700 The Bellevue
200 South Broad Street
Philadelphia, PA 19102
Telephone: (215) 545-2500
Fax: (215) 735-7175
Incorporated: 1910 as Stonega Coke & Coal Co.
Sales: $568.41 million
Stock Exchange: New York
SICs: 1222 Bituminous Coal--Underground
Westmoreland Coal Company is one of the coal industry's oldest independent companies. It operates mines in Virginia, West Virginia, Kentucky, and Montana, and is a major broker for smaller operations. It owns Cleancoal Terminal, an Ohio River rail-to-barge facility in Ghent, Kentucky, and has equity in Dominion Terminal, a Newport News, Virginia facility that serves both coastal and international customers. Aside from coal mining, Westmoreland has equity positions in several cogeneration projects.
Westmoreland took its name from Westmoreland County in Pennsylvania, where in 1854 the company began mining coal for home heating, railroads, and, most importantly, coal gasification. Westmoreland County coal is largely bituminous, the principal grade of coal used for generating electricity and making steel. William Jasper Nicolls described Westmoreland's bituminous or "gas-coal" in his 1904 book, The Story of American Coals, as surpassing "any in the world for its excellent gas-producing qualities." Westmoreland supplied this coal to fifty-eight eastern gasworks during the period just before the Civil War. In 1882 the Leisenring family accumulated major holdings in Westmoreland and maintained family control over the company for nearly a century.
In the years following 1900, when electricity began to take the place of coal in lighting homes around the nation, Westmoreland Coal Company found ample demand for its coal from railroads and steel makers. After World War I the company grew well beyond its Westmoreland County fields. On December 20, 1917, it merged with the Penn Gas Coal Company and the Manor Gas Coal Company. In 1923 and 1924 it acquired the Laurel Coal & Land Company's 11,210 acres of coal fields in Little Coal River, Boone, Crook, and Washington counties of West Virginia.
Like much of American industry, Westmoreland continued to grow during the 1920s. Profits were high, especially in relation to sales, which hovered between $1.75 and $2 million. The company's best year of the decade was 1923, when it earned $1.5 million or $7.58 per share on sales of $2.53 million.
In 1929 President E. B. Leisenring reorganized Westmoreland, creating a new company, Westmoreland Inc., to hold the land and the ten Pennsylvania coal mines, which then had a total daily capacity of 15,000 tons. The original Westmoreland Coal Company remained in existence--its stockholders also owned Westmoreland Inc.--and leased the mines and property as operations dictated.
When the Depression hit in the 1930s, declining industrial activity meant Westmoreland had fewer opportunities for sales to railroads and steel makers. In 1933, the company lost $435,000 on sales estimated at less than $3 million. Surprisingly, however, Leisenring was able to return Westmoreland to the black by 1934 when the company sold 1.74 million tons of coal and made $42,000.
In 1941, Westmoreland was operating five coal mines in Westmoreland County and had a total daily capacity of 11,000 tons. Demand increased during World War II and production jumped from 1.958 million tons in 1940 to 2.28 million tons in 1942. But after the war Westmoreland's production fell, first to 1.47 million tons in 1946, and then to 1.013 tons in 1949. The country was moving away from Westmoreland's anthracite--a variety of coal found almost exclusively in Pennsylvania and used chiefly in home heating. Railroads that had previously used anthracite switched to diesel; homeowners moved to oil or natural gas. Between 1945 and 1965 the railroads and home heating portion of the coal market fell from 20 percent to just three percent.
If Westmoreland was to grow, it would have to access bituminous coal that was used in steel making and electrical generation. The company had bituminous reserves in West Virginia and, in 1947, Leisenring leased West Virginia coal lands from Westmoreland Inc. and began constructing a mine in Logan County that would have a capacity of 2,500 tons per day.
The switch from anthracite to bituminous coal was not the only challenge the company and the coal industry faced. Through the 1950s and 1960s coal was challenged by competition from price-controlled natural gas and cheap oil from the Middle East. Nevertheless, coal remained important for the production of steel, cement, chemicals and, most importantly, electricity. In fact electric utilities tripled their demand for coal between the end of World War II and 1965.
For Westmoreland, the change from anthracite to bituminous coal and the competition from oil and natural gas led to a general decline. Dividends fell from $2.50 in 1951 to nil in 1959. Sales fell from a high of $8.5 million in 1951 to $6.5 million in 1959. The company twice reported losses during the decade and had its worst year in 1954 when it lost $370,000 on sales of $4.7 million. At the same time, however, a West-moreland mine in West Virginia increased its volume, parti-cularly in the higher-priced metallurgical coal used in making steel.
In 1961, Edward B. (Ted) Leisenring, Jr., succeeded his father as Westmoreland's president. Leisenring, who served as president and chief executive officer until 1978, and then as chair of the board of directors from 1978 until 1992, ran the company with a personal touch, claiming to wish to keep the company small enough that he could know his workers' names. Leisenring, a mining engineer, schooled himself on his family's company from all angles. As a young man in the 1940s he worked for more than a year as a miner in Westmoreland's Virginia mines. According to Forbes, Leisenring remembered sitting down during a shift at the mine to eat with an old Virginian miner. "'Say,' the old-timer asked him, 'isn't your daddy some kind of ramrod in this outfit?"' Ted Leisenring allowed that was so. "'Well, goddam,' the old-timer replied, 'your daddy sure must have it out for you, putting you in a crappy job like this."'
