certain operations and personnel. These
charges result from the Company's continuing strategic review
of its mining operations in light of projected costs, prices
and demand. Of the $79,250,000 of charges, $43,158,000 is
for the planned discontinuation in the second quarter of 1994
of most of the Hampton Division's operations; $20,000,000
related to the write-off of the Triangle mine complex idled
since the early 1980's and classified within West Virginia -
Idled Operations; and $16,092,000 is for the planned
closedown in late 1994 of the Wentz mine complex and the
write-off of certain other assets within the Virginia
Division.
Hampton Division
The Hampton Division incurred unusual charges in 1993
totaling $43,158,000 related to the planned discontinuation
of most of the Hampton Division's operations in the second
quarter of 1994. This action was necessitated by the loss of
an above-market contract in December 1993. Based on current
market conditions and cost structures, there are no
operational scenarios which would result in future positive
cash flow had the Company continued to operate the deep mine,
the preparation plant and the support facilities. The other
major above-market contract associated with the Hampton
property will continue to be supplied by the production from
a large surface mine on the property, which is operated by a
contractor. The components of the shut down costs are:
- - $8,247,000 for fixed asset write-downs.
- - $25,653,000 related to the accrual of postretirement
medical benefits.
- - $3,900,000 in termination costs for approximately 130
employees.
- - $1,800,000 for reclamation.
- - $3,558,000 for anticipated operating losses and other
shutdown reserves.
West Virginia - Idled Operations
West Virginia - Idled Operations incurred unusual charges of
$20,000,000 for the write-off of the partially developed
Triangle Mine Complex ("Triangle"), which has been idled
since the early 1980's. As a result of management's
continued review over the course of 1993 they believe
Triangle will neither be developed nor sold in the
foreseeable future. The Company has been unable to attract
any interest to develop the reserve by a third party and the
Company does not have the capital to develop the reserve on
its own. The latest extension of the mining permits for this
property expires in 1994 and cannot be renewed with the state
of West Virginia. Unless it is put back on active status and
development begins the Company will be required to begin
final reclamation in 1994. Based on these facts, the Company
wrote-off the remaining $18,000,000 book value of Triangle
and accrued $2,000,000 for the final reclamation of the
complex, which will begin in the second half of 1994.
Virginia Division
The Virginia Division incurred unusual charges in 1993
totalling $16,092,000 relating to the following:
- - $7,761,000 related to the planned closure of the Wentz mine
and preparation plant complex. The total charge related to
the Wentz complex includes $4,967,000 for the writedown of
the book value of impaired assets, $2,141,000 in termination
costs for approximately 90 employees, $363,000 for
reclamation and $290,000 for anticipated future operating
losses. The decision to close this complex was based on the
continuing high cost of production and the scheduled
expiration of a major sales contract at the end of 1994.
- - $7,636,000 for the write-off of an undeveloped block of
reserves which are owned in fee, which the Company has
determined will not be economically mineable based on current
and anticipated production costs and market conditions.
- - $695,000 related to the write-off of certain other assets.
Accruals related to the above unusual items are included in
the balance sheet of the Company as of December 31, 1993 are
as follows:
(in thousands)
Accrual for postretirement medical costs $25,653
Other liabilities (long-term) 5,224
Accounts payable and accrued expenses 6,601
Accrual for workers' compensation (long-term) 2,300
Total $39,778
3. Capital Stock
The authorized capital stock of the Company consists of
20,000,000 shares of Common Stock and 4,800,000 shares of
Series A Convertible Exchangeable Preferred Stock and 200,000
shares of Series B Junior Participating Preferred Stock.
In July 1992, the Company sold 2,300,000 Depositary Shares,
each representing one quarter of a share of Series A
Convertible Exchangeable Preferred Stock (the "Preferred
Stock") for a total public offering price of $57,500,000.
Net proceeds to the Company were $54,528,000. As a result,
575,000 shares of Preferred Stock are outstanding. The
Preferred Stock has a liquidation preference equivalent to
$25 per depositary share and dividends accumulate on the
Preferred Stock at 8.5% per annum, equivalent to $2.125 per
year per depositary share. There are no mandatory sinking
fund requirements on the preferred stock.
The Preferred Stock is convertible at the option of the
holder at any time, unless previously redeemed, into shares
of Common Stock of the Company at a rate equivalent to 1.708
shares of Common Stock for each Depositary Share. The
Preferred Stock and the Depositary Shares representing such
stock are not redeemable prior to July 1, 1996. The
Preferred Stock is redeemable thereafter at the option of the
Company, in whole or in part, from time to time, initially at
an amount equivalent to $26.28 per Depositary Share, if
redeemed during the twelve month period beginning July 1,
1996, and thereafter at prices declining annually to an
amount equivalent to $25 per Depositary Share on and after
July 1, 2002, plus, in each case, an amount equal to the sum
of all accrued and unpaid dividends.
The Preferred Stock may be exchanged at the option of the
Company, as a whole only, on any dividend payment date
commencing July 1, 1996, for the Company's 8 1/2% Convertible
Subordinated Exchange Debentures due July 1, 2012 (the
"Exchange Debenture") in a principal amount equal to $100 per
share of Preferred Stock. The Exchange Debenture, if issued,
will be convertible at the option of the holder at any time,
unless previously redeemed, into shares of Common Stock at
the then applicable conversion rate for the Preferred Stock.
A portion of the proceeds from the sale of Preferred Stock
was used to purchase 1,295,589 shares of Company Common Stock
from a subsidiary of Penn Virginia Corporation ("Penn
Virginia"). The Company retired these shares in December
1992. Penn Virginia's voting interest in the Company at
December 31, 1991 was 39.6%; its voting interest in the
Company was 18.96% at December 31, 1992 and December 31,
1993.
At December 31, 1993, the Company had outstanding 6,955,477
shares of Common Stock and 575,000 shares of Series A
Convertible Exchangeable Preferred Stock. The Common Stock
and the Preferred Stock constitute all of the Company's
voting securities.
On January 28, 1993 the Company adopted a Shareholder Rights
Plan ("The Plan") and declared a distribution under the Plan
of one Preferred Stock Purchase Right ("Right") for each
outstanding share of the Company's Common Stock. In the
event that any person or group acquires a 20% or greater
position in the Company, each holder of a Right (other than
the acquiring person or group) will be entitled to purchase
one one-hundredth of one share of Westmoreland Series B
Junior Participating Preferred Stock at a per share purchase
price of $30, or, in lieu of the Preferred Stock, the number
of shares of the Company's Common Stock having a market value
at that time of $60. If the Company is acquired in a merger
or other business combination transaction, each holder of a
Right (other than the acquiring person or group) will be
entitled to purchase a number of shares of the acquiring
company's common stock having a market value at that time of
$60.
The Company can redeem the Rights at a redemption price of
$.01 per Right at any time until the tenth business day
(subject to extension) after a public announcement that a 20%
position is acquired.
The Board of Directors has the flexibility to lower the 20%
threshold to not less than 10% prior to the time any person
or group acquires a 20% position in the Company. The Rights
expire on February 11, 2003.
4. Debt
The Company's total debt is summarized in the following
tables (in thousands):
December 31
1993 1992
Revolving Credit Loan at prime + 1% (7% at
December 31, 1993) with quarterly
repayments of $1,500 and a final
maturity of July 15, 1994 $ 12,000 $ 14,500
10.0% senior unsecured notes placed with
private lenders dated August 10, 1977.
Repayment of $2,475 due June 15, 1994
and balance of $10,350 due
July 15, 1994 (prior to an amendment
in December 1993, these repayments
were due annually through
June 15, 1998) 12,825 15,300
Capital lease obligations payable in
installments through 1996 with varying
interest rates from 7.0% to 14.0% 7,746 11,488
7.0% 5-year Promissory Note. Repayment
in monthly installments through
May 31, 1993 - 311
Westmoreland Resources, Inc.:
Contracts for deed and mortgage notes,
payable with specified interest rates
from 4.0% to 7.0% net of unamortized
discount (1993-$445 and 1992-$506)
maturing through 2005 2,599 2,809
Loan guarantee on behalf of Adventure
Resources, Inc. at an interest rate of
9.5% maturing on February 1, 1998 8,864 8,783
Total debt 44,034 53,191
Less current installments 28,101 6,663
Long-term portion of debt $ 15,933 $ 46,528
December 31
Current Maturities 1993 1992
Revolving Credit Loan $ 12,000 $ -
10.0% senior unsecured notes 12,825 2,475
Capital leases . 3,077 3,667
7.0 % 5-year Promissory Note - 311
Westmoreland Resources, Inc. debt 199 210
Total current maturities $ 28,101 $ 6,663
Principal payments on long-term debt, including capital leases,
maturing in the next five years is as follows:
Year Ending Amount
(in thousands)
December 31, 1994 $ 28,101
December 31, 1995 3,563
December 31, 1996 1,390
December 31, 1997 171
December 31, 1998 9,046
The minimum future obligation, including principal and
interest, on capital leases, primarily for mining equipment,
is as follows:
Year Ending Amount
(in thousands)
December 31, 1994 $ 3,822
December 31, 1995 3,799
December 31, 1996 1,317
December 31, 1997 6
December 31, 1998 -
8,944
Less interest 1,198
Obligation on capital leases $ 7,746
The Company's Revolving Credit Loan Agreement, collateralized by
accounts receivable, was replaced on April 15, 1993 by the Amended
Revolver. The Amended Revolver reduced the available credit to
$15,000,000 on June 30, 1993 from $25,000,000 and changed the
facility's termination date to July 15, 1994 from September 25,
1994. The Amended Revolver was modified on December 6, 1993 to
further reduce the available credit to $12,000,000 by December 31,
1993 with subsequent quarterly reductions of $1,500,000. The
amount available under the Revolver is subject to a borrowing base
calculation based on domestic accounts receivable, and is secured
by these accounts receivable of the Company.
The 10% Notes were amended during 1993 to increase the
interest rate from 9.15% to 10.0% and to accelerate the final
maturity date from June 15, 1998 to July 15, 1994.
The Amended Revolver, the 10% Notes and the DTA Guaranty (See
Note 7), contain various restrictions and covenants. Under
these provisions the Company must maintain a minimum level of
working capital, current ratio, tangible net worth and fixed
charge coverage among other covenants.
As of December 31, 1993, the Company is in violation of the
working capital, current ratio, tangible net worth and fixed
charge coverage covenants. As a result of these violations,
the outstanding balances under these credit arrangements can
be accelerated. Negotiations are underway to resolve these
covenant violations and to extend the July 1994 maturity
dates. However, there can be no assurance that such
negotiations will result in a successful resolution of these
matters. (See Note 1.)
No common dividends can be paid under the existing covenants.
Based on current projections, the Company will be unable to
pay common dividends in the foreseeable future. There are no
loan covenants which restrict the payment of preferred
dividends.
Substantially all of the proceeds which might be generated
from the future sale of assets, outside of the ordinary course
of business, have been pledged to pay down outstanding
borrowings under the Amended Revolver and the 10% Notes, to
collateralize the DTA Guaranty and to collateralize
outstanding surety bonds. Refer to Note 8 for additional
information on the outstanding surety bonds.
The contracts for deed and mortgage notes payable of WRI are
secured by land and surface rights with an aggregate cost, net of
amortization, of approximately $12,500,000 at December 31, 1993.
5. Lease Obligations
The Company and its subsidiaries lease coal lands from Penn
Virginia Resources Corporation, a wholly-owned subsidiary of
Penn Virginia Corporation (controlling an 18.96% voting
interest in the Company at December 31, 1993) and other
lessors. The leases provide for minimum annual royalties of
$1,391,000 plus real estate taxes.
The coal leases with Penn Virginia Resources Corporation are
in effect until all economically mineable reserves are
exhausted. These coal leases were renegotiated effective
July 1, 1988 at rates comparable to royalty rates charged by
other lessors at the time. Under the agreement, the royalty
rates for most deep-mined coal range from 6.5% to 7.0% of the
sales price during the 10-year period beginning July 1, 1988.
Beginning July 1, 1992 either party to this lease may call
for negotiation to set a new rate for these particular seams.
During the 10-year period beginning July 1, 1988, the rates
for surface-mined coal range from 8.5% to 9.0% and the rates
for highwall-mined coal range from 7.5% to 8.0%.
WRI has an agreement to lease coal reserves from the Crow
Tribe of Indians. This lease requires annual rentals,
recoupable minimum royalties and production royalties. The
royalty rate varies from the greater of $.30 per ton or 6% of
the F.O.B. mine price to a 12.5% rate net of all production-
based taxes.
Royalties and rentals charged to expense under all lease
agreements, including those in effect for WRI, amounted to
$17,761,000, $17,292,000 and $16,661,000 in 1993, 1992 and
1991, respectively.
The Company has operating lease commitments expiring at
various dates, primarily for real property and equipment.
Minimum rental obligations existing under these leases at
December 31, 1993 are as follows:
(in thousands)
1994 $3,959
1995 3,633
1996 3,201
1997 1,677
1998 1,396
After 1998 5,915
The minimum rental obligations after 1998 are primarily
attributable to the Company's railroad car leases and a lease
expiring in 1999 for the corporate offices.
6. Westmoreland Energy, Inc.
Westmoreland Energy, Inc.
In 1993 the Company has offered WEI for sale and it is being
accounted for as a discontinued operation.