Under Ted Leisenring's management, Westmoreland continued to move into West Virginia where by 1962 it was operating three mines in Boon and Logan Counties. Sales had risen to $8.5 million and the company had a daily capacity of 10,500 tons and reserves of 122 million tons. But the operation was barely, if at all, profitable.
Westmoreland was not the only coal company the Leisenrings controlled. They also ran Stonega Coke & Coal Co., which had been incorporated in 1910 and operated on 65,000 acres in Harlan County, Kentucky, and Wise and Lee Counties in Virginia. Bigger than Westmoreland--in 1962 it produced 2.3 million tons of coal and had sales of $11.8 million--it was in poorer shape financially. Its sales were falling and it had reported three straight years of losses.
In fact, neither company was a financial powerhouse in the 1960s. Possibly to reduce overhead, Ted Leisenring merged the two companies on April 30, 1964. Stonega was the technical successor but the new company retained the Westmoreland name. The merger was a success and, in 1964, the new, larger Westmoreland made two million dollars on sales of $25 million.
Through the mid-1960s, Westmoreland continued to grow away from its original base. It got out of Pennsylvania completely, and by the end of 1966 was producing steam and metallurgical grades from nine mines in Virginia and two in West Virginia. Fifty-one percent of Westmoreland's output went to electrical utilities, 20 percent went to industry, 16 percent became coke, eight percent was exported, and it sold five percent retail.
In the late 1960s, Westmoreland continued to expand despite declining earnings and widespread anticipation of a shaky future in the coal industry. In 1968, Leisenring paid $21 million for two small coal companies and a coal brokerage business. In 1969, he purchased another new mine with a yearly capacity of 1.5 million tons.
The early 1970s was a difficult time for much of the coal industry mainly because of the uncertainties involved in the enforcement of the Federal Coal Mine Health & Safety Act of 1969. According to Barron's, Westmoreland's management tagged the stretch as a "plateau of mediocrity" and claimed the act led to declines of 30 percent in the productivity of the company's underground mines. But despite these problems, the company was earning about $4 million a year and was well regarded. In 1971 the Wall Street Transcript called Westmoreland "outstandingly attractive."
Profits jumped significantly in 1973, 1974, and 1975 when the Arab oil embargo strengthened coal prices and Japanese buyers bid metallurgical coal into the $80 to $100 range. In the years when coal prices had been low, many large coal companies had entered into long-term, fixed-price contracts with buyers. Westmoreland, remaining optimistic about the future of coal prices, had maintained a policy of entering into only short-term "evergreen contracts"--contracts that were renegotiable on a yearly basis. When coal prices soared, Westmoreland's earlier optimism paid off. In 1974 Westmoreland earned $36 million and in 1975 it reported profits of $60 million or $8.82 a share.
In this high profit environment, Leisenring continued to expand the company. In 1974, he completed the $13 million Ferrell mine in West Virginia. The same year he began production in the West through Westmoreland Resources, a 36 percent owned (later 40 and then 60 percent) joint venture on Crow Indian lands in Montana's Powder River Basin. Always an active and a visible figure in his dealings, Leisenring personally bid on the vast low-sulfur Powder River reserves, finding that being the head of a family-controlled company helped tremendously. "I really enjoyed that experience," he told Forbes. "I had gone out to Montana to bid on the lease myself. We were bidding against a very big company group. To my surprise, their man had a limitation we didn't have and I found out how to bid just a little bit more and get the lease."
The down side of Westmoreland's mid-1970s success was that the price of metallurgical coal&mdashcounting for approximately 60 percent of sales and 50 percent of tonnage--was vulnerable to the volatile nature of the steel business. Conventional wisdom would have had Westmoreland diversify in order to decrease their risks. Leisenring, however, was not conventional. "When we talk about diversifying," he told Forbes, "many of our shareholders get upset. They bought the stock because they want equity in the coal industry." Instead he continued to pour assets into new mining ventures such as Colorado Westmoreland Inc., a Colorado mining company created in 1977.
In the late 1970s coal prices weakened, falling far enough that by the early 1980s profits had turned to losses. In 1981 Westmoreland lost the equivalent of $2.17 a share. The losses were due in part to an explosion in the Ferrell mine in 1980, which continued to limit operations well into 1981, and to a 72-day coal miner's strike costing Westmoreland almost two million dollars a week. The situation was exacerbated by a drop in the price of metallurgical coal--Westmoreland's principal product--due to hard times in the steel industry.
Given the changing economics of the industry, Westmoreland's directors reexamined the company's priorities and set new goals: to have the safest employee accident record and to be a low cost producer/supplier. The move towards safety was already in the works when these goals were promulgated. Between 1979 and 1987 Westmoreland more than halved its accident rate. Also already in the works was a shift from metallurgical coal to steam coal, which could be distributed to the less cyclical electric utilities industry. By 1982, 82 percent of Westmoreland's sales were in steam coal.