WEI, a wholly-owned subsidiary of the Company, is engaged in
the business of developing and owning interests in
cogeneration and other non-regulated independent power
plants. (See the Project Status Summary table filed as an
exhibit.)
WEI, through subsidiaries, holds non-controlling general and
limited equity interests in partnerships which were formed to
build, own and operate cogeneration facilities. Generally,
the lenders to these partnerships have recourse only against
these projects and the income and revenues therefrom. The
debt agreements contain various restrictive covenants
including restrictions on paying cash distributions to the
partners. WEI's equity interests in these partnerships range
from 1.25 percent to 50 percent.
The following is a summary of aggregated financial
information for all investments owned by WEI and accounted
for under the equity method:
BALANCE SHEETS (in thousands)
Dec. 31, 1993 Dec. 31,1992
ASSETS
Current assets $ 52,734 $ 42,831
Property, plant and
equipment, net 669,107 503,992
Other assets 72,166 64,036
Total assets $ 794,007 $ 610,859
LIABILITIES & EQUITY
Current liabilities $ 46,144 $ 37,088
Long-term debt
and other liabilities 682,211 521,600
Equity 65,652 52,171
Total liabilities & equity $ 794,007 $ 610,859
WEI's share of equity $ 14,523 $ 11,736
INCOME STATEMENTS (in thousands)
For years ended December 31,
1993 1992 1991
Revenues $ 110,199 $ 87,970 $ 37,565
Operating income 48,921 42,217 11,411
Net income (loss) 16,624 15,293 1,279
WEI's share of
net income (loss) $ 3,195 $ 2,114 $ (65)
WEI performs project development and venture management
services related to the partnerships and has recognized
revenues of $1,447,000, $2,565,000 and $1,395,000 in 1993,
1992 and 1991, respectively. WEI had deferred development
income of $3,913,000 and $1,663,000 at December 31, 1993 and
1992, respectively. Income recognition of these fees is
deferred until the related project achieves commercial
operation and the equity contribution is made.
WEI has capitalized certain development costs. At December
31, 1993 and 1992, total capitalized development costs were
$39,000 and $333,000, respectively. In addition, WEI
capitalized certain project acquisition costs, totaling
$1,182,000 at December 31, 1993. Such costs are being
amortized over the term of the power contract of the project.
Amortization for the twelve months ended December 31, 1993
was not material to the financial statements.
WEI has loans receivable from project partnerships of
$2,230,000 and $501,000 at December 31, 1993 and 1992,
respectively. The loans are short-term except for $1,184,000
of the loan amount outstanding at December 31, 1993.
Fort Lupton
WEI sold a portion of its interest in the Fort Lupton project
for cash and recorded a gain of $2,000,000 in April 1993.
WEI retains a limited partnership interest, with an effective
interest of 4.49% in the distributable cash flows of the
project.
Roanoke Valley II
The RV II project reached financial close in December of
1993, at which time WEI received $5,261,000 as reimbursement
of development costs and development fees. Concurrent with
the close, WEI, through a wholly-owned subsidiary, made a
subordinated loan of $2,173,000 to the project partnership to
secure a portion of the RV II equity commitment not
guaranteed by LG&E. See Commitments and Contingencies
Summary below for information regarding equity commitments
for RV II.
Equity Support Agreements
On April 15, 1993, the Company entered into an equity support
agreement with LG&E whereby the equity commitments of the
Roanoke Valley I (RV I) and Rensselaer projects (up to
$30,904,000) and a portion (up to $4,600,000) of the
anticipated equity commitment of the RV II project are
guaranteed by LG&E. As consideration for this guarantee, the
Company has pledged its interest in these projects as
security to LG&E. In addition, the Company is obligated to
pay a fee of 1.25 percent per annum on the aggregate amount
of the guarantee and a fee of $4,750,000 payable on April 30,
1994. These fees are being amortized over the period
beginning on April 15, 1993 through the required equity
funding dates of the respective projects. A total of
$2,459,000 has been amortized through December 31, 1993.
Commitments & Contingencies Summary
The following summarizes the Company's commitments and
contingencies regarding WEI's projects (in thousands):
Equity Funding Requirements
Maximum Expected
Contractual Commitments (1994) $ 30,900 $ 25,000
Contractual Commitments (1995) 6,800 4,600
$ 37,700 $ 29,600
Guarantee Fee - 1994 (accrued) $ 4,750 $ 4,750
7. Commitments and Contingencies
Westmoreland Terminal Company
Westmoreland Terminal Company ("WTC"), a wholly-owned
subsidiary of the Company, has a 20% interest in Dominion
Terminal Associates ("DTA"), a consortium formed for the
construction and operation of a coal-storage and vessel-
loading facility in Newport News, Virginia. DTA's annual
throughput capacity is 20 million tons, and its ground
storage capacity is 1.7 million tons.
The facility began operations in March 1984. Current
financing is provided through $132,800,000 of refunding 30-
year, non-amortizing, tax-exempt bonds. Rates of interest on
the bonds are set periodically and the bonds provide that the
bondholders have put options at each rate setting date, which
can range from one day to 180 days. The refunding bonds are
supported by a 7-year direct-pay letter of credit, expiring
in July 1994, which would be utilized in the event that any
bonds were tendered for payment. The Company is the ultimate
obligor for any drawdowns under the letter of credit. As a
result, WTC's portion of this issue ($26,560,000) is
effectively guaranteed by the Company. Under the terms of
the DTA Guaranty, as amended, the Company is required to meet
various financial covenant tests. The Company is in
violation of the minimum net working capital and tangible net
worth tests contained in the DTA Guaranty. (See Note 4 for
additional information.)
In addition, the partners have a Throughput and Handling
Agreement whereby WTC is committed to fund its proportionate
share of DTA operating expenses. WTC's total cash funding
obligations were $3,129,000, $3,784,000 and $4,032,000 during
1993, 1992 and 1991, respectively.
The following is a summary of financial information for DTA:
BALANCE SHEETS (in thousands)
Dec. 31, 1993 Dec. 31, 1992
ASSETS
Current assets $ 4,460 $ 48,156
Non-current assets 104,651 107,787
Total assets $109,111 $155,943
LIABILITIES AND PARTNERS' DEFICIT
Current liabilities $ 1,650 $ 46,332
Long-term debt
and other liabilities 144,803 145,268
Partner's deficit (37,342) (35,657)
Total liabilities
& partners' deficit $109,111 $155,943
WTC's share
of partners' deficit $ (7,401) $ (6,856)
INCOME STATEMENTS (in thousands)
For the Years ended December 31,
1993 1992 1991
Contribution from Partners $ 18,592 $ 19,599 $ 20,462
Operating expenses 19,176 21,454 21,236
Excess of expenses over
partner's contributions (1,685) (4,419) (3,247)
WTC's share of
net income (loss) $ (545) $ (768) $ (656)
WTC's share of DTA's equity is not equal to its ownership
percentage due to the fact that the DTA operating agreement
does not allocate all expenses based on ownership percentage.
The Company's negative investment in DTA was $7,401,000 and
$6,856,000 at December 31, 1993 and 1992, respectively and is
recorded in other long term liabilities. The Company
continues to record losses in excess of DTA's carrying value
due to the Company's effective guarantee of its share of
DTA's obligations.
Adventure
Westmoreland Coal Sales Company ("WCSC") a wholly owned
subsidiary of the Company is the exclusive sales agent for
Adventure, whose other affiliated companies include M.A.E.
Services Inc. and Maben Energy Corporation. On December 2,
1992 Adventure filed voluntary petitions for reorganization
under Chapter 11 of the Bankruptcy Code with the United
States Bankruptcy Court for the Southern District of West
Virginia. As of December 31, 1993 the Company has $7,397,000
in notes and $5,842,000 of short-term loans receivable from
Adventure. In addition, the Company has guaranteed payment
of certain defaulted obligations of Adventure totalling
$8,864,000. All of these amounts are fully reserved. It is
not possible at the present time to determine whether
Adventure will successfully reorganize or the amount that the
Company will receive on account of Adventure's pre-petition
debt under either a successful reorganization or a
liquidation. The Company is required to make interest
payments on behalf of Adventure to the guaranteed party for a
period not to exceed five years from March 1993. If the
guaranteed obligation has not been resolved by Adventure by
that time, the entire outstanding balance will then become
due and owing. (See Note 4 for more information.)
Other
The Company is responsible for certain costs related to the
eventual closing of its mines. The Company accrues amounts
while each mine operates in order to absorb these costs over
the life of each mine. These costs are related to
reclamation, water treatment and other environmentally
related items. The total cost to perform these activities as
of December 31, 1993, is estimated to be $16,000,000. The
Company has accrued $12,656,000 of these costs as of December
31, 1993. The balance will be accrued over the remaining
lives of each operation. Of the total amount accrued as of
December 31, 1993, $3,112,000 is classified as current in
Accounts Payable and Accrued Expenses and $9,544,000 is
classified as long-term in Other Liabilities. Also the
Company may become responsible for similar costs associated
with its mines operated by contractors if the contractor
fails to perform. This amount is estimated to be $16,500,000
at December 31, 1993. The Company's contractors hold bonds
for these costs totalling $8,200,000 at December 31, 1993.
The Company also has various contingent liabilities
associated with its subsidiary, WEI. (See Note 6 for further
information.)
In addition to the above, the Company and its subsidiaries
had various claims and suits pending at December 31, 1993,
all in the ordinary course of business.
8. Workers' Compensation and Pneumoconiosis Benefits
The Company is self-insured for workers' compensation
benefits. The amounts charged to expense for workers'
compensation were $17,204,000, $11,033,000 and $5,832,000
for 1993, 1992 and 1991, respectively, and were based on
actual and estimated claims incurred. The increased expense
for 1993 and 1992 was due to a revision in estimate resulting
from the continuing review of previously established workers'
compensation obligations at the Company's Virginia and
Hampton Divisions.
The Company is also self-insured for Federal and state
pneumoconiosis benefits. The Company created a trust with an
independent trustee to fund liabilities for payments of these
benefits and uses an actuarial method of providing for
projected benefits to current and former employees based on
existing and estimated future claims. The projected benefit
payments are accrued as a percentage of coal operations'
payroll cost over a period of twenty-five years. This
actuarial method is the predominant method being used in the
industry to accrue for such costs. Based on actuarial data,
the Company credited to earnings $2,047,000, $1,979,000 and
$1,443,000 in 1993, 1992 and 1991, respectively. The credits
were primarily due to a decrease in the Company's disability
experience and a significant decrease in its work force.
Based on actuarial data the Company did not make a
contribution to the trust in 1993 or 1992 and does not
anticipate making a contribution in 1994.
The following table sets forth the plan's funded status:
December 31, 1993 1992
Actuarial present value of benefit
obligation :
Terminated employees $ 3,200 $ 2,859
Claimants 26,700 23,304
Active employees 16,300 13,578
Total present value of benefit
obligation 46,200 39,741
Plan assets at fair value 43,403 40,985
Plan assets in excess of (less than)
projected benefit obligation $ (2,797) $ 1,244
In addition, the Company has unfunded liabilities on its books
totaling $17,475,000 and $19,522,000 as of December 31, 1993 and
1992, respectively in relation to pneumoconiosis benefits.
During 1993 the State of Virginia increased its bonding
requirements for the Company's self-insured workers'
compensation and pneumoconiosis benefit plans. As a result,
the Company's surety bond underwriter required cash
collateral for the $10,000,000 increased bonding. As of
December 31, 1993, $1,000,000 of this amount was deposited in
the cash collateral account and an additional $3,800,000 was
deposited in February 1994. The Company has agreed to
provide up to an additional $5,200,000 in this cash
collateral account upon the sale of assets.
9. Retirement Plans
The Company and its subsidiaries have a non-contributory
defined benefit pension plan covering non-union employees.
Benefits are based on years of service and the employee's
average annual compensation for the highest five continuous
years of employment. The Company's funding practice is to
make the minimum annual contribution required by applicable
regulations. Prior service costs and actuarial gains are
amortized over the future service period of plan participants
on a straight-line basis. Pension income amounted to
$1,682,000, $956,000 and $18,000 in 1993, 1992 and 1991,
respectively. The increase in pension income in 1993 and
1992 was primarily the result of the actual return on plan
assets in excess of the estimated return. Pension income in
1991 was relatively small primarily due to a cost of living
increase granted to retirees.
The following table sets forth the plan's funded status and
amounts recognized in the Company's financial statements:
December 31
1993 1992
(in thousands)
Actuarial present value of benefit obligations:
Accumulated benefit obligations, including
vested benefits of $53,512 and $46,193
in 1993 and 1992, respectively $(53,633) $(46,286)
Projected benefit obligations for service
rendered to date (63,745) (57,187)
Plan assets at fair value, primarily listed
stocks and fixed income investments 81,002 77,147
Plan assets in excess of projected benefit
obligations 17,257 19,960
Unrecognized net assets being recognized
over seventeen years (3,442) (3,763)
Unrecognized prior service cost 3,416 3,744
Unrecognized net gain (10,827) (15,218)
Prepaid pension cost included
in Other assets $ 6,404 $ 4,723
The components of net periodic pension
income for years ended December 31 1993 1992 1991
(in thousands)
Service cost - benefits earned during
the period $ 1,051 $ 1,023 $ 897
Interest cost on projected benefit
obligations 4,609 4,478 4,273
Actual return on plan assets (8,064) (11,732) (14,782)
Net amortization and deferral 722 5,275 9,594
Net periodic pension income $ (1,682) $ (956) $ (18)
The 1993 discount rate and rate of increase in future
compensation levels for the plan were 7.25% and 5.5%,
respectively. The 1993 expected long-term rate of return on
assets was 9%. The 1992 discount rate and rate of increase
in future compensation levels for the plan were 8.25% and
6.5%, respectively. The 1992 expected long-term rate of
return on assets was 9%.