To become a low-cost producer, Leisenring and his successor as president and chief executive officer, Pemberton Hutchinson, closed high-cost mines, laid off employees, and opened small, efficient mines. They bought coal from nonunion outside suppliers and introduced efficient longwall mining equipment which sheared coal from long underground seams and moved it to the surface via conveyors. In five years, Westmoreland's tons per manshift rate improved by more than 100 percent. And in 1987 the company produced 35 percent more coal with less than half the employees it had in 1979.
The direct mining of coal, however, was not Westmoreland's only involvement. It had a thriving coal brokerage business and in 1983 it created American Carbide Corporation to manufacture and market the carbide-tipped cutting tools used in coal mining and mine roof drilling. It was hoped that American Carbide would follow the success of Virginia Birmingham Bolt Company, which had been acquired in the merger with Stonega. Unfortunately, cutting tool prices fell and American Carbide ceased operation in 1987.
Much more successful were Dominion Terminal and Cleancoal Terminal. In 1984 Westmoreland joined with four other producers to develop the Dominion, the most modern and efficient coastal coal terminal on the East Coast. Located at Newport News, Virginia, Dominion made Westmoreland more competitive in the world market, where it was bucking a trend by increasing exports. In 1985 Westmoreland purchased Cleancoal Terminal, a rail-to-barge facility on the Ohio River between Cincinnati and Louisville. Cleancoal Terminal was profitable from its first day of operation and gave Westmoreland access to major Midwestern markets.
Coal consumption grew in the mid-1980s. The electric industry was consuming three quarters of U.S. production and a growing portion of Westmoreland's own production. Moreover, despite the high cost of pollution prevention, coal remained significantly cheaper than either oil or natural gas. To take advantage of synergies between electric generation and coal production, the company created Westmoreland Energy Inc. in 1985 to build cogeneration plants. Cogeneration plants produce power for industrial plants, hospitals, and independent communities. They sell excess electricity to power companies and provide steam for industrial processing and heating. By 1986 Westmoreland Energy president Chuck Brown had garnered commitments to three projects including one at the U.S. Army's Fort Drum in New York State.
By 1986, Leisenring and Hutchinson's cost-cutting efforts had largely paid off. "They have done what I consider to be an exemplary job of reducing their costs and handling adversity very well," a commentator wrote in The Wall Street Transcript. "They are not out of the woods yet, but they have done a very good job of getting rid of the losers and reducing costs."
While cutting costs, Leisenring and Hutchinson had also worked to expand the business. In 1984 they acquired the Elk River Sewell Coal Company, a West Virginia company with a yearly capacity of one million tons. In 1987 they paid Bethlehem Steel $24 million for Kentucky Criterion Coal Company, an eastern Kentucky operation with 150 million tons of high quality, low-sulfur coal, strategically located to serve markets in the Midwest, Southeast, and Northeast.
These steps, however, were not enough to put Westmoreland solidly in the black and in 1987 the company lost $41.2 million. To reduce overhead and bring itself back into the black, in 1988 the company rededicated itself to concentrating on its core business in the southern Appalachian coal fields and disposing of non-core assets. In the spring of 1988 it sold a portion of its Kentucky reserves. In November it sold Colorado Westmoreland, Inc., its Rocky Mountains mine, to Cyprus Coal. In December it sold a 10 percent equity position in Fort Drum, and in early 1989 it sold Elk River to Upper Elk Resources.
Westmoreland reported profits through the late 1980s. After three years of progressively improving earnings and despite increased production and sales, Westmoreland lost $13.4 million in 1991--largely because of forces outside its control. At its Virginia Division's Holton Mine adverse geological conditions reduced the longwall system's productivity and led to a $12.5 million loss for the mine. At a surface mining site in West Virginia, a mining contractor went out of business and left Westmoreland with $4.8 million worth of reclamation costs.
Still working to increase efficiency, Hutchinson installed a total quality management regime in 1989, encouraging new approaches such as the Virginia Division's "replanning" program, which entails multiple, smaller, and more versatile operations. Despite efforts such as these, results for the first two quarters of 1992 were disappointing. Brokered coal sales fell, Cleancoal Terminal was in the red, and the Virginia division lost money due to adverse geological conditions. On the positive side, Criterion Coal Company, Westmoreland Resources, and the Hampton Division all reported profits. Westmoreland Energy for its part, completed three more cogeneration plants and began reporting significant earnings.
Principal Subsidiaries: ECC Leasing Corp.; Westmoreland Coal Sales Co.; Westmoreland Energy, Inc.; Criterion Coal Co.; Westmoreland Resources, Inc. (60% owned); Cleancoal Terminal Co.; Dean Processing Co.; Eastern Coal & Coke Co.; Kentucky Criterion Coal Co.; Pine Branch Mining Inc.; Roda-Dendron Coal Co.; Triport Tool Corp.; WEI-Carolina, Inc.; WEI-Carolina, Inc.; WEI-Monfort, Inc.; WEI-Roanoke Valley, Inc.
Source: International Directory of Company Histories, Vol. 7. St. James Press, 1993.