Effective January 1, 1992 the Company adopted the
Westmoreland Coal Company Supplemental Executive Retirement
Plan ("SERP"). The SERP is an unfunded non-qualified
deferred compensation plan whose purpose is to provide
benefits to certain employees that could not be paid under
the Company's defined benefit pension plan due to maximum
limits imposed by the Employee Retirement Income Security Act
("ERISA") and the Internal Revenue Code. SERP expense
amounted to $199,000 in 1993 and $208,000 in 1992.
The following table sets forth the plan's funded status and
amounts recognized in the Company's financial statements.
December 31,
1993 1992
(in thousands)
Actuarial present value of benefit obligations:
Accumulated benefit obligations, including vested
benefits of $573 and $684 in 1993 and 1992,
respectively $ (675) $ (825)
Projected benefit obligations for service
rendered to date (827) (1,090)
Unrecognized prior service cost 770 835
Unrecognized net loss (gain) (351) 47
Additional liability (267) (617)
Accrued pension cost included in Other
liabilities $ (675) $ (825)
The components of net periodic SERP costs
for year ended December 31, 1993 1992
(in thousands)
Service cost - benefits earned during the period $ 28 $ 43
Interest cost on projected benefit obligations 87 82
Amortization of prior service cost 84 83
Net periodic SERP cost $ 199 $ 208
The 1993 discount rate and rate of increase in future compensation
levels for the plan were 7.25% and 5.5%, respectively. The 1992
discount rate and rate of increase in future compensation levels
for the plan were 8.25% and 6.5%, respectively.
With respect to union employees, the Company is required under the
national contract with the United Mine Workers of America (UMWA)
to pay amounts based on hours worked or tons processed (depending
on the source of the coal) to the UMWA Retirement Funds. These
are multiemployer pension plans which are not controlled or
administered by the Company. The amounts charged to expense,
including payments made by the Company on behalf of certain
contract miners, were $1,190,000, $1,073,000 and $1,238,000 for
the years ended December 31, 1993, 1992 and 1991, respectively.
Under ERISA, as amended by the Multiemployer Pension Plan
Amendment Act of 1980, a contributor to a multiemployer plan is
liable, upon termination of the plan or its withdrawal from the
plan, for its share of the multiemployer plan's unfunded vested
liabilities. The Company estimates that its share of the unfunded
vested liabilities amounted to approximately $17,100,000 at June
30, 1993 and $8,800,000 at June 30, 1992. The increase over the
prior year is due to lower investment interest rates, additional
benefits granted under the plan and the Company's increased share
of retirees whose companies have gone out of business.
10. Postretirement Health and Life Insurance Benefits
In addition to providing pension benefits, the Company and
its subsidiaries provide certain health care and life
insurance benefits for retired employees and their
dependents. Should the current program remain in effect,
substantially all of the Company's current employees may
become eligible for these benefits if they meet certain age
and service requirements at the time of termination or
retirement. These benefits are provided principally through
self-insured programs.
In 1990, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 106,
"Employers' Accounting for Postretirement Benefits Other than
Pensions" ("SFAS 106"). Under this new standard the cost of
postretirement benefits other than pensions must be
recognized on an accrual basis as employees perform services
rather than the "pay-as-you-go" basis.
The Company adopted SFAS 106 on January 1, 1993 and elected
to amortize its unrecognized, unfunded accumulated
postretirement benefit obligation over a 20-year period.
Annual pre-tax expense in 1993 increased approximately
$10,527,000. Additionally, Hampton Division accrued
$18,552,000 for its curtailment liability under SFAS 106,
including Hampton's share of the transition obligation of
$16,162,000 as of December 31, 1993 in connection with the
planned Division's shutdown in 1994 (See Note 2). This new
accounting standard does not change the cash requirements for
funding these benefits. Cash paid for retirees was
$7,604,000, $7,866,000 and $7,690,000 in 1993, 1992 and 1991,
respectively.
The following table sets forth the amounts recognized in the
Company's financial statements (in thousands):
December 31, 1993
Actuarial present value of benefit obligation:
Accumulated postretirement benefit obligation
Current retirees $ (101,901)
Fully eligible actives (15,533)
Other actives (19,891)
Total accumulated benefit obligation (137,325)
Unrecognized net transition obligation 98,924
Unrecognized net loss 9,322
Accrued postretirement benefit cost (29,079)
The health care cost trend rate assumed ranged from 9% in
1994 to 5% by the year 2001. Increasing the assumed health
care cost trend rate by one percentage point in each year
would increase the accumulated postretirement benefit
obligation for the medical plan as of December 31, 1993 by
$18.6 million and the aggregate of the service and interest
cost components of net periodic postretirement benefit cost
for 1993 by $1.5 million.
The discount rate used in determining the accumulated
postretirement benefit as of December 31, 1993 was 7.25% and
as of January 1, 1993 was 8.25%.
The components of net periodic postretirement benefit cost
for the year ended December 31, 1993
Service cost - benefits earned 1,271
Interest cost on projected benefit obligations 10,555
Net amortization and deferral 6,312
Net periodic postretirement benefit cost* 18,138
*Excludes accrual related to mine closures. (See Note 2.)
Additionally, the Company makes payments into the UMWA
Benefit Trust Funds ("Funds"). These Funds are multiemployer
health plans which are not controlled or administered by the
Company. These Funds are designed to pay benefits to the
Company's UMWA employees who retired prior to 1976 and to
those UMWA retirees whose companies are no longer in
business. Prior to February 1993, the amount paid by the
Company was based on hours worked or tons processed
(depending on the source of the coal) in accordance with the
National Contract with the UMWA. Beginning February 1993 the
Company is required by the Coal Industry Retiree Health
Benefit Act of 1992 to make monthly premium payments into the
Funds. This premium is based on the number of beneficiaries
assigned to the Company. The Company is challenging the
number of beneficiaries it was assigned. The amounts
expensed by the Company amounted to $4,937,000, $5,582,000
and $4,555,000 in 1993, 1992 and 1991, respectively. Also,
Hampton Division accrued an additional $7,101,000 for its
share of this liability as part of its mine closure costs.
(See Note 2.)
In addition, employees terminated due to layoffs may be
eligible for health care, life insurance and certain other
benefits for a period of up to 24 months. The Company
charges against earnings in the month of layoff an estimate
of all these future costs associated with such employees.
11. Incentive Stock Option and
Stock Appreciation Rights Plans
At December 31, 1993, the Company had two Incentive Stock
Option and Stock Appreciation Rights Plans.
The Plans provide for two incentive elements, incentive stock
options ("ISOs") and stock appreciation rights ("SARs"). An
ISO, which may be qualified or non-qualified, gives the
holder the right to purchase from the Company a specified
number of shares of the Company's common stock for a
specified price during a specified period. An SAR gives the
holder the right to receive, without payment to the Company,
its "value" in cash. The "value" of an SAR for this purpose
will be equal to the increase, if any, in the market price of
one share of common stock of the Company on the date the
right is exercised over the market price of one such share on
the date such right was granted. ISOs granted under the
Plans may not have an option price that is less than the fair
market value of the stock on the date of grant. ISOs and
SARs may not be exercised before two years or after eight
years from the date of grant. The maximum number of shares
of the Company's common stock and SARs that may be issued or
granted under the Plans is as follows:
1982 Plan 1985 Plan
Shares of common stock 200,000 400,000
Stock appreciation rights 470,000 940,000
The 1982 Plan expired on January 4, 1992, and therefore no
further ISOs or SARs may be granted from that Plan after that
date.
Information for 1993, 1992 and 1991 with respect to the Plans
is as follows:
Stock
Issue Option Appreciation
Price Range Shares Rights
Outstanding at
December 31, 1990 14.50- 22.38 279,910 34,061
Exercised in 1991 14.50- 18.50 (36,726) (5,491)
Ceased to be
exercisable in 1991 14.50- 22.38 (16,011) -
Outstanding at
December 31, 1991 14.50- 22.38 227,173 28,570
Granted on July 31, 1992 12.63 20,000 -
Granted on Sept. 9, 1992* 14.28 210,000 -
Exercised in 1992 14.50 (2,696) -
Ceased to be
exercisable in 1992 18.50- 22.38 (26,928) -
Outstanding at
December 31, 1992 12.63- 18.50 427,549 28,570
Granted on
June 2, 1993 8.75 40,000 -
Granted on
December 8, 1993 5.75 65,000 -
Ceased to be
exercisable in 1993 14.28- 18.50 (101,696) (10,125)
Outstanding at
December 31, 1993 430,853 18,445
* Non-Qualified Stock Options
Over the periods in which the SARs become exercisable, the
Company accrues as expense the amount by which the market
price exceeds the various grant prices of the SARs
outstanding. This is adjusted in subsequent reporting
periods for increases or decreases in the market price of the
stock. In 1993 no accrual was recorded. In 1992 the net
amount credited to earnings was $143,000 and in 1991 the net
amount expensed was $14,000.
During 1992 and 1991, the Company purchased 2,696 and 36,726
shares, respectively, of its own stock and re-sold the same
shares to certain of its employees under the Company's non-
compensatory incentive stock option plan. The market price
which the Company paid to acquire the shares was more than
the option price which the employees paid to the Company in
accordance with the terms of the plan and the difference of
$15,000 and $141,000 in 1992 and 1991 respectively, was
recorded as a reduction to Other paid-in capital. The
Company also paid cash of $31,000 for the 1991 exercise of
5,491 SARs. The per share market value of the ISOs exercised
in 1992 was $20.00. The per share market values of the ISOs
and SARs exercised ranged from $19.00 to $22.25 in 1991.
12. Operations
Segment Information
The Company's principal business is the production and
marketing of coal on a worldwide basis. More than half of the
coal sold by the Company is processed at and shipped from its
coal properties, and includes both steam coal, sold primarily
to electric utilities, and metallurgical coal, sold primarily
to the steel industry. The remaining coal sold by the Company
is produced by other domestic mining companies, principally
smaller producers seeking to utilize the Company's expertise
in the marketing of coal.
The Company is able to offer customers a wide variety of
coals, including both steam coal and metallurgical coal, and a
range of services related to its coal sales, including
sourcing, blending, quality control and transportation.
Transportation services include arrangements with railroads,
barge lines and vessel charterers. WCSC also has its own
leased fleet of railcars to increase the availability of
transportation and to reduce transportation costs.
The Company's Other segment includes Cleancoal Terminal
Company, a rail-to-barge transloading and storage facility on
the Ohio River, and other small non-mining operations. WEI is
currently held for sale and is being accounted for as a
discontinued operation. WEI's net assets have been disclosed
as a single line item, net assets of discontinued operation
held for sale, on the Consolidated Balance Sheet.
Intersegment sales are recorded at cost plus a charge for
handling for all years shown. In presenting operating income
by segment, unallocated corporate expenses are charged to
coal operations.
Industry segment results for 1993 are:
Elimi- Consoli-
Coal Other nation dated
(in thousands)
Sales to unaffiliated
customers $461,593 $ 3,662 $ - $465,255
Intersegment transfers - - - -
Total sales 461,593 3,662 - 465,255
Operating income (loss) (94,249) 214 - (94,035)
Interest expense - - - 4,934
Interest and other income - - - 2,231
Loss before income taxes and
minority interest - - - (96,738)
Identifiable assets at
December 31, 1993 243,687 22,157* (346) 265,498
Depreciation, depletion
and amortization 20,692 748 - 21,440
Additions to property,
plant and equipment 8,119 179* - 8,298
*Includes net assets related to WEI of $12,972.
Industry segment results for 1992 are:
Elimi- Consoli-
Coal Other nation dated
(in thousands)
Sales to unaffiliated
customers $533,473 $ 2,816 $ - $536,289
Intersegment transfers - 221 (221) -
Total sales 533,473 3,037 (221) 536,289
Operating income (loss) (34,942) (384) - (35,326)
Interest expense - - - 4,138
Interest and other income - - - 1,466
Loss from continuing operations
before income taxes and
minority interest - - - (37,998)
Identifiable assets at
December 31, 1992 312,986 24,373* (12,734) 324,625
Depreciation, depletion
and amortization 21,800 739 - 22,539
Additions to property,
plant and equipment 33,586 143* - 33,729
*Includes amounts related to WEI.
Industry segment results for 1991 are:
Elimi- Consoli-
Coal Other nation dated
(in thousands)
Sales to unaffiliated
customers $564,823 $ 2,252 $ - $567,075
Intersegment transfers - - - -
Total sales 564,823 2,252 - 567,075
Operating income (loss) (5,503) (1,275) - (6,778)
Interest expense - - - 4,390
Interest and other income - - - 1,887
Loss from continuing operations
before income taxes and
minority interest - - - (9,281)
Identifiable assets at
December 31, 1992 306,457 20,054* (5,787) 320,724
Depreciation, depletion
and amortization 22,313 794 - 23,107
Additions to property,
plant and equipment 15,652 114* - 15,766
*Includes amounts related to WEI.
Sales:
Sales by the Company's non-coal operations are entirely within the
United States. Information concerning the Company's coal revenues
for 1993, 1992 and 1991 is shown below:
1993
Metallurgical Steam Total
Geographic Area % % %
Europe 15 4 19
Pacific Rim Countries 3 - 3
Other - - -
Total sales to
foreign customers 18 4 22
United States 12 66 78
Total sales 30 70 100
In 1993 the Company's 10 largest customers accounted for 62%
of its coal revenues. Its two largest customers accounted
for 32% of coal revenues. No other customer accounted for as
much as 10% of 1993 coal revenues. 86% of the coal revenues
were generated by long-term contracts. 66% of the Company's
coal revenues were generated by coal sold to the steam market
in the United States; these sales were distributed as
follows: 22% in the Northeast, 70% in the Southeast and 8% in
the Midwest. The Company is currently selling coal to a
highly leveraged customer for which the credit exposure to
the Company at December 31, 1993 was $3,200,000. The
Company's total export accounts receivable at December 31,
1993 was $17,940,000.
1992
Metallurgical Steam Total
Geographic Area % % %
Europe 13 8 21
Pacific Rim Countries 4 - 4
Other - 1 1
Total sales to
foreign customers 17 9 26
United States 13 61 74
Total sales 30 70 100
In 1992 the Company's 10 largest customers accounted for 54%
of its coal revenues. Its largest customer accounted for 21%
of coal revenues. No other customer accounted for as much as
10% of 1992 coal revenues. 72% of the coal revenues were
generated by long-term contracts. 61% of the Company's coal
revenues were generated by coal sold to the steam market in
the United States; these sales were distributed as follows:
18% in the Northeast, 73% in the Southeast and 9% in the
Midwest. The Company's total export accounts receivable at
December 31, 1992 was $24,544,000.
1991
Metallurgical Steam Total
Geographic Area % % %
Europe 13 11 24
Pacific Rim Countries 4 - 4
Other 2 - 2
Total sales to
foreign customers 19 11 30
United States 15 55 70
Total sales 34 66 100
In 1991 the Company's 10 largest customers accounted for 57%
of its coal revenues. Its largest customer accounted for 18%
of coal revenues. No other customer accounted for as much as
10% of 1991 coal revenues. 68% of the coal revenues were
generated by long-term contracts. Over half of the Company's
coal revenues were generated by coal sold to the steam market
in the United States; these sales were distributed as
follows: 24% in the Northeast, 62% in the Southeast and 14%
in the Midwest.
13. Transactions with Affiliated Companies
The Company leases coal lands from a wholly-owned subsidiary
of Penn Virginia Corporation ("Penn Virginia") which holds a
18.96% voting interest in the Company at December 31, 1993.
In 1992, The Company purchased 1,295,589 of its own shares
from Penn Virginia reducing its voting interest in the
Company from 39.6% to 18.96%. (See Note 3.) Amounts paid to
Penn Virginia for royalties on coal were $11,699,000,
$10,689,000 and $8,248,000 for the years ended December 31,
1993, 1992 and 1991, respectively.
Westmoreland Resources, Inc., a 60% owned subsidiary, has a
coal mining contract with Morrison-Knudsen Company, Inc., one
of its stockholders. Mining costs incurred under the
contract were $12,131,000, $12,651,000 and $15,287,000 in
1993, 1992 and 1991, respectively.
14. Income Taxes
Income tax expense attributable to income (loss) from continuing
operations before income taxes and minority interest consists of:
1993 1992 1991
(in thousands)
Federal:
Current $ 1,421 $ 3,072 $ 2,222
Deferred (703) (418) (396)
718 2,654 1,826
State:
Current 818 931 1,013
Deferred (151) (90) (86)
667 841 927
Income taxes $ 1,385 $ 3,495 $ 2,753
Income tax expense attributable to income (loss) from continuing
operations before income taxes and minority interest differed from
the amounts computed by applying the statutory Federal income tax
rate of 34% to pretax income (loss) from continuing operations
before minority interest as a result of the following:
1993 1992 1991
(in thousands)
Computed tax expense (benefit)
at statutory rate $ (32,891) $ (12,235) $ (3,239)
Increase (decrease) in tax
expense resulting from:
Percentage depletion (1,128) (430) (1,483)
State income taxes, net 441 555 602
Minimum tax 600 801 592
Net operating loss
carryforward not utilized
for book purposes 34,881 14,553 6,602
Reversal of prior year accrual (682) - -
Utilization of capital loss
carryforward - - (589)
Other 164 251 268
Income taxes $ 1,385 $ 3,495 $ 2,753
For the years ended December 31, 1993, 1992 and 1991,
deferred income tax benefits result from timing differences
in the recognition of income and expense for income tax and
financial reporting purposes. The sources and tax effects of
those temporary differences are presented below:
1993 1992 1991
(in thousands)
Imputed interest $ (23) $ (24) $ (24)
Excess of book over:
tax cost depletion (43) (48) (56)
tax depreciation (446) (453) (357)
tax amortization (35) (38) -
Taxes and royalties (342) - -
Amortization - (45)
Postretirement benefits (7) (69) -
Mine development costs 43 124 -
Income taxes $ (853) $ (508) $ (482)
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and deferred
tax liabilities at December 31, 1993 are presented below:
Deferred tax assets:
Net operating loss carryforwards $56,400
Investment tax credit carryforwards 4,500
Operating leases; capitalized for books 2,622
Accounts receivable due to allowance
for doubtful accounts 8,044
Deferred income 2,345
Plant and equipment, differences due to
depreciation and amortization 4,703
Accruals for the following:
Workers Compensation 8,893
Pneumoconiosis 5,941
Social costs 1,822
Reclamation 4,635
Employee related 628
Pension benefit obligation 9,811
Shutdown costs 3,769
Other 960
Total gross deferred assets 115,073
Less valuation allowance (112,973)
Net deferred tax assets 2,100
Deferred tax liabilities:
Plant and equipment, differences due to
depreciation and amortization 14,711
Prepaid Pension 1,990
Advanced royalties, capitalized for financial
purposes 109
Unamortized discount on long term debt for
financial purposes 163
Total gross deferred tax liabilities (16,973)
Net deferred tax liability $(14,873)
The Company and subsidiaries, excluding WRI which is not
included in the consolidated federal income tax return of the
Company, have available tax basis net operating loss
carryforwards to reduce future taxable income and investment
tax credit carryforwards to offset future taxes payable. The
net operating loss carryforwards of $166,000,000 expire over
the period from 1995 through 2008. Included in the net
operating loss carryforwards are alternative minimum tax net
operating loss carryforwards of $41,000,000 which expire over
the period from 2001 through 2008. The Company also has
investment tax credit carryforwards for regular tax and
alternative minimum tax of $4,500,000 which expires over the
period from 1997 through 2000 for both.
The Company's federal consolidated income tax returns have
been examined and settled by the Internal Revenue Service
through 1979. WRI's Federal income tax returns have been
examined and settled through 1990.
15. Quarterly Financial Data (Unaudited)
Summarized quarterly financial data for 1993 and 1992 are as
follows:
Three Months Ended
March 31 June 30 Sep. 30 Dec. 31
(in thousands except per share data)
1993
Revenues $114,317 $110,156 $116,028 $124,754
Costs and expenses (1) 115,730 109,734 117,614 216,212
Net income (loss) from
continuing operations (3,088) (321) (3,110) (92,352)
Net income (loss) from
discontinued operation 369 405 395 56
Net income (loss) (2,719) 84 (2,715) (92,296)
Less preferred stock
dividend (2) 1,222 1,222 1,222 1,222
Net income (loss) available
to common shareholders (3,941) (1,138) (3,937) (93,518)
Net income (loss) per share
available to common
shareholders:
Continuing operations (.62) (.22) (.63) (13.45)
Discontinued operation .05 .06 .05 .01
Total (.57) (.16) (.57) (13.44)
Number of common and common
equivalent shares outstanding
(weighted-average) (2) 6,954 6,954 6,954 6,955
1992
Revenues $151,822 $129,457 $124,780 $130,230
Costs and expenses (3) 151,156 131,300 126,120 163,039
Net income (loss) from
continuing operations (944) (3,297) (3,176) (35,619)
Net income (loss) from
discontinued operation 1,139 581 1,191 (899)
Net income (loss) 195 (2,716) (1,985) (36,518)
Less preferred stock
dividend (2) - - 1,140 1,222
Net income (loss) available
to common shareholders 195 (2,716) (3,125) (37,740)
Net income (loss) per share
available to common
shareholders:
Continuing operations (.12) (.40) (.61) (5.30)
Discontinued operation .14 .07 .17 (.13)
Total .02 (.33) (.44) (5.43)
Number of common and common
equivalent shares outstanding
(weighted-average) (2) 8,260 8,250 7,085 6,954
<FN>
(1) Fourth Quarter 1993 expenses include $79,250,000 in unusual
charges for the write-off of the carrying value of certain
mining operations and coal reserves along with provisions for
the termination of certain coal operations and personnel. In
addition, the Company recorded an additional $9,250,000 for
workers' compensation. (See Note 2.)
(2) See Consolidated Statements of Shareholders' Equity and Note 3
of the Consolidated Financial Statements.
(3) Fourth quarter 1992 includes charges of $20,489,000 for loans
and a guarantee obligation on behalf of Adventure that filed
for bankruptcy under Chapter 11 in December 1992. Also, the
Company accrued an additional $3,900,000 for workers'
compensation obligations. The Company increased reserves for
potentially uncollectable trade receivables by $7,747,000, of
this amount $3,331,000 is related to a customer which filed for
bankruptcy under Chapter 11 in December 1992, the remaining
$4,416,000 resulted from the Company's credit review of its
receivables. The Company increased its reserves for
reclamation costs in the fourth quarter of 1992 by $2,074,000,
of this amount $1,200,000 is related to Adventure.
16. Supplementary Coal Statistics (Unaudited)
Information with respect to the Company's coal reserves
is as follows:
1993 1992 1991 1990 1989
Demonstrated coal reserve
base at year-end
(thousands of tons) 815,169 966,843 1,081,872 1,131,552 1,170,992
Production tonnage
(thousands of tons) 10,463 10,405 10,121 10,606 10,241
Average price per
ton sold $25.58 $25.25 $23.87 $23.23 $23.97
The Company makes yearly evaluations of its reserves and
periodically modifies the amount of reserves reported.
The reserve evaluations are based on new information
developed by bore-hole drilling, examination of outcrops,
acquisitions, dispositions, production, changes in mining
methods, abandonments and other information.
Substantially all of the estimated coal reserves are
leased from others. The decrease in 1993 is primarily due
to an adjustment for reserves deemed to be uneconomical to
mine based on current and projected market conditions.
Market Information on Capital Stock
Price Range:
The following table shows the range of prices for the Common
Stock and Preferred Stock of the Company in the NASDAQ
National Over-The-Counter Market, for the period January 1,
1991 through June 16, 1992, and on the New York Stock
Exchange, for the period June 17, 1992 through December 31,
1993, for the calendar quarters indicated:
Closing Prices
Common Stock Preferred Stock
High Low High Low
1992
First Quarter 21 1/4 15 1/2 - -
Second Quarter 18 1/4 11 3/4 - -
Third Quarter 13 11 1/4 28 1/4 25
Fourth Quarter 12 3/4 10 1/4 28 3/4 24 1/4
1993
First Quarter 11 8 3/8 26 21 3/4
Second Quarter 10 3/8 6 1/4 24 1/2 17 3/4
Third Quarter 7 3/4 5 3/4 21 7/8 17 3/8
Fourth Quarter 7 1/4 5 1/8 22 18 3/8
* Preferred Stock began trading on July 9, 1992.
Approximate Number of Equity Security Holders
Number of Record Holders
Title of Class (as of February 25, 1994)
Common Stock 2,068
($2.50 par value)
Preferred Stock 140
($1.00 par value)
Dividends:
After obtaining a waiver to its 1977 Loan Agreement, the
Company declared and paid an $.08 dividend on Common Stock
in each of the four quarters of 1991 and 1992. On January
26, 1993 the Company announced that the regular quarterly
dividend of $.08 per share of common stock payable for the
first quarter of 1993 would be suspended. Common stock
dividend payments are restricted by covenants under the
Company's loan agreements. Currently the Company is not
able to pay common stock dividends based on these
restrictive covenants.
Preferred stock dividends at a rate of 8.5% per annum have
been paid quarterly since the third quarter of 1992. The
last quarterly preferred stock dividend was declared on
February 25, 1994 and was paid on April 1, 1994. The
continuation of payment of preferred stock dividends is at
the discretion of the Company's board of directors.
However, there are statutory restrictions limiting the
payments of preferred dividends under Delaware law, the
state in which the Company is incorporated. Under Delaware
law, the Company is only permitted to pay dividends either:
(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 of no
surplus, out of net profits for the fiscal year in which a
dividend is declared (or out of net profits from the
preceding fiscal year), but only to the extent that equity
exceeds par value of preferred stock ($575,000). The
combined par value of the Company's preferred and common
stocks is $17,964,000.